Federal Criminal Law Opinions

JANE DOE, Plaintiff, vs. PRINCESS CRUISE LINES, LTD, Defendant. U.S. District Court, Southern District of Florida. Case No. 09-23005-CV-KING. March 22, 2010. James Lawrence King, Judge. Counsel: James Madison Walker, Walker & O’Neill, P.A., South Miami, for Plaintiff. Jeffrey Bradford Maltzman and Steve Holman, Maltzman Foreman, P.A., Miami, for Defendant.

ORDER DENYING MOTION

FOR RECONSIDERATION
THIS CAUSE comes before the Court upon Defendant’s Motion for Reconsideration (DE #57). Plaintiff has filed a Response (DE #81) and Defendant has replied (DE #86). After careful consideration of the parties’ arguments and the legal authorities cited therein, the Court determines that the motion should be denied.

I. Introduction

The facts, procedural history, and legal issues involved in this case have already been recounted in the Court’s Order Denying Motion to Compel Arbitration (DE #55), and will not be fully recounted here. Briefly, Plaintiff, a crewmember and employee aboard one of Defendant’s cruise ships, alleges that she was drugged and raped by fellow crewmembers. She also alleges that Defendant refused to provide her with proper medical treatment and intentionally destroyed evidence of the rape. She has filed a ten-count complaint, alleging various causes of action arising out of that incident. Defendant filed a Motion to Compel Arbitration, arguing that Plaintiff’s employment contract requires this claim to be submitted to binding arbitration in Bermuda. After extensive briefing, that Motion was denied (DE #55). Thereafter, Defendant filed the instant Motion for Reconsideration. Defendant makes four arguments for why the Court erred in denying the Motion to Compel Arbitration, each of which will be addressed in turn.

II. Arguments for Reconsideration

As an initial matter, the Court addresses the applicable standard for a Motion for Reconsideration. “[T]here are three major grounds which justify reconsideration: (1) an intervening change in controlling law; (2) the availability of new evidence; and (3) the need to correct clear error or prevent manifest injustice.” Ass’n for Disabled Americans, Inc. v. Amoco Oil Co., 211 F.R.D. 457, 477 (S.D. Fla. 2002). Although Defendant does not specify under which ground it seeks reconsideration, Defendant does not argue that there has been an intervening change in the law or that new evidence has become available. Thus, the Court will assume that Defendant seeks reconsideration under the third prong. Moreover, “[a] motion for reconsideration should not be used as a vehicle to present authorities available at the time of the first decision or to reiterate arguments previously made.” Z.K. Marine, Inc. v. M/V Archigetis, 808 F. Supp. 1561, 1563 (S.D. Fla. 1992). See also King v. Farris, 2009 U.S. App. LEXIS 27604, *3 (11th Cir. Dec. 16, 2009) (“[A] motion that merely republishes the reasons that had failed to convince the tribunal in the first place gives the tribunal no reason to change its mind.” (quotations and citations omitted)).

The instant motion makes the same arguments as the initial motion, albeit from a different angle. These new angles cite to the same authorities which the Court has already considered and which have already been extensively briefed. Furthermore, all of these arguments were available to Defendant at the time of the first motion. Thus, Defendant has failed to demonstrate the need to correct clear error or prevent manifest injustice, and the Motion for Reconsideration could be denied on that basis alone. However, in the interest of thoroughness and to clarify the Court’s earlier Order, the Court will address Defendant’s arguments.

A. Bautista and the Convention Act

Defendant’s first argument is that the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“the Convention”), its implementing Act,1 and the Eleventh Circuit’s decision in Bautista v. Star Cruises, 396 F.3d 1289 (11th Cir. 2005), require Plaintiff’s claim to be submitted to arbitration. Defendant argues that, under Bautista, once a Court determines that the four jurisdictional prerequisites are met and that no defenses exist, the inquiry ends and the Court must compel arbitration.2 The four jurisdictional prerequisites are: “(1) [T]here is an agreement in writing within the meaning of the Convention; (2) the agreement provides for arbitration in the territory of a signatory of the Convention; (3) the agreement arises out of a legal relationship, whether contractual or not, which is considered commercial; and (4) a party to the agreement is not an American citizen, or that the commercial relationship has some reasonable relation with one or more foreign states.” Id. at1295 n. 7.

Assuming that the final three prongs are met, Defendant’s argument fails under the first prong. As the Eleventh Circuit has subsequently noted in Thomas v. Carnival Corp., the first jurisdictional prerequisite is: “[T]here is an agreement in writing to arbitrate the dispute.”573 F.3d 1113, 1117 (11th Cir. 2009) (emphasis added). That is, the dispute must actually fall within the scope of the arbitration provision. In fact, the Thomas court, in reversing the district court’s decision to compel arbitration, conducted an extensive analysis of whether the dispute in question arose out of the scope of the plaintiff’s employment or the terms of his employment agreement. Id. at 1117-18 (“It is not enough that the dispute simply arose from his work on the Imagination, or arose after the New Agreement was signed, for that matter. The disputes must have some actual relation to the New Agreement.”). Thus, it is clear that the first prong of the jurisdictional analysis requires the Court to determine whether the arbitration clause actually covers the dispute in question. Because it does not (see the Court’s Order Denying Motion to Compel Arbitration, D.E. #55), the first jurisdictional requirement is not met.3

