HONORABLE ELIZABETH S. STONG, UNITED STATES BANKRUPTCY JUDGE.
Before the Court is the motion of the Chapter 7 Trustee Robert L. Geltzer for contempt and sanctions against Karamvir Dahiya, Esq., and Dahiya Law Offices, LLC (together, "Dahiya"), in an adversary proceeding brought in the bankruptcy case of Estella Brizinova and Edward Soshkin. The Trustee commenced this adversary proceeding against the Debtors to recover certain assets from them for the benefit of their bankruptcy estate.
As this Court has observed before, "the prospect of imposing sanctions against a professional is never pleasant for the parties or the court." Kramer v. Mahia (In re Khan), 488 B.R. 515, 521 (Bankr. E.D.N.Y. 2013), aff'd sub nom. Dahiya v. Kramer, 2014 WL 1278131 (E.D.N.Y. Mar. 27, 2014), aff'd, 593 Fed. Appx. 83 (2d Cir. 2015). As this Court has also found:
Id. And as the Second Circuit has noted, "[c]ourts can adjudicate disputes only when the parties present reasoned arguments rather than invective-laden diatribes." Koehl v. Greene, 424 Fed.Appx. 61, 62 (2d Cir. 2011).
The Trustee seeks contempt and sanctions against Dahiya in response to five statements in the Defendants' Motion to Dismiss this adversary proceeding, on grounds that they are highly objectionable and offensive. These statements are:
Mot. to Dismiss at 8, 9, 12, 16, 20. See Sanctions Mot. at 6-7 (the "Statements").
The Trustee also seeks contempt and sanctions against Dahiya in response to a statement in the Defendants' Reply Memorandum in further support of the Motion to Dismiss, on grounds that it is an impermissible disclosure of a statement made during a mediation in Geltzer v. Ng (In re Ng), Case No. 12-01343-CEC, another
This Court has jurisdiction over these proceedings pursuant to 28 U.S.C. §§ 1334(b) and 157(b)(1). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2). And this Court has constitutional authority to enter a final order, because the Trustee's requests for relief stem from these proceedings and "from the bankruptcy itself." Stern v. Marshall, 564 U.S. 462, 499, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). For these reasons, this Court has jurisdiction and the authority to consider and enter a final order on the relief sought here under 28 U.S.C. § 1334(b) and the Standing Order of Reference dated August 28, 1986, as amended by Order dated December 5, 2012, of the United States District Court for the Eastern District of New York.
By this action, the Chapter 7 Trustee seeks to recover certain assets from the Defendants, who are also the Debtors in this bankruptcy case, for the benefit of this Chapter 7 estate. This is not the Trustee's first action to recover assets in this bankruptcy case — the Trustee brought a prior case, Geltzer v. Soshkin, Adv. Pro. No. 14-01040, against the Defendants' sons in March 2014, and this Court approved the settlement of that action later that year.
In this action, the Defendants moved to dismiss the Complaint, and that motion prompted both opposition from the Trustee and this Motion for Contempt and Sanctions (the "Sanctions Motion"). The Defendants' Motion to Dismiss was granted in part and denied in part by Memorandum Decision and Order dated July 20, 2016. The Trustee declined to replead the claim that was dismissed, and the Defendants have answered the Complaint. But this motion remains to be decided by the Court.
By this motion, the Trustee argues that Dahiya should be held in contempt pursuant to Bankruptcy Code Section 105(a) and Bankruptcy Rules 9014 and 9020 for two reasons. First, he seeks an order of civil contempt or coercive sanctions on grounds that by making the Statements in the Motion to Dismiss, Dahiya violated a stipulated order entered by Chief Judge Craig in In re Ng (the "Ng Stipulated Order"). And second, he seeks an order of contempt on grounds that by disclosing a confidential mediation statement in the Reply Memorandum, Dahiya violated a mediation order entered by Chief Judge Craig in that action (the "Ng Mediation Order").
In addition, the Trustee argues that Dahiya should be sanctioned under Bankruptcy Code Section 105 and this Court's inherent authority, on grounds that the Statements and the disclosure of a confidential mediation statement violate the Ng Stipulated Order, the Ng Mediation Order, the Bankruptcy Code and Rules, this Court's Local Bankruptcy Rules, and the New York Rules of Professional Conduct.
The Trustee seeks an order (i) declaring that Dahiya has violated the Ng Stipulated Order, the Ng Mediation Order, the Local Bankruptcy Rules, and New York's Rules of Professional Conduct; (ii) sanctioning Dahiya for those violations; (iii) holding Dahiya in contempt of the Ng Stipulated Order and the Ng Mediation Order; (iv)
The Trustee advances several arguments in support of his requests for contempt and sanctions. Some are based on the Statements made by Dahiya in the context of the Motion to Dismiss, and others are based on matters separate from this adversary proceeding and the Debtors' bankruptcy case.
At the outset, the Trustee notes that in the Ng Stipulated Order, "Dahiya reaffirms his commitment to practice in accordance with the Bankruptcy Code, the Bankruptcy Rules, the Local Rules of this District ... [and] the New York Rules of Professional Conduct," so that any violation of these authorities amounts to contempt of that order. Sanctions Mot. at 5.
