PETER C. McKITTRICK, Bankruptcy Judge.
Defendants have filed two motions for attorney fees in this adversary proceeding. First, on May 31, 2018, they filed an Application for Attorney's Fees. Doc. 387. This followed the court's entry of judgment against plaintiff after defendants were granted summary judgment on all of plaintiff's claims. Second, on December 11, 2019, they filed their Second Motion for Attorney's Fees, seeking all fees incurred in this adversary proceeding. Doc. 583. This followed the court's entry of judgment for defendants after the trial on their counterclaims. They request a total of $267,663.50 in fees and $24,682.02 in costs, for a total of $292,345.52. For the reasons explained below, I will exercise the court's inherent authority to award as a sanction attorney fees in the amount of $134,166.50 and $13,242.47 for costs and expenses.
Plaintiff filed three responses to the initial Application for Attorney's Fees. Doc. 392, 393, 401, and one response to the Second Motion for Attorney's Fees, Doc. 604. The court has reviewed the applications and responses, and concludes that the matter can be decided without oral argument.
Plaintiff raises a number of procedural arguments, which I will address before addressing his substantive arguments.
First, plaintiff seeks denial of the fees because defendants failed to include the conferral certification required by LBR 7007-1(a). Doc. 392.
Plaintiff is correct that defendants' first application for attorney fees — and the second application as well — fail to include a pre-filing conferral certification. It is not entirely clear that the conferral certification of LBR 7007-1(a) applies to applications for attorney fees and expenses sought by a party as sanctions in an adversary proceeding. Assuming that it does, LBR 7007-1(a)(2) allows the court to deny a motion that fails to include the certification; it does not require denial on that basis. I decline to exercise my discretion to deny defendants' applications on the basis of lack of a conferral certification.
Second, plaintiff argues that, because the underlying judgment in this adversary proceeding is on appeal, this court lacks jurisdiction to act on the fee request. Doc. 393. Plaintiff is wrong. Although a notice of appeal divests the trial court of jurisdiction over the subject matter of the appeal, it does not prevent the court from deciding ancillary matters such as requests for attorney fees.
Next, plaintiff claims that this court's "murderous rage" toward him deprives the court of jurisdiction to consider the fee application. Doc. 604. Plaintiff's assertion that this court has exhibited such conduct toward plaintiff or any other party is belied by the record in this case. The court has jurisdiction to decide whether to award attorney fees and costs in this adversary proceeding.
Fourth, plaintiff argues that the application for fees must be denied because defendants failed to give the notice of motion required by LBR 9013-1(b). That rule by its terms applies only in contested matters. This motion for fees and costs is a part of the adversary proceeding. Therefore, the rule does not apply. Plaintiff received notice of the motion through ECF, based on his request, which the court granted, to be an electronic filer.
Fifth, he argues that the application for fees and costs must be denied because defendants waived their right to fees and costs requested in the original application when they did not reply to his objection to that request. He reasons that LBR 9021-1(d)(3)(A) allows a party to reply to any objection to a cost bill within 14 days. LBR 9021-1(d)(3)(B) provides that, if there is no objection filed, the costs requested may be taxed. He also argues that the fees and costs must be denied because the cost bill was not verified as required by LBR 9021-1(d)(2).
Defendants seek their fees and expenses as a sanction for plaintiff's bad faith and vexatious behavior, not as fees and costs to be allowed to a prevailing party pursuant to Fed. R. Civ. P. 54(d), made applicable through Fed. R. Bankr. P. 7054(b). Thus, LBR 9021-1(d) relating to objections to a cost bill and the verification of a bill of costs does not apply. Nor does 28 U.S.C. § 1924, which relates to "the taxing of conventional costs as defined in Section 1920 of Title 28, and does not purport to limit the imposition of penalties beyond the ordinary costs" as a sanction.
I turn now to the merits of the motions.
The initial request for attorney fees cited two bases for an award: Fed. R. Bankr. P. 7037, which makes Fed. R. Civ. P. 37 applicable in adversary proceedings, and 28 U.S.C. § 1927. The second request for fees incorporated those two bases and added others: Fed. R. Bankr. P. 9011, 11 U.S.C. § 105, and the court's inherent authority.
