McLaughlin v. McPhail
| Decision Date | 16 June 1983 |
| Docket Number | Nos. 81-1906,81-1967,s. 81-1906 |
| Parties | Francis X. McLAUGHLIN, Appellant, v. Donald McPHAIL, as Trustee for the Estate of Winthrop Lawrence Corp., and Lammot duPont Copeland, Sr., Appellees, In the Matter of WINTHROP LAWRENCE CORP., Bankrupt. Francis X. McLAUGHLIN, as Trustee, Appellant, v. WINTHROP LAWRENCE CORP.; and Mrs. Lammot duPont Copeland, Sr.; and Blaine T. Phillips, Appellees. |
| Court | U.S. Court of Appeals — Fourth Circuit |
Francis X. McLaughlin, Kensington, Md., for appellant.
Jeffrey L. Tanenbaum, New York City (Weil, Gotshal & Manges, New York City, on brief); Richard J. Magid, Baltimore, Md. (Whiteford, Taylor, Preston, Trimble & Johnston, Earl F. Leitess, J. Clinton Kelly, Weinberg & Green, Baltimore, Md., on brief), for appellees.
Before WIDENER and PHILLIPS, Circuit Judges, and HAYNSWORTH, Senior Circuit Judge.
In these consolidated cases, Francis X. McLaughlin appeals from several orders of the United States District Court for the District of Maryland. In No. 81-1906, the district court affirmed four rulings of the bankruptcy court denying various motions filed by McLaughlin in that court. In No 81-1967, the district court granted the motion of two of the appellees for a protective order, refused to vacate its ruling, and subsequently dismissed McLaughlin's complaint for lack of in personam jurisdiction. Finding no error in the proceedings below, we affirm in both cases.
Each of the contested matters in this appeal arises from the 1970 business failure of Winthrop Lawrence Corporation (WLC). At all relevant times, the principal actors in WLC's affairs were Lammot duPont Copeland, Sr. (Copeland Senior), a substantial creditor of WLC and holder of its stock only as collateral for his loans to the corporation; Lammot duPont Copeland, Jr. (Copeland Junior), the principal moving force, and Chairman of the Board, of WLC; and Donald McPhail, originally the Receiver for, and later the Trustee of, the WLC estate.
On November 10, 1970, WLC filed a petition for a Chapter XI arrangement with the United States Bankruptcy Court in Baltimore, Maryland. Receiver McPhail sought, on April 13, 1973, the bankruptcy court's approval of a comprehensive settlement agreement (First Agreement) fixing various rights and liabilities among WLC, Copeland Senior, Union Bank of Switzerland and Super Stores, Inc. This agreement, inter alia, permitted Copeland Senior to exercise his rights as pledgee over certain stock in Super Stores, Inc. and Transogram, Inc. that previously was held by him as collateral for his loans to WLC, in exchange for a waiver by Copeland Senior of his claims, then totalling approximately $4 million, against WLC. The bankruptcy court, after notice to affected creditors and a hearing, approved the First Agreement on May 3, 1973; at no time did Copeland Senior file a proof of claim against the WLC estate.
In March of 1976, McPhail once again applied to the bankruptcy court for approval of a settlement agreement (Second Agreement) affecting the WLC estate. The Second Agreement was between WLC and Copeland Junior, who had since filed his own Chapter XI petition. WLC filed a proof of claim against Copeland Junior in the latter's bankruptcy proceedings; Copeland Junior responded by filing a civil counterclaim against WLC, alleging mismanagement of the corporation against WLC and several of its officers. The Second Agreement provided, as relevant here, that WLC would withdraw its proof of claim against Copeland Junior in exchange for a general release of Copeland Junior's non-bankruptcy claim against WLC. After the required notice to WLC's creditors and a hearing, the bankruptcy court approved the Second Agreement.
WLC was formally adjudged a bankrupt on March 25, 1976. Contemporaneously, McLaughlin, an attorney who had previously purchased the rights of a WLC creditor for nominal consideration, began, as assignee-creditor, the series of court-related activities that has culminated in this appeal. McLaughlin's principal claim, which has remained unaltered throughout the proceedings, was that Copeland Senior and Junior, along with others, committed fiduciary fraud in connection with the affairs of WLC and embezzled millions of dollars from the corporation; specifically, McLaughlin has contended throughout that the Copelands intentionally manipulated Copeland Junior's debts so that they were reflected in WLC's accounts as corporate liabilities, thus "causing" WLC's bankruptcy.
