Official Committee of Unsecured Creditors et ano v. Haltman, et al.
MEMORANDUM & ORDER denying 175 Motion for Reconsideration; denying 183 Motion for Attorney Fees; For the foregoing reasons, the Haltman Defendants' motion for reconsideration (Docket Entry 175) is DENIED and Plaintiff's Fee Application (Docket Entry 183) is DENIED WITHOUT PREJUDICE. So Ordered by Judge Joanna Seybert on 9/21/2016. C/ECF (Valle, Christine)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
OFFICIAL COMMITTEE OF UNSECURED
MEMORANDUM & ORDER
LINDA HALTMAN et al.,
SEYBERT, District Judge:
Pending before the Court the Linda and Michael Haltman’s
(“the Haltman Defendants”) motion seeking reconsideration of the
Court’s January 12, 2016 Memorandum & Order (the “January 2016
Decision”), in which the Court adopted Magistrate Judge A. Kathleen
Tomlinson’s Report & Recommendation (“R&R”, Docket Entry 151) and
Plaintiff filed a motion seeking attorney fees and costs (the “Fee
prosecuting his sanctions motion.
For the reasons that follow,
the Haltman Defendants’ motion for reconsideration is denied and
Plaintiff’s Fee Application is denied without prejudice.
proceeding of Exeter Holdings, Ltd. (“Exeter” or “the Company”)
against officers, directors, and insiders of Exeter, including
Bruce Frank, Kathleen Frank, Larry Frank, Arnold Frank, Sandra
(Compl., Docket Entry 3-9, at 1-2.)
Plaintiff claims that, prior
to filing for bankruptcy, Defendants defrauded Exeter’s creditors
by transferring funds from Exeter to themselves, certain trusts,
and other entities.
(Compl. at 1-3.)
On February 2, 2015, Plaintiff filed a motion seeking
sanctions for spoliation of evidence.
(Docket Entry 92.)
obligation to preserve relevant documents about Exeter’s finances
This action was commenced, on October 23, 2012, by the Official
Committee of Unsecured Creditors of Exeter Holding Ltd. (the
“Committee”) in the context of a bankruptcy proceeding in the
Eastern District of New York. On May 20, 2013, the Committee
filed an amended liquidation plan and a Plan Administration
Agreement was filed on June 21, 2013 and was entered by
Bankruptcy Judge Alan S. Trust on July 8, 2013. As part of its
terms, the Committee was dissolved and all causes of action,
including those alleged in the adversarial proceeding (see
Complaint), were transferred to the Plan Administrator. Thus,
the Plan Administrator--Gary Herbst--became the Plaintiff in the
instant adversarial proceeding and is the current party in
interest. (R&R at 2 n.1.)
A number of trusts and minor children are also named in the
Complaint. (See Compl. at 1-2.)
beginning on December 7, 2009, when Exeter was sued by a group of
non-bank lenders to recover on promissory notes issued by Exeter.
(Pl.’s Sanctions Br., Docket Entry 94, at 4.)
Defendants’ obligation to preserve relevant documents, Plaintiff
argued that Defendants failed to ensure that: (1) emails were
provider (Pl.’s Sanctions Br. at 7); (2) backups of Exeter’s
computer hard drive were properly stored and retained by Iron
Mountain, Exeter’s backup services provider (Pl’s Sanctions Br. at
8); and (3) that files on Exeter’s sole computer were properly
maintained, allowing Linda Haltman to delete relevant documents
(Pl.’s Sanctions Br. at 6).
On April 7, 2015, the undersigned referred Plaintiff’s
motion to Judge Tomlinson for an R&R on whether the motion should
be granted, (Docket Entry 125), and on August 25, 2015, Judge
Plaintiff’s motion in part and impose an adverse inference at trial
on the officers and directors of Exeter for spoliation of evidence
(R&R at 47).
