Burtch v. Masiz (In re Vaso Active Pharmaceuticals, Inc.)
Burtch v. Masiz (In re Vaso Active Pharmaceuticals, Inc.)
Opinion of the Court
Chapter 11
OPINION
Before the Court is a motion styled Plaintiff, Judgment Creditor Jeoffrey L. Burtch’s Motion for a Rule to Show Cause-Contempt to Defendant, Judgment Obligor Joseph F. Frattaroli (the “Motion”). For the reasons set forth below, the Court will grant the Motion and enter an order finding Joseph F. Frattaroli in civil contempt for violating the Court’s pri- or order requiring Frattaroli to properly and completely respond to discovery.
A. Factual and Procedural History
On March 11, 2010, Vaso Active Pharmaceuticals, Inc. (the “Debtor” or “Vaso”) filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Code. A Second Amended Chapter 11 Plan of Reorganization was filed on October 2, 2010,
Thereafter, on May 20, 2011, the Trustee commenced this present adversary proceeding (via the Complaint) against John J. Masiz (“Masiz”) and Joseph F. Frattaroli (“Frattaroli” and together with Masiz, the “Defendants”), seeking, among other things, avoidance of preferential transfers, avoidance of fraudulent transfers (under multiple federal and state theories), disallowance of claims, and unjust enrichment.
B. Current Developments at Issue
Under the Federal Rule of Civil Procedure 69(a), made applicable by the Federal Rule of Bankruptcy Procedure 7069(a), a judgment creditor can obtain discovery in aid of enforcing or executing a money judgment. The Trustee thus served interrogatories and requests for production on Frattaroli,
In response to the July 16 Order, Frat-taroli’s counsel served the Trustee a set of “Combined Objections and Responses” to the Trustee’s first set of interrogatories and requests for production.
McCarter subsequently filed a motion to withdraw as counsel to Frattaroli, which was granted by this Court on September 20, 2013.
In light of the foregoing, Plaintiff filed this Motion for the failure of Frattaroli to respond fully to discovery, as required by the Court’s July 16 Order. Within this Motion, Plaintiff seeks a finding of contempt by Frattaroli, and if appropriate, the issuance of a bench warrant exercisable for the arrest and detention of Frattaroli, or another remedy, to ensure compliance with the Court’s July 16 Order.
A. The Bankruptcy Courts’ Powers to Sanction or Find Contempt
Under Rule 37 of the Federal Rule of Civil Procedure, made applicable by the Federal Rule of Bankruptcy Procedure 7037, a court may issue further orders after a failure to obey an order to provide or permit discovery. For instance, a court may strike pleadings in whole or in part, stay further proceedings until the order is obeyed, dismiss the proceeding in whole or in part, render a default judgment against the disobedient party, or treat as contempt of court the failure to obey any order (that is not an order to submit to a physical or mental examination).
Alternatively, 11 U.S.C. § 105 states that the court “may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.”
Federal courts, however, also have an additional inherent power to police by sanctioning parties who have “acted in bad faith, vexatiously, wantonly, or for oppressive reasons.”
B. Contempt and Possible Sanctions for Contempt
Procedurally, motions for an order for contempt are governed by the Federal Rule of Bankruptcy Procedure 9014, pursuant to the Federal Rule of Bankruptcy Procedure 9020.
Sanctions for civil contempt can be employed for either or both of two purposes: to coerce the defendant into compliance with the court’s order, and to compensate the complainant for losses sustained.
Whether a sanction for contempt is criminal or civil depends on the character of the sanction imposed, not on the subjective intent of the Court.
The sanctions available to a court in response to civil contempt are “many and varied,” encompassing “an indeterminate period of confinement,” fines, reimbursement, or any combination of these.
C. Frattaroli’s Conduct
In this present case, Frattaroli’s conduct is clearly contemptuous. First, the fact that a valid order of the Court existed is reflected in the July 16 Order granting the Jeoffrey L. Burtch’s Motion for an Order Requiring Judgment Debtor Frattaroli to Properly and Completely Respond to Discovery and/or for a Rule to Show Ca[u]se-Contempt, which was signed and entered on July 16, 2013, after a Court hearing and after sufficient notice of both the Motion and hearing.
As a result, clear and convincing evidence exists to demonstrate Frattaroli’s liability for civil contempt. This contempt can be grounded in a failure to obey a discovery order under the Federal Rule of Civil Procedure 37, or grounded in the Court’s Section 105 power to authorize orders necessary or appropriate to carry out provisions of the Bankruptcy Code. As a result, the Court can avail itself of the wide variety of civil contempt sanctions to impose upon Frattaroli.
