Longfellow Apartments, LLC et al et al v. Potillo

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLUMBIA
In re
EDUARDO R. POTILLO,
Debtor.
___________________________
LONGFELLOW APARTMENTS, LLC,
et al.,
Plaintiffs,
v.
EDUARDO R. POTILLO,
Defendant.
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Case No. 04-00146
(Chapter 7)
Adversary Proceeding
No. 04-10046
OPINION RE MOTION FOR SANCTIONS AND COSTS
This opinion addresses the plaintiffs’ Motion for Sanctions
and Costs (Docket Entry (“DE”) No. 47). An earlier Order (DE No.
45 entered March 30, 2005) partially granted the plaintiffs'
Motion for Show Cause Order Against Defendant Potillo for Failure
to Comply with Court Order Compelling Disclosure and Discovery
(DE No. 19, filed November 18, 2004). The Order provided that it
The opinion below is hereby signed. Dated: May 24,
2005.
_____________________________
S. Martin Teel, Jr.
United States Bankruptcy Judge
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2
was:
ORDERED that within fifteen (15) days after the
date of entry of this Order, the debtor shall pay an
amount equal to Five Hundred Dollars ($500) as the
reasonable expenses incurred by plaintiffs in making
the subject motion and pursuing discovery of the
subject materials, including attorneys’ fees. Such
payment shall be made by money order or bank check,
payable to plaintiffs’ counsel and delivered to the
plaintiffs’ counsel’s address of record.
The Order further recited the court's conclusion that the debtor
should bear the burden and expense of recovering the requested
bank records from the bank, and the court directed that the
plaintiffs were free to file a motion seeking reimbursement from
the debtor for the costs of retrieving the bank records. The
plaintiffs have incurred $2,637.50 in costs in subpoenaing bank
records from banks.
In the instant motion, the plaintiffs seek (1) sanctions for
the debtor's failure to pay the $500; (2) reimbursement of the
$2,637.50 in bank subpoena costs; and (3) a recovery of the
plaintiffs' attorney's fees incurred in pursuing the motion.
I
With respect to the failure to pay over the $500, the court
deems sanctions to be inappropriate as that would amount to
utilizing contempt sanctions to collect a monetary obligation. A
court's contempt powers are not ordinarily used in the
enforcement of a monetary judgment. Instead, the plaintiff
resorts to execution remedies under F.R. Civ. P. 69. “[W]hen a
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1 As observed in Baxter State Bank v. Bernhard, 186 F.R.D.
621 (D. Kan. 1999):
The court notes that, as a general rule, courts
addressing the execution of judgments hold that "the
proper means ... to secure compliance with a money
judgment is to seek a writ of execution." Hilao v.
Estate of Marcos, 95 F.3d 848, 854 (9th Cir. 1996)
(quoting Shuffler v. Heritage Bank, 720 F.2d 1141, 1148
(9th Cir.1983)). According to MOORE'S FEDERAL
PRACTICE,
Rule 69(a) provides that the "process to
enforce a judgment for the payment of money
shall be a writ of execution, unless the
court directs otherwise." This language
appears to contemplate a means to enforce
money judgments other than by writ of
execution. However, such other means are
confined only to cases in which established
principles warrant equitable relief, such as
3
party fails to satisfy a court-imposed money judgment the
appropriate remedy is a writ of execution, not a finding of
contempt." Combs v. Ryan's Coal Co., 785 F.2d 970, 980 (11th
Cir.), cert. denied sub nom. Simmons v. Combs, 479 U.S. 853
(1986). Accord, Estate of Bonham, 817 A.2d 192, 195-96 (D.C.
2003) (use of contempt to collect counsel fee award); Aetna Cas.
& Sur. Co. v. Markarian, 114 F.3d 346, 349 (1st Cir. 1997);
Shuffler v. Heritage Bank, 720 F.2d 1141, 1147-48 (9th Cir.
1983); Chase & Sanborn Corp. v. Nordberg, 872 F.2d 397 (11th Cir.
1989); In re Property of Adam, 100 P.3d 77, 87 (Haw. Ct. App.
2004); Ardex Labs., Inc. v. Cooperider, 319 F. Supp. 2d 507 (E.D.
