Petition for Writ of Certiorari — Rothman v. New York State Department of Transportation, 106 S. Ct. 593 (1985) (No. 85-483)

v

pee se \ Supreme Court, U.S.

85-483 bey FILED

i Sep ** 1985

n e

Supreme Court of the United States *

October Term, 1985,

No.

JESSEL ROTHMAN, P.C.,

Petitioner,

—againsi—

NEW YORK STATE DEPARTMENT -

OF TRANSPORTATION,

Respondent.

Petition For A Writ of Certiorari

to the United States Court of Appeals

for the Second Circuit

HENRY MARK HOLZER

Attorney for Petitioner

c/o Brooklyn Law School

256 Joralemon Street

Brooklyn, New York 11201

(718) 780-7985

nA eta

QUESTION PRESENTED

Before a Court of Appeals can impose monetary sanctions

against a party’s lawyer (pursuant to Roadway Express, Inc. v.

Piper, 447 U.S. 752 (1980), Alveska Pipeline Service Co. v.

Wilderness Society, 421 U.S. 240 (1975), 28 U.S.C., § 1912, 28

U.S.C. § 1927 and/or F.R. App. P. 38), does the Fifth Amend-

ment’s procedural due process requirement necessitate at least

clear notice of the court’s intention to sanction the lawyer, and/ or

bifurcation of consideration of the appeal’s merits and the

proposed sanction, and/or an opportunity for the threatened

lawyer to be relieved or to withdraw, and/or some measure of

discovery, and/or an evidentiary hearing on genuinely disputed

issues of material fact, and/or other procedural safeguards; and do

the Sixth and/or Seventh Amendments require a separate trial-

type proceeding?

'In the instant case, the United States Court of Appeals cited the five sources

referred to above as the combined basis of its power to sanction the parties and

their lawyers. As will be seen infra, it is not possible to ascertain from the court's

opinion if all of these were actually relied on by the court to sanction the lawyers,

or if only some of them were. Plainly, as will also be seen in:/ra, all five can not

apply (e.g. Alyeska).

a i

PARTIES

The Parties in the Court of Appeais were: In Re Cosmopolitan

Aviation Corp., Debtor; Cosmpolitan Aviation Corp., Debtor

Appellant; Flushing Savings Bank, Intervenor, Appelle Cross-

Appellant; New York State Department of Transportation,

Appellee, Appellant, Cross-Appellee; Jessel Rothman, P.C..,

Petitioner here, was counsel to Flushing Savings Bank below.

TABLE OF CONTENTS

Page

I NINN a on ei bbb scar caescercsccteecesseseence i

PPC CLC coh sche hbd ckWSCCS Sc case as RSUS OCS RRS SOK GEN il

RI TIO kw ca kc cc cece cc cceccnceccsesescesesenenss I

a eae p ees ewan tad sav aeeaesnse l

Constitutional, Statutory and Other

ec Laken wen eens ecsceheees es ew ate l

Se Ee rer er ree 3

Reasons For Granting the Writ... ........ccceceecceeeees 15

ee eae ek a 5k KARA Ss 0.00004 664 CRONE S REED 31

Appendices:

“A” Summary of Argument from Petitioner's Brief in the

Court of Appeals

“B” Portion of Petition for Rehearing

“C” Relevant Portion of Transcript of Oral Argument

in Court Below

“D” Opinion Below

“E” Order Denying Rehearing

“F” Conclusion of State’s Motion on Remand

in District Court

“G” News Clipping

iV

TABLE OF AUTHORITIES

Cases Page

Alyeska Pipeline Service Co. v. Wilderness Society

G20 U.S. BED CIOS v5 oes sv ows oss oases ence vanes L ta 89

Armstrong v. Manzo 380 U.S. 545 (1965) .......... 19, 22, 23

Beli v. Bureon, 402 U.S. SSS CTO) oc cde ccc cccccesess 22, 23

In Re Bithoney, 486 F.2d 319 (Ist Cir. 1973) ..........-45- 27

In Re Buffalo, 390 U.S. 544, 550-551, 88 S.Ct. 1222,

ben pe we BY ee Gl) eerreerpererer rer ererr rr ree 22

Board of Regents of State Colleges v. Roth,

PR Et. ror errr Teer ery TTT Tree eT 19

Boddie v. Connecticut, 401 U.S. 371, 378, 91 S.Ct. 780,

ge Blt eer errerr TTT rey Tiere ete 22

Bolling v. Sharpe, 347 U.S. 497 (1954)... 2... eee ee eee eee 26

Bradley v. Fisher, 80 U.S. (13 Wal.) 646 (1871) ............ 19

Ceasar World, Inc. v. Venus Lounge, Inc.,

S20 F.2d 269 (36 Cie. 1979) oun nvaccescnscssccsecccnses 16

Clarion Corp. v. American Home Products Corp.,

494 F.2d 860 (7th Cir. 1974), cert. dend, 419 U.S. 870

(1974), reh. dend. 419 U.S. 1027 (1974) ....... 20. eee eee 15

In Re Cosmospolitan Aviation Corp. v. New York State

Dept. of Transportation, 763 F.2d 507 (2d Cir. 1985) ...... l

Douglas v. First Nat'l Realty Corp., 543 F.2d 894

CERES Cae, Fs 46 0e AN an kek 05 cc ban AD SESS bees ce xs 30

Flaherty v. Flaherty, 31 Cal. 3d 637, 646 P.2d 179,

icfal@ Ce fi. rrereorrri vary errr ret Tore 27

annette ti sh

Flouro Electric Corp. v. Branford Associates,

Oe Tie ee GE Gs SPE S564 COAG G NK KO NSS bn 1k sad RRA 15

Fuentes v. Shevin, 407 U.S. 67 (1972) ................ 22, 23

Furbee v. Vantage Press, Inc., 464 F.2d 835 (D.C. Cir.

ec PPE ee nee Os eT OE OE area 15

Goldberg v. Kelly, 397 U.S. 254, 90 S.Ct. 1011,

PP Se IEE be Ses Wane ssei geben Sek ad ens Edn deen 22

Gerard v. Goins, 575 F.2d 160 (8th Cir. 1978) ............. 30

oes ¥. Coie, SID OS, Se Tiree os akc vnc cdkacnchen 19, 23

Griffin v. Griffin, 327 U.S. 220 (1946) .......0.c.eeeeeeeee 19

Hagerty v. Succession of Clement, 749 F.2d 217

ee er er ee Oe ne ere errr 25

Johnson v. Mississippi, 403 U.S. 212 (1971), 91 S.Ct. 1778 ...30

Londoner v. City and County of Denver, 210 U.S. 373,

Pe ny I is 958 a can babe ns Rake Kade 22, 23

Malhiot v. Southern California Retail Clerks Union,

Vege Bes. Le | Pere ere erry Troe ey 23

Mathews v. Eldridge, 424 U.S. 319 (1976) ....... 18, 19, 23, 24

Monk v. Roadway Express, Inc., 73 F.R.D. 411 (1977) ..... 16 3

Monroe v. N.L.R.B., 511 F.2d 611 (Sth Cir. 1975).......... 16

Morrissey v. Brewer, 408 U.S. 471 (1972) ........... 0000. 23

Mullane v. Central Hanover Bank and Tr. Co.,

Pe ec A KS Ba kk Wes kd or eas 19, 22

iia

vi

Muniz v. Hoffman, 422 U.S. 454 (1975)... 0.6. ce eee ee 30 |

NLRB v. Lucy Ellen, 517 F.2d 551 (7th Cir. 1975) .......5. 27

Nemeroff v. Abelson, 620 F.2d 339 (2d Cir. 1980) ...... 27, 29

Northcross v. Board of Education, 489 F.2d 19

BOs GR. TOO ca cnc a Sac.n caee beach ns ha cdeesesaewest 15

Opp Cotton Mills, Inc. v. Administrator of Wage and

Hour Division of the Dept. of Labor,

SUS U.S, TAB CIOGT) osc scdccccccvenccseesectuedececses 22

Roadway Express, Inc. v. Piper,

G47 U.S. 738 (EGER) oc cn ccccccceveccass i, 14, 16, 17, 25, 29

Skinner v. White, 505 F.2d 685 (Sth Cir. 1974)...........4. 30

Smoot v. Fox, 353 F.2d 830 (6th Cir. 1965), cert. dend

sub nom., League of Women Voters v. Smooth,

TOS UE Gee CE ok Sa cava bated uceeeeeecs see tateuds 29 )

Sniadach v. Family Finance Corp. of Bay View,

FB RR S| EERO TST Tee rer CT eT TEE ee Tey 23

Stewart v. Sonneborn, 98 U.S. 187 (1879) .......... 2. eens 29

Talamini v. Allstate Ins. Co., 105 S.Ct. 1824 (1985)..... 18, 28 |

Tatum v. Regents of University of Nebraska-Lincoln

103 S.Ct. 3084 (1983), 462 U.S. T1172... 6.00.0 eee 18, 27

U.S. v. Illinois Central R. Co., 291 U.S. 457, 54 S.Ct.

GFE Fea 4 5 4k phe Ads WAAR O CEES AURA Mae Ci USS ekES 22

Wisconsin v. Constantino, 400 U.S. 433 (1971)...... 19, 22, 23

Statutes

Oe SD Ga dase hccc Usd iin be\cenecetdbicakec tunnel 30

Se Se BOER bos Chak scenectVedsbecaseceatern i, 2, 13, 15

Be a ee vabendesscaaes S39 Se Fe F-

ee ee ON 0h b nta dea ea Ka bcd sabes ehbackacweasens I

ee Ee rere ror rT l

Rules

Tie UN Us OO 84 a0 cbehesnb ed bee causaceies i, 2, 13, 15, 16

Pi MS GP a SCC SNS CEC hOs vdnKeeebendseeauneeakeue 18

Fake Fe ee ee OO OP ns kv nn thoes basenaacsneuanceaes 26

Fa Re Ik Fined 064A a hae dew kee e ee bbe ch eenas 30

Constitutional Provisions

ee eT ee a eeeeuee es 18, 19, 22, 26

SP PE We Si i ek ci wececLanacubew buen 29, 30

Se I, I a a ccc cecneae wines 29, 30

ee

Vili

Miscellaneous

F.R. App. P. 38 advisory committee note, 43 F.R.D. 61,

155 (1967), reprinted in J. Moore, B. Ward and

J. Lucas, Moores Federal Practice 238.01[02]

SN, SUES S4ECA4SA Kan dSEUNER SE SOME EEAENGEESa OC ees 16

H.R. Rep. No. 1234, 96th Cong. 2d Sess. 8,

reprinted in U.S. Code Cong. and Admin. News

Re SS aie GandGewnkhnSONRnGws eee tbe iy esenees 17

Martineau, Frivolous Appeals: The Uncertain Federal

Response 1984 Duke L.J. 845...... 15, 17, 18, 20, 21, 26, 27

S.J. Moore, J. Lucas and J. Wicker, Moores Federal

Practice Par. 38.11[5] (2ed. 1980)...............08. 16, 29

Comment, Nemeroff v. Abelson, Bad Faith and Awards of

Attorneys’ Fees, 128 U.Pa. L. Rev. 187.(1979)........... 29

ee FRO FOE BO FOI a ove ccwcccccseccancscccccess 28

Procedural Rights of Attorneys Facing Sanctions,

40 Rec. A.B. City N.Y. 313, May-June 1985 ............ 31

Code of Professional Responsibility, DR 1-102 (A)(4)

and (5), 2-109 A)(2) and 7-I02(A)(5)............008. 23, 27

Other Law Review Articles

Batista, Defending Yourself Against Sanctions,

9@ Eatimntion S46, Borie 1FE6 20s ccccccccesccccccvcsess 29

Burbank, Sanctions in Proposed Amendments to the

Federal Rules of Civil Procedure: Questions About

Power, Ti Hofetes L. Rev. 997 (19G3) ... cccncccnsececes 29

Curtin, Chairmans Corner: Sanctions, 10 Litigation News

SRS oi i ae ee eae ben 29

Frank, On the Merits: Frivolous Suits Targeted.

ee a ae A PA £4 4 eRe be daesnscecncucesss 29

Fruin, Conduct of Court Proceedings: When Lawvers

Bend the Court Out of Shape, 21 Judges J. 14,

Pee PE nuk aes Mabie kwh oe ne nendnbeséccndsncacss 29

Green, From Here to Attorneys Fees: Certainty, Efficiency,

and Fairness in the Journey to the Appellate Courts,

Se EE ing SET IE 0 os a o's 65.0 0:00 0ib-b'00 Vege oes 29

Hall, Attorneys Fees Against Parties and Attorneys,

ap ae OO 6 wc kceuads eeua cacune ced 29

Hansken, The Federai Courts Authority to Assess Attorneys

Fees Directly Against Counsel: Roadway Express, Inc. v.

Piper, DePaul L. Rev. 66D (1ISS1) oc cccccscccccvces 29

Loth, Appealing the Frivolous Appeal, 56 Ohio St.

Ais es WEEE, EUs OU TEs ca cbneetereseciaccans 29

Mallor, Punitive Attorneys Fees For Abuse of the

Judicial System, 61 N.C.L. Rev. 613 (1983) ............. 29

McKirdy, 28 U.S.C. § 1927 — Counselor Beware,

FE ee PUNE ds G56 50S Chr abe hicedeccnectescs 29

Meadows, Frivolous Lawsuit May Destroy Career of

Attorney: ls There A Remedyv?, 17 U. Rich. L. Rev.

GDECIGESD, oncik.c on dccceapots env duisenteaeesavesees ts 29

Middleton, Four Bars Join Battle Over Lawyers Rights,

9 B. Leader 30, Sept.-Oct. 1983.2... ecccccccccsvcceces 29

Ross, Sanctions to Enforce Jurisdictional Discovery:

Constitutional and Prudential Limitations, 68

Va. 1. REV. FEE CAFR) obs cis ete eweeeeessb ce tstssees 29

Shaneyfelt, Warning to Overzealous Attorneys,

TO Witamnatie 6.5. GOT CTR svc ccc wees ce rsdecsecess 29

Stevenson, Damages For Frivolous Appeals, 45 La.

eet, | PO ree Perr err ery er ere 29

Sweeney, Attorney Liability For Malicious Prosecution:

Nelson v. Miller, 46 Mo. L. Rev. 896 (1981) ............ 29

Umin, Making Abusive Lawyers Pay, 10 Litigation

ND aa 6 vba hee tka ck eb ekeckdanns Sm aneesbeane 29

White, Attorney Malpractice: Problems Associated With

Failure to Appeal, 31 Buffalo L. Rev. 583 (1982) ........ 29

Comment, Awards of Attorneys Fees Against Attorneys:

Roadway Express, Inc. v. Piper, 60 B.U. L. Rev. 950

CIGIOT ob ody cocaunne es cv sabhs aeeden eee ras cb eV sess 29

Comment, Sanctions Against Defense Attorney:

In Re Gonzalez, 69 Mass. L. Rev. 134 (1984) ........... 29

OPINION BELOW

The opinion below (Appendix “D” hereto) is reported at 763

F.2d 507 (2d Cir., 1985), under the title: In Re Cosmopolitan

Aviation Corp., Debtor, Cosmopolitan Aviation Corp., Debtor-

Appellant, Flushing Savings Bank, Intervenor, Appellee Cross-

Appellant, against New York State Department of Transporta-

tion, Appellee, Appellant Cross-Appellee.

