Dec 15, 2015

Judge Denies Bid for Sanctions Against NXIVM

Christine Simmons
New York Law Journal
December 15, 2015
A journalist's request for sanctions against NXIVM, a controversial executive coaching organization, and its attorneys has been denied by a Northern District judge.

Suzanna Andrews, a contributing editor at Vanity Fair who wrote about NXIVM for the magazine in 2010, claimed the organization and its attorneys intentionally misled the court in a suit it brought against her over access to its website. The lawsuit, which Andrews claims should never have been brought, was ultimately dismissed by Judge Lawrence Kahn.

But Kahn, in NXIVM v. Foley, 14-cv-1375, also denied the sanctions, finding Andrews did not comply with a strict procedural requirement and "failed to show that [NXIVM] was motivated by an improper motive."

In October 2013, NXIVM sued Andrews and four others alleging violations of the Computer Fraud Abuse Act (CFAA) and Stored Communications Act (SCA). It claimed the defendants accessed confidential information on the organization's password-protected website without authorization.

Separately, NXIVM's allegations of computer trespassing prompted a criminal investigation by state police in early 2012 that led to the indictment of several people. Andrews was not criminally charged.

Reports about NXIVM published in Vanity Fair and other media outlets reported that the company, which sells professional training programs, has been criticized as a secretive, cult-like organization.

Andrews in late August served NXIVM with a Rule 11 motion and supporting documents, saying its claims against her were contradicted by testimony and other evidence submitted by NXIVM to the state police for the criminal investigation.

Under Rule 11's safe-harbor provision, Andrews was required to provide NXIVM with 21 days to either withdraw the complaint or correct the offending conduct before filing a sanction motion.

While the safe harbor period was pending, Kahn on Sept. 17 dismissed NXIVM's civil suit entirely, finding the company's claims were untimely.

Days after the dismissal ruling, Andrews sought sanctions against NXIVM and its counsel. The motion did not name the law firms, but NXIVM was represented by 37-attorney O'Connell & Aronowitz and six-attorney Wolford Law Firm.

Andrews claimed the police evidence received this year by her counsel, Michael Grygiel, a Greenberg Traurig shareholder, shows NXIVM suspected unauthorized access to its website as early as August 2011. Andrews argued NXIVM was aware that its claims were time-barred when it brought suit against her and the other defendants and it deliberately attempted to mislead the court with the vague allegation that it discovered the alleged breach "in late 2011."

But Kahn noted the lawsuit was dismissed before the 21-day safe-harbor period had run, and consequently he denied the Rule 11 motion.

The purpose of the safe harbor provision, he said, is to encourage parties to abandon questionable contentions by allowing them to avoid sanctions with the timely withdrawal of meritless claims.

While this case represents a procedural anomaly, Kahn added, the U.S. Court of Appeals for the Second Circuit has made it clear that Rule 11's safe-harbor provision is a strict procedural requirement.

Rule 11 sanctions are inappropriate where, as here, a case has been dismissed in its entirety, Kahn said.

He also found there was sufficient legal and factual support to find NXIVM's claims were colorable at the time of filing. The claims were not so completely without merit as to justify a finding they were brought in bad faith, he said.

Kahn noted that in August 2015, the Second Circuit issued Sewell v. Bernardin, clarifying that the statute of limitations under the Computer Fraud Abuse Act begins when damage is discovered, and that under the Stored Communications Act, the statute begins to run when a plaintiff has a reasonable opportunity to discover the violation.

Before Sewell, Kahn said, NXIVM could have reasonably believed that the statute of limitations was tolled while it conducted an internal investigation into the activity on its website.

Kahn also denied NXIVM's request for sanctions against Andrews for allegedly filing an impermissible document.

NXIVM's attorneys, Michael Wolford of the Wolford Law Firm and Pamela Nichols of O'Connell & Aronowitz, did not return messages seeking comment.

Grygiel, Andrews' attorney, declined to comment.

Related Decisions:

NXIVM Corp. v. Foley, 1:14-cv-1375


http://www.newyorklawjournal.com/id=1202744802875/Judge-Denies-Bid-for-Sanctions-Against-NXIVM?mcode=0&curindex=0&curpage=ALL

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