Wachtel Masyr & Missry LLP v. Genger

SUMMARY ORDER Appellant Wachtel Masyr & Missry LLP (“Wachtel”) appeals from the district court’s March 11, 2013, judgment awarding $174,411.95 in attorneys’ fees and costs against Wachtel as sanctions under 28 U.S.C. § 1927. Cross-Appellants Sagi Genger (“Genger”) and TPR Investment Associates, Inc. (“TPR”) cross-appeal from the district court’s December 26, 2012, judgment ruling that a promissory note was not enforceable against Cross-Appel-lee Gilad Sharon (“Sharon”). We assume the parties’ familiarity with the underlying facts, the procedural history, and the issues on appeal, which we describe only as necessary to explain our decision. I. Wachtel’s Appeal from the Imposition of Sanctions The district court imposed sanctions on Wachtel under 28 U.S.C. § 1927 for Wach-tel’s representation of Omniway, a now-dissolved Cypriot corporation. Under section 1927, the court may order an attorney who “multiplies the proceedings in any case unreasonably and vexatiously” to pay excess costs and attorneys’ fees “reasonably incurred because of such conduct.” 28 U.S.C. § 1927 (2012). Sanctions, however, may be imposed only for conduct undertaken in bad faith. Enmon v. Prospect Capital Corp., 675 F.3d 138, 143-44 (2d Cir.2012). In our view, the record cannot sustain a finding that Wachtel acted in bad faith. The district court found that Wachtel acted in bad faith when it continued to represent Omniway after Sharon’s deposi *12 tion, at which Sharon testified that he was “not sure if [Omniway] was ever formed” and denied knowing details about Omni-way’s officers and directors. The court understood this to mean Wachtel was representing Omniway without authorization from Sharon or any other authorized representative. However, Wachtel was at least implicitly authorized by Sharon to represent Omniway. Indeed, the district court found that there was “no indication that the initial representation was undertaken in bad faith.” Genger v. Sharon, No. 10 Civ. 4506(SAS), 2012 WL 3854883, at *7 (S.D.N.Y. Sept. 5, 2012). The third-party complaint alleged that Sharon was Omniway’s sole beneficial owner and liable for Omniway’s debts. Sharon affirmed that he “authorized Wachtel ... to represent [his] interests in this action.” Sharon also signed off on discovery materials submitted on behalf of all three third-party defendants, including Omniway. Sharon’s deposition testimony did nothing to alter this implicit authorization. In fact, Sharon testified that Omniway was conceived of as his personal investment vehicle. Accordingly, we conclude that the evidence did not sustain a finding that Wachtel acted in bad faith. II. Genger and TPR’s Cross-Appeal on the Enforceability of the Promissory Note Under New York law, a promissory note must be delivered in order to be enforceable. Merrill Lynch Interfunding v. Ar-genti, 155 F.3d 113, 123 (2d Cir.1998) (applying New York law); see also N.Y. U.C.C. § 1-201(14) (defining delivery as “voluntary transfer of possession”). As TPR has not established that it is a holder in due course, TPR’s claim under the promissory note is subject to the defense of non-delivery, as well as “all defenses ... which would be available in an action on a simple contract.” N.Y. U.C.C. § 3-306. Further, a defendant may demonstrate by parol evidence that a note that appears to be facially valid was never intended to take effect and is not a binding obligation. Kamp v. Fiumera, 69 A.D.3d 1168, 893 N.Y.S.2d 662, 663-64 (2010); Paolangeli v. Cowles, 208 A.D.2d 1174, 617 N.Y.S.2d 936, 937-38 (1994). The district court noted that the evidence showed the promissory note “was not tendered, at least not as of February 6, 2002,” the date on the promissory note. Genger v. Sharon, 910 F.Supp.2d 656, 661 (S.D.N.Y.2012). The court relied on evidence suggesting that the note had not been executed or delivered at least as late as March 2003. Ultimately, the court found that the note “never became a binding agreement” and “was never finalized.” Id. at 669-70; see also Genger v. Sharon, No. 10 Civ. 4506(SAS), 2013 WL 180373, at *1 (S.D.N.Y. Jan. 17, 2013) (“In fact, the evidence at trial was sufficient to find that Sharon actually disproved the existence of an enforceable note.” (emphasis in original)). These findings are not clearly erroneous. The district court properly granted judgment for Sharon on the enforceability of the promissory note. We have considered the parties’ other arguments and find them to be without merit. For the foregoing reasons, the district court’s judgment of December 26, 2012, is hereby AFFIRMED. The imposition of sanctions is hereby REVERSED and the judgment of March 11, 2013, VACATED.