Hathaway et al v Horace Fox

Filing 89

MEMORANDUM Opinion and Order: For the reasons set forth in the accompanying Memorandum Opinion and Order, CMCG's motions to dismiss 69 and 72 are denied. The Court affirms the decisions of the bankruptcy court. See Order for further details. Signed by the Honorable Jorge L. Alonso on 6/2/2017. Mailed notice(ep, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
In re:
CHICAGO MANAGEMENT
CONSULTING GROUP, INC.

)
)
)
)
Debtor.
)
___________________________________ )
)
DEBRA COMESS and TECHNICALLY )
DRIVEN INC.,
)
)
&
)
)
JULIA HATHAWAY and STUDIO OM, )
LLC,
)
)
Defendants-Appellants,
)
)
v.
)
)
HORACE FOX, as Chapter 7 Trustee for )
the Estate of CHICAGO MANAGEMENT )
CONSULTING GROUP, INC.,
)
)
Plaintiff-Appellee &
)
Cross-Appellant.
)

Case Nos. 15 C 8917 & 15 C 8921

Judge Jorge L. Alonso

MEMORANDUM OPINION AND ORDER
Before the Court are the consolidated appeals of Julia Hathaway (Case No. 15 C 8917)
and Debra Comess (Case No. 15 C 8921) and the cross-appeal of Chicago Management
Consulting Group, Inc., (“CMCG”) from the bankruptcy court’s September 3, 2015 amended
memorandum of decision on entry of final judgment and motion for sanctions. (Bankr. Case No.
14-00294 Dkt. 235). CMCG has also filed motions to dismiss appellants’ appeals [69]1 and

1

This motion was filed in Case No. 15 C 8921.

[72].2 For the reasons set forth below, CMCG’s motions to dismiss are denied, and the Court
affirms the rulings of the bankruptcy court.
BACKGROUND
These appeals stem from CMCG’s voluntary Chapter 7 bankruptcy case. (Bankr. Am.
Mem. at 2.) CMCG provided consulting services to BP America. (Id.) Hathaway and Comess,
the defendants, were personal friends of CMCG’s sole owner, Frank Novak. (Id.) In 1999,
Novak retained Hathaway and Comess to perform work on behalf of CMCG. (Id. at 3.) Novak
died by suicide in February 2012, and pursuant to his will and trust, Comess was entitled to all of
Novak’s property, including CMCG. (Id.) Comess retained counsel and filed the bankruptcy
proceeding, in which CMCG’s trustee sought: (1) to avoid alleged fraudulent transfers of
CMCG’s assets that Novak made to Comess and Hathaway; and (2) relief from evidence
spoliation and delayed discovery responses. (Id. at 2-3.) On September 3, 2015, after trial, the
bankruptcy court issued an amended memorandum and judgment in which it found that the
challenged transfers to Hathaway, the challenged retainer payments to Comess, three payments
on Novak’s life insurance policy, and payment to the probate attorney handling Novak’s estate
demonstrated an actual intent to deceive creditors by clear and convincing evidence under
§ 548(a)(1)(B) of the Bankruptcy Code and § 5(a)(2) of the Illinois Uniform Fraudulent Transfer
Act (“IUFTA”). (Id. at 10-11.) The court also found that Comess breached her duty to preserve
evidence on Novak’s laptop and caused the trustee to incur damages when he retained a
computer expert to determine what had been deleted from the computer. (Id. at 12.) Finally, the
court held that the trustee was entitled to attorney’s fees and expenses he incurred pursuing

2

This motion was filed in Case No. 15 C 8917.

