Burton v. Infinity Capital Mgmt.

• Decision Date: 04 June 2014
• Docket Number: No. 12-15618,12-15618
• Citation: 862 F.3d 740
• Parties: Freddy Joe BURTON; Jan Paul Koch, Plaintiffs–Appellees, v. INFINITY CAPITAL MANAGEMENT; Anne Pantelas; Salvatore C. Gugino, Defendants–Appellants, and Ronald J. Israel, Defendant.
• Court: U.S. Court of Appeals — Ninth Circuit

862 F.3d 740

Freddy Joe BURTON; Jan Paul Koch, Plaintiffs–Appellees,

v. INFINITY CAPITAL MANAGEMENT; Anne Pantelas; Salvatore C. Gugino, Defendants–Appellants,andRonald J. Israel, Defendant.

No. 12-15618

United States Court of Appeals, Ninth Circuit.

Argued and Submitted November 7, 2013, San Francisco, California

Filed June 4, 2014

Amended July 10, 2017

Kenneth R. Lund (argued) and Brian K. Terry, Thorndal Armstrong Delk Balkenbush & Eisinger, Las Vegas, Nevada, for Defendant–Appellant Salvatore C. Gugino.

Daniel R. McNutt (argued), Carbajal & McNutt LLP, Las Vegas, Nevada, for Defendants–Appellants Infinity Capital Management and Anne Pantelas.

Jan Paul Koch (argued), Law Office of Jan Paul Koch, Las Vegas, Nevada; Robert J. Kossack, Kossack Law Offices, Las Vegas, Nevada, for Plaintiffs–Appellees Freddy Joe Burton and Jan Paul Koch.

Before: Sidney R. Thomas, Chief Judge, Ronald Lee Gilman^* , and Johnnie B. Rawlinson, Circuit Judges.

OPINION

THOMAS, Chief Judge:

This case requires us to decide whether an attorney sued for violation of a bankruptcy automatic stay is entitled to absolute quasi-judicial immunity. Under the circumstances presented by this case, we hold that he is not. We affirm the judgment of the district court, albeit on different grounds.

I

Freddy Joe Burton ("Burton") was injured in a bicycle-automobile collision. He incurred $271,101.87 in related medical expenses and loans and retained Jan Paul Koch ("Koch") to file a lawsuit on his behalf. Burton granted certain creditors, including Valley Hospital Medical Center, liens on his personal injury claim. Valley Hospital then sold its account receivable to Infinity Capital Management ("Infinity"), the president of which is Anne Pantelas ("Pantelas"). Koch settled Burton's personal injury claim for $185,000.

Koch placed the settlement funds in his client trust fund account and paid himself his attorney fee and costs. Koch then recommended that Burton declare bankruptcy and hire bankruptcy attorney David Crosby. After paying a retainer fee to Crosby and receiving his personal injury settlement exemption, Burton had $104,088.10 left of his settlement in the trust fund account.

That same month, Nancy Alf, who represented Infinity at the time, told Koch that a state interpleader action would resolve the interests of the lien holders more quickly than the bankruptcy court. Infinity filed an interpleader lawsuit in state court against all other similarly situated lien holders making a claim upon Burton's settlement. Neither Burton nor Koch was named as a party in the state interpleader case. The Honorable Ronald Israel was assigned to the case. Salvatore Gugino was substituted for Alf as Infinity's attorney of record.

Crosby filed Burton's bankruptcy petition in bankruptcy court. Four days later, Judge Israel held a status hearing on the state interpleader case, and Koch attended that hearing at Judge Israel's request. At the hearing, Gugino appeared for Infinity, and Steven Baker appeared for one of the defendants in the case. Judge Israel questioned Koch as to why he had not interpled all of the funds that Burton had received for his settlement to the court clerk as required by Michel v. Eighth Judicial District Court ex rel. Cnty. of Clark , 117 Nev. 145, 17 P.3d 1003 (2001). Koch informed Judge Israel that Burton had filed for bankruptcy and that Koch would be depositing the remaining settlement funds with the bankruptcy clerk. Those present at the hearing were confused about the proper course to take given the bankruptcy proceeding and the fact that Burton was neither a plaintiff nor a defendant in interpleader. Both Gugino and Baker voiced concern about the interpleader case moving forward in light of the bankruptcy. Judge Israel ordered the parties to appear approximately two months later for a status hearing regarding the state of the bankruptcy proceeding.

Three days before the status hearing, Gugino sent all parties to the interpleader case and Koch a letter with a copy of the minutes from the prior hearing and an update on the bankruptcy case, including both an explanation of his initial attempt to resolve the interpleader issue with the trustee and confirmation that Koch had deposited the settlement funds with the trustee.

