1

Gordon is the Receiver of the Estates of Gregory McKnight, Legisi Marketing, Inc., and

Legisi Holdings, L.L.C. (collectively, “Legisi”) in a Securities and Exchange Commission

enforcement action that is currently pending in another court within this District (namely United

States Securities and Exchange Commission v. McKnight, et al., E.D. Mich., 08-11887. In his

capacity as the Receiver, he is seeking to recover the assets of those persons who were victims of

an alleged Ponzi scheme by McKnight. 

2

The Defendants who have been identified by the Plaintiff are Royal Palm Real Estate

Investment Fund I, LLP; Royal Palm Investment Management Company, LLC; Royal Marketing

Services, LLC; Robert Rosetto; Roxanne Rosetto; Bruce Rosetto; Alan D. Goddard, Jr.; Michael

A. Lichtenstein; and Eric Bloom. However, the now-pending motion pertains to only three of the

named Defendants (i.e., Goddard, Lichtenstein, and Bloom), who will be referred to collectively

as “the Defendants.” The other Defendants, who will not be directly affected by this order, will

be identified as “the Royal Palm Defendants.”

UNITED STATES DISTRICT COURT

 EASTERN DISTRICT OF MICHIGAN

SOUTHERN DIVISION

ROBERT D. GORDON,

Plaintiff,

v.

ROYAL PALM REAL ESTATE INVESTMENT

FUND I, LLLP, et al.,

Defendants.

Case No. 09-11770

Honorable Julian Abele Cook, Jr.

ORDER

This is a case in which the Plaintiff, Robert D. Gordon,1 has accused the Defendants -

namely, Alan D. Goddard, Jr., Michael A. Lichtenstein, and Eric Bloom2

 - of having wrongfully

induced Legisi to invest twenty million dollars in “thinly-traded securities and in a real estate

venture called ‘Royal Palm.’” (Pl.’s Resp. to Defs.’ Mot. to Dismiss at 1). According to the

Plaintiff, this case pertains to the alleged misconduct by the Defendants subsequent to the

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2

investment by Legisi Marketing of nearly nine million four hundred thousand dollars in Royal

Palm. Currently before the Court is the Plaintiff’s motion for the imposition of sanctions against

the Defendants.

I.

The pending motion arises from a complicated procedural history. McKnight allegedly

operated an internet loan scheme called Legisi.com that has been characterized by the Plaintiff as

“an obvious giant Ponzi scheme.” (First Am. Compl. at ¶ 31). In March 2007, the Defendants,

through their brokerage firm, Sierra Equities, Ltd. (“Sierra”), established a broker-customer

relationship with Legisi Marketing. This relationship produced an agreement whereby Legisi

Marketing would advance funds to Sierra, which would, in turn, invest these monies and, thereby,

yield high rates of return. (Id. at ¶¶ 40-41). One such investment bore the name of the “Royal Palm

Realty Investment Fund I, LLLP,” with whom Legisi Marketing had executed a subscription

agreement and a partnership agreement. (Id. at ¶ 47).

Beginning in May 2007, the Securities and Exchange Commission (“SEC”) made a series

of requests for the production of documents in connection with a “non-public inquiry” that it was

conducting. In making these requests, it asked Sierra, through Bloom and others, to produce certain

documents relating to the activities of Legisi. (Defs.’ Resp. to Pl.’s Mot. for Sanctions at Ex. A).

Sierra, despite having transmitted a variety of documents to the SEC at its request, contends that

it cannot locate any record of the documents that it had produced. (Id. at 5). In March 2008, the

SEC sent Goddard a subpoena in connection with its “non-public investigation” along with a

request to produce certain documents relating to Legisi. (Id. at Ex. B). During the month of April

2008, Goddard produced over sixteen hundred pages of documents, all in response to the SEC’s

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3

 The responding parties in the arbitration proceeding will be referred to as “the FINRA

Defendants.”

3

request. Gordon was appointed Receiver of the various Legisi estates on May 5, 2008. He contends

that - as part of his “pre-suit investigation of possible claims” - he obtained copies of the

documents that had been previously submitted to the SEC in May 2007. (Pl.’s Mot. for Sanctions

at 4).

