The Power Authority of the State of New York, ex rel. Solar Liberty Energy Systems, Inc. v. Advanced Energy Industries, Inc.

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
THE POWER AUTHORITY OF THE
STATE OF NEW YORK ex rel. SOLAR
LIBERTY ENERGY SYSTEMS, INC.,
Plaintiff,
v.
ADVANCED ENERGY INDUSTRIES,
INC.,
Defendant.
19-CV-1542-LJV-JJM
DECISION & ORDER
The plaintiff, the Power Authority of the State of New York, by and through a qui
tam relator, Solar Liberty Energy Systems, Inc. (“Solar Liberty”), brought this lawsuit
under the New York False Claims Act in New York State Supreme Court, Erie County.
See Docket Item 1-5. Approximately a year later, the defendant, Advanced Energy
Industries, Inc. (“Advanced Energy”), removed the matter to this Court. Docket Item 1.
On February 5, 2021, this Court referred this case to United States Magistrate Judge
Jeremiah J. McCarthy for all proceedings under 28 U.S.C. § 636(b)(1)(A) and (B).
Docket Item 47.
During the course of discovery, Advanced Energy moved for sanctions, arguing
that Solar Liberty had improperly compensated a witness in connection with his
testimony. Docket Item 160. After Solar Liberty responded, Docket Item 169, and
Advanced Energy replied, Docket Item 175, Judge McCarthy issued a Report and
Recommendation (“R&R”) finding that Advanced Energy’s motion should be denied,
Docket Item 178.
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Advanced Energy then objected to the R&R. Docket Item 183. Solar Liberty has
responded, Docket Item 185, and Advanced Energy has replied, Docket Item 186.
A district court may accept, reject, or modify the findings or recommendations of
a magistrate judge on a dispositive motion. 28 U.S.C. § 636(b)(1); Fed. R. Civ. P.
72(b)(3). The court must review de novo those portions of a magistrate judge’s
recommendation to which a party objects. 28 U.S.C. § 636(b)(1);
Fed. R. Civ. P. 72(b)(3). When a magistrate judge’s order is non-dispositive, however,
“a district court may only ‘modify or set aside any part of the order that is clearly
erroneous or is contrary to law.’” United States v. Aventura Techs., Inc., 607 F. Supp.
3d 278, 282 (E.D.N.Y. 2022) (quoting 28 U.S.C. § 636(b)(1)(A)). “This standard is
highly deferential and only permits reversal where the magistrate [judge] abused his
discretion.” Id. (quoting Mental Disability L. Clinic v. Hogan, 739 F. Supp. 2d 201, 203
(E.D.N.Y. 2010)).
This Court has carefully and thoroughly reviewed the R&R; the record in this
case; and the objection, response, and reply. Based on that review, the Court accepts
and adopts Judge McCarthy’s recommendation to deny Advanced Energy’s motion for
sanctions.
DISCUSSION
The Court assumes the reader’s familiarity with the factual background, see
Docket Item 178 at 2-7, and Judge McCarthy’s analysis in the R&R, see id. at 7-9.1
1 Page numbers in docket citations refer to ECF pagination.
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I. 	STANDARD OF REVIEW
As a threshold matter, the parties disagree about the proper standard of review.
Advanced Energy says that review should be de novo because the relief sought in its
motion was dispositive. See Docket Item 186 at 6. Solar Liberty counters that because
Judge McCarthy did not order dispositive relief, review is only for clear error. See
Docket Item 185 at 5; see also Khatabi v. Bonura, 2017 WL 10621191, at *3 (S.D.N.Y.
Apr. 21, 2017) (“[I]n determining between dispositive and non-dispositive discovery
sanctions, the critical factor is what sanction the magistrate judge actually imposes,
rather than the one requested by the party seeking sanctions.”). This Court need not
decide which standard of review applies, however, because—for the reasons that
follow—it agrees with Judge McCarthy’s assessment and conclusion under either
standard of review.
II. 	ANALYSIS
Sanctions under the Court’s inherent power “are appropriate only if there is clear
evidence that the conduct at issue is (1) entirely without color and (2) motivated by
improper purposes.” Wolters Kluwer Fin. Servs., Inc. v. Scivantage, 564 F.3d 110, 114
(2d Cir. 2009) (emphasis added). “Conduct is entirely without color when it lacks any
legal or factual basis; it is colorable when it has some legal and factual support,
considered in light of the reasonable beliefs of the attorney whose conduct is at issue.”
Id. “A finding of bad faith, and a finding that conduct is without color or for an improper
purpose, must be supported by a high degree of specificity in the factual findings.” Id.
Advanced Energy first argues that Judge McCarthy erred by failing to address
the first prong of this analysis—whether the action was “entirely without color.” See
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Docket Item 183 at 12-16. But as Solar Liberty observes, any such error is
inconsequential because Advanced Energy must satisfy both prongs of the test. See
Docket Item 185 at 6-11; see also Wolters Kluwer Fin. Servs., 564 F.3d at 114. And
this Court agrees with Judge McCarthy that Advanced Energy cannot satisfy the second
prong.
More specifically, this Court—like Judge McCarthy—is “not clearly and
convincingly persuaded that Solar Liberty’s dealings with [witness Norman] Smith were
motivated by an improper purpose, or that it acted with subjective bad faith.” See
Docket Item 178 at 8. In particular, as both Judge McCarthy and Solar Liberty observe,
Smith was sympathetic to Solar Liberty before any alleged payment. See id. at 8-9;
Docket Item 185 at 15. Thus, this is not a case where the payment appears to have
“bought” false testimony or testimony that otherwise would not have been given. Nor is
an evidentiary hearing required. See In re Dynex Cap., Inc., Sec. Litig., 2011 WL
2581755, at *3 (S.D.N.Y. Apr. 29, 2011) (stating that “it is within the [c]ourt’s discretion
to hold an evidentiary hearing on a sanctions motion, although no such hearing is
required”), report and recommendation adopted, 2011 WL 2471267 (S.D.N.Y. June 21,
2011).
Simply put, the evidence is not clear enough to support a finding of bad faith and
sanctions. Therefore, even if Advanced Energy is correct that the alleged inducements,
including Solar Liberty’s paying $300 to retain an attorney for Smith, were “without
color” of law, sanctions still are not warranted.
Of course, there is nothing stopping Advanced Energy from presenting its theory
to the jury to undermine Smith’s credibility. Indeed, Smith’s potential motive to testify
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favorably to Solar Liberty is classic fodder for cross-examination. But based on the
record before this Court, sanctions are not warranted.
CONCLUSION
For the reasons stated above and in the R&R, Advanced Energy’s motion for
sanctions, Docket Item 160, is DENIED. The case is referred back to Judge McCarthy
for further proceedings consistent with the referral order of February 5, 2021, Docket
Item 47.
SO ORDERED.
Dated: 	February 21, 2025
Buffalo, New York
/s/ Lawrence J. Vilardo
LAWRENCE J. VILARDO
UNITED STATES DISTRICT JUDGE
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