Opinion
Civ. No. H-98-2272.
December 1998.
Bankruptcy No. 97-50467ESD. Adversary No. 97-6233ESD.
MEMORANDUM OPINION
A long-simmering dispute between an impecunious client and his attorney has now resulted in this bankruptcy appeal. On January 14, 1997, appellee Kondian R. Rajaram, debtor herein, filed a bankruptcy petition in the United States Bankruptcy Court for the District of Maryland under Chapter 7 of the Bankruptcy Code. Appellant Phillip Mizrach is the sole creditor, having previously obtained a $20,000 judgment against Rajaram in a state court. In an adversary proceeding brought by him in the Bankruptcy Court, Mizrach claimed that for numerous reasons the indebtedness in question is not dischargeable.
Mizrach has been proceeding pro se both in the Bankruptcy Court and in this Court.
Extensive proceedings were held before Bankruptcy Judge E. Stephen Derby who prior to the trial made numerous pretrial rulings adverse to Mizrach's claims. Following the one day trial before Judge Derby, judgment in the adversary proceeding was entered in favor of Rajaram.
In this appeal, Mizrach has presented a lengthy list of challenges to rulings made by Judge Derby. Briefs have been timely filed by the parties, and the voluminous record on appeal has been reviewed by the Court. A hearing has been held in open court. For the reasons to be stated herein, all of the Bankruptcy Court rulings challenged by Mizrach in this appeal will be affirmed.
I Background Facts
Over a period of many years, Mizrach and attorney Edward Makowski represented Rajaram in litigation brought by him in this Court. Rajaram v. International Typographical Union, et al., Civil No. B-84-2465 and Rajaram v. International Typographical Union, et al., Civil No. B-80-12. Judge Black of this Court repeatedly ruled adversely to Rajaram, finding many of his claims to be frivolous. Judge Black's rulings were summarily affirmed by the Fourth Circuit. Rajaram v. International Typographical Union, No. 86-1161 (4th Cir. June 25, 1987); Rajaram v. International Typographical Union, No. 87-1078 (4th Cir. July 15, 1988) and Rajaram v. International Typographical Union, No. 89-3375 (4th Cir. June 20, 1990), cert.denied, 498 U.S. 983 (1990).
In his second amended complaint in Civil No. B-80-12, Rajaram sued his employer, his union and various individuals, alleging violations of Title VII of the Civil Rights Act of 1964 and of the Labor Management and Disclosure Act.
In his opinion of April 15, 1987 dismissing Civil No. B-80-12, Judge Black implored Mizrach to abandon his "quixotic quest for victory" which led him to act as counsel in a court where he was not qualified to practice under the rules of Court.Rajaram, 1987 WL 47909*10. Judge Black further noted that Rajaram "with the enthusiastic assistance of his counsel" continued to occupy the attention of at least five courts "in a total distortion of our system of justice." Id. at 9.
Mizrach and Makowski had devoted a considerable amount of time representing Rajaram in this lengthy and unsuccessful litigation. In his opinion of August 11, 1987 addressing defendants' motion for costs and attorneys' fees, Judge Black determined that Rajaram's suit in Civil No. B-80-12 was "frivolous, unreasonable and without foundation." Rajaram, 1987 WL 46226*2. Although he did not assess attorneys' fees against Makowski and Mizrach, he did note their "often outrageous and arguably incompetent behavior at the trial in this matter. . . ."Id.
Substantial attorneys' fees had been incurred by Rajaram during his unsuccessful litigation in this Court. Mizrach's records indicate that he billed approximately 600 hours while Makowski billed over 1100 hours. At the time, Rajaram was a taxi driver with insufficient resources to pay his attorneys' fees, and an arrangement had been reached whereby it was agreed that he would pay his attorneys a small amount each month. With the approval of his attorneys, Rajaram also performed paralegal-type work for them. He mostly worked on his own case, but he also performed other minor tasks like proof reading and retrieving court documents. He was given a key to the attorneys' office as well as space for the voluminous documents used in the litigation, and he was also allowed to use the attorneys' equipment.
