Opinion
Case Nos. 00-31727-BDM, 00-43878-RN, 00-32297, (Formerly Case No. 00-45087), A.P. Nos. 00-3142-DM, 00-3182-DM, (Formerly A.P. No. 00-4305), Chapter 13.
The above-captioned cases and adversary proceedings are hereby procedurally consolidated on the limited issue of sanctions.
December 27, 2000.
MEMORANDUM DECISION AWARDING SANCTIONS AGAINST ARLO H. SMITH AND DANIEL R. MILLER, JR.
This court issued orders to show cause in these proceedings why sanctions should not be imposed against Arlo H. Smith, Esq. ("Smith"), who has been counsel for the above-captioned defendants both in this court and in a state court action initiated by plaintiff, and against Daniel R. Miller, Jr. ("Miller"), one of those defendants. Testimony was taken from Smith at a hearing on September 29, 2000 (in Case No. 00-32297) and from both Smith and Miller at a hearing on October 27, 2000 (in Case No. 00-43878, A.P. No. 00-3182) (collectively, the "OSC Hearings"). Appearances were noted on the record.
As further set forth below this court finds that Smith and Miller have engaged in a pattern of manipulating the bankruptcy system involving repeated and improper removals of plaintiff's state court action to different divisions of this bankruptcy court and serial bankruptcy filings in order to frustrate prosecution of plaintiff's state court action. This court will award plaintiff sanctions against Smith in the amount of $16,645.50 and Miller, jointly and severally with Smith, for $11,097.00 of that amount. This court reserves jurisdiction to award plaintiff additional sanctions based on her reasonable attorneys' fees and costs in connection with the hearings on this matter. After such amounts are determined a separate order and judgment will issue for the total amount of sanctions.
FACT
The following discussion constitutes the court's findings of fact and conclusions of law. Fed.R.Bankr.P. 7052(a).
On March 9, 1998 plaintiff filed an action in the Superior Court of the State of California, County of Alameda, later transferred to Contra Costa County, against the above-captioned defendants, entitled Noreen Cardinale v. Robert Fitz-Stephens, individually and dba First Financial and First Financial Mortgage, Steven Daggett, Daniel R. Miller, Jr., individually and dba Miller Financial and Miller Autosport, Les DeVille, and Does 1-100, inclusive (Alameda Co. Case No. 795346, Contra Costa Case No. C98-03078) (the "Action"). All of the defendants in the Action were initially represented by Smith. As further described below, Smith also represented several defendants in their voluntary bankruptcy cases.
1. Smith's Conduct in the DeVille and Daggett Bankruptcies
On October 8, 1999 Smith filed a voluntary chapter 13 petition on behalf Mr. Les DeVille ("DeVille"), of one of the defendants in the Action, in Division Four of this court in Oakland, California (the "Oakland Division") (Case No. 99-47983). On the same day Smith removed the Action to the Oakland Division (A.P. No. 99-4494). On December 3, 1999 an order was entered denying a second application for extension of time for DeVille to file schedules, and on December 7, 1999 his bankruptcy case was dismissed. On January 7, 2000 the Action was remanded to Contra Costa Superior Court.
A jury trial in the Action was set in the Superior Court for June 27, 2000. On that morning Smith filed a voluntary chapter 13 petition in the Oakland Division on behalf of a second defendant in the Action, Mr. Steven John Daggett ("Daggett") (Case No. 00-43878). The same day Smith once again removed the Action to the Oakland Division
(A.P. No. 00-4259).
The Superior Court re-set the trial for July 17, 2000, contingent upon the dismissal of Daggett from the Action and remand from the Oakland Division. On June 30, 2000 plaintiff voluntarily dismissed Daggett from the Action. On July 14, 2000 the Action was remanded by Chief Judge Jellen on plaintiff's unopposed motion and application for order shortening time (the "First Remand Motion").
Notwithstanding the removal of the Action to bankruptcy court, plaintiff filed her dismissal of Daggett (and, later, DeVille) in the Superior Court.
That same day, July 14, 2000, Smith filed another voluntary chapter 13 petition on behalf of DeVille. This time the petition was filed in Division Three of this court (the "San Francisco Division") (Case No. 00-31727). On the same day Smith removed the Action again (A.P. No. 00-3142) but this time to the San Francisco Division. This was the third bankruptcy case and removal by a defendant in the Action since October 8, 1999.
On July 17, 2000 plaintiff voluntarily dismissed DeVille from the Action. On July 20, 2000 plaintiff again moved to remand the Action and applied for an order shortening time (collectively, the "Second Remand Motion"). On July 21, 2000 this court issued an order setting a hearing date of July 27, 2000, and ordered Smith show cause why he should not be sanctioned "for removing this action, in what appears to have been done for an improper purpose, including the harassment of plaintiff, the unnecessary delay of the Contra Costa Superior Court action, and the needless increase in the litigation costs to be absorbed by plaintiff" (the "First OSC"). The First OSC explained:
In view of Chief Judge Jellen's remand of this action to the Contra Costa Superior Court, the July 14th removal by Arlo H. Smith, Esq. on behalf of Les DeVille seems patently improper in several respects and cause for sanctions under Fed.R.Bankr.P. 9011.
