In re Deville
| Decision Date | 15 March 2004 |
| Docket Number | No. 02-16459.,02-16459. |
| Citation | 361 F.3d 539 |
| Parties | In re Les DeVILLE, Debtor. In re Steven J. Dagget, Debtor. In re Daniel Miller, Debtor. Daniel Miller, Jr.; Arlo Hale Smith, Appellants, v. Noreen Cardinale, Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Arlo Hale Smith, San Francisco, CA, for the appellants.
Martha Louise Caron, Thomas Eastridge, Caron & Eastridge LLP, Alameda, CA, for the appellee.
Appeal from the United States Bankruptcy Appellate Panel of the Ninth Circuit; James M. Marlar, Elizabeth L. Perris and Christopher M. Klein, Bankruptcy Judges. BAP Nos. NC-01-1188-MaPK, NC-01-1226-MaPK.
Before B. FLETCHER and TASHIMA, Circuit Judges, and POLLAK, District Judge.*
This appeal from the Bankruptcy Appellate Panel (BAP) presents challenges to sanctions imposed by the Northern District of California, San Francisco Division, of the bankruptcy court on appellants Arlo Hale Smith and Daniel Miller. The sanctions — which were largely sustained by the BAP — were based on appellants' misconduct in improperly invoking the processes of the bankruptcy court to block the progress of a state court civil action in which Smith was counsel for the defendants, one of whom was Miller. The obstructionist techniques employed by Smith and Miller involved a series of bankruptcy filings and concurrent removal petitions from the state court to the bankruptcy court on behalf of certain of the state-court defendants — each removal delaying trial in the state court until the granting of a remand petition.
On appeal, Smith and Miller challenge the procedures followed by the bankruptcy court in imposing sanctions. They do not take serious issue with the bankruptcy court's findings of misconduct.
The opinion of the BAP describes the preposterous misconduct of Smith and Miller and the proceedings in the bankruptcy court in meticulous detail. Rather than undertaking to restate that carefully crafted narrative, we simply refer the reader to it. Miller v. Cardinale (In re Deville), 280 B.R. 483, 486-87 (9th Cir. BAP 2002). We find it accurate in all respects.
In response to the bankruptcy filings and attempts to remove the Cardinale suit from state court, the San Francisco bankruptcy court sua sponte issued two orders to show cause (one to Smith in the Deville and Daggett bankruptcies, and a second to Smith and Miller in the Miller bankruptcy).
After a hearing on the OSCs, the bankruptcy court concluded that
Smith orchestrated the serial bankruptcy filings and removals of the Action by the defendants one by one, and ... those actions were spread out so as to maximize the delay, cost and harassment to plaintiff.
. . . . Smith's removals in the DeVille and Daggett bankruptcies, his participation in Miller's second removal in the Daggett bankruptcy, his intentional misstatements on Miller's bankruptcy petition, and his orchestration of serial bankruptcy filings and removals by the defendants were all part of a scheme to cause unnecessary delay, harass plaintiff and needlessly increase plaintiff's litigation costs.
Mem. Decision, Dec. 27, 2000 at 19-20.
Turning to Miller's behavior, the bankruptcy court found that Miller was significantly more than an innocent actor in the bankruptcy filing and the efforts to remove the Cardinale suit. Id. at 21-22. The court reviewed Miller's attempt to remove Cardinale's suit to Daggett's bankruptcy case and indicated that his actions were taken without any legitimate purpose beyond stalling the litigation. Id. at 22. The court ruled that, while Smith was the "driving force," Miller was a "knowing participant" in a "larger scheme of serial bankruptcies and removals by the defendants, one by one, all designed to cause unnecessary delay, needlessly increase plaintiff's litigation costs, and harass plaintiff." Id.
The bankruptcy court's discussion of sanctions contemplated that an award to Cardinale of additional attorney's fees incurred by Cardinale in consequence of the misconduct would be an appropriate initial step. Id. at 23. The court took as its point of departure the declaration by Thomas Eastridge, Cardinale's attorney, accompanying Cardinale's July 26, 2000 revised second remand motion, which reported that Cardinale had to that date been required by the complained-of misconduct to expend an additional $12,201.75 in attorney's fees. Id. at 6. The court reduced that figure to $5,548.50. Id. at 27. But the court reasoned that limiting the sanctions to an award of the expenses actually incurred by Cardinale would not be a sufficient deterrent:
[I]f awarding attorneys' fees were the only sanction it would likely cost Smith client's [sic] substantially less than defending themselves at trial. Therefore, absent a greater sanction there is a danger that Smith's tactics would appear to be a cost-effective means to delay or avoid trial.
