TIMOTHY A. BARNES, Judge.
This matter comes on for continued consideration on the Purchaser's Motion for Entry of an Order (I) Enforcing Confirmation Order; (II) Directing Dismissal of State Court Claims; (III) Awarding Damages; and (IV) Granting Related Relief [Dkt. No. 3969] (the "
The court has previously found that F & D's pursuit of TRG violated the confirmation order in this case. See In re Kimball Hill, Inc., 565 B.R. 878 (Bankr. N.D. Ill. 2017) (Barnes, J.) (the "
The federal district courts have "original and exclusive jurisdiction" of all cases under title 11 of the United States Code, 11 U.S.C. §§ 101, et seq. (the "
A bankruptcy judge to whom a case has been referred may enter final judgment on any proceeding arising under the Bankruptcy Code or arising in a case under the Bankruptcy Code. 28 U.S.C. § 157(b)(1). Bankruptcy judges must therefore determine, on motion or sua sponte, whether a proceeding is a core proceeding or is otherwise related to a case under the Bankruptcy Code. 28 U.S.C. § 157(b)(3). As to the former, the court may hear and determine such matters. 28 U.S.C. § 157(b)(1). As to the latter, the bankruptcy court may hear the matters, but may not decide them without the consent of the parties. 28 U.S.C. §§ 157(b)(1), (c). Instead, the bankruptcy court must "submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be entered by the district judge after considering the bankruptcy judge's proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected." 28 U.S.C. § 157(c)(1).
In addition to the foregoing considerations, a bankruptcy judge must also have constitutional authority to hear and determine a matter. Stern v. Marshall, 564 U.S. 462, 464, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). Constitutional authority exists when a matter originates under the Bankruptcy Code or, in noncore matters, where the matter is either one that falls within the public rights exception, id., or where the parties have consented, either expressly or impliedly, to the bankruptcy court hearing and determining the matter. See, e.g., Wellness Int'l Network, Ltd. v. Sharif, ___ U.S. ___, 135 S.Ct. 1932, 1939, 191 L.Ed.2d 911 (2015) (parties may consent to a bankruptcy court's jurisdiction); Richer v. Morehead, 798 F.3d 487, 490 (7th Cir. 2015) (noting that "implied consent is good enough").
Each of the foregoing has been previously addressed by the court in the Violation Decision. 565 B.R. at 888-91. In sum, the court has jurisdiction and statutory authority to hear and determine the Motion as it is a request to enforce an injunction extant in an order confirming a liquidating chapter 11 plan. That jurisdiction is not, however, exclusive. Id. at 891.
Accordingly, the court has the jurisdiction, statutory authority and constitutional authority to hear and determine the Motion.
Before the court determines the final stage of the Motion, it is helpful to consider the history of the proceedings before the court, as well as the scope of the Violation Decision.
The Motion was filed on July 18, 2016. In addressing the Motion, the parties agreed to first take up whether a violation of the court's confirmation order in this case had occurred. The parties thus briefed the Motion, limited to this issue, in September and October 2016. The court delivered its ruling on those issues, the Violation Decision, orally to the parties on December 14, 2016 and memorialized it in writing on March 20, 2017. In the Violation Decision, the court determined that "the claims asserted by F & D in the State Court Lawsuits were released and enjoined under the Plan and Confirmation Order. As such, in bringing the claims against TRG in the State Court Lawsuits, F & D has violated the terms of the Plan Injunction, and in so doing, has subjected itself to further order of this court and civil contempt damages." Violation Decision, 565 B.R. at 902. The Violation Decision directed F & D to dismiss its claims against TRG in the state court and scheduled a status hearing to address damages. Id.
At that status hearing the parties informed the court that they had agreed that a damages determination prior to an appeal, if any, was the appropriate next step. The court therefore set a deadline for TRG to file a statement of damages and continued the status hearing to shortly after that deadline. On April 3, 2017, before the deadline for TRG to file its statement of damages, however, F & D filed the Motion of Fidelity and Deposit Company of Maryland to Alter and/or Amend the March 20, 2017 Memorandum Decision and Order [Dkt. No. 4068] (the "
F & D argued in the Motion to Alter that the court should reconsider its ultimate conclusion in the Violation Decision, asserting many of the same arguments it had raised in its previous briefing on the Motion. F & D also asked that the court clarify whether F & D could pursue TRG based on assignments F & D had received from municipalities and that the court authorize it to stay its state court efforts against TRG rather than dismiss the suits, pending the ultimate resolution of the Motion. The parties briefed the Motion to Alter and the court ruled on the issues therein, denying the Motion to Alter in all respects but one. On that one remaining issue, that the court's directive that F & D dismiss its state court efforts against TRG should be stayed pending full resolution of the Motion, the Motion to Alter was granted. See Order Denying, In Part, and Granting, in Part, Motion of Fidelity and Deposit Company of Maryland to Alter and/or Amend the March 20, 2017 Memorandum Decision and Order [Dkt. No. 4187].
