14-1626

Chong v. Chang

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED

ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE

PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A

DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN

ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST

SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

1 At a stated term of the United States Court of Appeals

2 for the Second Circuit, held at the Thurgood Marshall United

3 States Courthouse, 40 Foley Square, in the City of New York,

on the 3rd 4 day of April, two thousand fifteen.

5

6 PRESENT: DENNIS JACOBS,

7 DENNY CHIN,

8 Circuit Judges,

9 ELIZABETH A. WOLFORD,

District Judge.* 10

11

12 - - - - - - - - - - - - - - - - - - - -X

13 MICHAEL K. CHONG, 

14 Appellant,

15

16 -v.- 14-1626

17

18 KWO SHIN CHANG, STEVEN WONG, 

Appellees.** 19

20 - - - - - - - - - - - - - - - - - - - -X

21

* The Honorable Elizabeth A. Wolford, United States

District Judge for the Western District of New York, sitting

by designation.

** The Clerk of Court is directed to amend the official

caption as set forth above.
1 FOR APPELLANT: MICHAEL K. CHONG, Fort Lee, New

2 Jersey.

3

4 FOR APPELLEES: MORTON S. MINSLEY, New York, New

5 York.

6

7 Appeal from a judgment of the United States District

8 Court for the Southern District of New York (Forrest, J.).

9

10 UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED

11 AND DECREED that the judgment of the district court be

12 VACATED AND REMANDED. 

13

14 Michael K. Chong appeals from the judgment of the

15 United States District Court for the Southern District of

16 New York (Forrest, J.), granting appellees’ motion for

17 attorney’s fees and costs as a sanction for pursuing a

18 baseless third-party complaint against appellees, Kwo Shin

19 Chang and Steven Wong. We assume the parties’ familiarity

20 with the underlying facts, the procedural history, and the

21 issues presented for review. 

22

23 Chang, Wong, and others filed an action against Chong’s

24 client, Vihn Ly, asserting claims under the Fair Labor

25 Standards Act (“FLSA”) and New York Labor Law (“NYLL”) in

26 connection with the operation of a restaurant, Neo Sushi. 

27 Ly’s answer asserted counterclaims against Chang and Wong

28 for fraud and breach of an alleged partnership agreement

29 among Ly, Chang and Wong to purchase and own Neo Sushi. An

30 amended complaint was filed in which Chang and Wong were no

31 longer plaintiffs; Ly asserted the same claims against Chang

32 and Wong, brought in the form of a third-party complaint.

33

34 After a trial, the district court entered judgment in

35 favor of Chang and Wong, concluding “that there was a

36 failure of proof as to essential elements of both claims.” 

37 Special App. at 5. Chang and Wong sought sanctions in the

38 form of fees and costs pursuant to Federal Rule of Civil

39 Procedure 11, 28 U.S.C. § 1927, and the inherent power of

40 the court. The court determined sanctions were “warranted

41 under all three asserted grounds.” Id. at 7.

42

43 We review a district court’s award of sanctions,

44 whether under Rule 11, § 1927, or its inherent power for

45 abuse of discretion. See StreetEasy, Inc. v. Chertok, 752

46 F.3d 298, 306-07 (2d Cir. 2014) (discussing Rule 11

47 sanctions); Enmon v. Prospect Capital Corp., 675 F.3d 138,

2
1 143 (2d Cir. 2012) (discussing § 1927 and the court’s

2 inherent power).

3

4 Chong argues that the district court erred in imposing

5 sanctions pursuant to Rule 11 because Chang and Wong failed

6 to comply with the procedural requirements of the Rule’s

7 safe harbor provision. The district court found that

8 “sufficient notice” was provided because opposing counsel

9 warned Chong by e-mail “about the possibility of attorneys’

10 fees if he had to sit through trial.” Special App. at 8. 

11 But the “safe-harbor provision is a strict procedural

12 requirement” and “[a]n informal warning . . . without

13 service of a separate Rule 11 motion is not sufficient.” 

14 Star Mark Mgmt., Inc. v. Koon Chun Hing Kee Soy & Sauce

15 Factory, Ltd., 682 F.3d 170, 175 (2d Cir. 2012) (per

16 curiam). The e-mail sent to Chong in this case does not

17 satisfy the requirements under the Rule.

18

19 Although the court set out the applicable standards for

20 sanctions under Rule 11, § 1927, and the court’s inherent

21 authority, it did not engage in “separate consideration of

22 the available sanctions machinery[, which] is not only

23 warranted, but necessary for meaningful review.” United

24 States v. Int’l Bhd. of Teamsters, Chauffeurs, Warehousemen

25 & Helpers of Am., 948 F.2d 1338, 1346 (2d Cir. 1991). A

26 district court should “treat[] and determine[ each

27 authority] separately” and the court’s “resulting findings

28 must appear with reasonable specificity in terms of the

29 perceived misconduct and the sanctioning authority.” 

30 MacDraw, Inc. v. CIT Grp. Equip. Fin., Inc., 73 F.3d 1253,

31 1262 (2d Cir. 1996) (internal quotation marks omitted).

32

33 The court’s opinion lacks the specific findings

34 required to support the imposition of sanctions under either

35 its inherent authority or § 1927, and remand is therefore

36 warranted. Schlaifer Nance & Co. v. Estate of Warhol, 194

37 F.3d 323, 338 (2d Cir. 1999). While it is true that “[b]ad

38 faith can be inferred when the actions taken are so

39 completely without merit as to require the conclusion that

40 they must have been undertaken for some improper purpose,”

41 id. (internal quotation marks omitted), the court’s

42 determination that “there was absolutely no merit to the

43 claims asserted” is not sufficient. Special App. 3 n.3. 

44

45 The standard requires “clear evidence that (1) the

46 offending party’s claims were entirely meritless and (2) the

47 party acted for improper purposes.” Revson v. Cinque &

3
1 Cinque, PC, 221 F.3d 71, 79 (2d Cir. 2000) (internal

2 quotation marks omitted). The court’s only findings are

3 that: “third-party plaintiffs failed to introduce evidence

4 sufficient to support even a prima facie” claim; the

5 “failure[] of proof [was] . . . powerful evidence of the

6 fact that the complaint was meritless from the start;” and

7 “[t]his obvious lack of merit gives rise to precisely the

8 inference that . . . the third-party complaint was filed

9 solely to pressure plaintiffs into withdrawing meritorious

10 FLSA and NYLL claims.” Special App. at 7-8. These findings

11 collapse the relevant standard into a single requirement

12 that the court find the claims baseless. But, as the

13 district court recognized, “one of the ways this could

14 [have] play[ed] out is with a wage and labor claim that

15 there was a period of time during which the partnership

16 operated where there were monies due and owing to the

17 employees and that [the] debt, if any, [was] owed by the

18 partnership” as opposed to by Ly alone. Appellant App. at

19 71-72.

20

21 For the foregoing reasons, and finding no merit in

22 Chang and Wong’s other arguments, we hereby VACATE and

23 REMAND the judgment of the district court.

24

25 FOR THE COURT:

26 CATHERINE O’HAGAN WOLFE, CLERK

27

4