In particular, the removal appears to have been made to the wrong court, notwithstanding the fact that Mr. DeVille's Chapter 13 case was filed in this division.
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Second, there does not appear to be a good faith purpose for the removal since Mr. DeVille's filing resulted in an automatic stay under 11 U.S.C. § 362 (a) that protected him. Why would a protected debtor/ defendant need to remove an action to the bankruptcy court when the plaintiff would be required to file a proof of claim here? Where is the jurisdiction of this court over the action against non-debtor defendants? Mr. Smith apparently wishes to use Mr. DeVille's Chapter 13 case to protect the other defendants he represents in this case by frustrating the repeated efforts of the Contra Costs Superior Court to bring this matter to trial.
On July 26, 2000 plaintiff filed a revised version of the Second Remand Motion, together with a declaration by one of plaintiff's attorneys, Thomas Eastridge, Esq. (the "Eastridge Declaration"). The Eastridge Declaration stated that Eastridge and another attorney for plaintiff, Martha Louise Caron, Esq. ("Caron"), had spent "54.23 hours in attorney time unnecessarily preparing for trial on two occasions, attributable to the defendants' removal actions, as well as preparing the moving papers and appearing in Bankruptcy Court." Eastridge attached to his declaration an itemization of that time. He declared that he and Caron have a billing rate of $225.00 per hour, and that the reasonable value of such time is therefore $12,201.75.
On July 27, 2000 Smith filed his Response To Motion For Remand Of Action (the "Smith Response"). At the hearing on July 28, 2000 this court remanded the Action. The Superior Court re-set the trial in the Action for August 14, 2000.
The Smith Response included a request for additional time to respond to plaintiff's request for an award of attorneys' fees. At the July 28, 2000 hearing this court directed Smith to file that response within two weeks and ordered him not to remove the Action on behalf of any of the defendants. On August 11, 2000 Smith filed his "Declaration Re: Removal And Claims Of Costs" (Smith's "First Declaration"), which claimed that the removal was proper. That declaration also commented on each of the itemized time entries attached to the Eastridge Declaration.
2. Miller's Conduct in the Daggett Bankruptcy
On August 11, 2000 Miller, acting pro se, purported to remove the Action to Daggett's bankruptcy case in the Oakland Division (Case No. 00-43878). Miller did this notwithstanding that Daggett was no longer a defendant in the Action and that Chief Judge Jellen had previously remanded the Action in the Daggett bankruptcy.
Smith assisted Miller in filing the removal papers. Miller removed the Action using a photocopy of a superseded form used by Smith, which petitions for removal under a statute repealed over 15 years ago, 28 U.S.C. § 1471 — the current procedure is to file a notice of removal. 28 U.S.C. § 1452 et seq.; Fed.R.Bankr.P. 9027. Smith had previously informed Miller — accurately — that this court's order only barred Smith, not anyone else, from removing the Action. However, Miller testified at the second OSC Hearing (and the court finds) that
Smith encouraged him to remove the Action, referred him to a paralegal for that purpose and, at the paralegal's suggestion, supplied him with a copy of the form Smith had used.
Although Smith testified at the first OSC Hearing that he had encouraged Miller not to remove the Action, this court does not believe Smith. Smith also stated, in his "Declaration Re: OSC" filed on September 22, 2000, that Miller "did not file a bankruptcy for himself as I would have done were I to have filed a removal." In other words, although Smith may have realized that the Action could not be removed to Daggett's bankruptcy because Daggett was no longer a defendant, he believed Miller would file his own bankruptcy case and encouraged Miller to remove the Action to his own bankruptcy case, just as Smith had done in the DeVille and Daggett bankruptcy cases.
Despite Smith's assistance, this court does not believe Miller was simply relying on advice of counsel, as Miller's attorney argued at the second OSC Hearing. Miller testified that he asked Smith and another attorney whether the First OSC prevented anyone other than Smith from removing the Action, and he then paid $50.00 to a paralegal recommended by Smith to prepare the removal papers which he filed himself. Miller did not question whether removal to Daggett's bankruptcy case was proper now that Daggett was no longer a defendant and in light of Chief Judge Jellen's prior remand of the same Action from the same bankruptcy case. This court believes that Miller chose to ignore these problems and took a "head in the sand" approach.
On August 14, 2000 plaintiff appeared in Superior Court for trial of the Action, apparently unaware of Miller's purported removal of the Action. Smith withdrew as Miller's counsel in the Action, and Miller gave the Superior Court judge a copy of a petition for removal and stated that he would also be filing his own bankruptcy petition. The Superior Court set a new trial date of September 5, 2000.
