Opinion
No. 01 Civ. 8436 (JSR)(KNF).
October 14, 2005
REPORT AND RECOMMENDATION
TO THE HONORABLE JED S. RAKOFF, UNITED STATES DISTRICT JUDGE
I. INTRODUCTION
A hearing was held in connection with an order of the court directing that the plaintiff, Harry Jacobs ("Jacobs"), be given an opportunity "to show cause why [he] should not be adjudged in contempt and penalized accordingly" ("Show Cause Hearing") for failing to comply with your Honor's March 31, 2003 order barring Jacobs from serving as class representative and class counsel in this action. Jacobs was the only witness who testified at the Show Cause Hearing. Following its conclusion, the parties made post-hearing written submissions to the Court, which have been considered.
Jacobs contends that he should not be adjudged in contempt and penalized because: (i) the March 31, 2003 order of the court is ambiguous; (ii) Jacobs is elderly and he attempted diligently to comply with the court's order; and (iii) the defendants have not established that they suffered any injury as a result of his conduct.
The defendants disagree. They maintain that Jacobs was in violation of the court's March 31, 2003 order until June 2004, when Jacobs submitted to the Court his "Resignation of Class Counsel" notice. The defendants contend that Jacobs' resignation was the direct result of a May 24, 2004 Report and Recommendation ("Report") issued by the Court in response to the defendants' motion that Jacobs' complaint be dismissed pursuant to Fed.R.Civ.P. 41. According to the defendants, although the Report did not recommend dismissal of the complaint but, rather, recommended that Jacobs be made to show cause why he should not be found in contempt of court and penalized, but for the defendants' Rule 41 motion, Jacobs would have continued to disregard the court's March 31, 2003 order, and the litigation would not have moved forward. In addition, the defendants also contend that, solely as a result of Jacobs' misconduct in failing to comply with the court's March 31, 2003 order, they were injured because they incurred legal fees and costs that otherwise they would not have incurred.
II. BACKGROUND
Some of the text found in this portion of the document is reproduced from the Report previously issued by the undersigned magistrate judge in connection with the application, made by the defendants pursuant to Fed.R.Civ.P. 41(b), that the plaintiff's complaint be dismissed. The text that is reproduced here places the Show Cause Hearing in context, and will aid the reader's understanding of the instant report and the Court's recommendations.
By order dated March 31, 2003, your Honor barred Jacobs from serving in the dual role of class representative and class counsel in this action brought pursuant to the Truth In Lending Act, 15 U.S.C. § 1601, et seq., and the regulations promulgated thereunder. Jacobs appealed from that order to the Second Circuit Court of Appeals. That court determined that entertaining Jacobs' appeal would be inappropriate because the March 31, 2003 order issued by your Honor was not a "final judgment," within the meaning of 28 U.S.C. § 1291, from which an appeal might be mounted but, rather, was an interlocutory order from which no immediate appeal lies.
See Gary Plastic Packaging Corp. v. Merrill Lynch, Pierce, Fenner Smith, 903 F.2d 176, 178 (2d Cir. 1990).
In late December 2003, the plaintiff advised the Court of the action taken by the Second Circuit Court of Appeals on his appeal. On December 23, 2003, Jacobs was directed to have his new counsel file a notice of appearance with the Clerk of Court on or before January 22, 2004, and to submit a copy of that document to the undersigned magistrate judge and to counsel to the defendants. On January 5, 2004, the Court received a writing from Jacobs through which he sought to obtain information concerning the status of the action and advice from the Court concerning the effect on the status of the action if Jacobs: (a) obtained new counsel; or (b) refrained from doing so by January 22, 2004, the date on which the Court had previously directed that new counsel for Jacobs file a notice of appearance with the Clerk of Court. No advisory opinion was issued to Jacobs in response to his inquiries. However, on January 5, 2004, Jacobs was directed to comply with the Court's December 23, 2003 order.
On January 25, 2004, the Court received a writing from Jacobs in which he stated that he was unable to comply with the Court's December 23, 2003 order, within the time fixed by the Court for him to comply. On January 26, 2004, the Court directed Jacobs to advise it of the amount of time he estimated would be needed for him to obtain new counsel. On January 30, 2004, Jacobs wrote to the Court and advised that Damon J. Carter, Esq. ("Carter") had "agreed to be retained as plaintiffs personal counsel in this matter and to participate with [Jacobs] in the prosecution of the instant class action against Citibank N.A. and Citicorp."
