A three-judge panel of the Third Circuit Court of Appeals reinstated roughly $137,000 in sanctions against Jeffrey Prosser, the former owner of the Innovative telephone and cable companies and the V.I. Daily News, for filing bogus bribery allegations in bad faith.
The precedential opinion, signed by Judge Patty Schwartz, overturns a V.I. District Court decision that vacated sanctions imposed by U.S. Bankruptcy Court in 2010.
Prosser made what the court called "bad faith" allegations of bribery in a failed effort to discredit extremely damaging testimony from a former personal assistant or valet, Arthur Stelzer, which cost Prosser bankruptcy protections for his Palm Beach mansion and other properties. (See Related Links below)
Stelzer arranged travel, buying clothing and jewelry, selecting and arranging clothing outfits, and running sundry errands for Prosser from 2002 until October 2007. In 2008 he testified in Prosser’s bankruptcy, saying Prosser had him destroy computer hard drives containing records of his finances and seek fake low appraisals on millions of dollars worth of jewelry Prosser bought with company money.
Prosser’s attorney’s accosted Stelzer in the hall afterwards, prompting U.S. Bankruptcy Judge Judith Fitzgerald to warn Prosser’s legal team not to intimidate witnesses or to confront witnesses as they leave.
Later Prosser arranged to have Stelzer arrested in Florida and charged with illegally accessing his computer. Those charges were dropped on the grounds there was no likelihood of success. Prosser also personally sued Stelzer.
Stelzer sought legal protection, and attorneys for the court-appointed Chapter 11 trustee in the case offered to represent him free of charge. Prosser then filed suit against Stelzer’s attorneys and against trustee James Carroll in U.S. District Court, claiming Stelzer was bribed to give specific testimony in exchange for the legal representation. He also issued a press release trumpeting the bribery claims.
Later the website The Daily Caller posted a version of these claims, adding a new layer of conspiracy theorizing involving U.S. Attorney General Eric Holder and former V.I. Gov. John deJongh Jr., among others.
Stelzer testified he was told to "tell the truth." His legal representation and the events that led to his desiring legal representation occurred after he gave the testimony Prosser seeks to discredit.
District Judge Curtis Gomez referred the case to Bankruptcy Court, where, in 2011, Fitzgerald tossed it out for lack of merit and sanctioned Prosser’s attorneys for the costs of defending against his frivolous charges . The court found Prosser’s attorney’s had acted in bad faith to increase the cost and duration of the court proceedings.
In 2014 Gomez vacated the Bankruptcy Court decision, finding that the single adversary proceeding in question was "of limited duration" and that the bankruptcy court had not necessarily proven Prosser acted in bad faith when making unsupported bribery claims.
In an opinion issued Monday, the Third Circuit overturned Gomez and reinstated the sanctions against Prosser’s attorneys. Writing for the court, Schwartz said Gomez was wrong to find only the one adversary proceeding could be "multiplied" or extended in bad faith.
"This view both ignores the fact that the adversary proceeding was only a part of the bankruptcy case and fails to account for the barrage of other filings the Prosser Counsel submitted as part of the bankruptcy based on the very events that served as the basis for the Adversary Complaint," she wrote, adding that there was lots of evidence of bad faith as well.
"The Prosser Counsel’s bribery accusations and the tactics they employed, from the press release to the request for a referral to law enforcement to the motions, objections, and Adversary Complaint, all show a desire to read nefarious motives into a relatively unremarkable event with no proof that the allegedly bribed witness had been influenced at all," Schwartz wrote.
She concluded the "record supports the Bankruptcy Court’s finding that the Prosser Counsel had unreasonably and vexatiously multiplied and increased the cost of the proceedings in bad faith." [Prosser Sanctions 2015]