Indeed, even without relying on Thomas, the Court would reach the same conclusion. Relying on a statement in Bautista that a court “must” order arbitration if the jurisdictional prerequisites exist, Bautista, 396 F.3d at 1294, Defendant argues that this Court should blindly order arbitration without ever determining whether the dispute falls within the arbitration provision’s scope — that is, whether Plaintiff actually agreed to arbitrate this claim. That is not what Bautista says; rather, Bautista simply assumed that the dispute fell within the scope of the arbitration agreement, as that issue was not before the court. Thus, Bautista does not obviate the need for a district court to actually examine and give effect to the language of the contract itself, even before determining whether the jurisdictional prerequisites are met. See Sea Bowld Marine Group, LDC v. Oceanfast Pty, LTD, 432 F. Supp. 2d 1305, 1309 (S.D. Fla. 2006) (“[D]espite the clear favoritism shown arbitration, it is equally clear that a court will not force arbitration where it is not wanted. . . . Arbitration agreements must be enforced according to their terms.”).

Thus, as stated in the Court’s initial Order, the Court must first examine the factual allegations of the Complaint to determine whether the dispute falls within the scope of the arbitration provision. See Gregory v. Electro-Mechanical Corp., 83 F.3d 382, 384 (11th Cir. 1996) (“Whether a claim falls within the scope of an arbitration agreement turns on the factual allegations in the complaint rather than the legal causes of action asserted.”); Chloe Z Fishing Co. v. Odyssey Re (London) Ltd., 109 F. Supp. 2d 1236, 1252 (S.D. Cal. 2000) (“Having found the existence of a valid agreement to arbitrate, the Court must determine whether the scope of the arbitral clauses — as evidenced by their specific language — includes the subject of the parties’ present dispute.”). This inquiry requires the Court to interpret the language of the contract, giving effect to all phrases in a manner consistent with the intentions and reasonable expectations of the parties. In short, arbitration may only be compelled when the parties have actually agreed to arbitrate the dispute. See In re Managed Care Litig., 2003 U.S. Dist. LEXIS 23035, *19-21 (S.D. Fla. Sept. 15, 2003) (“Whether a matter is within the scope of an arbitration provision is a matter of the parties’ intent. . . . Even though there is a strong federal policy favoring it, arbitration is a matter of contract, and parties can only be required to submit disputes to arbitration if they agreed to do so.” (quotations and citations omitted)); Eassa Props. v. Shearson Lehman Bros., Inc., 851 F.2d 1301, 1304 n.7 (11th Cir. 1988) (“While federal law may govern the interpretation and enforcement of a valid arbitration agreement, state law governs the question of whether such an agreement exists in the first instance.”) Accordingly, “courts are not to twist the language of the contract to achieve a result which is favored by the federal policy but contrary to the intent of the parties.” Goldberg v. Bear, Stearns & Co., 912 F.2d 1418, 1419-20 (11th Cir. 1990). See also Kuklachev v. Gelfman, 600 F. Supp. 2d 1437, 460-61 (E.D.N.Y. 2009) (“[A]s with any contractual matter, the main concern in deciding the scope of arbitration agreements is to faithfully reflect the reasonable expectations of those who commit themselves to be bound by them. . . .The inquiry is fact-based and respects the parties’ reasonable expectations in forming the contract.” (quotations and citations omitted)).

Here, as the Court found in its initial Order (DE #55), the factual allegations of the Complaint do not fall within the scope of the arbitration provision because they do not arise out of the scope of Plaintiff’s employment.4 The Court must interpret the provision as meaning exactly what it says: If the dispute does not arise out of Plaintiff’s employment, the parties have not agreed to arbitrate it. Defendant asks the Court to simply ignore the limiting language, which the Court cannot do. See S&B/Bibb Hines Pb 3 Joint Venture v. Progress Energy Fla., Inc., 2010 U.S. App. LEXIS 2875, *6 (11th Cir. Feb. 11, 2010) (“It is a well-settled rule of contract interpretation that courts must read provisions of a contract harmoniously in order to give effect to all portions thereof.”); Volt Info. Scis. v. Bd. of Trs., 489 U.S. 468, 478 (1989) (“Accordingly, we have recognized that the FAA does not require parties to arbitrate when they have not agreed to do so, . . . nor does it prevent parties who do agree to arbitrate from excluding certain claims from the scope of their arbitration agreement. It simply requires courts to enforce privately negotiated agreements to arbitrate, like other contracts, in accordance with their terms.” (quotations and citations omitted)). As an illustration, if the arbitration provision expressly stated that it did not apply to claims arising out of a sexual assault, Defendant would not and could not argue that this claim should proceed to arbitration, even though all four jurisdictional prerequisites would be met, and no defenses would apply. No one could argue that the claim should proceed to arbitration because the terms of the provision itself dictate that such a claim should not be arbitrated. By its own terms, the arbitration provision simply would not apply to this situation. The circumstances are analogous here: The arbitration provision simply does not govern this particular dispute between the parties. To hold otherwise would render the limiting language meaningless; it would read the limiting language out of the contract, which would broaden the provision to encompass any claim that Plaintiff could ever bring against Defendant. That is simply not what the contract says.

