Goldman
Filing
46
MEMORANDUM OPINION AND ORDER affirming Bankruptcy Court Rulings (Signed by Judge Sim Lake) Parties notified. (aboyd, 4)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
IN RE:
SKYPORT GLOBAL COMMUNICATIONS,
INC.,
Debtor.
JOANNE SCHERMERHORN, et al.,
Appellants,
v.
CENTURYTEL, INC. , et. al. ,
Appellees.
SAMUEL GOLDMAN, et al.,
Appellants,
v.
JOANNE SCHERMERHORN, et al.,
Appellees.
FRANKLIN CRAIG,
Appellant.
TRUSTCOMM, INC., et al.,
Appellants.
§
§
§
§
CASE NO. 08-36737-H4-7
§
§
§
§
§
§
§
§
§
§
CIVIL ACTION NO. H-11-1524
§
§
§
§
§
§
§
§
§
CIVIL ACTION NO. H-13-3041
§
§
§
§
§
§
§
§
CIVIL ACTION NO. H-13-3044
CIVIL ACTION NO. H-13-3047
MEMORANDUM OPINION AND ORDER
This
Memorandum Opinion
and
Order
addresses
appeals
from
fifteen orders entered by the Bankruptcy Court in Adversary No. 1003150, into which Adversary No. 10-03225 was consolidated.
The two
actions consolidated under Adversary No.
10-03150 were filed in
response to a state court lawsuit filed on February 12, 2010, by
aggrieved investors following entry of the August 12, 2009, Order
Confirming Plan of Reorganization, As Modified in In re SkyPort
Global
Communications,
Inc.,
No.
The
08-36737-H4-11.
fifteen
orders being appealed resolved allegations (1) that the filing of
the State Court Petition was a direct violation of the injunctive
provisions
contained in
Confirmation
bankruptcy
Goldman
Order
case;
and
(2)
attorneys
Plan
that
("Goldman"),
("Craig")
and a
Eric
entered
the
state
Fryar
in
SkyPort's
court
("Fryar"),
the
attack on
Chapter
plaintiffs,
and
11
Samuel
Franklin Craig
(an individual acting in concert with Goldman), and their
violated
a
Preliminary
Bankruptcy Court; and (3)
attorneys,
collateral
and Craig are
attorneys' fees and costs.
Injunction
entered
by
the
that the state court plaintiffs, their
subj ect
to
sanctions
in
the
form of
Appeal of the fifteen orders at issue
have given rise to four civil actions:
H-11-1524, H-13-3041, H-13-
3044, and H-13-3047, the last three of which are the subject of an
agreed order for joint administration under Civil Action No. H-133041.1
The fifteen orders being appealed and their docket entry
numbers in Adversary No. 10-03150 are as follows:
1See Agreed Order Granting "Opposed Motion of Appellee/CrossAppellants for Order Approving the Joint Administration -- Under
Bankruptcy Appeal Number 4:13-cv-3041 -- of the Three Bankruptcy
Appeals Numbered 4:13-cv-3041, 4:13-cv-3044, and 4:13-cv-3047"
[Docket #8], Docket Entry No. 17 in Civil Action No. 4:13-cv-3041.
-2-
•
Order Regarding Reasonableness of Hoover Slovacek,
LLP Fees (Doc. 132) and Continuance of Hearing on
Motion for Additional Sanctions (Doc. 104), filed
August 11, 2010, Docket Entry No. 158;
•
Order Directing the Joanne Schermerhorn et al. to
Pay
$17,800.29
to
Hoover
Slovacek
LLP
by
October 31, 2010 ("Order Directing Payment to
Hoover Slovacek"), filed October 29, 2010, Docket
Entry No. 233;
•
Order Awarding Additional Sanctions Against Joanne
Schermerhorn et al.
[Docket No.
104],
filed
November
9,
2010
("Order
for
Additional
Sanctions"), Docket Entry No. 242;
•
In
Order Holding Joanne Schermerhorn et al.
Preliminary
of
the
June
10,
2010
Contempt
filed
Injunction
[Docket Nos.
173 and 177] ,
November 9, 2010 ("First Contempt Order") , Docket
Entry No. 243;
•
Order Disposing of Docket Items 227 and 229, filed
December 7, 2010, Docket Entry No. 261;
•
Second Order Holding Joanne Schermerhorn et al. in
Preliminary
of
the
10,
2010
Contempt
June
( "Second Contempt
Injunction [Docket No. 184]
Order") , filed December 16, 2010, Docket Entry
No. 267;
•
Order Denying in Part and Continuing in Part
Defendant Wilson Vukelich LLP's Motion to Dismiss
[Adv. Docket No. 69], filed January 13, 2011,
Docket Entry No. 273;
•
Order filed March 31, 2011, Docket Entry No. 297;
•
Order [Docket No. 293] filed March 31, 2011, Docket
Entry No. 298;
•
Memorandum Opinion Regarding: (1) Notice of Filing
of Redacted Fee Statements of McKool Smith P. C. ;
(2) Plaintiffs' Certification/Amended Certification
of Reasonableness of Fees Submitted by McKool Smith
P.C.; and (3) Defendants' Motion for Additional
Sanctions [Adv. Doc. Nos. 87, 107, 112 & 103]
("McKool Smith Memorandum Opinion"),
filed on
March 31, 2011, Docket Entry No. 299;
-3-
•
Order Relating to: (I) Notice of Filing of Redacted
Fee Statements of McKool Smith P.C.; (2) Plaintiffs'
Certification/Amended Certification on Reasonableness of Fees Submitted by McKool Smith P. C.; and
(3)
Defendants' Motion for Additional Sanctions
[Adv. Doc. Nos. 87, 107, 112 & 103] ("McKool Smith
Order"), filed on March 31, 2011, Docket Entry
No. 300;
•
Memorandum Opinion Regarding Adversary Docket
Numbers 317; 359; 360; 419; 460 and 461 [Adv. Doc.
Nos. 317, 359, 360, 419, 460, 461] ("Memorandum
Opinion Regarding Third Motion for Contempt"),
filed August 7, 2013, Docket Entry No. 690;
•
Order Regarding Adversary Docket Numbers 317; 359;
360; 419; 460 and 461 [Adv. Doc. Nos. 317, 359,
360, 419, 460, 461] ("Third Contempt Order") , filed
August 7, 2013, Docket Entry No. 691;
•
Findings of Fact and Conclusions of Law Regarding
the Amount of Fees and Expenses Awarded to the
SkyPort
Parties
[Adv.
Doc.
No.
691]
("Fee
Findings"), filed September 13, 2013, Docket Entry
704;
•
Order Regarding the Amount of Fees and Expenses
Awarded to the SkyPort Parties [Adv. Doc. No. 691]
("Fee Order"), entered on September 13, 2013,
Docket Entry No. 705.
For the reasons explained below, the Bankruptcy Court's orders will
all be affirmed,
and the four civil actions resulting from the
appeals of those orders will be dismissed.
I.
A.
Factual and Procedural Background
The Bankruptcy Case
SkyPort Global Communications,
Inc.,
n/k/a TrustComm,
Inc.
("SkyPort" or "Reorganized Debtor") was the debtor in a Chapter 11
bankruptcy filed on October 24, 2008, Case No. 08-36737-H4-11 (the
"Bankruptcy Case")
in the United States Bankruptcy Court for the
-4-
Southern District
Court").
Order
of
Texas,
On August 12,
Confirming
the
("Confirmation Order,,).2
Houston Division
(the
"Bankruptcy
2009,
the Bankruptcy Court entered its
Plan
of
Reorganization
As
Modified
Article 6.3 of the plan provides for a
merger of SkyPort with its sole shareholder, SkyComm Technologies
Corporation ("SkyComm,,).3
Once merged, all shares of stock owned
by SkyComm's shareholders were to be cancelled, and all shares of
the Reorganized Debtor were to be re-issued to Balaton Group, Inc. 4
The Confirmation Order enjoined derivative claims filed on behalf
of SkyPort or SkyComm, but did not enjoin direct claims against
third parties. s
B.
The State Court Action
On February 12, 2010, 49 named plaintiffs referred to here as
the "Schermerhorn Parties,,,6 filed Plaintiffs' Original Petition,
2See Confirmation Order, Docket Entry No. 337 in Bankruptcy
Case No. 08-36737-H4-7, and Docket Entry No. 4-5 in Civil Action
No. 4:11-cv-1524.
3S ee Chapter 11 Plan of Reorganization, Exhibit A to Docket
Entry No. 337 in Bankruptcy Case No. 08-36737-H4-7, and Docket
Entry No. 4-5 in Civil Action No. 4:11-cv-1524, p. 3 Article 1
("(7) the Equity Interest Holder of the Debtor will have its stock
cancelled and the Debtor will be merged into SkyComm to form the
Reorganized Debtor") .
4Id. at 11-12 Article 6.3.
SSee Confirmation Order, Docket Entry No. 337 in Bankruptcy
Case No. 08-36737-H4-7, and Docket Entry No. 4-5 in Civil Action
No. 4:11-cv-1524, pp. 8-9, ~~ 30-32.
6The 49 named plaintiffs comprising the Schermerhorn Parties
are: 3791068 Canada, Inc, Aran Asset Management SA, Diya AI-Sarraj,
(continued ... )
-5-
Request for Disclosure,
(the
"Petition")
and Request for Production of Documents
commencing
No.
Cause
2010-09675,
Schermerhorn et al. v. CenturyTel, Inc., et al.,
Joanne
(the "State Court
Action") in the 113th Judicial District Court, Harris County, Texas
(the "State Court").
The State Court Petition sought $32 million
in damages for various misdeeds allegedly committed in connection
with
investments
SkyPort,
in and management
and its parent,
SkyComm,
of
securities fraud,
conspiracy.
or all
of
fraud,
aiding and abetting
negligent misrepresentation,
and civil
The Petition asserted fifteen counts on behalf of some
the plaintiffs against
defendants:
Marshall;
Reorganized Debtor,
including breach of fiduciary
duty, breach of contract, oppression,
fraud,
the
CenturyTel,
R.
Stewart
Inc.
Ewing,
some or all
(a/k/a
Jr. ;
of
twelve named
CenturyLink);
Michael
E.
Clarence
Maslowski;
continued)
Ben Ariano, BLF Partners, Ltd., BMT Grantor Trust, Joseph Baker,
Stanley Beraznik, David Currie, Draco Capital, Inc., Don Dui, ECAL
Partners, Ltd., Tracy Elstein, Eosphoros Asset Management, Inc.,
Robert Foote, Wayne C. Fox, Gloster Holdings, LLC, Chet Gutowsky,
Brian W. Harle, Jason Charles Togut Trust, John Llewellyn, John A.
Rees, Cheskel Kahan, Darshan Khurana, Barry Klein, Bella Krieger,
Joseph A. Lopez, Lynn Joyce Elstein Trust, Robert Mendel, Byron
Messier, Movada, Ltd., Mateo Novelli, John E. Panneton, Edward
Pascal, Martin Pollak, Puddy, Ltd., Melvyn Reiser, Rig III Fund,
Ltd., Joanne Schermerhorn, Semper Gestion SA, Sequoia Aggressive
Growth Fund, Ltd., Sequoia Diversified Growth Fund, Ltd, Lawrence
Solomon, Charles Stack, Michael Stein, Peter Taylor, David Togut,
John K. Waymire, and Whizkid Venture, LLC.
See Plaintiffs'
Original Petition,
Request for Disclosure,
and Request for
Production of Documents attached to Notice of Removal, Docket Entry
No. 1 in Adversary No. 10-03150, and Docket Entry No. 4-12 through
4-14 in Civil Action No. 4:11-cv-1524.
The Schermerhorn Parties
are also the named plaintiffs in Adversary No. 10-03150 and the
named defendants in Adversary No. 10-03225.
6 ( •••
-6-
Harvey P. Perry ( collectively, the "CenturyTel Defendants") ; Robert
Kubbernus;
Balaton Group,
Inc.;
Bankton Financial
Corporation;
Bankton Financial Corporation, L.L.C.; Clear Sky Management, Inc.;
Clear
Sky
Investments,
L.P.
(collectively,
Defendants") ; 7 and Wilson Vukelich, L. L. P.
C.
the
"Kubbernus
("Wilson Vukelich") .
Removal of State Court Action to the Bankruptcy Court
1.
Removal and Initiation of Adversary No. 10-03150 by the
CenturyTel Defendants and the Kubbernus Defendants
Seeking Dismissal and Sanctions Against Plaintiffs
On March 26, 2010, the CenturyTel Defendants and the Kubbernus
Defendants removed the State Court Action to the Bankruptcy Court,
thus commencing Adversary No. 10-03150. 8
Smi th P. C .
( "McKool
Smi th"),
On the same day, McKool
act ing on behal f
of
the
removing
defendants, filed a Motion to Dismiss or, Alternatively for Summary
Judgment and for Sanctions, arguing that the State Court Petition
constituted a collateral attack on the order confirming SkyPort's
Chapter 11 Plan because it not only asserted derivative claims on
7See Plaintiffs' Original Petition, Request for Disclosure,
and Request for Production of Documents attached to Notice of
Removal, Docket Entry No. 1 in Adversary No. 10-03150, and Docket
Entry No. 4-12 through 4-14 in Civil Action No. 4:11-cv-1524.
8Notice of Removal, Docket Entry No. 1 in Adversary No. 1003150, and Docket Entry No. 4-12 in Civil Action No. 4:11-cv-1524.
Although Wilson Vukelich did not sign the Notice of Removal, the
Bankruptcy Court construed the notice to remove all of the claims
asserted in the State Court Action, not just the claims asserted
against the Non-Wilson Vukelich defendants. See Memorandum Opinion
Relating to Motion to Dismiss Adversary Proceeding Filed by All
Defendants Except the Law Firm of Wilson Vukelich LLP [Adv. Docket
No.2], Docket Entry No. 272 in Adversary No. 10-03150, and Docket
Entry No. 4-123 in Civil Action No. 4:11-cv-1524.
-7-
behalf of SkyPort, the Reorganized Debtor, but also sought control
of SkyPort, the Reorganized Debtor. 9
2.
Motion to Remand and to Sanction Removing Defendants
On April 19, 2010, the Schermerhorn Parties moved to remand
arguing that:
not
released
(1)
by
the Petition asserted direct claims that were
the
Confirmation
Order;
(2)
the
State
Court
Petition was not a collateral attack on the Confirmation Order or
the Plan;
(3) the Bankruptcy Court had no jurisdiction over direct
claims asserted in the State Court Action; and (4) sanctions should
be imposed, if at all, against the removing defendants.lo
3.
Initiation of Adversary No. 10-03225 by SkyPort Global
Communications, Inc., the Balaton Group, Inc., and Robert
Kubbernus Seeking Declaratory and Injunctive Relief
On May 18, 2010, the law firm of Hoover Slovacek L.P. ("Hoover
Slovacek"), acting on behalf of SkyPort the Reorganized Debtor, and
two of
the
defendants named in the
Balaton
Group,
Inc.
SkyPort
Parties")
and
Robert
filed
State Court Action
Kubbernus
Plaintiff's
(collectively,
Original
Complaint
the
"the
and
Application for Preliminary Injunction and Permanent Injunction,
thus initiating Adversary No.
10-03225 against the Schermerhorn
9Motion to Dismiss, Or, Alternatively, for Summary Judgment,
and for Sanctions, Docket Entry No. 2 in Adversary No. 10-03150,
and Docket Entry No. 4-15 in Civil Action No. 4:11-cv-1524.
lOPlaintiffs' Motion to Remand or Al ternati vely to Abstain, and
for Sanctions, Docket Entry No. 14 in Adversary No. 10-03150, and
Docket Entry No. 4-20 in Civil Action No. 4:11-cv-1524.
-8-
Parties. l l
The SkyPort Parties sought:
(1) an order consolidating
Adversary Nos. 10-03150 and 10-03225;12 (2) "a declaratory judgment
. that [the Schermerhorn Parties'] Claims are property of the
Reorganized Debtor and/or barred by
the
Plan
Injunction;"
and
(3) "an order enjoining [the Schermerhorn Parties] from any act to
obtain
possession
or
exercise
control
over
the
Reorganized
Debtor. " 13
4.
May 27, 2010, Hearing and Resulting Orders
On May 27, 2010, the Bankruptcy Court conducted a hearing on
four motions:
the motion to dismiss and to award sanctions against
the Schermerhorn Parties filed by all the defendants in the State
Court Action except Wilson Vukelich, the motion to remand and to
sanction the removing defendants filed by the Schermerhorn Parties,
and the motion for preliminary injunction and motion to consolidate
the two adversary actions, Adversary Nos. 10-03150 and 10-03225,
filed
by
the
SkyPort
Parties. 14
Because
none
of
the
parties
obj ected to the motion to consolidate ( the Bankruptcy Court granted
11See Docket Entry No. 1 in Adversary No. 10-03225, and Docket
Entry No. 4-317 in Civil Action No. 4:11-cv-1524.
12Id. a t 6
7
II 1 .
1
l3Id. at 13-14, ~~ 40(b) and (c).
14See Transcript, Docket Entry No. 75 in Adversary No. 1003150, and Docket Entry Nos. 4-39 through 4-45 in Civil Action
No. 4:11-cv-1524.
-9-
that motion and ordered all pleadings to be filed in Adversary
No. 10-03150. 15
(a)
Grant of Motion to Dismiss and Denial of Motion to
Remand
During the May 27,
2010,
hearing the Bankruptcy Court held
that it had subject matter jurisdiction over all of the removed
claims because the dispute between the parties pertained to "the
implementation,
[the
interpretation and execution of the
Bankruptcy
Court]
confirmed
in
August
of
[P]lan that
2009./116
The
Bankruptcy Court explained that the plaintiffs in the State Court
Action sought, inter alia, appointment of a receiver to take over
the Reorganized Debtor - relief that constituted a direct attack on
the
Plan
and
the
Confirmation Order .17
The
Bankruptcy
Court
15Id. at 301:18-25 (asking parties to submit a written order
consolidating the two adversary actions within seven days).
See
also Unopposed Order Granting Motion to Consolidate Adv. No. 1003225 with Adv. No. 10-03150 entered on June 9, 2010, Docket Entry
No. 84 in Adversary No. 10-03150, Docket Entry No. 4-48 in Civil
Action No. 4:11-cv-1524, and Docket Entry No. 2-30 in Civil Action
No. 4:13-cv-3041.
16Transcript, Docket Entry No. 75 in Adversary No. 10-03150,
and Docket Entry No. 4-44 in Civil Action No. 4:11-cv-1524,
p. 280:23-25.
See also id. at 289:5-6 ("So there's no question
I've got jurisdiction over this action./I); 289:24-290:3 ("I've got
jurisdiction
because
it
pertains
to
the
implementation,
interpretation, and enforcement of the plan, because it attempts to
bring derivative causes of action in violation of the release
provision./I) .
17Id. at 283:12-17 ("[T]his pleading that was filed in State
Court does, in fact, attempt to modify and revoke the confirmed
plan. It says Mr. Kubbernus duped me, tricked me, lied to me. And
(continued ... )
-10-
explained further that some of the claims asserted in the Petition
should be dismissed with prejudice because prosecuting those claims
would violate the Plan and Confirmation Order entered in SkyPort's
Chapter 11 case, but that other claims should be dismissed without
17 ( • • • continued)
asked a State Court judge to appoint a receiver or someone else to
take over SkyPort, the reorganized Debtor. That's a clear attack
on my plan.") i 284:6-11 ("I expressly conclude that this lawsuit
filed in Harris County is a -- does attempt to modify or revoke the
plan because it is making allegations that fly against the findings
of fact and conclusions of law I made in order to convince a State
Court judge to take action, specifically to appoint a receiver on
the reorganized SkyPort."); 287:16-288:7 ("To tell me that this
pleading before me doesn't seek relief against SkyPort, doesn't
seek to appoint a Trustee in SkyPort, is an incredible argument
that has absolutely no merit.
[The Petition expressly alleges:]
'Wherefore, all the Plaintiffs pray that the Court enter an order,
judgment, and decree granting the following relief against the
Kubbernus Defendants, and order appointing a provisional director,
Trustee, managing agent, fiscal agent, or other Court-appointed
fiduciary for SkyComm and SkyPort.'
Pretty plain meaning there.
There's no ambiguity there. What these Plaintiffs were trying to
do in State Court was get that State Court judge or a jury to
appoint a provisional director, or Trustee, or managing agent of
SkyPort and SkyComm.
And that's a direct violation of the very
intent of my plan that I confirmed, which is that SkyPort and
SkyComm were merged."); 289:24-290:21 ("So in the first instance,
I've got jurisdiction because it pertains to the implementation,
interpretation, and enforcement of the plan, because it attempts to
bring derivative causes of action in violation of the release
provision. And then in the alternative, even if all the causes of
action are personal,
it still goes to the implementation,
enforcement, and execution of the plan because it contains
allegations that directly contradict findings of fact and
conclusions of law that I make that the Plaintiffs had the
opportunity to deal with and chose not to.
So they are bound by
principals of res judicata and collateral estoppel.
And that
pleading that is before m[e n]ow that was filed in Harris County
can't stand.
Was the removal correct? Yes, it was.
You remove
the entire lawsuit to this Court. And that's a legal conclusion I
made. There's ample case law for that.
. Should I remand this
suit? No way.
It has got allegations in it that should not be
made, that the Plaintiffs are barred from making, not the least of
which is that they are presently holding shares of SkyComm.").
-11-
prejudice because they were not barred by the confirmed plan.
The
Bankruptcy Court took under advisement the issue of which claims to
dismiss with and without prejudice. 18
On January 13, 2011, the Bankruptcy Court issued a 108-page
Memorandum Opinion l9 and corresponding Order stating:
Due to the sheer number of claims asserted in the
Petition, the Court has organized them into a table for
clarity, below. The first column lists those Counts and
Parts of Counts which are not barred by the Confirmation
Order and which will be remanded to the Texas state
court. The second column lists those Counts and Parts of
Counts which are derivative claims that may not be
brought, either because they violate the Confirmation
Order or because the Plaintiffs lack standing to bring
such a claim. The Counts and Parts of Counts in Column 2
will be dismissed with prejudice. The third column lists
those Counts and Parts of Counts which are barred because
they are based on acts or omissions of the Defendants
during SkyPort' s Chapter 11 case (which was filed on
October 24, 2008).
These Counts or Parts of Counts
violate the Confirmation Order, and, as such, will also
be dismissed with prej udice. 20
18Id. at 293:10-22 ("Now I'm going to dismiss with prejudice
the derivative causes of action.
I'm going to dismiss without
prejudice the personal causes of action . . . I'm certainly going to
dismiss without prejudice any causes of action that were brought,
pursuant to the carve out.
But the derivative causes of action
which were extinguished, need to be dismissed with prejudice. I'm
not going to say tonight.
I'm going to sit down and go through
each and everyone of them. And I'll issue a written ruling.
So
that if people want to appeal me, they can.")
19See Memorandum Opinion Relating to Motion to Dismiss
Adversary Proceeding Filed by All Defendants Except the Law Firm of
Wilson Vukelich LLP [Adv. Docket No.2], Docket Entry No. 272 in
Adversary No. 10-03150, and Docket Entry No. 4-123 in Civil Action
No. 4:11-cv-1524, Exhibit A, Table 1.
20See Order Regarding Motion to Dismiss Adversary Proceeding
Filed by All Defendants Except Wilson Vukelich LLP [Adv. Docket
No.2], Docket Entry No. 274 in Adversary No. 10-03150, and Docket
Entry No. 4-125 in Civil Action No. 4:11-cv-1524, pp. 2-3.
-12-
The corresponding order granted in part and denied in part the
motion to dismiss, and
ORDERED that subject to a hearing to be held in this
Court on March I, 2011, the Motion to Dismiss is denied
in part insofar as the Counts and Parts of Counts listed
in Column 1 of the Table of Claims are not dismissed but
rather will be remanded to the Texas state court.21
The Bankruptcy Court noted that "[t]he hearing on March I, 2011,
will be held to determine if a motion to dismiss filed by Wilson
Vukelich, LLP should be granted on solely the grounds of improper
service. ,,22
Neither
the
Bankruptcy Court's
January
13,
Memorandum Opinion nor its corresponding Order have been
(b)
During
2011,
appealed.
Grant of Motion for Preliminary Injunction
the
May
27,
2010,
hearing
the
Bankruptcy
Court
concluded that the elements for granting a preliminary injunction
had been met. 23
The Bankruptcy Court asked counsel for the removing
defendants to draft an order for Preliminary Injunction to which
counsel for the Schermerhorn Parties could sign off as to form
only.24
and
On June 10, 2010, the Bankruptcy Court conducted a hearing
entered
its
Order
Granting
Application
for
Preliminary
Injunction which
21Id. at 5.
23Transcript, Docket Entry No. 75 in Adversary No. 10-03150,
Docket Entry No. 4-45 in Civil Action No. 4:11-cv-1524, p. 301:2-3.
See also id. at Docket Entry No. 4-44 in Civil Action No. 4:11-cv1524, pp. 290:22-293:7.
24Id. at 301: 8-11.