D. What Sanctions are Most Appropriate Against Frattaroli?
Plaintiff has requested that the Court find Frattaroli in contempt if Frat-taroli were to fail to appear for the hearing on the Motion (Frattaroli did not attend
The Court is given wide discretion to tailor the most effective remedy to obtain compliance.
Within this Court, a single case has addressed this point. Within the case of In the Matter of Kennedy, 80 B.R. 674, 675 (Bankr.D.Del. 1987), contempt was found for the debtor’s failure to appear for a required examination after careful scheduling to accommodate the debtor. The debt- or was directed to appear before the Court
In contrast, other bankruptcy courts outside the Third Circuit have imposed incarceration as a sanction for civil contempt when it is strongly believed that there is no reason to expect compliance with increased monetary sanctions,
Here, while Frattaroli has been difficult to deal with, his conduct has not yet reached to a level egregious enough to convince the Court that Frattaroli would not comply with increased monetary sanctions. This Court is directed by the Third Circuit’s guidance of applying the least coercive sanction reasonably calculated to win compliance. As a result, an Order issuing a monetary sanction and requiring Frattaroli to appear before the Court at a specified date and time, with a secondary sanction of incarceration if compliance is not forthcoming, is the most appropriate at this current juncture. But, let there be no mistake. Frattaroli has exhausted the Court’s patience. Further failure to comply with this Court’s orders may result in the United States Marshal being notified to bring Frattaroli before the Court for incarceration.
CONCLUSION
As set forth above, the Court finds Joseph F. Frattaroli in civil contempt for violating the Court’s July 16 Order. The Court holds discretion to impose a variety of sanctions upon Frattaroli for civil contempt, including fines, reimbursement, incarceration, or any combination. Incarceration, however, in this case must be reserved as a secondary sanction, to be imposed only if compliance is not forthcoming with the Court’s newly issued sanction for contempt. The Court will enter an Order requiring that discovery be complied with by a certain date, imposing a monetary sanction and requiring Frattaroli to appear at a specific time and place. Frattaroli’s failure to comply with this Court’s orders may result in the United States Marshal being notified to bring Frattaroli before the court for incarceration.
. Del. Bankr.No. 10-10855, D.I. 96.
. Id., D.I. 116.
. Adv. P. No. 11-52005, D.I. 1 (Unless otherwise noted, all docket references are to the adversary docket which is the subject of this motion, Adv. P. No. 11-52005).
. D.I. 5.
. D.I. 6 and 7.
. See Opinion, D.I. 24, available at 2012 WL 4793241.
. Order Granting in Part and Denying in Part Plaintiff's Motion for Partial Summary Judgment, D.I. 25.
. D.I. 59. Interest is to be paid at 6% from December 29, 2009 until paid in full.
. See D.I. 71, 72.
. See D.I. 93, ¶¶ 3, 4.
. See Order Granting Trustee's Motion for an Order Requiring Judgment Debtor Fratta-roli to Properly and Completely Respond to Discovery and/or for a Rule to Show Cause-Contempt, D.I. 108.
. D.I. 111.
. D.I. 113-5 (Exh. D), Defendant Joseph F. Frattaroli’s Combined Objections and Responses, Answers to Interrogatories No. 1-3, 5, 7.
. See, e.g. id., Responses to Requests for Production of Documents No. 1-3, 5, 6, 8.
. Id., Joseph Frattaroli: Personal Balance Sheet and Statement of Pre-tax Total Income, p. 16.
. See, e.g. id., Answers to Interrogatories No. 1, 2, 4, 6.
. Id., n. 1; Responses to Requests for Production of Documents, n. 2.
. See D.I. 115, 119.
. See Second Motion to Withdraw as Counsel to Joseph F. Frattaroli, D.I. 115, ¶ 6.
. Id.
. Fed.R.Civ.P. 37(b)(2)(A).
. Fed.R.Civ.P. 37(b)(2)(C).
. See DiGregorio v. First Rediscount Corp., 506 F.2d 781, 788 (3d Cir. 1974).
. Ins. Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 707, 102 S.Ct. 2099, 72 L.Ed.2d 492 (1982).
. Transportes Aereos de Angola v. Ronair, Inc., 104 F.R.D. 482, 499 (D.Del. 1985) (citing Quality Prefabrication, Inc. v. Daniel J. Keating, Co., 675 F.2d 77, 78 (3d Cir. 1982)).
. 11 U.S.C§ 105(a).
. In re Cont’l Airlines, 203 F.3d 203, 211 (3d Cir. 2000).
