IN THE UNITED STATES DISTRICT COURT FOR
THE DISTRICT OF DELAWARE
|
In re:
Team Systems International, LLC,
Debtor. |
Chapter 7
Case No. 22-10066 (CTG) |
|
RANDY
MOTT, pro se
Appellant, -against-
GEORGE
L. MILLER, solely in his capacity as the Chapter 7 Trustee of the estate of
Team Systems International, LLC, GPDEV LLC, and Simons Exploration, Inc.(creditors)
Defendants. |
Civ.
No. 24-1035 GBW |
APPELLANT’S BRIEF
RANDY MOTT, ESQ. pro se
Randy Mott, Esq. DC Bar 211037
1627 K St. N.W. Suite 400
Washington, DC 20006
Phone: 202-470-0106 / 703-258-4097
(Admitted pro hac vice)
TABLE OF
CONTENTS
TABLE OF AUTHORITIES……………………………………………………….i
STATEMENT
OF ISSUES AND STANDARD OF REVIEW ...............................v
STATEMENT
OF FACTS
......................................................................................
1
SUMMARY
OF ARGUMENT
..............................................................................12
ARGUMENT
I.
The Bankruptcy
Court Erred In Finding “Bad Faith”
Required Under Section 1927…………………………………………..13
II.
The Evidence That
Was Fraudulent Was Correctly
Challenged And Should Have Been Excluded………………..………...18
III.
The Bankruptcy
Erred In Using Evidence From Outside
the Proceeding……...………………………………………………...…20
IV.
The Bankruptcy
Court Erred In Imposing Punitive
Sanctions Unrelated To Any Multiplication
Of
Proceedings, Solely Intended To Silence
Counsel……………………...22
CONCLUSION…………………………………………………………………...24
Table of Authorities
Cases
Pages
2020 U.S. Dist. LEXIS 104953 (E.D. Tex. 2020) …………………….……………22
Amfosakyi v. Frito Lay, Inc.,
496 Fed. Appx. 218 (3rd
Cir. 2012) ……………………………………………....16
Apex
Colors,Inc. v. Chemwor/d Int'/ Ltd,
Inc.,
2017 U.S. Dist. LEXIS 56418 (N.D. Ind. 2017)………………………………...14
Page
Argus Group 1700 v. Steinman,
1997 U.S. Dist.
LEXIS 1834 (E.D. Pa. 1997) ……………..………………....21
Ball v. A.O. Smith Corp., 451 F.3d
66
(2nd Cir. 2006) ………………………………….…………….………………...18
Boydv v. Wells Fargo Bank, NA.,
2021
U.S. Dist. LEXIS 86675 (E.D.
N.Y. 2021) ………………..………....21
Braunstein v. Ariz.
Dep't of Transp.,
683 F.3d 1177, 1189 (9th Cir. 2012) …………………….………….………...23
Brockman v. Friedman,
2023 U.S. Dist. LEXIS 74864 (S.D. Cal. 2023) ………….……...………...20
Ensing v. Ensing
2017 Del. Ch. LEXIS 41(C.A. No. 12591- VCS, March 6, 2017)……..……...16
Esos Rings v. Prencipe
2021
Cal. Super. LEXIS 120730
(LA County
BC652020, November 9, 2021)………………………………….16
Ford v. Jurgens
2022 NCBC 9 (NC Superior Ct. February 16, 2022, 20 CVS 4896)………….16
Hudson v. Martingale Invs., LLC (In re Hudson),
504 B.R. 569 (BAP 9th Cir. 2014) …………………………………….
………13
In re Case, 937 F.2d 1014 (5th Cir. 1991)
……………………..……………20
In re JLJ Inc.,
988 F.2d 1112, 1116 (11th Cir. 1993) ………………………………………….12
In re Kennedy, 503 A.2d 1198 (Del. 1985)
…………………………………….22
In re Shearin, 721 A.2d 157 (Del. 1998) ………………………………………22
Latman v. Burdette
366 F.3d 774 (9th Cir., 2004) ……………………………………………………13
Lawyers Title Ins. Corp. v. Doubletree Partners, L.P.
739 F.3d 848 (5th Cir. 2014) …………………………………………………….13
.
Leidig v. Buzzfeed, Inc.
2017 U.S. Dist. LEXIS 208756 (D.S. NY 2017) ………………………………..10
Marques v. JP
Morgan Chase N.A.
2018 U.S. Dist.
LEXIS 233510 (N.D. Ga. 2018) …………………………………...21
ML Healthcare Serv., LLC v. Publix Super Markets, Inc.
881 F.3d 1293 (11th Cir.2018)……………………………………………………19
Morrison v. Walker
939 F.3d 633 (5th Cir. 2019)
……………………………………………………..22
Morrissette-Brown v. Mobile Infirmary Med. Ctr.
506 F.3d 1317, 1319 (11th Cir. 2007) ……………………………………………12
Peterson v. BM/ Refractories
124 F3d 1386, 1396 (11th Cir. 1997) …………………………………….....14
Sharp v. Klein (In re Klein)
2013 Bankr. LEXIS 5096, 2013 WL 6253819 (C.D. Cal. 2013) ………………...19
Shockley v. State, 565 A.2d 1373 (Del. 1989)……………………………………....22
Singh v. Hancock Natural Res. Grp., Inc.