-13-
ORDERED that until further Order of this Court, temporary
injunction is granted; it is further
ORDERED that Plaintiffs are temporarily enjoined from:
pursuing any and all claims or causes of action,
derivative or direct, against all of the Defendants, and;
it is further
ORDERED that Plaintiffs may contact former and current
vendors, employees, and customers of the Debtor if and
only if a written request is made by Plaintiffs' counsel
to counsel for SkyPort, and counsel for SkyPort either
a) agrees to the proposed contact or b) does not respond
wi thin 1 business day. I f counsel for SkyPort refuses inwriting to agree to the proposed contact and the
Plaintiffs wish to contact that person, Plaintiffs may
contact this Court's case manager and, without motion,
set an expedited hearing within two business days to
adduce testimony and evidence that the contact should be
permitted.
The party who does not prevail at that
hearing will be responsible for paying the opposing
party's reasonable attorneys' fees and costs in relation
to that hearing; and it is further
ORDERED that the Plaintiffs shall strictly comply with
all terms and conditions of the Order Confirming Plan
referred to above as well as the plan and modification
attached thereto. 25
The Preliminary Injunction has not been appealed.
(c)
During
Sanctions Ordered Against Schermerhorn Parties for
Filing State Court Action
the
May
27,
2010,
hearing
the
Bankruptcy
Court
concluded that an award of sanctions against the plaintiffs in the
State Court Action, i.e., the Schermerhorn Parties, was warranted,
and that appropriate sanctions would minimally include attorneys'
fees and expenses reasonably incurred by the defendants "in getting
250rder Granting Application for Preliminary Injunction, Docket
Entry No. 86 in Adversary No. 10-03150, and Docket Entry No.4-51
in Civil Action No. 4:11-cv-1524.
-14-
the Motion to Dismiss granted."26
The Bankruptcy Court told the
parties that "to the extent that any additional
[sanc]tions are
sought, over and above reasonable attorneys fees and expenses, file
a separate pleading, so that parties can see what is being sought.
And I'll set that for a hearing. "27
Court
resulted
in
issuance
of
This ruling of the Bankruptcy
five
orders
being
appealed:
(1) Order Regarding Reasonableness of Hoover Slovacek Fees, Docket
Entry No.
158;
(2)
Order Directing Payment to Hoover Slovacek,
Docket Entry No. 233;
Entry No. 242;
(3) Order for Additional Sanctions, Docket
(4) McKool Smith Memorandum Opinion, Docket Entry
No. 299; and (5) McKool Smith Order, Docket Entry No. 300. 28
5.
First
Two Orders of
Preliminary Injunction
(a)
Contempt
for
Violating
the
First Contempt Order For Contacting Debtor's Vendors
On September 24,
2010,
SkyPort
filed a
motion asking the
Bankruptcy Court to hold the Schermerhorn Parties in contempt of
26Transcript, Docket Entry No. 75 in Adversary No. 10-03150,
and Docket Entry No. 4-44 in Civil Action No. 4:11-cv-1524,
p. 294:6.
See also id. at 294:15-19 ("But with respect to the
attorneys fees and time spent, and any costs incurred for bringing
the Motion [to] Dismiss, I will impose sanctions at a minimum of
reasonable attorneys fees and costs. Those'll be determined at a
separate hearing if the parties can't agree. And I'll give you a
hearing date.") .
'
27Transcript, Docket Entry No. 75 in Adversary No. 10-03150,
and Docket Entry No. 4-44 in Civil Action No. 4:11-cv-1524,
p. 294:20-23.
28Notice of Appeal to the United States District Court, Docket
Entry No.1 in Civil Action No. 4:11-cv-1524.
-15-
court for violating the June 10, 2010, Preliminary Injunction by
contacting SkyPort's former accounting firms,
Hein & Associates
("H&A" )
14-15,
and
Deloit te
Touche. 29
On
October
2010,
the
Bankruptcy Court conducted a hearing inter alia on the motion for
contempt. 30
At the hearing the Bankruptcy Court found that the
Schermerhorn Parties,
through their counsel
Goldman and Fryar,
violated the Preliminary Injunction by contacting a former SkyPort
vendor, H&A. 31
pay
the
The Bankruptcy Court ordered Goldman and Fryar to
reasonable
attorneys'
fees
and
costs
incurred
by
the
defendants in prosecuting the motion for contempt. 32
29Motion by SkyPort Global Communications, Inc. that Joanne
Schermerhorn, et al. and Their Counsel of Record Appear and Show
Cause Why They Should Not Be Held in Contempt of the June 10, 2010
Preliminary Injunction, Docket Entry No. 173 in Adversary No. 1003150, and Docket Entry No. 4-96 in Civil Action No. 4:11-cv-1S24,
~~ 12-15.
30Transcript of October 14 -15, 2010, Hearing, Docket Entry
Nos. 225-226 in Adversary No. 10-03150, and Docket Entry Nos. 4-107
through 4-114 in Civil Action No. 4:11-cv-1S24.
31Transcript, October 15, 2010, Hearing, Docket Entry No. 4110, p. 30:12-14 ("I make a legal conclusion that the Plaintiffs
through their Counsel at Mr. Goldman's office contacted former
vendors, these two accounting firms."), pp. 33:21-34:3 ("I just
can't accept as creditable testimony that vendor was construed as
someone who we didn't think we had to make written request because
we didn't construe an accountant as a vendor because that vendor
was providing learned services. So my legal conclusion is that the
Preliminary Injunction has been violated with respect to that.") .
32Id. at Docket Entry No. 4-111, pp. 56:23-57:2 ("So, I am
going to grant the Motion. I am going to require that Plaintiff's
Counsel, specifically Mr. Goldman's firm, Samuel Goldman and
Associates, pay the attorneys' fees, reasonable attorneys' fees and
costs incurred by the Movants for having to file the motion.") .
-16-
On November 9, 2010, the Bankruptcy Court entered its First
Contempt Order holding the Schermerhorn Parties in contempt of the
June 10, 2010, Preliminary Injunction and ordering that
as sanctions for the above-described contempt Sam Goldman
and Eric Fryar are adjudged jointly and severally liable
to Skyport Global Communications, Inc. for (i) the
attorney fees and costs incurred in the preparation and
prosecution of the motion assigned docket number 173, and
(ii) the time spent by Douglas Whitworth responding to
such contempt. 33
On December 7,
2010,
the Bankruptcy Court entered its di sposal
order sanctioning Goldman and Fryar in the amount of $10,200 in
attorney's
\ fees
and
$3,125
in
costs,
$13,325, to be paid within eleven days.34
for
a
total
amount
of
Plaintiffs are appealing
the First Contempt Order and the Disposal Order.
(b)
On
Second Contempt Order for Attempting to File Fraud
on the Court Pleading
September
27,
2010,
the
Schermerhorn
Parties
filed
Plaintiffs' Request to Proceed with Adversary Proceeding for Fraud
on the Court.35
On September 29, 2010, the SkyPort Parties filed
33Docket Entry No. 243 in Adversary No. 10-03150, and Docket
Entry No. 4-118 in Civil Action No. 4:11-cv-1524.
340rder Disposing of Docket Items 227 and 229, Docket Entry
No. 261 in Adversary No. 10-03150, and Docket Entry No. 4-120 in
Civil Action No. 4:11-cv-1524. Docket Entry No. 227 in Adversary
No. 10-03150 is Docket Entry No. 4-270 in Civil Action No. 4:11-cv1524, the proposed order of contempt that the Bankruptcy Court
signed on November 9, 2010, thus becoming Docket Entry No. 243 in
Adversary No. 10-03150, and Docket Entry No. 4-118 in Civil Action
No. 4:11-cv-1524.
35See Transcript of Hearing held October 15, 2010, Docket Entry
No. 226 in Adversary No. 10-03150, and Docket Entry No. 4-111 in
Civil Action 4:11-cv-1524, p. 57:20 (Bankruptcy Court acknowledges
that request was filed on September 27, 2010).
-17-
a
motion asking the Bankruptcy Court
Parties in contempt of court
to hold the
Schermerhorn
for violating the June
Preliminary Injunction by filing Plaintiffs'
10,
2010,
Request to Proceed
wi th Adversary Proceeding for Fraud on the Court. 36
On November 29,
2010, the Bankruptcy Court conducted a hearing inter alia on the
SkyPort Parties' Second Motion for Contempt. 37
The Bankruptcy Court
found at the hearing that the filing of the request to proceed with
adversary proceeding for fraud on the court was sanctionable as a
violation of
the
June
10,
2010,
Preliminary
Injunction. 38
On
December 16, 2010, the Bankruptcy Court signed its Second Contempt
Order holding the Schermerhorn Parties in contempt of the June 10,
2010,
Preliminary
Injunction,
striking
the
fraud
on
the
court
pleading from the record, holding the Schermerhorn Parties jointly
and severally liable for attorney's fees and costs that the SkyPort
36Suppiementai Motion by SkyPort Global Communications, Inc.
that Joanne Schermerhorn, et ai. Appear and Show Cause Why They
Should Not Be Held in Contempt of the June 10, 2010 Preliminary
Injunction, Docket Entry No. 184 in Adversary No. 10-03150, and
Docket Entry No. 4-100 in Civil Action No. 11-cv-1524, pp. 5-6 ~10.
37Transcript of October 14-15, 2010 Hearing, Docket Entry Nos.
225-226 in Adversary No. 10-03150, and Docket Entry Nos. 4-107
through 4-114 in Civil Action No. 11-cv-1524.
38Transcript, October 15, 2010 Hearing, Docket Entry No. 4-111,
p. 57:8-17 ("With respect to the Complaint, the request, as I said,
I think it was pursuing the cause of action and so I've got all
attorneys for the Plaintiffs signing off on this pleading and then
telling me that I've got jurisdiction over a suit, when I was told
back in April that I didn't have jurisdiction over causes of action
relating to pre-confirmation fraud, and so there all four attorneys
who signed off get to be held liable for the attorneys' fees that
the Plaintiffs have incurred or the Movants have incurred In
prosecuting the motion.") .
-18-
Parties incurred preparing and prosecuting their Second Motion for
Contempt. 39
6.
The Schermerhorn Parties are appealing this order.
Wilson Vukelich Motion to Dismiss
On May 26, 2010, the day before the Bankruptcy Court' s May 27,
2011, hearing, Wilson Vukelich, a Canadian law firm, filed a motion
to dismiss the claims asserted against it in the State Court Action
for improper service of process, lack of personal jurisdiction, and
improper venue or forum non conveniens. 40
On January 13, 2011, the
Bankruptcy Court issued an Order Denying in Part and Continuing in
Part
Defendant
Wilson
Vukelich's
Motion
to
Dismiss.41
The
Bankruptcy Court stated:
[T]he Wilson Vukelich Motion to Dismiss is continued in
part insofar as the Court concludes that Wilson Vukelich
has not been properly served with process in this
adversary proceeding but also concludes that Plaintiffs
should have thirty (30) days to properly serve Wilson
Vukelich with process. 42
On February II, 2011, the plaintiffs filed an Emergency Motion
for Extension of Time to Effect Service and to Continue Hearing
(the "Motion for Extension tt
)
.43
The Bankruptcy Court continued the
39Docket Entry No. 267 in Adversary No. 10-03150, and Docket
Entry No. 4-121 in Civil Action No. 4:11-cv-1524, p. 2.
40See Defendant Wilson Vukelich LLP' s Motion to Dismiss, Docket
Entry No. 69 in Adversary No. 10-03150, and Docket Entry No. 4-38
in Civil Action No. 4:11-cv-1524, pp. 2-3, 10-21.
41Docket Entry No. 273 in Adversary No. 10-03150, and Docket
Entry No. 4-124 in Civil Action No. 4:11-cv-1524.
42Id. at 13.
43Docket Entry No. 280 in Adversary No. 10-03150, and Docket
Entry No. 4-126 in Civil Action No. 4:11-cv-1524.
-19-
time to serve Wilson Vukelich to March 1, 2011, and continued the
hearing date to March 8,
2011.
At the March 8,
2011,
hearing
Wilson Vukelich argued that it had not been properly served, and
the Bankruptcy Court agreed. 44
On March 16,
2011,
the Schermerhorn Parties filed a motion
urging the Bankruptcy Court not
to sign the proposed order of
dismissal submitted by Wilson Vukelich but,
instead,
to sign a
counter-order that they had prepared because the Wilson Vukelich
order, inter alia, failed to state that the dismissal was without
prej udice. 45
On March 31,
2011,
the Bankruptcy Court entered two orders
relating to the Wilson Vukelich motion to dismiss.
Order,
Docket
Entry No.
297,
denied
the
The first
Schermerhorn Parties'
Motion for Extension and granted the Wilson Vukelich Motion to
Dismiss,
expressly
finding
that
properly serve Wilson Vukelich. 46
the
plaintiffs
had
failed
to
This Order also provided that
The Court's Order Regarding Motion to Dismiss Adversary
Proceeding Filed by All Defendants Except Wilson Vukelich
LLP entered January 13, 2011 [Adv. Docket No. 274] is
modified to provide that all claims set forth in Column 1
44Transcript of March 8, 2011 Hearing, Docket Entry No. 289 in
Adversary No. 10-03150, and Docket Entry No. 4-128 in Civil Action
No. 4:11-cv-1524, pp. 6:3-11:14.
45Motion of the Schermerhorn Parties for Entry of Order
[Relates to Doc. No. 273 and 292], Docket Entry No. 293 in
Adversary No. 10-03150, and Docket Entry No. 4-129 in Civil Action
No. 4:11-cv-1534.
46Docket Entry No. 297 in Adversary No. 10-03150, and Docket
Entry No. 4-131 in Civil Action No. 4:11-cv-1524, p. 3.
-20-
of the Table of Claims that were to be remanded to state
court now excludes all claims asserted against Wilson
Vukelich LLP,
which claims are DISMISSED without
prej udice . 47
The
second
Order,
Docket
Schermerhorn Parties'
No. 293],
Entry
Motion for
No.
298,
Entry of
disposed
Order
of
[Docket
the
Entry
stating that "[t]he Motion of the Schermerhorn Parties
for Entry of Order is DENIED except that the dismissal shall be
\ wi thout prej udice. ' ,,48
The Schermerhorn Parties have appealed the Bankruptcy Court's
three orders relating to Wilson Vukelich's motion to dismiss, i.e.,
the Order Denying in Part and Continuing in Part Wilson Vukelich's
Motion to Dismiss, entered on January 13, 2011, and the two orders
entered on March 31, 2011.
7.
Order Remanding Certain Claims to State Court
On April
19,
2011,
the Bankruptcy Court entered an Order
Remanding Causes of Action to State Court.49
The Order states:
Given that on March 31, 2011, this Court granted the
Wilson Vukelich Motion to Dismiss for lack of proper
service, the Court now concludes that the counts, and
parts of counts, set forth in Column 1 of the Table of
Claims
should
be
remanded
to
the
Texas
state
court-expressly excluding the counts listed in Column 1
brought against Wilson Vukelich, which this Court
dismissed without prejudice in its order of March 31,
47Id.
48Docket Entry No. 298 in Adversary No. 10-03150, and Docket
Entry No. 4-132 in Civil Action No. 4:11-cv-1524.
49Docket Entry No. 312 in Adversary No. 10-03150, and Docket
Entry NO. 4-135 in Civil Action No. 4:11-cv-1524.
-21-
2011.
Accordingly, those counts, and parts of counts,
now being remanded to Texas state court concern all
Defendants except Wilson Vukelich.
And, because this
Court dismissed the counts listed in Column 1 against
Wilson Vukelich without prejudice, the Plaintiffs are
free, once remand is effectuated, to bring in Wilson
Vukelich as an additional party-defendant in the Texas
state court (provided, of course, that the Plaintiffs
properly serve Wilson Vukelich pursuant to applicable law
and provided that applicable law does not bar the
Plaintiffs from adding Wilson Vukelich as a partydefendant).
It is therefore:
ORDERED that the Counts, and Parts of Counts, set forth
in Column 1 of the Table of Claims attached to this Order
as Exhibit A are remanded to the Texas state court-save
and except the Counts in Column 1 brought against Wilson
Vukelich. 50
The Bankruptcy Court's Order Remanding Causes of Action to State
Court has not been appealed.
8.
Motion to Dissolve Preliminary Inj unction and Third Order
of Contempt for Violating the Preliminary Injunction
On April 28, 2011, the Schermerhorn Parties filed a motion to
dissolve the June 10, 2010, Preliminary Injunction. 51
Because the
motion to dissolve was opposed, the Bankruptcy Court held a hearing
on July 7, 2011, at which SkyPort's counsel reported the discovery
of
46
additional
Preliminary
alleged
Inj unction. 52
violations
The
of
Bankruptcy
the
June
Court
10,
2010,
continued
the
50Id. at 3.
51Motion of Schermerhorn Parties to Dissolve Injunction
[Relates to Doc. #86], Docket Entry No. 317 in Adversary No. 1003150, and Docket Entry No. 2-99 in Civil Action No. 4:13-cv-3041.
52Transcript of Hearing on Motion to Dissolve Injunction,
Docket Entry No. 370 in Adversary No. 10-03150, and Docket Entry
No.2-120 in Civil Action No. 4:13-cv-3041, p. 12:14-20.
-22-
hearing,
and on July 13,
2011,
the SkyPort Parties filed their
third motion for contempt ("SkyPort' s Third Motion for Contempt") ,53
2011. 54
which they amended on October 6,
The Third Motion for
Contempt alleged numerous separate violations of the June 10, 2010,
Preliminary Injunction,
and sought
sanctions against:
(1)
the
Schermerhorn Parties, Craig, and Goldman for e-mails between Craig
and SkyPort' s former president, Dawn Cole ("Cole"); (2) Goldman for
testifying falsely at the October 14, 2010, hearing that he had not
communicated
with
Cole
Schermerhorn Parties,
since
Goldman,
June
10,
2010;
and
(3 )
the
and Fryar for failing to file an
amended petition in the state court action allegedly in violation
of the remand order.
attorney's
fees
SkyPort's Third Motion for Contempt sought
and costs
incurred to bring and prosecute
the
motion, attorney's fees and costs that the SkyPort Parties incurred
53Motion by SkyPort Global Communications, Inc. (1) That Joanne
Schermerhorn, et al., Sam Goldman, and Franklin Craig Show Cause
Why They Should Not Be Held in Contempt of the June 10, 2010,
Preliminary Injunction, and (2) That Sam Goldman, Franklin Craig,
an Officer of Sequoia Aggressive Growth Fund, Ltd., an Officer of
Sequoia Diversified Growth Fund, Ltd., an Officer of Rig Fund III,
Ltd., an Officer of Aran Asset Management SA, and an Officer of
Semper Gestion SA Appear in Person Before this Court on August 5,
2011 at 9:00 A.M., Docket Entry No. 359 in Adversary No. 10-03150,
and Docket Entry No. 2-114 in Civil Action No. 4:13-cv-3041.
54Amended Motion by SkyPort Global Communications, Inc. (1) That
Joanne Schermerhorn, et al., Sam Goldman, and Franklin Craig Show
Cause Why They Should Not Be Held in Contempt of the June 10, 2010,
Preliminary Injunction, and (2) That Sam Goldman, Franklin Craig, an
Officer of Sequoia Aggressive Growth Fund, Ltd., an Officer of
Sequoia Diversified Growth Fund, Ltd., an Officer of Rig Fund III,
Ltd., an Officer of Aran Asset Management SA, and an Officer of
Semper Gestion SA Appear in Person Before this Court on August 5,
2011 at 9:00 A.M., Docket Entry No. 419 in Adversary No. 10-03150,
and Docket Entry No. 2-137 in Civil Action No. 4:13-cv-3041.
-23,
'
responding to the unamended State Court Petition,
responding to
discovery in the remanded State Court Action, and responding to the
motion to dissolve preliminary injunction and seeking a permanent
injunction, punitive damages in the amount of $250,000, and posting
of a bond of not less than $250,000 to secure payment of damages
and
sanctions
in
the
event
of
any
future
violations
of
the
Bankruptcy Court's injunctions. 55
On October 31, 2011, the Bankruptcy Court denied the mot ion to
dissolve and continued the hearing to March 8, 2012, to consider,
inter alia,
the propriety and extent of some form of permanent
injunction,
and
ordering
Goldman
and
Craig
to
appear
at
the
March 8, 2012, hearing. 56
On March 8,
2012,
the Bankruptcy Court began a hearing on,
inter alia, the motion to dissolve and third motion for contempt,
which continued on March 9, April 18 and 20, May 1 and 2, June 5
and 6, August 28, 29, and 30, November 27, 28, 29 and 30, 20l2, and
on January 25 and February 7, 2013. 57
On August 7,
2013,
more than two years after entering its
Order Remanding Causes of Action to State Court on April 19, 2011,58
55Id. at 9-10
~~
26-32.
560rder Regarding Motion to Dissolve Preliminary Injunction
[Adv. Doc. Nos. 317, 336 and 337], Docket Entry No. 444 in
Adversary No. 10-03150, and Docket Entry No. 2-148 in Civil Action
No. 4:13-cv-3041.
57See Docket Sheet for Adversary 10-03150, Docket Entry No. 2-6
in Civil Action No. 4:13-cv-3041, entries on the referenced dates.
58Docket Entry No. 312 in Adversary No. 10-03150, and Docket
Entry No. 4-135 in Civil Action No. 4:11-cv-1524.
-24-
the
Bankruptcy
Court
entered
a
187-page
Memorandum
Opinion
Regarding the third motion for contempt and corresponding Third
Contempt Order finding Goldman and Craig to be in contempt of court
and awarding sanctions in the form of attorneys'
against them. 59
Memorandum
fees and costs
Goldman and Craig have appealed the August 7, 2013,
Opinion
Regarding
Third
Motion
for
Contempt
and
corresponding Third Contempt Order.
On August 15, 2013, the Bankruptcy Court held a hearing on the
reasonableness of the fees and expenses incurred by the SkyPort
Parties
in connection with the
third contempt motion, 60 and on
September 13, 2013, the Bankruptcy Court issued its Fee Findings
and corresponding Fee Order granting $105,335.00 in attorney's fees
and
$32,178
in
expenses
for
a
total
amount
of
$137,513.18. 61
Goldman and Craig have appealed the August 15, 2013, Fee Findings
and Fee Order.
59See Docket Entry Nos. 690 and 691 in Adversary No. 10-03150,
and Docket Entry Nos. 2-245 and 20246 in Civil Action No. 4:13-cv3041, pp. 179-86.
60See Docket Sheet for Adversary No. 10 - 03150, Docket Entry
No. 2-6 in Civil Action No. 4:13-cv-3041, entries on the referenced
date.
61See Findings of Fact and Conclusions of Law Regarding the
Amount of Fees and Expenses Awarded to the SkyPort Parties [Adv.
Doc. No. 691], Docket Entry No. 704 in Adversary No. 10-03150, and
Docket Entry No. 2-252 in Civil Action No. 4:13-cv-3041i and Order
Regarding the Amount of Fees and Expenses Awarded to the SkyPort
Parties [Adv. Doc. No. 691], Docket Entry No. 705 in Adversary
No. 10-03150, and Docket Entry No. 2-253 in Civil Action No. 4:13cv-3041.
-25-
II.
Standard of Review
A district court has jurisdiction to hear an appeal from a
bankruptcy
§
158(a).
court's
final
judgment
or
order.
See
Bradley, 588 F.3d 254, 261 (5th Cir. 2009).
decision
to
therefore,
discretion.
impose
sanctions
for
See In re
A bankruptcy court's
contempt
is
discretionary;
the exercise of that power is reviewed for abuse of
See Matter of Terrebonne Fuel and Lube, Inc., 108 F.3d
609, 613 (5th Cir. 1997).
bankruptcy
contempt
U.S.C.
District courts review a bankruptcy court's findings of
fact for clear error, and its legal conclusions de novo.
("A
28
court's
See also In re Bradley, 588 F.3d at 261
assessment
of
monetary
sanctions
is reviewed for abuse of discretion.").
A
for
bankruptcy
court abuses its discretion when it "(I) applies an improper legal
standard or follows improper procedures
decision on findings of fact that are
v. Walker & Patterson, P.C.
Cir. 2005).
., or
clearl~
(2)
rests its
erroneous."
Cahill
(In re Cahill), 428 F.3d 536, 539 (5th
The "clearly erroneous" standard allows this court to
reverse the Bankruptcy Court's findings of fact
entire evidence,
the
court
is
left with the definite and firm
conviction that a mistake has been committed."
F.3d 696, 701 (5th Cir. 2003).
"only if on the
In re Dennis, 330
"Mixed questions of fact and law,
and questions concerning the application of law to the facts, are
reviewed de novo."
1999) .
"Generally,
In re Bass,
171 F.3d 1016,
1021
(5th Cir.
an abuse of discretion only occurs where no
reasonable person could take the view adopted by the trial court."
-26-
Whitehead v. Food Max of Mississippi, Inc., 332 F.3d 796, 803 (5th
Cir.)
(en banc)
cert. denied sub nom. Minor v. K-Mart Corp., 124
S. Ct. 807 (2003).
III.
Appeal of Orders Regarding Dismissal of Wilson Vukelich
The Schermerhorn Parties appeal three orders regarding the
dismissal
of Wilson Vukelich:
(1 )
Order Denying
in Part
and
Continuing in Part Defendant Wilson Vukelich L.L.P.'s Motion to
Dismiss [Adv. Docket No. 69], filed January 13, 2011, Docket Entry
No. 273;62
(2)
Order filed March 31, 2011, Docket Entry No. 297,
denying the Schermerhorn Parties' Motion for Extension, granting
the
Wilson
Vukelich
Motion
to
Dismiss
upon
finding
that
the
plaintiffs failed to properly serve Wilson Vukelich with process;63
and (3) Order filed March 31, 2011, Docket Entry No. 298, denying
"[t]he Motion of the Schermerhorn Parties for Entry of Order
except that the dismissal shall be 'without prejudice.,n64
The
Schermerhorn Parties argue that the Bankruptcy Court entered these
orders in error because it failed to give them at least 120 days
from the date of
its January 13,
Vukelich,
erroneously concluded that
and
it
2011,
order to
serve Wilson
service on Wilson
62Docket Entry No. 273 in Adversary No. 10-03150, and Docket
Entry No. 4-124 in Civil Action No. 4:11-cv-1524.
