Cecconi v. Cecconi et al

OCR transcription for search; preserved printed pages are authoritative

UNITED STATES BANKRUPTCY COURT

For The Northern District Of California

AUTHENTICAT
U.S. GOVERNMENT,
INFORMATION

GPO

Entered on Docket
October 16, 2007

GLORIA L. FRANKLIN, CLERK

U.S BANKRUPTCY COURT
FIL INORTHERN DISTRICT OF CALIFORNIA

oct 16 2001
CLERK ay Gault
aktuptey
une mi
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case No. 02-50653-ASW

In re

Chapter 304
Ancillary Proceeding

Guiseppe Enzo Cecconi,

Debtor.

Sarah Cecconi,
Adversary Proceeding
Plaintiff, No. 03-5024
vs.

Guiseppe Enzo Cecconi,
A.C. Spicer, Trustee in Bankruptcy
(under U.K. insolvency laws),

Defendants.

A.C. Spicer, Trustee in Bankruptcy
(under U.K. insolvency laws),

Counter-Claimant,
vs.
Sarah Cecconi,

Counter-Defendant.

A.C. Spicer, Trustee in Bankruptcy
(under U.K. insolvency laws),

Cross-Complainant,
vs.
Guiseppe Enzo Cecconi,

Cross-Defendant.

et ss et

MEMORANDUM DECISION RE REQUEST FOR MONETARY SANCTIONS

MEMORANDUM DECISION RE
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Before the Court is the request (“Request”) of A.C. Spicer,
Trustee in Bankruptcy (under U.K. Insolvency Laws) (“Trustee”) for
monetary sanctions against Plaintiff Sarah Cecconi (“Plaintiff”)
based on this Court’s award of monetary sanctions for Plaintiff's
alteration of original evidence before trial and after Plaintiff
knew of Trustee’s claims against her. Trustee requests sanctions
in the amount of $116,373.50 for attorneys fees incurred as a
result of Plaintiff's alteration of evidence. Alternatively,
Trustee requests an award of $136,150 representing 15% of the
attorneys fees incurred after the discovery of the altered evidence
plus attorneys fees incurred in bringing this Request. Plaintiff
opposes the Request and proposes a monetary sanction of $25,000.

The Court took the Request under submission at the June 7, 2007
hearing on this matter. Trustee is represented by Mary Jo
Shartsis, Esq. of Shartsis, Friese & Ginsburg LLP. Plaintiff is
represented by Paul S. Avila, Esq. of McPharlin, Sprinkles & Thomas
LLP. Patric J. Kelly, Esq. of Adleson, Hess & Kelly appeared for
Plaintiff’s husband, Enzo Cecconi (“Debtor”), at the June 7
hearing. This Memorandum Decision constitutes the Court’s findings
of fact and conclusions of law, pursuant to Rule 7052 of the

Federal Rules of Bankruptcy Procedure.

I.
FACTS
Trustee is the trustee in Debtor’s involuntary bankruptcy case
pending in the United Kingdom. Trustee filed an ancillary
proceeding under 11 U.S.C. § 304 in this Court on January 7, 2002,

to obtain a determination that Debtor held a community property

MEMORANDUM DECISION RE

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interest in the house and property located at 3190 Del Ciervo
Drive, Pebble Beach, California (the “Property”). Plaintiff filed
her Complaint to Establish Purchase Money Resulting Trust against
Debtor and Trustee on January 15, 2003, seeking, inter alia, a
determination that the Property was Plaintiff’s sole and separate
property.

In the litigation, Trustee served Plaintiff with a First Set of
Requests for Production to Plaintiff Sarah Cecconi (“Document
Request”) on or about April 1, 2003. In responding to the Document
Request, Plaintiff reviewed her financial records from her father’s
office. Plaintiff's father had managed and directed Plaintiff's
financial affairs from 1980 until his death in 1997.

When Plaintiff collected documents to produce to Trustee,
Plaintiff removed her social security number, telephone number and
Wells Fargo Bank account number from original documents. Plaintiff
also removed her mother’s address from Wells Fargo Bank documents.
Plaintiff had several conversations with her counsel, Elaine Seid,
Esq., before whiting out the personal information and understood
from those conversations that whiting out the personal information
was permissible. Plaintiff also removed Debtor’s name from some
insurance documents. Plaintiff removed this information by whiting
out the information on the original documents.

Ms. Seid knew that Plaintiff had whited out the private
information prior to producing copies of the documents in response
to the Document Request. The only communication to counsel for
Trustee regarding the whiting out of the produced documents was a

statement in the formal written response to the Document Request

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objecting to disclosure of Plaintiff’s personal information.?
Counsel for Trustee was not notified specifically of the whiting
out of produced documents. Plaintiff’s counsel was not aware that
Plaintiff had whited out Debtor’s name on the insurance documents
at the time those documents were produced to Trustee ina
supplemental production in January 2004.