Jessel Rothman, P.C., Petitioner here, was counsel to Flushing

Savings Bank below and seeks Certiorari from this Court to

review the Second Circuit’s assessment of monetary sanctions

against Jessel Rothman, P.C. qua Flushing’s attorney. This

Petition in no way involves the substantive merits of the appeal

decided by the United States Court of Appeals for the Second

Circuit in the above titled case.

JURISDICTION

The opinion/ order of the Court of Appeals was made and

entered on May 24, 1985. A timely petition for rehearing was

denied on June 27, 1985, and this Petition fora Writ of Certiorari

has been filed within 90 days of that date.

The jurisdiction of this Court is based on 28 U.S.C. § 1254(1).

CONSTITUTIONAL, STATUTORY AND OTHER

PROVISIONS INVOLVED

The sole Constitutional provisions involved in this case are the

due process clause of the Fifth Amendment and the jury trial

guarantees of the Sixth and Seventh Amendments.

Also involved are two federal statutes and one federal rule:

Where a judgment is affirmed by the Supreme Court

or a court of appeals, the court in its discretion may

adjudge to the prevailing party just damages for his

delay, and single or double costs. (28 U.S.C. § 1912).

Any attorney ... admitted to conduct cases in any

court of the United States ... 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. (28 U.S.C. § 1927).

If a court of appeals shall determine that an appeal is

frivolous, it may award just damages and single or

double costs to the appellee. (F.R. App. P. 38).

STATEMENT OF THE CASE

Jessel Rothman, P.C., a professional legal corporation of the

State of New York (hereafter “Petitioner”), represented Flushing

Savings Bank in the United States Court of Appeals for the

Second Circuit. The case involved Flushing’s status asa lender, a

defaulted lease and a bankruptcy proceeding.' The appeal was

argued by an associate from Petitioner’s firm, Julian Kaplan,

Esq., About half-way through Mr. Kaplan’s oral argument—

even though no sanctions had been sought in the bankruptcy

court, the district court or any of the three state courts, and the

subject had not even arisen in those forums—a member of the

Second Circuit panel interrupted with the then out-of-context

observation that: “Let me tell you something. You know that

your opponents have asked for an award under Section 1927 [of

28 U.S.C.]. That’s one of the issues in this case. Remember that.*?

Mr. Kaplan made no response, and simply continued his

argument on the merits.

Next came the oral argument of an Assistant Attorney General

of the State of New York, Barrie Goldstein, Esq. When she

finished, a now-unidentified member of the panel raised the

question of attorney’s fees and the following ensued:

THE COURT: What about attorney’s fees?

'Annexed hereto as Appendices “A” and “B,” respectively, in order to provide

this Court with soune sense of what the appeal concerned (although this Petition

has nothing to do with the merits of Petitioner's appeal to the Second Circuit on

behalf of Flushing Savings Bank) are the summary of argument from

Petitioner's brief-in-chief in the court of appeals and a portion of his unsuccess-

ful petition for rehearing there.

?Annexed hereto as Appendix “C” is the title page of the oral argument trans-

cript, page 19 on which the unidentified member of the panel made the state-

ment quoted above, and the “conclusion” portion of Respondent's brief in the

court of appeals wherein a fleeting reference is made to the Attorney General's

request for attorneys’ fees pursuant only to 28 U.S.C. § 1927.

|

4

That is what I was going to ask. Talking about that,

there has been so much hocus pocus about who repre-

sents whom here. The sheet that the courtroom deputy

gave me says Bruce Karp for Cosmopolitan wishes to

give all of his time to the intervenor, Jessel Rothman, for

Flushing, who I understand is out of town.

Your name is what, sir?

MR. KAPLAN: Julian Kaplan. | identified myself as

an attorney for Mr. Rothman’s office.

THE COURT: Yes, you did. | am not critical of that.

I am just saying it’s a ticklish situation here.

Your name is wnat?

MR. KAPLAN: Julian Kaplan. I am an associate of

the firm.

Cosmopolitan submitted a one-page statement that

they are relying on our brief—

THE COURT: I understand— (inaudible)—but the

State says any attorney who so— (inaudible)—and I just

want to make sure that this panel is aware of the

attorneys who you claim are involved in prolonging this

litigation.

We have two here before us this morning, but | am

not sure their firms represented Cosmopolitan and

Flushing all the way through from the beginning.

MS. GOLDSTEIN: For the pertinent point in time,

Your Honor, yes, that is true. Indeed, Your Honor, |

would like the Court to be aware that $117,500 has been

set aside by the District Court for the potential awards

of attorney’s fees as well.

THE COURT: Did you move for attorney’s fees in

the District Court?

MS. GOLDSTEIN: No, Your Honor. I had to come

up here first because they appealed the orders. I am

prepared to move—

(People talking at once overlapping, inaudible)

THE COURT: Should we remand for an award of

attorney’s fees against Mr. Rothman and Cosmo-

politan or—we—isn'‘t that a matter for trial?

MS. GOLDSTEIN: I would expect that, according

to this Court’s decisions on fees, and I am familiar with

the Court’s decisions, but not as familiar as | am with

the case law of the Court right now.

I would suggest that we perhaps may need at least

some proof to be submitted. My hourly proof, I have

been keeping contemporaneous records of that. I would

be more than happy to do research and submit a letter

memorandum to the Court on that. What we seek right

now is the vacatur of this Court’s December 20th stay.

THE COURT: Well, we are going to reserve decision,

but before we do, I understand that this Court issued a

stay pending argument of this appeal; is that correct?

MS. GOLDSTEIN: That’s correct, on December

20th, Your Honor.

THE COURT: Well, that stay is hereby vacated.

MS. GOLDSTEIN: Thank you, Your Honor.

THE COURT: We will reserve decision.

MR. KAPLAN: May | be heard in reply on one brief

point?

THE COURT: To what do you want to reply?

MR. KAPLAN: The statement that was just made

with regards to attorney’s fees and Flushing possession

is in, quote, “the entire”—(inaudible)

THE COURT: I will give you one minute.

MR. KAPLAN: I would just like to point out as a

matter of fact, and this is undeniable, Flushing has only

been a party to this proceeding for a grand total of 40

days. During those 46 days, we prepared an appeal, put

together an 800-page Joint Appendix, had it printed and

filed within ten days, and—

THE COURT: Counsel, are you saying that Flushing

hasn't been the moving party behind this entire seven-

year episode?

MR. KAPLAN: I am saying that absolutely, Your

Honor, and that is a contradiction of Cosmopolitan’s

conduct to Flushing that puts my client and my firm in

jeopardy. In fact, Your Honor—

THE COURT: Let me ask you a question. The

principals in Cosmopolitan, since the default began,

have been paying money on this debt to Flushing?

MR. KAPLAN: In 1981, personal guarantors, who

were sued by Flushing in the State Court and against

whom a $600,000 judgment was obtained on personal

guaranty, paid payments toward that judgment. That is

It.

THE COURT: So Flushing’s interest in keeping

Cosmopolitan on the airport is a financial interest in

getting payment on their debt, and some of that is being

paid out of revenues—of the fixed-base operator?

MR. KAPLAN: No, Your Honor, it was paid

personally out of pockets of certain individual

guarantors when we obtained a judgment on the

personal guaranty.

Flushing never appeared, did not appear or bring any

motions in the District Court. It only appeared on two

occasions as a creditor—

THE COURT: Those guarantors, were they guaran-

tors for the full amount of the debt?

MR. KAPLAN: Yes.

THE COURT: Well, then why do you care about

that?

MR. KAPLAN: Because they are completely finan-

cially incapable of paying. They made a few $6,000

payments, I think four or five. In 1981—

THE COURT: What is happening to the revenues of

the fixed-base operator right now?

MR. KAPLAN: I don't know. Your Honor, again, |

can't answer for Cosmopolitan.

THE COURT: Why are you trying to keep them on

the airport?

MR. KAPLAN: I am trying to resurrect a lease

because as long as they are in Chapter 11, even if they

are liquidated, if that lease is resurrected, a plan can be

formed or the lease can be sold and some of the

creditors will get paid.

THE COURT: What difference does it make if it is

resurrected, whether or not they are in possession or

not?

MR. KAPLAN: Your Honor—

THE COURT: If the lease legally can be resurrected,

whether they were on the airport or off the airport, it is

not going to affect them, is it?

MR. KAPLAN: I think it becomes moot once

possession is delivered to MTA.

THE COURT: While litigation is pending over whether

or not the lease is—

MR. KAPLAN: Your Honor has just vacated a stay.

That means they can put a new tenant in there to-

morrow, and I think that a State court—

THE COURT: And a new tenant would be aware

that litigation is pending if litigation was pending,

would they not?

MR. KAPLAN: A State court would be—

THE COURT: Would yor put a lis pendens on a

landlord?

MR. KAPLAN: Sure.

THE COURT: I don’t think you would call it that—

MR. KAPLAN: I don’t know if I can put a lis

pendens on, based upon this proceeding. Perhaps I can

or perhaps I can't. However, Your Honor, all | am

saying is that DOT could have obtained everything

from normal State court procedures.

lad Phd st

If a State court would have found it to give Cosmo- -

politan the right to redeem, fine. If they would have

been found to waive those rights, fine. That’s a determi-

nation the State Court should have made at District

Court. It went beyond its jurisdiction in stepping on the

State Court’s jurisdiction.

THE COURT: Who was Mr. Rothman representing

when he appeared, moved for a stay in this Court in

December?

MR. KAPLAN: Flushing Savings Bank as an inter-

venor. December 14, 1984, we were granted leave to

intervene. That following Tuesday, the [8th, it was

Cosmopolitan’s motion for a stay in which Flushing

joined. Flushing was never a party to any of the Federal

court proceedings except as a creditor, other than after

its intervention. I ask the Court to take cognizance of

that fact, even if it finds us to be delaying and, it’s beena

grand total of 40 days, that Flushing certainly moved

with dispatch in meeting this Court’s expedited appeal

schedule.

THE COURT: Reserve decision.

The Court of Appeals gave petitioner no other notice or

information concerning the subject of sanctions. Indeed, the court

itself would later, in its opinion (D-13), note that it only

“...directed the parties to file supplemental briefs addressing both

the extent of our power to award sanctions against Cosmopolitan,

Flushing and their attorneys for bad faith litigation and the best

method for calculating the amount.” Nothing was said about the

possibility or desireability of separating the substantive appeal

from the potential sanctions. Petitioner, apparently not realizing

that he was at that moment wearing two hats (Flushing’s counsel

and a potential co-sanctionee), made no effort to withdraw as

Flushing’s lawyer.

10

Indeed, when following oral argument, Respondent and

Petitioner submitted papers to the court addressing the question of

attorney's fees, Petitioner's entire approach was as Flushing’s

lawyer, and in no way at all as a potential “target” of the court's

wrath.3 Although, in his affidavit opposing the imposition of

attorney's fees, Jessel Rothman, Esq., stated that: “If and when the

Court identifies any remarks which I made [on the previous

application for a stay] that could conceivably serve as the basis for

sanctions, I respectfully request that I be given the opportunity to

offer a fulland complete response to the Court,™ no hearing of any

kind was ever held about the possible sanctions.

In its opinion/ order dated May 24, 1985,° the Court of Appeals

disposed of the substantive case before it. At the same time, and for

the first time, it made the following damning statements:

@ “the frivolous and vexatious character of the

appeal brought by Cosmopolitan and Flushing

warrants the imposition of sanctions ... against them as

well as their attorneys” (D-3);

@ the case was “... complicated by the combined

machinations of Cosmopolitan and Flushing” (D-4);

@ there was “... truly remarkable bad faith evi-

denced by Cosmopolitan and Flushing throughout this

litigation” (D-4);

3Respondent submitted an affidavit by Barrie Goldstein, Esq., dated

February 13, 1985, “in response to the request made by the Court at the oral

argument on January 23, 1985 to set forth the State's damages caused by

appellants’ frivolous and vexatious appeal.” In response thereto, Petitioner

submitted a “Supplemental Brief” and an affidavit of Jessel Rothman, Esq.,

dated March 13, 1985.

4See page 2 of Mr. Rothman’s affidavit of March 13, 1985.

5Appendix “D” hereto.

@ “During the course of these proceedings, Cos-

mopolitan, Flushing and their attorneys have

continually mischaracterized facts, prior proceedings

and the law” (D-4);

@ the bankruptcy court had “... characterized the

entire [bankruptcy] proceeding as an abuse of

process...” (D-10);

@ “Expressing grave misgivings as to Cosmo-

politan’s standing to appeal and a strong suspicion of

bad faith, [the district judge] ... stayed the bankruptcy

court order” (D-11);

@ The district judge’s order required a bond from

Cosmopolitan against sanctions which “might later be

‘assessed against Cosmopolitan and its attorneys

pursuant to 28 U.S.C. § 1927 upon a determination that

Cosmopolitan has engaged in dilitary or vexatious

litigct‘on in this matter.’ ” (D-11);

@ the district judge “again expressed [his] ... un-

easiness with the proceedings generally, noting that the

action appeared to be a misuse of the bankruptcy

court.” (D-11);

@ “...we believe that sanctions against Cosmo-

politan, Flushing and their attorneys are appropriate.”

(D-13);

@ “Flushing’s second argument is tantamount to a

direct affront.” (D-17);

@ “... the stay would not have been granted had

Cosmopolitan and particularly Flushing not com-

pletely obfuscated the factual and legal issues. The

unnecessary complexity created by Flushing, Cosmo-

politan and their attorneys, augmented by mischarac-

terizations and omissions, misled the panel that granted

12

the stay. We will not permit the wrongdoers to profit

from their contemptible conduct. The December 20

stay cannot buffer them from the consequences of their

bad faith.” (D-19);

® One of Flushing’s claims is “dubious at best” and

one of its hopes for relief faces “mindboggling odds.”