On March 23, 2009, the Plaintiff initiated an arbitration proceeding with the Financial

Industry Regulatory Authority (“FINRA”) in which he charged the Defendants and Sierra3

 with

having committed securities fraud and other related violations. On May 7, 2009, the Plaintiff filed

a complaint against the Defendants and the Royal Palm Defendants in this Court. A first amended

complaint followed seven months later. However, two weeks thereafter, the Defendants challenged

the efficacy of the claims within the amended complaint by filing motions (1) to dismiss, or in the

alternative, stay the litigation pending the finality of the arbitration hearing and, (2) for the

imposition of sanctions against the Plaintiff. On January 22, 2010, the Royal Palm Defendants

joined the Defendants when they filed a motion to stay the instant action pending the resolution of

the arbitration proceedings. The Plaintiff has expressed opposition to both of these requests. 

In their motions, the Defendants argue that the Plaintiff should be precluded from bringing

this lawsuit because the claims in this Court are virtually identical to those issues in the pending

arbitration proceeding. When the Plaintiff commenced the arbitration action, he signed a “Uniform

Submission Agreement” in which he agreed to be bound by the rules of FINRA. The relevant rules,

for present purposes, provide as follows: 

FINRA Rule 12209:

During an arbitration, no party may bring any suit, legal action, or

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 proceeding against any other party that concerns or that would resolve any

of the matters raised in the arbitration. 

FINRA Rule 12200:

Parties must arbitrate a dispute under the Code if:

Arbitration under the Code is either:

(1) Required by a written agreement, or

(2) Requested by the customer;

The dispute is between a customer and a member or associated

person of a member; and

The dispute arises in connection with the business activities of the

member or the associated person . . . .

It is the contention of the Defendants that the Plaintiff, in agreeing to be bound by these

rules, relinquished his right to pursue relief in any other forum with respect to “any of the matters

raised in the arbitration” or any “dispute [that] arises in connection with the [Defendants’] business

activities.” Furthermore, they argue that inasmuch as (1) the claims in this lawsuit are “virtually

identical” to and are “duplicative” of the claims submitted to arbitration, and (2) the relief sought

in the instant lawsuit is “subsumed within the broad relief sought in the pending FINRA

arbitration,” the present case should be dismissed in favor of a resolution of the contested issues

through arbitration.

The Plaintiff disagrees. In expressing his disagreement with the Defendants’ argument, he

contends that this lawsuit contains claims that are substantively different from those pursued in

arbitration. The Plaintiff argues that the arbitration claims pertain to the FINRA Defendants’

conduct when they induced Legisi to invest in certain securities. He further submits that the now

pending litigation pertains to the Defendants’ actions after Legisi became a limited partner in the

Royal Palm real estate venture.

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The Defendants had referred to these arbitration clauses in earlier briefs, but had

dismissed them as being “superfluous” in light of the rules within the Uniform Submission

Agreement.

5

In reply, the Defendants have advanced another basis upon which the Court can, and should,

adopt their rationale; namely, that the New Account Agreement between Legisi Marketing and

Sierra included a “broad arbitration provision stating that ‘all claims, disputes and other matters

arising out of or relating to this agreement’” must be arbitrated. (Defs.’ Reply in Support of Defs.’

Mot. to Dismiss at 2). In support of this position, they attached a three-page document to their brief

as Exhibit A - the third page of which contained the above-quoted arbitration clause. Furthermore,

the Defendants maintained that the Client Margin Agreement between Sierra and Legisi Marketing

contained “an even broader arbitration provision.” (Id.). According to them, “the broad contractual

arbitration provisions in Legisi Marketing’s account agreements [ ] clearly contemplate that any

controversy relating to any transaction with the FINRA Defendants will be arbitrated.”4

 (Id.)

(emphasis in original).

