Virginia Hospital Center-Arlington Health System v. Akl

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLUMBIA
In re
ZIAD AKL,
Debtor.
____________________________
VIRGINIA HOSPITAL CENTER -
ARLINGTON HEALTH SYSTEMS,
Plaintiff,
v.
ZIAD AKL,
Defendant.
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Case No. 07-256
(Chapter 7)
Adversary Proceeding No.
07-10026
Not for Publication in
West’s Bankruptcy Reporter
MEMORANDUM DECISION
This addresses a motion to dismiss the defendant’s motion
for sanctions which seeks sanctions pursuant to 28 U.S.C. § 1927
and pursuant to this court’s inherent power to guard against
abuses of the judicial process and protect its institutional
integrity. 	For the reasons set forth below, the motion to
dismiss is granted in part and denied in part.
The document below is hereby signed.
Signed: October 14, 2009.
_____________________________
S. Martin Teel, Jr.
United States Bankruptcy Judge
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I
The facts underlying the present motions are substantial and
complicated. 	The plaintiff and the defendant have been involved
in several suits filed in state and federal courts in Virginia
and Maryland stemming from the plaintiff’s termination of Mr.
Akl’s employment. 	In one of the cases, the plaintiff filed a
bill of particulars, seeking to recover its attorney’s fees
pursuant to Virginia Code § 8.01-271.1. 	The Arlington Circuit
Court granted the plaintiff’s motion, awarding it $616,114.41
(the “Arlington Judgment”). 	Thereafter, the defendant filed the
chapter 7 proceeding underlying this case.
In that chapter 7 case, the plaintiff filed the above-
captioned adversary proceeding seeking to have this court declare
the Arlington Judgment nondischargeable pursuant to Bankruptcy
Code § 523(a)(6) (precluding discharge from any debt that arising
from the “willfull and malicious injury by the debtor to another
entity . . . .”). 	The defendant timely answered the complaint
and then sought to depose Dr. John Garrett, Chairman of the
plaintiff’s board of directors. 	The plaintiff then filed a
motion for protective order and to quash the defendant’s
subpeona. 	Prior to ruling on the plaintiff’s motion for
protective order and to quash, the plaintiff submitted a motion
for summary judgment on its § 523 claim. 	At a hearing dated
March 12, 2008, this court denied the plaintiff’s motion for
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summary judgment and granted the plaintiff’s motion for
protective order and motion to quash. 	On March 14, 2008, the
plaintiff moved to dismiss this adversary proceeding.
On April 3, 2008, before ruling on the plaintiff’s motion to
dismiss, the defendant filed a motion for leave to file a
counterclaim against the plaintiff. 	Simultaneously, the
defendant filed his counterclaim, seeking to find plaintiff’s
counsel in criminal contempt. 	In a memorandum decision dated
September 4, 2008, this court denied the defendant’s motion for
leave to file a counterclaim and granted the plaintiff’s motion
to dismiss. 	Thereafter, on September 11, 2008, the defendant
filed a motion for relief from the orders dismissing the
adversary proceeding and the order denying leave to file a
counterclaim. 	In a memorandum decision dated October 6, 2008,
this court denied the defendant’s motion.
Finally, on October 14, 2008, the defendant filed a motion
for sanctions pursuant to 28 U.S.C. § 1927 and pursuant to this
court’s inherent power to sanction against abuses of judicial
process against the plaintiff and its attorneys Deborah Baum,
Karen-Faye McTavish, and Patrick Potter. In response, these
entities filed a motion to strike, dismiss and otherwise deny the
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1 	The defendant notes and the court acknowledges that,
procedurally, these entities' motion is unconventional: the
standard response to a motion is an opposition. 	Because of the
nature of the defendant's motion for sanctions, however, I elect
to treat the motion to strike, dismiss or otherwise deny the
defendant’s motion as I would a motion to dismiss under Federal
Rule of Civil Procedure 12(b)(6).
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defendant’s motion, 1 which the court addresses in this decision.
