Opinion
04-CV-0129E(F), (99-BK-16855K).
August 11, 2004
MEMORANDUM and ORDER
This decision may be cited in whole or in any part.
On July 25, 2003 Judge Michael J. Kaplan of the United States Bankruptcy Court for the Western District of New York ("Bankruptcy Court") sanctioned Leech Tishman Fuscaldo Lampl, LLC ("LTFL"), the Trustee's attorneys, pursuant to the court's inherent power for discovery-related violations. In an Order dated January 8, 2004, Judge Kaplan awarded fees and expenses in the amount of $147,635.74 to Appellees, Gioia Management, Inc., Anthony Gioia and Richard Gioia (collectively the "Gioia Defendants"). LTFL appealed the sanction and award to this Court on January 20, 2004. Oral arguments were heard and this matter was submitted on May 28, 2004. For the reasons set forth below, the Bankruptcy Court's sanctions and fee award are affirmed.
On December 15, 1999 Corson Manufacturing Company ("Corson") filed a voluntary petition for Chapter 11 protection in the Bankruptcy Court. The appointed creditor's committee ("Committee") was subsequently authorized to retain LTFL as its counsel and Parente Randolph LLC ("Parente") as its accounting consultants. Parente filed a detailed fee application ("Fee Application") in November 2000 for its services to the Committee. The Committee filed an adversary proceeding ("Adversary Proceeding") against, inter alios, the Gioia Defendants on December 12, 2000. The Complaint therein asserted, inter alia, twenty-four counts against the Gioia Defendants including four non-core claims based on an alleged pre-petition breach of fiduciary duty. On February 27, 2001 the Gioia Defendants filed a motion to withdraw the Adversary Proceeding from the Bankruptcy Court to this Court pursuant to 28 U.S.C. § 157(d). In an Order dated June 26, 2001, this Court denied the Gioia Defendants' request but modified the Referral Order so as to permit the Bankruptcy Court to continue to preside over the Adversary Proceeding until such time as the non-core issues raised in the Complaint are ready to be determined by this Court by trial or by dispositive motion. On March 9, 2001 the Chapter 11 proceedings were converted to Chapter 7 liquidation proceedings. Daniel E. Brick, the appointed trustee ("Trustee"), was subsequently authorized to retain LTFL as its counsel.
The Fee Application stated in part, "Parente is assisting the Committee and counsel in investigating and analyzing potential fraudulent transfers and insider transactions including issues of the debtor's solvency when it entered into a Guaranty Exchange Agreement with its secured lender in May 1999, * * * and evaluating management fees paid to the parent company." Gioia Defs.' Appellee Br. at 3.
Pursuant to 28 U.S.C. § 157(a) and a Standing Order of this Court dated July 13, 1984, the Adversary Proceeding was referred to the Bankruptcy Court.
"A proceeding that involves rights created by bankruptcy law, or that could arise only in a bankruptcy case, is a core proceeding. An action that does not depend upon the bankruptcy laws for its existence and which could proceed in a court that lacks federal bankruptcy jurisdiction is non-core." United Orient Bank v. Bachner, Tally, Polevoy Misher L.L.P. (In re Green), 200 B.R. 296, 298 (S.D.N.Y. 1996) (citations omitted).
The Gioia Defendants asserted that the entire Adversary Proceeding should be withdrawn to this Court as a matter of judicial economy because several of the Committee's claims are non-core and the Gioia Defendants are entitled to a jury trial on those claims.
The Trustee subsequently replaced the Committee as plaintiff in this case in November 2001.
The Gioia Defendants served a discovery request on the Committee for production of documents on September 19, 2001. The Gioia Defendants maintained that the request encompassed all Parente documents pertaining to its work done for the Committee as detailed in the Fee Application. LTFL responded in December of 2001, but did not reference documents from Parente. In a series of letters and telephone conversations with LTFL, the Gioia Defendants asserted that the Parente documents were within the scope of their September 2001 discovery request.