At the hearing in this Court, Mizrach stated that he had previously received $5,000 from Rajaram under this payment plan.
In the late 1980s, after unfavorable rulings had been rendered in all of Rajaram's cases, Mizrach stopped representing him. Thereafter, Rajaram continued to pursue a number of his claims in the Fourth Circuit and in the Supreme Court on a pro se basis. After his final appeal had been decided against him, Rajaram removed a large number of documents relating to his case from Mizrach's office. At about the same time, in February 1991, Rajaram stopped making monthly payments to his attorneys.
Mizrach did represent Rajaram later in 1991 in connection with a claim arising as a result of a minor traffic accident which involved Rajaram's taxi. Rajaram objected to the manner in which Mizrach had represented him in that case and later filed a complaint with the Attorney Grievance Commission.
In 1994, Mizrach and Makowski filed an action in the District Court of Maryland for Baltimore City (the "state court") claiming the statutory maximum of $20,000 representing attorneys' fees owed to each of them. In defending that suit, Rajaram claimed that he had entered into contingency agreements for the payment of his attorneys' fees. Mizrach and Makowski contended that Rajaram had agreed to pay them based on an hourly rate and that he owed them hundreds of thousands of dollars in legal fees. After a one day bench trial, Judge Keith Mathews found for the plaintiffs Mizrach and Makowski and entered judgment in favor of each of them in the amount of $20,000. It is this $20,000 judgment entered against him in the state court which led Rajaram to file his Chapter 7 bankruptcy petition. As the sole creditor, Mizrach has challenged the dischargeability of this indebtedness.
The judgment in favor of Makowski was later vacated by the Circuit Court for Baltimore City.
Numerous rulings adverse to Mizrach's claims were made by Judge Derby in the adversary proceeding. In his Memorandum Order of February 13, 1998, Judge Derby granted Rajaram's motion for summary judgment in part and denied it in part, dismissed Counts I and II of Mizrach's amended complaint, and denied Mizrach's motion for summary judgment. In his Order of March 24, 1998, Judge Derby denied Mizrach's second motion to allow amendment of his complaint. In his Memorandum and Order of June 4, 1998, Judge Derby granted Mizrach's motion for costs and attorney's fees in part and ordered Rajaram to pay Mizrach the sum of $50.
In that ruling, Judge Derby erroneously referred to the pleading in question as "the Complaint." It is apparent, however, that the claims discussed were Counts I and II of the amended complaint and that Mizrach has not been harmed by the inadvertent error. As the record indicates, Judge Derby's summary judgment Order applies with equal force both to the allegations of the original complaint and to those of the amended complaint.
On March 19, 1998, a trial was held on Mizrach's remaining claims. At the outset, Judge Derby orally denied Mizrach's motion to again amend his amended complaint and also denied his motion to reconsider the Court's prior summary judgment rulings. Many of Mizrach's claims were dismissed after he rested at the trial. After hearing the testimony of both Mizrach and Rajaram, Judge Derby rendered an oral opinion denying the relief requested by Mizrach in the amended complaint and entering judgment in the adversary proceeding in favor of appellee Rajaram. Mizrach's motions for a new trial and to alter or amend judgment were later denied by Judge Derby.
II Issues on Appeal
Appellant Mizrach has advanced twelve separate challenges to rulings made by Judge Derby. In this appeal, he contends that the bankruptcy judge committed reversible error when he:
1. denied Mizrach's motion for a new trial;
2. denied a proper award for costs and attorneys' fees to a prevailing party after sanctions had been awarded;
3. denied Mizrach's motion for summary judgment;
4. granted partial summary judgment in favor of Rajaram;
5. denied Mizrach's motion to allow an amendment of his complaint;
6. denied Mizrach's motion to alter or amend judgment;
7. failed to follow the Court's own Order granting additional time to Mizrach for filing dispositive motions and instead ruled on what had already been filed;
8. denied proper sanctions against Rajaram for failing to comply with the Court's Scheduling Order and appropriate rules;
9. denied Mizrach's second motion to alter or amend judgment;
10. denied a motion to require repayment of money given to Rajaram's attorneys when the evidence indicated that there had been an improper transfer of property to an insider;
11. denied Mizrach's objection to the report of the bankruptcy trustee; and
12. denied relief to plaintiff Mizrach following the trial and granted judgment in favor of defendant Rajaram.