Koch did not appear at the status hearing. At the hearing, Gugino handed a copy of his letter to Judge Israel, and he informed the court that Koch had deposited the settlement funds with the bankruptcy trustee. Judge Israel responded, "I ordered Mr. Koch to place all the funds in here.... I'm going to issue an order to show cause. I want Mr. Koch to appear and show—tell us why he didn't deposit his attorney's fees into—pursuant to Michel ....I want him to personally appear and tell why he hasn't; otherwise, I'll hold him in contempt." Neither Gugino nor Baker voiced any opposition to Judge Israel in light of the bankruptcy. In response to the court's inquiry, Gugino volunteered to prepare an order for Koch to show cause why he should not be held in contempt for failure to comply with Michel as ordered by the state court.

On the same day, Gugino prepared a proposed order to show cause and sent it to all of the interpleader parties and Koch. A cover letter stated that, unless Gugino heard from them to the contrary, he would assume it met with their approval and would submit it to the court for the judge's signature. The proposed order directed Koch to appear "to explain to [the court] why he should not be held in contempt for failure to comply with Michel ... as directed by [the court]." That same day, Koch replied by sending Gugino a fax objecting to the order and stating, "You are violating the automatic stay provisions of 11 U.S.C. § 362."

Koch alleges that he telephoned Gugino to object to the order to show cause and that Gugino asked if Koch were ready to be held in contempt, "with Gugino making it clear to Koch that unless the Burton personal injury settlement funds were not interpled ... in the state interpleader action, that he (Gugino) would make all necessary efforts to have Koch held in contempt of court."

The following day, Koch sent Gugino a fax and a four-page letter. The letter stated that the automatic stay prevented proceedings directed toward the property of the bankruptcy estate, threatened that he would file a complaint against Gugino, Infinity, Pantelas, and Judge Israel if "at any time [he] bec [a]me aware of further action in the Infinity litigation (pursued by anyone )," and made personal attacks on Gugino's competency. The fax stated that the complaint was "90% complete" and included a draft copy of the seven-page complaint.

The order drafted by Gugino was never filed. Instead, Judge Israel faxed the minute order from the June 6th status check hearing to the parties of the interpleader case and Koch. The minute order stated:

Mr. Gugino noted the letter provided to the Court changes things. Mr. Gugino further noted Mr. Koch took the remaining money and gave it to the bankruptcy trustee. Colloquy regarding Mr. Koch not present today and issues regarding following the Michel Case. Court directed Counsel to prepare an order for a show cause hearing and Court set hearing.

....

COURT ORDERS All parties to appear, including Mr. Koch, to advise the Court of;

1. The bankruptcy.

2. Why the bankruptcy can effect [sic] and stay these proceedings, since Mr. Burton is not a party to this action.

3. Why Mr. Koch should interplead the entire proceeds of the settlement per the Michel case into this court immediately.

4. Status on lifting the stay.

COURT ORDERED Matter re-set from a show cause hearing to a Status Check regarding: bankruptcy / interpleader.

Later that day, Gugino faxed a letter to Koch that included the minute order. The letter stated in part:

First, let me make it clear that you did not attend the June 6, 2011 status check before Judge Israel, even though you were aware of the hearing date. Had you been present, all of this might have been avoided. At the hearing, I presented the Court with my June 3, 2011 letter and attachments, which had been previously sent to you and the attorneys involved in this litigation. It was my expectation that we would be going forward in the Bankruptcy Court under some sort of stipulation and order. However, at the hearing, Judge Israel ordered that an Order To Show Cause be issued against you, and he then directed me to prepare the Order. This was not my idea, nor did I recommend it to the Court. After preparing a draft of the proposed Order, I sent it to your attention for your review. Had you called me upon receipt, you could have avoided incurring the hours you claim to have spent preparing a class action complaint against my client, her company, myself and Judge[ ] Israel....

Later that same day, Koch faxed a response to Gugino stating, "In response to your 6–9–11 letter.... Attached hereto please find the rough draft of the Federal Lawsuit that I am filing."

The following day, Koch sent Gugino a copy of a Memorandum in Support of Jurisdiction by fax and stated in part, "Why don't you dismiss the interpleader, and get your funds from the bankruptcy trustee? Otherwise, what do you suggest? I'll hold up and won't send copies to Judge Israel, pending your reply."

Nearly a month later, Koch sent Gugino a fax stating, "Don't know why you never responded to my last entreaty. Guess it matters not. It's been filed. Here's a copy. See ya in Court."

Koch then filed a complaint in federal district court, on behalf of himself and Burton, alleging that all defendants violated the automatic-stay provision of 11 U.S.C. § 362(a). He claimed actual damages of $1,000, plus attorney fees, and sought "damages in excess of $10,000." He alleged that the state judge's actions in setting hearings, making comments in court, and directing that an order be prepared violated the automatic stay. He alleged that Gugino violated the stay by advocating that the funds that formed part of the property of the bankruptcy estate be...