Petition — Kaye v. Luce
Supreme Court brief1982
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ALEXANDER L. STEVAS,
CLERK
IN THE
Supreme Court of the United States
October Term, 198!
MICHAEL KAYE,
Petitioner,
v.
LUCE, FORWARD, HAMILTON & SCRIPPS;
and THEODORE W. GRAHAM,
Respondents.
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
MICHAEL KAYE
610 Chalcedony Street, No. 4
San Diego, California 92109
Telephone: (714) 483-7483
Petitioner Pro Se
May 24, 1982
INTERIM PrinTinG & MAILING COMPANY
1105 West Morena BOULEVARD, SAN DieGo, CALIFORNIA 92110 — 275-3050
rae
QUESTIONS PRESENTED
1. Whether due process in a fee sanction case under Roadway
Express, Inc. v. Piper, 447 U.S. 752 (1980), requires: (a) specification of
charges and advance notice of hearing prior to any consideration of
sanctions, (b) bifurcation of the sanction hearing from any hearing on the
merits in the case in chief, and (c) opportunity at the sanction hearing to
call favorable witnesses and to confront and cross-examine adverse
witnesses, before the District Court may recommend the disbarment of
an attorney in an opinion earmarked for publication or impose monetary
sanctions against the attorney in an amount exceeding $36,000.
2. Whether a Roadway Express fee sanction in an amount exceeding
$36,000 for filing a motion to reopen a bankruptcy case is sufficiently
tantamount to a tort judgment for malicious prosecution or abuse of
process to warrant the Seventh Amendment safeguard of trial by jury.
3. Whether the assessment of a punitive fee sanction against an
attorney for an alleged abuse of process, “bordering on attempted fraud
upon the Court,” is so functionally indistinguishable from a fine for
criminal contempt as to necessitate trial by jury under the Sixth
Amendment when the amount of the penalty exceeds $36,000.
4. Whether district judges have discretionary power under Rule 7 of
the Federal Rules of Appellate Procedure to deter or obstruct appeals
from their own decisions by imposing exaggerated cost bond assessments
which bear no reasonable relationship to actual costs and which
exceed an appellant's financial resources, or whether 28 U.S.C. § 47
compels a narrower reading of Rule 7 and confines the district judge's
discretion to the setting of a bond amount which approximates as closely
as possible the actual costs that would be taxable in the appellee's favor if
the appeal fails.
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TABLE OF CONTENTS
QUESTIONS PRESENTED.............2.ccseeeeees
TABLE OF AUTHORITIES ...............seceeees
a au dsdauusecenceess
FES EONS so eccccsccccccccscccccccccccccccccces
CONSTITUTIONAL, STATUTORY, AND RULE
PROVISIONS INVOLVED ..............00000:
STATEMENT OF THE CASE ..............seeeeeee:
Ge Fv accudadbaedicvvcd debe bbdhcbivetic<c
C. Review Is Warranted To Determine Whether
Distr ct Courts Must Fix Cost Bond Assessments
10
15
TABLE OF AUTHORITIES
CASES
Adkins v. DuPont Co., 335 U.S. 331 (1948)............
Aetna Insurance Co. v. Kennedy, 301 U.S. 389 (1937)...
Albertson v. Raboff, 46 Cal.2d 375, 295 P.2d 405 (1956)
Atlas Roofing Co. v. Occupational Safety Commission
GE GE MED ow tbeinhedtsde6ed coanstances
Babb v. Superior Court, 3 Cal.3d 841, 479 P.2d 379,
ee TOF OR ois is dais dcicessccancess
Blonder-Tongue v. University Foundation,
Se ay: BOOED dacccuhtcnded cdvcescceesene
Bloom v. Illinois, 391 U.S. 194 (1968) .............005:
Ex Parte Bradley, 7 Wall. (74 U.S.) 364 (1868).........
Carlson v. Green, 446 U.S. 14 (1980).............0000-
Carr v. Grace, 516 F.2d 502 (Sth Cir. 1975)............
Curtis v. Loether, 415 U.S. 189 (1974) .........0ceeeee
Douglass v. First National Realty Corp.,
543 F.2d 894 (D.C. Cir. 1976). ...........00005-
Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938) .....
Farmer v. Arabian American Oil Company,
285 F.2d 720 (2d Cir. 1960).........ccceccecees
In re Marriage of Flaherty,
California Supreme Court No. S.F. 24307
Ses GORE, F, BEND on cdncte ccccececcevncecess
Girard v. Goins, 575 F.2d 160 (8th Cir. 1978)..........
14
16
-iv-
TABLE OF AUTHORITIES (Continued)
CASES (Continued)
Glass v. Pfeffer, 657 F.2d 252 (10th Cir. 1981) .........
Goldberg v. Kelly, 397 U.S. 254 (1970) ...........s000.
Gregory v. City of Chicago, 394 U.S. 111 (1969) .......
Griswold v. Connecticut, 381 U.S. 479 (1965) ..........
Hall v. Cole, 412 U.S. 1 (1973) .......cceecceeceeeeees
Hormel v. Helvering, 312 U.S. 552 (1941)...........0..
Hughes v. Defender Association of Philadelphia,
509 F.Supp. 140 (E.D.Pa. 1981) .............0..
Michaelson v. United States, 266 U.S. 42 (1924)........
Monk v. Roadway Express, Inc., 73 F.R.D. 411
(W.D.La. 1977), vacated, 599 F.2d 1378
GE TE, BUFR 6a coves cesccacceuvucpeeccceseces
Moran v. Dillingham, 174 U.S. 153 (1899) .............
Muniz v. Hoffman, 422 U.S. 454 (1975) ...............
Nemeroff v. Abelson, 620 F.2d 339 (2d Cir. 1980) ......
NLRB v. Sears, Roebuck & Co., 421 U.S. 132 (1975)...
Nye v. United States, 313 U.S. 33 (1941) ..............
Pabst Brewing Co. v. Brewery Workers Local No. 77
SoS FAB VAS (RR Gee. IBTT) oc occ cece. cecvccces
Page v. A. H. Robins Co., Inc., 85 F.R.D. 139
19
Il
-Ve-
TABLE OF AUTHORITIES (Continued)
CASES (Continued)
Rexford v. Brunswick-Balke Co., 228 U.S. 339 (1913)...
Rice v. McKenzie, 581 F.2d 1114 (4th Cir. 1978) .......
Roadway Express, Inc. v. Piper, 447 U.S. 752 (1980) ...
Robinson v. Ritchie, 516 F.Supp. 437 (E.D.Va. 1981)...
Rosemont Enterprises, Inc. v. Random House, Inc.,
261 F.Supp. 691 (S.D.N.Y. 1966) ............45.
In re Ruffalo, 390 U.S. 544 (1968) .........6.cceeeeees
Schleper v. Ford Motor Co., 585 F.2d 1367
GE Ge. GPs Woe keveceisnéesessebeccevedeces
Settler v. Yakima Tribal Court,
419 F.2d 486 (9th Cir. 1969),
cert. denied, 398 U.S. 903 (1970) ..........5000
Matter of Shen, 7 Bankr. 942 (S.D.Cal. 1980)..........
Sibbach v. Wilson & Co., 312 U.S. 1 (1941) ...........
Skinner v. White, 505 F.2d 685 (Sth Cir. 1974).........
Smoot v. Fox, 353 F.2d 830 (6th Cir. 1965),
cert. denied sub nom. League of Women Voters v.
Smoot, 384 U.S. 909 (1966) ........ 6c cece ceeeee
Stewart v. Sonneborn, 98 U.S. 187 (1879)..............
Swann v. Charlotte-Mecklenburg Board of Education,
431 F.2d 135, 13 A.L.R. Fed. 850 (4th Cir. 1970)
Tool Research & Engineering Corp. v. Henigson,
46 Cal.App.3d 675, 120 Cal. Rptr. 291 (1975) .
Page
13,17
12
TABLE OF AUTHORITIES (Continued)
CASES (Continued)
United States v. Lancaster, 5 Wheat. (18 U.S.)
Ob 6c ceeberdoddeeneccdeccescteccece
United States v. Mendenhall, 446 U.S. 544 (1980) ......
United States v. Peterson, 456 F.2d 1135
Westinghouse Credit Corp. v. Bader & Dufty,
627 F.2d 221 (10th Cir. 1980) ........ 0c eeenes
Youakim v. Miller, 425 U.S. 231 (1976) .........-000.-
In re Zweibon, 565 F.2d 742 (D.C. Cir. 1977)..........
16
18
CONSTITUTIONAL, STATUTORY, AND RULE PROVISIONS
Pre-Reform Bankruptcy Act
Section 2(a)(8) [former 1! U.S.C. § 11(ay(8)].....
Federal Criminal Code
1B U.S.C. § G2 nnn ccccccccccccccccscccccccces
i,2,10,11,17
i,2,13,14,15
- Vii -
TABLE OF AUTHORITIES (Continued)
Page
CONSTITUTIONAL, STATUTORY, AND RULE PROVISIONS
(Continued)
Judicial Code
DE. MPU die ceddecéeseseseeeee cooagsoeces i,2,20,21
es W MEED ch wccccccesoccectcebocscses 2
BP Ee MPU bc cdovcesocccscvecedescpesoce 3
Se EEE obodonesceodseccésoeeoosees 21
Se ee, TEED Uhecdogbaddcdcoctoceceesedece 5
BP ie OF CUE dbbcdeccccccccceccesodesscoes 3,6,10
California Civil Code
BND FoF caboddtutveccctdcddccocébovesiase 6
Bankruptcy Rules
SUE DU WovedicconcdhWebecedadséeceddcdaceoes 3
Federal Rules of Appellate Procedure
MUUEE Foca dee ebsss cc cewsaretatebdbe cccecoteses i,3, 19,20,
21,22,23,24
PE ac cdbucsedccrccceccetesetccetecsséddeses 20,21
SED EE no cdocacdnccdecdogadésbacepeconesesoote 21
Local Rules, U.S. District Court for the Southern District
of California, Rule 265-1 ...... 0.660 ccceeccnees 5
SECONDARY AUTHORITIES
Comment, Awards of Attorneys Fees Against Attorneys:
Roadway Express, Inc. v. Piper, © B.U.L. Rev.
GS nc cdscdaweccadors dbspecdedesiceonce 18
TABLE OF AUTHORITIES (Continued)
Page
SECONDARY AUTHORITIES (Continued)
Comment, Groundless Litigation and Malicious Prosecution
Debate: A Historical Analysis, 88 Yale L.J.