. Id. (citing United States v. Pepperman, 976 F.2d 123, 131 (3d Cir. 1992)).
. In re Joubert, 411 F.3d 452, 455 (3d Cir. 2005) (quoting In re Morristown & Erie R. Co., 885 F.2d 98, 100 (3d Cir. 1989)).
. See, e.g., In re Cont’l Airlines, Inc., 236 B.R. 318, 331 (Bankr.D.Del. 1999) aff'd sub nom. In re Cont'l Airlines, 90-932, 2000 WL 1425751 (D.Del. Sept. 12, 2000) aff'd sub nom. In re Cont’l Airlines, Inc., 279 F.3d 226 (3d Cir. 2002). See also In re Baker, 390 B.R. 524, 531 (Bankr.D.Del. 2008) aff'd, 400 B.R. 136 (D.Del. 2009); In re Anderson, 348 B.R. 652, 661 (Bankr.D.Del. 2006); In re WCI Communities, Inc., No. 08-11643, 2012 WL 1981713 (Bankr.D. Del. June 1, 2012) (Carey, J.). Accord In re Walters, 868 F.2d 665, 669 (4th Cir. 1989); Matter of Terrebonne Fuel & Lube, Inc., 108 F.3d 609, 612 (5th Cir. 1997); In re Skinner, 917 F.2d 444, 447 (10th Cir. 1990); In re Hardy, 97 F.3d 1384, 1389 (11th Cir. 1996).
. In the Matter of Kennedy, 80 B.R. 673, 674 (Bankr.D.Del. 1987).
. Fellheimer, Eichen & Braverman, P.C. v. Charter Techs., Inc., 57 F.3d 1215, 1224 (3d Cir. 1995) (citing Chambers v. NASCO, Inc., 501 U.S. 32, 45-46, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991)).
. Id.
. Id. (quoting Chambers v. NASCO, Inc., 501 U.S. at 45-46, 111 S.Ct. 2123).
. Rule 9020 states the following: “Rule 9014 governs a motion for an order of contempt made by the United States trustee or a party in interest.'1 Prior to the 2001 Amendments, Rule 9020 provided that contempt could be determined by a bankruptcy judge only after a hearing on notice, unless the contempt was committed in the presence of a bankruptcy judge. The Advisory Committee Notes state that this was modified because "DQssues relating to the contempt power of bankruptcy judges are substantive and are left to statutory and judicial development, rather than procedural rules.”
. United States v. United Mine Workers of Am., 330 U.S. 258, 303-04, 67 S.Ct. 677, 91 L.Ed. 884 (1947).
. Marshak v. Treadwell, 595 F.3d 478, 485 (3d Cir. 2009) (quoting Harley-Davidson, Inc. v. Morris, 19 F.3d 142, 145 (3d Cir. 1994)).
. Fox v. Capital Co., 96 F.2d 684, 686 (3d Cir. 1938).
. U.S. on Behalf of I.R.S. v. Norton, 717 F.2d 767, 774 (3d Cir. 1983).
. Id.
. Hicks on Behalf of Feiock v. Feiock, 485 U.S. 624, 635-36, 108 S.Ct. 1423, 99 L.Ed.2d 721 (1988).
. In re Davitch, 336 B.R. 241, 251 (Bankr.W.D.Pa. 2006) (quoting In re Eskay, 122 F.2d 819, 823 (3d Cir. 1941)).
. Waste Conversion, Inc. v. Rollins Envtl. Servs. (NJ), Inc., 893 F.2d 605, 609 (3d Cir. 1990) ("The element of willfulness, however, is an essential component of the crime and distinguishes civil from criminal contempt.”); Harley-Davidson, Inc. v. Morris, 19 F.3d 142, 148 (3d Cir. 1994) ("We note that willfulness is not a necessary element of civil contempt ... [and is] relevant to the [civil] contempt proceeding only insofar as it pertained to the extent of the sanction to be imposed.”).
. Latrobe Steel Co. v. United Steelworkers of Am., AFL-CIO, 545 F.2d 1336, 1344 (3d Cir. 1976), discussed in In re Free, 466 B.R. 48, 57 (Bankr.W.D.Pa. 2012).
. Int'l Union, United Mine Workers of Am. v. Bagwell, 512 U.S. 821, 829-30, 114 S.Ct. 2552, 129 L.Ed.2d 642 (1994). See also Penfield Co. of Cal. v. Sec. & Exch. Comm'n, 330 U.S. 585, 67 S.Ct. 918, 91 L.Ed. 1117 (1947) ("Fine and imprisonment [can be] employed not to vindicate the public interest but as coercive sanctions to compel the contemnor to do what the law made it his duty to do.”).