63Docket Entry No. 297 in Adversary No. 10-03150, and Docket
Entry No. 4-131 in Civil Action No. 4:11-cv-1524.
64Docket Entry No. 298 in Adversary No. 10-03150, and Docket
Entry No. 4-132 in Civil Action No. 4:11-cv-1524.
-27-
Vukelich's
receptionist
did
not
constitute
proper
service
in
compliance with the Hague Convention. 65
A.
Additional Factual and Procedural Background
On February 11, 2011, the Schermerhorn Parties filed a Motion
for Extension. 66
The Bankruptcy Court conducted a hearing on the
Motion for Extension on February 23,
March 1, 2011. 67
2011,
and continued it to
At the February 23, 2011, hearing the Bankruptcy
Court warned the Schermerhorn Parties' counsel that if service had
not been completed by the March 1st hearing,
"then I'm going to
need to hear testimony on the motion and then, obviously, I'll make
a rul ing on it." 68
At the March 1, 2011, hearing the Schermerhorn
Parties' counsel informed the
Co~rt
that Wilson Vukelich had been
served the day before, but that the return of service had not yet
been received or filed. 69
Counsel for Wilson Vukelich acknowledged
that "Wilson Vukelich was served in Canada with a pleading and a
65Brief of Appellants - The Schermerhorn Parties, Docket Entry
No. 16 in Civil Action No. 4:11-cv-1524, pp. 55-65.
66Docket Entry No. 280 in Adversary No. 10-03150, and Docket
Entry No. 4-126 in Civil Action No. 4:11-cv-1524.
67Transcript of Hearing Held February 23, 2011, Docket Entry
No. 346 in Adversary No. 10-03150, and Docket Entry No. 4-364 in
Civil Action No. 4:11-cv-1524, pp. 5:8-10, 7:6-7.
68Id. at 6:3-5.
69Transcript of Hearing Held on March 1, 2011, Docket Entry
No. 347 in Adversary No. 10-03150, and Docket Entry No. 4-365 in
Civil Action No. 4:11-cv-1524, p. 3:12-18.
-28-
summons. ,,70
But
because
Wilson Vukelich's
counsel
refused
to
stipulate that service had been completed in compliance with either
the Hague Convention or the court's orders,
the Bankruptcy Court
continued the hearing on the motion to dismiss to March 8, 2011.71
On March 7, 2011, counsel for the Schermerhorn Parties filed
a Return of Service executed upon Wilson Vukelich on February 28,
2011.72
At the March 8,
service
had
not
been
2011,
hearing Wilson Vukelich argued that
effected
in
compliance
with
the
Hague
Convention because service had not been completed in compliance
with local law.
As evidence that service had not been completed in
compliance with local law, Wilson Vukelich argued to the Bankruptcy
Court that:
stated
that
(1) the Certificate attached to the Return of Service
service
was
accomplished
receptionist at Wilson Vukelich LLP i
on
Marilyn
Heish,
a
(2) Article 5 of the Hague
7°Id. at 4:1-3 ("I'm simply confirming for you today that
Wilson Vukelich was served in Canada with a pleading and a
summons.").
See also id. at 3:20-21 ("I certainly agree that
Wilson Vukelich was served with a
copy of the petition
yesterday.") .
71Id. at 4:4-8 ("We've got a court order that wasn't complied
with and we have asked you to dismiss on the basis of ineffective
service.
You said you were going to do it if service wasn't
effected by February 18th.
That wasn't done.") i 5:1-11 (counsel
for Wilson Vukelich telling the Bankruptcy Court that he could not
stipulate that service was properly effected in compliance with the
Hague Convention) i 8:17-18 ("[W]e'll continue today's hearing for
one week until March 8th, 2011.").
72Return of Service, Docket Entry No. 286 in Adversary No. 1003150, and Docket Entry No. 4-300 in Civil Action No. 4:11-cv-1524.
-29-
Convention provided that the Central Authority of the signatory at
issue, here Canada, shall arrange to have the petition and summons
served by an appropriate agent by the method prescribed by its
internal
laws
(3)
16.01
Rule
for
of
service
the
of
Rules
documents
of
Civil
in
domestic
Procedure
actions;
and
the
law
governing service within the Province of Ontario provided that
process
(4)
shall be served personally as provided in Rule 16.02;
Rule
16.02 (m)
provided
that
service
shall
be
made
on
a
partnership by leaving a copy of the document with anyone or more
of the partners or with a person at the principal place of business
of the partnership who appears to be in control or management of
the place of business.
Citing Molson v. Vitale, et al., 47 C.P.C. (2d) 302 (B.C.S.C.)
(1991),
Wilson Vukelich argued that the service made on Wilson
Vukelich
was
receptionist,
control
ineffective
it
had
been
made
on
a
not on a partner or person who appeared to be in
or management
business. 73
because
In
of
Molson
a
the partnership's principal place of
default
judgment
was
set
aside
for
ineffective service because a writ of summons was served on a
secretary, instead of an officer or person with authority over the
business affairs of the company as required by British Columbia
Rule of Court 11 (2) (b) .
Wilson Vukelich argued that
the only
73Transcript of March 8, 2011, Hearing, Docket Entry No. 289
in Adversary No. 10-03150, and Docket Entry No. 4-128 in Civil
Action No. 4:11-cv-1524, pp. 6:2-10:25.
-30-
possible
explanation
for
why
service
had
not
been
correctly
performed in accordance with Canadian law was that counsel for the
Schermerhorn Parties "just didn't look to see how it ought to be
done,
. depended on someone el se to do it. 74
[and]
1/
The Schermerhorn Parties did not dispute that service had been
made on a receptionist, or that local law required service to be
made on a
partner or person who appeared to be
management
of
Instead,
the
partnership's
principal
place
in control or
of
business.
citing the Certificate received from Canada's Central
Authority as evidence that service had been made in compliance with
the
Hague
Convention
and
local
law,
the
Schermerhorn
Parties
questioned the ability of Wilson Vukelich's counsel to "say what
appearances were,I/75 and argued that they "should be apprised of
this fact and given an opportunity to present evidence that rebuts
what he's now saying in rebutting the certificate of service that
was made.
1/
76
After admonishing the Schermerhorn Parties that they had been
warned that the March 8th hearing would be an evidentiary hearing
but that they had failed to present witnesses, 77 and that they would
74Id. at 11:8-10.
75Id. at 12: 22.
76Id. at 12:24-13:2.
77Id. at 13:3-20 ("Mr. Smith, how much -- how much opportunity
do I need to give your clients to provide evidence?1/ I spent a ton
(continued ... )
-31-
not be accorded an additional hearing to put on evidence,78 the
Bankruptcy Court made the following findings and conclusions and
directed Wilson Vukelich's counsel to draft an order memorializing
them:
Mr. Jones, go ahead and do an order that says, first of
all, that I granted the motion for extension beyond
March 1 because my order of January 13th says they've got
until March 1.
I make a finding that Ms. Marilyn Heish was served.
I
make a finding that she is a receptionist at Wilson
Vukelich, that's based upon Exhibit #1
[Return of
Service]
I make a legal conclusion that 16.02 of the Ontario Civil
Practice is the governing statute for serving, together
with the - - this reference to Article 5 of the Hague
Convention.
77 ( • • • cont inued)
of time working on the claims 'cause no one could reach agreement
as to whether they were derivative or direct. I issued an order on
January 13 saying, corne to court on March 1, and then I get this
motion for continuance.
And so I hold hearing last week and you
told me what you told me, and I said, all right, we'll corne back
this week.
I don't see any witnesses here in the courtroom. How
much time -- I mean how much opportunity -- I mean, you know,
Mr. Goldman carne down here.
If he was responsible for this, he
ought to be taking the stand.
If it's the secretary who took the
service, she ought to be taking the stand. But I've got nothing in
evidence right now about some partner standing behind a secretary.
What it says here is Ms. Marilyn Heish, receptionist at Wilson
Vukelich, received service.") i 18:6-8 (I mean it just really ticks
me off that your clients and that Mr. Goldman and anybody else
involved isn't down here giving me some testimony.")
78Id. at 18:21-25
( "And I don't want any motions for
reconsideration on the grounds that you now want to put on
evidence. Let me put it this way, you can do what you want but I'm
not going to give you a hearing.
I'm going to deny it.")
-32-
And I make a legal conclusion that Wilson Vukelich is a
partnership and that
a legal conclusion that to
properly serve a partnership in the great Province of
Ontario, Canada, you've got to serve a copy of the
document on one or more of the partners or on a person at
the principal place of business of the partnership who
appears to be in control or management of the place of
business.
I make a legal conclusion that a receptionist at the
Wilson Vukelich law firm is not a partner.
I make a legal conclusion that the receptionist at Wilson
Vukelich is not a person who appears to be in control or
management of the place of business.
And that means
that the motion to dismiss
granted on solely the service of process grounds. 79
is
On March 16, 2011, the Schermerhorn Parties filed their Motion
of
the
Schermerhorn
Parties
for
Entry
of
Order
[Relates
to
Doc. No. 273 and 292],
in which they argued that the Bankruptcy
Court
the
should not
sign
proposed order
submitted by Wilson
Vukelich's counsel, but should, instead, sign a counter-order that
they proposed because the order proposed by Wilson Vukelich, inter
alia, incorrectly failed to state that the dismissal was without
prej udice. 80
On March 31,
2011,
the Bankruptcy Court entered two orders
relating to Wilson Vukelich's motion to dismiss.
Docket
Entry 297,
denied the
The first Order,
Schermerhorn Parties'
Motion for
79Id. at 19:2-20:13.
8°Docket Entry No. 293 in Adversary No. 10-03150, and Docket
Entry No. 4-129 in Civil Action No. 4:11-cv-1534.
-33-
Extension beyond March I,
2011,
and granted the Wilson Vukelich
Motion to Dismiss, expressly finding that the Schermerhorn Parties
had failed to properly serve Wilson Vukelich with process. 81
The
second Order, Docket Entry No. 298, disposed of the Schermerhorn
Parties' Motion for Entry of Order [Docket Entry No. 293], stating
that "[t]he Motion of the Schermerhorn Parties for Entry of Order
is DENIED except that the dismissal shall be 'without prejudice.
,"82
The Schermerhorn Parties appeal both of these orders.
B.
Order Entered January 13, 2011, Denying in Part and Continuing
in Part Wilson Vukelich's Motion to Dismiss
On January 13,
2011,
the Bankruptcy Court issued an Order
Denying in Part and Continuing in Part Defendant Wilson Vukelich's
Motion to Dismiss 83 in which it ordered the Schermerhorn Parties to
81Docket Entry No. 297 in Adversary No. 10-03150, and Docket
Entry No. 4-131 in Civil Action No. 4:11-cv-1524, p. 3. This Order
also provided that
[t] he Court's Order Regarding Motion to Dismiss Adversary
Proceeding Filed by all Defendants Except Wilson Vukelich
LLP entered January 13, 2011 [Adv. Docket No. 274] is
modified to provide that·all claims set forth in Column 1
of the Table of Claims that were to be remanded to state
court now excludes all claims asserted against Wilson
Vukelich LLP,
which claims are DISMISSED without
prejudice.
82Docket Entry No. 298 in Adversary No. 10-03150, and Docket
Entry No. 4-132 in Civil Action No. 4:11-cv-1524.
83Docket Entry No. 273 in Adversary No. 10-03150, and Docket
Entry No. 4-124 in Civil Action No. 4:11-cv-1524.
-34-
properly serve Wilson Vukelich by February 18,
2011,
and set a
continued hearing on this portion of the motion for March 1, 2011. 84
Citing Nuovo Pignone, SpA v. STORMAN ASIA M/v, 310 F.3d 374,
384-85
(5th Cir.
2002),
the Schermerhorn Parties argue that the
Bankruptcy Court erred in its January 13,
them only 30 days
2011,
order by giving
The Schermerhorn
to serve Wilson Vukelich.
Parties argue that in Nouvo Pignone on "facts similar to ours, the
Fifth
Circuit
improperly
permitted a
held
served
that
a
where
foreign
plaintiffs
defendant
'reasonable time'
to effect
by
were
found
mail,
service
determination of improper service was made. ,,85
they
to
have
must
be
from when the
Asserting that the
120-day time limit for effecting service set forth in Federal Rule
of Civil Procedure 4(m)
does not apply to service on a foreign
entity such as Wilson Vukelich pursuant to the Hague Convention,
the Schermerhorn Parties argue that the Bankruptcy Court should
have given them at least 120 days to serve Wilson Vukelich. 86
Missing from the Schermerhorn Parties' brief is a cite to any
evidence or legal argument showing that the Bankruptcy Court did
not afford them a
Vukelich.
Central
When,
Authority
reasonable time to effect
after
for
service on Wilson
seeking expedited service via Canada's
service
in
compliance
with
the
Hague
85Brief of the Schermerhorn Parties, Docket Entry No.
Civil Action No. 4:11-cv-1524, p. 61.
16 in
84Id. at 14.
86Id. at 62.
-35-
Convention, the Schermerhorn Parties received notice that service
could not be accomplished within the allotted time period,
they
sought and received both an extension of time to complete service
from February 18 to March 1, 2011, and a continuance of the hearing
on Wilson Vukelich's motion to dismiss from March 1 to March 8,
2011. 87
The continuance provided the Schermerhorn Parties time to
receive
and
file
a
return
of
service
from
Canada's
Central
Authori ty. 88
The
Fifth
Circuit
requires
courts
"reasonable time" to effect service.
at 385.
to
provide
parties
a
See Nuovo Pignone, 310 F.3d
See also Lozano, 693 F.3d at 488-89 (rejecting holding in
Lucas v. Natoli,
936 F.2d 432
(9th Cir.
1991)
(per curiam)
that
time for effecting service on foreign defendants is without limit) .
The Schermerhorn Parties have failed to cite evidence that the time
the Bankruptcy Court provided them to effect service on Wilson
Vukelich was not reasonable.
Instead, the
record shows
th~t
the
Bankruptcy Court not only extended the time to complete service
from the date provided in its January 13, 2011, order (February 18,
2011)
to
March
1,
representations that
2011,
based
on
service could be
the
Schermerhorn
and,
in fact,
Parties'
was
87See Transcript of Hearing Held February 23, 2011, and
Transcript of Hearing Held March 1, 2011, Docket Entry Nos. 346 and
347 in Adversary No. 10-03150, and Docket Entry Nos. 4-364 and 4365 in Civil Action No. 4:11-cv-1524.
88Return of Service, Docket Entry No. 286 in Adversary No. 1003150, and Docket Entry No. 4-300 in Civil Action No. 4:11-cv-1524.
-36-
completed by then, and continued to March 8, 2011, the hearing on
Wilson Vukelich's motion to dismiss to allow them time to receive
and file the return of service. 89 Moreover, since, the Schermerhorn
Parties filed a return of service within the allotted time, argued
to the Bankruptcy Court and now argue to this court that service
was
effective,
and
failed
to
ask
the
Bankruptcy
additional time to serve Wilson Vukelich again,
Court
for
the Schermerhorn
Parties have failed to cite evidence showing that the period of
time the Bankruptcy Court provided them to serve Wilson Vukelich
was not "reasonable time."
January 13,
Defendant
2011,
Wilson
Accordingly,
the Bankruptcy Court's
Order Denying in Part and Continuing in Part
Vukelich's
Motion
to
Dismiss,
Docket
Entry
No. 273, in Adversary No. 10-03150, will be affirmed.
c.
Orders Entered on March 31, 2011, Granting Wilson Vukelich's
Motion to Dismiss and Denying in Part the Scher.merhorn
Parties' Motion for Entry of Order
On March 31,
2011,
the Bankruptcy Court entered two orders
relating to Wilson Vukelich's motion to dismiss.
The first Order,
Docket Entry No. 297, denied the Schermerhorn Parties' Motion for
Extension beyond March 1,
2011,
and granted Wilson Vukelich's
Motion to Dismiss for failure to properly serve Wilson Vukelich. 90
89See Brief of Appellants, Docket Entry No. 16 in Civil Action
No. 4:11-cv-1524, p. 64 n.15 (acknowledging that "plaintiffs were
given 40 days initially and another 14 days of extensions to effect
service after the court's January 13, 2011 decision").
90Docket Entry No. 297 in Adversary No. 10-03150, and Docket
Entry No. 4-131 in Civil Action No. 4:11-cv-1524, p. 3. This Order
also provided that
(continued ... )
-37-
The second Order, Docket Entry No. 298, stated that "[t]he Motion
of the Schermerhorn Parties for Entry of Order is DENIED except
that the dismissal shall be 'without prejudice.'ff91
Citing More & More AG v. P.Y.A. Importer Ltd., 2010 ONCA 771
(Court of Appeal for Ontario 2010), the Schermerhorn Parties argue
that
the
finding
Bankruptcy Court
that
erred
in
Wilson Vukelich had
its
dismissal
by
been properly served
not
order of
in
compliance with the Hague Convention because
"[t] here is ample
authority under Ontario law that service on a receptionist is good
service.
service
Rule
ff
92
The
upon
a
16.03 (m) ,
nonetheless ,
Schermerhorn Parties
receptionist
the
effective
service
under
was
made
the
Ontario Rule 16.08, which provides:
also
argue
improper
on
that
under
Wilson
savings
clause
even
if
Ontario
Vukelich
was,
contained
in
"Where a document has been
90 ( ... continued)
The Court's Order Regarding Motion to Dismiss Adversary
Proceeding Filed by all Defendants Except Wilson Vukelich
LLP entered January 13, 2011 [Adv. Docket No. 274] is
modified to provide that all claims set forth in Column 1
of the Table of Claims that were to be remanded to state
court now excludes all claims asserted against Wilson
Vukelich LLP,
which claims are DISMISSED without
prejudice.
91Docket Entry No. 298 in Adversary No. 10-03150, and Docket
Entry No. 4-132 in Civil Action No. 4:11-cv-1524.
92Brief of Appellants, Docket Entry No. 16 in Civil Action
No. 4:11-cv-1524, p. 62.
See also Reply/Response Brief of
Appellants of the Schermerhorn Parties, Docket Entry No. 36 in
Civil Action No. 4:11-cv-1524, pp. 20-21.
-38-
served in a manner other than one authorized by these rules . . . ,
the court may make an order validating the service where the court
is satisfied that,
(a)
person to be served."
the document came to the notice of the
Ontario Rule 16.08. 93
Fox Enterprises v. Air France,
Finally, citing Jim
664 F.2d 63
Schermerhorn Parties argue that
(5th Cir. 1981),
the
"dismissal is never proper when
there is any possibility that service can be completed and when
there is a risk of a statute of limitations running.,,94
The problem with the arguments that the Schermerhorn Parties
make with respect to the Wilson Vukelich dismissal is that these
arguments are being made for the first time on appeal.
Circuit's general rule,
Under "this
arguments not raised before the
[lower)
court are waived and will not be considered on appeal unless the
party
can
demonstrate
'extraordinary
circumstances.'"
Acceptance Corp. v. Veigal, 564 F.3d 695, 700 (5th Cir. 2009)
also Singleton v. Wulff, 96 S. Ct. 2868 (1976)
See
("[T)he general rule
. . . that a federal appellate court does not consider an issue not
passed upon below .
. is
have
to
the
opportunity
'essential in order that parties may
offer
all
the
relevant to the issues and in order that
evidence
they
believe
litigants may not be
93Brief of Appellants, Docket Entry No. 16 in Civil Action
No. 4:11-cv-1524, p. 62; Reply/Response Brief of Appellants of the
Schermerhorn Parties, Docket Entry No. 36 in Civil Action No. 4:11cv - 1524, p. 2 1 .
94Brief of Appellants,
No. 4:11-cv-1524, p. 64.
Docket Entry No.
-39-
16 in Civil Action
surprised on appeal by final decision there of issues upon which
they have no opportunity to introduce· evidence. ' "
(citation and
alterations omitted)
61 S. Ct. 719
[556]
(1941)).
(quoting Hormel v. Helverinq,
"Extraordinary circumstances" exist only if the
appellant, establishes "the issue involved is a pure question of law
and a miscarriage of
consider it."
justice would result
from our failure to
N. Alamo Water Supply Corp. v. City of San Juan, 90
F.3d 910,916 (1996).
The court's extensive review of the record reveals that the
Schermerhorn Parties never argued to the Bankruptcy Court that
service on a
receptionist
could satisfy Ontario Rule
pursuant to the holding in More & More,
16.03 (m)
that service on Wilson
Vukelich could be upheld pursuant to the savings clause contained
in Ontario Rule
16.08,
or that Wilson Vukelich should not be
dismissed due to risk of a statute of limitations running.
Nor do
they argue that extraordinary circumstances exist in this case.
Instead, the Schermerhorn Parties argued to the Bankruptcy Court
that
Wilson
Vukelich
should
not
be
dismissed
because
the
Certificate received from the Canadian Central Authority stated
that service had been made in conformity with Article 5 of the
Hague
Convention,
prejudice.
and
that
any
dismissal
should
be
without
The Bankruptcy Court accepted that argument, and the
two orders entered on March 31,
2011,
stated that
Vukelich dismissal was without prejudice.
the Wilson
The Bankruptcy Court
rejected the Schermerhorn Parties' argument that the Certificate
-40-
from the Canadian Central Authority was sufficient to prove that
service had been made in compliance with the Hague Convention and
local law.
Some
courts
have
held
that
the
return
of
a
completed
certificate of service from a state's Central Authority is prima
facie evidence that the service was made in compliance with the
Hague Convention procedures and with that state's internal laws.
See Northrup King Co. v. Compania Productora Semillas Algodoneras
Selectas,
S.A.,
51 F.3d 1383,
1389-90
(8th Cir.
1995)
("By not
objecting to the documents and by certifying service the Central
Authority indicated that the documents complied with the Convention
and that it had served them in compliance with the Convention,
i.e., that it had made service as
[the State's]
See also United National Retirement
F.
Supp.
2d 328,
335
(S.D.N.Y.
2008)
Action No. 10-1677, 2011 WL 446397,
2011).
Fund v.
i
law required./I).
Ariela,
Myrtle v.
at *2
Inc.
Graham,
643
I
Civil
(E.D. La. February 4,
"These courts 'decline[d] to look behind the certificate of
service to adjudicate the issues of [internal] procedural law' and
found that the defendants had been properly served pursuant to the
Hague Convention./I
Myrtle, 2011 WL 446397, at *2 (quoting United
National Retirement Fund, 643 F. Supp. 2d at 335).
Although the Hague Convention sets forth the procedure that a
litigant
must
follow
to
prescribe a procedure for
perfect
service
abroad,
it
fails
to
the
forum court to follow should an
element of that procedure fail.
See Burda Media, Inc. v. Viertel,
-41-
417
F.3d 292,
Parties
301
failed
to
(2d Cir.
2005).
cite
Bankruptcy
the
Moreover,
Court
the
to
Schermerhorn
any
authority
supporting their argument that the Certificate from the Canadian
Central Authority was sufficient to prove that service had been made
in compliance with the Hague Convention and local Canadian law.
This court will therefore not disturb the Bankruptcy Court's orders.
See Pluet v. Frasier, 355 F.3d 381, 384-85 (5th Cir. 2004).
Because the Schermerhorn Parties have failed to establish that
the Bankruptcy Court erred by finding that Wilson Vukelich had not
been properly served in compliance with the Hague Convention, and
because the Schermerhorn Parties never argued to the Bankruptcy
Court that Wilson Vukelich should not be dismissed either because
there was a risk of the statute of limitations running or because
there was a possibility that service in compliance with the Hague
Convention could still be completed, this court concludes that the
Schermerhorn Parties
Court's March 31,
denying
in part
have failed to establish that the Bankruptcy
2011,
Orders
their motion
contain reversible error.
dismissing Wilson Vukelich and
for
entry of
Accordingly,
a
substitute order
these two orders, Docket
Entry Nos. 297 and 298 in Adversary No. 10-03150, will be affirmed.
IV.
The
contempt,
Appeal of Orders for Sanctions and Contempt
Bankruptcy Court
and
payment
of
issued
twelve
attorneys'
orders
fees
and
for
sanctions,
costs
achieving these orders against the Schermerhorn Parties,
-42-
incurred
two of
their attorneys -- Goldman and Fryar -- and Craig -- an individual
acting in concert with Goldman -- that are being appealed; several
of
these
orders
are
also
being
cross-appealed by
the
SkyPort
Parties.
A.
Applicable Law
Section 105 (a) provides bankruptcy courts broad authority to
"take any action that is necessary or appropriate 'to prevent an
abuse of process.'"
Marrama v. Citizens Bank of Massachusetts, 127
S.
(2007).
Ct.
1105,
1112
In relevant part,
11 U. S. C.
§
105
states:
The court may issue any order, process, or judgment that
is necessary or appropriate to carry out the provisions
of this title. No provision of this title providing for
the raising of an issue by a party in interest shall be
construed to preclude the court from, sua sponte, taking
any action or making any determination necessary or
appropriate to enforce or implement court orders or
rules, or to prevent an abuse of process.