BD in décctgichedvesetoccceccacd escece 18
Comment, Nemeroff v. Abelson, Bad Faith, and Awards of
Attorneys’ Fees, 128 U.Pa.L.Rev. 468 (1979) ..... 12,18
Emerson, Thomas |., Nine Justices in Search of a Doctrine,
64 Mich.L.Rev. 219 (1965) .... 2.6... cccecceeees 16
Knibb, David G., Federal Court of Appeals Manual
Gr onacdékabokcodscccsccbdesoceséosécoegce 21,23
Moore, James Wm., Jo Desha Lucas, and Jeremy C. Wicker,
Moore's Federal Practice (24 ed. 1980) Vol. 5 ... 12
Moore, James Wm., Bernard J. Ward and Jo Desha Lucas,
Moore’s Federal Practice (24 ed. 1980) Vol. 9... 20,21,23
Note, Counterclaim for Malicious Prosecution in the Action
Alleged to be Malicious, 58 Yale L.J. 490 (1949). 14
ee ee ee es eee
Motion, San Diego Union, September 17, 1980 . 7
Polk, William, Shen Case Stirs Sharp Opinion by U.S.
Judge, San Diego Evening Tribune,
September 17, 1980 ........--eeceseeeeeeeecees 7
Stern, Robert L., Appellate Practice in the United States
Gee oddocedées tdvocddévcsebecscocéecvccecses 20
Stern, Robert L., and Eugene Gressman, Supreme Court
Practice (Sth ed. 1978)... 2.660 ccccscccccccccuees 18
Wright, Charles Alan, Arthur R. Miller, Edward H. Cooper,
and Eugene Gressman, Federal Practice and
Procedure (Volume 16, 1977)... .....6.00c0ceees 21,23
Ne.
IN THE
Supreme Court of the Anited States
October Term, 1981
MICHAEL KAYE,
Petitioner,
v.
LUCE, FORWARD, HAMILTON & SCRIPPS;
and THEODORE W. GRAHAM,
issue to review the judgment of the United States Court of Appeals for
°2-
JURISDICTION
The judgment of the Court of Appeals for the Ninth Circuit was
entered on January 18, 1982. A timely petition for rehearing was denied
on February 24, 1982, and this petition for certiorari was filed within 90
days of that date. This Court's jurisdiction is invoked under 28 U.S.C.
§ 12541).
CONSTITUTIONAL, STATUTORY, AND RULE
PROVISIONS INVOLVED
United States Constitution:
Fifth Amendment
No person shall be . . . deprived of . . . liberty. or
property, without due process of law... .
Sixth Amendment
In all criminal prosecutions, the accused shall enjoy the
right to a speedy and public trial, by an impartial jury
. . . and to be informed of the nature and cause of the
accusation; to be confronted with the witnesses against
him; to have compulsory process for obtaining wit-
Seventh Amendment
In suits at common law, where the value in controversy
shall exceed twenty dollars, the right of trial by jury
shall be preserved... .
United States Code, Title 28
§ 47. Disqualification of Trial Judge to Hear Appeal
No judge shall hear or determine an appeal from the
decision of a case or issue tried by him.
§ 1927. Counsel's Liability for Excessive Costs
Any attorney or other person admitted to conduct
cases in any court of the United States or any Terri-
tory thereof who so multiplies the proceedings in any
case unreasonably and vexatiously may be required
by the court to satisfy personally the excess costs,
expenses, and attorneys’ fees reasonably incurred
because of such conduct.
Federal Rules of Appellate Procedure
Rule 7. Bond for Costs on Appeal in Civil Cases
The district court may require an appellant to file
a bond or provide other security in such form and
amount as it finds necessary to ensure payment of
costs on appeal in a civil case... .
STATEMENT OF THE CASE
Petitioner represented former debtors Samuel Shen and Carolyn Shen
in a Chapter XII bankruptcy proceeding. Respondent Theodore W.
Graham was trustee of the Shen estate. Luce, Forw. ', Hamilton &
Scripps was the trustee's counsel.
Petitioner filed a motion on behalf of the Shens to reopen their case for
certain limited and specified purposes. The jurisdiction of the U.S.
District Court to consider such a motion was based on 28 U.S.C. § 1334,
Section 2(aX8) of the pre-reform Bankruptcy Act [former I! U.S.C.
§ 11(aX8)}, and Bankruptcy Rule 515.
The major purposes of reopening were: (1) to obtain a turnover order
t« compel Graham and Luce Forward to relinquish the books and
records of the Shen estate, which the Shens needed for effective post-
bankruptcy administration of their properties, (2) to set aside a release by
which the Shens had given up their right to question Graham's and Luce
.4-
Forward'’s conduct in handling the estate and (3) to surcharge Graham
and Luce Forward for multiple breaches of fiduciary duty, including
unconsented-to conflicts of interest in which they had acted to benefit
secret clients of the Luce Forward firm to the detriment of the Shen
estate. [See | Excerpt of Record |-128 and 222-237, 6 Excerpt of Record
1788-1795 and 1811-1843.]
Luce Forward filed more than 1500 pages of memoranda, declara-
tions, and exhibits in opposition to reopening the case. Its exhibits alone
occupy the entirety of Volumes Two through Five of the record. [ See also
1 Excerpt of Record 129-221; and 6 Excerpt of Record 1704-1714, 1743-
1787, and 1807-1810.)
The hearing took place on July 7, 1980. At the outset, both the court
clerk and the district judge specified that the purpose of the proceeding
was to hear the debtors’ motion. The court confined each side to 30
minutes of oral argument. [See R.T. 3:1-14 (July 7, 1980).)
At the conclusion of petitioner's presentation, counsel for Graham and
Luce Forward stepped up and made an oral motion for attorney fee
sanctions. He immediately submitted declarations requesting costs and
attorney fees in the total amount of $36,339.29. Petitioner had already
fully exhausted his oral argument time and was given no opportunity to
respond. The declarations had not been served in advance. Petitioner had
no opportunity to study them while oral argument was still in progress.
[See R.T. 23:15 - 25:4 (July 7, 1980); and 6 Excerpt of Record 1796-
1806. ]
The oral motion for sanctions had not been preceded by any written
notice of motion, notice of cross-motion, or order to show cause. The
court itself had not made any reference to sanction proceedings in its own
notice of hearing [6 Excerpt of Record |742] or at the outset of oral
argument [R.T. 3:1-14 (July 7, 1980)).
In their papers opposing the motion to reopen, Graham and Luce
Forward had stated that they would seek sanctions by means of a bill of
‘Se
costs procedure. [See | Excerpt of Record 129, 165:21-22.] Under Local
Rule 265-1 of the U.S. District Court, Southern District of California,
the bill of costs procedure comes only after judgment. The application
must be preceded by written notice and accompanied by an itemized bill
of costs. [See also 28 U.S.C. § 1924, requiring itemization and verifica-
tion of any bill of costs.]
Luce Forward did not wait until judgment. It did not give advance
written notice of its application. It did not itemize, document, or describe
any part of its purported costs. It did not state the customary billing rates
of its in-house counsel, nor did it give any breakdown of hours or
description of services for its claimed in-house legal work. [See 6 Excerpt
of Record 1796-1800.]
Luce Forward's outside counsel did partially document a fee claim in
the amount of $4,470 and a claim for disbursements in the amount of
$7.65. [See 6 Excerpt of Record 1801-1806.]}
Petitioner had attended the July 7, 1980 hearing prepared to argue the
merits of the Shens’ motion to reopen, not to deal with unnoticed
sanction proceedings. In any event, Luce Forward prevented response by
withholding its oral motion for sanctions until after petitioner had used
up his allotment of time.
Petitioner could not have raised personal defenses even if the Court
had granted additional time to respond. The motion for sanctions was a
direct attack on petitioner and a demand that petitioner be held
personally liable for Luce Forward’s alleged attorneys’ fees and costs.
But petitioner's clients had previously given a written release to
Graham and Luce Forward. The terms of that release provided that the
Shens would be liable for attorneys’ fees if they sought to set aside the
release or to surcharge the trustee and his counsel for misconduct in the
administration of the Shen estate. [See | Excerpt of Record |25, 126:29 -
127:4.]
se
California law automatically makes such contract provisions for
attorneys’ fees mutually reciprocal. California Civil Code § 1717. But the
Shens had to prevail on their motion in order to avoid attorney fee
lia bility.
Luce Forward's oral motion for sanctions created a conflict of interest
between petitioner and his clients as to who would be liable for fees if the
motion to reopen failed. It was too late for petitioner to withdraw, and
petitioner could not speak out in his own defense without violating his
primary obligation of undivided loyalty to the Shens.
The court signed its decision on September 10, 1980 but did not file it
until September 16, 1980. [See Appendix |, annexed to this petition, and
6 Excerpt of Record 1844, 1858:20.] During that interim, Congress
amended 28 U.S.C. § 1927 on September 12, 1980 to specifically
authorize the imposition of fee sanctions against counsel. The amended
statute prescribes no procedure for the sanction assessment.
The court denied the Shens’ motion to reopen, granted Luce Forward's
oral motion for sanctions, and ordered petitioner to pay a fee and cost
penalty in the amount of $36,339.29 for attempting to reopen the case in
alleged bad faith. In doing so, the court relied on its inherent power
under Roadway Express, Inc. v. Piper, 447 U.S. 752 (1980), rather than
on the amended language of 28 U.S.C. § 1927. The Court also made the
Shens jointly liable for the assessment. Matter of Shen, 7 Bankr. 942, 949
(S.D.Cal. 1980).
The court denounced petitioner's efforts as an “unreasonable and
vexatious multiplication of the Shens’ bankruptcy proceedings” and
described the motion to reopen as a “frivolous,” “willful and bad faith
abuse” of judicial processes “bortering on attempted fraud upon the
Court.”
The district judge also accused petitioner of squandering the court's
time in pursuit of a “manifestly unmeritorious” motion, thereby
contributing to the “glacial pace” of modern litigation, breeding
a a
“frustration with the federal courts, and ultimately disrespect for the
law.” The court questioned petitioner's legal ethics and recommended the
initiation of disbarment proceedings.' See Matter of Shen, 7 Bankr. 942,
944 at text accompanying footnotes | and 2, 946, 949, and 950 (S.D.Cal.
1980).
Articles about the decision appeared immediately in the major San
Diego metropolitan newspapers. See Judge Denounces Shen Bid, Denies
Bankruptcy Motion, San Diego Union, September 17, 1980, at BS, col. 1;
and Shen Case Stirs Sharp Opinion by U.S. Judge, San Diego Evening
Tribune, September 17, 1980, at BI, col. 6.
The adverse publicity was ruinous to petitioner's law practice. [See
“Declaration of Michael Kaye in Opposition to Luce Forward’s
Dismissal Motion,” dated December 31, 1981.] The Shens had been
petitioner's primary clients. For their own protection and to avoid any
risk of conflict of interest, petitioner had to withdraw from representing
them. Petitioner's credibility and effectiveness as an advocate have been
deeply impaired, and he has been unable to rebuild any substantial
practice.