With reference to issues Nos. 1, 2, 5, 6, 7, 8 and 9, the applicable standard of appellate review is whether the court below abused its discretion. In re Jeffrey Bigelow Design Group, Inc., 956 F.2d 479, 481 (4th Cir. 1992); Cray Communications, Inc. v. Novatel Computer Systems, Inc., 33 F.3d 390, 395 (4th Cir. 1994),cert. denied, 513 U.S. 1191 (1995).
Issues Nos. 3 and 4 challenge summary judgment rulings of the Bankruptcy Court. This Court reviews these rulings de novo.Temkin v. Frederick County Comrs., 945 F.2d 716, 718 (4th Cir. 1991); Wiley v. Mayor City Council of Baltimore, 48 F.3d 773, 776 (4th Cir. 1995).
The applicable standard of review for issues Nos. 10, 11 and 12 is whether the findings made by the Bankruptcy Court were clearly erroneous. In re Green, 934 F.2d 568, 570 (4th Cir. 1991); In re Brumas, 203 B.R. 385 (Bankr. D. Md. 1996).
III Appellant's Claims for Relief (a) General
Appellant's discursive proliferation of the issues obscures the essential inquiry which this Court must make in this appeal, namely whether facts of record support Mizrach's contention that the debtor is not, under various provisions of the Bankruptcy Code, entitled to a discharge. What is apparent from the Court's review of Mizrach's lengthy briefs and the voluminous pleadings, exhibits and transcripts is that the facts of record here provide no support for any of the theories relied upon by appellant Mizrach in objecting to the discharge of appellee Rajaram.
Mizrach has taken a scatter-shot approach to the nondischargeability issues both in this Court and in the Bankruptcy Court. In both courts, he has relied on a great many subsections of 11 U.S.C. § 523 and 11 U.S.C. § 727, without regard to whether there are any facts to support the theory advanced. In spite of persistent attempts and a laundry list of claims, Mizrach has not been able to shoe-horn the material facts of record into any viable legal theory which would support his contention that Rajaram is not entitled to a discharge. Indeed, as the record here indicates, Mizrach has not even been able to allege sufficient facts to support many of his objections to the discharge.
Mizrach is apparently not seeking any financial gain by objecting to Rajaram's discharge. At the hearing in this appeal, he agreed that it made "no sense economically" to pursue the matter in this Court but stated that it was "a question of principle."
After Mizrach had rested at the trial, counsel for Rajaram moved for judgment as a matter of law. After hearing argument, Judge Derby dismissed Mizrach's claims under § 727(a)(3), under § 727(a)(4)(B), under § 727(a)(4)(C), under § 727(a)(4)(D), under § 727(a)(5) and under § 727(a)(6)(A). He also dismissed Mizrach's claims under § 523(a)(4) and § 523(a)(6). The trial then proceeded on the claims asserted by Mizrach under § 727(a)(2)(A) and under § 727(a)(4)(A).
In his Memorandum Order of February 12, 1998, Judge Derby had previously dismissed Mizrach's claim asserted under § 523(a)(2)(A).
Construing the amended complaint as broadly as possible, as did Judge Derby, it appears that the principal statutory provisions under which Mizrach is now seeking relief are § 523(a)(2)(A) and Subsections (3), (4) and (6) of § 727(a). As Judge Derby ruled and as the record here discloses, Mizrach was repeatedly unable to adequately plead the essential elements of the type of fraud required by these statutory provisions. It is apparent that Mizrach's claims were not properly pled because no actionable fraud existed.
11 U.S.C. § 523(a)(2) provides in pertinent part as follows:
(a) A discharge under [the Code] does not discharge an individual debtor from any debt —
* * *
(2) for money, property, services or an extension, renewal, or refinancing of credit to the extent of paying by —
(A) false pretenses, a false representation, or actual fraud other than a statement respecting the debtor's or an insider's financial condition;
* * *
(4) for fraud or defalcation while acting in a fiduciary capacity, . . .