2

delayed discovery from Comess and Hathaway. (Id. at 15.) Ultimately, the court awarded the
trustee $50,276.20 against Comess3 and $56,588.06 against Hathaway.4 These appeals followed.
STANDARDS
The Court sits as an appellate court for bankruptcy court proceedings. See 28 U.S.C.
§ 158(a)(1). We review the bankruptcy court’s findings of fact for clear error and its legal
conclusions de novo. See In re Miss. Valley Livestock, Inc., 745 F.3d 299, 302 (7th Cir. 2014).
“A finding is clearly erroneous when although there is evidence to support it, the reviewing court
on the entire evidence is left with the definite and firm conviction that a mistake has been
committed.” In re Herman, 737 F.3d 449, 452 (7th Cir. 2013) (citation omitted). If there are
two permissible views of the facts, a court’s choice between them cannot be clearly erroneous.
See First Weber Grp., Inc., v. Horsfall, 738 F.3d 767, 776 (7th Cir. 2013).
“A bankruptcy court’s decision to impose sanctions is reviewed for an abuse of
discretion.” In re Kuttner, 15 C 980, 2015 WL 3578966, at *3 (N.D. Ill. June 8, 2015) (citing In
re Hancock, 192 F.3d 1083, 1085 (7th Cir. 1999)). “Unless the sanctioning court has acted
contrary to the law or reached an unreasonable result,” the decision will be affirmed. In re
Rimsat, Ltd., 212 F.3d 1039, 1046 (7th Cir. 2000).

3

The court awarded the trustee $24,450 for the retainer payments CMCG made to Comess (Bankr. Am.
Mem. at 15); $12,904.50 for the computer expert (Bankr. Case No. 14-00295 Dkt. 261); and $12,921.70
in attorney’s fees and costs as discovery sanctions (Bankr. Case No. 14-00295 Dkt. 260).
4

The court awarded the trustee $45,400.81 for the fraudulent transfers CMCG made to Hathaway (Bankr.
Case No. 14-00294 Dkt. 249) and $11,187.25 in attorney’s fees and costs as discovery sanctions (Bankr.
Case No. 14-00294 Dkt. 248).

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DISCUSSION
CMCG’s Motions to Dismiss
After each side filed their opening briefs, CMCG filed a motion to dismiss appellants’
brief. In support thereof, CMCG argues that appellants violated the Federal Rules of Bankruptcy
Procedure by not compiling a complete or sufficient record for the Court to make a meaningful
review. (Mot. to Dismiss at 2.) Specifically, CMCG contends that appellants have failed to
submit relevant trial court transcripts and exhibits and that their brief lacks a statement of facts,
standard of review, jurisdictional statement, and statement of the case, as required by the
bankruptcy rules. (Id. at 2-7.) CMCG asks the Court to dismiss appellants’ appeals and award it
attorneys’ fees and costs as sanctions. (Id. at 8-9.) Rather than respond to CMCG’s arguments,
appellants argue that the trustee did not object to appellants’ designation of record on appeal or
procedural defects in their brief until he filed his motion, and then point out (as if the Court was
unaware) that the trustee has requested and received several extensions to properly file his record
on appeal, opening brief, and response. (Resp. at 2-3.) Without citing any authority, appellants
assert that the trustee’s objections are untimely and should be disregarded. (Id. at 3.)
At the outset, the Court notes that both sides sought extensions and still failed to provide
the Court with a complete, consolidated record with which to conduct its review. A review of
the dockets in the two cases confirms that both sides have submitted a statement of issues to be
presented and designated items to be included in the record of appeal.5 Despite having to scour
the dockets, the Court has located many of the designated documents and exhibits6 and

Comess and Hathaway’s statements of issues and list of designations can be found in Case No. 15 C
8917 [72-1]. The trustee’s statement of issues and list of designations can be found in Case No. 15 C
8917 [25].
5

Comess’s designations are in Case No. 15 C 8921 [7-2], [79]-[81] and in Case No. 15 C 8917 [7].
Hathaway’s designations are in Case No. 15 C 8917 [6-2], [7], [84], [85] and in Case No. 15 C 8921 [81]
6

4

concludes it can conduct a review of the issues the parties have presented.