Petitioner appealed on his own behalf to the U.S. Court of Appeals for
the Ninth Circuit. Luce Forward moved to dismiss the appeal for
purported mootness. On February 4, 1981, a motion panel denied Luce
Forward's motion and authorized the appeal to proceed. [See Appendix
2, annexed hereto.]
On February 19, 1981, Luce Forward filed a motion in the District
Court to require an appeilate cost bond in the amount of $25,000. It
estimated that it would incur $20,000 in attorney fees and $5,000 in costs
in resisting the appeal.
' For reasons unknown to petitioner, there has been no disciplinary investiga-
tion as yet. Petitioner has never been disciplined by any bar organizatio_ in this
or any other matter.
Petitioner filed papers in opposition to the motion. The District Court
took no immediate action. The parties proceeded to brief the appeal.
Luce Forward renewed its cost bond motion on July 24, 1981. It
uttached copies of both parties’ appellate briefs for the District Court to
review. The new motion reduced Luce Forward’s bond request to
$15,000. It gave no breakdown between costs and attorney fees.
Petitioner filed further opposition papers, noting inier alia that Luce
Forward by then had incurred virtually all of its potentially taxable costs
but had failed to itemize the exact amounts.’
The District Court took no action until October 5, 1981 — nearly 13
months after its initial decision. The Court then rejected Luce Forward’s
attorney fee demand but ordered petitioner to post a $5,000 cost bond on
the basis of Luce Forward’s original unitemized cost estimate. The bond
order was not entered or mailed to the parties until October 29, 1981.
[See Appendix 3, annexed hereto.]
Petitioner notified Luce Forward b) letter dated November 12, 1981
that his law practice was in ruins and that he no longer owned or
controlled anything close to $5,000 in assets. Local bonding agencies had
refused to issue a bond without full collateral. [See Exhibit “B” attached
to Luce Forward’s “Motion to Dismiss for Failure to Post Cost Bond.”]
Luce Forward waited until Christmas eve, less than two weeks before
the scheduled date of oral argument on the merits of the appeal. It then
served and filed a second dismissal motion, this time based on
petitioner's failure to post the bond.
- For a complete collection of Luce Forward’s motion papers and petitioner's
responses filed in the District Court in connection with the cost bond issue, see
“Document Appendix in Support of Appellant's Cross-Motion to Reduce
$5,000 Cost Bond or Waive Security for Costs,” submitted to the Ninth Circuit
on December 31, 1981.
9.
Petitioner filed extensive and timely opposition papers on December
31, 1981. Those papers included a detailed declaration of his financial
condition, a comprehensive brief or the cost bond issues, and a compila-
tion of all the District Court filings which led up to the cost bond order.
Petitioner showed that the $5,000 bond assessment substantially
exceeded his financial resources. But he also demonstrated that any cost
award potentially taxable in Luce Forward's favor would not reasonably
exceed $300. That amount was well within petitioner's ability to pay.
Petitioner could neither post the bond nor qualify to proceed in forma
pauperis.
Luce Forward's eleventh hour dismissal motion was forwarded from
the Ninth Circuit Clerk's office in San Francisco to the appellate panel in
Los Angeles. Petitioner's response papers were not.
On January 5, 1982, the panel refused to hear oral argument on the
merits of the appeal. Instead it announced a summary dismissal of the
appeal on the basis of Luce Forward’s motion papers alone. The Court
entered a formal dismissal order on January 18, 1982. [See Appendix 4,
Anuexed hereto.]
Petitioner made timely application for a rehearing, which the Court of
Appeals denied by order dated February 24, 1982. [See Appendix 5,
annexed hereto.]
Luce Forward was entitled to costs upon dismissal. But it never
applied for and never documented those costs.
3 See (1) “Appellant's Opposition to Luce Forward’s Dismissal Motion and
Appeliant’s Cross-Motion to Reduce $5,000 Bond or Waive Security for Costs,”
and (2) “Declaration of Michael Kaye in Opposition to Dismissa: Motion,”
dated December 31, 1981.
- 10 -
REASONS FOR GRANTING THE WRIT
A. Review Should Be Granted To Establish Procedural
Standards For The Imposition Of Attorney Fee Sanctions
Under Roadway Express, Inc. v. Piper
In Roadway Express, Inc. v. Piper, 447 U.S. 752 (1980), this Court
reaffirmed the inherent power of the federal judiciary to impose attorney
fee sanctions against lawyers who commence or conduct litigation in bad
faith. Congress supplied a statutory foundation for that power when it
amended 28 U.S.C. § 1927 on September 12, 1980, by Public Law 96-349,
§ 3, 94 Stat. 1156.
Neither Roadway Express nor the amended statute spell out
procedural standards which federal courts should observe before
assessing sanctions. But this Court has cautioned that “{b]ecause
inherent powers are shielded from direct democratic controls, they must
be exercised with restraint and discretion.” Roadway Express, Inc. v.
Piper, 447 U.S. at 764. “Like other sanctions, attorney's fees certainly
should not be assessed lightly or without fair notice and an opportunity
for a hearing on the record.” /d., 447 U.S. at 767.
The procedural history of Roadway Express gave no occasion to
discuss due process requirements at any length. The District Court had
severed the sanction proceedings from any hearing involving the merits
of the case in chief. An order to show cause preceded the sanction
hearing by more than three months. The accused attorneys were allowed
to withdraw as counsel in order to avoid any potential conflict of interest
with their clients, and the Court extended additional time to permit
discovery with respect to the costs and attorney fees in question.
The attorneys had the benefit of “an evidentiary hearing” on the
imposition of sanctions. They apparently raised no due process or jury
trial issues at any stage of the litigation. See the lower court opinions sub
nom. Monk v. Roadway Express, Inc., 73 F.R.D. 411, 413 (W.D. La.
1977), vacated, 599 F.2d 1378, 1380-1381 (Sth Cir. 1979).
But the present case demonstrates the risk of serious procedural
unfairness where sanctions are imposed without sensitivity to
constitutional standards. Here, the sanction proceedings intruded into a
hearing on the merits; there was no advance notice that the hearing
would include sanction maiters; petitioner had no opportunity to
withdraw to avoid a potential conflict of interest with his clients; there
was no provision for discovery and no opportunity to call, confront,
examine, or cross-examine witnesses.
The District Court conducted only a unilateral hearing on sanctions,
because Luce Forward sirategically withheld its sanction motion and
delayed the service and filing of its fee and cost declarations until after
petitioner had fully exhausted his allotted 30 minutes of oral argument.
Petitioner devoted his time to the merits of his own clients’ motion. He
had no opportunity to respond to Luce Forward’s procedural ambush.
It would be a denial of due process to penalize an accused person for
an offense not properly charged. Gregory v. City of Chicago, 394 U.S.
111, 112 (1969); Parr v. United States, 363 U.S. 370, 394 (1960). Time
and again, this Court has said that fair notice must apprise the accused of
the specific charges against him and must inform him of the time and
place of the hearing far enough in advance to afford an adequate
opportunity to prepare a defense. See, e.g., In re Ruffalo, 390 U.S. 544,
550-552 (1968); Ex Parte Bradley, 7 Wall. (74 U.S.) 364, 372-373 (1868).
Notice is defective if it fails to specify the charges or if new charges
suddenly spring up at a hearing that was duly noticed on different
grounds or for a different purpose. Schieper v. Ford Motor Co., 585 F.2d
1367, 1372 (8th Cir. 1978); Pabst Brewing Co. v. Brewery Workers Local
No. 77, 555 F.2d 146, 150-151 (7th Cir. 1977); Skinner v. White, 50S F.2d
685, 690-691 (Sth Cir. 1974); United States v. Peterson, 456 F.2d 1135
(10th Cir. 1972).
Where important interests are at stake, due process contemplates more
than mere propriety of notice. It also requires an opportunity to confront
-~12-
and cross-<xamine adverse witnesses. Goldberg v. Kelly, 397 U.S. 254,
269-270 (1970). The proceedings below afforded no such hearing.
The District Court took triable issues of fact and summarily resolved
those issues against petitioner. The result, in effect, became a summary
judgment for malicious prosecution, abuse of process, or criminal
contempt. The penalty descended on petitioner without proper notice.
without regular pleadings, without discovery, without trial by jury, and
indeed without any proper trial or adequate hearing at all.
A claim is made in “bad faith” when it is (1) entirely without color, and
(2) made for reasons of harassment or delay or for other improper
purposes. Nemeroff v. Abelson, 620 F.2d 339, 348-349 (2d Cir. 1980).
That definition is a \eading guideline for the imposition of federal fee
sanctions.
But the definition of bad faith in Nemeroff v. Abelson also
corresponds to the two substantive elements of malicious prosecution. A
claim that is entirely without color is a claim which lacks probable cause.
See Tool Research & Engineering Corp. v. Henigson, 46 Cal. App.3d 675,
682-684, 120 Cal. Rptr. 291, 296-298 (1975) (malicious prosecution action
against attorney). And the malice required in an action for malicious
prosecution “exists when the proceedings are instituted primarily for an
improper purpose.” Albertson v. Raboff, 46 Cal.2d 375, 383, 295 P.2d
405, 410 (1956) (per Traynor, J.).
“{A] request for attorneys’ fees under the bad faith exception is really a
malicious prosecution suit in disguise. . . .” Comment, Nemeroff v.
Abelson, Bad Faith, and Awards of Attorneys’ Fees, 128 U.Pa.L.Rev.
468, 482 (1979).
Historically, the Seventh Amendment has guaranteed the right to jury
trial in malicious prosecution cases. See, e.g., Stewart v. Sonneborn, 98
U.S. 187 (1879), 5 J. Moore, J. Lucas & J. Wicker, Moore’s Federal
Practice par. 38.11[5] at fn. 12 (2d ed. 1980). The invention of new
procedures cannot defeat jury trial rights that are rooted in traditional
oi.
tort practice. Compare Atlas Roofing Co. v. Occupational Safety
Commission, 430 U.S. 442, 458-459 (1977), with Curtis v. Loether, 415
U.S. 189, 195-196 (1974).
For that reason, the Sixth Circuit in a pre- Roadway case concluded
that federal courts do not have inherent power tc impose bad faith fee
sanctions under the guise of fixing costs because to do so would be
equivalent to rendering a tort judgment without trial by jury. Smoot v.
Fox, 353 F.2d 830, 833 (6th Cir. 1965), cert. deniea sub nom. League of
Women Voters v. Smoot, 384 U.S. 909 (1966).
Roadway Express superseded Smoot to the extent of authorizing fee
sanctions. But this Court has not yet addressed the Seventh Amendment
issue posed by Smoot.