The court then set a further briefing schedule on damages. TRG filed a statement of damages to which F & D responded and TRG replied in support thereof. In the briefing, F & D argued that it needed more time to conduct discovery and that certain additional legal issues would be more efficiently addressed before a determination of damages. TRG did not agree. Ultimately, the court allowed briefing on F & D's assertion of equitable "defenses" that it alleged would prevent any damages award and thus would moot the need for discovery and evidence of damages.
The parties briefed these alleged equitable defenses and, on November 1, 2017, presented oral argument before the court. The court orally ruled on January 24, 2018 that F & D's laches defense was not well taken as it was already resolved against F & D in the Violation Decision, see Tr. at p. 32, Jan. 24, 2018 [Dkt. No. 4228], but that mitigation was a defense that could be addressed only after receiving evidence on the damages themselves. Id. at pp. 36-37.
The court then continued the Motion for parties to discuss whether discovery was needed and possible trial dates. On February 6, 2018, F & D again requested that the court revisit the legal issues, this time by entertaining partial summary judgment. The court declined to entertain another round of briefing and scheduled the matter for trial.
In taking up the Motion, the court has considered its prior rulings in this matter as well as the arguments of the parties at the trial that took place on August 27, 28 and 29, 2018 and September 18, 2018 (the "
The court has also taken into consideration any and all exhibits submitted in conjunction with the Motion, the Trial and the foregoing filings. Though these items do not constitute an exhaustive list of the filings in the above-captioned bankruptcy case, the court has taken judicial notice of the contents of the docket in this matter. See Levine v. Egidi, Case No. 93C188, 1993 WL 69146, at *2 (N.D. Ill. Mar. 8, 1993) (authorizing a bankruptcy court to take judicial notice of its own docket); In re Brent, 458 B.R. 444, 455 n.5 (Bankr. N.D. Ill. 2011) (Goldgar, J.) (recognizing same). In doing so, the court has also considered the procedural history and previous court filings in this case, as is discussed in detail herein.
The court entered the Pretrial Order on March 26, 2018, which provides that
Pretrial Order, at p. 1. On August 10, 2018, the parties submitted their joint Pretrial Statement. Attached to the Pretrial Statement, and in accordance with the Pretrial Order, was the list of each party's exhibits and the opposing party's objections, if any. Pretrial Stmt., Exhs. D-1, D-2.
The parties asserted numerous objections on the basis of relevance. While it is true that Federal Rule of Evidence 403 affords the court the authority to "exclude relevant evidence if its probative value is substantially outweighed by a danger of one or more of the following: unfair prejudice, confusing the issues, misleading the jury, undue delay, wasting time, or needlessly presenting cumulative evidence," Fed. R. Evid. 403, the purpose of the Pretrial Order's statement regarding weight and relevance is for parties not to file such objections. As this court has previously stated:
In re Tabor, 583 B.R. 155, 166 (Bankr. N.D. Ill. 2018) (Barnes, J.). Relevance and weight objections are not, therefore, well-taken exclusionary objections in bankruptcy bench trials. For the same reasons, objections that evidence is prejudicial, cumulative or may cause confusion are not effective exclusionary objections in a bench trial. Schaumburg Bank & Trust Co. v. Hartford (In re Hartford), 525 B.R. 895, 900 n.1 (Bankr. N.D. Ill. 2015) (Barnes, J.). Such matters are always under consideration by the bankruptcy judge.
As a result, the court overruled all objections raised by the parties that were based on relevance, weight, prejudice or confusion, or that evidence would be cumulative, preserving such matters for its ultimate weighing of evidence as finder of fact.
In addition, the parties raised a number of objections regarding hearsay. Unless an exception applies, hearsay as defined in Federal Rule of Evidence 801 is inadmissible. See Fed. R. Evid. 802. The rule against hearsay, however, makes clear that hearsay is defined by its use. Fed. R. Evid. 801(c)(2) (hearsay is a statement that "a party offers in evidence to prove the truth of the matter asserted in the statement").
As for TRG's proposed exhibits, F & D also objected on the grounds of foundation and privilege. Pretrial Stmt., Exh. D-1. At the beginning of the Trial, the court cautioned the parties to raise such objections when an exhibit was to be used in the Trial and thus reserved ruling until that point. Tr. at p. 10, Aug. 28, 2018 AM. No objections on these bases were sustained during the Trial.
F & D also filed a separate motion in limine and scheduled the motion for hearing before the Trial. Motion in Limine of Fidelity and Deposit Company of Maryland to Exclude SRR Expert Report and Testimony Related to SRR Expert Report [Dkt. No. 4260] (the "
When pressed by the court to define the statutory basis for the Motion in Limine, F & D asserted its objection was under Federal Rule of Evidence 702 and Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993). F & D argued that the SRR Report did not assist the trier of fact. The court did not agree. The court ruled that Daubert allowed hypotheticals by experts in appropriate circumstances. "Where an expert's hypothetical explanation of the possible or probable causes of an event would aid the jury in its deliberations, that testimony satisfies Daubert's relevancy requirement." Smith v. Ford Motor Co., 215 F.3d 713, 718-19 (7th Cir. 2000) (citing to Walker v. Soo Line R.R. Co., 208 F.3d 581, 589-90 (7th Cir. 2000)). The court further found that in this case the hypotheticals were supported by the actual facts of later sales, Daubert, 509 U.S. at 590, 113 S.Ct. 2786 ("Proposed testimony must be supported by appropriate validation — i.e., `good grounds,' based on what is known."), and thus the court could assess the SRR Report's methodology when used at the Trial.