Pa. 2004) (writ of execution, not contempt, proper course for
enforcing award of attorney's fees).1
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when execution would be an inadequate remedy.
For example, enforcement through the
imposition of a contempt sanction would not
be authorized absent exceptional
circumstances.
13 MOORE'S FEDERAL PRACTICE 3D § 69.02 (1997). See
also Combs v. Ryan's Coal Co., . . .; Gabovitch v.
Lundy, 584 F.2d 559, 560-61 (1st Cir. 1978) ("[T]he
legislative history and judicial application of Rule
69(a) make clear that the first sentence of the Rule
expresses a limitation on the means of enforcement of
money judgments and does not create a general power to
issue writs of execution in disregard of the state law
incorporated by the rest of the Rule").
4
The order to pay $500 was a compensatory fine based on the
debtor's failure to preserve records, thereby necessitating the
plaintiff's earlier motion. It constituted a judgment (albeit
not yet cast as a final one under F.R. Civ. P. 54(b) for which
execution could commence), and is enforceable like any other
fine, civil or criminal, imposed by the courts to compensate for
or deter misconduct, and treated like other civil monetary
judgment awards. This is explicitly so in the case of criminal
fines (see 18 U.S.C. § 3613 (judgment imposing a criminal fine is
collectible using procedures for collection of civil judgment))
and is implicitly so in the case of civil fines.
Contempt is available to assist in the collection of such a
monetary judgment only in rare circumstances, none of which exist
here. For example, if a debtor has failed to turn over assets
required to be turned over pursuant to an inquiry into assets
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2 In this adversary proceeding, no inquiry has been held to
identify assets to be turned over to satisfy the monetary
sanction award (and the court has not determined whether such an
approach is appropriate under F.R. Civ. P. 69 and the law of the
District of Columbia which it incorporates).
5
available to satisfy the judgment (cf. 28 U.S.C. § 3204 (remedy
of an installment payment order), contempt may be an appropriate
means of enforcing the judgment. See Freeman v. Heiman, 426 F.2d
1050 (10th Cir. 1970)(order to pay judgment in installments,
based on hearing on assets, was enforceable by contempt); Atlas
Corp. v. DeVilliers, 447 F.2d 799, 803 (10th Cir. 1971). See
also Adam, 100 P.3d at 87-89 (contempt is utilized only when
execution has proven to be an inadequate remedy, and there is a
demonstrated ability to comply).2 Similarly, if the debtor
avoids a writ of execution by misleading the marshal and
liquidating assets, thus engaging in a contempt of the court’s
writ, contempt sanctions may be available to coerce payment of
the judgment. Laborers' Pension Fund v. Dirty Work Unlimited,
Inc., 919 F.2d 491, 494 (7th Cir. 1990).
Finally, the courts have used the contempt power to assure
compliance with a federal statute requiring payments to a class
of beneficiaries. See Combs, 785 F.2d at 980 n.4; Pierce v.
Vision Investments, Inc., 779 F.2d 302 (5th Cir. 1986)
(prohibition of 28 U.S.C. § 2007(a) against imprisonment for debt
in Texas did not apply to judgment obtained by Secretary of
Housing and Urban Development requiring developer to escrow
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monies to pay to purchasers who had been harmed by violations of
Interstate Land Sales Full Disclosure Act). Similarly, this
court has concluded in other cases that orders directing
disgorgement of fees by an attorney or petition preparer are
enforceable by contempt because they constitute a restitutionary
remedy intended to protect debtors with respect to fees that
conferred upon them no benefit. The compensatory fine here was a
damage award, not an order partaking a restitutionary character.
The order here did direct that the $500.00 be paid within 14
days. However, that command did not specify that payment partook
the character of turnover or specify that failure to pay would be
on pain of contempt. The command should be viewed as merely
setting a deadline before the court would issue an order
permitting execution to commence.
The $500.00 award was implicitly based on F.R. Civ. P. 37
(authorizing awards of fees in discovery matters). While Bonham,
896 A.2d at 196 n.7, left open the question whether monetary
sanctions imposed under the analogs of F.R. Civ. P. 11, F.R.
