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Southern California Sunbelt Developer's Inc. v. Southern California Sunbelt Developers

UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA


July 15, 2009

IN RE: SOUTHERN CALIFORNIA SUNBELT DEVELOPER'S INC. TRAILS END LIMITED PARTNERSHIP, SHOWTHUNDER INC., HAMPTON LIMITED, ET AL., PLAINTIFF,
v.
SOUTHERN CALIFORNIA SUNBELT DEVELOPERS, INC., DEFENDANTS.

The opinion of the court was delivered by: Dean D. Pregerson United States District Judge

ORDER GRANTING IN PART MOTION FOR ATTORNEYS' FEES AND DOUBLE COSTS

[Motion filed on February 5, 2009]

I. BACKGROUND

On January 23, 2002, thirteen petitioning creditors filed involuntary petitions under Section 303 of the Bankruptcy Code seeking to force IBT International, Inc. ("IBT") and Southern California Sunbelt Developers ("SCSD")(collectively, "Appellees") into involuntary bankruptcy proceedings. The petitions were signed by two individuals, David Tedder and Donald Grammer, on behalf of the thirteen petitioners. The bankruptcy court dismissed the involuntary petitions, and then both IBT and SCSD brought motions under Section 303(i) seeking recovery of attorneys' fees and costs and punitive damages. The bankruptcy court awarded attorneys' fees and costs and $65,000 in punitive damages against Appellants; and also sanctioned Tedder and Grammer for acting in bad faith (the "Bankruptcy Court Decision"). On August 21, 2008, this Court affirmed the Bankruptcy Court Decision in favor of Appellees (the "August 21 Order").

Following the affirmance of the Bankruptcy Court Decision, Appellees filed another motions for sanctions under Bankruptcy Rule 8020, alleging that the appeal was frivolous. On November 17, 2008, this Court granted in part Appellees' motion for sanctions (the "November 17 Order"). However, this Court also ordered Appellees to submit a noticed motion to determine what fees and costs were due, based on those issues the Court found to be frivolous.

Appellees have submitted their noticed motion*fn1 to determine fees, which this Court now considers.

II. LEGAL STANDARD

Under Bankruptcy Rule 8020, if an appeal from an order or judgment is "frivolous," then a court has discretion to award "just damages and single or double costs to the appellee." Fed. R. Bankruptcy P. 8020. The calculation of fees and costs under Rule 8020 is distinct from the analysis of reasonable fees and costs awarded to a "prevailing party" by statute, in that damages must only be "just." Sun-Tek Industries, Inc. v. Kennedy Sky-Lites, Inc., 865 F.2d 1254, 1255 (Fed. Cir. 1989). Rule 8020 is modeled after Federal Rule of Appellate Procedure 38, and cases examining Rule 38 guide the court in determining whether an appeal is frivolous under Rule 8020. In re Weinstein, 227 B.R. 284, 297 (9th Cir. BAP 1998) (citing to the Advisory Committee's Notes for Rule 8020). Further, the Ninth Circuit has analogized sanctions under Rule 38 to those under Federal Rule of Civil Procedure 11. Lyddon v. Geothermal Properties, 996 F.2d 212, 214 (9th Cir. 1993)("[T]he principles governing the interpretation of Rule 11 should control in interpreting Rule 38."). Sanctions awarded by the court must be sufficiently related or "'directly caused'" by the filing of the appeal. Id. (quoting Cooter & Gell v. Hartmarx Corp., 496 U.S. 384 (1990)). This excludes, for example, the costs associated with the filing of the motion for sanctions itself. Id.

Additionally, the trial court must provide adequate explanation for the appellate court to review an award of fees and costs, but "a brief explanation of how the court arrived at its figures will do." Cunningham v. County of Los Angeles, 879 F.2d 481, 484 (9th Cir. 1988); see also In re Yagman, 796 F.2d 1165, 1185 (9th Cir.), amended, 803 F.2d 1085 (9th Cir. 1986) (finding that a sanctions award must be "quantifiable with some precision and properly itemized").

III. DISCUSSION

A. Costs and the Motion for Sanctions

Single costs have already been awarded to Appellees and may not be re-awarded without providing double costs. The Court declines to award double costs here or to increase the costs which have already been awarded, as not all of Appellants' appeal was frivolous. Additionally, as noted above, fees and costs may not be awarded for the prosecution of a motion for sanctions, Lyddon, 996 F.2d at 214, and the Court will therefore not consider these amounts in its calculation.*fn2

B. Motions for Attorneys' Fees

1. Percentage of Fees related to Frivolous Issues on Appeal

This Court's November 17 Order only granted Appellees' request for sanctions as to five of the nine issues raised by Appellants on Appeal - issues 1 and 6-9. (See SCSC Mot. 6.) Appellees thus seek a sanctions award that represents a portion of the overall appeal. The methodology proposed by Appellees is a breakdown of their brief by percentage of words and pages to determine the proportion of the brief devoted to the frivolous issues. These calculations produced percentages of "68.6 percent" (7,340 of 10,992 words*fn3 ) and approximately 66 percent (23 of 35 pages) devoted to frivolous issues. In argument, Counsel reduce their estimate and argue that only 63 percent*fn4 of their brief was devoted to frivolous issues. Upon review of Appellants briefing, the Court agrees that 63 percent of Appellants' brief was frivolous. The Court also finds that, in general, Appellees' method of apportionment provides a reasonable basis for estimating the proportion of time devoted to addressing frivolous issues on appeal.