The text of Jacobs' January 30, 2004 letter was curious since it indicated, in contravention of your Honor's March 31, 2003 order, that he was continuing to serve as class counsel and to serve as the putative class representative. The situation became more curious because Jacobs submitted another writing to the Court, dated February 16, 2004, through which he reaffirmed, in contravention of your Honor's March 31, 2003 order, that he remained the putative class representative and class counsel.
I hereby confirm that it is my intention for Mr. Carter to serve as the individual Plaintiff's attorney and, in addition to be associated with and assist Class Counsel, Harry W. Jacobs, in the prosecution of the instant class action.
The peculiar nature of Jacobs' January 30, 2004 and February 16, 2004 letters was explained at the Show Cause Hearing. There, it emerged that, at the time those letters were sent to the Court, Carter was not admitted to practice before this court. Jacobs was aware of that fact but never made it clear to the Court. Moreover, as Jacobs explained in his testimony at the Show Cause Hearing, "[t]hat's why we waited for [i.e. delayed] my resignation until he was admitted to [the] Southern District . . . I was proud to sponsor him."
In any event, in order to clarify the situation and discuss a request made by the defendants, in accordance with Fed.R.Civ.P. 41, that Jacobs' complaint be dismissed, based on his failure to abide by the March 31, 2003 order, the Court had a telephonic conference with the parties on February 19, 2004. At that conference, Carter introduced himself to the Court, and indicated that he was appearing on behalf of Jacobs; Jacobs also participated in the telephonic conference. During that conference, Jacobs stated that he was "not withdrawing, either as class representative [or] as the class counsel." Rather, he was "bringing in associate counsel [Carter] who would work together [with Jacobs]." Jacobs testified at the Show Cause Hearing that it was his intent "to bring [Carter] on but for [Jacobs] to toe the line until [Carter] was admitted to the Southern District and could take over fully." Jacobs also testified at the hearing that, except for Carter, after the Second Circuit declined to entertain his appeal, he did not have any "formal appointments" with any attorney at which he made a presentation in an attempt to have the attorney undertake responsibility for prosecuting this action. Jacobs indicated that while he might have interviewed an attorney other than Carter, before determining to hire Carter, he "was not absolutely positive of it."
In response to the request by the defendants, made pursuant to Fed.R.Civ.P. 41, the Court issued the May 2004 Report. Ten days later, on June 3, 2004, after the undersigned magistrate judge had recommended to your Honor that Jacobs be made to show cause why he should not be adjudged in contempt and penalized accordingly, a document styled "Resignation of Class Counsel," dated June 2, 2004, was delivered to the Court by Jacobs.
On July 13, 2004, Carter was admitted to practice before this court. However, by that time, Carter had already participated in the February 19, 2004 telephonic conference with the Court, and had submitted to your Honor, as counsel to Jacobs, written objections to a report and recommendation issued by the undersigned magistrate judge. At the Show Cause Hearing, Carter acknowledged that he had never made an application to appear as counsel pro hac vice on behalf of the plaintiff prior to: the date on which the February 2004 telephonic conference with the Court was held, his submission to your Honor of written objections to a report and recommendation prepared by the undersigned magistrate judge, or at any time prior to the date on which he was admitted to practice before this court in July 2004.
According to the defendants, Jacobs did not send their counsel a copy of his class-counsel resignation until Saturday, June 5, 2004. The document was not reviewed by defendants' counsel until Monday, June 7, 2004. Jacobs' delay in serving the defendants' counsel with a copy of his resignation violated the Court's Individual Rules of Practice. Those Rules required that Jacobs send his resignation notice to his adversary simultaneously with its transmittal to the Court. Defendants report that beginning June 1, 2004, and continuing to June 7, 2004, resources were expended by their counsel preparing written objections to the Court's May 2004 Report, since objections to the Report had to be filed with the court not later than June 7, 2004. According to the defendants, three attorneys, collectively, spent approximately 40.3 hours on that activity. The defendants have submitted their attorneys' contemporaneous billing data to the Court which reflects the hours expended by defendants' counsel for, inter alia, that activity and for legal services rendered in connection with the Show Cause Hearing. The defendants contend that, since "Jacobs should be found in willful contempt of [the court's] March 31, 2003 Order, and because [the defendants] played a direct role in initiating the legal process [their February 2004 Fed.R.Civ.P. 41 application] that resulted in Jacobs' eventual resignation as class counsel, [they are] entitled to an award from Jacobs of [their] legal fees and expenses incurred since February 2004."