On August 16, 2000 plaintiff filed an application in the Daggett bankruptcy case for transfer of the removed Action (A.P. No. 00-4305) from the Oakland Division to the San Francisco Division. On August 18, 2000 that application was granted, and the removed Action was transferred to the undersigned and given a new number (A.P. No. 00-3182). On August 28, 2000 plaintiff filed another motion to remand the Action (the "Third Remand Motion").
On August 29, 2000 this court issued an order granting the Third Remand Motion but retaining jurisdiction to enter sanctions or other appropriate relief against Smith and Miller based on their apparent complicity in a pattern of improper removals of the Action (the "Second OSC"). The Second OSC noted that there was no jurisdiction to remove the Action because no remaining party in the Action was a debtor in any pending bankruptcy case. The Second OSC also stated that this court was prepared to find, based on the history of the defendants' bankruptcy cases, that Miller was well aware of the following:
Judge Jellen's prior remand of the state court action from the Oakland Division; this court's July 28 instructions to Mr. Smith that he should not file any further removal petitions without prior court approval; Mr. Daggett's dismissal from the state court action;
and the fact that the court has under submission sanctions to be imposed against Mr. Smith for his conduct in the prior removal of the state court action to this division.
The Second OSC set a hearing for September 29, 2000 and required Smith and Miller to file any declarations or other papers in response to the Second OSC no less than five days before the hearing.
3. Miller's Bankruptcy and Testimony
On September 5, 2000, the morning that the Action was to go to trial in Superior Court, Miller's voluntary chapter 13 petition was filed in the Oakland Division. Plaintiff was the only creditor listed on Miller's matrix of creditors.
Miller's petition listed a Richmond, California address as the "location of principal assets of business debtor." Richmond is in the County of Contra Costa, placing venue in the Oakland Division. B.L.R. 1001-3(c) and 1002-1. However at the second OSC Hearing Miller testified that he has no business operations at the listed address in Richmond — 553 12th Street — and that the location of his business assets is the address stated in his removal papers in the Daggett bankruptcy case: 1656 El Camino Real, San Carlos, California. Both San Carlos and Miller's home address, in San Bruno, California, are in the county of San Mateo, placing venue in the San Francisco Division. B.L.R. 1001-3(b) and 1002-1.
Smith testified at the first OSC Hearing that he used to live at the 553 12th Street address. Plaintiff produced a recent photograph that Smith acknowledged to be of the building. The photograph was admitted in evidence without objection as Exhibit
A. The building is a boarded-up residence.
Smith testified at the first OSC Hearing that he had not filed Miller's bankruptcy petition, and that he could not have done so because he appeared in Contra Costa Superior Court on the morning the petition was filed. Moreover, Smith claimed not to recognize the handwriting on the petition that set forth the petitioner's mailing address and Social Security number and the division of this court.
Miller testified at the second OSC Hearing that he had given Smith a petition signed in blank for Smith to complete and file on his behalf, that the handwriting on the filed petition was Smith's, and that after he returned from a trip to Lake Tahoe over Labor Day weekend he was told by Smith's assistant that she had filed the petition on September 5, 2000. This court believes Miller's testimony, and believes that Smith lied to the court when he claimed not to recognize his own handwriting on Miller's petition.
Miller further testified that, at Smith's request, he had signed four or five petitions in blank over the past six or seven months and given them to Smith, but that these petitions had not been used because papers were filed by Daggett and DeVille instead. In addition, Miller testified that his chapter 13 petition contains several misstatements. The petition lists his home address as "1261 Whitman Way #24," in San Bruno, California. However, his address is "2161" Whitman Way. The petition lists his social security number as "xx-xxx-1725," but he testified that the correct number is "xx-xxx-4827." The petition was accompanied by a notice of available chapters that included the same misstatements.
On September 5, 2000 — the same day that Miller's bankruptcy petition was filed — plaintiff filed an ex parte application in the Oakland Division to transfer the bankruptcy case to the undersigned in the San Francisco Division. The Superior Court re-set the trial in the Action to September 6, 2000, and subsequently severed Miller from that case and conducted the trial against the remaining defendant, Mr. Robert Fitz-Stephens.
On September 22, 2000 plaintiff moved for relief from the automatic stay to permit the Action to proceed against Miller, and for shortened time to hear that motion (the "Relief From Stay Motion"). On September 25, 2000 this court set a hearing for September 29, 2000 on that motion, together with a hearing on the First and Second OSC. On September 29, 2000 plaintiff's Relief From Stay Motion and the First and Second OSC came on for hearing. Miller failed to appear.
The parties dispute whether Miller had an adequate reason for failing to appear at the combined hearing on the Relief From Stay Motion and the First OSC. Smith's "Declaration Re: OSC" filed on September 22, 2000 anticipated Miller's non-appearance for alleged medical reasons and asked for a continuance because "my ability to defend this OSC will be prejudiced if I don't have Miller's testimony. . . ." Plaintiff challenges this medical excuse.
