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Eastway Const. Corp. v. City of New York, 762 F.2d 243 | Casetext Search + Citator
Eastway Const. Corp. v. City of New York
Burlington Coat Factory Warehouse v. Belk
The Second Circuit has called for "`clear evidence' that the claims are `entirely without color and made for…
Breach of the warranty gives rise to mandatory sanctions against the represented party, the lawyer, or both.…
1,158 Citing Cases
Full title:EASTWAY CONSTRUCTION CORP., GEORGE JAFFEE, IRVING H. KANAREK AND ROBERT…
Date published: May 21, 1985
762 F.2d 243 (2d Cir. 1985)
holding Fed.R.Civ.P. 11 requires sanctions against "an attorney and/or his client when it appears that a pleading has been interposed for any improper purpose, or where, after reasonable inquiry, a competent attorney could not form a reasonable belief that the pleading is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law."
Summary of this case from Moore v. City of Des Moines
Argued February 28, 1985.
James L. LaRossa, New York City (LaRossa, Cooper, Axenfeld, Mitchell Bergman, New York City, Burton S. Cooper, Thomas S. Finegan, Edward M. Chikofsky, New York City, of counsel), for plaintiffs-appellants-cross-appellees.
David B. Tulchin, New York City (Sullivan Cromwell, New York City, Deborah C. Moritz, New York City, of counsel), for defendants-appellees.
I. BACKGROUND [4] a. Eastway's Dealings With the City
Between 1966 and 1974, the City of New York ("City"), through its now defunct Municipal Loan Program, loaned a total of nearly twelve million dollars to limited partnerships controlled by various principals of Eastway. The low-interest loans were given to enable the partnerships to rehabilitate thirty-four multiple dwellings in depressed neighborhoods. Eastway served as general contractor on most of the projects.
George Jaffee, one of the plaintiffs below, was a particularly active participant in the Municipal Loan Program. By 1971, he was a principal in corporations and partnerships that had received fourteen loans totaling nearly five million dollars. By 1971, seven firms in which Jaffee was a principal were in arrears in a total amount of $43,949.32.
In the aftermath of the scandal, New York State revamped its Private Housing Finance Law ("PHFL"), and created the New York City Housing Development Corporation ("HDC"), see N.Y.Priv.Hous. Fin.Law §§ 650-670 (McKinney 1976). Pursuant to the statutory scheme in operation at that time, the City was given supervisory authority over certain redevelopment projects. Specifically, it was empowered to regulate the creation and operation of redevelopment companies formed under Article V of the PHFL, see id. §§ 100-126. Moreover, the City was authorized to control the identities of the firms with which Article V redevelopment companies contracted, see id. § 112(3).
In response, Eastway mounted a twoprong attack against the implementation of the City's policy. First, it initiated an Article 78 proceeding in the New York State Supreme Court, seeking to have the policy declared arbitrary and capricious. Simultaneously, it sought to negotiate a "work out" agreement with the City, pursuant to which it would restructure and reschedule its affiliated companies' debt, in exchange for a promise by the City to approve its involvement in future redevelopment projects.
The state proceeding centered around the City's refusal to approve Eastway as a contractor on a project known as Harlem Gateway NSA II. Eastway's petition claimed that the City's policy was illegal because the company had proved itself to be a competent contractor; because defaults by related firms had no bearing on its competence; and because it had been denied a hearing.
The legal challenge proved to be unsuccessful. After Eastway prevailed in the Supreme Court, the Appellate Division reversed and dismissed its petition, holding that the City's policy was a proper exercise of its discretion. See Eastway Constr. Corp. v. Gliedman, 86 A.D.2d 575, 446 N.Y.S.2d 306 (1st Dept. 1982). No appeal was perfected to the Court of Appeals, see Eastway Constr. Corp. v. Gliedman, 58 N.Y.2d 972 (1983).
Eastway claims that an appeal was not taken because it was then attempting to negotiate a "work out" agreement with the City, and was hopeful that it would succeed. It is interesting to note, however, that bargaining was already underway when Eastway filed its petition in the Supreme Court.
