Charbono v. Sumski (In re Charbono)

• Decision Date: 15 June 2015
• Docket Number: No. 14–2151.,14–2151.
• Citation: 790 F.3d 80
• Parties: In re Kevin CHARBONO, Debtor. Kevin Charbono, Appellant, v. Lawrence P. Sumski, Trustee, Appellee.
• Court: U.S. Court of Appeals — First Circuit

790 F.3d 80

In re Kevin CHARBONO, Debtor.Kevin Charbono, Appellant

v.Lawrence P. Sumski, Trustee, Appellee.

No. 14–2151.

United States Court of Appeals, First Circuit.

June 15, 2015.

Michelle Kainen, with whom Kainen Law Office, PC was on brief, for appellant.

Tara Twomey, Ray DiGuiseppe, and National Consumer Bankruptcy Rights Center on brief for National Association of Consumer Bankruptcy Attorneys, amicus curiae.

Lawrence P. Sumski for appellee.

Before HOWARD, SELYA and KAYATTA, Circuit Judges.

Opinion

SELYA, Circuit Judge.

This appeal poses the question of whether a bankruptcy court has inherent power to sanction parties for noncompliance with court orders. We hold that it does—and we reject the debtor's attempt to subsume this power within the bankruptcy court's authority to punish for criminal contempt. After placing the sanction imposed by the bankruptcy court in perspective, we conclude that the district court did not err in upholding it.

I. BACKGROUND

Facing straitened circumstances, Kevin Charbono (the debtor) filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code. See 11 U.S.C. §§ 1301 –1330. The bankruptcy court appointed Lawrence P. Sumski as Trustee, and the court confirmed the debtor's Chapter 13 plan (the Plan) on August 21, 2012.

The Plan was filed using the standard form, see Bankr. D.N.H. LBR 3015–1; Bankr.D.N.H. LBF 3015–1A, which contains a tax return production requirement that makes pellucid the debtor's “ongoing obligation to provide a copy of each federal income tax return (or any request for extension) directly to the Trustee within seven days of the filing of the return (or any request for extension) with the taxing authority.” The bankruptcy court's decree confirming the Plan incorporated the tax return production requirement and, thus, that requirement became an order of the court. See 11 U.S.C. § 1327(a) (“The provisions of a confirmed plan bind the debtor and each creditor....”).

The debtor's 2012 federal income tax return was due April 15, 2013. See 26 C.F.R. § 1.6072–1(a)(1). In January, the Trustee sent the debtor a letter reminding him of his obligation to furnish a copy of his return or any request for extension of the filing date within the time parameters specified in the Plan. As April 15 approached, the debtor's wife, acting on his behalf and with his knowledge, filed a request for an extension of the filing deadline with the Internal Revenue Service. A copy of this extension request was not provided to the Trustee within the mandated seven-day period.

Not having received a copy of either the debtor's tax return or an extension request, the Trustee filed a motion on June 13 alerting the bankruptcy court to the debtor's failure to comply with the tax return production requirement. The Trustee's motion sought alternative relief: dismissal of the Chapter 13 bankruptcy or a $200 sanction. The debtor objected and belatedly furnished the Trustee with a copy of the by-then-approved extension request.

When the matter was heard before the bankruptcy court on September 20, the Trustee did not press for dismissal.¹ He argued instead that the debtor's untimely compliance with the tax return production requirement was “sanctionable behavior.” The debtor countered that no sanction was warranted because he had by then “purged” his noncompliance.

On September 24, the bankruptcy court entered an order imposing a $100 sanction on the debtor for his failure to comply with the tax return production requirement in a timeous manner. The debtor took a first-tier appeal to the district court. See 28 U.S.C. § 158(a), (c)(1). That court upheld the sanction. See Charbono v. Sumski, No. 13–471, 2014 WL 4922988, at *5 (D.N.H. Sept. 30, 2014). This timely second-tier appeal followed.

II. ANALYSIS

Bankruptcy court orders are subject to two tiers of intermediate appellate review. The first tier is through an appeal either to the Bankruptcy Appellate Panel or to the district court. See 28 U.S.C. § 158(a), (c). A second-tier appeal thereafter lies to the court of appeals. See id. §§ 158(d)(1), 1291. Because the second-tier appeal involves de novo review of the district court's decision, our review is in effect direct review of the bankruptcy court's order. See Shamus Holdings, LLC v. LBM Fin., LLC (In re Shamus Holdings, LLC), 642 F.3d 263, 265 (1st Cir.2011) ; HSBC Bank USA v. Branch (In re Bank of New Eng. Corp. ), 364 F.3d 355, 361 (1st Cir.2004).

