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Kosterlitz v. The S/V Knotta KLU

United States District Court, M.D. Florida, Tampa Division

June 21, 2018




         This matter comes before the Court upon consideration of Plaintiff Michael Kosterlitz's Motion to Strike Defendant's Affirmative Defenses and Counterclaim as Fraud on the Court, Dismiss Counterclaim and Defenses with Prejudice and Enter Default (Doc. # 24), filed on May 3, 2018. Defendant Robert E. Libbey, Jr. responded on May 17, 2018. (Doc. # 28). For the reasons that follow, the Motion is denied.

         I. Background

         One question dominates all the claims and counterclaims in this case: who owns the 40-foot catamaran, the Knotta Klu? Kosterlitz initiated this action on March 9, 2018, alleging he is the vessel's true owner and asserting a petitory and possessory claim in admiralty as well as claims for malicious prosecution, civil theft, conversion, and false arrest. (Doc. # 1). The gist of Kosterlitz's claims is that he and Libbey, who used to be friends, had tried to negotiate the sale of the Knotta Klu from Kosterlitz to Libbey. (Id. at 3). Although their negotiations began in June of 2015, Kosterlitz and Libbey still had not settled on a sales price over two years later. (Id. at 4-5). Nevertheless, Libbey kept the Knotta Klu docked on his property and made payments to Kosterlitz. (Id. at 3-4). According to Kosterlitz, Libbey maintained that they had executed a bill of sale for the Knotta Klu in October of 2017, while Kosterlitz asserted no such sale had taken place and sought return of the Knotta Klu. (Id. at 5).

         Kosterlitz eventually decided to take possession of the Knotta Klu by going to Libbey's property and removing the vessel on December 26, 2017. (Id.). Libbey then filed a report with the Lee County Sheriff alleging that Kosterlitz had stolen the Knotta Klu. (Id. at 5-6). Kosterlitz was arrested for grand larceny. (Id. at 6). The Lee County State Attorney ultimately determined that no charges should be brought. (Id.).

         Libbey sings a different tune. In his Answer and Counterclaim, Libbey contends he is the true owner of the Knotta Klu because he and Kosterlitz completed the sale of the vessel. (Doc. # 15 at 7-8). Libbey alleges the sale occurred in August of 2015, with Libbey “assum[ing] the monthly payment of an unsecured Note owed to its holder, Ned Christensen; convey[ing] possession and title to a F-27 trimaran to Kosterlitz; and assum[ing] the balloon payment of the ‘Christensen' Note when it became due.” (Id. at 7). Libbey attaches a bill of sale to his Answer. (Id. at 13). Also in August of 2015, Libbey “entered into an agreement with ‘Christensen' to assume the monthly debt and the balloon payment due on the unsecured note to complete the purchase of the subject vessel free and clear of any claim.” (Id. at 8). Libbey attaches an unsigned “Promissory Note, ” dated December 1, 2017, which purports to “replace[] [the] prior Promissory Note between” Kosterlitz and Christensen. (Id. at 14).

         In addition to assuming the Note and giving Kosterlitz the trimaran, Libbey also made “an initial payment” of $5, 000 to Kosterlitz's account. (Id. at 8). Libbey summarizes all that he paid to purchase the Knotta Klu in his second affirmative defense to Kosterlitz's Complaint: “the sum of $40, 974.60 in cash together with the in-kind value of a F-27 trimaran vessel with an agreed minimum value of $30, 000, together with [Libbey's] assumption of the Promissory Note.” (Id. at 5). Yet, Kosterlitz “surreptitiously entered onto the Libbey property and attempted to remove the subject vessel to an unknown location.” (Id.). Based on these allegations, Libbey asserts a petitory and possessory counterclaim as well as counterclaims for conversion and unjust enrichment against Kosterlitz.

