OPINION AND ORDER DENYING SANCTIONS
JAMES LAWRENCE KING, District Judge.
One of the greatest transgressions that can be committed against a federal court is to knowingly perpetrate a fraud and to commandeer and manipulate the legal processes to do so. This case involves just such a fraud. What this Court described as the "legal finale to a three-year opera with a stunning libretto" more than two years ago has come back for an even more stunning — encore.
Motivation, Inc. seeks to invoke this Court's inherent power to sanction bad-faith litigation conduct one of the alleged perpetrators or enablers of the fraud, Plaintiff JTR's outside general counsel, attorney Bruce L. Silverstein.
This case involves a criminal conspiracy against the United States District Court for the Southern District of Florida, which began with the filing of a completely fabricated admiralty case falsely alleging a fictitious discovery of lost treasure from an 18th century Spanish galleon.
The corrupt intent of the criminally inspired conspiracy of faking a discovery of lost Spanish treasure of thousands of junk emeralds previously planted on the bottom of the ocean to be later "discovered" as newly discovered res, subject to the admiralty jurisdiction of the United States District Court, was to obtain a judicial decree awarding the conspirators not only title to the previously planted emeralds, but also an injunctive order preserving to the criminals the exclusive right to continue searching the fake, imaginary site of the "discovery," thus preserving the opportunity to continue to "salt" the site with junk treasure for sale to innocent victims (purchasers and investors) who had been misled into believing the discovery was true and genuine based on the Court's admiralty decree.
Although the future victims of the conspirators would have been the purchasers of the fake gems and the investors who were expected to invest in the continued salvage operations of the fake discovery, the immediate victim was the United States District Court and the American system of justice. The entry of a final decree as sought by Plaintiff would have lended credence to the conspirators' outrageously false claims of a new discovery.
The corrupt criminal conspiracy of the false discovery of an eighteenth century Spanish treasure galleon and the filing of a totally false, fictitious admiralty case quickly gained a number of supporters willing to believe the incredible lies of the originators of the fraud, Jay Miscovich and Steve Elschlepp (the divers who reported the discovery of the previously planted junk emeralds). Among these supporters who enthusiastically commenced to promote the fraud were family members and their business associates, private investors, large corporate law firms, local and national media sources, including the CBS program "60 Minutes," the Smithsonian Institute, and elected officials of the Colombian government.
The involvement of all of these individuals and corporate entities produced, in some instances, astounding results. The record indicates that a more than three million dollar investment was made in furtherance of the criminal enterprise. The record further indicates that various law firms have invested legal services (some paid, some unpaid) of several million dollars in attorneys' fees and costs of litigation. The case has additionally spawned hundreds of hours of judicial labor in the three trials that have thus far been conducted.
The numerous parties and entities are listed in the foregoing paragraphs. Some are innocent, some are not. Some can be proven as knowing members of a criminal conspiracy to deceive and defraud the United States Court of the Southern District of Florida, and some are not so provable by the high requirements of the governing standard of proof for sanctionable conduct. This is the issue of this part (the third trial) of what appears to be a never-ending series of trials and evidentiary
As a secondary issue in determining proof of sanctionable conduct, are the persons who cannot be proven to have had direct knowledge of participating in the planting of emeralds in the ocean subject to sanctions for deliberately closing their eyes to the fraud being committed in deliberate indifference to the harm their activities were causing? Is the proof in this record substantial enough to prove by clear and convincing evidence that such individuals (if any) are to be sanctioned? Is it a legal offense for such an individual to defend on a basis that "I never knew that the conspirators purchased fake emeralds and planted them on the bottom of the ocean since they never told me that"? Should they, if the evidence is clear and convincing that Jay and Steve were obviously lying about making a discovery of lost treasure, have withdrawn from the conspiracy at the time it became known to them or made the facts of the fraud known to the court?
This, the Amended Motion for Sanctions by Claimant Motivation, Inc., raises a plethora of legal issues not at issue in this Court's order of January 25, 2013, or Judge Moore's Order of June 19, 2014: Legal issues pertaining to sanctions of persons and entities not parties to the original admiralty action; the legal standard for burden of proof, i.e., clear and convincing evidence; the elements of deliberate ignorance; the inherent authority of a court to impose sanctions; and the Court's jurisdiction to sanction parties who have not personally been served or appeared in litigation pending before the Court prior to sanctions being sought against that person or entity.
A combination of this Court's January 25, 2013, Opinion and Final Order (DE #199) (the "Admiralty Order") and the Honorable United States District Judge K. Michael Moore's June 19, 2014, Findings of Fact and Conclusions of Law (DE #445) ("Judge Moore's Sanctions Order") adequately details the procedural and factual background of this tale, and the relevant portions of each will be reproduced verbatim herein. As Judge Moore succinctly put it, "[t]he factual narrative in this matter has two versions: the tall tale and the truth." Judge Moore's Sanctions Order, DE #445 at 2.
A. The Tall Tale — The Admiralty Trial
This story — as far as the Court knew on January 25, 2013, when it entered its Admiralty Order — begins with the alleged discovery by two treasure hunters of a cache of jewels on the bottom of the Gulf of Mexico off of Key West, Florida:
Admiralty Order, DE #199 at 2-5.
This Court noted in its Admiralty Order that testimony presented at trial by Dr. Robert H. Baer, a professional archaeologist hired to draft a treatment of the find for possible public relations uses, told a very different story of the discovery:
Id. at 4 (internal citations omitted). Nevertheless, the tale continues:
Id. at 5-8 (internal citations and footnotes omitted).
The standard procedure for Admiralty cases in the Southern District of Florida is for finders/salvors to file suit in admiralty and bring the subject material into custody of the Court to establish in rem jurisdiction over the material. A warrant for an arrest of the res issues, a substitute custodian is appointed, and after publication of Plaintiff's claim is made, anyone having a claim may so state and be heard at trial. Id. at 12.
Motivation, Inc., by its filing of October 16, 2011 (DE #10), was the only Claimant. It immediately commenced discovery and demanded inspection of the emeralds to determine whether they could have come from one of the 17th Century shipwrecks to which they have title, the Nuestra Senora
What then occurred is best described in this Court's Admiralty Order as "systemic difficulty in achieving the delivery of the res into the jurisdiction of the Southern District of Florida," which saw the res "five months into this action [if not later]... apparently scattered between Key West, New York, Pennsylvania, France, Switzerland, and Columbia, if not elsewhere." Id. at 9-10. This "caused a marked deviation from this Court's prior and well-established procedures" so much so that, as Judge King found in the substantively entered Admiralty Order of January 25, 2013 (DE #199), the Court could not "find that the material ... under the Court's arrest is the entire res." Id. at 13. Furthermore, the Court could not be "certain that the material shown to the expert witness ... was the same material retrieved from the ocean floor and ... contained [in] the res ..." Id.
This Court's Opinion and Final Order, entered at the conclusion of the trial held December 3 through December 21, 2012, denied any relief to Plaintiff JTR Enterprises, Inc. on all claims, holding:
Id. at 18-19.
Further, in light of Jay's delivery of the res to a jeweler in Pittsburgh to have certain of the stones cut, finished pieces of which filled four gallon-size bags, this Court found that "even if the Court were to apply the law of salvage, Plaintiff has
As for JTR's claim for title under the law of finds, this Court first laid out the elements required to sustain such a claim: "(1) intent to reduce property to possession, (2) actual or constructive possession of the property, and (3) that the property is either unowned or abandoned." Id. at 16 (internal citation omitted). In its analysis of this claim, this Court found that JTR failed to prove entitlement to title as follows:
Id. at 20-21.
The failure of JTR to prove its claims, the incredible nature of Jay and Steve's
Id. at 22.