11 U.S.C.
§
105 (a) .
Courts have held that
§
105 is broad enough to
empower bankruptcy courts to sanction attorneys in conjunction with
their inherent power "to implement the Bankruptcy Code and prevent
abuses of bankruptcy process, powers inherent to district courts,
as the Supreme Court recognized in Chambers v.
NAsca,
u.S. 32, 111 S. Ct. 2123, 115 L.Ed.2d 27 (1991)."
375 B.R. 216, 226
held that
Zale Corp.
§
(Bankr. M.D. La. 2007).
105 should be "interpret [edJ
Inc.,
501
In re Osborne,
The Fifth Circuit has
. liberally."
Feld v.
(In re zale Corp.), 62 F.3d 746, 760 (5th Cir. 1995).
-43-
In
Chambers
sanctions
in the
the
Supreme
form of
Court
attorneys'
upheld
fees
the
imposition
of
and associated costs
pursuant to the court's inherent powers against a litigant who had
repeatedly engaged in bad-faith conduct.
The Court held that when
sanctions under applicable rules and statutes are inadequate,
a
court may call upon its inherent powers to assess attorneys' fees
against a party who has "acted in bad faith, vexatiously, wantonly,
or for oppressive reasons."
111 S. Ct. at 2133.
The Court stated
that
[i]n this regard, if a court finds "that fraud has been
practiced upon it, or that the very temple of justice has
been defiled," it may assess attorney's fees against the
responsible party . . . as it may when a party "shows bad
faith by delaying or disrupting the litigation or by
hampering enforcement of a court order."
Id.
(citations omitted).
The Court explained that
the bad- fai th exception resembles the third prong of
Rule 11's certification requirement, which mandates that
a signer of a paper filed with the court warrant that the
paper "is not interposed for any improper purpose, such
as to harass or to cause unnecessary delay or needless
increase in the cost of litigation."
In Matter of Case,
937 F.2d 1014, 1023
(5th Cir. 1991), the
Fifth Circuit held that the principles recognized by the Supreme
Court in Chambers are "equally applicable to the bankruptcy court."
The Fifth Circuit has since explained that" [t] he threshold for the
use of inherent power sanctions is high," Crowe v. Smith, 151 F.3d
217,
226
(Crowe I)
(5th Cir.
i
1998),
cert.
denied,
119 S.
Ct.
2047
(1999)
and that a court's inherent power to sanction "must be
-44-
exercised with restraint and discretion,
by U specific finding that the
a
id.; must be accompanied
II
[sanctioned party] acted in
'bad faith, "' id. at 236 (citing Chaves v. M/V Medina Star, 47 F.3d
153,
156
(5th Cir. 1995)); and Umust comply with the mandates of
due process,
both in determining
exists and in assessing fees."
Inc.,
S.
898
117 F.3d 894,
Ct.
at
(Ali to,
2136).
See
dissenting)
J.,
that
requisite
bad faith
Gonzalez v. Trinity Marine Group,
(5th Cir.
also
the
1997)
Marrama,
(quoting Chambers,
127
(" [b] ankruptcy
S.
Ct.
courts
at
have
111
1116-1117
used
their
statutory and equitable authority to craft various remedies for a
range of bad faith conduct:
[including]
. . . penalizing counsel;
assessing costs and fees; or holding the debtor in contempt").
determination
of
bad
faith
is
a
finding
reversed uonl y if on the entire evidence,
the
definite
committed.
court
must
[bankruptcy]
be
the court is left with
This
court
to
Fed. R. Civ. P. 52(a).
B.
can
been
"due
conviction
that
has
give
firm
fact
In re Dennis, 330 F.3d 696, 701 (5th Cir. 2003).
II
and
of
A
regard
that
to
judge the
a
the
mistake
opportunity of
credibility of
the
the witnesses."
See also Bankr. R. 8013.
Sanction Orders
Asserting that the State Court Petition was not a collateral
attack
on
the
Confirmation
Order
95Id. at 42 -48.
-45-
and
Plan,95
the
Schermerhorn
Parties argue that the Bankruptcy Court erred by entering each of
the
following
five
orders
for
sanctions:
(1)
Order Regarding
Reasonableness of Hoover Slovacek Fees, Docket Entry No. 158, filed
August II, 2010;
(2) Order Directing Payment to Hoover Slovacek,
Docket Entry No.
233,
filed October 29,
2010;
(3)
McKool Smith
Memorandum Opinion, Docket Entry No. 299, filed on March 31, 2011i
and (4) McKool Smith Order, Docket Entry No. 300, filed March 31,
2011; and (5) Order for Additional Sanctions, Docket Entry No. 242,
filed November 9, 2010. 96
five
orders
for
Bankruptcy Court:
sanctions;
(2)
The Schermerhorn Parties argue that these
sanctions
(1)
were
issued
in
error
because
the
failed to identify a legal basis for the
failed to find that the Schermerhorn Parties had
engaged in bad faith;
(3)
failed
to conduct
a
hearing on the
reasonableness of the sanctions, and imposed sanctions that were
excessive and not
the least
severe necessary to achieve their
purpose. 97
1.
The Bankruptcy Court Did Not Err by Failing to Identify
a Legal Basis for the Sanctions
The Schermerhorn Parties' argument that the Bankruptcy Court
erred by failing to identify the legal basis
orders has
no merit.
for
In their motion to dismiss
its sanction
all
of
the
96Notice of Appeal to the United States District Court, Docket
Entry No.1 in Civil Action No. 4:11-cv-1524.
97See, ~, Brief of Appellants - The Schermerhorn Parties,
Docket Entry No. 16 in Civil Action No. 4:11-cv-1524, pp. 33-38.
-46-
defendants in the state court action except Wilson Vukelich the
SkyPort
Parties
sought
sanctions
in
the
form
of
reasonable
attorneys' fees and costs based on the court's "inherent power to
enforce its own orders. 98
Moreover,
II
and
application
for
preliminary and permanent
SkyPort Parties cited 11 U.S.C.
for
relief
which
in their original complaint
included
injunction,
the
105 in support of their prayer
§
damages
in
the
form
of
reasonable
attorneys' fees and costs incurred prosecuting that action, i.e.,
Adversary No.
10 - 03225 . 99
Al though neither the Order Regarding
Reasonableness of Hoover Slovacek Fees nor the Order Directing
Payment to Hoover Slovacek expressly states the legal basis for
awarding sanctions, the Bankruptcy Court's McKool Smith Memorandum
Opinion expressly cites both the defendants' request for sanctions
in their motion to dismiss and Chambers,
support
of
the statement
that,
111 S. Ct. at 2123,
"[t] his Court
has
the
in
inherent
authority to impose sanctions in order to regulate the practice of
attorneys and litigants appearing before it."100
Moreover,
since
98Motion to Dismiss, or Alternatively, for Summary Judgment,
and for Sanctions, Docket Entry No. 2 in Adversary No. 10-03150,
and Docket Entry No. 4-15 in Civil Action No. 4:11-cv-1524, pp. 4143 ~~ 121-28.
99Plaintiffs'
Original
Complaint
and
Application
for
Preliminary Injunction and Permanent Injunction, Docket Entry No.1
in Adversary No. 10-03225, and Docket Entry No. 4-317 in Civil
Action No. 4:11-cv-1524.
lOOMcKool Smith Memorandum Opinion, Docket Entry No. 299 in
Adversary No. 10-03150, and Docket Entry No. 4-134 in Civil Action
No. 4:11-cv-1524, p. 11.
-47-
the McKool
Smith Memorandum Opinion continues
"[c]onsistent with this authority,
Original
Motion
for
Sanctions
the Court orally granted the
on May
27,
2010,"101
concludes that
the Bankruptcy Court did not
identify
legal
the
Schermerhorn
Parties
bases
for
by stating that
for
its
filing
the
court
err by failing to
orders
State
this
sanctioning
Court
directing them to pay the reasonable attorneys'
Petition
the
by
fees and costs
incurred by all of the defendants except Wilson Vukelich.
The four
orders for sanctions arising from the findings and conclusions made
at the May 27, 2010, hearing are clearly based on the Bankruptcy
Court's inherent authority to regulate the practice of attorneys
and litigants appearing before it.
2.
The Bankruptcy Court Did Not Err by Failing to Find that
the Schermerhorn Parties Engaged in Bad Faith
The Schermerhorn Parties argue that the Bankruptcy Court erred
by sanctioning them pursuant
to its inherent authority without
finding that they had engaged in bad faith.
The Schermerhorn
Parties also argue that the record evidence does not justify a
finding of bad faith because:
(1) the Schermerhorn Parties lacked
sufficient evidence of fraud to challenge SkyPort's Plan during the
Chapter
11
proceeding;
(2)
the
Bankruptcy
Court
erroneously
concluded that the State Court Petition was a collateral attack on
the Confirmation Order and Plan entered in SkyPort's Chapter 11
10lId. at 12.
-48-
case; (3) the State Court Petition asserted many direct claims that
were not barred by the injunctive provisions of the confirmed plan;
and
(4)
the
State
Court
Petition
as
party defendant. 102
Reorganized Debtor,
a
did
not
name
SkyPort,
The
the
Schermerhorn
Parties' argument that the Bankruptcy Court erred by sanctioning
them pursuant to its inherent powers without finding that they had
engaged in bad faith or by erroneously finding that they engaged in
bad faith has no merit.
In their motion to dismiss all of the defendants in the state
court action except Wilson Vukelich argued that
appropriate
Al though
"because Plaintiffs
neither
the
[we] re
Order Regarding
sanctions were
acting in bad faith.
Reasonableness
of
1/103
Hoover
Slovacek Fees nor the Order Directing Payment to Hoover Slovacek,
expressly states that the Schermerhorn Parties had acted in bad
faith, the McKool Smith Memorandum Opinion states
[t] he Court orally granted the Original Motion for
Sanctions [at the hearing held] on May 27, 2010.
The
Court concluded that the Plaintiffs acted in bad faith by
filing the Original Petition in direct contravention of
the Plan and the Confirmation Order.
[Findings of Fact
Nos. 6, 8, & 11] . 104
l02Brief of Appellants - The Schermerhorn Parties, Docket Entry
No. 16 in Civil Action No. 4:11-cv-1524, pp. 35-37.
l03Motion to Dismiss, or, Alternatively, for Summary Judgment,
and for Sanctions, Docket Entry No. 2 in Adversary No. 10-03150,
and Docket Entry No. 4-15 in Civil Action No. 4:11-cv-1524, p. 41.
l04McKooI Smith Memorandum Opinion, Docket Entry No. 299 in
Adversary No. 10-03150, and Docket Entry No. 4-134 in Civil Action
No. 4:11-cv-1524, p. 12 (citing findings of fact stated previously
therein at 4, 5, and 6) .
-49-
Moreover,
this
court's
review of
the
record
reveals
that
the
Bankruptcy Court repeatedly stated that its decision to sanction
the
Schermerhorn
Parties
by
ordering
them
to
pay
reasonable
attorneys' fees and costs rested on its findings and conclusions
that the State Court Petition was not only a direct violation of
the injunctive provisions contained in -- and a collateral attack
on
the
Chapter
11
Confirmation
case,
but
Order
also
an
and
Plan
end-run
entered
around
§
in
SkyPort's
1144
of
the
Bankruptcy Code. 105
At the conclusion of the May 27, 2010, hearing the Bankruptcy
Court stated:
My confirmation order which confirmed the plan
expressly says that SkyComm and SkyPort will merge.
So
there is no longer any SkyComm. This pleading before me,
filed in Harris County District Court was telegraphing to
a State Court Judge.
. that part of the relief that
Plaintiffs were seeking was to appoint a director, a
Trustee, a managing agent, a fiscal agent, or other Courtappointed fiduciary.
The Court-appointed [fiduciary]
being appointed by the State Court for SkyComm and
SkyPort.
To tell a State Court judge and [possibly a state
court] jury that SkyComm exists, which is what this
pleading does, violates, goes against, contradicts, the
plan that I approved in August of 2009.
And to use the excuse that gee we didn't make
SkyPort, the reorganized Debtor, a party Defendant in the
State Court suit is very disingenuous.
It's very
distasteful to me. There's no question, based upon the
testimony of Mr. McCary . . . [that] notice was given to
the equity holders of SkyPort.
105Transcript of May 27,2010, Hearing, Docket Entry No. 4:105
in Civil Action No. 4:11-cv-1524, p. 272:4-16.
-50-
They knew about this bankruptcy.
They ha [d] an
opportunity to come in and object to the plan.
And
Mr. McCrary's testimony is very interesting. He said he
had this two page document, which he worked up.
You know, one of the best devices for conducting
discovery is in bankruptcy.
And it's called a 2004
examination.
And so, Mr. McCrary and the other equity
holders, had the opportunity to take 2004 examinations
from here to eternity of Mr. Kubbernus, and of anybody
else whom they thought were committing skullduggery. And
they failed to do it.
What they did is, they waited, chose not to
participate in the bankruptcy,
and the[n]
postconfirmation, hauled off and filed a suit saying to a
State Court judge that he or she ought to appoint a
Trustee, or managing agent, for an entity that no longer
exists, SkyComm, because my plan extinguished SkyComm
shares, that is, the plan that I confirmed.
And also
telegraphing to a State Court judge that that judge
should appoint a fiduciary or Trustee for SkyPort when I
had confirmed a plan.
And so to ask a State Court judge to appoint a
Trustee to SkyPort for acts that occurred prior to the
confirmation of the plan, is a direct[] violation of the
plan and of the order confirming the plan.
The allegations in this petition, which is now the
live pleading before me, clearly set forth, I'm looking
at pages 59, and 60, and 61, that,
Mr. Kubbernus and Balaton made numerous false
and misleading statements to the Bankruptcy
Court,
including
Balaton
and
Kubbernus
deliberately mixed and mingled the shareholders and creditors of SkyPort, which was a
bankruptcy Debtor, with the shareholders and
creditors of SkyComm, which was not. Balaton
and Kubbernus fraudulently represented that
they owned the maj ori ty of the shares in
SkyComm.
Balaton and Kubbernus misled the
Court into assuming jurisdiction over
and
affecting the rights of the shareholders and
creditors of SkyComm, even though it was not a
Debtor in bankruptcy.
I
-51-
Balaton and Kubbernus fraudulently claimed to
be owed approximately 2 million by SkyPort
when no
such debt
had been previously
disclosed or shown on SkyComm's consolidated
financial statements.
Balaton and Kubbernus listed LaVelle as a
creditor of SkyComm for 515,000, even though
their prior communications had indicated the
debt ran from LaVelle and SkyComm.
We go on, and on, and on at page 60 and 61. All of
these allegations are that Mr. Kubbernus, Balaton,
Century tel , duped me, tricked me, lied to me, in order to
get me to confirm a plan, particularly and specifically
the plan that I confirmed at a hearing on August 7, 2009,
after listening to testimony, and after hearing, and
after giving everyone an opportunity to participate, and
vote.
So there is no question that the petition before me
that was filed in Harris County at a minimum in
paragraphs 321 through 334 go right to the plan
confirmation process. And clearly say that among other
things Mr. Kubbernus defrauded this Court, lied to this
Court, made misrepresentations to this Court.
And Section 1144 of the Bankruptcy Code says,
"On request of a party-in-interest at any time
before 180 days after the date of the entry of
the order of confirmation and notice and
hearing, the Court may revoke such order, if
and only if, such order was procured by
fraud. "
The order was entered on the docket on August 12th,
2009.
If you count 180 days forward, that gets you to
February 8 th , February 9 th •
And after that date, you
can't revoke a confirmation order.
And so the petition that was filed in [February,
i.e., February 12, 2010] in Harris County is an end run
around 11 U.S.C. § 1144 . . . at least insofar as it says
to a State Court judge and any jury, hey, Mr. Kubbernus
and these others lied to the Bankruptcy Court, obtained
a confirmed plan by fraud.
-52-
There is no way that these a11egations are not an
attack on the p1an that I confirmed. They are indeed a
fu11 fronta1 attack on the p1an confirmation order that
I signed. 106
The Bankruptcy Court stated,
"to now go to the State Court
more than six months later and say that Mr. Kubbernus duped me, is
attacking the findings of fact and conclusions of law I made in
order
to
confirm
the
plan
back
in
August
of
2009.,,107
Bankruptcy also reiterated:
Now, as I've also said, it's a violation of 1144, an
attempt to do an end run around, 1144.
I also want to
note, SkyPort is not a named party in this State Court
lawsuit.
But there is no question that there is a
concept called necessary parties, whether you're under
state law or federal law.
If you're going to seek relief against somebody like
appointing a receiver, they're a necessary party.
And
that's why I say this pleading is either disingenuous or
deceptive.
Because to go in to State Court and say give me a
receiver for SkyPort, but not to put SkyPort in as a
named party, I guess my response is give me a break. Of
course, SkyPort is a necessary party. And to argue to a
State Court that we ought to appoint a receiver to
SkyPort, without naming SkyPort as a party, I think is a
very disingenuous thing to do.
And anyone knows that
SkyPort's a necessary party under the applicable rules,
either federal or state when you're seeking that kind of
relief .108
106Id. at 272: 14-276: 10 (emphasis added) .
l07Id. at 277: 10-13.
108Id. at 284:13 - 285:4.
-53-
The
The Bankruptcy Court continued:
I think this pleading is very disingenuous if not
deceptive, [because] the allegations made to the State
Court in this pleading are that all of these equity
shareholders, these Plaintiffs, the allegations are that
they are presently holding shares of SkyComm. That is a
direct contradiction of the provision in the plan that I
confirmed
that
says
[those]
shares
[are]
extinguished.
we've got a confirmed plan that
extinguished the shares of SkyComm in August of 2009.
That order was not appealed.
It's a final order.
All these Plaintiffs could have participated in the
process and they didn't.
If they didn't want to lose
their shares of SkyComm, they should have read the plan.
They should have come in and complained. They didn't do
it.
And so what the factual allegations are in this
complaint that they are presently holding shares of
SkyComm, is dead, dead, contradictory of the plan
provision that extinguished those shares
And as I said, that's why I find this pleading to be
either deceptively, or at a minimum, disingenuously
drafted. 109
The Bankruptcy Court added:
To tell me that this pleading before me
doesn't seek relief against SkyPort, doesn't seek to
appoint a Trustee in SkyPort, is an incredible argument
that has absolutely no merit.
"Wherefore, all the Plaintiffs pray that the
Court enter an order, judgment, and decree
granting the following relief against the
Kubbernus Defendants, and order appointing a
provisional director, Trustee, managing agent,
fiscal
agent,
or
other
Court-appointed
fiduciary for SkyComm and SkyPort."
109Id. at 286:1-25.
-54-
Pretty plain meaning there.
There's no ambiguity
there. What these Plaintiffs were trying to do in State
Court was get that State Court judge or a jury· to appoint
a provisional director, or Trustee, or managing agent of
SkyPort and SkyComm.
And that's a direct violation of
the very intent of my plan that I confirmed, which is
that SkyPort and SkyComm were merged.
So what we've got here are Plaintiffs who have sat
on their hands, lay behind the log, and then made a
collateral attack that undermines the bankruptcy process,
undermines the integrity of the plan confirmation
process, and there is no question that
that it
110
shouldn't have been done.
"Should I remand this suit?
The Bankruptcy Court concluded:
No way.
It has got allegations in it that should not be made, that
the Plaintiffs are barred from making, not the least of which is
that
they
are
presently
Bankruptcy Court
also
With
injunction.
holding
concluded
respect
to
shares
that
the
Alternatively for Summary Judgment,
complaint,
the
of
SkyComm. ,,111
"I'm going
Motion
to
to
grant
the
Dismiss,
or
the motion is granted.
live pleading before me,
is
dismissed." 112
Bankruptcy Court explained
I'm going to dismiss with prej udice the deri vati ve causes
of action.
I'm going to dismiss without prejudice the
personal causes of action.
I'm certainly going to
dismiss without prejudice the personal causes of action.
I'm certainly going to dismiss without prej udice any
causes of action that were brought, pursuant to the carve
out.
llOId. at 287:17-288:13
11lId.
112
(emphasis added).
at 290:19-22.
I d . at 2 93 : 7 - 1 0 .
-55-
The
The
The
But the derivative causes of action which were
extinguished, need to be dismissed with prejudice. The
question is, which ones are to be dismissed with
prejudice.
I'm not going to say tonight.
I'm going to
sit down and go through each and everyone of them. And
I'll issue a written ruling.
So that if people want to
appeal me, they can. ll3
On January 13,
2011,
the Bankruptcy Court issued a written
opinion distinguishing the derivative from the direct claims:
The Court has now completed its analysis of all of
the claims brought by the Plaintiffs in the Petition.
The Court therefore issues this Memorandum Opinion
setting forth which claims in the Petition are barred and
therefore must be dismissed with prejudice, and which
claims are not barred and therefore may be prosecuted.ll 4
The opinion reiterated the findings and conclusions made at the
May 27, 2010, hearing:
13. On May 27, 2010, the Court held a hearing on the
Motion to Dismiss and the Motion to Remand. At the end
of this hearing, the Court concluded that it has
jurisdiction over the removed claims because:
(a) there
are explicit allegations in the Petition which constitute
an attack on the findings of fact and conclusions of law
made by this Court in the Confirmation Order; and (b) the
relief sought by the Plaintiffs, among other relief,
seeks appointment of a receiver to take over the
Reorganized Debtor (i.e., the Reorganized SkyPort)-relief
which is a direct attack on the Plan and the Confirmation
Order.
[May 27, 2010 Tr. 288:24-289:4].
14.
on May 27, 2010
The Court
concluded that some of the counts alleged in the Petition
were derivative - i.e., brought on behalf of the Debtor
- and are therefore barred by the Confirmation Order, and
113Id. at 293:11-22.
114Memorandum Opinion Relating to Motion to Dismiss Adversary
Proceeding Filed by All Defendants Except the Law Firm of Wilson
Vukelich LLP entered on January 13, 2011, Docket Entry No. 272 in
Adversary.No. 10-03150, and Docket Entry No. 4-123 in Civil Action
No. 4:11-cv-1524, p. 3.
-56-
may not be prosecuted by the Plaintiffs.
[May 27, 2010
Tr. 288:16-25].
The Court stated that after the
parties conferred with each other, they should report
back to the Court; and the Court would then dismiss with
prejudice those claims which are derivative and dismiss
without prejudice those claims which are direct.
15. Additionally, at the same hearing, on May 27, 2010,
this Court ruled that it would deny the Motion to
Remand. 115
The Court noted that
[i]n general, those claims that are derivative are
barred, and those claims that are direct are not barred.
However, the Court wants to emphasize that there are some
direct claims that are barred by the Confirmation Order
and the Plan, and there are also some derivative claims
that are not barred. This Memorandum Opinion attempts to
address all of these claims. 116
The Court also noted that it had
signed an order denying the Motion to Remand on June 7,
2010. [Adv. Doc. No. 79]. However.
. based upon the
Plaintiffs' requested relief in their Objection to the
Motion to Dismiss, the Court is going to remand (rather
than dismiss without prejudice) those causes of action
that are direct claims or claims not otherwise barred. 117
The Bankruptcy Court's January 13,
2011,
Memorandum Opinion and
Order additionally stated:
to the extent that any of this Court's oral findings of
fact and conclusions of law made in open court on May 27,
2010 conflict with anything set forth in this Memorandum
Opinion, the latter shall govern; and to the extent that
anything set forth in this Memorandum Opinion does not
encompass all of this Court's oral findings of fact and
conclusions of law made in open court on May 27, 2010,
115
I d . at 8 - 9 .
116Id. at 9, n.7.
-57-
the latter shall supplement what is set forth in this
Memorandum Opinion.11B
The Schermerhorn Parties have not
Court's January 13,
2011,
appealed the Bankruptcy
Memorandum Opinion and Order formally
adopting and modifying the oral findings of fact and conclusions of
law made during the May 27, 2010, hearing.
Thus, the January 13,
2011, Memorandum Opinion and Order is final and the findings and
conclusions made therein are final
findings and conclusions that
(1)
and unappealable,
including
the Schermerhorn Parties had
notice of the SkyPort bankruptcy but opted against participating
therein in favor of waiting to file the state court action; (2) the
Schermerhorn Parties had notice of the order confirming SkyPort's
Chapter
11
Plan
and
the
resulting
discharge
injunction,
but
nevertheless filed a Petition in state court that contained many
derivative claims that belonged to SkyPort, the Reorganized Debtor,
and were, therefore, barred from being brought under the express
terms of the Plan;
factual
and
allegations
(3)
that
the' State Court
in
light
of
the
Petition contained
confirmed plan were
deceitful and/or disingenuous .119 These unappealed factual findings
are more than sufficient to support the Bankruptcy Court's finding
of
bad
Opinion,
faith
and
expressly stated
in
relied
impose
upon
to
its
McKool
Smith Memorandum
sanctions
requiring
the
Schermerhorn Parties to pay attorneys' fees and costs incurred on
11Bld. at 4.
-58-
behalf of all of the state court defendants except Wilson Vukelich
by
both
the
Hoover
Slovacek
and
McKool
Smith
law
firms.
Accordingly, the court concludes that the Bankruptcy Court did not
err by failing to find that the Schermerhorn Parties engaged in bad
faith.
3.
