In re Berg, BAP No. NC-95-1537-RMuMe. Bankruptcy No. 93-32500-DM.
| Decision Date | 11 April 1996 |
| Docket Number | BAP No. NC-95-1537-RMuMe. Bankruptcy No. 93-32500-DM. |
| Citation | 198 BR 557 |
| Parties | In re Jerome BERG, Debtor. Jerome BERG, Appellant, v. GOOD SAMARITAN HOSPITAL, Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
Jerome Berg, San Francisco, CA, for appellant.
Mike C. Buckley, Oakland, CA, for appellee.
Before RUSSELL, MUND1, and MEYERS, Bankruptcy Judges.
The district court for the Northern District of California dismissed the plaintiff's case on summary judgment, awarded the defendants (appellees) their costs and attorneys' fees in defending the lawsuit and sanctioned the plaintiff's attorney (appellant/debtor) pursuant to Fed.R.Civ.P. 11.2 The plaintiff's attorney appealed all four (4) orders. During the pendency of the appeal, the plaintiff's attorney filed for chapter 113 relief.
The Ninth Circuit Court of Appeals affirmed the district court and sua sponte ordered the plaintiff's attorney to pay the defendants' fees and costs in connection with the appeal pursuant to Fed.R.App.P. 38.4
One of the defendants moved for relief from the stay to liquidate its claim arising from the sanctions. The bankruptcy court determined that the stay did not apply to the appellate court's imposition of sanctions pursuant to § 362(b)(4)5 and, alternatively, granted the defendant's motion for relief from the stay on the ground that there was sufficient cause to retroactively annul the stay and to permit the defendant to liquidate its claim. The debtor appeals. We AFFIRM.
On August 29, 1988, the Medical Staff Executive Committee of The Good Samaritan Hospital of the Santa Clara Valley ("Hospital") terminated the medical practice privileges of Dr. John Smith. Smith sued the Hospital and twenty-six (26) other defendants, including the Hospital's Board of Directors, for alleged violations of the Sherman Antitrust Act, 15 U.S.C. §§ 1 and 2, and the Clayton Antitrust Act, 15 U.S.C. § 15. Attorney Jerome Berg ("Berg" or "debtor") represented Smith in the lawsuit.
In a published opinion, Smith v. Ricks, 798 F.Supp. 605 (N.D.Cal.1992), aff'd, 31 F.3d 1478 (9th Cir.1994), cert. denied, ___ U.S. ___, 115 S.Ct. 1400, 131 L.Ed.2d 287 (1995), the United States District Court for the Northern District of California ("district court") granted summary judgment in favor of the defendants, holding that the defendants were immune from antitrust liability pursuant to the Health Care Quality Improvement Act of 1986 ("Act"), 42 U.S.C. §§ 11101-11152 (West 1988 & Supp.1993). Pursuant to § 111136 of the Act, the defendants requested their attorneys' fees and costs in defending the lawsuit.
In June 1992 and October 1992, the district court issued separate orders awarding the defendants' attorneys' fees and costs in defending the action and referred the matter to a Magistrate Judge to determine the amount of fees and costs. On February 17, 1993, the district court also sanctioned Berg $2,000 pursuant to Fed.R.Civ.P. 11 for filing a frivolous pleading. Berg appealed all four of the district court's orders (collectively "appeal") to the Ninth Circuit Court of Appeals.
On September 9, 1993, Berg filed for chapter 11 bankruptcy relief and shortly thereafter converted his bankruptcy case to chapter 13. Berg sent the Hospital a copy of the face page of his bankruptcy petition. However, Berg did not notify the Ninth Circuit or any other court of his bankruptcy filing. The appeal proceeded through the briefing stage and oral argument was held in April 1994.
On August 11, 1994, the Ninth Circuit affirmed the district court in a published opinion, Smith v. Ricks, 31 F.3d 1478 (9th Cir.1994). The Hospital requested fees and costs against Smith in connection with the appeal pursuant to § 11113 of the Act which authorized the court to award fees and costs against another party. After concluding that Berg, not the plaintiff, was at fault for prosecuting the frivolous appeal, the Ninth Circuit sua sponte imposed sanctions against Berg pursuant to Fed.R.App.P. 38. The Ninth Circuit remanded the matter to the district court to determine the amount of fees and costs to be awarded.7
The debtor filed numerous applications contesting the imposition of sanctions by the Ninth Circuit, including a request for a hearing en banc. In response, the Ninth Circuit reconsidered its order and reaffirmed the sanctions. On December 30, 1994, the debtor filed a petition for a writ of certiorari with the United States Supreme Court. On March 27, 1995, the writ was denied.
