stay in Bergen County. See id. at ¶¶ 4-6. Cohen did not proffer
any competent evidence indicating otherwise.
Both Cohen and Matera are New Jersey citizens. Consequently,
complete diversity is lacking. As stated, further discovery into
the partnership status of KRMG-NY is unnecessary. The evidence
proffered by the Defendants, namely, the Business Certificate for
Partners, the Certificate of Registration, the Change
Endorsement, the Feldstein Affidavit and the Matera Affidavit are
dispositive of this issue. This action cannot be maintained in
Federal court pursuant to the jurisdictional grant in Section
Cohen argues even if Matera destroys complete diversity among
the parties, he intends to amend the Complaint to delete KRMG-NY
as a party defendant so as to maintain subject matter
jurisdiction. Cohen argues: "Defendant Kurtzman and defendant
KCMG-NY are clearly the target defendants and chief wrongdoers in
this case, complete diversity of citizenship exists between
plaintiff and these defendants, and it is submitted that complete
relief can be obtained in the absence of defendant KRMG-NY."
See Rule 12(b)(1) Opposition Brief at 13-14. This argument is
without merit because, as Cohen admits, KCMG-NY no longer exists.
In the Complaint, Cohen alleges, "on or about December 1, 1997,
defendant KRMG-NY assumed, obtained and/or otherwise acquired
assets and liabilities of defendant KCMG-NY." Complaint at ¶ 15.
Additionally, Feldstein, the accountant for both KCMG-NY and
KRMG-NY, states that KCMG-NY folded its assets into KRMG-NY
following its dissolution in November 1997. See Feldstein R.
12(b)(1) Aff. at ¶ 5.
KRMG-NY, as the successor to KCMG-NY, is indisputably a
necessary and indispensable party to the litigation. See Fed.
R.Civ.P. 19.*fn7 As Cohen and Feldstein both recognize, it is
not possible for Cohen to obtain money damages or an accounting
from KCMG-NY, which, as discussed, is no longer in existence. It
also appears when KRMG-NY assumed the liabilities and assets of
KCMG-NY, KRMG-NY necessarily assumed any partnership agreement or
employment contract Cohen had with KCMG-NY. In the absence of
KRMG-NY, therefore, it appears complete relief cannot be
accorded. See Fed.
R.Civ.P. 19(a); Angst v. Royal Maccabees Life Ins. Co.,
77 F.3d 701, 705 (3d Cir. 1996).
Cohen cannot escape the complete diversity requirement of
Section 1332(a) by amending the Complaint to delete KRMG-NY. The
Motion to Dismiss the Complaint is granted.
D. Standard for Imposing Sanctions Under Rule 11
As mentioned, in addition to the Motion to Dismiss, the
Defendants also separately filed the Motion for Sanctions against
Cohen and his counsel, Geoffrey Eberle, Esq. ("Eberle") pursuant
to Rule 11.
Rule 11 was amended in 1983 to give courts greater authority to
impose sanctions in order to discourage wasteful and abusive
tactics.*fn8 See Business Guides, Inc. v. Chromatic
Communications Enters., Inc., 498 U.S. 533, 542, 111 S.Ct. 922,
112 L.Ed.2d 1140 (1991); Cooter & Gell v. Hartmarx Corp.,
496 U.S. 384, 393, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1990); Lieb v.
Topstone Indus., Inc., 788 F.2d 151, 157 (3d Cir. 1986); Miller
v. Beneficial Mgmt. Corp., 844 F. Supp. 990, 1005 (D.N.J. 1993).
Rule 11 provides another exception to the traditional American
rule requiring each litigant to bear its own costs and attorneys'
fees. Alyeska Pipeline Service Co. v. Wilderness Society,
421 U.S. 240, 247, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975); Quiroga v.
Hasbro, Inc., 934 F.2d 497, 504 (3d Cir.), cert. denied,
502 U.S. 940, 112 S.Ct. 376, 116 L.Ed.2d 327 (1991); Doering v.
Union County Bd. of Chosen Freeholders, 857 F.2d 191, 193 (3d
Cir. 1988); Gaiardo v. Ethyl Corp., 835 F.2d 479, 483 (3d Cir.
1987); Miller, 844 F. Supp. at 1005. The primary purpose in
providing for an award of attorneys' fees, however, is not
"wholesale fee shifting but correction of litigation abuse."
Gaiardo, 835 F.2d at 483; Quiroga, 934 F.2d at 504; Miller,
844 F. Supp. at 1005.
Consequently, sanctions are appropriate when the "`claim or
motion is patently unmeritorious or frivolous.'" Dura Systems,
Inc. v. Rothbury Invest., Ltd., 886 F.2d 551, 556 (3d Cir. 1989)
(quoting Doering, 857 F.2d at 194), cert. denied,
493 U.S. 1046, 110 S.Ct. 844, 107 L.Ed.2d 838 (1990); see also Landon v.
Hunt, 938 F.2d 450, 452 (3d Cir. 1991); Napier v. Thirty or
More Unidentified Fed. Agents, 855 F.2d 1080, 1091 (3d Cir.
