Kramer v. Mahia (In re Khan)

• Decision Date: 11 March 2013
• Docket Number: Adversary No. 11–01520–ess.,Bankruptcy No. 10–46901–ess.
• Citation: 488 B.R. 515
• Parties: In re Shahara KHAN, Debtor. Debra Kramer, as Trustee of the Estate of Shahara Khan, Plaintiff, v. Tozammel H. Mahia, Defendant. Tozammel H. Mahia, Counterclaim Plaintiff, v. Debra Kramer, as Trustee of the Estate of Shahara Khan, Counterclaim Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of New York

488 B.R. 515

In re Shahara KHAN, Debtor.

Debra Kramer, as Trustee of the Estate of Shahara Khan, Plaintiff,

v.Tozammel H. Mahia, Defendant.

Tozammel H. Mahia, Counterclaim Plaintiff,

v.Debra Kramer, as Trustee of the Estate of Shahara Khan, Counterclaim Defendant.

Bankruptcy No. 10–46901–ess.

Adversary No. 11–01520–ess.

United States Bankruptcy Court,

E.D. New York.

March 11, 2013.

Avrum J. Rosen, Esq., The Law Offices of Avrum J. Rosen, PLLC, Huntington, NY, Attorney for Debra Kramer as Chapter 7 Trustee.

Debra Kramer, Esq., as Chapter 7 Trustee, Debra Kramer, PLLC, Great Neck, NY.

Karamvir Dahiya, Esq., Dahiya Law Group, LLC, New York, NY, Pro Se.

MEMORANDUM DECISION ON TRUSTEE'S MOTION FOR SANCTIONS

ELIZABETH S. STONG, Bankruptcy Judge.

Introduction

Before the Court is the motion of the Chapter 7 Trustee Debra Kramer, for sanctions against Karamvir Dahiya, Esq. and Dahiya Law Offices, LLC (together, “Dahiya”), in an adversary proceeding brought in connection with the bankruptcy case of Shahara Khan. The Trustee brought the adversary proceeding against Tozammel H. Mahia, the Debtor's son, to recover an allegedly fraudulent transfer arising from the sale of real property that was owned jointly by the Debtor, the Defendant, and Shawsum N. Rimi. The Trustee brings this Motion for Sanctions in response to counterclaims asserted against her by the Defendant, by counsel, in his answer to the complaint.

The prospect of imposing sanctions against a professional is never pleasant for the parties or the court. Some of the most important precepts of the legal profession are in the background, and occasionally the foreground, of a request for this relief. As Chief Judge Irving Kaufman noted some thirty years ago, “advocacy is an art in which the unrelenting pursuit of truth and the most thorough self-control must be delicately balanced,” and “zealous advocacy in behalf of a client can never excuse contumacious or disrespectful conduct.” Van Iderstine Co. v. RGJ Contracting Co., 480 F.2d 454, 459 (2d Cir.1973).

At the same time, those same precepts sometimes call upon attorneys to take on difficult cases, to advocate unpopular positions, or to challenge existing legal authorities through impact litigation. As one scholar has observed, “as challengers to perceived injustice, as catalysts of social change, lawyers may have a special role advantage.... [T]his is one of the lawyer's roles in a modern democratic society, be it a well-established one or an emerging one.” James E. Moliterno, The Lawyer as Catalyst of Social Change, 77 Fordham L.Rev. 1559, 1559 (2009). But a lawyer may be limited in the amount of social change that he or she can effect in the context of representing a client, because “[a] lawyer's role is to advance the lawful interests of her client, without regard for ... whether those interests are at odds with more general notions of the public's interest.” Moliterno, Catalyst, supra, at 1564.

Here, the Trustee's motion calls for this Court first to address whether the bankruptcy court has the authority to issue sanctions under 28 U.S.C. § 1927. If so, then this Court next must consider whether the Trustee has established that Mr. Dahiya and his law firm acted in bad faith to multiply these proceedings unreasonably and vexatiously. And finally, if an award of sanctions is warranted, the Court must determine what amount is appropriate, guided by considerations of compensation, deterrence, and ability to pay.

Based on the entire record and for the reasons stated below, this Court concludes that it may impose sanctions under Section 1927, and under its inherent authority. The Court also concludes that the Trustee has shown that sanctions are justified, and that an award of sanctions against Mr. Dahiya and his law firm in the amount of $15,000 is warranted.

Jurisdiction

The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 1334 and 157(a). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (E), (H), and (O).

Procedural History

The Debtor's Bankruptcy Case and the Commencement of this Adversary Proceeding

The Debtor filed this Chapter 7 bankruptcy case on July 22, 2010, and received a discharge five months later, on December 23, 2010. On that same day, the Trustee filed a notice of discovery of assets. About sixteen months into the administration of the Debtor's estate, the Trustee sought the Court's approval to retain counsel to assist in the investigation of the Debtor's financial affairs and assets, and on December 8, 2011, the Court approved the Trustee's retention of the Law Offices of Avrum J. Rosen, PLLC, as her counsel.