Accordingly, this Court declined to issue either an award in salvage or title to the res under the law of finds. Rather, this Court simply returned the res to the parties who physically brought it into court (JTR, Jay, and Steve), and expressly made "no finding as to the type, source, value, provenance, or origin of the stones comprising the res." Id. at 23.
The rumors of fraud, the delay in getting the stones into the jurisdiction of the Court, and the refusals to allow Motivation an inspection of the emeralds early on in the case, thereby prolonging its involvement and multiplying its legal costs, all resulted in Motivation's original Motion for Sanctions (DE #123, filed August 27, 2012). This Court severed the sanctions motion from the Admiralty Trial. DE #172. Judge K. Michael Moore held an evidentiary hearing on the sanctions issue from January 13-15, 2014. It is here that the tall tale ends, and the discovery of truth begins.
B. The Truth — Judge Moore's Sanctions Trial/Evidentiary Hearing
After nearly a year of discovery into the issue of sanctions, Judge Moore's three-day trial on the subject culminated with a stunning on-the-stand revelation from a subpoenaed witness and a finding by Judge Moore that the whole case had indeed been designed from the beginning to commit a fraud upon the Court:
Judge Moore's Sanctions Order, DE #445 at 2. (internal citations omitted).
Id. at 14. (internal citations omitted).
Accordingly, Judge Moore found "by clear and convincing evidence, that a fraud has been committed upon this Court,"
In addition to exercising the Court's inherent power and assessing sanctions against Jay's estate for his act of committing a fraud upon the Court — about which Judge Moore found that "there is no starker example of bad faith," id. at 19 — Judge Moore assessed sanctions against Plaintiff JTR for not disclosing to the Court or to Motivation the presence of epoxy on the emeralds. Id. at 17. At Judge Moore's sanctions trial it was revealed that in early December of 2011, JTR and its admiralty counsel at the time, David Horan, learned the results of testing being conducted on the emeralds by French and Swiss labs. Id. at 9-10. These tests showed that some of the emeralds had epoxy on them, and because epoxy did not exist until the 19th century, the emeralds could not have come from Motivation's 17th century Spanish galleons the Atocha or Santa Margarita. Id.
As Plaintiff JTR's admiralty counsel, Horan believed he had a duty to the Court to disclose the test results, considering his previous representations to the Court on the possible origin of the emeralds contained in a report Horan filed on October 18, 2011. Id. at 11. This report, authored by archaeologist R. Duncan Mathewson, III and titled "Underwater Archaeological Investigations of the Emerald Site off the Florida Keys Research Design Executive Summary," opined that the emeralds "clearly represent[ed] a cargo loss at sea" and that an approximate date range for the site could be from 1570-1700, though "more research is required before a more definite date can be determined." DE #19 at 9. Horan testified before Judge Moore that he had "heated discussions" with Silverstein over disclosure of the lab results. DE #445 at 11-12.
JTR did not disclose the results to the Court, however. Instead, JTR reported the French and Swiss lab results to CBS and the 60 Minutes team, id. at 11, and arranged for more testing of the stones by another lab with CBS's assistance. Id. JTR filed a "Second Status Report" on January 6, 2012, that only revealed that testing was ongoing and results would be shared with the Court "once all of these
Id. at n. 16.
The Court imposed this sanction because JTR had withheld the epoxy results from the Court and Motivation, and awarded Motivation its attorneys' fees incurred from December 2, 2011, through April 18, 2012. The Court imposed this sanction because Plaintiff had withheld the epoxy results from the Court and Motivation. Id. at 18. It was not imposed for Jay's lies about the alleged "discovery."
During Judge Moore's Sanctions Trial, and after the fraud on the court had been revealed, the Court granted Motivation leave to file an Amended Motion for Sanctions to be directed at any other parties Motivation thought responsible for committing this fraud. Judge Moore further found that the crime-fraud exception to the attorney-client communications privilege applied and compelled the production of previously privileged email and other communications between and among JTR, its members, and its counsel. See DE #424; DE #444. This resulted in the production of hundreds of emails and discovery of other substantial evidence not previously disclosed to the Court or Motivation. The evidence that has come to light since those orders is the focus of this Opinion. A large part of the following findings of fact were either deliberately withheld in the trial on the salvage case held before Judge King in January 2013 or constitute complete perjury by the original conspirators Jay Miscovich and Steve Elchlepp.
II. Findings of Fact
a. Prologue — The Genesis of a Fraud
Jay Miscovich invested in Motivation, Inc. in approximately 2009. It was probably what he observed during that experience as a treasure salvage investor that inspired him to devise this fraudulent conspiracy to use the federal Admiralty Court to pervert justice. Though no one but Jay could have known what he meant when he testified under oath at the Admiralty Trial, his words foreshadowed his fraud:
Of course we now know that this is precisely what Jay did. As Judge Moore found, Jay "managed to successfully convince his investors, lawyers, employees of the Smithsonian, appraisers, jewelers, family, friends, the general public, and many others, including investigative reporters from CBS' 60 Minutes, that he had discovered and recovered this treasure from the seafloor [and] allowed millions of dollars to be invested into this fraud before the Complaint in the instant case was even filed." DE #445 at 19.
b. Bruce Silverstein's Initial Involvement with Jay Miscovich
Bruce Silverstein has practiced law at the Delaware law firm of Young Conaway Stargatt & Taylor LLP ("YCST") for his entire career, approximately 28 years. His practice focuses on corporation law, which he describes as "including alternative entities ... limited partnerships ... large mergers and acquisitions ..." and similar issues. Transcript of Amended Motion for Sanctions Hearing, December 4, 2014 ("Hearing Tr. 6"), at 112-13.
Silverstein testified that, in addition to the phone call from Davis and Livingston about YCST's possible retention in the Delaware Litigation, on the same day he also received a phone call and an email from New Orleans attorney Lou Fishman about YCST's possible retention in the same matter. Id. at 117. According to Silverstein, attached to the email from Mr. Fishman was an email from Jeffrey Post, Ph.D. ("Dr. Post"), the Curator of the National Gem and Mineral Collection at the Smithsonian Institute, to the New York Investors dated September 9, 2010, in which Dr. Post describes results of analytical scanning electron microscope testing on the emeralds. Id. at 123. Dr. Post's email, which Silverstein testified to having read the day he was first approached to represent
In addition to Davis and Livingston of DLL, Jay, Steve, and Scott were also being advised by Paul Sullivan, Scott's neighbor and friend in Hawaii and a self-styled political organizer who worked on the campaigns of Presidents Carter and Clinton. Id. at 8. Sullivan became involved with Jay and Steve through Jay's brother Scott sometime in early 2010. Id. at 9. Sullivan testified that, in addition to acting as an advisor to Jay, Steve, and Scott, in December of 2010 he had traveled to Colombia at Jay's request and met with the president of Colombia to convey Jay's offer of 70% of the emeralds in exchange for the government of Colombia's physically running the salvage operation. Hearing Tr. 10 at 113-14. Sullivan further testified that he made a second trip to Colombia in March of 2011 for further discussions with the Colombian presidential cabinet on this issue. Id. at 115. Silverstein testified that he was aware of Sullivan's trips to Colombia, made both before and shortly after he was retained in the Delaware Litigation, and that he found it "inconceivable ... that Jay Miscovich would not only allow, but support this process if these were not emeralds that had been found in the Gulf of Mexico and were genuine Colombian emeralds." Hearing Tr. 9 at 22.
