Court Opinion

ID: 5141010
Source: CourtListenerOpinion
Date Created: 2021-12-28 15:00:34.034245+00
Date Added: 2024-06-11T08:24:26.625592
License: Public Domain

20-3842-cv
Weiss v. David Benrimon Fine Art LLC

                                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.

       At a stated term of the United States Court of Appeals for the Second Circuit, held at
the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York,
on the 28th day of December, two thousand twenty-one.

PRESENT:          JOSÉ A. CABRANES,
                  RAYMOND J. LOHIER, JR.,
                  EUNICE C. LEE,
                               Circuit Judges.

SIDNEY N. WEISS,

                           Appellant,

ALEJANDRO DOMINGO MALVAR EGERIQUE,

                           Plaintiff,                                  20-3842-cv

                           v.

DAVID BENRIMON FINE ART LLC, DAVID
BENRIMON, LINDA BENRIMON, AKA LINDA ROSEN,
PIEDMONT CAPITAL LLC, AVICHAI ROSEN,

                           Defendants-Appellees,

EZRA CHOWAIKI,

                           Defendant. *

    *
        The Clerk of Court is directed to amend the caption as set forth above.

                                                   1
FOR APPELLANT:                                               TYLER MAULSBY, Frankfurt Kurnit Klein
                                                             & Selz PC, New York, NY.

FOR DEFENDANTS-APPELLEES:                                    LUKE W. NIKAS (Maaren A. Shah, on the
                                                             brief), Quinn Emanuel Urquhart &
                                                             Sullivan, LLP, New York, NY.

       Appeal from orders of the United States District Court for the Southern District of New
York (Katherine Polk Failla, Judge).

        UPON DUE CONSIDERATION WHEREOF, IT IS HEREBY ORDERED,
ADJUDGED, AND DECREED that the April 24, 2020, order of the District Court be and
hereby is VACATED insofar as it ordered Sidney N. Weiss to pay sanctions of $20,000 to David
Benrimon Fine Art LLC, Linda Benrimon, David Benrimon, Piedmont Capital LLC, and Avichai
Rosen, and the cause is REMANDED to the District Court for further proceedings consistent with
this order.

        Plaintiff through his lawyer Weiss alleged that he in 2015 consigned an artwork by Picasso to
an art gallery operated by Ezra Chowaiki. In 2017, Piedmont Capital LLC (“Piedmont”), on behalf
of David Benrimon Fine Art LLC (“DBFA”), loaned $300,000 to Chowaiki’s gallery, which
wrongfully pledged as collateral Plaintiff’s Picasso. The loan was to be repaid in 30 days with
$50,000 interest. When Chowaiki’s gallery failed to pay, DBFA took Plaintiff’s Picasso.

         The District Court sanctioned Weiss for signing a pleading that contained two claims. First,
it held that Weiss without “articulable legal or factual basis” certified a pleading alleging that all of
the appellees were in the business of collecting usurious debts in violation of the Racketeer
Influenced and Corrupt Organizations Act (“RICO”) based only on the single loan from Piedmont
to Chowaiki’s gallery. App’x 640. Second, it held that Weiss “reckless[ly]” certified a pleading
alleging that DBFA and its affiliates fraudulently failed to disclose a Shtar Ikso, a document that,
according to Plaintiff, made Chowaiki and Piedmont 50%-50% equal partners in connection with
the loan. Id. Weiss appeals from this sanctions ruling. We assume the parties’ familiarity with the
underlying facts, the procedural history of the case, and the issues on appeal.

                                                    I.

        We reject Weiss’s procedural argument. Rule 11(c)(2) of the Federal Rules of Civil
Procedure contains a 21-day “safe harbor period.” Star Mark Mgmt., Inc. v. Koon Chun Hing Kee Soy &
Sauce Factory, Ltd., 682 F.3d 170, 176 (2d Cir. 2012). It requires that a motion for sanctions be
served, and that this motion “must not be filed or be presented to the court if the challenged paper,

                                                    2
claim, defense, contention, or denial is withdrawn or appropriately corrected within 21 days after
service or within another time the court sets.” Fed. R. Civ. P. 11(c)(2).

        We have not reversed a district court’s award of sanctions despite the moving party’s “failure
to adhere to the procedural requirements of Rule 11” and its safe harbor where “there [was] no
indication that [the sanctioned party] would have corrected or amended its frivolous arguments even
had it been given the opportunity.” Perpetual Sec., Inc. v. Tang, 290 F.3d 132, 142 (2d Cir. 2002). By
contrast, we have reversed a Rule 11 sanctions award where “the record indicate[d] that [the
sanctioned party] would have withdrawn or appropriately corrected his misstatements, thus avoiding
sanctions altogether.” Hadges v. Yonkers Racing Corp., 48 F.3d 1320, 1328 (2d Cir. 1995) (internal
quotation marks omitted).