II
The purpose of a Fed.R.Civ.P. 12(b)(6) motion is “to test
the legal sufficiency of the complaint.” 	Kingman Park Civic
Ass'n v. Williams, 348 F.3d 1033, 1040 (D.C. Cir. 2003). 	In
deciding a motion to dismiss, although the court “must construe
the allegations and facts in the complaint in the light most
favorable to the plaintiff . . . ,” Gustave-Schmidt v. Chao, 226
F.Supp.2d 191, 195 (D.D.C. 2002), the complaint must nevertheless
plead “enough facts to state a claim to relief that is plausible
on its face,” Bell Atlantic Corp. v. Twombly, 550 U.S. 544
(2007), and “the court need not accept inferences drawn by
plaintiffs if such inferences are unsupported by the facts set
out in the complaint . . . . [nor must it] accept legal
conclusions cast in the form of factual allegations.” 	Kowal v.
MCI Communications Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994).
In deciding a 12(b)(6) motion to dismiss, “the Court may only
consider the facts alleged in the complaint, documents attached
as exhibits or incorporated by reference in the complaint, and
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matters about which the Court may take judicial notice.”
Gustave-Schmidt, 226 F.Supp.2d at 196.
III
The defendant-debtor in this case has moved the court for
sanctions under 28 U.S.C. § 1927 and pursuant to this court’s
inherent power to guard against abuses of the judicial process
and protect its institutional integrity. 	With respect to the
motion to dismiss the sanctions motion, I will address each claim
in turn.
A.
28 U.S.C. § 1927
Section 1927 of Title 28 of the United States Code provides
that “any attorney or other person admitted to conduct cases in
any court of the United States or any Territory thereof who so
multiplies the proceedings in any case unreasonably and
vexatiously may be required by the court to satisfy personally
the excess costs, expenses, and attorneys' fees reasonably
incurred because of such conduct.” 	Id. 	In his motion for
sanctions, the defendant claims that counsel for the plaintiff
violated § 1927 by (i) filing the adversary proceeding seeking to
declare the Arlington Judgment nondischargeable; (ii) moving for
summary judgment in that adversary proceeding; and (iii) bringing
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the motion for protective order and to quash the deposition of
Dr. Garrett.
1. 	Section 1927 Relief Against the Hospital Is Unavailable
The plaintiff contends that the defendant cannot initiate a
claim for relief under § 1927 against the plaintiff. 	While true,
nowhere in the defendant’s motion does he seek § 1927 relief
against the plaintiff: the defendant’s § 1927 claims are
appropriately limited to the plaintiff’s counsel: attorneys Baum,
McTavish, and Potter.
2. 	The 1927 Motion Fails To Allege Wrongdoing by Baum in
These Proceedings
Attorney Baum contends that the defendant has failed to
allege wrongdoing by her in these proceedings. 	The defendant
alleges that Baum appeared before this court on June 24, 2008, to
argue the plaintiff’s motion to dismiss the dischargeability
complaint and the plaintiff’s opposition to the defendant’s
motion for leave to assert a counterclaim. 	Because the plaintiff
prevailed on both motions and because this was the only instance
Baum appeared in this case, Baum argues that, as a matter of law,
she cannot be held liable for a § 1927 violation. 	In his
opposition to the motion to dismiss, the defendant claims that by
“appearing in the case, Baum . . . affirmed to the Court that the
complaint, the motion for summary judgment, and the motion for
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protective order had arguable merit.” 	In support of his
contention, the defendant relies on Turner v. Sungard Business
Systems, Inc., 91 F.3d 1418 (11th Cir. 1996).
In Turner, the petitioner sued the respondent for employment
discrimination under Title VII of the Civil Rights Act of 1965.
Id. at 1419. 	Petitioner’s first lawyer instituted the suit
against Sungard, but later chose to withdraw as counsel. 	Id.
Petitioner then hired a second lawyer who argued a pending motion
for summary judgment, on which respondent prevailed. 	Id.
Respondent then moved the court for sanctions pursuant to Federal
Rule of Civil Procedure 11 against the second attorney. 	Id.
Rule 11 provides, in pertinent part, that “[b]y presenting
to the court (whether by signing, filing, submitting or later
advocating) a pleading, written motion, or other paper, an
attorney or unrepresented party is certifying that to the best of
the person's knowledge, information, and belief, formed after an
inquiry reasonable under the circumstances, . . . .” Fed. R. Civ.
Proc. 11(b) (emphasis added). 	In Turner, the Eleventh Circuit
found Turner’s second lawyer liable for a Rule 11 violation
notwithstanding the fact that the second attorney neither signed
nor submitted the complaint instituting the suit to the court
because the second attorney later advocated for that complaint in
the hearing on summary judgment. 	Turner, 91 F.3d at 1421–22.
