Bankruptcy Court Imposes Sanctions in Adversary Proceeding

bankruptA bankruptcy court in Florida recently considered e-discovery abuses and imposed sanctions against the defendant law firm and its attorneys. In re ATLANTIC INTERNATIONAL MORTGAGE COMPANY, Debtor; Steven S. Oscher, Liquidating Trustee For Atlantic International Mortgage Company, Plaintiff, v. The Solomon Tropp Law Group, P.A., et al, defendants.  The sanctions imposed required The Solomon Tropp Law Group, and its attorneys, to pay all of the Debtor’s costs and all fees incurred in connection with discovery in this complicated adversary proceeding in Bankruptcy Court in Tampa, Florida.   The decison begins with words all too common in this type of case:

The matter before this Court presents a deplorable scenario under which the ultimate issues raised by the pleadings are completely overcome by discovery disputes which have gained their own life.

The e-discovery disputes begin when the Plaintiff finds a memo suggesting that many more emails must exist than have been produced: 

This discovery dispute arose after the Trustee discovered a post-petition communication dated December 8, 1999, between Livingston and the Solomon Firm directing that all communications with him should be by email.  . . .   The Trustee has maintained throughout this proceeding that in accordance with these instructions, there ought to be a substantial record of electronic communications and activities between the Solomon Firm and Livingston, far more than what has been produced by the Solomon Firm pursuant to the Trustee’s Request for Production and the Electronic Records Production Order.

There were a number of e-discovery abuses noted in the opinion, but perhaps the most interesting from a “geek perspective” was the one concerning the disputed use of the Forensic Toolkit software by the law firm’s expert, and the contradictory findings by the expert appointed by the court.  Again, in Judge Paskay’s words:

On September 27, 2005, the Solomon Firm filed an Amended Affidavit by the Firm’s technology manager, William Kent (Kent) in an attempt to refute the information contained in the Computer Expert’s report and the Motion for Default Judgment. (Doc. No. 344). Not only is this Affidavit of questionable veracity, but it has been totally refuted by competent evidence before this Court. The Kent affidavit asserted that the document recovery program, Forensic Toolkit, had not been used to search for and recover any documents related to the present adversary proceeding. However, the Computer Expert found evidence on the Solomon Firm’s computers which proved that Forensic Toolkit had, in fact, been used to search for documents relating to Atlantic and Livingston. Responsive documents recovered by the Solomon Firm at that time were not produced to the Trustee.

The Court denied the Plaintiff/Debtor’s demand for entry of a default judgment against the Defendant law firm, but did state that fees and costs would be awarded against both Defendant law firm and its attorneys holding:

Modern discovery was designed to eliminate litigation by ambush and surprise. Cooperation and candor by all parties are crucial to the proper function of the discovery process; obstreperous conduct and deceptive tactics designed to delay and impede have no place in the discovery process. . . . This Court is not satisfied that the Solomon Firm’s conduct rises to the level required to sustain a motion for default judgment at this time. While the remedy of the entry of a default judgment is too drastic an action under the facts presented in the hearing, this Court is convinced that monetary sanctions are appropriate. Under FRBP 7037(b)(2), reasonable expenses, including attorneys’ fees may be awarded against a party, its attorney, or both. Such sanctions, when awarded against a party’s attorneys serve to “remind attorneys that service to their clients must coexist with their responsibilities toward the court, toward the law and toward their brethren at the bar.” Devaney v. Cont’l Am. Ins. Co., 989 F.2d 1154, 1162 (11th Cir.1993). Based on the foregoing, this Court is satisfied that the appropriate sanction is to impose monetary sanctions against the Solomon Firm and its counsel, F. Lorraine Jahn, Esq., and Michael J. McGirney, Esq., by awarding the Trustee his reasonable attorneys’ fees and costs incurred in pursuing all discovery in this adversary proceeding.

Defendants have moved for a rehearing, so this is not the final order and could be set aside.  There has been no ruling yet on the rehearing motion because, as I understand it, Judge Paskay has been ill.  The plaintiffs’ have, however, filed motions to determine the amount of the sanctions award, wherein they seek computer expert costs of around $100,000, and fees of approximately  $600,000. Plaintiffs have not argued as to how the award should be allocated.  I will keep my eye on this interesting case and report later on how it is resolved.

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