On April 13, 2010, the Court conducted a hearing for the purpose of evaluating the merit,

if any, of the Defendants’ motions. In the course of articulating his opposition to the pending

motions, the Plaintiff set forth some very specific allegations of newly discovered evidence of fraud

by the Defendants and their counsel. Specifically, he contended that the document that had been

represented by the Defendants to be the New Account Agreement between Sierra and Legisi

Marketing was, in reality, only two pages of this document plus a third page from an agreement

between Legisi Marketing and a clearing broker, Sterne Agee. Thus, it appears that the document,

which had been claimed by the Defendants to have been an arbitration agreement between Sierra

and Legisi Marketing, was actually an arbitration agreement between Sterne Agee and Legisi

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6

Marketing - an agreement to which Sierra was not a party.

Reasoning that these assertions of fraud, if supported by competent evidence, could have

the practical and legal effect of undercutting many - if not all - of the Defendants’ theories of

defense, the Court held those motions in abeyance and authorized the Plaintiff to file a motion

which would specifically address his allegations of fraud. Thereafter, the Plaintiff filed a motion

in which he requested the Court to (1) deny the Defendants’ pending motions; (2) award sanctions -

pursuant to its inherent authority, Federal Rule of Civil Procedure 11(c), and/or 28 U.S.C. § 1927 -

for his costs and attorney fees; and (3) stay the FINRA arbitration proceeding, which would allow

him to consolidate all of his claims and proceed against the Defendants in this federal court. 

The Defendants submit that this motion should be denied because of (1) the Plaintiff’s

failure to comply with the procedural requirement of giving them notice as well as an opportunity

to remedy the alleged violation before filing a motion for sanctions with the Court; and (2) a lack

of any legal or factual support for his allegations. After full briefing and oral arguments, the

Plaintiff’s motion is now ripe for an evaluation and final determination by the Court. Because the

procedural issue implicates the propriety of various types of sanctions - if sanctions are indeed

appropriate - this Court will first address the merits of the Plaintiff’s claims before turning to what

would otherwise appear to be a threshold procedural issue.

II.

The Court will first consider the factual and legal bases of the Plaintiff’s request for the

imposition of sanctions. It is the Plaintiff’s position that the documents which had been submitted

to the SEC by Bloom - and subsequently turned over to him as part of his “pre-suit investigation” -

included copies of the three pages presently at issue which were presented in a manner that was

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7

identical to the manner in which they were proffered as Exhibit A to the Defendants’ reply brief.

Moreover, in response to a subpoena served by the Plaintiff, the Defendants produced these same

three pages presented in the same manner. The Plaintiff maintains that he was induced to file the

arbitration proceeding on the basis of this three-page document which purported to include an

arbitration clause between Legisi Marketing and Sierra. 

In response, the Defendants deny the Plaintiff’s accusations of fraud, contending that they

never represented to him that all three of the pages were a part of the Sierra-Legisi Marketing

agreement. Moreover, the Defendants assert that a casual observation of these three pages reveals

that they originated from separate agreements: “As is evident by the way that Sierra produced the

‘account opening documents’ . . . , those documents are the signature pages for account agreements

as kept by Sierra in the usual course of its business . . . . A simple review of the documents reflects

that they are signature pages and are incomplete, although the facsimile page numbers reflect that

the documents were sent and received together as a group.” (Defs.’ Resp. to Pl.’s Mot. for

Sanctions at 12 and n.10). 

In its analysis of this dispute, the Court concludes that the explanations by the Defendants

are simply not credible for several reasons. First, the Defendants clearly and unequivocally

represented to the Court that the challenged three pages were all part of the Sierra-Legisi Marketing

New Account Agreement. They described the relevant exhibit as the “New Account Form, Exhibit

A hereto, for Legisi Marketing’s Account at Sierra” (Defs.’ Reply in Support of Defs.’ Mot. to

Dismiss at 2), and plainly stated that the three pages were all part of the same document and thus

related to the same account. It is not remotely plausible that, when the Defendants referred to the

“New Account Form. . . for Legisi Marketing’s Account at Sierra,” they were actually rerpesenting

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8

the three pages as the “New Account Form for Legisi Marketing’s Account at Sierra plus the

signature page for Legisi Marketing’s Clearing Broker Agreement with Sterne Agee.” 