Defendant makes much of the fact that numerous courts have upheld the validity of this very arbitration provision. The Court does not disagree — this provision is perfectly valid and enforceable, it just does not apply to the present circumstances because the parties did not agree to arbitrate this dispute. A valid and enforceable contract provision cannot be applied in situations where the parties agreed it would not apply. Holding that this dispute should proceed to arbitration would contravene the intent and reasonable expectations of the parties, as the language does not indicate an intent to arbitrate this dispute, and Plaintiff could not have reasonably anticipated when she signed the contract that she was agreeing to arbitrate (and forfeiting her right to go to court) a claim arising out of a sexual assault. Despite the federal policy favoring arbitration, the Court cannot compel arbitration if the parties did not agree to it. Thus, Bautista and the Convention Act do not require this claim to be arbitrated.

B. The Fifth Circuit’s Decision in Jones v. Halliburton

Defendant’s second argument is that the Court misapplied the Fifth Circuit’s recent decision in Jones v. Halliburton, 583 F.3d 228 (5th Cir. 2009).5 The Jones court, in nearly identical factual circumstances to those of the instant case, upheld the district court’s denial of a motion to compel arbitration on four claims arising out of a sexual assault. Defendant argues that, because the Jones court compelled arbitration of the remaining counts, the Court should do the same here.

However, this argument fails because of Defendant’s incorrect characterization of the Jones holding. In Jones, the plaintiff asserted ten causes of action: 1) negligent hiring and supervision, 2) intentional infliction of emotional distress, 3) false imprisonment, 4) assault and battery, 5) fraud in the inducement to enter the employment contract, 6) fraud in the inducement to agree to arbitration, 7) negligent undertaking, sexual harassment under Title VII, 9) retaliation, and 10) breach of contract. After the district court declined to compel arbitration on the first four counts, the defendant appealed, challenging this ruling. Id. at230. The plaintiff did not cross-appeal, and so the issue of whether the remainin g claims should proceed to arbitration was not before the court. Thus, the Fifth Circuit merely held that the district court was correct to refuse arbitration of the first four claims (negligent hiring/supervision, intentional infliction of emotional distress, false imprisonment, assault and battery), but said nothing about whether the other claims should be arbitrated. Id. at242.

Moreover, even if Defendant’s characterization of Jones were correct, the Court would still not reach Defendant’s desired result because Plaintiff’s claims are different from those asserted in Jones. Here, Plaintiff asserts the following causes of action: 1) Jones Act negligence, 2) intentional infliction of emotional distress, 3) false imprisonment, 4) fraudulent misrepresentation of Plaintiff’s post-trauma options, 5) unseaworthiness, 6) failure to provide prompt medical treatment, 7) failure to provide maintenance and cure, spoliation of evidence, 9) invasion of privacy, and 10) failure to pay seaman’s wages. Of these ten claims, only the first three (negligence, intentional infliction of emotional distress, false imprisonment) arguably overlap with the claims in Jones, and these three are the very cla ims that the Jones court held were not subject to arbitration. The remaining claims did not even arise in Jones, and therefore, even if the Court followed Defendant’s argument, it would not require the remaining claims to proceed to arbitration.

Finally, it is not contradictory, as Defendant argues, to say that this dispute does not arise out of the scope of Plaintiff’s employment, even though some of the claims asserted depend on her status as a seaman. As the Jones court noted, “[t]he one consensus emerging from this analysis is that it is fact-specific . . . . When deciding whether a claim falls within the scope of an arbitration agreement, courts ‘focus on factual allegations in the complaint rather than the legal causes of action asserted.’ ” Id. at240 (quoting Waste Mgmt Inc. v. Residuos Industriales Multiquim, S.A. de C. V., 372 F.3d 339, 344 (5th Cir. 2004)). Indeed, in an analogous example, the court even noted that it was not contradictory for the plaintiff to be eligible for workers compensation (which requires the injury to have some connection with employment), while simultaneously not being subject to arbitration because the dispute did not arise out of her employment. Jones, 583 F.3d at 239. Thus, even though some of Plaintiff’s legal causes of action depend on her status as seaman, the facts aspled demonstrate that the dispute did not arise out of her employment. Therefore, all of Defendant’s Jones-basedarguments are without merit.

C. Applying Bermuda Law to the Scope of the Arbitration Provision

Defendant’s third argument is that the Court erred in applying U.S. law to determine whether the dispute fell within the scope of the arbitration provision, when the contract calls for the application of Bermuda law. Defendant cites no law for this proposition, and in fact the cases demonstrate that, when an arbitration provision specifies that arbitration will proceed in a foreign forum applying foreign substantive law, U.S. federal law still applies to determine the scope of the arbitration provision. See Sea Bowld, 432 F. Supp. 2d at 1312 (“While these designations are relevant to the substantive law to be used, and the location of arbitration, they say nothing, and mean nothing, as to the threshold issue of arbitrability. Federal law controls my interpretation of whether the Arbitration Clause covers the dispute in this case.”); Olsher Metals Corp. v. Olsher, 2003 U.S. Dist. LEXIS 27516, *12-13 (S.D. Fla. Mar. 25, 2003) (“In deciding whether to compel arbitration of a dispute, a court must first determine whether the parties agreed to arbitrate that particular dispute. ‘The court is to make this determination by applying the federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the [FAA].’ To determine whether a particular dispute is arbitrable, a court must interpret the scope of the arbitration clause, and that is a matter of federal law.” (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, 473 U.S. 614, 626 (1985) and collecting cases)). Thus, Bermuda law does not govern the scope of the arbitration provision.

