There is an interesting—and disturbing—federal case that involves allegations of corruption in the New York state court system that is now before the U.S. Court of Appeals for the Second Circuit. Welcome to Knopf v. Esposito, 17-cv-5833 (S.D.N.Y.) and 17-4151 (Civil) (2d Cir.).
What’s remarkable about the case is that much of what happened isn’t disputed. The documentary evidence has been filed (and is available to anyone with a PACER account), and the corruption seems established by these documents. However, instead of allowing the victims’ civil rights claim to proceed, the federal district court not only dismissed the complaint but sanctioned the victims and their attorney at total of $197,857. It’s not clear how such documented allegations could be defeated prior to trial, let alone result in the victims of the corruption being penalized by a federal judge.
Here is the background. Norma and Michael Knopf are an elderly couple. They made several real estate loans to an individual named Michael Sanford. Sanford did not repay the loans, and the Knopfs prevailed on their breach of the loan agreement claims in a state court appeal, but the appellate court did not determine the amount of their damages. Then, while awaiting a hearing on their damages, Sanford sold one of the properties he had purchased using the loans from the Knopfs without paying the proceeds into escrow as he was required to do under yet another appellate order. The Knopfs had obtained that escrow order so that, when they eventually obtained their money judgment, they could apply those proceeds to their judgment.
Prior to selling the property, Sanford moved to vacate, the legal term for nullify, the escrow order, but his motion was denied. Sanford’s buyer therefore refused to close on the escrow-free terms Sanford was demanding. Instead of moving for reconsideration, Sanford located Frank Esposito, the husband of an appellate court attorney, Melissa Ringel, and entered into an agreement to pay Esposito $55,000. Ringel, after talking to Esposito, agreed—as she admitted in a deposition—to say that the order did not impose an escrow requirement.
The very next day after Sanford and Esposito entered into the $55,000 contract, two of Sanford’s lawyers, Nathaniel Akerman and Ed Feldman, contracted Ringel at the First Department without including the Knopfs’ lawyers on the call. Ringel provided Akerman and Feldman with what the federal district court called an “advisory opinion” that there was no escrow requirement after all, and that Sanford was free to sell the property without escrowing the sale proceeds. Ringel’s advisory opinion satisfied the concerns of Sanford’s buyer, and Sanford sold the property without escrowing the proceeds. Esposito, the husband of the court attorney, received $102,500 of the sale proceeds, well beyond the $55,000 Sanford had promised him.
A few weeks later, after Sanford was found by a judicial hearing officer to owe the Knopfs $10.9 million, the Knopfs learned about the sale and moved to enforce the escrow order. Their motion was granted, but all except $436,227.32 of the sales proceeds had been dispersed by that time.
Based on these events, the Knopfs brought a civil rights action alleging a conspiracy to deprive them of their due process rights (particularly, the right to notice and an opportunity to be heard in connection with the court attorney’s “ruling”). They alleged that the money that had not been paid into escrow but was dispersed instead should have been paid to them.
It appears that the Knopfs have already obtained most the evidence they would need to prove the due process violation. Esposito and Sanford testified in depositions that they met so that Sanford could obtain Esposito’s assistance in overcoming the escrow order. Esposito and Ringel testified that she agreed to opine that the orders did not impose an impediment to Sanford selling the property without escrowing the proceeds.
Feldman and Akerman admit that they called Ringel and obtained her advisory ruling without the Knopfs being on the call. The deposition testimony is in the record, and accessible via PACER, as is: Sanford’s agreement to pay Esposito $55,000 on January 11, 2016, Feldman’s file memo regarding the call he and Ackerman made to Ringel the next day (January 12), and the $102,500 in checks that Esposito received from the property sale, all of which are on the district court docket.
Based on the documentary evidence, the district court’s decision (Hon. Denise Cote, J.) dismissing the complaint seems curious. Judge Cote found that it was a “coincidence” that Ackerman and Feldman ended up talking to Ringel, as opposed to another court attorney. The Knopfs, not surprisingly, reject the plausibility of an innocent coincidence since Ringel was one of more than fifty court attorneys employed in the appellate court, and she was assigned to the court’s mediation department and had no responsibilities relating to motions or orders. Judge Cote also did not mention the obvious due process violation that occurred when the Knopfs were not included on the call Ackerman and Feldman placed to Ringel. Nor did Judge Cote’s decision mention that $102,500 in payments were made to Ringel’s husband, Esposito. Judge Cote also found, without elaboration, that there were no grounds to believe that Ringel was part of a conspiracy.
As would be expected, the Knopfs appealed the ruling to the Second Circuit. However, immediately after they filed the appeal, Judge Cote imposed $197,857 in sanctions against them and their counsel under 42 U.S.C. §1988, 28 U.S.C. §1927, and the court’s inherent powers. From reading the decision granting sanctions, it’s fairly clear that, while Judge Cote did not believe that Sanford, Esposito, Ringel, or Sanford’s attorneys did anything wrong in exchanging $102,500 for an advisory opinion and then using that advisory opinion to avoid the escrow requirement, she had no qualms about punishing the Knopfs and their attorney for bringing the corruption to light.
All these issues are now before the Second Circuit, and this will be an interesting appeal to follow. The federal Civil Rights Act of 1871 was intended to protect the victims of corruption schemes in the state courts, and the Second Circuit has an opportunity make sure that purpose is achieved in this case.