On the eve of trial, Trustee brought a Motion for Evidentiary
Sanctions Against Adversary Plaintiff Sarah Cecconi (“Sanction
Motion”) based on Plaintiff’s alteration of certain produced
documents. In the Sanction Motion, Trustee requested that this
Court dismiss Plaintiff’s claims for Plaintiff’s alteration of the
produced documents. Alternatively, Trustee requested an order
deeming that Plaintiff’s alteration of the produced documents is an
admission that the altered documents showed that Debtor was a
beneficial owner of the Property. Trustee also requested that
counsel for Plaintiff certify under penalty of perjury that
Plaintiff had not altered any other documents and had not failed to
produce any documents responsive to Trustee’s discovery requests.
Absent such certification, Trustee requested that the Court
establish the adverse inference that specific documents, namely the
escrow instructions for the Property, contracts for architectural

and construction work on the Property and additional insurance

" The relevant statement says: “Objection is made to each request for production to the
extent it calls for attorney/client and/or work-product privileged information; for personal
information of responding party to which responding party asserts her privacy rights, including, but
not necessarily limited to P.O. Box numbers used by responding party, telephone numbers and her
social security number.” Response of Sarah Cecconi to First Set of Request for Production of
Documents of A.C. Spicer at 2:11-15.

MEMORANDUM DECISION RE

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policies contain statements supporting the claim that Debtor and
Plaintiff owned the Property as community property.

The Sanction Motion was argued at the start of the trial. The
Court asked Trustee if Trustee would like to continue the trial to
conduct discovery regarding the whiting out of the produced
documents, and noted that Trustee would be entitled to have the
fees for Trustee’s counsel for taking such discovery paid for by
Plaintiff. Trustee decided not to postpone the trial to conduct
more discovery regarding the alteration of evidence, but rather
chose to address that issue through cross-examination at trial.

The Court carried the Sanction Motion with the trial.

On April 17, 2007, this Court issued its Memorandum Decision
After Trial where this Court found, inter alia, that dismissal of
Plaintiff’s claims was an inappropriate remedy for Plaintiff's
actions as was exclusion of the evidence and having this Court draw
an adverse inference against Plaintiff. This Court ordered Trustee
to submit a request for a specific amount of fees, with evidentiary
support, for the Court’s consideration as to the appropriate amount
of monetary sanctions.

On May 10, 2007, Trustee filed his Request. In the Request,
Trustee requests sanctions in the amount of $85,223.50 based ona
detailed analysis of the daily time entries in applicable invoices
from the trial and post-trial period. According to Ms. Shartsis’
declaration filed in support of the Request, prior to submitting
the Request, Trustee’s counsel reviewed all time entries in those
invoices to identify relevant time entries and, to the extent
necessary, reviewed the trial transcripts, exhibits, notes, and

other documents to allocate time relating to the alteration of

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evidence within each relevant time entry. As exhibits to the
Request, Trustee listed redacted versions of the time entries that
Trustee’s counsel determined contained time related to the
alteration of evidence. According to the declaration of Ms.
Shartsis filed with Trustee’s reply, if a time entry did not relate
to the alteration of evidence, that entry was not included in the
exhibits. For each time entry included in the exhibits, Trustee’s
counsel allocated that portion of time counsel believed related to
the alteration of evidence. Trustee’s counsel asserts that this a
conservative allocation of the relevant time. As an alternate
measurement of sanctions, Trustee requests 15% of the approximately
$700,0000 in attorneys fees for the trial and post-trial briefing,
or $105,000. Trustee has also incurred $31,150 in attorneys fees
preparing the Request and replying to Plaintiff's opposition to the
Request. In full, Trustee requests an award of either $116,373.50
or $136,150, if the Court uses the 15% allocation.

Plaintiff opposes the Request on the basis that the Request for
$85,223.50 in fees is unreasonable asserting that a vast majority
of the “relevant” fees do not relate to Plaintiff’s alteration of
documents. Plaintiff argues that most of the fees were incurred in
Trustee’s request for terminating or evidentiary sanctions on the
basis of other discovery violations Trustee alleged and strenuously
argued, but never substantiated. Plaintiff objects to the $22,593
in fees incurred in preparing the Request on the basis that Trustee
failed to provide any billing records or other descriptive
information to support those fees, so Trustee has failed to show

that the fees were incurred as a direct result of Plaintiff’s

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discovery violation and those fees are reasonable.’? Plaintiff
asserts that a reasonable award for monetary sanctions is $25,000
-- which Plaintiff claims is the amount of attorneys fees that
Trustee reasonably incurred in discovering and clarifying the
nature of the altered evidence, in bringing and arguing the initial
Sanction Motion, plus the limited additional trial time and post-
trial briefing reasonably necessary to bring the largely

uncontested matter to conclusion.

