11-5085
Langrock Sperry v. Citigroup



                               UNITED STATES COURT OF APPEALS

                                    FOR THE SECOND CIRCUIT

                                         _______________

                                        August Term, 2012

                  (Argued: December 11, 2012          Decided: December 26, 2012)

                                       Docket No. 11-5085-cv

                                  _____________________________

                                     ROBERT E. WILSON, III,

                                                      Plaintiff,

                               LANGROCK SPERRY & WOOL, LLP, and
                                   LANKFORD & REED, PLLC,

                                                      Appellants,

                                               —v.—

                   CITIGROUP, N.A., FKA CITIBANK, N.A., INTERNATIONAL
                     EQUITY INVESTMENTS, INC., CITIGROUP VENTURE
                          CAPITAL INTERNATIONAL BRAZIL, LLC,
                      CITIGROUP VENTURE CAPITAL INTERNATIONAL
                                        BRAZIL, LP,

                                                      Defendants-Appellees,

                           DANIEL VALENTE DANTAS, OPPORTUNITY
                        EQUITY PARTNERS, LTD., OPPORTUNITY EQUITY
                         PARTNERS, L.P., OPPORTUNITY INVEST II, INC.,
                               OPPORTUNITY HARVEST II, INC.,

                                                      Defendants.


                 ________________________________________________________
                  B e f o r e : KATZMANN, PARKER and WESLEY, Circuit Judges.

                                        _______________

Appellants Langrock Sperry & Wool, LLP and Lankford & Reed, PLLC (collectively, “Langrock”)
appeal from the September 13, 2011 Order of the United States District Court for the Southern
District of New York (Batts, J.), requiring Langrock to pay certain fees and costs incurred by
Defendants-Appellees Citigroup, N.A., International Equity Investments, Inc., Citigroup Venture
Capital International Brazil, LLC, and Citigroup Venture Capital International Brazil, LP
(collectively, “Citigroup”) in connection with this action, and from the October 19, 2011
Memorandum Endorsement denying Langrock’s request for reconsideration and ordering that
payment be made “promptly.” Specifically, the district court ordered Langrock to pay $24,398.83
in attorneys’ fees and costs to Citigroup as a sanction for filing opposition papers to Citigroup’s
motion to dismiss four days late, despite the fact that Langrock submitted a timely request for an
extension of the filing deadline that the court later determined was supported by good cause. We
hold that the district court abused its discretion by imposing a sanction of attorneys’ fees without
explicitly finding that Langrock acted in bad faith, and by sanctioning Langrock without affording
the attorneys prior notice and an opportunity to be heard. Accordingly, the orders of the district
court are REVERSED.
                                          _______________


Counsel for Appellant:                        Peter F. Langrock, Devin McLaughlin, Langrock
                                              Sperry & Wool, LLP, Middlebury, VT, Terrence
                                              Reed, Lankford & Reed, PLLC, Alexandria, VA

Counsel for Defendant-Appellee:               Carmine D. Boccuzzi, David Y. Livshiz, Cleary
                                              Gottlieb Steen & Hamilton LLP, New York, NY


                                          _______________


PER CURIAM:

       This case requires us to determine whether a district court abuses its discretion by ordering

attorneys to pay their adversaries’ legal fees and costs as a sanction for filing opposition papers four

days late where the district court does not find that the attorneys acted in bad faith, and does not

                                                   2
provide the attorneys notice of the impending sanctions or an opportunity to be heard. We conclude

that it does.1

                                          BACKGROUND

        On March 21, 2011, plaintiff Robert E. Wilson III filed a complaint in the district court

alleging that various defendants wrongfully denied him participation in the distribution of large

profits from an investment strategy and portfolio in Brazilian companies. Wilson is a shareholder

in defendant Opportunity Equity Partners LTD (“Opportunity”) — an investment company

incorporated in the Cayman Islands and principally doing business in Brazil. His complaint also

names as defendants an officer of Opportunity, several entities affiliated with Opportunity

(collectively, the “Opportunity Defendants”), as well Citigroup N.A. and several of its corporate

affiliates (collectively, “Citigroup”). See Complaint, Wilson v. Dantas, No. 11 Civ. 1936 (S.D.N.Y.

Mar. 21, 2011). Wilson is represented by attorneys from two law firms, Appellants Langrock

Sperry & Wool, LLP and Lankford & Reed PLLC (collectively, “Langrock”).

        On June 24, 2011, Citigroup moved to dismiss the Complaint. Thereafter, Langrock

contacted Citigroup’s counsel, Cleary Gottlieb Steen & Hamilton LLP (“Cleary”), in order to seek

an extension of the July 11, 2011 deadline to file opposition papers to the motion. Cleary agreed.

Accordingly, on July 7, 2011, Langrock filed electronically a “Stipulation and Order” signed by

counsel for both parties, which purported to extend Langrock’s deadline to file opposition papers

until July 28, 2011 and give Cleary a corresponding extension of its deadline to file reply papers.

