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Federal Practice Update — Decisions of Interest From the Federal Courthouse

January 01, 2005

This month we review three decisions rendered by the Judges of the Eastern District of New York, Alfonse D’Amato Courthouse. In the first decision, the Honorable Denis R. Hurley upheld a fee award order rendered by U.S. Bankruptcy Judge Stan Bernstein. We then review two decisions rendered by the Honorable Arthur D. Spatt, both granting motions to voluntarily dismiss under Fed. R. Civ. P. 41(a)(2).

In In re: Testaverde, 04-CV-2027, 04-CF-2026 (DRH) (E.D.N.Y. Nov. 17, 2004), the court considered an appeal from an order of U.S. Bankruptcy Judge Stan Bernstein. The Trustee of the debtor’s estate in a chapter 7 matter sought review of Judge Bernstein’s order awarding the Trustee the maximum commission allowable under 11 U.S.C. § 326, which was a reduction of the total amount sought by the Trustee.

The Trustee sought reimbursement for counsel fees and expenses, as well as compensation for the Trustee. Judge Bernstein held that the Trustee may not include in the distributions any fees and costs paid to accountants, special counsel or his own general counsel.

On appeal, Judge Hurley applied the “clear abuse of discretion” standard of review which applies in reviewing a compensation award by a bankruptcy judge. After reviewing Section 326 of the Bankruptcy Code, and In re Guido, 237 B.R. 562 (Bankr. E.D.N.Y. 1999), the court concluded that Judge Bernstein was correct in not including Trustee’s counsel fees in the base for his compensation.

In Brown v. Brown, CV 03-3359 (ADS) (ARL) (E.D.N.Y. Nov. 5, 2004), the court considered motions for voluntary dismissal made by both the plaintiff and the defendant. Pro se plaintiff moved for voluntary dismissal of his action, with prejudice, without costs to any party. Defendant, on the other hand, requested that the counterclaim be dismissed without prejudice.

The action stems from a complaint brought against various County of Suffolk defendants alleging a variety of claims of unlawful search and seizure, malicious abuse of process and other torts. The plaintiff sought dismissal of the action with prejudice in order for him to comply with a settlement agreement between himself and one of the defendants, in resolution of a matrimonial action pending in New York Supreme. That agreement apparently required plaintiff to withdraw the pending action and refrain from filing similar actions. One of the defendants, on the other hand, opposed the dismissal with prejudice in order to preserve his right to pursue counterclaims alleging malicious prosecution and abuse of process. Both motions trigger the provisions of F.R.C.P. 41(a)(2), which mandate court approval for dismissal once issue is joined.

In reviewing the motions, the court considered the counterclaims to be “utterly devoid of any factual or legal basis”, and dismissed the counterclaims. As such, since the counterclaims were no longer pending, the court next considered plaintiff’s motion for voluntary dismissal with prejudice. The court noted that only one of many defendants in the action opposed plaintiff’s request to end the action. The only prejudice claimed by that defendant was the effect it would have had on his counterclaims. Having dismissed the counterclaims, the court granted plaintiffs’ request to dismiss the action in its entirety with prejudice.

In another voluntary dismissal application, Judge Spatt permitted plaintiff to withdraw the action, with prejudice, in Tekula v. Suffolk County Community College, 02 CV 5145 (ADS) (E.D.N.Y. Nov. 24, 2004). In Tekula, another pro se plaintiff filed suit against defendants alleging civil rights’ violations. After two years of litigation, plaintiff sought voluntary dismissal of his action without prejudice in order to pursue his claim in the New York State Division of Human Rights. Defendants objected, claiming any dismissal should be “with prejudice.” Magistrate Judge Arlene R. Lindsay issued a Report and Recommendation recommending the plaintiff’s request to dismiss the action, without prejudice, be granted. Defendants submitted objections to the Report and Recommendation to Judge Spatt claiming dismissal without prejudice would be prejudicial to defendants because of plaintiff’s failure to comply with the previous discovery obligations and the two-year duration of the lawsuit.

Reviewing the objections to the Report and Recommendation on a de novo determination basis, the court considered the application of F.R.C.P. 4(a)(2) in determining whether voluntary dismissal was proper. Noting that although the action was pending for over two years and that plaintiff failed to comply with his discovery obligations, the court considered that the action had in fact not progressed to the point where the case was in trial preparation. The court also noted that there was no record of a pattern of “undue vexatiousness” on the part of plaintiff. Accordingly, Judge Spatt adopted Magistrate Judge Lindsay’s Report and Recommendation in its entirety, and upheld the dismissal, without prejudice.

Editor’s Note: The author is a Partner at Farrell Fritz, P.C., and a member of that firm’s Commercial Litigation Practice Group.

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