March 8

Key Lessons From the NYC Bar Association’s “How-to” of Successful Motion Practice CLE Panel

On March 5th, Jane Chuang and Rosanne Felicello co-chaired an event at the NYC Bar Association on the “how-to” of successful motion practice. The panelists included Justice Barbara R. Kapnick, NY Supreme Commecial Division, NY County; Judge Jed S. Rakoff, U.S. District Court, Southern District of New York; Acting Justice Salliann Scarpulla, NY Supreme, NY County; and Peter Tomlinson, partner at Patterson Belknap Webb & Tyler LLP. Here are the key takeaways:

Motions to Dismiss

What you should consider before bringing one:

  1. Do you have grounds? If you make the motion and win, does the whole case go away? If you have grounds to make a partial motion to dismiss, will the value of the case change if you are successful? If you do not have grounds to make a complete dismissal of the case or substantially reduce the value of the case, you should consider not making a motion to dismiss.
  2. What court are you in? As a general rule of thumb, if you are in state court you are relatively less likely to be successful in getting out of the case with a motion to dismiss than if you are in federal court. First, the legal standards for a motion to dismiss are different in state and federal court. It is relatively more difficult to state a claim in federal court and a motion to dismiss may have a greater chance of prevailing. In state court, however, the standard on a motion to dismiss is more heavily weighted in favor of the plaintiff having the opportunity to develop its case during discovery. Second, the relative size of the court’s dockets should influence your decision regarding whether to bring a motion to dismiss. For example, if your case is in a general part in state court where the average docket is about 900 cases, you should not bother bringing a motion to dismiss if the main purpose for doing so is to educate the judge about your case. The caseloads in state court are too large for there to be much value in bringing a motion simply to educate the judge. More likely, you will end up annoying the judge if she feels that you have wasted her time. On the other hand, according to Judge Rakoff, if you are in federal court, a desire to educate the judge may be a valid reason to bring a motion to dismiss, if you have a colorable argument for relief, because the judge has more time available to devote to each case.
  3. What claim are you trying to dispose of? As a general rule, it is more difficult to dispose of a fraud claim on a motion to dismiss
  4. Is there a tactical benefit to bringing the motion? In NY state court, pursuant to CPLR § 3214(b)  a motion to dismiss automatically stays discovery unless the court orders otherwise. In practice, discovery is usually stayed pending resolution of the motion. Rule 11(d) of the Rules of the Commercial Division requires the court to make an affirmative decision about whether discovery will be stayed. It states that “court will determine . . . whether discovery will be stayed . . . pending the determination of any dispositive motion.”  The federal rules do not provide for an automatic stay of discovery pending resolution of a motion to dismiss, except for securities law cases where an automatic stay applies by statute.
  5. Will the plaintiff be able to re-plead to cure the defects that you point out? If the plaintiff will be able to remedy the defects with the complaint by re-pleading, you may want to hold off on bringing your motion to dismiss.  If, however, you are confident that the plaintiff cannot cure the defects, you should consider bringing the motion to dismiss.

What types of documents you can submit with your MTD:

You can submit admissible evidence in the form of affidavits or documents with your motion to dismiss. Although the rules in both federal and state court allow them to be converted to summary judgment motions, in practice judges rarely convert them. Justice Kapnick said that she almost doesn’t ever convert motions to dismiss and Judge Rakoff noted that he only converted a motion to dismiss to a motion for summary judgment when he was dealing with a statute of limitations issue.

Motions to Re-argue/Re-consider

Don’t bring a motion for re-argument or re-consideration unless you are pointing out an error in calculation. It is more cost-effective to simply appeal because is extremely unlikely that the judge is going to change his mind. And your new motion merely gives the judge an opportunity to improve the record to support his initial ruling, especially where the motion for re-argument or re-consideration is an (improper) attempt to add something to the record.

Motions for preliminary relief

  1. Think about what you are asking for. Judges understand that an injunction is extraordinary relief and they do not wield the power of an injunction without considering the harm that may be inflicted on the defendant. For instance, state court judges are loathe to shut down a business and will only do so if it is the only way of effecting the relief, there is no other way to avoid the ongoing harm to the plaintiff, and the plaintiff posts a significant bond. In other words, injunctions are not given out lightly.
  2. Notice is generally required. In state court, notice is required by statute except in very limited circumstances. In federal court, notice is usually required by practice.
  3. In federal court, you must post a bond for preliminary relief. In state court, judges have discretion to require the party seeking preliminary relief to post a bond.
  4. There are exceptions. In state court, Yellowstone injunctions are routinely granted to enjoin a commercial landlord from evicting a commercial tenant while the court determines if the tenant is in breach of the lease. Under maritime law, you can seize a ship in port on a fairly modest showing.

