The opinion of the court was delivered by: Robert P. Patterson, Jr., U.S.D.J.
On November 4, 2010, Defendant Joseph Korff ("Defendant" or "Korff") submitted two motions -- 1) a motion for reconsideration of this Court's October 25, 2010 Order ("Order") denying Defendant's motion to dismiss on statute of limitations grounds; and 2) a motion for an award to the Defendant of attorneys fees and litigation costs based on alleged "intentional misrepresentations to this Court by Plaintiff's counsel that led to the issuance of such Order." (Def. Memo 1.)
For the foregoing reasons, both of the Defendant's motions are denied.
On the eve of trial, Defendant, by way of newly retained counsel Carl Obedier of Schiff Hardin LLP, moved to dismiss the complaint in this action on statute of limitations grounds. In a letter dated October 19, 2010, Defendant claimed that Plaintiff's fraudulent conveyance claimsunder Section 544(b) of the Bankruptcy Code were time barred and that the action should be dismissed. On October 22, 2010, the Court held argument on this issue. On October 25, 2010, prior to the commencement of trial, the Court issued its ruling denying Korff's motion to dismiss the complaint as time barred and holding that the doctrine of equitable tolling applied.*fn1
Section 546(a) of the Bankruptcy Code, which sets forth the limitation periods of claims under Section 544(b), provides that an action or proceeding under section 544, 545, 547, 548, or 553 of the Code may not be commenced after the earlier of either
A. 2 years after the entry of the order for relief; or
B. 1 year after the appointment or election of the first trustee OR
2) The time the case is closed or dismissed.
In this case, the order for relief was entered on the Debtor's petition date, October 14, 2005, and the trustee was appointed on October 15, 2005. Thus, any claim by the Trustee under Section 544(b) had to be filed no later than October 14, 2007 -- two years after the order for relief -- in order for it to fall within the statute of limitations period. The Trustee properly commenced the initial adversary proceeding in Bankruptcy Court on October 12, 2007 -- two days before the statute of limitations period ended. That proceeding named the Debtor Douglas Palermo, Daniel McLean, MCL Companies of Chicago, PMD Company, Brian Farley, Phillip Herlihy, John Livingston, SB Housing, LLC and Joseph Korff as Defendants. (Compl. ¶ 46.)
On October 18 and 19 and November 12, 13, 14, 16, and 17, 2007, a process server attempted to serve a true copy of the summons, complaint, and notice of pretrial conference in the adversary proceeding upon Korff. Bankr. Docket (07-08310) No. 5, 13. These attempts were unsuccessful. Id. On November 17, 2007, the process server served a true copy of the aforementioned papers by personally serving Gene "Doe," "the concierge, a person of suitable age and discretion" at Defendant's Park Avenue apartment building. Bankr. Docket (07-08310) No. 13. On November 19, 2007, the process server served another true copy of the papers upon Korff by first class mail pursuant to N.Y.C.P.L.R. § 308(2). Bankr. Docket (07-08310) No. 13. Proof of service with the Court was filed on November 26, 2007. Pursuant to N.Y.C.P.L.R. § 308(2), service upon an individual is complete 10 days after filing this proof of service. Accordingly, service on the Defendant was completed on December 6, 2007.
A pre-trial conference was held on November 27, 2007 before the Honorable Judge Hardin of the Bankruptcy Court. Here, Judge Hardin expressed concern about having a single adversary proceeding against multiple defendants, "some of whom may have not been involved in some of the fraudulent conveyances." (Compl. ¶ 49); (Transcript of Nov. 27, 2007 Hearing ("Tr. 11/27/07") at 4.) Judge Hardin adjourned the conference until December 11, 2007 and ordered the parties to meet and confer regarding a procedure for separating the initial adversary proceedings into separate proceedings. (Compl. ¶ 51); (Tr. 11/27/07 at 18.) Korff was not present at this November 27 pre-trial conference.
A second conference was held on December 11, 2007. Korff was neither present nor represented by counsel at this conference and had not yet appeared in the action. (Transcript of December 11, 2007 Hearing ("Tr. 12/11/07") at 4.) At this conference, Trustee's counsel, Jonathan Bardavid, advised the court of its intention to amend the complaint in the initial adversary proceeding to include claims against the Debtor only and to file separate complaints for each of the individual defendants which would relate back to the original complaint for statute of limitations purposes. Judge Hardin allowed Plaintiff until January 7, 2008 to file those complaints. (Compl. ¶¶ 53-56). An amended complaint naming the Debtor as the sole defendant in the initial adversary proceeding was filed on January 7, 2008. Bankr. Docket (07-8310) No.15. On the same day, Plaintiff filed a complaint against Korff alone, Bankr. Docket (08-8204) No. 1, and complaints against the other adversary defendants.
