Desiderio v. Parikh et al
MEMORANDUM AND ORDER - For the foregoing reasons, the Order of the Bankruptcy Court is VACATED and REMANDED for further findings consistent with this Memorandum and Order. The Clerk of the Court is directed to mark this appeal CLOSED. E.D. Bankruptcy Adv. Proc. No. 08-08062-478. So Ordered by Judge Joanna Seybert on 3/28/2013. C/ECF (Valle, Christine)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
E.D. Bankr. Adv. Proc.
-againstMEMORANDUM & ORDER
SUNIL PARIKH; MEENA PARIKH; MARC A.
PERGAMENT; WEINBERG, GROSS &
John S. Desiderio, Esq.
18 Bedford Avenue
New Hyde Park, NY 11040
Marc A. Pergament, Esq.
Weinberg, Gross & Pergament, LLP
400 Garden City Plaza, Suite 403
Garden City, NY 11530
SEYBERT, District Judge:
Pending before the Court is an appeal arising out of a
Bankruptcy Court for the Eastern District of New York by debtor
Debtor, seeking a dismissal of the Debtor’s case under 11 U.S.C.
§ 707(a) and/or the denial of the Debtor’s discharge under 11
U.S.C. § 727.
On May 24, 2011, the Bankruptcy Court issued a
decision after trial (“Decision After Trial”), finding that the
On June 28, 2011, the Appellant filed a motion for
sanctions against the Debtor; the Debtor’s wife, non-party Meena
Parikh (“Meena”); the Debtor’s lawyer, Marc A. Pergament, Esq.;
The Appellant now appeals the order of Bankruptcy
Judge Robert E. Grossman denying his request for sanctions.
the following reasons, the order of the Bankruptcy Court is
VACATED and REMANDED for further findings consistent with this
Memorandum and Order.
The Court assumes familiarity with the facts of the
Grossman’s Decision After Trial.
The Court will only briefly
summarize those facts that are pertinent to the pending appeal.
In or around 2004, the Appellant was awarded a default
judgment in state court against the Debtor and a non-party on a
claim for non-payment of a promissory note in the amount of
(Decision After Trial at 20.)
The Appellant was
later awarded additional judgments in the amounts of $7,062.50
enforcing the promissory note.
(Id. at 20-21.)
Petition with the assistance of counsel, which was dismissed on
November 2, 2006 on motion of the Chapter 13 Trustee.
Chapter 7 Petition with the assistance of different counsel (id.
at 7), Appellees Mr. Pergament and WGP.
The schedules filed
with the Chapter 7 Petition, however, did not disclose all of
the debts and assets that the Debtor disclosed in the schedules
filed with the Chapter 13 Petition.
(Id. at 7.)
The Appellant filed a claim on October 1, 2007,1 and on
November 29, 2007, Bankruptcy Judge Dorothy Eisenberg entered an
order authorizing the Appellant to serve Rule 2004 subpoenas on
(Appellant Ex. 18.)2
On November 4, 2008, Judge Eisenberg held
the Debtor and Meena in contempt due to their “willful refusal
and failure” to comply with the Appellant’s 2004 subpoenas and
the Examination Order.
They were each sanctioned $100
per day, to be paid to the Appellant, for every day as of the
date of the order “until they produce[d] the documents demanded
pursuant to the 2004 Subpoena[s], Examination Order, and the
At the time the claim was filed, the Debtor owed the Appellant
over $280,000. (Compl. ¶ 6.)
The parties appear to confuse the exhibit numbers with their
ECF document numbers throughout their submissions. “Appellant
Ex. ___” as used herein refers to the exhibit numbers, not the
ECF document numbers.
Supplemental Document Request, and appear[ed] for examination at
the place designated in the 2004 Subpoenas, at a date and time
mutually agreeable to the parties.”
The Debtor, Meena,
and WGP were also held jointly and severally liable for the
Appellant’s attorney’s fees, in the amount of $6,758.10, “due to
their representations that the documents produced were complete
when in fact they were incomplete and insufficient.”
attorney’s fees were paid; however, the $100 per day sanction
was not and remains outstanding.
adversary proceeding against the Debtor seeking dismissal of the
(Compl. ¶ 1.)
The Debtor answered the Complaint on May
Appellant filed a motion for summary judgment (Bankr. Case No.
Appellant sought leave to file an interlocutory appeal to the
district court on April 10, 2009, which was denied by District
Judge Joseph F. Bianco on July 30, 2009.
(Id. at Docket Entry
The case was transferred to Judge Grossman for trial,
which took place over the course of five days between November
2009 and June 2010.