D. The Anti-Suit Injunction

Defendant’s fourth and final argument is that the Court erred in not enforcing the anti-suit injunction issued by the Bermuda Supreme Court that purportedly enjoined Plaintiff from bringing this lawsuit. Defendant further contends that this issue is now the subject of two conflicting orders. This argument fails for several reasons. First and foremost, the two orders do not conflict. The Bermuda order specifically states that Plaintiff is enjoined from bringing any claims “arising out of her employment” with Defendant (DE #9- 1). As the Court has already determined, this dispute does not arise out of Plaintiff’s employment with Defendant. Thus, the two orders do not conflict. Second, it appears that the Bermuda court had before it only Defendant’s “Ex Parte Summons and the First Affidavit of Ms. Dana Berger,” but not the contract itself containing the arbitration provision. Id. The affidavit, moreover, merely states that the parties’ relationship is governed by the employment contract, but makes no mention of the facts giving rise to the dispute or the allegations of rape by fellow crewmembers. Thus, the Bermuda court could not have determined whether Plaintiff’s claim fell within the scope of the arbitration provision, or whether Plaintiff could have asserted any defenses thereto. Moreover, even if the Bermuda court attempted to make such a determination, as demonstrated above, the scope of the arbitration provision is governed by U.S. federal law. Therefore, the anti-suit injunction does not prevent this lawsuit from going forward.

II. Conclusion

Accordingly, after careful consideration and the Court being otherwise fully advised, and for the foregoing reasons as well as those stated in the Court’s initial Order Denying Motion to Compel Arbitration (DE # 55), it is ODRERED, ADJUDGED, and DECREED that Defendant’s Motion for Reconsideration (DE #57) be, and the same is hereby DENIED.

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1The Convention, 21 U.S.T. 2517, 330 U.N.T.S. 3, is the treaty that governs international arbitration agreements such as the one at issue in this case. Its implementing legislation is codified at 9 U.S.C. §§ 201-208.

2Defendant does not challenge the Court’s “scope” analysis; rather, Defendant maintains that the Court should not have undertaken a scope analysis at all. Therefore, the Court will not repeat that analysis here, as it can be found in the Court’s initial Order Denying Motion to Compel Arbitration.

3Defendant also notes in passing that the instant arbitration agreement is an international one, governed by the Convention Act and subject to a specific body of case law, whereas other cases have involved domestic arbitration agreements covered by the Federal Arbitration Act. The Court recognizes that courts have generally been stricter in interpreting international agreements because of differences between the language in the Acts; however, in this case it is a distinction without a difference. Moreover, as noted in the foregoing analysis, the first step under either Act is to determine the scope of the arbitration provision, even if that inquiry is a limited one. See Cape Flattery Ltd. v. Titan Mar. LLC, 607 F. Supp. 2d 1179, 1183 n. 4 (D. Haw. 2009) (“The first question [under the Convention Act] appears to parallel the inquiry under Chapter 1 of the FAA of determining ‘(1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue.’ ” (citing cases)).

4For convenience, the Court uses the phrase “arising out of the scope of employment” as shorthand for the limiting language in the arbitration provision. The relevant text of the provision is: “The Company and Crew member agree that any and all disputes, claims, or controversies whatsoever . . . relating to or in any way arising out of or connected with the crew agreement, these terms, or services performed for the company . . . shall be referred to and resolved exclusively by binding arbitration . . . in Bermuda.”

5The Court’s Jones analysis is discussed in detail in the Court’s initial Order, and will not be repeated here.

* * *

In Re: PSN USA, Inc., Debtor. U.S. Bankruptcy Court, Southern District of Florida, Miami Division. Case No. 02-11913-BKC-AJC, Chapter 11. NOB HOLDINGS CORP., in its own name and in the name of THE UNITED STATES OF AMERICA, Plaintiffs, v. LIBERTY MUTUAL INSURANCE COMPANY, as the surety of the PSN Liquidating Trustee, Dan Fair, Defendant. Adv. No. 09-02189-AJC. March 19, 2010. A. Jay Cristol, Chief Judge Emeritus.

MEMORANDUM DECISION GRANTING LIBERTY MUTUAL

INSURANCE COMPANY’S MOTION FOR FINAL SUMMARY

JUDGMENT AGAINST NOB HOLDINGS CORP.
THIS MATTER came before the Court for hearing on March 4, 2010 on Liberty Mutual Insurance Company’s motion for final summary judgment on NOB Holding Corp.’s adversary complaint (D.E. 19)1 pursuant to Bankruptcy Rule 7056.

The Court, having considered the Motion and the Affidavit of Dan Fair attached thereto, the filings in the Chapter 11 proceeding, and the arguments of counsel at the hearing, and otherwise being fully advised in the premises, makes the following conclusions of law in accordance with Bankruptcy Rule 7056.

