Cable First v. Lepetiuk Engineering: The Second Circuit’s Clear Warning on Frivolous Appeals, Misrepresented Ownership, and Rule 38 Sanctions

Introduction

Cable First Construction, Inc. (“Cable First”) contracted Lepetiuk Engineering Corp. (“LEC”) to install fiber-optic cable for Altice Technical Services. After the relationship soured, Cable First sued LEC in the Southern District of New York for breach of contract and a host of equitable and tort claims. All claims except breach of contract were dismissed at the pleading stage; after a bench trial the district court found for LEC on the contract claim as well. On appeal the Second Circuit was asked to review:

Dismissal of claims for fraud, specific performance, and unjust enrichment;
Dismissal of John Quaranta (alleged owner of Cable First) for lack of standing;
Exclusion of a proffered exhibit as a business record; and
LEC’s oral motion for Rule 38 sanctions based on misrepresentations about ownership.

In a non-precedential summary order dated 18 July 2025, the court affirmed across the board and ordered Cable First’s counsel to show cause why double costs and fees should not be imposed under Federal Rule of Appellate Procedure 38. Although summary orders have no binding precedential effect, the decision articulates a robust message on three doctrinal fronts: (1) pleading fraud with particularity, (2) shareholder/third-party standing in contract suits, and (3) the circumstances under which appellate courts will deem an appeal frivolous and trigger Rule 38 sanctions.

Summary of the Judgment

1. Fraud, Specific Performance, and Unjust Enrichment
• Fraud allegations were rejected for failure to comply with Rule 9(b); no specific statements, speakers, or intent were pleaded.
• Specific performance is a remedy, not a free-standing cause of action; once the breach claim failed, the remedy fell with it.
• Unjust-enrichment allegations were conclusory and duplicative of the contract claim.

2. Lack of Standing
The court confirmed that Quaranta was neither a shareholder nor a third-party beneficiary and thus lacked standing. New York law bars shareholders from suing individually for harms to the corporation (Abrams v. Donati).

3. Evidentiary Ruling
Exhibit 4 was properly excluded; Quaranta could not qualify the documents under Federal Rule of Evidence 803(6), and duplicates were already admitted.

4. Rule 38 Sanctions—Show-Cause Order
Finding the appeal frivolous—principally due to repeated misstatements that Quaranta owned Cable First—the panel directed appellant’s counsel to justify why he should not pay double costs and fees.

Analysis

Precedents Cited

The court leaned on a familiar but potent line of Second Circuit and New York authority:

Merrill Lynch & Co. v. Allegheny Energy, Inc. (2d Cir. 2007) – sets forth elements of common-law fraud.
Shields v. Citytrust Bancorp (2d Cir. 1994) – seminal Rule 9(b) particularity standard.
Cohen v. S.A.C. Trading (2d Cir. 2013) – elaborates on pleading fraudulent intent.
Premium Mortgage v. Equifax (2d Cir. 2009) – articulates the “clear intent” test for third-party beneficiaries.
Abrams v. Donati (N.Y. Ct. App. 1985) – bars individual shareholder suits for corporate wrongs.
Abascal v. Fleckenstein (2d Cir. 2016) – custodian requirement for business-record exception.
Carroll v. Trump (2d Cir. 2024) – harmless-error standard for evidentiary rulings & plain-error preservation.

These cases collectively closed every doctrinal door Cable First tried to open. Notably, none are new; rather, the panel’s synthesis underscores that a litigant ignoring settled precedent may face Rule 38 penalties.

Legal Reasoning

Pleading Deficiencies. Rule 9(b) mandates “time, place, speaker, and content.” Cable First’s generalized accusations—e.g., LEC “concealed conversion of materials”—failed every prong. The court emphasized that alleging a competitor relationship or abandonment of materials is not enough; one must identify who lied, what was said, when, and why it was false.

Standing and Corporate Separateness. The opinion triangulates between contract law (third-party beneficiary doctrine) and corporate law (shareholder-standing rule). Even if Quaranta had been a shareholder, New York requires that the corporation, not its owners, vindicate contract rights. The record revealed he was not an owner at all, eviscerating any colorable claim to standing.

Evidence Exclusion. Rule 803(6) is unforgiving: absent a custodian or certification, business records stay out. Because Exhibit 4’s invoices also appeared in admitted Exhibit 5, any error would have been harmless; the court therefore found no abuse of discretion.

Rule 38 Sanctions. The panel devoted an entire section to sanctions, signaling that persisting in factual misrepresentations (ownership) and recycled, under-developed legal theories justifies labeling an appeal “frivolous.” The order to show cause—rather than immediate sanctions—observes due-process notice, but the court’s language (“plainly insufficient,” “frivolous”) foreshadows a likely penalty.

Impact

Although technically non-precedential, the order carries practical force:

Appellate Gatekeeping. Second Circuit panels may more readily invoke Rule 38 against contract litigants who ignore Rule 9(b) or standing principles.
Practitioner Vigilance. Lawyers must vet factual assertions—especially ownership or party status—before filing. Misstatements, even if corrected in discovery, can doom an appeal.
Evidentiary Rigor in Bench Trials. The case reiterates the need for proper custodial foundations, debunking the notion that judges “relax” the rules in non-jury settings.
In-House Counsel & Transactional Drafting. Contracts should spell out any intended third-party benefits unequivocally; otherwise non-signatories face formidable standing barriers.

Complex Concepts Simplified

Rule 9(b): A federal rule requiring fraud claims to describe the who, what, when, where, and how of the alleged lie. Think of it as an “address, date, and quote” rule.
Standing: The legal right to bring a lawsuit. If you are not a party to the contract, you generally can’t sue on it unless the contract clearly says you may.
Third-Party Beneficiary: Someone who, while not signing a contract, is meant to benefit from it and can sometimes enforce it—but only if the contract makes that intent explicit.
Specific Performance: A court order telling someone to perform the contract instead of (or in addition to) paying money. It’s a remedy, not a standalone claim.
Unjust Enrichment: A claim that someone unfairly kept a benefit they didn’t pay for. It requires showing (1) enrichment, (2) at plaintiff’s expense, and (3) inequity in allowing it to stand.
Rule 803(6) “Business-Record Exception”: Lets routine business documents into evidence without a live witness only if a custodian certifies how they were kept.
Rule 38 Sanctions: The appellate court’s power to punish parties for bringing a frivolous appeal with “just damages” and extra costs.

Conclusion

Cable First v. Lepetiuk Engineering is, on paper, a routine affirmance delivered through a non-precedential summary order. In substance, it is a forceful tutorial on (1) the pleading rigor required for fraud, (2) the sharp contours of third-party standing, (3) evidentiary foundations in business-record admissions, and (4) the economic perils of frivolous appeals. By issuing a Rule 38 show-cause order—grounded in factual misrepresentations about corporate ownership—the Second Circuit broadcasts a clear warning: litigants and counsel who disregard settled law or factual truth do so at their financial peril. While not binding precedent, the order will likely be brandished by future appellees seeking sanctions and by district courts policing the threshold adequacy of fraud pleadings and standing allegations.