Defendants requested all documents pertaining to the allegations in the Complaint, particularly those relating to the financial condition of the Debtor, contested management fees, and all documents relied upon by the Committee in "preparation of the Complaint." Gioia Defs.' Appellee Br. at 5. Specifically, the request included "all documents known or available to Plaintiff regardless [of] whether such documents are possessed directly by, or are in custody or control of, Plaintiff or Plaintiff's officers, directors, agents, employees, former employees, representatives, consultants, investigators, accountants, attorneys or their agents, employees, representatives or investigators." Ibid.
Judge Kaplan actively monitored discovery and emphasized the importance of timely discovery responses in this case. On May 30, 2002 Judge Kaplan admonished LTFL for stalling production of the Parente documents. LTFL subsequently applied for and received on June 5, 2002 an ex parte Order from the Bankruptcy Court authorizing the Trustee's retention of Parente as accounting consultants. LTFL then notified the Gioia Defendants that the Parente documents would be forthcoming after a privilege review. Although the Gioia Defendants received access to the Parente documents on July 31, 2002, no privilege log was produced. The documents were numbered pursuant to an included index ("File Index"). When the Gioia Defendants compared the documents produced to the File Index and the Fee Application, they discovered that numerous documents were missing, including a timeline. During a conference call with the Bankruptcy Court, LTFL stated that it had withheld some Parente documents to review for potential privilege objections. When Judge Kaplan questioned LTFL about the Trustee's wishes regarding assertion of privilege with respect to the Parente files, LTFL admitted that it had not consulted with the Trustee. LTFL subsequently conferred with the Trustee and advised the Bankruptcy Court and the Gioia Defendants that the Trustee waived privilege with respect to these documents.
At a May 15, 2002 hearing, Judge Kaplan stated:
"I don't want a failure to respond to demands in a timely fashion. I don't want misdirection to responses that are given. And I want all of the formal requisites of discovery to be abided by, except to the extent the parties stipulate otherwise. And I want to be actively involved to get this prepared for trial in front of Judge Elfvin as soon as possible." May 15, 2002 Tr. at 12.
In a letter to Keithley D. Mulvihill dated May 30, 2002, Judge Kaplan wrote:
"Because it is the estate * * * that is bearing the costs and expenses of litigation, * * * 'economy' should be a touchstone for non-critical discovery matters. * * * [A] trustee should voluntarily provide everything of relevance of which he or she has control, without insisting on formal demand * * * A trustee should assist the court in obtaining a fair and just result under the law, rather than needlessly burdening the estate and opponents for the sole purpose of strategic advantage. * * * In sum, a trustee-plaintiff is under a higher duty than the defendant to labor toward the just and economical resolution of the case." Mulvihill was the LTFL attorney directly involved in these violations.
Judge Kaplan stated that he would be "shocked" if the Trustee wanted to assert privilege with respect to the Parente documents. July 25, 2003 Tr. at 20-21.
After the withheld documents were produced, LTFL represented that the Parente production was complete, despite remaining gaps in the documents. To resolve discrepancies between the work detailed in the Fee Application and the sparse documentation produced, the Gioia Defendants subpoenaed certain Parente executives to produce the requested Parente documents and to give deposition testimony on Parente's production to LTFL and the nature of Parente's work for the Committee. LTFL moved to quash the subpoenas on the grounds that it had produced all the Parente documents. The Gioia Defendants filed a cross-motion to compel the production of Parente documents and witnesses. During a September 26, 2002 conference call with Judge Kaplan, LTFL again represented that the Parente document production was complete. When asked about the missing Parente timeline, Mulvihill admitted that he had a timeline but was withholding it because it was an LTFL timeline. On September 27, 2002 LTFL notified the Gioia Defendants that a Parente employee had found unproduced Parente e-mails and electronic documents including the Parente timeline. LTFL immediately forwarded these documents to the Gioia Defendants. The Gioia Defendants filed a cross-motion on September 30, 2002 requesting that the Bankruptcy Court award expenses and sanctions for discovery failures under Rule 37 of the Federal Rules of Civil Procedure ("FRCvP").
LTFL asserted that gaps appeared in the produced documents because the File Index was based on a master File Index that contained document categories that were not applicable to the Parente production. LTFL, however, did not address the apparent gaps in the Parente documents when compared to the work detailed in the Fee Application.