Furthermore, the right to jury trial in at least some “bad faith” cases
may also arise under the Sixth Amendment. The District Court
repeatedly condemned petitioner for alleged misconduct “bordering on
attempted fraud upon the Court.” Matter of Shen, 7 Bankr. 942, 944, 946
(S.D.Cal. 1980). A charge of “fraud on the court” implies a direct insult
to the court’s dignity and authority. It is an accusation of criminal
contempt. Skinner v. White, 50S F.2d 685, 689 (Sth Cir. 1974).
Attorney fee sanctions, like criminal contempt sanctions, are punitive
in purpose. Hail v. Cole, 412 U.S. 1, 5 (1973). Courts are not exempt
from Sixth Amendment restraints when they exercise an inherent power
to impose punishment. Bloom v. Illinois, 391 U.S. 194 (1968) (criminal
contemnor cannot be sentenced to more than six months in jail without
the procedural safeguard of trial by jury).
There was no jail sentence in the case at bar. But the court levied
sanctions against petitioner in the amount of $36,339.29. In Muniz v.
Hoffman, 422 U.S. 454, 476-477 (1975), this Court expressly reserved the
question whether an individual in a criminal contempt case would be
entitled to trial by jury if faced with the risk of a substantial fine. Several
lower courts have answered that question in the affirmative. See, e.g.,
~~ e
Girard v. Goins, 575 F.2d 160, 162-165 (8th Cir. 1978); and Douglass v.
First National Realty Corp., 543 F.2d 894 (D.C. Cir. 1976) (jury trial
required if fine exceeds $500).
The fact that a private party prosecuted the contempt and was awarded
the fine does not defeat the character of the sanction as a punishment for
criminal contempt. See Nye v. United States, 313 U.S. 33, 41-43 (1941),
Michaelson v. United States, 266 U.S. 42, 65 (1924); and 18 U.S.C. § 402.
The penalty in this case was the functional equivalent of both a tort
judgment and a criminal contempt fine. f etitioner had a right to trial by
jury under both the Sixth and the Seventh Amendments. He never
waived that right.
This Court should prescribe the following procedural safeguards for
fee sanction cases:
1. The sanction proceedings should be severed or bifurcated from
any hearing on the merits in the case in chief. Otherwise, meretricious
demands for fee sanctions may become a routine litigation tactic to chill
the opposition, drive a wedge between attorney and client, obfuscate the
issues on the merits, and distract and confuse the trier of fact. That is why
counterclaims for malicious prosecution have traditionally been
disallowed. See Babb v. Superior Court, 3 Cal.3d 841, 844, 847-848, 479
P.2d 379, 380, 382, 92 Cal. Rptr. 179, 180, 182 (1971); Rosemont
Enterprises, Inc. v. Random House, Inc., 261 F.Supp. 691, 695, 696-698
(S.D.N.Y. 1966), Note, Counterclaim for Malicious Prosecution in the
Action Alleged to be Malicious, 58 Yale L.J. 490, 493 at text accompany-
ing fn. 12 (1949).
2. The accuser should provide an exact specification of charges and
advance notice of the hearing at which those charges will be considered.
3. The accused party or attorney should have a right to call and
examine favorable witnesses and to confront and cross-examine adverse
witnesses.
-~ 15-
4. Where the demand for sanctions is equivalent to a tort claim for
malicious prosecution or abuse of process, there should be a right to jury
trial under the Seventh Amendment.
5. Where the court accuses an attorney of serious misconduct which
threatens the dignity and authority of the tribunal and where the
prospective penalty may exceed $500, the accused should nave a right to
trial by jury under the Sixth Amendment.
B. Pretermission Of Issues By the Ninth Circuit Does Not
Preclude Review Where The Issues Were Presented
Below, Are Ripe For Decision, And Are Important
To The Administration Of Justice
Both parties fully briefed the due process and jury trial issues discussed
in the preceding section of this petition. But the Ninth Circuit
pretermitted those issues, dismissing petitioner's appeal without reaching
either the major procedural questions or the underlying issues on the
merits.
The general rule is that this Court does not grant certiorari to review
questions which the Court of Appeals has failed to address or resolve.
That rule has sometimes applied even when the parties carefully raised
and briefed a pretermitted issue in the lower court. NLRB v. Sears,
Roebuck & Co., 421 U.S. 132, 163-164 (1975).
But the rule against reviewing pretermitted issues is not inflexible. It
does not apply where the obvious result would be a plain miscarriage of
justice. Hormel v. Helvering, 312 U.S. 552, 555-558 (1941). The Court
may always take notice of fundamental error even where the parties ha¥e
failed to make objection below. Sibbach v. Wilson & Co., 312 U.S. 1, 16
(1941).
In Griswold v. Connecticut, 381 U.S. 479 (1965), this Court recognized
the Ninth Amendment as an important foundation of the right to privacy
~ 16-
even though Ninth Amendment issues had not been raised at the trial.
See Emerson, Nine Justices in Search of a Doctrine, 64 Mich. L.Rev.
219, 227 (1965). And in Brie Railroad Co. v. Tompkins, 304 U.S. 64
(1938), this Court overruled a prior decision of many years’ standing on a
basis neither urged below nor pressed by the parties in their Supreme
Court arguments. See Blorder-Tongue v. University Foundation, 402
U.S. 313, 320-321 fn. 6 (1971).
More recently, this Court has considered new issues raised for the first
time on appeal or certiorari in United States v. Mendenhall, 446 U.S.
544, 551-552 fn. 5 (1980); Carlson v. Green, 446 U.S. 14, 17 fn. 2 (1980);
and Youakim v. Miller, 425 U.S. 231, 233-234 (1976).
There are two reasons for the policy against reviewing pretermitted
issues. In the first place, that policy enforces sound judicial administra-
tion. It prevents tactical “sandbagging” by unscrupulous counsel. It
forces the parties to lay out all their cards at once, to introduce all
material evidence at the outset, and to raise all meritorious arguments so
_ that the lower courts will have a maximum opportunity to reach a proper
disposition of the case in the first instance. No lawyer has a right to store
evidentiary or analytical aces up his sleeve. An effective presentation of
all issues in the lower court will often make certiorari review unnecessary.
That purpose is not served by declining review where (1) a party was
deprived of proper notice, hearing, or trial in the initial forum, or
(2) where important issues were conscientiously raised and argued by the
parties below but were pretermitted by the lower court. Inferior tribunals
should not be allowed to evade review by a flagrant denial of due process
or by suppression, circumvention, or glossing over of important
questions duly presented.
A second purpose of the rule against reviewing pretermitted issues is to
protect this Court from having to rule on important and difficult
questions without the benefit of a preliminary judicial analysis. Emerging
principles of law need time for seasoning before they ripen for final
- i7-
disposition. The highest court of the land should not have to sail on an
uncharted sea or blaze new paths through an unexplored wilderness.
Lower courts play an important role in preparing the way. Even when
they err, their preliminary forays are lixe flares in the night. Their
tentative first analysis at least lights up the contours of the land. But that
preliminary sifting of issues by the court below is not indispensable where
other courts and scholarly commentators have already performed an
equivalent first analysis.
This Court itself has already warned that fair notice and hearing are
essential in fee sanction cases. Roadway Express, Inc. v. Piper, 447 U.S.
752, 767 (1980). On the basis of that cautionary dicta, at least one Court
of Appeals has already reversed a fee penalty where the sanctions had
been imposed without a proper hearing. Glass v. Pfeffer, 657 F.2d 252,
257-258 (10th Cir. 1981).
A district judge has already noted with alarm the danger that fee
sanction proceedings will have the effect of driving a wedge between
attorney and client. Robinson v. Ritchie, 516 F.Supp. 437, 439-440
(E.D.Va. 1981). See also Babb v. Superior Court, 3 Cal.3d 841, 847-848,
479 P.2d 379, 382, 92 Cal.Rptr. 179, 182 (1971). It is that ominous
potential conflict which justifies procedural bifurcation to isolate sanc-
tion proceedings from any hearing on the merits.
The Sixth Circuit has already developed an analysis of fee sanctions
with an eye toward the Seventh Amendment right io jury trial. Smoot v.
Fox, 353 F.2d 830, 833 (6th Cir. 1965), cert. denied sub nom. League of
Women Voters v. Smoot, 384 U.S. 909 (1966).
The California Supreme Court will issue a decision in the near future
that is expected to include a major analysis of the due process issues
involved in the summary assessment of fee sanctions against counsel
without notice or hearing. The title of the case is In re Marriage of
Flaherty, S.F. 24307 (argued October |, 1981). See Carrizosa, High
Court Tackles Worrisome Issue of Frivolous Appeals, Los Angeles Daily
Journal, September 29, 1981, at 1, col. 4.
Meauwhile, student commentators are actively assaying the field. See,
e.g., Comment, Awards of Attorneys’ Fees Against Attorneys: Roadway
Express, Inc. v. Piper, 60 B.U.L. Rev. 950 (1980); Comment, Nemeroff v.
Abelson, Bad Faith, and Awards of Attorneys’ Fees, 128 U.Pa.L.Rev.
468 (1979); Comment, Groundless Litigation and Malicious Prosecution
Debate: A Historical Analysis, 88 Yale L.J. 1218 (1979).
The sanctions against petitioner came without proper notic. hearing,
or trial. There is a presumption against waiver of those procedural rights
whether or not formal objection was raised in the District Court. Aetna
Insurance Co. v. Kennedy, 301 U.S. 389, 393 (1937), Girard v. Goins, 575
F.2d 160, 162-163 (8th Cir. 1978); In re Zweibon, 565 F.2d 742, 746-747
(D.C. Cir. 1977). Such exceptional irregularities are subject to this
Court's power to notice plain error. R. Stern & E. Gressman, Supreme
Court Practice § 6.27 at 460 (Sth ed. 1978).
Petitioner conscientiously raised and fully briefed those procedural
issues in the Court of Appeals. Despite pretermission of those issues by
the Ninth Circuit, ample preliminary analysis of every major issue is
available from other courts and commentators.
Petitioner has narrowly restricted his choice of issues at this stage to
avoid drawing the Court into the quicksands of disputed fact. The issues
are procedural. They are sufficiently ripe. Their resolution is important,
beyond the immediate case, to the sound administration of justice in the
federal courts. There is no compelling policy reason to refuse review.
~
C. Review Is Warranted To Determine Whether District
Courts Must Fix Cost Bond Assessments Under Rule
7 Of The Federal Rules Of Appellate Procedure At
Amounts Reasonably Related To Actual Costs Or
Whether Exaggerated Assessments Are Permissible
To Deter Or Obstruct Appeals Alleged To Be Frivolous
If this Court is reluctant to address the foregoing due process and jury
trial issues in the first instance, this case presents one further question
which is fully ripe and sufficiently important to justify review at this time.