Shortly after being retained in the Delaware Litigation, in late January of 2011 and into February of 2011, Silverstein began to review many documents related to that case. The Verified Complaint in the Delaware Litigation, which the New York investors filed against Jay, Steve, and Scott on January 19, 2011, was filed by lawyers at the New York law firm Willkie Farr & Gallagher ("Wilkie Farr"). Silverstein Ex. 7. Further, the New York Investors had filed on January 11, 2011, another Verified Complaint against Jay and Steve in the Circuit Court for the 16th Judicial Circuit in and for Monroe County, Florida, in which case the New York Investors were represented by both the Florida law firm Colson Hicks Eidson as well as by Willkie Farr. Silverstein Ex. 4. Filed along with this complaint were affidavits by two of the New York Investors, Mr. Dean Barr and Mr. Neil Ash. Silverstein Ex. 5; Silverstein Ex. 6. In these affidavits, these New York Investors stated that Jay had made a discovery of "sunken treasure, namely emeralds and other gemstones." Id. These affidavits, dated January 10, 2011, further stated that these New York Investors had invested approximately two million dollars in Jay's discovery. Id. Silverstein received and reviewed a copy of this complaint and these affidavits shortly after he was retained in the Delaware Litigation. Hearing Tr. 6 at 142. Silverstein testified that "the fact that [the New York Investors] were represented by these lawyers and were spending a lot of money to take control of the emeralds" contributed to his own belief in the legitimacy of Jay's find. Id. at 158. Further, Silverstein testified that he believed the New York Investors' investments and selection of these expensive, respected, and high-powered law firms said a lot about their own assessment of the veracity of Jay's story and the value of the emeralds. Id. at 135, 160.
Also among those documents that Silverstein reviewed around the time he was first retained in late January of 2011 was another email, dated July 13, 2010, sent by
In addition to the information he obtained from Dr. Post, shortly after Silverstein was retained in the Delaware Litigation, in late January or early February of 2011, Silverstein received and reviewed information on the appraised value of certain of the stones. Id. at 135. Among these appraisals was a report (dated December 9, 2010) by Josh Lents of the Gemological Appraisal Laboratory of America (the "GAL"). Silverstein Ex. 2. According to the GAL, which in preparing its appraisal had only evaluated the characteristics and value of a small fraction of Jay's emeralds, the estimated retail value of just twenty stones was approximately $120,000. Id. This total did not include one specimen, about which the GAL had concluded "Due to rarity and exceptionally preserved condition, value cannot be accurately stated." Id. Finally, in an observation that would later prove significant, the GAL described each stone it examined as "Untreated — No evidence of oil or resin." Id. In late January or early February of 2011, Silverstein went to New York City and personally met with Lents, the GAL appraiser who prepared the report. Hearing Tr. 6 at 136. Silverstein brought to the meeting "a few selected emeralds, including ones that [Lents] previously had appraised."
With all of this information in hand, in July of 2011, Silverstein created an entity called P & B Finance LLC through which he and Sullivan invested in and obtained a 1.5% equity interest in the emeralds. Hearing Tr. 9 at 37. Silverstein testified that he invested $80,000 of his own money. Id. Silverstein further testified that as part of the retainer agreement for the Delaware Litigation, his law firm, YCST, as well as the Hawaii law firm who referred that case to him, DLL, each obtained a 5% equity interest in the emeralds. Id. at 16.
c. Dave Horan Retained by JTR
Silverstein testified that early on in his representation of Jay, Steve, and Scott in the Delaware Litigation he advised his clients that they should seek the advice of an admiralty lawyer to determine whether an admiralty filing would be appropriate and advisable. Hearing Tr. 6 at 115. In
Horan testified that prior to hearing from or being retained by Jay, Steve, Silverstein, Sullivan, or "any of the JTR people" — or prior to early March of 2011 — he received a call from Len Tepper, the producer of 60 Minutes. Hearing Tr. 1 at 42. During this call Mr. Tepper told Horan that he was considering producing a segment for the show on Jay's find, and asked whether Horan would be an "expert source" for the segment. Id. After meeting with the JTR people, but before being retained in early March 2011, Mr. Horan, an "accomplished diver," went on what he has called a "sanity check" dive with Steve at the site of the find. Hearing Tr. 1 at 142; DE #372 at 100-10. Horan testified that during this sanity check dive he found a number of emeralds and amethysts, with several of the stones being "impacted" in the mud under several inches of silt, which indicated to him that they had been down there for some time. Hearing Tr. 1 at 57, 141-42. Horan testified that he then became interested in this case, saying "when you pull up a handful of emeralds, you get interested." DE #372 at 109-10. Horan was retained as admiralty counsel after this dive. Id. at 110.
Before JTR filed this case on September 6, 2011, the Delaware Litigation settled. 8/28/14 Bruce Silverstein Affidavit, Motivation Ex. M-8 at ¶ 18. According to Silverstein's affidavit, a settlement agreement was executed and preliminarily approved in the Delaware Litigation on March 29, 2011, and was set for a final approval hearing on August 19, 2011.
d. Peter Tobia Warns Silverstein That Jay is Not Truthful
On August 19, 2011, the Delaware Court of Chancery held a hearing to consider final approval of the settlement in the Delaware Litigation. Hearing Tr. 6 at 179. Just prior to this hearing, Silverstein was approached by Peter Tobia, a friend of Jay's, who asked to speak with Silverstein. Id. at 180. Tobia told Silverstein that he "knew information that [Silverstein] should have about Jay and his discovery, and it was important that [Silverstein] understood it." Id. Silverstein testified that during that meeting Tobia refused to provide details about this "information" until he "had his deal." Id. According to Silverstein, after Tobia refused to elaborate further, either on the "deal" he required or the information that he had, Silverstein told Tobia that he had a hearing to attend and didn't have time to deal with him. Id. at 181-82. Silverstein thought Tobia was an "untrustworthy character," and at that point Silverstein returned to the Delaware settlement hearing for approval that same day. Id.
That night, at 10:34 p.m. on August 19, 2011, after the settlement hearing had concluded, Silverstein forwarded to Horan, with copies to Jay, Steve, Sullivan, Scott, Davis, and Livingston, a copy of an email Jay had sent to Tobia on June 28, 2011.
The next morning, at 10:27 a.m. on August 20, 2011, Silverstein sent an email to Tobia. Silverstein Ex. 10 at 4. Silverstein referenced their brief encounter at the courthouse the day before, and told Tobia that
Silverstein concluded this email with a request that, should Tobia wish to discuss this issue further, he reply to this email and Silverstein will call him. Id. Within the next forty minutes, Silverstein and Tobia spoke, prompting Silverstein to send a second email at 11:07 a.m. thanking Tobia for the call and asking Tobia to speak with him again at some point that day between noon and three. Id. at 3.
Later that afternoon, at 2:33 p.m., Silverstein sent a third, and lengthy, email to Tobia, revealing that they were able to speak again as he had requested. Id. at 2. Silverstein's email first states that
Id. Silverstein continued:
Based on the foregoing, Jay has authorized me to make you the following offer:
Jay also has asked me to communicate the following alternative to you:
Id. So as not to be misconstrued, Silverstein added:
Id. at 2-3.
Horan was copied on this email as well. Id. Tobia responded by email the next day, August 21, 2011, stating that 1) he had calls in to three attorneys but hadn't heard back from any of them, it being a weekend; 2) Mr. Hess was going to seek permission from the Kirby Group to also
On September 8, 2011, Silverstein emailed Tobia a fourth and final time stating: "Your e-mail below (which is our last communication) states that you have calls in to three attorneys and someone would contact me soon. That was nearly three weeks ago, and nobody has contacted me. Have you retained an attorney with whom I should be speaking? If not, how do you wish to proceed?" Id. at 1. That same day Silverstein forwarded this entire email chain, comprising all of the emails between Silverstein and Tobia in Silverstein Ex. 10, to Jay, Steve, Sullivan, Scott, Davis, Livingston, and Horan. Id.
Silverstein testified that he did not hear anything further from Tobia after this last email, and none of the members of JTR to whom Silverstein had forwarded the email chain placed any stock in Tobia's assertions. Hearing Tr. 6 at 198. "To the contrary," Silverstein testified, "everyone that I spoke with took the position that Tobia was not to be believed and was trying to get something, people couldn't quite understand what or why, including David Horan, who went forward with the admiralty filing despite this chain of communications." Id. Silverstein testified that as of September 8, 2011, he thought Tobia to be "an extortionist" and the fact that Tobia never provided any information and his "abject refusal" to do so was telling. Id. at 199.