The Court

acknowledges that the appellants’ brief fails to include a statement of facts, standard of review,
and jurisdictional statement, but does not conclude that such negligence compels dismissal. See
In re Stotler and Co., 166 B.R. 114, 117 (N.D. Ill. 1994) (court considered appellant’s appeal
even though he “failed to brief [the] appeal according to the bankruptcy rules” and found that
deficiencies in appellant’s briefing led the court to affirm the bankruptcy court’s ruling).
Accordingly, the trustee’s motions to dismiss are denied.
Hathaway and Comess’s Appeal
In their statement of issues presented, Hathaway and Comess challenge the following
bankruptcy court rulings: 1) whether CMCG was insolvent at the time of the transfers at issue; 2)
whether CMCG received value for those transfers; 3) whether CMCG had creditors within the
meaning of the statute during the entire four-year period at issue; 4) whether sanctions were
appropriate; and 5) whether finding Comess liable for spoliation was appropriate. (Appellants’
Br. at 1-2.) In his response, the trustee contends that none of bankruptcy court’s findings were
clearly erroneous. (Trustee’s Resp. at 3-4.) In their reply, the appellants clarify their position
that the bankruptcy court ignored substantial evidence of solvency, improperly shifted the burden
regarding transfers for value, disregarded the standards for spoliation of evidence, and imposed
sanctions where there was no prejudice. (Appellants’ Reply at 1.)

and [82]. The trustee’s designations are in Case No. 15 C 8917 [7], [39], [40] and in Case No. 15 C 8921
[17] and [40]. The Court notes that the trustee filed two motions in 15 C 8917 for leave to file certain
exhibits under seal [54] and [64]. Those motions were granted [60] and [66]. As best as the Court can
tell, the trustee never filed those exhibits on the record even though he did file a letter [71] he sent to the
bankruptcy court asking that court to place exhibits on the dockets of the district court cases. The Court
received two flash drives from the trustee that contain certain exhibits. To the extent those exhibits are
not filed on the dockets in Case Nos. 15 C 8917 and 15 C 8921, the Court has not considered them.

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Solvency
The appellants contend that the bankruptcy court erred when it found CMCG insolvent
during the relevant time frame (2008-2012). They argue that the accountant expert who prepared
the insolvency report knew it would benefit the trustee to make a finding of insolvency and assert
that she only reviewed CMCG’s business records of liabilities, not assets. (Appellants’ Br. at 23.) They contend that one of the trustee’s exhibits, unlike the QuickBooks entries on which the
accountant relied, contradicts the expert’s report and reflects that CMCG was solvent throughout
the relevant time frame. (Id. at 4-6.) Citing very little and out-of-Circuit) authority, appellants
also argue that the expert report does not tie CMCG’s financial condition to the dates of the
transfers as required. (Id. at 6.) Ultimately, the appellants contend that the accountant’s report
did not provide an accurate depiction of CMCG’s financial condition throughout the four-year
time period. (Id. at 7.) The trustee counters that it was not clearly erroneous for the bankruptcy
court to reply on the trustee’s expert witness’s testimony that CMCG was insolvent at all
relevant times because hers was the only expert testimony presented on the issue. (Trustee’s
Resp. at 8.) The trustee asserts that it is improper for the Court to consider appellants’ counsel’s
opinion about fact issues related to insolvency. (Id. at 9.) The trustee also argues that the
appellants present no legal authority prohibiting the court from relying on the expert’s report or
any evidence that CMCG was operating at a net profit on any given date. (Id. at 10.)
“Insolvency is a question of fact, and the bankruptcy court has broad discretion to
determine insolvency.”

Grochocinski v. Schlossberg, 402 B.R. 825, 836 (N.D. Ill. 2009).

According to the IUFTA and the Bankruptcy Code, “a debtor is insolvent if the sum of [its] debts
is greater than all of [its] assets at a fair valuation.” In re CF Graphics, Inc., No. 06 B 00459,
2009 WL 2215089, at *10 (N.D. Ill. July 21, 2009) (quoting 740 ILCS 160/3(a) and citing 11