Both Eastridge and Caron stated at the start of the September 29, 2000 hearing that they had seen Miller outside the courtroom just prior to the first OSC Hearing and that he did not appear sick. Miller later testified, at the second OSC Hearing, that he had waited 45 minutes for his matter to be called, that he had significant medical problems, and that Smith suggested he leave if he were sick and Smith would explain his absence to the court. Miller also testified that later in the same week he missed an appearance in another action between the parties in San Francisco Superior Court. Miller acknowledged that he appeared in succeeding days and testified in the trial of plaintiff's Action against Mr. Fitz-Stephens in Superior Court.
On this record this court is not prepared to find that Miller's medical condition was a fiction. Moreover, the First OSC was not directed against Miller, nor was he under a subpoena to appear at the first OSC Hearing. Although this court is dubious that Miller, who had testified in this court on other matters, was too sick to advise the court himself that he was too ill to stay, there is nothing sanctionable in Miller's choice not to defend the Relief From Stay Motion.
This court granted plaintiff's Relief From Stay Motion, allowed plaintiff to take Smith's testimony, and continued the hearing until October 27, 2000 to allow plaintiff and Smith the opportunity to secure Miller's attendance.
On October 26, 2000 Miller filed an Amendment to Petition that corrected his mailing address. On the same day he voluntarily dismissed his chapter 13 petition.
On October 27, 2000 this court held the second OSC Hearing, at which both Smith and Miller testified. In addition to the facts described above, Miller testified that he and Smith are friends, they had known each other for about six or seven years, they had frequently lived together, Smith has acted as his attorney, he passes legal documents along to Smith without reading them, he is a licensed real estate sales person acting under Smith's real estate license, he and Smith own (with one other person) and operate Terrabella Financial Group, Inc., dba Terrafinancial and dba Bella Vista Properties ("Terrabella"), and he had been involved in litigation with plaintiff for three years or so. According to Smith, Miller owns a separate entity that is also called Terrafinancial ("Terrafinancial"), but Smith has no ownership interest in that entity. Miller was confused about the ownership interests in Terrabella and Terrafinancial, and deferred to Smith regarding his share of any profits, corporate formalities, and other aspects of the businesses. Even after Miller filed his pro se removal papers, Smith continued to represent Miller in another matter before the court (In re Nicole Gestas, Case No. 00-30089). Both Smith and Miller testified that they had an ongoing, close business relationship.
DISCUSSION
1. Legal Standards
Rule 9011 provides in relevant part:
(b) Representations to the court. By presenting to the court (whether by signing, filing, submitting, or later advocating) a petition, pleading, written motion, or other paper, an attorney or unrepresented party is certifying that to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances, —
(1) it is not being presented for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation;
(2) the claims, defenses, and other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law;
(3) the allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery; and
(4) the denials of factual contentions are warranted on the evidence or, if specifically so identified, are reasonably based on a lack of information or belief.
(c) Sanctions. If, after notice and a reasonable opportunity to respond, the court determines that subdivision (b) has been violated, the court may, subject to the conditions stated below, impose an appropriate sanction upon the attorneys, law firms, or parties that have violated subdivision (b) or are responsible for the violation.
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(2) Nature of sanction; limitations. A sanction imposed for violation of this rule shall be limited to what is sufficient to deter repetition of such conduct or comparable conduct by others similarly situated. Subject to the limitations in subparagraphs (A) and (B), the sanction may consist of, or include, directives of a nonmonetary nature, an order to pay a penalty into court, or, if imposed on motion and warranted for effective deterrence, an order directing payment to the movant of some or all of the reasonable attorneys' fees and other expenses incurred as a direct result of the violation.
(A) Monetary sanctions may not be awarded against a represented party for a violation of subdivision (b)(2).
(B) Monetary sanctions may not be awarded on the court's initiative unless the court issues its order to show cause before a voluntary dismissal or settlement of the claims made by or against the party which is, or whose attorneys are, to be sanctioned.
(3) Order. When imposing sanctions, the court shall describe the conduct determined to constitute a violation of this rule and explain the basis for the sanction imposed.
The Ninth Circuit has broadly identified two types of sanctionable conduct under Rule 9011: "frivolous" claims, and claims presented for an "improper purpose." Valley Nat. Bank of Arizona v. Needler (In re Grantham Bros.), 922 F.2d 1438, 1441-1443 (9th Cir. 1991) (noting that Rule 9011 "mirrors" Rule 11, F. R. Civ. P.), cert. denied, 502 U.S. 826, 112 S.Ct. 94, 116 L.Ed.2d 66 (1991). "Frivolous" claims include those that are "legally unreasonable, or without legal foundation." Zaldivar v. City of Los Angeles, 780 F.2d 823 (9th Cir. 1986), abrogated on other grounds by Cooter Gell v. Hartmarx Corp., 496 U.S. 384, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1990) (abuse of discretion standard, not mixed standard, applies to Rule 11 sanctions).
Frivolous claims are sanctionable even if the same pleadings contain other, non-frivolous claims. Townsend v. Holman Consulting Corp., 929 F.2d 1358, 1362-1365 (9th Cir. 1990), rehearing denied (1991).