The Trustee argues, in forceful terms, that by making the Statements, Dahiya violated the Ng Stipulated Order and several of New York's Rules of Professional Conduct. He characterizes those statements as "unjustified and scandalous personal attacks against me" and "unprofessional, ill-conceived, poorly written and baseless invective." Sanctions Mot. at 6. And he describes those statements and the Motion to Dismiss as "part of [Dahiya's] use and abuse of this Court and its otherwise lawful processes to wage a crusade against me, and not for the otherwise legitimate (though incorrect) position to try to dismiss this Adversary Proceeding." Sanctions Mot. at 7. "Then and now," the Trustee states, Dahiya has "multiplied proceedings," "behaved unreasonably and vexatiously," "increased the costs of the proceedings," and "acted with bad faith and with intentional misconduct." Sanctions Mot. at 7 (emphasis in original).
The Trustee also argues that Dahiya violated the Ng Mediation Order and the Local Bankruptcy Rules by disclosing a confidential mediation communication from the court-ordered mediation in Geltzer v. Ng. In particular, referring to the settlement stipulation in that case, the Trustee states that in the Reply Memorandum, "Dahiya improperly discloses that it `was signed only on the basis of being urged with the words [of Judge/Mediator Stong]: Sometimes, it takes a stronger person to walk away. I decided to walk away.'" Sanctions Mot. at 13 (alterations in original).
In addition, the Trustee argues that Dahiya has engaged in a continuing and sanctionable course of conduct against him and other Chapter 7 trustees, and states that rather than conduct himself professionally, Dahiya "seeks to abuse them and show sheer and unmitigated disrespect for the legal system and this Court." Sanctions Mot. at 15. The Trustee points to other cases where he and other Chapter 7 trustees have sought sanctions against Dahiya, and observes:
Sanctions Mot. at 16 (emphasis in original).
The Trustee observes that in some of those situations, "sadly and regrettably,
The Trustee argues that pursuant to Bankruptcy Code Section 105 and its inherent authority, this Court may sanction Dahiya for making the Statements. He points to four factors identified in Grand Street Realty, LLC v. McCord, 2005 WL 2436214 (E.D.N.Y. Sept. 30, 2005), that courts consider when a creditor impedes the administration of the assets of an estate, and suggests that similar factors should be considered here. In that context, courts look to:
Grand Street Realty, 2005 WL 2436214, at *9.
And finally, for many of the same reasons, the Trustee argues that this Court may find Dahiya in contempt for his knowing violations of the Ng Stipulated Order, in which he agreed to conduct himself in accordance with the applicable provisions of the Bankruptcy Code and Rules, Local Bankruptcy Rules, and Rules of Professional Conduct. And he seeks prospective relief, on grounds that:
Sanctions Mot. at 32.
Dahiya opposes the Sanctions Motion. He denies that he engaged in conduct that violated the Ng Stipulated Order, the Ng Mediation Order, or any applicable provisions of the Bankruptcy Code and Rules, Local Bankruptcy Rules, or Rules of Professional Conduct.
With respect to the Ng Stipulated Order, Dahiya states, among other things, that he reaffirmed his commitment to practice with all of the applicable standards, including the standard that "[l]awyers should be courteous and civil in all professional dealings with other persons." Sanctions Opp. at 4. He notes that "we reaffirm [those standards] every minute and day that we practice. It is something that is expected with or without reaffirmation that one is `courteous and civil.'" Sanctions Opp. at 4.
With respect to the Statements identified by the Trustee, Dahiya questions whether a properly made motion to dismiss under Rule 12(b)(6) can be a sanctionable multiplication of litigation. He argues that sanctioning a defendant for bringing a motion to dismiss would "definitely chill[] advocacy." Sanctions Opp. at 5. He characterizes the Motion to Dismiss as "thoughtful," and the statements it contains as "relevant." Sanctions Opp. at 5, 7. And Dahiya asserts that the Trustee "fails to relate" the language in the Statements to
In addition, Dahiya responds that the Trustee does not show that he acted with any "serious and studied disregard for the orderly process of justice." Sanctions Opp. at 5. He asserts that the Trustee does not provide any support for his claim that by making the Statements in the Motion to Dismiss, Dahiya violated New York's Rules of Professional Conduct. Rather, he states, the Trustee "highlights and underlines words, but does not relate again to anything concrete." Sanctions Opp. at 6. And he observes that the Trustee does not "relate any of his quotation with any conduct, which would attract such a provision." Id.
Dahiya also defends the particulars of the Statements as both accurate and relevant to these proceedings. For example, he states:
Sanctions Opp. at 7.
Dahiya questions whether this Court is able to issue an order of contempt. He notes:
Sanctions Opp. at 12.
Dahiya also questions whether the Trustee has established that he and his firm acted in bad faith. He notes that the Trustee uses "the words of bad faith ... [b]ut fails to show how our assertions are a bad faith, how the motion to dismiss, a bad faith." Sanctions Opp. at 14. He observes that the standard of proof for assessing bad faith is clear and convincing evidence, and that as counsel, he was guided by "the principles of law and zealousness to safeguard the client's interest and righteousness. More than that it is the dignity of the process that is at stake here with the Trustee clearly abusing his powers." Sanctions Opp. at 15.