* * *
(6) for willful and malicious injury by the debtor to another entity or to the property of another entity;11 U.S.C. § 727 provides in pertinent part:
(a) The court shall grant the debtor a discharge, unless
* * *
(3) the debtor has concealed, destroyed, mutilated, falsified or failed to keep or preserve any recorded information, including books, documents, records and papers from which the debtor's financial condition or business transactions might be ascertained, unless such act or failure to act was justified under all the circumstances of the case;
(4) the debtor knowingly and fraudulently, in or in connection with the case —
(A) made a false oath or account;
(B) presented or used a false claim;
* * *
(6) the debtor has refused, in the case —
(A) to obey any lawful order of the court, other than an order to respond to a material question or to testify;
To prove fraud under § 523(a)(2)(A), a creditor must show,inter alia, that as a result of his reliance on a fraudulent representation, he proximately sustained damages. Hecht's v. Valdes, 188 B.R. 533, 535 (Bankr. D. Md. 1995). The fraud referenced in § 727(a)(4) must have been done in or in connection with the case. Mizrach asserts that a necessary implication of the state court's decision is that Rajaram negotiated a reduced monthly fee in 1985, even though he believed that he owed Mizrach nothing and that this alleged fraud induced Mizrach to continue working on the case to his detriment. These assertions are not sufficient to constitute the type of actionable fraud which would bar a debtor's discharge under either § 523 or § 727.
Not only was Mizrach unable to allege fraud in a manner which would have permitted Rajaram to understand and respond to the claim made against him under § 523(a)(2)(A), but also the facts of record establish that no actionable fraud was committed by Rajaram. Mizrach argues that the state court proceedings conclusively establish that he was defrauded by Rajaram and that the Bankruptcy Court was required to give preclusive collateral estoppel effect to that determination. But no such finding was ever made by the state court, nor did Mizrach even allege a fraud claim in that court. Mizrach's claim of breach of contract was upheld by the state court, and he was awarded a judgment of $20,000. It is specious for Mizrach to contend that he "could have litigated his fraud claim as an alternate theory in the state court" and that therefore the outcome of that case must have preclusive effect here as to the fraud issue. The issue decided in an earlier proceeding must have been actually litigated and decided and must have been necessary to the decision before it can be given preclusive effect in a later bankruptcy proceeding.Combs v. Richardson, 838 F.2d 112, 113 (4th Cir. 1988); In re Raynor, 922 F.2d 1146, 1148 (4th Cir. 1991). Mizrach's fraud claim was not actually litigated and decided in the state court proceeding.
Rajaram's removal of his papers from Mizrach's office did not have any adverse effect on the bankruptcy proceedings. Nor did Rajaram's removal of the papers constitute theft or fraud. The state court judge rejected Mizrach's contention that Rajaram had taken the written fee agreement from Mizrach's office. Rather, Judge Mathews determined that "there was one, but apparently it was lost someway." The matter was actually litigated and decided in the state court proceeding, and the judge's findings are binding and conclusive in this case. See Combs, 838 F.2d at 113.
Judge Mathews specifically stated: "the Court doesn't make any finding that he [Rajaram] took it, simply that there was an agreement, and for some reason it can't be found."
Moreover, the documents in question related to Rajaram's litigation in federal court and were not records and papers from which his financial condition or business transactions might be ascertained. Furthermore, Rajaram's noncompliance with an order of the Bankruptcy Court relating to discovery did not materially affect the bankruptcy proceedings to the prejudice of Mizrach.
(b) Issues Nos. 10, 11 and 12
Following its review of Judge Derby's oral opinion rendered following the trial, this Court concludes that his findings were not clearly erroneous. The fees paid by Rajaram to his attorneys for services in the state court, although maybe "on the high side" as determined by Judge Derby, were not fraudulent transfers. There is no evidence that Rajaram was attempting to defraud his one creditor by paying these attorneys' fees.