The cost bond issue is amenable to summary disposition. On that issue
alone, the Court could appropriately grant certiorari, summarily reverse,
and remand to the Ninth Circuit for a full decision both on the
remaining procedural issues raised here and on the merits.
Prior to 1979, Rule 7 of the Federal Rules of Appellate Procedure
fixed the cost bond in every civil appeal at a uniform rate of $250. But the
amended rule now in effect leaves the amount of the bond to the
discretion of the District Court.
The Rule 7 issue posed by this case is whether District Courts may
adjust the bond amount on the basis of their evaluation of the merits of
an appeal rather than on a reasonable approximation of actual costs.
Several district judges have assumed that the amended version of Rule
7 gives them a screening prerogative. They think it is their duty to impose
high cost bonds to deter frivolous appeals and low cost bonds to
encourage meritorious appeals. See, e.g., Hughes v. Defender
Association of Philadelphia, 509 F.Supp. 140, 142-143 (E.D.Pa. 1981);
and cf. Page v. A. H. Robins Co., Inc., 85 F.R.D. 139, 140 (E.D.Va.
1980).
Those decisions are wrong for two reasons. In the first place, the
legislative history of the amended rule says nothing about a screening
function. The revisers abandoned the old $250 amount because “{t]oday
it bears no relationship to actual costs.”9 J. Moore, B. Ward & J. Lucas,
Moore's Federal Practice par. 207.01[4] (2d ed. 1980). The $250 figure
“was hopelessly out of date and any other specific figure would have been
completely arbitrary.” R. Stern, Appellate Practice in the United States
108 (1981).
If the revisers had intended to establish a screening authority, so signi-
ficant a change would have been reflected in the legislative history and in
new procedural protections to safeguard against any abuse of discretion
in the screening process.
Rule 24(a) of the Federal Rules of Appellate Procedure specifically
authorizes District Courts to examine the merits of pending appeals in
forma pauperis cases and to certify whether or not such appeals are taken
in good faith. But that authority is hedged about with procedural safe-
guards, including a specific and rapid prescribed procedure for appellate
review. No such guidelines for review appear in Rule 7. None were
needed, because that rule never contemplated merits screening.
A second reason why district judges may not screen appeals is that to
do so would implicate them as direct participants in review of their own
decisions. Such an intrusion on the appellate domain is impermissible.
See Rexford v. Brunswick-Balke Co., 228 U.S. 339, 343-344 (1913);
Moran v. Dillingham, 174 U.S. 153, 156-157 (1899); United States v.
Lancaster, 5 Wheat. (18 U.S.) 434 (1820); Rice v. McKenzie, 581 F.2d
1114, 1116-1118 (4th Cir. 1978); Swann v. Charlotte-Mecklenburg Board
of Education, 431 F.2d 135, 136-137, 13 A.L.R.Fed. 850 (4th Cir. 1970).
“No judge shall hear or determine an appeal from the decision of a case
or issue tried by him.” 28 U.S.C. § 47. That prohibition should
reasonably extend to any screening authority over appeals. Otherwise
every district judge would become, in effect, a fourth member of the
appellate panel reviewing his own decisions. By flagging an appeal as
frivolous and setting an insurmountable cost bond, the district judge
would be in a position to virtually foreclose the appeal and thereby
determine its outcome.
- 2) -
That potential conflict with the prohibitions of 28 U.S.C. § 47 is barely
avoided under Rule 24 by requiring the district judge to state his reasons
in writing and by spelling out a procedure for rapid and independent
appellate review. No such saving grace appears in Rule 7.
The purpose of a cost bond is to assure payment of appeliate costs in a
civil case in the event an appeal fails. Only the appellant is ever required
to post suck a bond. The exclusive purpose of the bond is to protect the
appellee. 9 J. Moore, B. Ward & J. Lucas, Moore's Federal Practice par.
207.02 (2d ed. 1980).
Not all taxable costs can be counted in computing the proper amount
of a cost bond. Filing fees, docket tc es, costs of printing the record and
premiums paid for supersedeas or other bonds are taxable against an
appellee under 28 U.S.C. § 1920(5) and Rule 39%c) and (e) of the Federal
Rules of Appellate Procedure if an appeal succeeds. But those items are
not taxable against an appellant if an appeal fails. Those costs are paid
initially by the appellant out of his own pocket. The successful appellee
never incurs those costs and does not need security to assure reimburse-
ment of expenses he never paid. See 16 C. Wright, A. Miller, E. Cooper &
E. Gressman, Federal Practice and Procedure § 3953 at 379 fn. 5 (1977).
The only items that should be taken into account in determining the
proper amount of a cost bond are the costs of (1) reporters’ transcripts,
(2) the clerk's record, and (3) printing the appellee's briefs at rates not
higher than those generally charged for such work in the area where the
clerk's office is located.” Rule 3%c).
A motion to fix security for costs should be supported by “a realistic
estimate” of the actual costs that would be taxable in the appellee's favor
in the event of affirmance. D. Knibb, Federal Court of Appeals Manual
§ 10.1 at 114 (1981).
Luce Forward never itemized its $5,000 cost estimate. Petitioner, on
the other hand, demonstrated that the costs potentially taxable in Luce
Forward’s favor would not equal even one tenth of respondents’
-72.-
exaggerated demand. [See “Document Appendix in Support of
Appeliant’s Cross-Motion to Reduce $5,000 Cost Bond or Waive
Security for Costs,” at 2, 4:28-32; at 6, 17:9 - 20:17; and at 31, 32:10-15.]
There was no trial in this case. The hearing transcripts were minimal.
Luce Forward xeroxed and velobound its briefs in very presentable but
inexpensive fashion. The only substantial cost was for printing the
record. But that expense was borne by petitioner, not by Luce Forward.
Nevertheless, the District Court embraced Luce Forward’s pumped-up
estimate and brushed off petitioner's strong showing that the $5,000 cost
figure was a grossly unrealistic exaggeration. A reasonable inference that
can be drawn from the $5,000 bond order is that the District Court must
have accepted Luce Forward’s characterization of the appeal as
“frivolous.” [See “Document Appendix in Support of Appellant's Cross-
Motion to Reduce $5,000 Bond,” supra, at 2, 3:21-23.]
The Court therefore imposed a Rule 7 cost bond equal to the highest
amount that had ever previously been approved in a reported opinion.
See Westinghouse Credit Corp. v. Bader & Dufty, 627 F.2d 221, 224
(10th Cir. 1980).
That amount was beyond petitioner's financial resources. [See
“Declaration of Michael Kaye in Opposition to Luce Forward’s
Dismissal Motion,” dated December 31, 1981.] On the other hand,
petitioner could not qualify to proceed in forma pauperis because he
freely conceded that actual costs would be well within his ability to pay.
See Adkins v. DuPont Co., 335 U.S. 331, 339 (1948).
Petitioner could pay actual costs. But he could not post an exaggerated
bond set arbitrarily at more than ten times any realistic estimate of what
those actual costs would be. The bond order became a technical pretext to
torpedo petitioner's appeal.
That is the precise result Luce Forward sought. Cost reimbursement
was not its objective. Luce Forward didnt even apply for costs after the
. -B-
dismissal. Indeed, a cost application would have embarrassed Luce
Forward by confirming the enormous discrepancy between its actual
costs and the amount of the bond order.
A security bond which, for all practical purposes, denies a party his
day in court, “transcends the bounds of sound judicial discretion.” The
discretion of the District Courts to issue orders for security contemplates
only such orders “as will facilitate, not hamper, the administration of
justice.” Farmer v. Arabian American Oil Company, 285 F.2d 720, 721,
722 (2d Cir. 1960).
In most appeals today, no bond for costs is requested or filed.
Dismissal for failure to post a bond is a rare and extreme sanction. D.
Knibb, Federal Court of Appeals Manual § 10.1 at 113-114 (1981).
The Ninth Circuit summarily dismissed the appeal, faulting petitioner
for failing to make a timely motion to reduce the bond. [See Appendix 4,
annexed hereto.] But Rule 7 neither prescribes nor authorizes any such
motion procedure. The customary practice has always been to wait for a
dismissal motion and respond to that. See, e.g., Carr v. Grace, 516 F.2d
502, 504 (Sth Cir. 1975); and Settler v. Yakima Tribal Court, 419 F.2d
486, 487 fn. 2 (9th Cir. 1969) cert. denied, 398 U.S. 903 (1970).
The leading treatises about how to reduce an inordinate Rule 7 bond.
See, e.g.,9 J. Moore, B. Ward, & J. Lucas, Moore's Federal Practice par.
207.02 (2d ed. 1980); and 16 C. Wright, A. Miller, E. Cooper & E.
Gressman, Federal Practice and Procedure § 3953 (1977).
The Rule 7 issue is amenable to summary disposition if this Court so
prefers. In that event, the Court should hold as follows:
(1) The sole function of the District Court under Rule 7 is to set the
cost bond at an amount approximating as closely as possible the actual
costs that would be taxable against the appellant if the appeal fails. The
bond should be based on an itemization of actual costs, where available,
otherwise on credible and realistic estimates.
- 24 -
(2) It is an abuse of discretion for the District Court to fix the bond
amount by any other standard. In particular, the District Court should
not adjust the bond upward or downward to correspond to its view of the
merits of the appeal.
(3) “The Court should establish an appropriate procedure [e.g., by
motion, extraordinary writ, appeal, or merely waiting to oppose a
dismissal motion] for appellants to follow in the future in seeking review
of excessive Rule 7 bonds.
CONCLUSION
For the foregoing reasons, this Court should grant a writ of certiorari
to review all issues presented.
The Court may prefer to remand to the Ninth Circuit to rule on the
due process and jury trial issues in the first instance. In that event, review
may be limited here to the Rule 7 question, and on that issue the
judgment below should be summarily reversed or vacated.
Dated: May 24, 1982
Respectfully submitted,
/s/
MICHAEL KAYE
Petitioner Pro Se
APPENDICES
[Ts *
Ninth Circuit Order, denying appellees’ motion
to dismiss for mootness, filed February 4, 1981 .....
District Court Memorandum and Order, fixing
appellate cost bond at $5,000, filed October 5, 1981
and entered October 29, 1981 ... 2... 666s ccc cw enees
. Ninth Circuit Order, denying petition for rehearing,
filed February 24, 1982 . 2.2.0... 0 ccccccccccnnneees
2-1
3-1
41
5-1
1-1 => pit r. ; : ’ .
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF CALIFORNIA
In the Matter of )
‘ Chapter XI!
SAMUEL T. H. SHEN ;
) Bankruptey Nos. 74-607-K
and ) 74-608-K
CAROLYN JEAN SHEN, ‘ OPINION
)
Debtors. )
)
Incredibly, after six years of proceedings in the bankruptcy court
involving seventeen different appeals and eight different lawyers for the
bankrupts, Mr. and Mrs. Samuel T. H. Shen, ex-debtors, and Mr.