2017 U.S. Dist. LEXIS 24893
(E.D. 2017) ………………………………………15
Spaine v. Cmty. Contacts, Inc.,
756 F.3d 542 (4th Cir. 2014)
………………………………………………..……15
United States v.
Musaibli
577 F. Supp. 3d 609 (E.D.Mich.
2021)…………………………………………..16
United States v. Thayer
201 F.3d 214, 224 (3rd Cir. 1999)
……………………………………………….15
Statutes
2 USC 1927…………………………………………………………13, 14, 20 & 21
Other Authorities
Bankruptcy Rule 8005……………………………………………………………v
District of Columbia Bar Rule 3.3(d)………………………..……………………6
Delaware Lawyers'
Rules of Professional Conduct, Rule 3.3 ….…………………...6
STATEMENT OF ISSUES AND STANDARD OF REVIEW
This
appeal under Bankruptcy Rule 8005 addresses the propriety of massive sanctions
against the Appellant for arguing that his client did not redact documents
relied upon by the Trustee and the Bankruptcy judge to both convert the case to
Chapter 7 and to further an adversary case against his clients.
The standard of review is
whether there were clear errors of law or findings not supported by the facts.
STATEMENT
OF FACTS
1. The Chapter 7 proceedings began
with the conversion hearing in March 2022, where the court effectively denied
the TSI members counsel.[1]
First the court refused to approve their counsel, then failing to grant a
routine extension of time for the conversion hearing.
2.
The black redactions were done on
an exhibit that the creditors introduced in the conversion hearing that became
the lynchpin of the Chapter 7 conversion opinion (Exhibit 17: a $2.5 million
transaction blacked out and blamed on the LLC members by the creditors' counsel):
“. . .
that two and a half million dollar transfer was whited out [actually, blacked out]
. . . so that we couldn’t see where the money went . . . We asked
counsel for Robinson &Cole to produce these records, they tried, and they
withdrew. We don't know where this is. As we sit here today, we don't know
what account that is; that has never been produced.” (Mr.
Collins, hearing transcript, March 16, 2022 at 76-77 (D.I. 191).[2]
3. The blacked-out document used for the conversion
order was done by Ms. Kasen and blamed on the TSI members (D.I. 457, pp. 12-14).
“I wanted to let the Court know that I
personally did every single black redaction.” (conversion
hearing, March 16, 2022, Tr.136) (emphasis added). “And Exhibit 17,
which is all the email communications, that was that $2.5 million check and a
deposit slip. There are black redactions on there and those were done by me, as
well.” Kasen, Conversion hearing,
March 16, 2022, at 136.
5.
Despite her co-counsel’s statement, the creditors continued to misrepresent the
facts:
“Creditors’ counsel never used the black redactions
as part of their argument for bad faith. And, the Court never relied upon
the black redactions on the $2.5 million deposit slip and cashier’s check
as proof of bad faith.” D.I. 453
par. 45 (emphasis added).
6. The Bankruptcy Court’s
conversion opinion plainly relied upon this $2.5 million as its major finding:
“The Court will note that of all the (various) allegations
of impropriety the judgment creditors have leveled at the debtor, the one
that the Court views as the most substantial involves the claim that the
debtor had secretly redacted certain information from the documents it
produced….And the judgment creditors make a colorable case that the debtor
engaged in precisely this conduct. They point to a check for $ 2.5 million,
written from one TSI account to another in July 2019, in which information that
one might expect to present that identifies the transferee account is absent.” In re Team
Systems International Inc. 640 B.R. 296, 320 (Del Bankr. 2022) (emphasis
added).
7.
Judge Goldblatt knew when this opinion was written that Ms. Kasen, the
creditors’ counsel, had admitted to doing the very same redaction, prior to the
date of his opinion.
8.
Other documents used in the conversion hearing and the sanctions opinion (supra
at p. 4-5) included inadmissible documents thrown out in the Florida litigation
but accepted by Judge Goldblatt without any authentication
9.
Mr. Moody, for creditors, made this representation to the Court in the
conversion hearing on p. 42 (while his co-counsel knew that it was not accurate): “And that swimming pool purchase was characterized in the District
Court as a maritime expense relating
to the transfer of water.”.[3] The cited “All Aqua” document along with
about one hundred pages of junk was represented to be in “the Florida
record.” Judge Goldblatt erroneously
claimed “All Aqua” was claimed as a FEMA expense, based on a false and
inadmissible document. 640 B.R. 296 at 312. This error continued in the
sanctions opinion.
10. Mr. Collins told the court this was one of
many “fabricated bank records” done by TSI (March 16, 2022 transcript at
70-71).[4]
Mr. Turner - Mr. Collins’ co-counsel in Florida – indicated that they did not
receive any bank records in the case and that the “All Aqua” document along
with others were not authentic copies and not reliable. They were stipulated
as inadmissible hearsay and they were stricken from the record [5]
(Transcript April 30, 2021, pp.7-8). Judge
Goldblatt did not require any evidence authenticating the “Florida records,”
which had been ruled and stipulated as inadmissible in Florida. He also ignored
these facts when presented to him in the January 2023 hearing (Adv. D.I. 14 p.
22).