LTFL maintains that Mulvihill did not know that Parente had created a timeline and was at all times referring to a timeline created by an LTFL attorney as attorney work product.
At the October 1, 2002 hearing on the motions to quash and compel the Parente depositions, LTFL defended their misrepresentations to the Bankruptcy Court regarding the completeness of the document production by arguing that LTFL had reasonably relied on the representations of the Parente firm. In an Order dated October 3, 2002, Judge Kaplan compelled the complete production of Parente documents in the possession of the Parente firm, the complete production of all documents in LTFL's file that were responsive to the Gioia Defendants' September 2001 discovery request and the depositions of the Parente witnesses. Nonetheless, in a letter dated October 25, 2002, LTFL again represented that the entire Parente file had been produced and that it knew of no additional Parente documents. LTFL's subsequent production, however, included copies of previously unproduced Parente documents that had been copied to LTFL's files.
At the October 1, 2002 hearing, the Bankruptcy Court noted the difficulty in limiting the scope of the Parente depositions. The Trustee had not determined whether Parente would be designated as an expert for trial purposes, and LTFL argued against allowing the Gioia Defendants to ask Parente employees about opinions formed thus far. Judge Kaplan indicated, however, the difficulty of drawing the line between fact and opinion when answering questions about the content of a document. Judge Kaplan decided that there should be no attempt to define the scope of the questions pertaining to the documents. Instead, Judge Kaplan suggested the adoption of a standing reservation such that if a Parente witness expressed a current opinion at his deposition, he could at that time reserve the right to change that opinion pending further discovery. Therefore, the opinion would not be treated as a FRCvP 26(b)(4) expert opinion. October 1, 2002 Tr. at 28-41.
In his deposition, Edward Phillips, a Parente manager, revealed that during an office move in February 2002 he had discarded several notepads that may have contained notes on the Corson matter. Additionally, Phillips testified that he had told Mulvihill about the discarded notebooks during previous conversations regarding document production. LTFL, however, never conveyed this information to the Gioia Defendants.
Phillips testified that he took the notes mainly for time-tracking purposes and was unlikely to have relied on them in forming any opinions. He also testified that it was possible that some other Parente documents were not produced because they were lost on an employee's desk and discarded. Although the destruction of the documents occurred several months after the Gioia Defendants' discovery request, Phillips testified that LTFL had never advised Parente to maintain such documents.
The Bankruptcy Court conducted an evidentiary hearing on the Gioia Defendants' sanction motion on May 5 and 6, 2003. In an Order dated July 2, 2003, Judge Kaplan ordered reargument and directed the parties to address the court's inherent power to sanction LTFL as set forth by Chambers v. NASCO, Inc., 501 U.S. 32 (1991), DLC Management Corp. v. Hyde Park, 163 F.3d 124 (2d Cir. 1998), and United States v. Seltzer, 227 F.3d 36, 42 (2d Cir. 2000). At the conclusion of the July 25, 2003 hearing, Judge Kaplan sanctioned LTFL for "evasive or incomplete disclosure, answer or response once it was made clear to plaintiff's counsel that, in the view of the defendants, all Parente Randolph documents were within the scope" of the initial document demands. The January 8, 2004 Order awarded attorneys' fees to be paid by LTFL to the Gioia Defendants for groundwork for the preparation of Gioia Defendants' Motion to Compel and Motion for Sanctions ("First Category"), Gioia Defendants' Response to Plaintiff's Motion to Quash and preparation of Gioia Defendants' Motion to Compel ("Second Category"), Parente employee depositions ("Third Category"), Gioia Defendants' Motion for Sanctions ("Fourth Category") and expenses incurred by the Gioia Defendants as a result of LTFL's sanctionable behavior ("Fifth Category").
In a memorandum submitted to the Bankruptcy Court after the hearing, LTFL argued successfully that FRCvP 37 sanctions were not applicable because no written court order was violated. Judge Kaplan determined that the application of FRCvP 37 sanctions, as requested by the Gioia Defendants, could be problematic because FRCvP 37 does not specifically address a situation where the court was integrally involved on a daily basis in overseeing discovery and thus gave many oral instructions in conferences instead of issuing written discovery orders. July 25, 2003 Tr. at 28-29.
