International Technologies Marketing, Inc. v. Cognyte Technologies Israel Ltd.

Background

ITM pursued Cognyte for compensation related to advising services provided in 2006 and 2007 concerning a potential acquisition. ITM’s amended pleadings included a quantum meruit claim, meaning a claim seeking reasonable payment for services allegedly provided, including approximately $350,000 in expenses that ITM said it incurred for Cognyte after the parties’ express contract expired.

The court dismissed several claims during the case but allowed ITM’s quantum meruit claim to proceed based on ITM’s representation that the claim was limited to work performed after the contract ended. Discovery later showed, according to the court, that Anthony Schehtman did not know whether people identified in ITM’s pleadings actually worked for Cognyte, assisted Cognyte’s competitors, described Cognyte as an enemy, and could not explain how many claimed expenses benefited Cognyte. ITM later withdrew the quantum meruit claim.

Cognyte sought monetary sanctions against ITM and Schehtman under the court’s inherent authority, which is the court’s power to control proceedings and punish bad-faith litigation conduct. Cognyte also sought sanctions against ITM under Rule 11, a rule requiring attorneys and unrepresented parties to make reasonable factual and legal certifications when presenting court papers.

Inherent-authority sanctions

The court found that ITM’s quantum meruit claim had no colorable basis—that is, it lacked legal and factual support—and had been brought in bad faith. The court relied on the discovery evidence, including Schehtman’s testimony and documents concerning alleged services and expenses. It also found that pursuing the claim prolonged the case and forced Cognyte to incur substantial litigation costs that would not otherwise have been necessary.

The court further held that Schehtman could personally be sanctioned even though he was not a named party to the case. It found that he was ITM’s president, sole shareholder, and only employee; played a critical role in the litigation; and was primarily responsible for the conduct at issue. The court therefore concluded that ITM’s misconduct could fairly be attributed to him.

Amount of the sanction

Cognyte requested $980,125.52 in attorney fees and costs. The court excluded charges for several attorneys because Cognyte had not provided enough information to evaluate their rates and work, and it excluded unexplained additional charges. It considered $895,397.85 supported by the records for Howard I. Elman, Yosef Rothstein, and Jeremy C. Bates, and found their hourly rates and hours reasonable.

The court ordered ITM and Schehtman to pay $895,397.85 to Cognyte jointly and severally. Joint and several liability means Cognyte may collect the ordered amount from either one or both of them, subject to their rights to resolve responsibility between themselves.

Rule 11 sanctions

The court denied Cognyte’s Rule 11 motion. It interpreted Rule 11’s text to mean that, when a party is represented by counsel, the party itself is not directly subject to the rule’s certification requirements. A represented party may still face derivative responsibility if its attorney committed a Rule 11 violation, but Cognyte had withdrawn its sanctions request against ITM’s former counsel. Without a predicate finding that counsel violated Rule 11, the court concluded that it could not impose Rule 11 sanctions on ITM.

The court granted Cognyte permission to ask for an evidentiary hearing concerning the former counsel’s possible Rule 11 responsibility, with any such request due within 14 days of the order. The order itself, however, granted Cognyte’s inherent-authority sanctions motion and denied its Rule 11 sanctions motion.