1988); Downey v. United Food & Commercial Workers Union Local
1262, 946 F. Supp. 1141, 1160 (D.N.J. 1996); Miller,
844 F. Supp. at 1006; Princeton Economics Group, Inc. v. AT & T,
768 F. Supp. 1101, 1116 (D.N.J. 1991). Where an abuse of litigation or
misuse of the judicial system is found, Rule 11 sanctions are
appropriate against the signer of the document, be it the
attorney or the party. Business Guides, 498 U.S. at 543-46, 111
S.Ct. 922; Simmerman v. Corino, 27 F.3d 58, 62 (3d Cir. 1994)
(citing Teamsters Local Union No. 430 v. Cement Express, Inc.,
841 F.2d 66, 68 (3d Cir.), cert. denied sub nom., Herman Bros.,
Teamsters Local Union No. 430, 488 U.S. 848, 109 S.Ct. 128, 102
L.Ed.2d 101 (1988)); Downey, 946 F. Supp. at 1160.
Rule 11 places a duty on the signer of the document to "make an
inquiry into both the facts and the law which is reasonable under
the circumstances." Zuk, 103 F.3d at 299 (quoting Rule 11
Advisory Committee Note); see Clinton v. Jones, 520 U.S. 681,
709 n. 42, 117 S.Ct. 1636, 137 L.Ed.2d 945 (1997) (quoting Rule
11(b)(1), (3)) (sanctions appropriate where allegations "`lack
evidentiary support' or [are] unlikely to prove well grounded
after reasonable investigation"); Bensalem Township v. Int'l
Surplus Lines Ins. Co., 38 F.3d 1303, 1314 (3d Cir. 1994) ("Rule
 imposes an affirmative duty on the parties to conduct a
reasonable inquiry into the applicable law and facts prior to
filing."); Bradgate Assocs., Inc. v. Fellows, Read & Assocs.,
Inc., 999 F.2d 745, 751 (3d Cir. 1993) (citing Business
Guides, 498 U.S. at 543, 111 S.Ct. 922) (same); Schering Corp.
v. Vitarine Pharmaceuticals, Inc., 889 F.2d 490, 496 (3d Cir.
In deciding a motion for sanctions under Rule 11, a court must
apply an objective standard of reasonableness under the
circumstances existing at the time the document was submitted.
Chambers v. NASCO, Inc., 501 U.S. 32, 47, 111 S.Ct. 2123, 115
L.Ed.2d 27 (1991), reh'g denied, 501 U.S. 1269, 112 S.Ct. 12,
115 L.Ed.2d 1097 (1991); Business Guides, 498 U.S. at 548, 111
S.Ct. 922; Eavenson, Auchmuty & Greenwald v. Holtzman,
775 F.2d 535, 541 (3d Cir. 1985); Downey, 946 F. Supp. at 1160; Miller,
844 F. Supp. at 1006. This is "a more stringent standard than the
original good faith formula." Eavenson, 775 F.2d at 540; see
Miller, 844 F. Supp. at 1006. No proof of subjective bad faith is
required to levy sanctions. See Martin v. Brown, 63 F.3d 1252,
1264 (3d Cir. 1995) (citations omitted); Napier, 855 F.2d at
1091; Downey, 946 F. Supp. at 1160.
"The court must evaluate the signer's conduct `by inquiring
what was reasonable to believe at the time the pleading, motion,
or other paper was submitted,' an evaluation which should depend
on a variety of factors, including `whether the pleading, motion,
or other paper was based on a plausible view of the law.'" Dura
Systems, 886 F.2d at 556 (quoting Rule 11 Advisory Committee
Note). Under this standard, "[l]itigants misuse the Rule when
sanctions are sought against a party or counsel whose only sin
was being on the unsuccessful side of a ruling or judgment."
Gaiardo, 835 F.2d at 483; see Miller, 844 F. Supp. at 990.
Applying these principles to the instant case, it appears the
exceptional circumstances warranting the imposition of sanctions
are present. The Complaint is signed by Cohen and his counsel,
Eberle. The Complaint alleges, inter alia, "there exists
complete diversity of citizenship between the plaintiff and all
defendants. . . ." Complaint at ¶ 2. It appears, however, neither
Cohen nor Eberle conducted even a cursory investigation into the
status of KRMG-NY as a limited liability partnership. As
mentioned, the Certificate of Registration and the Business
Certificate for Partners were filed approximately seven months
before Cohen filed the Complaint. The partnership status of
KRMG-NY would have been easily uncovered had Cohen or Eberle
directed an inquiry to the Office of the Clerk of Rockland County
or the New York Secretary of State.
It also appears Cohen and Eberle did not conduct an
investigation into the domicile of the individual partners. The
Business Certificate for Partners includes the names and
addresses of each partner of KRMG-NY. See Business Certificate
for Partners. The address of one of the partners, Matera, is
clearly listed as New Jersey. See id.
The failure of Cohen and Eberle to review the Business
Certificate for Partners notwithstanding, it appears from the
Matera Affidavit, Cohen was personally aware Matera resided in
New Jersey at the time he filed the Complaint. See Matera R.