Michael Kaye, their lawyer, have moved, pursuant to Bankruptcy Rule
515, to reopen the bankruptcy proceedings in order to charge the Trustee
in Bankruptcy, Mr. Theodore Graham, and his counsel, the law firm of
Luce, Forward, Hamilton and Scripps, with certain acts of misconduct.
The bankruptcy proceedings were dismissed voluntarily on December 20,
1979, several months after the Shens and Mr. Kaye had executed in the
presence of the court a release of the very claims and demands against the
Trustee and his counsel which are herein asserted as grounds for the
motion to reopen. When stripped of the ill-supported arguments urged
on this Court by Mr. Kaye, the feeble excuse which underlies his out-
rageous attempt to set aside the release is that he exercised “poor
judgment” in signing the release and disavowing participation in any
further proceedings to challenge the release. We might add that he has
exercised even worse judgment in attempting to repudiate his signature
and in unashamedly abusing the processes of the courts. Mr. Kaye's
initiation and pursuit of the present motion raises a substantial question
as to his legal ethics’ as well as his right to continue to practice before this
Court.2 This Court finds that the motion is an unreasonable and
vexatious multiplication of the Shen's bankruptcy proceedings, is an
abuse of the Court's processes, and is frivolous, bordering on an attempt
to have the Court become a party to fraud. The Court futher finds that
the Shens and Mr. Kaye have willfully and in bad faith committed this
abuse. For these reasons, and those set forth below, the motion to reopen
is denied, and attorneys’ fees and costs incurred by Mr. Graham and the
firm of Luce, Forward, Hamilton and Scripps in connection with the
Mr. Kaye in the amount of $36,339.29.
I
Only the details of the labyrinthine bankruptcy proceedings most
pertinent to the motion presently under consideration are here discussed.
In March, 1974, the Shens first sought relief under the federal bank-
ruptcy laws by filing a petition for relief under Chapter XII of the
Bankruptcy Act. Theodore Graham was appointed operating trustee
shortly after the filing of the initial Chapter XII petition. The firm of
Luce, Forward, Hamilton and Scripps, in which Mr. Graham is a
partner, was appointed counsel to Mr. Graham throughout his tenure as
Trustee. On November 7, 1975, the Shens were adjudicated bankrupts.
On June 4, 1976, Mr. and Mrs. Shen filed a petition for arrangement
under Chapter XI of the Bankruptcy Act and were again adjudicated
bankrupts shortly thereafter. Mr. Graham proffered his resignation as
Trustee of the Shen estate to the bankruptcy court on October 31, 1978,
and the court accepted his resignation on November 9, 1978. On March
26, 1979, Martin Goldberg, the special auditor appointed by the bank-
ruptcy court, filed his report approving the Trustee's handling of the
Shen estate. An order formally discharging Mr. Graham as Trustee was
1-3
entered on May 18, 1979. In his Memorandum of Opinion Re: Fee
Applications dated July 18, 1978, Judge Katz noted the following:
“Suffice it to say that at the commencement of these
proceeding the debtors were insolvent in every sense of
the word. Today, some four years later, all unsecured
creditors have been paid in full with interest, the so called
‘equity claimant’ class of creditors has been satisfied, the
secured creditor problems are basically resolved, and the
debtors have an estate, net to them, approximating over
$1 million.
It cannot be gainsaid that the in‘lationary real estate
market in Southern California was at least in part respon-
sible for this success. However, it is also due in large
measure to the efforts of Mr. Graham who undertook to
resolve many of the problems facing the debtors and, in
my opinion did so with a view in mind of serving the
interests of his constituency, namely the creditors, while
at the same time protecting the debtors. He did this in the
face of numerous changes of counsel for the debtors as
well as the oft evident contrariness of Mr. Shen.”
The Shens again filed a Chapter XII petition on November 2/, 1979, and
voluntarily dismissed the bankruptcy proceedings on December 20, 1979.
After Mr. Graham's resignation as Trustee, he and his law firm sought
collection of fees and determination of any claims the Shens might have
against them arising from the fulfillment of their respective duties to the
Shen estate during the period of the Graham trusteeship. These issues
were resolved through a settlement, the terms of which were embodied in
a stipulated order signed by Judge Katz and approved by the Shens and
their attorney Michael Kaye on April 20, 1979. The signatures of Samuel
T. H. Shen, Carolyn Jean Shen, and Michael Kaye all appear on an
attachment to Judge Katz’ order indicating that the stipulated order was
approved both as to form and content, and that all rights of appeal and
reconsideration of the order were waived. The findings of fact incor-
porated in Judge Katz’ order included the following:
1-4
Trustee's final repert and account is accurate
3. The Trustee has satisfactorily performed all of the
duties required of him under the National Bankruptcy
Act, Rules promulgated by the United States
Supreme Court, and all orders and judgments of this
SAMUEL T. H. SHEN and CAROLYN JEAN
SHEN released the Trustee and his counsel of their own
free will without undue influence being exerted upon
;
5. The release attached hereto is fair to SAMUEL T.
H. SHEN and CAROLYN JEAN SHEN, debtors and
set tied
6. SAMUEL T. H. SHEN and CAROLYN JEAN
SHEN have received the advice of competent counsel
regarding the release.
9. The withdrawals, dismissals and release by the
debtors and debtors-in-possession are reasonable and
appropriate. The offer by the Trustee and his counsel is
reasonable and appropriate. Such withdrawals,
dismisse Is, release and offer will substantially reduce the
litigation and administrative expenses in these proceed-
ings and will resolve all disputes and claims, known or
unknown, arising directly or indirectly out of these pro-
ceedings and will resolve all disputes and claims, known
or unknown, arising directly or indirectly out of these
proceedings between the debtors and the Trustee or his
counsel, all as more specifically set forth in the release
attached hereto.”
Judge Katz’ conclusions of law included the following:
1-5
“1. The release attached hereto is legally binding and
enforceable according to its terms.
2. The fees and costs awarded by the provisions
hereinbelow are reasonable in all respects.
3. The Trustees Report and Account is accurate and
proper and no liability of the Trustee nor his counsel has
been established with respect to matters referred to in said
Report and Account and no evidence has been offered to
establish the same.”
Following his findings of facts and conclusions of law, Judge Katz
ordered, among other things:
“That LUCE, FORWARD, HAMILTON & SCRIPPS
and each of its partners and associates, THEODORE W.
GRAHAM, individually and as Trustee of the above-
named debtors in any and all proceedings under the
National Bankruptcy Act, including the Chapter XII pro-
converted Chapter XII proceedings, and the agents,
employees, successors and assigns of each of them are
released and forever discharged from any and all liability,
claims, demands, actions, and causes of action, known or
unknown, of every kind, description and nature, now
existing or hereafter arising which SAMUEL T. H.
SHEN, CAROLY JEAN SHEN, as bankrupts, debtors-
in-possession or the successors or assigns of cither of
them have at any time held, presently hold, or with the
passage of time will hold, all as more particularly set forth
in the release attached hereto and incorporated herein by
this reference; if there be any conflict between the terms
hereof and said release, the terms of the release shall
control.”
The settlement further encompassed a release which was referred to in
Judge Katz’ order and signed by both Mr. and Mrs. Shen. The release is,
in Mr. Kaye's terms, a “comprehensive exculpatory instrument.” It
1-6
provides that both Mr. Graham and the Luce, Forward firm “are hereby
released and forever discharged from any and all liability, claims,
demands, actions, and causes of actions, known or unknown, of every
kind, description and nature, now existing, or hereafter arising which
claims have been held, are presently held, or with the passage of time will
be held by the Releasing Parties or any of them.”
The release also provided that the parties had executed the release of
their own free will, were not acting under undue influence, and that they
had consulted with counsel and received advice regarding the execui.on
of the release. The final paragraph of the release was the following
attorneys’ fees provision:
“7. In the event either of the Releasing Parties later
attempts to set aside this release, claim that this release is
unenforceable, in whole or in part, or seeks to impose
liability upon any of the Released Parties with respect to
the matters released under this release, ail Releasing
Parties jointly and severally agree to pay any and all
attorneys’ fees incurred by one or more of the Released
Parties in their attempts to establish the effectiveness or
application of this release.”
At the time the release was executed, Mr. Kaye stated in open court
that he would never appear to challenge the release which he had
approved by signing it.’ Nonetheless, Mr. Kave filed the present motion
and appeared at the hearing to represent the Shens, at which time he
indicated that he wished to repudiate the signature he had made earlier in
open court. His motivation for so doing was set forth in his affidavit,
which makes clear that he now has concluded that execution of the
release by him and his approval of it represented poor judgment on his
part.
All agree that the Shen's estate is now fully solvent. The Shens do not
seek to have the bankruptcy court resume general administration over
the Shen's property. Rather, they seek a variety of sanctions against Mr.
1-7
Graham and his law firm on a number of grounds, which include refusal
to surrender books and records of the estate, concealment of records,
illegal seizure of mail, failure to disclose conflicts of interest, filing of
false accounts, breach of fiduciary duty, and fraud on the bankruptcy
court, each and every one of which was the subject of the aforesaid
release of claims and demands.
As the Court has made clear, the release is a valid, duly executed
document approved by the Court and the parties at a special hearing, and
it operates as a bar against further pursuit of the claims and demands
specified therein, even through a proceeding under Bankruptcy Rule 515.
But were the Court to look beyond the release and consider the merits of
the outrageous charges brought against Mr. Graham and his firm in the
light most favorable to the debtors, it still would dismiss the charges as
being frivolous, bordering on attempted fraud upon the Court.
ll
A motion to reopen bankruptcy proceedings under Bankruptcy Rule
515 is addressed to the sound discretion of the trial judge, and the
granting or denial of such a motion will be reversed only for abuse of that
discretion. In Re Haker, 411 F.2d 568 (Sth Cir. 1969); Kheel v.
Bethlehem Steel Co., 355 F.2d 187 (9th Cir. 1965). Such a motion will be
granted only for cause shown, Hull v. Powell, 309 F.2d 3 (9th Cir. 1962),
and the determination of what constitutes sufficient good cause is within
the trial court's discretion. Bartle v. Markson, 357 F.2d 517 (2d Cir.
1966). The burden of proof in establishing good cause is on the party
seeking to reopen the bankruptcy proceeding. In Re Fair Creamery Co..,
193 F.2d 5 (6th Cir. 1951).
Of the many obstacles to be overcome by the Shens in order to meet
their burden of proof to show good cause to reopen none is more
formidable than the general release signed by the Shens and approved by
their legal counsel, Michael Kaye. As is obvious from a reading of those
provisions set forth in Section I, supra, the release is a broad instrument,
the purpose of which is to put to rest precisely the types of claims the
1-8
Shens are asserting as grounds for their Rule 515 motion. The release by
its terms embraces “all liability, claims, demands, actions, and causes of
actions, known or unknown, of every kind, description and nature, now
existing, or hereafter arising * * *.”