Generally, under the American Rule, a prevailing party in federal court is not entitled to an award of attorney fees.
Defendants assert that they are entitled to attorney fees under Fed. R. Civ. P. 37(c)(2), because plaintiff failed to admit certain facts in defendants' requests for admissions that were later proven to be true.
Rule 37(c)(2) provides:
The court must order payment of expenses including fees, unless certain facts exist. Fed. R. Civ. P. 37(c)(2)(A)-(D).
Defendants served plaintiff with requests for admission on February 27, 2017. Plaintiff responded on March 29, 2017. After a hearing on defendants' motion to deem plaintiff's responses as admissions, the court entered an order deeming plaintiff's responses as denials of the truth of the facts set out in the requests for admission. Doc. 122.
The requests for admission on which defendants rely for this request for sanctions are Requests No. 2 through 15, all of which were deemed denied. These requests all sought admissions that plaintiff's claims were unfounded. Defendants argue that many of the requests were proven true when the court entered summary judgment on all of plaintiff's claims.
I will not award costs and attorney fees under Rule 37(c)(2). First, some of the claims that were dismissed on summary judgment were dismissed not because of lack of proof, but because they were barred by the statute of limitations (conversion claim (Doc. 368 at p.9) and emotional distress claim (
Second, even if plaintiff had admitted all of the facts for which defendants sought admissions, it is not clear that defendants could have avoided the costs of filing a motion for summary judgment. It is doubtful at best that, had plaintiff admitted the facts in the request for admissions, plaintiff would have voluntarily dismissed this complaint. Defendants would have still needed to file a motion for summary judgment, with all of the expense that entails, in order to obtain dismissal of plaintiff's claims. Therefore, the expenses they seek in this request for attorney fees would have been incurred even if plaintiff had made the admissions as requested.
I conclude that defendants are not entitled to their attorney fees and costs under Rule 37(c)(2).
Defendants assert that they are entitled to their fees in this adversary proceeding under 28 U.S.C. § 1927, which provides:
They list a number of actions plaintiff took in connection with the case that they say shows that plaintiff acted unreasonably and vexatiously.
Plaintiff argues that section 1927 does not apply to pro se litigants. Although there is case law in other circuits holding that 28 U.S.C. § 1927 does not apply to pro se litigants because they are not persons "admitted to conduct cases" in federal courts,
Nonetheless, defendants are not entitled to an award of their fees and costs under this statute. Although there is not nationwide agreement on the issue, in the Ninth Circuit, bankruptcy courts are not authorized to impose sanctions under section 1927.
The Ninth Circuit Bankruptcy Appellate Panel has recognized that this interpretation of the definition of "court of the United States" in section 451 applies equally to use of the same phrase in 28 U.S.C. § 1927, and therefore bankruptcy courts are not authorized to sanction under that statute.
Defendants argue that bankruptcy courts are authorized to award attorney fees as sanctions under section 1927, citing
Therefore, this court may not award defendants their attorney fees and expenses pursuant to 28 U.S.C. § 1927.
Defendants also ask that their fees and costs be awarded for plaintiff's violation of Fed. R. Bankr. P. 9011(b), based on plaintiff's filing of a frivolous complaint to commence this adversary proceeding.
Rule 9011 allows a court to award sanctions against an attorney or pro se litigant who files an unfounded or frivolous motion or pleading with the court. "A motion for sanctions under this rule shall be made separately from other motions or requests[.]" Fed. R. Bankr. P. 9011(c)(1). Further, the rule contains a safe harbor; a motion for sanctions under Rule 9011 may not be filed unless the moving party has first served the motion on the offending party and that party has not, within 21 days, withdrawn or corrected the challenged document. Fed. R. Bankr. P. 9011(c)(1)(A).