Persons presenting papers to the court are responsible for taking steps to assure that those papers are not frivolous.
Counsel, of course, may not avoid "the sting of Rule 11 sanctions by operating under the guise of a pure heart and empty head."
Security Farms v. Int'l Brotherhood of Teamsters, Chauffers, Warehousemen Helpers, 124 F.3d 999, 1016 (9th Cir. 1997), quoting Smith v. Ricks, 31 F.3d 1478, 1488 (9th Cir. 1994), cert. denied, 514 U.S. 1035, 115 S.Ct. 1400, 131 L.Ed.2d 287 (1995), quoting Zuniga v. United Can Co., 812 F.2d 443, 452 (9th Cir. 1987).
The same "empty head" rule applies to parties appearing pro se. In re KTMA Acquisition Corp., 153 B.R. 238, 248 (Bankr.D.Minn. 1993).
Both the "frivolous" claims prong and "improper purpose" prong of Rule 9011 are objective tests. Zaldivar, 780 F.2d at 829 and 831 n. 9. The Ninth Circuit has elaborated:
Although the term "improper purpose" can be construed to require an improper subjective intent, this court analyzes an allegedly improper purpose under an objective standard. Zaldivar, 780 F.2d at 831 n. 9. The consequences of the attorney's act are irrelevant, as we focus only on the attorney's objective intent. Id. at 832.
Needler, 922 F.2d at 1443.
The term "objective intent" has been interpreted to mean that the court determines the intent from the evidence, rather than the parties' assertions. Such evidence can include circumstances such as "[r]epeated filings, the outrageous nature of the claims made, or a signer's experience in a particular area of law, under which baseless claims have been made. . . ." Pitts v. Britt (In re Kunstler), 914 F.2d 505, 519 (4th Cir. 1990), reh. denied, cert. denied 499 U.S. 969, 111 S.Ct. 1607, 113 L.Ed.2d 669 (1991).
For example, in Needler the Ninth Circuit rejected an attorney's argument that he had an ethical duty to prevent what he subjectively alleged was a fraud on the court. After the bankruptcy court had approved a sale of real property, and the time for objections had passed, the attorney filed a complaint seeking to remove the bankruptcy trustee and enjoin the trustee's sale. The Ninth Circuit held that "no ethical duty requires an attorney to file an improper collateral attack on a judge's order." Needler, 922 F.2d at 1142.
Pro se litigants are entitled to greater latitude with respect to the reasonableness of legal theories than a lawyer, but they must conduct a reasonable inquiry in light of their own legal knowledge and experience and the complexity of the legal and factual issues. KTMA Acquisition, 153 B.R. at 251-253 ($10,000 sanctions against pro se litigant for pleading with numerous irrelevant, unsubstantiated, sensational factual and legal allegations).
2. Sanctions Against Smith
The First OSC noted that in DeVille's second bankruptcy case Smith removed the Action to the wrong division of this court:
"Since the underlying action was pending in the Contra Costa Superior Court, the Oakland Division would have been the proper division for removal, to be followed by a request to a judge of that division for a transfer to this division. In view of Chief Judge Jellen's prior remand, however, it is obvious that counsel intentionally avoided that unattractive alternative."
In the Smith Response, filed prior to the July 28, 2000 hearing, Smith stated: "I disagree with the court's position that this case was removed to the wrong division of the bankruptcy court. There is no statute or local rule that permits removal of an action to any court other than the one where the bankruptcy is pending." (Emphasis in original.)
Smith is wrong. Rule 9027 of the Federal Rules of Bankruptcy Procedure provides that "notice of removal shall be filed with the clerk for the district and division within which is located the state or federal court where the civil action is pending." Fed.R.Bankr.P. 9027(a)(1) (emphasis added). See also 28 U.S.C. § 1452(a). The proper procedure for Smith to remove the Action to DeVille's second (San Francisco) bankruptcy case would have been to file a notice of removal in the Oakland Division followed by an ex parte application for transfer of the adversary proceeding to the San Francisco Division pursuant to B.L.R. 1002-1(c).
Addressing the purpose for removal, both the Smith Response and Smith's First Declaration stated:
2. I concede the action was properly remanded because plaintiff has dismissed De Ville [sic] from the underlying action. However, until counsel took that action removal [w]as proper and necessary, since I believe litigation of any claim against Mr. DeVille would, if successful, require an indemnity claim to be asserted by DeVille thereafter against other defendants (with substitute counsel). As a matter of judicial economy, all claims (both the claims against DeVille and co-defendants, and any possible indemnity claim by DeVille against anyone else) should be heard by the same court, to assure uniformity of rulings. It was for this reason, the removal was undertaken.
3. It might have been malpractice not to remove the case. This is so because opposing counsel previously indicated orally that she would not dismiss DeVille as a party to the underlying case unless he filed bankruptcy and removed the case! Counsel was very specific in making this representation to me and the state court judge. Since I believe Mr. DeVille had limited involvement and no liability in the underlying case, I believe that not removing his case could have subjected me to claims of putting my personal interests in accom[m]odating opposing counsel ahead of Mr. DeVille's interests! [Emphasis and exclamation points in original.]