July 25, 2003 Tr. at 56.
The Gioia Defendants requested a total of $154,597.24 in the five categories. Judge Kaplan reduced such amount as follows: (1) First Category fees were reduced by $1,637 for work regarding the assertion of privilege because that work would have been necessary even if privilege had been properly asserted; (2) Second Category fees were reduced by $3,369.50 for September 2002 efforts that would have been necessary had LTFL simply opposed the subpoena in good faith; and (3) Third Category fees were reduced by $1,955 for research of FRCvP 30 and FRCvP 45 with regard to the apparent document gaps that would have been necessary even if full disclosure had been made. Fifth Category fees were allowed in full. January 8, 2004 Order at 3-4. Although Judge Kaplan did not address Fourth Category fees in his Order, the requested amount of $48,847 was awarded in full. Note that there appears to be a typographical error in Judge Kaplan's January 8, 2004 Order. Although the Gioia Defendants requested $15,396.00 in First Category fees, Judge Kaplan's Order listed such request as $14,396.02. Id. at 3. The calculation of the award, however, incorporated the correct figure of $15,396.00. The total award breaks down as follows: $13,759 (First Category), $19,320 (Second Category), $45,483 (Third Category), $48,847 (Fourth Category), and $20,226.74 (Fifth Category).
LTFL seeks reversal of the sanctions on the grounds that the Bankruptcy Court (1) lacked the inherent power to impose sanctions, (2) erred in failing to specifically identify the basis for sanctions, (3) misapplied case law, (4) made evidentiary errors and (5) did not base the sanctions on a clear order. Alternatively, LTFL argues that the sanction amount should be reduced because (1) Gioia Defendants' counsel's time records lacked sufficient evidence to support the reasonableness of the rates and hours, (2) the Bankruptcy Court did not consider precedent when it determined the award amount, (3) the Gioia Defendants should not receive fees based on their FRCvP 37 motion for sanctions and (4) the Gioia Defendants' fees and expenses for the Parente employee depositions were excessive.
This Court reviews the Bankruptcy Court's imposition of sanctions for an abuse of discretion. Klein v. Wilson, Elser, Moskowitz, Edelman Dicker (In re Highgate Equities, Ltd.), 279 F.3d 148, 151 (2d Cir. 2002). While the Bankruptcy Court is in a better position to determine whether sanctions are warranted, it "would necessarily abuse its discretion if it based its ruling on an erroneous view of the law or on a clearly erroneous assessment of the evidence." Id. at 152 (internal quotations omitted). Although an assessment of attorneys' fees is "undoubtedly within a court's inherent power," this Court must nevertheless ensure that the decision was made with restraint and discretion. It is "imperative that the court explain its sanctions order with care, specificity, and attention to the sources of its power." In doing so, however, "[t]he findings of fact and conclusions of law need not be written but may instead be stated orally and recorded in open court. [The findings] need not include punctilious detail * * * [but must be] sufficient to permit meaningful appellate review."
See also Ormond Beach Assocs. Ltd. P'ship v. Citation Mortgage, Ltd. (In re Ormond Beach Assocs. Ltd. P'ship), 2003 WL 21024635, at *1 (2d Cir. 2003) (reviewing the bankruptcy court's imposition of sanctions for abuse of discretion), aff'g 278 B.R. 307, 311 (D. Conn. 2002) (reviewing bankruptcy court's imposition of sanctions pursuant to court's inherent authority for an abuse of discretion).
Chambers, at 45.
In re Highgate Equities, at 152.
Sakon v. Andreo, 119 F.3d 109, 113 (2d Cir. 1997) (internal quotation marks omitted).
Mazzeo v. Lenhart (In re Mazzeo), 167 F.3d 139, 142 (2d Cir. 1999) (citations omitted).