One TRG exhibit was excluded from the record based on an in-court objection. The court sustained F & D's objection to TRG's use of its Exhibit No. 129, Outline of Possible Defenses for a Subdivision Bond Surety. Tr. at pp. 143-150, Aug. 27, 2018 PM. The remainder of the TRG exhibits were admitted.
TRG voiced numerous relevance and foundation objections to F & D's evidence in the Pretrial Statement, each of which were resolved by the court at the outset of the Trial in the same manner as the rulings detailed above. TRG also objected to F & D's Exhibit Nos. 48-53 under Federal
With respect to witnesses, at the hearing on the Motion in Limine the parties noted that Barry, F & D's rebuttal expert, was not included on F & D's witness list. Pretrial Stmt., Exh. C-2. F & D suggested amending that list by oral motion, but the court advised the parties that it would not determine the propriety of an amendment to F & D's witness list raised orally. F & D therefore thereafter filed its Motion of Fidelity and Deposit Company of Maryland to Amend Schedule C-2 to Pre-Trial Statement to Add Brian Barry as a Witness [Dkt. No. 4265] (the "
The issue of Barry's testimony, therefore, remained unresolved at the beginning of the Trial. Over the course of the first few days of the Trial, however, it became evident that a further day of Trial was necessary, and the court thus scheduled the Motion to Amend to be briefed before the additional day of testimony.
F & D argued in the Motion to Amend that the omission of Barry from F & D's witness list was an oversight. TRG argued, in turn, that under Federal Rule of Evidence 702 and Daubert, Barry should not be allowed to testify. The court also found little or no prejudice to TRG, as this is the ultimate issue for the Trial and TRG should have known and prepared for the fact that this was an oversight. The court may weigh relevance of any alleged expert testimony under Daubert much the same way as it does relevance generally and thus the court granted the Motion to Amend, allowing Barry to testify at the last day of Trial. Order Allowing Amendment of Pretrial Statement [Dkt. No. 4275].
Most of the relevant history has been set forth in detail in the Violation Decision, 565 B.R. at 883-88, which is incorporated by reference into this Memorandum Decision. From the consideration of the Motion, the documents listed in the procedural history, and the evidence presented at the Trial, the court further finds that:
The primary method of enforcing an injunction, such as that contained in the Confirmation Order, is contempt, and contempt in instances such as those at bar leads to damages. "Damages are a recognized sanction for contempt." Costa v. Welch (In re Costa), 172 B.R. 954, 963 (Bankr. E.D. Cal. 1994). Having previously determined that F & D's actions in the matter at bar violated the express provisions of the Plan (to which F & D had acceded) and thereby the court's Confirmation Order effectuating the Plan, Violation Decision, 565 B.R. at 902, F & D has been found to be in contempt of the Confirmation Order and the question before the court is narrowed to whether and if so to what extent damages are appropriate.
In the Motion TRG asserts that it has suffered over $30 million in actual damages, yet does not seek the full measure of such alleged damages here. Instead TRG seeks $9,539,690.00 for damages from August 9, 2011, the date of the Demand Letter, to August 2, 2017. This amount is comprised of $1,263,008.00 in legal fees (the "
Considering these requests in light of what was shown at the Trial, the court first examines how damages for violations of court ordered injunctions are awardable. Second, the court considers whether F & D's actions form the basis for damages. Third, the court considers whether TRG had a duty to mitigate any such damages. The court then seeks to define the time period for which damages under the Motion might apply. The court will finally examine each of the categories of damages requested by TRG.
The Motion seeks contempt damages under section 105 of the Bankruptcy Code. The contempt giving rise to the damages sought stems from the violation of this court's Confirmation Order and the injunction contained therein. Violation Decision, 565 B.R. at 885. The majority of cases cited by the parties, however, address the court's ability to award or limitations in awarding sanctions based on violations of
The bankruptcy court does have civil contempt power, not only statutorily in section 105 of the Bankruptcy Code, but inherently. "A court's civil contempt power rests in its inherent limited authority to enforce compliance with court orders and ensure judicial proceedings are conducted in an orderly manner." Jones v. Lincoln Elec. Co., 188 F.3d 709, 737 (7th Cir. 1999); see also In re Castle Home Builders, Inc., 520 B.R. 98, 106 (Bankr. N.D. Ill. 2014) (Cox, J.) ("The [Bankruptcy Court] Court is empowered by 11 U.S.C. § 105 to ensure compliance with the terms of its orders."). This power is not without limits.