In reply, the Trustee argues, again in strident terms, that Dahiya "doubled down" and ratified the Statements by repeating them in his opposition submission, including his statements that the Trustee's conduct amounts to extortion. Sanctions Reply at 2. He also states that Dahiya "has continued to act like a `loose cannon' firing off ad hominem attacks in his pleadings in bad faith," that his "arrogance and bad faith show no bounds," and that he "`just doesn't get it.'" Sanctions Reply at 4. He disputes Dahiya's characterization of the process and outcome of several other bankruptcy cases in which he served as Chapter 7 trustee, and sharply criticizes Dahiya's descriptions of those matters.
The Trustee similarly disputes Dahiya's legal arguments, and characterizes them as "ludicrous," "sheer and unadulterated gibberish," and the like. Sanctions Reply at 15-16. He states that "it almost appears that Dahiya has not read, at least not completely, any one of the cases that he cited," and explains in considerable detail
The Trustee looks to several sources of authority and standards in his request for an award of sanctions against Dahiya. These include Bankruptcy Code Section 105 and the Court's inherent authority, the Local Bankruptcy Rules, this District's Local Civil Rules, and New York's Rules of Professional Conduct. And in his application for a finding of contempt, the Trustee points to the terms of the Ng Stipulated Order and the Ng Mediation Order. The Court considers each of these in turn.
Bankruptcy Code Section 105(a) permits a bankruptcy court to "issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." 11 U.S.C. § 105. It also permits the court to, "sua sponte, [take] any action or [make] 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.
The Second Circuit has held that Section 105(a) empowers courts to "exercise equity in carrying out the provisions of the Bankruptcy Code." Smart World Techs., LLC v. Juno Online Servs., Inc. (In re Smart World Techs., LLC), 423 F.3d 166, 184 (2d Cir. 2005). That is, Section 105(a) is an important tool for courts and parties in the bankruptcy process, but it does not, standing alone, provide a basis for courts to issue sanctions or other relief. Rather, it permits the bankruptcy court to issue those orders that may be required in the context of a bankruptcy case as necessary to "carry[] out the provisions of the Bankruptcy Code." Id.
In the sanctions context, this Court's inherent authority supplies the necessary complement to Bankruptcy Code Section 105. As the Supreme Court has observed, courts are "`vested, by their very creation, with power to impose silence, respect, and decorum, in their presence, and submission to their lawful mandates.'" Chambers v. NASCO, Inc., 501 U.S. 32, 43, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991) (quoting Anderson v. Dunn, 6 Wheat. 204, 227, 5 S.Ct. 242 (1821)). As a respected commentator has observed, "[t]his inherent authority is essential to the administration of justice, and exists in addition to sanctions available under specific statutes or Rules." 3 JAMES WM. MOORE ET AL., MOORE'S FEDERAL PRACTICE ¶ 1690 (3d ed. 2012).
The Second Circuit has similarly found that a "court has inherent power to sanction parties and their attorneys, a power born of the practical necessity that courts be able `to manage their own affairs so as to achieve the orderly and expeditious disposition of cases.'" Revson v. Cinque & Cinque, P.C., 221 F.3d 71, 78 (2d Cir. 2000) (quoting Chambers, 501 U.S. at 43, 111 S.Ct. 2123). Sanctions are appropriate under a court's inherent power "where the attorney has acted in bad faith in the actions that led to the lawsuit or in the conduct of the litigation." Wilder v. GL Bus Lines, 258 F.3d 126, 130 (2d Cir. 2001). And courts agree that the attorney's bad faith is the central question to be addressed. See, e.g., Oliveri v. Thompson, 803 F.2d 1265, 1273 (2d Cir. 1986) (applying 28 U.S.C. § 1927 to conclude that sanctions under that statute "must be supported by a finding of bad faith similar to that necessary to invoke the court's inherent power").
Local Bankruptcy Rule 9019-1(l) addresses confidentiality in the context of a court-ordered mediation, and provides:
Nondisclosure of mediation communications is fundamental to the mediation process. The rule preserves the confidentiality of all statements in the mediation process, including the views and suggestions of the mediation participants with respect to possible pathways to a settlement, any settlement proposals advanced by a party or the mediator, and whether a mediation participant was willing to accept a mediator's proposal. Communications of this nature must be protected from disclosure in order to permit an open and candid process, in much the same way that Federal Rule of Evidence 408 generally excludes from evidence "conduct or a statement made during compromise negotiations about [a] claim." Fed. R. Evid. 408(a)(2).
This nondisclosure requirement does not, of course, immunize information from disclosure that is otherwise required by law or by the litigation process. For example, information that must be produced in response to an appropriate discovery request does not become exempt from disclosure simply because it may have also been disclosed in a mediation. But the settlement statements, views, and positions expressed and the settlement proposals made in a mediation are in a different category.
Courts recognize that this precept of confidentiality is a hallmark of the mediation process, because it permits the parties to seek a mutually beneficial, interests-based outcome without fear of compromising a litigation position if the mediation is unsuccessful. As the Second Circuit observed in Savage & Assocs. v. K & L Gates LLP (In re Telegent), 640 F.3d 53 (2d Cir. 2011), many alternative dispute resolution standards "recognize[] the importance of maintaining the confidentiality of mediation communications" because "[c]onfidentiality is an important feature of the mediation and other alternative dispute resolution processes. Promising participants confidentiality in these proceedings `promotes the free flow of information that may result in the settlement of a dispute.'" In re Telegent, 640
Attorneys appearing in the courts in this district "must abide by the ... New York State Rules of Professional Conduct" pursuant to Rule 1.3 of the Joint Local Civil Rules of the United States District Courts for the Southern and Eastern Districts of New York. Azkour v. Haouzi, 2012 WL 4832811, at *4 (S.D.N.Y. Sept. 28, 2012).