(D-19),

@ Flushing’s characterization of a state proceeding

as for nonpayment “is pure fabrication” (D-20);

@ “Flushing’s redemption claim is completely

frivolous” and another argument is “bizarre.” (D-21);

@ Flushing’s due process argument is “{bJased on

fabrication and fantasy.” (D-22);

@ “the appeal brought by Cosmopolitan and

Flushing is entirely frivolous. It can only have been

brought for the purpose of delay. Cosmopolitan,

Flushing and their attorneys have acted vexatiously and

in bad faith. The attorneys representing Cosmopolitan

and Flushing have unreasonably multiplied the pro-

ceedings in this case and are guilty of willful abuse of

process. The parties and their attorneys should be

penalized for unnecessarily. wasting our time and

resources and the state should be compensated for

having been put to the expense of answering these

wholly frivolous appeals. *** This Court has been used,

as were the bankruptcy court and the district court, to

frustrate the rights of the State...” (D-23);

In consequence of the foregoing, the court of appeals assessed

“double cos.s against Cosmopolitan and Flushing” and

“reasonable attorneys’ fees against Cosmopolitan, Flushing and

their attorneys.” (D-23);

13

On remand, the district court was instructed only to assess the

amount of the State's attorneys’ fees “in this appeal and to assess

that amount jointly and severally against Flushing and _ its

attorneys and jointly and severally against Cosmopolitan and its

attorneys.” (D-23) “...the case is remanded... for the calculation of

sanctions.” (D24)°

In imposing these overall monetary sanctions the court of

appeals relied on five separate sources, making no differentiation

between the bases for sanctions against the parties and sanctions

against their lawyers:

Our power to award sanctions in this case derives

from severai sources. Fed. R. App. P. 38 permits us in

our discretion to award damages and doubie costs for

the prosecution of a frivolous appeal. The advisory

committee note to the rule explains that damages in such

a case should be awarded “as a matter of justice to the

appellee and as . penalty against appellant. Similarly, 28

U.S.C. 1912 (1982) gives us the discretion to award toa

prevailing party damages for delay and double costs.

Under 28 U.S.C. § 1927 (1982), “[a]ny attorney ... 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.” Finally,

where a losing litigant has acted vexatiously or in bad

faith, it is within our inherent powers to award attorneys’

fees. Alyeska Pipeline Service Co. v. Wilderness Society,

421 U.S. 240, 258-59 (1975). And if we find willful abuse

of process, we may exercise our inherent power to assess

‘Petitioner understood, and now understands, that the terms of the remand

call upon the district court only to perform a mechanical function, not to

provide any procedural due process.

14

attorneys’ fees against counsel. Roadway Express, Inc.

v. Piper, 447 U.S. 752, 766 (1980).

Seeking an opportunity to answer the specific charges made and

resolved against him for the first time in the court of appeals

opinion, Petitioner filed a timely petition for rehearing. It

contended that there was no evidence before the court of appeals

that Flushing’s appeal was unwarranted, it attempted to demon-

strate that the appeal was meritorious, and it asserted that “a

rehearing is required in the interests of justice in order that Jessel

Rothman, P.C. may have an opportunity to show how its argument

and efforts on behalf of Flushing were apparently misunderstood.”

On June 27, 1985, rehearing was unanimously denied.’

Petitioner now faces an assessment of attorneys’ fees which could

go as high as $361,260.55.8

*By the time of Petitioner's petition for rehearing, Flushing had obtained new

counsel. They, too, sought rehearing, and expressly requested “a hearing to

review all evidence on the question of improper conduct and to determine which,

if any, misrepresentations or mischaracterizations have been made in any papers

filed in this proceeding, and to apportion as between Flushing and its former

counsel the responsibility for paying such attorneys’ fees...”

7See Appendix “E” annexed hereto.

8See Appendix “F” hereto, the “Conclusion” of Respondent's motion

currently pending on remand in the district court concerning the actual amount

of attorneys’ fees being sought.

15

REASONS FOR GRANTING THE WRIT

Introduction

Before setting forth Petitioner’s reasons why this Court should

grant the Petition for a Writ of Certiorari—the importance of the

constitutional questions involved, and the implications of those

questions for the general administration of justice in the federal

courts—it is necessary to make several preliminary points.

Although the court of appeals cited five separate sources as bases

for assessing sanctions against Petitioner, two of them seem plainly

to be inapplicable. A/yeska did not involve sanctions against a

lawyer, and thus we consider that case as having no bearing on this

case. So, too, is 28 U.S.C. § 1912 inapplicable. First, there is some

doubt about whether the section can be used against a lawyer;?

Second, 28 U.S.C. § 1912 is limited to damages for “delay,” and the

court of appeals charged Petitioner of much more than that. Third,

28 U.S.C. § 1912 only applies when there is an “affirmance.” Here,

the court of appeals dismissed and reversed.

In its imposition of sanctions against Petitioner the court of

appeals also relied on F.R. App. P. 38, a rule silent on its face

concerning against whom damages can be assessed. Indeed, most

Rule 38 awards are imposed against the opposing party not against

opposing counsel. (See, e.g., Furbee v. Vantage Press, Inc., 464

F.2d 835 (D.C. Cir., 1972); Fluoro Electric Corp. v. Branford

Associates, 489 F.2d 320 (2 Cir., 1973); Northcross v. Board of

Education, 489 F.2d 19 (6 Cir., 1973); cert. den. 416 U.S. 962;

Clarion Corp. v. American Home Products Corp., 494 F.2d 860 (7

Cir., 1974), cert. den. 419 U.S. 870, Reh. den. 419 U.S. 1027;

%See Robert J. Martineau, “Frivolous Appeals: The Uncertain Federal

Response,” 1984 Duke Law Journal 845, 868 (1984), hereafter cited as

“Martineau.”

16

Monroe v. NLRB, 511 F.2d 611 (5 Cir., 1975); Caesar World, Inc.

v. Venus Lounge, Inc., 520 F.2d 269 (3 Cir., 1975) ).

Moreoever, the Advisory Committee note to Rule 38 cites as the

reason for the rule “justice to the appellee and as a penalty against

the appellant. ""® So it would appear that the court of appeals was

probably in error in utilizing F.R. App. P. 38 as a basis for

sanctioning Petitioner gua lawyer.'' That left only Roadway and

28 U.S.C. § 1927.

This Court’s holding in Roadway—that there is inherent power

in a federal court to impose attorneys fees against oppc »ing counsel

who have abused the processes of the courts, if there is a showing of

bad faith after adequate notice and an opportunity to be heard—is

limited in two ways which have important meaning for the instant

case. First, Roadway involved sanctions imposed by a district

court, and is thus not directly controlling precedent on the question

of whether a court of appeals possesses similar power. Second,

much of the procedural due process that Petitioner asks this Court

to consider requiring the courts of appeals to provide was provided

to the sanctioned lawyers by the district court in Roadway. (Monk

v. Roadway Express, Inc., 73 F.R.D. 411 (1977) ). Thus, that much

of Roadway which opines that “{I]ike other sanctions, attorney’s

fees certainly should not be assessed lightly or without fair notice

and an opportunity fora hearing on the record” (447 U.S. at 767) is,

strictly speaking, only dicta.

'OF_.R. App. P. 38 advisory committee note, reprinted in J. Moore, B. Ward &

J. Lucas, Moore’s Federal Practice (2d ed. 1973), at 238.01 [Z] and in U.S.CS.

Court Rules (Lawyers Co-Op, 1983).

''Even if the court of appeals was correct in invoicing F.R. App. P. 38,

however, that would not change the question presented here. Indeed, if F.R.

App. P. 38 were arguably yet an additional ground for a court of appeals to

impose monetary sanctions against lawyers, there would be that much more ofa

reason to grant the instant Petition.

17

Perhaps that is why, until the Second Circuit sanctioned

Petitioner in this case, “[nJotwithstanding the clear holding in

Roadway Express, only once has a federal appeals court relied

upon the case as authority for the imposition of a sanction against

an attorney for filing a frivolous appeal.”!?

Instead, the courts rely on 28 U.S.C., § 1927, which Congress

amended after Roadway was decided in order:

to include attorney fees among the items that could be

assessed against counsel pursuant to that section. [foot-

note omitted] The report of the conference committee

managers, specifically addressing the issue of what

procedures should be followed in imposing a sanction

under the section stated: “The managers intend that

judges applying section 1927 will safeguard the rights of

an attorney who may be held in violation of the section.

Before sanctioning an attorney under section 1927, the

court is to afford the attorney a// appropriate

protections of due process available under the law.

(H.R. Rep. No. 1234, 96th Cong. 2d Sess. 8, reprinted in

1980 U.S. Code Cong. & Ad News 2781, 2783).!°

Although, unfortunately for Petitioner, the conference com-

mittee report failed to spell out what were “all appropriate

protections of due process available under the law,” the legislators

did know ali of the procedural due process protection that the

district court had provided, and that this Court had tacitly

approved, in Roadway.

With only that background— Roadway’ procedures in the

district court and what this Court said in its Roadway opinion,

'2Martineau, at 862.

'3Martineau, at 874.

18

and the text of the post-Roadway 28 U.S.C. § 1927 amendment,

together with that amendment’s scant but clear legislative

history—when this Court approaches the instant Petition it reads a

precedential clean slate.'4

The Important Questions of

Procedural Due Process

|. The Mathews v. Eldridge Principle

This Court’s decision in Mathews v. Eldridge, 424 U.S. 319

(1976)—involving the Fifth Amendment’s due process clause,

which is invoked in this case—seems to have become the bedrock of

all procedural due process inquiries in its enunciation of the

principle that “(t]he fundamental requirement of due process is the

opportunity [following fair notice] to be heard ‘at a meaningful

time and in a meaningful manner.’ ” (424 U.S. at 333). As to that

“meaningful time”: “A claim to a predeprivation hearing as a

matter of constitutional right rests on the proposition that full relief

cannot be obtained ata postdeprivation hearing.” (424 U.S. at 333).

'*As to oral hearings in sanction situations, Professor Martineau (at 876, fn

177) reports that “{iJn all of the cases in which federal courts of appeals have

considered sanctions for frivolous appeals, the necessity for an oral hearing has

never been raised. When the United States Supreme Court in 1983 imposed for

the first time in many years a monetary sanction for the taking of a frivolous

appeal, it did so without hearing oral argument on the issue. See Tatum v.

Regents, 103 S. Ct. 3084 (1983).” But see also Talamini v. Allstate Ins. Co., 105

S. Ct. 1824 (1985). There, Allstate sought costs and fees from the appellant,

pursuant to this Court's Rule 49, for having to respond to a frivolous appeal.

Several things are of interest. First, this Court “afforded appellant the oppor-

tunity to respond” (105 S. Ct. 1825). Second, the Chief Justice and Justices

Rehnquist and O'Connor would have sanctioned appellant’s attorney, while

still recognizing that “freedom of access to the courts is indeed a cherished

value” (105 S. Ct. at 1825). Third, Justices Stevens, Brennan, Marshall and

Blackmun declined to impose sanctions, in large part because of the strong

value of open access to the courts. They went so far as to perceive a “strong

presumption ... against the imposition of sanctions for invoking the processes of

the law” (105 S. Ct. at 1828).

19

Over the years, regardless of whether the interest involved was

characterized as “liberty” or “property” (and we view the sanctions

imposed on, and derivately visited on, Petitioner as affecting both

(see Goss v. Lopez, 419 U.S. 565 (1975) and Board of Regents v.

Roth, 408 U.S. 564 (1972)), this Court’s application of the Mathews

principle (even pre-Mathews: itself) has fallen into two categories:

cases dealing with the “notice” aspect, and others concerned with

“opportunity to be heard.”

Notice. Perhaps this Court’s best modern sum-up of the consti-

tutional necessity for fair notice is found in Armstrong v. Manzo,

380 U.S. 545 (1965):'5

“An elementary and fundamental requirement of due

process in any proceeding which is to be accorded

finality is notice reasonably calculated, under all the

circumstances, to apprise interested parties of the

pendency of the action and afford them an opportunity

to present their objections. [citing cases]” Mullane v.

Central Hanover Bank & Tr. Co., 339 U.S. 306, 314.

Questions frequently arise as to the adequacy of a

particular form of notice in a particular case. [citing

cases] But as to the basic requirement of notice itself

there can be no doubt....'¢

\S Armstrong, a State case, involved the due process clause of the Fourteenth

Amendment. However, for procedural due process purposes we draw no

distinction between that amendment and the Fifth Ar ndment involved here.

'6See also Bradley v. Fisher, 80 U.S. (13 Wall.) 646 (1871); Griffin v. Griffin,

327 U.S. 220 (1946); and Wisconsin v. Constantineau, 400 U.S. 433, 437 (1971),

where this Court held that: “[wJhere a person’s good name, reputation, honor or

integrity is at stake because of what the government is doing to him, notice and

an opportunity to be heard are essential.” We shall discuss infra the potential

impact of the court of appeals, sanctions on Petitioner’s “good name,

reputation, honor and integrity.”

20

In light of these procedural due process notice requirements,

there is an extremely important constitutional question presented

by the approach taken by the Second Circuit in its sanctions against

Petitioner in this case, and taken by other circuits in similar cases: is

the lawyer’s intent and/or conduct the measure of the appeal’s

merit, or the measure of the sanction? Unfortunately, although

many lawyers are being sanctioned and those sanctions are

monetarily and professionally quite costly, and although the im-

portant constitutional value of fair notice is at stake, no clear

answer has been given by the courts of appeals or by this Court.

Professor Martineau explains the problem thusly:

The courts of appeals have often confused two distinct

issues. The first issue is whether an appeal should be

classified as frivolous because of its lack of merit.

[footnote omitted] The second issue is whether, given

that an appeal is frivolous on its merits, the conduct of

the appellant or the attorney is such that a sanction

should be imposed on one or both. [footnote omitted]

Often courts determine that an appeal is frivolous by

examining the conduct of the appellant or attorney,

rather than by looking at the merits of the appeal. [foot-

note omitted] This conduct is then used as the basis for

determining the necessity for the sanction and the type to

be imposed. [footnote omitted] This approach causes

the courts to vacillate between objective and subjective

standards and obscures the extent to which the intent of

the appellant or the attorney determines whether an

appeal is frivolous.

