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`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
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`INTERNATIONAL CARDS COMPANY, LTD.,
`Plaintiff,
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`-against-
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`MASTERCARD INTERNATIONAL INC.,
`Defendant.
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`LORNA G. SCHOFIELD, District Judge:
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` 08/17/17
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`13 Civ. 2576 (LGS)
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`OPINION AND ORDER
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`Plaintiff International Cards Company, Ltd. (“ICC”) sued Defendant MasterCard
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`International Inc. (“MasterCard”) for breach of contract, among other claims. On the eve of trial,
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`and almost four years after ICC brought suit, MasterCard filed its third motion for summary
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`judgment on the contract claim based on an interpretation of the contract MasterCard had not
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`previously advanced. The Court granted the motion. ICC moves for sanctions pursuant to the
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`Court’s inherent authority and 28 U.S.C. § 1927, arguing that MasterCard must pay more than
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`$4.6 million in attorneys’ fees and expenses that ICC allegedly incurred because MasterCard did
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`not raise the dispositive contract interpretation earlier. For the following reasons, the motion is
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`denied.
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`BACKGROUND
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`Familiarity with the facts, the parties’ underlying contract and the procedural history is
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`assumed. See Int’l Cards Co. v. MasterCard Int’l Inc., No. 13 Civ. 2576, 2017 WL 1133425, at
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`*1 (S.D.N.Y. Mar. 24, 2017). Only the facts pertinent to the instant motion are recounted.
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`In April 2013, MasterCard terminated ICC’s Membership in the MasterCard payment
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`network and related brand licenses (the “contract”) that allowed ICC to acquire MasterCard-
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`branded payment card transactions from merchants. The termination letter states that ICC had
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`Case 1:13-cv-02576-LGS-SN Document 347 Filed 08/17/17 Page 2 of 8
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`“continued to delay payments to [m]erchants for transactions ICC acquired from those
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`[m]erchants” in breach of the parties’ contract.
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`Sixteen days after termination, ICC filed suit, asserting six causes of actions. Count One
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`alleges a breach-of-contract claim arising under New York law based on MasterCard terminating
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`the contract without first giving ICC notice and an opportunity to cure any alleged breach.
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`MasterCard sent a letter to ICC in June 2013, stating its intent to move to dismiss the
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`claims other than the contract claim and providing the reasons for such a motion. In July 2013,
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`ICC filed an Amended Complaint. MasterCard again sent a letter providing the reasons it would
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`move to dismiss all claims but the contract claim. The parties then stipulated that ICC would
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`amend its pleading to drop three of the six claims and MasterCard would file an answer and
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`counterclaims, if any, rather than move to dismiss. In its Answer, MasterCard asserted
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`counterclaims, including one breach-of-contract claim alleging that ICC breached the contract by
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`failing to pay merchants on a timely basis.
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`In November 2015, MasterCard moved for summary judgment on ICC’s remaining
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`claims, which were the contract claim, a claim for conversion and a claim for breach of the
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`implied covenant of good faith and fair dealing. As to ICC’s contract claim, MasterCard argued
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`that the contract authorized MasterCard to terminate without providing notice or opportunity to
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`cure because ICC had breached the contract by failing to make timely payments to merchants.
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`The Court denied summary judgment as to the contract claim and the conversion claim but
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`granted it as to the other claim. The Court held that summary judgment on the contract claim
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`was inappropriate because there was a genuine factual dispute about whether ICC’s alleged late
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`payments constituted a material breach of ICC’s contractual obligations. The Court also denied
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`as premature MasterCard’s motion for summary judgment as to damages on ICC’s contract
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`2
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`Case 1:13-cv-02576-LGS-SN Document 347 Filed 08/17/17 Page 3 of 8
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`claim, explaining that this argument would be addressed along with any motion to exclude expert
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`testimony pursuant to Federal Rule of Evidence 702. MasterCard moved for reconsideration on
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`the contract claim, which the Court denied without requesting a response from ICC.
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`Both parties moved to exclude the other’s experts, and MasterCard moved for summary
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`judgment as to damages on ICC’s contract claim. The Court denied the motions to exclude, and
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`granted in part and denied in part MasterCard’s motion for summary judgment as to damages. A
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`jury trial was scheduled for April 3, 2017, on ICC’s breach-of-contract claim and conversion
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`claim and MasterCard’s breach-of-contract counterclaims.