Id. at 20. Thus, the court's December 27, 2000 memorandum decision provided as follows:
[T]his court will award a total of 24.76 hours, at $225 per hour, for a subtotal of $5,548.50 in attorneys' fees against Smith. This court will award additional sanctions against Smith equal to 200% of that amount, or $11,097.00, for a total of $16,645.50. Miller will be jointly and severally liable with Smith for all of the base amount of attorneys' fees and another 100% of that amount, for a total of $11,097.00.
Pursuant to the bankruptcy court's instructions, Thomas Eastridge, on Cardinale's behalf, filed a supplemental declaration for expenses incurred subsequent to his July 26, 2000 declaration. The supplemental declaration reported $15,772.50 in additional fees and $1,880.95 in costs. Supp. Mem., Apr. 2, 2001 at 2. The court, in an April 2, 2001 supplemental memorandum decision, accepted Eastridge's costs figure, but scaled the fees back to $12,500:
Smith and Miller shall be liable for the entire base amount of plaintiff's additional fees and costs, for a sub-total of $14,380.95 ($12,500 + $1,880.95), plus the previously-awarded joint and several sanctions of $11,097.00 for a total award of $25,477.95 against Smith and Miller, jointly and severally.
In addition, as against Smith only, the court will award an additional amount by applying a multiplier of 100% to plaintiff's additional fees, for an additional sub-total of $12,500.00, plus the previously-awarded sanctions of $5,548.50 against Smith only, for a total of $18,548.50.1
Taken together, the bankruptcy court's memorandum decisions of December 27, 2000 and April 2, 2001 brought about the following results:
Smith & Smith's
Miller's Additional
Joint Individual
Liability Liability
December 27, 2000: $11,097.00 $ 5,548.50
April 2, 2001: $14,380.95 $12,500.00
---------- ----------
$25,477.95 $18,048.50
Thus Smith's aggregate liability came to $43,526.45 (the sum of $25,477.95 and $18,048.50), and of that sum Miller was jointly liable for $25,477.95. All of the sums awarded were to be paid to Cardinale. Of the aggregate figure of $43,526.45, $19,929.45 represented what the bankruptcy court calculated was proper compensation to Cardinale for her reasonable attorney's fees and costs ($5,548.50 for the first compensatory award, plus $14,380.95 for the supplementary compensatory award=$19,929.45), and the balance of $23,597.00 constituted what the bankruptcy court deemed a proper deterrent sanction.
In its April 2, 2001 supplemental memorandum decision, the bankruptcy court cited three sources of authority for the sanctions imposed: first, Federal Rule of Bankruptcy Procedure 9011; second, the court's inherent authority; and, third, 28 U.S.C. § 1927.2 Id. at 3-4. The court found that Smith and Miller "acted with subjective bad faith." Id. at 4. The sanction, the court stated, was not "punitive," but was instead "intended to compensate plaintiff and to deter Smith and Miller from continuing their pattern of misconduct." Id. at 5 n. 2. Smith and Miller then appealed to the BAP.
The BAP first addressed the question of whether the bankruptcy court's award to Cardinale was a proper exercise of the court's authority under Bankruptcy Rule 9011. Rule 9011(b) imposes on attorneys, and also on unrepresented parties, the obligation to insure that all submissions to a bankruptcy court are truthful and for proper litigation purposes. Of particular pertinence to the case at bar is Rule 9011(b)(1):
(b) Representations to the court. By presenting to the court (whether by signing, filing, submitting, or later advocating) a petition, pleading, written motion, or other paper, an attorney or unrepresented party is certifying that to the best of the person's knowledge, information and belief, formed after an inquiry reasonable under the circumstances, —
(1) it is not being presented for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation
Rule 9011(c) invests a bankruptcy court with authority to impose sanctions on persons who violate Rule 9011(b):
(c) Sanctions. If, after notice and a reasonable opportunity to respond, the court determines that subdivision (b) has been violated, the court may, subject to the conditions stated below, impose an appropriate sanction upon the attorneys, law firms, or parties that have violated subdivision (b) or are responsible for the violation.
(1) How initiated.
(A) By motion. A motion for sanctions under this rule shall be made separately from other motions or requests and shall describe the specific conduct alleged to violate subdivision (b)....
(B) On court's initiative. On its own initiative, the court may enter an order describing...
To continue reading
Request your trial