Prior to January 19, 2011, the date on which the Delaware Litigation was filed and Silverstein was retained, and as discussed previously, two of the New York Investors, Dean Barr and Neil Ash, executed affidavits — each dated January 10, 2011 — in a case filed by the New York Investors against Jay and Steve in the State Circuit Court in Monroe County, Florida. Silverstein Ex. 5; Silverstein Ex. 6. In addition to stating that millions had been invested by the time those affidavits were filed, the affidavits had attached as an exhibit a schedule dated August 6, 2010, of equity ownership shares in "any emeralds (or treasure whatever) recovered to current date and moving forward." Silverstein Ex. 5 at 10; Silverstein Ex. 6 at 8. Tobia is listed as having a 3% equity ownership interest in each of these schedules. Id.
Silverstein testified that in conveying Jay's offer to Tobia on August 20, 2011, he did not participate in any sort of cover up. Hearing Tr. 6 at 196. He testified that
Tobia did not accept Jay's offer, nor did he recant his claim that Jay did not find the emeralds where he said he did.
Two days after Silverstein talked to Tobia, on August 21, 2011, he received additional details of Tobia's story. Horan forwarded to Silverstein an email dated August 19, 2011, that Horan had received from Peter Hess, a lawyer in Wilmington, Delaware. Motivation Ex. M-31. In Hess' August 19 email to Horan, he said that that Tobia "is on the periphery, but he's known Jay Miscovich for a long time and says that he first became aware of the emeralds in January, 2010." Hess reported that he had received a call from Tobia on January 23, 2010, during which Tobia "asked a hypothetical as to the legal
In October of 2011, after this admiralty case was filed, JTR agreed to settle with Tobia, granting him a 3.25% equity interest.
e. Non-Spanish Coins — Jay and Steve Lie to Horan
Prior to the filing of the Admiralty Action, Jay was advised by the New York Investors and others that because the emeralds had been found in international waters he should take his discovery to a foreign country to obtain title rather than the Courts of the United States. At the Admiralty Trial, Jay testified that he was "advised, for the first year and a half, from at least 20 admiralty attorneys, not to file in [the U.S.] and to take the action to another country ... Gibraltar, the Dominican Republic, the Cayman Islands." Jay Miscovich 12/4/12 Admiralty Trial Testimony, Motivation Ex. M-41 at 25.
On August 18, 2011, Horan sent an email to Jay, Steve, Scott, Sullivan, Davis, and Livingston, not copying Silverstein, and attached a draft of the Admiralty Complaint, which he said he was "ready to file." Motivation Ex. M1-7. Horan further "strongly recommended" that JTR "meet with a professional salvage organization who have the personnel, experience and equipment to do it right." Id. Citing similarities between Jay's find and that of another case Horan was familiar with (e.g., very little shipwreck material and lots of valuable items lying exposed on the sea floor), Horan described the salvage company in that case — Odyssey — as having done "it correctly from the start." Id. Horan went on to warn everyone copied on the email that "Spain will, I'm sure, intervene in our case and claim that we are hiding the identity of the shipwreck, that we have irreparably destroyed the integrity of the wrecksite, and Spain will flood us with litigation ... the same way they attacked Odyssey." Id.
On the evening of August 19, 2011, with the settlement of the Delaware Litigation having been approved earlier that day, Silverstein wrote an email to Horan, copying Jay, Steve, Sullivan, Scott, Davis, and Livingston, telling Horan that both Jay and Steve are in favor of a U.S. Admiralty filing. Silverstein Ex. 9. Mr. Silverstein continued "[a]s I understand things, the only thing that currently stands in the way of a filing this Monday [, August 22, 2011,] is the possibility that Odyssey will persuade Jay that Gibraltar (or another country)
However, by August 21, 2011, just two days after the settlement was approved and three days after Horan's warning, in light of "the risks attendant to" an Admiralty filing, the plan had apparently changed. On that afternoon, Silverstein sent an email to Jay, Steve, and Scott, copying Sullivan, Davis and Livingston, in which he reaffirmed his preference for filing in the U.S. and threatened to withdraw from his representation should a U.S. filing not be made. Silverstein Ex. 11. Silverstein's email to Jay, Scott and Steve states as follows:
Id. at 1-2.
After receiving both Horan's warning about the potential for Spain to make a claim, and this email from Silverstein, but prior to the commencement of the Admiralty Action, Jay and Steve showed up at Horan's office with a number of coins, none of which were Spanish, and asked Horan, "well, would this prove that this is not a Spanish Galleon or have anything to do with Spain?" Testimony of David Horan, Hearing Tr. 1 at 64-65. Horan testified that upon looking at these coins, which he recalls as being Dutch, English and French, he
Id. at 70-71.
Silverstein was not present at this meeting, but Horan testified that he then called Silverstein and Sullivan to report this incident. Id. According to Silverstein, "Jay's story about the non-Spanish coins did give me reason to be skeptical about Jay's veracity. Against the then-existing evidence supporting the veracity of Jay's accounting of his discovery of the emeralds (including Horan's later `Sanity Dive'), however, Jay's indiscretion regarding the coins did not cause me to believe that the discovery was a fraud." Motivation Ex. M8 at ¶ 157.
Despite this incident with the coins, on September 6, 2011, Horan instituted the Admiralty Action by filing the Verified Complaint for Maritime Salvage (DE # 1) on behalf of JTR, and verified by Jay Miscovich. Horan testified that he relied on Jay's verification in filing this case and that he "certainly did believe him." Hearing Tr. 1 at 141.
Horan had dived the site "multiple times" and told Silverstein after each that "he was extremely excited this ... was a real deal." Hearing Tr. 8 at 34. On September 9, 2011, three days after this case was filed, Horan made another dive, with Steve, and again recovered emeralds. Hearing Tr. 1 at 141. Shortly after this dive, Silverstein, Horan and 60 Minutes producer Len Tepper traveled by boat to the discovery site. Hearing Tr. 11 at 8. They were met there by another boat carrying Jay, Steve, and a crew of persons from CBS News and 60 Minutes. Silverstein did not dive, but testified that he witnessed Horan and Steve dive into the water and resurface with a number of emeralds. During that trip, Silverstein also witnessed Horan climb onto the boat with an emerald between his teeth and exclaim, "mark that one for me when we get title." Id.
f. Sudden Production of a 20 lb. Bag of Emeralds That Jay and Steve Had "Held Back" From Disclosing to the Court.
Silverstein testified that in late September or early October of 2011, soon after the commencement of the Admiralty Action, he received a telephone call from Horan informing him that Jay and Steve had just come to Horan's office with a twenty pound bag full of emeralds (the "20 lb. group") and that Horan did not believe
Horan testified that he called Silverstein and Sullivan about this incident, and expressed his concerns that Jay and Steve might be "attempting to supplement their recovery or something to that effect." Id. at 75. Silverstein testified that at that point he told Horan "to do whatever investigation he needed to do to be satisfied that these emeralds came from the site, and he was the admiralty attorney so it was his responsibility to make sure it was being done right." Hearing Tr. 7 at 20. Horan responded that he would follow through. Id. Horan does not recall whether these emeralds were included in the res, Hearing Tr. 1 at 75, but according to Silverstein, both Horan and Jay each told Silverstein on separate telephone calls that this 20 lb. group had been deposited in the safe-deposit box that contained the res. Hearing Tr. 7 at 28. Silverstein testified that he believed Horan "had done his diligence and was satisfied that the emeralds had come from the site" after all. Id. at 22. Sullivan testified that this incident showed him that Jay and Steve had come around and started to trust in the court process. Hearing Tr. 10 at 123.
