Rosenberg v. DVI Receivables, XIV, LLC (In re Rosenberg)
| Decision Date | 11 September 2012 |
| Docket Number | CASE NO: 09-13196-BKC-AJC,ADV. NO. 10-3812-BKC-AJC-A |
| Parties | In re: MAURY ROSENBERG, Alleged Debtor. MAURY ROSENBERG, Plaintiff, v. DVI RECEIVABLES, XIV, LLC, et al., Defendants. |
| Court | U.S. Bankruptcy Court — Southern District of Florida |
ORDERED in the Southern District of Florida on September 11, 2012.
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Involuntary Chapter 7 Case
11 U.S.C. § 303(i)(1)
THIS MATTER came before the Court for trial on August 28, 2012. Upon consideration of the evidence and the argument of counsel, the Court enters the following opinion and order.
The factual background of this matter is recited in the Court's August 21, 2009 Order Dismissing Involuntary Bankruptcy Petition [D.E. #96]1 (the "Dismissal Order"). In the Dismissal Order, the Court reserved jurisdiction to consider awarding reasonable attorneys' fees and costs, as well as actual and punitive damages, to the Alleged Debtor, Maury Rosenberg, the Plaintiff herein, pursuant to 11 U.S.C. § 303(i)(1) and (2). Prior to the entry of the Dismissal Order, the Court, on consent of the parties, entered a March 26, 2009 Order defining the scope of the issues to be determined at the hearing on Rosenberg's motion to dismiss [D.E. #34]. The Court limited the issues to those bearing on the eligibility of the Petitioning Creditors2 under 11 U.S.C. § 303(b). The Court did not address whether the Involuntary Petition was filed in bad faith.
After reviewing the evidence, and hearing argument of counsel, the Court determined that the Petitioning Creditors were not eligible to file the Involuntary Petition. The Court based its decision on several grounds. The Court's analysis and conclusions are set forth in detail in the Dismissal Order.3
The Petitioning Creditors sought reconsideration of the Dismissal Order and also sought an amendment to remove one sentence that expressed the Court's preliminary view that thePetitioning Creditors may have artificially attempted to create three or more creditors. The Petitioning Creditors noted that the good faith issue was not within the scope of the hearing. See D.E. #103. The Court denied reconsideration but granted the motion to amend to remove the language about which the Petitioning Creditors expressed concern. See D.E. # 129.
After the denial of reconsideration, the Petitioning Creditors pursued an appeal to the United States District Court for the Southern District of Florida. The District Court affirmed this Court's decision with the exception of the Court's ruling that the debts are contingent. However, the District Court's view on this issue did not change the result. Thereafter, the Petitioning Creditors filed a further appeal in the United States Court of Appeals for the Eleventh Circuit. The Eleventh Circuit affirmed the District Court's decision in all respects.
Rosenberg filed a Motion for Sanctions in the main bankruptcy case on October 29, 2009 [D.E. #101]. Rosenberg sought an award of fees, costs and damages against the Petitioning Creditors and Ashland Funding, LLC, which had moved to be substituted for one of the Petitioning Creditors. He also sought an award against the following additional parties he contended were responsible for the Involuntary Petition: Lyon Financial Services, Inc. d/b/a U.S. Bank Portfolio Services ("Lyon"), the successor servicer for the Petitioning Creditors, U.S. Bank, N.A. ("USB"), the ultimate parent entity of Lyon, Jane Fox ("Fox"), the officer of Lyon who signed the Involuntary Petition on behalf of the Petitioning Creditors, Flamm Walton, P.C. ("Flamm"), the law firm that represented Lyon and that filed the Involuntary Petition, Robert Pinel ("Pinel"), the attorney at the Flamm firm who signed the Involuntary Petition, BG Management, Inc. ("BG"), a consulting firm that had been retained by Lyon, and, finally, Robert Brier ("Brier"), one of the principals of the consulting firm.
The Court determined that it did not have jurisdiction over the additional parties because they had not appeared as parties and had not been served with process. See D.E. #126. Rosenberg then filed the current Adversary Complaint [D.E. Adv. #1] and served process on the additional parties.
The Petitioning Creditors, Lyon, USB and Fox filed a Motion to Dismiss Adversary Complaint [D.E. Adv. #18]. Defendants Ashland, Brier and BG filed their own motion to dismiss [D.E. Adv. #17], and Defendants Flamm and Pinel also filed their own motion to dismiss [D.E. Adv. #21]. All of the Defendants, other than the Petitioning Creditors, contended that, pursuant to Section 303(i), only the Petitioning Creditors were subject to potential liability for fees, costs and damages. The Defendants also raised various additional legal issues. The Court, after conducting an extensive hearing, entered separate orders on the motions to dismiss. See D.E. Adv. ## 165, 166 & 168.
