Synanon Foundatin, Inc. v. Bernstein

• Decision Date: 04 November 1986
• Docket Number: No. 84-1635.,84-1635.
• Citation: 517 A.2d 28
• Parties: SYNANON FOUNDATION, INC., Appellant, v. Stuart A. BERNSTEIN, Samuel J. Kushner, James H. Kabler III, and Coldwell Banker and Company, Inc., Appellees.
• Court: D.C. Court of Appeals

517 A.2d 28

SYNANON FOUNDATION, INC., Appellant, v. Stuart A. BERNSTEIN, Samuel J. Kushner, James H. Kabler III, and Coldwell Banker and Company, Inc., Appellees.

No. 84-1635.

District of Columbia Court of Appeals.

Argued April 25, 1986.

Decided November 4, 1986.

Sherman L. Cohn, Washington, D.C., for appellant.

William Daniel Sullivan, with whom Warren K. Kaplan, Washington, D.C., was on brief, for appellees Bernstein and Kushner.

John R. Cope, with whom Mary Caroline Parker, Washington, D.C., and Thomas R. Burns, Rochester, N.Y., were on brief, for appellee Coldwell Banker and Co., Inc.

Before PRYOR, Chief Judge, and MACK and BELSON, Associate Judges.

MACK, Associate Judge:

This appeal, we hope, marks the end of a carefully orchestrated attempt to subvert the integrity of the judicial process. It comes to us from the award of $585,000 in attorneys' fees against Synanon Foundation for its bad faith litigation tactics. In an earlier appeal, Synanon Foundation v. Bernstein, 503 A.2d 1254 (D.C. 1986) (Synanon I), cert. denied, ___ U.S. ___, 107 S.Ct. 69, 93 L.Ed.2d 26 (1986), we upheld the pretrial dismissal of Synanon's complaint due to its perpetration of a massive fraud upon the court. There, we described Synanon's temporarily successful attempt to deceive the trial court and influence its decisions as "conduct which the administration of justice cannot tolerate." Id. at 1264. In this appeal, upon further review of that intolerable conduct, we conclude that Synanon richly deserved the additional sanction of an attorneys' fee award.¹

We are concerned, however, about the scale of the award. The trial court allowed the defendants all of their attorneys' fees for everything that occurred in this case. Although there is abundant proof that Synanon began litigating in bad faith soon after the proceedings were instituted, the record does not contain adequate evidence that the complaint was originally filed in bad faith. Consequently, in awarding attorneys' fees against Synanon for the entire litigation, the trial court included amounts which were not shown to be the result of Synanon's groundless, bad faith procedural moves. To the extent that fees unconnected to Synanon's bad faith litigation tactics were included, the trial court in effect added punitive damages to an otherwise proper bad faith fee award. Punitive damages may not be awarded under the guise of attorneys' fees. We reverse and remand for the trial court to reduce its award by any amounts in attorneys' fees which did not stem from Synanon's proven bad faith litigation tactics.²

I

Before the dismissal of Synanon's complaint, which we affirmed due to its fraud upon the court, Synanon was the plaintiff in an action arising out of an agreement to purchase an apartment house. The facts of the litigation are more fully set out in Synanon I. We recount them again here insofar as necessary to explain the basis V the attorneys' fee award against Synanon.

THE BOSTON HOUSE DISPUTE

In 1958, Synanon was registered in California as a tax-exempt, nonprofit organization. Its avowed purposes were to rehabilitate drug and alcohol abusers and to engage in research, public education and charitable distribution. Two decades later, when the events giving rise to this litigation began, Synanon had become a highly controversial organization. National coverage, including a December 1977 story in TIME magazine, reported that Synanon had been transformed by its founder and leader, Charles Dederich, into a violent cult.

In April 1978, in search of a national headquarters and a residence for its members, Synanon approached appellee Coldwell Banker and Company, a real estate broker. One of Coldwell Banker's listings was the Boston House, 1711 Massachusetts Avenue, N.W., an apartment building owned by appellees Stuart Bernstein and Samuel Kushner. Appellee James Kabler, Coldwell Banker's sales agent, suggested that the Boston House would suit Synanon's purposes. An Agreement of Sale was signed on April 28, specifying a purchase price of $5,600,000. Synanon paid a down payment of $250,000, which Bernstein and Kushner were allowed to keep if Synanon defaulted on the purchase agreement, and Synanon was permitted to occupy two floors of the building pending settlement. It was the failure of the Boston House deal that led to the present dispute.