Under its inherent power, a court may assess attorneys' fees when a party has "acted in bad faith, vexatiously, wantonly, or for oppressive reasons." Clear evidence of a "conscious disregard" of one's discovery obligations is sufficient to find bad faith. Indeed, "[e]ven in the absence of a discovery order, a court may impose sanctions on a party for misconduct in discovery under its inherent power to manage its own affairs." This Court requires a finding of bad faith when attorneys' fees are assessed for "conduct of the sort that is normally part of the attorney's legitimate efforts at zealous advocacy for the client," but does not require a finding of bad faith to sanction "violations of court orders or other conduct which interferes with the court's power to manage its calendar and the courtroom."
Chambers, at 45-46 (quotations omitted).
Hyde Park, at 136.
Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99, 106-107 (2d Cir. 2002) (citing Hyde Park, at 135-136). Where "the nature of the alleged breach of a discovery obligation is the nonproduction of evidence, a district court has broad discretion in fashioning an appropriate sanction." Id. at 107.
Seltzer, at 40.
Seltzer, at 42. See also Wilder v. GL Bus Lines, 258 F.3d 126, 130 (2d Cir. 2001) (citing Seltzer for the proposition that pursuant to, inter alia, a court's "inherent equitable powers to impose costs against an attorney as a sanction," sanctions may be imposed "where the attorney has negligently or recklessly failed to perform his responsibilities as an officer of the court").
LTFL first argues that the Bankruptcy Court exceeded the limits of its inherent power. LTFL contends that the Bankruptcy Court's sua sponte shift from FRCvP 37(b) to the court's inherent power as a basis for sanctions was an abuse of discretion. Chambers, however, clearly states that, "if in the informed discretion of the court, neither the statute nor the Rules are up to the task, the court may safely rely on its inherent power" to assess fees as a sanction. LTFL additionally argues that, with the exception of Seltzer, a sanction under a court's inherent power in the Second Circuit requires a clear finding that the sanctioned actions were undertaken entirely without color and for improper purposes. Although Judge Kaplan correctly explained in the July 25, 2003 hearing that Seltzer provided authority to impose sanctions in this case without a finding of bad faith, Judge Kaplan also found LTFL responsible for "wanton" and "vexatious" conduct that was sufficient to find bad faith under Chambers and Hyde Park. Consequently, Judge Kaplan's decision was supported by Chambers, Hyde Park and Seltzer.
Chambers, at 50.
Judge Kaplan noted that Mulvihill's disregard of discovery obligations and his derelictions as an officer of the court could not have been performed on behalf of his client because the Trustee had waived privilege with respect to the Parente documents. July 25, 2003 Tr. at 21, 54. Judge Kaplan cited his power to "police the conduct of attorneys as officers of the court, and to sanction attorneys for conduct not inherent to client representation, such as, violations of court orders or other conduct which interferes with the court's power to manage its calendar and the courtroom without a finding of bad faith." Id. at 5-6 (quoting Seltzer, at 42).
July 25, 2003 Tr. at 43-47.
January 8, 2004 Order at 3 n. 1.
Chambers, at 45-46.
A court's finding that a party has "acted in conscious disregard of [its] discovery obligations" may fulfill the bad faith requirement when based on clear evidence. Hyde Park, at 136 (quotations omitted) ("Indeed, the record reflects a pattern of behavior which could reasonably be construed as a bad faith effort to thwart [the opponent's] discovery efforts."); see also Blauinsel Stiftung v. Sumitomo Corp., 2004 WL 287179, at *1-2 (2d Cir. 2004) (affirming sanction against party and its attorney under Chambers and Residential Funding for misrepresentations and bad faith evasion of discovery obligations and awarding aggrieved party its reasonable legal fees and additional $10,000 from offending attorney); Invision Media Communications, Inc. v. Fed. Ins. Co., 2004 WL 396037, at *6-9 (S.D.N.Y. 2004) (sanctioning party under Hyde Park and Chambers based on party's frequent and conscious "failure to meet its discovery obligations" and awarding adversary its reasonable legal fees); Carr v. Queens-Long Island Med. Group, P.C., 2003 WL 169793, at *4-5 (S.D.N.Y. 2003) (sanctioning attorney under Hyde Park, Residential Funding and Chambers based on failure to alert adversaries that discovery deadlines would be missed, which amounted to bad faith delay of discovery and multiplication of the costs of litigation and awarding aggrieved party its reasonable legal fees); Metro. Opera Ass'n v. Local 100, Hotel Employees Rest. Employees Int'l Union, 212 F.R.D. 178, 220-221, 231 (S.D.N.Y. 2003) (sanctioning party and its counsel pursuant to, inter alia, the court's inherent power based on discovery abuses including counsel's false representations concerning the completeness of document production, and awarding aggrieved party its attorneys' fees).