        Here, although the time from service to filing was shorter than 21 days, Weiss clearly refused
to change his position. Weiss responded to the served sanctions motion before it was filed, stating
“we are not withdrawing the first amended complaint or case” and that the appellees’ “Rule 11
motion lacks any merit.” App’x 499. While the appellees did not send Weiss their accompanying
motion-to-dismiss brief, this was not required. Star Mark, 682 F.3d at 176 (holding that Rule 11
“does not require the service of a memorandum of law or affidavits”). And we see no basis in law
for Weiss’s proposal that “a court must assess whether the recipient of a Rule 11 motion had
sufficient time to consider his options before deciding whether to withdraw or amend the allegedly
frivolous pleading.” Weiss’s Br. 29. Thus, the sanctions order was not procedurally improper.

                                                    II.

         We agree with Weiss that the District Court erred, or “abused its discretion,” In re Sims, 534
F.3d 117, 132 (2d Cir. 2008) (alteration and citation omitted), by sanctioning him for bringing
Plaintiff’s RICO unlawful debt collection claims while alleging only one usurious loan. See Universitas
Educ., LLC v. Nova Grp., Inc., 784 F.3d 99, 102 (2d Cir. 2015) (“We review all aspects of a District
Court’s decision to impose sanctions for abuse of discretion.” (quoting Schlaifer Nance & Co. v. Estate
of Warhol, 194 F.3d 323, 333 (2d Cir.1999)).

        A court may sanction counsel for signing pleadings whose legal theories are not “warranted
by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or
for establishing new law.” Fed. R. Civ. P. 11(b)(2); see also id. 11(c). “[T]o constitute a frivolous legal
position for purposes of Rule 11 sanction, it must be clear under existing precedents that there is no
chance of success and no reasonable argument to extend . . . the law as it stands.” Mareno v. Rowe,
910 F.2d 1043, 1047 (2d Cir. 1990). “The fact that a legal theory is a long-shot does not necessarily
mean it is sanctionable.” Fishoff v. Coty Inc., 634 F.3d 647, 654 (2d Cir. 2011). The inquiry is one of
“objective unreasonableness and is not based on the subjective beliefs of the person making the
statement.” StreetEasy, Inc. v. Chertok, 752 F.3d 298, 307 (2d Cir. 2014) (citation omitted).

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        The District Court reasoned that it was frivolous to allege that the appellees were involved in
“the business of” making usurious loans based on “a single allegation of a single usurious
transaction.” App’x 640. In analyzing these claims, the District Court relied on our opinion in
Durante Bros. & Sons v. Flushing Nat. Bank, 755 F.2d 239 (2d Cir. 1985). There, the district court
dismissed some of the plaintiff’s RICO claims before trial on statute of limitations grounds. Id. at
242. We vacated the judgment in part and remanded those claims, reasoning that the district court
had applied the wrong statute of limitations. Id. at 248–49. We noted regarding the proceedings on
remand that the remaining RICO claims “were adequately pleaded,” but that “the complaint did not
unequivocally allege that the defendants were in the business of making usurious loans.” Id. at 249–
50. We further stated that the requirement under RICO that the defendant act “in connection with
‘the business of’ making usurious loans seems aimed at . . . the exclusion from the scope of the
statute of occasional usurious transactions by one not in the business of loan sharking,” and that
“the target of RICO is not sporadic activity.” Id. at 250 (alterations and citation omitted).

          These statements in Durante were dicta. Only the statute of limitations issue was before us.
See id. at 248–49. Our comments regarding the requirement that a RICO defendant act in “the
business of” making usurious loans were “not essential to the decision.” Jimenez v. Walker, 458 F.3d
130, 142 (2d Cir. 2006). Indeed, we said as much, “leav[ing] for determination by the district court
in the first instance the precise parameters of ‘the business’ of usury as intended by Congress.”
Durante, 755 F.2d at 250. Thus, Durante “[is] not and cannot be binding” on this issue, and only its
“persuasiveness” is considered. Jimenez, 458 F.3d at 142.

        Weiss made colorable arguments supporting a broader standard than the one suggested in
Durante. Most significantly, he cited a district court case that rejected the appellees’ argument that
“one loan cannot constitute a ‘business.’” Middle States Knowlton Corp. v. Esic Cap., Inc., Nos. 82-CV-
1911, 82-CV-1912, 82-CV-1913, 82-CV-1926, 82-CV-1941, 1985 WL 7441, at *8 (D.D.C. Oct. 16,
1985) (“Even if the loan were the sole consummated transaction which [the defendant] undertook,
we believe that [the defendant] was in the ‘business’ of lending money for profit.”). Weiss also
advanced various statutory arguments, and cited the New York Court of Appeals’ treatment of a
comparable state statute.