In June 1978, Michael Lappin, then a neighborhood loan officer with CPC, received an application from Everett Jennings, on behalf of Orange Realty Co., for a loan of $575,000 to be used in the rehabilitation of a building located at 850 St. Marks Avenue in Brooklyn. The application did not name Eastway as general contractor. After consulting with CPC's President, Lappin rejected the application due to the developer's limited financial resources, as well as questions regarding the bona fides of the property's financial history. Specifically, CPC's internal investigation revealed a questionable relationship between the building's seller-mortgagor and buyer-mortgage. In fact, George Jaffee's brother-in-law was a principal of each, and this identity of interests raised the spectre that the sale of 850 St. Marks Avenue may not have been an arm's-length transaction.
Finally, in 1983, Orange Realty — this time listing Eastway as general contractor — applied to Chemical Bank, N.A., and obtained a commitment for one-half of the financing required to rehabilitate the building. The commitment was conditioned upon the agreement of HDC to lend the balance. As it had with other applications by developers naming Eastway as contractor, the City declined to approve the loan. Neither CPC nor Lappin had any involvement with the 1983 application.
In framing its first cause of action, purportedly sounding under Section 1 of the Sherman Act, 15 U.S.C. § 1 (1982), Eastway alleged that the "defendants (except the defendant Chemical Bank, N.A.) ... combined, conspired and confederated for the purpose of injuring the plaintiffs' trade, commerce and business . . . by, inter alia, preventing the plaintiffs from gaining the approval necessary to carry on their business in the relevant market." The second cause of action was a broad-ranging civil rights claim, alleging "conduct in violations of Eastway's rights under Article I, Section 10, Article IV, Section 2, and the First, Fifth, Ninth, Tenth and Fourteenth Amendments to the United States Constitution." The nine remaining causes of action alleged violations of state law. In its prayer for relief, Eastway sought an injunction against the City and Chemical Bank, and money damages totaling nearly one billion dollars.
In April 1984, CPC and Lappin moved to dismiss the complaint for failure to state a claim, pursuant to Fed.R.Civ.P. 12(b)(6) or, alternatively, for summary judgment, pursuant to Fed.R.Civ.P. 56. They also sought to impose sanctions — including costs and attorneys' fees — against the plaintiffs and their counsel, pursuant to Fed.R.Civ.P. 11. In a supporting affidavit, Lappin stated that, prior to the commencement of the lawsuit, he had never even heard of Eastway; that his sole contact with Jaffee had been in 1974 or 1975 when, as an employee of HPD, he had rejected a loan application submitted by Jaffee; that he had learned from a City Commissioner of Investigation that Jaffee had been involved in irregularities involving the Municipal Loan Program during the 1970s; and that the City and CPC had never agreed to refrain from dealing with Eastway or its principals.
II. DISCUSSION [27] a. Eastway's Appeal
We have long recognized that summary judgment is a "drastic device, since its prophylactic function, when exercised, cuts off a party's right to present his case to the jury." Heyman v. Commerce Industry Ins. Co., 524 F.2d 1317, 1320 (2d Cir. 1975). Accordingly, the moving party bears a heavy burden of demonstrating the absence of any material issues of fact, Patrick v. LeFevre, 745 F.2d 153, 158 (2d Cir. 1984); see Adickes v. H.S. Kress Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970). Moreover, in reviewing a Rule 56 motion, a district court must resolve all ambiguities and draw all reasonable inferences in favor of the party defending against the motion, id.; see United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962). If, in this generous light, a material issue is found to exist, summary judgment is improper, and the case must proceed to trial, see Schering Corp. v. Home Ins. Co., 712 F.2d 4, 9 (2d Cir. 1983); United States v. One Tintoretto Painting Entitled "The Holy Family with Saint Catherine and Honored Donor", 691 F.2d 603, 606 (2d Cir. 1982).
Turning to the other side of the Rule 56 equation, we have recently stressed the importance of the materiality element in deciding motions for summary judgment, see Quarles v. General Motors Corp., 758 F.2d 839 (2d Cir. 1985). "[T]he mere existence of factual issues — where those issues are not material to the claims before the court — will not suffice to defeat a motion for summary judgment." Id. at 840. Moreover, in opposing a motion, a party may not rest upon mere conclusory allegations or denials, see Shering, supra, at 9; Fed.R.Civ.P. 56(e). Rather, it is incumbent upon a defending party to set forth "supporting arguments or facts in opposition to the motion." SEC v. Research Automation Corp., 585 F.2d 31, 31 (2d Cir. 1978).
