Eastway Const. Corp. v. City of New York
| Citation | 637 F. Supp. 558 |
| Decision Date | 23 May 1986 |
| Docket Number | No. CV-84-0690.,CV-84-0690. |
| Parties | EASTWAY CONSTRUCTION CORP., et al., Plaintiffs, v. The CITY OF NEW YORK, et al., Defendants. |
| Court | U.S. District Court — Eastern District of New York |
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LaRossa, Mitchell & Ross, New York City by James LaRossa and John Mitchell, for plaintiffs.
Frederick A.O. Schwarz, Jr., Corp. Counsel of City of New York, New York City by John Woods, for defendants.
TABLE OF CONTENTS
I. Facts & Procedural History 562
II. Law 563
A. Purpose and Relationship of Rule 11 and 42 U.S.C. § 1988 563
B. Role of the District Court 565
C. Issues in Imposing Rule 11 Sanctions 566
1. Objective and Subjective Standards 566
2. Due Process Right to a Hearing 567
3. Allocation of the Sanction Between the Attorney and the Client 569
4. Allocation of Rule 11 Sanctions by Cause of Action 570
5. Amount of the Sanctions 571
a. Expenditures of Party Seeking Sanctions - Lodestar Method and
Market Rates 571
b. Mitigating Factors Leading to a Reduction of the Award 572
i. Subjective Factors - Generally 572
ii. Subjective Factors - Vindictiveness and Desire to Punish
Opponent 573
iii. First Offenders and Others of Good Repute 573
iv. Ability to Pay 573
v. Need for Compensation 574
vi. Degree of Frivolousness 574
vii. The Importance of Not Discouraging Particular Types of
Litigation 575
c. Award of Attorney's Fees for Time Spent on the Motion for Fees 575
d. Award of Attorney's Fees for Time Spent on Appeal 576
D. Awards of Attorney's Fees to Prevailing Defendants Under Section 1988 576
III. Law Applied to the Facts 576
A. Number of Compensable Hours and Allowable Maximum Hourly Rate 577
1. Time Spent on the Motion for Fees 577
2. Time Spent on the Appeal 577
3. Maximum Allowable Fee 577
B. Mitigating Factors 578
1. Subjective Factors 578
2. Frivolousness of the Complaint 578
a. The Antitrust Claim 578
b. The Due Process Claim 581
3. Need of Lawyer and Client for Punishment 583
4. Ability to Pay and Need for Compensation 583
5. Chilling This Type of Litigation 583
C. Allocation of Award of Attorney's Fees 583
IV. Conclusion 584
This matter was remanded for the awarding of attorney's fees under Rule 11 of the Federal Rules of Civil Procedure and 42 U.S.C. § 1988. Eastway Construction Corp. v. City of New York, 762 F.2d 243 (2d Cir.1985)("Eastway I"). For the reasons indicated below, a modest portion of defendant's attorney's fees is assessed against the plaintiffs, while no fees are assessed against plaintiffs' counsel.
Plaintiff Eastway Construction Corporation is a general contractor that during the 1960s and 1970s engaged exclusively in construction work on publicly financed housing rehabilitation projects in New York City. Plaintiffs Jaffee, Kanarek and Jacobs are officers of Eastway Construction Corporation. Collectively, plaintiffs are referred to in this opinion as "Eastway." (A more extensive statement of the facts than is needed for this phase of the litigation is set forth in Eastway I.)
Between 1966 and 1974, defendant City of New York ("City") loaned nearly twelve million dollars through a now defunct program to limited partnerships controlled by principals of Eastway Construction Corporation. The purpose of the loans was to enable the partnerships to rehabilitate thirty-four multiple dwelling buildings in depressed neighborhoods. The loans were generally non-recourse, secured only by mortgages on the buildings. The partnerships fell behind in their loan payments, so that by March 1983 all but three buildings had reverted to City ownership through default, and the remaining three buildings secured mortgage arrearages totaling about three million dollars.
In the early 1970s, the City's housing rehabilitation loan program was enveloped in corruption, with one City official being convicted of extortion and accepting bribes, and several developers being charged with fraud. Jaffee admitted making payments to a city official in an attempt to expedite the processing of pending loan applications. No criminal charges were brought against him or Eastway Construction Corporation. In response to this scandal, New York State revised its public housing finance laws. One part of the new statutory scheme gave the City the power to regulate the creation and operation of certain housing redevelopment companies and to control the identities of firms with which these redevelopment companies did business.
In the exercise of its new powers, the City decided that it would no longer enter into rehabilitation contracts with firms whose principals controlled entities that were in arrears or had defaulted on loans from the City. This policy prevented Eastway Construction Corporation from doing rehabilitation work directly for the City. In 1980 the City exercised its supervisory power over redevelopment companies and forbade them from entering into contracts with firms that the City refused to contract with. As a result Eastway was barred from doing any rehabilitation work for the City even indirectly.
Threatened with being forced out of business, Eastway went to the state court to challenge the City's policy, initiating an Article 78 proceeding that sought to have the policy declared "arbitrary and capricious." The state court challenge initially met with success, with the State Supreme Court granting summary judgment in Eastway's favor. On appeal, the Appellate Division reversed, Eastway Construction Corp. v. Gliedman, 86 A.D.2d 575, 446 N.Y.S.2d 306 (1st Dep.1982). No appeal was perfected to the Court of Appeals because, according to Eastway, it was then in the midst of attempting to negotiate a "work out" agreement to settle its differences with the City. The negotiations did at one point produce a tentative agreement. The City, however, ultimately refused to execute the agreement, and it never became effective.
Another major actor in the New York City housing rehabilitation arena is the Community Preservation Corporation ("CPC"), a private consortium of thirtynine banks that do business in the city. CPC extends low interest loans to private developers to facilitate the rehabilitation of multiple dwelling buildings in depressed neighborhoods. In June of 1978 and again in July of 1981, Everett Jennings, on behalf of Orange Realty Co., applied to CPC for a loan to be used to rehabilitate a building in Brooklyn. Although Orange Realty was affiliated with Eastway, the loan applications did not list Eastway as general contractor. Both loan applications were rejected.
Unable to secure work on either publicly or privately financed housing rehabilitation projects, Eastway commenced the present action in this court. The complaint stated two causes of action under federal law. The first was an antitrust claim, which alleged that the City and CPC had conspired to prevent Eastway from carrying on its business. The second was, in essence, a due process claim, which alleged that the City's policy had deprived Eastway of its rights without due process of law.
The municipal and private defendants each moved for summary judgment, and each requested an award of attorney's fees. In August 1984 this court granted both summary judgment motions and dismissed the action but denied the motions for attorney's fees, stating on the record that it found plaintiffs' claims were not frivolous. Eastway appealed the dismissal of its action, and the municipal defendants cross-appealed the denial of attorney's fees.
The Court of Appeals affirmed the dismissal, but characterized the claims as "groundless" for purposes of determining entitlement to attorney's fees. Eastway I at 252. It remanded for an award of attorney's fees to the municipal defendants. Costs incurred in defending the civil rights claim were to be assessed against plaintiffs alone under 42 U.S.C. § 1988, while costs incurred in defending the antitrust claim were to be assessed against plaintiffs or plaintiffs' counsel or both under Rule 11 of the Federal Rules of Civil Procedure. The case is therefore now before this court for a determination of 1) the proper amount of attorney's fees to be awarded to the municipal defendants, and 2) the person or persons who should pay those fees.
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