Second, the Defendants described Exhibit B in their reply as the “Client Margin Agreement

. . . for that account,” where the reference unmistakably was to Legisi Marketing’s account with

Sierra. Yet the attached Client Margin Agreement quite clearly refers to Legisi Marketing’s account

with Sterne Agee - and thus this agreement, too, is an agreement to which Sierra was not a party.

Third and significantly, the Defendants quoted language from the third page - a page which

they now acknowledge was not part of their agreement with Legisi Marketing - as representing the

arbitration clause between Sierra and Legisi Marketing: “The New Account Form, Exhibit A

hereto, for Legisi Marketing’s account at Sierra contains a broad arbitration provision stating that

‘all claims, disputes and other matters arising out of or relating to this agreement . . .’ shall be

submitted to arbitration.” (Defs.’ Reply in Support of Defs.’ Mot. to Dismiss at 2). Inasmuch as the

Defendants represented that the quoted language from the third page was a provision of the SierraLegisi Marketing agreement, they quite clearly stated that all three pages were a part of the same

agreement.Incredibly, the Defendants continue to argue that the arbitration language fromthe third

page is part of the Sierra-Legisi Marketing agreement, while at the same time claiming that it is

evident that the third page is not a part of that same agreement. In their response brief, the

Defendants once again represented that the arbitration agreement from the third page is part of the

Sierra-Legisi Marketing agreement - “The [Plaintiff] does not dispute that the page bearing the

signatures of McKnight, Goddard, and Bloom [page two] and the above-quoted arbitration clause

[from page three] is part of the Sierra New Account Application.” (Defs.’ Resp. to Pl.’s Mot. for

Sanctions at 11). Because the Defendants have consistently claimed, and continue to claim, that

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5

To the extent that the Defendants may claim that their misrepresentation of language

from the Sterne Agee-Legisi Marketing agreement as being part of the Sierra-Legisi Marketing

agreement was the result of inadvertence or a mistake, the Court notes - and credits - the

Plaintiff’s argument that the Defendants, who regularly use these forms in the course of their

business, must be presumed to have been aware of their content and sources. Moreover, any such

argument would plainly contradict their assertion that a cursory review of these three pages

would reflect that they were pages from separate agreements.

9

language from the third page is part of the Sierra-Legisi Marketing agreement, their argument (i.e.,

that they never attempted to mislead or represent that all three pages were from that agreement) is

simply untenable.5

The Defendants have also alleged that they are unable to locate any records which identify

the documents that were provided by them to the SEC in May 2007 (e.g., Defs.’ Resp. to Pl.’s Mot.

for Sanctions at 5) (“Bloom has not located any record of the documents provided to the SEC in

connection with the May 22, 2007 inquiry.”). Furthermore, they contend that the Plaintiff has

produced “no evidentiary support whatsoever for his contention” that Bloom submitted these same

three pages in the same manner in response to the SEC’s 2007 request for “all account opening

documents.” (Defs.’ Resp. to Pl.’s Mot. for Sanctions at 7). However, in support of their claim that

the Plaintiff’s accusation (to wit, that the Defendants intentionally “cobbled together” pages from

separate documents) is “patently false,” they also submit that “the repeated production of the

documents in question in the same form substantiates that they were produced in the manner in

which Sierra maintains those documents in the usual course of its business.” (Id. at 12 n.10). Thus,

the Defendants seemingly claim that these three pages were routinely stored in this manner and

would, in the ordinary course of business, have been submitted to the SEC - both in response to the

“informal inquiry” in May 2007 and the subpoena in April 2008 - in the same form that they were

submitted to this Court and to the Plaintiff in response to his subpoena.

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Thus, and contrary to the Defendants’ protestations, the Court concludes that they did

actively and repeatedly misrepresent the nature and origin of the three pages which were described

by them as the “New Account Form . . . for Legisi Marketing’s Account at Sierra.” The

Defendants’ more recent contention that it would be “evident” upon a “simple review” that these

were pages from separate agreements which had been stored together “in the usual course of its

business” (Defs.’ Resp. to Pl.’s Mot. for Sanctions at 12 and n.10) - when, in fact, they actively

maintained that these pages were all part of the same agreement - strikes the Court as challenging

credulity. To claim, as they now do, that it would be unreasonable to believe that which they had

actively represented to the Court to be true is, frankly, outrageous and cannot be construed as

anything other than bad faith.