On September 30, 2011, Horan filed a Status Report on behalf of JTR. DE # 7. This status report advised that a safe-deposit box had been leased in Key West and that "the majority of the recovered items are in those boxes. The remaining recovered items are in a bank vault in New York and arrangements are being made to transport them to a bank in South Florida." Id. The report further stated that thirty-six of the stones were at the Smithsonian. Following this Status Report, Horan filed the Report of Duncan R. Mathewsson, discussed above, which had opined that the emeralds "clearly represent[ed] a cargo loss at sea" and that an approximate date range for the site could be from 1570-1700, though "more research is required before a more definite date can be determined." DE # 19 at 9.
Also, as discussed previously, on October 16, 2011, Motivation filed its Verified Claim (DE # 10) asserting a potential interest in the emeralds on the Atocha "floating barrel" theory. Horan testified that he "did not believe [Motivation's] claim to be valid with regard to it floating over in a barrel from the Atocha and Margarita wreck site." Hearing Tr. 1 at 139. In an October 29, 2011, email to Silverstein, Sullivan, and Scott, Horan advised that Motivation was just "looking for cover
g. Indications of Epoxy
Prior to filing the Admiralty Action, Horan advised JTR to retain the services of a professional salvage company (see Motivation Ex. M1-7) to assist with the recovery and marketing of the emeralds, Hearing Tr. 1 at 81, and, as discussed previously, Jay and Steve began to get advice on the subject from salvage company Odyssey Marine. On November 9, 2011, at the request of Odyssey, Horan and Daniel McAllister, an emerald consultant Odyssey recommended, went to the bank in Key West at which the emeralds were being kept and examined the stones. Id. at 82. Mr. McAllister said that he believed he'd be able to determine which emerald mining region in Colombia the emeralds came from, and he selected several stones to be forwarded to the Ecole National Superieure de Geologie de Nancy (the "French Lab") and to Laboratoire Gemtec (the "Swiss Lab") so the labs could determine their mining origin and age. Id. McAllister selected these labs, and later described them in an email to Horan and Sullivan as "the world's best gemological labs specializing in colored stones, emeralds specifically." Motivation Ex. M1-18 at 3. Odyssey Marine paid for this testing. Hearing Tr. 1 at 148.
On November 23, 2011, Horan filed a Stipulation for an Agreed Order (DE # 37), which, among other things, stated that testing was being done on a number of the stones ("fewer than 50") in France, Switzerland, and Colombia, and that the stones would be returned to Key West after testing was completed. The Court entered this Stipulation as an Order on December 1, 2011. DE # 38. That same day, Horan filed JTR's Motion to Dismiss (DE # 40).
On December 1, 2011, McAllister called Horan and informed him of issues the labs had communicated to him: "The Swiss and the French laboratories were having some difficulty and were actually asking him whether he was trying to play a trick on them because they had — they indicated that there was some type of an enhancement or coating on the emeralds." Hearing Tr. 1 at 83. Horan was shocked at this information, id. at 147, and called Mr. Silverstein and others and informed them of these findings, who were similarly surprised. Hearing Tr. 10 at 127, As discussed previously, the Smithsonian had examined a number of the emeralds in July and September of 2010 and did not discover any residue on the emeralds. Silverstein Ex. 1. And the December 9, 2010, GAL analysis specifically stated that each and every stone it had examined was "Untreated — No Evidence of Oil or Resin." Silverstein Ex. 2. No report disclosing these results was filed with the Court at this time.
Within a couple days of receiving the first indications of modern enhancements on the stones, Silverstein had a telephone conversation with Horan in which Silverstein asked Horan if he would be willing to "do another dive to retrieve emeralds that [Horan] selected in the water ... bring them out of the water in seawater, encapsulated in seawater, and send them to the
Motivation Ex. M1-15.
Silverstein testified that, on the afternoon of December 13, 2011, he and Sullivan had a telephone conversation with Jay and Steve at Horan's request. Hearing Tr. 7 at 25. That evening, Silverstein sent an email to Horan, copying Jay, Steve, Scott, Sullivan, Davis, and Livingston, summarizing the contents of that telephone conversation. M1-16. According to Silverstein's email, "[Sullivan] and I explained to Jay and Steve that there are serious consequences resulting from making false statements to a federal court." Id. Silverstein testified that, though he doesn't recall the precise questions he and Sullivan asked of Jay and Steve, the phone call "was akin to a cross-examination of a witness in a trial. I was trying to nail down the facts and I was trying as best I could, also, to do it in a way that wouldn't lead them to the right answers. I wanted to actually trip them up if possible to find out if there were inconsistencies in their story." Hearing Tr. 7 at 27. Silverstein's email summary of the conversation states that Jay and Steve both stated/confirmed the following (among other things):
Motivation Ex. M1-16 at 1.
Silverstein then repeated his suggestion that, as the source of the epoxy remains a mystery, the emeralds at the Smithsonian be sent to the GIA for testing, and that Horan dive the site and bring up new, uncleaned emeralds to be sent for testing at the GIA, which would also test a random sampling of previously salvaged material. Id. at 2.
In an email dated December 16, 2011, McAllister recommended to Horan that the test results be disclosed publicly "very soon, tomorrow or the day after." Motivation Ex. M1-18 at 5. He also stated, "I endorse the decision taken to resend further samples to the GIA lab in New York but whatever kind of results they might produce, the European results so far are, by all technical standards, rock solid." Id. On December 18, 2011, Silverstein responded to McAllister's email, with copies to Horan and Sullivan, among others. Id. at 2-3. Silverstein stated that Jay had agreed to work exclusively with CBS Broadcasting regarding his emerald story, and that they had informed CBS of the "probable results from the French and Swiss labs" and "requested their assistance in getting to the bottom of this `mystery.'" Id. at 3. He told McAllister of the plan to send emeralds to the GIA from the Smithsonian and from a new dive, as well as their intent to have the French and Swiss lab emeralds sent to the GIA. Id. Silverstein's email closed with a request that the French and Swiss labs cease their current testing, as those emeralds would be submitted to the GIA for analysis. Id.
The next day, on December 19, 2011, Silverstein sent McAllister a final email to correct a "mistake in [the December 18, 2011,] email" which could have caused the intention of that email to "have been misconstrued." Id. at 1. Silverstein stated that, rather than ceasing testing as the previous day's email had requested,
Id. at 1.
Essentially, Silverstein was seeking to avoid the appearance that there was any sort of "cover-up" of the test results. Id. at 2. His email went on to state that,
As previously discussed, on January 6, 2012, Horan filed JTR's Second Status Report (DE # 54) which did not reveal to the Court that epoxy had been found on the emeralds, but did disclose that the testing referred to in the Stipulation for an Agreed Order (DE # 37) was ongoing, that further testing was being done, and that the test results would be produced and filed with the Court. The Second Status Report stated, in relevant part, that:
DE # 54 at ¶ 5.
According to Silverstein, "[n]o one ever doubted that at some point in time there was going to be full public disclosure of all the information. The question was, when do you make that disclosure and how much information should you have in your hands before that disclosure was made." Hearing Tr. 6 at 218.