Contrary to LTFL's second argument that the Bankruptcy Court failed to cite clear evidence and make highly specific findings for the sanction, the July 25, 2003 transcript contains sufficiently specific findings supported by the record. Even after Judge Kaplan repeatedly admonished Mulvihill as to the special obligations of a trustee, Mulvihill (1) withheld Parente documents and "asserted privileges without ascertaining whether his client, the trustee, wished to assert them," (2) "withheld documents after leading his opponent to believe he would not, and he did not immediately tell his opponent that those documents had been withheld," (3) did not instruct Parente to preserve all work product that the original plaintiff — the Committee — may have considered in commencing a lawsuit, and subsequently, some Parente notes and memos were destroyed, (4) after learning of the destroyed documents, did not share that information with the Gioia Defendants, (5) insisted that at least one document did not exist when, in fact, it did and (6) "got caught time and time again with having made misrepresentations about the completeness of what was provided," even after the evidence indicated otherwise, after additional documents continued to be found and after "a hearing at which it was concluded and at which [Mulvihill] agreed that he could not trust what he was being told by the Parente firm."
Judge Kaplan admonished Mulvihill on the duties of LTFL as counsel to the Trustee (1) by letter dated May 30, 2002, (2) in numerous off-the-record telephone conferences and (3) "on one or more occasions on the record in open court." July 25, 2003 Tr. at 50. Judge Kaplan also instructed Mulvihill several times to consult with LTFL's bankruptcy partner to gain an understanding of what had transpired before the conversion from Chapter 11 to Chapter 7 and the significance of the Parente documents. Id. at 50, 56.
July 25, 2003 Tr. at 51.
July 25, 2003 Tr. at 51.
See July 25, 2003 Tr. at 50-51.
July 25, 2003 Tr. at 51, 54. Defendant's counsel ultimately learned of the destroyed documents and of Mulvihill's knowledge of such while deposing a Parente witness. Id. at 51.
July 25, 2003 Tr. at 50-51 (referring to the Parente timeline that was listed on the Parente File Index but was not physically included in the documents produced).
July 25, 2003 Tr. at 53-54.
July 25, 2003 Tr. at 52-53.
LTFL also argues that Judge Kaplan misapplied Seltzer because Mulvihill's conduct was undertaken not for his own convenience, but for the benefit of his client. Seltzer, however, does not hold that, in order to dispense with a finding of bad faith, the misconduct must be undertaken for the attorney's convenience. Seltzer held that the inherent power of the court
LTFL contends that after Judge Kaplan "explicitly quoted from the portion of Seltzer in which the Second Circuit dispenses with the bad faith requirement," the Bankruptcy Court "was then obligated to show * * * how LTFL's misconduct was not undertaken for the client's benefit, but rather was done for its own convenience, like the tardy lawyer in Seltzer." Br. of Appellant at 20-21.
"includes the power to police the conduct of attorneys as officers of the court, and to sanction attorneys for conduct not inherent to client representation, such as, violations of court orders or other conduct which interferes with the court's power to manage its calendar and the courtroom without a finding of bad faith." Seltzer, at 42 (emphasis added).
Moreover, Mulvihill could not have been acting for the benefit of his client when he failed to produce Parente documents because the Trustee's wishes were to the contrary. In any event, as noted above, there was sufficient evidence of bad faith by LTFL such that reliance on Seltzer is unnecessary.
July 25, 2003 Tr. at 21, 26-27.
With regard to LTFL's argument that the Bankruptcy Court committed evidentiary error in its July 25, 2003 findings, LTFL contends that the Bankruptcy Court failed to identify the significance of LTFL's discovery shortcomings or the duties violated by LTFL. The July 25, 2003 transcript, however, contains numerous examples, supported by the record, of LTFL's discovery shortcomings in breach of the Trustee's duties and the Bankruptcy Court's admonitions and instructions. Judge Kaplan summed up the significance of LTFL's discovery misrepresentations and violations of its duty as counsel to the Trustee when he noted that the "cost of those derelictions has thus far been borne by the defendants."
