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JACOBS v. CITIBANK

October 14, 2005.

HARRY JACOBS, on behalf of himself and all all others similarly situated, Plaintiff,
v.
CITIBANK, N.A., CITICORP., ET AL., Defendants.



The opinion of the court was delivered by: KEVIN FOX, Magistrate Judge

REPORT AND RECOMMENDATION

TO THE HONORABLE JED S. RAKOFF, UNITED STATES DISTRICT JUDGE

I. INTRODUCTION

  A hearing was held in connection with an order of the court directing that the plaintiff, Harry Jacobs ("Jacobs"), be given an opportunity "to show cause why [he] should not be adjudged in contempt and penalized accordingly" ("Show Cause Hearing") for failing to comply with your Honor's March 31, 2003 order barring Jacobs from serving as class representative and class counsel in this action. Jacobs was the only witness who testified at the Show Cause Hearing. Following its conclusion, the parties made post-hearing written submissions to the Court, which have been considered.

  Jacobs contends that he should not be adjudged in contempt and penalized because: (i) the March 31, 2003 order of the court is ambiguous; (ii) Jacobs is elderly and he attempted diligently to comply with the court's order; and (iii) the defendants have not established that they suffered any injury as a result of his conduct. The defendants disagree. They maintain that Jacobs was in violation of the court's March 31, 2003 order until June 2004, when Jacobs submitted to the Court his "Resignation of Class Counsel" notice. The defendants contend that Jacobs' resignation was the direct result of a May 24, 2004 Report and Recommendation ("Report") issued by the Court in response to the defendants' motion that Jacobs' complaint be dismissed pursuant to Fed.R.Civ.P. 41. According to the defendants, although the Report did not recommend dismissal of the complaint but, rather, recommended that Jacobs be made to show cause why he should not be found in contempt of court and penalized, but for the defendants' Rule 41 motion, Jacobs would have continued to disregard the court's March 31, 2003 order, and the litigation would not have moved forward. In addition, the defendants also contend that, solely as a result of Jacobs' misconduct in failing to comply with the court's March 31, 2003 order, they were injured because they incurred legal fees and costs that otherwise they would not have incurred.

  II. BACKGROUND*fn1

  By order dated March 31, 2003, your Honor barred Jacobs from serving in the dual role of class representative and class counsel in this action brought pursuant to the Truth In Lending Act, 15 U.S.C. § 1601, et seq., and the regulations promulgated thereunder. Jacobs appealed from that order to the Second Circuit Court of Appeals. That court determined that entertaining Jacobs' appeal would be inappropriate because the March 31, 2003 order issued by your Honor was not a "final judgment," within the meaning of 28 U.S.C. § 1291, from which an appeal might be mounted but, rather, was an interlocutory order from which no immediate appeal lies.*fn2

  In late December 2003, the plaintiff advised the Court of the action taken by the Second Circuit Court of Appeals on his appeal. On December 23, 2003, Jacobs was directed to have his new counsel file a notice of appearance with the Clerk of Court on or before January 22, 2004, and to submit a copy of that document to the undersigned magistrate judge and to counsel to the defendants. On January 5, 2004, the Court received a writing from Jacobs through which he sought to obtain information concerning the status of the action and advice from the Court concerning the effect on the status of the action if Jacobs: (a) obtained new counsel; or (b) refrained from doing so by January 22, 2004, the date on which the Court had previously directed that new counsel for Jacobs file a notice of appearance with the Clerk of Court. No advisory opinion was issued to Jacobs in response to his inquiries. However, on January 5, 2004, Jacobs was directed to comply with the Court's December 23, 2003 order.

  On January 25, 2004, the Court received a writing from Jacobs in which he stated that he was unable to comply with the Court's December 23, 2003 order, within the time fixed by the Court for him to comply. On January 26, 2004, the Court directed Jacobs to advise it of the amount of time he estimated would be needed for him to obtain new counsel. On January 30, 2004, Jacobs wrote to the Court and advised that Damon J. Carter, Esq. ("Carter") had "agreed to be retained as plaintiffs personal counsel in this matter and to participate with [Jacobs] in the prosecution of the instant class [] action against Citibank N.A. and Citicorp." The text of Jacobs' January 30, 2004 letter was curious since it indicated, in contravention of your Honor's March 31, 2003 order, that he was continuing to serve as class counsel and to serve as the putative class representative. The situation became more curious because Jacobs submitted another writing to the Court, dated February 16, 2004, through which he reaffirmed, in contravention of your Honor's March 31, 2003 order, that he remained the putative class representative and class counsel.