Even though an appeal does have some merit, it may

still be frivolous if the appellant’s conduct indicates that

his primary purpose is to delay enforcement of the judg-

ment, to cause the appellee to incur unnecessary

expense, to be vexatious, or if the conduct otherwise

demonstrates bad faith by abuse of the judicial process.

There is no case in which a court has found that an

_—

4

®

¢

Xx

.

21

appeal had merit and yet was conducted in such a way as

to call for a frivolous appeal sanction. What the courts

have done, however, is to look at the conduct of the

appellant as evidence of whether the appeal is without

merit and thus frivolous. [footnote omitted] This type of

analysis creates confusion. A frivolous appeal should be

one that has no merit when viewed objectively and

should not be defined by the beliefs or intent of the

appellant or attorney.

This does not mean, however, that the conduct of the

appellant or the attorney is irrelevant to the frivolous

appeal sanction. What it does mean is that the conduct is

significant for another purpose—to determine the

nature and extent of the sanction to be imposed. This is

the real reason the courts look to the conduct and the

intent it demonstrates. The more flagrant the conduct,

the clearer it is that the intent or motive of the person is

culpable and the larger the sanction should be. Thus, the

conduct or intent should be the measure of the sanction,

not the measure of the merit of the appeal. (Martineau at

870-871).

In other words, it is crucial for lawyers to know whether the more

important consideration for sanctions is the lack of merit of the

appeal, or the lawyers’ motives in bringing the appeal. Yet the

courts of appeals seem themselves unclear as to the answer—

thereby creating a serious problem of fair notice for potentially

sanctionable lawyers. Even worse here is that Petitioner had no

notice of any kind whatsoever of either the jurisdictional bases of

the court’s power to sanction Petitioner or of what behavior the

court of appeals was considering sanctioning him for until after it

had done so and Petitioner read the court’s decision/ opinion.

Opportunity to be heard. The corollary to fair notice, indeed the

reason for its importance, is the necessity for an opportunity to be

heard “at a meaningful time and in a meaningful manner”

22

(Armstrong, supra, at 552). As this Court said in Fuentes v. Shevin,

407 U.S. 67, 82 (1972):

The right to a prior hearing has long been recognized

by this Court under the Fourteenth and Fifth Amend-

ments. Although the Court has held that due process

tolerates variances in the form of a hearing “appropri-

ate” to the nature of the case,” Mullane v. Central

Hanover Tr. Co., 339 U.S. 300, 313, 70 S. Ct. 652, 657,

94 L.Ed. 865, and “depending upon the importance of

the interests involved and the nature of the subsequent

proceedings [if any],” Boddie v. Connecticut, 401 U.S.

371, 378, 91 S.Ct. 780, 786, 28 L.Ed.2d 113, the Court

has traditionally insisted that, whatever its form, oppor-

tunity for that hearing must be provided before the

deprivation at issue takes effect. FE. g., Bell v. Burson,

402 U.S. 535, 542, 91 S.Ct. 1586, 1591, 29 L.Ed.2d 90;

Wisconsin v. Constantineau, 400 U.S. 433, 437,91 S.Ct.

507, 510, 27 L.Ed.2d 515; Goldberg v. Kelly, 397 U.S.

254, 90 S.Ct. 1011, 25 L.Ed.2d 287; Armstrong v.

Manzo, 380 U.S. at 551, 85 S.Ct., at 1191; Mullane v.

Central Hanover Tr. Co., supra, 339 U.S. at 313, 70

S.Ct. at 656; Opp Cottn Mills v. Administrator, 312

U.S. 126, 152-153, 61 S.Ct. 524, 535-536, 85 L.Ed. 624;

United States v. Illinois Central R. Co., 291 U.S. 457,

463, 54 S.Ct. 471, 473, 478 L.Ed. 909; Londoner v. City

& County of Denver, 210 U.S. 373, 385-386, 28 S.Ct.

708, 713-714, 52 L.Ed. 1103. See In re Buffalo, 390 U.S.

544, 550-551, 88 S.Ct. 1222, 1225-1226, 20 L.Ed.2d 117.

“That the hearing required by due process is subject to

waiver, and is not fixed in form does not affect its root

requirement that an individual be given an opportunity

for a hearing before he is deprived of any significant

property interest, except for extraordinary situations

where some valid governmental interest is at stake that

justifies postponing the hearing until after the event.”

Beddie v. Connecticut, supra, 401 U.S., at 378-379, 91

S.Ct., at 786 (emphasis in original).

Re ee ee eR ee ee ee

23

Since this right to a pre-deprivation hearing has been applied in

such diverse contexts—e.g., prejudgment replevin statutes

(Fuentes), drivers’ license suspensions (Be//), “posting”

(Constantino), adoption (Armstrong), suspension from school

(Goss v. Lopez, 419 U.S. 565 (1975) ), parole (Morrisey v. Brewer,

408 U.S. 471 (1972) ), final local tax assessments (Londoner v.

Denver, 210 U.S. 373 (1907) ), prejudgment wage garnishment

(Sniadach v. Family Finance Corp. of Bay View, 395 U.S. 337

(1969))—and since the Second Circuit and the few other courts of

appeals which have dealt with the matter cf sanctions against

lawyers, (e.g., Malhiot v. So. Cal. Retail Clerks Union, 735 F.2d

1133 (9 Cir., 1984) ) apparently believe that no pre-sanction

hearing or other opportunity to be heard is necessary, an

important constitutional question is presented concerning the

application of the Mathews “interest” analysis to this situation. In

considering this point it is useful to remember that as a predicate to

imposing monetary (and, though indirectly, even worse

~ professional/ethical condemnation!’) on Petitioner, the court of

appeals, without a hearing, “convicted” him and/or his client

of: bringing a frivolous and vexatious appeal; machinations; bad

faith; mischaracterizing facts, law and prior proceedings; abusing

process; delaying the case; misusing the bankruptcy court; directly

affronting the court; obfuscating the factual and legal issues;

creating complexity augmented by mischaracterizations and

omissions; making dubious and bizarre claims; fabricating and

indulging in fantasy; unreasonably multiplying the proceedings;

wasting the court’s time and resources; using the federal courts to

frustrate the rights of the state; and engaging in contemptible -

conduct.

"See, e.g., Code of Professional Responsibility, DR 1-102 (A)(4) and (5), 2-

109 (A)(2) and 7-102 (A) (5).

a

24

It is also useful to remember that in making these findings the

court of appeals lumped together the two parties and their two

lawyers, all of whom played very different roles; it failed to even

acknowledge that the district court had required the posting of a

bond against potential sanctions only by Cosmopolitan, not by

Flushing, let alone by its counsel, Petitioner here; it did not

indicate whether Petitioner was being sanctioned because of

proceedings in the state courts and/or the bankruptcy court,

and/or in the district court, and/or in the court of appeals on the

stay and/or on the appeal itself, although proceedings had been

held in all those courts, where no sanctions had been sought or

imposed; it made no effort to apportion blame, and thus the

sanctions’ weight, between the parties and the lawyers, nor

between the lawyers, despite the bankruptcy proceeding and much

of what followed having been Cosmopolitan’s, not Flushing’s,

affair; it admitted (D-13) that it was addressing the appeal’s

merits only in order to explain its decision to impose sanctions, yet

that discussion of the case’s substance in no way supported

findings like “bad faith,” “dubious” claims, “misusing the

bankruptcy court,” and much of the rest.

In sum, without revealing the jurisdictional bases of its power to

sanction Petitioner, without a hearing where Petitioner could con-

trovert what he was only later charged with, and although

apparently entertaining some doubt about its power to sanction

(see par 4 on pg. 5, supra), the court of appeals, in effect, granted

summary judgment against him on a long list of professional

derelictions, just as other circuit courts have done to other lawyers.

In Mathews, in its predecessors, and in its progeny, this Court

recognized that only after a careful analysis of the private and

public interests involved can procedural due process norms be

identified. Because the norm involved here cuts deeply into the

25

administration of the federal judicial system, an important

constitutional question is presented.

2. 28 U.S.C. § 1927

We pointed out supra that when 28 U.S.C. § 1927 was amended

to allow monetary sanctions to be imposed against lawyers, it was

expressly understood that they would receive “all appropriate

protections of due process available under the law.” Thus, the

important constitutional question is obvious, especially since §

1927 is the basic vehicle for courts of appeal imposing sanctions on

lawyers: what procedural due process are they entitled to under the

statute? This Court has never answered that question, and doing

so would provide every lower federal court in the country with a

uniform standard to apply when utilizing an important federal

statute.'§

3. Roadway Express, Inc.

We also pointed out supra that because of the very real

procedural due process rights afforded the threatened lawyers in

the Roadway district court, including “fair notice and and

opportunity for a hearing on the record” (447 U.S. at 767), the

actual holding of the case involves inherent power only when these

rights are present. Since Roadway is frequently, (but, we believe,

erroneously) cited for the proposition that such procedural rights

are required, and since a definitive answer to whether they really are

is obviously quite important, the instant case provides an oppor-

'8Subsidiary questions include: (1) whether 28 U.S.C. § 1927 contains an

implicit “bad faith” requirement and, if so, the requisite finding could be made

without a proper hearing, and (2) whether 28 U.S.C. § 1927 is penal in nature

and should thus be strictly construed (Hagerty v. Succession of Clement, 749

F.2d 217 (5 Cir., 1984).

26

tunity for this Court to clarify Roadway. So, too, is Roadway cited

(again erroneously we believe) as applicable to sanctions imposed

by a court of appeals, when in Roadway the sanctions occurred in

the district court. Since quite different considerations exist in each

court, and since it is apparently increasingly believed that Roadway

does not apply to sanctions by a court of appeals'®, the instant case

presents an opportunity for this Court to definitively answer these

important questions.

4. “Equal Protection of the Laws”

As we stated immediately supra, the literal holding of this Court

in Roadway embraces only federal district courts. Thus, closely

related to the above point is the question of whether affording

different procedural due process rights to trial versus appellate

lawyers could pass muster under that part of the Fifth Amend-

ment’s due process clause which has been held to contain “equal

protection” content. (See Bolling v. Sharpe, 347 U.S. 497 (1954)).

Moreover, other provisions of federal law (e.g., F.R. Civ. P. 37

(g) and 46 (c) ) expressiy allow sanctions to be imposed only after a

hearing, thereby raising the same “equal protection” question. We

do not, at the moment, offer an answer to these questions. We only

urge this Court to consider them, since they implicate important

constitutional values in the federal judicial system.

The Administration of Justice

Surely no elaboration is necessary to establish that the threat of

sanctions can weigh heavily on appellate lawyers and can “chill”

their ardor for taking appeals, especially since unlike trial lawyers

'SMartineau at 874.

27

there is nowhere they can appeal their sanctions as a matter or

right.° This is all the more so today “when there are several

different sources of authority for imposing a sanction, when there

are multiple purposes for the sanction, when varying standards are

used in judging whether an appeal is frivolous, when the relation-

ship between frivolous appeal sanctions and abusive litigation

tactics is unclear, when the sanction is imposed without notice or an

opportunity to be heard, and when the procedure varies for

initiating consideration of a sanction.”?!

Sanctioned lawyers face not only substantial money damages (as

here). Conducting litigation in bad faith, delaying, filing frivolous

appeals and the like is unethical conduct and thus sanctionable

professionally as well. (See, e.g., Code of Professional Responsi-

bility, DR 1-102 (A) (4) and (5), 2-109 (A) (2) and 7-102 (A) (5) ).

Unless a to-be-sanctioned lawyer can withdraw (which is not

easy), there can be a serious conflict of interest and thus a potential

malpractice claim. (Here, Petitioner never had an opportunity to

withdraw).

Publication of sanctions against a lawyer even in reported

decisions—let alone in professional and/or general circulation

2Professor Martineau (at 849) implies that there was an interesting reaction

in the press and among attorneys to this Court's award of a mere $500 in Tarum,

supra. See also NLRB v. Lucy Ellen, 517 F.2d 551 (7 Cir., 1975) and /n Re

Bithonev, 486 F.2d 319(1 Cir., 1973). In Flaherty v. Flaherty, 31 Cal. 3d 637, 646

P.2d 179, 183 Cal. Rptr. 508 (1982) Chief Justice Bird extensively assays the

lawyers position between the rock and the hard place.

2!Martineau at 849, footnotes omitted.

28

newspapers and magazines—can cause irreparable damage to a

well-earned, cherished reputation.”

A sanctioned lawyer will be burdened in later seeking other bar

admissions, public office, a judgeship. |

Clients suffer, too; A lawyer even subject to unknown and/ or

unknowable sanctions—let alone a lawyer in Petitioner’s shoes,

who was threatened with sanctions for the first time in his appellate

opponents brief and next by the court itself during actual oral

argument of his client’s appeal—will necessarily and prudently

keep one eye out for his own interests. And at a certain point, those

interests may be quite different from those of his client. Indeed, it

should be noted that in the instant case Petitioner still represented

Flushing even while defending itself against the court of appeals’

proposed sanctivns.

If all of the consequences which flow from today’s system of

appellate sanctioning of lawyers—financial cost, professional

discipline, potential conflicts of interest and malpractice claims,

reputational injury, and even court congestion (see the “dissent” in

Talamini, supra)—are acceptable as a matter of public policy, then

this Court should say so. That way, lawyers will know what to

expect in the federal appellate courts, and will be able to act

accordingly on their own and on their client’s behalfs. However, if

the consequences are unacceptable as a matter of public policy, all

the more reason for this Court to say so—because this problem of

sanctioning appellate lawyers is very much a fact of life today in the

2Here, the New York Law Journal, the \egal newspaper of record for the

entire profession in the Greater New York Area, prominently reported, on page

1, what the court of appeals had to say about Petitioner. See Appendix “G”

hereto.

29

federal courts, it is a growing problem, and it is becoming very

serious for the administration of justice.??

The Sixth and Seventh Amendments

In addition to the court of appeals having, in effect, taken other-

wise triable issues of fact and summarily resolved them against

Petitioner without much notice and without any hearing or other

procedural due process at all, it may also have deprived Petitioner

of other constitutional rights.

The Second Circuit has said that 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 (2 Cir., 1980)). According to one

commentator,” some Courts have suggested that “a request for

attorneys’ fees under the bad faith exception is really a malicious

prosecution suit in disguise...”

If that is so, Petitioner may have possessed a right to a jury trial

pursuant to the Seventh Amendment, which has historically

guaranteed that procedure 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)).25

See the bibiliography set forth in the Table of Authorities, supra, which

demonstrates the considerable professional interest in and concern about the

problem of sanctioning lawyers.