Mizrach argues that Rajaram made a false oath in violation of § 727(a)(4)(A) when he represented that his taxicab license had no value. In denying that claim, Judge Derby noted that the trustee had determined that it was not worthwhile for the estate to attempt to sell the license. The trustee could not find anyone to purchase it, and it would have therefore been necessary to incur the expense of a public auction. Moreover, Rajaram had received a letter from the Public Service Commission stating that taxi cab permits have no value. Since the debtor had not withheld information concerning this possible asset but in fact had disclosed its existence, Judge Derby decided that Rajaram's failure to attribute value to it did not under the circumstances justify the drastic sanction of denying him a discharge. These findings and conclusions of the Bankruptcy Judge were not clearly erroneous and will be affirmed.
On the record before him, Judge Derby quite properly entered judgment against appellant Mizrach. Accordingly, there is no merit to the arguments presented by appellant in support of issues Nos. 10, 11 and 12.
(c) Issues Nos. 3 and 4
In this appeal, Mizrach also contends that Judge Derby erred when he denied Mizrach's motion for partial summary judgment and when he granted Rajaram's motion for summary judgment in part. Following a de novo review of the record here, this Court is satisfied that there is no merit to these contentions.
Whether, as argued by Mizrach, the particular reasons given by Judge Derby do not support his denial of Mizrach's motion for summary judgment, facts of record establish as a matter of law that Mizrach was not entitled to relief under § 727(a). At the trial, Judge Derby addressed Mizrach's § 727 claims on the merits and rejected them after hearing the witnesses. As this Court has determined, his findings were not clearly erroneous.
Judge Derby's decision to grant partial summary judgment for Rajaram was also proper. Treating the motion as one to dismiss, the Bankruptcy Court determined that Mizrach had failed to state a proper claim that the debt was non-dischargeable under § 523(a), nor a proper claim that the bankruptcy petition should be dismissed under 11 U.S.C. § 707(a). From its review of the pleadings, this Court would agree. The necessary elements of fraud as required to support a claim under § 523(a)(2)(A) were not adequately alleged in the amended complaint. See Valdes, 188 B.R. at 535.
This Court would also agree with Judge Derby that Mizrach was not entitled to proceed with his claim that the bankruptcy petition should be dismissed. The amended complaint did not contain allegations sufficient to state a claim under any one of the subsections of § 707(a).
For these reasons, Mizrach's arguments in support of issues Nos. 3 and 4 must be rejected.
(d) Issues Nos. 1, 2, 5, 6, 7, 8 and 9
After Judge Derby had entered partial summary judgment in favor of Rajaram, Mizrach filed a motion to alter or amend judgments. Following the trial, Mizrach filed a second motion to alter or amend judgment and a motion for a new trial. None of these three motions had merit.
A verdict may be set aside pursuant to a motion for a new trial and a new trial granted when it would be in the interests of justice. Aetna Casualty Surety Co. v. Yeatts, 122 F.2d 350, 352 (4th Cir. 1941). A motion for a new trial is addressed to the sound discretion of the trial court. See Richmond v. Atlantic Company, 273 F.2d 902 (4th Cir. 1960). The burden of showing error rests on the party seeking a rehearing on the merits.Holman v. Mark Industries, Inc., 610 F. Supp. 1195, 1199 (D. Md. 1985).
Mizrach has not on the record here satisfied his burden of showing that he is entitled to a new trial in the Bankruptcy Court. Mizrach's reliance on principles of collateral estoppel is misplaced. The state court did not determine that Rajaram had perpetuated a fraud. Rather, it merely decided that Rajaram had breached a contract between the parties and that he owed Mizrach at least $20,000 in attorneys' fees and expenses. The fact that the state court judge did not credit Rajaram's testimony concerning the existence of a contingency fee agreement does not indicate that the state court judge found that Rajaram intended to defraud Mizrach.
Nor is Mizrach entitled to a new trial because the Bankruptcy Court did not permit him to amend his complaint for a third time shortly before the trial. The attempted amendment was much too late and would have resulted in prejudice to Rajaram if a new theory of liability were to have been advanced shortly before trial. Moreover, the proposed second amended complaint was garbled and did not adequately allege a claim entitling Mizrach to the relief he sought. Since Judge Derby properly exercised his discretion in disallowing the amendment, this Court is satisfied that he did not commit reversible error when he denied Mizrach's motion to file a second amended complaint.