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`A final pretrial conference was held on March 15, 2017. At the conference, MasterCard
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`asked for leave to move for summary judgment based on a new interpretation of the contract. In
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`contrast to its previous interpretation, i.e., MasterCard had the right to terminate without giving
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`notice or an opportunity to cure because ICC had failed to make timely payments to merchants,
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`MasterCard asserted the contract gave it an unconditional right to terminate without cause. The
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`parties briefed the question. Less than two weeks before the trial, the Court granted summary
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`judgment in MasterCard’s favor on the contract claim. It held that the contract authorized
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`MasterCard to terminate ICC’s membership without limitation as to time or cause and, as a
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`result, MasterCard had a valid legal defense. The Court also held that, under the circumstances,
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`MasterCard was not estopped or otherwise barred from asserting the legally correct interpretation
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`of a contract. In light of MasterCard’s failure to raise the interpretation earlier, the Court
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`provided ICC the opportunity to move for attorneys’ fees and costs that ICC would not have
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`incurred if the defense had been raised at an appropriate time. The Court explained that any such
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`motion must cite the specific legal and factual bases for any requested relief.
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`3
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`Case 1:13-cv-02576-LGS-SN Document 347 Filed 08/17/17 Page 4 of 8
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`ICC moves for an award of it attorneys’ fees and costs as sanctions imposed pursuant to
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`the Court’s inherent authority, 28 U.S.C. § 1927 or both. ICC seeks an award of $4,086,815 in
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`attorneys’ fees, and $560,990.38 in costs, which it asserts ICC would not have incurred if
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`MasterCard had moved to dismiss ICC’s contract claim under Federal Rule of Civil Procedure
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`12(b)(6) based on MasterCard’s unconditional right of termination.
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`STANDARD
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`A district court possesses inherent authority “to fashion an appropriate sanction for
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`conduct which abuses the judicial process,” which includes an “assessment of attorney’s fees.”
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`Goodyear Tire & Rubber Co. v. Haeger, 137 S. Ct. 1178, 1186 (2017) (internal quotation marks
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`omitted). A court may not impose a sanction of attorney’s fees and costs pursuant to its inherent
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`power absent “clear evidence” that the challenged conduct is (1) “entirely without color,” Wilson
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`v. Citigroup, N.A., 702 F.3d 720, 724 (2d Cir. 2012), and (2) taken in bad faith, Goodyear, 137 S.
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`Ct. at 1184 (sanction awarding attorney’s fees under the court’s inherent authority must be
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`“limited to the fees the innocent party . . . would not have incurred but for the bad faith”); accord
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`Virginia Props., LLC v. T-Mobile Ne. LLC, --- F.3d ----, No. 16-2973, 2017 WL 3197539, at *2
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`(2d Cir. July 28, 2017). Bad faith is conduct “motivated by improper purposes such as
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`harassment or delay.” Enmon v. Prospect Capital Corp., 675 F.3d 138, 143 (2d Cir. 2012).
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`Under 28 U.S.C. § 1927, “[a]ny attorney . . . who so multiplies the proceedings in any
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`case unreasonably and vexatiously may be required by the court to satisfy personally the excess
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`costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.” 28 U.S.C. §
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`1927. “The showing of bad faith required to support sanctions under 28 U.S.C. § 1927 is similar
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`to that necessary to invoke the court’s inherent power.” Enmon, 675 F.3d at 143 (internal
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`quotation marks omitted). Accordingly, the attorney’s actions must be “so completely without
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`4
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`Case 1:13-cv-02576-LGS-SN Document 347 Filed 08/17/17 Page 5 of 8
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`merit as to require the conclusion that they must have been undertaken for some improper
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`purpose such as delay.” Id.; accord Zurich Am. Ins. Co. v. Team Tankers A.S., 811 F.3d 584,
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`591 (2d Cir. 2016). Whether acting under its inherent authority or § 1927, a court “focus[es] on
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`the purpose rather than the effect of the sanctioned attorney’s activities,” Enmon, 675 F.3d at
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`145, and any finding of bad faith requires “a high degree of specificity in the factual findings,”
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`Virginia Props., 2017 WL 3197539, at *2.
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` DISCUSSION
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`Although the Court is mindful that it invited the instant motion, and finds the conduct of
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`MasterCard’s counsel reproachable, ICC’s motion is denied because it fails to show that the
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`belated timing of the defense is “entirely without color” or that MasterCard acted in bad faith.
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`ICC cites no legal authority to support its proposition that the prevailing party must pay
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`the loser’s fees and costs if that party fails to alert the loser of a facial deficiency in its claim at
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`the earliest possible stage. Nor would this outcome be justified in these circumstances. This is
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`not the case where the prevailing party concealed or falsified evidence or other pertinent facts.
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`ICC could have ascertained the unambiguous meaning of the contract prior to filing suit or any
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`time thereafter. Further, ICC’s assertion of blamelessness is belied by the fact that it brought the
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`contract claim at issue and vigorously litigated it until its dismissal. See Almodovar v. N.Y.C.
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`Candy Store Shop Corp., No. 16 Civ. 3795, 2017 WL 2874467, at *4 (S.D.N.Y. July 5, 2017)
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`(denying motion for sanctions under a court’s inherent authority and 28 U.S.C. § 1927, reasoning
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`in part that the plaintiffs contributed to the delay at issue).