The Bankruptcy Court Did Not Err by Failing to Conduct a
Hearing on Reasonableness or by Imoosino Excessive
Sanctions that Were Not the Least Severe Necessary to
Achieve Their Purpose
The Schermerhorn Parties' arguments that the Bankruptcy Court
erred by failing to conduct a hearing on the reasonableness of the
sanctions, and by awarding excessive sanctions that were not the
least severe necessary to achieve their purpose,
have no merit.
The Bankruptcy Court provided the Schermerhorn Parties multiple
opportunities to be heard and awarded only those sanctions found
necessary
to
compensate
the
defendants
for
the
reasonable
attorneys'
fees and costs incurred responding to the State Court
Petition filed in violation of the injunctive provisions of the
Confirmation Order and Plan entered in SkyPort's Chapter 11 case.
The issue of whether sanctions were warranted was heard at the
May 27, 2010, hearing at the close of which the Bankruptcy Court
granted the motion to dismiss and for sanctions filed by all of the
state court defendants except Wilson Vukelich, and the application
for preliminary injunction, attorneys' fees, and costs filed by the
SkyPort Parties.
The Bankruptcy Court explained:
-59-
And then finally.
. I will grant the sanctions,
[at]
a separate hearing,
to the extent that the
Defendants and the reorganized Debtor in Adversary 3150,
that is, the suit that was removed, want to seek
sanctions.
They should file
first they should provide
invoices for legal services rendered to Mr. Smith, and
Mr. Goldman, and Mr. Fryar.
And that's the minimum
sanctions that's going to be awarded are the reasonable
attorneys fees and expenses incurred in getting the
Motion to Dismiss granted.
[W]ith respect to the attorneys fees and time
spent, and any costs incurred for bringing the Motion
[to] Dismiss, I will impose sanctions at a minimum of
reasonable attorneys fees and costs.
Those'll be
determined at a separate hearing if the parties can't
agree. And I'll give you a hearing date.
To the extent any additional [san] ctions are sought,
over and above reasonable attorneys fees and expenses,
file a separate pleading, so that parties can see what is
being sought. And I'll set that for a hearing as well. 120
The Bankruptcy Court instructed counsel for the non-Wilson
Vukelich Defendants
and counsel
for
the
Reorganized Debtor to
submit fee invoices relating to the prosecution of the original
motion for sanctions to counsel for the Plaintiffs by June 11,
2010,121 and motions for additional sanctions by June 30, 2010. 122
12°Transcript of May 27, 2010, Hearing, Docket Entry No.4: 105
in Civil Action No. 4:11-cv-1524, pp. 293:23-294:24.
See also
McKool Smith Memorandum Opinion, Docket Entry No. 299 in Adversary
No. 10-03150, and Docket Entry No. 4-133 in Civil Action No. 4:11cv-1524, p. 6 , 11 ("On May 27, 2010, this Court held a hearing on,
among other things, the Original Motion for Sanctions. The Court
orally granted the motion.
.") .
121Transcript of May 27, 2010, Hearing, Docket Entry No. 4:105
in Civil Action No. 4:11-cv-1524, pp. 294:6, 306:2-11.
122Id. at 307: 14-308: 12.
-60-
A hearing on the amount of attorneys'
fees and expenses that the
Schermerhorn Parties would be ordered to pay as sanctions was held
on August 3,
2010,123 and a hearing on the amount of additional
sanctions they would be ordered to pay was held on October 15,
2010. 124
(a)
On
Orders Regarding Hoover Slovacek Fees
July
certificate
1,
of
2010,
the
Schermerhorn
reasonableness
reasonable the amount of fees
Slovacek
for
Defendants
for
June 9, 2010. 125
representing
the
period
stating
Parties
that
they
submitted
accepted
a
as
and expenses requested by Hoover
the
CenturyTel
running
from May
and
13,
the
Kubbernus
2010,
through
Paragraph 3 of the Certification states:
Hoover Slovacek provided its invoice covering services
rendered in the amount of $17,091.75 and expenses
123Transcript, August 3, 2010, Hearing, Docket Entry No. 160 in
Adversary No. 10-03.150, and Docket Entry Nos. 4-222 in Civil Action
No. 4:11-cv-1524.
124Transcript of October 15, 2010, Hearing, Docket Entry
No. 226 in Adversary No. 10-03150, and Docket Entry No. 4-111,
p. 67:4 through No. 4-114 in Civil Action No. 4:11-cv-1524.
125Plaintiffs' Amended Certification of Reasonableness of Fees,
Docket Entry No. 112 in Adversary No. 10-03150, and Docket Entry
No. 4-69 in Civil Action No. 4:11-cv-1524, p. 2 ~~ 1-2.
The
Certificate also stated that it was being submitted
wi thout prej udice to [the] Schermerhorn Part ies' pos it ion
that they should not be sanctioned and counsel fees
should not be awarded in this matter, that counsel fees
should be reduced on legal and equitable grounds, and
that, in any event, the Century Client and Kubbernus
Client are not entitled to have their fees reimbursed.
rd. at 3
~
4.
-61-
advanced of $708.54 for the period May 13, 2010 through
June 9, 2010.
Plaintiffs accept the amount of fees and
expenses as reasonable. 126
On August 3, 2010, the Bankruptcy Court conducted a hearing on
the reasonableness of fees and expenses at which counsel for the
Schermerhorn Parties stipulated that the Hoover Slovacek fees and
expenses were reasonable. 127
On August 11,
2010,
the Bankruptcy Court entered an agreed
order expressly providing that the fees and expenses incurred by
Hoover Slovacek (i.e., counsel for the Reorganized Debtor) in the
amount of $17,800.29 are reasonable. 128
During a show cause hearing held on October 15, 2010, when the
Bankruptcy Court learned that the Schermerhorn Parties had not paid
the Hoover Slovacek fees and costs, 129 counsel for the Schermerhorn
126rd. at 2
~
3.
127Transcript, August 3, 2010, Hearing, Docket Entry No. 160 in
Adversary No. 10-03150, and Docket Entry No. 4-222 in Civil Action
No. 4:11-cv-1524, p. 12:21-22 (the Schermerhorn Parties' counsel
stated: "First of all, we don't oppose the reasonableness of their
fees.") .
1280rder Regarding Reasonableness of Hoover Slovacek Fees,
Docket Entry No. 158 in Adversary No. 10-03150, and Docket Entry
No. 4-88 in Civil Action No. 4:11-cv-1524.
129Transcript, October 15, 2010, hearing, Docket Entry No. 226
in Adversary No. 10-03150, and Docket Entry No. 4-110 in Civil
Action No. 4:11-cv-1524, p. 16:10-18 (Counsel for the SkyPort
Parties stated: "There's already an order out there where you have
ordered our opponents to pay our attorneys' fees. They are unpaid.
They are unpaid.
We've not been paid our attorneys' fees.
This
Court's already awarded them.
They filed a Certificate of
Reasonableness.
They are unpaid.
Whatever happens, we'd like
deadlines for the payment of whatever sanctions are awarded and
attorney's fees are awarded. ")
-62-
Parties restated their agreement that the Hoover Slovacek fees and
expenses were reasonable .130
The Bankruptcy Court directed counsel
for the parties represented by Hoover Slovacek to submit an order
directing the Schermerhorn Parties to Pay $17,800.29 to Hoover
Slovacek
by
October
Bankruptcy Court
31,
2010. 131
signed the
On
October
Order Directing
29,
2010,
Payment
the
to Hoover
Slovacek in the amount of $17,800.29 by October 31, 2010. 132
Because on May 27,
2010,
the Bankruptcy Court conducted a
hearing at which the defendants' requests for sanctions in the form
of
attorneys'
fees
and costs were
considered and
found
to be
13°rd. at 16:25-17:6 ("Now, with respect to the $17,000 that
the Court -- the $17,000 they requested on the sanctions for legal
fees - - the Court has already indicated that you are going to
award, we agreed to the reasonableness of that."). See also id. at
Docket Entry No. 4-114 in Civil Action No. 4:11-cv-1524, p. 205:2-8
(The Bankruptcy Court restated the Schermerhorn Parties' position
that the fees and expenses sought by Hoover Slovacek were
reasonable: "The sanctions requested initially by the SkyPort
parties was for attorneys' fees.
r directed - - r granted that
request -- directed Ms. Catmull or her partner, Mr. Rothberg, to
submit fee invoices to Counsel for the Schermerhorn parties who
have come back and said the fees are reasonable and they don't
contest them, and specifically that amount is $17,800.29, so that's
not an issue.") .
131Transcript, October IS, 2010, Hearing, Docket Entry No. 226
in Adversary No. 10-03150, and Docket Entry No.4-Ill in Civil
Action No. 4:11-cv-1524, p. 59:8-11 (The Bankruptcy Court stated:
"With respect to the $17,000, you can give me a separate order that
says that should be paid, why don't we say, on or before
October 31, make it by the end of the month.
Let me have that
order within a week.
.") .
1320rder Directing Payment to Hoover Slovacek, Docket Entry
No. 233 in Adversary No. 10-03150, and Docket Entry No. 4-116 in
Civil Action No. 4:11-cv-1524.
-63-
warranted,
and because on August 3,
2010,
the Bankruptcy Court
conducted a hearing at which the Schermerhorn Parties could have
contested -- but chose not to contest -- the reasonableness of
Hoover Slovacek's invoices of fees and costs,
Parties'
the Schermerhorn
argument that the Bankruptcy Court erred by failing to
conduct hearings either on whether sanctions were warranted or
whether the amount of sanctions ordered was reasonable misstates
undisputed
facts.
Because
on July
1,
2010,
the
Schermerhorn
Parties submitted a certificate of reasonableness stating that they
accepted as reasonable the invoices for fees and expenses submitted
by Hoover Slovacek totaling $17,800.29; because at hearings held on
August 3 and October 15, 2010, the Schermerhorn Parties' counsel
restated their acceptance of
the
Hoover Slovacek
invoices
for
$17,800.29 as reasonable; and because the Bankruptcy Court ordered
the Schermerhorn Parties to pay Hoover Slovacek the amount the
Schermerhorn Parties agreed was reasonable,
i.e.,
sanctions for filing the State Court Petition,
$17,800.29, as
the Schermerhorn
Parties are estopped from arguing that sanctions in this amount
were
excessive
or not
the
least
achieve the court's purpose.
severe
See Spicer v.
Gas II, LLC, 647 F.3d 547 (5th Cir. 2011)
ments for judicial estoppel:
(2)
the
court
inadvertence).
accepted
sanction necessary to
Laguna Madre Oil &
(stating three require-
(1) a clearly inconsistent position;
the
original
position;
and
(3)
no
Accordingly, the Order Regarding Reasonableness of
Hoover Slovacek, LLP Fees (Doc. 132) and Continuance of Hearing on
-64-
Motion for Additional Sanctions (Doc. 104), Docket Entry No. 158,
and the Order Directing the Joanne Schermerhorn et al.
to Pay
$17,800.29 to Hoover Slovacek LLP by October 31, 2010, Docket Entry
No. 233, will both be affirmed.
(b)
On June
Orders Regarding McKool Smith Fees and Costs
II,
2010,
McKool
Smith,
acting on behalf
of
the
CenturyTel and the Kubbernus Defendants filed the Notice of Filing
of Redacted Fee Statements of McKool Smith P.C. seeking fees and
expenses for the period from March 8 through May 31, 2010, in the
amount of $571,111.67. 133
On June 29, 2010, McKool Smith filed Defendants' Motion for
Additional Sanctions seeking
an award of additional sanctions against Plaintiffs of
$75,000 for an appeal to the District Court, $75,000 for
an appeal to the Circuit Court, and $250,000 in the event
of an appeal to the United States Supreme Court. Also,
they ask for coercive sanctions of $350 per diem for each
day that the sanctions remain unpaid and the sanctions
order remains un-stayed,
with the right to seek
additional coercive measures in the future. 134
On
June
30,
2010,
the
Schermerhorn
Parties
submitted
Certification on Reasonableness of Fees, 135 and on July I,
a
2010,
133Docket Entry No. 87 in Adversary No. 10-03150, and Docket
Entry No.4-52 in Civil Action No. 4:11-cv-1524.
134Docket Entry No. 103 in Adversary No. 10-03150, and Docket
Entry No. 4-65 in Civil Action No. 11-cv-1524, pp. 1-2.
135Plaintiffs' Certification on Reasonableness of Fees, Docket
Entry No. 107 in Adversary No. 10-03150, and Docket Entry No. 4-204
in Civil Action No. 4:11-cv-1524.
-65-
they submitted an Amended Certification on Reasonableness of Fees;
both certifications asserted objections to the fees and expenses
submitted by McKool Smith for the period March 8,
2010,
through
May 30, 2010, as excessive and including entries for unnecessary
and duplicative
work
and
for
work
unrelated
to
the
violation
determined to warrant sanctions.136
On
July
23,
2010,
the
Schermerhorn
Parties
filed
their
Objection to Removing Defendants' Request for Additional Sanctions
and Memorandum on the Unreasonableness of Their Fee Request arguing
inter alia under guidelines set forth in Topalian v. Ehrman, 3 F.3d
931,
936
because
(5th Cir.
1993),
(1) the non-Wilson Vukelich Defendants failed to mitigate
their fees and costs;
the
that reduced sanctions were warranted
violation
and
(2) the fees sought are not wholly related to
are
not
reasonable;
and
(3)
the
sanctions
requested are not the least severe to achieve the purpose of the
rule under which they were imposed.137
136Plaintiffs' Amended Certification of Reasonableness of Fees,
Docket Entry No. 112 in Adversary No. 10-03150, and Docket Entry
No. 4-69 in Civil Action No. 4:11-cv-1524, p. 2 ~ 3.
The
certificate also stated that it was being submitted
wi thout prej udice to [the] Schermerhorn Parties' position
that they should not be sanctioned and counsel fees
should not be awarded in this matter, that counsel fees
should be reduced on legal and equitable grounds, and
that, in any event, the Century Client and Kubbernus
Client are not entitled to have their fees reimbursed.
rd. at 3
~
4.
137See Docket Entry No. 133 in Adversary No. 10-03150, and
Docket Entry Nos. 4-79 and 4-80 in Civil Action No. 4:11-cv-1524.
-66-
On July 30,
their
Response
2010,
to
the
the non-Wilson Vukelich defendants filed
Objection
to
the
Motion
for
Sanctions,
asserting inter alia that the Schermerhorn Parties were continuing
to
violate
the
Bankruptcy
Court's
orders,
and
that
the
fees
requested by the Non-Wilson Vukelich defendants are supported by
the factors set forth in Johnson v. Georgia Highway Express, 488
F.2d 714 (5th Cir. 1974) .138
On
August
2,
2010,
the
McKool
Smith
law
firm
filed
a
Supplemental Notice of Filing of Redacted Fee Statements of McKool,
Smi th P. C.,
July
1,
seeking additional
2010,
through
July
fees
31,
and expenses
2010,
in
incurred from
the
amount
of
$107,435.02. 139
On August 3, 2010, the Bankruptcy Court held a hearing, inter
alia, on the McKool Smith applications for sanctions in the form of
attorneys'
fees and expenses. 140
At the end of the hearing the
138See Defendants' Response to Plaintiffs'
Objection to
Defendants' Request for Additional Sanctions and Defendants' Motion
to Strike Pleadings [Relates to Docket #133], Docket Entry No. 136
in Adversary No. 10-03150, and Docket Entry Nos. 4-82 through 4-84
in Civil Action No. 4:11-cv-1524.
139Docket Entry No. 148 in Adversary No. 10-03150, and Docket
Entry No. 4-85 in Civil Action No. 4:11-cv-1524.
Because this
request was based on invoices for fees and expenses incurred during
July of 2010, which were clearly unrelated to the prosecution of
the original motion for sanctions, the Bankruptcy Court declined to
consider it.
See McKool Smith Memorandum Opinion, Docket Entry
No. 299 in Adversary No. 10-03150 and Docket Entry No. 4-133 in
Civil Action No. 4:11-cv-1524, p. 13 n.11.
14°Transcript of August 3, 2010, Hearing, Docket Entry No. 160
in Adversary No. 10-03150, and Docket Entry Nos. 4-222 through 4226 in Civil Action No. 4:11-cv-1524.
-67-
Bankruptcy Court took the McKool Smith fee and expense requests
under advisement.141
On March 31, 2011, the Bankruptcy Court entered a Memorandum
Opinion
and
corresponding
Order
sanctioning
the
Schermerhorn
Parties in the amount of $74,178.00 for fees and expenses billed by
McKool Smith.142
Since the Bankruptcy Court conducted a full-day hearing on the
McKool
Smith
request
for
fees
and
expenses,
the
Schermerhorn
Parties do not dispute that they received a hearing on the issue of
these fees.
Moreover, since the amount that the Bankruptcy Court
ordered them to pay McKool Smith, i.e., $74,178.00, was far less
than the amount that McKool Smith sought, i.e.,
$571,111.67, the
Schermerhorn Parties do not seriously contest the reasonableness of
the fees and expenses that they were ordered to pay McKool Smith.
Instead, asserting that the Bankruptcy Court "was seeking to deter
I4IId. at Docket Entry No. 4-226 in Civil Action No. 4:11-cv1524, p. 232:10.
142See Memorandum Opinion Regarding: (1) Notice of Filing of
Redacted Fee Statements submitted by McKool
Smith,
P.C.;
(2)
Plaintiff's
Certification/
Amended
Certification
on
Reasonableness of Fees Submitted by McKool Smith, P.C.; and
(3) Defendants' Motion for Additional Sanctions [Adv. Doc. Nos. 87,
107, 112 & 103], Docket Entry No. 299 in Adversary No. 10-03150,
and Order Relating to: (1) Notice of Filing of Redacted Fee
Statements submitted by McKool Smith, P.C.;
(2) Plaintiff's
Certification/ Amended Certification on Reasonableness of Fees
Submitted by McKool Smith, P.C.; and (3) Defendants' Motion for
Additional Sanctions [Adv. Doc. Nos. 87, 107, 112 & 103], Docket
Entry No. 300 in Adversary No. 10-03150; Docket Entry Nos. 4-133
and 4-134, respectively, in Civil Action No. 4:11-cv-1524.
-68-
parties
from
\ thumbing
Schermerhorn Parties
their
argue
that
noses'
the
at
its
orders, ,,143
Bankruptcy Court
the
erred by
sanctioning them
for much more than that - he held them responsible not
only for what related to what the Court held to be the
"sanctionable" actions, but for the ENTIRE amount of
attorneys' fees and expenses related to the "direct"
versus "derivative" issue as well.
Furthermore, the
Bankruptcy Court did not consider any mitigation of fees
and costs or whether the sanctions imposed were not the
least severe sanctions adequate to achieve the purpose of
what it was attempting to deter.144
These arguments have no merit.
In reaching the decision that the Schermerhorn Parties should
be
sanctioned
for
only a
fraction
of
the
amount
of
fees
and
expenses that McKool Smith sought, the Bankruptcy Court used the
applied the lodestar method to determine what reasonable attorneys'
fees
would be within the
context
of
this
case,
and expressly
analyzed the resulting amount pursuant to the factors set forth in
Johnson,
488
F. 2d 714.
See
In re Cahill,
428
F.3d at
539-40
(affirming bankruptcy court's application of the lodestar method in
determining
a
reasonable
fee
award
for
Chapter
13
debtors'
attorneys).
In pertinent part the Bankruptcy Court concluded that
the lodestar fee should be adjusted based on its
consideration of the final Johnson factor - namely, the
results obtained in the litigation.
In prosecuting the
Original Motion for Sanctions, the Non-Wilson Vukelich
143Brief of Appellants - The Schermerhorn Parties, Docket Entry
No. 16 in Civil Action No. 4:11-cv-1524, p. 49.
144rd.
-69-
Defendants sought dismissal of all of the causes of
action set forth in the Original Petition as derivative
claims that belong to the Reorganized Debtor and are
barred from being brought under the express terms of the
Plan and Confirmation Order.
[Finding of Fact No.9] .
In issuing its oral ruling on May 27, however, the Court
concluded that not all of the claims and relief sought in
the Original Petition are disallowed. The Court gave the
parties and their counsel approximately one month to
agree as to which claims are derivative with respect to
Skyport and which claims are direct, or not otherwise
enjoined by the Plan and Confirmation Order.
[May 27,
2010 Tr. 302: 1-306: 1].
At a hearing held on June 22,
2010, the parties conceded that they were unable to reach
an agreement. [Adv. Doc. No. 272, p. 3]. The Court then
issued a memorandum opinion and corresponding order
setting forth which causes of action were dismissed with
prej udice and which were remanded to state court for
further prosecution.
[Adv. Doc. Nos. 272 & 274] .
The Court ultimately concluded that only 51 out of
87 causes of action alleged in the Original Petition were
derivative claims, either in whole or in part.
[Adv.
Doc. Nos. 272 & 274].
Because the Non-Wilson Vukelich
Defendants achieved dismissal of 59% of the Plaintiffs'
causes of action, the court finds that McKool Smith is
only entitled to that same percentage of the fees
requested in the Fee Statements.
. Accordingly, the
Court reduces the lodestar fee from $249,230.00 to
$147,045.70 (i.e., $249.230.00 x 0.59).145
Then,
observing
that
many
of
the
billing
entries
in
the
Fee
Statements (i. e., 70.66%) "lumped" activities in such a manner that
the Court was unable to discern how much time was allocated to each
activity and the respective value rendered by the particular person
at
McKool
Smith performing
concluded that a
the
service,
the
Bankruptcy Court
further 50% reduction of the lodestar fee was
145McKool Smith Memorandum Opinion, Docket Entry No. 299 in
Adversary No. 10-03150, and Docket Entry No. 4-133 in Civil Action
No. 4:11-cv-1524, pp. 25-26.
-70-
appropriate.
Accordingly, the Court reduced the lodestar fee from
$147,045.70 to $73,522.85 (i.e., $147,045.70 x 0.50).
Finally, the Bankruptcy Court analyzed whether the expenses
requested were reasonable.
$1,774.67 in expenses,
Although the Fee Statements contained
the Court concluded that only $655.15 of
expenses were reasonable.
In sum, citing Chambers, III S. Ct. at
2123, and Topalian, 3 F.3d at 936, the Bankruptcy Court concluded
that McKool Smith was entitled to $73,522.85 in fees and $655.15 in
expenses for a total of $74,178.00. 146
The Court explained that
[a]lthough the [Schermerhorn Parties] did file the
Original Petition in direct contravention of the Plan and
Confirmation Order, thus warranting sanctions, the Court
does not believe that an award of $571,111.67 (i.e., the
amount of fees and expenses billed by McKool Smith in the
Fee Statements) is necessary given the nature and extent
of the Plaintiffs' bad faith conduct.147
The Bankruptcy Court denied McKool Smith's motion for additional
sanctions
after
determining
that
coercive
sanctions
were
not
warranted. 148
Because the Schermerhorn Parties have failed to cite to any
evidence or law capable of
supporting the
conclusion that
the
Bankruptcy Court abused its discretion by sanctioning them to pay
McKool Smith $74,178.00 in fees and expenses,
the McKool Smith
Memorandum Opinion and corresponding Order will both be affirmed.
146Id. at 30.
147Id. at 30-31.
148Id. at 31-33.
-71-
See Whitehead, 332 F.3d at 803 ("Generally, an abuse of discretion
only occurs where no reasonable person could take the view adopted
by the trial court. H).
(c)
Order for Additional Sanctions in
Actual Damages Suffered by SkyPort
the
Form
of
On June 30, 2010, the Reorganized Debtor filed its Motion for
Additional Sanctions, requesting:
and
(b)
[e]ffort
[s]pent
by
SkyPort
"(a) "[c]ompensation for [t]ime
[p]ersonnel:
$103,213 [,
and]
[p]unitive [d]amages: $233,300. H149
On October 15, 2010, the Bankruptcy Court conducted a hearing
on SkyPort' s motion for additional sanctions .150
components of damages:
costS.151
SkyPort sought two
employee and officer time and rebranding
The Bankruptcy Court issued an oral ruling at the close
of this hearing, and reduced that ruling to writing on November 9,
2010, by issuing its Order for Additional Sanctions, Docket Entry
No.
242,
awarding
SkyPort
additional
sanctions
against
Schermerhorn Parties in the aggregate amount of $8,584.65. 152
the
This
149See SkyPort Global Communications,
Inc.'s Motion for
Additional Sanctions, Docket Entry No. 104 in Adversary No. 1003150, and Docket Entry No. 4-66 in Civil Action No. 4:11-cv-1524,
p. 4 ~ 10.
150Transcript of October 15, 2010, Hearing, Docket Entry
No. 226 in Adversary No. 10-03150, and Docket Entry No.4-Ill,
p. 67:4 through No. 4-114 in Civil Action No. 4:11-cv-1524.
151See id., Docket Entry No. 4-111, Civil Action No. 4:11-cv1524, p. 67:12-14.
1520rder
Awarding
Additional
Sanctions
Against
Joanne
Schermerhorn et al., Docket Entry No. 242 in Adversary No. 10(continued ... )
-72-
order has been appealed by the Schermerhorn Parties and crossappealed by the SkyPort Parties.
(1)
At
the
Bankruptcy Court's Conclusion
conclusion
of
the
October
15,
2010,
hearing
the
BankruptGY Court explained the issues to be determined:
I make a legal conclusion that the Complaint filed in
Harris County which was removed to this Court 11 -- 10
out of 111 pages represented a direct attack on the
Confirmation Order.