The Shens urge this Court to find the release invalid and unenforce-
able. The arguments they offer in support of such a finding are less than
clear, but apparently are grounded in what they term as Mr. Graham's
“double fiduciary status” at the time the release was executed. This
status, Mr. and Mrs. Shen contend, results from Mr. Graham's position
as ex-trustee of the Shen estate and his alleged usurpation of Mr. Kaye's
role in advising the Shens on the merits of the settlement and release.
It is beyond question that bankruptcy trustees occupy a fiduciary
position in releation (sic) to administration of bankruptcy estate assets.
In Re Combined Metals Reduction Co., 557 F 2d 179 (9h Cir. 1977). It
is unclear, however, what fiduciary duty lingers after the trustee's resig-
nation has been accepted by the bankruptcy court and the trustee is
attempting to resolve questions of liability with ex-debtors. The Shens
have offered no authority in support of their assertion that an ex-trustee
operates in a fiduciary capacity in negotiating a settlement and release of
liability with debtors. Resolution of this precise issue is not required by
the facts of the present case though, since this Court finds that Mr.
Graham's disclosures were more than adequate, whether or not he was
operating as a fiduciary in negotiating the settlement and release here at
issue.
“In the case of releases, us in other instances of dealing between the
fiduciary and the person for whom he is acting, there must be proof of
full disclosure by the trustee of the facts of the situation and the legal
rights of the beneficiary * * *.” Bogert, The Law of Trusts and Trustees,
§ 943. This Court finds that there was full disclosure on the part of Mr.
Graham, and that the Shens were fully aware of the facts giving rise to
their claims as well as their legal rights, which they have vigorously
pursued throughout the course of their bankruptcy proceedings. For
1-9
example, the facts of the mail interception claims raised by the Shens
were known to them well in advance of the settlement and release. On
February 13, 1979, Mr. Shen stated these claims in a letter to Mr.
Graham. The same claims were raised again at hearings on February 20,
1979, and March 12, 1979. Indeed, the legal theory of the mail intercep-
tion claim, based in part on Bivens v. Six Unknown Named Agents of the
Federal Bureau of Narcotics, 403 U.S. 388 (1971), which is raised here as
a ground for rescinding the release and reopening the case, was concisely
laid out in January, 1979, at page four of the “Debtors’ Opposition to
Proposed Order Modifying the Order Authorizing Trustee to Employ
Real Property Manager” filed by Mr. Kaye on behalf of Mr. and Mrs.
Shen.
Similarly, the estate records claim was raised by Mr. Shen ina letter to
Mr. Graham dated February 7, 1979. Mr. Kaye seconded those claims by
letter of February 8, 1979, to Mr. Graham. The detailed responses of the
Luce, Forward firm, stating their position on the question of turnover of
records, also served to inform the Shens of the facts surrounding the
records issue. The legal theory of their records claim was set forth in full
in April, 1979, in the debtors’ opposition to the Trustee's fee application
for the period from April 25, 1978, to April 1, 1979.
Mr. Shen's testimony on July 5, 1978, during an examination pursuant
to Rule 205, demonstrates that in relation to the remaining claims
asserted as a basis for the motion here under consideration—the Trustee's
handling of the Fifth and Fir and Cherokee Avenue properties and the B
& H Music litigation--there was sufficient disclosure on Mr. Graham's
part and sufficient knowledge on Mr. Shen's part to support the validity
of the release of those claims. The bulk of the substance of these claims is
also outlined in the Trustee's motion to determine his responsibilities and
liabilities filed on August 7, 1978. Furthermore, the problems associated
with the Fifth and Fir property were fully set out, including the conflict
of interest problem, during the June 21, 1978, hearing on the debtors’
motion to remove the real property manager. The request for additional
findings proposed by Mr. Kaye, dated July 27, 1978, shows detailed
knowledge of the conflict of interest issue. This Court's conclusion as to
the adequacy of disclosure is provided further equitable support by the
facts that Mr. Graham's firm held the estate records open for the Shens’
inspection,’ that the Shens refused to avail themselves of this oppor-
tunity, and that the Trustee actively and promptly sought to ferret out
and to resolve these liability issues.°
The second facet of Mr. Graham's “double fiduciary status” allegedly
stems from his usurpation of the role of the Shen's lawyer, Mr. Kaye, by
means of a telephone conversation with Mr. Shen on the evening prior to
the April 18, 1979, hearing at which the Shens executed the settlement
and release. This Court finds that whatever influence Mr. Graham may
have exercised on Mr. Shen's judgment on the evening of April 17 was
more than compensated for by the advice of Mr. Kaye on the morning of
April 18. The memorandum of release signed by the Shens contains in
paragraphs four and five an explicit acknowledgment that the release was
entered into without undue influence and upon advice of their lawyer.
These acknowledgments were corroborated by Judge Katz’ findings of
fact Nos. 4 and 6. Moreover, Mr. Kaye himself by his signature approved
these documents as to form and content.
This Court concludes that the grounds offered by the Shens for
invalidating the release are entirely insufficient. Thus, they have failed to
overcome the primary barrier to meeting their burden of persuasion on
the showing of good cause required to open the bankruptcy proceedings.
In addition to the reasons already provided, refusal to reopen the
bankruptcy proceedings is further compelled by a number of additional
factors. First, the Shens waived their rights to have the release
reconsidered, but nonetheless pursued them with this motion.
Furthermore, attorney Kaye stated to the bankruptcy court that he
would not appear to challenge the release which he signed, but nonethe-
less has so appeared. Second, Judge Katz independently found the terms
of the release and settlement fair, and both Judge Katz and auditor
Goldberg approved the Trustee's handling of the Shen estate. Finally,
federal courts have emphasized that “it is important to litigants and the
public alike that there be effective and expeditious disposition of disputes
which reach the courts, and this consideration is remarkably important
in matters of bankruptcy.” California Airmotive Corp. v. Bass, 354 ¥.2d
453, 455 (Mh Cir. 1965). The effective and expeditious disposition of
disputes such as the ones here at issue will be greatly furthered if courts
honor settlements such as the one challenged by this motion. The motion
to reopen the bankruptcy proceedings involving the Shens is accordingly
DENIED.
Wl
Paragraph 7 of the release here at issue provides that the releasing
parties shall pay any and all attorneys’ fees incurred by the released
parties resulting from any attempt to set the release aside. Thus, as a
matter of contractual right, this Court awards attorneys’ fees in favor of
Mr. Graham and the firm of Luce, Forward, Hamilton and Scripps to be
paid by Mr. and Mrs. Shen.
In addition, this Court finds Mr. Kaye jointly liable for those same
attorneys’ fees under the inherent power of this Court, recently
reaffirmed by the United States Supreme Court in Roadway Express,
Inc. v. Piper, 4 U.S.1..W. 4836 (June 23, 1980). Although the “American
rule” is that generally a prevailing party is not entitled to recovery of
attorney's fees, Arcambel v. Wiseman, | U.S. (3 Dall.) 306 (1796), federal
courts retain the inherent power to tax counsel fees against a party who
has willfully and in bad faith abused judicial processes. Roadway, supra,
4% U.S.L.W. at 4840. The instant motion to reopen is an example of such
willful and bad faith abusc.
On July 5. 1978, during the course of an cxamination of Mr. Shen
pursuant to Rule 205, Mr. Kaye made the following statement:
“MR. KAYE: LET ME EXPRESS ON THE
RECORD OUR HUGE AND UNLIMITED
ADMIRATION FOR THE IRONCLAD LANGUAGE
DESIGNED BY MR. BROWN IN THIS PROPOSED
APPLICATION FOR STIPULATED ORDER. IT
1-12
COVERS MUCH MORE-WELL, FOR THE PUR-
POSE THAT MR. BROWN IS OFFERING IT, IT
SIMPLY PROTECTS THE TRUSTEE. IT COVERS
MUCH MORE THAN WE THINK IS NEEDED ON
BEHALF OF THE TRUSTEE OR OTHER PARTIES
THAT THE TRUSTEE HAS SOUGHT TO PROTECT
BY THE ORDER. ONE OF THE MOST OBJECTION-
ABLE FEATURES OF THE PROPOSED STIPU-
LATED ORDER APPEARS IN PARAGRAPH 3 OF
THE STIPULATION ON PAGE 4 BEGINNING
LINES 10 THROUGH LINE 17. WE HAVE HERE A
GENERAL RELEASE AND ALSO A WAIVER OF
THE PROVISIONS OF CALIFORNIA CIVIL CODE
SECTION 1542. NOW, THAT PROVISION OF THE
CALIFORNIA CIVIL CODE WOULD PROVIDE
THAT ANY GENERAL RELIEF THAT WE MAKE
WOULDN'T EXTEND TO CLAIMS WHICH WE
MIGHT HAVE THAT WE’RE UNAWARE OF AT
THE PRESENT TIME AND WHICH IF WE HAD
BEEN AWARE OF, IT WOULD HAVE MATERIAL-
LY AFFECTED OUR SETTLEMENT.
* * * AND IF WE SHOULD LATER DISCOVER A
MAJOR DISCREPANCY, WE WOULD BE BARRED
BY THIS WAIVER, BY THIS VERY BROAD,
GENERAL RELEASE FROM EVER OBTAINING A
RECOVERY ON SOMETHING-IN EFFECT WE
ARE BEING ASKED TO SIGN AWAY IN THE
BLIND ANY CLAIMS WHICH WE MAY HAVE.
MR. KAYE: WELL, THIS EXHIBIT | IS~COVERS
EVERY CONCEIVABLE POSSIBILITY UNDER THE
SUN, AND RUNS FAR BEYOND ANY PROTEC-
TION THAT MAY BE REQUIRED BY THE
TRUSTEE.” R.T. 5-7.
1-13
Thus, Mr. Kaye demonstrated his awareness that the release challenged
through the motion here under consideration had the legai effect of
barring “every conceivable possibility under the sun.” Nonetheless, he
proceeded to challenge the release on the basis of a number of issues
which had already been contested by both sides prior to the execution of
the release.
This awareness on Mr. Kaye's part of the legal effect of the release,
coupled with several other facts, leads this Court inexorably to the
conclusion that the present motion to reopen was made vexatiously,
unreasonably, in bad faith and was willfully abusive. First, the Shens
offered almost nothing in the way of factual support of their challenge to
the release which had not been brought to light prior to the settlement
and release. Second, their legal arguments on the invalidity of the release
were manifestly transparent in their lack of merit. Their usurpation of
counsel theory was particularly vacuous. Third, as Mr. Kaye's affidavit
and statements at the hearing make evident, his motivation in bringing
this action was to rectify what he saw as errors of judgment, on both his
and the Shens’ part, in negotiating the release. It is not a legitimate
ground for challenging a release and settlement that a better deal could
have been, or should have been negotiated by a party or his attorney.