(Id. at Docket Entry 60; Decision After
On May 24, 2011, Judge Grossman issued the Decision
After Trial, finding that the Debtor had commenced the Chapter 7
proceeding in bad faith and denying his discharge pursuant to
Despite the finding of bad faith, Judge Grossman denied the
Appellant’s request that the Chapter 7 Petition be dismissed,
stating that it was in the “best interest of all parties in
scrutiny of the trustee and oversight of the Court.”
(1) an order directing that judgment be entered in
favor of the Appellant against the Debtor and Meena for the
unpaid sanctions previously imposed by Judge Eisenberg in the
Chapter 7 proceeding and (2) the imposition of new sanctions
against the Debtor, Meena, Mr. Pergament, and WGP in the amount
challenging the Chapter 7 filings and prosecuting the adversary
proceeding and $14,701.00 in attorney’s fees and costs incurred
in preparing the motion for sanctions.
that sanctions were warranted because:
The Appellant argued
(a) the Debtor’s Chapter 7 Petition was for
an improper purpose under the provisions of
Bankruptcy Rule 9011, (b) the Debtor, Meena,
Pergament, and [WGP] attempted to manipulate
Appellant] in violation of Section 105(a) of
the Bankruptcy Code, (c) Pergament and [WGP]
unreasonably and vexatiously multiplied the
Debtor’s petition and schedules without any
inquiry, much less a reasonable inquiry
information therein in violation of Section
707(b)(4)(C) & (D) of the Bankruptcy Code.
(Desiderio Aff. in Support of Sanctions (“Desiderio Aff.”) at
Judge Gross heard oral argument on March 5, 2012 and
denied the Appellant’s motion on the record, stating as follows:
You brought a case, you win.
can’t get a discharge.
There’s a 7 -- you
win. Now you’re bringing a case to say the
reasons you won that you proved in front of
me is the basis, one, I never should have
had to brought the case, that what right do
these people have to raise a defense, what
right did a law firm have to represent a
plaintiff I’ve ever seen that won.
considering is you, if you want to know the
. . .
That’s what I’m considering. And whether or
not I go there, I’m not sure. But you want
to talk about vexatious litigation; you want
to talk about pleadings that make absolutely
no sense. Read your own papers, all right?
. . . I don’t know--get something else to
do. Get another case. Find something else
to do in your life. You’re too young to be
Go find the . . .
defendant. Sue him in state court. Collect
any monies you can. I told you you could do
Are you ever going to collect?
have no idea.
You’re suing a guy who you
knew the odds of collecting on were probably
You made a decision not to settle,
your decision, completely your decision.
Live with it, all right? Live with it. But
to continue . . . .
But don’t bring this stuff in my courtroom
again, don’t do it, because the next time
you do, then I will figure out sanctions.
I’m going to deny the motion.
(Hr’g Tr. 19-20.)
Judge Grossman also expressed concern that
the Appellant was seeking sanctions in the form of attorney’s
fees, even though the Appellant’s counsel was not billing the
Appellant for his services.3
Instead, counsel sought sanctions
in the amount of the fees “incurred” but not paid.
Judge Grossman stated that this was “not quite but almost
. . . one of the most absurd things that ha[s] been before
(Hr’g Tr. 18.)
Judge Grossman did not mention the
Appellant’s request for a judgment against the Debtor and Meena
for the unpaid sanctions previously imposed by Judge Eisenberg.
A form order denying the Appellant’s motion in its entirety was
The Appellant’s counsel is his son. In exchange for
representing the Appellant in the adversary proceeding, the
Appellant was paying his son’s mortgage. Thus, there were no
contemporaneous billing records, because the Appellant was not
formally billed for his son’s services. (Hr’g Tr. 9-11, 15-18.)
entered on March 13, 2012.
(Order on Motion for Sanctions,
Docket Entry 1-2, at 2.)
The Appellant appealed Judge Grossman’s decision to
the undersigned on May 1, 2012.
The Appellant filed his brief
applicable page limit, see E.D.N.Y. LOCAL RULE 7.1(c)--and was
filed without seeking an enlargement of the page limit.
their opposition brief five days late on June 4, 2012.
Appellant filed his reply brief on June 15, 2012, which also
almost doubles the applicable page limit.
As a preliminary matter, the Appellant asks this Court
to reject the Appellees’ opposition brief as untimely.
Court denies this request and hereby retroactively grants the
Appellees an extension of time to file their opposition.