Attorney's fees have been
awarded, so the question is, should I take any further
action? The Movants here want me to award the rebranding
costs and $97,275 for the time spent by Mr. Kubbernus,
Mr. Whitworth and Ms. Maus .153
The Bankruptcy Court declined to order the cost of rebranding as
sanctions because the SkyPort Parties failed to present enough
evidence
establish
either
that
to
substantiate
the
rebranding
their
costs
Schermerhorn's sanctionable conduct .154
rebranding
were
costs
caused
or
by
to
the
The Bankruptcy Court based
its order for additional sanctions on the amount of time that three
SkyPort employees spent responding to the State Court Petition
multiplied by the reasonable hourly rates for their services.
The
Bankruptcy Court declined to compensate SkyPort for all of the
152 ( ... continued)
03150, and Docket Entry No. 4-117 in Civil Action No. 4:11-cv-1524.
See al so Transcript, October 15, 2010, Hearing, Docket Entry
No. 226 in Adversary No. 10-03150, and Docket Entry No. 4-114 in
Civil Action No. 4:11-cv-1524, p. 214:9-13.
153Transcript of October 15, 2010, Hearing, Docket Entry
No. 226 in Adversary No. 10-03150, and Docket Entry No. 4-114 in
Civil Action No. 4:11-cv-1524, p. 212:1-3.
154Id. at 212: 4-16.
-73-
hours
requested
because
those
hours
represented
time
spent
responding to all the claims, not just the claims that the Court
found to have been a direct attack on the Confirmation Order and
Plan.
The Bankruptcy Court explained:
"What I am going to do is
say that 10 pages out of 111 pages was a full frontal attack on my
Confirmation Order and so 10 pages divided by 111 pages
percent and I'm going to take the
is
9
95,385 and multiply times
9
percent and I get a figure of 8,584.65. ,,155 The Court awarded that
amount
and
denied
all
other
relief
sought
in
the
motion
for
additional sanctions .156
(2)
The Scher.merhorn Parties' Appeal
The Schermerhorn Parties'
appeal of the Bankruptcy Court's
Order Awarding Additional Sanctions is based on their contention
that sanctions were not warranted because the State Court Petition
was not a frontal attack on the Confirmation Order and Plan, and
was not filed in bad faith.
For the reasons stated in
§§
IV.B.1-2,
above, the court has already rejected those arguments.
(3)
SkyPort's Cross-Appeal
SkyPort argues on cross-appeal that the Bankruptcy Court erred
when it
(1)
declined to award $233,000 in punitive damages,
and
155Id. at 214: 9-13.
156Id. at 5:20-22 and 216:4-5 ("All other relief will be denied
for this particular motion which is 104.").
-74-
(2) awarded only $8,584.65, instead of the $97,275 sought at the
hearing for employee time and effort spent responding to the State
Court Petition. 157
SkyPort argues that the Bankruptcy Court erred
by ordering sanctions of only $8,584.65
officer
time
because
the
calculate that amount,
Court
used
an
for
lost
employee and
arbitrary
formula
to
and because the record contained enough
evidence to substantiate SkyPort's request for rebranding costS.158
These arguments have no merit.
SkyPort argues that the Bankruptcy
Court's detailed subsequent memorandum opinion parsing the State
Court Petition -- claim by claim -- is a far better guide.
SkyPort
argues that using that approach the fee reduction should be 66
percent
instead
Court.159
of
the
91
percent
imposed
by
the
Bankruptcy
Since, as SkyPort acknowledges, the order for additional
sanctions was issued before the memorandum opinion in which the
Bankruptcy Court parsed the State Court Petition claim by claim,
the
Bankruptcy Court
did not
err by failing
to
use
the
more
detailed analysis of the State Court Petition that appeared in that
subsequently issued instrument.
157Brief of SkyPort Global Communications,
Inc.
(n/k/ a
TrustComm, Inc.), Appellee/Cross-Appellant, Docket Entry No. 25,
pp. 4-5. SkyPort (n/k/a TrustComm, Inc.) asserts that "due to the
severe impact of the Schermerhorn litigation on SkyPort, it was
compelled to change its name to TrustComm." Id. at 6 n.5.
158Brief of SkyPort Global Communications,
Inc.
(n/k/ a
TrustComm, Inc.), Appellee/Cross-Appellant, Docket Entry No. 25,
pp. 31-37.
159Id.
at 36.
-75-
Nor did the Bankruptcy Court err by concluding that SkyPort
failed to present enough evidence at the October 15, 2010, hearing
to substantiate its claim for punitive damages measured by the cost
SkyPort argues that its chief financial officer
of rebranding.
testified that typically
we would do this in-house
we just did not have the time.
we got into a bind when
[SkyPort's] officers testified, and the Court found,
that they spent 265 hours responding to the Schermerhorn
Parties'
litigation in violation of the discharge
injunction. . . The Bankruptcy Court could have inferred
that [] the reason [SkyPort] "got into a bind" and "did
not have the time" is because [SkyPort] was busy
responding to the bad faith litigation. 160
SkyPort's recognition that the Bankruptcy Court would have to have
inferred the existence of a link between the need for employees and
officers to respond to the State Court Petition and the lack of
time
to
accomplish
Bankruptcy Court's
rebranding
in-house,
conclusion that
the
substantiates
record did not
the
contain
evidence to establish that the rebranding costs were caused by the
Schermerhorn Parties' sanctionable conduct.
Because
neither
the
Schermerhorn
Parties
nor
the
SkyPort
Parties have pointed to evidence or legal authority showing that
the
Bankruptcy
Schermerhorn
Court
Parties
abused
to
pay
is
SkyPort
sanctions for lost employee time,
16°Id.
discretion
at 37.
-76-
by
$8,584.65
ordering
in
the
additional
the Order Awarding Additional
Sanctions
Against
Joanne
Schermerhorn,
et
al.,
Docket
Entry
No. 242, will be affirmed.
C.
Contempt Orders
The Schermerhorn Parties appeal
three motions
for contempt
Schermerhorn Parties argue
finding
that
they
attorneys'
filed by the SkyPort
that
violated
Injunction in bad faith,
seven orders arising from
the
the
Parties.
Bankruptcy Court
June
10,
2010,
by imposing sanctions
The
erred by
Preliminary
in the form of
fees and costs that were excessive, and by failing to
consider whether the attorneys'
fees and costs were mitigated or
were the least severe sanctions necessary to achieve their purpose.
The
SkyPort
Parties
argue
that
the
Bankruptcy Court
erred by
failing to award as sanctions the entire amount spent preparing and
prosecuting the motions for contempt.
1.
The SkyPort Parties' First Motion for Contempt
(a)
Additional Factual and Procedural Background
On September 24, 2010, the SkyPort Parties filed an instrument
titled:
Motion by SkyPort Global Communications, Inc. that Joanne
Schermerhorn, et al. and Their Counsel of Record Appear and Show
Cause Why They Should Not Be Held in Contempt of the June 10, 2010
Preliminary Inj unction
Docket Entry No.
("SkyPort' s
First Motion for Contempt"),
173 in Adversary No.
10-03150. 161
This motion
161See Docket Entry No. 4-96 in Civil Action No. 4:11-cv-1524.
-77-
argued that the Schermerhorn Parties violated the June 10, 2010,
Preliminary
Injunction
by
violating
the
prohibitions
against
pursuing any claims against the state court defendants, and against
unauthori zed contact with SkyPort' s "former or current vendors." 162
The motion asserted:
12.
In defiance of the
injunction
on
September 20, 2010, a caller identifying himself as
"Mathew Weldon" who works with "Sam Goldman" (i. e. ,
counsel for the Schermerhorn Group) contacted a vendor of
SkyPort, its accounting firm, Hein & Associates.
The
contact was in the form of a voice mail that indicated the
caller had questions about certain SkyPort financial
statements. The voice mail requested a return phone call.
13. According to Sam Goldman's law firm website, Mathew
Weldon is an attorney who works at the firm.
14.
The phone call violated the preliminary injunction's
prohibition against contact with former or current
SkyPort vendors.
15.
The phone call violated the preliminary injunction's
prohibition against "pursuing any and all claims or
causes of action, derivative or direct, against all of
the Defendants." 163
The SkyPort Parties sought relief in the form of an order holding
each
member
of
the
Schermerhorn
Group
in
contempt
of
the
Preliminary Injunction, attorneys' fees and costs incurred bringing
and prosecuting the motion for contempt, and punitive damages. 164
On September 27, 2010, the
~ankruptcy
Court issued an Order
Directing the Schermerhorn Group and Its Counsel to Appear and Show
162Id. at 4
~~
163Id. at 4-5
164Id. at 6
~~
10-11.
~~
12-15.
19-21.
-78-
Cause
Why
They
Should
Not
Be
Held
in
Contempt,
Docket
Entry
No. 177, setting a hearing for October 14, 2010. 165
On October
14
and
lS,
2010,
the
Bankruptcy
Court
held
hearing, inter alia, on SkyPort' s First Motion for Contempt .166
a
At
the conclusion of the hearing the Bankruptcy Court found that the
Schermerhorn Parties
through their
violated the June 10, 2010,
two of SkyPort's
Hein
&
and
at
Goldman's
office
Preliminary Injunction by contacting
former vendors,
Associates
counsel
Deloitte
i.e.,
the accounting firms
Touche .167
In
reaching
of
this
conclusion the Bankruptcy Court rejected the Schermerhorn Parties'
argument
that
the
word
"vendors"
does
not
include
accountants
because accountants are a learned profession in favor of the word's
plain meaning,
i. e.,
someone who sells goods or services .168
The
Bankruptcy Court also rejected their argument that any violation
165See Docket Entry No. 4-96 in Civil Action No.4: 11-cv-1S24.
166See Transcript of October 14-1S, 2010, Hearing, Docket Entry
Nos. 22S-226 in Adversary No. 10-031S0, and Docket Entry Nos. 4-107
through 4-111 in Civil Action No. 4:11-cv-1S24.
167Transcript of October 14, 2010, Hearing, Docket Entry
No. 22S in Adversary No.10-031S0, and Docket Entry No. 4-110 in
Civil Action No. 4:11-cv-1S24, 30:12-14 ("I make a legal conclusion
that the Plaintiffs through their Counsel at Mr. Goldman's office
contacted former vendors, these two accounting firms.") i 32:10-12
("And I therefore make a legal conclusion that my preliminary
injunction has been violated by direct contact with former vendors
of SkyPort.") .
168Id. at 31: 17-18 ("A vendor is someone who sells goods or
services in my judgment.
That's the plain meaning.") i 32:7-9
("[M]y view of the word vendor is
. . 'anyone who provides goods
or services,' and so that's the plain meaning I apply to this
order.") .
-79-
was inadvertent or,
diligence
needed
to
alternatively,
support
their
a necessary component of due
attempt
to
initiate
a
adversary proceeding:
My Preliminary Injunction said, sit tight, don't
pursue any further claims or causes of action until
further Order of this Court and yet that was done,
perhaps because the Plaintiffs are antsy that I haven't
issued my Order as to what's deri vati ve and what's
direct. Nevertheless, that's not an excuse for violating
the Injunction.
I also looked at the transcript and I made it very
clear I was unhappy with the arguments that were made to
me that you didn't mean -- Plaintiffs didn't mean to seek
a Trustee over reorganized SkyPort.
That was clearly
requested in the pleading filed in Harris County District
Court.
There is no question that's how that pleading reads
and it's on page 81.
And, the argument I heard really was we didn't mean
to do that, and I've made it clear I thought it was [a]
disingenuous pleading, if not a dishonest pleading for
among other reasons that it also said that the Plaintiffs
were holders in shares of SkyCom and that couldn't be true
because SkyCom was collapsed into SkyPort and the shares
were eliminated as part of the confirmation of a Plan.
So, there's already a history in this Court of
Plaintiff's Counsel saying, "Gee, I really didn't mean
it," and that's, in effect, what I heard from Mr. Goldman
yesterday is "I really didn't mean to violate the Order."
And, it's hard for me to sit here and listen to that
when I've already, I thought, expressed my displeasure
wi th such conduct back when I made my rul ing in May.
This is not just simple mistakes. That pleading that was
filed in Harris County was carefully drafted insofar as
you don't draft a pleading for 100 some-odd pages, that
specifically, without meaning what you're saying and
saying what
you're meaning,
and you don't
call
accountants without intending to pursue a claim in doing
your due diligence.
-80-
new
And to say, in effect, now I seek the Court's
forgiveness when what should have been done was to have
sought this Court's permission to contact or to contact
vendors if you thought they were
or to contact
accountants if you thought they weren't vendors, you
should have sought this Court's permission because you
knew you were doing it in order to achieve the objective
of convincing me to allow you to file suit for fraud on
the Court.
I am unhappy with
misconduct of Counsel. 169
The
Bankruptcy
Court
what
granted
I
the
see
is
motion
continuing
for
contempt, 170
holding the Schermerhorn Parties in contempt of the June 10, 2010,
Preliminary
Injunction
for
violating
contacting SkyPort's accountants,
the
prohibition
against
and holding their attorneys -
Samuel Goldman and Eric Fryar -- jointly and severally liable to
SkyPort for attorneys' fees and costs incurred in the preparation
and prosecution of the motion for contempt, and the time spent by
SkyPort employee Douglas Whitworth in responding to the contempt .171
The rulings made at the conclusion of the October 14-15, 2010,
hearing were reduced to writing on November 9, 2010, in the First
Contempt
Order,
Docket
Entry
No.
243. 172
The
order
directed
SkyPort's counsel to present invoices reflecting its attorneys'
169Id. at 44:10-46:8.
17°Transcript of October IS, 2010, Hearing, Docket Entry
No. 226 in Adversary No. 10-03150, and Docket Entry No.4-Ill in
Civil Action No. 4:11-cv-1524, p. 56:23.
171Id. at 56:23-57:17; 60:20-61:4, 64:4-20; 65:7-19.
172Docket Entry No. 4-118 in Civil Action No. 4:11-cv-1524.
-81-
fees and costs to the Schermerhorn Parties' counsel by October 22,
2010. 173
On October 29, 2010, the Objection of the Schermerhorn Parties
to
the Attorneys'
Fee Request
[Relates to Doc. No.
Entry No. 229. 174
of
SkyPort Global
Communications
173 and 174], was filed and assigned Docket
On November 23, 2010, the Bankruptcy Court held
a hearing on the Schermerhorn Parties' objections to the SkyPort
Parties' invoices .175
against
the
sums
The Bankruptcy Court heard testimony for and
sought
in
SkyPort's
invoices,
and
after
meticulously considering all the contested entries the Court held
Goldman
and Fryar
jointly and
severally liable
to
pay SkyPort
sanctions of $10,200.00 for attorneys' fees and $3,125.00 for costs
incurred preparing and prosecuting
the
contempt
motion. 176
The
Bankruptcy Court's findings and conclusions were reduced to writing
on December 7, 2010, in the Order Disposing of Docket Items 227 and
229, filed December 7, 2010, Docket Entry No. 261.177
173Id. at 2.
174Docket Entry No. 4-272 in Civil Action No. 4:11-cv-1524.
175Docket Entry No. 345 in Adversary No. 10-03150, and Docket
Entry No. 4-315 in Civil Action No. 4:11-cv-1524.
176Id. at 41: 7-18.
177Docket Entry No. 4-120 in Civil Action No. 4:11-cv-1524.
Docket Entry No. 227 referenced in the title was a proposed
contempt order. The First Contempt Order, when signed and filed on
November 9, 2010, by the Bankruptcy Court, was Docket Entry No. 243
in Adversary No. 10-03150, and Docket Entry No. 4-118 in Civil
Action No. 4:11-cv-1524.
-82-
(b)
The Schermerhorn Parties' Appeal
The Schermerhorn Parties appeal both the First Contempt Order,
Docket Entry No. 243, and the Disposal Order, Docket Entry No. 261.
The Schermerhorn Parties do not dispute that they were aware
of
the
June
10,
2010,
Preliminary
Injunction, 178
and
that
an
associate at Goldman's law firm attempted to contact SkyPort' s
former accountants and left a voicemail with one of them asking for
a return phone call. 179
Instead,
the Schermerhorn Parties argue
that the Bankruptcy Court erred by holding them in contempt for
having contacted SkyPort's accountants in bad faith because
178Transcript of October 14, 2010, Hearing, Docket Entry
No. 225 in Adversary No. 10-03150, and Docket Entry No. 4-108 in
Civil Action No. 4:11-cv-1524, pp. 52:10-56:8 (Goldman testifying
that he was aware of the Preliminary Injunction and its content).
179Transcript of October 14, 2010, Hearing, Docket Entry
No. 225 in Adversary No. 10-03150, and Docket Entry No. 4-107 in
Civil Action No. 4:11-cv-1524, pp. 26:23-27:19 (Counsel for the
Schermerhorn Parties acknowledged: "And with respect to the
contempt.
The only -- the issue that was brought forward was a
single phone message that was left by Matt Weldon with an
accounting firm.
The accounting firm was the account[ant]s for
Skycom in 2006.
The purpose of the telephone call which is
undisputed was to fact check a fact that was relevant to a motion
that was being -- that was then thereafter filed with this Court.
We believe that, you know, that we were acting properly in term -in our Rule 11 obligation to do a reasonable investigation of the
facts before we represent them to the Court. There is no pretense
that there was any harm, potential or otherwise, to the reorganized
Debtor and the evidence will show that the only way that this would
be a violation of the Order is if the Court holds that the Skycom
auditors from 2006 are former vendors of SkyPort, a different
company.
And, frankly, Mr. Weldon and Mr. Goldman -- it never
occurred to them that an auditor, a member of a learned profession
is a vendor and we have submitted a summary judgment motion. There
are cases that distinguish between vendors and members of learned
professions.") .
-83-
[i]n light of the purpose of the June 10 Preliminary
Injunction to protect SkyPort's business relationships,
there was no concern that [Hein & Associates] might cut
off the sale of products or services to SkyPort. Indeed,
[Hein & Associates] immediately notified Kubbernus of the
voicemail so it could not have negatively impacted
[Hein & Associates'] relationship with SkyPort.
. As
testified to at the October 2010 Hearing, there was no
conscious wrongdoing through some "ul terior motive" - the
only motive was to conduct due diligence on a factual
allegation the Schermerhorn Parties intended to allege in
a "fraud on the court" complaint - one [the Schermerhorn
Parties] believed would relieve the Court's ire against
them for going to the State Court with their allegations
of fraud. 180
The Schermerhorn Parties' argument that the Bankruptcy Court erred
by finding that they had violated the June 10, 2010,
Preliminary
Injunction in bad faith has no merit.
The Schermerhorn Parties do not dispute that the Preliminary
Injunction
vendors,
prohibited
or
accountants. 181
that
them
from
Goldman's
contacting
associate
all
of
contacted
SkyPort's
SkyPort's
Instead, they argue that the Preliminary Inj unction
was not violated -- or was not violated in bad faith -- because
under Texas case law accountants are not vendors but members of a
learned profession, and because the contact was made in an effort
to conduct due diligence for filing a motion to initiate a new
adversary proceeding for fraud on the court.
At the October 14,
18°Brief of Appellants - The Schermerhorn Parties, Docket Entry
No. 16 in Civil Action No. 4:11-cv-1524, p. 51.
181Transcript, October 14, 2010, Hearing, Docket Entry No. 4109 in Civil Action No. 4:11-cv-1524, p. 104:7-9 (Counsel for the
Schermerhorn Parties states:"
there really are not any
factual issues. We made the telephone call and we filed a motion,
okay. ") .
-84-
2010,
hearing,
the Schermerhorn Parties cited Cashway Building
Materials, Inc. v. McCurdy, 553 S.W.2d 787, 789-90 (Tex. Civ. App.El Paso 1977, writ ref'd n.r.e.), in support of their argument that
an accountant is a learned professional, not a vendor:
Now, Mr. Goldman testified that in his mind, a
vendor is not -- a learned professional is not a vendor.
We cited to you the Cashway case, analyzing Texas law,
which
is
553
S.W.2d,
787
in our
brief,
which
incidentally, Ms. Catmull's got it wrong.
We're not
saying that a vendor is not a seller of services, and
that case specifically holds that vendors can be both
sellers of services and sellers of goods, but it does
cite
the
Texas
law
that
distinguishes
learned
professions.
The actual practice in Bankruptcy Court is that
professions are treated differently in terms of their
compensation than critical vendors.
The list in the
exhibit that the Court took judicial notice, that lists
all the professionals, not vendors, includes lawyers.
Okay, so if the Court could not possibly hold that
Hein and Associates were "vendors, wi thin the meaning of
the Order, without also holding that Hoover Slovacek is
a vendor within the meaning of the Order.
II
And there was just, you know, we are not on notice
that we're not allowed to make reasonable inquiries to
learned professionals. 182
Cashway,
553
S.W.2d
at
789-90,
does
not
support
the
Schermerhorn Parties' argument that they reasonably believed the
Preliminary
Injunction
did
not
prohibit
them
from
contacting
SkyPort's accountants because accountants are members of a learned
profession and as such cannot be vendors.
Cashway held a contest
and awarded prizes to persons whose names were drawn.
182Id. at 104: 15-105: 10.
-85-
Appellee's
name was
drawn.
Cashway refused
to
award Appellee
the prize
because he was a security guard at their store, and a rule of the
contest provided that no employees, their relatives, or vendors of
Cashway could register or be eligible to win a prize.
The issue in
Cashway was whether "'vendor' includes one who sells the services
of others under rules of a prize contest which excluded employees
and vendors of the sponsor."
Id. at 788.
The Court explained that
[w]hile the rules of the contest required Appellee to
establish that he was neither an employee nor a vendor,
the trial Court required only proof that he was not an
employee.
The Court apparently construed "vendor" as
limited to one who sells goods or property.
We are of
the opinion that the word "vendor" standing alone, as it
is here, could include a vendor of services as well as a
vendor of goods.
Id. at 789.
The distinction between vendors and members of learned
professions on which the Schermerhorn Parties rely is merely the
Court's observation that
"the Uniform Commercial
Code,
Article
5069-6.01, Tex. Rev. Civ. Stat. Ann., defines 'seller' as 'a person
regularly and principally engaged in the business of selling goods
or services to retail buyers, but does not include the services of
a member of a learned profession.'"
Id. at 790.
The Bankruptcy
Court did not err in rejecting the Schermerhorn Parties' definition
of "vendor" in favor of the term's plain meaning for purposes of
interpreting
and
enforcing
the
June
10,
2010,
Preliminary
Injunction.
The Schermerhorn Parties also attempted to justify contacting
SkyPort's accountants by asserting that Weldon contacted Rein &
-86-
Associates as due diligence for filing a motion with the Bankruptcy
Court:
THE COURT:
Mr. Goldman, I think I heard you testify
before the break that the reason you made the phone call
or that your associate made the phone call to the Hein
Group and to Deloitte is because you were doing due
diligence; am I right? Did I
THE WITNESS:
It was -- as I understand it, there is a
Rule 11 obligation to verify facts beforehand before you
file any paper with the Court and there were a whole
array of facts in the documents that we were filing the
request.
And one of - - and those documents included
specific information from these audited reports and said,
"These were audited reports" and were just trying to
verify one or two bits of information from the report.
THE COURT: And what was the due diligence? I mean, what
lawsuit were you doing your -- what perspective lawsuit
were you doing your due diligence on?
THE WITNESS:
THE COURT:
I can answer that question, Your Honor.
Please.
THE WITNESS: Your Honor, in this particular proceeding,
the proceeding in this Court, there were statements made
that CenturyTel had a $2.7 million secured claim and
Balaton had a $1.8 million unsecured claim. I looked at
these financial statements, which I did not receive until
well after the confirmation of the Plan, and I saw that
the financial statements said exactly the opposite.
MS. CATMULL:
Obj ection, Your Honor.
Move to strike
after everything, "There were statements made" - - the
question is just: What lawsuit was he filing?
THE COURT:
Okay.
I'll sustain the objection.
Mr. Goldman, again, all I want to know is: You've
testified you were doing due diligence and all I want to
know is what lawsuit were you doing due diligence on?
THE WITNESS:
On the request to this Court -- on the
request to this Court to be -- for permission to file a
fraud on the Court adversary, which we spent months
analyzing and making sure we were doing the right thing
on. And we're trying to dot every "i" and cross every
"t" to make sure that if we were going to, you know, make
-87-
"t" to make sure that if we were going to, you know, make
serious - - you know, make a request for that kind of
relief that, you know, we have verified everything.
THE COURT: Okay. Now, I'm looking at the Order that I
signed, which is Exhibit 17, I signed on June 10 and it
says:
"The Plaintiffs are temporarily enjoined from
pursuing any and all claims or causes of
action, derivative or direct against all of
the Defendants."
By doing due diligence to pursue claims against the
Defendants, weren't you breaching this Order?
THE WITNESS: Your Honor, as I understood it, the Order
says, "Subject to further Order of the Court" and all we
were doing, Your Honor, was asking for a further Order of
the Court.
I don't believe that doing due diligence is
pursuing the claim. Pursuing the claim is something that
we ask the Court for permission to do and I don't believe
we violate the Court's injunction by asking for
permission where we think we make a very compelling
case. 183
The
Bankruptcy Court
did not
err by
rejecting
this
attempted
justification as additional proof that the Schermerhorn Parties had
violated the Preliminary Injunction by continuing to pursue claims
against the state court defendants, and as a demonstration of bad
faith. 184
Nor did the Bankruptcy Court err by concluding his ruling
on
issue
this
by
stating:
"I
am unhappy with
what
I
see
is
continuing misconduct of Counsel. ,,185
183Transcript, October 14, 2010, Hearing, Docket Entry No. 4108 in Civil Action No. 4:11-cv-1524, pp. 86:3-88:11.
