Freedman v. Rakosi
- Analisa Torres
- 1:23-cv-00472
- U.S. District Court · Southern District of New York
- 9
Freedman v. Rakosi: Judge Torres denied defendants’ fee motions after plaintiffs voluntarily dismissed, rejecting objections to the magistrate judge’s recommendation.
The defendants were denied attorney’s fees and costs, and the plaintiffs’ voluntary dismissal remained in effect.
What happened
In Freedman v. Rakosi, Linda M. Freedman and Stanley Sperber voluntarily dismissed their federal lawsuit after learning that Sperber was a United States citizen living in Israel, which raised a jurisdiction problem. The defendants then sought attorney’s fees and costs.
The defendants argued that the plaintiffs had misstated the basis for federal jurisdiction, acted in bad faith, and improperly filed a similar case in state court. They also argued that the voluntary dismissal should be vacated and that sanctions and costs were available under several federal rules and statutes.
Judge Analisa Torres overruled Rakosi’s objections and adopted Magistrate Judge Stewart D. Aaron’s recommendation in full. The court denied the defendants’ motions for attorney’s fees and costs, concluding that the record did not show bad faith, the federal court lacked authority to award costs under the cited rule after the new case was filed in state court, and Rule 11’s notice requirement was not met.
The detailed version
- Freedman v. Rakosi · No. 1:23-cv-00472
- Analisa Torres
- Apr. 10, 2025
Background
Linda M. Freedman and Stanley Sperber sued Michael F. Rakosi, Susan Rakosi Rosenbloom as attorney-in-fact for Stanley Rosenbloom, and Weber Realty Management LLC. The plaintiffs brought the case under federal diversity jurisdiction and sought, among other relief, rescission of four partnership agreements.
The court later required the plaintiffs to confirm Sperber’s citizenship. The plaintiffs reported that Sperber had dual United States and Israeli citizenship and resided in Israel. The court had explained that a United States citizen domiciled in Israel would be treated as stateless for diversity-jurisdiction purposes, meaning the federal court would lack subject-matter jurisdiction. The plaintiffs then voluntarily dismissed the federal action without prejudice and filed a similar action against the defendants in New York state court.
After the dismissal, the defendants moved for attorney’s fees and costs under Federal Rules of Civil Procedure 11 and 41(d), 28 U.S.C. § 1927, and the court’s inherent power to impose sanctions. The motions argued, among other things, that the plaintiffs had acted in bad faith by misstating the basis for federal jurisdiction.
Report and Recommendation
Magistrate Judge Stewart D. Aaron recommended denying the defendants’ motions. He concluded that Rule 11 sanctions were unavailable because the defendants had not served their sanctions motions on the plaintiffs at least 21 days before filing them, and the plaintiffs dismissed the action on the same day they informed the defendants about the jurisdiction problem.
Judge Aaron also concluded that sanctions under Section 1927 or the court’s inherent power required a finding of bad faith. The record did not show that the plaintiffs or their counsel acted in bad faith regarding Sperber’s citizenship. Finally, he concluded that Rule 41(d) did not authorize this federal court to award costs from the dismissed federal case because the plaintiffs filed the new action in state court.
Judge Torres’s Review
Judge Torres reviewed Rakosi’s objections to the report and recommendation. She denied Rakosi’s request to vacate the voluntary dismissal because the court had not heard argument on, or decided, the plaintiffs’ earlier motion for a preliminary injunction, and the dismissal followed the plaintiffs’ discovery of the jurisdiction problem rather than an arbitrary attempt to avoid an advanced stage of litigation.
The court found no clear error in Judge Aaron’s conclusion that the plaintiffs and their counsel had not acted in bad faith. The court stated that the plaintiffs may have been negligent in investigating Sperber’s citizenship, but negligence alone was insufficient to impose sanctions under Section 1927 or the court’s inherent power.
Judge Torres also rejected Rakosi’s argument that Rule 41(d) allowed this court to award fees and costs even though the later action was filed in state court. The court followed the reasoning that the court handling the later action is the court authorized to award costs from the earlier action. In addition, the court treated Rakosi’s request as a Rule 11 sanctions motion and held that sanctions were unavailable because Rakosi did not serve the motion 21 days before filing it.
Disposition
The court overruled Rakosi’s objections, adopted the report and recommendation in full, and denied the defendants’ motions for an award of attorney’s fees and costs.
Read the full 9-page opinion on CourtListener, the free public archive maintained by the Free Law Project.