Judge Tomlinson specifically found that Defendants
failed to timely preserve the Company’s backup files at Iron
Mountain, failed to take steps to preserve relevant incoming email
messages on GoDaddy.com, and willfully deleted relevant files from
(R&R at 35.)
willfully deleted emails from Exeter’s computer was based in part
on the work of Plaintiff’s forensic expert, Brian T. Fox (“Fox”)
of PricewaterhouseCoopers LLP (“PwC”), who analyzed a copy of the
computer hard drive from Exeter’s sole computer and opined that
thousands of files had been deleted.
¶¶ 1, 5, 7.)
(Fox Aff., Docket Entry 93,
Fox submitted two sworn affidavits in connection
with Plaintiff’s spoliation motion.
(Docket Entries 93, 143.)
In his first affidavit, Fox explained that he used
software to search Exeter’s hard drive and determined that a total
of 64,084 files and folders had been deleted from Exeter’s computer
between January 7, 2004 and October 10, 2012.
(Fox Aff. ¶¶ 6-7.)
Of these 64,084 files and folders, 46,623 were deleted between
January 1, 2011 and October 10, 2012.
Moreover, 21,302 files were
October 10, 2012, the average number of files deleted per month
was 2,119, however, Fox noted that in September 2011 and November
2011, there was a significant increase in the number of files
deleted--20,680 in September 2011 and 10,703 in November 2011.
(Fox Aff. ¶ 8.)
Notably, the deletion of these files coincided
with the filing of Exeter’s Bankruptcy on November 9, 2011.
Further, of these 10,703 files, 8,961 files were deleted
on a single day, November 21, 2011. (Fox Aff. ¶ 8.)
Fox found that 92 “QuickBooks-related” files were deleted, and
that of these 92 files, 27 were deleted on November 21, 2011.
Aff. ¶ 9.)
In response to Fox’s Affidavit, the Haltman Defendants
submitted the expert affidavit of Leonard Weinstein (“Weinstein”)
of Guzinta Technology Group.
4, ¶ 1.)
(Weinstein Aff., Docket Entry 128-
Weinstein opined that “the deletion of the 64,084 files
and folders by a business over the course of a ten (10) year period
is a very small amount” and “the deleted files were most likely
due to hard drive cleanup of temporary files and folders, . . .
and in addition, the removal of files due to instances of viruses,
trojans and malware.”
(Weinstein Aff. ¶¶ 9, 12.)
further took issue with Fox’s failure to identify whether the
thousands of files that were deleted were actually data files, as
opposed to program files or system files.
(Weinstein Aff. ¶ 14.)
In response to Weinstein’s assertion that Fox failed to
Affidavit in which he elaborated on the analysis he performed on
Exeter’s hard drive.
(See Fox Supp. Aff., Docket Entry 143, ¶ 2.)
attached a list of 155 files that he identified as the “files most
likely to contain business relevant data.”
(Fox Supp. Aff. ¶ 7,
In a letter from their attorney dated May 26, 2015 (the
“May 26 Letter” Docket Entry 149), the Haltman Defendants responded
directly to Fox’s Supplemental Affidavit.
(See May 26 Ltr.)
the May 26 Letter, the Haltman Defendants requested permission to
file a sur-reply and took issue with the fact that Fox did not
present his list of 155 files in support of Plaintiff’s original
In addition, Haltman Defendants stated that “upon
her recent review . . . of the Exeter hard drive . . . Linda
Haltman discovered that she was able to access, open and print
nearly every allegedly deleted data file, html file and email
identified in [the list].”
(May 26 Ltr.)
Attached to the May 26
Letter are a total of 18 documents which purportedly depict data
files identified by Fox that Linda Haltman was able to locate on
her copy of Exeter’s hard drive.
(May 26 Ltr., Exs. 1-2.)