184Transcript, October 14, 2010, Hearing, Docket Entry No. 4110 in Civil Action No. 4:11-cv-1524, pp. 42:5-46:6.
185Id. at 46:7-8.
-88-
(c)
The SkyPort Parties' Cross-Appeal
The SkyPort Parties cross-appeal the Order Disposing of Docket
Items 227 and 229, Docket Entry No. 261.
The SkyPort Parties argue
that the Bankruptcy Court erred by determining that privilege-based
redactions from counsels' invoices justified reducing the award of
attorneys'
fees
by $1,518.75,186 and erred by
imposing a
fifty
percent reduction on the remaining fee request after expressing
concern about lack of specificity in the time records .187
Asserting
that "if the purpose of civil contempt awards is to compensate for
the losses incurred to the other party, then $21,830.25 should have
been awarded because the Bankruptcy Court found that that was the
actual amount th[at SkyPort] incurred vindicating the preliminary
inj unct ion.
District,
argue that
1/188
Citing
Jennings
v.
Joshua
Independent
School
948 F.2d 194, 199 (5th Cir. 1991), the SkyPort Parties
"[h] alving an award of all attorneys'
fees
incurred
. . . does not indicate an exercise of discretion to find the point
of least severe sanctions. 1/189
The Bankruptcy Court did not abuse its discretion by imposing
on Goldman and Fryar sanctions in an amount that was less than the
186Brief of SkyPort Global Communications,
Inc.
(n/k/ a
TrustComm, Inc.), Appellee/Cross-Appellant, Docket Entry No. 25 in
Civil Action No. 4:11-cv-1524, pp. 46-47.
187Id. at 38 (citing excerpts from November 23, 2010, hearing,
Docket Entry No. 345 in Adversary No. 10-03150, and Docket Entry
No. 4-345 in Civil Action No. 4:11-cv-1524, pp. 40:17-18, 23-25j
and 4 1 : 1 - 8) .
188Id. at 46.
-89-
full amount of fees and costs that the SkyPort Parties said they
incurred preparing and prosecuting the motion for contempt.
purpose
of
sanctions
is
to
deter
future
bad
conduct,
The
not
to
accomplish fee-shifting in favor of a prevailing party.
Although
the
was
SkyPort
Parties
argue
that
the
amount
awarded
not
sufficient to deter future bad conduct because it was less than the
amounts
that
the
Bankruptcy
Court
had
previously
ordered
the
Schermerhorn Parties to pay as sanctions, 190 the previous sanctions
were imposed on the Schermerhorn Parties not, as here, on two of
their attorneys.
The SkyPort Parties have not presented evidence
or argument that the amount imposed on Goldman and Fryar would not
deter them from engaging in future bad conduct.
As the Bankruptcy
Court noted, portions of the fee application was problematic.
Many
of the time entries had been redacted, which made it difficult if
not impossible for Goldman and Fryar to know if the entries were
related
to
their
misconduct.
Other
entries
appeared
to
be
duplicative or not sufficiently specific for the Court to determine
whether they were necessary.
These circumstances differ from those
at issue in Jennings where the Court reduced the fees by fifty
percent without finding comparable problems in the time records.
Moreover, the Jennings court acknowledged that full compensation is
not a rigid requirement when fees are awarded as a sanction.
at 199.
rd.
The Bankruptcy Court did not abuse its discretion by
190rd. at 45.
-90-
ordering
Goldman
and
Fryar
to
pay
sanctions
in
the
form
of
attorneys' fees and costs that were less than the full amounts the
SkyPort Parties sought.
Accordingly, the Order Holding Joanne Schermerhorn et al. In
Contempt of the June 10, 2010 Preliminary Injunction, Docket Entry
No.
243,
and the Order Disposing of Docket
Items 227 and 229,
Docket Entry No. 261, will both be affirmed.
2.
The SkyPort Parties' Second Motion for Contempt
(a)
Additional Factual and Procedural Background
On September 29, 2010, the SkyPort Parties filed an instrument
titled: Supplemental Motion by SkyPort Global Communications, Inc.
That Joanne Schermerhorn,
et al. Appear and Show Cause Why They
Should Not Be Held in Contempt of the June 10,
2010 Preliminary
Injunction ("SkyPort's Second Motion for Contempt"), Docket Entry
No.
184. 191
This
motion argued
that
the
Schermerhorn
Parties
violated the June 10, 2010, Preliminary Injunction by continuing to
pursue
claims against
the
state court defendants.
The motion
asserted:
10. On September 27, 2010, . . . [r]ather than wait for
the Court's ruling as to which causes of action are
direct and which are derivative, the Schermerhorn Group
repackaged and refiled all the same claims and called it
"Plaintiffs' Request to Proceed with Adversary Proceeding
for Fraud on the Court" (hereinafter referred to as the
"RTPWA").
Attached to the RTPWA is a proposed 40 page
complaint and another 111 pages of attached exhibits
(some of which are misleadingly excerpted) .
1915ee Docket Entry No. 4 -100 in Civil Action No.4: 11-cv-1124.
-91-
In other words, incredibly, the Schermerhorn Group,
is blatantly violating th[e] preliminary injunction by
continuing to pursue claims.
11.
. the Schermerhorn Group's actions violate the
14.
spirit of the injunction, which was put in place to
(i)
protect
Skyport' s
business
relationships
and
prospects, (ii) protect the integrity of the bankruptcy
process, and (iii) stop a collateral attack on a final
confirmation order of this Court by parties who had been
afforded due process but who chose to "lay behind the
log" during the bankruptcy case.
Worse, the Schermerhorn Group's actions violated the
letter of the temporary injunction, which states:
15.
Therefore, it is ORDERED that until further
Order of this Court, temporary injunction is
granted; it is further ORDERED that Plaintiffs
are temporarily enjoined from: (i) pursuing
any and all claims or causes of action,
derivative or direct, against all of the
Defendants, and (ii) contacting any customers,
vendors,
current
employees
or
former
employees; it is further ORDERED that the
Plaintiffs shall strictly comply with all
terms and conditions of the Order Confirming
Plan referred to above as well as the plan and
modification
attached
thereto.
[Emphasis
added. ]
First, deliberately serving discovery designed to
investigate facts in support of the RPTWA is "pursuing"
claims, contrary to the injunction.
16.
17.
Second, deliberately filing the RPTWA, with its 151
pages of scandalous allegations that must now be dealt
wi th, is "pursuing" claims, contrary to the inj unction. 192
The SkyPort Parties sought relief in the form of an order holding
each
member
Preliminary
of
the
Schermerhorn
Injunction,
192Id. at 5-8
~~
assessing
10-17.
-92-
Group
in
attorneys'
contempt
fees
and
of
the
costs
incurred by the SkyPort Parties in bringing and prosecuting the
motion for
contempt,
puni ti ve damages against
the Schermerhorn
Group, an order striking the September 7, 2010, filing (including
the attachments thereto)
from the record,
and a bar on further
filings .193
On November 29, 2010, the Bankruptcy Court held a hearing on
SkyPort's Second Motion for Contempt .194
At the conclusion of the
hearing the Bankruptcy Court found that the Schermerhorn Parties
had violated the June 10, 2010, Preliminary Injunction by filing
the
RPTWA
Number
9,
on
September
Document
27,
2010,195
and
Production Request,
by
"filing
which
is
set
Category
forth
in
today's Exhibit 10, the Plaintiff's Notice of Deposition of SkyPort
Global Communications,
Inc.
/1196
In reaching this conclusion the
Bankruptcy Court rejected the Schermerhorn Parties' argument that
193Id. at 9-10
~~
20-27.
1945ee Transcript of November 29, 2010, Hearing on SkyPort' s
Second Motion for Contempt, Docket Entry No. 338 in Adversary
No. 10-03150, and Docket Entry Nos. 4-313 through 4-314 in Civil
Action No. 4:11-cv-1524.
195Id.
Docket Entry No. 4-314 in Civil Action No. 4:11-cv1524, p. 63: 3 -11 ("So, I make a legal conclusion that what was
filed on September 27 was a violation of my June 10 preliminary
injunction because it was pursuing a claim, regardless of whether
it's derivative or direct, against some of the Defendants [named in
the removed action]/I) i p. 64:10-16 ("So, I make a legal conclusion
that the filing of that pleading, which was on September 27 -- let
me make sure I get the Docket number right.
It's Docket Number
176, with 12 exhibits attached, constitutes a -- pursuing a claim
and Cause of Action against some of the Defendants and, therefore,
is a violation of my June 10, 2010, Preliminary Injunction./I)
196Id. at 66:16-19.
See also id. at 65:2-23.
-93-
making a request to pursue a claim was not pursuing a claim, and
that any violation was inadvertent. 197
The Bankruptcy Court granted the motion for contempt, holding
the
Schermerhorn
Preliminary
Parties
Injunction
in
for
contempt
violating
of
the
the
June
10,
prohibition
2010,
against
pursuing claims, and holding them liable to Skyport for attorneys'
fees
and costs
incurred in the preparation and prosecution of
SkyPort's Second Motion for Contempt. 19B
conclusion of
the November
writing on December 16, 2010,
29,
2010,
The rulings made at the
hearing
were
reduced
to
in the Second Order Holding Joanne
Schermerhorn et al. in Contempt of the June 10, 2010 Preliminary
Injunction [Docket No. 184], Docket Entry No. 267. 199
197Id. at 63:7-11 (" . . . the argument of well, but we weren't
pursuing a claim.
We were seeking this Court's permission to
pursue the claim, I don't accept that argument because by attaching
that document with allegations of fraud, you are pursuing a
claim.") i 64:24-65:1 ("by filing this request, labeling it a
request, and attaching the pleading is really doing [an] end run
around my injunction") .
19BId. at 66: 4 -14 ("So for the same reasons that I had issued
and cited case law in the past about -- I mean, clearly the Fifth
Circuit has said I have the right to impose sanctions, and in this
case, it's remedial contempt sanctions. That is remedial contempt
damages because they'll be in the form of attorney's fees incurred
by SkyPort for having to fend off -- having to take actions to deal
with the request that was filed on September 27, 2010, to file the
new suit, and for dealing with Category 9. So, I am going to award
attorney's fees and my remedial contempt damages here.").
199Docket Entry No. 4-121 in Civil Action No. 4:11-cv-1524.
Because Goldman agreed to pay $9,663.53 in attorneys' fees, neither
the amount nor the payment of these fees has been in dispute. See
Notice of Receipt of Check for $9,663.53 from Sam Goldman, Docket
Entry No. 268 in Adversary No. 10-03150, and Docket Entry No. 4-294
in Civil Action No. 4:11-cv-1524, signed by Hoover Slovacek and
dated December 16, 2010.
-94-
(b)
The Schermerhorn Parties' Appeal
Asserting that they reasonably relied on "several cases by the
United States Supreme Court and the Fifth Circuit to establish that
they had a reasonable basis for believing that the 'fraud on the
court'
complaint was strongly supported by existing law," 200 the
Schermerhorn Parties
argue
that
the
Bankruptcy Court
erred by
holding them in contempt for filing a request to file a "fraud on
the Court" complaint. 201
The Schermerhorn Parties argue
the actions prohibited by the June 10 Preliminary
Injunction were to stay in effect "until further order
of" the Bankruptcy Court. . . . Therefore, in conj unction
with the Bankruptcy Court's previous findings at the
May 27, 2010 Hearing that the improprieties during the
Bankruptcy Case by Kubbernus, et al. should have been
brought before the Bankruptcy Court by the Schermerhorn
Parties, the Schermerhorn Parties sought "further order"
and filed their Request.
Despite doing what the
Bankruptcy Court said it should have done, SkyPort - once
again taking advantage of the situation - filed its
Supplemental Motion for Contempt alleging that the
Request
violated
the
June
10
Preliminary
Injunction . . . . The Schermerhorn Parties were surprised
when the Bankruptcy Court held that their mere request to
file a "fraud on the court" complaint was in violation of
the June 10 Preliminary Injunction and sanctioned counsel
for the Schermerhorn Parties and then struck the pleading
from the record. 202
The Schermerhorn Parties' argument that the Bankruptcy Court
erred by finding them in contempt of the June 10, 2010, Preliminary
Injunction has no merit.
As the Bankruptcy Court explained at the
November 29, 2010, hearing:
200Brief of Appellants - The Schermerhorn Parties, Docket Entry
No. 16 in Civil Action No. 4:11-cv-1524, p. 53.
201Id. at 52.
-95-
[M]y temporary injunction of June 10 was meant to say,
"Sit down and shut up, Plaintiffs, until I figure out
what's derivative and what's direct."
And I don't know how I could have been any clearer
in my June lOth ruling is that until further order of
this Court, the Temporary Injunction is granted.
I can
assure you, you know, spending the amount of time I have
on derivative and direct has
has certainly been
educational, and it's my job, but you know, that was an
absolute freeze order, and by filing the request on
September 27, to which is attached this lengthy, lengthy,
lengthy,
proposed
lawsuit
which
contains
serious
allegations about fraud, was a violation and I so find of
my Order of June 10, 2010, because it says:
"The Plaintiffs are temporarily enjoined from
pursuing any and all claims or causes of
action, derivative or direct, against all of
the Defendants."
And clearly that proposed
Request filed on September 27,
claims against the Defendants,
Defendants, that were named in
was removed to this Court and
adversary proceeding. 203
Complaint attached to the
2010, was aimed at making
or at least some of the
the State Court suit that
which is now the pending
Accordingly, the Second Order Holding Joanne Schermerhorn et al. in
Contempt
of
the
June
10,
2010
Preliminary
Injunction
[Docket
No. 184], Docket Entry No. 267, will be affirmed.
3.
The SkyPort Parties' Third Motion for Contempt
(a)
Additional Factual and Procedural Background
On July 13,
titled:
2011,
the SkyPort Parties filed an instrument
Motion by SkyPort Global Communications,
Inc.
(1)
That
Joanne Schermerhorn, et al, Sam Goldman, and Franklin Craig Show
Cause Why They Should Not Be Held in Contempt of the June 10, 2010,
203Transcript of November 29, 2010, Hearing, Docket Entry
No. 338 in Adversary No. 10-03150, and Docket Entry No. 4-314 in
Civil Action No. 4:11-cv-1524, pp. 62:5-63:2.
-96-
Preliminary Injunction, and (2) That Sam Goldman, Franklin Craig,
an Officer of Sequoia Aggressive Growth Fund, Ltd., an Officer of
Sequoia Diversified Growth Fund, Ltd., an Officer of Rig Fund III,
Ltd., an Officer of Aran Asset Management SA,
and an Officer of
Semper Gestion SA Appear in Person Before This Court on August 5,
2011 at 9:00 A.M.
Entry No.
("SkyPort's Third Motion for Contempt"), Docket
359 in Adversary No.
10-03150. 204
This motion alleged
numerous violations of the June 10, 2010, Preliminary Injunction,
and
sought
sanctions
against:
(1)
the
Schermerhorn
Parties,
Franklin Craig, and Samuel Goldman for unauthorized contact with
Dawn Cole, SkyPort's former president;
falsely
at
communicated
the
October
with
14,
Cole
2010,
since
June
(2) Goldman for testifying
hearing
10,
Schermerhorn Parties and their attorneys
that
2010;
he
had
(3)
and
not
the
Goldman and Fryar
for failing to file an amended petition in state court allegedly in
violation of the remand order. 205
The SkyPort Parties sought relief
in the form of an order holding each member of the Schermerhorn
Group,
Franklin
Craig,
and
Sam
Goldman
in
contempt
of
the
Preliminary Injunction; an order separately sanctioning Goldman for
his October 14, 2010, testimony; attorneys' fees and costs incurred
bringing
and prosecuting
SkyPort' s
Third Motion
for
Contempt,
responding to the State Court Petition and discovery, responding to
the motion to dissolve,
and prosecuting a permanent injunction;
204Docket Entry No. 2-114 in Civil Action No. 4:13-cv-3041.
205Id. at 3-4 "
6-9.
-97-
punitive damages; and an order directing the Schermerhorn Parties
to post a bond. 206
On March 8,
2012,
the Bankruptcy Court began a hearing on,
inter alia, the SkyPort Parties' Third Motion for Contempt, which
continued on March 9, April 18 and 20, May 1 and 2, June 5 and 6,
August 28, 29, and 30, November 27, 28, 29, and 30, 2012, and on
January 25
and February 7,
206rd. at 10-11
~~
2013. 207
At
the
conclusion of
the
26-32.
207See Entries for these dates on Docket Sheet for Adversary
No. 10-03150, Docket Entry No. 2-6 in Civil Action No. 4:13-cv3041. See also the following table reflecting the excerpts from
these hearing dates included in the Record on Appeal in Civil
Action No. 4:13-cv-3041:
Docket Entry No. in Civil
Action No. 4:13-cv-3041
Hearing Date
Docket Entry No. in
Adversary No. 10-03150
March 8, 2012
575
2-206
March 9, 2012
579
2-207
April 18, 2012
600
2-209
April 20, 2012
601
2-210
May 1, 2012
607
2-211
May 2, 2012
608
2 -212
June 5, 2012
613
2-213
June 6, 2012
614
2-214
August 28, 2012
626
2-215
August 29, 2012
627
2-216
August 30, 2012
628
2-217
November 27, 2012
641
2-220
November 28, 2012
642
2-221
November 29, 2012
643
2-222
November 30, 2012
647
2-224
January 25, 2013
664-665
2-234 - 2-235
February 7, 2013
673
2-237
-98-
February 7,
2013,
hearing,
the Bankruptcy Court took the issues
raised under advisement. 20B
On August 7,
2013,
the Bankruptcy Court entered a 187-page
Memorandum Opinion Regarding Adversary Docket Numbers 317;
360;
419;
460
and 461
("Memorandum Opinion on Contempt"),
359;
and
corresponding Order Regarding Adversary Docket Numbers 317; 359;
360;
419;
460
and
461
("Third Order
of
Contempt") ,209
finding
Goldman and Craig to be in contempt of court and awarding sanctions
in the form of attorneys' fees and costs against them. 210
On August 15, 2013, the Bankruptcy Court held a hearing on the
reasonableness of the attorneys' fees and expenses incurred by the
SkyPort
Parties
in connection with SkyPort' s
Third Motion for
Contempt,211 and on September 13, 2013, the Bankruptcy Court issued
Findings of Fact and Conclusions of Law Regarding the Amount of
20BTranscript of February 7, 2013, Hearing, Docket Entry
No. 673 in Adversary No. 10-03150, and Docket Entry No. 2-237 in
Civil Action No. 4:13-cv-3041, p. 161:3-7 ("All right.
I'm going
to take the matter under advisement.
I certainly need to look at
a lot of the Exhibits and reflect on your thoughts.
So the
burden's on me and I'll work on it as quickly as I can to get an
answer to you-all.").
209S ee Docket Entry Nos. 690 and 691 in Adversary No. 10-03150,
and Docket Entry Nos. 2-245 and 2-246 in Civil Action No. 4:13-cv3041, respectively.
210Memorandum Opinion on Contempt, Docket Entry No. 690 in
Adversary No. 10-03150, and Docket Entry No. 2-245 in Civil Action
No. 4:13-cv-3041, pp. 179-86.
211See Docket Sheet for Adversary No. 10-03150, Docket Entry
No. 2-6 in Civil Action No. 4:13-cv-3041, entries on the referenced
date.
-99-
Fees
and
Expenses
Awarded
to
the
SkyPort
Parties
[Adv.
Doc.
No. 691], Docket Entry No. 704, and a corresponding Order, Docket
Entry
No.
705,
granting
$105,335.00
in
attorneys'
fees
and
$32,178.18 in expenses for a total amount of $137,513.18. 212
The August 7, 2013, Memorandum Opinion on Contempt and Third
Order of Contempt,
No.
10-03150,
Conclusions
of
Docket Entry Nos.
and the September 13,
Law Regarding
the
690
and 691
2013,
Amount
in Adversary
Findings of Fact and
of
Fees
and Expenses
Awarded to the SkyPort Parties and corresponding Order,
Docket
Entry Nos. 704-705 in Adversary No. 10-03150, have been appealed by
Goldman in Civil Action No.
NO.4: 13 -cv- 3 044,
4:13-cv-3041,
Craig in Civil Action
and cross -appealed by the SkyPort Parties in
Civil Action No. 4:13-cv-3047.
(b)
The Goldman and Craig Appeals
Goldman and Craig argue that the Bankruptcy Court erred by
issuing the Memorandum Opinion on Contempt and Third Order of
Contempt holding them in contempt of the June 10, 2010, Preliminary
Injunction, and the Findings of Facts and Conclusions of Law and
corresponding Order directing them to pay $105,335.00 in attorneys'
fees and $32,178.18 in expenses for a total amount of $137,513.18,
because:
(1) the Preliminary Injunction is void and unenforceable;
(2) the order was for criminal contempt for which the Bankruptcy
212Docket Entry Nos. 2-252 and 2-253 in Civil Action No. 4:13cv-3041, respectively.
-100-
Court lacked jurisdiction;
(3) neither Goldman nor Craig violated
the Preliminary Injunction;
(4) the contempt order was unwarranted
because the Preliminary Injunction was dissolved;
directing them to pay attorneys'
(5)
the order
fees and costs was unwarranted
because neither compensatory nor coercive relief was granted; and
(6) the attorneys' fees and costs assessed were not reasonable and
necessary.213
These arguments have no merit.
(1)
The Bankruptcy Court Did Not Err by
Granting SkyPort's Third Motion for
Contempt Because the Prel~inary Injunction Is Neither Void Nor Unenforceable by
Contempt
Citing Federal Rule of Civil
Procedure 65 (d),
Goldman and
Craig argue that the Bankruptcy Court erred by granting the SkyPort
Parties'
Third
Motion
for
Contempt
because
the
Injunction is void and unenforceable by contempt.
Preliminary
Goldman and
Craig argue that the Preliminary Injunction is unenforceable by
contempt because it fails to state with sufficient specificity the
reasons why it was issued, the persons to whom it applies, and the
acts enj oined and, therefore, fails to comply with Rule 65. 214
This
argument has no merit because the way to challenge an injunction is
by direct appeal or by a motion to modify.
v. Consumers Union of United States,
See GTE Sylvania, Inc.
Inc., 100 S. Ct. 1194, 1202
213Brief of Appellants Samuel Goldman and Franklin Craig,
Docket Entry No. 26 in Civil Action No. 4:13-cv-3041 ("Appellants'
Brief") .
214Id. at 23-26.
-101-
(1980)
(U[p]ersons subject to an injunctive order issued by a court
with jurisdiction are expected to obey that decree until it is
modified or reversed, even if they have proper grounds to object to
the order.").
in
these
Neither Goldman, Craig, nor any of the other parties
related
actions
ever
objected
to
the
Preliminary
Injunction either by appealing it or by moving to modify it.
In re Timmons,
607 F.2d 120, 124-25
(5th Cir. 1979)
See
(recognizing
that remedy for an incorrect order is an appeal, and absent a stay
even incorrect orders must be complied with until decreed invalid) .
(2)
The Bankruptcy Court Did Not Err by
Finding that Contempt Proceeding Was
Civil - Not Criminal
Goldman and Craig argue that the Bankruptcy Court erred by
granting the SkyPort Parties'
Third Motion for Contempt because
Uthe contempt proceeding in this case was in substance a citation
of
criminal
contempt
jurisdiction. ,,215
and
Goldman
thus
and
the
Craig
Bankruptcy
argue
that
Court
the
had
contempt
proceeding at issue was criminal in substance because
[t]he Third Contempt Motion lists various alleged
violations of the Preliminary Injunction, but does not
identify any injury suffered as a result of the alleged
violations, nor does the motion describe any ongoing
threatened violations or any need to address ongoing
violations. 216
215Id. at 26.
216Id. at 27.
-102-
no
Goldman and Craig argue that "[w]ith no damages to remedy and no
inj unction
to
enforce,
proceeding
were
absent
the
two
purposes
and
the
only
of
a
possible
civil
purpose
contempt
of
the
proceeding was to punish the respondents, and this was, therefore,
a criminal contempt proceeding. ,,217 This argument has no merit.
In determining whether a contempt order is civil or criminal,
the trial court's characterization is relevant, but not conclusive.
Smith
v.
Sullivan,
611
F.2d
1050,
(1980) .
1053
Properly
characterizing an order as civil or criminal depends on its primary
purpose.
2009)
Id.
See also In re Bradley, 588 F.3d 254, 263 (5th Cir.
(citing Lamar Financial Corp. v. Adams,
(5thCir.1990)).
918 F.2d 564,
566
If the purpose of the order is "to punish the
contemnor and vindicate the authority of the court, the order is
viewed as criminal."
In re Bradley, 588 F.3d at 263.
the
order
purpose
of
the
is
"to
coerce
the
If instead
contemnor
into
compliance with a court order, or to compensate another party for
the contemnor's violation, the order is considered purely civil."
Id.
(citing Adams, 918 F.2d at 566).
The Bankruptcy Court characterized its order as civil,218 and
explained that the award of attorneys' fees and costs ordered was
217Id. at 29.