"Civil contempt proceedings are coercive and remedial, but not punitive, in nature and sanctions for civil contempt are designed to compel the contemnor into compliance with an existing court order or to compensate the complainant for losses sustained as a result of the contumacy." Jones, 188 F.3d at 738 (citing Int'l Union, United Mine Workers of Am. v. Bagwell, 512 U.S. 821, 826-28, 114 S.Ct. 2552, 129 L.Ed.2d 642 (1994)). Damages awarded from civil contempt are therefore either coercive in an attempt to push a violating party into compliance with a court order, or remedial in an attempt to restore losses from a violation of a court order. Jones, 188 F.3d at 738. Regardless of the nature of the award, the sanction must relate to or have been caused by a violation of a court order. Id.
Without ruling on the ability of the bankruptcy court to issue punitive sanctions under section 105 of the Bankruptcy Code, the Seventh Circuit has cautioned bankruptcy courts against issuing punitive sanctions except where specifically authorized by statute.
The Seventh Circuit has provided some guidance on when criminal contempt may be available where not otherwise expressly authorized. In the context of a violation of the discharge injunction, it stated that "[t]he victim ... might even be able to obtain punitive damages, though presumably only if he could prove criminal contempt, since punishment is the purpose of criminal but not of civil contempt." Id. at 916 (internal citations omitted). The Motion, however, does not seek redress of a violation of an injunction created by statute, and TRG has made no attempt to satisfy the predicates for criminal contempt.
Absent that, the bankruptcy court is not empowered to issue the punitive damages TRG seeks. No such express language was included by Congress in section 105 of the Bankruptcy Code and section 362 is not applicable here. See Capriati Constr. Corp. v. SPER, Inc. (In re Capriati Constr. Corp.), Case No. BAP NV-17-1200-BHTA, 2018 WL 1404439, at *7-8 (9th Cir. BAP Mar. 20, 2018) (distinguishing between the applicability of sections
TRG may not, therefore, be awarded the punitive damages it seeks. Though this may be a case that would warrant an award of punitive damages if the criminal contempt standards were met, the court need not consider the propriety of punitive damages as an award of such damages has not been shown. Further, there has been no showing of a need to coerce compliance with this court's orders. TRG's request for the Punitive Damages is therefore denied.
TRG may, however, be awarded reasonable, actual damages if it demonstrates that such damages were caused by F & D's violation of the Confirmation Order.
In its Closing, F & D argues that no damages should be awarded because TRG has not demonstrated that its damages were caused by F & D's pursuit of TRG in the State Court Lawsuits. F & D's Closing, at p. 12. There is, however, sufficient evidence in this case of the State Court Lawsuits' effect on the ability of TRG to sell the Property.
TRG has detailed its efforts to sell the Property while F & D pursued TRG in the State Court Lawsuits. Peter Kyte, the manager of TRG ("
Litigation regarding real property unquestionably clouds title and affects the ability of an owner to sell such real property. When litigation asserts claims such as those asserted here, substantial claims that F & D argues run with the real property, the connection between the litigation and the marketability of the real property is not difficult to demonstrate. For example, title insurers customarily search for pending litigation. If litigation is pending, title insurers may not issue insurance as they will be bound to cover the claims therein. See Radovanov v. Land Title Co. of Am., 189 Ill.App.3d 433, 136 Ill.Dec. 827, 545 N.E.2d 351, 355 (1989).
Even if title insurance can be obtained, or in the odd event it is not necessary, a purchaser is unlikely to close on a purchase when such closings routinely require a showing that liability arising from judgments pertaining to the property has been discharged. See Reinbold v. Thorpe (In re Thorpe), 546 B.R. 172, 186 (Bankr. C.D. Ill. 2016), aff'd, 569 B.R. 310 (C.D. Ill. 2017), aff'd, 881 F.3d 536 (7th Cir. 2018), reh'g denied (7th Cir. Feb. 21, 2018). "When facts or circumstances are present that create doubt, raise suspicions, or engender uncertainty about the true state of title to the real estate, the transferee is not permitted to turn a blind eye but is, instead, required to investigate further. If he fails to make further inquiry, he will nevertheless be charged with notice of additional
The evidence and case law establish that during the pendency of F & D's claims against TRG and the Property, TRG's sale efforts have been frustrated. As a result, TRG has been required to maintain the unsold Property, which takes coordination and results in costs. The State Court Lawsuits have affected TRG's ability to sell the Property and thereby the value of the Property. It is also clear that the State Court Lawsuits caused TRG to incur legal fees.
TRG thus has sufficiently shown the causal link between F & D's actions and damages — which damages are considered individually below. F & D's objection that its actions have caused no damages is, therefore, not well taken.
F & D has asserted other arguments that are also not well taken.
First, F & D argues that damages are not appropriate because F & D did not have the requisite intent in violating the Confirmation Order. F & D's Closing, at pp. 4-9. The court has already ruled on this argument. "F & D cannot contest that by deliberately interpleading TRG into the State Court Lawsuits it intended an act that may violate the Plan Injunction. There is no question that the act of commencing or continuing the State Court Lawsuits falls within the proscribed actions in the Plan Injunction, provided the claims asserted in the State Court Lawsuits by F & D against TRG are within the scope of the same. Plan, at VIII.F; Confirmation Order, at ¶ 19(d)." Violation Decision, 565 B.R. at 896. This argument remains unconvincing here.