Il.
ANALYSIS
Monetary sanctions should be awarded for the amount of
attorneys fees that are reasonable in light of the degree of
Plaintiff’s culpability in the alteration of documents. In re
Napster, Inc. Copyright Litigation, 462 F. Supp. 2d 1060, 1078
(N.D. Cal. 2006). Attorneys fees should be reviewed under a
standard of whether the fees were reasonable at the time the fees
were incurred and not with the benefit of hindsight. See, e.g., In

re Mednet, MPC, 251 B.R. 103, 108 (9th Cir. BAP 2000) (by analogy,

attorneys fees under Bankruptcy Code § 330 are deemed reasonable if
those fees were necessary or beneficial at the time incurred
irrespective of whether the services resulted in a material benefit
to the estate).

Both parties agree that reasonable attorneys fees include those
fees incurred in Trustee’s investigation of the scope and extent of

Plaintiff’s alteration of documents. Two weeks before the start of

> Trustee filed with his reply papers time entries to support the $31,150 in attorneys fees
requested for preparing the Request and replying to Plaintiff’s opposition.

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trial Plaintiff acknowledged that she had altered original evidence
before copying that evidence and producing the copies to Trustee.
Trustee decided to proceed with the trial rather than postponing
the trial and conducting further discovery. Trustee agreed to
address any factual issues regarding the alteration of evidence in
cross-examination at trial.

Trustee divides the requested fees into a Pre-Trial and Trial
Category and a Post-Trial Category, but includes the invoices for
the months of August 2005 and September 2005 -- when the time
entries relate to the Post-Trial Brief -- in the Pre-Trial and
Trial Category. The Court has reviewed Trustee’s “relevant” time

entries and has allocated the hours and fees into the following

categories:

Category Hours Fees
Pre-Trial Matters 40.0 $13,657.50
Trial 117.2 $39,774.50
Post-Trial Brief 46.8 $17,525.50
Post-Trial Reply Brief 15.2 $5,534.50
Closing Arguments 5.5 $2,092.50
Supplemental Brief 14.4 $6,639.00

Subtotal 239.1 $85,223.50
Sanctions Request 43.8 $22,593.50
Reply to Sanctions Request 15.7 $8,556.50
Grand Total 298.6 $116,373.50

The Court has thoroughly reviewed the exhibits submitted with
the Request and finds that all of the “relevant” time entries

related to pre-trial matters and the trial appear to be reasonable.

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Specifically, the Court finds the 117.2 “relevant” hours of
attorney and paralegal time to address the alteration of evidence
issue at trial are reasonable. Trustee had wide discretion and
latitude at trial to determine the scope of Plaintiff’s actions
related to discovery issues. Plaintiff’s alteration of original
documents increased Trustee’s level of scrutiny regarding all of
Plaintiff’s actions with respect to discovery. Moreover, it was
difficult for Trustee to discern from the copies exactly which
documents had been altered and Plaintiff did not provide Trustee
with a list of those documents. It was Trustee who prepared a list
of the documents Trustee believed were altered.

Plaintiff asserts that the Request includes fees for time
incurred for Trustee’s arguments that Plaintiff withheld documents
and failed to produce documents responsive to discovery, which
Plaintiff asserts is not reasonable. Trustee’s counsel declares
that Trustee allocated only those issues related to Plaintiff's
alteration of original documents before the production of those
documents. Trustee did not provide the Court with unredacted time
entries nor with the full invoices, so the Court does not know the
full amount of time spent on post-trial categories.

Trustee is entitled to an award of attorneys fees that is
reasonable in light of Plaintiff's alteration of evidence.
Plaintiff blatantly altered original evidence before trial and
after Plaintiff knew of Trustee’s claims against her, and did not
fully disclose that alteration to Trustee. Trustee allocates 81.9
hours and $31,791.50 in fees for post-trial briefing and closing
arguments related to the alteration of evidence issue. The Court

allocates Trustee’s relevant time entries as follows:

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Category Hours Fees

Post-Trial Brief:

Ms. Shartsis (at $485/hr) 18.1 $8,778.50
Ms. Hespenheide (at $310/hr) 27.7 $8,587.00
Paralegal time (at $160/hr) 1.0 $160.00

Post-Trial Reply Brief:

Ms. Shartsis (at $485/hr) 4.7 $2,279.50
Ms. Hespenheide (at $310/hr) 10.5 $3,255.00
Closing Arguments:
Ms. Shartsis (at $515/hr) 1.5 $772.50
Ms. Hespenheide (at $330/hr) 4.0 $1,320.00
Supplemental Brief:
Ms. Shartsis (at $515/hr) 10.2 $5,253.00
Ms. Hespenheide (at $330/hr) 4.2 $1,386.00
Total 81.9 $31,791.50

Trustee had to research, brief and argue the issue of discovery
sanctions as a result of Plaintiff's alteration of evidence.
Trustee extensively quoted from the trial transcript in post-trial
briefing in support of these arguments, requiring a detailed review
of the trial transcript. This was necessary because much of the
questioning of Plaintiff and other witnesses regarding the
alteration of documents was conducted at the trial. The Court
finds that the $31,791.50 in fees spent on post-trial briefing and
closing arguments are reasonable for all post-trial activities
related to Plaintiff’s alteration of evidence.

Finally, Trustee requests $31,150.00 in fees for 59.5 hours of
work preparing the Request and replying to Plaintiff’s opposition.

Trustee’s counsel submitted time entries supporting these fees with

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the reply papers. In her opposition, Plaintiff asked this Court to
disallow those fees for Trustee’s failure to substantiate them.
Plaintiff did not comment on the reasonableness of specific time
entries at the hearing. The Court will not disallow the fees
related to the Request in full, but will review those fees for
reasonableness. This Court finds that the fees are somewhat high
under the circumstances.

A majority of those hours were incurred by Ms. Shartsis in
reviewing the invoices and other documents in preparing the
Request. Reviewing the invoices to determine which time entries
were related to the alteration of evidence issue needed to be
undertaken by either Ms. Shartsis or Ms. Hespenheide, the two
counsel at the trial. Here Ms. Shartsis incurred 36.5 hours
preparing the Request and 15.7 hours replying to Plaintiff’s
opposition. At a billing rate of $545 per hour, Trustee seeks
$28,449.00 in fees for Ms. Shartsis’ time alone. Normally it is
not reasonable for the higher billing attorney to undertake such a
review and Trustee has provided no evidence or reason why Ms.
Hespenheide could not have performed the initial review of the
invoices and prepared a draft reply -- the manner in which work was
allocated in the majority of activities billed in this matter. As
shown below, had Ms. Hespenheide performed the initial preparation
of the Request and Ms. Shartsis reviewed the work, the amount of
fees for the preparation of the Request and the related reply would

have been $24,080.00 -~- $7,070 less than the total fees currently

requested by Trustee:

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Category Hours Fees

Request Preparation:
Ms. Shartsis (at $545/hr) 7.3 $3,978.50
Ms. Hespenheide (at $370/hr) 36.5 $13,505.00
Reply Preparation:
Ms. Shartsis (at $545/hr) 4.5 $2,452.50
Ms. Hespenheide (at $370/hr) 11.2 $4,144.00
Total 59.5 $24,080.00

The Court finds no basis for Ms. Shartsis to bill her hourly rate
to perform work usually performed by Ms. Hespenheide in the first
instance, and will reduce the fees requested for the preparation of

the Request and the reply by $5,000.°

Tit.
CONCLUSION
For the reasons set forth above, this Court awards Trustee
$111,373.50 in monetary sanctions against Plaintiff for Plaintiff's
alteration of original evidence after knowing of Trustee’s claims
against Plaintiff. Counsel for Trustee shall prepare a form of
order and submit it to the Court, after review by counsel for

Plaintiff.

Dated: ! O liv { () -) _ ; -

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Atty, SN) wreatiegd
ARTHUR S. WEISSBRODT
UNITED STATES BANKRUPTCY JUDGE

3 If Ms. Hespenheide had performed the initial work on the Request and the reply, Ms.
Shartis might have reasonably charged some additional time to review Ms. Hespenheide’s work and
the reply. The Court is accounting for that potential additional time by not reducing the fees for
preparation of the Request and reply by the full $7,070 difference.

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Court Service List

Patric J. Kelly, Esq.
Adleson, Hess and Kelly
577 Salmar Ave. 2nd Fl.
Campbell, CA 95008

Mary Jo Shartsis, Esq.
Shartsis Friese LLP

1 Maritime Plaza 18th Fl.
San Francisco, CA 94111

Paul S. Avila, Esq.

McPharlin, Sprinkles & Thomas LLP
10 Almaden Blvd, Suite 1460

San Jose, CA 95113

U.S. Trustee

Office of the U.S. Trustee
U.S. Federal Bldg.

280 S ist St. #268

San Jose, CA 95113-3004

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