Mizrach also argues that a new trial should have been granted because the Bankruptcy Court improperly ruled that there was no breach of fiduciary duty by Rajaram when he entered his attorney's office and removed various documents. Clearly, under facts of record here, no fiduciary duty existed between the parties. Mizrach has cited no authority which would support the remarkable proposition that a fiduciary relationship is created between a client and his attorney when the client is entrusted with a key to the attorney's office.
Mizrach's first motion to alter or amend judgments and his second motion to alter or amend the final judgment are based on little more than his disagreement with rulings made by Judge Derby both before the trial and after hearing the evidence. The arguments advanced by Mizrach in opposing the entry of these judgments had been previously considered by Judge Derby and were properly rejected by him.
Because Rajaram refused to adequately comply with a discovery request, the Bankruptcy Court awarded Mizrach $50 in costs and further ruled that Rajaram would not be able to use at the trial any documents which he had failed to produce. Mizrach argues that Judge Derby erred in awarding such a small amount and that he further erred in denying Mizrach an award for costs and attorneys' fees after imposing sanctions on Rajaram. This Court concludes that Judge Derby did not abuse his discretion when he determined the amount of the monetary sanction. Since Rajaram's transgression was a minor one, Judge Derby could, in the exercise of his discretion, have properly decided that $50 was the appropriate amount to be paid by Rajaram, an impecunious debtor.
Moreover, Judge Derby correctly concluded under applicable law that Mizrach was not entitled to an award of attorneys' fees and costs. As the Fourth Circuit and several other courts of appeal have held, an attorney who chooses to handle his case in apro se capacity is not entitled to recover attorneys' fees.White v. Arlen Realty Dev. Corp., 614 F.2d 387, 388 (4th Cir.),cert. denied, 447 U.S. 923 (1980); Aronson v. U.S. Dep't of Housing and Urban Dev., 866 F.2d 1, 5-6 (1st Cir. 1989); Falcone v. I.R.S., 714 F.2d 646, 647-48 (6th Cir. 1982), cert. denied, 466 U.S. 908 (1984). As the Fourth Circuit observed in White: "It is axiomatic that effective legal representation is dependent not only on legal expertise, but also on detached and objective perspective. The lawyer who represents himself falls short of the latter." 614 F.2d at 388. It is obvious from the record here that no detached and objective perspective has been shown by Mizrach in persistently litigating this case on a pro se basis.
Although Judge Derby concluded that Rajaram did not do enough to supply requested documents to Mizrach, he also determined that Mizrach had failed to take advantage of the opportunity which was afforded him to inspect the documents at Rajaram's home. Rajaram's attorneys offered Mizrach the opportunity to make such an inspection under conditions which were entirely reasonable. For reasons of his own, Mizrach decided that he would not go to Rajaram's home to inspect the documents. Under these circumstances, it was not an abuse of discretion for Judge Derby to deny Mizrach's request for an award of costs and attorneys' fees.
Nor did Judge Derby abuse his discretion by refusing to allow Mizrach more time to undertake discovery and file his motion for summary judgment. As shown at the trial, evidence did not exist to support Mizrach's argument that he was entitled as a matter of law to prevail on his fraud claims. Mizrach was therefore not harmed when he was not given the additional time he sought.
For all these reasons, this Court concludes that there is no merit to the arguments advanced by appellant in support of issues Nos. 1, 2, 5, 6, 7, 8 and 9.
IV Conclusion
In summing up his arguments, appellant Mizrach contends that "[t]he total circumstances of this case and the rulings indicate that justice was not done." This Court must disagree. The Bankruptcy Judge patiently and painstakingly addressed each of the numerous claims asserted by Mizrach. Judge Derby properly exercised his discretion, and his findings were not clearly erroneous. This Court is satisfied that justice was done when the Bankruptcy Judge decided that grounds did not exist for denying debtor Rajaram a discharge from his $20,000 indebtedness to Mizrach.
An appropriate Order will be entered by the Court.