Case, Matter of

Decision Date09 August 1991
Docket Number90-1726,Nos. 90-1464,s. 90-1464
Citation937 F.2d 1014
Parties25 Collier Bankr.Cas.2d 368, 20 Fed.R.Serv.3d 881, 21 Bankr.Ct.Dec. 1610, Bankr. L. Rep. P 74,206 In the Matter of George Milton CASE, Debtor. CITIZENS BANK & TRUST COMPANY, Appellee/Cross-Appellant, v. David C. CASE, as Administrator of the Estate of George Milton Case, substituted in place and stead of George Milton Case, deceased, and Steve H. Smith, Appellants/Cross-Appellees. In the Matter of George Milton CASE, Debtor. CITIZENS BANK & TRUST COMPANY, Appellee, v. David C. CASE, as Administrator of the Estate of George Milton Case, substituted in place and stead of George Milton Case, deceased, and Steve H. Smith, Appellants.
CourtU.S. Court of Appeals — Fifth Circuit

Steve H. Smith, Jackson, Miss., pro se.

Dalton McBee, Jr., Thompson, Alexander & Crews, Jackson, Miss., for appellee cross-appellant.

Appeals from the United States District Court for the Southern District of Mississippi.

Before CLARK, Chief Judge, WILLIAMS and DAVIS, Circuit Judges.

CLARK, Chief Judge:

I

George Milton Case 1 and Steve Smith appeal the judgment of the district court affirming the bankruptcy court's adjudication of a dispute concerning a promissory note and on an alleged oral agreement. They also appeal the bankruptcy court's award of sanctions and the district court's award of sanctions. Citizens Bank and Trust Company (Bank) also cross-appeals the district court's determination of the bankruptcy court sanctions issue. We affirm in part and reverse in part and vacate the district court's order granting sanctions against Smith.

II

In 1984, Case, a Mississippi attorney, filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code. As part of his reorganization plan, Case settled a $280,000.00 claim by the Bank by executing a $75,000.00 promissory note to the Bank. During the settlement negotiations, the president of the Bank and Case discussed the possibility of Case repaying some or all of the value of the $75,000 note by providing legal services to the Bank.

The execution of the note was approved by the bankruptcy court and provided for in the settlement agreement and the confirmed plan of reorganization entered by the bankruptcy court in January, 1986. In September 1987, the bankruptcy court entered an order deeming the plan "consummated" and closing the estate.

Case became delinquent on his interest payments and, in January 1988, the Bank made a demand for the balance of the note. On February 1, 1988, the Bank filed suit in state court alleging default under state law. Case answered that the Bank had fraudulently induced him to make the settlement with oral promises that he could satisfy the note by providing legal services to the Bank. Case also counterclaimed for $116,250.00 for breach of contract.

The Bank then petitioned the bankruptcy court to reopen the estate. Case objected. The bankruptcy court reopened the estate and the Bank moved for a declaratory judgment, injunction against Case's counterclaim in state court, and sanctions. After a two-day trial, the bankruptcy court found that no agreement existed between Case and the Bank concerning satisfaction of the note by Case's professional services and that Case had raised the claim solely for the improper purpose of delaying the bank's collection on the note. The bankruptcy court entered a judgment for the Bank for all amounts due on the note. The bankruptcy court also granted sanctions in the form of attorney's fees of $32,022.95, representing the Bank's reasonable fees in the bankruptcy proceeding and the collateral state court action. The bankruptcy court based the award on (1) the attorney's fees provision of the promissory note, (2) Bankruptcy Rule 9011, (3) 28 U.S.C. Sec. 1927, and (4) the "inherent equitable powers of the court." These sanctions were levied against Case and Steve Smith, his attorney in the bankruptcy proceeding, jointly and severally. The court also held that the sanctions were non-dischargeable.

Case appealed to the district court. The district court held that the reopening of the bankruptcy estate was proper and that the bankruptcy court's finding that there was no agreement about the repayment of the note by legal services was not erroneous. The district court affirmed the attorney's fees award against Case under the attorney's fees provision of the note and pursuant to the bankruptcy court's inherent power. The court also affirmed the award against Smith under Sec. 1927, the court's inherent power and Rule 9011. The district court held that the bankruptcy court erred in awarding sanctions against Case under Sec. 1927 because he was not "acting as his own attorney in the instant proceedings" and that Bankruptcy Rule 9011 applied only to Smith and covered only the Bank's expenses incurred after Smith filed his initial pleading with the bankruptcy court. The district court remanded the sanctions issue to the bankruptcy court for a recomputation of the sanctions under Rule 9011 and for a determination that the amount awarded constituted the least severe sanction adequate for Rule 9011 purposes.

