Opinion
MEMORANDUM DECISION ON MOTION FOR SANCTIONS TERMINATING ADVERSARY PROCEEDING
DENNIS MONTALI, Bankruptcy Judge
I. Introduction
On December 18, 2009, the court heard oral argument on the motion of defendant John Kontrabecki ("Kontrabecki") for sanctions against plaintiffs terminating this adversary proceeding ("Motion"). Kontrabecki appeared by and through Robert R. Moore, Esq., one of his attorneys; plaintiff Lehman Brothers Holdings, Inc. ("Lehman") appeared by and through Peter J. Benvenutti, Esq. and Mark S. Kaufman, Esq., two of its attorneys; Aron M. Oliner, the Chapter 11 Trustee, ("Trustee") appeared on his own behalf.
For the reasons discussed below, the court will deny the Motion because it balances the factors to be considered before granting such an extraordinary outcome, as announced by the United States Court of Appeals for the Ninth Circuit in Anheuser-Busch, Inc. v. Natural Beverage Distribs. , 69 F.3d 337 (9th Cir. 1995) ("Anheuser-Busch"), in favor of Lehman and against dismissal of this adversary proceeding.
II. Discussion
On November 17, 2009, Kontrabecki filed a combined motion for terminating sanctions against Lehman and for monetary and other sanctions against Lehman's principal counsel, their law firms, and Trustee. By docket text order dated November 22, 2009, ("docket text order") the court bifurcated those two motions, with the monetary sanctions motion ("Sanctions Motion") deferred to be fully briefed and considered at a later date.
When he filed the Motion, Kontrabecki also filed a Motion To Strike and/or Vacate the Court's Contempt Rulings and Motion To Reconsider The Court's Contempt Rulings ("Motion To Strike") and Lehman filed its Motion For Reconsideration Of Partial Summary Judgment Re Lost Opportunity Delay Damages ("Motion For Reconsideration"). By the docket text order, the Motion To Strike and the Motion For Reconsideration have also been deferred to be fully briefed and considered at a later date. Lehman and the Trustee opposed the Motion and Kontrabecki filed his reply.
Lehman also filed its Objections To and Motion to Strike Inadmissible Hearsay, etc. (docket # 1936) regarding transcript excerpts on pgs. 11-13 of Kontrabecki's memorandum of points and authorities in support of the Motion. Those objections will be sustained and the motion to strike will be granted.
The centerpieces of the Motion are what the parties describe as the Protocol, a transcript of an examination of Piotr Kukulka ("Kukulka") that took place in Warsaw, Poland on September 2, 2003, in connection with a criminal investigation Lehman had initiated against Kukulka, and an August 4, 2003 letter from Assistant United States Attorney Lawrence Leigh to Trustee (the "Leigh letter") and a conversation a few days later between Lehman's counsel and a Special Assistant United States Trustee (the "Conversation").
The circumstances of how and when the Protocol came to the attention of Kontrabecki and the court are well-documented in the record. For purposes of the present Motion, Kontrabecki stresses that the court may not have found him in civil contempt had it known of the Protocol and Lehman's active participation in it when it discounted Kukulka's 2004 testimony and found it less than credible and insufficient to defeat Lehman's contention that Kontrabecki controlled Kukulka. This is mere speculation that will not carry the day on the Motion. Well before he was fined and later incarcerated, Kontrabecki knew that Kukulka had been interviewed in the Warsaw police station, that Lehman's counsel had been present, and that Lehman contended, and established through unchallenged Polish expert testimony, that at all times prior to completion of Kontrabecki's incarceration Lehman would have violated Polish law had it disclosed the transcript. But in making the argument that the civil contempt would have been avoided, Kontrabecki has not shown how the Protocol would have become admissible so that the court could even have considered it.
In summary, the lack of specifics about the Protocol in October, 2003, its late disclosure and the arguments of Lehman's counsel about the absence of evidence questioning Kontrabecki's control over Kukulka do not support such a drastic consequence as dismissal of this adversary proceeding, even, as Kontrabecki argues, as part of a pattern of misbehavior by Lehman's counsel.
Dismissal is a separate matter from whether or not Lehman's counsels' actions and statements about the Protocol will affect the outcome of the Sanctions Motion and the Motion to Strike.
That being said, the non-disclosure of the Leigh letter and the Conversation give the court greater pause to consider - but ultimately reject - a similar outcome.
Kontrabecki argues that had he known of either or both he would have waived his Fifth Amendment privilege and testified in 2003, or at least in 2004, in order to escape the civil contempt that the court later imposed upon him. He contends that but for Lehman's and Trustee's non-disclosure to him of the Leigh letter and the Conversation, the course of this adversary proceeding would have been changed dramatically and the civil contempt avoided.
There is a fundamental flaw in Kontrabecki's position. He relied on the advice of his counsel when he initially claimed his Fifth Amendment privilege. Now, years later, he claims that he would have testified had he known of the Leigh letter and the Conversation. Would he have ignored his counsel's advice? He states in his Reply, at 3:17, that "That advice did not change, but obviously would have, if Lehman had been forthcoming." As Lehman asked, and the court now asks, where is the declaration from Kontrabecki's criminal defense counsel stating that had he or she known of the Leigh letter or the Conversation, the advice would have been different? The absence of such a declaration is telling.