On January 18, 2012, Horan once again dove the discovery site, with Steve and salvaged twenty emeralds. Hearing Tr. 1 at 154; Silverstein Ex. 25. These emeralds were brought up in seawater and sent to the GIA for analysis. Id. JTR did not receive written reports from the French or Swiss labs until February 12, 2012. Soon after receiving the French and Swiss lab reports Horan began to prepare a draft of a Third Status Report that would be submitted to the Court to reveal the results of the ongoing testing, including that epoxy had been found on some of the emeralds. Motivation Ex. M1-27 at 2, February 28, 2012, email from Horan to Silverstein, Sullivan, Steve, Scott, and Jay. Silverstein responded to Horan's email later that day and pointed out that the GIA results had not yet been received, and the Second Status Report told the Court that a Third Report would be filed once all test results were received, and questioned whether the report was even required. Id. at 1. Horan felt strongly that the Court needed to be told of the epoxy results because of the previously filed report of Dr. Mathewsson that opined these emeralds could be of ancient origin. See Motivation Ex. M1-3, March 1, 2012, email from Horan to Silverstein. Silverstein, however, was not in favor of immediate disclosure. Motivation Ex. M1-27 at 1. In addition to waiting for the results of all testing before disclosure, on March 26, 2012, in an email to Horan and John Siracusa, (who had been retained as new admiralty counsel to JTR in March of 2012) Silverstein suggested that "the best time to file [the Third Status Report] would be on the Friday afternoon before
On April 17, 2012, JTR received the testing results from a lab Sullivan had retained called Matco. DE # 82 at 16. The next day, April 18, 2012, JTR filed its Third Status Report, which for the first time revealed to the Court that modern epoxies had been found on some of the emeralds months before, and that the salvaged material might have come from a more "modern" shipwreck. DE # 82. Prior to the final version being filed, Silverstein edited and circulated several drafts (see Motivation Ex. M2-9, March 26, 2012, email chain between Silverstein, Horan and Siracusa), and expressed in no uncertain terms that Horan did "not have authority to file" the Third Status Report until he (JTR's general outside counsel) and Jay "signed off." Motivation Ex. M2-44, April 18, 2012, email chain between Silverstein, Horan, Siracusa, Jay, and others.
h. Horan's Withdrawal As JTR's Attorney
The record reflects that as early as December 8, 2011, Silverstein understood that Horan was "considering withdrawing from representing JTR in the admiralty case," and that Horan believed he needed to inform the Court of the results of the Swiss and French lab test results and of his doubts as to Jay's truthfulness. Motivation Ex. M1-1 at 3. Moreover, it is apparent that this was not the first time Horan had considered withdrawing. See id. ("I further understand that you are, once again, considering withdrawing ...").
On February 28, 2012, Horan emailed Silverstein and others to tell them that 1) the Swiss and French labs agree that epoxy resin was present on the emeralds; 2) he was drafting a third status report to the Court; and 3) Judge King must get the information about the tests from them — not from CBS, the Fishers, or anyone else. Motivation Ex. M1-27 at 14.
Silverstein responded, observing that 1) they had yet to receive a report from the GIA; 2) they were not required to submit a third status report yet; 3) the second status report represented they would file a third once all results were in; and 4) the Court need not necessarily learn about the tests from them (as opposed to from someone else). Id. Silverstein also wrote that, in the absence of new investment in JTR, there were no funds to continue to pay Horan under his current agreement as of March 1. Id. Silverstein commented that Horan may elect to withdraw or to renegotiate the terms of his engagement, but that if Horan elected to withdraw they would need to have substitute counsel in place, which substitution Silverstein said he believed could be accomplished by the end of that week or sooner if necessary. Id. "Unless and until a decision is made as to who is going to be representing JTR in the admiralty proceedings," Silverstein continued, "there should be no activity, whatsoever, that is not mandated by the Court (or applicable Court rules.)" Id. JTR then retained the West Palm Beach, Florida admiralty law firm of Janssen & Siracusa as co-admiralty counsel with Horan. Notice of Appearance of John Siracusa, DE # 73, March 9, 2012.
Horan took exception to Silverstein's comment that the Court need not necessarily learn about the tests from them. On March 1, 2012, Horan emailed Silverstein and told him that, in Horan's mind, failure to advise the Court of the French, Swiss, and GIA enhancement reports would be equivalent to an affirmative misrepresentation in violation of his professional responsibilities as a lawyer. Motivation Ex. M1-3 at 17. He cited relevant ethical rules. Id. He explained that he would wait until a final testing report was
On August 22, 2012, Siracusa emailed Silverstein to tell him that Horan was likely going to withdraw that day. Motivation Ex. M2-24; Hearing Tr. 9 at 146:18-20. Silverstein wrote back that "[t]here is absolutely no reason for David [Horan] to withdraw now, as he is not required to do anything." Id. at 68. Silverstein continued: "Someone other than me needs to talk sense into David. Alternatively, he needs to be threatened with sanctions and/or a suit for malpractice — and remind him that he contractually consented to personal jurisdiction in Delaware in the event of any dispute with the client." Id.
Sometime after this email exchange (between late August and early October of 2012), Silverstein went down to Key West and spoke with Horan. Hearing Tr. 9 at 147:13-17, 150:4-7. The reasons Horan was withdrawing, as far as Silverstein understood, were "the coins and the 20-pound bag," and the epoxy findings. Id. at 150:13-19.
Horan ultimately moved to withdraw on October 8, 2012 (DE # 138), which the Court granted two days later (DE # 141). Silverstein testified that Horan's withdrawal did not create any doubt in his mind about the genuineness of the find. Id. at 152:21-24.
i. $50,000.00 Payment for Treasure Map
Silverstein doesn't remember exactly when the subject of Jay's acquisition of the map and the subsequent release he claimed to have secured from its seller came up, but says it was "[w]ithin the first 30 to 60 days of our representation of Jay Miscovich in the Delaware litigation." Hearing Tr. 9 at 12:14-15. Silverstein's memory of what Jay told him is that after Jay found the emeralds, Jay called his brother Scott, who called a friend of his named Dean Barr. Id. at 12:16-20. "Dean Barr then set Jay up with Dean Barr's accountant, Neil Ash, and Mr. Ash and Mr. Barr set Jay Miscovich up with Proskauer Rose in New York City." Id. at 12:21-23. The Proskauer Rose attorneys, Barr, and Ash asked Jay to obtain a release from Mike Cunningham. Id. at 21:24-13:7.
Silverstein was told that the handwritten addendum was added at Cunningham's request. Hearing Tr. 9 at 98:5-6. Even after seeing the release, Silverstein believed Jay's story about the Proskauer Rose attorney dictating the release. Id. at 95:14-19. Silverstein had no suspicion at all that a Proskauer Rose attorney might not have dictated the release. Id. at 96:19-22.
The subject of the release came up approximately two weeks before the admiralty trial, in a chain of emails between Silverstein, Miscovich, Janssen, and Siracusa.
Janssen wrote to Silverstein and Siracusa: "He [Jay] needs to realize that he can't just muddle through this. He has lied to us in the past about this case, and has changed his story several times to fit whatever new facts we discover." Id. at 3. Silverstein pressed Janssen and others repeatedly to tell him what Jay had lied about, but Janssen wouldn't say, responding, "it is nothing that I wish to put in writing, and nothing that would affect anyone's testimony in the case." Motivation Ex. M2-55 at 16.
Silverstein testified that he did not understand, from reading these emails, that Janssen and Siracusa thought the map story and the payment were untrue; rather, he understood that Janssen and Siracusa "were concerned that they didn't have enough proof to present that in court." Hearing Tr. 9 at 163:2-6. When asked on
At the admiralty trial, Jay testified generally to the same story about Mike Cunningham that Silverstein says he heard from Jay, though at trial Jay provided much more detail than the record shows Silverstein to have been aware of previously. Jay revealed Mike Cunningham's name over objection, and described him as illiterate, with psychological problems, often on the verge of homelessness or actually homeless, with no family, Motivation Ex. M41 at 134:24-135:10, whose contact information is unknown, and who would call Jay every few weeks for twenty years from unknown sources. (Jay testified that his cell phone would always show "withdrawn" when Cunningham called). Cunningham's twenty-year tradition of bi-weekly anonymous calls ceased after Jay paid him the $50,000, at a bar in Latrobe, Pennsylvania, and got him to sign the release; Jay hadn't heard from him since. Id. at 130:1-3.