11. The “All Aqua” item was not a business or bank
record [6]
and is contradicted by all of the legitimate records and relevant testimony.[7]
The Court relied upon this item in its conversion order solely upon
assurances from counsel that it was admitted in Florida. The actual records
reviewed by MCT show that it was accounted for as a K-1 draw to Deborah Mott (D.I.
281, 390).
12. When redactions appeared in the case the TSI
members protested to the U.S. Trustee via email on February 28, 2022 (D.I. 512-10) and in testimony: “I
had the opportunity to review bank statements, and I do not recall seeing any
redactions that we produced. I did see the redactions that you guys did on
production,” March 9, 2022, transcript, p. 243.
13. On the bogus Florida records, this
Court incorrectly states that “judgment creditors …had also obtained copies
of the bank statements in discovery in the Florida litigation.” Mem. Op. 6.
No bank records were produced in that case (Mr. Turner representing the
creditors in Florida stated: “We've never seen the underlying bank
documents.” (Transcript April 30, 2021, pp.7-8, ECF 240, D.I. 423, Exh
1 pp.7-8).
14. On the other redactions, the
documents with whiteouts came from the creditors to the Trustee (Hominy
declaration at preliminary injunction hearings (D.I. 273), re-introduced at the
hearing on the Rule 60(b)(3) motion. Mr. Homony, the Trustee’s accountant,
swore that he received copies of the white redacted bank statement pages from
the creditors in the January 23, 2023 preliminary injunction hearing. D.I. 273
at p. 5.[8]
The creditors also stated the same (D.I. 453-2, par. 7-14).
15. Mr. Homony further testified when
he was shown the whited-out transactions that he did not know who did them
(January 23, 2023, transcript at p. 38). Mr. Homony subsequently changed his
testimony and stated he received the white-out documents directly from TSI
members, which is inaccurate. Both he and the creditors already confirmed
they provided copies of what they received from Robinson & Cole (D.I.
453-2, par. 7-14). Those documents were the only TSI bank records available to
these parties at that time.
16. The sanctions opinion asserts
that the bankruptcy court had already found the TSI members did the white
redactions on these documents produced by Robinson & Cole (D.I. 256 at 2). Yet
nowhere in the record is there any other evidence that they did so,
other than Mr. Hominy’s inconsistent testimony (at odds with the facts). The
source of the “Confidential” stamp discussed below also contradicts his
testimony.[9]
17. As a member of the D.C. bar,
Appellant was concerned over the above events under D.C. ethics rules that
require a lawyer to report misrepresentations to the court and to the bar [DC
Rule 3.3(d)].
18.
The Court misleadingly quotes from the bar complaint to try to allege
that the whiteouts were the “gist of the [bar] complaint,” Mem. Op.
at 12. That is inaccurate. The thrust of the bar complaint was that the
blackouts were done by Ms. Kasen. It further stated that the creditors did the
whiteouts or knew who did them. That statement - quoted in the opinion - is
accurate in that the white-out documents appeared on documents provided by the
creditors to the Trustee.
19. The Delaware bar declined to
review the matter due to the pendency of the litigation and the matter remained
confidential and was not publicized. It added nothing to the proceedings
until Ms. Kasen introduced it. Transcript, April 29, 2024).
20. Internal emails from Robinson
& Cole were provided to TSI LLC members about the time that they withdrew
from the case in late February 2022 (D.I. 512, Exh. 4).[10]
Subsequently, they were transmitted directly to the Trustee’s assistant. Judge
Goldblatt improperly rejected these emails as evidence, despite their
validation by Mr. Acosta (Transcript April 29, 2024). These emails came from
their litigation support manager who made disturbing comments about their
failure to produce original images of the bank records. On February 21, 2022,
the Robinson & Cole IT professional in charge of managing the TSI members’
document production, Jeffrey Hardisty, wrote:
I
can provide you with the images used for these docs in the original production (see
attached docs with TSI prefix) but they do not represent the original file provided
to us. They all show a generic error screen instead of an image of the original
document (see other 3 non-Bates numbered docs attached), and I suspect the
client feels the docs are corrupt because of the generic error. They are opening
correctly; they just never perfectly represented images of the original files provided.”
(emphasis added) (D.I. 512, Exhibit 4). Attachment A
hereto.
21.
Mr. Hardesty noted that “we are producing documents with no metadata”
and suggested that they have new Bates numbers. “[w]hat Relativity processed in
didn’t accurately represent the source file.” Id. These new documents were nevertheless
produced without notice to the client of any of the problems.
22. In April 2024, Robinson &
Cole submitted an affidavit that was designated as an exhibit in the Rule
60(b)(3) hearing and referred to by Judge Goldblatt in his sanctions opinion (Babbit
Declaration, D.I. 436-8), although never actually introduced at the hearing.
While wrong on virtually every point and contradicted by Robinson & Cole
emails, Mr. Babbit noted that “on February 2, 2022, R+C added the word
“CONFIDENTIAL” in the lower lefthand corner of each document that it had
received from TSI on February 1, 2022.”
(D.I. 436-8). See confirmation by Ms. Kasen (D.I, 453 at 27).
This distinguishes documents that were produced by Robinson & Cole to the
creditors from the subsequent production by TSI members to the Trustee in July
2022. Contrast Judge Goldblatt’s totally bogus comment of the
same item (Mem. Op. at 11, n. 29) (this is completely the opposite of the
actual facts on perhaps the most critical error in his opinion).