Kontrabecki also argues forcefully that he should not have been put in the difficult position of making the choice between testifying and facing prosecution or not testifying and facing contempt. The court appreciates now, as it did in 2004, the difficulty of that choice. Still, absent proof that the choice would have been less difficult had he or his counsel known of the Leigh letter and the Conversation, the court must assume that even had he known of them, the choice would have remained difficult for him. Had he testified, he certainly would have been subjected to rigorous cross examination, the outcome of which is more speculation.
Equally speculative is whether the court would still have found clear and convincing evidence in Lehman's favor had Kontrabecki's testimony been provided in 2004. Kontrabecki presumes that the answer to the court's precise question to Lehman's counsel on March 31, 2009, is no; the court did not know the answer when it asked the question and still does not. Cross examination is a powerful and unpredictable courtroom weapon.
III. Analysis.
Anheuser-Busch teaches that the drastic remedy of terminating sanctions requires the court to weigh the following factors:
(1) the public's interest in expeditious litigation;
(2) the court's need to manage its docket;
(3) the risk of prejudice to the party seeking sanctions;
(4) the public policy favoring disposition of cases on their merits; and
(5) the availability of less drastic actions.
Anheuser-Busch , 69 F.3d at 348.
The first two factors appear to be of neutral impact, and offer nothing to either side. This case has gone on for years and years, and finally was close to trial when Kontrabecki fired three salvos - the Motion, the Motion to Strike and the Sanctions Motion - following his unsuccessful effort a few short months ago to sanction Lehman for much the same thing he asserts again. While he had the right to make those motions, the fact is, trial was weeks away and Kontrabecki scored a significant win when he obtained partial summary judgment on Lehman's delay damages theory.
In the Motion for Reconsideration the court is now alerted to some sort of secret agreement to bifurcate the trial.
Actually only two: the court bifurcated the Motion from the Sanctions Motion.
Further, as discussed below, the merits to be tried have little to do with the circumstances that led to Kontrabecki's being found in civil contempt, and the court adds to the list of speculations Lehman's prediction that Kontrabecki's testimony in 2003 or 2004 would have shortened the time to trial. Therefore, whatever public interest there is in an expeditious trial, that interest has been served.
The court expressed the same view in its September 2, 2009, Memorandum Decision On Motions To Strike and For Preclusion Order at 3:1-4.
As to the consideration of the court's docket, despite the many demands this case has made on the parties, their counsel and the court, dismissing this case or keeping it will not adversely affect the court's docket.
The final three Anheuser-Busch factors - prejudice, merits disposition and less drastic remedies - must be considered together.
The parties and their counsel will no doubt recall that on March 31, 2009, during oral argument, Lehman's counsel said his client was prejudiced by Kontrabecki's invocation of his Fifth Amendment privilege. Kontrabecki's counsel responded emphatically that his client's multi-million dollar fines and sanctions and his lengthy incarceration were real prejudice. But that circles back to the question before the court now - did Lehman or its counsel's conduct cause Kontrabecki harm by failing to tell him prosecution was less likely, or did he bring it upon himself by declining to testify even though now he says he would have? For purposes of this Motion, the court will weigh the third factor in Kontrabecki's favor, without addressing the question of whether prejudice must be present at all when a court considers whether to impose terminating sanctions based upon either the conduct of a party or the party's counsel.
Disposition of this case on the merits has been a goal of the court and the parties for some time, although each has accused the other of delay tactics on occasion. Lehman argues and cites authority that there must be a nexus between the conduct complained of and the merits of the case. Kontrabecki replies that this case is all about the contempt and how it came to be imposed. The simple fact is that what remains of this case has little to do with the contempt. As noted previously, there is far too much speculation about what might have been or said had the Leigh letter and the Conversation been disclosed. The Protocol's significance, assuming it were admitted into evidence, goes more to control than a measurement of damages for the share dilution and the unwind. Thus the necessary nexus is missing and this factor weighs in Lehman's favor.
Finally, the availability of less drastic actions is demonstrated by even a cursory glance at the somewhat redundant Motion to Strike and the Sanctions Motion. If Lehman or its counsel are indeed held to be accountable for the mischief Kontrabecki accuses them of, then Kontrabecki will have some amelioration for the damages he claims they caused. In the meantime, if he is to be found liable for Lehman's damages and attorneys fees, or anything else, Lehman has a right to pursue him. This factor weighs greatly in Lehman's favor.
IV. Disposition
The court believes denial of the Motion ought to moot Lehman's December 17, 2009, Motion to Strike "Evidence", etc. ("Evidence Motion") (docket # 1951), and the matters raised by Lehman's counsel's letter of December 22, 2009 (docket # 1955). If Lehman agrees, it should serve and upload an order denying the Motion for the reasons stated in this Memorandum Decision, sustaining its objections and granting its Motion to Strike Inadmissible Hearsay (see footnote 1) and treating as moot its Evidence Motion. If Lehman feels that a ruling on the Evidence Motion is necessary, the order denying the Motion should state that the court will dispose of Lehman's Evidence Motion by separate order.
Pursuant to the docket text order, the next order of business is to complete the briefing and hold oral argument on the Motion For Reconsideration. Kontrabecki should file his opposition to that motion no later than January 22, 2010, and Lehman should file its reply no later than February 5, 2010. The court will hold a hearing on that motion of February 11, 2010, at 1:30 P.M. and conduct a trial setting conference at the same time. If this briefing and argument schedule is not convenient for the parties, they may meet and confer and arrange for another date with the court's courtroom deputy, Ms. Lorena Parada.