Desiderio v. Parikh et al

Filing 8

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)

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UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK -------------------------------------X JOHN DESIDERIO, Appellant, E.D. Bankr. Adv. Proc. No. 08-08062-478 -againstMEMORANDUM & ORDER 12-CV-2148(JS) SUNIL PARIKH; MEENA PARIKH; MARC A. PERGAMENT; WEINBERG, GROSS & PERGAMENT, LLP, Appellees. -------------------------------------X APPEARANCES For Appellant: John S. Desiderio, Esq. 18 Bedford Avenue New Hyde Park, NY 11040 For Appellees: 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 Chapter 7 bankruptcy action filed in the United States Bankruptcy Court for the Eastern District of New York by debtor Sunil Parikh (the “Appellant”) “Debtor”). commenced an Appellant adversary John Desiderio proceeding against (the the 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 Debtor had filed his Chapter 7 case in bad faith. The Bankruptcy dismiss Court, the discharge. however, bankruptcy denied case and the Appellant’s instead denied request the to Debtor’s 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.; and Mr. Pergament’s (“WGP”). firm, Weinberg, Gross & Pergament LLP The Appellant now appeals the order of Bankruptcy Judge Robert E. Grossman denying his request for sanctions. For the following reasons, the order of the Bankruptcy Court is VACATED and REMANDED for further findings consistent with this Memorandum and Order. BACKGROUND The Court assumes familiarity with the facts of the underlying adversary proceeding, Grossman’s Decision After Trial. which are detailed in Judge 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 $76,143.77. (Decision After Trial at 20.) The Appellant was later awarded additional judgments in the amounts of $7,062.50 and $42,380.35 for attorney’s enforcing the promissory note. fees and costs (Id. at 20-21.) 2 incurred in On May 13, 2006, the Debtor filed a Chapter 13 Petition with the assistance of counsel, which was dismissed on November 2, 2006 on motion of the Chapter 13 Trustee. (Id. at 5-6.) filed Approximately nine months later, the Debtor a 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 the Debtor and his (Appellant Ex. 18.)2 wife Meena (the “Examination Order”). 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. (Id.) 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 1 At the time the claim was filed, the Debtor owed the Appellant over $280,000. (Compl. ¶ 6.) 2 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. 3 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.” (Id.) 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.” (Id.) The attorney’s fees were paid; however, the $100 per day sanction was not and remains outstanding. On March 27, 2008, the Appellant commenced an adversary proceeding against the Debtor seeking dismissal of the Chapter 7 § 707(a) § 727. 1, Petition and/or as the (Appellant bad denial (Compl. ¶ 1.) 2008 a faith of filing the under Debtor’s 11 discharge U.S.C. under The Debtor answered the Complaint on May Ex. 14), and on November 18, 2008, the Appellant filed a motion for summary judgment (Bankr. Case No. 08-08-8062, Eisenberg on Docket April Entry 2, 22), 2009 (id. which at was Docket denied by Entry 41). Judge The 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 61.) The case was transferred to Judge Grossman for trial, which took place over the course of five days between November 4 2009 and June 2010. Trial 2-3.) (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 § 727(a)(4)(A), (a)(2)(A). (Decision After Trial at 50.) 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 interest” to “keep[] th[e] case open and under the scrutiny of the trustee and oversight of the Court.” direct (Id. at 35-36.) On sanctions relief: in June the 28, 2011, adversary the Debtor proceeding filed seeking a motion the for following (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 of $239,252.69 in attorney’s fees and costs incurred in 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: 5 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 the bankruptcy process to thwart [the Appellant] in violation of Section 105(a) of the Bankruptcy Code, (c) Pergament and [WGP] unreasonably and vexatiously multiplied the proceedings in this matter, and (d) Pergament and thus, [WGP], certified Debtor’s petition and schedules without any inquiry, much less a reasonable inquiry under the circumstances, as to the completeness and/or accuracy of the information therein in violation of Section 707(b)(4)(C) & (D) of the Bankruptcy Code. (Desiderio Aff. in Support of Sanctions (“Desiderio Aff.”) at 12-13.) 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. The debtor 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 client, what--you’re the most injured plaintiff I’ve ever seen that won. It’s ridiculous. The only sanctions I’m considering is you, if you want to know the truth. . . . 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 6 do. Get another case. Find something else to do in your life. You’re too young to be wasting your entire existence on this ridiculous case. Go find the . . . defendant. Sue him in state court. Collect any monies you can. I told you you could do that. Are you ever going to collect? I have no idea. You’re suing a guy who you knew the odds of collecting on were probably small. 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.) Thank you. 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. 17.) (Hr’g Tr. Judge Grossman stated that this was “not quite but almost . . . one of the most absurd things that ha[s] been before [him].” (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 3 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.) 