Local Civil Rule 1.5(b) addresses discipline of attorneys, and provides that the appropriate forum for hearing and determining whether a disciplinary violation has occurred is the District Court's Committee on Grievances. Local Civil Rule 1.5 also provides that "in the interests of comity and predictability," and absent binding authority, the court will "give due regard to decisions of ... New York State courts." The Committee on Grievances may impose discipline after notice and an opportunity to respond, if it is shown that, among other things, "[an] attorney is found to have engaged in conduct violative of the New York State Rules of Professional Conduct." Local Civil Rule 1.5(b)(5).
New York's Rules of Professional Conduct (the "NY RPC"), which are found at 22 NY CRR §§ 1200 et seq., set standards for attorney conduct in this state. These Rules are also incorporated by reference as a source of standards for attorney conduct in this District's Local Civil Rules. And it is well established that "[b]ankruptcy courts in New York apply New York's Code of Professional Responsibility to ethical disputes."
The Rules of Professional Conduct are enforced in each of New York's four Appellate Divisions by grievance committees established for that purpose, and those committees determine the procedures for handling grievances against attorneys who practice in each department.
Courts have approved discipline for violations of NY RPC 3.1 based on a lawyer making "multiple derogatory and unprofessional attacks upon the personal attributes" of another attorney. In re Raskin,
Courts also have been asked to consider discipline for violations of Rule 3.1 where a lawyer engaged in frivolous conduct. One court noted that in this context, "frivolous conduct includes circumstances `where the lawyer knowingly advances a claim ... that is unwarranted under existing law.'" Pullman v. Alpha Media Publ'g, Inc., 2012 WL 3114939, at *4 (S.D.N.Y. July 31, 2012) (quoting NY RPC 3.1). In declining to disqualify or discipline counsel under this Rule, the court noted:
Pullman, 2012 WL 3114939, at *5.
Another court applied the Professional Conduct Rules pursuant to the Local Civil Rules and noted, in declining to refer the attorney to the District Court's Committee on Grievances, that "[a] violation of ... Rule 3.1 occurs when an assertion of material fact is made that is false," but concluded that one of the statements at issue, expressed in a letter to the court, that the defendants' counsel had "no knowledge whatsoever, of the basic principles of the common law," was an attorney's expression of his opinion, and in any event not "an assertion of a `material fact.'" Azkour, 2012 WL 4832811, at *5 (quoting Pullman, 2012 WL 3114939, at *4).
In a proceeding before the District Court's Committee on Grievances, the committee issued a public reprimand of an attorney on grounds that he violated NY RPC 3.2. The committee concluded that the attorney had delayed or prolonged litigation and caused "needless expense" where he did not comply with court-ordered deadlines or appear at scheduled court conferences, and did not adequately investigate a matter before bringing suit. In re Gluck, 114 F.Supp.3d 57, 60 (E.D.N.Y. 2015).
A knowing, false, and material statement of fact or law to a tribunal is an affront to the legal profession and the justice system, and such statements have led to discipline for violations of NY RPC 3.3(a)(1). For example, in In re Coyne, 136 A.D.3d 176, 22 N.Y.S.3d 434 (1st Dep't
More generally, courts, counsel, and parties are entitled to expect that a threshold level of decorum will always apply in court proceedings. This Court's Civility Standards require no less, and "encourage lawyers ... to observe principles of civility and decorum, and to confirm the legal profession's ... status as an honorable and respected profession where courtesy and civility are observed as a matter of course." United States Bankruptcy Court for the Eastern District of New York, Administrative Order No. 568, Adoption of New York State Standards of Civility, http://www.nyeb.uscourts.gov/content/568-adoption-new-york-state-standards-civility.
Attorneys have been disciplined for violations of NY RPC 3.3(f)(2) based on undignified or discourteous conduct where the attorney, after receiving an unfavorable ruling, "accused the court and its clerk of prejudice and racism, and made other insolent, disrespectful remarks." In re Hayes, 7 A.D.3d 108, 109, 777 N.Y.S.2d 120 (1st Dep't 2004). A violation of NY RPC 3.3's proscription was also found where an attorney "characteriz[ed] opposing counsel as a `pimp' and stat[ed] a desire, thwarted only by age, to `beat the living daylights' out of counsel." In re Pollack, 238 A.D.2d 1, 5, 664 N.Y.S.2d 772 (1st Dep't 1997).