         Kosterlitz filed the instant Motion, which this Court construes as a motion for sanctions, on May 3, 2018. (Doc. # 24). Kosterlitz argues that Libbey has committed a fraud upon the Court because Libbey alleged a different sales price for the Knotta Klu in a state court complaint filed on March 9, 2018 - the same day Kosterlitz filed this case. (Id. at 4-5; Doc. # 24-2). He asserts that Libbey's unexecuted promissory note, by which Libbey supposedly assumed Kosterlitz's debt to Christensen and which Libbey attached to his Counterclaim, (Doc. # 15 at 14), is manufactured evidence. Kosterlitz also notes that Christensen, who is represented by the same counsel as Libbey, has filed a state court action against Kosterlitz. In that action, Christensen alleges that Kosterlitz - not Libbey - owes him money under the promissory note. (Doc. # 24-3). Because of these inconsistencies, Kosterlitz contends Libbey should be sanctioned for perpetrating a fraud on the Court by having his Answer and Affirmative Defenses stricken, having default entered against him, and having the Counterclaim dismissed with prejudice. (Doc. # 24 at 7).

         Libbey has now responded, (Doc. # 28), and the Motion is ripe for review.

         II. Discussion

         The Court construes Kosterlitz's Motion as a motion for sanctions because Kosterlitz alleges that Libbey's pleadings and Counterclaim should be respectively stricken and dismissed because of a supposed fraud on the Court.

         “Federal courts derive their power to sanction any attorney, law firm, or party from three primary sources: Rule 11 of the Federal Rules of Civil Procedure, 28 U.S.C. § 1927, and the inherent power of the court.” Stonecreek - AAA, LLC v. Wells Fargo Bank N.A., No. 1:12-CV-23850, 2014 WL 12514900, at *1 (S.D. Fla. May 13, 2014)(citing Chambers v. NASCO, Inc., 501 U.S. 32, 41 (1991)). “Invocation of the Court's inherent power requires a finding of bad faith.” Island Stone Int'l Ltd. v. Island Stone India Private Ltd., No. 6:16-cv-656-Orl-40KRS, 2017 WL 1437464, at *11 (M.D. Fla. Apr. 4, 2017), report and recommendation adopted, No. 6:16-cv-656-Orl-40KRS, 2017 WL 1426664 (M.D. Fla. Apr. 21, 2017). “In determining whether sanctions are appropriate under the bad faith standard, the court focuses on the conduct and motive of a party, rather than on the validity of the case.” Id.

         “‘[A]cts which degrade the judicial system, ' including ‘attempts to deprive the Court of jurisdiction, fraud, misleading and lying to the Court, ' . . . are sanctioned through the court's inherent power.” Stonecreek - AAA, 2014 WL 12514900, at *1 (quoting Chambers, 501 U.S. at 32, 42). “A court has the power to conduct an independent investigation in order to determine whether it has been the victim of fraud.” Chambers, 501 U.S. at 44 (citing Universal Oil Products Co. v. Root Refining Co., 328 U.S. 575, 580 (1946)). “A ‘fraud on the court' occurs where it can be demonstrated, clearly and convincingly, that a party has sentiently set in motion some unconscionable scheme calculated to interfere with the judicial system's ability impartially to adjudicate a matter by improperly influencing the trier or unfairly hampering the presentation of the opposing party's claim or defense.” Aoude v. Mobil Oil Corp., 892 F.2d 1115, 1118 (1st Cir. 1989); see also Gupta v. Walt Disney World Co., 482 Fed.Appx. 458, 459 (11th Cir. 2012)(“[C]lear and convincing evidence of egregious conduct [is] required to establish fraud on the court.”).

         “The Court's inherent power permits a broad spectrum of sanctions that include striking frivolous pleadings and defenses, imposing attorney's fees and costs, and outright dismissal of a lawsuit.” Stonecreek - AAA, 2014 WL 12514900, at *2 (citing Allapattah Servs., Inc. v. Exxon Corp., 372 F.Supp.2d 1344, 1372-73 (S.D. Fla. 2005)). “Because of their very potency, inherent powers must be exercised with restraint and discretion.” Chambers, 501 U.S. at 44. “[S]anctions for fraud are reserved for the most egregious misconduct, such as bribery of a judge or ...

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