Almost three years later, on October 22, 2010, this Court heard argument from the parties on the statute of limitations issue. Defense maintained that the complaint in this action was time-barred and could not relate back to the original complaint on the statute of limitations issue because relation back could only apply in the context of a single proceeding. (Transcript of Oct. 22, 2010 Hearing ("Tr. 10/22/10") at 7.) Defense maintained that relation back was inapplicable in this instance because the Trustee wanted the complaint against Korff to relate back to a complaint in a different proceeding with a different number -- the initial adversary proceeding. (Id.) Defense also maintained that Korff was not a party to any agreement regarding the tolling of the statute of limitations and that he was never given notice of any such agreement. (Id. at 8-9.) On October 22, 2010, neither the Trustee nor the Defendant referenced the transcript of theDecember 11, 2007 conference. (Id. at 10.) The Court reserved judgment and instructed the parties to appear for trial on October 25, 2010.
On October 25, 2010, prior to the commencement of trial, the Court issued its ruling denying the Defendant's motion to dismiss (the "Order"). While the complaint naming Korff as the sole Defendant was filed outside the statute of limitations period, the Court held that equitable tolling had preserved the Plaintiff's otherwise time-barred claims. In coming to this conclusion, this Court relied in part on the Trustee's representations in the complaint as to what occurred during the previously untranscribed December 11, 2007 conference and on the applicability of equitable tolling in Family Golf Centers, Inc. v.Acushnet Co., 288 B.R. 701, 704 (Bankr. S.D.N.Y. 2003). In Family Golf, the Plaintiff initially commenced a single adversary proceeding against eighty defendants. Two defendants moved to dismiss the adversary complaint and the Court granted the motion without prejudice and directed the Plaintiffs to re-file the claim in a new proceeding. The Court tolled the statute of limitations because the Plaintiff had not sat on his rights, timely commenced the first proceeding and no prejudice was suffered by the defendant. Id. At 703-706.
After the Court issued its ruling, Trustee's counsel represented to the Court that she had been able to obtain a transcript of the December 11, 2007 conference and that "it [was] consistent with what the complaint alleges." (Transcript of Oct. 25, 2010 Hearing ("Tr. 10/25/10") at 9.)*fn2 Subsequently, Defendant placed an objection on the record stating that he made no agreement to have the complaint in this case relate back to the initial adversary proceeding and that he had no notice of any such agreement or of the December 11 conference.
Consequently, he argued, he was prejudiced in a way that the defendants in Family Golf were not. The Court noted that since Korff had been served with notice of the nature of the November 27, 2007 conference, Korff's absence from the December 11, 2007 conference was of his own volition and that he was primarily to blame for his absence. (Tr. 10/25/10 at 9.)
After issuing this ruling, the Court proceeded to hold a four day jury-trial which ended on October 28, 2010. The jury rendered a verdict for the Trustee pursuant to New York Debtor and Creditor Law §§ 273, 274, 275, 276 and 276(a). Due to the pendency of this motion, judgment has not been entered by the Court.
On November 4, 2010, Defendant moved for reconsideration of this Court's Order denying the motion to dismiss pursuant to Rules 59(e) and 60(b) of the Federal Rules of Civil Procedure and Local Civil Rule 6.3, and for Defendant's attorneys fees and litigation costs pursuant to 28 U.S.C. §1927 and this Court's inherent authority. Defendant argues that the Court was "misled by Plaintiff into holding that equitable tolling applied, when it did not." (Def. Mem. 2). Specifically, Defendant asserts that he obtained a copy of the December 11 conference transcript after trial had concluded and that Trustee's counsel misrepresented its contents to the Court. Defendant maintains that Judge Hardin did not "hold that the new complaints would relate back to the initial proceeding." Instead, Korff argues, Hardin "instructed Plaintiff to obtain a 'consent order'.containing the 'specific provision' that the new Complaints will relate back to the filing of this one." (Def. Mem. 2) (emphasis omitted). According to Defendant, Trustee's counsel "flatly disregarded" a specific instruction of the Court to obtain a consent order and instead "voluntarily dismissed Defendant from the original action without any order of the bankruptcy court providing for relation back." (Id.) Thus, Defendant argues reconsideration of this ...