Findings of disciplinary violations of NY RPC 3.4 have been made where an attorney improperly interjected his own view of the facts during a personal injury trial (Valenzuela v. City of New York, 59 A.D.3d 40, 44, 869 N.Y.S.2d 49 (1st Dep't 2008)), and where an attorney disregarded
Few courts have addressed the application of NY RPC 3.4(e)'s proscription against the use of baseless threats of criminal charges to gain an advantage in a civil action. In describing the rule, one court observed that "`when a lawyer threatens to present criminal charges unless an action is taken which remedies a civil wrong, a presumption is likely to arise that [NY RPC 3.4(e)] has been violated.'" United States v. Huntress, 2015 WL 631976, at *22 (W.D.N.Y. Feb. 13, 2015) (quoting New York Bar Ass'n Comm. on Prof'l Ethics Op. No. 722, 2003 WL 23099784, at *7 (Nov. 14, 2003)). The court also noted:
Huntress, 2015 WL 631976, at *22 (quoting New York Bar Ass'n Comm. on Prof'l Ethics Op. No. 722, 2003 WL 23099784, at *6).
Comment 1 to this Rule explains that "[l]awyers are subject to discipline when they violate or attempt to violate the Rules of Professional Conduct ...." Comment 2 explains that "[m]any kinds of illegal conduct reflect adversely on fitness to practice law. Illegal conduct involving violence, dishonesty, fraud, breach of trust, or serious interference with the administration of justice is illustrative of conduct that reflects adversely on fitness to practice law."
Discipline based on a violation of NY RPC 8.4 was approved where an attorney knowingly hired a disbarred attorney to solicit and provide legal services to his clients. In re Weber, 134 A.D.3d 13, 16, 18 N.Y.S.3d 173 (2d Dep't 2015). Similarly, discipline in the form of suspension was imposed based on a violation of this Rule where an attorney exerted undue influence over his client in an attempt to acquire an interest in her bank account and other assets. In re DeSousa, 36 A.D.3d 121, 122, 826 N.Y.S.2d 306 (2d Dep't 2006).
The Trustee argues that pursuant to the Ng Stipulation approved and so-ordered by Chief Judge Craig, Dahiya reaffirmed his commitment to practice in accordance with the Bankruptcy Code and Rules, the Local Bankruptcy Rules, the Professional Conduct Rules, and the Court's Civility Standards. The Trustee notes that this includes the standard that "[l]awyers should be courteous and civil in all professional dealings with other persons," including Dahiya's professional dealings with him. Sanctions Mot. at 5. The Trustee also argues that because the Stipulation was approved by Chief Judge
Dahiya responds, in substance, that he has not violated an order of this Court, the Stipulation, the Bankruptcy Code and Rules, the Local Bankruptcy Rules, or the Professional Conduct Rules. He asserts that he made the Motion to Dismiss thoughtfully, and that the Statements are relevant to the relief that is sought there.
As a threshold matter, the Court must determine whether this is the proper forum to consider the question of whether Dahiya violated the Ng Stipulated Order and Ng Mediation Order entered by Chief Judge Craig. The general rule in this Circuit and elsewhere is that a "violation of an injunctive order is cognizable in the court which issued the injunction, regardless of where the violation occurred." Stiller v. Hardman, 324 F.2d 626, 628 (2d Cir. 1963). As another court of appeals found, "it is the court whose judgment or order has been defied which must try the contempt and pronounce judgment." Dunham v. United States, 289 F. 376, 378 (5th Cir. 1923). And as a district court observed, "[w]hen an individual is in contempt, he or she has been found in violation of a court order. The Court that issues the order that was violated is the Court that determines whether a person is in contempt." Bessette v. Avco Fin. Servs., Inc., 279 B.R. 442, 449 (D.R.I. 2002).
This rule makes sense, for several reasons. It promotes clarity and predictability. This is because an order, unlike a statute, arises in the context of a particular case and is best interpreted and applied by the judge him or herself, within the context of that case. It also promotes judicial economy. It is hard to imagine the quantity of motion practice that could be unleashed if every order in every case could be enforced in any other case. And for many of the same reasons, this rule helps to reduce the risk of inconsistent results that might flow from a limitless number of judges interpreting and applying a court's order in unrelated proceedings.
That is not to say that it is never appropriate for one judge to enforce an order that was entered by another judge in a different case. For example, in the bankruptcy context, courts may distinguish between whether they are asked to enforce a "purely statutory order" such as the automatic stay contained in Bankruptcy Code Section 362 or the discharge injunction set forth in Bankruptcy Code Section 524, on the one hand, and an injunction "individually crafted by the bankruptcy judge," on the other. Beck v. Gold Key Lease (In re Beck), 283 B.R. 163, 169 (Bankr. E.D. Pa. 2002). And sometimes it may not be feasible for the parties to return to the courtroom of the issuing judge.
Here, the Trustee seeks a determination that Dahiya has violated the Ng Stipulated Order and the Ng Mediation Order, and a finding of contempt based on those violations. Those orders were entered by Chief Judge Craig, and the record does not show why the general rule that a "violation of an injunctive order is cognizable in the court which issued the injunction" should not apply. Stiller, 324 F.2d at 628. That is, the Trustee may seek redress for these asserted violations of the Ng Stipulated Order and the Ng Mediation Order from Chief Judge Craig, in the case in which those orders were entered, and not here.
For these reasons, and based on the entire record, to the extent that this motion seeks an order of contempt for violations of the Ng Stipulated Order and the Ng Mediation Order, it is denied without prejudice to a request for such relief in the case in which those orders were entered.
