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Current Developments in the Commercial Divisions of the
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Posted: April 30, 2015

First Department Reverses Award of Sanctions for Frivolous Litigation

On April 23, 2015, the First Department issued a decision in Gordon Group Investments, LLC v. Kugler, 2015 NY Slip Op. 03394, reversing an award of sanctions for frivolous litigation conduct.

In Gordon Group Investments, the plaintiff “moved by order to show cause and pursuant to CPLR 2221 and 5015(a) to renew or vacate [an] order dismissing the complaint. Although the cover page of the order to show cause indicate[d] that the motion was directed to all of the defendants, the accompanying papers made clear that [the plaintiff] sought to reinstate a discrete cause of action against one defendant only.” In response, the other defendants opposed the motion and “moved, pursuant to 22 NYCRR 130-1.1, for sanctions, attorney’s fees and expenses against” the plaintiff and its general counsel, arguing “that the renewal/vacatur motion was frivolous because the order to show cause had been directed at all defendants, yet sought relief only as to” one defendant. The trial court granted the motion “to the extent of awarding attorney’s fees and expenses incurred in opposing the motion to renew or vacate.” The First Department reversed, explaining:

We find that the motion court improvidently exercised its discretion in awarding attorney’s fees and expenses. 22 NYCRR 130-1.1(a) allows for costs in the form of reimbursement for actual expenses reasonably incurred and reasonable attorney’s fees, resulting from frivolous conduct. Section 130-1.1(c) defines conduct as frivolous if, inter alia, it is completely without merit in law and cannot be supported by a reasonable argument for an extension, modification or reversal of existing law. The mere fact that the cover page of [the plaintiff’s] order to show cause directed the renewal/vacatur motion to all defendants does not rise to the level of frivolous conduct. Viewed in its entirety, the order to show cause, along with the accompanying affirmation and memorandum of law, made clear that [the plaintiff] sought relief only as to [one defendant]. Nor is there any convincing claim that defendants were misled by the mislabeled order to show cause. Indeed, their opposition papers explicitly recognized that [the plaintiff’s] motion sought only to reinstate the breach of contract claim against [one defendant]. The better practice would have been for [the plaintiff’s] counsel to have withdrawn the motion as to the [other] defendants . . . once it received their responses. However, its failure to have done so was not so egregious as to constitute frivolous conduct within the meaning of 22 NYCRR 130-1.1.

Nor can it be said that [the plaintiff’s] attempt to reinstate the breach of contract claim against [the remaining defendant] was completely without merit in law or that the motion was filed for improper purposes. Although ultimately rejected by the motion court, the arguments advanced by [the plaintiff] as to [the remaining defendant] were of colorable merit, and were not made in bad faith.

(Internal quotations and citations omittted) (emphasis added. The First Department went on to add that

the award of costs would have to be vacated because the motion court failed to satisfy the procedural requirements of 22 NYCRR 130-1.. That section provides that a court may award costs or impose sanctions only upon a written decision setting forth the conduct on which the award or imposition is based, the reasons why the court found the conduct to be frivolous, and the reasons why the court found the amount awarded or imposed to be appropriate. Thus, the court must fully explain its decision in writing. Here, the court did not set forth the conduct it found to be frivolous, and provided no reason whatsoever for its decision to impose legal fees and costs.

(Internal quotations and citations omitted) (emphasis added). This decision illustrates both the substantive limits and procedural demands of Section 130.

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