Judge Tomlinson did not address the Haltman Defendants’
However, Judge Tomlinson rejected Weinstein’s
explanation that a “virus or Trojan” was the primary cause of the
data deleted from the hard drive. (R&R at 30-31.) Judge Tomlinson
instead found that the contents of the recovered data files
“correspondence . . .
regarding Exeter, tax, asset accounting statements, spreadsheets
and documents relating to outstanding mortgages and/or pertaining
to Exeter’s liabilities” created a “strong inference that the
majority of the deletion activity was done with the purposeful
intent to ensure that data would be destroyed.”
(R&R at 39, 41.)
After reviewing Judge Tomlinson’s R&R and numerous objections
filed by Defendants, the Court issued its January 2016 Decision
adopting Judge Tomlinson’s recommendations.
See Official Comm. of
Unsecured Creditors of Exeter Holdings Ltd. v. Haltman, No. 13CV-5475, 2016 WL 128154, at *5 (E.D.N.Y. Jan. 12, 2016). The Court
also did not discuss the Haltman Defendants’ May 26 Letter in its
January 2016 Decision.
In their motion for reconsideration pending before the
Court, the Haltman Defendants argue that the May 26 Letter contains
material facts that the Court overlooked.
Entry 176, at 3.)
(Defs.’ Br., Docket
More specifically, the Haltman Defendants claim
the attachments to their letter disprove Fox’s conclusion that the
155 data files were actually deleted, and therefore the Court
(Defs.’ Br. at 3.)
Further, the Haltman Defendants
argue that Judge Tomlinson erred by not holding an evidentiary
hearing and that no basis exists to issue an adverse inference
against Michael Haltman.
(Defs.’ Br. at 11, 13.)
Motion for Reconsideration
Motions for reconsideration may be brought pursuant to
Rules 59(e) and 60(b) of the Federal Rules of Civil Procedure and
Local Rule 6.3.
See Wilson v. Pessah, No. 05-CV-3143, 2007 WL
reconsideration is appropriate when the moving party believes the
Court overlooked important “matters or controlling decisions” that
would have influenced the prior decision.
Shamis v. Ambassador
Factors Corp., 187 F.R.D. 148, 151 (S.D.N.Y. 1999).
Reconsideration is not a proper tool to repackage and relitigate
arguments and issues already considered by the Court in deciding
the original motion.
See United States v. Gross, No. 98-CR-0159,
2002 WL 32096592, at *4 (E.D.N.Y. Dec. 5, 2002) (“A party may not
use a motion to reconsider as an opportunity to reargue the same
points raised previously.”).
arguments and issues.
Nor is it proper to raise new
See Lehmuller v. Inc. Vill. of Sag Harbor,
982 F. Supp. 132, 135 (E.D.N.Y. 1997).
Reconsideration may only
be granted when the Court did not evaluate decisions or data that
might reasonably be expected to alter the conclusion reached by
Wechsler v. Hunt Health Sys., 186 F. Supp. 2d 402, 410
A. Reconsideration of the Haltman Defendants’ May 26
The attachments to the Haltman Defendants’ May 26 Letter
consist of screen shots and documents that are presented as
evidence that the data files identified in Fox’s Supplemental
Affidavit still exist on Exeter’s hard drive.
(See May 26 Ltr.,
Exs. 1, 2.)
The Haltman Defendants argue that this evidence
establishes that no data files were ever deleted, and that both
the Court and Judge Tomlinson failed to consider this evidence
before issuing sanctions against Defendants.
(Defs.’ Br. at 4-
The Court finds that, upon reviewing this evidence,
there is no basis to modify its decision to issue sanctions.
Contrary to the Haltman Defendants’ claim, the documents attached
to the May 26 Letter do not show that all the data files identified
by Fox still reside on Exeter’s hard drive.
Exhibit 1 to the May
26 Letter purports to show, by attaching pictures of screen shots
and copies of documents, that 13 out of 17 documents identified by
Plaintiff’s expert as “recovered” but “unable to be opened after
restoration” still exist on Exeter’s hard drive.