As to the $50,000, Jay testified that he "got $50,000 from a bank over a period of several days," Id. at 16:20, starting in early April 2010, over a period of four weeks, from PNC banks in and around Latrobe, Pennsylvania. Id. at 16:21-17:3. See also id. at 17:4-15, 18:7-9. In response to a direct question about how much money he withdrew, Jay responded, "$50,000." Id. at 18:12-13.
Jay made no mention of the release being dictated, even in the face of questions by the Court about how the New York lawyers "gave [him] a document," Id. at 130:25-131:4, or "gave [him] the paperwork...." Id. at 133:8-9. As for the notary who notarized the release in the bar where Jay met Cunningham to give him the money, Jay first said he didn't know who she was. Id. at 131:7-12. He later clarified that he arranged for the notary: "She, at the time, was a notary for an attorney that I didn't know, but he had done some real estate closings for other parties.... I didn't know this lawyer at all." Id. at 137:15-22. When asked for the attorney's name he said "I believe" his name was Alan (or Alen) Roth. Id. at 138:5-6. Jay testified that he thought someone had told him that the notary moved to Chicago. Id. at 137:24. It was only when Jay stated (in response to the Court's questioning) that the release was unavailable that Siracusa interjected, informed the Court that Plaintiff did have a copy of it, and produced it. Id. at 139:23-140:20.
Bruce Silverstein was a sequestered witness during the admiralty trial. He was not present for Jay's testimony. However, Silverstein received a transcript of Jay's testimony at some point, though he couldn't remember when. Silverstein's best recollection of when he received the transcript was March, April, or May of 2013. Hearing Tr. 10 at 17:13-17. Silverstein testified that he did not read it carefully: "I don't recall what Jay said during his testimony in the trial. I read the transcript. I skimmed the transcript when I received it and I do not recall what Mr. Miscovich said in his testimony." Hearing Tr. 9 at 160:25-161:5. Silverstein stated the following in an affidavit: "When I read the trial transcript [of Jay's testimony], I did not understand or believe that anything that Jay had said under oath to have constituted perjury." Motivation Ex. M-8 at 70.
As we now know, Jay's story about Mike Cunningham was fiction. Within weeks of Jay's revealing Cunningham's name at the admiralty trial, Motivation found Cunningham and deposed him. Silverstein learned in January 2013 that Motivation had found
Moreover, in investigations leading up to Judge Moore's sanctions trial, Siracusa's investigation revealed that there was yet another executed "release" from Mike Cunningham. Siracusa says he had a conversation with Tobia over the telephone that led to his withdrawal. Hearing Tr. 2 at 49:7-11. Tobia told him that there was an earlier agreement (prior to the $50,000 agreement) between Jay and Cunningham. This was the first Siracusa had heard of it. Id. at 49:12-20. He confronted Jay, who admitted the existence of the agreement, but denied having a copy or knowing where one was. Id. at 49:17-20. Tobia also claimed not to have a copy, but directed Siracusa to another associate of Jay's, Scott Heimdal. Siracusa convinced Heimdal to give him a copy. Id. at 49:21-50:3. Siracusa received it in October 2013. Id. at 50:24-51:1. Siracusa testified that "this [was] the first time that I had personally caught Jay [in] just a boldfaced lie." Id. at 51:4-5.
Siracusa then called Silverstein and told him that they had to withdraw for ethical reasons. Id. at 54:19-24. Siracusa (and his law firm) moved to withdraw as counsel on October 17, 2013 (DE # 287). Judge Moore denied the motion upon considering that Plaintiff lacked additional counsel of record. See DE # 291. Judge Moore noted that, "Before a renewed motion will be granted as to Plaintiff, replacement counsel must file a notice of appearance," but JTR did not obtain replacement counsel. Id; see also Hearing Tr. 2 at 55:11-14. Siracusa later testified that, upon hearing Rodriguez's testimony, he knew he had really been fooled; but when he moved to withdraw on October 12, 2013, in his mind he had reached a point where he knew or should have known that something was wrong and that he had an ethical obligation at that point to withdraw. Id. at 83:22-84:2. Not that he necessarily believed the find to be false, but he did believe that the Cunningham story was made up, "which certainly cut against the actual find itself." Id. at 84:5-10.
Ultimately, after the fraud on the court was revealed, Judge Moore allowed Janssen & Siracusa to withdraw. DE # 433. Janssen & Siracusa settled "any potential settlement claims" with Motivation on February 28, 2014. DE # 406.
III. Conclusions of Law
The Nature and Scope of Inherent Powers:
No statutory mechanism authorizes monetary sanctions against Silverstein, a non-party who was not subject to a Court order and was not counsel of record in the underlying action. The Court's ability to sanction Silverstein can derive only from its "inherent powers."
Chambers v. NASCO, Inc., 501 U.S. 32, 43, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991). "Invocation of a court's inherent power requires a finding of bad faith." In re Mroz, 65 F.3d 1567, 1575 (11th Cir.1995). An attorney acts in bad faith where he, e.g., knowingly or recklessly
Chambers v. NASCO, Inc., 501 U.S. 32, 45-46, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991) (footnote omitted). Such an assessment of attorneys' fees is an exception to the American Rule, which generally prohibits fee-shifting. The exception's purpose is punitive. Id. at 53, 111 S.Ct. 2123 (internal quotation marks omitted) (quoting Hall v. Cole, 412 U.S. 1, 4-5, 93 S.Ct. 1943, 36 L.Ed.2d 702 (1973)).
Just because a Court can assess attorneys' fees for bad-faith conduct under its inherent power does not mean that it should. "Because of their very potency, inherent powers must be exercised with restraint and discretion.... A primary aspect of that discretion is the ability to fashion an appropriate sanction for conduct which abuses the judicial process." Id. at 44-45, 111 S.Ct. 2123. The extent of a court's inherent powers "must be delimited with care, for there is a danger
The Court's Inherent Power to Sanction Non-Parties:
Mr. Silverstein, who was neither counsel of record nor a party, argues that the Court lacks the inherent power to sanction him. The Court disagrees. Although Chambers does not directly address whether, under its holding, courts have the inherent power to assess monetary sanctions against non-parties, existing Supreme Court precedent supports the conclusion that courts have the inherent power to do so.
In affirming sanctions for a party's bad-faith litigation conduct, the Chambers Court explained that "[t]he imposition of sanctions in this instance transcends a court's equitable power concerning relations between the parties and reaches a court's inherent power to police itself, thus... `vindicat[ing] judicial authority ....'" Id. at 46, 111 S.Ct. 2123 (alterations in original). This inherent power of the Court to police itself and to vindicate judicial authority extends to non-parties under Universal Oil Prods. Co. v. Root Refining Co., 328 U.S. 575, 580, 66 S.Ct. 1176, 90 L.Ed. 1447 (1946). There the Supreme Court established that "[a] court has the power to conduct an independent investigation in order to determine whether it has been the victim of a fraud." Chambers, 501 U.S. at 44, 111 S.Ct. 2123 (citing Universal Oil, 328 U.S. at 580, 66 S.Ct. 1176). The Universal Oil Court explained the scope of this power:
Universal Oil, 328 U.S. at 580, 66 S.Ct. 1176. Thus, the Supreme Court expressly authorizes a court to bring non-parties ("all those who may be affected by the outcome of its investigation") before it by appropriate means. The Court's conclusion that "the entire cost of the proceedings could justly be assessed against the guilty parties," when read in context, clearly embraces non-parties (that is, the Court did not use "guilty parties" as a term of art). Chambers does not depart from Universal Oil. Rather, Chambers reaffirmed its validity, as has the Eleventh Circuit. See In re E.I. DuPont De Nemours & Co.-Benlate Litig., 99 F.3d 363, 367 (11th Cir.1996). This Court is bound by those decisions.