Furthermore, the defendants contend that, since Jacobs testified at the Show Cause Hearing that his failure to comply with the Court's rule requiring simultaneous service of all written communications on adversaries and the Court, may have caused the defendants to expend resources unnecessarily, and to "[respond] to a condition that no longer existed," an appropriate penalty upon a finding by the court of "willful contempt" by Jacobs, must include, as a component, a directive that Jacobs compensate the defendants for the legal fees they incurred preparing objections to the Court's May 2004 Report.
As noted earlier in this writing, Jacobs maintains that: (a) his age; (b) his diligence in seeking to retain counsel; (c) the absence from the record of any evidence of injury to the defendants; and (d) the ambiguity of the court's March 31, 2003 order all militate against a finding of contempt and the consequent imposition of a penalty.
III. DISCUSSION
Contempt of Court
"[A]n order issued by a court with jurisdiction over the subject matter and person must be obeyed by the parties until it is reversed by orderly and proper proceedings." United States v. United Mine Workers of America, 330 U.S. 258, 293, 67 S. Ct. 677, 696 (1947). Where it is proven, by clear and convincing evidence, that a party has violated a clear and unambiguous order of a court, that party may be held in contempt. The violation of the court order need not be willful. However, before a finding of contempt may be made, a court must be satisfied that the contemnor "was not reasonably diligent in attempting to comply" with the court's order. The City of New York v. Local 28, Sheet Metal Workers' Int'l Ass'n, 170 F.3d 279, 282-283 (2d Cir. 1999) (citing EEOC v. Local 638, 81 F.3d 1162, 1171 [2d Cir. 1996]).
The March 31, 2003 order issued by your Honor states, in relevant part, that the court "hereby bars Jacobs from serving in the dual role of class representative and class counsel." Jacobs contends that the order is ambiguous. The Court disagrees. The order made clear that beginning March 31, 2003, Jacobs could no longer play two roles in this litigation: plaintiff and counsel. However, the record before the Court establishes that following March 31, 2003, and well after December 12, 2003, when the Second Circuit determined not to entertain his appeal, Jacobs continued as plaintiff in this action and as counsel.
In a writing dated January 30, 2004, Jacobs advised the Court that Carter would act as his personal attorney and would participate with Jacobs in prosecuting this action in his capacity as "Class Counsel." In a subsequent writing dated February 16, 2004, Jacobs indicated to the Court that he wished to "confirm" that he was remaining as "Class Counsel" while Carter would "be associated with and assist" Jacobs in the prosecution of the instant class action." Thereafter, during a February 19, 2004 telephonic conference, Jacobs informed the Court that he was "not withdrawing, either as class representative [or] as the class counsel." Later, in June 2004, Jacobs submitted to the Court a notice resigning as "class counsel."
These writings and Jacobs' oral declaration during the February 19, 2004 telephonic conference are clear and convincing evidence that, following the issuance of your Honor's March 31, 2003 order, and after the Second Circuit declined to entertain Jacobs' appeal from that order, Jacobs failed to comply with the order by ceasing to act as counsel in the action while he remained a party to the action.
The failure of a party to act in a reasonably diligent fashion in attempting to comply with an order of a court is a factor that must be considered in determining whether the party should be cited for contempt. See United States v. O'Rourke, 943 F.2d 180, 189 (2d Cir. 1991). Beginning in December 2003, after the Second Circuit refused to entertain Jacobs' appeal from your Honor's March 31, 2003 order, Jacobs did not attempt to secure new counsel diligently. Jacobs testified at the Show Cause Hearing that, after the Second Circuit's December 2003 determination on his appeal, he did not have any "formal appointments" with any attorney for the purpose of making a presentation perchance to hire the attorney to prosecute this action. Moreover, when Jacobs determined to engage an attorney, Carter, he knowingly selected someone who was not admitted to practice before this court and, therefore, as Jacobs well knew, was not authorized to represent him in this action. Thus, Jacobs' decision to hire an attorney whom he knew was not admitted to practice before this court, absent evidence that he tried to hire any other attorney — and there is no such evidence in the record before the Court — is proof of Jacobs' lack of diligence in complying with the Court's March 31, 2003 order. Jacobs' lack of diligence in complying with your Honor's order is a factor that weighs against him.
