The opinion of the court was delivered by: Honorable Richard J. Arcara Chief Judge United States District Court
Currently before the Court are the following: (1) a motion in bankruptcy appeal In re D. A. Elia Constr. Corp., 07-CV-754, to vacate an order dismissing the appeal; and (2) a bankruptcy appeal in In re D. A. Elia Constr. Corp., 08-CV-103. The motion in 07-CV-754 is denied and bankruptcy appeal 08-CV-103 is dismissed as frivolous.
A. Brief Summary of Related Proceedings
By way of background, these two appeals are related to a Chapter 11 bankruptcy proceeding in which the appellant, D.A. Elia Construction Corp. ("Elia"), was the debtor and the appellee, Damon & Morey, LLP, was its counsel. Damon & Morey's representation of Elia in connection with the Chapter 11 matter was extensive and spanned over 10 years. The firm also represented Elia in numerous other related federal and state court lawsuits, including over eight federal court actions and a bench trial before the New York Court of Claims. Damon & Morey acted at the direction of the debtor and its principal, David A. Elia, who is also an attorney.
Debtor's Chapter 11 reorganization was a great success due in large part to the diligent efforts of Damon & Morey. The firm obtained favorable results in many of the adversary proceedings, successfully objected to numerous claims on Elia's behalf, and ultimately obtained funds in excess of the total amount of creditor claims, thereby leaving a surplus in the estate.
Following payment in full to all creditors, Damon & Morey moved in bankruptcy court for an award of attorneys fees under 11 U.S.C. § 330. The bankruptcy court had granted several interim fee applications throughout the course of the bankruptcy, and in June 2004 Damon & Morey filed its final fee application seeking attorneys fees and disbursements. Elia strenuously opposed the final fee application asserting, among other things, that the firm had committed legal malpractice and had labored under various conflicts of interest.
On October 19, 2004, the bankruptcy judge who had presided over the Elia's Chapter 11 proceeding granted Damon & Morey's final fee application in full and rejected Elia's objections as simply a "gambit" to avoid paying counsel fees. The bankruptcy judge also found that Elia's allegations of malpractice lacked credibility and were belied by the record.
Elia appealed the bankruptcy court's ruling on the attorneys' fees issue to this Court. On June 19, 2006, this Court issued a Decision and Order affirming the bankruptcy court's October 19, 2004 award of attorneys' fees. See Decision and Order dated June 19, 2006, in In re D. A. Elia Constr. Corp., 04-CV-975, Dkt. No. 21 (affirming the bankruptcy court's award of 11 U.S.C. § 330 fees and outlining the bankruptcy court proceedings relating thereto).
Elia then appealed this Court's Decision and Order to the United States Court of Appeals for the Second Circuit. On June 28, 2007, the Second Circuit issued a Summary Order affirming this Court's judgment. See In re D. A. Elia Constr. Corp., 04- CV-975, Dkt. No. 33 (Summary Order of Second Circuit).
While that appeal was pending in the Second Circuit, Elia filed a complaint against Damon & Morey on February 14, 2007, in New York State Supreme Court asserting various state law causes of action relating to the firm's legal representation of Elia during the Chapter 11 proceeding. Damon & Morey removed that state action to this Court asserting that all of Elia's state law claims either "arise in" or are "related to" the Chapter 11 proceeding, and as such, this Court has original jurisdiction over those claims under 28 U.S.C. § 1452(a). Damon & Morey then moved for dismissal and/or summary judgment asserting that all of the state law claims are barred by res judicata. On March 31, 2008, this Court issued a Decision and Order finding that removal was proper and that summary judgment should be granted in favor of Damon & Morey because all of Elia's state law claims were barred by res judicata. See D. A. Elia Constr. Corp. v. Damon & Morey, LLP, 07-CV-143, Dkt. No. 21. Upon finding that no merit to Elia's claims of malpractice, this Court observed:
As is readily apparent from this Decision and Order, the Court finds Elia's arguments in favor [of] remand and against the motion for summary judgment to be completely without merit. In opposing the motion to dismiss on res judicata grounds, Elia did not even attempt to distinguish the most obviously relevant case law against it -the First, Fourth and Fifth Circuit rulings holding that a bankruptcy court's grant of fees under 11 U.S.C. § 330 bars any subsequent malpractice claims premised upon those same services. See Grausz v. Englander, 321 F.3d 467 (4th Cir. 2003); In re Iannochino, 242 F.3d 36 (1st Cir. 2001); In re Intelogic Trace, Inc., 200 F.3d 382 (5th Cir. 2000). Instead, Elia attempts to mischaracterize the record by suggesting that the bankruptcy court never considered its claims of malpractice and attorney misconduct. Both this Court and the Second Circuit have expressly rejected that argument and have found that the bankruptcy court gave adequate consideration to Elia's claims of post-petition malpractice. See In re D. A. Elia Constr. Corp., 04-CV-975, Dkt. No. 21, at 20 (this Court's Decision and Order stating that "[t]he bankruptcy court fully considered [Elia's] allegations of misconduct but found them to be without merit"); and id. at Dkt. No. 33, at 3 and 4 (Second Circuit Summary Order stating that the bankruptcy court gave Elia "more than ample opportunity to present its arguments" regarding its claims of "conflicted and negligent representation").
In light of those express findings, it is difficult to believe that the state court action was filed by Elia in good faith. Even if Elia did have some good faith basis for initially filing its state court claims, it should have been clear that its position was meritless upon reviewing the cases cited in Damon & Morey's motion to dismiss. This is particularly true where, as here, Elia's principal is also an attorney and therefore presumably understood the res judicata arguments being raised. Nevertheless, Elia chose to oppose the motion and filed its own motion to remand.
The foregoing certainly provides sufficient evidence for this Court to conclude that the instant action was brought in bad faith and for the purpose of harassment and delay. The Court also notes that Elia has filed two separate bankruptcy appeals and both of those appeals are currently pending before this Court. See In re D.A. Elia Constr. Corp., 07-CV-754, and In re D.A. Elia Constr. Corp., 08-CV-103. The Court has not yet had a full opportunity to consider the merits of those appeals. At this juncture the Court finds it prudent to heed the Circuit's admonition to exercise restraint and denies Damon & Morey's motion for sanctions and injunctive relief without prejudice. If, upon consideration of the pending bankruptcy appeals, it is determined that those appeals are frivolous and were brought for the purpose of harassment and delay, the Court will entertain a renewed motion by Damon & Morey for monetary sanctions and/or injunctive relief. In the interim, Elia is forewarned that any subsequent attempts to relitigate issues that have been finally adjudicated in connection with the attorney fee dispute will be deemed to be brought in bad faith and may provide the basis for imposing sanctions and/or injunctive relief. Elia also would be well advised to consider voluntarily withdrawing any of the pending bankruptcy appeals if it now knows or should know that the appeal is without merit.
Despite the Court's admonition, Elia did not withdraw either of those pending appeals, necessitating the issuance of this Order. Moreover, Elia then appealed this Court's March 31, 2008 Decision and Order to the Second Circuit Court of Appeals. That appeal is currently pending before the ...