Further supporting the Court's inherent power to sanction non-parties is the fact that Chambers affirmed sanctions against Chambers for acts he committed before he became a party or was subject to any court order, and mentioned without comment that the district court had also sanctioned non-parties. Chambers, 501 U.S. at 40 n. 5, 111 S.Ct. 2123. And the Eleventh Circuit recently affirmed a district court's imposition of sanctions on a non-party. Sciarretta v. Lincoln Nat. Life Ins. Co., 778 F.3d 1205
A court's inherent power "is both broader and narrower than other means of imposing sanctions.... [W]hereas each of the other mechanisms reach only certain individuals or conduct, the inherent power extends to a full range of litigation abuses. At the very least, the inherent power must continue to exist to fill in the interstices." Id. at 46, 111 S.Ct. 2123. In these proceedings, Motivation alleges that Silverstein, through direct and indirect influence in the underlying litigation, perpetrated a fraud on the Court. If these allegations are proven, the Court's ability to vindicate its authority, to hold responsible those who defiled the temple of justice, reaches him. That he is a non-party means only that the power to sanction him falls within those "interstices" between mechanisms otherwise available to the Court. See, e.g., Odyssey Marine Exploration, Inc. v. Unidentified Shipwrecked Vessel, 979 F.Supp.2d 1270, 1272 (M.D.Fla.2013) (sanctioning treasure salvage company Plaintiffs general counsel pursuant to 28 U.S.C. § 1927 where general counsel had made an appearance in the case on Plaintiffs behalf and was found to have vexatiously multiplied proceedings in underlying litigation).
Heightened Burden of Proof:
Motivation's burden to prove its allegations is heightened in two respects. First, because Silverstein is a non-party, he is protected by two procedural hurdles. In Helmac Products Corp. v. Roth (Plastics) Corp., the Eastern District of Michigan devised a two-part test: "To be subject to the Court's inherent power to sanction, a non-party not subject to court order must (1) have a substantial interest in the outcome of the litigation and (2) substantially participate in the proceedings in which he interfered." 150 F.R.D. 563, 568 (E.D.Mich.1993). Some courts in the Southern District of Florida have applied this test. See, e.g., Feldman v. Davidson, No. 05-61760-CIV, 2009 WL 995473, at *2 (S.D.Fla. Apr. 13, 2009). Indeed, Judge Moore applied the Helmac test in assessing sanctions against Jay Miscovich (DE # 45 at 20 n. 19) and Motivation acquiesced in it here (DE # 407). This Court will apply the Helmac standard in evaluating the instant motion.
Second, Motivation must prove its allegations by clear and convincing evidence. See Barash v. Kates, 585 F.Supp.2d 1347, 1365 (S.D.Fla.2006) (holding the movant to a clear and convincing evidence standard of proof of conduct that warrants attorneys' fees as sanctions pursuant to the court's inherent power); cf. In re BellSouth Corp., 334 F.3d 941, 963 n. 19 (11th Cir.2003) (noting that courts require a "heightened showing" in order for a court to exercise its inherent authority to suspend or disbar an attorney from practicing before it). "The `intermediate standard of clear and convincing evidence' lies `between a preponderance of the evidence
The Court therefore decrees that Motivation must prove by a standard of clear and convincing evidence the allegations of its Motion for Sanctions.
B. Discussion and Conclusions of Law
Silverstein, a non-party, can be reached by this Court under Helmac
As a preliminary matter, the Court finds that Motivation has established that though technically a non-party, and an attorney who did not formally appear in this case, Silverstein is within reach of this Court's inherent power to sanction bad-faith litigation conduct, if Motivation proves such conduct.
The evidence shows that Mr. Silverstein invested at least $80,000 of his own money and owned a 1.5% equity interest in JTR himself, and that YCST, the law firm of which Mr. Silverstein is a partner, had a 5% equity interest in JTR. The Court finds that Mr. Silverstein's investment and his equity interests in JTR, both personally and through his law firm, gave Mr. Silverstein a substantial interest in the outcome of the litigation sufficient to meet the first prong of Helmac.
Further, the evidence overwhelmingly shows that Silverstein substantially controlled JTR's actions in these proceedings. For starters, the retainer agreement between Jay, JTR, and Horan designates Silverstein as JTR's "general outside counsel," and requires Horan to seek "specific authorization" from both Jay and "general outside counsel" (i.e., Silverstein) before undertaking any of a litany of tasks necessary to the maintenance of the instant action. Motivation Ex. M-25. Moreover, and as detailed throughout the Court's Findings of Fact, supra, countless emails from Silverstein to JTR's admiralty counsel demonstrate that he was substantially in control of this litigation. From forbidding the filing of various reports in this case, to drafting and revising pleadings and motions in this case, to participating in trial strategy discussions, Silverstein's control is plain. The Court therefore finds that Silverstein's conduct in this case was more than sufficient to meet the second prong of Helmac.
Accordingly, Bruce Silverstein can be reached by this Court's inherent power to sanction bad-faith litigation conduct, should Motivation prove such conduct by clear and convincing evidence.
Motivation has not met its burden of proving sanctionable conduct
Having found that Silverstein can be reached by the Court's inherent power, the Court will now address whether Motivation has proved by clear and convincing evidence that Silverstein should be sanctioned. After nearly twelve days of taking evidence, including the testimony of eight witnesses and thousands of pages of documentary evidence,
Red Flags analysis:
The Court finds, and Motivation concedes, DE # 560 at 2, that when Silverstein first began representing Jay in January of 2011, he did not know that Jay's story was a fraud. In fact, Silverstein had been presented with circumstantial evidence that seemed to support Jay's story of discovery of a valuable find that the genuineness of the find. In arguing that Silverstein's conduct amounted to bad faith, therefore, Motivation identifies numerous "red flags" which occurred during the course of Silverstein's representation of JTR and Jay both before and after this case was filed.
Whether Silverstein's continuing to act in the case after a given red flag or series of them was reckless or demonstrated willful blindness to Jay's fraud depends upon viewing the red flag not with the benefit of hindsight but in light of the universe of facts known at the time each red flag occurred. Though they take umbrage with much of Silverstein's conduct in this case, Motivation chiefly relies on six events in their claim that Silverstein acted in bad faith: (1) Silverstein's encounter with Peter Tobia at the settlement of the Delaware Litigation and the offer Silverstein conveyed to him afterwards; (2) Jay and Steve's attempt to thwart any claim by Spain by lying about recovering non-Spanish coins from the treasure site; (3) the 20 lb. group of emeralds Jay and Steve held initially held back from the Court; (4) the entire epoxy episode, from his first learning of the results through their eventual disclosure to the Court; (5) Jay's story of how he came to purchase the map and subsequent $50,000 payment for a release from Mike Cunningham, and that story's unravelling prior to the Admiralty Trial; and (6) the withdrawal of JTR's attorneys and the events leading up to their decisions to withdraw. The Court has exhaustively analyzed these events, and indeed the entire record of these proceedings, and finds that the evidence presented by Motivation does not meet the standard of clear and convincing evidence required to sanction Bruce Silverstein, either when viewed individually or when taken cumulatively.
As set forth above, the Court finds that Motivation has not established by clear and convincing evidence either that Silverstein knew of the scheme to defraud the court, or that he acted in bad faith by continuing his involvement with the case recklessly or with willful blindness to the fraud. Accordingly, Motivation having failed to meet their burden, the Court will not sanction Silverstein.
Whether civilly in this action, another civil action, or criminally in a future action, there is no question that anyone who knowingly or recklessly participated in the attempted fraud upon the United States District Courts should be called to account. However, at present, the Court has before it only the limited question raised in the Amended Motion for Sanctions and the limited evidence presented by Claimant in these proceedings. Thus, through this Order, the Court only makes a determination of whether Claimant proved Respondent's participation in the fraud by clear and convincing evidence. The Court concludes that Claimant did not meet this burden. However, Claimant's failure neither establishes Respondent's innocence nor forecloses the possibility of future civil or criminal liability. Moreover, given the limited
Therefore, it is