This is utter nonsense. If judicial economy demanded that matters involving DeVille and the other defendants be heard in the same court, the Superior Court was the natural venue and this court was not. The Superior Court was familiar with the case, and it apparently had jurisdiction over the other defendants, which this court does not. Moreover, assuming Smith's duty to his client extended as far as filing DeVille's bankruptcy petition on the eve of trial, it did not extend to his removal of the Action without any legitimate reason that Smith has been able to articulate.
This court finds that Smith removed the Action in the DeVille case for the purposes of causing unnecessary delay, harassing plaintiff and needlessly increasing plaintiff's litigation costs.
In addition, this court finds that Smith later removed the Action in the Daggett bankruptcy case and assisted Miller in removing the Action again for the same purposes. This court does not believe Smith's attempts to paint Miller as the driving force behind the second removal to Daggett's bankruptcy case. Rather, this court finds that Smith encouraged Miller to file the removal because Smith could not do so under this court's July 28, 2000 order, and he provided Miller with a form for doing so. Whether through inadvertence or design, Miller neglected to file his own bankruptcy case and instead attempted to remove the Action to Daggett's bankruptcy case; but whatever the mechanism, this court finds that Smith intended for Miller to remove the Action to cause unnecessary delay, harass plaintiff and needlessly increase plaintiff's litigation costs.
Moreover, although filing a bankruptcy petition even on the eve of trial is usually a legitimate alternative, this court is very troubled by several aspects of Smith's involvement in Miller's " pro se" voluntary petition. First, Smith orchestrated the filing: he requested that Miller sign several bankruptcy petitions in blank, he completed one of those petitions, and he arranged for that petition to be filed, commencing Miller's bankruptcy petition in Case No. 00-32297. Second, plaintiff was the only person on the creditor matrix. Third, this court does not believe that the misstatements on the face of the petition were inadvertent errors. This court finds that Smith intentionally listed an incorrect business address so as to put Miller before the Oakland
Division in the hope of avoiding or delaying any appearance before the undersigned after the First OSC had issued. Fourth, this court finds that Smith's use of an incorrect business address, an incorrect home address, and an incorrect social security number for Miller were all designed to delay the administration of Miller's case and make it difficult for plaintiff to serve Miller with court papers or a subpoena. Fifth, this court finds that Smith orchestrated the serial bankruptcy filings and removals of the Action by the defendants one by one, and that those actions were spread out so as to maximize the delay, cost and harassment to plaintiff.
In sum, this court finds and rules that Smith's removals in the DeVille and Daggett bankruptcies, his participation in Miller's second removal in the Daggett bankruptcy, his intentional misstatements on Miller's bankruptcy petition, and his orchestration of serial bankruptcy filings and removals by the defendants were all part of a scheme to cause unnecessary delay, harass plaintiff and needlessly increase plaintiff's litigation costs. Accordingly, sanctions are appropriate against Smith pursuant to Fed.R.Bankr.P. 9011.
This court finds and rules that an award of plaintiff's reasonable attorneys' fees attributable to Smith's misconduct, as determined below, would not be sufficient to deter repetition of such conduct or comparable conduct by others similarly situated, including the other defendants in the Action. See Rule 9011(c)(2). First, Smith has sought to gain advantage not simply by imposing litigation costs on plaintiff but also by harassing plaintiff and causing unnecessary delay. Therefore, awarding attorneys' fees does not by itself equal all of the advantage Smith sought to (and did) achieve. Second, if awarding attorneys' fees were the only sanction it would likely cost Smith client's substantially less than defending themselves at trial. Therefore, absent a greater sanction there is a danger that Smith's tactics would appear to be a cost-effective means to delay or avoid trial.
Accordingly, this court will impose sanctions not only in the allowed amount of plaintiff's reasonable attorneys' fees requested to date, as determined below, but also in the additional amount of 200% of those fees. This court reserves jurisdiction to award plaintiff additional sanctions, including her reasonable attorneys' fees and costs incurred after the time reflected in the Eastridge Declaration.
3. Sanctions Against Miller
Miller's conduct is careless but initially less troubling. He freely admitted to signing multiple bankruptcy petitions in blank for Smith to complete and file. He also admitted receiving legal papers and passing them along to Smith without reviewing them. In general Miller takes the approach that he innocently gave Smith full responsibility for all actions taken on his behalf. By itself this behavior is not sanctionable. Until August 14, 2000 Smith was Miller's attorney in the Action. Many clients trust their attorneys to complete documents signed in blank, and to review documents that they choose not to review.
Nevertheless, Miller could not reasonably continue that cavalier attitude of total reliance on Smith after he was purporting to act pro se. Miller was not represented by Smith when he removed the Action to Daggett's bankruptcy case. Assuming without deciding that Miller believed Smith's bogus justifications for removing the Action in prior cases, even Smith admitted that there was no reason to remove the Action to Daggett's bankruptcy case once plaintiff had dismissed Daggett. Miller knew or should have known that there was no legitimate reason to remove the Action to Daggett's bankruptcy case when Daggett was no longer a defendant.