        “‘However faulty,’ [Weiss’s] positions ‘were not so untenable as a matter of law as to
necessitate sanction.’” Salovaara v. Eckert, 222 F.3d 19, 34 (2d Cir. 2000) (alteration and citation
omitted). Indeed, “[t]he mere fact that” a court in a different jurisdiction agreed with Weiss “is
enough, in the absence of controlling authority to the contrary, to support a good faith argument for
extension . . . of existing law.” Pierce v. F.R. Tripler & Co., 955 F.2d 820, 831 (2d Cir. 1992). Thus,

                                                   4
we hold that it was error to sanction Weiss for bringing Plaintiff’s RICO unlawful debt collection
claims while alleging only one usurious loan. 1

                                                   III.

         We reject Weiss’s argument that the District Court erred or abused its discretion in
sanctioning him for alleging that the appellees committed fraud on the court by failing to disclose
the Shtar Ikso. A court may sanction an attorney for signing a pleading that fails to comply with the
requirement that “the factual contentions have evidentiary support or, if specifically so identified,
will likely have evidentiary support after a reasonable opportunity for further investigation or
discovery.” Fed. R. Civ. P. 11(b)(3); see also id. 11(c).

        The Amended Complaint alleged that the appellees caused Piedmont’s verified petition,
submitted in Chowaiki’s criminal case, to “omit the Shtar Isko, which shows that [Chowaiki and
Piedmont] were actually 50%-50% equal partners – and not unrelated bona fide purchasers for
value.” App’x 145. The Parties agree that a Shtar Isko is a document “which creates a partnership
between the [Jewish] borrower and [Jewish] lender in order to avoid a religious prohibition against
the charging of interest.” Arnav Indus., Inc. Emp. Ret. Tr. v. Westside Realty Assocs., 579 N.Y.S.2d 382,
383 (1st Dep’t 1992).

        The District Court found that Plaintiff’s claim was “factually inaccurate” and “careless[].”
App’x 641. It pointed to a Note between Piedmont and Chowaiki, which was attached to
Piedmont’s petition in Chowaiki’s criminal case. This Note states that payments would be made “in
accordance with Heter Iska.” App’x 325. The District Court concluded that this text “disclose[d]
the existence of the Shtar Isko.” App’x 641.

        The District Court did not abuse its discretion by adopting “a clearly erroneous assessment
of the evidence.” Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405 (1990). Even assuming Weiss is
correct that a Shtar Isko is a document while Heter Iska is a concept, it is “plausible in light of the
record viewed in its entirety” that the Note’s reference to Heter Iska disclosed the existence of the
Shtar Isko. United States v. Gonzalez, 764 F.3d 159, 165 (2d Cir. 2014) (citation omitted). The District
Court thus did not err in concluding that Weiss was “reckless[]” in signing a pleading that claimed
that the failure to disclose the Shtar Isko was “part of the continuing fraud.” App’x 145, 640.

    1
     Weiss challenges only the District Court’s conclusion that he advanced a frivolous legal
argument. We thus take no position on whether sanctions were appropriate based on his claims’
lack of “factual basis.” App’x 640 (noting Weiss’s “attempt[] to string out this one [loan] into four
separate causes of action that implicate all six Defendants,” including while “lack[ing] even
conclusory allegations”).

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                                                 IV.

         The District Court characterized its “decision to impose sanctions” as “in large part[] due to
the Complaint’s overstep in asserting four RICO claims for collection of unlawful debt against all six
Defendants in this action, based on allegations of a single usurious loan.” App’x 642 (emphasis
added). It is not apparent that the District Court would have ordered Weiss to pay $20,000—or
anything at all—based solely on his signing a pleading with reckless factual claims. Accordingly, we
vacate the April 24, 2020, order imposing sanctions and remand the cause for further proceedings.
See Salovaara v. Eckert, 222 F.3d 19, 34–35 (2d Cir. 2000).

                                          CONCLUSION

        For the foregoing reasons, we VACATE the April 24, 2020, order of the District Court
insofar as it ordered Sidney N. Weiss to pay sanctions of $20,000 to David Benrimon Fine Art LLC,
Linda Benrimon, David Benrimon, Piedmont Capital LLC, and Avichai Rosen, and we REMAND
the cause to the District Court for further proceedings consistent with this order.

                                                       FOR THE COURT:
                                                       Catherine O’Hagan Wolfe, Clerk of Court

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