Turner is distinguishable from the present case and,
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2 	The court is not entirely convinced that the reach of §
1927 extends to later advocating. 	However, because the court
finds that Attorney Baum’s appearance on the motion to dismiss
could not reasonably be found to be later advocating either the §
523 proceeding, motion for summary judgment, or motion for
protective order, the court need not reach the issue of whether §
1927's reach includes sanction for later advocating an otherwise
vexatious proceeding.
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consequently, defendant’s reliance on the case is misplaced.
Assuming for the sake of argument that § 1927 sanctions
include “later advocating” for a proceeding that was instituted
unreasonably or vexatiously, 2 the defendant has alleged no facts
showing that in arguing on behalf of a motion to dismiss and
against the defendant’s counterclaim that Baum violated § 1927.
First, in arguing the motion to dismiss Baum was seeking to put
an end to the proceedings the defendant alleges were in violation
of § 1927. 	It is hard to see how in arguing for dismissal of the
claim Baum was later advocating for it. 	Second, in arguing in
opposition to the defendant’s counterclaim for criminal contempt,
Baum also was not arguing in furtherance of the adversary
proceeding, the motion for summary judgment, or the motion for
protective order. 	Although the defendant points out that in
arguing against his counterclaim Baum took the position that the
adversary proceeding had merit and was filed in good faith, in so
doing Baum was not advocating in furtherance of the adversary
proceeding but in opposition to the counterclaim. 	It is an
important distinction. 	But for the defendant’s counterclaim,
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3 	The defendant does not contend that in opposing the
motion for leave to file a counterclaim Baum vexatiously
multiplied proceedings. 	The court granted dismissal of the
plaintiff’s claim and denied the defendant leave to file a
counterclaim, the precise result sought by Baum. 	Although the
denial of leave to file a counterclaim was premised on this
court’s lacking subject matter jurisdiction to hear the proposed
counterclaim, a ground not advanced by Baum, her advocacy of
denial of leave to file the counterclaim cannot be said to have
multiplied proceedings.
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Baum’s appearance on June 24, 2008, would not have addressed the
merits of the underlying adversary proceeding. 	Baum’s arguments
at that hearing were solely for the purpose of defeating the
counterclaim, not in furtherance of the adversary proceeding,
motion for summary judgment, or motion for protective order. 	In
Turner, by arguing the motion for summary judgment the second
attorney was arguing in furtherance of the underlying cause of
action. 	Baum had no such motive here. 	Consequently, the § 1927
action against Baum must fail. 3
3. 	Akl’s § 1927 Claims Are Not Barred by Res Judicata
The plaintiff’s attorneys’ final argument is that Akl cannot
maintain any claims under § 1927 against them because those
claims are barred by the doctrine of res judicata.
First, they argue that Akl cannot assert a claim under
§ 1927 against Baum and McTavish for actions in prior proceedings
because such claims are barred for lack of subject matter
jurisdiction and by res judicata. 	Defendant, however, does not
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4 In his opposition to the motion to strike, dismiss, and
otherwise deny, the defendant explicitly states that he “never
asked this court to impose sanctions based on prior proceedings.”
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raise any claims against Baum or McTavish from prior proceedings.
Rather, his motion for sanctions is limited to actions in this
adversary proceeding. 4
The plaintiff’s attorneys next argue that Akl cannot assert
a claim under § 1927 against Potter and McTavish for actions in
this proceeding because they are also barred by res judicata,
arguing that the court’s disposition on the defendant’s criminal
fraud counterclaim now precludes the defendant from asserting a
claim under § 1927. 	Particularly, they argue that the only
difference between the defendant’s criminal fraud action and his
§ 1927 claim is the legal theory for imposing judgment——i.e.,
that the facts underlying both causes of action are the same.
Res judicata, or claim preclusion, “prevents parties from
relitigating issues they raised or could have raised in a prior
action on the same claim.” NextWave Personal Comm’ns Inc. v. FCC,
254 F.3d 130, 143 (D.C. Cir. 2001). “The three elements of res
judicata are: (i) a final judgment on the merits in the first
action; (ii) the present claim is the same as a claim that was
raised or that might have been raised in the first proceeding;
and (iii) the party against whom res judicata is asserted was a
party or in privity with a party in the previous case.” 	Jacobsen
v. Oliver, 201 F. Supp. 2d 93, 102-03 (D.D.C. 2002) (citing Allen
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v. McCurry, 449 U.S. 90, 94 (1980)). 	For two reasons, the
defendant’s claim is not barred by res judicata.