A bankruptcy court's imposition of a sanction typically embodies a judgment call, and, thus, review is for abuse of discretion. See Jamo v. Katahdin Fed. Credit Union (In re Jamo ), 283 F.3d 392, 403 (1st Cir.2002) ; see also Gannett v. Carp (In re Carp ), 340 F.3d 15, 23 (1st Cir.2003). This standard, though generally deferential, is not monolithic. For example, a material error of law is invariably an abuse of discretion. See Berliner v. Pappalardo (In re Sullivan ), 674 F.3d 65, 68 (1st Cir.2012). Accordingly, if a bankruptcy court lacks the authority to impose a particular sanction, the imposition of such a sanction will constitute an error of law and, thus, demand reversal. See Jamo, 283 F.3d at 403–04.

Before us, the debtor questions the bankruptcy court's authority to impose the challenged sanction, the process by which the sanction was levied, and the selection of the sanction itself. We address these matters sequentially.

A. The Bankruptcy Court's Authority.

The debtor first posits that the challenged sanction is tantamount to a fine for criminal contempt. That fine, he asserts, was beyond the bankruptcy court's authority for two reasons: as a jurisdictional matter and as a result of the court's noncompliance with the procedural prerequisites for such a fine.² But the premise on which this binary assertion rests mischaracterizes the bankruptcy court's action. While the challenged sanction shares certain features of a criminal contempt fine—after all, the sanction is punitive (that is, one imposed to vindicate the authority of the court) rather than coercive (that is, one imposed to force compliance with a court order)—a criminal contempt fine is not the only type of punitive sanction that lies within a court's armamentarium.

In United States v. Kouri–Perez, we explicitly renounced the proposition that any punitive sanction is perforce a criminal contempt sanction. 187 F.3d 1, 8–9 (1st Cir.1999). We recognized that a district court may, in appropriate circumstances, impose “punitive non-contempt sanctions.” See id. at 7. In other words, the contempt power is merely one of many inherent powers that a court possesses; it is not the only type of inherent power that can be deployed. See Chambers v. NASCO, Inc., 501 U.S. 32, 43–44, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991) (describing the power to punish for contempt as one of multiple inherent powers of the courts arising out of courts' authority to manage their own affairs); United States v. Pina, 844 F.2d 1, 14 (1st Cir.1988) (noting that the “contempt power ... is not the only weapon available to a judge to protect the order and dignity of the courtroom”). The authority to issue a punitive sanction also may reside in “a court's inherent power to police itself, thus ... ‘vindicat[ing] judicial authority without resort to the more drastic sanctions available for contempt of court.’ ” Chambers, 501 U.S. at 46, 111 S.Ct. 2123 (second alteration in original) (quoting Hutto v. Finney, 437 U.S. 678, 689 n. 14, 98 S.Ct. 2565, 57 L.Ed.2d 522 (1978) ). Exercising this authority, courts may levy sanctions (including punitive sanctions) for such varied purposes as disciplining attorneys, remedying fraud on the court, and preventing the disruption of ongoing proceedings. See id. at 43–44, 111 S.Ct. 2123 (collecting cases).

The courts of appeals, too, have recognized the authority of federal courts to impose inherent-power sanctions without a finding of contempt.See, e.g., Mark Indus., Ltd. v. Sea Captain's Choice, Inc., 50 F.3d 730, 733 (9th Cir.1995) (explaining that a non-contempt inherent-power sanction can be employed to vindicate a court's authority); Harlan v. Lewis, 982 F.2d 1255, 1259 (8th Cir.1993) (approving imposition of a non-contempt monetary sanction as within district court's inherent powers). Indeed, such a principle is part of the warp and woof of this court's jurisprudence. See, e.g., United States v. Romero–López, 661 F.3d 106, 108 (1st Cir.2011) ; Aoude v. Mobil Oil Corp., 892 F.2d 1115, 1119 (1st Cir.1989).

For ease in exposition, we will from this point forward use the term “inherent-power sanction” as a shorthand for a non-contempt inherent-power sanction. Factors relevant in distinguishing between contempt sanctions and inherent-power sanctions include whether the issuing court made an express finding of contempt, whether the underlying conduct evinces a criminal mens rea, and whether the order falls within a recognized inherent power of the court (other than the contempt power). See Romero–López, 661 F.3d at 108 ; Kouri–Perez, 187 F.3d at 8–9. Here, these factors point unerringly to the conclusion that the bankruptcy court's ukase, though punitive, was an inherent-power sanction. The bankruptcy court not only made no finding of contempt but also expressly disavowed any notion that its order was meant to be a criminal sanction. What is more, the court acknowledged that the debtor's delayed compliance was not the product of any malign intent. Last—but far from least—the $100 impost fell squarely within the long-recognized authority of courts to “impose ... submission to their lawful mandates.” Chambers, 501 U.S. at 43, 111 S.Ct. 2123 (quoting Anderson v. Dunn, 19 U.S. (6 Wheat.) 204, 227, 5 L.Ed. 242 (1821) ). We conclude, therefore, that the bankruptcy court imposed a garden variety inherent-power sanction, not a criminal contempt sanction.

The question remains whether a bankruptcy court, like other federal courts, has the authority to impose punitive non-contempt sanctions. The debtor...