In re Evergreen Sec., Ltd.

• Decision Date: 17 July 2007
• Docket Number: No. 6:01-bk-00533-ABB.,6:01-bk-00533-ABB.
• Citation: 381 B.R. 407
• Parties: In re EVERGREEN SECURITY, LTD., Debtor.
• Court: U.S. Bankruptcy Court — Middle District of Florida

381 B.R. 407

In re EVERGREEN SECURITY, LTD., Debtor.

No. 6:01-bk-00533-ABB.

United States Bankruptcy Court, M.D. Florida, Orlando Division.

July 17, 2007.

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Allan E. Wulbern, Smith, Hulsey & Busey, Jacksonville, FL, Mariane L Dorris, Latham Shuker Eden & Beaudine LLP, Orlando, FL, R. Scott Shuker, Latham Shuker Eden & Beaudine LLP, Orlando, FL, for Evergreen Security, Ltd.

ORDER

ARTHUR B. BRISKMAN, Bankruptcy Judge.

This matter came before the Court on the Motion for Sanctions Pursuant to Federal Rule of Bankruptcy Procedure 9011 (Doc. 1542) ("Sanctions Motion") and the Motion for Fees and Costs Pursuant to 28 U.S.C. § 1927 (Doc. No. 1624) ("Fees Motion") filed by the Debtor Evergreen Security Ltd. ("Evergreen") through R.W. Cuthill, Jr., the President of Evergreen, seeking sanctions against the attorneys Scott W. Spradley, Maureen A. Vitucci, and Peter R. Ginsberg ("Ginsberg") and the law firms of GrayRobinson, P.A. and Peter R. Ginsberg, P.C. (collectively, the "Respondents"). The Respondents filed responses to the Sanctions and Fees Motions (Doc. Nos.1655, 1656, 1657, 1658, 1659). Ginsberg filed a Motion to Bifurcate Proceedings (Doc. No. 1661) seeking to have the issues relating to his liability pursuant to Rule 9011 and 28 U.S.C. Section 1927 bifurcated from issues relating to the amount of damages.

A status conference was held on June 13, 2007 at which counsel for Evergreen, Cuthill, J. Anthony Huggins, and the Respondents' respective counsel appeared. The following threshold issues relating to the Sanctions and Fees Motions were presented by counsel at the hearing: (i) Does the Court have jurisdiction to award sanctions pursuant to 28 U.S.C. Section 1927? (ii) Did Evergreen violate the safe harbor provision of Federal Rule of Bankruptcy Procedure 9011? (iii) Does the Court have authority to award sanctions pursuant to 11 U.S.C. Section 105? The parties, pursuant to the Court's directive, filed supplemental briefs addressing these issues (Doc. Nos. 1672, 1676, 1677, and 1678). The Respondents request dismissal of the Sanctions and Fees Motions in their supplemental briefs and responses. The Court makes the following findings and rulings regarding these threshold issues after reviewing the pleadings, hearing live argument, and being otherwise fully advised in the premises.

28 U.S.C. Section 1927

Evergreen's Sanctions and Fees Motions relate to the Motion for Recusal, Motion to Disqualify, Disclosure of All Ex Parte Communications and Revocation of All Prior Orders (Doc. No. 1508) ("Recusal Motion") filed on July 27, 2006 by the Respondents. The Recusal Motion was denied by the Order entered on February 27, 2007 and is a final, non-appealable order. Evergreen, through its Fees Motion, seeks an award pursuant to 28 U.S.C. Section 1927 of all fees and costs expended in connection with the Recusal Motion.

Section 1927, entitled Counsel's liability for excessive costs, provides:

Any attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct.

28 U.S.C. § 1927 (2006). Section 451 of Title 28 defines "court of the United States" to include:

. . . the Supreme Court of the United States, courts of appeals, district courts . . . and any court created by Act of Congress the judges of which are entitled hold office during good behavior.

28 U.S.C. § 451 (2006).

The Respondents contend only Article III federal courts, and not Bankruptcy Courts, which are Article I courts, have jurisdiction to award sanctions pursuant to Section 1927 on the basis Bankruptcy Courts do not constitute courts "of the United States." Several United States Circuit Courts of Appeals, including the United States Court of Appeals for the Eleventh Circuit, have held a Bankruptcy Court is not a "court of the United States." IRS v. Brickell Inv. Corp. (In re Brickell Inv. Corp.), 922 F.2d 696, 700-01 (11th Cir.1991) (holding, based upon the reasoning of In re Davis infra, "since a bankruptcy court is not an Article III court, it cannot be considered a `court of the United States' for purposes of awarding fees under [28 U.S.C.] § 7430.")¹; Jones v. Bank of Santa Fe (In re Courtesy Inns, Ltd., Inc.), 40 F.3d 1084, 1086 (10th Cir.1994) (concluding ". . . we must hold that bankruptcy courts are not within the contemplation of § 1927."); Perroton v. Gray (In re Perroton), 958 F.2d 889 (9th Cir.1992) (holding a bankruptcy court is not a court of the United States entitled to waive filing fees pursuant to 28 U.S.C. Section 1915(a)); 1 COLLIER ON BANKRUPTCY ¶ 2.02[4], at 2-13 (15th ed. rev.2005).²