12(b)(1) Aff. at ¶ 4. Matera states Cohen previously had picked
her up at her home in Bergen County, New Jersey, at the start of
a business trip, and they had engaged in "countless discussions
concerning the owning of a home in Bergen County New Jersey
[sic]." Id. Matera also states Cohen knew of her intention to
remain in New Jersey, and even referred her name to a real estate
agent whose territory encompasses Bergen County. Id. at ¶ 5.
It appears, moreover, as the Defendants point out, "[Cohen] and
his counsel clearly failed to perform even a modicum of legal
research into diversity jurisdiction as it relates to the naming
of a partnership as a party to an action." See Sanctions Moving
Brief at 10. As discussed, it is axiomatic that to determine
diversity jurisdiction of a partnership, the domicile of each
partner must be considered. See, e.g., Carden, 494 U.S. at
194-95, 110 S.Ct. 1015; Jones, 177 U.S. at 456, 20 S.Ct. 690;
HB General Corp., 95 F.3d at 1190; Knop, 872 F.2d at 1137 n.
11; TM Marketing, 803 F. Supp. at 1000.
Additionally, the Defendants wrote a letter to Cohen
immediately following the filing of the Complaint. See 20 July
1998 Letter. The 20 July 1998 Letter placed Cohen on notice of
the jurisdictional deficiencies of the Complaint and afforded
Cohen the chance to withdraw the Complaint before the Defendants
moved for sanctions. See id. The Defendants also included with
their correspondence a copy of the Certificate of Registration.
Cohen chose not to withdraw the Complaint, responding instead
by reasserting his belief that KRMG-NY was not a limited
liability partnership. See 23 July 1998 Letter. In the 23 July
1998 Letter, signed by Eberle, Eberle stated the true status of
KRMG-NY could only be evaluated upon further discovery on key
factual issues relating to diversity of citizenship. See id. In
this connection, counsel for Cohen requested the disclosure of
income tax returns and K-1 partnership filings, agreements
relating to the formation and operation KRMG-NY and additional
depositions. See id. It also appears Eberle spoke with defense
counsel and urged them to temporarily forego filing the Motion to
Dismiss pending further investigation by Cohen and Eberle into
the status of KRMG-NY. See Eberle Sanctions Decl. at ¶¶ 13, 14.
As mentioned, this Circuit, in construing Advisory Committee
Notes to the 1993 amendments to Rule 11, has stated: "[D]iscovery
is not intended as a fishing expedition permitting the
speculative pleading of a case first and then pursuing discovery
to support it; the plaintiff must have some basis in fact for the
action." Zuk, 103 F.3d at 299. "The signature of counsel on a
pleading certifies that a reasonable investigation of the facts
and a normally competent level of legal research support the
presentation." Lieb, 788 F.2d at 157. Eberle should have
undertaken the investigative efforts urged in the 23 July 1998
Letter before signing and filing the Complaint. See Mary Ann
Pensiero, Inc. v. Lingle, 847 F.2d 90, 94 (3d Cir. 1988)
(quoting Lieb, 788 F.2d at 157) (Rule 11 "imposes on counsel a
duty to look before leaping and may be seen as a litigation
version of the familiar railroad crossing admonition to `stop,
look, and listen'").
Cohen nevertheless argues the Certificate of Registration, in
isolation, is not dispositive of partnership status. Cohen
contends his prior dealings with Kurtzman and KCMG-NY raised a
reasonable question as to whether KRMG-NY operates in substance
and in fact as a partnership. See Cohen R. 12(b)(1) Aff. The
fact remains, however, Cohen failed to undertake a good-faith
effort to amass more information relevant to the determination of
the status of KRMG-NY before filing the Complaint. Significantly,
Cohen did not offer any corroborating evidence indicating KRMG-NY
is anything other than a partnership or challenging the validity
of the Change Endorsement, the Feldstein Affidavit, the
Certificate of Registration or the
Business Certificate for Partners, submitted by the Defendants.
As indicated, Rule 11 sanctions are reserved for claims which
are made without a reasonable investigation into the law or facts
at the time the Complaint was filed. See Zuk, 103 F.3d at 299;
Bensalem Township, 38 F.3d at 1314; Bradgate Assocs., 999
F.2d at 751; Dura Systems, 886 F.2d at 556; Doering, 857 F.2d
at 194. Because the initial investigation of Cohen and Eberle
into the partnership status of KRMG-NY and diversity of
citizenship was unreasonable, the conduct of Cohen and Eberle
fall within that category. In light of the actions of Cohen and
Eberle, the Defendants responded properly and were forced to file
the instant motions.
Accordingly, the Motion for Sanctions is granted. Cohen and
Eberle are liable to the Defendants for reasonable counsel fees
and costs incurred in preparing the Motion to Dismiss. The
Defendants are directed to submit to Magistrate Judge Dennis M.
Cavanaugh a certification and proof of attorneys' fees and costs
by the close of business 25 January 1999. Cohen and Eberle may
challenge the content of the certification of the Defendants by
the close of business 5 February 1999.*fn9
For the reasons stated, the Motion to Dismiss is granted. The
Motion for Sanctions is granted.