(May 26 Ltr.,
Ex. 1.) In addition, Exhibit 2 depicts five “invoice” files listed
by Plaintiff’s expert, which the Haltman Defendants claim to be
unrelated to Exeter’s business.
(May 26 Ltr., Ex. 2.)
the Court were to deem these screen shots and documents to be
credible evidence establishing that 18 out of 155 data files
flagged by Plaintiff still reside on Exeter’s hard drive, that
still leaves 137 data files unaccounted for. Moreover, the Haltman
Defendants do not address the whereabouts of the 56 data files
that, according to Fox’s analysis, were deleted and subsequently
recovered by Plaintiff’s expert.
As Judge Tomlinson concluded,
relevant to Plaintiffs claims because they provide insight into
Exeter’s financial state prior to its bankruptcy.
Roesser Aff., Docket Entry 142 ¶ 6, Ex. 4.)
(See R&R at 41;
Thus, even if the
evidence attached to the May 26 Letter is deemed credible, the
Court still must conclude that relevant data files were deleted
from Exeter’s computer.
Moreover, there is no dispute that
documents were lost because of Defendants’ failure to safeguard
emails from GoDaddy.com and backup data from Iron Mountain.
Moreover, it is far from certain whether the screen shots
and documents attached to the May 26 Letter are reliable.
evidence is attached to a letter from the Haltman Defendants’
lawyer, rather than an affidavit from Linda Haltman or her expert.
Yet, Plaintiff’s counsel credits Linda Haltman as the source of
Moreover, the screen shots and documents that the
Haltman Defendants point to have not been subjected to any expert
In sum, the evidence attached to the Haltman Defendants’
May 26 Letter does not call into question the conclusion reached
by both Judge Tomlinson and this Court--that Defendants deleted
relevant evidence in bad faith.
The Court is thus not persuaded
B. Adverse Inference Against Michael Haltman
The Court previously held that all of the former officers
of Exeter, including Michael Haltman, could be sanctioned for Linda
Haltman’s destruction of records in this case.
Committee, 2016 WL 128154, at *3-5.
The Court reasoned that, even
if the other officers did not actively destroy evidence, they
nevertheless bore responsibility for preserving the documents as
The Court further found that given the
unique facts of this case, in which Defendants are accused of
fraudulently looting assets from their closely held corporation,
it would be inequitable to limit the adverse inference to only
Linda Haltman, the one officer accused of physically destroying
evidence, because there is no way to know what the lost documents
would have shown.
Objections to the Court’s January 2016 Decision--that any adverse
inference instruction to the jury should not apply to Michael
Haltman because: (1) he purportedly had no knowledge of the
deletion of evidence from Exeter’s computer and (2) he was not an
officer of Exeter.
However, these same argument were already
addressed by the Court in its January 2016 Decision.
Haltman Defendants may disagree with the Court’s analysis and
conclusions, the Court need not reexamine issues that were already
See Gross, 2002 WL 32096592, at *4 (“A party may not
use a motion to reconsider as an opportunity to reargue the same
points raised previously.”).
Finally, the Haltman Defendants argue that the Court did
not fully adopt Judge Tomlinson’s R&R, given Judge Tomlinson’s
recommendation that any sanctions issued against Defendants should
be imposed solely in their capacity as officers and directors of
Exeter, rather than in their individual capacities.
(See R&R at
Despite Judge Tomlinson’s discussion of piercing the
corporate veil in her R&R, the R&R recommends that “Plaintiff’s
request for the imposition of an adverse inference at trial should
(R&R at 47.)
Even if the Court could issue an
adverse inference against Defendants solely in their capacity as
officers and directors of Exeter, the instruction would have little
practical effect because Exeter is not a Defendant in this case.
Thus, any adverse inference at trial would necessarily be levied
against the officers and directors of Exeter in their individual
capacities, with the Court instructing the jury to infer that the
Nevertheless, the Court will defer ruling on the final language of
For the same reason, the Court need not address the Haltman
Defendants’ argument that Judge Tomlinson erred by not holding
an evidentiary hearing. This argument was already addressed and
rejected in the Court’s January 2016 Decision. Official Comm.,
2016 WL 128154, at *3.
any adverse inference until this case is ready for trial.
