Rabin v. Dow Jones & Co., Inc.

15-3150
Rabin et al. v. Dow Jones & Co., Inc. et al.

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 ASUMMARY ORDER@). A PARTY CITING A SUMMARY
ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

1 At a stated term of the United States Court of Appeals for
2 the Second Circuit, held at the Thurgood Marshall United States
3 Courthouse, 40 Foley Square, in the City of New York, on the
4 25th day of October, two thousand sixteen.
5
6 PRESENT: AMALYA L. KEARSE,
7 DENNIS JACOBS,
8 RAYMOND J. LOHIER, JR.,
9 Circuit Judges.
10
11 - - - - - - - - - - - - - - - - - - - -X
12 I. STEPHEN RABIN,
13 Plaintiff-Appellant,
14
15 RAYMOND A. BRAGAR
16 Interested Party-Appellant,
17
18 -v.- 15-3150
19
20 DOW JONES & COMPANY, INC.,
21 Defendant-Appellee,
22
23 THE NEW YORK TIMES COMPANY, FORBES INC.,
24 Defendants.
25
26 - - - - - - - - - - - - - - - - - - - -X
27

1
1 FOR APPELLANTS: ALEXANDRA A.E. SHAPIRO (Chetan A.
2 Patil, on the brief), Shapiro Arato
3 LLP, New York, NY.
4
5 FOR APPELLEE: HILARY PRESTON (Clifford L. Thau,
6 Joshua S. Johnson, on the brief),
7 Vinson & Elkins LLP, New York, NY.
8
9 Appeal from a judgment of the United States District Court
10 for the Southern District of New York (Rakoff, J.).
11
12 UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND
13 DECREED that the judgment of the district court be AFFIRMED.
14
15 Plaintiff I. Stephen Rabin, a lawyer, and Raymond A. Bragar,
16 Rabin’s attorney in this action, appeal from the judgment of
17 the United States District Court for the Southern District of
18 New York (Rakoff, J.) granting a motion for sanctions pursuant
19 to 28 U.S.C. § 1927 and the court’s inherent powers. We assume
20 the parties’ familiarity with the underlying facts, the
21 procedural history, and the issues presented for review.

22 Plaintiff-appellant Rabin and appellant Bragar are, by
23 their own characterization, experienced class-action lawyers,
24 and Bragar represented Rabin in the underlying litigation.
25 Together they filed a putative class action against The New York
26 Times Company, Forbes, Inc., and appellee Dow Jones & Company,
27 Inc., alleging participation in a fraudulent
28 subscription-renewal scheme. It is undisputed that the scheme
29 was orchestrated by a third party (not sued by Rabin), which
30 sent official-looking but unauthorized “renewal” notices to the
31 subscribers of various publications, charging them inflated
32 prices to renew their subscriptions and keeping the excess after
33 passing the actual renewal cost along to the publishers.

34 The defendants moved to dismiss, arguing, among other
35 things, that plaintiff had sued the wrong parties. In response,
36 Bragar and Rabin filed an amended complaint largely reasserting
37 the same claims. After the New York Times and Forbes settled,
38 Dow Jones renewed its motion, and the district court dismissed
39 the amended complaint with prejudice. Dow Jones moved for
40 sanctions against Bragar and Rabin in the amount of its costs

2
1 and fees in defending against the dismissed claims. The
2 district court found their conduct sanctionable only from the
3 time of the filing of the amended complaint, ultimately holding
4 them liable to Dow Jones for $180,000. Bragar and Rabin appeal
5 from that judgment, arguing principally that the district court
6 applied the wrong legal standard for finding the amended
7 complaint not colorable and erred in finding that they pursued
8 their claims in bad faith.

9 “We review all aspects of a District Court’s decision to
10 impose sanctions for abuse of discretion.” Schlaifer Nance &
11 Co. v. Estate of Warhol, 194 F. 3d 323, 333 (2d Cir. 1999). “[W]e
12 bear in mind that when the district court is . . . fact finder
13 and sentencing judge all in one, our review is more exacting
14 than under the ordinary abuse-of-discretion standard,” and we
15 require that “[a] finding of bad faith, and a finding that conduct
16 is without color or for an improper purpose, must be supported
17 by a high degree of specificity in the factual findings.”
18 Wolters Kluwer Fin. Servs., Inc. v. Scivantage, 564 F. 3d 110,
19 113-14 (2d Cir. 2009) (citations and quotation marks omitted).
20 The imposition of sanctions is an abuse of discretion if it is
21 “based on an erroneous view of the law or on a clearly erroneous
22 assessment of the evidence,” or “it cannot be located within
23 the range of permissible decisions.” Id. at 113 (quotation
24 marks omitted).

25 The district court articulated and applied the correct legal
26 standard. To impose sanctions under 28 U.S.C. § 1927 or under
27 its inherent power, a district court must find “clear evidence
28 that the conduct at issue is (1) entirely without color and (2)
29 motivated by improper purposes.” Wolters Kluwer, 564 F. 3d at
30 114; see Oliveri v. Thompson, 803 F.2d 1265, 1273 (2d Cir. 1986)
31 (likening the requirements under 28 U.S.C. § 1927 to the inherent
32 power requirements). As the district court recognized, see
33 S.P.A. 4, “a claim is colorable when it has some legal and factual
34 support,” and it “lacks a colorable basis when it is utterly
35 devoid of a legal or factual basis.” Schlaifer, 194 F. 3d at
36 337 (quotation marks omitted).

37 The district court found that plaintiff pleaded no facts
38 to support the conclusory allegation of defendant’s liability
39 for a third-party’s fraud; and that even if the defendant had

3
1 an affirmative duty to act when it became aware of the fraud
2 (which appellants now aver was a good-faith argument to extend
3 the law), plaintiff’s own amended complaint establishes that
4 defendant did act to warn its customers. The district court
5 therefore concluded that the claims had no objectively
6 reasonable basis and that the first requirement for the
7 imposition of sanctions was satisfied. We find no error in that
8 conclusion.

9 The district court’s finding of bad faith is supported by
10 detailed factual findings. Specifically, the court found that
11 Rabin admitted in his deposition that “at least two” fraud
12 allegations, which were pleaded in the original complaint and
13 left uncorrected in the amended complaint, were
14 “overstatement[s],” S.P.A. 5-6; that Bragar became aware of
15 evidence showing Dow Jones’s efforts to fight the fraud (efforts
16 inconsistent with the complaint’s allegations of complicity)
17 and that he failed to conduct a good-faith investigation into
18 that evidence or to adjust the pleadings; that Bragar and Rabin
19 sought to suppress the truth by withholding relevant evidence,
20 such as the fact that prior to filing the amended complaint,
21 Rabin had received refunds of amounts he pleaded as damages in
22 that complaint; and that, when confronted with evidence of
23 dishonesty in his deposition, Rabin dubiously claimed a bad
24 memory. The district court’s assessment of the evidence is not
25 clearly erroneous and its finding of bad faith is within the
26 bounds of its permissible discretion.

27 Accordingly, and finding no merit in appellants’ other
28 arguments, we hereby AFFIRM the judgment of the district court.

29 FOR THE COURT:
30 CATHERINE O’HAGAN WOLFE, CLERK