The Trustee argues that by making the Statements, Dahiya violated this Court's Local Bankruptcy Rules and New York's Rules of Professional Conduct. He urges that Dahiya should be sanctioned for these violations pursuant to the Court's inherent authority, including by coercive per diem sanctions, and that Bankruptcy Code Section 105 and Bankruptcy Rules 9014 and 9020 provide the framework for such relief.
Dahiya responds, in substance, that although the Supreme Court has stated that a bankruptcy court "may possess `inherent power ... to sanction `abusive litigation practices,'" this does not address a bankruptcy court's inherent power to impose sanctions under Bankruptcy Code Section 105, and he questions whether that authority exists. Sanctions Opp. at 12 (quoting Law v. Siegel, 134 S.Ct. at 1194). He also disputes that any relief is appropriate.
At the outset, Section 105, entitled "Power of the Court," states that "[t]he court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." 11 U.S.C. § 105(a). As noted above, the Second Circuit has stated that "[t]he court has inherent power to sanction parties and their attorneys, a power born of the practical necessity that courts be able `to manage their own affairs so as to achieve the orderly and expeditious disposition of cases.'" Revson, 221 F.3d at 78 (quoting Chambers, 501 U.S. at 43, 111 S.Ct. 2123). Similarly, a district court has noted that in the context of a request for sanctions, the statutory language "necessary or appropriate" has been "construed ... to mean that Section 105(a) must be exercised in furtherance of specific provisions of the code." Grand Street Realty, 2005 WL 2436214, at *4.
And as this Court noted in Vehifax Corp. v. Georgilis (In re Tires R Us Ltd.), 2016 WL 3475204, at *8 (Bankr. E.D.N.Y. June 17, 2016), "[i]t has long been recognized that a bankruptcy court has the inherent authority to supervise the proceedings that take place before it. This authority includes the ability to impose sanctions on [attorneys] that appear before it." As another court observed, "`Bankruptcy courts, like Article III courts, enjoy inherent power to sanction parties for improper conduct.'" In re Green, 422 B.R. 469, 473 (Bankr. S.D.N.Y. 2010) (quoting Mapother & Mapother, P.S.C. v. Cooper (In re Downs), 103 F.3d 472, 477 (6th Cir. 1996)). See Dahiya v. Kramer, 2014 WL 1278131, at *3 (rejecting the argument that a court's inherent authority to impose sanctions may be exercised by Article III judges only).
That is, under the Bankruptcy Code and controlling Second Circuit precedent, this Court plainly has "the inherent authority to supervise the proceedings that take place before it" and, as part of that authority, the ability to impose sanctions when necessary. In re Tires R Us Ltd., 2016 WL 3475204, at *8. That authority, while rarely to be invoked, is fundamental to the dignity and function of this or any other court.
The standard for imposing sanctions pursuant to the court's inherent authority is appropriately high. In Revson, the Second Circuit concluded that "`[t]o impose sanctions under either [28 U.S.C. § 1927 or the court's inherent] authority, the trial court must find clear evidence that (1) the offending party's claims were entirely meritless and (2) the party acted for improper purposes.'" Revson, 221 F.3d at 79 (quoting Agee v. Paramount Commc'ns Inc., 114 F.3d 395, 398 (2d Cir. 1997)).
Here, the record shows that the Statements contain strong and provocative labels and descriptions, including "extortionist," "threaten into further submission," "unexpected accretion," "frivolous," and "dig more." That language is plainly emotion-laden and it commands attention, though whether it amounts to effective advocacy is a different question. Such rhetorical embellishment generally does not enhance, and may well detract from, the quality of the argument that is being advanced.
But the Trustee has not established by clear evidence that Dahiya acted in bad faith in employing such strident words, or that his conduct was entirely meritless and undertaken for improper purposes. At most, the record shows that Dahiya moved to dismiss the Complaint not only because it fails to state a plausible claim, but also because it was — in Dahiya's view — an abuse of the Trustee's authority in managing these Debtors' Chapter 7 cases. And he advanced those arguments in strong terms. The language in the Statements does not make his arguments more persuasive — but based on the applicable standards, it does not amount to bad faith.
For these reasons, and based on the entire record, the Trustee has not shown that sanctions are warranted pursuant to Bankruptcy Code Section 105 and this Court's inherent authority.
The Trustee argues that Dahiya should be sanctioned because he disclosed a confidential mediation communication in violation of `Local Bankruptcy Rule 9019-1(1). Specifically, the Trustee points to Dahiya's statement in the Reply Memorandum, that he signed the Stipulation "only on the basis of being urged with the words sometimes, it takes a stronger person to walk away. I decided to walk away," and states that this violates the confidentiality that is so vital to the mediation process. Sanctions Mot. at 13.
Dahiya denies that he made an impermissible disclosure or that he violated Local Bankruptcy Rule 9019-1(1) and responds, in substance, that in signing the Stipulation, he did not admit to fault, and that "it is expected with or without reaffirmation that one is `courteous and civil.'" Sanctions Opp. at 4.
The starting point for consideration of the Trustee's argument is Local Bankruptcy Rule 9019-1(l). This rule generally prohibits parties from disclosing "[a]ny oral or written statements made by the mediator, the mediation participants, or others during the mediation process." And Rule 9019-1 refers to Federal Rule of Evidence 408, which protects the confidentiality of most statements in settlement negotiations, as its foundation.
