In re Rimsat, Ltd., Bankruptcy No. 95-10120.

Citation229 BR 914
Decision Date02 October 1998
Docket NumberBankruptcy No. 95-10120.
PartiesIn the Matter of RIMSAT, LTD., Debtor.
CourtUnited States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Indiana

Richard Wyron and Warren Fitch, Washington, D.C., for Tongasat.

John Sieger, Chicago, IL, for Kauthar.


ROBERT E. GRANT, Bankruptcy Judge.

For more than a year, Kauthar Sdn. Bhd. and its counsel1 engaged in a course of conduct designed to make litigation as difficult, unpleasant, time-consuming and expensive as possible, for everyone involved. One result of that strategy is a motion for sanctions, filed on behalf of the Friendly Islands Satellite Communications Company (Tongasat), as a result of a deposition taken on August 11, 1997. It is the issues raised by that motion and Kauthar's response thereto that are presently before the court for a decision.

In connection with its objection to the Chapter 7 trustee's motion to compromise Tongasat matters2 Kauthar served notices for the depositions of representatives of Tongasat, including the Princess of Tonga ("the Princess") and Edward Lau, Tongasat's general counsel. Tongasat filed a motion for protective order, to which Kauthar objected. The motion was granted. The court concluded that, given her asserted lack of personal knowledge concerning the issues raised by the proposed compromised, the deposition of the Princess could be dispensed with and Kauthar was limited to deposing Mr. Lau.3 In doing so, however, the court indicated that if he was not able to answer Kauthar's questions the issue might have to be revisited.

Mr. Lau's deposition was held in Fort Wayne on August 11, 1997. Mr. Lau came from San Francisco and Tongasat's bankruptcy counsel, Warren Fitch, came from Washington D.C. for the occasion. Kauthar sent two of its attorneys, William Howard and Daniel Voelker, who came from Chicago. Also present were Mark Warsco, counsel for the Chapter 7 trustee and John Burns, counsel for Rimsat's Class C shareholders.

The deposition lasted less than an hour until it was terminated by Kauthar. During that time, Mr. Lau was subjected to abusive examination and improper questioning, which served no other purpose than to harass. The transcript is replete with examples of inappropriate questioning, incivility and the uncalled for abuse of a deponent by Mr. Voelker. Not once did he make even a halfhearted effort to ask Mr. Lau questions relating to the substance of the claims being compromised, Tongasat's relationship and/or negotiations with the Russians, or Tongasat's negotiations or communications with the Chapter 7 trustee regarding the proposed compromise. Although Mr. Lau indicated his willingness to answer appropriate questions and even suggested possible topics, (see Lau Dep. at pp. 65-66), Mr. Voelker chose not to do so. Instead, he persisted in asking questions that related to things other than the compromise and that could only have been designed with the specific purpose of drawing an objection.

Within hours after terminating Mr. Lau's deposition, Kauthar filed a Motion to Compel Deposition of the Princess and a Motion to Set Emergency Hearing. By them, Kauthar asked the court to reconsider its ruling concerning the Princess' deposition. The certificate of service for these motions indicates that they were prepared and served on August 8, 1997, prior to Mr. Lau's deposition. The motion was supplemented on August 14, 1997, in which Kauthar asked the court to compel the Princess' deposition prior to going to trial on its objections to the Trustee's proposed compromise with Tongasat. Of course, since the trial was scheduled to begin on that date, this could not possibly be done without delaying those proceedings.

Mr. Voelker's conduct during the deposition prompted Tongasat to file the motion for sanctions presently before the court. The motion is based upon Bankruptcy Rules 9011, 7026(a) and 7030(g), as well as the court's authority under § 105(a) of the United States Bankruptcy Code. Although sanctions are fully justified, the procedural rules upon which Tongasat relies upon do not provide a completely satisfactory vehicle for adequately responding to counsels' conduct. Each of them has some shortcoming which makes them less than completely effective. Accordingly, the court finds it necessary to supplement those rules with the power conferred by § 105(a).

Rule 30(g) of the Federal Rules of Civil Procedure is made applicable to proceedings before the bankruptcy court by Rule 7030 of the Federal Rules of Bankruptcy Procedure. It authorizes the court to require the party giving notice of a deposition to pay the reasonable expenses, including attorney fees, that another party incurs by attending, where the noticing party fails to attend and proceed with the deposition. The rule, thus, provides a vehicle for recovering expenses that have needlessly been imposed upon a litigant because a party does not proceed with a deposition it arranged. Tongasat suggests that the court should look to this purpose and, by analogy, apply the rule to Mr. Lau's deposition because Kauthar did not go (and had no intention of going) forward with it, at least in the sense of actually accomplishing anything.