Moreover, Miller's and Smith's testimony have only reinforced this court's preliminary factual findings in the Second OSC. Miller was well aware of Chief Judge Jellen's prior remand of the state court action from the Oakland Division, this court's July 28, 2000 instructions to Smith that he should not file any further removal petitions without prior court approval, Daggett's dismissal from the state court action, and the fact that this court had under submission sanctions to be imposed against Smith for his conduct in removing the Action.
In addition, Miller later alluded to the true purpose of his actions — including not only the purported removal but also his voluntary bankruptcy petition. He testified that it had not been necessary to file his own papers sooner because papers had been filed for DeVille and Daggett. In other words, Miller correctly saw his actions as part of a larger scheme of serial bankruptcies and removals by the defendants, one by one, all designed to cause unnecessary delay, needlessly increase plaintiff's litigation costs, and harass plaintiff. Although Smith was the driving force in this scheme, Miller was a knowing participant.
For all of these reasons, Miller's purported removal of the Action to the Daggett bankruptcy case and Miller's own pro se bankruptcy petition (Case Nos. 00-45087 and 00-32297) warrant sanctions. Taking into account all of the above conduct, this court finds and rules that appropriate sanctions are as follows.
This court is not prepared to sanction Miller, however, for the misstatements on his bankruptcy petition. First, it is unclear when Miller received a copy of that petition. Second, although the petition was filed for him on a pro se basis, it is not clear that Miller knew that. Smith continued to represent Miller in the Gestas case (Case No. 00-30089), and Miller may have assumed he was represented by Smith in his chapter 13 bankruptcy as well. Third, although Miller admitted receiving papers from the bankruptcy court (notwithstanding his incorrect address on the petition), it is possible those papers did not alert him to his " pro se" status. Some of the papers served by the bankruptcy court were also served on Smith. Only one document plainly identifies Miller as pro se — the San Francisco Division's Notice of Transfer of Case — and it is unclear whether that document sent to the wrong address) reached Miller. Therefore, this court will not sanction Miller for the incorrect information on his bankruptcy petition.
Miller shall be jointly and severally liable with Smith for the allowed amount of plaintiff's reasonable attorneys' fees requested to date, as determined below. In addition, Miller shall be jointly and severally liable with Smith for another 100% of those fees. This court reserves jurisdiction to award plaintiff additional sanctions, including her reasonable attorneys' fees and costs incurred after the time reflected in the Eastridge Declaration.
This court now turns to the reasonable amount of plaintiff's attorneys' fees requested to date.
4. Plaintiff's Attorneys' Fees
This court has reviewed the time records attached to the Eastridge Declaration and the objections in Smith's First Declaration and finds as follows. Smith objects to all time spent to take DeVille's deposition, to "sever" or "bifurcate" matters involving DeVille, and to prepare for trial, on the grounds that time spent on these matters was not caused by removal of the Action. Smith states, "[t]here is no showing that Mr. De Ville [sic] does not have the perfect right to file bankruptcy" and he emphasizes that only the removal is at issue.
Some of these objections are well taken. There is no showing that the time spent on the deposition is attributable to any misconduct by Smith. In addition, there is no showing that plaintiff would not have spent just as much time to "sever" or "bifurcate" matters involving DeVille if Smith had simply filed his bankruptcy petition on the eve of trial, which as Smith suggests he is generally entitled to do.
In a vacuum Smith's remaining objection, to trial preparation, would be well taken. However absent removal by Smith the trial likely would have been bifurcated immediately and would have proceeded the same day, after plaintiff voluntarily dismissed DeVille (and Daggett too, if he had filed a bankruptcy petition the same day). Therefore, Smith's misconduct forced plaintiff's attorneys to prepare for trial more than once. Although much trial preparation can be useful for a continued trial date, any trial lawyer will attest that a significant proportion of the time spent in preparation just prior to trial has to be repeated before the continued trial date. Attorneys and witnesses simply cannot remember all the details and remain as prepared for trial weeks or months later.
Nevertheless, plaintiff has not presented evidence of any time spent preparing for trial before Smith's October 8, 1999 removal on behalf of DeVille (Case No. 99-47983, A.P. No. 99-4494). Moreover, the time records attached to the Eastridge Declaration only extend as far back as November 15, 1999, and do not reflect any significant trial preparation until after that bankruptcy case was dismissed and the Action had been remanded. Therefore this court must assume that Smith's improper tactics are not the cause of plaintiff's time spent prior to the filing of Daggett's bankruptcy petition and removal on June 27, 2000 (Case No. 00-43878, A.P. 00-4259).
