Opinion
Case No. 05-01860-H11.
January 12, 2006
MEMORANDUM DECISION
Judgment creditor, Informa Research Services, Inc. ("Informa") moved to dismiss this bankruptcy case on the grounds debtor filed its petition in bad faith and requested sanctions under Federal Rule Bankruptcy Procedure 9011 [hereinafter "Rule 9011"]. On July 12, 2005, after considering the pleadings and oral argument, the Court granted Informa's motion to dismiss and retained jurisdiction to hear Informa's motion for Rule 9011 sanctions.
The Court made extensive findings regarding the debtor's bad faith filing which will not be repeated here.
Pursuant to Rule 9011(c)(1)(A), the Court required Informa to file a separate motion. Informa also requested sanctions under 28 U.S.C. section 1927 and 11 U.S.C. section 105. The Court found that it lacked authority to grant sanctions under 28 U.S.C. 1927.Perroton v. Gray (In re Perroton), 958 F.2d 889, 896 (9th Cir. 1992) (finding that bankruptcy courts are not "courts of the United States as defined in 28 U.S.C. section 451). Because of due process concerns, the Court reserves its right to issue an Order to Show Cause for sanctions under section 105 against the debtor's attorney, Mr. Fletscher ("Fletscher").
At the November 4, 2005, hearing, the Court found sanctions were appropriate because of numerous violations under Rule 9011(b). The Court took the amount of the sanctions under submission and gave the parties additional time to submit briefs.
The Court found that the petition was filed for an improper purpose under 9011(b)(1). [Transcript dated November 4, 2005 (hereinafter "Transcript") 6:13-24; 8:7-10]. The Court also found that the filing was frivolous in violation of 9011(b)(2). [Transcript 9:6-10].
Informa filed its supplemental declaration on December 1, 2005. Mr. Harris, special counsel for the debtor and Mr. L'Abbe, the debtor's president, submitted a response on December 16, 2005. Feltscher filed his declaration on December 16, 2005.
This Court has jurisdiction to determine this matter pursuant to 28 U.S.C. §§ 1334 and 157(b)(1) and General Order No. 312-D of the United States District Court for the Southern District of California. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A).
I. DISCUSSION
In its supplemental brief, Informa seeks $30,848.68 in attorneys' fees and costs, and $9,603.16 which represents the amounts owed under its judgment, plus costs and interest.
Initially, the Court notes that Informa seeks attorneys' fees and costs more than three times the amount of its judgment.
Rule 9011(c)(2) provides that reasonable attorneys' fees may be awarded as a sanction:
Nature of Sanctions; Limitations. A sanction imposed for violation of this rule shall be limited to what is sufficient to deter repetition of such conduct or comparable conduct by others similarly situated. Subject to the limitations in subparagraphs (A) . . ., the sanction may consist of, or include, directives of a nonmonetary nature, an order to pay a penalty into court, or, if imposed on motion and warranted for effective deterrence, an order directing payment to the movant of some or all of the reasonable attorneys' fees and other expenses incurred as a direct result of the violation.
(A) Monetary sanctions may not be awarded against a represented party for a violation of subdivision (b)(2).
"A bankruptcy court has wide discretion to determine the appropriate sanction under Rule 9011." In re Rainbow Magazine, Inc., 136 B.R. 545 (B.A.P. 9th Cir. 1991) (citation omitted). The Ninth Circuit in Rainbow Magazine explained:
Rule 9011 provides that in determining the appropriate sanction, a court may include an order to pay to the other party or parties the amount of reasonable expenses incurred because of the filing of the document, including a reasonable attorney's fee. The measure of sanctions under this language is not the actual fees and expenses incurred, but those that the court determines to be reasonable. Another factor guiding a court's discretion is that a court should impose the least severe sanction likely to serve Rule 11's principal goal — deterrence.
"The starting point in determining an appropriate sanction based upon the cost of attorneys' fees is `the calculation of the time reasonably expended in responding to the improper signing which is then multiplied by a reasonable hourly rate.'" In Re Cedar Tide Corp., 164 B.R. 808, 818 (E.D.N.Y. 1994) (citation omitted); see also In re Express America, Inc., 132 B.R. 542, 544 (Bankr. W.D. Penn. 1991) (citation omitted). "The party seeking the sanction must provide the Court with contemporaneous time and expense records that specify, for each attorney, the date, amount of time, and nature of the work performed, and must also show that the fees and expenses were reasonable and necessary." In re Spectee Group, Inc., 185 B.R. 146, 160 (Bankr. S.D.N.Y. 1995) (citation omitted) (finding that court normally begins with the lodestar amount, and may then adjust it upwards or downwards); see also In re American Telecom Corp., 319 B.R. 857, 874 (Bankr. N.D. Ill. 2004). "The Court need not routinely award the loadstar amount, but only the portion of the attorney's fee `thought reasonable to serve the sanctioning purpose of the Rule [11].'"Spectee Group, 185 B.R. at 160.