The Circuit Courts' decisions are based upon the legislative history of Section 451 and the statute's plain language, which refers only to Article III courts. The majority of Bankruptcy Courts addressing the issue of whether the Bankruptcy Courts constitute "courts of the United States" have concluded they do not. Courtesy Inns, 40 F.3d at 1086. Bankruptcy Courts, consequently, do not have authority to impose sanctions pursuant to 28 U.S.C. Section 1927. Id.; In re Burt, 179 B.R. 297, 301 (Bankr.M.D.Fla.1995) (following the In re Courtesy decision); In re Westin Capital Mkts., Inc., 184 B.R. 109, 118 (Bankr.D.Or.1995) (applying the reasoning in Perroton); In re Richardson, 52 B.R. 527, 537-38 (Bankr.W.D.Mo.1985).

This Court, as a non-Article III court, does not have authority to impose sanctions for vexatious litigation pursuant to 28 U.S.C. Section 1927, but it does have authority to hear the Fees Motion and submit proposed findings of fact and conclusions of law to the United States District Court for the Middle District of Florida ("District Court"). 28 U.S.C. § 157(c)(1) (2006); Brickell, 922 F.2d at 701. Section 157(c)(1) of Title 28 authorizes a Bankruptcy Court to "hear a proceeding that is not a core proceeding but that is otherwise related to a case under title 11" and directs "the bankruptcy judge shall submit proposed findings of fact and conclusions of law to the district court. . . ." 28 U.S.C. § 157(c)(1). A district judge "shall" enter a final order or judgment "after considering the bankruptcy judge's proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected." Id.

The Fees Motion constitutes a proceeding related to Evergreen's bankruptcy case, a case under title 11. In re Happy Hocker Pawn Shop, Inc., 212 Fed.Appx. 811, 817 (11th Cir.2006) (applying the "related to" jurisdictional test of "whether the outcome of the proceeding could conceivably have an effect on the estate being administered in bankruptcy"). The Evergreen bankruptcy estate would derive benefit from a judgment in favor of Evergreen if it prevails on the Fees Motion. An award of fees would inure to the bankruptcy estate. This Court may exercise "related to" jurisdiction over the Fees Motions. Id.

This Court is authorized to hear the Fees Motion and submit proposed findings of fact and conclusions of law to the District Court pursuant to 28 U.S.C. Section 157(c)(1).

Federal Rule of Bankruptcy Procedure 9011

Evergreen bases its Sanctions Motion on Federal Rule of Bankruptcy Procedure 9011. Rule 9011 contains a "safe harbor" provision requiring the party seeking sanctions to provide notice sanctions are being considered and an opportunity for the offensive pleading to be withdrawn or corrected:

. . . The motion for sanctions may not be filed with or presented to the court unless, within 21 days after service of the motion (or such other period as the court may prescribe), the challenged paper, claim, defense, contention, allegation, or denial is not withdrawn or appropriately corrected.

. . . . .

Fed. R. Bankr.P. 9011(c)(1)(A).³

Evergreen served the Sanctions Motion on the Respondents on September 18, 2006 and filed it twenty-two days later on October 10, 2006. The Respondents contend Evergreen failed to comply with the twenty-one-day safe harbor provision and the Sanctions Motion is due to be dismissed on the basis the Sanctions Motion was filed one day prior to the expiration of the safe harbor period. The Respondents assert since Monday, October 9, 2006 was a federal holiday (Columbus Day), they had all day October 10, 2006 to withdraw the Recusal Motion.⁴

Evergreen substantially complied with the Rule 9011 safe harbor provision. The Respondents were provided at least twenty days to withdraw or correct the Recusal Motion. The fact Monday, October 9, 2006 was a federal holiday did not prevent the Respondents from withdrawing or correcting the Recusal Motion given filings can be made twenty-four hours a day, seven days a week, through the Court's CM/ECF electronic filing procedures.

The Respondents have not been prejudiced by the October 10th Sanctions Motion filing. Their actions reflect they had no intention of withdrawing or correcting the Recusal Motion. Their intention to pursue the Recusal Motion was evident on October 10, 2006. The Respondents, just after Evergreen filed the Sanctions Motion on October 10th, filed an Opposition (Doc. No. 1543) seeking to compel the undersigned Judge to submit to testifying as a witness at the Recusal Motion trial.⁵ A hearing on the witness exclusion issue and other matters related to the Recusal Motion was held the next day, October 11, 2006, at which the Respondents appeared and, among other things, argued the Opposition. The Respondents did not raise any issues related to the Sanctions Motion.

The Respondents, despite numerous opportunities to withdraw or correct the Recusal Motion, never withdrew or corrected the pleading. They gave no indication whatsoever of an intention to withdraw or correct the pleading. They litigated...