23. The whiteouts with the word
“confidential” inserted clearly originated with Robinson & Cole and were
not copies of the original documents, evidenced by both Babbit and the
creditors. TSI members did not provide bank statements to the Trustee until
July 2022. This is a very material fact totally ignored by both Judge Goldblatt
and this Court.
24. The specific bank files that had
white-out pages had been scrubbed of metadata, while other source bank records
had metadata showing their creation in January 2022 by TSI. This is also
evidenced by the Hardesty email indicating that they were producing files with
no metadata. (D.I. 512, Exhibit.
4).
25. This was the information on hand
when the motion for reconsideration was prepared. At the sanctions hearing, Appellant
argued that the redacted documents reflected changes in the originals that had
to be authenticated to be used as evidence. Since they could not be
authenticated, they could not be used in the case. Yet these documents have
been used repeatedly in this case and in a related criminal indictment.
26. Appellant went further at that
point and subpoenaed the digital files of Robinson & Cole, both downloaded
from TSI LLC and produced to the creditors.
27. Appellant retained Jason Neal
Davidson, an extremely experienced IT expert who worked for the U.S. Government
on numerous IT projects [11]
(D.I. 512) (“The investigation aims to scrutinize the integrity and
authenticity of these documents, determining whether they are accurate
reproductions of the originals or have been fabricated”).
28. Appellant advised the Court of
the effort to acquire the digital files and examine their metadata and
requested at the sanctions hearing that defendants be allowed to supplement the
record (Transcript, April 29, 2024).
MR.
MOTT: “I think that we had good faith, certainly the basis to believe that our
client didn’t do the whiteouts…. Now we know that the copies that the creditors
got were whited out from Robinson & Cole so we subpoenaed all of Robinson
& Cole, sourced eight documents they downloaded, and the images they
produced. We have an expert that will go through those.” Transcript, April 29, 02024, p. 197-198.
29. The creditors had previously also
asked for an opportunity to provide additional evidentiary items (Transcript
April 29, 2024 at 12-13). The bankruptcy court accepted this and provided two
weeks for supplemental authorities or “evidentiary material,” (Id. at
314). Transcript of April 29, 2024, p. 314:
I
think that I'm going to give the parties a couple of weeks -- why don't we say
two weeks from today -- to submit whatever supplemental or additional material
you want to submit. So two weeks from today, you can all write me letters. I'll
look at whatever you send me. If there's additional authority, if there are things that you think are evidentiary, what have you, I'll look at it and we'll figure out
what -- how to rule on any issues about evidence.”
30.
The expert report (Attachment B) – submitted within that 14-day period to the
court - found:
“Metadata
Abnormalities: Four PDF documents from the May 8th “Source Files”exhibited
metadata irregularities: (1)Metadata was missing or not generated for BBVA_2888_2019.pdf;
BBVA_2888_2020.pdf, and BBVA_2888_2021.pdf; (2) the data and metadata details
for BBVA_8953_2019.pdf were significantly different; (3) the creation date for
BBVA_9759_2020.pdf stood out as distinct from the other files.”
“The
lack of matching metadata or checksums with any original documents
indicates
that these are not authentic copies but rather newly generated files.
The analysis of the May 8th R/C ‘Source Files’ revealed metadata anomalies and
visual content changes, further supporting this conclusion.” D.I. 512 (emphasis added)[12]
31. The expert analysis showed that
the Robinson & Cole emails were correct that the firm did not produce
authentic copies of the original bank statements provided to them.
32. The court’s opinion ignored the expert
report altogether as it seriously disrupts the false narrative being pushed in
the case. As noted below, it is a critical fact in the allegation of “bad
faith” or “frivolous intent.” Someone had or obtained access to the files at
Robinson & Cole and altered the documents. For purposes of this appeal, it
does not matter who.
33. The Court improperly excluded any
consideration of the supplement evidence provided after the hearing, despite
specifically providing an additional two weeks to submit additional
“evidentiary” material. Even if the Court declined to review the merits of the
evidence presented (or provide an opportunity for it to be contested by more
than the written submissions that occurred), that evidence proved good faith
by counsel to obtain the truth about the source of the whiteouts. This
Court previously made the same error and ignored considering the pursuit of
metadata as evidence of good faith.
34. The evidence, contrary to this
Court’s opinion on the interim order and the Bankruptcy Court’s final opinion,
clearly shows that the white-outs came from Robinson |& Cole and that
these were not accurate copies of the original documents. Empirical facts
have been ignored by both courts: (1) the redacted documents had the
“confidential” stamp from Robinson & Cole which was not on the originals;
(2) Mr. Homony used the copies from Robinson & Cole in his testimony; (3)
the metadata data shows that they were not the original documents; (4) Robinson
& Cole’s litigation support department indicated that they did not produce authentic
copies of documents.. How both courts can navigate through these facts to
still sanction the Appellant is an amazing example of judicial bias.
SUMMARY OF ARGUMENT
The sanctions
order and opinion by the Bankruptcy Court are based entirely on an egregiously
incorrect analysis of the facts and law. The opinions show a completely biased
view of the case, which opts to ignore the use of fraudulent evidence by
opposing counsel, while sanctioning Appellant for pointing out this fact.
