In re Silverman

• Decision Date: 11 August 1981
• Docket Number: Bankruptcy No. 77 B 2988.
• Citation: 13 BR 270
• Parties: In re Isaac SILVERMAN, Bankrupt.
• Court: U.S. Bankruptcy Court — Southern District of New York

13 B.R. 270 (1981)

In re Isaac SILVERMAN, Bankrupt.

Bankruptcy No. 77 B 2988.

United States Bankruptcy Court, S.D. New York.

August 11, 1981.

Leinwand, Maron, Hendler & Krause, New York City, for bankrupt.

Weil, Gotshal & Manges, New York City, for Leucadia, Inc.; Martin J. Bienenstock, New York City, of counsel.

HOWARD SCHWARTZBERG, Bankruptcy Judge.

Leucadia, Inc. (formerly known as James Talcott, Inc.), a partially secured creditor, seeks an order directing the bankrupt, Isaac Silverman, and his attorneys, the firm of Leinwand, Maron, Hendler & Krause, to pay costs and expenses, including attorneys' fees, incurred in defending against Silverman's motion to dismiss Leucadia's complaint objecting to Silverman's discharge. Silverman's motion to dismiss the complaint was denied by this court on October 15, 1979; In re Silverman, 5 B.C.D. 943, 1 B.R. 107 (Bkrtcy.S.D.N.Y.1979). This decision was affirmed by the District Court in an unreported opinion dated February 14, 1980. Silverman's discharge was ultimately denied by this court in an order for summary judgment, dated April 24, 1981, on grounds that he failed to keep financial records as to his personal affairs, as proscribed under Bankruptcy Act § 14(c)(2), 11 U.S.C. § 32(c)(2), and that he failed to obey court orders as treated under Bankruptcy Act § 14(c)(6), 11 U.S.C. 32(c)(6). In re Silverman, 10 B.R. 727 (Bkrtcy.S.D.N.Y. 1981).

Leucadia contends that Silverman's application to dismiss Leucadia's complaint objecting to his discharge was brought in bad faith and contained baseless charges, including an allegation that "the actions and conduct of Bienenstock, an associate in the law firm of Weil, Gotshal & Manges, Cumming and Mara officers of Leucadia amount to subornation of perjury, ...". The application was signed by Elliot L. Krause, Esq., a member of the firm of Leinwand, Maron, Hendler & Krause, counsel for Silverman, the above-captioned bankrupt. The hearing with respect to Silverman's application to dismiss Leucadia's complaint was held on August 29, 1979, at which time Silverman and Mr. Krause testified in support of the motion. Messrs. Mara, Cumming and Bienenstock testified in rebuttal. Mr. Ray Fitzgerald, an attorney for Leucadia testified at an additional hearing on October 11, 1979.

The bankrupt's motion addressed to Leucadia's complaint to deny his discharge charged that Talcott (now Leucadia) exerted improper pressure on the bankrupt in an attempt to coerce him to give false testimony in exchange for withdrawal of the objections to his discharge. Leucadia now claims costs and attorneys' fees from the bankrupt and his counsel, Leinwand, Maron, Hendler & Krause, on the ground that Leucadia was required to rebut this charge, which it did successfully when this court dismissed the bankrupt's motion on October 15, 1979, and was further required to incur additional legal fees and costs when the bankrupt unsuccessfully appealed this court's decision.

In affirming this court's dismissal of the bankrupt's motion, Judge Brieant stated:

"It is sufficient for purposes of this appeal that the Bankruptcy Judge has found that there were no oppressive or improper suggestions made to Silverman, and therefore there is no factual predicate for the claim ...". (Opinion dated February 14, 1980, p. 4)

Additionally, Judge Brieant noted:

"The conversations which Talcott and its representatives had with the bankrupt about giving testimony in the fidelity bond case are said to have arisen as part of settlement discussions. Indeed, some of the discussions were conducted between attorneys. Such testimony of discussions between attorneys seeking to settle a controversy, unless in themselves they involve the actual commission of a crime, which these discussions do not, would be inadmissible under Rule 408, F.R.Evid. The public policy behind that Rule is to encourage settlement discussions. If settlement discussions are later to be brought in question in the context of litigation, the free exchange of ideas between lawyers necessary to adjust and compromise disputes would be severely chilled. In this connection it is to be noted that the contemporaneous memoranda of the attorneys show clearly that there was no overreaching or wrongdoing of any kind. Indeed, Talcott was apparently looking principally for documents, and a witness to authenticate the documents, since it regarded the credibility of the bankrupt as having little value." Emphasis added.

The crucial issue to be decided here is whether or not Leucadia should be awarded attorneys' fees against Leinwand, Maron, Hendler & Krause for having to defend against the charges in the bankrupt's motion to dismiss Leucadia's complaint to deny his discharge. Leucadia looks mainly to the bankrupt's counsel because the likelihood of collecting these charges from the bankrupt, even if allowed, is questionable.

