In re Deville

Decision Date25 June 2002
Docket NumberBankruptcy No. 00-31727.<SMALL><SUP>1</SUP></SMALL>,BAP No. NC-01-1188-MaPK.,Bankruptcy No. 00-43878.,BAP No. NC-01-1226-MaPK.,Adversary No. 00-3142 DM.,Bankruptcy No. 00-32297.,Adversary No. 00-3182 DM.
Citation280 B.R. 483
PartiesIn re Les DEVILLE, Debtor. In re Steven J. Daggett, Debtor. In re Daniel Miller, Debtor. Daniel Miller, Jr.; Arlo Hale Smith, Appellants, v. Noreen Cardinale, Appellee.
CourtU.S. Bankruptcy Appellate Panel, Ninth Circuit

Arlo Hale Smith, San Francisco, CA, Daniel Miller, Jr., San Bruno, CA, pro se appellants.

Thomas Eastridge, Caron, Eastridge & Hanson, Alameda, CA, for Noreen Cardinale, appellee.

Before MARLAR, PERRIS and KLEIN, Bankruptcy Judges.

OPINION

MARLAR, Bankruptcy Judge.

INTRODUCTION

Appellants challenge the bankruptcy court sanction award against them, which included a compensatory sanction of reasonable attorneys' fees and costs, plus a penalty for deterrence purposes, both of which were awarded to the opposing party. Appellants contend that the court exceeded its authority and violated due process. We AFFIRM in part, and REVERSE and REMAND in part.

FACTS

Arlo Hale Smith and Daniel Miller, Jr. ("Appellants") were personal friends and business associates who owned a real estate firm. Smith was an attorney and licensed real estate broker; Miller was an agent operating under Smith's license.

A complaint was filed in 1998 by plaintiff/appellee Noreen Cardinale ("Cardinale") against Miller, Steven Daggett and Les DeVille, among others, in the California superior court. Smith represented the defendants in the state court action.

In order to delay the state court trial, Smith orchestrated a series of bankruptcy filings and notices of removal of the state court action to bankruptcy court. In October, 1999, and June, 2000, respectively, Smith filed voluntary chapter 132 bankruptcy petitions on behalf of DeVille and then Daggett, in the Oakland Division of bankruptcy court, along with notices of removal in both cases, which halted the state court trial each time.

Cardinale moved for remand in each case, and subsequently dismissed Daggett from the state court action. On December 7, 1999, DeVille's first bankruptcy case was dismissed. Chief Bankruptcy Judge Edward Jellen, of the Oakland Division, remanded the action in both cases, and a new state court trial date was set for July 17, 2000.

On July 14, 2000, Smith filed a second, new bankruptcy petition and notice of removal to bankruptcy court on behalf of DeVille, but this time the venue choice was the San Francisco Division. Bankruptcy Judge Dennis Montali subsequently found that this filing violated Bankruptcy Rule 9027(a)(1), which provides that a "notice of removal shall be filed with the clerk for the district and division within which is located the state or federal court where the civil action is pending," which was the Oakland Division.

On July 17, 2000, Cardinale dismissed DeVille from the state court action, and filed an ex parte motion for remand in the second DeVille bankruptcy case.

The First Order To Show Cause

On July 21, 2000, Judge Montali, on his own motion, issued an order to show cause ("OSC") setting a hearing on the remand motion and for sanctions against Smith. In pertinent part, the OSC stated:

[I]t appears from a review of the Ex Parte Application and the Remand Motion that counsel for the debtor and the adversary proceeding defendants is engaging in a pattern of manipulation of the bankruptcy system in order to frustrate prosecution of the state court action initiated by plaintiff. In view of Chief Judge Jellen's remand of this action to the Contra Costa Superior Court, the July 14th removal by Arlo H. Smith, Esq. on behalf of Les DeVille seems patently improper in several respects and cause for sanctions under Fed.R.Bankr.P. 9011.

In particular, the removal appears to have been made to the wrong court, notwithstanding the fact that Mr. DeVille's Chapter 13 case was filed in this division. Since the underlying action was pending in the Contra Costa Superior Court, the Oakland Division would have been the proper division for removal, to be followed by a request to a judge of that division for a transfer to this division. In view of Chief Judge Jellen's prior remand, however, it is obvious that counsel intentionally avoided that unattractive alternative.