For the reasons fully set forth in the Court's orders, the Court dismissed Rosenberg's state law claims (abuse of process and malicious prosecution) against all Defendants based on federal preemption, and the Court dismissed all federal and state law claims against Ashland, Brier, BG, Flamm and Pinel. The Court did not dismiss the claims against the Petitioning Creditors, Lyon, USB and Fox, except the state law claims. See D.E. # Adv. 165.
In deciding not to dismiss the claims against Lyon, USB and Fox, the Court found that Rosenberg had alleged sufficient facts to hold Lyon, USB and Fox liable for fees, costs and damages pursuant to Section 303(i)(1) and (2). The Court did not make final legal rulings on these issues. Thereafter, the Petitioning Creditors and Lyon, USB and Fox filed an Answer and Affirmative Defenses [D.E. Adv. #210] denying many of the allegations of the Amended Complaint and raising several affirmative defenses including setoff. Discovery ensued, and theCourt denied motions for partial summary judgment filed by both sides, finding the existence of issues of fact. On March 12, 2012, Rosenberg filed a Demand for Jury Trial [D.E. Adv. #152]. On May 21, 2012, the Petitioning Creditors, Lyon, USB and Fox filed a Motion to Withdraw Reference [D.E. Adv. #247]. On August 10, 2012, the District Court entered its Corrected Order Granting Defendants' Motion to Withdraw Reference for Jury Trial as to Plaintiff's Section 303(i)(2) Claims Only (the "Withdrawal Order"). In the Withdrawal Order, the District Court set forth its view that only Plaintiff's damages claims are subject to jury trial in an Article III court.
In the Withdrawal Order, the District Court noted that Section 303(i) is divided into two parts. Section 303(i)(1) provides for the availability of attorneys' fees and costs if the court dismissed the involuntary petition other than on the consent of all parties, as occurred here. Section 303(i)(1) grants the court discretion to award fees and costs. It does not require a finding of bad faith. Section 303(i)(2), on the other hand, requires a finding of bad faith for the court to award damages. The District Court concluded that, because of the bad faith requirement, a claim under Section 303(i)(2) is analogous to a common law malicious prosecution claim and, therefore, is triable by jury. The District Court authorized this Court to try Rosenberg's claims for attorneys' fees and costs pursuant to Section 303(i)(1).
After the entry of the Withdrawal Order, this Court set an additional pre-trial conference to decide what issues would be tried by this Court. At the pre-trial conference, held telephonically on August 15, 2012, the Court advised the parties that it would try the following issues: (1) whether to award attorneys' fees and the amount to be awarded, (2) whether to award costs and the amount to be awarded, and (3) who may be held liable for attorneys' fees and costs. The Court advised the parties that it would not be trying the bad faith issue, and would notreceive evidence on this issue, as this issue is reserved for jury trial. Based on this limited scope, the trial proceeded on August 28, 2012.
Upon consideration of the arguments of counsel made at the trial, the applicable law and the evidence submitted by the parties, the Court makes the following findings of fact and conclusions of law.
At the start of the trial, counsel for the Defendants advised the Court that the Defendants would not present evidence based on the "totality of the circumstances" as to why the Court should deny fees and costs. Defendants advised the Court that they object to the allowance of certain categories of fees and to the reasonableness of fees in certain other categories. Defendants also requested that the Court defer ruling on the fees incurred in the instant Adversary Proceeding because this case is still pending and Rosenberg has not "prevailed". Defendants further advised the Court that they are not challenging the reasonableness of the out-of-pocket expenses sought by Plaintiff in connection with the work that was done to obtain the dismissal of the Involuntary Petition.
Defendants stipulated to the accuracy, authenticity and admissibility of the invoices, billing narratives and time records (the "Billing Records") introduced into evidence by the Plaintiff. The Court therefore finds that Plaintiff's counsel performed the services reflected in the Billing Records and devoted the hours reflected in the Billing Records to the performance of those services. Further, Defendants stipulated that the billing rates charged by the attorneys and legal assistants who performed the services reflected in the Billing Records are customary and appropriate billing rates for the kind of work performed and are consistent with rates charged bybankruptcy professionals of similar experience, skill and qualifications in the...
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