Undisputed facts are either ignored altogether or totally misrepresented in the
opinion. The district court cannot accept the bankruptcy court's factual
findings if they are clearly erroneous. In re JLJ Inc., 988 F.2d
1112, 1116 (11th Cir. 1993). "A factual finding is clearly
erroneous when although there is evidence to support it, the reviewing court on
the entire evidence is left with the definite and firm conviction that a
mistake has been committed." Morrissette-Brown v. Mobile
Infirmary Med. Ctr., 506 F.3d 1317, 1319 (11th Cir. 2007) (emphasis
added). The use of inadmissible evidence – as done in the sanctions opinion -
is clearly reversible error. Latman v. Burdette, 366 F.3d 774 (9th
Cir., 2004); Hudson v. Martingale Invs., LLC (In re Hudson), 504 B.R.
569 (BAP 9th Cir. 2014).
“Section 1927 sanctions should be employed only in instances evidencing a
serious and standard disregard for the orderly process of justice, lest the
legitimate zeal of an attorney in representing a client be dampened.“ Lawyers
Title Ins. Corp. v. Doubletree Partners, L.P., 739 F.3d 848 (5th Cir. 2014).
The purpose of the sanctions in this
instance was to dampen the zeal of counsel who was the only attorney to
question the bogus evidence being used by the court to fuel the Trustee’s false
narrative.
The Bankruptcy Court also erred in
legal standards applied to sanctions under section 1927. The basis of the
sanctions order is the attribution of redactions, both black and white, of
financial documents used in the Chapter 7 conversion and subsequent decisions.
Appellant was sanctioned for challenging the erroneous attribution of those
redactions to his clients, an action solely intended to intimidate and damper
his advocacy.
ARGUMENT
I.
THE
BANKRUPTCY COURT ERRED IN FINDING “BAD FAITH” REQUIRED UNDER SECTION 1927.
The white-out allegations that the
Bankruptcy Court relied upon were actually not in the Motion to Vacate the
Preliminary Injunction that was before the court.[13]
The proceedings on April 29, 2024, were
on the Motion to Vacate which raised issues on the use of black-out done by
creditors’ counsel to allege “bad faith” of the Defendants. Several other
issues were in the motion and none of them were frivolous or made in bad faith.
The test under Section 1927 is a strict one and has been
narrowly construed. "[O]bjectionable conduct-even 'unreasonable and vexatious'
conduct-is not sanctionable unless it results in proceedings that would not
have been conducted otherwise."
Peterson v. BM/ Refractories, 124 F3d 1386, 1396 (11th
Cir. 1997). See Apex Colors, Inc. v.
Chemwor/d Int'/ Ltd, Inc., 2017 U.S. Dist. LEXIS 56418 (N.D. Ind. 2017). The
hearing on the motion to reconsider would have occurred and been briefed
regardless of the withdrawn section of the motion. There was no
multiplication of the proceedings, except by opposing counsel.
In making the sanctions representations
on the white-out redactions in the 2024 pleading, Appellant relied upon: (1)
the testimony of his clients under oath; (2) the Trustee’s accountant’s and
creditors’ counsel’s sworn statement that those records came from the creditors
(verified by the “confidential” stamp from Robinson & Colle); (3) the fact
that the redactions did not conceal anything and simultaneously production of
other documents clearly revealed all of those transactions (disputing any
intent or motive by TSI members)[14];
and (4) the Robinson & Cole emails from their litigation support manager
indicating that they were not producing authentic copies of the original
documents.[15]
Finally in good faith, the Appellant
pursued an expert analysis of the pages with white out to determine if they
were in the original files produced by TSI members. Nothing in this conduct
indicates any bad faith or any frivolous argument. Nor have any of these
facts been objectively considered by either court at this point. It was
clearly an error to ignore the most probative evidence on the source of the
white-outs which is the “confidential stamp” and the metadata.
In Singh v. Hancock Natural Res. Grp.,
Inc., 2017 U.S. Dist. LEXIS 24893 (Case No.: 1:15-cv-01435-LJO-JLT) (February
22, 2017), the court faced key emails that appeared with white-out.
To resolve the dispute over whether they were created by the accused party, the
court ordered production of the metadata. This allows a determination of
whether they were in the originals or in a subsequent produced copy. See
Amfosakyi v. Frito
Lay, Inc., 496 Fed.
Appx. 218 (3rd Cir. 2012) (approving use
of metadata to show key letter in the case was not contemporaneous with the
event it allegedly described). Metadata in both cases was decisive in their
outcome.[16]
Besides this
metadata analysis, the full context contradicts the premise that the TSI
members created obvious redactions to hide transactions which they had
disclosed in great detail with many pages of documents.[17]
Nothing could have been gained by TSI members doing the whiteouts since the
redactions only highlighted the transactions.[18]
There was no motive to hide the transactions by TSI members since they fully
disclosed the transactions and none of them were improper. Judge Goldblatt
initially raised the interesting question at the conversion hearing why were
the “concealments” inconsistent with the other financial records and tax
documents, suggesting impropriety where none existed: “…why isn't what
you've put in front of me fully consistent with the document that was produced
being a legitimate contemporaneous bank record and the K-1 – or the tax
filings.” Transcript. March 16, 2022, pp. 70-71. The redactions and
“Florida records” (admitted with no foundation) all imply improprieties that
are not factually supported by the undisputed business records, tax filings and
other documents produced. See Miller Coffee Tate timesheets on the
verification of these items (D.I. 390).[19]
The Florida
“records” were clearly inadmissible hearsay ruled as such in the Florida case
by Judge Hinkle. Yet they were used in the sanctions motion to create a false narrative
to smear TSI members and counsel. The sanctions opinion repeats the use of
forged documents to discredit TSI members and their counsel. The Bankruptcy
Court ignored the fact that the forged $2.5 million transaction came from the
creditors’ counsel and sanctioned the Appellant for pointing this out.