It is undisputed that Berg did not disclose in any of his pleadings to either the Ninth Circuit or to the Supreme Court that he had filed bankruptcy, nor did he argue that the sanctions had been imposed in violation of the stay.
On April 20, 1995, before the district court entered a final judgment on the amount of the sanctions, the Hospital filed a motion seeking relief from the stay. Specifically, the Hospital requested nunc pro tunc relief to validate the Ninth Circuit's imposition of sanctions and permission to liquidate its claim by allowing the district court to enter a final order on the amount of the fees and costs. The debtor filed an opposition and a motion to vacate the sanctions order on the grounds that the Ninth Circuit's order imposing sanctions was entered in violation of the stay.
After a hearing on May 11, 1995, the bankruptcy court entered its order granting the Hospital's motion. The debtor appeals in propria persona.
A. Whether the imposition of sanctions by a court pursuant to Fed.R.App.P. 38 is exempted from the stay under § 362(b)(4).
B. Whether the bankruptcy court abused its discretion in granting the Hospital nunc pro tunc relief from the stay and allowing the Hospital to liquidate its claim.
The determination that a particular action is exempt from the stay is a question of law reviewed de novo. In re Wade, 115 B.R. 222, 225 (9th Cir. BAP 1990), aff'd, 948 F.2d 1122 (9th Cir.1991).
The bankruptcy court's decision to grant relief from the stay is reviewed for an abuse of discretion. In re Jewett, 146 B.R. 250, 251 (9th Cir. BAP 1992).
The debtor's principal argument is that he was denied his rights to due process because the Ninth Circuit violated its General Order 10.98 by not allowing the debtor an opportunity to defend against the sanctions. The debtor argues that to remedy this situation, this Panel should conduct a de novo hearing on the Fed.R.App.P. 38 sanctions. According to the debtor, the Panel has jurisdiction to conduct such a review because it is a court of equity and should have the authority to review any order that has an impact upon the bankruptcy system. The debtor contends that the impact in this case will be particularly egregious because the sanctions will allegedly result in an overwhelmingly large administrative expense to the estate.
The debtor also argues that the bankruptcy court erred in determining that the imposition of sanctions by a court is exempted from the stay pursuant to § 362(b)(4) because the sanctions imposed by the Ninth Circuit served a private pecuniary purpose and, therefore, the § 362(b)(4) exception to the stay does not apply. Assuming arguendo that the stay applied, the debtor asserts that the bankruptcy court abused its discretion in granting the Hospital retroactive relief from the stay because the debtor would be distracted from reorganizing if the defendant were allowed to liquidate its claim.
In response to the debtor's due process argument, the Hospital contends that the award was proper and the debtor was not denied due process. Moreover, the Hospital asserts that the debtor has exhausted his opportunity for review of the Ninth Circuit's order imposing the sanctions.
The Hospital also contends that the court's imposition of sanctions falls within the § 362(b)(4) exception to the stay. In the alternative, the Hospital argues that the bankruptcy court did not abuse its discretion in annulling the stay nunc pro tunc and allowing the Hospital to liquidate its claim, given that the violation of the stay, if any, was the result of a sua sponte action by the Ninth Circuit, not the result of any action by the Hospital. In addition, the Hospital notes that the debtor did not inform the Ninth Circuit of his bankruptcy filing until after he had lost the appeal and he did not argue that the sanctions were imposed in violation of the stay until after the Hospital sought permission from the bankruptcy court to liquidate its claim.
A. Sanctions Imposed by a Court Pursuant to Fed.R.App.P. 38
Section 362(b)(4) exempts from the automatic stay, imposed pursuant to § 362(a), the commencement or continuation of an action or proceeding by a governmental unit to enforce a police or regulatory power. In determining whether a particular action falls within the government police or regulatory power exception, courts generally apply the "public policy test" and the "pecuniary purpose test". N.L.R.B. v. Continental Hagen Corp., 932 F.2d 828, 833 (9th Cir.1991); see also In re Commerce Oil Co., 847 F.2d 291, 295 (6th Cir.1988).
The "public policy exception" requires the bankruptcy court to distinguish between proceedings that effectuate public policy and those that adjudicate private rights. N.L.R.B., 932 F.2d at 833. Under the "pecuniary purpose test" the bankruptcy court's inquiry is whether the action relates to a matter of public safety and health or primarily to the protection of the government's pecuniary interest in the debtor's property. Id.
Relying on the (b)(4) exception, several courts have held that a court's imposition of sanctions against an attorney is not stayed by the debtor's bankruptcy filing. Alpern v. Lieb, 11 F.3d 689 (7th Cir.1993) (); O'Brien v. Fischel...
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