2. Reasonable Rate

Fees "are to be calculated according to the prevailing market rates in the relevant community, regardless of whether plaintiff is represented by private or nonprofit counsel." Blum v. Stenson, 465 U.S. 886, 895 (1984). The burden is on the fee applicant to produce "satisfactory evidence" of the relevant market rate. Id. Additionally, the relevant community is defined as "the forum in which the district court sits." Barjon v. Dalton, 132 F.3d 496, 500 (9th Cir. 1997).

In their billing statements, Appellees' fees vary between $135 and $515 per hour. Appellants do not provide evidence from the Los Angeles area for these fees, and instead cite to the "Laffey matrix," which calculates the hourly rates used in the Boston and Washington D.C. area. See Laffey v. Northwest Airlines, Inc., 572 F.Supp. 354 (D.D.C. 1983); see also Van Skike v. Dir., OWCP, 557 F.3d 1041, 1046 (9th Cir. 2009)(raising but declining to state whether the Laffey matrix is sufficient to establish a market rate). However, Appellees do not provide direct evidence why the actual rate they request is justified, such as with declarations describing how long Appellees' counsel have practiced law or what hourly rates apply to which length of practice. To verify the rates locally, SCSD's counsels' hourly rates may only be cross-referenced with IBT's counsels' hourly rates. Nevertheless, the Court finds that it has sufficient knowledge to verify the rates locally, when compared against the rates provided by the Laffey matrix. Additionally, Appellants do not dispute the hourly rates of Appellees' counsel.

3. Total Time Spent on Appeal

Because, the Court can only consider time actually spent by Appellees' on the appeal, Appellees' fees should be limited to the time period after Appellants filed their opening brief, on May 7, 2007, to the period where Appellees' filed their opposition on issuing of this Court's order on August 21, 2008. The Court will disregard all fees outside this time period. Accordingly, using Appellees' billing sheets, the total related billing for IBT's counsel during this period is $5,106. SCSD's counsel's total related billing is $32,079. Appellants object to a number of Appellees' counsels' billing items, but this essentially amounts to speculation.

Therefore, SCSD's reduced total of 63 percent of $32,079 equals $20,209. IBT's reduced total of 63 percent of $5,106 equals $3,216 (IBT). Accordingly, the total amount due is $23,429. This amount is in line with awards granted by the Ninth Circuit. In Lyddon, for example, the Court awarded attorneys' fees in the amount of $25,000, plus double costs and damages, and noted that this amount was "closer in line with the majority of awards granted by the courts of appeals." Lyddon, 996 F.2d at 215; see also Dohen-Ramirez v. Commodity Futures Trading Comm'n, 846 F.2d 1200 (9th Cir. 1988)(awarding attorney's fees of $10,157.68 and double costs of $233.08).

C. Joint and Several Liability

Where a frivolous appeal is taken, the Court has inherent power to apply sanctions against client and counsel "jointly and severally." In re George, 322 F.3d 586, 593 (9th Cir. 2003) (citing Int'l Union of Bricklayers & Allied Craftsman Local Union No. 20 v. Martin Jaska, Inc., 752 F.2d 1401, 1407 (9th Cir. 1985)). Further, imposing sanctions against client and counsel jointly and severally is preferred since the sanctioned parties are in the best position to determine who caused the frivolous appeal to be taken. Int'l Union of Bricklayers, 752 F.2d 1401, 1407 n.8 (9th Cir. 1985). In this Court's November 17 Order, Appellants and its counsel were held jointly and severally liable.

Sanctions are primarily imposed to deter counsel and client from future violations. However, "[t]his deterrent effect depends in part upon the sanctioned party's ability to pay." In re Eighty South Lake, Inc., 63 B.R. 501 (Bkrtcy. C.D. Cal. 1986). Stella A. Havkin, counsel to David Tedder and related Appellants, filed a declaration detailing the financial burden associated with her ongoing medical treatment. Accordingly, Appellees agreed to "waive any sanctions . . . against Ms. Havkin." (SCSD Reply.)

Therefore, the Court declines to award any sanctions against Ms. Havkin. However, Appellants and Mr. Dressler remain jointly and severally liable for Appellees' attorneys' fees.

IV. CONCLUSION

For the foregoing reasons, the Court GRANTS in part Appellees' motion for attorneys' fees and costs. The Court finds that Appellants and Mr. Dressler are jointly and severally liable to Appellees for $23,429.

IT IS SO ORDERED.


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