Plaintiff seeks compensation for 2.4 hours of attorney time on June 27, 2000 for "Appearance Department 6, Contra Costa Superior Court for trial call [Caron]," and 2.33 hours on the same day for "Appearance Department 6, Contra Costa Superior Court for trial call [Eastridge]." Smith objects that the appearance "took less than half [an] hour, not 2.4 hours." In this court's experience, appearances for trial call usually include time spent on final review of the case, often while waiting for the case to be called. There is almost inevitably some additional time that is not completely productive but is nevertheless unavoidable. Although plaintiff could have provided greater detail, this court will accept plaintiff's representation that the recorded time on this matter by Caron (2.4 hours on 6/27/00) and Eastridge (2.33 hours on 6/27/00) is appropriately billable to the Action. These fees will be awarded.
Fees will also be awarded for telephone calls to bankruptcy counsel about the removal (0.33 hours on 6/27/00 and 0.5 hours on 6/30/00), drafting and filing the First Remand Motion and accompanying documents including an application to shorten time (1.8 hours and 1.3 hours on 7/7/00), telephone calls and correspondence with Smith, with Chief Judge Jellen's law clerk, and with Superior Court Judge Flinn's law clerk, an appearance before Chief Judge Jellen, and preparation of a notice of ruling, all apparently stemming from the removal (0.4 hours and 0.6 hours on 7/10/00, and 1.6 hours and 0.7 hours on 7/14/00).
This court will award attorneys fees for a portion of the time spent on preparing for the continued trial on July 15 and 16, and appearing for trial on July 17, 2000. Smith objects that he had left a telephone message "to the effect that he had filed a removal on behalf of Mr. DeVille" on the answering machine for plaintiff's attorneys on July 14, 2000 (a Friday) "at about 6 PM." Smith adds that although on July 15, 2000 their office fax machine "would not accept faxes," on July 16, 2000 he successfully faxed the removal papers to their facsimile number. Therefore, Smith claims, plaintiff's attorneys knew or should have known before July 17, 2000 that he had "removed the case."
Plaintiff's attorneys do not directly answer these allegations, but Eastridge claimed in his papers filed before the Smith Response and Smith First Declaration that on July 17, 2000 "plaintiff appeared in Superior Court prepared to commence her jury trial. However, Smith informed plaintiff's counsel and Judge Flinn that he had filed another Chapter 13 and had once against removed the case to Bankruptcy Court."
Plaintiff's proof is not as complete as it might be, but this court is convinced that there is nothing inconsistent between Smith's allegations that he attempted to contact plaintiff's counsel the allegations in Eastridge's declaration and time records that plaintiff's attorneys had in fact spent the weekend preparing for trial. Such preparation could have been either in ignorance of Smith's messages, or in the expectation that, just as Smith protests that he is entitled to file bankruptcy petitions at the last minute, he could also proceed with trial at the last minute, either as a trial tactic or to avoid sanctions for improper removals. In any event, plaintiff's counsel were entitled to prepare for trial, and a portion of their time is attributable to Smith's misconduct in repeatedly removing the Action and forcing them to repeat their trial preparations.
Plaintiff's time sheets reflect 4.5 hours of trial preparation on July 15 and 3.2 hours on July 16, 2000 of which the court will award approximately one-half (2.3 hours on 7/15/00 and 1.6 hours on 7/16/00). This court will also award fees for time spent appearing for trial on July 17, 2000, drafting, filing and serving the Second Remand Motion and accompanying papers, consulting bankruptcy counsel, and attempting to serve Smith with a copy of the July 21, 2000 OSC on Saturday July 22, 2000 (2.7 hours on 7/17/00, 1.6 hours on 7/19/00, 2.7 hours on 7/20/00, 0.3 hours on 7/21/00, 1.1 hours on 7/21/00 and 0.4 hours on 7/22/00).
In sum, this court will award a total of 24.76 hours, at $225 per hour, for a subtotal of $5,548.50 in attorneys' fees against Smith. This court will award additional sanctions against Smith equal to 200% of that amount, or $11,097.00, for a total of $16,645.50. Miller will be jointly and severally liable with Smith for all of the base amount of attorneys' fees and another 100% of that amount, for a total of $11,097.00.
Smith and Miller presented no evidence of as to their ability to pay sanctions. "Although ability to pay must be considered by a [trial] court, inability to pay should be treated like an affirmative defense, with the burden upon the parties being sanctioned to come forward with evidence of their financial status." Dodd Ins. Services, Inc. v. Royal Ins. Co. of America, 935 F.2d 1152, 1160 (10th Cir. 1991) (citations and quotation marks omitted). For whatever reason — perhaps, to avoid disclosure of their assets — Smith and Miller chose not to present such evidence.
DISPOSITION
No later than 14 days after the date of service of this Memorandum Decision plaintiff is to file and serve a declaration setting forth her reasonable attorneys' fees and costs incurred after the time reflected in the Eastridge Declaration, with appropriate records attached. Plaintiff should simultaneously submit and serve a form of Order and Judgment consistent with this Memorandum Decision, leaving blank the final amount of fees and sanctions. Smith and Miller have 10 days after service to respond. At that time the matter will stand submitted.