July 25, 2003 Tr. at 56.
Finally, LTFL contends that the Bankruptcy Court erroneously imposed sanctions without clear orders. Under the inherent power doctrine, however, a court may impose sanctions for discovery misconduct absent a discovery order. Judge Kaplan was intimately involved in the discovery process on a day-to-day basis and made repeated admonitions to Mulvihill regarding his obligations as counsel for the Trustee via his May 30, 2002 letter, in telephonic conferences and in open court.
See Residential Funding Corp., supra note 25, at 106-107 ("Even in the absence of a discovery order, a court may impose sanctions on a party for misconduct in discovery under its inherent power to manage its own affairs.").
July 25, 2003 Tr. at 50.
Judge Kaplan did not abuse his discretion under the Bankruptcy Court's inherent power when he imposed the sanction on LTFL after finding that
"plaintiff's counsel got caught time and time again with having made misrepresentations about the completeness of what was provided. * * * got caught taking legal positions contrary to the admonitions of the Court and contrary to the wishes of the client; got caught maintaining silence when he knew that records had been destroyed by Parente. * * * To get discovery done required that the Court and defendant's counsel * * * overcome the machinations, obfuscations and obstinacy of plaintiff's counsel. * * * [H]e ignored the fact that both the committee and the trustee have duties toward creditors and other parties, unlike ordinary parties in civil litigation. Despite this Court's repeated warnings and admonitions to him that the trustee and his counsel cannot ignore that background of the Parente firm's involvement in the case * * * plaintiff's counsel simply never took any of those admonitions or warnings seriously." July 25, 2003 Tr. at 53-56. Judge Kaplan's findings were sufficiently concise and based on clear evidence. Accordingly, LTFL's request for reversal of Judge Kaplan's July 25, 2003 sanction ruling will be denied.
See Hyde Park, at 136-137 (affirming the district court's adoption of the magistrate judge's decision to impose a sanction under the court's inherent power where the sanctioned party consciously disregarded their discovery obligations).
LTFL alternatively requests that the sanction award be reduced. As noted above, this Court reviews the Bankruptcy Court's determination of the amount awarded for an abuse of discretion. Despite LTFL's assertion to the contrary, the Gioia Defendants' request for fees and expenses was "'accompanied by contemporaneous time records indicating, for each attorney, the date, the hours expended, and the nature of the work done.'" For the reasons set forth below, this Court declines LTFL's invitation to disturb Judge Kaplan's award.
In re Highgate Equities, at 151; see also Crysen/Montenay Energy Co. v. EC Trading Ltd. (In re Crysen/Montenay Energy Co.), 166 B.R. 546, 549-550 (S.D.N.Y. 1994) ("When reviewing an issue that involves the bankruptcy court's discretionary control over the management of its own docket, the scope of review is extremely narrow. * * * The standard to be applied is thus, not what this Court would have done under the same circumstances, but whether in light of the record as a whole, the bankruptcy court's decision is reasonable.") (internal quotation marks omitted).
N.S.N. Int'l Indus. N.V. v. E.I. Du Pont de Nemours Co., 1996 WL 154182, at *3 (S.D.N.Y. 1996) (quoting N.Y. State Ass'n for Retarded Children v. Carey, 711 F.2d 1136, 1154 (2d Cir. 1983), which requires contemporaneous time records for an award of attorney's fees, and noting that the Carey rule applies to the award of attorneys' fees as a discovery sanction pursuant to the court's inherent power).
LTFL next asserts that the Bankruptcy Court should have reviewed case law to determine the amount of the award. Based on the cases LTFL cites, LTFL's argument appears to be that, simply because those cases involved smaller awards — no matter the circumstances — the amount awarded in this case is unreasonably high. This argument has no merit because the cases cited by LTFL are distinguishable.