In light of the standards we have enunciated, it is manifest that Eastway's selfstyled "civil rights" claim was properly dismissed. Eastway simply claims that the City has refused to allow it to participate in City-sponsored or City-supervised redevelopment projects. The City readily admits to this fact, and points as justification for its policy to the involvement by Eastway's principals in certain malefactions stemming from the Municipal Loan Program of the 1970s. The sole question, then, becomes one of law — namely, whether the City's refusal amounts to a violation of Eastway's civil rights.
Eastway's claim purports to sound under 42 U.S.C. § 1983 (1982), which provides a remedy to those who, as a result of state action, suffer a deprivation of "rights, privileges or immunities secured by the Constitution and laws of the United States." It is axiomatic that a successful § 1983 claim requires more than a showing that one has been wronged at the hands of a state or municipal official. Rather, a plaintiff must allege that he has been deprived of some right secured by federal statute or the United States Constitution. See Baker v. McCollan, 443 U.S. 137, 140, 99 S.Ct. 2689, 2692, 61 L.Ed.2d 433 (1979).
Yet, nowhere does Eastway allege a deprivation of any federally secured right. If the reference in the complaint to the fourteenth amendment is meant to suggest that the City's actions amount to a deprivation of property without due process, such a claim cannot succeed, for Eastway's involvement in publicly-financed projects does not rise to the level of a property interest. The Supreme Court has stated: "To have a property interest in a benefit, a person clearly must have more than an abstract need or desire for it. He must have more than a unilateral expectation of it. He must, instead, have a legitimate claim of entitlement to it." Board of Regents v. Roth, 408 U.S. 564, 577, 92 S.Ct. 2701, 2709, 33 L.Ed.2d 548 (1972). Certainly, Eastway desired — and perhaps even needed or expected — to continue acting as a general contractor on public redevelopment projects. But it fails to point to a single constitutional, statutory or contractual provision that would entitle it to do so. And absent any such right, its claim that the City's actions violate § 1983 is incorrect as a matter of law.
Although it did not argue this point in the district court, Eastway now argues that it was deprived of the "right to have the City rule upon its application for project approval and financing in both a timely and impartial manner." Even if we were to hold that such a property right exists — and we do not do so — it cannot be said that Eastway was deprived of its property without due process of law. The Article 78 proceeding in New York's state courts constituted due process sufficient to protect Eastway's claimed property interest in a fair and impartial review of its application. See Parratt v. Taylor, 451 U.S. 527, 543-44, 101 S.Ct. 1908, 1917, 68 L.Ed.2d 420 (1981).
In light of our holding that Eastway failed to make out a viable claim pursuant to § 1983, we need not address the appellees' argument that Eastway is collaterally estopped to relitigate that claim because it was the basis of the prior Article 78 proceeding.
The Supreme Court has clearly established that a plaintiff has standing to assert an antitrust claim only where the injury alleged is of the type that the antitrust laws are designed to prevent. Associated General Contractors of California, Inc. v. California State Council, Inc., 459 U.S. 519, 538-40, 103 S.Ct. 897, 909-10, 74 L.Ed.2d 723 (1983); Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977). It is not enough that a plaintiff alleges that it is "in a worse position than [it] would have been had [defendants] not committed [the acts complained of]." Brunswick, supra, at 486, 97 S.Ct. at 969. Such a minimal requirement would "divorce antitrust recovery from the purposes of the antitrust laws," "which `were enacted for the protection of competition, not competitors.'" Id. at 487-88, 97 S.Ct. at 696-97 (quoting Brown Shoe Co. v. United States, 370 U.S. 294, 320, 82 S.Ct. 1502, 1521, 8 L.Ed.2d 510 (1962)).
Mindful of these standards, it is clear that Eastway has altogether failed to allege a valid antitrust claim. Even if Eastway was excluded from the relevant market, and even if its exclusion was the result of a "contract, combination or conspiracy" between the City and CPC, such action could not possibly have injured competition. Indeed, Eastway does not even allege anti-competitive effect. In plain fact, neither the City nor CPC in their roles as mortgage lenders stood to gain from the inhibition of competition among general contractors.