The document did not contain any explanation of the need for the extensions, other than that both


        1
         On December 12, 2012, we issued an order reversing the district court’s sanctions order
and directing return of the funds paid as sanctions. We issue this opinion to explain our
reasoning.

                                                  3
parties consented to them. Later that day, the Clerk’s Office of the Southern District of New York

notified Langrock that its filing had been rejected because the local rules prohibit the filing of

stipulations via the electronic case filing system (“ECF”). Accordingly, Langrock e-mailed the

document to the Clerk’s Office the next day, Friday, July 8, 2011. That same day, the district court

denied the Stipulation and Order by simply writing “Denied” on the document and filing it.

       The next business day, Monday, July 11, 2011 — i.e., the day Wilson’s opposition papers

were due — Terrence Reed, an attorney at one of the Appellants, faxed a letter to the district court

reiterating Langrock’s request for an extension. Reed also provided the following reasons for the

extension request:

       I am currently scheduled to commence a trial as lead trial counsel before Judge Koeltl on
       Monday July 18th wherein I represent the plaintiff Republic of Benin. My pretrial
       responsibilities include witness and exhibit preparation and related travel to New York for
       discussions with Benin's UN officials, responding to last minute requests to modify the
       pretrial order, and an as yet unscheduled pretrial conference. In addition, I am lead trial
       counsel for plaintiff in Office of Strategic Services v. Sadeghian, No. CA 1:11-cv-0185-
       CMH (E.D.Va.) wherein I have conducted, or will conduct eight depositions, including four
       party depositions, since June 30th, participated in a July 8th hearing from which an order
       issued compelling defendants to produce substantial additional discovery which must be
       completed by the July 15th discovery deadline except for the production of a supplemental
       expert report on the 20th based upon the new discovery, and must complete and exchange
       all trial exhibit and witness designations for a final pretrial conference on the 21st. I have
       had other professional obligations to other clients since the filing of defendants' brief on
       June 24th.

       Attorney Peter Langrock, plaintiff's co-counsel had a variety of court appearances in State
       and Federal Court in Vermont as well as depositions in New Hampshire the week of June 27
       and from July 6th through July 14th. Mr. Langrock has been attending the Annual Meeting
       of the National Conference of Commissioners on Uniform State Laws in Colorado, in his
       capacity as a Commissioner for Vermont. Attorney Erin Heins, of Mr. Langrock's firm, was
       out of state from June 25 to July 4th.

App’x 22–23.




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       The district court did not immediately respond to Reed’s letter. On July 15, 2011 — four

days after its original filing deadline — Langrock filed its opposition to Citigroup’s motion to

dismiss, along with a motion for leave to file the untimely brief. Two months later, on September

13, 2011, the district court issued an Order granting Langrock’s motion to file untimely opposition

papers. In this Order, the court explained that it had denied the parties’ initial request for an

extension because the accompanying Stipulation and Order “did not show good cause for the Court

to grant an extension.” Nevertheless, the court concluded that “the scheduling conflicts described

in the letter submitted [by Reed] on the actual [filing] deadline provide good cause for the grant of

an extension.” However, to cure “any prejudice caused by allowing Plaintiff to file an opposition

out of time,” the court also required “Counsel for Plaintiff to pay the Citibank Defendants’

reasonable fees and costs incurred in preparing their Reply to Plaintiff’s Opposition.” Finally, the

court ordered Citigroup to “file [its] reply, if any, within 14 days of the date of this order” and to

“provide the Court and [Langrock] with an accounting of their reasonable fees and costs incurred in

preparing the Reply, which [Langrock] will promptly pay.”

       Citigroup timely filed its reply brief on September 27, 2011, and, on October 7, 2011,

submitted an accounting of $24,398.83 in fees and costs incurred in preparing that brief. On

October 13, 2011, Langrock submitted a letter to the district court objecting to the type and

magnitude of the sanction and requesting reconsideration of the sanctions order. App’x 36 (stating

that it is “Plaintiff’s position that a $24,398.83 sanction is excessive under the circumstances and is

not warranted”). In response, on October 17, 2011, Citigroup submitted a letter demanding prompt

payment of the claimed costs, which the district court “so ordered” on October 19, 2011. On

October 21, 2011, Langrock paid the $24,398.83 in costs to Cleary.


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        On December 6, 2011, following the dismissal of the Complaint for lack of subject matter

jurisdiction, Langrock filed a timely notice of appeal limited to the issue of the district court’s

imposition of sanctions.

                                             DISCUSSION

        We review a district court’s decision to impose sanctions under its inherent powers for

abuse of discretion. See United States v. Seltzer, 

, 39 (2d Cir. 2000) (citing Chambers

v. NASCO, Inc., 

, 50 (1991)). “Even under this deferential standard of review, however,

this Court must be careful to ensure that any such decision to sanction a party or attorney is made

with restraint and discretion.” Id. (internal quotation marks and brackets omitted). “Thus, although

the district court’s award of sanctions is reviewed under an abuse-of-discretion standard,” an award

of sanctions that is made “without reference to any statute, rule, decision, or other authority . . . will

rarely be upheld.” Sakon v. Andreo, 

, 113 (2d Cir. 1997) (citations omitted); cf.