Second, there does not appear to be a good faith purpose for the removal since Mr. DeVille's filing resulted in an automatic stay under 11 U.S.C. 362(a) that protected him. Why would a protected debtor/defendant need to remove an action to the bankruptcy court when the plaintiff would be required to file a proof of claim here? Where is the jurisdiction of this court over the action against non-debtor defendants? Mr. Smith apparently wishes to use Mr. DeVille's Chapter 13 case to protect the other defendants he represents in this case by frustrating the repeated efforts of the Contra Costs [sic] Superior Court to bring this matter to trial.

....

IT IS FURTHER ORDERED that ... Mr. Smith is to show cause in writing why he should not be sanctioned for removing this action, in what appears to have been done for an improper purpose, including the harassment of plaintiff, the unnecessary delay of the Contra Costa Superior Court action, and the needless increase in the litigation costs to be absorbed by plaintiff. Fed.R.Bankr.P. 9011(b)(1). This matter is brought on the court's own initiative pursuant to Fed.R.Bankr.P. 9011(c)(1)(B).

Order to Show Cause, July 21, 2000.

Remand Revisited

On July 26, 2000, Cardinale filed, and served upon Smith, a revised version of the second remand motion, together with a declaration of her attorney, Thomas Eastridge. Eastridge declared that attorneys' fees had been incurred in the amount of $12,201.75 for "unnecessarily preparing for trial on two occasions, attributable to the defendants [sic] removal actions, as well as preparing the moving papers and appearing in Bankruptcy Court." Smith objected to the fee request.

Following a hearing on the remand motion, Judge Montali remanded the action, and ordered Smith not to remove it again on behalf of any of the defendants without permission from the bankruptcy court.

Miller's Pro Per Removal Papers

Smith had been ordered by Judge Montali not to remove the state court action again, and Smith was now facing possible sanctions. In spite of the posture of these various events, Smith continued to advise Miller on how to continue the scheme to delay the state court action. On August 11, 2000, Miller, this time apparently acting in propria persona, attempted once again to remove the state court action to Daggett's bankruptcy case, which was still pending in the Oakland Division. Miller did this notwithstanding that (1) Daggett had been dismissed as a defendant in the state court action, and (2) Judge Jellen had previously remanded the action in the Daggett bankruptcy case.3

Remand Redux, the Second OSC, and Miller's Bankruptcy Filing

Upon Cardinale's motion, the Daggett bankruptcy case was transferred to the San Francisco Division, and Cardinale filed a third remand motion. In an August 29, 2000 order, the bankruptcy court granted the motion to remand, and retained jurisdiction to enter sanctions or other appropriate relief against Smith and Miller. The order also constituted the court's second sua sponte OSC, this time implicating both Smith and Miller. In pertinent part the OSC stated:

Daniel R. Miller, Jr. removed this matter to the Oakland Division of this court without jurisdiction to do so because no remaining party in the state court action was a debtor in any pending bankruptcy case in the Oakland Division. Defendant Daggett, whose Oakland Chapter 13 case was converted to Chapter 7 on the same day the state court action was removed, had previously been dismissed from the state court action. Further Chief Judge Jellen previously remanded the state court action following removal by Arlo Hale Smith, counsel for all defendants and Mr. Daggett and Mr. DeVille in their respective bankruptcy cases.

Mr. Miller's pro per removal papers filed on August 11, 2000 appear to be almost identical to those filed previously by Mr. Smith when he removed the state court action to this division in Mr. DeVille's Chapter 13 case....

....

From the foregoing history of complicity the court infers (and is prepared to find) that Mr. Miller was well aware of the following: Judge Jellen's prior remand of the state court action from the Oakland Division; this court's July 28 instructions to Mr. Smith that he should not file any further removal petitions without prior court approval; Mr. Daggett's dismissal from the state court action; and the fact that the court has under submission sanctions to be imposed against Mr. Smith for his conduct in the prior removal of the state court action to this division.

....

Unless Mr. Smith and Mr. Miller file declarations under penalty of perjury establishing that: (1) Mr. Miller was unaware of Chief Judge Jellen's prior remand of the state court action from the Oakland Division; (2) Mr. Miller did not know of this court's July 28 instructions to Mr. Smith and the prohibition against any further removals without court authority; (3) Mr. Miller was not assisted by Mr. Smith in any way, directly or indirectly in removing this matter to the Oakland Division on August 11, and (4) Mr. Smith did not inform Mr. Miller of this court's July 28 instructions nor assist Mr. Miller in any way, directly or indirectly, with the August 11, 2000 removal, the court will find that Mr. Smith and Mr. Miller have engaged in a conspiracy to hinder, delay and frustrate plaintiff's efforts, and will issue appropriate sanctions against both of them in addition to the sanctions already being considered against Mr. Smith.

Order to Show Cause, Aug. 29, 2000.

On September 5, 2000, the...

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