The case before us is instantly distinguishable from those (cited by Eastway) where no allegation of anti-competitive effect is necessary. See, e.g., Silver v. The New York Stock Exchange, 373 U.S. 341, 83 S.Ct. 1246, 10 L.Ed.2d 389 (1963); Radiant Burners, Inc. v. Peoples Gas Light Coke Co., 364 U.S. 656, 81 S.Ct. 365, 5 L.Ed.2d 358 (1961); Klor's Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 79 S.Ct. 705, 3 L.Ed.2d 741 (1959). In those and other per se unlawful group boycott cases, the excluded plaintiff was in competition with some or all of the defendants. The same certainly cannot be said here; neither the City nor CPC competes in any way with any defendant.
If Eastway's antitrust complaint were deemed to state a claim, every joint decision to hire one contractor over another — whether based on reputation, price, past performance, etc. — would be assailable under the Sherman Act. Although in each such case the rejected contractor would undoubtedly be unhappy, such a result would pervert the intent of those who drafted the antitrust laws.
There were simply no genuine issues of material fact to be resolved before the district court. Accordingly, Judge Weinstein was correct in dismissing — indeed, he had no alternative but to dismiss — Eastway's antitrust claim. As was true of the § 1983 claim, it might just as easily have been dismissed pursuant to Rule 12(b)(6).
In light of our foregoing conclusions, it should come as no surprise that we affirm Judge Weinstein's decision to deny Eastway's request for discovery. We have held that, "[w]here a plaintiff fails to produce any specific facts whatsoever to support a conspiracy allegation, a district court may, in its discretion, refuse to permit discovery and grant summary judgment." Contemporary Mission, Inc. v. United States Postal Service, 648 F.2d 97, 107 (2d Cir. 1981). A bare assertion that evidence to support a fanciful allegation lies within the exclusive control of the defendants, and can be obtained only through discovery, is not sufficient to defeat a motion for summary judgment. Id.; see Donnelly v. Guion, 467 F.2d 290, 293 (2d Cir. 1972); United States v. Donlon, 355 F.Supp. 220, 225 (D.Del.), aff'd, 487 F.2d 1395 (3d Cir. 1973).
Under the traditional "American Rule" governing allocation of the costs of litigation, the parties pay for their respective counsel's fees, regardless of the outcome of the action. See Alyeska Pipeline Serv. Co. v. Wilderness Society, 421 U.S. 240, 247, 95 S.Ct. 1612, 1616, 44 L.Ed.2d 141 (1975). In recent years, however, Congress has enacted a number of statutory exceptions to the general rule, which allow fees to be shifted to the prevailing party. Certain of these statutes mandate that fees be awarded, see e.g., 15 U.S.C. § 15 (Clayton Act); 29 U.S.C. § 216(b) (Fair Labor Standards Act of 1938, as amended); 7 U.S.C. § 210(f) (Packers and Stockyards Act). Others make awards discretionary, but limit them to prevailing plaintiffs, see e.g., 5 U.S.C. § 552a(g)(2)(B) (Privacy Act of 1974); 42 U.S.C. § 3612(c) (Fair Housing Act of 1968). The majority of these provisions are more flexible, allowing fees to be awarded to either plaintiff or defendant, and entrusting courts with the effectuation of the underlying policy.
Notable among the fee shifting provisions is The Civil Rights Attorney's Fees Act of 1976, codified at 42 U.S.C. § 1988 (1982). Section 1988 provides that, "[i]n any action or proceeding to enforce a provision of sections 1981, 1982, 1983, 1985 and 1986 of this title, . . . the court, in its discretion, may allow the prevailing party, other than the United States, a reasonable attorney's fee as part of the costs." In construing a similarly worded fee statute, see 42 U.S.C. § 2000a-3(b) (1976), the Supreme Court has held that a district court may award attorney's fees to a prevailing defendant only where it finds "that the plaintiff's action was frivolous, unreasonable, or without foundation, even though not brought in subjective bad faith." Christiansburg Garment Co. v. EEOC, 434 U.S. 412, 421, 98 S.Ct. 694, 700, 54 L.Ed.2d 648 (1978). In a slightly modified rearticulation of that standard, the Court held that "a plaintiff should not be assessed his opponent's attorney's fees unless a court finds that his claim was frivolous, unreasonable, or groundless, or that the plaintiff continued to litigate after it clearly became so." Id. at 422, 98 S.Ct. at 701. The same standard was applied to 42 U.S.C. § 1988 two years later in Hughes v. Rowe, 449 U.S. 5, 15, 101 S.Ct. 173, 178, 66 L.Ed.2d 163 (1980), and has been followed in this Circuit since. See Harbulak v. County of Suffolk, 654 F.2d 194 (2d Cir. 1981); see also Prate v. Freedman, 583 F.2d 42 (2d Cir. 1978) (reversing a denial of fees to defendants in Title VII action).