Motions to compel

The clear message from the panel was that motions to compel are the least-favored motions. Overbroad discovery requests will not be sustained. In state court, discovery disputes are almost always resolved by conference. In the commercial division of state court and in federal court, the rules require that the parties meet and confer before bringing a motion to compel.  In federal court, the Rule 26 conference at the beginning of the case sets the discovery that will be allowed. Many federal judges send discovery issues to their magistrate judges.

Because judges hate dealing with these motions and they generally turn on specific facts, it is better to resolve these issues orally either at a scheduled conference or via a teleconference to the court.

Summary judgment motions

If the opposing side can point to a dispute of a material fact, the summary judgment motion is a waste of time. Some cases are not winnable by summary motion. Don’t waste the court’s time making a SJ motion if there are issues of fact. In general, tort cases are less amenable to being resolved a motion for summary judgment than a contract case. If you are making a summary judgment motion, be sure to submit the evidence necessary for the court to rule in your favor. For instance, if you are filing a summary judgment motion in a contract case, be sure to attach a copy of the contract to the motion.

Motions in limine

Most judges allow motions in limine to deal with across the board issues regarding particular evidence, such as any mention of an ongoing investigation into the same subject matter by a third party. You do not need to use a motion in limine to exclude the evidence, you can ask that it be excluded at trial instead, but if you do you risk the cat getting out of the bag.

You should not make a motion for summary judgment in the guise of a motion in limine. Motions in limine should deal with evidentiary issues, not substantive issues.

Post-trial motions

Perhaps not surprisingly, judges dislike post-trial motions. It is easier to be successful on a post-trial motion if you are seeking to reduce a jury award rather than throw it out. Judges are not very receptive to motions to set aside the verdict. Further, if the award amount was determined by the bench, then there is little reason to make the motion.

Motions for sanctions

Judges do not often grant sanctions. Sometimes, you may be able to recover costs, but judges generally lean towards allowing zealous representation. If you cross the line with your advocacy, judges are generally inclined to let you know that they know rather than award sanctions.

January 19

Rosanne to Co-Chair the NYC Bar’s Upcoming “How-to” of Successful Motion Practice

Mark your calendars. On March 5th from 6-9 pm, the Honorable Barbara R. Kapnik, Honorable Saliann Scarpulla, Judge Jed S. Rakoff, and attorney Peter Tomlinson will explain how you can successfully engage in motion practice in NY state and federal courts. Download the agenda now.

Jane Chuang (Yim & Chuang LLP) and Rosanne E. Felicello (Felicello Law P.C.) will co-chair the event.

CLE credit will be available. Please see the NYC Bar website for registration information.


January 6

New S.E.C. Settlement Policy — If you admit to criminal liability, you must admit to civil liability if charged for the same conduct.

As reported today by the WSJ and, the S.E.C. announced a change in its settlement policy. Under its previous policy, a defendant could be found guilty of criminal conduct but still settle parallel SEC charges related to the same conduct without admitting or denying civil liability. Under the policy announced today, SEC Enforcement Division Director Robert Khuzami announced that the S.E.C. had reached the conclusion that it was “unnecessary for there to be a ‘neither admit’ provision in those cases where a defendant had been criminally convicted of conduct that formed the basis of a parallel civil enforcement proceeding.”

This seems right and unremarkable, except for the fact that it took so long for the S.E.C. to reach this uncontroversial conclusion.

What is remarkable is how limited this change is.  It only applies to cases, “involving parallel (i) criminal convictions or (ii) NPAs or DPAs that include admissions or acknowledgments of criminal conduct.” It does not affect the settlement of civil actions where the Justice Department has not also pursued criminal charges. In those cases, the S.E.C. is sticking to its approach of accepting settlements where defendants “neither admit nor deny” even while agreeing to pay large fines or make significant operational changes.

Khuzami stated that the new policy was not a result of, or reaction to, Judge Rakoff’s recent decision slamming the “S.E.C.’s long-standing policy – hallowed by history, but not by reason – of allowing defendants to enter into Consent Judgments without admitting or denying the underlying allegations.” The new policy does not address the problem noted by Judge Rakoff where the defendant of a S.E.C. enforcement action has not also been charged by the Justice Department with criminal wrongdoing in a parallel proceeding.

Instead, the limited nature of the new policy means that the only time that defendants will be required to admit civil liability to settle with the S.E.C. is when they have already admitted criminal liability (which carries much greater penalties).  But if the Justice Department does not also pursue criminal charges, the defendants will still be able to settle with the S.E.C. without admitting or denying liability.  As I’ve noted before, if the S.E.C. did require defendants to admit to liability as part of a settlement, there may be fewer settlements but increased enforcement.