Although appealing, the court declines Tongasat's suggestion. Kauthar seems to have met its obligations under Rule 30(g); it appeared for and proceeded with Mr. Lau's deposition. The problem lies in the way in which it proceeded. Rather than asking questions designed to elicit information concerning the merits of the proposed compromise, it pursued a totally different line of inquiry; one that would obviously draw objections, instructions not to answer and other unproductive responses. Admittedly, the deposition accomplished nothing in a substantive sense. Nonetheless, the court is reluctant to read such a requirement into Rule 30(g). But see Fino v. McCollum Mining Co., 93 F.R.D. 455 (N.D.Tex.1982) (Defendant entitled to an award of costs under Rule 30(g) where depositions produced no evidence pertinent to plaintiff's case because most of the witnesses plaintiff indicated would voluntarily appear and testify did not and most of the testimony actually taken was testimony and argument of the lawyers). That would do little more than create additional possibilities for satellite litigation, over whether a particular deposition accomplished anything of substance and, if not, the reasons why. The situations where, as here, an attorney would consciously misuse its opportunity for a deposition are sufficiently rare and, when they do arise, other means are available for responding to them, so that it is unnecessary to read into Rule 30(g) the requirement that an attorney noticing a deposition accomplish something of substance with it. So long as counsel appears for and proceeds with a deposition it has noticed, it has fulfilled its obligations under the rule.

Improper discovery requests, responses and objections are governed by Rule 26(g) of the Federal Rules of Civil Procedure, which is made applicable to bankruptcy proceedings by Bankruptcy Rule 7026.4 This rule parallels Rule 11 and requires that all discovery requests, responses and objections must be signed, certifying, inter alia, that the request is:

(A) consistent with these rules and warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law;
(B) not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation; and
(C) not unreasonably or unduly burdensome or expensive, given the needs of the case, the discovery already had in the case, the amount in controversy, and the importance of the issues at stake in the litigation.
* * * *
(3) If without substantial justification a certification is made in violation of the rule, the court, upon motion or upon its own initiative, shall impose on the person who made the certification, the party upon whose behalf the request . . . is made, or both, an appropriate sanction, which may include an order to pay the amount of the reasonable expenses incurred because of the violation, including a reasonable attorney\'s fee.

Fed.R.Civ.P. 26(g); Bankr.Rule 7026.

The standard for imposing sanctions pursuant to Rule 26(g) is much the same as the standard for imposing sanctions under Rule 11 (and Rule 9011). See Insurance Benefit Administrators, Inc. v. Martin, 871 F.2d 1354, 1360 (7th Cir.1989); In re Byrd, 927 F.2d 1135 (10th Cir.1991); Apex Oil Co. v. Belcher Co. of New York, 855 F.2d 1009, 1017 (2d Cir.1988). In determining whether a discovery request was interposed for an improper purpose, the court must inquire into the signer's motivation or reasons for making the request. The question calls for "an objective determination of whether a . . . party's conduct was reasonable under the circumstances." Brown v. Federation of State Medical Boards, 830 F.2d 1429, 1435 (7th Cir., 1987). See also Pacific Dunlop Holdings v. Barosh, 22 F.3d 113, 118 (7th Cir.1994); Beeman v. Fiester, 852 F.2d 206, 209 (7th Cir.1988); Ballato v. Ballato, 190 B.R. 447, 448 (M.D.Fla.1995).

Tongasat contends that Kauthar's attorneys used the deposition for improper purposes, to unnecessarily increase costs and to inconvenience the other parties involved, and that Kauthar intentionally sabotaged the deposition in hopes of delaying the August 14th trial. According to Kauthar, however, Mr. Lau was an uncooperative and improper deponent, who refused to answer questions based upon a lack of personal knowledge and the attorney-client privilege. Accordingly, Kauthar claims that, after receiving a series of "I don't knows" and "I can't answers", it decided to terminate the deposition early, so as not to waste any more of the parties' time and money.

Kauthar's version of the events is simply not supported by the transcript of Mr. Lau's deposition. Any inability to get information from Mr. Lau...

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