Of the seven cases cited by LTFL, two cases involved requests for attorneys' fees granted in full, one case didn't involve a request for attorneys' fees as a sanction, one case involved a $1,000 FRCvP 11 sanction for a baseless Title VII claim that resulted in summary judgment and three cases involved partial reductions of fees after the judges reviewed the fee applications — as Judge Kaplan did in this case.
As noted above, courts often award opposing parties their reasonable attorneys' fees when sanctioning a party for discovery violations. Indeed, the size of the award is largely a result of the conduct of the party responsible for discovery violations. Moreover, sizeable awards are permissible under Chambers. See Scholastic Inc. v. Stouffer, 2003 WL 22850111, at *2 (2d Cir. 2003) (affirming sanction against party under Chambers based on submission of falsified evidence and awarding opposing party $50,000 in addition to attorneys' fees).
Third, LTFL contends that Judge Kaplan's fee award should be reduced by the amounts requested for the Gioia Defendants' FRCvP 37 sanction motion because the Bankruptcy Court imposed sanctions under Chambers. The Gioia Defendants, however, did prevail on their request for sanctions — albeit based on a different ground. Consequently, LTFL's argument is without merit.
Finally, LTFL argues that the fees awarded by Judge Kaplan were excessive. For example, LTFL cites the fees pertaining to the depositions of four Parente accountants. LTFL contends that (1) questions regarding the document production were answered in the Phillip's deposition, rendering the other three Parente depositions unnecessary, (2) the final three Parente depositions were more substantially related to other areas of the case than to the missing documentation and (3) the Gioia Defendants' request for fees for two partners and an associate to conduct three of the four Parente depositions was unreasonable.
With regard to LTFL's arguments that the award should be reduced due to the types of questions and information gathered at the Parente depositions, such depositions were compelled by the Bankruptcy Court because LTFL repeatedly misrepresented the completion of Parente document production despite evidence to the contrary. Judge Kaplan also determined that the scope of the Parente depositions could be necessarily broad. Judge Kaplan further ruled that these costs of LTFL's derelictions should not be borne by the Gioia Defendants.
On the first day of Parente depositions, the Gioia Defendants sent (1) a partner specializing in bankruptcy, (2) a partner specializing in litigation and (3) an associate who had been reviewing, logging and organizing produced documents. These three attorneys were sent because the Gioia Defendants would have "one bite of the apple" if Parente had formed an expert opinion by the day of deposition. Gioia Defs.' Mot. for Award, ¶ 22; accord October 1, 2002 Tr. at 31-34, 40-41. Once it was discovered that Parente had not yet formed an expert opinion, only one attorney attended the subsequent deposition. Gioia Defs.' Mot. for Award, ¶ 23.
October 1, 2002 Tr., supra note 13, at 39-41.
July 25, 2003 Tr. at 56-57.
LTFL also contends that the hours claimed by the Gioia Defendants' counsel for conferences, motions and document review are excessive. Judge Kaplan, however, carefully considered the LTFL's opposition to the Gioia Defendants' sanction request. Indeed, Judge Kaplan reduced the amount requested by $6,961.50, citing reductions for efforts that would have been necessary even if LTFL had not committed discovery abuses. Viewing the record as a whole, Judge Kaplan's award was not unreasonable. Accordingly, LTFL's request for reduction of the award will be denied.
January 8, 2004 Order at 3.
Cf. Blauinsel, supra note 33, at *2 (finding that "district court's assessment of what fees were reasonable was not an abuse of discretion" where the "district court excluded those expenses related to certain discovery, and then deducted a reasonable percentage of the number of hours claimed as a practical means of trimming fat from [the] fee application") (internal quotations omitted and alteration in the original).
Accordingly, it is hereby ORDERED that Judge Kaplan's decision at the conclusion of the July 25, 2003 hearing to sanction Leech, Tishman, Fuscaldo Lampl, LLC under the Bankruptcy Court's inherent power is affirmed, that Judge Kaplan's January 8, 2004 award of fees and expenses totaling $147,635.74 is affirmed, that Leech, Tishman, Fuscaldo Lampl, LLC shall pay such amount plus interest as calculated under 28 U.S.C § 1961(a) by August 30, 2004 and that the obligation to make such payment shall not be stayed pending any appeals that may be filed.