November 28

Judge Rakoff Strikes Again: No Deal for S.E.C. and Citi

In an opinion released today, District Court Judge Rakoff rejects a proposed Consent Judgment agreed to by the S.E.C. and Citigroup Global Markets, Inc. because it does not include sufficient facts for him to determine whether the settlement is in the public interest.

Judge Rakoff’s criticism of the proposed settlement is broad. He takes issue with the S.E.C.’s handling of the matter from its initial complaint (“the S.E.C., for reasons of its own, chose to charge Citigroup only with negligence”) to its adherence to its “long-standing policy – hallowed by history, but not by reason – of allowing defendants to enter into Consent Judgments without admitting or denying the underlying allegations.” Judge Rakoff is unhappy with the size of the settlement, the fact that the S.E.C. is not committed to returning the settlement proceeds to the investors who have been wronged by Citigroup, and the fact that the settlement does not have any obvious benefit for the victim investors. Thus, he concludes that he cannot approve the Consent Judgment.

His decision to reject the agreement and his cogent argument against it may have substantial consequences for future S.E.C. enforcement.

Standard of Review

Judge Rakoff affirms that the standard of review for a proposed settlement that includes injunctive relief is whether the agreement is “fair, reasonable, adequate, and in the public interest.” (opinion at p. 4-5). And the S.E.C. is not the sole arbiter of whether the agreement is in the public interest. It is the court’s duty to “exercise a modicum of independent judgment in determining whether the requested deployment of its injunctive powers will serve or disserve, the public interest. Anything less would not only violate the constitutional doctrine of separation of powers but would undermine the independence that is the indispensable attribute of the federal judiciary.” (opinion at p. 6-7).

Evidentiary Basis for Relief

The Court cannot determine whether the proposed settlement is in the public interest if the parties do not provide a sufficient evidentiary basis for the settlement. Judge Rakoff argues that the S.E.C.’s practice of allowing defendants to neither admit nor deny the allegations means that there is no evidentiary basis for the requested injunctive relief. He states, “the court, and the public, need some knowledge of what the underlying facts are: for otherwise, the court becomes a mere handmaiden to a settlement privately negotiated on the basis of unknown facts while the public is deprived of ever knowing the truth in a matter of obvious public importance.”

Marginal Enforcement

Judge Rakoff explains that the proposed settlement is either a “very good deal for Citigroup [if the allegations are true]” or, at the least, a “mild and modest cost of doing business [if the allegations are not true],” while “[i]t is harder to discern from the limited information before the Court what the S.E.C. is getting from this settlement other than a quick headline.” The proposed penalty ($95 million) is “pocket change” to Citigroup and the proposed settlement leaves the investors “short-changed” because private investors cannot bring securities claims based on negligence and they can derive no benefit from Citigroup’s “non-admission/non-denial of the S.E.C.’s allegations.”

Rejection of the Paradigm?

Judge Rakoff’s reasoning is broad enough to encompass not merely the settlement proposal at issue but also the S.E.C.’s general method of settling enforcement actions without requiring defendants to admit or deny the charges against them. He decrees that “the S.E.C., of all agencies, has a duty, inherent in its statutory mission, to see that truth emerges; and if it fails to do so, this Court must not, in the name of deference or convenience, grant judicial enforcement to the agency’s contrivances.”

Will the S.E.C. change its approach to settling enforcement actions as a result of Judge Rakoff’s opinion? Will other courts latch on to Judge Rakoff’s reasoning and apply it to reject other S.E.C. settlements?

If the S.E.C. changes its practices and begins to require that defendants admit to wrongdoing to settle an enforcement action will investors benefit? Well, as with most legal issues, it depends. If the defendant does agree to make the admissions and settle the enforcement action, then the wronged investors will benefit because they will be able to use those admissions in any subsequent lawsuit.

But that is an important “if.” More likely, if the S.E.C. requires defendants to admit to wrongdoing as a condition of settling an enforcement action, there will be fewer settlements. Defendants will have more to lose from settling and may decide to take their chances at trial. This will increase the costs for the S.E.C. of bringing enforcement actions, because more of the cases will need to be litigated through trial. At least some of those trials are likely to go against the S.E.C. Thus, requiring that the defendants admit to wrongdoing as a condition of settling may lead to less S.E.C. enforcement than we currently see.

But it also may lead to stronger, more developed enforcement cases going to trial. And maybe if the S.E.C. wins significant judgments at trial there will be a real deterrent effect instead of agreed-to penalties that may be considered a “mild and modest cost of doing business.” Thus, a change in approach may lead to fewer settlements but greater enforcement.

Of course, other courts may disagree with Judge Rakoff and the S.E.C. might continue to allow defendants to settle matters without admitting to any liability.