In addition to initiating several actions not at issue here, McLaughlin sought to investigate Copeland Senior's role in the alleged corporate fraud. To this end, McLaughlin threatened Trustee McPhail with litigation unless McPhail filed with the bankruptcy court, which had retained jurisdiction over WLC's affairs, an application for examination of Copeland Senior pursuant to Fed.R.Bankr.P. 205. 1 McPhail acceded to McLaughlin's request and filed the application on January 24, 1980. At the hearing before the bankruptcy court on the application, McPhail retreated from his nominal position and represented to the court that "the information which we provided to the court in the application that Mr. McLaughlin provided to us" did not warrant examination or investigation of Copeland Senior. McLaughlin, who was the sole moving force in this Rule 205 application, had filed written materials in support of it and participated actively at the hearing. The bankruptcy judge, aware of McLaughlin's numerous prior actions in the WLC matter, admonished McLaughlin at this hearing that his relentless pursuit of the Copelands bordered on abuse of process.
Nevertheless, McLaughlin later filed an identical Rule 205 application to examine Copeland Senior, which was supplemented by a discursive 176-page "Factual Submission" prepared by McLaughlin. McLaughlin also filed, pursuant to Rule 727(b), a motion to perpetuate the testimony of Copeland Senior pending appeal of the bankruptcy court's action on McPhail's Rule 205 application. McLaughlin's final two motions to the bankruptcy court were filed purportedly under Rule 307, and requested the court to reconsider its 1973 and 1976 orders approving, respectively, the First and Second Agreements.
In late 1980, the bankruptcy court denied each of McLaughlin's motions and, apparently considering his repeated filings now demonstrably abusive of process, assessed costs and attorneys fees against him. The district court affirmed the bankruptcy court's four substantive rulings, but reversed its award of attorneys' fees to the successful parties, finding that the bankruptcy court lacked authority to impose such fees. 2 The district court, however, agreed with the bankruptcy court's characterization of McLaughlin's conduct as "in bad faith, vexatious[ ] and ... oppressive"; accordingly, the district court exercised its authority to award costs and fees to the prevailing parties to compensate them for their efforts at the district court stage of the proceedings.
In a related suit initiated by McLaughlin in 1979 in the Circuit Court of Montgomery County, Maryland, McLaughlin alleged that WLC, Mrs. Lammot duPont Copeland, Sr. (Mrs. Copeland Senior), and Blaine T. Phillips, the Copelands' personal lawyer, had engaged in a fraudulent conspiracy affecting the rights of WLC's creditors. Mrs. Copeland Senior and Phillips, both citizens of Delaware, removed the case to federal court; McLaughlin moved, inter alia, to compel discovery and Phillips and Mrs. Copeland Senior filed a motion for a protective order prohibiting the taking of their depositions.
At issue in both motions was whether the court would permit McLaughlin to depose the defendants solely to explore the jurisdictional issue. Finding that McLaughlin had made an insufficient showing that the defendants fell within the reach of Maryland's long-arm statute, Md.Cts. & Jud.Proc.Code Ann. Sec. 6-103 (1980), and that McLaughlin's documentation also failed to meet the threshold test under the "conspiracy theory" of jurisdiction, the court denied McLaughlin's motion to compel and granted the defendant's motion for a protective order. In a subsequent ruling, the district court refused to vacate its protective order, and on August 20, 1981, dismissed McLaughlin's complaint against Mrs. Copeland Senior and Phillips for lack of in personam jurisdiction. 3
McLaughlin subsequently sought review of the final district court judgments, which were consolidated on appeal. We first address the district court's decision affirming four rulings of the bankruptcy court and, second, the district court's dismissal of McLaughlin's suit against Mrs. Copeland Senior and Mr. Phillips.
Relying on the venerable authority of Pepper v. Litton, 308 U.S. 295, 60 S.Ct. 238, 84 L.Ed. 281 (1939), McLaughlin first contends that the district court erred by refusing to remand this claim to the bankruptcy court with instructions to that court to "sift the circumstances" of the alleged fraud by granting McLaughlin's Rule 205 4 application to examine Copeland Senior or, in the alternative, hold a hearing on that motion. We perceive no error in the district court's decision.
First, as its language suggests, Rule 205 commits to the sound discretion of the bankruptcy court the decision whether to require examination of a party. See 12 Collier on Bankruptcy p 205.05 & n. 9 (14th ed. 1976). In this case, McLaughlin's application to examine Copeland Senior was based on Copeland Senior's role in the alleged fraud of WLC. In support of this claim, McLaughlin has proffered at numerous stages of this litigation his 176-page "Factual Submission as to Fraud by Lammot Copeland, Sr., et al., in the $48 Million Bankruptcy of the Winthrop Lawrence Corp." Significant portions of this document, prepared by McLaughlin, do not meet the standards for...
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