Informa, as the prevailing party under Rule 9011(c)(1)(A) may also be awarded the reasonable expenses and attorney's fees incurred in presenting or opposing the motion.
A. ATTORNEY FEES FOR LABOWE, LABOWE HOFFMAN
Informa seeks the attorneys' fees of LaBowe, LaBowe Hoffman ("Labowe") in the amount of $5,761.57 from March 11, 2005 through September 30, 2005 for its post-petition work. The Court examines the time records as submitted.
Labowe fails to provide the Court with the name of each attorney working on the matter, their background, and their hourly rate. See Spectee Group, 185 B.R. at 160. Moreover, the entries are lumped and some are not sufficiently descriptive to enable the Court to evaluate the reasonableness of each entry. Further, although the bankruptcy petition was filed in bad faith, the issues in the case were not complicated. Only two creditors were listed on the petition, Informa and Labowe. The assets listed were minimal.
The attorneys' fees and expenses must be "limited to reimbursement for legal costs that are a `direct result' of the challenged paper," here the filing of the petition. American Telecom Corp., 319 B.R. at 874. "[T]he award [should not] reimburse the movant for legal fees that it would have incurred in spite of the challenged paper." Id. (citation omitted). From the cryptic descriptions offered, many of the time entries and expenses appear to relate to the continuation of Informa's collection efforts with respect to its judgment and, therefore, were not incurred as the "direct result" of the improper filing. [See generally entries on 8/8/05; 8/12/05; 8/17/05; 8/29/05, 8/30/05; 8/31/05 and expenses incurred on 8/9/05].
Based upon this Court's knowledge of the issues and in trying similar matters, coupled with the inadequacy of the time records, the Court finds a reduction of $3,000 is appropriate. See In re Addon Corp., 231 B.R. 385, 391 (Bankr. N.D. Ga. 1999) (citation omitted) (court relied on its own experience and expertise in determining hourly rates). After reviewing the tasks involved, the Court finds that attorney fees of $2,761.57 is a reasonable sanction for services incurred as a result of this bad faith, abusive filing. None of the costs are authorized as the Court finds they are related to Informa's collection efforts and lack sufficient description. The Court is satisfied that such a sanction will serve as an adequate deterrent.
B. ATTORNEY FEES FOR GREENBERG, FIELDS WHITCOMBE, LLP
Informa seeks the legal fees of Greenberg, Fields Whitcombe, LLP ("Greenberg") in the amount of $1,377.05 who assisted Informa with the motion for sanctions. [See Decl. of M. Adler ¶ 40; docket #38]. Under 9011(c)(1)(A), "the court may award to the party prevailing on the motion the reasonable expense and attorney's fees incurred in presenting or opposing the motion."
Greenberg's time records show 2.0 hours of services at $375 per hour and costs of $627.05. Although the costs of $627.05 are itemized and appear reasonable, the name of the attorney performing the work or his/her background is not included thereby making it difficult to determine the reasonableness of the hourly fee request. Moreover, the entries are not sufficiently descriptive and but for Michael E. Adler's declaration, this Court could not discern what Greenberg's fees related to. The Court therefore reduces the hourly fee to $200 per hour.
The Court awards fees in the amount of $400, plus costs of $627.05.
C. LAW OFFICES OF MICHAEL E. ADLER
Informa requests legal fees of the Law Offices of Michael E. Adler ("Adler") in the amount of $21,060.00 from May 26, 2005 through November 30, 2005 for post-petition work. In addition, Adler seeks costs of $2,650.12. Adler spent 105.3 hours at a rate of $200 per hour for a total of $21,060.00.
Because Adler is a recent admittee to the California Bar, the Court requested additional information regarding his background. The Court has reviewed the supplemental declaration of Adler and is satisfied that his background warrants $200 per hour even though he is a recent admittee. However, after a review of the time records, the Court finds the amount of time spent unreasonable.
As noted above, the issues in this case were not complicated. Adler spent what looks like an inordinate amount of time researching and preparing the motion to dismiss. Further, he charged for his time for conferring with the Labowe firm, and the Labowe firm charged for time conferring with Adler. This sort of double billing is unreasonable. Adler also prepares and packages the documents to file at his full hourly rate when a person at a lesser billing rate could perform the same task. See In re American Telecom Corp., 319 B.R. 857, 875 (Bankr. N.D. Ill. 2004) (finding that a paralegal's rate of compensation is required for tasks that are not strictly legal in nature).