The Boston House Tenants' Association opposed the sale. Together with an Advisory Neighborhood Council, it lobbied the District of Columbia Zoning Commission to change the zoning laws, so that Synanon would no longer have an automatic right to convert some of the existing apartment units into offices for nonprofit use. Their lobbying succeeded. That same week, an evening TV news show ran a four-part series on the cult aspects of Synanon and its proclivity for violence.

By mid-June, Synanon was facing everincreasing problems with the purchase. All in the one day, three critical events occurred. First, the Chief of Zoning Inspection informed Synanon that conversion of the building to office use would require a special exception under a recent emergency order. Second, Bernstein notified Synanon that he was treating allegations of harassment, made by the original Boston House residents against their new Synanon neighbors, as a breach of the Agreement of Sale. And, third, Kabler, Coldwell Banker's sales agent, revealed to Synanon that the floor load capacity of the Boston House might not be sufficient to meet the minimum requirements for office use under the District's building code. Kabler had apparently known this when he suggested the Boston House to Synanon, because another potential purchaser had withdrawn his interest about a week previously when Coldwell Banker, at the potential purchaser's request, obtained an unfavorable floor load capacity report from a building inspector. Armed with this information, Kabler allegedly attended three meetings with Synanon representatives, before the purchase agreement was signed, without disclosing the possible floor load capacity problem. On June 17 or 18, Synanon decided to move out.

At that point, Synanon insisted that the obligation was on Bernstein and Kushner to do whatever was needed to render the building suitable for office use. Bernstein and Kushner put that onus on Synanon. Eventually, a structural engineer reported that the building code would not permit the Boston House to be used for offices. On July 6, Bernstein and Kushner declared Synanon in default under the Agreement of Sale; the next day, Synanon made the same accusation against Bernstein and Kushner.

THE LITIGATION

A week later, on July 14, 1978, Synanon filed its action for fraud, breach of contract, and breach of warranty. The defendants were Bernstein and Kushner, the owners of the Boston House, Coldwell Banker, their real estate broker, and Kabler, Coldwell Banker's sales agent. Synanon alleged that, when the Agreement of Sale was signed, the sellers and their agents knew that the Boston House was unsuitable for office use, and that Synanon had relied to its detriment upon their representations. The complaint sought rescission of the contract, return of the $250,000 down payment, compensatory damages for money spent converting the Boston House to offices, and punitive damages for fraud.

Bernstein and Kushner jointly denied Synanon's allegations. They also filed a counterclaim demanding damages for Synanon's alleged breach of various provisions of the Agreement of Sale. On December 12, after more publicity concerning Synanon's violent nature, Bernstein and Kushner amended their counterclaim to add the charge that Synanon had fraudulently procured the Agreement of Sale by concealing the fact that it was an organization committed to violence. Coldwell Banker and its sales agent, Kabler, also denied Synanon's allegations, but did not counterclaim.

On October 12, 1983, after five years of litigation, the trial court dismissed Synanon's complaint on the twin grounds that Synanon had perpetrated a fraud on the court and that it had engaged in discovery abuse prejudicial to the defense case. In Synanon I, we upheld the dismissal on the former ground without reaching the latter. 503 A.2d at 1255, 1262-64. Bernstein and Kushner's counterclaim was unaffected by the dismissal order.

In dismissing Synanon's complaint, the trial court ruled that the defendants would receive attorneys' fees, but specified no amount. Accordingly, appellees Bernstein and Kushner, jointly, and Coldwell Banker filed itemized requests for their attorneys' fees, expenses and costs arising out of the Boston House litigation. An evidentiary hearing on the attorneys' fees issue began on September 4 and ended on September 11, 1984. In its Findings of Fact and Conclusions of Law dated November 9, 1984, the trial court concluded that the all-pervasive nature of Synanon's fraudulent conduct (consisting of the destruction of massive amounts of significant evidence sought in discovery and the cover-up of that fraud by perjury and subornation of perjury), was directed and participated in by Synanon's executive and law departments, including Phillip Bourdette, its chief counsel and counsel of record in [the trial court]. This fraud upon the court is of the most serious nature and warrants the fullest sanctions. [Citations omitted.] Moreover, Synanon indelibly branded its complaint papers with bad faith when, after its hands were soiled with destroying evidence and perjury, it cynically (but successfully) moved on December 8, 1982, to amend its complaint by increasing its damages substantially. Accordingly, the court reaffirms its prior ruling [of October 12, 1983, contained in the order dismissing Synanon's complaint] that defendants shall recover all of their reasonable attorney's fees and expenses incurred during the six-year litigation of this action.

Id. at 2 (emphasis in original).

The trial court held that the appropriate measure for the recovery...