The Trustee retained counsel particularly to investigate the Debtor's interest in a home located at 87–27 110th Street in Richmond Hill, New York (the “Property”), which was sold on April 5, 2007. The deed for that transfer showed that the Debtor was a titled owner of the Property, but disbursement checks from closing did not indicate that the Debtor received any proceeds from the sale.

On December 3, 2011, the Trustee commenced this adversary proceeding against Tozammel H. Mahia, the Debtor's son, for claims related to the sale of the Property, specifically, turnover of property of the estate and recovery of fraudulent conveyances under Bankruptcy Code Sections 542, 544, 550, and 551, New York's Debtor and Creditor Law, and common law principles of fraud and unjust enrichment.

At first, the Defendant was not represented by counsel, and did not respond to the Complaint. But at the initial pre-trial conference on January 24, 2012, Mr. Dahiya and his law firm appeared for the Defendant. The Court directed Mr. Dahiya to file a notice of appearance and to respond to the Complaint by January 31, 2012.

The Answer and Counterclaims Against the Trustee

One week after the deadline to respond to the Complaint, on February 7, 2012, Dahiya filed an Answer and Counterclaims against the Trustee, and demanded a jury trial. The Counterclaims seek, among other relief, a permanent injunction against the Trustee to bar her from bringing actions against similarly situated defendants without first showing that there is “probable cause” for the allegations and claims. Answer p. 6. The Counterclaims also seek the amendment of this Court's Local Rules to impose a similar requirement on all trustees.

In particular, in the first counterclaim, for abuse of process, Dahiya alleges that the Trustee brings this adversary proceeding without a basis in fact or law. Dahiya claims that the Trustee did not “make inquiries into the finances of the debtor” or look for “the realities of [the] transaction and [the] family as a unit.” Answer ¶ 23. Dahiya accuses the Trustee of bringing this action in order to “intimidate the family to extract a settlement from the helpless family[,]” and claims that the Trustee simply “wants money.” Id. Dahiya asserts that if the Trustee had performed adequate “due diligence,” she would have discovered that there was no basis for the Complaint. Id. Dahiya characterizes the conduct of the Trustee and her counsel as “contemptible from all aspects” and claims that they “acted deliberately, maliciously, oppressively and with callous and intentional disregard of their duties....” Answer ¶¶ 23, 27. Dahiya seeks an award of punitive damages, attorneys' fees, and costs.

In the second counterclaim, for “constitutional torts,” Dahiya charges that the Trustee has “deliberately hurt[ ] the family composition here” by “su [ing] the son defendant on behalf of mother debtor.” Answer ¶ 29. Noting that the “defendant-son is under religious duty to support his mother,” Dahiya claims that the Defendant's “spiritual duty to maintain his family has been negatively impacted” by this adversary proceeding. Id. Dahiya again claims that the Trustee did not “do her homework,” and asserts that if she had, she would not have brought this action. Id. Dahiya also asserts that the Trustee abused her powers, and seeks an award of punitive damages and attorney's fees.

Dahiya also seeks an injunction barring the Trustee from bringing actions against a debtor's family members, unless she demonstrates that there is probable cause for the allegations. Specifically, the Counterclaims seek:

An Order preliminar[il]y and permanently enjoining the plaintiff and their representative and agents, and each of them, from instituting and [sic] proceedings against defendants or similarly situated defendants (intra-family) in this district, unless the Trustee has filed an independent sheet along with the summons and complaint delineating the steps the trustee has undertaken to ascertain the facts alleged in the complaint and a minimum one page summary of arguments as to why there is a probable cause action for allegation in the complaint.

Answer p. 6. Dahiya alleges that there has been a “cry for help” in these family situations, and asserts that this relief would “check the abuse perpetrated by the trustees in this district” that arises when family members are “pitted against each other” and “have no financial capacity to engage legal help.” Id. Finally, Dahiya asks that this Court direct the United States Trustee to investigate the assertion of intra-family claims by Chapter 7 trustees.

The Trustee's Motion for Sanctions

The Trustee responds to the Counterclaims with this motion for sanctions against Mr. Dahiya and Dahiya Law Offices, LLC under Section 1927 and Bankruptcy Code Section 105.¹

In her motion, the Trustee describes the investigation that she conducted before bringing the adversary proceeding. That process included examining the Debtor at the meeting of creditors pursuant to Bankruptcy Code Section 341(a), as well as examining and researching documents including a closing statement for the Property, checks disbursed at the closing, the Property deed, and the Debtor's tax returns. Based on the deed, which lists Shawsum N. Rimi, the Defendant Tozammel H. Mahia, and the Debtor as...