United States District Court, D. New Jersey
August 16, 2005.
CROWN FINANCIAL GROUP, INC. and CROWN FINANCIAL HOLDINGS, INC., Plaintiffs,
TIMOTHY DEMAREST, PERSEIDS TECHNOLOGIES INC., LLC, and TD WATERHOUSE GROUP, INC., Defendants.
The opinion of the court was delivered by: WILLIAM J. MARTINI, District Judge
Defendants Timothy Demarest and Perseids Technologies Inc., LLC
and Defendant TD Waterhouse Group, Inc. (collectively referred to
hereinafter as "Defendants") bring separate motions for
attorneys' fees pursuant to 28 U.S.C. § 1927 and the Court's
inherent power. Plaintiffs Crown Financial Group, Inc. and Crown
Financial Holdings, Inc. ("Plaintiffs" or "Crown") and their
attorneys oppose this motion. There was no oral argument.
Fed.R.Civ.P. 78. For the reasons articulated below, Defendants' motion
for attorneys' fees is GRANTED.
I. Crown's Attorneys Violated 28 U.S.C. § 1927
Defendants ask the Court to sanction Crown and its attorneys,
Davidson & Grannum, LLP, under 28 U.S.C. § 1927 and the Court's
inherent power for improperly obtaining an ex parte TRO. A
court should base its sanctions on a controlling statute or rule
to the extent one is applicable before relying on the court's
inherent authority. See Klein v. Stahl Gmbh & Co.
Maschinefabrik, 185 F.3d 98, 110 (3d Cir. 1999). Therefore, the
Court will begin its analysis by looking at § 1927.
Section 1927 states in relevant part: "Any attorney or other
person admitted to conduct cases in any court of the United
States . . . who so multiplies the proceedings in any case
unreasonably and vexatiously may be required by the court to
satisfy personally the excess costs, expenses, and attorneys' fees reasonably incurred because of such
conduct." 28 U.S.C. § 1927. To impose sanctions under § 1927, a
court must find that "an attorney has (1) multiplied proceedings;
(2) unreasonably and vexatiously; (3) thereby increasing the cost
of the proceedings; (4) with bad faith or with intentional
misconduct." LaSalle Nat. Bank v. First Conneticut Holding
Group, LLC, 287 F.3d 279, 288 (3d Cir. 2002). Bad faith may be
evidenced by the manner in which the action was brought or the
manner in which it was litigated. For example, a party may act in
bad faith by advancing a claim that it knew or should have known
was meritless or by filing the lawsuit for an improper purpose
such as harassment. See In re Prudential Ins. Co. Am. Sales
Practice Litig. Actions, 278 F.3d 175, 188 (3d Cir. 2002)
In this case, Crown and its attorneys filed a motion for an ex
parte temporary restraining order ("ex parte TRO") in
conjunction with a verified complaint. The Complaint alleged that
Defendant Demarest absconded with proprietary and confidential
software and computer programming information when he left his
employment with Crown. Crown asserted that Demarest then used
that proprietary and confidential information to start his own
company, Perseids Technologies, Inc. ("Perseids Technologies"),
in the market making business, which concerns trading securities
with the assistance of software. Crown alleged that Demarest and
Perseids Technologies then used that information to provide
market making services to one of its competitors TD Waterhouse,
Inc. ("TD Waterhouse"). According to Crown, when using this
proprietary software, TD Waterhouse was able to steal one of
Crown's largest clients Deutsche Bank. Crown's ex parte TRO application sought not only to restrain
Demarest and Perseids Technologies from using the alleged
proprietary and confidential software, but to engage in expedited
and extensive discovery, including discovery of any information
Demarest and Perseids Technologies disclosed to TD Waterhouse. To
explain why it sought an ex parte TRO, Crown represented that
if Defendants were provided advance notice of the impending
lawsuit, they would destroy crucial evidence, and that failure to
restrain Defendants would immediately and irreparably harm their
market making business. However, in doing so, Crown failed to
disclose highly pertinent facts that would have been given great
weight when determining whether to grant the ex parte TRO.
Contrary to their representation that notice would cause
destruction of evidence, Crown had provided notice to Demarest
and Perseids Technologies weeks before filing suit when they
engaged in negotiations with these Defendants seeking the return
of the allegedly confidential information. Further, contrary to
their representation that they would be immediately and
irreparably harmed, Crown chose to omit the fact that they were
no longer in the market making business, having ceased operations
months before filing suit. Not having all of the relevant
information at its disposal, the Court mistakenly granted the ex
parte TRO. These motions for attorneys' fees seek recompense for
the attorneys' fees incurred because of Crown's impudently filed
ex parte TRO.