A court is vested with the authority to manage its own affairs so as to ensure the orderly and expeditious disposition of the cases before it. See Chambers v. Nasco, Inc., 501 U.S. 32, 43, 111 S. Ct. 2123, 2132 (1991). "A court has the inherent power to hold a party in civil contempt in order 'to enforce compliance with an order of the court or to compensate for losses or damages.'" Powell v. Ward, 643 F.2d 924, 931 (2d Cir. 1981) (citations omitted). A court's power to hold a party in civil contempt "may properly be exercised only if [:] the order is clear and unambiguous, the proof of noncompliance is 'clear and convincing' and the [party] has not 'been reasonably diligent and energetic in attempting to accomplish what was ordered.'"Powell, 643 F.2d at 931 (citations omitted). Based on the above, the Court finds that the record in the case at bar contains clear and convincing evidence from which to conclude that the prerequisites to holding Jacobs in civil contempt have been satisfied.
Penalty for Contempt
Upon finding a party in civil contempt for failing to obey a court's order, the court may impose sanctions for either or both of two purposes: to coerce the disobedient party into compliance with the court's order and to compensate the contemnor's adversary for any losses that party has sustained. See United Mine Workers of America, 330 U.S. at 303, 67 S. Ct. at 701 (citation omitted). The Court is mindful that "civil contempt relief is remedial in nature and not punitive." Danielson v. United Seaford Workers Smoked Fish Cannery Union, Local 359-AFL-CIO, 405 F.Supp. 396, 403 (S.D.N.Y. 1975).
The defendants maintain that they were injured by Jacobs' failure to comply with the court's March 31, 2003 order because they were required, beginning in February 2004, to expend resources on legal services which, save for Jacobs' misconduct, would not have been expended. Since Jacobs has now complied with the Court's March 31, 2003 order, no sanction by the court needs to be imposed to coerce him to do so. However, in the circumstance of this case, it is appropriate for the court to compensate the defendants for the economic injury they suffered as a result of Jacobs' failure to comply with the order of the court. In that connection, the defendants have submitted to the Court the contemporaneous billing records generated by their counsel covering the period commencing February 2004, when the defendants made an application pursuant to Fed.R.Civ.P. 41(b), that the complaint filed in this action be dismissed, and continuing to the point in time when post-hearing submissions were made to the Court.
While the Court understands the defendants' position that their Fed.R.Civ.P. 41 application triggered events which ultimately led to Jacobs' compliance with the March 31, 2003 order, the defendants' position ignores the inherent authority possessed by the court to enforce sua sponte its own orders by imposing sanctions upon a disobedient litigant. Furthermore, the Court recommended that the defendants' Fed.R.Civ.P. 41 application be denied, and it was. Under these circumstances, the Court finds that the appropriate starting point for compensating the defendants is June 2004, when they undertook to prepare and to file with the court objections to the May 2004 Report, a project which defendants' counsel abandoned only after receiving, belatedly, Jacobs' notice of "class-counsel resignation."