Defendants believe it is necessary to include language within the
adverse inference clarifying the document retention obligations of
officers and directors, they are invited to submit further briefing
on the issue prior to trial.
Plaintiff’s Fee Application
Plaintiff seeks to recover $774,871.00 in attorney fees
and costs incurred in connection with Plaintiff’s sanctions motion
(Pl.’s Fees Br., Docket Entry 184, at 15-17.)
The Haltman Defendants oppose Plaintiff’s application, arguing
that Plaintiff’s request is excessive given (1) the categories of
costs Plaintiff’s seek to recover from the Defendants, (2) the
amount time expended by Plaintiff’s counsel, and (3) the hourly
(Defs.’ Opp. Br., Docket Entry 189, at 3-15.)
Federal Rule of Civil Procedure 37(b)(2)(A) allows a
court to impose sanctions on a party that engaged in discovery
In addition, Federal Rule of Civil Procedure 37(b)(2)(C)
provides that instead of or in addition to imposing sanctions for
a party’s failure to comply with a court order, “the court must
order the disobedient party, the attorney advising that party, or
both to pay the reasonable expenses, including attorney’s fees,
justified or other circumstances make an award of expenses unjust.”
FED. R. CIV. P. 37(b)(2)(C) (emphasis added).
Although the Second
Circuit has never explicitly held that the payment of expenses
pursuant to Rule 37(b)(2)(C) is mandatory, the burden is on the
violator to show that there was a substantial justification for
the violation, or that circumstances would make it unjust to award
reasonable expenses to the moving party.
See Novak v. Wolpoff &
Abramson LLP, 536 F.3d 175, 178 (2d Cir.2008) (“The use of the
word ‘shall’ certainly suggests that an award of expenses is
Futures Trading Comm’n v. Royal Bank of Canada, No. 12-CV-2497,
2014 WL 1259773, at *1 (S.D.N.Y. Mar. 28, 2014) (explaining that
the court is not required to consider “the willfulness of [the
disobedient party’s] conduct” when awarding expenses under Rule
Categories of Recoverable Costs
Plaintiff seeks to recover costs in various categories,
which Plaintiff asserts are related to his effort to uncover
(See Pl.’s Fees Br. at 14-17.)
categories of work:
Negotiating the Confidentiality Agreement and Production of
the Forensic Hard Drive: $29,781
Reviewing the contents of the Forensic Hard Drive: $32,091
Vendor Costs incurred Processing and Reviewing the Forensic
Hard Drive: $22,527
Analysis related to PwC’s Initial Deletion Analysis: $38,036
Preliminary Analysis regarding Preservation Obligations:
Preparing the Sanctions Motion papers: $334,648
Preparing the Cross Motion opposition papers: $41,463
Depositions of Messrs. Weinstein and Lee (and related
PwC fees related to the Sanction Motion, Cross Motion and
Expert Depositions: $54,145
Preparing for the continued deposition of Mrs. Haltman:
Preparing Objections to the Report and opposing Defendants’
Objections to same: $36,592
Preparing Opposition to Motion for Reconsideration: $43,261
Preparing the instant Application for fees: $15,000
(Pl.’s Fees Br., at 15-17.)
Having reviewed Plaintiff’s Fee
Application and billing records, the Court finds that, with the
exception the first three categories, the costs listed above are
reasonably related to Plaintiff’s spoliation motion.4
Adding the first three categories of costs together,
Plaintiffs seek to recoup $84,399 in expenses for negotiating a
confidentiality agreement and reviewing and processing Exeter’s
The Court finds that these costs are too removed from
the business of prosecuting Plaintiff’s spoliation motion to be
Plaintiff argues that he should be able to shift
these costs to Defendants because, as a precondition to receiving
Exeter’s hard drive, Plaintiff was required to enter into a
The Court expresses no opinion in this Memorandum & Order as to
whether the hours Plaintiff’s counsel in prosecuting its
Spoliation motion were reasonable.
confidentiality agreement obligating Plaintiff to “process the
. . .
approximately 100,000 documents it contained.”