Bankr. P. 9011 and F.R. Civ. P. 37 ought to be treated
differently than other monetary awards, the court can discern no
rational basis, in the circumstances of this proceeding, for
according the award here different treatment than other monetary
awards. Once a compensatory award is made under one of those
rules, it fixes the damages and leaves collection of the award a
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3 However, a failure to comply with a discovery order can
lead to a judgment by default. F.R. Civ. P. 37(b)(2)(C). And a
consideration in deciding whether to grant such a judgment can be
a plaintiff's being subjected to attorney's fees for addressing
persistent failures to comply with discovery by a defendant who
is unable to pay awards of such fees, and who appears to be
putting the plaintiff to the expense of such fees as a way of
discouraging the plaintiff from pursuing its claims. Here, the
court settled on a sanction short of a default judgment, and an
award of the $500 in attorney's fees. If the court had known
that the defendant is unable to pay that $500, that would not
have altered the sanctions the court imposed.
4 The court does not address whether fees incurred in
collecting a compensatory contempt award can be treated as
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separate matter. Although a court can treat payment of such an
award as a condition to a defendant's continued defense against a
plaintiff's claims, that remedy ought to be used with restraint
if a defendant is not able to pay the award, and the
circumstances here do not yet warrant imposition of that remedy
if the debtor is unable to pay the $500.3 If the debtor is able
to pay the award, execution is ordinarily an adequate remedy to
secure such payment, and exploration of the debtor's ability to
pay would require a devotion of valuable court resources. The
court thus deems it inadvisable to engage in an inquiry regarding
whether the debtor has the ability to pay the $500.
Because coercive contempt sanctions may not be employed to
collect a monetary judgment, it follows that compensatory
contempt sanctions are equally unavailable. Ordinarily, the so-
called American rule is that attorney’s fees are not recoverable
in litigation or in the collection of a judgment.4 To the extent
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damages traceable to the contempt (recoverable as a compensatory
contempt sanction) and hence an exception to that rule. The
court did not premise its $500 award based on contempt but
instead based on a failure to comply with discovery obligations
(namely, a failure to alert the plaintiffs that the storage
company at which the records were stored was going to destroy the
requested records based on the debtor's failure to pay storage
fees).
8
that the plaintiffs seek to recover damages for the delay in
payment, that is a question of interest, to which they are
entitled as discussed next.
Because the plaintiffs must treat the $500.00 award as a
monetary judgment, the plaintiff is entitled to recover interest
on the judgment. The $500.00 judgment was not made a final
judgment, and thus there has been delay in payment from April 13,
2005 (the date by which the $500.00 was payable) to the date of
entry of a final judgment pursuant to the judgment issued as a
result of this opinion. Pre-judgment interest will be awarded
from April 13, 2005, at the federal judgment rate in effect on
that date of 3.33 % per annum. Accordingly, pre-judgment
interest of $1.87 will be awarded, for a final judgment amount of
$501.87. The final judgment of $501.87 will bear interest after
entry of the judgment as provided by 28 U.S.C. § 1961.
II
The plaintiffs are also entitled to recover their $2,637.50
in costs incurred in subpoenaing bank records. Because the
debtor has already failed to comply with the order giving him 14
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9	O:\JUDGEFIL\CONTEMPT\Longfellow Apts vs Podillo Use of Contempt to Collect Rule 37 Sanction.wpd; May 24, 2005; 3:14 PM
days to pay the $500 award, the court will simply enter judgment
for the $2,637.50 instead of directing payment within a set time.
III
The plaintiffs seek attorney's fees in pursuing the instant
motion. The motion devoted minimal time to the $500 award and
primarily addressed the $2,637.50. Because that part of the
motion was necessitated by the debtor's failure to safeguard
discovery materials, the court deems it appropriate to award
attorney's fees. A reasonable fee for the pursuit of that part
of the motion is $500. (Neither party has questioned the
propriety of the court's $500 fee award with respect to the
earlier motion, and the pursuit of the $2,637.50 is work of a
comparable nature and magnitude.)
IV
A judgment follows awarding $3,639.37, the
sum of $501.87 arising from the prior order (as set forth in part
I above), $2,637.50 in subpoena costs (part II above), and $500
in attorney's fees (part III above). Pursuant to F.R. Civ. P.
54(b), the court expressly determines that there is no just
reason for delay and expressly directs the clerk to enter the
judgment as a final judgment.
[signed and dated above]
Copies to: All counsel of record
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