*4*Comment, Nemeroff v. Abelson, Bad Faith, and Awards of Attorneys’ Fees,

128 U. Pa. L. Rev. 468, 482 (1979).

25Pre-Roadway, the Sixth Circuit concluded that federal courts lack inherent

power to impose bad faith fee sanctions because to do so would be to render a

tort judgment without a jury trial. Smoot v. Fox, 353 F.2d 830 (6 Cir., 1965),

cert. den. sub Nom. League of Women Voters v. Smoot, 384 U.S. 909 (1966).

Although in Roadway this Court decided the inherent power poirt, the Seventh

Amendment point appears to remain open.

30

Moreover, since some of the court of appeals charges against

Petitioner (“mischaracterizations,” “machinations,” “misuse of the

court,” “bad faith,” “obfuscation,” “misleading,” “omissions,”

“contemptible conduct” and the like) can be considered

tantamount to a charge of criminal contempt (See Skinner v.

White, 505 F.2d 685 (5 Cir., 1974), since the actual dollar cost of the

sanctions imposed on Petitioner could go as high as $361,260.55,

and since this Court in Muniz v. Hoffman, 422 U.S. 454 (1975)

reserved the question of whether an individual facing criminal

contempt and the possibility of a substantial fine would be entitled

to a jury trial,26 Petitioner may have possessed the right to a jury

trial pursuant to the Sixth Amendment.

In sum, the monetary sanction imposed on Petitioner by the

court of appeals could be deemed to be at least the practical

equivalent of both a punitive fine for criminal contempt and a tort

judgment for malicious prosecution, actions for which the Sixth

and Seventh Amendments require jury trials. These questions, too,

are important for the reasons set forth supra—because they raise

important issues of federal constitutional law and of public policy

properly addressed by the supervisory power of this Court.?’

26At least two courts of appeals have answered in the affirmative: Girard v.

Goins, 575 F.2d 160 (8 Cir., 1978) and Douglass v. First National Realty Corp.,

543 F.2d 894 (D.C. Cir., 1976).

27[t is interesting to note that both federal contempt powers—18 U.S.C. § 401

and F.R. Crim. P. 42—allow a summary finding of contempt only when the

conduct to be punished occurs in open court and in the immediate view of the

judge, and even then only if the contempt finding is necessary to protect the

dignity of the court, (Johnson v. Mississippi, 403 U.S. 212 (1971)).

31

CONCLUSION

In a recent report—“Procedural Rights of Attorneys Facing

Sanctions”—the Committee on Federal Courts of the Association

of the Bar of the City of New York made a strongly worded

recommendation which serves as a perfect note on which to

conclude this Petition for a Writ of Certiorari:

In the face of [the] ... rapid expansion of the authority

for and use of sanctions, there has been relatively little

consideration given to the procedural guarantees which

must accompany the imposition of sanctions.

***

It is imperative, in our view, that Bench and Bar

undertake a prompt and searching inquiry into the pro-

cedural safeguards which must be observed prior to the

imposition of sanctions.28

Petitioner would add only that this Court could, and should,

take the lead in that “searching inquiry” by granting this Petition

for a Writ of Certiorari.

Submitted by,

HENRY MARK HOLZER

Attorney for Petitioner

c/o Brooklyn Law School

250 Joralemon Street

Brooklyn, N.Y. 11201

September 16, 1985 (718) 780-7985

The Record of the Association of the Bar of the City of New York, p. 313,

314 (1985).

A-|

APPENDIX “A”

SUMMARY OF ARGUML.sT

Both appellants had rights and remedies available to them

individually and jointly under State Law to remedy any defaults

declared by the State Court under a lease dated October 5, 1975.

By its order of April 10, 1984, as affirmed on appeal by the

District Court on December 7, 1984, the Federal Judicial system

precluded Flushing Savings Bank and Cosmopolitan Aviation

Corp. from exercising their rights and remedies under State Law.

Both the Bankruptcy Court, and through affirmance the District

Court violated 28 U.S.C. 1481 in permitting said orders to remain

effective and further, to the extent the Bankruptcy Court, as

affirmed by the District Court had discretion to exercise equitable

powers under I! U.S.C. § 105(a), they abused said discretion.

It was in the interest of creditors of Cosmopolitan Aviation

Corp. and Cosmopolitan Aviation Corp. itself, that the status quo

created by 11 U.S.C. § 362(a) should have remained ir effect until

Flushing Savings Bank completed the appellate process in the State

Courts.

The conduct of the State agencies, to wit, the Department of

Transportation (DOT) and its predecessor in interest Metro-

politan Transportation Authority (MTA), when taken in its totality

in both the State Court and the Federal Court, constituted a denial

to Flushing Savings Bank of procedural due process in violation of

the 14th Amendment of the United States Constitution.

B-|

APPENDIX “B”

Towards this legitimate end of prevailing on the appeal Jessel

Rothman, P.C., on behalf of Flushing, made, at the very least, a

good faith argument. In hindsight we realize that Flushing’s main

argument may have been obscured by the prolixity believed

necessary to fully set forth Flushing’s contention. Nonetheless, it

was there.

Flushing’s basic argument was that the Bankruptcy Court should

have abstained from awarding possession of the property to the

Department of Transportation until the New York State courts

passed on the merits of Flushing’s arguménts that under New York

State law, the lease between Cosmopolitan and the State should be

resurrected. Flushing sought to support this argument by

describing its state law arguments to this Court. It is respectfully

submitted that both facets of this argument were colorable.

Flushing’s “abstention” argument was most strongly supported

by I1 U.S.C. § 105(a) which has been construed to provide that an

order awarding possession of leased premises should only be

granted pursuant to I! U.S.C. § 105(a) under the extraordinary and

compelling circumstances. This proposition is grounded on the

belief that comity dictates that, generally speaking, state courts

should determine issues respecting the possession of real property.

This Court has found that the facts of this case warranted a

finding that extraordinary and compelling circumstances did exist

to justify the April 10, 1984 Order by the Bankruptcy Court. While ~

Rothman does not agree with that finding, he is nor contesting it in

this petition. However, Rothman respectfully disputes the Court’s

further finding that Rothman’s argument that this case did not fall

into an exceptional category was frivolous. As noted in its previous

submissions to the Court on behalf of Flushing, the case law

B-2

construing I1 U.S.C. § 105(1) [sic] and the judicial gloss placed on

that statute was scant, to say the least. There was no legal authority

which clearly defined—and thus put Mr. Rothman on notice—as

to which situations fell into the exceptional category of “extra-

ordinary and compelling circumstances.” It is respectfully sub-

mitted that penalizing Mr. Rothman for arguing that this case did

not fall into an undefined exceptional category is unduly harsh.

As the Court noted, this abstention argument is ultimately

premised on the proposition that Flushing had state law rights with

respect to the property that could be protected in state court. This

Court, concluded that Flushing did not possess such rights (pp. 20-

23) and bolstered this finding by noting that “Flushing has been

unable to convince any court so far that it has a possessory interest

in the premises” (p. 23). With respect to the latter finding, it appears

that the Court is under the misapprehension that, prior to

Flushing’s appeal, state courts held on the merits that Flushing had

no interest with respect to the property. Quite simpiy, that is not the

case. Thus far, none of the adverse decisions issued by the state

courts have dealt with Flushing’s substantive rights respecting the

property. Rather these determinations barring Flushing’s inter-

vention in the state court proceeding—to the extent they were

explained—were apparently premised solely on procedural con-

siderations.

Flushing’s argument on the merits, if it had the opportunity to

make it, would have proceeded as follows:

The actual “courtroom” experience of Jessel Rothman, P.C., is

that the Landlord-Tenant Courts in the State of New York have

frequently exercised unbounded discretion in situations where

tenants have defaulted and judgments have been entered and

warrants issued.

B-3

The power of a Court to exercise such discretion in this case

would derive from both common law and statute—New York Real

Property Actions and Proceedings Law, (NYRPAPL) § 749(3), as

well as pre-existing case law-—which provide that a warrant can be

vacated and the lease resurrected.

In Jones v. Gianferante, 305 N.Y. 135, 11 N.E.2d 419 (1953), the

New York State Court of Appeals expressed its approval of the

Anpellate Division’s giving

the tenant the benefit of the rule or practice in equity

which relieves against...forfeitures of valuable lease

terms when default in notice has not prejudiced the land-

lord, and has resulted from honest mistake, or similar

excusable fault.

Id. at 138.

Although the facts in Jones, supra, are not the same as in the case

at bar, a Landlord-Tenant Court could, on the basis of basic

proposition set forth therein, find that Flushing, as assignee, (who

was not a party in the Landlord-Tenant proceeding) be afforded the

opportunity to cure all defaults and take the resurrected lease, and

assign it for value, so that it could recoup its investment, (used to

construct the valuable building on the property) as /ong as it then

made the Landlord whole.

The firm believed ii. the basis of its extensive experience in

landlord/tenant matters that Landlord-Tenant Courts would

strain to avoid an absolute forfeiture where:

1. The tenant or someone on its behalf tenders enough

money to make the Landlord whole.

2. The lease is a valuable commercial lease which if lost

will cause the tenant, or a mortgagee/ assignee the

B-4

complete and unrecoupable loss of its business or

li. vestment.

3. The forfeiture of the lease will simultaneously give the

landlord a substantial windfall in that it may re-rent

the premises for a substantially higher rent than that

under the terminated lease.

Were Flushing to reappear in State Court, it was counsel’s belief

that it could—not necessarily would, but cou/d—establish this

three-part predicate:

We believed that under this scenario there was a reasonable

chance that a Landlord-Tenant court would reinstate the lease if it

found any colorable statutory authority to do so. The firm believed

it had both, and further felt that Judge Mishler’s Order of

December 7, 1984, prejudiced, if not destroyed, the chances of the

above occurring:

The major obstacle, of course, was the warrant, dated June 2,

1982, since the issuance of a warrant annuls the relation of landlord

and tenant. (NYRPAPL § 749 subd. 3). That very same statute,

however, gives the Court the power to vacate the warrant “for good

cause shown”, at any time prior to its execution. NYRPAPL § 749

sub.3. In fact, it was a fairly recent (1975) amendment to the statute

which codified the pre-1975 case law to extend the Court’s power to

permit it to vacate not only a pre-warrant default, but the warrant

itself after it was issued. See, e.g. Novick v. Hall, 70 Misc.2d 641,

334 N.Y.2d 698, (Civil Ct. of the City of N.Y., N.Y. County, Trial

Term Part 49, 19720. In Novick, supra, once the Court found that it

had the power to vacate the warrant by comparing the innocent

landlord’s potential prejudice to the hardship of the party seeking

to vacate the warrant.

Counsel, in good faith, believed that a Landlord/Tenant Court

in this matter could be induced to consider the relative hardships to

B-5

Flushing and the landlord upon an application by Flushing to

vacate the warrant upon a tender of all sums due the landlord:

IF WARRANT IS NOT VACATED

Flushing loses its only security for

$500,000 loan to a now defunct corporation.

Landlord relets premises for 5 to 10 times

the monthly rental in the Cosmopolitan lease.

IF WARRANT IS VACATED

Flushing may recoup most or all of

its investment.

Landlord is made current for all arrears,

costs, expenses.

On the basis of these facts and NYRPAPL § 749(3) and its

common law antecedents, counsel believed, in good faith, that

Flushing was not foreclosed from some form of success in the state

courts, as long as there had been no execution of the warrant and

Cosmopolitan was still in possession.

RPAPL § 751(1) is only one of the available procedure for

Flushing in the event the Landlord/Tenant Court is inclined to

vacate the warrant under RPAPL § 749(3). Flushing’s inadvertant

(but now apparent) heavy reliance on 6751(1) may have given this

Court the notion that Flushing believed that RPAPL § 751(1) was

the only way it could succeed in State Court if it vacated the warrant -

pursuant to § 749(3). Perhaps the Court, then finding that RPAPL

§ 751(1) was not available to Flushing, felt that there

B-6

We believed that if the Landlord/Tenant Court exercised its

power to vacate the warrant, Flushing could have been given an

opportunity, either on its own, through Cosmopolitan’s trustee, or

otherwise, to cure the defaults, make the landlord whole and take

possession. In every case where the warrant was vacated pursuant

to NYRPAPL §749(3), the lease was reinstated, and nor always by

the statutory vehicle redemption of NYRPAPL § 751(1), but

frequently in the discretion of the Landlord/Tenant Court.

Thus, in pursuing an avenue by which counsel sought to protect

the rights of its client, Flushing’s counsel asked itself not whether

the Landlord-Tenant Court could necessarily be statutorily and

unequivocally compelled to vacate the warrant and resurrect the

lease, but whether the Landlord-Tenant Court might be inclined to

permit such resurrection if the Landlord were made whole, and if

there was One or more reasonable statutory processes which the

Landlord-Tenant Court, if so inclined, could follow to accomplish

the resurrection of the lease, thus enabling Flushing to recoup its

investment.

It also appeared to counsel that the warrant could be vacated

upon dismissal of the original Landlord-Tenant proceeding under

CPLR 3211(a)(10), for absence of a necessary party. As appears

from CPLR 3211(e), subdivision (10) is one of the three sub-

divisions of CPLR 3211(a) which is never waived. It can be raised

any time, even on or after appeal, and by any party (even if not

raised below) or by the Court. Figari v. New York Telephone

Company, 32 A.D.2d 434, 303 N.Y.S.2d 245, (2d Dept., 1969).

It was certainly reasonable to submit to a State Court that at the

time of the trial of this action when the issues of whether the

defaults MTA alleged were litigated—the very defaults which

MTA claimed Flushing lost its right to possession by failing to cure

within 30 days—Flushing was a necessary party under CPLR

B-7

321 1(ay{ 10).

If Flushing were successful on that issue, the judgment of

eviction, and of course, the warrant, would be vacated, ab initio, as

the complaint would be dismissed. CPLR 3211(a)(10); Figari v.

New York Telephone, supra.

As counsel was seeking only to protect whatever chances

Flushing had in State Court to recoup its investment by asking a

Landlord-Tenant Court to vacate the warrant either under:

(a) RPAPL § 749 subd. (3);

(b) CPLR 321 1(a)(10); or

(c) the theory that the entry of the judgment exceeded the limited

power granted

the Landlord-Tenant Court by the order vacating the automatic

stay, when it learned of the Order of Judge Mishler, which

completely by-passed the State Court by ordering delivery of

possession by the United States Marshall, Flushing had to appeal

that order because it directly prejudiced Flushing. It virtually, if not

absolutely, assured that none of the scenarios described above

would take place.