With respect to the sanctions motion, which was substantially already prepared as part of the motion to dismiss, Adler spent another 18-20 hours. Again, he charged his full hourly rate for conferring with the Greenberg firm, and they charged for that same time as well. Finally, the descriptions with respect to many of the time entries do not allow the Court to evaluate the reasonableness of the time spent.
The Court finds that a reasonable number of hours for the tasks performed is 10 hours for the motion to dismiss and 10 hours for the sanction motion at a rate of $200 per hour for a total of $4,000.
The Court also questions the reasonableness of the costs requested. The charges for overnight stays at The W Hotel ($396.86), Coronado Island Marriott ($485.04) and Marriott San Diego Hotel and Marina ($169.55), plus meals and parking are unreasonable expenses. Informa could have easily hired experienced local counsel to handle this matter thereby eliminating the need for travel charges all together. Further, even if local counsel were not involved, there was no need to stay overnight given the distance involved. Evidently the distance one way is 169 miles, but it would not be unreasonable for an attorney to drive that distance round trip in one day. Lastly, the costs involved were unreasonable given the amount of the room charges.
The Court finds Adler's costs associated with postage, federal express, court reporting fees, mileage and copies reasonable for a total of $1,125.55.
The Court awards the total amount of $5,125.55.
D. REQUEST FOR SANCTIONS IN THE AMOUNT OF THE JUDGMENT
"It is well established that a court may impose a sum that is appropriate for deterrence purposes, even if it exceeds the amount of the fees incurred by the opposing party." In re Deville, 280 B.R. 483, 498 (B.A.P. 9th Cir. 2002) (citation omitted). "A monetary penalty is an appropriate sanction, and such a penalty may be combined with other sanctions necessary to deter." Id. (citations omitted). Informa seeks the additional amount of $9,603.16 beyond its attorneys' fees and costs. As such, this additional amount would be considered a monetary penalty and Rule 9011(c)(2) requires that such a penalty be paid "into court." Id.
After considering the facts and circumstances in this case, the Court finds that the sanctions awarded above will serve as an adequate deterrent and, therefore, no additional monetary penalty will be awarded.
E. WHO SHOULD THE SANCTIONS BE AGAINST?
The last question is which entity against whom the $8,914.17 will be assessed. L'Abbe, the president of the debtor, argues that Informa waived its right to seek sanctions from him because he was not specifically included in the order granting the motion to dismiss which stated:
That this Court reserves jurisdiction for a period of 90 days from the date of entry of dismissal for creditor Informa Research Services, inc. to bring its motion for sanctions against both Mortgage Lending Professionals, Inc. and its counsel, Jack S. Feltscher pursuant to Fed.R.Bankr.P. 9011.
The Court finds that the language in the order does not constitute a waiver. The only purpose of the order was to reserve this Court's jurisdiction post-dismissal for the sanction motion. Further, it is within this Court's discretion not only whether to award sanctions, but who they should be against. Thus, Informa did not intentionally relinquish or abandon its right to sanctions, if awarded, against L'Abbe. Lastly, L'Abbe had proper notice of the motion for sanctions and had made a similar argument at the November 4, 2005, hearing.
"All the signatories to a voluntary petition, including bankruptcy counsel and a corporate debtor's president, subject themselves to Bankruptcy Rule 9011." American Telecom, 319 B.R. at 875 (citations omitted); see also In re Start the Engines, Inc., 219 B.R. 264, 271 (Bankr. C.D. Cal. 1998) (finding corporation's attorney and president jointly and severally liable for filing debtor's petition in violation of Rule 9011(b)(1)). This Court made findings that the debtor filed its petition for an improper purpose in violation of Rule 9011(b)(1). [Transcript 6:13-24]. The Court therefore imposes joint and several liability on L'Abbe and Feltscher in the amount of $7,914.17 because they are equally culpable for filing the debtor's petition in violation of Rule 9011(b)(1). [Transcript 7:1-11; 7:16-24; 8:4-10].
The remainder, $1,000, will be imposed solely on Feltscher because he alone can be held responsible for violations of Rule 9011(b)(2). [Transcript 9:5-10].
The total amount of $8,914.17 will be paid to Informa to partially compensate it for the attorneys' fees and costs it incurred as a result of the debtor's bankruptcy and to deter L'Abbe and Feltscher and others who are similarly situated from engaging in future misconduct. Included in the amount is also Informa's request, as the prevailing party, for its reasonable attorneys' fees and expenses under Rule 9011(c)(1).
III. CONCLUSION
For the reasons noted above, the Court imposes joint and several liability on L'Abbe and Feltscher in the amount of $7,914.17. The amount of $1,000 will be imposed solely on Feltscher.
This Memorandum Decision constitutes findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052. Counsel for Informa is directed to file with this Court an order in conformance with this Memorandum Decision within ten (10) days from the date of entry hereof.