I. BACKGROUND

The Debtor filed a Voluntary Petition under Chapter 11 on March 1, 2002 (D.E.1) and filed its Plan of Reorganization on October 15, 2002. (D.E. 328) NOB submitted unsecured claim #77 and an objection to the claim was filed by the Debtor on November 20, 2002. (D.E. 359) PSN filed its First Amended Plan of Reorganization on November 21, 2002. (D.E. 363) The Amended Plan was confirmed on December 24, 2002 (the “Amended Plan”). (D.E. 446) Daniel Fair (“Fair”) was appointed as the Liquidating Trustee by section I. RR of the Amended Plan. On or about January 6, 2003, a Liquidating Trust Agreement was signed. (D.E. 392)

Liberty issued a Bond of Liquidating Trustee on January 8, 2003 to the United States Bankruptcy Court “for the faithful performance by the undersigned principal [Daniel A. Fair] of his official duties as the Liquidating Trustee of the above named Debtor” (the “Bond”). Section 5.4 of the Liquidating Trust Agreement states “the Liquidating Trustee shall not be liable for any error of business judgment with respect to any action taken or omitted to be taken by the Liquidating Trustee in such capacity, unless it shall be proven that the Liquidating Trustee shall have been grossly negligent or shall have acted with willful misconduct or fraud in ascertaining the pertinent facts or in performing any of the rights, powers or duties hereunder.” Section 4.06 of the Amended Plan similarly limits Fair’s liability to acts of gross negligence or willful misconduct. Section 5.5(b) of the Liquidating Trust Agreement further states that “the Liquidating Trustee may consult with independent legal counsel to be selected by him, and the Liquidating Trustee shall not be liable for any action taken or omitted to be taken by him in accordance with the advice of such counsel. . .”

According to his Affidavit, Fair obtained a B.S. degree in Accounting in 1982 from Carroll College but is not a licensed CPA. He was an employee of the Debtor in its accounting department but had no experience serving as a liquidating trustee and was not familiar with bankruptcy practice or procedure. Fair filed an application to employ Kluger Peretz Kaplan & Berlin (“KPKB”) as the Trustee’s counsel on February 24, 2003. (D.E. 504) KPKB had formerly served as counsel to the Official Committee of General Unsecured Creditors. According to Fair’s affidavit, Fair did not believe he had any choice in the selection of counsel. (Fair Aff. ¶ 11.)

At the request of KPKB, Fair signed an affidavit supporting an objection that had been made by the Debtor to NOB’s claim on November 30, 2004. The basis for the objection was that NOB’s claim arose from a written contract entered into by the Debtor’s parent company, Pan American Sports Network International (“PSNI”), rather than by the Debtor. Fair attested to the fact that the Debtor operated out of Florida and was not “domiciled” in New York. According to Fair, the contract between NOB and the Debtor did not clearly distinguish between the Debtor or PSNI but it referred to an entity domiciled in New York. Fair found documentation after signing his affidavit in November 2004 and before the hearing on the objection to NOB’s claim indicating that the Debtor had conducted some business in New York, so he withdrew his affidavit before the hearing date. A hearing was still conducted on the objection to NOB’s claim on April 19, 2005 based upon proofs other than Fair’s affidavit. The Court entered a 26 page Findings of Fact and Conclusions of Law on October 31, 2005 (D.E. 753) finding that the Debtor was domiciled in New York and, therefore, denied the objection to NOB’s claim (D.E. 752 and 753). NOB’s motion for fees and/or sanctions against Fair for asserting an improper objection to its claim were denied by the Court as being without merit (D.E. 985).

NOB filed a motion on April 29, 2006 (D.E. 834) and an amended motion on April 30, 2006 (D.E. 842) to remove Fair as the Liquidating Trustee. Evidentiary hearings on the motion were conducted on February 16 and March 30, 2007.

The Court appointed an examiner, Soneet Kapila, on April 13, 2007. (D.E. 1026) The Examiner submitted his report to the Court on June 22, 2007 (the “Report”). (D.E. 1044) The Report indicated that “the trustee violated numerous plan provisions, the trustee violated the reserve account prescribed by the plan provisions, the trustee commingled funds and did not segregate the required reserves, the trustee paid estate professionals without the requisite court approvals pursuant to the plan, the trustee did not exercise its fiduciary obligation to maximize the return on available surplus funds as he did not hold the funds in interest bearing account.”

Significantly, however, the examiner also found that “the trustee did not possess the background experience and foundational qualifications required to serve in the fiduciary role of a liquidating trustee. . . bankruptcy counsel evidently did not provide the requisite level of overseeing advice and guidance. . . and there is no evidence of misappropriation of funds.”

On June 8, 2007 the Court entered partial findings of fact and conclusions of law (D.E. 1041). The Court found that the Liquidating Trustee had mismanaged the PSN liquidating trust. Nevertheless, the Court determined that it was in the best interest of the creditors and the administration of the estate not to remove Fair as the Liquidating Trustee but simply to order him not to make any further disbursements.

NOB subsequently filed a motion to disgorge improperly paid fees on July 20, 2006. (D.E. 925) On May 27, 2008 the Court ordered a disgorgement of fees that Fair paid to KPKB without court approval. (D.E. 1156) KPKB had voluntary disgorged $324,000 in August 2007 so the order directed KPKB to disgorge a remaining shortfall of $165,691. The Court did not order Fair disgorge any of the fees that he had been paid.

NOB filed an adversary complaint against Fair and KPKB on September 22, 2008. (D.E. 1197) NOB later filed an adversary complaint against Liberty on October 16, 2009. (D.E. 1)The Complaint alleges causes of action against Liberty for (i) Liability of a Surety; and (ii) Attorneys’ Fees under Florida Statutes § 627.428. NOB voluntarily dismissed its claim against KPKB on January 15, 2010. The two adversary actions were consolidated on January 21, 2010 (D.E. 23)

Liberty filed a motion for summary judgment on NOB’s complaint on January 15, 2010 (D.E. 19). NOB did not respond to the motion. A hearing on Liberty’s motion for summary judgment was conducted on March 4, 2010. NOB filed its own motion for partial summary judgment just prior to the hearing on March 4 (D.E. 28). NOB filed a motion for enlargement of time to file a response to Liberty’s motion for summary judgment after the hearing on March 5, 2010 (D.E. 31). The Court denied this latter motion on March 15, 2010 (D.E. 38).

