115 F.3d 644 (9th Cir. 1997), 96-15461, Primus Automotive Financial Services, Inc. v. Batarse

Docket Nº:96-15461.
Citation:115 F.3d 644
Party Name:D.A.R. 6750 PRIMUS AUTOMOTIVE FINANCIAL SERVICES, INC., Plaintiff-Appellee, v. Rudolph A. BATARSE, Defendant, Jan C. Nielsen, Appellant.
Case Date:May 28, 1997
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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Page 644

115 F.3d 644 (9th Cir. 1997)

D.A.R. 6750

PRIMUS AUTOMOTIVE FINANCIAL SERVICES, INC., Plaintiff-Appellee,

v.

Rudolph A. BATARSE, Defendant,

Jan C. Nielsen, Appellant.

No. 96-15461.

United States Court of Appeals, Ninth Circuit

May 28, 1997

Argued and Submitted April 17, 1997.

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[Copyrighted Material Omitted]

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Jan C. Nielsen, Clayton, California, Pro per, for the appellant.

Michael J. Steiner and Gregory C. Nuti, Severson & Werson, San Francisco, California, for the plaintiff-appellee.

Appeal from the United States District Court for the Northern District of California; William H. Orrick, Jr., District Judge, Presiding.

Before: D. W. NELSON and FERNANDEZ, Circuit Judges, and REA, District Judge. [*]

D. W. NELSON, Circuit Judge.

Jan Nielsen, a former associate at Keck, Mahin & Cate, appeals the district court's order imposing sanctions against him. We have jurisdiction under 28 U.S.C. § 1291, and we reverse the award of sanctions and remand to the district court to determine whether Nielsen acted in bad faith.

BACKGROUND

The district court sanctioned Nielsen for his role in defending Anthony Motor Company against breach of contract and breach of guaranty actions. Anthony Motor was a Honda dealership in Alameda County, California. It was co-owned by Rudolph Batarse, who acted as president of the company, his wife Naifeh Batarse, and his parents, Anthony and Esther Batarse. Primus Automotive Financial Services, a Tennessee corporation, financed Anthony Motor's car inventory pursuant to an agreement that provided for repayment of the advances at the time the cars were sold. In 1994, Anthony Motor went out-of-trust by failing to remit the amount owed on several cars.

Primus sued Anthony Motor for breach of contract on January 5, 1995, seeking $1,448,961.92 in damages. The parties entered into a stipulated restraining order on January 17, 1995 that required Anthony Motor to deliver the proceeds from the sale of cars Primus had financed. In spite of the stipulated order, Anthony Motor not only failed to turn over existing proceeds but also continued to sell collateral in which Primus had a security interest without relinquishing funds. On March 16, 1995, Primus applied for an order to show cause why Anthony Motor should not be held in contempt for defying the court's order.

Kenneth Greene, a partner at Keck, Mahin & Cate, had assumed the representation of Anthony Motor on February 2, 1995; Nielsen assisted him throughout the course of the litigation. In response to Primus' attempt to enforce the stipulated order, Nielsen filed a motion to vacate it, and Greene submitted a supporting declaration asserting that Anthony Motor should not be required to turn over the funds because it had filed a $1.2 million personal surety bond guaranteed by Naifeh Batarse's parents. In the declaration, Greene also stated his belief that a trust fund earmarked for Primus contained "the proceeds from virtually all of the sales of vehicles." The district court denied Anthony Motor's motion to vacate the order on May 4, 1995. The court also issued an order to show cause why Anthony Motor should not be found in contempt and set a hearing for May 11, 1995 to determine compliance with the order.

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Anthony Motor filed a chapter 11 bankruptcy petition on May 9, 1995. On May 11, 1995, Rudolph Batarse appeared before the district court with his attorneys, Greene and Nielsen. The district court inquired about the location of the proceeds owed to Primus under the terms of the stipulated order and ordered Anthony Motor to turn over the accumulated out-of-trust funds. Although it was ordering payment of a prepetition debt subject to pending bankruptcy proceedings, the district court stated that it would "worry about the Chapter 11 later on." Greene offered a check for $97,000, drawn on a trust fund held by the law firm, and he declared that Batarse had the remaining funds and was "ready, willing and able" to relinquish them. Batarse then wrote a check to Primus for $593,248.00. At the time, Batarse had less than $1,000 in his checking account.

When Primus informed the district court about the overdraft, the court entered a second order to show cause why Anthony Motor should not be sanctioned for contempt of...

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