Second, F & D argues that damages are not appropriate because TRG and its partner SunCal Companies were testing their business model. TRG's business model is not relevant as to whether F & D's actions in the State Court Lawsuits caused damages. The evidence, in fact, demonstrates clearly that if any party was testing the waters, it was F & D. F & D has had numerous dismissals of its theories by this and other courts, yet it has continued its efforts against purchasers of KHI property. Despite F & D's assertions that it has been vindicated by the appellate court rulings, neither the Elgin Decision nor the case which relies on its logic rules on the propriety of F & D's theory, rather they merely provide that half of F & D's claims are "sufficiently pled." Nothing in either decision reaches the issues addressed by this court in the Violation Decision and here today. F & D cannot for these reasons escape liability for damages stemming from its pursuit of TRG.
Third, F & D asserts that the fact that Yorkville sued TRG proves that F & D's litigation strategy is well taken. F & D's Closing, at p. 16. This argument, of course, belies the fact that Bart Olsen, the city administrator for Yorkville, testified that Yorkville's arguments against TRG were not well taken in the state court. Tr. at pp. 63-68, Sept. 18, 2018 PM. Even if Yorkville had somehow been successful, just as F & D looked to place blame on other parties in the above argument, it is unclear how Yorkville's decision-making has any bearing on the propriety of F & D's litigation strategy.
Fourth, F & D argues that TRG has not yet sold other property it has purchased on which F & D does not have bonds. While this fact could have some limited implications here, by the very nature of real property each parcel is unique. F & D
Last, F & D argues that TRG has suffered no damages. F & D's Closing, at pp. 19-20. Using valuations of the Property provided by TRG's SRR Report (which F & D concedes are in line with the values of recent sales), F & D estimates that TRG will realize $17,205,821.00 from the sale of the Property. Id., Exh. B. After deducting the $5,560,000.00 that TRG paid in 2010 for the Property, F & D concludes that TRG will profit from the sale and therefore TRG has suffered no damages.
The problem with this theory is that it does not account for many other factors — including the costs expended by TRG from 2010 to the present and how and if a reduced profit might nonetheless be quantifiable as damages. Kyte Affid., Exh G [Dkt. No. 4188-28] (the "
F & D's arguments that there are no damages are not well supported and do not serve to overcome TRG's showing of damages.
F & D further argues that damages should not begin to accrue until TRG sought relief from this court as TRG chose to pursue dismissal of the State Court Lawsuits when it could have sought relief from this court earlier. F & D argues that it should not be responsible for TRG's litigation choices, choices which TRG should have known it had as TRG claims to have relied on the Confirmation Order when determining whether to purchase the Property. In other words, F & D argues that TRG has failed to mitigate its damages.
Illinois law applies here as TRG's claims are based on the terms of the Plan and chapter 11 plans are contracts between the debtor and its creditor, subject to the law of the state in which the plan was confirmed. Miller v. United States (In re Miller), 253 B.R. 455, 458 (Bankr. N.D. Cal. 2000), aff'd, 284 B.R. 121 (N.D. Cal. 2002). Further, the Plan provides for such. See Plan, at XV.J; Violation Decision, 565 B.R. at 888.
TRG's duty to mitigate thus arose when it became aware of the facts which made such duty necessary — when it became aware that it had remedies in the bankruptcy court superior to those which it had been successfully invoking in the state court. Kyte testified under penalty of perjury
Further, TRG had no need for those remedies prior to the issuance of the Elgin Decision. All parties agree that TRG was repeatedly successful in obtaining dismissals from the State Court Lawsuits. There is little reason for a party to change a tactic when that tactic proves to be successful. Once it proved not to be, TRG promptly changed course. The court finds that TRG's dismissal efforts in the State Court Lawsuits were reasonable and sees no reduction based on F & D's mitigation theory as appropriate here.
In the Damages Statement TRG seeks damages from the date of the Demand Letter to August 2, 2017. As the court has already concluded that the State Court Lawsuits are the proximate cause of TRG's damages, it follows that the earliest in which TRG may seeks damages is the commencement of the State Court Lawsuits. Here that began with the Demand Letter. Absent a reason to the contrary, TRG's request for damages starting on the date TRG received the Demand Letter is well taken.
At the Trial, TRG increased its request, asking for additional legal fees, consultant fees and project management fees from August 2, 2017 to July 30, 2018. No increase was sought for additional lost property value. No evidence was submitted to support the additional damages; therefore, the court will not rule on the increase in damages requested by TRG.
As a result, the court finds that the scope of the Motion allows TRG to recover damages from date of the Demand Letter, August 9, 2011, to August 2, 2017.
What remains is to quantify TRG's damages. As stated above, the court may award compensatory damages under its civil contempt powers. Jones, 188 F.3d at 738. As one court has stated, "various forms of compensatory damages may be awarded; attorneys' fees; litigation costs; travel expenses; other actual losses, such as wages or business income...." In re Haemmerle, 529 B.R. 17, 26 (Bankr. E.D.N.Y. 2015) (collecting cases to support each category of damages).