Finally, the
facts are clear that the four pages of documents with whiteouts were not
properly authenticated as coming from TSI members. The party introducing them
was the burden of proving their source and failed to do so. The objection to
them were neither “unreasonable” nor “vexatious.” One could argue that
attributing them to TSI members is itself a bad faith allegation.
“…a district court may not properly
impose sanctions pursuant to 28 U.S.C.S. § 1927 unless the court
finds the conduct to have been both unreasonable and for an improper
purpose. Section 1927 requires a sanctioning court to do more than
disagree with a party's legal analysis; the court must make a separate
determination on both the issue of the reasonableness of the claims and the
purpose for which suit was instituted. Before a sanction under §
1927 is appropriate, an offending attorney's multiplication of the
proceedings must be both ‘unreasonable’ and ‘vexatious.’ “ Ball v. A.O.
Smith Corp., 451 F.3d 66 (2nd
Cir. 2006).
II.
THE
EVIDENCE THAT WAS FRAUDULENT WAS CORRECTLY CHALLENGED AND SHOULD HAVE BEEN
EXCLUDED.
On multiple occasions in this case, TSI
members have challenged the bogus evidence used to attack their good faith.
They denied doing the redactions when they were introduced into evidence. Mr. Gellert objected to the
black-outs being attributed to TSI members to the conversion hearing (D.I. 191,
p. 125). Mr. Acosta testified that they were not in the original documents
produced by TSI, objecting to Mr. Shepacarter on February 28, 2022 to their use
in the case. Mr. Mann objected
to the Florida documents at the preliminary injunction hearing (D.I. 282 at
22). Judge Goldblatt had the cites to Judge Hinkle’s exclusion of this
evidence as hearsay before he wrote his opinion using those documents, just as
he knew that the black-outs were not done by TSI members. Once it is clear
at any point that the evidence is inadmissible (including in this Court), the
court is obligated to act.
In each case, there was no question that the
evidence was not authentic, but the bankruptcy court ignored this fact and
relied upon this material. Given the uncontested and apparent fraudulent nature
of the evidence, it can be stricken by the court at any time. “[I]t is not
error for the court to exclude sua sponte hearsay evidence.” Sharp v.
Klein (In re Klein), 2013 Bankr. LEXIS 5096, 2013 WL 6253819 (C.D. Cal.
2013). In ML Healthcare Services, LLC v. Publix Super Markets, Inc., 881
F.3d 1293, 1305 (11th Cir. 2018) (“the evidence … so obviously inadmissible
and prejudicial that, despite [the opposing party’s] failure to object, the
district court, sua sponte, should have excluded the evidence”). 881 F.3d
at 1305.
This point has been studiously avoided by
the Trustee and creditors as well as both courts. There are no opposing facts offered on the falsity of the Florida
records, the black-outs as not done by TSI members or – for that matter- the
metadata proving that TSI originals did not have white-outs. The
facts are established by the parties’ stipulation (“Florida records”), direct
testimony (blackouts) or the documents themselves (“confidential” stamp and
metadata on whiteouts).
III.
THE
BANKRUPTCY ERRED IN USING EVIDENCE FROM OUTSIDE THE PROCEEDING.
Section
1927 is limited to the proceedings themselves and not activities
outside of the Court. The language
of 28 U.S.C. § 1927
also specifically limits the court's sanction power to an attorney's actions that multiply
the proceedings in the case before the court. This means that the statute does not reach conduct that cannot be construed as part of the proceedings before the court issuing
the sanctions In re Case, 937 F.2d 1014 (5th Cir. 1991). The statute
is strictly construed to ensure that the legitimate zeal of an attorney representing a client is not dampened. Id. This
strict interpretation ensures that sanctions are only applied to conduct directly related to the proceedings before the court that is considering the sanctions. See Boydv. Wells Fargo Bank, NA., 2021 U.S. Dist.
LEXIS 86675 (E.D.
N.Y. 2021); Brockman v. Friedman, 2023
U.S. Dist. LEXIS 74864 (S.D. Cal. 2023).
Judge
Goldblat conceded that the pleadings in the case itself were insufficient
basis for imposing sanctions: “the Court ultimately concludes that the
mere act of signing the memorandum is not itself sufficient evidence of the
signers’ subjective bad faith to conclude that the attorneys’ conduct was
“vexatious.” (Mem. op. at 11). That should have been the end of his
inquiry.
The only
predicate for his opinion is created by going outside of the proceedings, which
the law precludes him from doing.
"Finally, it must
be noted that the language of§ 1927 limits the court's sanctions
power to attorney's actions which multiply the proceedings in the case
before the court. Section 1927 does
not reach conduct that cannot be construed as
part of the proceedings before
the court issuing the § I 927 sanctions…” Argus Group 1700 v. Steinman, 1997 U.S. Dist.