Although theoretically the harm might not be literally

“irreparable”, (in that if Cosmopolitan’s Lease were resurrected,

any new tenant could be ousted, having taken possession subject to

Cosmpolitan’s rights) in the “real world”, it would be so much more

difficult for Flushing to induce a Landlord-Tenant Court to

resurrect a lease where there is a new (ostensibly innocent) tenant in

possession and operating a business, than it would be for Flushing

to induce resurrection of Cosmopolitan’s lease with Cosmopolitan

in possession.

iia

B-8

Effectively, as a result of the then imminent ramifications of

Judge Mishler’s Order, no longer could the Landlord-Tenant

Court reconcile a resurrection of the lease on the ground that the

Landlord is made whole and that no one would be hurt. There

would be a new tenant who would necessarily have to suffer if the

Landlord-Tenant Court is to vacate the warrant and resurrect the

lease.

For example, in Oppenheim v. Spike, 107 Misc.2d 55,427 N.Y.S.

2d 826 (App. Term, Ist Dept. 1980) where the Court found an un-

equivocal “right and power of the Court to restore a wrongfully

removed tenant to possesion of a premises, even after the execution

of a warrant under proper circumstances,” it refused to put the

tenant back into possession where another tenant had taken

possession.

Although the Court left the parties to the remedy of money

damages for wrongful eviction, this would be a more difficult

process for Flushing hereim, and counsel had good reason to try to

preserve Flushing’s ability to obtain possession, if possible, as a

shorter, more expeditious and less costly process than trying to oust

a new tenant or to proceed to determine monetary damages.

Therefore, Flushing was within all the perspectives of the reality

of Landlord-Tenant Courts, and the discretion exercised in such

courts, severely prejudiced by the Order of Judge Mishler and the

appeal therefrom—as well as the application for the stay—was

taken in good faith, and solely to try to preserve Flushing’s

position—whatever it may have been—in the State Courts.

C-|

APPENDIX “C”

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

X

In re:

COSMOPOLITAN AVIATION CORP.,

Debtor,

—against—

NEW YORK STATE DEPARTMENT

OF TRANSPORTATION,

Appellee.

X

Oral Argument held at

U.S. Court of Appeals for the 2nd Circuit

The United States Courthouse

40 Centre Street

New York, New York

January 23, 1985

BEFORE: ELLSWORTH A. VAN GRAAFEILAND,

THOMAS J. MESKILL,

RALPH K. WINTER,

Circuit Judges

***K

r)

'

Nm

THE COURT: Did you go to the Court of Appeals on that?

MR. KAPLAN: No, Your Honor. We were presently waiting for

a decision from the Appellate Term.

THE COURT: You never argued an appeal in the New York

Cout of Appeals on behalf of Flushing?

MR. KAPLAN: Yes, Your Honor, we did.

THE COURT: Then why are you saying you didn't?

MR. KAPLAN: Because it was a different appeal. We first

moved to intervene—

THE COURT: Let me tell you something. You know that your

opponents have asked for an award under Section 1927. That’s one

of the issues in this case. Remember that.

MR. KAPLAN: May I clarify this point because there is a vital

distinction. Because of Cosmopolitan’s judgment, the landlord-

tenant judgment was on appeal, we moved to intervene at the

appellate level. That was denied. We went to the Court of Appeals,

and the Court of Appeals affirmed that denial and said that it

C-3

CONCLUSION

For all of the above reasons, this Court should affirm the district

court order awarding the premises to the State and award the State

attorney's fees pursuant to 28 U.S.C. § 1927.

Dated: New York, New York

January 14, 1985

Respectfully submitted,

ROBERT ABRAMS

Attorney General of the

State of New York

Attorney for Appellee

the New York State

Department of Transportation

LITIGATION BUREAU:

RICHARD G. LISKOV

BARRIE L. GOLDSTEIN

Assistant Attorneys General

Of Counsel

APPENDIX “D”

UNITED STATES COURT OF APPEALS

FoR THE SECOND CIRCUIT

—

No. 794— August Term, 1984

(Argued: January 23, 1985 Decided: May 24, 1985)

Docket Nos, 84-5121, 85-5005, 85-5007

_

i ei

IN RE COSMOPOLITAN AVIATION CORP.,

Debtor.

eo

=—_oorr

COSMOPOLITAN AVIATION CORP.,

Debtor-Appellant,

FLUSHING SAVINGS BANK,

Intervenor, Appellee Cross-Appellant,

Vv.

NEw YorRK STATE DEPARTMENT OF TRANSPORTATION,

Appellee, Appellant Cross-Appellee.

<o-ooe

Before:

VAN GRAAFEILAND, MESKILL and WINTER, Circuit

Judges.

Cosmopolitan Aviation Corporation and Flushing

Savings Bank appeal from an order of the United States

District Court for the Eastern District of New York,

Mishler, J., which affirmed an order of the United States

Bankruptcy Court for the Eastern District of New York,

Parente, J., directing Cosmopolitan Aviation Corporation

4051

D-2

tu turn over to the New York State Department of Trans-

portation possession of certain premises. The State ap-

peals from an order of the United States District Court

for the Eastern District of New York, Altimari, .7., which

granted Flushing Savings Bank’s motion for an extension

of time in which to file a notice of appeal from Judge

Mishler’s order.

Appeal of Judge Mishler’s order dismissed as to both

Cosmopolitan Aviation Corporation and Flushing Savings

Bank. Judge Altimari’s order reversed. Double costs

and attorneys’ fees assessed jointly and severally against

Cosmopolitan Aviation Corporation and its attorneys and

against Flushing Savings Bank and its attorneys. Re-

manded to the district court fo) the calculation of attor-

neys’ fees.

oO

— oor

BRUCE O. Karp, New York, New York (Abra-

ham Backenroth, Harvis & Zeichner, New

York City, of counsel), for Appellant

Cosmopolitan Aviation Corp.

JULIAN KAPLAN, Mineola, New York (Jessel

Rothman, Lisa J. Rinaidi, Mineola, New

York, of counsel), for Intervenor Flushing

Savings Bank.

BARRIE L. GOLDST) N, Assistant Attorney

General, State of New York (Robert

Abrams, Attorney General, Richard G.

Liskov, Assistant Attorney General, State

of New York, New York City, of counsel),

for Appellee New York State Department

of Transportation.

woo

——— Ss

4052

D-3

MESKILL, Circuit Judge:

Cosmopolitan Aviation Corporation (Cosmopolitan )

and Flushing Savings Bank (Flushing) appeal from an

order entered in the United States District Court for the

Eastern District of New York, Mishler, J., which affirmed

an order of the United States Bankruptcy Court for the

Eastern District of New York, Parente, J., directing Cos-

mopolitan to turn over possession of certain premises at

Republic Airport in Farmingdale, New York to the New

York State Department of Transportation (State). The

State appeals from an order entered in the United States

District Court for the Eastern District of New York,

Altimari, J., which extended the time, pursuant to Fed.

R. App. P. 4(a) (5), for Flushing to file a notice of appeal

from Judge Mishler’s order.

We hold that Cosmopolitan is without standing to

appeal the bankruptcy court order. We also hold that the

trial judge abused his discretion in granting Flushing an

extension and, therefore, that Flushing failed to file a

timely notice of appeal. Accordingly, we reverse the order

granting Flushing an extension and we dismiss this ap-

peal as to both Cosmopolitan and Flushing. Furthermore,

the frivolous and vexatious character of the appeal

brought by Cosmopolitan and Flushing warrants the im-

position of sanctions in the form of double costs and attor-

neys’ fees against them as well as against their attorneys.

We intend the award of fees in favor of the State to be in

the nature of compensatory damages. Therefore, we re-

mand this action to the district court and instruct that

court to ascertain the amount of the State’s reasonable

attorneys’ fees and to assess that amount jointly and

severally against Flushing and its attorneys and jointly

and severally against Cosmopolitan and its attorneys to

4053

D4

compensate the State for the cost of defending against this

action in the federal courts.

BACKGROUND

This case began as a simple dispute between the

State as landlord, and its tenant, Cosmopolitan.’ It has,

however, been inordinately complicated by the combined

machinations of Cosmopolitan and Flushing. The dispute

and the legal issues raised do not warrant the space

necessary to convey adequately the truly remarkable bad

faith evidenced by Cosmopolitan and Flushing throughout

this litigation. During the course of these proceedings,

Cosmopolitan, Flushing and their attorneys have continu-

ally mischaracterized facts, prior proceedings and the

law. It has been no mean task to pick through the volu-

minous record only to find that the State’s presentation

has been essentially and consistently unbiased and bal-

anced, in complete contrast to the actions of Cosmopolitan

and Flushing.

In October 1975, Cosmopolitan entered into a lease

under which it took possession of approximately forty

acres at Republic Airport, a general aviation facility in

Farmingdale owned by the State. The lease was for a

term of fifteen years, from Octower 1975 to October 1990,

with an option to renew for ten years. In addition to

requiring monthly payment of a base rent and a percent-

age of revenue, the lease obligated Cosmopolitan, inter

alia, to construct a hangar within a specified time limit

1 The original lessor was the New York Metropolitan Transpor-

tation Authority (MTA). In June 1982, the New York legislature

transferred ownership of Republic from the MTA to the New

York Department of Transportation. The identity of the actual

owner/lessor at any particular time is of no consequence to this

appeal. Hence we refer to the State throughout as the lessor.

4054

D-5

and in accordance with plans approved in advance by the

State, to request and receive written approval prior to

conducting air taxi or charter operations, to keep and

maintain accurate books and records of its operations at

the airport and to make those books and records as well

as certified financial statements, external audits and in-

come tax returns available to the State.

The lease also provided that if Cosmopolitan were to

continue in default of any or all of its obligations for

thirty days after written notice of default from the lessor,

the State could terminate the agreement on five days

written notice. In the event of such termination, the

lessor was obligated to pay to Cosmopolitan, after deduct-

ing all amounts due to the State as lessor, an amount

equal to the cost of improvements made by the lessee in

accordance with the terms and conditions of the lease

(the buy-back provision).

In or about September 1976, the State consented in

writing to Cosmopolitan’s mortgage and assignment of its

interest in the lease to Flushing. The consent outlined the

conditions Flushing would have to satisfy before it would

be entitled to take possession of the premises: it would

have to cure any defaults; it would have to do so within

the period permitted under the lease, i.e., within thirty

days following notice of default, and it would have to

obtain the consent of the State which would not unreason-

ably be withheld.

In late 1977 and 1978, Cosmopolitan defaulted on all

of its previously listed obligations. Attempts at informal

resolution having proved unavailing, the State served on

Cosmopolitan, with a copy to Flushing, a notice of default

dated June 11, 1979. The defaults remained uncured.

Flushing took no timely action to satisfy any of the

4055

D-6

conditions required before it could take possession of the

premises. In August 1979, the State notified Cosmopoli-

tan in writing, with a copy to Flushing, that the lease

would terminate on September 5, 1979 and that Cosmo-

politan should surrender the premises on that date. Cos-

mopolitan refused to comply. Consequently, the State

instituted a suinmary proceeding in the state District

Court of the County of Suffolk, Second District to recover

possession. The State did not notify Flushing of the suit.

Trial began in June 1981 and progressed slowly and

sporadically. Nine trial days later, in August 1981,

Cosmopolitan began its defense case. On August 11,

1981, Cosmopolitan filed a Chapter 11 petition in the

United States Bankruptcy Court for the Eastern District

of New York, which automatically stayed the state court

litigation. The State moved successfully in the bankruptcy

court to vacate the stay. The bankruptcy court order,

however, also prohibited the State from enforcing any

favorable state court judgment absent a further order

from the bankruptcy court. The state court trial resumed,

progressing even more slowly than before. Post-trial

briefs were finally submitted in late April 1982.

Although never formally notified, Flushing had been

aware of the State’s summary dispossess proceedings since

at least December 1981. Flushing sought no involvement

of any kind, however, until March 1982. At that time it

sued the State for declaratory and monetary relief pursu-

ant to the buy-back provision of Cosmopclitan’s lease. At |

no time during this critical period did Flushing assert a

right to possession of the premises either in this action

or in the underlying possession proceeding. The State

removed Flushing’s action to the bankruptcy court where

the suit has remained dormant.

4056

D-7

The state trial court handed down its decision in the

summary proceeding in May 1982. Finding that Cos-

mopolitan had failed to cure eight material defaults under

the lease—only one of which related to nonpayment of

rent—the court held that the lease had terminated on

September 5, 1979 and that Cosmopolitan had thereafter

wrongfully remained in possession. Final judgment was

entered on June 2, 1982 adjudging the State to be entitled

to possession, ordering the issuance of a warrant of evic-

tion against Cosmopolitan, its personnel and affiliates and

awarding the State $176,426.44 but not precluding it from

seeking any additional amounts later found to be owing.

Armed with its unequivocal state court judgment, the

State returned to the bankruptcy court on June 3, 1982

seeking to have Cosmopolitan liquidated, to have the pro-

ceeding converted from a Chapter 11 toa Chapter 7 action

and to have a trustee appointed to oversee the liquidation,

to conduct an audit and to restore possession to the State.

By order dated June 24, the bankruptcy court appointed

an operating trustee but, on Flushing’s request, refused

to convert the action. Flushing informed the court that

it was engaged in negotiating a potential refinancing deal

with Cosmopolitan.

On or about June 12, 1982, with the trustee’s ap-

proval, Cosmopolitan appealed the trial court decision to

the New York Supreme Court, Appellate Term. While

aware of the appeal, Flushing did not attempt to inter-

vene during the ten month period of the appeal’s pendency.

In November 1982, the bankruptcy court sua sponte

issued an order to show cause why it should not convert

the Chapter 11 proceeding to a Chapter 7 proceeding or

dismiss pursuant to 11 U.S.C. §1112(b) (1982). At

4057

ee eee eS

D-8

the January 25, 1983 hearing, Cosmopolitan and the trus-

tee argued that the bankruptcy court should not act until

the appellate term decided Cosmopolitan’s appeal. The

bankruptcy court acquiesced but also ordered that a rehab-

ilitation or liquidation plan be filed by March 1, 1983.

The court acknowledged that the lease, if reinstated, would

constitute a valuable asset. But it was becoming increas-

ingly evident that even with the lease, Cosmopolitan would

be in very dire financial straits.