NOB states that it entered into a new retainer agreement with its counsel in March 2005 as a result of Fair’s submission of a false affidavit and that NOB paid substantially more fees under the new retainer agreement than NOB would have paid under the original retainer agreement (D.E. 30). This evidence of alleged damage sustained by NOB was not presented as a response to Liberty’s Motion for Summary Judgment, however.

II. ANALYSIS

A. Legal Standard

Pursuant to Rule 56 of the Federal Rules of Civil Procedure, as made applicable to bankruptcy adversary proceedings by Bankruptcy Rule (B.R.) 7056, a party seeking to recover upon a claim may move for summary judgment in its favor as to all or any part of a claim. Summary judgment should be granted if the matters of record show that there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. In re Diagnostic Instrument Group, 283 B.R. 87, 92 (Bankr. M.D. Fla. 2002). The Court concludes that there are no genuine issues as to any material fact. Consequently, this matter is ripe for summary judgment resolution.

B. Procedural Issues

Liberty claims it is entitled to summary judgment on procedural grounds because NOB failed to comply with the Federal Rules of Civil Procedure and the U.S. Bankruptcy Court — Southern District of Florida Local Rules. NOB did not file any responsive pleading to Liberty’s Motion for Final Summary Judgment.

Liberty argues that, based on Fed. R. Civ. P 56(e)(2), NOB’s failure to timely file any response is a basis for this Court to grant Liberty’s Motion for Final Summary Judgment. See Kelson v. S. Bell Tel. & Tel. Co., 778 F.Supp 521, 523 (S.D. Fla. 1991) (holding that the court had the discretion to grant the summary judgment motion based on the fact that it was unopposed by plaintiff during the time allowed by the Rules of Civil Procedure).

Further, NOB failed to comply with the time limits set forth in Local Rule 5005(F)(1), as well. The Rule specifically states that papers that are not submitted timely by 4:30 p.m. on the second business day prior to the date of the hearing are not to be considered.2 Nevertheless, the Court considered the untimely filed papers submitted by NOB.

For reasons cited below, Liberty is also entitled to a final summary judgment for substantive reasons.

C. Simple Negligence v. Gross Negligence, Willful Misconduct or Fraud

Count One of NOB’s Complaint against Liberty alleges a cause of action for “Liability of a Surety.” Count One alleges as follows:

Mr. Fair is liable to NOB for damages caused by his Misconduct, including but not limited to (i) decreased distributions from the Trust; (ii) delays in receiving distributions from the Trust; and (iii) damages for contempt of court, bad faith submission of a false affidavit, bad faith litigation and concealment of misconduct, including reasonable attorneys fees arising from NOB’s legal work necessary to expose and correct Mr. Fair’s Misconduct. (Compl. ¶ 24.)
As a matter of law, Liberty, as surety, cannot be liable under its Bond unless Fair is also liable to NOB. Arson v. Ahringer, 322 So.2d 643 (Fla. 3d DCA 1975)

As a general rule, bankruptcy trustees are entitled to qualified judicial immunity for acts taken within their authority as an officer of the court. In re Clearwater Bay Marine Serv., 236 B.R. 285, 287 (Bankr. M.D. Fla. 1999). It is well settled that in order for a trustee to be held personally liable, the actions of the trustee must rise to the level of willful and deliberate conduct or gross negligence. In re Solar Fin. Servs., 255 B.R. 801, 804 (Bankr. S.D. Fla. 2000). This is particularly true when the Amended Plan and the Liquidating Trust Agreement also specifically limit Fair’s liability to acts of gross negligence or willful misconduct.

In order for Fair’s conduct to be considered grossly negligent, NOB must establish that Fair “willfully and deliberately” attempted to cause harm to NOB. Id. There has been no proof adduced by NOB that Fair acted deliberately or with the intent to harm NOB or the Estate through his decisions as the Liquidating Trustee. NOB has generally argued that Fair “abdicated” his responsibilities, but this is insufficient. Fair admitted in his Affidavit that he violated the Liquidating Trust Agreement and/or the Amended Plan in several respects but these violations were caused by inattention to detail, misinterpretation of the Amended Plan, simple mistake, or based on advice of counsel. (Fair Aff. ¶ 20 and 24) Fair received no financial benefit (other than some minimal extended fees as the trustee) as a result of these errors. It is also a general rule that a bankruptcy trustee is not liable in any manner for mistakes in judgment where discretion is allowed. In re Serve-em.com, Inc., 2007 WL 3054987, 5 (Bankr. S.D. Fla. October 16, 2007).

