Rabin v. Dow Jones & Co., Inc., 665 F. App'x 21

I. Stephen Rabin filed a putative class action against The New York Times, Forbes, and Dow Jones alleging they participated in a third-party fraudulent subscription-renewal scheme that charged subscribers inflated renewal fees.
The fraud was actually orchestrated by an unaffiliated third party that sent unauthorized “renewal” notices and retained the overcharges.
Defendants moved to dismiss, arguing Rabin sued the wrong parties; Rabin and his counsel Raymond Bragar filed an amended complaint largely reasserting the same claims.
The New York Times and Forbes settled; Dow Jones renewed its dismissal motion and the district court dismissed the amended complaint with prejudice.
Dow Jones sought sanctions under 28 U.S.C. § 1927 and the court’s inherent power; the district court found the amended complaint lacked color from its filing and that Rabin and Bragar acted in bad faith, awarding Dow Jones $180,000.
Rabin and Bragar appealed, challenging the legal standard applied and the finding of bad faith; the Second Circuit affirmed.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether district court applied correct standard for sanctions under § 1927/inherent power	Rabin/Bragar argued the court used the wrong legal standard for finding the amended complaint not colorable	Dow Jones argued sanctions require finding claims were entirely without color and pursued for improper purposes	Court held district court applied correct standard (claims must be entirely without color and motivated by improper purposes)
Whether amended complaint was colorable	Rabin contended amended complaint presented a good-faith extension of law (duty to act upon learning of fraud)	Dow Jones argued amended complaint lacked legal and factual support for its liability for the third party’s fraud	Court held claims lacked a colorable basis given absence of factual support and evidence that Dow Jones acted to warn customers
Whether Rabin and Bragar acted in bad faith	Rabin/Bragar denied bad faith and disputed factual findings	Dow Jones pointed to admissions, withheld evidence, and failure to investigate contrary evidence	Court held factual findings supported bad faith: overstated allegations, failure to investigate, withholding refunds and other evidence, dubious deposition testimony
Whether sanctions award was an abuse of discretion	Rabin/Bragar argued findings were clearly erroneous or legally incorrect	Dow Jones defended award as within discretion based on record	Court held no abuse of discretion and affirmed sanctions award

Schlaifer Nance & Co. v. Estate of Warhol, 194 F.3d 323 (2d Cir. 1999) (defines when a claim is colorable for sanctions purposes)
Wolters Kluwer Fin. Servs., Inc. v. Scivantage, 564 F.3d 110 (2d Cir. 2009) (requires clear evidence that conduct is entirely without color and motivated by improper purposes for sanctions)
Oliveri v. Thompson, 803 F.2d 1265 (2d Cir. 1986) (compares § 1927 sanction standard to inherent powers of the court)