In April 1983, the appellate term affirmed the trial

court judgment and Cosmopolitan appealed to the New

York Supreme Court, Appellate Division. In early

November 1983, the trustee informed the bankruptcy court

that Cosmopolitan was unable to meet its current operat

ing expenses, incapable of settling its pre-petition obliga-

tions and incapable of curing its defaults—even if the

lease was resurrected. A full evidentiary hearing was

held in the bankruptcy court on December 12, 1983, ap-

proximately two and one-half years after Cosmopolitan

filed its petition and a year and one-half after the State

filed its initial motion to convert. Flushing participated,

appearing through one of its attorneys, and urged the

court to again forestall action and to await the imminent

decision of the appellate division, hinting that Flushing

might be interested in putting together a plan with Cos-

mopolitan if the lease was reinstated.

It became clear at the December 12 hearing, if indeed

it had not been before, that Cosmopolitan had failed to

seriously attempt to rehabilitate, despite a time frame that _

had been extended well beyond the norm. Moreover, it

was obvious that, even given the opportunity, Cosmopol-

itan could not cure its lease defaults. Furthermore, testi-

mony revealed a veritable web of closely related corpora-

4058

D-9

tions as well as some plainly suspicious corporate shuffing,

including the transfer of certain operations to a newly

created Delaware corporation owned and controlled by

Peter Garrambone, who with George Garrambone owned

and controlled: Cosmopolitan and its affiliates. Evasive

testimony and oblique legal arguments combined to imbue

the transcript with a palpable aura of bad faith.

From the bench at the close of argument in the

bankruptcy court, the court ordered that Cosmopolitan

be continued as a Chapter 11 debtor, that operations cease

the following day, December 13, and that the trustee take

all steps necessary to liquidate the company and to mar-

shal the assets. Considerations of time and money dictated

the court’s decision not to convert the proceeding to a

Chapter 7. Conversion, which would have required the

appointment of a new trustee, would have produced fur-

ther delays and would have placed an additional drain

on the estate’s remaining assets.

The judge’s written order, filed December 22, 1983,

reiterated the state court holding that the lease had ex-

pired on September 5, 1979 and stated that, in any event,

Cosmopolitan could not cure its substantial defaults and

was not reasonably likely to rehabilitate. The court

ordered the estate continued for the sole purpose of liqui-

dating its assets and not for the purpose of continuing

the debtor as an operating entity. It ordered that Cosmo-

politan’s business operations should cease on December 13.

The bankruptcy court’s December 1983 order was

never appealed. In fact it seems to have been completely

ignored. When we heard oral argument in this case on

January 23, 1985, Cosmopolitan was still operating at

Republic Airport.

4059

D-10

The trustee exhibited no discernable inclination to

liquidate Cosmopolitan. In late February 1984, the State

applied for an order to compel the trustee to at least

halt Cosmopolitan’s commerial flight operations. At

about the same time, the —,»allate division affirmed the

judgment holding that the lease had expired. At the

suggestion of the bankruptcy court, the State moved to

completely vacate the modified stay and obtain possession.

Because the motion addressed only the State’s right to

possession, Flushing was not served. Flushing’s attorney

concedes, however, that Flushing had actual notice.

At the hearing on March 15, the court expressed its

displeasure with the trustee’s performance, characterized

the entire proceeding as an abuse of process and made

clear its intention to finally end the litigation. By an

unfortunate twist of fate, the court signed Cosmopolitan’s

rather than the State’s proposed order, vacating the stay

but sending the parties back to litigate in the state courts.

The State applied for resettlement, urging the court

to order the trustee to surrender the premises directly

to the State. Describing the action as “tantamount to

excessive, vexatious litigation,” J. App. at 169, the bank-

ruptcy court granted the State’s application and, by order

dated April 10, 1984, directed that possession of the

premises be turned over to the State no later than April

20, 1984. The court refused to stay its order pending

appeal. Flushing had actual notice of the court’s deter-

mination prior to final entry of the order but it entered

no objection. ;

Cosmopolitan alone filed a notcie of appeal from the

April 10 order. Purporting to represent the interests of

the trustee and Flushing as well as its own, Cosmopolitan

4060

D-11

sought a stay on the ground that it was seeking to appeal

the state court decision to the New York Court of Appeals.

Expressing grave misgivings as to Cosmopolitan’s stand-

ing to appeal and a strong suspicion of bad faith, J udge

Mishler, by order dated April 16, 1984, stayed the bank-

ruptey court order. Judge Mishler’s order was specifically

conditioned on the deposit of $100,000 on behalf of Cos-

mopolitan to cover post-petition rent due as well as any

damages, costs and attorneys’ fees that might later be

“assessed against Cosmopolitan and its attorneys pursu-

ant to 28 U.S.C. § 1927 upon a determination that Cos-

mopolitan has engaged in dilatory or vexatious litigation

in this matter.” J. App. at 537-38.

On April 27, the State asked the district court to

modify its order to halt the flight operations of Cosmopol-

itan and its affiliated companies. Reiterating its doubts

about Cosmopolitan’s standing, the court again expressed

its uneasiness with the proceedings generally, noting that

the action appeared to be a misuse of the bankruptcy

court. Standing by its decision to maintain the status

quo, however, the district court refused to halt the un-

authorized flights. The court concluded that the State

had failed to show either irreparable harm or that the

balance of hardships tipped in its direction. We affirmed

the May 23, 1984 ruling by unpublished order. Jn re

Cosmopolitan Aviation Corp., No. 84-5037 (2d Cir. July

19, 1984). Meanwhile, on May 16, the appellate division

had granted Cosmopolitan leave to appeal to the New York

Court of Appeals.

Several months earlier, Flushing had begun a some-

what curious and certainly belated campaign to collater-

ally attack the bankruptcy court’s liquidation order. In

December 1983, Flushing moved in the appellate division

4061

D-12

to intervene in Cosmopolitan’s appeal claiming that as an

interested party its rights could be adversely affected

by the June 1982 state district court judgment. The

appellate division denied Flushing’s application. In March

1984, Flushing moved to intervene in the state district

court to set aside the June 1982 judgment. That applica-

tion was denied in May 1984. Flushing appealed to the

appellate term and that appeal is apparently still pending.

Flushing then moved to intervene before the New York

Court of Appeals where Cosmopolitan’s appeal was await-

ing decision. In July 1984, that application was also

denied.

_ In November 1984, the New York Court of Appeals

affirmed the June 1982 judgment of the state district

court. By order to show cause, the State requested

vacatur of the federal district court’s April 16 stay.

When Flushing and Cosmopolitan appeared before the

district court on December 7, 1984, Flushing for the first

time claimed a right to possession of the premises and

alleged that its appeal then pending before the appellate

term could ultimately result in a reversal of the June

1982 decision and the revival of the lease. Unconvinced,

Judge Mishler by order dated that same day affirmed the

April 10 order of the bankruptcy court, dismissed Cos-

mopolitan’s appeal and ordered Cosmopolitan and all other

parties claiming a right to possession to turn over pos-

session on or before December 14, 1984.

Cosmopolitan filed its notice of appeal of Judge

Mishler’s order on December 12, 1984. It also moved to -

stay enforcement of the district court order pending ap-

peal. Flushing did not at that time file a notice of appeal.

It did, however, file a motion to intervene in the district

court which Judge Altimari granted on December 14. Both

4062

D-13

Cosmopolitan and Flushing appeared before us to argue

for a stay. We, mistakenly as it turns out, granted a stay

on December 20, 1984 and expedited the appeal.

On January 18, 1985, Flushing filed a notice of ap-

peal of Judge Mishler’s December 7 order. It also filed a

motion seeking an extension of time in which to file a

notice of appeal pursuant to Fed. R. App. P. 4(a) (5).

Judge Altimari granted the motion and the State imme-

diately appealed. That appeal was also expedited and

consolidated with Cosmopolitan and Flushing’s appeal.

We heard argument on January 23. Relying com-

pletely on Flushing, Cosmopolitan neither submitted a

separate brief nor favored us with an oral presentation.

Indeed, counsel for Cosmopolitan was totally unprepared

to respond to our questions. At the close of argument, we

vacated our previous stay of the December 7 district

court order. We also directed the parties to file supple-

mental briefs addressing both the extent of our power to

award sanctions against Cosmopolitan, Flushing and their

attorneys for bad faith litigation and the best method for

calculating the amount.

DISCUSSION

For the reasons articulated below, we dismiss Cos-

mopolitan’s appeal for lack of standing and we dismiss

Flushing’s appeal for failure to file a timely notice of

appeal. Having determined that we lack jurisdiction to

decide the merits of this case, we address them solely to

explain why we believe that sanctions against Cosmo-

politan, Flushing and their attorneys are appropriate.

See Hastings v. Maine-Endwell Central School District,

676 F.2d 893, 897-98 (2d Cir. 1982).

4063

D-14

A. Cosmopolitan’s Lack of Standing

The Bankruptcy Code of 1978, 11 U.S.C. § 101 et seq.

(1982 & Supp. I 1983), does not contain an explicit limita-

tion on appellate standing. Thus, relying on pre-Code

law, a number of courts have adopted a standard that

requires an appellant to show that he is a “person ag-

grieved,” that he is “directly and adversely affected pecu-

niarily by” the challenged order of the bankruptcy court.

In re Fondiller, 707 F.2d 441, 442, 443 (9th Cir. 1983) ;

In re Goodwin’s Discount Furniture, 16 B.R. 885, 888-89

(Bkrtey. App. 1st Cir. 1982) ; In re Jewel Terrace Corp.,

10 B.R. 1008, 1011 n.3 (E.D.N.Y. 1981) ; see also 1 Col-

lier on Bankruptcy {1 3.03[5] at 3-118 to -119 (15th ed.

1985). We believe that this rule sets a reasonable and

practical threshold for standing and we join the courts

that have adopted it.

Under this rule, Cosmopolitan clearly lacks standing

to appeal the December 7 order of the district court af-

firming the April 10 order of the bankruptcy court which

directed the liquidating trustee to turn over possession to

the State. The impact on Cosmopolitan of the order ap-

pealed from must be evaluated in light of the December

1983 bankruptcy court order. The latter order, which

was never appealed, in essence stated that the outcome of

Cosmopolitan’s state court appeals was immaterial given

Cosmopolitan’s dismal economic position. According to

the bankruptcy court’s unchallenged reasoning, even if

some state appellate court ruled in Cosmopolitan’s favor,

Cosmopolitan’s position would not be improved because ”

the corporation could not cure its defaults. Further, the

court found, and no one may now dispute, that Cosmo-

politan was hopelessly insolvent with no likelihood of re-

habilitation. Cosmopolitan’s continued existence and

4064

D-15

operation was in complete derogation of the bankruptcy

court’s liquidation order.

We must also consider the New York Court of Ap-

peals’ November 1984 affirmance of the judgment which

held that the lease had expired in September 1979. In

light of the foregoing, Cosmopolitan has not shown, indeed

could not show, that it had any right of possession as of

April 1984. Therefore, Cosmopolitan was not directly

and adversely affected pecuniarily by the April 10 bank-

ruptcy court order or by the December 7 district court

order. Accordingly, we dismiss Cosmopolitan’s appeal for

lack of standing.

B. Flushing’s Failure to File a Timely Notice of Appeal

Under Fed. R. App. P. 4(a) (1), a notice of appeal in

a civil case, except where the United States is a party,

must be filed within thirty days after entry of the judg-

ment or order from which appeal is taken. This time

limit is “mandatory and jurisdictional.” Griggs v. Provi-

dent Consumer Discount Co., 459 U.S. 56, 61 (1982);

Browder v. Director, Department of Corrections of IIli-

nois, 4384 U.S. 257, 264 (1978); United States v. Robin-

son, 361 U.S. 220, 224 (1960) ; Stirling v. Chemical Bank,

511 F.2d 1030, 1031 (2d Cir. 1975); see also Guido v.

Ball, 367 F.2d 882, 882-83 (2d Cir. . 06). This limita-

tion is applicable to appeals involving bankruptcy orders.

Fed. R. App. P. 4 advisory committee notes; 9 Moore’s

Federal Practice J 204.08[2] at 4-32 (2d ed. 1985). The

rule is not as draconian as it first appears: “The district

court, upon a showing of excusable neglect or good cause,

may extend the time for filing a notice of appeal upon

motion filed not later than 30 days after the expiration

of the time prescribed by this Rule 4(a).” Fed. R. App.

P. 4(a) (5).

4005

D-16

The good cause standard applies to requests for ex-

tensions filed prior to the expiration of the initial thirty

days. To procure an extension after those first thirty

days, the movant must show excusable neglect. Fed. R.

App. P. 4 advisory committee notes; 9 Moore’s Federal

Practice { 204.13 [1.-1] at 4-89. The excusable neglect

standard was intended to be a strict one, and to meet it,

the moving party must show unique and compelling cir-

cumstances. Fase v. Seafarers Welfare & Pension Plan,

574 F.2d 72; 76 (2d Cir. 1978). Mindful of the purpose

of the rules of appellate procedure “to bring litigation to

an end and to discourage dilatory tactics,” In re Orbitec

Corp., 520 F.2d 358, 362 (2d Cir. 1975), courts should

find excusable neglect only in the most extraordinary and

unusal situations. State of Oregon v. Champion Interna-

tional Corp., 680 F.2d 1300, 1301 (9th Cir. 1982); Air-

line Pilots vy. Executive Airlines, 569 F.2d 1174, 1175

(1st Cir. 1978).

As a general rule, we accord great deference to a

district court’s finding of excusable neglect. Fase, 574

F.2d at 77. We will overturn an extension granted under

Rule 4(a)(5) only for abuse of discretion. Chipser v.

Kohlmeyer & Co., 600 F.2d 1061, 1063 (5th Cir. 1979);

In re Estate of Butler's Tire & Battery Co., 592 F.2d

1028, 1032 (9th Cir. 1979) ; Gooch v. Skelly Oil Co., 493

F.2d 366, 368 (10th Cir.), cert. denied, 419 U.S. 997

(1974) ; see also Mennen Co. Vv. Gillette Co., 719 F.2d 568,

571 (2d Cir. 1983).

The excusable neglect standard will generally be satis-

fied where a party acting in good faith was entitled to and

did rely on actions of the district court or its officers and

consequently misses the Rule 4 deadline. E.g., Mennen

Co., 719 F.2d at 571. Similarly, given the appropriate

4066

D-17

circumstances, failure to hear that judgment has entered

may be the basis for a finding ot excusable neglect, as

may uncontrollable delays in mail delivery, unpredictable

events affecting the feasibility of appeal and plausible

misconstructions but not mere ignorance of the law or

rules. 9 Moore’s Federal Practice {| 204.13[1.-3] at 4-94 to

-97.