LEXIS 1834 (E.D. Pa. 1997).
The
Bankruptcy Court's sanction opinion tries to
dodge this limitation by
arguing that it can go outside of the proceedings to look for proof
of bad faith or intent. This is totally at odds with the overwhelming case law that conduct outside
the proceedings cannot be considered at all. Matter of Case, 937 F.2d 1014, 1023
(5th Cir. 1991) ("§ 1927 cannot
reach conduct occurring in a separate state court proceeding no matter how
vexatious or multiplicious that conduct may be") cited
in Marques v. JP Morgan Chase N.A., 2018 U.S. Dist. LEXIS 233510 (N.D.
Ga. 2018). See ADP, LLC v. Uniloc USA Inc, 2020 U.S.
Dist. LEXIS 104953 (E.D. Tex. 2020) (emphasis
added).
Moreover, nothing in the bar complaint was frivolous or done in bad
faith. Mr. Kasen admitted blacking out the $2.5 million transaction and then
remained silent when Judge Goldblatt used it to convert the case (the objective
she sought). The Delaware Lawyers' Rules of Professional Conduct, Rule 3.3 emphasizes
that a lawyer must not offer evidence they know to be false and must take
remedial measures if false evidence has been presented. Shockley v.
State, 565 A.2d 1373 (Del. 1989). Ms. Kasen sat by while her co-counsel
used the false evidence in the hearing, itself an ethical violation. She then failed to correct Judge Goldblatt
who – for whatever reason - used the
false evidence as his key point in converting the case.[20]
This is certainly not a matter frivolously raised on these undisputed facts.
The total sanctions are over
$246,000. This bears absolutely no relationship to any costs incurred in
responding to the issue identified by the Bankruptcy Court. The court allowed
attorney fees for the response to the entire Rule 60(b)(3). That bears
no relationship to the legal premise of the opinion on one issue that was
included in the initial filing and then removed. This is excessive as well as
unfounded for the above reasons.
This circumstance satisfies the
strict legal standard: “An abuse of discretion only occurs where no
reasonable person could take the view adopted by the trial court.“ Morrison v.
Walker, 939 F.3d 633 (5th Cir. 2019). Here the whiteout
allegations in the Rule 60(b)(3) had already been removed shortly after filing.[21]
See Braunstein v. Ariz. Dep't of Transp., 683 F.3d 1177, 1189 (9th
Cir. 2012). There was no need for a punitive sanction, which appears to solely
have been intended to try to compel counsel to abandon the case or otherwise
stop effectively prosecuting his clients' interests.
It is also clear from the above facts
that the accurate claims of forged evidence and inadmissible evidence that were
not vetted at all by the court under the Rules of Evidence and simply ran
contrary to an a priori narrative favoring opposing counsel.
Conclusion
There have been several instances of
attorney misconduct in the case involving the deliberate use of forged evidence
and fabricated documents.[22]
The counsel being sanctioned was not the party guilty of this behavior but was
the lawyer who pointed it out.
The
fair and orderly process of justice requires that the sanctions order be
reversed.
Dated: December 27, 2024
/s/___________________________
RANDY MOTT, ESQ. pro
se
Randy Mott, Esq. DC
Bar 211037
1627 K St. N.W. Suite
400
Washington, DC 20006
Phone: 202-470-0106 /
703-258-4097
(Admitted pro hac
vice)
Attachment A Robinson
& Cole emails
Attachment B Expert Report on Metadata
Attachment C Actual BBVA transaction form
ATTACHMENT A
ATTACHMENT B
ATTACHMENT C
[1] After declining to be approved as counsel, Robinson
& Cole withdrew on February 20, 2022 (D.I. 92) and no counsel entered an
appearance until March 8, 2022 (D.I. 112). A request for a 30-day extension by
TSI members was denied. Judge Goldblatt allowed the case to proceed while TSI
LLC was unrepresented. This included all of the pre-conversion hearing filings
by other parties.
[2] Creditors’ counsel actually included the email from
TSI counsel transmitting the clean copy of this key document (almost a month
before the conversion hearing) in their subsequent pleadings. (D.I.453-6). Virtually
everything said by Mr. Collins in this passage is a misrepresentation.
[3] THE COURT: “do I have in the record what was
said to the District Court? MR. MOODY: Yes, Your Honor, you do. THE
COURT: Okay. That's -- those are exhibits that are among the exhibits that
you've moved into evidence and have been admitted? MR. MOODY: Yes, Your
Honor.” (March 16, 2022 transcript
at 43).
[4] They appear twice in Florida for the most part, once
as the exhibits discussed in the exchange with Mr. Turner, but some also
appeared earlier as documents placed under seal by Judge Hinkle (ECF 123, 124,
and 125).
[5]
One document cited often by Mr. Collins in the
case was a claim that TSI lied about the size of the total FEMA contract ($27
million vs. $37 million), This document was never authenticated and actually
placed under seal by Judge Hinkle but used in the bankruptcy case in violation
of that order.
[6] Attachment C
is an actual transaction report from that bank which vastly different than the
“All Aqua” and other fake documents.
[7] D. Mott deposition. February 7, 2022, page 145 (accurately describing this
transaction).
