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UNITED STATES v. KIRKSEY

July 7, 1986

UNITED STATES OF AMERICA and JAMES F. SPILLANE, Revenue Officer, INTERNAL REVENUE SERVICE, Petitioners, against WILLIAM E. KIRKSEY, Respondent


The opinion of the court was delivered by: SWEET

SWEET, D.J.

Petitioners the United States of American and James F. Spillane (hereinafter "government") have moved for sanctions pursuant to Fed.P.Civ.P. Rule 11, for costs and attorney's fees arising out of respondent William E. Kirksey's ("Kirksey") Rule 60(b) motion for relief from this court's enforcement order of October 8, 1985. Kirksey has cross-moved for relief from this court's opinion of March 18, 1986 holding him in civil contempt for failure to comply with an Internal Revenue Service ("IRS") summons and court enforcement order. For the reasons set forth below, the government's motion for sanctions is granted.

 Prior Proceedings

 On March 1, 1985 the IRS served a summons on Kirksey in connection with a civil investigation to determine his tax liability for the years 1980 through 1983. After three failure to produce documents and records requested in the summons, the IRS secured a show cause order from this court on August 8, 1985 directing Kirksey to appear on September 3, 1985 to explain his failure to comply with the summons. After obtaining an adjournment of this date from the court, Kirksey retained the firm of Phillips, Nizer, Benjamin, Krim & Ballon ("Phillips, Nizer") to represent him in this matter. On October 8, the adjourned date of the order to show cause, Phillips, Nizer on Kirksey's behalf consented to the entry of an enforcement order which granted Kirksey an additional forty-five days in which to respond to the summons, a compliance date set for November 19, 1985.

 In early November, 1985, Kirksey retained new attorneys to represent him in this matter and terminated his relationship with prior counsel at Philips, Nizer. Kirksey's new attorneys, who claimed to be unaware of the outstanding enforcement order, made a motion pursuant to Rule 60(b), Fed.R.Civ.P., for relief from the enforcement order on the grounds of "mistake, inadvertance, surprise or excusable neglect." The government cross-moved to hold Kirksey in civil contempt for failure to produce the documents ordered, and both motions were argued on January 10, 1986. By opinion filed March 18, 1986, to produce the documents or be held in civil contempt resulting in a fine of fifty ($50.00) dollars per day for every day, subsequent to the thirty-day grace period, in which the records were not delivered.

 On April 17, 1986, the government filed the instant motion for sanctions pursuant to Rule 11, Fed.R.Civ.P., seeking costs and attorney's fees rising from Kirksey's Rule 60(b) motion of January 10, 1986, and counsel for Kirksey has again cross-moved for Rule 60(b) relief from this court's March 18, 1986 opinion holding him in civil contempt. These motions were argued on May 30, 1986 where this court denied Kirksey's renewed Rule 60(b) motion, ,assessed civil contempt fines of $1,500 pursuant to the March 18, 1986 opinion as the required records had not been delivered, and reserved judgment on the government's motion for costs and attorney's fees.

 Discussion

 The government contends that it is entitled to costs and a reasonable attorney's fee in connection with its opposition to Kirksey's Rule 60(b) motion for relief from the October 8, 1985 enforcement order. These costs and fees are warranted, according to the government, because Kirksey's motion was neither well-founded in fact nor supported by existing precedents, and, therefore, violated the express prohibitions of Rule 11, which provides in relevant part:

 
The signature of an attorney or party constitutes a certificate by him that he has read the pleading, motion or other paper; that to the best of his knowledge, information and belief formed after reasonable inquiry it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification or reversalof existing law, and that it is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation. . .

 The Second Circuit's opinion in Eastway Construction Corp. v. City of New York, 762 F.2d 243 (2d Cir. 1985) provides guidance for applying these amended Rule 11 standards in the wake of the advisory committee's expressed desire to "reduce the reluctance of courts to impose sanctions . . . by emphasizing the responsibilities of the attorney and reenforcing those obligations by the imposition of sanctions." Notes of Advisory Committee on Rules, 1983 Amendment. Formulating a Rule 11 standard for this Circuit, the Eastway court stated:

 
Rather, sanctions shall be imposed against an attorney and/or his client when it appears that a pleading has been interposed for any improper purpose or where, after reasonable inquiry, a competent attorney could not form a reasonable belief that the pleading is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification or reversal of existing law.

 Id. at 254 (emphasis in original).

 While counsel for Kirksey contends that the two grounds which they asserted for Rule 60(b) relief were well-founded in fact and were warranted by existing law, an examination of the prior proceedings and arguments put forth in support for Rule 60(b) relief demonstrate that Kirksey's counsel did not conduct a reasonable pre-pleading inquiry into the basis for his claims.

 First, counsel for Kirksey claimed that Phillips, Nizer mistakenly consented to a November 19, 1985 compliance date for the production of records despite the impossibility of this task, entitling Kirksey to relief from this court's enforcement order. It was defense counsel's duty to inquire into the actuality of these charges and not merely to assert the mistake of prior counsel as a convenient attempt to delay the submission date for the records in question. This inquiry, which the government ultimately was forced to undertake, revealed that the decision to consent to the prosecution of records was a decision jointly made by Kirksey, his accountant and his Phillips, Nizer attorneys, and was not the rash determination of neglectful counsel. The failure to make this initial determination was particularly noteworthy because the information was readily obtainable from Phillips, Nizer, a source more accessible to Kirksey, their former client, than to the government. This failure to familiarize themselves with the prior negotiations in the case was compounded by counsel's failure to determine whether such conduct on the part of prior counsel constitutes grounds for Rule 60(b) relief. See United States v. ...


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