In support of its request for an extension, Flushing

presented two arguments to the district court. First,

Flushing’s attorney claimed that he believed that United

States District Judge Altimari’s December 14 order, per-

mitting Flushing to intervene, constituted leave to inter-

vene in Cosmopolitan’s appeal which was already before

us. Thus, he claimed, he thought it was unnecessary

for Flushing to file a separate notice of appeal. He fur-

ther informs us that it would be inequitable for us to

dismiss Flushing as an appellant because he, his associates

and Flushing have devoted so much time to this appeal.

Second, Flushing argued that it should be entitled to four-

teen additional days under Rule 4(a) (3) because Cosmo-

politan filed a notice of appeal.

Not surprisingly, Flushing was unabie to support

these arguments. We find it implausible that experienced

counsel could actually believe that the district court has

authority to allow a person to intervene in an appeal pend-

ing before the court of appeals. Neither can we accept

that experienced trial counsel did not realize that every

appellant must file its own notice of appeal.

Flushing’s second argument is tantamount to a direct

affront. The language of Rule 4(a) (3) could hardly be

more clear:

4067

D-18

If a timely notice of appeal is filed by a party, any

other party may file a notice of appeal within 14 days

after the date on which the first notice of appeal

was filed, or within the time otherwise prescribed

by this Rule 4(a), whichever period last expires.

The fourteen day period following the date on which Cos-

mopolitan filed its notice of appeal ended on December

26, 1984. The thirty day period following entry of the

order appealed from ended on January 7, 1985. Flushing

filed its notice of appeal on Janaury 18.

The excusable neglect standard can never be met by

a showing of inability or refusal to read and comprehend

the plain language of the federal rules. Flushing did not

establish excusable neglect. Thus there was no basis on

which the district court could grant an extension pursuant

to Rule 4. The order granting Flushing an extension is

reversed for abuse of discretion.2, Consequently, Flushing

has not filed a timely notice of appeal and we are, there-

fore, without jurisdiction to decide the merits of its ap-

peal. We must dismiss.

C. The Merits

We reemphasize that our sole reason for discussing

the merits—or lack thereof—is to make clear the under-

pinning of our decision to award sanctions. Our foray

is accordingly brief.

We note at the outset that our December 20 stay in

no way should be considered a justification for Cosmopoli- -

2 We can well appreciate what we assume was Judge Altimari’s

motivation in granting Plushing’s motion for an extension. Cog-

nizant that briefs had been filed and that oral argument was only

days away, Judge Altimari no doubt sought to avoid the potential

risk of further complicating or delaying this litigation.

4068

D-19

tan and Flushing’s continued prosecution of this appeal.

We believe that an objective review of the record reason-

ably and unequivocally suggests that the stay would not

have been granted had Cosmopolitan and particularly

Flushing not completely obfuscated the factual and legal

issues. The unnecessary complexity created by Flushing,

Cosmopolitan and their attorneys, augmented by mischar-

acterizations and omissions, misled the panel that granted

the stay. We will not permit the wrongdoers to profit

from their contemptible conduct. The December 20 stay

cannot buffer them from the consequences of their bad

faith.

As previously noted, all of the arguments on appeal

were advanced by Flushing; Cosmopolitan simply joined

with Flushing. The first claim, which actually also under-

lies the remaining arguments, is that Flushing has a right

of possession in the premises. Flushing maintains that

some state court may yet allow it to intervene in the

state court proceeding against Cosmopolitan and that the

state courts might then overturn the now venerable ruling,

affirmed by the New York Court of Appeals, that the lease

expired on September 5, 1979. Flushing’s right, as a

secured creditor, to participate in a holdover proceeding

for possession is dubious at best—even if one ignores

Flushing’s utter lack of response to the notice of default.

Nevertheless, if allowed to intervene, Flushing alleges, it

will be able to exercise its right of redemption under New

York law, cure the lease defaults and assume possession

of the premises or sell the lease. Disregarding for the

sake of discussion the mindboggling odds against the

lease being reinstated, we note that Flushing has neither

a right of redemption ..»—-unless it has a time machine

—the ability to cure the lease defaults.

4069

D-20

Under the mortgage and assignment between Cosmo-

politan and Flushing, Flushing was entitled to possession

only on satisfaction of certain conditions. After receiving

a copy of the notice of default, Flushing gave no indica-

tion to the State that it had any interest in curing Cos-

mopolitan’s defaults. Any inchoate right to possession

which Flushing may once have had has long since expired.

The state right of redemption to which Flushing

alludes is not available under the circumstances of this

case. Flushing concedes that the right alleged, which

derives from N.Y. Real Prop. Acts. Law § 751 (McKinney

1979), belongs to Cosmopolitan, not to Flushing, and arises

by its terms only in summary proceedings for nonpayment

of rent. Flushing’s characterization of the State’s sum-

mary proceedings as “in essence a nonpayment proceed-

ing,” Br. of Intervenor-Appellant at 21, is pure fabrica-

tion. Of the eight material defaults which the trial court

identified, only one concerned nonpayment of rent.

Moreover, section 751 explicitly applies only before a

warrant is issued. Flushing attempts to circumvent this

limitation by arguing that the issuance of the warrant

violated the August 21, 1981 bankruptcy court order and,

therefore, was invalid. Even if Flushing had raised this

argument below, instead of for the first time in this ap-

peal, the argument would be unavailing. Under N.Y.

Real Prop. Acts. Law § 749, the state court was required

to issue the warrant at the time it issued final judgment

for the State. Further, the August 21, 1981 order of the

bankruptcy court merely precluded the State from ac--

tually executing on a favorable judgment without the ap-

proval of the bankruptcy court. The State and the state

court were ir compliance with the August 21 order.

Cosmopolitan’s repeated, bold defiance of court orders lends

4070

D-21

a certain irony to Flushing’s argument. Flushing’s re-

demption claim is completely frivolous.

Flushing’s second major theme posits that the bank-

ruptcy court abused its discretion in ordering Cosmo-

politan to turn over possession to the State. This argu-

ment rests on alternative grounds. First, Flushing claims

that the bankruptcy court could not issue the order pur-

suant to 11 U.S.C. §105(a) (1982) because 2% U.S.C.

§ 1481 (1982), omitted by Bankruptcy Amendments and

Federal Judgeship Act of 1984, Pub. L. No. 98-353, § 113,

1984 U.S. Code Cong. & Ad. News (98 Stat.) 343, pro-

hibits the bankruptcy court from enjoining another court.

The State aptly described this argument as bizarre. The

April 10 order does not purport by its terms to enjoin any

court. And Flushing has failed to show that the effect,

nonetheless, is injunctive. Second, Flushing cites case law

to support the proposition that an order awarding posses-

sion of leased premises to the landlord should only be

granted pursuant to 11 U.S.C. §105(a) under the most

extraordinary and compelling circumstances. We have

no trouble accepting this proposition for the sake of argu-

ment. But we fail to see how it aids Flushing’s cause.

By the time the April 10 order was filed, the New York

courts at every level had agreed that the lease expired on

September 7, 1979; Cosmopolitan had been ordered li-

quidated and adjudged incapable of rehabilitation and of

curing its defaults; Flushing had been aware of or in-

volved in the proceedings at all stages, beginning with

the State’s notice of default; Cosmopolitan had refused

to cease operations or, indeed, to comply with any of the

orders issued by the courts and the bankruptcy court had

expressed its belief that the entire proceeding constituted

an abuse of process. These circumstances certainly ap-

pear to us to be extraordinary and compelling.

4071

D-22

Flushing’s final argument* is that it has been de-

prived of an interest in real property. Specifically,

Flushing claims that the bankruptcy court violated its

due process rights because Flushing was not made a party

to the motion which led to the April 10 order. We note

first that Flushing has been unable to convince any court

so far that it has a possessory interest in the premises.

Flushing is still batting zero. At most, and we do not

decide this question, Flushing could be entitled to a

monetary settlement under the buy-back provision of the

expired lease. This right, assuming it exists, is in no

way diminished by the April 10 order. Moreover, Flush-

ing had actual notice of and participated in the relevant

bankruptcy and district court proceedings. Based on

fabrication and fantasy, Flushing’s due process arguments

evaporate when exposed to the light of reason.

D. Sanctions

Our power to award sanctions in this case derives

from several sources. Fed. R. App. P. 38 permits us in

our discretion to award damages and double costs for the

prosecution of a frivolous appeal. The advisory committee

note to the rule explains that damages in such a case

should be awarded “as a matter of justice to the appellee

and as a penalty against appellant.” Similarly, 28 U.S.C.

§ 1912 (1982) gives us the discretion to award to a

prevailing party damages for delay and double costs.

Under 28 U.S.C. §1927 (1982), “[a]ny attorney ...

who so multiplies the proceedings in any case unreason-_

ably and vexatiously may be required by the court to

satisfy personally the excess costs, expenses, and at-

8 There are actually a few more but they are equally meritless.

We think our actions are sufficiently supported; we hesitate to

assault the reader further.

4072

D-23

torneys’ fees reasonably incurred because of such conduct.”

Finally, where a losing litigant has acted vexatiously or

in bad faith, it is within our inherent powers to award

attorneys’ fees. Alyeska Pipeline Service Co. v. Wilder-

ness Society, 421 U.S. 240, 258-59 (1975). And if we

find willful abuse of process, we may exercise our inherent

power to assess attorneys’ fees against counsel. Roadway

Express, Inc. v. Piper, 447 U.S. 752, 766 (1980).

The appeal brought by Cosmopolitan and Flushing is

entirely frivolous. It can only have been brought for the

purpose of delay. Cosmopolitan, Flushing and their at-

torneys have acted vexatiously and in bad faith. The

attorneys representing Cosmopolitan and Flushing have

unreasonably multiplied the proceedings in this case and

are guilty of willful abuse of process. The parties and

their attorneys should be penalized for unnecessarily wast-

ing our time and resources and the State should be com-

pensated for having been put to the expense of answering

these wholly frivolous appeals. Fluoro Electric Corp. v.

Branford Associates, 489 F.2d 320, 326 (2d Cir. 1973).

This Court has been used, as were the bankruptcy court

and the district court, to frustrate the rights of the State

and the execution of a state court judgment. Cf. Over-

myer V. Fidelity & Deposit Co. of Maryland, 554 F.2d

589, 548 (2d Cir. 1977) (double costs and attorneys fees

assessed for using court to frustrate collection of state

court judgment).

We assess double costs against Cosmopolitan and

Flushing. We award reasonable attorneys fees against

Cosmopolitan, Flushing and their attorneys. We remand

this case to the district court and instruct that court to

determine the attorneys’ fees reasonably incurred by the

State in this appeal and to assess that amount jointly

4073

|

D-24

and severally against Flushing and its attorneys and

jointly and severally against Cosmopolitan and its at-

torneys.

The appeal of Judge Mishler’s order is dismissed as

to both Cosmopolitan and Flushing. Judge Altimari’s

order extending the time for Flushing to file a notice of

appeal is reversed. The State is awarded double costs

and attorneys’ fees and the case is remanded to the dis-

trict court for the calculation of sanctions. , Nothing in

this opinion should be interpreted to preclude the State

from moving for nor the district court from awarding at-

torneys’ fees for all of the multitudinous and vexatious

procee¢'+cs in which Flushing and Cosmopolitan were in-

volved in * 1e federal system.

4074

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E-|

APPENDIX “E”

UNITED STATES COURT OF APPEALS

FOR THE

SECOND CIRCUIT

At a stated Term of the United States Court of Appeals for the

Second Circuit, held at the United States Courthouse in the City of

New York, on the twenty-seventh day of June one thousand nine

hundred and eighty-five.

Present:

HON. ELLSWORTH A. VANGRAAFEILAND

HON. THOMAS J. MESKILL

HON. RALPH K. WINTER

Circuit Judges,

In Re Cosmopolitan Aviation Corp.,

Debtor,

COSMOPOLITAN AVIATION CORP.,

Debtor-Appellant,

FLUSHING SAVINGS BANK,

Intervenor, Appellee Cross-Appellant,

Vv.

NEW YORK STATE DEPARTMENT

OF TRANSPORTATION,

Appellee, Appellant Cross-Appellee.

E-2

No. 84-5121, 85-5005, 85-5007

A petition for rehearing having been filed herein by Attorney,

Jessel Rothman, on his own behalf.

Upon consideration thereof, it is Ordered that said petition be

and it hereby is DENIED.

Elaine B. Goldsmith

Clerk

F-1

APPENDIX “F”

CONCLUSION

31. As is evidenced above, the State has endeavored to set fortha

fair and just position with respect to the Court's award of attorney’s

fees and expenses. The State requests a judgment against Cosmo-

politan and its attorneys, jointly and severally, and Flushing and its

attorneys, jointly and severally, in the amount of $361,260.55 for

attorneys’ fees and expenses.***

BARRIE L. GOLDSTEIN

Sworn to before me this

24th day of July, 1985

Frederick Mehinar

Assistant Attorney General

of the State of New York

G-1l

APPENDIX “G”

Fees, Double Costs for ‘Frivolous’ Appeal

Circuit Court Levies Sanctions

Against Bank, Corporation

by Alan Kohn

Using harsh language to describe conduct of two appellants and

their lawyers, the U.S. Court of Appeals for the Second Circuit has

dismissed their appeal with a statement that it considered the merits

only to explain its award of counsel fees and double costs against

them.

Language used by the Court to describe the conduct of the

appellants and their lawyers were “frivolous and vexatious,”

“combined machinations,” “truly remarkable bad faith,” “tanta-

mount to a direct affront,” “mischaracterizations and omissions,”

“fabrication and fantasy,” “unnecessarily wasting our time” and

“willful abuse of process.”

Further Sanctions

In returning the appeal to Judge Jacob Mishler in the District

Court for the Eastern District of New York to determine counsel

fees on the appeal, the Second Circuit stated he was not precluded

from awarding counsel fees against Flushing Savings Bank and

Cosmopolitan Aviation Corporation for “all of the multitudinous

and vexatious proceedings” in which they were involved in the

Federal system.

wae

Judge Meskill emphasized that the “sole reason” for discussing

the merits was to “make clear the underpinning of our decision to

award sanctions...”

G-2

In an affidavit filed with the Second Circuit Court, the State

claimed it had expended $49,046 in legal time in combating the

appeal. Its lawyers were Barrie L. Goldstein and Richard G.

Liskov, Assistant Attorney Generals. Flushing Savings Bank’s

lawyers were Julian Kaplan, Jessel Rothman and Lisa J. Rinaldi, of

Mr. Rothman’s office in Mineola, L.I. Cosmopolitan was repre-

sented by Bruce O. Karp and Abraham Backenroth, of Harvis &

Zeichner.

L

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