III.

Having determined that the Defendants did engage in acts of misrepresentation, the Court

now turns to the Plaintiff’s application for relief. With respect to the Plaintiff’s requests that the

Court (1) deny the pending motions, and (2) enjoin the arbitration proceedings, the Court must first

determine if the misrepresentations had any actual impact on the course of these proceedings.

On March 9, 2009, the Plaintiff sent subpoenas to the Defendants in which he requested that

they produce, inter alia, “[a]ll Documents relating to any of Legisi’s investments” in various

enterprises. The three pages now in dispute were among the documents produced in response to

these subpoenas. The Plaintiff also says that he obtained these three pages in an identical form from

the SEC as a part of his “pre-suit investigation.” The Plaintiff asserts that he “filed his FINRA

Statement of Claim on March 23, 2009, in reliance upon the [ ] Defendants’ documents and

representations.” (Pl.’s Reply in Support of Pl.’s Mot. for Sanctions at 5).

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The Defendants challenge the Plaintiff’s assertions, stating that (1) he has not provided any

evidentiary support for his purported reliance, and (2) his failure to subpoena the new account

application or even inquire about the documents while deposing the Defendants undercuts any

claims of reliance upon their allegedly false representations when deciding to file the arbitration

claim. (Defs.’ Resp. to Pl.’s Mot. for Sanctions at 16 n.14) (“The [Plaintiff] cannot contend that he

reasonably relied on Bloom’s act of production, particularly when [he] deposed Bloom prior to

filing the FINRA Arbitration and thus had an opportunity to question him about the documents he

had produced. At Bloom’s deposition, counsel for the [Plaintiff] did not ask Bloom a single

question about the ‘account opening documents’ or about any arbitration agreement.”). Contrary

to the Defendants’ argument, the Court construes the Plaintiff’s failure to make any further inquiry

into the authenticity of these documents as consistent with his claim that he did not suspect that

they were pages from separate agreements until much later in the litigation.

However, throughout this litigation, the Plaintiff has repeatedly claimed that his decision

to commence arbitration proceedings through FINRA was “voluntary” and an “exercise of [his]

right to arbitrate” under FINRA Rule 12200:

! “Plaintiff did not unreasonably or vexatiously multiply the proceedings within

the meaning of 28 U.S.C. § 1927 by exercising his right under Rule 12200 to

submit some- but not all -of his claims against Defendants to arbitration.” (Pl.’s

Resp. to Defs.’ Mot. for Sanctions at 3).

! “Plaintiff did not violation [sic] Rule 12200 by exercising his right to submit

some- but not all - of his claims against the moving Defendants to arbitration .

. . .” (Pl.’s Resp. to Defs.’ Mot. to Dismiss at 5).

! “Plaintiff voluntarily submitted his broker-dealer related claims against the

FINRA Respondents to arbitration.” (Pl.’s Resp. to Defs.’ Mot. to Dismiss at

10).

The first two statements could be reasonably construed to mean that the right that the Plaintiff

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 Moreover, the Defendants are correct when they argue that the Plaintiff has wholly

failed to (1) even attempt to make out the necessary elements for injunctive relief and (2) provide

any legal analysis of whether this Court has the authority to enjoin the FINRA arbitration

proceeding currently underway in Chicago, Illinois. 

12

exercised was not the right to arbitrate, but rather the right to determine which claims to submit to

arbitration and which to submit to this federal court. The third statement, however, is not readily

amenable to any meaning other than that the Plaintiff did not believe himself to be bound - by

contract or otherwise - to arbitrate, but rather freely and voluntarily selected the desired forum.

Given this, the Plaintiff cannot now be heard to claim that he felt compelled to arbitrate based upon

the Defendants’ misrepresentations. 