As noted above, courts regularly recognize that the confidentiality of mediation communications is fundamental to the mediation process, for many of the same reasons that Federal Rule of Evidence 408 protects the confidentiality of settlement negotiations and positions. For example, in Bernard v. Galen Group, 901 F.Supp. 778
Bernard, 901 F.Supp. at 784.
And in Lee v. Grand Sichuan Eastern (NY) Inc., 2014 WL 199512 (S.D.N.Y. Jan. 17, 2014), the court sanctioned the plaintiff's attorney where he quoted extensively from statements made by the magistrate judge during a settlement conference in both his Rule 11 motion and his opposition to a summary judgment motion.
A close review of the statement made by Dahiya is both necessary and helpful to address the Trustee's arguments that sanctions are warranted here. In the Reply to the Trustee's Opposition to the Motion to Dismiss, Dahiya addresses the Ng Stipulation and states, "it was an Agreement, that was signed only on the basis of being urged with the words: `Sometimes, it takes a stronger person to walk away.' I decided to walk away." Mot. to Dismiss Reply at 14.
The proscription of Rule 9019-1, while broad, is also precise, and it bars the disclosure of oral or written statements made "by the mediator, the mediation participants, or others during the mediation process." Local Bankruptcy Rule 9019-1. At a minimum, then, as a general matter, a violation of this rule requires the disclosure of both a statement and, directly or by implication, the identity of the mediation participant who made it. Often, the identity of the speaker will be evident — such as, for example, where a settlement demand or offer is revealed. Here, however, that is not the case.
That is, Dahiya does not connect the statement to any particular mediation participant, or even necessarily to the mediation, as opposed to the process that led to the settlement. He does not identify who urged him to consider "that sometimes it takes a stronger person to walk away," when that statement was made, or the context in which it occurred. Indeed it was the Trustee, not Dahiya, that attributed the statement to the mediator. Mot. to Dismiss Opp. at 13.
For these reasons, and based on the entire record, the Trustee has not shown that Dahiya violated Local Bankruptcy Rule 9019-1 by disclosing a confidential mediation communication. For the same reasons, the Trustee has not shown that sanctions are warranted based on a violation of this Rule.
The Trustee also asks the Court to impose sanctions on Dahiya on grounds that language employed in the Statements amounts to a violation of New York's Rules of Professional Conduct. The Trustee argues, in substance, that the Statements are false, that the Statements were made frivolously and in bad faith, that they are not based on Dahiya's personal opinion after analyzing the facts with respect to evidence of extortion or threats by the Trustee, or "how quickly [he] closes cases," and that Dahiya has needlessly multiplied these proceedings and compounded the violations
This is an unusual request for relief. The imposition of sanctions or other harsh consequences based on the use of strong and offensive language by counsel should be reserved for the most extreme situations. Language that is viewed as forceful rhetoric in support of a client's cause by one lawyer may be perceived as sharply and sanctionably obnoxious by another. Adjectives and adverbs rarely render a brief, an oral argument, a decision, or an order more persuasive or compelling. A pointed metaphor may shed light on a novel argument, but intemperate or inflammatory prose may obscure it. For all of these reasons, lawyers, parties, and courts alike share a responsibility to assure that court proceedings are conducted at a suitable level of professional decorum and with manifest respect for each and all of the participants.
Few courts have addressed the imposition of sanctions for violations of the Professional Conduct Rules based on an attorney's use of offensive language in reported decisions. But guidance can be found in decisions where an attorney's professionalism is called into question in the context of requests for sanctions or other relief.
The Second Circuit addressed whether sanctions imposed sua sponte by the district court under 28 U.S.C. § 1927 were warranted in 60 East 80th Street Equities, Inc. v. Sapir (In re 60 East 80th Street Equities, Inc.), 218 F.3d 109 (2d Cir. 2000). There, the court affirmed the district court's award of sanctions and imposed additional sanctions on several grounds, including that the position advanced by the attorney was "completely without merit" and advanced in bad faith. The court observed that the attorney's "bad faith and vexatiousness" were "most evident ... in the nature of his arguments ... in which he disparaged and made unsubstantiated allegations impugning the integrity of the Bankruptcy Court Judge and the Trustee — claims which had absolutely nothing to do with the merits of his case." In re 60 East 80th Street Equities, 218 F.3d at 116. The court continued:
In re 60 East 80th Street Equities, 218 F.3d at 116-17. The court concluded that bad faith could be inferred from the "clear lack of merit of the claims" and "the numerous attempts to impugn the integrity of a federal judge and fellow attorney through totally unsubstantiated abusive and slanderous statements." In re 60 East 80th Street Equities, 218 F.3d at 117.
Several courts have explored the boundary between language that is strong but not sanctionable and language that crosses the line and triggers consequences, including sanctions and dismissal. For example, in Jermosen v. Coughlin, 878 F.Supp. 444 (N.D.N.Y. 1995), the defendant sought dismissal of the plaintiff's complaint as a sanction for his use of "foul and threatening language." Jermosen, 878 F.Supp. at 449. The court declined to impose the sanction of dismissal, and observed:
Id.