Chambers, 501 U.S. at 44 (“Because of their very potency, inherent powers must be exercised with

restraint.”).

        As an initial matter, we conclude that Langrock did nothing to warrant a sanction. After

Citigroup moved to dismiss, Langrock proposed a briefing schedule for that motion (to which

Cleary had consented) and, before Langrock’s original deadline for opposing that motion, stated

good cause for the requested extensions. Langrock then filed its opposition brief before the

deadline to which Cleary had consented. Langrock disobeyed no order of the district court and

caused no prejudice to opposing counsel.

        But even if there had been a valid reason to sanction Langrock, we would reverse for

procedural reasons. On appeal, Langrock first contends that the district court abused its discretion


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by imposing attorney’s fees as a sanction without first finding that Langrock had acted in bad faith.

We agree. Our case law is clear that a district court may not impose attorney’s fees as a sanction

without first making an explicit finding that the sanctioned party, whether a party or a party’s

counsel, acted in bad faith in engaging in the sanctionable conduct. See Seltzer, 227 F.3d at 41–42

(holding that “[w]hen a district court invokes its inherent power to impose attorney’s fees . . . the

district court must make an explicit finding of bad faith”); Sakon, 119 F.3d at 113 (reversing

attorney’s fee sanction against opposing counsel for failing to timely file an amended complaint

because there was no finding that counsel had acted in bad faith); see also Roadway Express, Inc. v.

Piper, 

, 765–67 (1980) (holding that a court may impose attorney’s fee sanction

against opposing counsel for “abusive litigation practices” only in “narrowly defined

circumstances,” including where the court makes a finding that “counsel’s conduct . . . constituted

or was tantamount to bad faith”). Here, it is undisputed that the district court made no “explicit

finding” that Langrock’s untimely submission of its opposition papers to Citigroup’s motion to

dismiss was in bad faith. This was an abuse of discretion.2

       Moreover, “[w]e have declined to uphold awards under the bad-faith exception absent both

clear evidence that the challenged actions are entirely without color and [are taken] for reasons of

harassment or delay or for other improper purposes and a high degree of specificity in the factual

findings of [the] lower courts.” Oliveri v. Thompson, 

, 1272 (2d Cir. 1986)

(alterations in original) (quoting Dow Chem. Pac. Ltd. v. Rascator Maritime S.A., 

,


       2
         Citigroup contends that Langrock waived its entitlement to appellate review of this
issue by not raising it below. Under this Circuit’s waiver rules, however, a party is not deemed
to have waived an argument unless it was afforded the “opportunity to make the point in the trial
court in a timely manner.” Ehrenfeld v. Mahfouz, 

, 105 (2d Cir. 2008). Langrock
was not afforded such an opportunity.

                                                   7
344 (2d Cir. 1986)) (internal quotation marks omitted). Here, we discern no “clear evidence” in the

record that Langrock’s actions were “entirely without color” or were taken for any “improper

purposes.” In particular, we note that Langrock’s initial request for an extension was accompanied

by a stipulation of Citigroup’s counsel’s consent thereto; that Langrock’s second request for an

extension was submitted prior to the expiration of the court’s filing deadline for opposition papers;

and that when the district court eventually considered Langrock’s second timely request for an

extension nearly two months later, the court concluded that the request was supported by good

cause. Under this sequence of events, we do not think it reasonable to infer that Langrock’s

submission of opposition papers four days late was “for reasons of harassment or delay or for other

improper purposes.” Id. Indeed, had the district court promptly acted upon Langrock’s second

extension request, Langrock’s papers would not have been untimely.

       Next, Langrock contends that the district court abused its discretion in imposing sanctions

on Langrock without first giving it notice and an opportunity to be heard on the matter.

Again, we agree. We have held that, under basic principles of due process:

       An attorney whom the court proposes to sanction must receive specific notice of the conduct
       alleged to be sanctionable and the standard by which that conduct will be assessed, and an
       opportunity to be heard on that matter, and must be forewarned of the authority under which
       sanctions are being considered, and given a chance to defend himself against specific
       charges.

Sakon, 119 F.3d at 114 (internal quotation marks omitted). There is no dispute that, prior to

imposing sanctions, the district court afforded Langrock none of these due process protections.

This, as well, was an abuse of the district court’s discretion.




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       For the foregoing reasons, we conclude that the district court abused its discretion in

imposing the severe sanction of attorney’s fees on Langrock without making an explicit finding that

Langrock acted in bad faith or affording Langrock adequate notice and an opportunity to be heard

on the matter. Accordingly, the orders of the district court are REVERSED.




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