Court finds that such an extension is/was warranted in order to
give the Appellees sufficient time to respond to the arguments
in the Appellant’s unauthorized enlarged opening brief.
although the Court may, it will not limit its review of the
Appellant’s opening brief to the first twenty-five pages.
review and applicable law before turning to the merits of the
Standard of Review on a Bankruptcy Appeal
appeals from final judgments, orders, and decrees of bankruptcy
FED. R. BANKR. P. 8013.
Typically, a bankruptcy court’s
evidence, shall not be set aside unless clearly erroneous,” id.;
see also Momentum Mfg. Corp. v. Emp. Creditors Comm. (In re
Momentum Mfg. Corp.), 25 F.3d 1132, 1136 (2d Cir. 1994), and its
legal conclusions are reviewed de novo, see Momentum Mfg. Co.,
25 F.3d at 1136.
An order of the Bankruptcy Court granting or
denying a motion for sanctions, however, is reviewed for abuse
See Baker v. Latham Sparrowbush Assocs. (In re
Cohoes Indus. Terminal, Inc.), 931 F.2d 222, 227 (2d Cir. 1991);
Solow v. Kalikow (In re Kalikow), 602 F.3d 82, 91 (2d Cir.
discretion if it based its ruling on an erroneous view of the
law or on a clearly erroneous assessment of the evidence.’”
re Kalikow, 602 F.3d at 91 (quoting Klein v. Wilson, Elser,
Moskowitz, Edelman & Dicker (In re Highgate Equities, Ltd.), 279
F.3d 148, 152 (2d Cir. 2002)).
Bankruptcy Court’s Ability to Impose Sanctions
Bankruptcy Rule 9011, the Court’s inherent power under 11 U.S.C.
§§ 105(a), 707(b)(4)(C)-(D), and/or 28 U.S.C. § 1927.
Rule 9011(b) states, in relevant part, that a party
presented for an improper purpose, that the legal contentions
made are warranted by existing law, and that the contentions
have evidentiary support.
FED. R. BANKR. P. 9011(b).
If a court
finds that a party is responsible for violating Rule 9011(b),
FED. R. BANKR. P. 9011(c).
Accordingly, such sanctions are at the discretion of a court and
“should only be imposed if it is patently clear that a claim has
absolutely no chance of success.”
K.M.B. Warehouse Distrib.,
(internal quotation marks and citation omitted).4
Although these cases discuss sanctions in the context of Rule
11 of the Federal Rules of Civil Procedure, Rule 9011 “parallels
Federal Rule of Civil Procedure 11, containing ‘only such
modifications as are appropriate in bankruptcy matters.’” In re
Cohoes Indus. Terminal, Inc., 931 F.2d 222, 227 (2d Cir. 1991)
(quoting Cinema Serv. Corp. v. Edbee Corp., 774 F.2d 584, 585
The Court’s Inherent Power
Section 105(a) permits a court to “issue any order,
process, or judgment that is necessary or appropriate to carry
out the provisions” of the Bankruptcy Code.
11 U.S.C. § 105(a).
Although Section 105 does not specifically mention sanctions or
Section 105(a) empowers courts to “exercise equity in carrying
out the provisions of the bankruptcy code.”
In re Smart World
omitted) (internal quotation marks and citation omitted).
equitable power does not, however, provide an independent basis
for a court to act.
Rather, the language of Section
105(a) “suggests that an exercise of Section 105(a) power be
tied to another Bankruptcy Code section and not merely to a
quotation marks and citation omitted).
So while the extent of
Section 105(a)’s equitable reach is disputed, it is agreed that
it is “plainly limited by the provisions of the [Bankruptcy]
Id. at 183.
(3d Cir. 1985)). And the Second Circuit has held that the
“application of Rule 9011 is informed by Rule 11 jurisprudence.”
Id. at 227.
Here, the Appellant seeks sanctions for violations of
Section 707(b)(4) of the Bankruptcy Code, which provides, in
relevant part, as follows:
The signature of an attorney on a petition, pleading,
or written motion shall constitute a certification
that the attorney has-(i)
performed a reasonable investigation
circumstances that gave rise to the
pleading, or written motion; and
is well grounded in fact; and
(II) is warranted by existing law or a good faith
argument for the extension, modification, or
reversal of existing law and does not constitute
an abuse under paragraph (1).
The signature of an attorney on the petition shall
constitute a certification that the attorney has no
knowledge after an inquiry that the information in the
schedules filed with such petition is incorrect.
11 U.S.C. § 707(b)(4)(C)-(D).
The Second Circuit has also recognized the ability of
bankruptcy courts and district courts to “derive from § 105(a)
. . . the power to sanction bad-faith serial filers.”