6

U.S.C § 101(32)). The bankruptcy court relied on the QuickBooks data maintained by Novak
and the accountant expert to determine CMCG’s financial condition during the relevant time
period. (Bankr. Am. Mem. at 3.) Further, the court overruled defendants’ challenges to the
expert’s determination that CMCG’s assets were less than its outstanding liabilities during the
relevant period. (Id. at 3-4.) This Court notes that the appellants have copied and pasted the
post-trial briefs they submitted in the bankruptcy court proceeding into the briefs they submitted
in this proceeding. Compare Post-Trial Arg. of Julia Hathaway Case No. 15 C 8917 [6-2] at 4851; 73-77 and Post-Trial Arg. of Debra Comess Case No. 15 C 8921 [7-2] at 41-44; 86-90 with
Appellants’ Br. at 2-7. To their regurgitated arguments, the appellants add a few sentences
asserting that the bankruptcy court missed the point and that solvency should not be determined
by comparing CMCG’s total assets to its total liabilities but rather whether there was any cash or
accounts receivable not accounted for in the accountant’s analysis of CMCG’s QuickBooks data.
(Appellants’ Br. at 7.)

The bankruptcy court dismissed a similar objection as misguided,

reasoning that the chart on which appellants urge this Court to rely reflects only accounts
receivable at monthly intervals and does not compare CMCG’s total asset value compared to its
total liabilities. (Bankr. Am. Mem. at 3.) The court also rejected appellants’ argument that the
expert’s analysis wrongly compared CMCG’s assets and liabilities at six-month intervals, rather
than at the time of any particular asset transfer, reasoning that CMCG’s operations were
consistent throughout the relevant period and that the six-month sampling likely presented the
balance of assets and liabilities at any given time during that period. (Id. at 4.)
The Court finds baseless appellants’ arguments that the bankruptcy court clearly erred
when it found CMCG insolvent during the relevant time frame. According to Illinois law and
the Bankruptcy Code, a debtor is insolvent when its liabilities exceed its assets. The accountant

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expert’s chart shows that CMCG’s liabilities exceeded its assets during the relevant four-year
time period, and it cannot have been erroneous for the bankruptcy court to rely on that chart
instead of an Excel spreadsheet of unknown origin that shows only the monthly deposits CMCG
received.

Appellants’ attempt to contradict the expert’s conclusion by plugging in larger

amounts for accounts receivable and total assets7 without explaining why either number is
accurate or, in the case of total assets, where the number came from, does not persuade this Court
that the bankruptcy court erred when it relied on the accountant expert’s analysis. See In re
Longview Aluminum, LLC, No. 03 B 12184, 2005 WL 3021173, at *6 (N.D. Ill. July 14, 2005)
(“It is generally accepted that whenever possible, a determination of insolvency should be based
on seasonable appraisals or expert testimony.”). Accordingly, the Court affirms the bankruptcy
court’s finding that CMCG was insolvent during the relevant time frame.
Transfers
Next, appellants contend that the bankruptcy court erred when it held that CMCG did not
receive value for transfers it made to Comess and Hathaway. Comess states that she worked for
CMCG on the American Society of Corporate Security database, attended industry group
meetings, and consulted with CMCG from 2008 to 2012. (Appellants’ Br. at 8.) She argues that
her invoices reflect payment for these services and reimbursement for expenses and that the
trustee did not produce any contradictory evidence. (Id. at 8-9.) Hathaway asserts that during
the relevant time period, she consulted for CMCG on IT project management, workshop training,
documentation, process flow, and general business and that her invoices reflect payment for

7

Despite its thorough search of the dockets in the district court and bankruptcy court proceedings, the
Court was unable to locate a copy of the accountant expert’s report and so bases its analysis on the
reproduction of the accountant’s and CMCG’s monthly receivables charts on pages 4 and 5 of appellants’
brief. The Court notes that in adversary proceeding 14-00295 in the bankruptcy court, defendants filed a
motion in limine to bar the accountant expert’s report [95], but the report itself is not included with that
motion.