Because the Plaintiff voluntarily submitted at least a portion of his claims to arbitration, the

Defendants’ misrepresentations - egregious and repeated as they may have been - were not the

cause of the Plaintiff’s forum selection. Thus, the Plaintiff has failed to show that (1) his decision

to initiate arbitration proceedings was the result of anything other than a voluntary decision by him,

or (2) he would not have initiated the arbitration proceeding but for the Defendants’

misrepresentations. Because the Plaintiff has not shown that the misrepresentations had any impact

whatsoever on his decision to file the arbitration claim, the Court denies his requests that the Court

(1) reject the Defendants’ pending motions, and (2) enter an injunction which would stay the

FINRA arbitration proceeding and allow him to consolidate all of his claims against all the

Defendants in this forum.6

 

IV.

Finally and with respect to the Plaintiff’s request for the imposition sanctions against the

Defendants, the Court must now address the threshold procedural issue. Addressing this issue of

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13

sanctions, the Defendants contend that the Plaintiff’s motion for sanctions “is so procedurally

defective that it should be denied out of hand.” (Defs.’ Resp. to Pl.’s Mot. for Sanctions at 14).

Specifically, they argue that, because the Plaintiff did not comply with the “safe harbor” provision

of Federal Rule of Civil Procedure 11 by providing them with twenty-one days to remedy any

alleged violations before filing the motion with the Court, sanctions are unavailable. See Fed. R.

Civ. P. 11(c)(2) (“The motion [for sanctions] must be served under Rule 5, but it must not be filed

or be presented to the court if the challenged paper, claim, defense, contention, or denial is

withdrawn or appropriately corrected within 21 days after service or within another time the court

sets.”); see also Ridder v. City of Springfield, 109 F.3d 288, 298 (6th Cir. 1997) (agreeing with

other courts that Rule 11 is “unquestionably explicit” in making the safe harbor provision an

“absolute requirement”). 

However, there is no safe harbor requirement when Rule 11 sanctions are initiated by the

Court rather than by motion of a party. Ridder, 109 F.3d at 297 n.8. Unlike a party-initiated Rule

11 sanction, a court-initiated Rule 11 sanction may not include monetary sanctions that are payable

to the affected party. Rather, any monetary sanction must be payable to the court. See Rasmussen

v. Fleetwood Enters., Inc., Nos. 06-13883, 06-13884, 2007 WL 1106138, at *11 and n.9 (E.D.

Mich. Apr. 10, 2007) (citing advisory committee notes to Rule 11); see also Fed. R. Civ. P. 11(c)(4)

(emphasis added) (“The sanction may include . . . an order to pay a penalty into court; or, if

imposed on motion and warranted for effective deterrence, an order directing payment to the

movant of part or all of the reasonable attorney’s fees and other expenses directly resulting from

the violation.”). In the present case, the Court specifically authorized the Plaintiff to file

“any motion, which will specifically address his charges of fraud by the opposition parties and their

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respective counsel.” (Dkt. No. 45 at 1). However, the issue of how any Rule 11 issues would be

properly characterized need not be resolved because, as the Plaintiff correctly asserts, the Court

may also issue sanctions pursuant to its inherent authority to penalize bad faith conduct. There is

no safe harbor requirement with respect to the exercise of the inherent authority of the Court to

sanction bad faith conduct. E.g., Rasmussen, 2007 WL 1106138, at *8, 11-12 (finding requested

Rule 11 sanctions unavailable because of failure to comply with safe harbor requirement, but

ordering requested sanctions pursuant to inherent authority of court). Furthermore, the Court finds

that an exercise of its inherent authority is the most appropriate vehicle for addressing the

Defendants’ conduct in the circumstances presented here.