Casse, 198 F.3d 327, 337 (2d Cir. 1999).
28 U.S.C. § 1927
Section 1927 states:
Any attorney or other person admitted to
conduct cases in any court of the United
States or any Territory thereof who so
multiplies the proceedings in any case
unreasonably and vexatiously may be required
by the court to satisfy personally the
excess costs, expenses, and attorneys' fees
reasonably incurred because of such conduct.
28 U.S.C. § 1927.
“Courts in this circuit construe the statute
enthusiasm or chill the creativity that is the very lifeblood of
Romeo v. Sherry, 308 F. Supp. 2d 128, 148 (E.D.N.Y.
tactics, unnecessary delays in litigation, and bad faith conduct
Teamsters, Chauffeurs, Warehousemen & Helpers of Am., AFL–CIO,
948 F.2d 1338, 1345 (2d Cir. 1991); Hudson Motors P’ship v.
Crest Leasing Enters., Inc., 845 F. Supp. 969, 978 (E.D.N.Y.
Whether the Bankruptcy Court Abused Its Discretion
There are two issues that the Court must address on
(1) whether Judge Grossman abused his discretion
abused his discretion in denying the imposition of new sanctions
against the Debtor, Meena, Mr. Pergament, and WGP.
will address each separately.
In Failing to Enter Judgment on the Prior Award of
judgment on Judge Eisenberg’s sanction order was raised in his
motion for sanctions (see Desiderio Aff. 18-19, 23, 42) and was
denied by Judge Grossman (Order on Motion for Sanctions at 1-2),
Judge Grossman failed to explain why he exercised his discretion
to deny the request, which appears to have been unopposed by the
Debtor or Meena.
“Absent any such explanation, [the Court]
cannot evaluate whether the court abused its discretion when it
denied [the Appellant’s request].”
Capone v. Weeks, 326 F.
App’x 46, 47 (2d Cir. 2009) (remanding a denial of a motion for
sanctions for “clarification of its decision and for additional
findings of fact or conclusions of law” because the Circuit was
district court abused its discretion”).
Accordingly, the Court
hereby VACATES the portion of Judge Grossman’s order denying the
Appellant’s request for an entry of judgment and REMANDS the
case for further findings.
In Failing to Impose New Sanctions
The Appellant also moved for the imposition of new
Trial, which concluded that the Chapter 7 Petition had been
filed by the Debtor in bad faith, evidence of intentionally
assistance to Meena and other third parties, and Mr. Pergament
and WGP’s alleged failure to conduct a reasonable inquiry into
the facts set forth in the Debtor’s Chapter 7 filings or to
correct misstatements in the filings upon discovery.5
ultimately the decision whether to impose sanctions is within
the sound discretion of the bankruptcy judge.
Appellant’s request for sanctions because he did not feel that
attorney’s fees were an appropriate sanction, given that the
Appellant had yet to pay the fees in full.
with Judge Grossman’s rationale.
There are two issues
First, whether sanctions are
warranted and the appropriate type/amount of sanctions are two
separate issues that involve distinct analyses, see, e.g., In re
Spectee Grp., Inc., 185 B.R. 146, 160 (Bankr. S.D.N.Y. 1995);
Kanbar v. Christian de Ville de Goyet (In re Omega Trust), 120
B.R. 265, 270-71 (Bankr. S.D.N.Y. 1990), and here Judge Grossman
appears to have skipped to the second step--determining the type
and amount of sanctions to impose--without addressing whether
The Appellant also noted in his sanctions motion that, pursuant
to the terms of the promissory note--the document upon which the
Debtor’s debt to the Appellant is based--the Appellant is
entitled to all reasonable legal fees and expenses incurred in
collecting the debt. (Desiderio Aff. 18.)
sanctions were warranted in the first instance.
Apparel Co., 379 F. App’x 12, 13-14 (2d Cir. 2010) (affirming a
notwithstanding the fact that the fees had not yet been paid).
Grossman’s order denying the Appellant’s request to impose new
sanctions and REMANDS for further findings regarding whether the
actions of the Debtor, Meena, Mr. Pergament, and/or WGP were
For the foregoing reasons, the order of the Bankruptcy
Court is VACATED and REMANDED for further findings consistent
with this Memorandum and Order.
The Clerk of the Court is
directed to mark this appeal CLOSED.
/s/ JOANNA SEYBERT______
Joanna Seybert, U.S.D.J.
28 , 2013
Central Islip, NY
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