The bankruptcy court concluded that $24,588.57 of the sanctions award represented the Bank's reasonable fees in connection with the bankruptcy court proceeding and that this sanction was the least severe sanction adequate to accomplish the goals of Rule 9011. The bankruptcy court further concluded that the entire $32,022.95 should be awarded against Smith under Sec. 1927 and the equitable power of the court. The district court then entered its judgment affirming the bankruptcy court's award. Case and his attorney filed a notice of appeal. After the notice of appeal was filed, the Bank filed a motion with the district court for sanctions under FED.R.CIV.P. 11 for a frivolous appeal which the district court granted. Case and his attorney filed a notice of appeal from the district court's order granting Rule 11 sanctions. Both appeals were consolidated for argument.

III

Case 2 and Smith raise several issues on appeal. Case claims that the bankruptcy court erred in reopening the estate and that the adjudication of the substantive issues in this case is not "core proceedings" within the jurisdiction of the bankruptcy court. Both appellants claim that the district court erred in affirming the bankruptcy court's levy of attorney's fees as sanctions and erred in affirming the bankruptcy court's determination that the sanctions are not dischargeable under 11 U.S.C. Sec. 721. Smith claims that the district court erred in awarding Rule 11 Sanctions for a frivolous appeal. The Bank's crossappeal claims that the district court did not have jurisdiction to examine the sanctions awarded against Smith since he did not personally file a notice of appeal from the sanction award and that the district court erred in reversing the Sec. 1927 sanctions award against Case.

A. Reopening the Estate

Case claims that the district court erred in concluding that the bankruptcy court properly reopened the bankruptcy estate in order to adjudicate the dispute over the note and alleged oral agreement. He claims that the bankruptcy court's decision was not timely made and that the reason for reopening the estate was not compelling. Case is incorrect.

11 U.S.C. Sec. 350(b) provides: "A case may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for other cause." The phrase "or other cause" as used in Sec. 350(b) is a broad term which gives the bankruptcy court discretion to reopen a closed estate or proceeding when cause for such reopening has been shown. See In re Rosinski, 759 F.2d 539, 540-41 (6th Cir.1985), Hawkins v. Landmark Finance Co., 727 F.2d 324, 326 (4th Cir.1984). This discretion depends upon the circumstances of the individual case and accords with the equitable nature of all bankruptcy court proceedings. Hawkins, 727 F.2d at 326, In re Towns, 16 B.R. 949 (Bkrtcy.N.D.Iowa 1982). The longer the time between the closing of the estate and the motion to reopen, however, the more compelling the reason for reopening the estate should be. Reid v. Richardson, 304 F.2d 351, 355 (4th Cir.1962). Our review of the bankruptcy court's decision to reopen an estate or proceeding is governed by the abuse of discretion standard.

In this case the district court concluded that the bankruptcy court's decision to reopen the case was both timely and proper. The court reasoned that the motion to reopen the case was filed only two months after Case first asserted that the Bank had agreed to let him satisfy the balance of the note with his services. Although this was seven months after the bankruptcy court's order closing the case, the district court concluded that it was a timely response to a challenge to an integral part of the reorganization plan and that it was necessary to reopen the case to determine if the express provisions of the note and the plan should be altered. The district court concluded that this was sufficiently compelling to warrant the reopening of the case. The district court's reasoning is persuasive. The bankruptcy court did not abuse its discretion in reopening the case.

B. Core Proceeding

Case claims that the district court erred in affirming the bankruptcy court's conclusion that the instant action is a "core proceeding" which may be fully adjudicated by the bankruptcy court in the first instance. He argues that the resolution of the substantive issues in this case depends on state law and that pursuant to our holding in Matter of Wood, 825 F.2d 90 (1987), the bankruptcy court is without jurisdiction under 28 U.S.C. Sec. 157 to adjudicate the case or enter a final judgment. We disagree.

28 U.S.C. Sec. 157 was enacted in response to the Supreme Court's decision in Northern Pipeline Constr. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), which held that the jurisdictional provision...

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