Defendants did not file their Rule 9011 motion separately from other motions; they simply included the rule as authority in support of their motion for attorney fees. Further, there is nothing in the record that would indicate that they served the motion on plaintiff at the outset of the case, giving him 21 days to withdraw his adversary complaint. Because defendants failed to comply with the separate motion and safe harbor provisions of the rule, they are not entitled to receive their fees and costs as sanctions under Rule 9011.
Defendants also rely on the court's inherent authority and 11 U.S.C. § 105 in support of their request for attorney fees and expenses.
Federal courts, including bankruptcy courts, have inherent authority to impose sanctions for a litigant's bad faith conduct.
To impose sanctions under the court's inherent authority, I must find that plaintiff acted "in bad faith, vexatiously, wantonly, or for oppressive reasons,"
The first question is whether defendants' motions for fees and costs provided adequate notice that the fees were being sought as a sanction under the court's inherent authority. To comport with due process, plaintiff must have received
Here, defendants asserted a right to attorney fees in their counterclaims, which were filed nearly three years ago, in March 2017. Doc. 66. In addition, defendants' first Application for Attorney's Fees and Costs, Doc. 387, sought their fees and costs under 28 U.S.C. § 1927 as a sanction for plaintiff's "unreasonable and vexatious conduct," setting out eleven categories of actions they claim support the sanction. Their Second Motion for Attorney's Fees and Costs, Doc. 583, states that they are seeking their attorney fees and costs as sanctions for plaintiff's bad faith conduct under a number of sources of authority, including section 1927 and the court's inherent authority. Although defendants do not separately articulate plaintiff's specific conduct that is sanctionable under this court's inherent authority, they do so in their discussion of why sanctions should be imposed under 28 U.S.C. § 1927.
The standards for awarding sanctions under section 1927 and the court's inherent authority are functionally the same. "Sanctions pursuant to section 1927 must be supported by a finding of subjective bad faith."
Defendants argue that plaintiff's conduct in this adversary proceeding was unreasonable and vexatious, and that plaintiff filed a frivolous case, warranting sanctions under the court's inherent authority. Because that argument was more fully articulated in their discussion of section 1927, and the same bad faith finding is required to support an imposition of sanctions under both section 1927 and inherent power, defendants' motions and counterclaim provided adequate notice that they were seeking their attorney fees and costs under the court's inherent authority. Plaintiff was on notice that defendants were seeking sanctions for his bad faith conduct under section 1927 and the court's inherent authority. Defendants adequately described the conduct that warrants sanctions under section 1927. Because that same conduct supports an award of sanctions under the court's inherent authority, it provides adequate notice.
Plaintiff had the opportunity to be heard; he filed responses to each request for fees and costs, Doc. 401, 604, arguing that an award of fees and costs should not be made for various reasons, including that he did not engage in the conduct defendants listed in their motions.
Thus, I conclude that defendants' counterclaim and motions provided adequate notice that they were seeking sanctions under the court's inherent authority based on plaintiff's bad faith conduct, including the filing of a frivolous complaint. Plaintiff had the opportunity to respond to the specific allegations made by defendants before sanctions were imposed, and in fact he did so respond.
The second issue is whether plaintiff's conduct warrants an award of sanctions. Plaintiff argues that defendants' list of instances of bad faith conduct is not specific enough to apprise him of what conduct is at issue. He complains that defendants say in their brief that they will provide specific citations to each instance of misconduct on request. He then argues that he did not do any of the things defendants list as bad faith conduct, and that he needs discovery and an evidentiary hearing on the specific accusations.
Although it is true that defendants' lists of instances of unreasonable and vexatious conduct are somewhat general and listed by category, plaintiff is well aware of the many instances and facts that demonstrate that this litigation was abusive and his conduct was vexatious. This court has observed and been called upon to act on many instances of misconduct that fit within those categories, as plaintiff well knows. The filing of this frivolous adversary proceeding and plaintiff's conduct of the litigation were among the factors that caused this court to enter a pre-filing vexatious litigant order against plaintiff.