 
I hereby confirm that it is my intention for Mr. Carter to serve as the individual Plaintiff's attorney and, in addition to be associated with and assist Class Counsel, Harry W. Jacobs, in the prosecution of the instant class action.
  The peculiar nature of Jacobs' January 30, 2004 and February 16, 2004 letters was explained at the Show Cause Hearing. There, it emerged that, at the time those letters were sent to the Court, Carter was not admitted to practice before this court. Jacobs was aware of that fact but never made it clear to the Court. Moreover, as Jacobs explained in his testimony at the Show Cause Hearing, "[t]hat's why we waited for [i.e. delayed] my resignation until he was admitted to [the] Southern District . . . I was proud to sponsor him."

  In any event, in order to clarify the situation and discuss a request made by the defendants, in accordance with Fed.R.Civ.P. 41, that Jacobs' complaint be dismissed, based on his failure to abide by the March 31, 2003 order, the Court had a telephonic conference with the parties on February 19, 2004. At that conference, Carter introduced himself to the Court, and indicated that he was appearing on behalf of Jacobs; Jacobs also participated in the telephonic conference. During that conference, Jacobs stated that he was "not withdrawing, either as class representative [or] as the class counsel." Rather, he was "bringing in associate counsel [Carter] who would work together [with Jacobs]." Jacobs testified at the Show Cause Hearing that it was his intent "to bring [Carter] on but for [Jacobs] to toe the line until [Carter] was admitted to the Southern District and could take over fully." Jacobs also testified at the hearing that, except for Carter, after the Second Circuit declined to entertain his appeal, he did not have any "formal appointments" with any attorney at which he made a presentation in an attempt to have the attorney undertake responsibility for prosecuting this action. Jacobs indicated that while he might have interviewed an attorney other than Carter, before determining to hire Carter, he "was not absolutely positive of it."

  In response to the request by the defendants, made pursuant to Fed.R.Civ.P. 41, the Court issued the May 2004 Report. Ten days later, on June 3, 2004, after the undersigned magistrate judge had recommended to your Honor that Jacobs be made to show cause why he should not be adjudged in contempt and penalized accordingly, a document styled "Resignation of Class Counsel," dated June 2, 2004, was delivered to the Court by Jacobs.*fn3

  According to the defendants, Jacobs did not send their counsel a copy of his class-counsel resignation until Saturday, June 5, 2004. The document was not reviewed by defendants' counsel until Monday, June 7, 2004. Jacobs' delay in serving the defendants' counsel with a copy of his resignation violated the Court's Individual Rules of Practice. Those Rules required that Jacobs send his resignation notice to his adversary simultaneously with its transmittal to the Court. Defendants report that beginning June 1, 2004, and continuing to June 7, 2004, resources were expended by their counsel preparing written objections to the Court's May 2004 Report, since objections to the Report had to be filed with the court not later than June 7, 2004. According to the defendants, three attorneys, collectively, spent approximately 40.3 hours on that activity. The defendants have submitted their attorneys' contemporaneous billing data to the Court which reflects the hours expended by defendants' counsel for, inter alia, that activity and for legal services rendered in connection with the Show Cause Hearing. The defendants contend that, since "Jacobs should be found in willful contempt of [the court's] March 31, 2003 Order, and because [the defendants] played a direct role in initiating the legal process [their February 2004 Fed.R.Civ.P. 41 application] that resulted in Jacobs' eventual resignation as class counsel, [they are] entitled to an award from Jacobs of [their] legal fees and expenses incurred since February 2004."

  Furthermore, the defendants contend that, since Jacobs testified at the Show Cause Hearing that his failure to comply with the Court's rule requiring simultaneous service of all written communications on adversaries and the Court, may have caused the defendants to expend resources unnecessarily, and to "[respond] to a condition that no longer existed," an appropriate penalty upon a finding by the court of "willful contempt" by Jacobs, must include, as a component, a directive ...


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