Fourth, there was a marked chasm between the charges of crime and
corruption leveled by Mr. Kaye, who injected them with a great deal of
vituperative rhetoric, and the facts offered in support of those charges.
Finally, this Court finds it disturbing whenever an officer of this Court
seeks to repudiate a signature to a document made in open court.
In addition, pursuant to 18 U.S.C. § 1927, this Court assesses the costs
of this motion against attorney Kaye. That statute provides:
“Any attorney or other person admitted to conduct
cases in any court of the United States or any Territory
thereof who so multiplies the proceedings in any case as
to increase costs unreasonably and vexatiously may be
required by the court to satisfy personally such excess
costs.”
1-14
In these days of crowded dockets and increasing caseloads, the time of
federal courts is an ever more precious resource, which this Court will
not tolerate having squandered in pursuit of manifestly unmeritorious
motions. Such motions contribute to the glacial pace of modern
litigation, which as the Supreme Court has recently emphasized, breeds
frustration with the federal courts, and ultimately disrespect for the law.
In assessing the amount of attorneys’ fees to be awarded as reasonable
compensation for the work performed in responding to the Shens’
motion to reopen, this Court has been guided by the criteria outlined in
Kerr v. Screen Extras Guild, Inc., 526 F.2d 67 (%h Cir. 1975), cert.
denied, 425 U.S. 951 (1976). In particular, the computation was based on
amount of material involved in the Shens’ charges, 324 hours by the
Luce, Forward firm and an additional 39.5 hours by the Seltzer, Caplan
firm, and a reasonable hourly billing rate, averaging approximately $85
an hour for the Luce, Forward firm, $150 an hour for Mr. McMahon's
26.5 hours as the attorney of record, and $35-$40 an hour for 13 hours of
law clerk research. Also specifically considered were the time limits
imposed for organizing, reviewing, and presenting voluminous materials
dealing with the Shens’ estate, the high quality of the work performed by
respondents’ counsel, their success in defeating the motion to reopen, the
experience, reputation, and ability of respondents’ counsel, and the
acrimonious nature of the task of dealing with the Shens and Mr. Kaye.
Accordingly, IT IS HEREBY ORDERED that the motion to reopen
bankruptcy proceedings is DENIED, and that attorneys’ fees in the
amount of $31,883 and costs in the amount of $4,456.29 are assessed
jointly and severally against Mr. and Mrs. Shen and Mr. Michael Kaye
to be paid within thirty (30) days.
Dated: September 10, 1980.
am H. r
United States District Judge
1-15
FOOTNOTES
Rule of Professional Conduct of the State Bar of California 2-110
States:
“A member of the State Bar shall not seek or accept
employment to accomplish any of the following objec-
tives, nor shall the member do so if the members knows
or should know that the person solicited for or offering
the empioyment wishes to accomplish any of the follow-
ing objectives:
(A) Bring a legal action, conduct a defense, or
assert a position in litigation, or otherwise take steps,
solely for the purpose of harassing or maliciously
injuring any person or to prosecute or defend a case
solely out of spite.
(B) Present a claim or defense in litigation that is
not warranted under existing law, unless it can be
supported by good faith argument for an extension,
modification or reversal of existing law.
(C) Take or prosecute an appeal solely for delay, or
for any other reason not in good faith.”
This Court recommends pursuant to Local Rule 110-6 that the
Standing Committee on Discipline review Mr. Kaye's qualifications
to remain a member of the Bar of this Court.
On April 18, 1979, before the Honorable Herbert Katz, Mr. Kaye
stated: “Mr. Shen's decision is made and | believe it will stand and |
am not going to come back to unmake it.” Transcript of the after-
noon session, April 18, 1979, p. 10.
See, ¢.g., letters dated March 8, 1979, anc March 14, 1979, from the
Luce, Forward firm to Mr. Kaye.
Trustee filed his motion to determine the responsibility and
on August 7, 1978, just weeks after the issues were
the Rule 205 examination.
bEF
i
FILED
2-1
FEB 4 1981
UNITED STATES COURT OF APPEALS
RICHARD H DEANS
FOR THE NINTH CIRCUIT GMs Us coum cr or
In the Matter of SAMUEL T. H. SHEN,
and CAROLYN JEAN SHEN,
Debtors.
No. 80-5784
MICHAEL KAYE, BK # 74-607K
BK # 74-608
Appellant,
ORDER
vs.
LUCE, FORWARD, HAMILTON & SCRIPPS:
and THEODORE W. GRAHAM,
Appellees.
i
Before: TANG and CANBY, Circuit Judges
Upon due consideration, the court enters the following order:
1. Appellant's motion for an extension of time to respond to
appellee's motion to dismiss this appeal is granted, and the opposition
heretofore received is ordered filed;
2. Appellees’ motion to dismiss this appeal as moot is denied;
3. The certificate of record, heretofore received, is ordered filed; and
4. Appellant shall file his opening brief on or before forty (40) days
from the entry of this order.
Mo Cal 1/26/81*
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF CALIFORNIA
)
74-608-K
)
)
)
In the Matter of
SAMUEL T. H. SHEN and Bankruptcy Nos. 74-607-K
CAROLYN JEAN SHEN,
Debtors. MEMORANDUM AND ORDER
Heretofore this Court denied a motion of Mr. and Mrs. Samuel T.
Shen, ex-debtors, and their attorney, Mr. Michael Kaye, to reopen
bankruptcy proceedings in order to charge the trustee in bankruptcy, Mr.
Theodore Graham, and his counsel, Luce, Forward, Hamilton and
Scripps, with misconduct on the grounds that a duly executed, valid
release acted as a bar to reopening the bankruptcy proceedings. This
Court further found that the motion was “an unreasonable and vexatious
multiplication of the Shen's bankruptcy proceedings,” promulgated by
bad-faith motives and thereupon imposed joint and severa! liability upon
Mr. Kaye and the Shens for costs and attorney's fees in the amount of
$36,339.29. Mr. Kaye, im propria persona, appealed this Court's
judgment to the Ninth Circuit Court of Appeals. The Shens and
appellees, Mr. Graham and Luce, Forward, Hamilton and Scripps,
entered into a settlement of this Court's judgment on September 16,
1980, with full satisfaction of the judgment taking place on November I1,
3-2
1980. Appellees’ motion to dismiss the appeal as moot was denied by the
Court of Appeals. Appellees now move to require appellant to file a cost
bond of $15,000 pursuant to Rule 7 of the Federal Rules of Appellate
Procedure. Initially appellees requested a cost bond of $25,000, including
$20,000 for anticipated attorney's fees and $5,000 for costs. Later
appellees amended the figure downward to $15,000, giving no
breakdown as to what portion of the bond would cover attorney's fees
and what portion would cover costs.
Rule 7 provides:
“The district court may require an appeilant to file a bond
or provide other security in such form and amount as it
finds necessary to ensure payment of costs on appeal in a
civil case.”
Prior to the 1979 Amendment, Rule 7 required the filing of a $250 bond,
allowing the court to increase the amount upon a proper motion by
appellee. The 1979 Amendment, as reflected by the Advisory Committee
Note, dispensed with the requirement of a $250 bond, leaving the
imposition of an appeal bond to the discretion of the district court. The
decision to delete the $250 filing requirement was made upon the
presumption that “[tjoday it bears no relationship to actual costs.”
Advisory Committee Note, 1979 Amendment to Rule 7. Nowhere in the
prior rules, the amended Rule 7 or in any of the case law is mention made
of including attorney's fees as part of the costs contemplated by Rule 7.
Rather, Rule 7 applies only to those routine taxable costs authorized by
28 U.S.C. § 1920 and Rule 39 of the Federal Rules of Appellate
Procedure. 9 Moore's Federal Practice par. 207.06 at 7-10.
Therefore, the costs of appeal contemplated by Rule 7 are: the docket
fee, 28 U.S.C. § 1921; costs of briefs, appendices, and copies of records,
Rule 3%(c), and preparation and transmission of the record and the cost
of the reporter's transcript if necessary, Rule 3%e). Appellees originally
stated that a reasonable dollar figure for their costs, as enumerated
above, is $5,000. Therefore,
3-3
IT IS HEREBY ORDERED that appellees’ motion to require
appellant. Michael Kaye, to file a cost bond to ensure payment of costs
on appeal is GRANTED, provided, however, the amount of the cost
bond shall be $5,000 instead of $15,000.
Dated: October 5, 1981.
United States District Judge
FILED
41
JAN 18 1982
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT “ERK US. COURT OF APPEALS
IN THE MATTER OF
SAMUEL T.H. SHEN and
CAROLYN JEAN SHEN,
Debtors.
No. 80-5784
MICHAEL KAYE, Bankruptcy Nos. 74-607-K
74-608-K
Appellant,
ORDER
Vv.
LUCE, FORWARD, HAMILTON &
SCRIPPS; AND THEODORE W.
GRAHAM,
Appellees.
Appeal from the United States District Court
for the Southern District of California
William H. Orrick, District Judge, Presiding
Argued and Submitted January 5, 1982
Before: CHOY, GOODWIN, and FARRIS, Circuit Judges
The appeal is dismissed for the refusal of Appellant Michael Kaye to
post the cost bond fixed by the district court pursuant to Rule 7, Fed. R.
App. P., by order filed October 5, 1981, and for the failure of the
Appellant to file within a reasonable time thereafter a motion for relief or
4-2
for reduction of the amount of the bond by showing his inability to
comply with the court's order.
The panel of this court before which this appeal was set for hearing on
January 5, 1982, is advised that Appellant filed a motion regarding this
matter in the Clerk's Office in San Francisco on January 4, 1982. When
the panel receives copies of that motion, it will consider it, and if it
decides to amend this order, it will do so within seven (7) days from the
date this order is filed.
rILED
FEB 24 1982
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT “LERK. U.S. COURT OF APPEALS
5-1
IN THE MATTER OF
SAMUEL T.H. SHEN and
CAROLYN JEAN SHEN,
Debtors. No. 80-5784
Bankruptcy Nos. 74-607-K
MICHAEL KAYE, 74-608-K
Appellant,
ORDER
v.
LUCE, FORWARD, HAMILTON &
SCRIPPS: AND THEODORE W.
GRAHAM,
Appellees.
~~ > eS ~~~ HS K~ Se ~ - - KOO YKYKOOYKrOOTLYrOOTrl Trl Trlr Orel
Before: CHOY, GOODWIN and FARRIS, Circuit Judges.
The panel as constituted in the above case has voted to deny the
petition for rehearing. The petition for rehearing is denied.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.