The categories of nonpunitive damages asserted by TRG are Legal Fees, Consultant Fees, Project Management Fees and Property Value. These categories are somewhat helpful in allowing the court to understand the subject of the expenses incurred by TRG according to business categories, but the court also finds it necessary to distinguish between expenses incurred by TRG related to F & D's actions in the State Court Lawsuits and expenses incurred related to the Motion and TRG's efforts in this court.
The court makes this distinction because the type of damages and thus the standard for review is different. The expenses TRG has incurred in the former category — expenses related to the State Court Lawsuits — are actual damages that TRG has already paid for based on F & D's actions outside of this court. The expenses in the latter category — expenses related to the Motion — are attorney's fees of a party successful in and relating to a
Sanctions imposed for civil contempt violations are to compensate TRG for actual losses sustained. "Where compensation is intended, a fine is imposed, payable to the complainant. Such fine must of course be based upon evidence of complainant's actual loss." United States v. United Mine Workers of Am., 330 U.S. 258, 304, 67 S.Ct. 677, 91 S.Ct. 884 (1947). Evidence must support the court's finding that the loss compensated was definite in amount and that such amount was reasonable. Allied Materials Corp. v. Superior Prod. Co., 620 F.2d 224, 227 (10th Cir. 1980).
Castle Home Builders, Inc., 520 B.R. at 106.
TRG alleges that it has incurred actual losses related to the State Court Lawsuits in the form of Legal Fees and damages to or arising out of the Property itself. The court reviews these categories of actual damages to determine if such loss was definite and reasonable.
TRG's evidentiary support for compensation for legal fees consists of over 1,000 pages of invoices and affidavits attached to the Damages Statement. The law firms assisting TRG have mostly focused their efforts on either legal issues stemming from F & D's actions in the state court or those involved in prosecuting the Motion, but some law firms worked on both.
F & D has presented no evidence to counter TRG's showing. Instead, it raises the objections previously considered herein and challenges the reasonableness of damages. In its Closing, F & D notes briefly that multiple law firms are included in TRG's request though only one worked directly on the State Court Lawsuits and that "allowance for such [fees], if any, as damages, must be only [for] those determined as `reasonable and necessary' upon the court's review." F & D's Closing, at p. 24. As a result, the court will consider legal fees incurred by TRG in connection with the State Court Lawsuits in accordance with the definite and reasonable standard articulated above.
TRG seeks damages of $528,329.47 in compensation and $16,417.61 in expenses for costs incurred by the law firm of Duane Morris LLP ("
TRG has also paid the law firm of Freeborn & Peters LLP ("
In connection with the State Court Lawsuits, TRG also hired Michael J. Van Dyke ("
TRG alleges it has incurred over $200,000.00 in legal expenses paid to many other firms for which it does not seek compensation. Kyte Affid., at ¶ 41. Further, Duane, Freeborn and VanDyke also charged TRG additional amounts for matters related to the State Court Lawsuits to which TRG does not seek compensation. Those amounts are not before the court. Only those amounts actually sought are determined here.
The largest category of actual damages sought by TRG is damages relating to the Property. This is where much of the Trial and F & D's objection efforts were focused. As the court previously found, the State Court Lawsuits caused TRG to incur damages related to the Property. These damages consist of costs incurred in maintaining the Property and the lost value due to TRG's delayed ability to sell the Property.
TRG alleges it has suffered actual damages in the amount of $362,382.00 for fees for the cost of managing the Property. Damages Stmt., at pp. 18-20. F & D voiced no objection or argument concerning TRG's assertion of damages in this category. The Project Management Fees are sought for 2016 and 2017, times in which the court has determined that the State Court Lawsuits prevented sales of the Property.
TRG seeks damages in the amount of $7,720,000.00 for lost value of the Property resulting from the encumbrance of the Property by the State Court Lawsuits from the date of the Demand Letter. TRG relies on the SRR Report, which values the Property as of January 1, 2012 under two scenarios. Under Scenario A, all of the lots in the Property are ready for sale, have been marketed and sales commence by January 1, 2012. Under Scenario B, all of the lots in the Property are ready for sale by January 1, 2012, but cannot be sold until January 1, 2018. This second scenario represents the inability to sell the Property as was the case here, due to the State Court Lawsuits. The SRR Report concludes that the value of the Property under Scenario A is $9,435,000.00 and that the value of the Property under Scenario B is $1,715,000.00. The difference between these two values, the Property Value, reflects the lost value to TRG as a result of F & D's pursuit of TRG in the State Court Lawsuits.
The SRR Report was prepared by John W. VanSanten ("
The SRR Report details the data and methodology used by VanSanten and Kreiter in creating it. VanSanten investigated numerous data points to determine the absorption rate for each neighborhood (the number of lots likely to sell per month), other development in the area based on new permits, availability and sales of similar, nearby developments, the absorption rate of the other developments and the disposable income of the neighborhood. Tr. at pp. 138-54, Aug. 28, 2018 PM. VanSanten then appraised the value of each lot depending on whether it was sold in January 2012 in Scenario A or if the sale and development of the lot was delayed until January 2018 in Scenario B. Id. at pp. 154-60. In doing so, VanSanten used the income capitalization approach — the valuation approach used by most developers in valuing real property. Id. at pp. 136-37.
