Commercial Litigation and Arbitration

Even If Rule 11 Violated, Court Has Discretion to Deny Sanctions — § 1927 Requires “Conduct Constituting or Akin to Bad Faith” — Once Claim Is Adjudicated, Res Judicata Bars More Litigation under Different Theory or Seeking New Remedy

WD Music Prods., Inc. v. Muller, 2012 U.S. App. LEXIS 25990 (2d Cir. Dec. 20, 2012):

We affirm the dismissal of WD Music's complaint for substantially the same reasons stated by the district court. In sum, WD Music's second state-court action was brought to a final conclusion by the New York State Supreme Court's dismissal on res judicata grounds. "This decision of the New York State Supreme Court itself creates a preclusive effect." See Hameed v. Aldana, 296 Fed. Appx. 154, 155 (2d Cir. 2008). New York law provides that "once a claim is brought to a final conclusion, all other claims arising out of the same transaction or series of transactions are barred, even if based upon different theories or if seeking a different remedy." See id. (quoting O'Brien v. City of Syracuse, 54 N.Y.2d 353, 357 (1981) (internal quotations omitted)). If WD Music believed that either of the state court's decisions was incorrect, its remedy was to appeal.

The district court did not abuse its discretion in denying defendants' motion for sanctions. See Perez v. Posse Comitatus, 373 F.3d 321, 325 (2d Cir. 2004) ("Even if the district court concludes that the assertion of a given claim violates Rule 11, . . . the decision whether or not to impose sanctions is a matter for the court's discretion."); In re 60 E. 80th St. Equities, Inc., 218 F.3d 109, 115 (2d Cir. 2000) ("Sanctions [under 28 U.S.C. § 1927] may be imposed . . . only when there is a finding of conduct constituting or akin to bad faith.") (internal quotations omitted).

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