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`ICC adduces no evidence that MasterCard, or its counsel, intentionally concealed or
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`disclaimed the dispositive interpretation prior to raising it in its motion in limine in October
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`5
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`Case 1:13-cv-02576-LGS-SN Document 347 Filed 08/17/17 Page 6 of 8
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`2016, and then at the final pre-trial conference in March 2017. The contract’s terms were
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`available for scrutiny by both parties throughout the litigation.
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`ICC also does not adduce any circumstantial evidence that adequately supports a finding
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`that MasterCard intentionally failed to raise its argument to delay or harass ICC. ICC does not
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`cite any other examples in which MasterCard or its counsel proceeded in bad faith, nor did the
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`Court observe such behavior during the course of the litigation. See Enmon, 675 F.3d at 148–49
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`(“[R]elevant to our [sanctions] inquiry is the fact that [a party’s] behavior is repetitive.” (internal
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`quotation marks omitted)). MasterCard repeatedly attempted to eliminate ICC’s claims,
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`beginning with its letters early in the litigation, the parties’ stipulation dismissing three of the six
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`causes of action and MasterCard’s initial motion for summary judgment on all of ICC’s
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`remaining claims. Lastly, the contention that MasterCard deliberately chose to wait almost four
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`years to raise its dispositive argument is undercut by the substantial risk that MasterCard could
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`have been barred from raising its interpretation as a result of its delay. On this record, the Court
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`attributes MasterCard’s conduct to neglect, not intentional misconduct.
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`ICC’s contrary arguments are unavailing. ICC’s theory that MasterCard’s conduct was a
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`deliberate attempt to punish ICC for bringing this lawsuit and to deter other licensees from doing
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`the same is mere speculation. There is sparse evidence that would support any such theory, let
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`alone evidence that would be sufficient to support factual findings with “a high degree of
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`specificity” that MasterCard engaged in this conduct in bad faith. Virginia Props., 2017 WL
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`3197539, at *2. ICC’s declaration by a law professor who specializes in legal ethics and
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`professional responsibility is unconvincing on this issue. The professor attests that although the
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`“economic incentives” of a large company, which presumably includes MasterCard, “usually
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`incentivize” the company to make a winning argument early in a case, that company “may have
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`Case 1:13-cv-02576-LGS-SN Document 347 Filed 08/17/17 Page 7 of 8
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`more to gain in the long run by engaging in prolonged and intense litigation” against small
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`companies, which presumably includes ICC. This assumption is insufficient to show bad faith or
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`misconduct in this case.
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`ICC’s alternative argument that the Court need not find bad faith is rejected. In support,
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`ICC cites United States v. Seltzer, 227 F.3d 36 (2d Cir. 2000), which held that a finding of bad
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`faith is not required for a court to impose certain sanctions for an “attorney’s violation of a court
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`order or other misconduct that is not undertaken for the client’s benefit” but instead is “a
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`lawyer’s negligent or reckless failure to perform his or her responsibility as an officer of the
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`court.” Id. at 41–42. This exception to the bad faith requirement is inapplicable where, as here,
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`the sanction is the imposition of attorneys’ fees and costs for actions on behalf of a client in the
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`litigation. As the Second Circuit in Seltzer held, “[w]hen a district court invokes its inherent
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`power to impose attorney’s fees or to punish behavior by an attorney in the . . . conduct of the
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`litigation, which actions are taken on behalf of a client, the district court must make an explicit
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`finding of bad faith.” Id. at 41–42 (internal quotation marks, alterations and citation omitted);
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`see also Wilson, 702 F.3d at 724 (the “case law is clear that a district court may not impose
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`attorney’s fees as a sanction without first making an explicit finding that the sanctioned party,
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`whether a party or a party’s counsel, acted in bad faith in engaging in the sanctionable conduct”
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`(citing, e.g., Seltzer, 227 F.3d at 41–42)). MasterCard’s conduct -- namely, changing its legal
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`argument prior to trial -- constitutes “conduct of the litigation” that is “taken on behalf of a
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`client” and does not fit within the Seltzer exception to the bad faith requirement. 227 F.3d at 40–
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`42 (holding bad faith is not required for $350 sanction against attorney based on her tardiness in
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`returning to court for the jury verdict).
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`In sum, while the Court finds that the course of this litigation has been regrettable, ICC
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`has failed to demonstrate that MasterCard acted in bad faith or that an award of attorneys’ fees
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`and costs is otherwise warranted.
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` CONCLUSION
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`For the foregoing reasons, ICC’s motion for sanctions is DENIED. The Clerk of Court is
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`respectfully directed to close the motions at Docket Numbers 293 and 322.
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`Dated: August 17, 2017
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`New York, New York
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