Defendants argue that Crown and its attorneys multiplied the
proceedings by improperly obtaining an ex parte TRO. Defendants
contend that the ex parte TRO, with its injunctive relief and
expedited discovery, forced Defendants to expend time and
resources to vacate the ex parte TRO quickly. Crown does not dispute that its ex parte TRO caused
Defendants to expend time and resources. Instead, Crown argues
that it did not intent to mislead the Court. Crown states that it
would have disclosed its prior negotiations with Defendants had
it been asked by the Court. This argument, however, is misguided.
Crown bore the burden of being forthcoming with all relevant
facts when it requested an ex parte TRO. If Crown had told the
Court about the prior negotiations, the ex parte TRO would
probably have been, at a minimum, converted into a normal TRO,
requiring that the Defendants be given notice and an opportunity
to appear in court.
In addition, the Court finds it hard to believe that Crown's
business would have been immediately and irreparably harmed if
Defendants were not enjoined. Crown had voluntarily ceased
operations months prior to filing suit and had told clients to
find other market making providers. If Crown had disclosed this
fact, the Court would likely have denied the TRO for failure to
show immediate and irreparable harm.
Crown and its attorneys articulate other reasons why they
should not be held liable for attorneys' fees. Crown maintains,
among other things, that the TRO only sped up the judicial
process because it would have eventually sought the same
discovery and injunctive relief, that Demarest lacked clean
hands, and that the TRO did not force TD Waterhouse to incur any
legal costs because Demarest had agreed to indemnify it. However,
none of these reasons addresses the fact that Crown and its
attorneys acted in bad faith by omitting crucial information when
they applied for an ex parte TRO.*fn1 Accordingly, the Court finds that Crown and its attorneys acted
in bad faith by failing to disclose the parties' prior
negotiations and Crown's cessation of their market making
business. By not disclosing these facts, which Crown knew or
should have known would affect the outcome of their application
for an ex parte TRO, Crown unreasonably multiplied the
proceedings of this case thereby increasing the costs to
Defendants. In short, the Court finds that Crown's attorneys'
actions in filing and obtaining the ex parte TRO violated
28 U.S.C. § 1927, warranting the imposition of sanctions.*fn2
See Agee v. Paramount Commc'ns Inc., 869 F. Supp. 209, 212
(S.D.N.Y. 1994) (sanctioning plaintiff under § 1927 for failing
to disclose relevant information to the court when obtaining an
ex parte TRO).
II. Award of Attorneys' Fees
Having found that Crown's attorneys violated § 1927, the
appropriateness of the sanction is left to the Court's
discretion. See Hackman v. Valley Fair, 932 F.2d 239, 242 (3d
Cir. 1991). Section 1927 authorizes the imposition of attorneys'
fees that result from the particular misconduct the court
sanctioned. Martin v. Brown, 63 F.3d 1252, 1265 (3d Cir. 1995)
Defendants request a total of $253,379.17 in fees and costs.
However, the Court does not believe it is reasonable or
appropriate to impose such a sanction on the facts presented.
First, Defendants ask for too much; they ask for fees and costs
that are unaffiliated with the multiplied proceedings. For
example, they seek fees associated with their motions encouraging
the Court to not exercise supplemental jurisdiction over Crown's state claims.
These motions were brought after the ex parte TRO was dissolved
and did not concern the method by which Crown initiated this
action. Second, and perhaps more importantly, Crown's attorneys'
actions in this case were not so egregious as to warrant a large
sanction. Although the Court is deeply troubled by their omission
of key facts that likely would have led to denial of Crown's ex
parte TRO, the Court believes that imposition of a smaller
sanction will sufficiently deter counsel from engaging in such
inappropriate conduct in the future. Accordingly, given the
record before the Court, the Court finds in its discretion that
it is more appropriate and reasonable to award Defendants
Demarest and Perseids Technologies $12,500 in attorneys' fees and
Defendant TD Waterhouse $12,500 in attorneys' fees.
For the forgoing reasons, the Court grants Defendants' motions
for attorneys' fees and sanctions Crown's attorneys, Davidson &
Grannum, LLP, in the total amount of $25,000, which is meant not
only to reimburse Defendants for some of their fees, but to deter
this sort of reprehensible conduct in the future.