COSTS

A losing party, and not counsel for the losing party, may be required to pay to the prevailing party in a federal court, within the court's discretion, ordinary costs as delineated in 28 U.S.C. § 1920, such as fees for the clerk and marshal, stenographic charges, printing and witness fees, costs for obtaining exemplification of copies, docket fees and compensation of court-appointed experts and interpreters. The so-called "American Rule" ordinarily excludes attorneys' fees from the statutory costs that a winning party may recover. Roadway Express, Inc. v. Piper, 447 U.S. 752, 100 S.Ct. 2455, 65 L.Ed.2d 488 (1980); Fleischmann Corp. v. Maier Brewing, 386 U.S. 714, 87 S.Ct. 1404, 18 L.Ed.2d 475 (1967). However, there is statutory authority for imposing personal liability on an attorney for excessive costs incurred by a party because the attorney multiplied the proceedings in the case "unreasonably and vexatiously." 28 U.S.C. § 1927. Leucadia urges that 28 U.S.C. § 1927 is also precedent for including attorneys' fees as an element of costs recoverable from the bankrupt and from his counsel, Leinwand, Maron, Hendler & Krause for defending against the motion which this court found to be factually and legally unsupportable.

COUNSEL'S STATUTORY PERSONAL LIABILITY FOR ATTORNEYS' FEES

Prior to its amendment on September 12, 1980, 28 U.S.C. § 1927 read as follows:

"1927. Counsel\'s liability for excessive costs

Any attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in any case as to increase costs unreasonably and vexatiously may be required by the court to satisfy personally such excess costs."

Thus, the statute was silent as to whether or not "costs" included attorneys' fees as recoverable from lawyers who multiply court proceedings vexatiously.

On September 12, 1980, 28 U.S.C. § 1927 was amended by Public Law 96-349, § 3, 94 Stat. 1156, and now reads as follows:

"§ 1927. Counsel\'s liability for excessive costs:

Any attorney or other person admitted to conduct cases in any Court of the United States or any Territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the Court to satisfy personally the excess costs, expenses and attorneys\' fees reasonably incurred because of such conduct. Emphasis Added"

Although Weil, Gotshal & Manges, counsel for Leucadia, cite the amended statute as authority for assessing attorneys' fees against the bankrupt and his counsel, Leinwand, Maron, Hendler & Krause, they disingenuously failed to note that the bankrupt's motion to dismiss this court's denial of that motion and the District Court's affirmance of the denial all occurred prior to the amendment of 28 U.S.C. § 1927 on September 12, 1980. Hence, counsel for Leucadia would have the court believe that the amendment of 28 U.S.C. § 1927 was of no consequence and that attorneys' fees were recoverable as excessive costs under this statute before it was amended. Indeed, to support this argument they cite four cases in the Second Circuit which held that 28 U.S.C. § 1927, as it read before the amendment on September 12, 1980, supported an allowance of attorneys' fees against counsel for a party who had been vexatious in increasing costs through improper motions, actions or delays. Browning Debenture Holders' Committee v. DASA Corp., 560 F.2d 1078 (2d Cir. 1977); Nemeroff v. Abelson, 469 F.Supp. 630 (S.D.N.Y.1979); North American Foreign Trading Corp. v. Zale, 83 F.R.D. 293 (S.D.N.Y. 1979); Fisher v. Fashion Institute of Technology, 491 F.Supp. 879 (S.D.N.Y.1980). In the Fisher case, supra, the court disagreed with the Fifth and Sixth Circuits which held that counsel fees under 28 U.S.C. § 1927, before its amendment, may not be considered as included under "costs", referring to Monk v. Roadway Express, Inc., 599 F.2d 1378 (5 Cir. 1979) and United States v. Ross, 535 F.2d 346 (6 Cir. 1976).

However, counsel for Leucadia did not mention in their brief that the cases were divided on this subject and that the Fifth Circuit in the Roadway Express case, supra, expressly rejected the construction of 28 U.S.C. § 1927 as viewed by the courts in the Browning, Nemeroff and Zale cases. Indeed, Weil, Gotshal & Manges failed to inform this court that the Roadway Express case in the Fifth Circuit was affirmed by the United States Supreme Court sub. nom. Roadway Express Inc. v. Piper, 447 U.S. 752, 100 S.Ct. 2455, 65 L.Ed.2d 488 (1980), and that there now exists a United States Supreme Court interpretation that rejects counsel's argument and holds that 28 U.S.C. § 1927, as it read prior to its amendment on September 12, 1980, cannot support the imposition of attorneys' fees against lawyers who unreasonably extend court proceedings.

Moreover, Weil, Gotshal & Manges also failed to state in their brief that Nemeroff v. Abelson, 469 F.Supp. 630 (S.D.N.Y.1979), upon which they heavily rely, was reversed in part on appeal when the Second Circuit, in a per curiam opinion stated:

"We hold, based on

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