We have already expounded upon our views regarding Eastway's § 1983 claim, and are impelled to the conclusion that it was "unreasonable and groundless, if not frivolous," Harbulak, supra, 654 F.2d at 198, within the meaning of the standard set forth by the Supreme Court. Eastway could not point to a deprivation of any single right conferred by federal law or the United States Constitution, yet it "continued to litigate through to summary judgment," id.
Apart from the statutory provisions allowing for the shifting of litigation costs, a federal court may award attorneys' fees pursuant to its inherent equitable powers, or pursuant to the dictates of Fed.R.Civ.P. 11. When acting within its equitable powers, costs may be awarded to a prevailing party only where the unsuccessful litigant has been found to have "`acted in bad faith, vexatiously, wantonly, or for oppressive reasons.'" Alyeska Pipeline, supra, 421 U.S. at 258-59, 95 S.Ct. at 1622 (quoting F.D. Rich Co. v. United States ex rel. Industrial Lumber Co., 417 U.S. 116, 129, 94 S.Ct. 2157, 2165, 40 L.Ed.2d 703 (1974). In Browning Debenture Holders' Comm. v. DASA Corp., 560 F.2d 1078 (2d Cir. 1977), this Circuit held that there must be "clear evidence" that the claims are "entirely without color and made for reasons or harassment or delay or for other improper purposes." Id. at 1088; see Nemeroff v. Abelson, 620 F.2d 339, 348 (2d Cir. 1980).
Rule 11, however, provides a somewhat more expansive standard for the imposition of attorneys' fees, see Abraham v. United States, 582 F.Supp. 257 (S.D.N.Y. 1984). In pertinent part, Fed.R.Civ.P. 11 states:
The language of the rule, which was amended in 1983, provides a striking contrast to the words of its predecessor. Prior to the 1983 amendment, the rule spoke in plainly subjective terms: An attorney's certification of a pleading was an assertion that "to the best of his knowledge, information, and belief, there [was] good ground to support it." The rule, therefore, contemplated sanctions only where there was a showing of bad faith, Nemeroff, supra, 620 F.2d at 348, and the only proper inquiry was the subjective belief of the attorney at the time the pleading was signed.
The addition of the words "formed after a reasonable inquiry" demand that we revise our inquiry. See Schwarzer, Sanctions Under the New Federal Rule 11 — A Closer Look, 104 F.R.D. 181 (1985). No longer is it enough for an attorney to claim that he acted in good faith, or that he personally was unaware of the groundless nature of an argument or claim. For the language of the new Rule 11 explicitly and unambiguously imposes an affirmative duty on each attorney to conduct a reasonable inquiry into the viability of a pleading before it is signed. Simply put, subjective good faith no longer provides the safe harbor it once did.
The notes of the Advisory Committee on Rules appear to support this expanded reading of the rule. The Committee was frank in admitting that, "in practice Rule 11 has not been effective in deterring abuses." See also 5 Wright Miller, Federal Practice and Procedure: Civil § 1334 (1971). Thus, the drafters speak of the amended rule as an attempt to "build upon and expand" the equitable doctrine. To this end, they state, the new language is "intended to reduce the reluctance of courts to impose sanctions . . . by emphasizing the responsibilities of the attorney" (emphasis added). Finally, the drafters make absolutely clear that the standard is more stringent than the original good faith formula set forth in Nemeroff, supra.
In light of the express intent of the drafters of the new Rule 11, and the clear policy concerns underlying its amendment, we hold that a showing of subjective bad faith is no longer required to trigger the sanctions imposed by the rule. Rather, sanctions shall be imposed against an attorney and/or his client when it appears that a pleading has been interposed for any improper purpose, or where, after reasonable inquiry, a competent attorney could not form a reasonable belief that the pleading is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification or reversal of existing law.
By employing the imperative "shall," we believe the drafters intended to stress the mandatory nature of the imposition of sanctions pursuant to the rule. Unlike the statutory provisions that vest the district court with "discretion" to award fees, Rule 11 is clearly phrased as a directive. Accordingly, where strictures of the rule have been transgressed, it is incumbent upon the district court to fashion proper sanctions.
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