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ACLI GOVT. SECS., INC. v. RHOADES

September 7, 1995

ACLI GOVERNMENT SECURITIES, INC., Plaintiff, against DANIEL RHOADES and MILTON BRATEN, Defendants. ACLI GOVERNMENT SECURITIES, INC., now known as Fuji Securities, Inc., Petitioner, -against- DANIEL RHOADES, MILTON BRATEN, LEWIS HENKIND, and HOLLY VENTURES, a purported partnership, Respondents. ACLI GOVERNMENT SECURITIES, INC., now known as Fuji Securities, Inc., Petitioner, -against- DANIEL RHOADES, MILTON BRATEN, LEWIS HENKIND, and BE BE BLOND, LTD., Respondents.


The opinion of the court was delivered by: SHIRA A. SCHEINDLIN

 SHIRA A. SCHEINDLIN, U.S.D.J.

 Plaintiff ACLI Government Securities ("ACLI") makes this application for costs, expenses and attorneys' fees incurred during the preparation of its Petition for a Declaratory Judgment and Permanent Stay of a Cross-Claim ("petition") as well as for this application. ACLI seeks reimbursement from Defendant Be Be Blond ("Be Be") and its counsel, the Ober, Kaler, Grimes & Shriver law firm ("Ober Kaler"), pursuant to 28 U.S.C. § 1927, Fed. R. Civ. P. 54(d) and the Court's inherent power.

 BACKGROUND

 By oral order of this Court dated February 22, 1995, Be Be's Motion to Dismiss ACLI's petition was denied. See Transcript of Oral Argument, February 22, 1995 ("Tr.") at pp. 71-85. At argument, the underlying petition was granted, and the Court issued a declaration and order finding Be Be in privity with Daniel Rhoades and Milton Braten, binding Be Be to a prior judgment of this Court and staying Be Be's cross-claim against ACLI in New York Supreme Court, County of Putnam. *fn1" The Court also granted costs and attorneys' fees, in an amount to be determined upon consideration of this application. See Tr. at pp. 81-82.

 One of the central facts relating to the finding of privity between Rhoades, Braten and Be Be is that defendants failed to comply with a discovery order of this Court. Specifically, on June 17, 1994, ACLI served a subpoena requesting documents relating to ownership and control of Be Be. The subpoena was ignored. Accordingly, ACLI's July 12, 1994 Motion to Compel was granted by Judge Lasker on August 23, 1994. On September 19, 1994, Judge Lasker ordered that Be Be comply with the subpoena by September 30. The discovery order was docketed on September 20. On September 22, 1994, the order was published in the New York Law Journal. ACLI's counsel sent a copy by facsimile to Be Be Blonde's counsel on September 28, 1994, the same day he obtained the order from the Clerk of Court. See Brief of ACLI in Support of Petition ("Pet. Br.") at p. 18; Exhibit ("Ex.") O to Petition. All counsel were served by mail on September 29 -- prior to the September 30 compliance date, and therefore in a timely fashion. See Tr. at pp. 84-85; Pet. Br. at p. 19; Ex. P to Petition. Additionally, ACLI duly served the subpoena on the Secretary of State. See Tr. at p. 74. Defendants never requested an extension of time in which to respond to the discovery order, and to the best of this Court's knowledge, they remain in willful violation of that order to this day. See Tr. at pp. 14-15, 85.

 DISCUSSION

 A. The Legal Standards

 ACLI bases its application on implied, statutory and procedural sources of authority, premised respectively upon the Court's inherent power, 28 U.S.C. § 1927 and Fed. R. Civ. P. 54(d).

 1. Inherent Power

 The Court of Appeals for the Second Circuit has provided clear guidance on the inherent power of federal courts. "It is settled law that a court may impose attorney's fees under its inherent power as a penalty for misconduct during the course of litigation." Milltex Industries Corp. v. Jacquard Lace Co., Ltd., 55 F.3d 34, 37-38 (2d Cir. 1995). Sanctions may be appropriately assessed where

 
the challenged actions are (1) "entirely without color," and (2) motivated by "improper purposes," such as harassment or delay. In addition, the court's factual findings of bad faith must be characterized by "a high degree of specificity."

 Milltex, 55 F.3d at 38 (quoting Oliveri v. Thompson, 803 F.2d 1265, 1272 (2d Cir. 1986), cert. denied, 480 U.S. 918 (1987)). The Court of Appeals further explained,

 
this bad faith exception [to the American Rule] is not restricted to cases where the action is filed in bad faith. An inherent power award may be imposed either for commencing or continuing an action in bad faith, vexatiously, wantonly or for oppressive reasons.

 Oliveri, 803 F.2d at 1272.

 On a more general level, the Supreme Court has discussed the origins and acknowledged the importance of these implied judicial powers. See e.g., Chambers v. Nasco, Inc., 501 U.S. 32, 115 L. Ed. 2d 27, 111 S. Ct. 2123 (1991) ("there are ample grounds for recognizing. . . that in narrowly defined circumstances federal courts have inherent power to assess attorney's fees against counsel") (quoting Roadway Express, Inc. v. Piper, 447 U.S. 752, 765, 65 L. Ed. 2d 488, 100 S. Ct. 2455 (1980)); Hall v. Cole, 412 U.S. 1, 4-5, 36 L. Ed. 2d 702, 93 S. Ct. 1943 (1973) ("federal courts, in the exercise of their equitable powers, may award attorneys' fees when the interests of justice so require"). In Chambers, the Supreme Court noted that exceptions to the American Rule take on several manifestations. 501 U.S. at 45 (citing Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 259, 44 L. Ed. 2d 141, 95 S. Ct. 1612 ...


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