8

those services. (Id. at 9-10.) Hathaway also asserts that she testified that she believed any gifts
she received came from Novak personally, not CMCG. (Id. at 11.) The trustee contends that
CMCG’s records reflect that it sent appellants checks even though it received no invoices from
appellants. (Trustee’s Resp. at 12.) Further, the trustee states that CMCG did not consider the
appellants bona fide contractors because they were never issued 1099 forms nor were they listed
with CMCG’s 1099 subcontractors. (Id. at 13.) The trustee asserts that any evidence of invoices
provided by appellants was created after this action was filed. (Id. at 13-15.)
In ruling that payments CMCG made to Hathaway and Comess were not for work done
for reasonably equivalent value, the bankruptcy court relied on the following evidence: (1)
Hathaway and Novak’s close friendship; (2) Hathaway’s acknowledgement that Novak paid for
her yoga studio’s equipment; (3) email correspondence indicating that Hathaway had a practice
of asking Novak to pay for her personal expenses; (4) only Hathaway’s testimony and the bills
she prepared demonstrate any work done for CMCG; (5) the bills Hathaway testified she
submitted were irregular in form; (6) Hathaway’s invoices did not correspond to payments
CMCG made to her; (7) CMCG’s payments to Hathaway increased significantly in 2008 when
she began working full-time in her yoga studio; (8) the close personal relationship between
Comess and Novak; and (9) the lack of evidence of any work done for monthly retainers,
particularly in light of the additional invoices Comess submitted for updating CMCG’s database
and out-of-pocket expenses.8 (Bankr. Am. Mem. at 4-8.)
“In determining whether a debtor received ‘reasonably equivalent value,’ courts consider
all the circumstances of the transfer including the ‘fair market value of what was transferred and
received, whether the transaction took place at arm’s length, and the good faith of the
8

The bankruptcy court also acknowledged that some of the payments Comess received from CMCG were
reasonable consideration for work she performed for the company and did not consider those transfers
fraudulent. (Bankr. Am. Mem. at 7-8.)

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transferee.’” In re Wierzbicki, 830 F.3d 683, 687 (7th Cir. 2016) (quoting In re Smith, 811 F.3d
228, 240) (7th Cir. 2016)). The Court again notes that appellants have resubmitted their largely
unaltered post-trial briefs from the bankruptcy court proceedings as their briefs in this
proceeding without indicating why the bankruptcy court’s reliance on the extensive evidence
they cited was clear error. The only new argument appellants raise is that the invoices Comess
and Hathaway submitted to Novak were in compliance with CMCG’s requirements. While that
may be, that unsupported statement is not enough to persuade this Court that CMCG received
equivalent value in services for the money Novak paid Comess and Hathaway in light of the
extensive contradictory evidence upon which the bankruptcy court relied. See In re Ball, 611 F.
App’x 356 (7th Cir. 2015) (affirming the district court’s decision to affirm the bankruptcy court
when appellant “submitted no evidence to disturb the bankruptcy judge[’s] determination[]”).
Accordingly, the Court affirms the finding that the majority of Novak’s payments to Comess and
Hathaway were not transfers for equivalent value.
Creditors
Appellants next argue that the bankruptcy court erred when it found that CMCG’s creditcard and tax obligations amounted to its having creditors. (Appellants’ Br. at 16.) They assert
that the tax obligations were nominal and that there was no evidence that the credit-card debt was
due or that CMCG was unable to pay it. (Id.) The trustee argues that based on the evidence
before the bankruptcy court, it was plausible for the court to conclude that the IRS was an
unsecured creditor during the relevant time frame and that CMCG was indebted on credit cards.
(Trustee’s Resp. at 16.) The trustee also contends that appellants cite no evidence or legal
authority to support their arguments. (Id.)

