Moody v. The Related Companies, L.P.

Background

Chanel Moody, Ayanda Carmichael, and Ronnie Clark sued The Related Companies, L.P., and Ery South Residential Tower LLC. The plaintiffs were selected by lottery for affordable rental units in a mixed-use building at 15 Hudson Yards. The building also included market-rate condominiums. The plaintiffs alleged that they were treated less favorably than market-rate condominium tenants because they were Black and low-income, and that this treatment discouraged them from living in the building.

The plaintiffs brought claims under the Fair Housing Act. The court previously dismissed the amended complaint for failure to state a claim. It concluded that the plaintiffs had not identified a similarly situated comparison group for their claim of unequal treatment because luxury condominium owners were not similarly situated to affordable-housing tenants. The court also concluded that the Fair Housing Act does not protect economic status by itself, even when economic status substantially overlaps with race, and that the plaintiffs had not shown discriminatory intent or treatment of minorities beyond the effects of an income disparity.

Rule 11 sanctions motion

The defendants then moved for sanctions against the plaintiffs’ counsel under Federal Rule of Civil Procedure 11. That rule requires an attorney filing a paper with the court to have a reasonable basis for the filing’s factual and legal contentions and to avoid filing for an improper purpose. The defendants argued that the lawsuit was frivolous and sought reimbursement for attorneys’ fees and other expenses.

The plaintiffs’ counsel argued that he reasonably believed the law should be changed because race and economic status are closely connected. He also argued that the court could infer racial discrimination from the allegations and recent New York legislative efforts addressing housing segregation. The defendants also argued that the lawsuit was brought to harass them.

The court discussed Rule 11’s 21-day period for withdrawing or correcting a challenged filing before a sanctions motion may be filed. The plaintiffs’ counsel argued that the defendants had not properly satisfied that requirement because they sent a formal sanctions motion in response to the original complaint, not the amended complaint. The court said the defendants’ noncompliance was merely technical but did not decide whether their notice satisfied the safe-harbor requirement because it declined to impose sanctions.

Ruling

The court explained that Rule 11 sanctions are discretionary. A legal position is frivolous when it is clear that it has no chance of success and no reasonable argument exists to extend, modify, or reverse existing law. The court accepted counsel’s stated intent to push for an expansion of civil-rights protections and declined to infer bad faith from the plaintiffs’ controversial allegations or the possibility that counsel sought media attention.

Judge Valerie Caproni denied the defendants’ motion for Rule 11 sanctions and directed the Clerk of Court to close the motion at Docket Entry 30. This order addressed sanctions against plaintiffs’ counsel; it did not reopen or change the earlier dismissal of the plaintiffs’ lawsuit.