The income capitalization approach is a method used in commercial property valuations to value a series of net cash flows, discounted to obtain the net present value. Tr. at pp. 46-51, Aug. 28, 2018 AM (testimony of Randy Teteak, a former executive of SunCal involved in the TRG purchase). It uses a discount rate in order to account for the time value of money. The SRR Report relies on actual sales data from the period of January 2011 to the date of the SRR Report to determine the sales for each scenario. Scenario A has a higher value because in Scenario A, TRG is able to sell the lots 6 years earlier than in Scenario B. This difference results in a higher net present value in Scenario A because liquidation of the investment and realization of profits occurs sooner.
VanSanten's methodology in the SRR Report is organized, clear and convincing.
At the Trial, F & D attempted to impeach VanSanten and thus discredit the SRR Report and VanSanten's conclusions therein. Despite the fact that SRR Report complied with applicable USPAP standards, F & D argued that the use of real sales numbers after January 2012, though performing a hypothetical sale on January 2012, was an error. F & D offered no alternative evidence to rebut the SRR Report.
F & D instead tendered for the first time at the Trial an advisory opinion from the Appraisal Institute. Tr. at pp. 111-13, Sept. 18, 2018 PM (establishing that the opinion was not provided to the court or the parties by F & D prior to the Trial). VanSanten was nonetheless familiar with the advisory opinion and informed the court that it dealt with prospective and retrospective appraisals. Tr. at pp. 45-55, Aug. 29, 2018 AM. VanSanten explained his use of subsequent information on real estate taxes and sales in valuing the properties by assessing costs and how such use was appropriate in certain situations. Id. at pp. 45-47. This testimony was convincing.
F & D also offered the testimony of Barry to attack the conclusions in the SRR Report. Barry has a residential appraiser's license and is the sole member of the real estate valuation department for Cambridge Partners in Palatine, Illinois. Tr. at p. 90, Sept. 18, 2018 PM. Barry's testimony focused on the advisory opinion. Id. at pp.
In its Closing, F & D again attempts to attack the SRR Report, asserting that "[t]he use of the post valuation date information makes the fair market value as of the valuation date improper." F & D's Closing, at p. 22. The cases cited by F & D in this regard are not helpful. The first case, Miller v. Am. Capital, Ltd. (In re New Starcom Holdings, Inc.), 514 B.R. 394 (Bankr. D. Del. 2014), deals with the valuation of a business in hindsight. A close examination of the case makes clear that the Miller court held that the use of post valuation date information was appropriate in some circumstances. See id. at 402-04. That runs contrary to F & D's theory that the use of such information cannot be appropriate. As the opinion dealt with business stock valuation, not standards applicable to real property, the case was otherwise unhelpful.
The second case, First Nat'l Bank of Kenosha v. United States, 763 F.2d 891 (7th Cir. 1985), is a tax valuation case. It goes further than Miller by clarifying why and how such information may be of use. As the Seventh Circuit stated therein,
Id. at 894 (emphasis added).
The use of the additional sales data here is both relevant and helpful. The SRR Report is thus based on sound methodology, performed by a credible expert and has assisted the court in determining whether F & D's actions have affected the Property held by TRG. The court finds that the Property Value is definite, reasonable and the imposition of such damages against F & D is necessary to remedy the loss incurred by TRG.
The court may also compensate TRG for the damages that it has incurred in successfully prosecuting the Motion. These damages consist of expenses incurred by legal professionals and expenses for expert testimony to support the Motion, such as the SRR Report.
Watkins v. Guardian Loan Co. of Massapequa (In re Watkins), 240 B.R. 668, 678 (Bankr. E.D.N.Y. 1999) (internal citations omitted) (emphasis added); see also ASARCO, 135 S.Ct. at 2164; Walker, 443 F.2d at 35. TRG was successful in prosecuting the Motion and proving that F & D willfully disobeyed this court's Confirmation Order and, therefore, TRG may recover its attorneys' fees.
The Motion seeks sanctions under section 105 of the Bankruptcy Code, which provides no guidance on how the court should determine awards thereunder. Absent statutory guidance on determining compensatory damages, courts have determined that awards for attorneys' fees "must be `reasonable and necessary,' and that courts should `closely scrutinize the fees requested by attorneys for unnecessary and excessive charges.'" Sucre v. MIC Leasing Corp. (In re Sucre), 226 B.R. 340, 351 (Bankr. S.D.N.Y. 1998) (quoting Price v. Pediatric Academic Assn., 175 B.R. 219, 221 (S.D. Ohio 1994)). In order to establish reasonableness of attorneys' fees for matters litigated before the court, courts have often looked to other statutory provisions that deal with determination of reasonable compensation, specifically section 330 of the Bankruptcy Code. In re Price, 143 B.R. 190, 192 (Bankr. N.D. Ill. 1992) (Squires, J.), aff'd sub nom. United States v. Price, 176 B.R. 807 (N.D. Ill. 1993), aff'd and remanded sub nom. In re Price, 42 F.3d 1068 (7th Cir. 1994); see also Adler v. Roman (In re Roman), 283 B.R. 1, 11 (9th Cir. BAP 2002); Sucre, 226 B.R. at 351.