7 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. on May 16, 2012. It is The Appellant filed his brief forty-six pages--almost double the applicable page limit, see E.D.N.Y. LOCAL RULE 7.1(c)--and was filed without seeking an enlargement of the page limit. Appellees--the Debtor, Meena, Mr. Pergament, and The WGP--filed their opposition brief five days late on June 4, 2012. And the Appellant filed his reply brief on June 15, 2012, which also almost doubles the applicable page limit. DISCUSSION As a preliminary matter, the Appellant asks this Court to reject the Appellees’ opposition brief as untimely. The Court denies this request and hereby retroactively grants the Appellees an extension of time to file their opposition. The 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. Also, although the Court may, it will not limit its review of the Appellant’s opening brief to the first twenty-five pages. The Court will briefly summarize the standard of review and applicable law before turning to the merits of the Appellant’s appeal. 8 I. Applicable Law A. Standard of Review on a Bankruptcy Appeal Federal district courts have jurisdiction to hear appeals from final judgments, orders, and decrees of bankruptcy judges. FED. R. BANKR. P. 8013. “[f]indings of fact, whether Typically, a bankruptcy court’s based on oral or documentary 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 of discretion. 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. 2010). “The bankruptcy court ‘necessarily abuse[s] its discretion if it based its ruling on an erroneous view of the law or on a clearly erroneous assessment of the evidence.’” In 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)). 9 B. Bankruptcy Court’s Ability to Impose Sanctions The Appellant here sought sanctions pursuant to 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. 1. Rule 9011 Rule 9011(b) states, in relevant part, that a party who presents a pleading, “certifying that information, and under the to the belief, circumstances” written best formed that motion, of the after the an or other paper is person's knowledge, inquiry reasonable document is not being 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), the court may impose sanctions. 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.” Inc. v. Walker Mfg. Co., 61 F.3d K.M.B. Warehouse Distrib., 123, 131 (2d Cir. 1995) (internal quotation marks and citation omitted).4 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 10 2. 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 awarding attorneys’ fees, the Second Circuit has held that Section 105(a) empowers courts to “exercise equity in carrying out the provisions of the bankruptcy code.” Techs., L.L.C., 423 F.3d 166, 184 (2d In re Smart World Cir. 2005) (emphasis omitted) (internal quotation marks and citation omitted). This equitable power does not, however, provide an independent basis for a court to act. See id. 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 general bankruptcy concept or objective.” quotation marks and citation omitted). Id. (internal 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] Code.” 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. 11 Here, the Appellant seeks sanctions for violations of Section 707(b)(4) of the Bankruptcy Code, which provides, in relevant part, as follows: (C) 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 (ii) determined that written motion-(I) the petition, into the petition, pleading, or 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). (D) 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). 3. 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 12 In re 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. ‘narrowly and “Courts in this circuit construe the statute with great caution, so as not to stifle the enthusiasm or chill the creativity that is the very lifeblood of the law.’” 2004) Romeo v. Sherry, 308 F. Supp. 2d 128, 148 (E.D.N.Y. (quoting 1985)). Mone The v. purpose C.I.R., of the 774 F.2d statute is 570, 574 to deter (2d Cir. dilatory tactics, unnecessary delays in litigation, and bad faith conduct by attorneys. Id. (citing United States v. Int’l Bhd. of 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. 1994); Herrera v. Scully, 143 F.R.D. 545, 551–552 (S.D.N.Y. 1992)). II. Whether the Bankruptcy Court Abused Its Discretion There are two issues that the Court must address on this appeal: in denying Eisenberg’s (1) whether Judge Grossman abused his discretion the Appellant’s unpaid sanctions request and for (2) a judgment whether Judge on Judge Grossman abused his discretion in denying the imposition of new sanctions against the Debtor, Meena, Mr. Pergament, and WGP. will address each separately. 13 The Court A. In Failing to Enter Judgment on the Prior Award of Sanctions Although the Appellant’s request for an entry 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 “unable to assess, on the record before district court abused its discretion”). [it], whether the 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. B. In Failing to Impose New Sanctions The Appellant also moved for the imposition of new sanctions arising against out of, the Debtor, inter alia, Meena, Judge Mr. Pergament, Grossman’s and Decision WGP After Trial, which concluded that the Chapter 7 Petition had been 14 filed by the Debtor in bad faith, evidence of intentionally fraudulent conveyances of the Debtor’s assets with Meena’s 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 While such actions/inactions sanctions, could warrant the imposition of ultimately the decision whether to impose sanctions is within the sound discretion of the bankruptcy judge. Here, Judge Grossman appears to have denied the 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 5 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.) 15 sanctions were warranted in the first instance. Second, there is suggest at least whether some fees nonetheless authority that were in the incurred, recoverable. See Circuit but Heisman to not Trophy yet paid, Trust v. that are Smack Apparel Co., 379 F. App’x 12, 13-14 (2d Cir. 2010) (affirming a district court’s award of attorney’s fees as a sanction notwithstanding the fact that the fees had not yet been paid). Accordingly, the Court hereby VACATES the portion of Judge 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 sanctionable. CONCLUSION 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. SO ORDERED. /s/ JOANNA SEYBERT______ Joanna Seybert, U.S.D.J. Dated: March 28 , 2013 Central Islip, NY 16

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