The list all of plaintiff's frivolous and unwarranted actions that have both caused defendants to incur costs of responding and required wasted effort by the court are too numerous to list in their entirety. The court has had to rule on several of plaintiff's arguments and motions that were based more on personal attacks on the parties, lawyers, and the court than on any cogent legal theory. I have found that the filing of the complaint in this adversary proceeding was frivolous. Plaintiff was sanctioned for discovery violations. Doc. 163. Plaintiff filed many motions to extend time for filing documents or to set over hearings, most of which were denied.
These are just a few of the frivolous, unfounded documents and arguments plaintiff filed in this adversary proceeding. Plaintiff's conduct in this adversary proceeding is the most egregious, abusive conduct this court has observed, both on the bench and as an attorney. Plaintiff's filings are often abusive and vitriolic, and without basis in law or fact. Plaintiff has multiplied the proceedings by filing numerous unfounded motions and sought to delay the proceedings and increase costs. Based on the fact that the complaint itself was frivolous and without any objective basis as well as plaintiff's conduct during the course of the adversary proceeding in filing motions and documents that lacked merit and were filed only to create delay or confusion, all of which caused defendants substantial attorney fees and expenses that should never have been necessary, I conclude that this is an exceptional case and that defendants are entitled to an award of all of their reasonable attorney fees and expenses in defending against plaintiff's complaint.
The court has considered plaintiff's other arguments and rejects them without discussion.
The final issue is the amount of fees and costs the court should award. Defendants seek all of the fees and expenses incurred in this adversary proceeding, as well as fees and expenses incurred in related matters. It is reasonable to award the fees and expenses incurred in defending against plaintiff's complaint. However, there are categories of fees and costs that I will disallow. What follows is an explanation of the disallowed fees and expenses, as well as the code for that reason that is used in the attached exhibits to indicate the reason for disallowance.
A. Fees and costs incurred in pursuing the counterclaims in this adversary proceeding (CC):
I find that defendants are not entitled to their attorney fees and costs in pursuing their counterclaims (for wrongful use of civil proceedings and vexatious litigant designation) against plaintiff. Although the counterclaims may have never been filed if plaintiff had not filed the complaint in this adversary proceeding, it was defendants' choice to file and pursue their counterclaims. The misconduct on which they rely for their request for fees and costs in the second application, which covers the prosecution of the counterclaims, is the same as the conduct relied on in their first application, which related to defending against plaintiff's claims (before summary judgment), with the addition of a twelfth category relating to frivolous appeals and motions to withdraw reference. As I explain below, I will not award fees and costs related to the appeals. To the extent the motion to withdraw reference was litigated in district court, it was done after this court had disposed of plaintiff's claims and affected only the counterclaims. Defendants do not identify any other conduct by plaintiff in his defense of their counterclaims in support of their request for sanctions. Therefore plaintiff will not be required to pay for defendants' fees and costs incurred in prosecuting the counterclaims.
B. Fees awarded against Susan Szanto in the California subpoena litigation (SS):
Defendants' fee itemization includes some entries that were included in their request for fees in their contempt action against Susan Szanto in the California subpoena litigation. The California court awarded some but not all of the fees requested. However, I am unable to tell from the California court's order which fees were allowed and which were not. Therefore, I will disallow all fees included in both the fee itemization filed in this adversary proceeding and in the request for fees in California, because I cannot tell whether those fees have already been allowed.
C. Fees and expenses incurred in pursuing Susan Szanto in the California district court (CDC):
Some of the fees and expenses were incurred in pursuing Susan Szanto for contempt, responding to her motions and arguments in the California district court, and attempting to collect the fee award from her. Susan's actions are not directly attributable to plaintiff. Further, the pursuit of Susan's deposition, which led to the contempt matter, related to the counterclaims, not to plaintiff's claims against defendants. Therefore, I will disallow fees and expenses that I can tell relate to the Susan Szanto California district court matter.
D. Fees for attorney conferences that were charged by both attorneys (AC):
The itemization shows charges by one attorney for conferring with another attorney. Where both attorneys involved in the conference charged for the same conference, I will allow the higher billing rate entry and disallow the lower billing rate entry.