[8] The same affidavit was used to introduce the
white-out redactions in the April 29, 2024 hearing giving rise to these
sanctions (documents produced by the creditors to the Trustee).
[9] Ms. Kasen’s sworn declaration indicates that they
obtained documents from Robinson & Cole with the “confidential” stamp on
them (D.I, 453 at 27).
[10] They were provided to the Trustee much earlier in the
case, but the Trustee’s counsel objected to their use, claiming they never
received them. See transcript of April 29, 2024. Acosta testimony).
[11] This Court describes him disparagingly as a “purported
expert.” His CV describes his “25
years of experience in computer software design, development, and management”
and 19 years of experience including computer security with government security
clearance of TSI/SCI.
[12] The bank
reports that had redactions also had scrubbed metadata, while the others
reflected the same metadata as the TSI originals. The fact that only the
most important bank records had the metadata “scrubbed” at Robinson &
Cole suggests spoilation of evidence. Leidig v. Buzzfeed, Inc.,
2017 U.S. Dist. LEXIS 208756 (D.S.NY 2017). The other document containing a
sole $50,000 transfer to Addy Road from account 9759 also has metadata that
shows that document was not created at the same time as all the other bank records.
[13] On February 6, 2024, the
Defendants withdrew the allegations
as to the white-out redactions (D.I.
452) due to the burden of proof required under
Rule 60(b)(3),3 while indicating that in a future
motion the issue would be raised
under a less strenuous burden of proof (Transcript of April 29, 2024,
p. 259). The amended motion before the Court on April 29, 2024 did
not contain any allegations concerning the
white-outs (D.1. 423). Judge Goldblatt erroneously cites the Motion to Strike
pleadings which were not subject to any pending sanctions motion. That motion
was withdrawn, although it correctly argued the burden of authenticating the
white out pages was not met by opposing counsel.
[14] The term "conceal" has been interpreted by the Third
Circuit to include actions taken to prevent the discovery of or to withhold
knowledge of property. This court explained that fraudulent concealment
involves knowingly withholding information or property with the purpose of
preventing its discovery, intending to deceive or cheat a creditor, trustee, or
custodian. United States v. Thayer, 201 F.3d 214, 224 (3rd
Cir. 1999)(emphasis added). See
Spaine v. Cmty. Contacts, Inc., 756 F.3d 542 (4th Cir.
2014) (holding that material not disclosed can negate intent if it is otherwise
disclosed subsequently).
[15] TSI produced bank records to the Trustee some months
later in July-August 2022 because of the problems with the original production
and they did not contain redactions. See D.I.
456 at 17 (on the transmission of bank documents to Trustee); D.I. 390 (Miller,
Coffey, Tate timesheets reviewing bank documents submitted by TSI members).
This included an invoice of the Addy Road transfer and hundreds of pages of the
work performed (reasonably equivalent value). MCT noted that the transaction
had “support.” D.I. 390.
[16] Metadata analysis has been the decisive factor in
numerous state court cases as well. Ford v. Jurgens, 2022 NCBC 9 (NC Superior Ct. February 16, 2022, 20 CVS 4896) (using
metadata to disclose altered email dates); Ensing v. Ensing, 2017
Del. Ch. LEXIS 41(C.A. No. 12591- VCS, March 6,
2017) (various agreements altered and exposed via metadata); Esos Rings v. Prencipe, 2021 Cal. Super. LEXIS 120730 (LA County BC652020, November 9, 2021) (court approved the use
of metadata to date versions of disputed agreements). There is an even greater
need to authenticate an altered document as evidence of tampering. See United States v. Musaibli, 577 F. Supp. 3d 609 (E.D.Mich.
2021).
[17] The $3 million
transfer to Addy Road LLC is a subcontract on the FEMA response. The produced
documents included a paid invoice and hundreds of pages on the work performed
by Addy Road. Obscuring the bank record of this matter would make no sense
whatsoever.
[18] Judge Goldblatt’s initial reaction: “So I'm trying
to understand, the stuff that was whited out that was sufficiently obvious
that it was whited out that you were able to identify it and flag it right
away, …the redactions themselves were known to you, but so obviously improper
that they should be sanctioned for that, or are you saying that they were
trying to trick you? And, if they were trying to trick you, why did they do
such a terrible job?” Conversion
hearing, March 16, 2022, pp. 83-84 (emphasis added).
[19] Very few minor items were not verified by MTC, but
LLC members were never asked to explain what documents supported them or
provide any other documentation. None of these dealt with any of the redacted
items.
[20] The Delaware Supreme Court has consistently held that
knowingly presenting false evidence is a serious ethical violation. For
instance, in the case of In re Kennedy, 503 A.2d 1198 (Del. 1985), the
lawyer was found to have violated ethical rules by knowingly using false
evidence in a court proceeding. See In re Shearin, 721 A.2d 157 (Del. 1998), the lawyer was found to have violated
multiple rules, including offering falsified evidence, which led to
disciplinary actions.
[21]
Their removal from the Rule 60 pleadings was
prompted by the burden of proof standard and counsel sought to pursue an
alternative strategy where the burden of proving their authenticity was on
their proponent. With neither the black-outs, whites-outs nor “Florida record”
has opposing counsel met this burden.
[22] The use of
these documents knowing that they are inadmissible seems to violate Bankruptcy
Rule 9011(b)
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