Cite as: Source Vagabond Systems v. Hydrapak, 11 Civ. 5379, NYLJ 1202590031725, at *1 (SDNY, Decided February 21, 2013)

Judge Colleen McMahon

Decided: February 21, 2013

MEMORANDUM DECISION AND ORDER IMPOSING SANCTIONS

 

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The court has reviewed the Report and Recommendation of The Hon. James L. Cott, U.S.M.J., which recommends that plaintiff's counsel pay attorney's fees and costs to defendant in the amount of $187,308.65. The recommended award represents Judge Cott's finding of reasonable attorney's fees expended in the defense of this patent infringement case, which the court previously concluded was not only baseless but frivolous. (The court's award of summary judgment in favor of defendant was, it should be noted, affirmed without opinion on appeal to the United States Court of Appeals for the Federal Circuit. See Docket #98).

The recommended fee award represents fees incurred up until the time when the court granted Hydrapak's motion for sanctions and referred the matter to Judge Cott for a recommendation on the amount of the sanction. Judge Cott did not recommend that Hydrapak's award of attorneys' fees include fees incurred in opposing Source' Vagabond's motion for partial reconsideration of the sanctions motion, which fees were incurred after the order of reference. Judge Cott decide that this court "could not have" intended that an award of sanctions encompass the motion for reconsideration because that motion had not yet been made when sanctions were awarded.

Hydrapak objects to the Magistrate Judge's recommendation, on the ground that it should have received an award of attorneys' fees for opposing the motion for partial reconsideration.

 

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Source opposes Hydrapak's objection but neither it nor its counsel (against whom sanctions were awarded) otherwise objected to the Report.

I agree with Hydrapak that it should not have had to file a second and separate motion for sanctions in connection with the reconsideration motion in order to recover attorneys' fees incurred in connection with opposing the sanctions motion. Rule 11(c)(2) specifically provides, "If warranted, the court may award to the prevailing party the reasonable expenses, including attorney's fees, incurred for the motion [for sanctions]." A motion for reconsideration of a court's decision awarding sanctions is part of the motion for sanctions, and falls within the ambit of Rule 11(c)(2). If Hydrapak had moved separately for sanctions for amounts incurred in responding to the baseless motion to reconsider the court's award of sanctions, I would have granted the motion — and would have awarded sanctions for the costs incurred in the making of that motion.

Treating defendant's objection to Judge Cott's Report and Recommendation as such a motion, and plaintiff's response to the objection as its opposition to that motion, I grant Hydrapak's request, and award attorney's fees to Hydrapak because it was required to respond to the motion for reconsideration.

The motion for reconsideration was itself frivolous. The court's statement that Source's counsel's conduct does not approach the egregiousness of the conduct of attorneys in other cases in no way undermines its conclusion that this case was not close on the merits and lacked any arguable basis in fact. That is the standard for imposing sanctions. Nothing in the papers filed in support of plaintiff's motion for reconsideration cast the slightest doubt on that conclusion.1

Neither does the fact that the court did not decide the motion for reconsideration sua sponte, but instead asked defendant to file a response to the motion, indicate that the motion for reconsideration was potentially meritorious. In fact, the motion was not meritorious, and required this court to expend additional time on a case that it had already dismissed as frivolous.

The fact that the Federal Circuit denied Hydrapak's motion for sanctions on appeal is also irrelevant. Source's decision to seek reconsideration of the court's decision on the sanctions motion caused this court to waste even more time, and Hydrapak to waste even more money, than had already been wasted in supervising and defending against this lawsuit.

 

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Sanctions for the time and money the Hydrapak and the court wasted on the reconsideration motion are, therefore, appropriate.

Computed using the methodology and hourly rates adopted by Judge Cott (whose recommendation for an award of $187,308.65 in sanction exclusive of attorneys' fees incurred in connection with the reconsideration motion represented a reduction in the amount requested by Hydrapak), the attorneys' fees incurred on reconsideration amount to an additional $12,745.35. The full amount of attorneys' fees that could be awarded is thus $200,054.00.

The Magistrate Judge addressed two other questions in his Report: whether it is appropriate to award the full amount to Hydrapak, and whether the sanction should run only against the law firm, or should run against the plaintiff corporation as well. Both rulings might have been expected to generate objections from Source and its counsel, but no party filed any objection to either of those findings. As a result, those aspects of Judge Cott's Report and Recommendation will not be reviewed by this court. Where parties receive clear notice of the consequences, failure timely to object to a magistrate's report and recommendation operates as a waiver of further judicial review of the magistrate's decision. Mario v. P & C Food Markets, Inc., 313 F.3d 758, 766 (2d Cir. 2002) (citing Small v. Sec'y of Health & Human Servs., 892 F.2d 15, 16 (2d Cir.1989) (per curiam)). A magistrate judge has given adequate notice where the party" was required to file any objections to the report and recommendation, and specifically informed him that failure to object to any portion of the report would preclude his right to appellate review, citing the pertinent statutory and civil rules." Johnson v. Woods, 426 F. App'x 10, 11 (2d Cir. 2011); Fed. R. Civ. P. 72. Magistrate Judge Cott appended the required notice to the end of his opinion. The failure of Source and its counsel to object to either of those rulings insulates them from further appellate review.

Accordingly, for the reasons set forth in Magistrate Judge Cott's Report, the court awards sanctions of $187,308.65, plus an additional $12,745.35 in sanctions incurred in connection with the motion for reconsideration, for a total award of $200,054.00. The sanctions are imposed jointly and severally against Peal Cohen Zedek Latzer LLP and attorneys Guy Yonay and Clyde Shuman.

1. In particular, nothing said by Judge Bryson during oral argument on appeal even remotely suggests that he disagreed with this court's conclusion that Source's claim construction violated every relevant rule of claim construction. Hydrapak's counsel's statement during oral argument that it violated "every precedent" of both the Federal Circuit and the United States Supreme Court was obvious hyperbole, but the fact is that Judge Bryson, like every other judge who looked at this case on the merits, rejected Source's claim construction and endorsed this court's conclusions. Source is grasping at non-existent straws here.