Florida law defines “gross” negligence as “an act or omission that a reasonable, prudent person would know is likely to result in injury to another.” Eller v. Shova, 630 So.2d 537, 540 n. 3 (Fla. 1994). As stated in Tran v. Waste Management, Inc., 290 F.Supp.2d 1286, 1294 (M.D. Fla. 2003), a showing of gross negligence under Florida law requires the following elements:

a. Gross negligence presupposes the existence of a composite of circumstances which, together, constitute an imminent or clear and present danger amounting to more than normal and . . . usual . . . peril;

b. Secondly, gross negligence must be predicated on a showing of chargeable knowledge or awareness of the imminent danger spoken of; [a]nd

c. [T]he act of omission complained of must occur in a manner which evinces a conscious disregard of consequences, as distinguished from a careless disregard thereof (as in simple negligence) or from the more extreme willful or wanton disregard thereof (as in culpable or criminal negligence).
Focusing on subpart (c), which appears most applicable here, it appears that Fair may have shown a careless disregard for his duties but not a conscious disregard of the consequences.

NOB’s Complaint states that Fair “commingled funds that the Plan required to be deposited and preserved in a special ‘Reserve Account’ with other Trust Assets” and “failed to deposit Trust funds in interest bearing accounts as required by the Plan.” (Compl. ¶ 15(C), (H).) According to Fair’s affidavit, Fair opened an Operating Account and a Reserve Account with Bank of America. (Fair Aff. ¶ 13.) Fair did not keep the required reserves segregated as required by the Amended Plan but used the reserves from time to time to pay operating costs. (Fair Aff. ¶ 13.) Although these acts may constitute a violation of the Amended Plan, this was not a deliberate attempt or conscious disregard by Fair to injure NOB or the Estate. (Fair Aff. ¶ 24.)

Fair further failed to put the reserve funds into an interest bearing account as required by the Amended Plan. (Fair Aff. ¶ 14.) A representative of the Bank of America advised Fair that the funds could not be put into such an interest bearing account and Fair stupidly but not maliciously relied upon her advice. (Fair Aff. ¶ 14.) Although Fair may have been mistaken in his belief, there was no deliberate attempt to wrongfully diminish or divert assets of the Estate. (Fair Aff. ¶ 24.) Fair did not receive any financial benefit (other than some minimal extended fees as the trustee) as a result of his actions as the Liquidating Trustee. (Fair Aff. ¶ 23.) Fair admittedly misread or did not fully understand the requirements of the Plan. (Fair Aff. ¶ 20.) As such, any violations on his part were inadvertent and/or were based upon advice of counsel. (Fair Aff. ¶ 20.) Stupidity does not equal malice.

With respect to NOB’s assertion that Fair “submitted in bad faith a false affidavit in opposition to NOB’s motion for summary judgment on the Trustee’s objection to NOB’s claim”, Fair signed the affidavit supporting the objection at the request of counsel (Fair Aff. ¶ 17). Upon discovering new information that contradicted allegations in his affidavit, Fair withdrew the affidavit prior to the April 2005 hearing on the objection. (Fair Aff. ¶ 18.) Fair’s actions were not only based upon advice of counsel but he acted in good faith when new information was disclosed to him. NOB’s motion for fees and/or sanctions against Fair for asserting an improper objection to NOB’s claim were denied by the Court as being without merit. (D.E. 985) Fair’s sole motivation in objecting to NOB’s claim was to assure that only legitimate creditors were paid.3 (Fair Aff. ¶ 20.)

D. Reliance on Advice of Counsel

It has also been established that a trustee’s reliance on advice of counsel can be used as a defense to claims of willful misconduct. In re Southeast Banking Corp., 314 B.R. 244 (Bankr. S.D. Fla. 2004); Athanason v. Hubbard, 218 So. 2d 475, 478 (Fla. 2d DCA 1969) (holding that a receiver is not liable for loss resulting from his good faith reliance on the advice of counsel). Here, the Liquidating Trust Agreement explicitly provides that Fair will not be held liable for actions taken by him based upon advice of counsel.

Section 5.5(b) of the Liquidating Trust Agreement provides as follows:

“the Liquidating Trustee may consult with independent legal counsel to be selected by him, and the Liquidating Trustee shall not be liable for any action taken or omitted to be taken by him in accordance with the advice of such counsel. . .”
Fair relied upon advice from KPKB in pursuing his duties as the Liquidating Trustee. (Fair Aff. ¶ 12.) NOB’s Complaint states that Fair failed to comply with the compensation provisions of the Amended Plan by paying fees and expenses to himself and to his counsel without court approval. At KPKB’s request, Fair paid several of KPKB’s invoices. (Fair Aff.¶ 15.) Fair was advised by counsel that monthly invoices could be paid without court approval as long as quarterly invoices were submitted to the court. (Fair Aff.¶ 15.) It was Fair’s understanding that the bills had been approved for payment by the court and therefore, Fair was permitted to pay them. (Fair Aff. ¶ 15.) Fair reviewed the Amended Plan (Fair Aff. ¶ 12) and believed that it allowed him to pay 80% of attorneys fees and 100% of legal costs without court approval (Fair Aff. ¶ 15). Fair also believed that the same rules applied to payment of his fees as trustee. (Fair Aff. ¶ 15.)

The Report submitted by the Examiner concluded that Fair “did not possess the background experience and foundational qualifications required to serve in the fiduciary role of a liquidating trustee,” but that there was “no evidence of misappropriation of funds” (D.E. 1044). This is not a situation where a trustee has misappropriated or embezzled funds for his own pecuniary gain. Simply stated, any of Fair’s actions that are complained of by NOB were mistakes in judgment due to his inexperience and/or instances where he relied upon advice of counsel.