First, Akl was never allowed to present to this court his
criminal fraud claim. 	On March 14, 2008, the plaintiff filed a
motion to dismiss the adversary proceeding (Dkt. No. 28). 	In
response to the motion to dismiss, the defendant filed a motion
for leave to assert a counterclaim (Dkt. No. 40, filed April 3,
2008). 	Simultaneously, the defendant filed his counterclaim
(Dkt. No. 41, filed April 3, 2008). 	On September 4, 2008, in a
published decision, this court denied Akl’s motion for leave to
assert a counterclaim without addressing the counterclaim itself.
See In Re Akl, 397 B.R. 546, 556 (Bankr. D.D.C. 2008) (denying
Akl’s motion for leave to amend the counterclaim).
Second, In re Akl denied the motion for leave to amend on
the ground that the court would lack subject matter jurisdiction
on the counterclaim. 	Id. at 547. 	“A dismissal for lack of
subject-matter jurisdiction . . . is not a disposition on the
merits and consequently does not have res judicata effect.”
Prakash v. American University, 727 F.2d 1174 (D.C. Cir. 1984).
Because In re Akl was not a disposition on the merits, res
judicata does not apply and the plaintiff’s attorneys' motion to
dismiss on this basis must fail.
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B. 	The Court’s Inherent Power to Sanction
The defendant next moved for relief against the plaintiff
and its attorneys under the court’s inherent power to sanction.
It is well recognized that courts have an inherent power to
sanction against abuse of judicial process. 	Chambers v. NASCO,
Inc., 501 U.S. 32 (1991); In re Rainbow Magazine, Inc., 77 F.3d
278, 283-84 (9th Cir. 1996) (Chambers applies to bankruptcy); In
re Courtesy Inns, Ltd., 40 F.3d 1084, 1089 (10th Cir. 1994)
(same). 	A finding of bad faith is required for sanctions under
the court's inherent powers. 	United States v. Wallace, 964 F.2d
1214, 1219 (D.C. Cir. 1992).
Regarding Baum, the defendant has not alleged any facts that
show an abuse of judicial process by her. 	The only wrongdoing in
this proceeding by Baum that the defendant asserts is her
advocating for dismissal of the adversary proceeding and denial
of the counterclaim. 	In neither his lengthy memorandum in
support of his motion for sanctions nor in his opposition to the
motion to dismiss does Akl allege any bad faith on the part of
Baum in these proceedings. 	Accordingly, the court finds it
appropriate to dismiss any claims against Baum asserted under the
court’s inherent power to sanction.
The plaintiff, McTavish, and Potter assert the same res
judicata defenses used in opposition to the defendant’s § 1927
claim. 	For the same reasons stated above, the court finds those
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defenses without merit.
IV
CONCLUSION
The court finds that the defendant has failed to allege
sufficient facts to state a cause of action against attorney Baum
under either § 1927 or under the court’s inherent power to
sanction. 	Baum’s mere advocacy on a motion to dismiss and
opposition on a motion for leave to file a counterclaim is, as a
matter of law, insufficient for sanctions under § 1927. 	Further,
the defendant has alleged no facts showing bad faith by Baum in
these proceedings that would warrant the court’s exercising its
inherent power to sanction against her.
The defendant has, however, alleged sufficient facts (1)
against attorneys McTavish and Potter to survive the motion to
dismiss the § 1927 claim and (2) against the plaintiff, McTavish,
and Potter to survive the motion to dismiss the claim under the
court’s inherent power to sanction. 	Accordingly, it is
ORDERED that all claims against attorney Baum are hereby
DISMISSED and the motion to dismiss (Dkt. No. 115) is otherwise
denied. 	It is further
ORDERED that within 14 days of the entry of this order the
plaintiff and attorneys McTavish and Potter shall file an
opposition to the defendant’s Motion for Sanctions (Dkt. No. 110)
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and Mr. Potter shall file an opposition to the later-filed Motion
for Sanctions (Dkt. No. 124) seeking sanctions for the filing of
this motion to dismiss the first Motion for Sanctions.
[Signed and dated above.]
Copies to: All counsel of record; Office of United States
Trustee.
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