(Pl.’s Fee Br. at
Although Plaintiff no doubt expended considerable resources
reviewing the contents of Exeter’s hard drive, Plaintiff would
have had to review the contents of the hard drive--in some form-during discovery, regardless of whether Defendants engaged in
See S.E.C. v. Yorkville Advisors, LLC, No. 12-CV-
7728, 2015 WL 855796, at *11 (S.D.N.Y. Feb. 27, 2015) (declining
to award costs for reviewing privilege logs because “Defendants
would have incurred these costs whether or not the Privilege Logs
[at issue] were deficient”).
Plaintiff argues that the covenants
made in the confidentiality agreement forced Plaintiff to review
“an un-culled set of documents--thousands of which were unrelated
to the bankruptcy at all.”
(Pl.’s Fees Reply, Docket Entry 194,
However, the Court will only award attorney fees and
The Court will not shift a large swath of e-
discovery costs onto Defendants merely because Plaintiff agreed to
The lodestar approach is generally used to calculate
reasonable attorney fees.
“‘Under this approach, the number of
hours reasonably expended on the litigation is multiplied by a
reasonable hourly rate for attorneys and paraprofessionals.’”
Restivo v. Nassau Cty., No. 06-CV-6720, 2015 WL 7734100, at *2
(E.D.N.Y. Nov. 30, 2015) (quoting Grant v. Martinez, 973 F.2d 96,
99 (2d Cir. 1992).
The Second Circuit has counseled that the
“lodestar,” which the Circuit now refers to as the “reasonable
hourly rate,” is the rate a paying client would be willing to pay,
keeping in mind that a “paying client wishes to spend the minimum
necessary to litigate the case effectively.”
Arbor Hill Concerned
Citizens Neighborhood Ass’n v. Cty. of Albany & Albany Cty. Bd. of
Elections, 522 F.3d 182, 190 (2d Cir. 2008).
Further, the court
must look to various case-specific variables in determining a
reasonable hourly rate, including but not limited to:
(1) the time and labor required; (2) the
novelty and difficulty of the questions; (3)
the level of skill required to perform the
legal services properly; (3) the level of
skill required to perform the legal services
properly; (4) the preclusion of employment by
the attorney due to acceptance of the case;
(5) the attorney’s customary hourly rate; (6)
whether the fee is fixed or contingent; (7)
the time limitations imposed by the client or
the circumstances; (8) the amount involved in
the case and the results obtained; (9) the
experience, reputation and ability of the
attorney; (11) the nature and length of the
professional relationship with the client; and
(12) awards in similar cases.
Gagasoules v. MBF Leasing LLC, No. 08-CV-2409, 2013 WL 1760134, at
*2 (E.D.N.Y. Apr. 24, 2013) (citing Johnson v. Georgia Highway
Exp., Inc., 488 F.2d 714, 717-19 (5th Cir. 1974)).
Here, Plaintiff did not provide the Court with a list of
the attorneys who worked on the spoliation motion, any biographical
information, or a list of their billing rates.
submitted an affidavit containing billing records and a brief
charging a range of rates, during various time periods.
will not parse through Plaintiffs bills and search for biographical
information that Plaintiff should have provided in its moving
Plaintiff may file a supplemental fee request consistent with this
Memorandum & Order within thirty (20) days of the date of this
[BOTTOM OF PAGE INTENTIONALLY LEFT BLANK]
Plaintiff’s Fee Application (Docket Entry 183) is DENIED WITHOUT
/s/ JOANNA SEYBERT______
Joanna Seybert, U.S.D.J.
21 , 2016
Central Islip, New York
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