When considering fees under section 330 of the Bankruptcy Code, the court uses the lodestar method to determine reasonableness of compensation. The method calls for the court to
Sucre, 226 B.R. at 351-52 (citing Lindy Bros. Builders, Inc. of Phila. v. Am. Radiator & Standard Sanitary Corp., 487 F.2d 161, 167 (3d Cir. 1973), Johnson v. Georgia Highway Express, Inc., 488 F.2d 714, 717-19 (5th Cir. 1974); Price, 143 B.R. at 192-93).
F & D's objection to TRG's legal fees was broad, based on what was reasonable. No challenge was made under any lodestar factor. Nonetheless, the court will examine all of the damages requested by TRG under the lodestar analysis. In the Seventh Circuit, "[t]he attorney's actual billing rate for comparable work is `presumptively appropriate' to use as the market rate." People Who Care v. Rockford Bd. of Educ., 90 F.3d 1307, 1310 (7th Cir. 1996). Further, as TRG was successful in asserting the Motion, Sughayyer v. City of Chicago, Case No. 09 C 4350, 2012 WL 2359065, at *12 (N.D. Ill. June 20, 2012), the court finds no reason to perform a blanket reduction to fees requested.
Four law firms worked on the Motion for TRG through the various rounds of litigation.
As noted above, the court has reviewed the invoices for legal fees that TRG has paid Freeborn and found the work to be relevant and reasonable. Certain work also related to researching municipal law for the Motion, thus requiring a further lodestar consideration. Damages Stmt., Exh. B. The invoices of Freeborn are supported by the affidavit of Gerald P. Callaghan that states that rates billed by Freeborn are $300.00 to $500.00 per hour and that such rates are consistent with customary charges for similar representation. Id. at ¶¶ 9, 17. Under People Who Care, those rates are presumably reasonable absent an objection. 90 F.3d at 1310. No challenge has been made to Freeborn's time entries or rates charged and all appear reasonable and necessary to TRG's Motion. Freeborn appeared to bring needed legal expertise to a novel and difficult state law question. TRG is therefore awarded the total $132,577.50 it has paid to Freeborn as damages.
TRG also paid the law firm of Pretzel & Stouffer, Chartered ("
VanDyke, mentioned above, worked with Pretzel on the continued litigation of the Motion. TRG has requested compensation based on time billed by VanDyke which is supported by an affidavit of VanDyke. Damages Stmt., Exh. D. VanDyke discounted his rate from $680.00 to $500.00 per hour for TRG and states that such rates are comparable for the assistance given to TRG in the community. Id. at ¶¶ 9, 20. These rates are not challenged by F & D, nor are any of VanDyke's time entries challenged specifically by F & D. The time billed by VanDyke for work related to the Motion was helpful in successfully litigating the Motion and is reasonable and necessary. VanDyke's history in this matter allowed for continuity of representation. The court finds no need to reduce TRG's request and thus TRG is awarded the total $283,222.50
Last, TRG paid the law firm of Vedder Price P.C. ("
Last, TRG seeks damages in the amount of $194,300.00 for Consultant Fees. Damages Stmt., at pp. 17-18. Again, F & D objects solely on the basis of reasonableness and necessity, and presents no contrary evidence. F & D's Closing, at p. 24. As such, the court need only consider the Consultant Fees under the standard already discussed as applicable.
In the Damages Statement, the Consultant Fees are supported with a listing of consultants that TRG has employed, Damages Stmt., at p. 17, and a monthly breakdown of costs incurred. See TRG Costs Summary. At the Trial, Kyte testified that the Consultant Fees included the preparation of the SRR Report and that all of the expenses alleged as Consultant Fees related to F & D's actions. Tr. at pp. 71-72, Aug. 29, 2018 PM. Kyte's testimony regarding the consultants that TRG has had to employ and thus actually pay, based on the unique litigation in which F & D joined TRG, was credible. When given a chance to cross Kyte with respect to these expenses, F & D did not. The court has reviewed the evidence and finds no instance of unrelated or unreasonable
TRG has, therefore, demonstrated to the court that it incurred a total of $1,263,086.54 in reasonable legal fees and expenses that were necessary and related to F & D's efforts against TRG.
Having considered the arguments of the parties at the Trial and in accordance with the court's factual findings, it is the conclusion of the court that TRG is entitled to an award of damages via the imposition of sanctions on F & D in the manner described herein. A separate order to that effect, and lifting the interim stay of this court's previous order requiring dismissal of the State Court Lawsuits, will be entered concurrently herewith.
This matter comes on for continued consideration on the Purchaser's Motion for Entry of an Order (I) Enforcing Confirmation Order; (II) Directing Dismissal of State Court Claims; (III) Awarding Damages; and (IV) Granting Related Relief [Dkt. No. 3969] (the "
NOW, THEREFORE, IT IS HEREBY ORDERED;
1. TRG is awarded damages based on F & D's pursuit of TRG in the State Court Lawsuits