E. Damages

It is a basic legal precept that to recover damages in law, a plaintiff must demonstrate that damages have been sustained. Bell v. Allstate Ins. Co., No. 02-6789, 2003 WL 21246394, 2 (Fla. Cir. Ct. Mar. 4, 2003); Heard v. Mathis, 344 So. 2d 651, 655 (Fla. 1st DCA 1977) (holding that the essential elements of any cause of action are the existence of a legal right in plaintiff, with a corresponding duty in defendant, coupled with a violation of that duty which results in injury or damages to the plaintiff).

Count I of NOB’s Complaint seeks damages against Liberty caused by Fair’s “Misconduct.” Liberty’s bond was issued for the benefit of “the United States Bankruptcy Court, Southern District of Florida, Miami Division.” NOB is not named as an obligee in the bond and, therefore, does not have standing to make a claim against Liberty for any damages. NOB was not requested by the Court to file an adversary complaint against Liberty and the complaint was not filed on behalf of the Estate. The Estate has not claimed any loss as a result of Dan Fair’s actions. NOB has not made an application for its attorneys’ fees and costs (its only possible damages) under 11 U.S.C. § 503(b)(3)(D) and (4). These provisions are NOB’s only potential source of recovery for attorneys’ fees and costs. These provisions provide for an award of administrative expenses from the estate based upon a showing that a creditor made a “substantial contribution in the Debtor’s Chapter 11 case.” In re L. Frank Johnson, 126 B.R. 808, 810 (Bankr. M.D. Fla. 1991).

In any event, Liberty has alleged that NOB has been fully reimbursed for any violations by Fair of the Amended Plan and/or the Liquidating Trust Agreement.4 NOB did not timely file an opposing affidavit establishing its damages and there is nothing in the record indicating that any damages have been sustained by NOB. The Court considered the Declaration of Edward Griffith (D.E. 30), filed in conjunction with NOB’s motion for partial summary judgment (D.E. 28), and the only damages that NOB claims are the additional, renegotiated attorneys’ fees incurred by NOB that resulted from the prosecution of its claim and responding to the objection to that claim. But in order for the additional fees to be chargeable to Liberty, the Court would have to conclude that Fair pursued the Debtor’s objection to NOB’s claim in a grossly negligent, willful or fraudulent way. The Court does not reach that conclusion.

F. Attorneys Fees

Count Two of NOB’s Complaint alleges a cause of action against Liberty for “Attorneys’ Fees under Florida Statutes § 627.428.” Specifically, Count Two of the Complaint states the following:

Upon rendition of a judgment against Liberty Mutual under Count One, Florida Statutes § 627.428 entitles NOB to an award of reasonable attorneys fees in obtaining such a judgment against Liberty Mutual, including reasonable attorneys fees arising from prosecuting this adversary proceeding as well as the Fair Proceeding.
(Compl. ¶ 26.) Florida Statute section 627.428, entitled “Attorney’s fee” states as follows:

(1) Upon the rendition of a judgment or decree by any of the courts of this state against an insurer and in favor of any named or omnibus insured or the named beneficiary under a policy or contract executed by the insurer, the trial court or, in the event of an appeal in which the insured or beneficiary prevails, the appellate court shall adjudge or decree against the insurer and in favor of the insured or beneficiary a reasonable sum as fees or compensation for the insured’s or beneficiary’s attorney prosecuting the suit in which the recovery is had.
Florida Statute section 627.428, which provides for an award of reasonable attorneys’ fees upon obtaining a judgment, is inapplicable to any attorneys fees or costs incurred by NOB or its lawyers before October 16, 2009 when the adversary complaint against Liberty was filed. Even if a judgment was entered in favor of NOB under Count I of the Complaint, section 627.428 would only entitle NOB to the costs incurred in connection with the adversary complaint filed against Liberty. Section 627.428 does not entitle NOB to its fees and costs incurred before the filing of the adversary complaint against Liberty, especially fees incurred after renegotiating a contingency fee contract with its counsel in 2005. The statute does not apply to fees generally incurred in the Fair proceeding. Liberty is not liable to NOB for fees incurred in presenting its claim or pursuing relief against Dan Fair or Kluger Peretz.

Therefore, NOB has no basis for the recovery of its attorneys’ fees sought in Count II of the Complaint as a matter of law and the attorneys fees incurred by NOB cannot be considered a damage to NOB.

CONCLUSION
For all of the foregoing reasons, the Court grants final summary judgment in favor of Liberty Mutual Insurance Company.

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1D.E. references in italics are from this adversary case. All other D.E. references are from the 02-11913 Chapter 11 action.

2The Court has addressed NOB’s Motion to Allow Late Filing of Summary Judgment Opposition in a separate order (D.E. 38).

3Regardless of the Court’s ruling on the objection to NOB’s claim, Fair still believes that PSN’s business was primarily conducted in Miami rather than New York. (Fair Aff. ¶ 19.) Fair cannot be held liable for a mistake in judgment where that judgment was discretionary and reasonable under the circumstances. See In re Serve-em.com, 2007 WL *5.

4KPKB disgorged $489,691 to the Estate so the Estate actually saved money by not paying legal expenses. All distributions that were required under the Amended Plan were made to creditors, including NOB. As a result, any financial harm to the Estate or any damages incurred by NOB due to Fair’s mistakes in paying estate professionals without court authorization were fully remedied.

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