In its post-hearing submission, the defendants indicated that in defending against the allegations made by the plaintiff in this action, they engaged the services of the law firm of Zeichner, Ellman and Krause LLP. Stephen F. Ellman, Esq. ("Ellman"), a senior partner with the law firm submitted a declaration describing his professional background and that of Tracee E. Davis, Esq. ("Davis"), a senior associate with the law firm and Ronald M. Neumann, Esq. ("Neumann"), counsel to the law firm, as well as a summary of the hours expended by the three attorneys and the rates at which they billed the defendants for the legal services they rendered to them during the pertinent time period. In addition, Davis has also submitted a declaration that includes, among other things, the contemporaneous time records generated by her, Ellman and Neumann, showing for each of them the date, the hours expended and the nature of the work they performed for the defendants during, inter alia, the period June 2004 through the point in October 2004 when the defendants' post-hearing submission was made to the Court. The data provided by the defendants' counsel are sufficient for the Court to evaluate thoroughly the claim for attorneys' fees and costs made by the defendants. See e.g., New York State Ass'n for Retarded Children, Inc. v. Carey, 711 F.2d 1136 (2d Cir. 1983). In reviewing that data, the Court also considered whether the rates at which the three attorneys billed their time for the services they provided to the defendants was reasonable, drawing, in part, upon the Court's knowledge of private law firm hourly rates in the community. See Miele v. New York State Teamsters Conf. Pension Retirement Fund, 831 F.2d 407, 409 (2d Cir. 1987).
Based upon the Court's review of the declarations the defendants submitted to it, the Court finds that the defendants should be compensated for: 3.3 hours that Ellman spent, at an hourly rate of $415, reviewing pertinent documents, conferring with his colleagues and communicating with defendants' in-house counsel; 73.7 hours that Davis spent, at an hourly rate of $280, performing legal research, drafting and reviewing documents, conferring with her colleagues and preparing for, attending and participating in the Show Cause Hearing; and 30.1 hours that Neuman spent, at an hourly rate of $310, reviewing and drafting pertinent documents, conferring with his colleagues and preparing for, attending and participating in the Show Cause Hearing. The defendants should also be compensated for costs incurred by their counsel for,inter alia, obtaining the Show Cause Hearing transcript, photocopying materials and using automated data systems for legal research. In sum, the defendants incurred $31,336.50 in attorneys' fees and $693.97 in costs. An award to the defendants of $32,030.47 would compensate them for the economic injury they suffered as a result of Jacobs' failure to comply with the March 31, 2003 order of the court.
A few of the entries in the time records maintained by the defendants' counsel used nomenclature, which did not convey clearly to the Court the nature of the activity, if any, performed. The following entry is exemplary: "Attention to contempt motion and issues related to Carter admission." In those few instances, the Court determined to disallow compensation to the defendants for the fees associated with those entries. In addition, in June 2004, the defendants claim to have incurred costs for "search fees." No explanation of the type of "search" that was undertaken was provided to the Court. Therefore, no award for this incurred cost has been recommended.
IV. RECOMMENDATION
For the reasons set forth above, the court should find that Jacobs engaged in contumacious behavior by failing to obey an unambiguous order of the court and should impose upon him, as a penalty for his misbehavior, the obligation of compensating the defendants for the economic injury they suffered by incurring attorneys' fees and costs beginning in June 2004 and continuing to the time that they made their post-hearing written submission to the Court.
In addition, in light of Carter's unauthorized practice of law before this court, as detailed above, the Court also recommends that your Honor, in your capacity as Chair of the court's Grievances Committee, determine whether his conduct warrants a reference to that committee for investigation and action.
V. FILING OF OBJECTIONS TO THIS REPORT AND RECOMMENDATION
Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure, the parties shall have ten (10) days from service of this Report to file written objections. See also Fed.R.Civ.P. 6. Such objections, and any responses to objections, shall be filed with the Clerk of Court, with courtesy copies delivered to the chambers of the Honorable Jed. S. Rakoff, 500 Pearl Street, Room 1340, New York, New York, 10007, and to the chambers of the undersigned, 40 Foley Square, Room 540, New York, New York, 10007. Any requests for an extension of time for filing objections must be directed to Judge Rakoff. FAILURE TO FILE OBJECTIONS WITHIN TEN (10) DAYS WILL RESULT IN A WAIVER OF OBJECTIONS AND WILL PRECLUDE APPELLATE REVIEW. See Thomas v. Arn, 474 U.S. 140 (1985); IUE AFL-CIO Pension Fund v. Herrmann, 9 F.3d 1049, 1054 (2d Cir. 1993); Frank v. Reynoso, 968 F.2d 298, 300 (2d Cir. 1992); Wesolek v. Canadair Ltd., 838 F.2d 55, 57-59 (2d Cir. 1988); McCarthy v. Manson, 714 F.2d 234, 237-38 (2d Cir. 1983).