218Memorandum Opinion on Contempt, Docket Entry No. 690 in
Adversary No. 10-03150, and Docket Entry No. 2-245 in Civil Action
No. 4:13-cv-3041, p. 179.
-103-
intended to compensate the SkyPort Parties for the reasonable fees
and expenses incurred preparing and prosecuting the motion for
contempt. 219
This case therefore does not concern either puni ti ve
criminal contempt or coercive civil contempt; instead, it concerns
compensatory or remedial
civil
contempt.
In Bradley the
Fifth
Circuit explained that
"[c]ivil contempt can serve two purposes," either
coercing compliance with an order or "compensat[ing] a
party who has suffered unnecessary inj uries or costs
because of contemptuous conduct.".
Like criminal
contempt, remedial civil contempt is backward-looking.
But remedial contempt is civil, because it remedies the
consequences of defiant conduct on an opposing party,
rather than punishing the defiance per se. It . . . does
not require the special safeguards that accompany
criminal contempt proceedings, such as establishment of
mens rea and proof beyond a reasonable doubt.
588 F.3d at 263-64 (citations omitted)
The third contempt proceeding in this action was a remedial
civil contempt proceeding because the Bankruptcy Court held Goldman
and Craig liable to the SkyPort Parties for the attorneys' fees and
costs that they reasonably incurred responding to the contempt and
did not impose a fine payable to the court.
In re Bradley,
588
F.3d at 264 {"The present proceeding is a remedial civil contempt
proceeding, because the bankruptcy court held Beutel liable to the
219Id. at 182 {citing Mooney v. Green Tree Servicing, LLC
(In re Mooney), 340 B.R. 351, 361 (Bankr. E.D. Tex. 2006)), and 186
("the court will impose the above-described sanctions on Goldman
and Craig - but not the Schermerhorn Parties - to ensure that the
SkyPort Parties are reimbursed for the reasonable attorneys' fees
and expenses that they incurred for bringing Goldman and Craig's
contempt to this court's attention").
-104-
bankruptcy estate
court.");
rather
In re Mooney,
attorneys'
fees
compensatory) .
than
imposing
340 B.R.
incurred
to
at
a
361
prosecute
fine
payable
to
the
(recognizing award of
contempt
proceeding
as
The court concludes that the Bankruptcy Court's
contempt proceeding and resulting order were civil, notwithstanding
Goldman's and Craig's characterization of them as criminal.
(3)
The Bankruptcy Court Did Not Err by
Finding that Goldman and Craig Violated
the Preliminary Injunction
Goldman and Craig argue that the Bankruptcy Court erred by
holding them in contempt because their conduct did not violate the
Preliminary Injunction as they understood it. 220
In support of this
argument Goldman and Craig argue that the Preliminary Injunction
did not enjoin Craig, and that they did not violate the Preliminary
Injunction's prohibition against
certain
parties
only
with
permission,
elements of civil contempt are:
effect,
and
(2)
pursuing
"(1)
claims or contacting
e.g.,
Dawn
Cole.
The
that a court order was in
that the order required certain conduct by the
respondent, and (3) that the respondent failed to comply with the
court's
omitted)
order."
In
re
Bradley,
588
F.3d
at
264
(citations
The Preliminary Inj unction undisputedly enj oined contact
with past and present SkyPort employees.
22°Appellants' Brief, Docket
No. 4:13-cv-3041, pp. 39-49.
Entry No.
-105-
26
in Civil Action
Goldman and Craig argue that the Preliminary Injunction did
not enjoin Craig because
it
applied only to the
"Plaintiffs,"
meaning the Schermerhorn Parties, and Craig was not a plaintiff.221
The Bankruptcy Court held that Craig, who was not a party to the
lawsuit,
was
nevertheless
because he had actual
bound by
notice of
it
the
Preliminary
Injunction
and acted in concert with
Goldman to thwart it, as evidenced by references to it in e-mails
that he exchanged with Goldman. 222
The Bankruptcy Court
c~ncluded,
In sum, Goldman and Craig's conspiracy to thwart the
Preliminary Injunction Order was blatant and frequent,
occurring over the course of many e-mails and phone
calls. The facts unmistakenly show that Craig's actions
were not independent or gratuitous, but in conjunction
and in concerted effort with Goldman. 223
Goldman's and Craig's argument that Craig was not bound by the
Preliminary Injunction has no merit because pursuant to Federal
Rule of Civil Procedure 65(d) (2),
bind
'the
parties'
officers,
"[o]rders granting injunctions
agents,
servants,
employees,
and
attorneys' and 'other persons who are in active concert' with them
or with the parties."
(quoting Rule 65(d) (2))
Seven Arts Pictures, 512 Fed. App'x at 426
Although Rule 65(d) (2) also provides that
persons to be bound must "receive actual notice" of the order "by
personal service or otherwise,
II
Craig does not dispute that he
received actual notice of the Preliminary Injunction.
221Id. at 40.
222Memorandum Opinion on Contempt, Docket Entry No. 2 -245 in
Civil Action No. 4:13-cv-3041, pp. 139-45.
223Id. at 145.
-106-
Nor can Craig argue that he did not know that the Preliminary
Inj unction prohibi ted contact wi th SkyPort' s former president, Dawn
Cole.
At the March 8, 2012, hearing, Craig admitted that he was
aware of the injunction on the day it was issued, that he was aware
that the injunction prohibited the Schermerhorn Parties and their
attorneys from contacting SkyPort' s employees and former employees,
and that since at least September of 2009 he knew that Dawn Cole
was employed by SkyPort. 224
it
was
reasonable
for
Although Goldman and Craig argue that
Craig
to
believe
that
the
Preliminary
Injunction applied only to the named parties and their attorneys,
but not to him, the content of e-mails that Craig exchanged with
Goldman show that Craig knew that his actions as an intermediary
between Goldman and Cole were improper. 225
Moreover, the brief that
Goldman and Craig filed with this court acknowledges that Goldman
"repeatedly told Craig not to contact [Cole] ."226
Accordingly, the
Bankruptcy Court did not err by concluding that Craig was bound by
the Preliminary Injunction.
224See Transcript, Docket Entry No. 575 in Adversary No. 1003150, and Docket Entry No. 2-206 in Civil Action No. 4:13-cv-3140,
p. 93:3-9 and p. 111:9-20.
225See e-mails exchanged between Craig and Goldman during July
and August of 2010 regarding Cole cited by the Bankruptcy Court in
the Memorandum Opinion on Contempt, Docket Entry No. 690 in
Adversary No. 10-03150, and Docket Entry No. 2-245 in Civil Action
No. 4:13-cv-3041, pp. 142-45.
226Appellants' Brief,
No. 4:13-cv-3041, p. 49.
Docket
Entry No.
-107-
26
in Civil
Action
Goldman's and Craig's argument that they did not violate the
Preliminary Injunction against contacting certain parties only with
permission has no merit because they do not dispute that they were
in contact with SkyPort's former president, Dawn Cole, during the
period that the Preliminary Injunction was in force.
Their brief
to this court acknowledges:
After the Preliminary Injunction was entered,
Goldman ceased communications with Cole out of an
abundance of caut ion, with one inadvertent except ion.
[See Item 245, Opinion, p. 50, ~~ 70-72].
On July 23,
2010, Goldman mistakenly sent an email to Craig and Cole,
saying, "Try my cell," by pressing, "reply all." [Id. at
50, ~ 70]. When Cole responded, Goldman wrote: "Sorry,
I meant for Franklin to call. We are still enjoined from
contacting you."
[Id. at 50, ~~ 71-72].
After the
Preliminary
Injunction
was
entered,
Goldman
also
repeatedly warned Craig not to contact Cole out of an
abundance of caution.
[See Item 129, at 22-24] .227
Because Goldman is one of the attorneys of record for the
Schermerhorn Parties who signed the Preliminary Injunction,
he
cannot argue either that he did not know about the injunction or
that he did not understand its scope.
Nor can he argue that he did
not know that the injunction applied to contact with Dawn Cole.
the
May
27,
injunction,
2010,
Robert
hearing
on
Kubbernus
whether
testified
to
enter
about
the
a
At
preliminary
Schermerhorn
Parties' worrisome contacts with former employees including, inter
alia,
Dawn
Cole. 228
Goldman
cross-examined
Kubbernus
at
that
227Id. at 19.
228Transcript, May 27, 2010, Hearing, Docket Entry No. 75 in
Adversary No. 10-03150, and Docket Entry No. 4-41 in Civil Action
No. 4:11-cv-1524, p. 107:13-25.
-108-
hearing about Dawn Cole. 229
Thus, in May of 2010, approximately two
months before he engaged in the contact with Dawn Cole for which he
was held in contempt of the Preliminary Injunction, Goldman knew
that SkyPort sought the injunction to prevent just such contact
with Dawn Cole.
Moreover, any contention that Goldman and Craig
did not reasonably believe that their contact with Cole violated
the
Preliminary
e-mails. 230
500 (1949)
Injunction
is
belied by
the
content
See McComb v. Jacksonville Paper Co.,
of
their
69 S. Ct. 497,
("It does not lie in their mouths to say that they have
an immunity from civil contempt because the plan or scheme which
they adopted was not specifically enjoined.
Such a rule would give
tremendous
experimentation
impetus
to
the
program
of
with
disobedience of the law which we condemned in [Maggio v. Zeitz, 68
S. Ct. 401, 408 (1948)] .").
Accordingly, the Bankruptcy Court did
not err by concluding that Goldman and Craig were both bound by the
Preliminary Injunction and that they acted in concert to thwart it.
(4)
The Bankruptcy Court Did Not Err
Assessing Civil Contempt Sanctions
by
Goldman and Craig argue that the Bankruptcy Court erred by
assessing sanctions
for civil
contempt because
the
preliminary
229Id. at 132 :4-134:3 (Goldman cross-examining Kubbernus about
Dawn Cole) .
230See e-mails exchanged between Craig and Goldman during July
and August of 2010 regarding Cole cited by the Bankruptcy Court in
the Memorandum Opinion on Contempt, Docket Entry No. 690 in
Adversary No. 10-03150, and Docket Entry No. 2-245 in Civil Action
No. 4:13-cv-3041, pp. 142-45.
-10,9-
Injunction was dissolved, and because the SkyPort Parties were not
harmed by any violation of the Preliminary Injunction. 231
arguments have no merit because it
is undisputed that
These
(1)
the
Preliminary Injunction was in force when the violations for which
the Bankruptcy Court held Goldman and Craig in contempt occurred,
(2) the Preliminary Injunction remained in force until after the
Bankruptcy Court held Goldman and Craig in contempt, and (3) the
Preliminary Injunction has never been challenged or held invalid.
See In re Bradley, 588 F.3d at 264
(recognizing that the elements
of civil contempt are that a court order was in effect, that the
order required certain conduct by the respondent,
and that the
respondent failed to comply with the court's order).
(5)
The Bankruptcy Court Did Not Err by
Ordering Payment of Attorneys' Fees and
Costs
Goldman and Craig argue that the Bankruptcy Court erred by
ordering payment
of
attorneys'
fees
and costs
compensatory nor coercive relief was granted.
merit
because
the
attorneys'
fees
and
because neither
This argument has no
costs
were
awarded
to
compensate the SkyPort Parties for preparing and prosecuting the
motion for contempt. 232
See N.L.R.B. v. Trailways. Inc., 729 F.2d
231Appellants' Brief,
No. 4:13-cv-3041, p. 30.
Docket
Entry No.
26
in Civil Action
232Memorandum Opinion on Contempt, Docket Entry No. 690 in
Adversary No. 10-03150, and Docket Entry No. 2-245 in Civil Action
No. 4:13-cv-3041, p. 182 (citing In re Mooney, 340 B.R. at 361),
(continued ... )
-110-
1013,
1024
(5th Cir.
1984)
(recognizing that courts may order a
contemnor to pay "all costs and expenses,
attorney's
fees,
incurred
by
the
including reasonable
[prevailing
party]
in
the
investigation, preparation, presentation, and final disposition" of
a contempt proceeding).
169 (5th Cir. 1995)
See also F.D.I.C. v. LeGrand, 43 F.3d 163,
(characterizing order to pay attorneys' fees as
type of remedial relief that could be awarded for civil contempt);
Dow Chemical Co. v. Chemical Cleaning,
(5th Cir.
1970)
Inc., 434 F.2d 1212, 1215
(" [t]here are contempt cases in abundant number
holding that a court has discretion to award reasonable attorney's
fees
and
whole") .
other
expenses
necessary
to
make
See also McComb, 69 S. Ct. at 500
an
innocent
party
("The measure of the
court's power in civil contempt proceedings is determined by the
requirements of full remedial relief.").
(6)
The Bankruptcy Court Did Not Err by
Ordering Payment of Attorneys' Fees and
Costs In the Amounts Assessed
On August IS, 2013, the Bankruptcy Court held a hearing on the
reasonableness of the fees and expenses incurred by the SkyPort
Parties in connection with their Third Motion for Contempt.
The
SkyPort Parties requested attorneys' fees of $457,313.50 for 3,672
232 ( • • • continued)
and p. 186 ("the court will impose the above-described sanctions on
Goldman and Craig - but not the Schermerhorn Parties - to ensure
that the SkyPort Parties are reimbursed for the reasonable
attorneys' fees and expenses that they incurred for bringing
Goldman and Craig's contempt to this court's attention").
-111-
hours
of
services,
and
$35,774.31
in
June 13, 2010, through June 6, 2013.
expenses
incurred
from
On September 13, 2013, the
Bankruptcy Court issued the Findings of Fact and Conclusions of Law
Regarding the Amount of Fees and Expenses Awarded to the SkyPort
Parties
[Adv.
Doc.
No.
691],
Docket
Entry
No.
704,
and
a
corresponding Order, Docket Entry No. 705, granting $105,335.00 in
attorneys'
fees and $32,178.18 in expenses for a total amount of
$137,513.18. 233
Goldman and Craig argue that the Bankruptcy Court erred by
ordering
payment
of
attorneys'
reasonable and necessary. 234
of the Johnson factors
obtained,
,"235
Goldman
fees
and
costs
that
were
Asserting that \\ [t] he most important
is
'the amount
and
Craig
argue
involved and the result
that
although
\\ [t] he
Bankruptcy Court did purport to consider 'the results obtained,
the court
not
relied on circular reasoning.
,"236
The Bankruptcy Court
stated:
The Court does conclude that the lodestar fee should be
adjusted based on its consideration of the final Johnson
factor - namely, the results obtained in the litigation.
In prosecuting the Motion for Contempt, the SkyPort
Parties sought (1) reimbursement for their attorney's
233Docket Entry Nos. 2-252 and 2-253 in Civil Action No. 4:13cv-3041, respectively.
234Appellants' Brief,
No. 4:13-cv-3041, p. 37.
Docket
Entry No.
235rd.
236Id. at 38.
-112-
26
in Civil Action
fees and costs;
(2) sanctions for the Schermerhorn
Parties; (3) a coercive bond against future violations;
and (4) punitive damages.
However, the Court only
awarded attorney's fees and costs to the SkyPort Parties.
Because the Court awarded the SkyPort Parties only one of
the four requests sought, the Court concludes that a 75%
reduction
in
the
lodestar
fee
is
appropriate.
Accordingly, the Court reduces the lodestar fee from
$429,310.00 to $107,327.50 (i.e., $429,510.00 x .025 =
$107,327.50) .237
Goldman and Craig argue that the award of attorneys' fees is based
on circular reasoning because "the Bankruptcy Court found that the
SkyPort Parties should be awarded attorney's fees for no reason
other than they succeeded in recovering attorney's fees. ,,238
argument has no merit.
This
Goldman and Craig do not argue that the
amount of attorneys' fees and costs awarded were not reasonable for
preparing
and
Bankruptcy
prosecuting
Court
Injunction.
found
the
them
Accordingly,
motion
in
contempt
Goldman
establish that the attorneys'
pursuant
and
of
Craig
to
the
which
the
Preliminary
have
failed
to
fees and costs assessed were not
reasonable and necessary.
(c)
The SkyPort Parties' Cross-Appeal
The SkyPort Parties argue that the Bankruptcy Court erred by:
(1) declining to permanently enjoin the Schermerhorn Parties from
237Fee Findings, Docket Entry No. 704 in Adversary No. 1003150, and Docket Entry No. 2-252 in Civil Action No. 4:13-cv-3041,
pp. 19-20.
238Appellants' Brief,
No. 4:13-cv-3041, p. 38.
Docket
Entry No.
-113-
26
in
Civil
Action
pursuing claims that were re+eased and enjoined by the Chapter 11
Plan;
(2) reducing their fee requests by 75%;
that
Craig
(4)
is
declining
a
to
Schermerhorn
take
an
Party
adverse
or
a
inference
(3)
failing to find
Party
when
agent;
and
Schermerhorn
Parties failed to appear for trial. 239
The SkyPort Parties' argument that the Bankruptcy Court erred
by failing to find that Craig was a Schermerhorn Party has no merit
because the term "Schermerhorn Parties"
is used throughout this
case to refer to the fifty-one plaintiffs named in the state court
case, and Craig is not one of those f~fty-one plaintiffs. 240
The SkyPort Parties' argument that the Bankruptcy Court erred
by failing
to
take an adverse
inference when the
Schermerhorn
Parties failed to appear for trial and by failing to permanently
enjoin them from pursuing claims that were released and enjoined by
the Chapter 11 Plan has no merit because the SkyPort Parties have
neither alleged nor adduced evidence showing that any of the fiftyone plaintiffs referred to as the "Schermerhorn Parties" violated
the Preliminary Injunction.
239Brief of Trustcomm, Inc. f/k/a SkyPort Global Communications,
Inc., Robert Kubbernus, Balaton Group, Inc., Bankton Financial
Corporation, LLC and Bankton Financial Corporation, Appellees/CrossAppellants ("SkyPort' s Brief for
Cross-Appeal"), Docket Entry
No. 36 in Civil Action No. 4:13-cv-3041.
240 See Memorandum Opinion on Contempt, Docket Entry No. 690 in
Adversary No. 10-03150 and Docket Entry No. 2-245 in Civil Action
No. 4:13-cv-3041, p. 4 ~ 3.
-114-
The
SkyPort
Parties'
argument
that
the
Bankruptcy
Court
misapplied the Johnson factors by reducing their attorneys'
fee
award below the lodestar amount due to their lack of success has no
merit because the Fifth Circuit
has
recognized
"the degree of·
success obtained" as "the most critical" of the Johnson factors.
Migis v. Pearle Vision, Inc., 135 F.3d 1041, 1047 (5th Cir. 1998)
(citing Johnson, 488 F.2d at 714).
the
Bankruptcy
mathematical
Court
approach,
should
The SkyPort Parties argue that
not
awarding
have
relied
one-quarter
of
on
a
their
purely
claimed
attorneys' fees because they prevailed on one out of four claims,
but fail to articulate a better approach that would more accurately
reflect
reasonable
attorneys'
fees
for
achieving
the
result
obtained, i.e., the order of contempt against Goldman and Craig,
but not against all 51 of the Schermerhorn Parties. 241
the
court
concludes
that
the
Bankruptcy Court
determining that the amount of attorneys'
Accordingly,
did not
err by
fees and costs awarded
were the fees and costs reasonably necessary to obtain the results
obtained, i.e., the order of contempt against Goldman and Craig.
241See SkyPort' s Brief for Cross-Appeal, Docket Entry No. 36
in Civil Action No. 4:13-cv-3041, pp. 17-23 (arguing that SkyPort
is entitled to full amount of attorneys' fees sought because degree
of success obtained is subsumed into the lodestar method for
calculating fees awards, and because the Bankruptcy Court erred by
failing to grant other forms of relief sought) .
-115-
Conclusions and Order 242
v.
For
the
Bankruptcy
reasons
Court's
explained
Order
in
IV.B.1-3 (a),
§
Regarding
Reasonableness
above,
of
the
Hoover
Slovacek, LLP Fees (Doc. 132) and Continuance of Hearing on Motion
for Additional Sanctions (Doc. 104), filed August 11, 2010 (Docket
Entry No. 158 in Adversary No. 10-03150), is AFFIRMED.
For the reasons explained in
§
IV.B.1-3(a), above, the Order
Directing the Joanne Schermerhorn et al.
Hoover Slovacek LLP by October 31, 2010,
to
Pay $17,800.29
to
filed October 29, 2010
(Docket Entry No. 233 in Adversary No. 10-03150), is AFFIRMED.
For the reasons explained in
§
IV.B.1-2 and 3(c), above, the
Order Awarding Additional Sanctions Against Joanne Schermerhorn et
al.
[Docket No. 104], filed November 9, 2010 (Docket Entry No. 242
in Adversary No. 10-03150), is AFFIRMED.
For
the
reasons
explained
in
§
IV. C. 1,
above,
the
Order
Holding Joanne Schermerhorn et al. In Contempt of the June 10, 2010
242The court has allowed the parties extraordinary leeway in
submitting lengthy briefs and other written materials in connection
with the pending appeals and cross-appeals. As the length of this
Memorandum Opinion and Order indicates, the court has expended
considerable time reading these papers and performing a significant
amount of independent research to be as fully informed as possible
when addressing the parties' arguments.
While, because of the
sheer volume of information presented, it is not impossible that
some arguments were overlooked, the parties should assume that
failure to expressly address a particular argument in this
Memorandum Opinion and Order reflects the court's judgment that the
argument
lacked
sufficient
merit
to
warrant
discussion.
Accordingly, the court strongly discourages the parties from
seeking reconsideration based on arguments they have previously
raised or that they could have raised.
-116-
Preliminary Injunction [Docket Nos. 173 and 177], filed November 9,
2010 (Docket Entry No. 243 in Adversary No. 10-03150), is AFFIRMED.
For
the
reasons
Disposing of Docket
explained
in
§
IV. C. I,
Items 227 and 229,
above,
the
filed December 7,
Order
2010
(Docket Entry No. 261 in Adversary No. 10-03150), is AFFIRMED.
For the reasons explained in
IV.C.2, above, the Second Order
§
Holding Joanne Schermerhorn et al. in Contempt of the June 10, 2010
Preliminary Injunction [Docket No. 184], filed December 16, 2010
(Docket Entry No. 267 in Adversary No. 10-03150), is AFFIRMED.
For the reasons explained in
III, above, the Order Denying
§
in Part and Continuing in Part Defendant Wilson Vukelich LLP's
Motion to Dismiss
[Adv.
Docket No.
69],
filed January 13,
2011
(Docket Entry No. 273 in Adversary No. 10-03150), is AFFIRMED.
For the reasons explained in
III,
§
above,
the Order filed
March 31, 2011 (Docket Entry No. 297 in Adversary No. 10-03150), is
AFFIRMED.
For the reasons explained in
No. 293]
filed March 31, 2011
§
III, above, the Order [Docket
(Docket Entry No. 298 in Adversary
No. 10-03150), is AFFIRMED.
For the reasons explained in
Memorandum Opinion Regarding:
§
IV.B.1-2 and 3(b), above, the
(1) Notice of Filing of Redacted Fee
Statements of McKool Smith P.C.;
(2)
Plaintiffs'
Certification/
Amended Certification on Reasonableness of Fees Submitted by McKool
Smith P.C.;
and
(3)
Defendants'
Motion for Additional Sanctions
-117-
[Adv.
Doc.
Nos.
87,
107,
112
103],
&
filed on March 31,
2011
(Docket Entry No. 299 in Adversary No. 10-03150), is AFFIRMED.
For the reasons explained in
§
IV.B.I-2 and 3(b), above, the
Order Relating to:
(1) Notice of Filing of Redacted Fee Statements
of
P.C.;
McKool
Smith
(2)
Plaintiffs'
Certification/Amended
Certification on Reasonableness of Fees Submitted by McKool Smith
P.C.; and
(3)
Defendants'
Motion for Additional Sanctions
Doc. Nos.
87,
107,
103],
112
&
filed on March 31,
2011
[Adv.
(Docket
Entry No. 300 in Adversary No. 10-03150), is AFFIRMED.
For the reasons explained in
§
IV.C.3, above, the Memorandum
Opinion Regarding Adversary Docket Numbers 317; 359; 360; 419; 460
and 461
[Adv.
Doc.
Nos.
317,
359,
360,
419,
460,
461],
filed
August 7, 2013 (Docket Entry No. 690 in Adversary No. 10-03150), is
AFFIRMED.
For
the
reasons
explained
in
§
IV. C. 3,
above,
the
Order
Regarding Adversary Docket Numbers 317; 359; 360; 419; 460 and 461
[Adv. Doc. Nos. 317, 359, 360, 419, 460, 461], filed August 7, 2013
(Docket Entry No. 691 in Adversary No. 10-03150), is AFFIRMED.
For the reasons explained in
Fact
and Conclusions
of
§
IV.C.3, above, the Findings of
Law Regarding
the Amount
of
Fees
and
Expenses Awarded to the SkyPort Parties [Adv. Doc. No. 691], filed
September 13, 2013 (Docket Entry 704 in Adversary No. 10-03150), is
AFFIRMED.
-118-
For
the
reasons
explained
in
§
IV. C. 3,
above,
the
Order
Regarding the Amount of Fees and Expenses Awarded to the SkyPort
Parties [Adv. Doc. No. 691], entered on September 13, 2013 (Docket
Entry No. 705 in Adversary No. 10-03150), is AFFIRMED.
SIGNED at Houston, Texas, on this 26th day of March, 2015.
SIM LAKE
UNITED STATES DISTRICT JUDGE
-119-
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