. In the Matter of Grand Jury Impaneled January 21, 1975, 529 F.2d 543, 551 (3d Cir. 1976).
. Id.
. D.I. 108.
. D.I. 109 (Court Sign-In Sheet for 2:00pm hearing on July 16, 2013).
. D.I. 97.
. Second Motion to Withdraw as Counsel to Joseph F. Frattaroli, D.I. 115.
. McCarter has stated that the first contact it received from Frattaroli in over 2 months was a call on August 20, 2013, stating that Fratta-roli was "gathering documents and information with the intent of responding to the Discovery,” and another call on August 22, 2013 wherein Frattaroli expressed his availability for a deposition to take place in Boston, Massachusetts, and that he was "continuing to gather information and documents in order to respond to Discovery.” See id.
. Plaintiff Judgment-Creditor’s First Set of Interrogatories in Aid of Execution Directed to Defendant Joseph F. Frattaroli, D.I. 113-3 (Exh. B). See Bracey v. Grenoble, 494 F.2d 566, 570 n. 7 (3d Cir. 1974) (in which the Third Circuit noted that reliance by a court upon answers to interrogatories given under oath by the party’s attorney, rather than the party, constitutes reversible error).
. D.I. 113-5 (Exh. D), Defendant Joseph F. Frattaroli’s Combined Objections and Responses, Answers to Interrogatories, n. 1.
. Fed.R.Civ.P. 33(b)(1). Made applicable by Federal Bankruptcy Rule 7033.
. Fed.R.Civ.P. 33(b)(3).
. The Federal Rule of Civil Procedure 33(b)(2)(A) states that the party to whom the request is directed must respond in writing within 30 days after being served, unless otherwise stipulated or ordered by the Court. The same applies to requests for the production of documents, under the Federal Rule of Civil Procedure 34(b)(2)(A). These have both been made applicable through the Federal Rules of Bankruptcy Procedure 7033 and 7034, respectively.
The first set of interrogatories and requests for document production were both filed on January 11, 2013. After the Order Requiring Judgment Debtor Frattaroli to Properly and Completely Respond to Discovery was issued on July 16, 2013, counsel for both parties agreed that any responses to discovery would be provided to the Trustee on or before August 7, 2013. (See Second Motion to Withdraw as Counsel to Joseph F. Frattaroli, D.I. 115, ¶ 6; Plaintiff's Motion for a Rule to Show Cause-Contempt Directed to Defendant, D.I. 113, p. 1). To date, no responses from Frattaroli have yet been received by either the Trustee or McCarter. (See id.).
. See supra note 51.
. The inexhaustive list of sanctions described under Rule 37, other than finding contempt, include directing that designated facts are to be taken as established as the prevailing party claims, prohibiting the disobedient party from supporting or opposing designated claims or defenses, striking pleadings, staying further proceedings, dismissing the action, or rendering default judgment. Nonetheless, seeing as a final judgment and order has already been issued against Frattaroli on December 19, 2012, the exercise of any of these other sanctions seem futile.
. See Robin Woods Inc. v. Woods, 28 F.3d 396, 399 (3d Cir. 1994). See also Elkin v. Fauver, 969 F.2d 48, 52 (3d Cir. 1992) ("The framing of sanctions for civil contempt is committed to the sound discretion of the trial court.”).
. In re Miller, No. 05-16155(DWS), 2007 WL 4322541, at *4 (Bankr.E.D.Pa. Dec. 11, 2007).
. The misconduct of the debtor included nonpayment of rent to the bankruptcy estate despite continued unauthorized use of the property, failure to provide relevant accounting as set forth in a previous order, and failure to cooperate with discovery requests. Failure by the debtor to comply by newly set deadlines on any of these would result in the daily accumulation of fines payable to the court, at a price of $500.00 per day.
. In the Matter of Kennedy, 80 B.R. 674, 675 (Bankr.D.Del. 1987).
. See, e.g. In re Norris, 192 B.R. 863, 874 (Bankr.W.D.La. 1995) subsequently aff'd, 114 F.3d 1182 (5th Cir. 1997); In re Frankel, 192 B.R. 623, 632 (Bankr.S.D.N.Y. 1996).
. In re Duggan, 133 B.R. 671, 672 (Bankr.D.Mass. 1991).
Reference
- Full Case Name
- IN RE: VASO ACTIVE PHARMACEUTICALS, INC., Debtors. Jeoffrey L. Burtch, Avoidance Action Trustee v. John J. Masiz and Joseph F. Frattaroli
- Cited By
- 17 cases
- Status
- Published