SGM Holdings LLC v. Andrews

Background

Charles Stephenson brought the action on his own behalf and as assignee of claims belonging to former plaintiffs SGM Holdings LLC, Syndicated Geo Management Corporation, Richard Featherly, and Premier Natural Resources LLC. The defendants were A. James Andrews, Richard Gaines, and Karl Schledwitz. The claims arose from an earlier lawsuit concerning a joint venture to purchase and redevelop oil and gas wells. In that earlier lawsuit, investors sued their joint venturers for fraud, and this court granted the defendants in that lawsuit summary judgment.

In this case, the plaintiffs sued under New York Judiciary Law § 487, which allows a damaged party to seek treble damages from an attorney who intentionally engages in deceit or collusion to deceive a court or party. The plaintiffs alleged that the defendants, who acted as attorneys in the earlier lawsuit, deceived the court and the plaintiffs by suing people and entities they knew were not involved in the transaction, treating legally separate entities as if they were the same, and claiming that the defendants’ clients did not know about the oil-and-gas venture’s risks despite reports and other documents addressing those risks. The plaintiffs sought attorneys’ fees and expenses as damages.

Summary-judgment standard

After discovery, both sides moved for summary judgment under Federal Rule of Civil Procedure 56. Summary judgment is appropriate only when there is no genuine dispute about a fact that could affect the result and the moving party is entitled to judgment under the law. The court must not decide witness credibility or weigh competing evidence at this stage.

For a § 487 claim, the plaintiffs had to show deceit or collusion, an intent to deceive the court or a party, and damages caused by the deceit. The court explained that the statute reaches extreme or egregious intentional misconduct, not merely negligence, incompetence, or legal malpractice.

Plaintiffs’ motion

The court denied the plaintiffs’ motion for summary judgment. The plaintiffs presented evidence that could allow a reasonable jury to find an extreme pattern of intentional misconduct. That evidence included the defendants’ continued pursuit of claims against allegedly uninvolved parties, their treatment of separate entities as the same, and their possession of documents that contradicted statements made about the investors’ knowledge of the venture’s condition.

The court nevertheless found a genuine dispute about the defendants’ intent. Andrews testified that he believed the parties he pursued were part of a fraudulent conspiracy. Gaines testified that the attorneys tried to identify the responsible parties and remove parties they believed did not belong in the lawsuit. The court also found that an email relied on by the plaintiffs could support an inference of an effort to pressure innocent defendants into settlement, but that its meaning and Andrews’s connection to it remained fact questions.

The court further stated that the reports and offering documents were evidence of intent but were not conclusive. They could support a finding of intentional deception, but they could also support a finding of negligence in failing to review or understand the documents fully. Because a jury could reach different conclusions, the plaintiffs were not entitled to summary judgment.

Defendants’ motion and defenses

The court denied the defendants’ cross-motion for summary judgment for the same reason: factual disputes remained about whether they intended to deceive. The court also rejected the defendants’ additional arguments.

The defendants argued that § 487 did not apply because the earlier lawsuit had initially been filed outside New York. The court held that the claim was not barred because the earlier lawsuit was transferred to this court and the plaintiffs alleged that much of the misconduct occurred after the transfer. The defendants also argued that the plaintiffs lacked standing because they were not the defendants’ clients. The court rejected that argument, concluding that the statute refers to an intent to deceive “any party” and allows recovery by the injured party.

The defendants also invoked the Noerr-Pennington doctrine, which generally protects efforts to petition the government, including through litigation. The court held that the doctrine’s exception for sham litigation could apply to the plaintiffs’ allegations of baseless and repetitive claims, so the doctrine did not justify summary judgment.

Other motions and disposition

The court stated that the defendants’ motion to deem statements admitted was moot because the plaintiffs’ counsel had already been permitted to withdraw from representing Field, and the court said it would not address the request. In the conclusion, however, the court stated that the motion to deem statements admitted was denied. The court denied the defendants’ motion for a more definite statement under Rule 12(e) as untimely. It denied the defendants’ motion in limine without prejudice as premature, allowing the defendants to renew it if the case proceeded to trial. The court also declined to address an unauthorized attempted supplement to the summary-judgment record.

The conclusion states that both motions for summary judgment were denied; the defendants’ motions to deem statements admitted and for a more definite statement were denied; and the defendants’ motion in limine was denied without prejudice. The parties were directed to submit a proposed pretrial-conference date within 14 days.