Where a litigant or attorney engages in bad-faith conduct, a district court may exercise its

inherent authority to impose a sanction of attorney fees and costs, even if procedural rules sanction

the same conduct. Chambers v. NASCO, Inc., 501 U.S. 32, 49 (1991). The court should ordinarily

consider statutory or procedural rules as the first step before imposing sanctions, “[b]ut if in the

informed discretion of the court, neither the statute nor the Rules are up to the task, the court may

safely rely on its inherent power.” Id. at 50. Further, the Sixth Circuit Court of Appeals has held

that “Chambers does not explicitly require in every instance that a district court first determine

whether the conduct could be sanctioned under the rules or relevant statutes before considering

sanctions under its inherent authority.” First Bank of Marietta v. Hartford Underwriters Ins. Co.,

307 F.3d 501, 512 (6th Cir. 2002) An exercise by the court of its inherent authority to impose

attorney fees is proper where “a party has acted in bad faith, vexatiously, wantonly, or for

oppressive reasons.” Chambers, 501 U.S. at 45-46 (internal quotation marks and citations omitted).

Such is the case where, for example, “a court finds that fraud has been practiced upon it, or that the

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very temple of justice has been defiled.” Id. at 46 (internal quotation marks and citation omitted).

In the circumstances presented here, the Court finds that an exercise of its inherent authority

is the most appropriate means of sanctioning the Defendants’ conduct. Where, as here, Rule 11

applies to some of the challenged conduct - to wit, submitting pleadings to this Court that

misrepresented the nature of the three-page document - but not other conduct - such as submitting

the same three-page document, in the same manner, in response to requests from the SEC and the

Plaintiff - the intertwined nature of the sanctionable conduct is most amenable to sanctions under

the inherent authority of the court. See Chambers, 501 U.S. at 50 (upholding sanctions ordered

pursuant to court’s inherent authority where “conduct sanctionable under the Rules was intertwined

within conduct that only the inherent power could address”); First Bank of Marietta, 307 F.3d at

512 (imposition of sanctions under inherent authority rather than procedural rules which sanction

same conduct was especially appropriate where some conduct was reachable by Rule 11 and some

was not). 

Similarly, § 1927 would be an inappropriate basis for sanctioning the conduct at issue here

because (1) it applies only to attorneys, and thus would not reach the conduct of the Defendants,

who are believed not to be members of the bar; and (2) the identified misconduct was objectionable

not because it “multipl[ied] the proceedings . . . unreasonably and vexatiously,” as required under

28 U.S.C. § 1927, but because it perpetrated a fraud on the Court and on the Plaintiff. 

Because the applicable procedural rules and statutes are not “up to the task” of addressing

the Defendants’ misconduct, and inasmuch as the Court has already determined that they engaged

in bad-faith conduct, its inherent authority is the most appropriate means of addressing the

Plaintiff’s request for sanctions. Therefore, the Court will, and does, exercise its inherent authority

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to award to the Plaintiff an assessment of those attorney fees and costs that were incurred by him

in responding to the Defendants’ misrepresentations.

V.

For the reasons that have been set forth above, the Court (1) rejects the Plaintiff’s request

that the Defendants’ pending motions be denied; (2) denies the Plaintiff’s application that the

ongoing FINRA arbitration proceedings be enjoined; and (3) grants the Plaintiff’s request for an

award of attorney fees and costs incurred in responding to the Defendants’ bad-faith arguments and

misrepresentations. Because the Plaintiff has not provided any evidence of the amount of such costs

and fees, he is directed to submit appropriate documentation to the Court that will detail those

reasonable attorney fees and costs which are directly attributable to the misrepresentations by the

Defendants within a period of fourteen (14) days from the date of this order. The Defendants are

authorized to submit a response that will challenge the validity, accuracy or reasonableness of the

requested attorney fees and costs within fourteen (14) days of the Plaintiff’s submission to the

Court. Finally, the Plaintiff is entitled to file a reply within a period of seven (7) days thereafter.

IT IS SO ORDERED.

Dated: January 10, 2011 s/Julian Abele Cook, Jr. 

Detroit, Michigan JULIAN ABELE COOK, JR.

 United States District Court Judge

CERTIFICATE OF SERVICE

The undersigned certifies that the foregoing Order was served upon counsel of record via the Court's ECF System to their respective

email addresses or First Class U.S. mail to the non-ECF participants on January 10, 2011.

s/ Kay Doaks 

Case Manager

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