To similar effect, in Rhoden v. Allen, 1997 WL 158326 (N.D. Ill. Mar. 31, 1997), the court declined to dismiss a pro se inmate's complaint on grounds that he used "`foul and abusive language'" and made "numerous vulgar references." Rhoden, 1997 WL 158326, at *4. At the same time, the court found that "these editorial comments are abusive and foul and have no place in these proceedings," admonished the plaintiff "to cease using such language in any further submissions to the court or correspondence with ... counsel," and stated that the "future use of such abusive or threatening language, in this or any other cases, will be considered malicious and will result in dismissal of his claim." Id.
Here, the Trustee points to several of the Professional Conduct Rules and argues that Dahiya should be sanctioned because his conduct in making the Statements runs afoul of their proscriptions. He cites NY RPC 3.1(b)(3), which defines frivolous conduct as, among other things, where "the lawyer knowingly asserts material factual statements that are false." NY RPC 3.1(b)(3). He also cites NY RPC 3.2, which addresses litigation delay, and NY RPC 3.3(a)(1) and 3.3(f)(2), which address a lawyer making or failing to correct a false statement to a tribunal, and a lawyer engaging in discourteous conduct before a tribunal. And he cites NY RPC 8.4, which
The Statements include the phrases "extortionist journey," "threaten a family into further submission, "reach deeper to extort more settlement," "inspiration to Geltzer to dig more," and the assertion that the Trustee delays in closing cases because of "[u]nexpected accretion." As noted above, this language is strong and provocative, and to the Trustee, it is offensive. At the same time, viewed in the context of the Motion to Dismiss, the Statements are more accurately viewed as rhetorical flourishes than as knowing and material statements that are false. That is, the Trustee has not shown that the Statements are "material factual statements that are false" with respect to the relief sought in the Motion to Dismiss or otherwise frivolous, or that they amount to a sanctionable violation of NY RPC 3.1. See Azkour, 2012 WL 4832811, at *5 (concluding that the statement that opposing counsel had "no knowledge, whatsoever, of the basic principles of common law" did not violate NY RPC 3.1 because it was not "an assertion of a `material fact'").
The Trustee also argues that the Statements are sanctionable as violations of NY RPC 3.4(d)(3), which prohibits an attorney from asserting a personal opinion "before a tribunal on behalf of a client ... as to the justness of a cause, the credibility of a witness, the culpability of a civil litigant or the guilt or innocence of an accused." NY RPC 3.4(d)(3). The rule does not prohibit all expressions of personal opinion, and permits an attorney to argue "for" any position or conclusion" based on an analysis of the evidence. NY RPC 3.4(d)(3). The purposes of the rule include maintaining the appropriate distinctions between argument and evidence, and between the lawyer's professional advocacy and his or her personal views.
Here, Dahiya has made arguments on behalf of his clients in a manner that reflects his belief in the justness of their cause. And as noted above, "`advocacy is an art in which the unrelenting pursuit of truth and the most thorough self-control must be delicately balanced,' and `zealous advocacy in behalf of a client can never excuse contumacious or disrespectful conduct.'" In re Khan, 488 B.R. at 521. The language that he employs is strong, but it does not cross the line that separates permissible zealous advocacy from impermissible and sanctionable personal opinion as to "the justness of a cause, the credibility of a witness, the culpability of a civil litigant or the guilt or innocence of the accused." That is, the Trustee has not shown that the Statements are impermissible and sanctionable assertions of personal opinion that violate NY RPC 3.4(d)(3).
And the Trustee looks to NY RPC 3.4(e), which prohibits "threat[s] to present criminal charges solely to obtain an advantage in a civil matter," and asserts that Dahiya's statements run afoul of this rule because they are, among other things, "bad faith accusations that falsely accuse me, as Trustee, of criminal conduct." Sanctions Mot. at 26. This rule reflects the enormous significance of a threat to pursue criminal charges and imposes on lawyers the obligation not to do so solely to gain advantage in a civil matter.
A violation of Rule 3.4(d)(3) requires at least three matters to be shown: first, an attorney must threaten to present criminal charges; second, the attorney must do so to gain an advantage in a civil matter; and third, the attorney must make the threat "solely" to gain that advantage. The Statements include references to the Trustee's "extortionist journey," the Trustee's intent "to threaten a family into further submission," and the Trustee's devising "ways to
The Trustee understandably objects to even the perceived suggestion that his conduct is in the nature of the crime of extortion. Even if these assertions are viewed as consistent with a threat to present criminal charges, the Trustee has not shown that Dahiya actually threatened to present criminal charges of extortion against him, or that he did so solely to gain an advantage in this adversary proceeding. That is, the Trustee has not established that Dahiya should be sanctioned for violating NY RPC 3.4(e) by threatening "to present criminal charges solely to obtain an advantage in a civil matter," which is what the Rule 3.4(e) prohibits.
For these reasons, and based on the entire record, the Trustee has not shown that Dahiya violated the New York Rules of Professional Conduct by making the Statements. For the same reasons, the Trustee has not shown that sanctions are warranted based on violations of these Rules.
For the reasons stated herein, and based on the entire record, to the extent that the Trustee seeks an order of contempt for violations of the Ng Stipulated Order and the Ng Mediation Order, the Motion for Contempt and Sanctions is denied without prejudice to a request for such relief in the case in which those orders were entered. In all other respects, the Motion for Contempt and Sanctions is denied. An order in conformity with this memorandum decision shall be entered simultaneously herewith.