10

In determining that CMCG had unpaid taxes and outstanding credit-card charges during
the relevant time frame, the bankruptcy court relied on evidence submitted by plaintiff, including
notice from the IRS of unpaid taxes and the expert accountant’s report. (Bankr. Am. Mem. at 9.)
Appellants cite no authority for the premise that nominal tax obligations do not render the IRS a
creditor or even what constitutes a nominal tax obligation. Further, appellants do not submit any
evidence supporting their assertion that CMCG had the capital to pay the outstanding taxes or
credit-card debts or that they were not due.9 Accordingly, the Court does not find that the
bankruptcy court erred when it held that CMCG had unsecured creditors at the time of the
challenged transfers. See Ball, 611 F. App’x at 356.
Sanctions
Appellants next challenge the fees the bankruptcy court imposed against them as
sanctions. Without citing any authority, appellants contend that the attorney time connected with
the motions to quash and motions to compel production of emails was wasted and should not be
recoverable. (Appellants’ Br. at 19.) They further assert that the trustee’s counsel should not be
reimbursed for review of email because nothing useful was produced. (Id. at 20-21.) In addition
to arguing that the sanctions for in camera review of emails should be stricken, appellants also
argue that the trustee’s counsel should be sanctioned for falsely accusing Comess and Hathaway
of withholding emails. (Id. at 21.) Finally, appellants argue that the time awarded for issuing
subpoenas for non-parties should be stricken because Hathaway did not cause any of the related
delays. (Id. at 21-22.) They assert that the bankruptcy court erred when it awarded sanctions for
delays that were not the fault of the appellants, did not prejudice the trustee, and had no effect on

As with the accountant expert’s report, the Court was unable to locate the IRS notice sent to CMCG
about outstanding taxes or credit-card statements (which apparently were part of the accountant expert’s
report) on which the bankruptcy court relied. As best as the Court can tell, neither party has provided that
evidence or any evidence to refute the bankruptcy court’s reliance on it.
9

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the outcome of the case. (Id. at 23.) The trustee counters that the bankruptcy court did not abuse
its discretion when it issued monetary sanctions against the appellants for failure to comply with
two court orders. (Trustee’s Resp. at 17.)
In sanctioning appellants, the bankruptcy court explicitly held that “sanctions [were]
levied only to the extent that the defendants’ failure to comply with court orders caused the
trustee to expend additional time and resources.” (Am. Bankr. Mem. at 13.) Further, the
bankruptcy court did not award sanctions for appellants’ alleged failure to properly answer
interrogatories or failure to produce tax and other documents. (Id. at 14.) The court awarded the
trustee attorney’s fees and expenses in pursuing discovery matters related to appellants’ emails
that the bankruptcy court twice ordered to be turned over.10 (Id. at 14-15.)
“Courts have broad discretion to select the appropriate sanction for a discovery violation
in light of the unique factual circumstances of the case,” In re Kmart Corp., 371 B.R. 823, 840
(N.D. Ill. 2007), and “[u]nder the abuse of discretion standard, ‘an appellant faces an uphill
battle’ in seeking to reverse a lower court’s sanction order,” Grochocinski, 402 B.R. at 842
(quoting In re Golant, 239 F.3d 931, 937 (7th Cir. 2001)). The bankruptcy court was clear that it
awarded the trustee sanctions related to appellants’ alleged violations of court orders to produce
discovery. While the bankruptcy court ultimately found that the failure to produce some emails
was not caused by the appellants and other unproduced emails were not relevant, it awarded the
trustee fees and expenses related to the the motion practice that aided the court in reaching that
conclusion. It appears the attorney’s fees and expenses were incurred determining whether the
appellants were responsible for a gap in production and whether the unproduced emails were

10

The trustee testified that the delayed responses caused him to incur additional costs. (Bankr. Am. Mem.
at 15.)

12

relevant.11 Considering the broad discretion lower courts have in sanctioning parties, the Court
does not find such an award was an abuse of discretion.
Spoliation
Finally, Comess contends that the bankruptcy court erred in awarding sanctions to the
trustee despite ruling that he had not proved spoliation of evidence.12 (Appellants’ Br. at 15.)
She argues that hiring the computer expert was a waste of time and money and could have been
avoided if the trustee had asked for Novak’s laptop sooner; therefore, it was improper for the
bankruptcy court to order Comess to pay for the expert. (Id. at 16.) The trustee contends that the
bankruptcy court did not abuse its discretion when it found that Comess’s actions resulted in the
spoliation of evidence. (Trustee’s Resp. at 18.)
In entering judgment for the trustee for a reasonable amount to cover the computer
expert’s services, the bankruptcy court held that Comess had a duty to preserve evidence
contained on Novak’s laptop and that she breached that duty. (Bankr. Am. Mem. at 12.) It
further held, however, that the only damages the trustee established were for the cost of retaining
an expert to determine the extent of the deletions made from Novak’s computer at Comess’s
direction.13 (Id.) Comess does not contend that she did not have a duty to preserve evidence or
that she did not breach that duty, but instead asserts that retaining the computer expert was