E. Fees incurred related to Peter Szanto's main bankruptcy case (MC):
There were several entries in the fee itemization that related to counsel's tracking of or involvement in matters related to the main bankruptcy case. Those charges are not directly related to plaintiff's bad faith conduct in this adversary proceeding, and they will be disallowed.
F. Fees and costs incurred in plaintiff's appeals of matters in the adversary proceeding (AP):
Counsel charged for some work that was done on plaintiff's appeals of decisions in this adversary proceeding, and defendants request expenses relating to appeals. Those charges are not directly related to plaintiff's bad faith conduct in this adversary proceeding and will be disallowed.
G. Incomplete entries (IC):
Some entries in the fee itemization were incomplete, making it impossible for the court to determine what work was done that supported the charges. As a consequence, I cannot tell whether the charge is reasonable, and the charge will be disallowed.
H. Fees incurred in the California domestic violence case (DV):
Fees incurred in the California domestic violence case are not directly related to plaintiff's bad faith conduct in this adversary proceeding, and will be disallowed.
I. Fees incurred in working on a motion to withdraw reference (WD):
The itemization includes fees incurred in drafting a motion to withdraw reference which was not, as far as I can tell, ever filed. It is not reasonable to award fees for that unfiled motion.
J. Fees charged that were previously awarded as discovery sanction (DS):
The fee itemization contains charges that were awarded as a discovery sanction in 2017. Those fees are duplicative and will be disallowed.
K. Fees incurred in Nevada case (NV):
The itemization contains fees related to a Nevada hearing and restraining order. That case is not directly related to plaintiff's bad faith conduct in this adversary proceeding. The fees will be disallowed.
L. Other (OT):
There are a few other fees that will be disallowed for other reasons. These include excessive fees for preparing these fee applications, fees related to monitoring a different adversary proceeding (brought by the United States Trustee to deny plaintiff a discharge), fees in the second application that duplicate fees charged in the first application, as well as other miscellaneous items. Those will be disallowed.
M. Block billing (BB):
Defendants did not segregate their fees to assure that they are requesting only fees that are reasonably related to this adversary proceeding and have not already been awarded in other contexts. Their failure to segregate their fees has made it more difficult for the court to determine which fees are allowable and which are not. Further, many entries include a variety of tasks billed in a block, without breaking down the amount of time spent for each task. To the extent fees are block billed and include some tasks that are allowable and some tasks that are not, the fees for that entire block of time will be excluded.
Attached to this Memorandum is Exhibit A, which sets out attorney fees that are disallowed from defendants' fee itemization from the first application for fees and costs. Only disallowed fees are listed. If only a portion of the itemization entry is disallowed, a description is included. If the entire charge is disallowed, no explanation is provided other than the code showing the reason for disallowance. Attached to this Memorandum is Exhibit B, which sets out attorney fees that are disallowed from defendants' fee itemization from the second application for fees and costs. This exhibit uses the same process for explanation as Exhibit A. Fees not listed in Exhibit A or Exhibit B will be allowed as reasonable fees to be imposed as a sanction for plaintiff's bad faith conduct in this adversary proceeding. The total amount of attorney fees to be awarded on defendants' first and second application for fees is $134,166.50 ($267,663.50 minus $133,497.00). The remainder of the fees, $133,497.00, are disallowed.
Attached to this Memorandum is Exhibit C, which sets out the costs and expenses that are disallowed from defendants' itemization included with their first application for fees and costs. Disallowed costs are designated using the codes set out above. All costs listed in the costs itemization attached to the second application for fees and costs are disallowed, as they all relate to expenses incurred in prosecuting the counterclaims or other matters, not in defending against plaintiff's bad faith conduct in bringing and prosecuting his claims against them. The amount disallowed from the second application is $1,599.01.
The total amount of expenses that will be awarded as a sanction for plaintiff's bad faith conduct is $13,242.47 ($24,682.02 minus $11,439.55). The remainder, $11,439.55, are disallowed.
Counsel for defendants should submit an order allowing the fees and costs as set forth above.
Below is an opinion of the court.