At a status hearing on September 2, 2015, the bankruptcy court indicated it found “some of the
expenses incurred by the trustee in preparing the discovery sanctions motions and arguing the discovery
sanctions motions and reviewing the subsequent production . . . compensable.” (Bankr. Case No. 1400294 Dkt. 305 Tr. at 3 ll. 15-19.)
11

12

Again, the bulk of appellants’ brief is identical to the post-trial brief submitted to the bankruptcy court.
Compare Comess’s post-trial brief 15 C 8921 [7-2] at 47-50, 54 and Comess’s sur-reply to motion for
sanctions [7-2] at 70-71 with appellants’ brief at 11-15.
The bankruptcy court held that the trustee did not show that any information deleted from Novak’s
laptop could have led to any additional recoveries for CMCG’s estate. (Bankr. Am. Mem. at 12.)
13

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unnecessary because that process produced no relevant evidence. The Court is not persuaded.
Without retaining the expert, it would have been impossible to determine what had been deleted
from the laptop and whether that evidence was relevant to the bankruptcy proceeding. Given the
broad discretion afforded to lower courts in imposing sanctions, the Court does not find that the
bankruptcy court abused its discretion in awarding the trustee fees for the computer expert. See
Grochocinski, 402 B.R. at 843 (affirming a bankruptcy court’s award of sanctions in the form of
costs for retaining a computer expert). Accordingly, the Court affirms the bankruptcy court’s
rulings.
CMCG’s Cross-Appeal
In its cross-appeal,14 CMCG asserts that the bankruptcy court erred when it refused to
enter Rule 37 sanctions against Hathaway for a failure to produce documents that allegedly
would have allowed the trustee to present evidence about the “financial arrangement” between
her and Novak. (Cross-Appellant’s Br. at 3, 5.) Hathaway argues that there is no evidence to
support sanctioning her. (Hathaway’s Resp. at 2.)
As discussed above, in sanctioning appellants for alleged failure to produce emails, the
bankruptcy court awarded the trustee only those fees and costs associated with determining
whether appellants were responsible for non-production. (Bankr. Am. Mem. at 14.) When an in
camera review revealed they were not, the court awarded only costs and fees that were required
for that determination. (Id. at 14-15.) While the court noted that the gap in production was
“suspect,” it ultimately found that it was caused by the email providers’ production, not the
appellants’ failure to disclose documents. (Id. at 14.) Without evidence of the alleged “financial
arrangement” between Novak and Hathaway, the bankruptcy court refrained from sanctioning

14

The trustee withdrew its cross-appeal against Comess in Case No. 15 C 8921 [86].

14

Hathaway beyond attorney’s fees related to the motions for sanctions.

While the trustee

reiterates that he was prejudiced in receiving other documents late or not at all, it appears to this
Court that the bankruptcy court thoroughly and repeatedly reviewed all outstanding discovery
and found that it had been produced or that trustee had not been prejudiced. (Id. at 14; see also
Case No. 15 C 8917 Dkt. 40, Tr. of 8/12/15 Sanctions Mot. Hr’g in Bankr. Case No. 14-00294.)
Given the court’s broad discretion in leveling sanctions, this Court cannot find an abuse of
discretion in the bankruptcy court’s reasonable conclusion. Accordingly, the Court affirms the
bankruptcy court’s rulings.
CONCLUSION
For the reasons set forth above, CMCG’s motions to dismiss [69] and [72] are denied.
The Court affirms the decisions of the bankruptcy court.
SO ORDERED.

ENTERED: June 2, 2017

_________________________
JORGE L. ALONSO
United States District Judge

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