In re Gonzalez

Decision Date15 October 2019
Docket NumberCase No. 2:15-bk-25283-RK
CourtU.S. Bankruptcy Court — Central District of California
PartiesIn re: ARTURO GONZALEZ, Debtor.

NOT FOR PUBLICATION

Chapter 7

MEMORANDUM DECISION ON MOTION BY CHAPTER 7 TRUSTEE, WESLEY H. AVERY, PURSUANT TO FRCP 11 AND FRBP 9011 FOR SANCTIONS AGAINST DEBTOR, ARTURO GONZALEZ, INCLUDING MONETARY SANCTIONS OF ATTORNEY FEES AND COSTS AND DIRECTIVES OF A NONMONETARY NATURE

This bankruptcy case came on for hearing on August 20, 2019 on the Motion of Wesley H. Avery, Chapter 7 Trustee, Pursuant to FRBP [Federal Rule of Civil Procedure] 11 and FRBP [Federal Rule of Bankruptcy Procedure] 9011 for Sanctions against the Debtor, Arturo Gonzalez, including Monetary Sanctions of Attorney Fees and Costs and Directives of a Nonmonetary Nature ("Motion"), Electronic Case Filing No. ("ECF") 408. Brett B. Curlee, of the Law Office of Brett Curlee, appeared for the Chapter 7 Trustee. Debtor Arturo Gonzalez appeared for himself.

The Chapter 7 Trustee, Wesley H. Avery ("Trustee") filed the Motion a separate Request for Judicial Notice in Support of Motion ("RJN") on June 22, 2019, ECF 408. On July 9, 2019, Debtor, Arturo Gonzalez, ("Debtor") filed his "Response to Docket 395, 396, 397, 408, 409 Motion by Chapter 7 Trustee, Wesley H. Avery, Objecting to Exemptions Claimed in a Homestead and in Real Estate Brokerage Commissions Identified in the Amended Schedules (Docket No. 393), filed May 21, 2019, by Debtor Arturo Gonzalez; and Requesting Order for Turnover of Commissions Belonging to the Bankruptcy Estate; Memorandum of Points and Authorities; Declaration of Brett B. Curlee in Support Thereof" ("Opposition"), ECF 420. The Trustee filed a reply thereto on August 13, 2019 ("Reply"), ECF 438. After the hearing on the Motion on August 20, 2019, the court took the Motion under submission.

Having considered the Motion, the RJN, the Opposition, and the Reply, and having also considered the arguments of the parties made at the hearing on August 20, 2019, the court makes the following rulings on the Motion.

I. BACKGROUND

Pursuant to the Motion, the Trustee seeks relief under Federal Rule of Bankruptcy Procedure 9011 ("Rule 9011") and Federal Rule of Civil Procedure 11 ("Rule 11"), claiming that Debtor's motions, adversary actions, and amendments have been filed to harass the Trustee and delay these proceedings in bad faith. Motion, ECF 408 at 3. Specifically, the Trustee requests the following monetary and non-monetary sanctions against Debtor:

a) Strike the complaint and dismiss adversary action no. 2:19-ap-01126-RK;
b) Strike the complaint in adversary action no. 2:18-ap-01371-RK and dismiss that adversary action as it pertains to the Trustee;
c) Strike the Motion to Alter, or Amend the Judgement, or Request for New Trial regarding Debtor's homestead and tools of the trade exemptions (Docket No. 364) and the turnover order (Docket No. 16 in Adv. No. 2:16-ap-01037) and to amend the Findings of Fact and Conclusions of Law regarding the same. See also Docket No. 388 filed in the Main Bankruptcy Case, No. 2:15-bk-25283-RK;d) Strike the Motion to Alter, or Amend the Judgement, or Request for New Trial regarding revocation of discharge (Docket No. 123, 129 in Adv. No. 2:16-ap-01037-RK) and to amend the Findings of Fact and Conclusions of Law regarding same (Docket No. 123, Adv. No. 2:16-ap-01037-RK). This Motion is Docket No. 137 in Adv. No. 2:16-ap-01037-RK;
e) Strike the Motion for Trustee to Protect Debtor's Interest (Docket No. 47 in Adv. No. 18-ap-01371-RK). This Motion was filed in Adv. No. 18-ap-01371-RK;
f) Strike the Amended Schedules (Docket No. 393), filed May 21, 2019;
g) Order Debtor shall first submit all pleadings to be filed in the bankruptcy case or any adversary action related to the bankruptcy case for court approval before filing that the Court deems are not duplicative or frivolous; and,
h) Order Debtor to pay attorneys' fees and costs of not less than $15,000 to Trustee's counsel and co-counsel as sanctions for causing Trustee to respond to Debtor's bad faith filings.

Id. at 2.

Debtor opposed the Motion, arguing that the Trustee has proceeded incorrectly and is harassing Debtor. Opposition, ECF 420 at 4. As explained in greater detail below, the court denies the Motion for procedural deficiencies, mootness, and lack of merit.

II. DISCUSSION
A. The Trustee's Motion is Procedurally Deficient

Rule 9011, the bankruptcy parallel to Rule 11, is "an extraordinary remedy, one to be exercised with extreme caution." Operating Engineers Pension Trust v. A-C Co., 859 F.2d 1336, 1345 (9th Cir. 1988). An award of sanctions for a violation of Rule 9011 is "an exceptionally serious matter reserved for those rare situations in which a claim or defense is asserted without any evidentiary support or legal basis, or for improper purposes, such as to harass or delay an opponent, or cause undue expense." Board ofTrustees v. Quinones (In re Quinones), 543 B.R. 638, 646 (Bankr. N.D. Cal. 2015) (citing inter alia Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 393 (1990)). A party seeking sanctions therefore must strictly comply with all of Rule 9011's procedural requirements for an award. Radcliffe v. Rainbow Construction Co., 254 F.3d 772, 789 (9th Cir. 2001); Barber v. Miller, 146 F.3d 707, 710-711 (9th Cir. 1998).

The language of Rule 90111 mirrors that of Rule 11, so courts analyzing sanctions under Rule 9011 commonly rely on cases interpreting Rule 11. Miller v. Cardinale (In re DeVille), 361 F.3d 539, 550 and n. 5 (9th Cir. 2004) (citation omitted) (describing Rule 9011 as the "bankruptcy twin" of Rule 11). Further, when Rule 9011 was adopted in its present form in 1997, the drafters of the amended bankruptcy rules referred readers to the notes accompanying the 1993 amendments of Rule 11 for guidance. Id. at 551 and n. 8. When interpreting Rule 9011, as stated in In re Deville, the Ninth Circuit continues "to adhere to the practice that precedents interpreting Rule 11 may prove a helpful guide" and "looks to the Advisory Committee Notes to the 1993 Amendments to Rule 11" to inform judgments about the procedures required in imposing sanctions under Rule 9011. Id. at 552.2

i. The Rule 9011(c)(1)(A) "Safe Harbor"

Rule 9011(c)(1)(A) requires that before a motion for sanctions is filed with the court, the motion must have been served on the party whose conduct is alleged to violate the rule, and the alleged violating party must be allowed at least twenty-one days to correct or withdraw the offending pleading, allegation, or denial (the "Safe Harbor"). Fed. R. Bankr. P. 9011(c)(1)(A). To comply with Rule 9011, a moving party therefore must serve its sanctions motion "on the plaintiffs with a demand for retraction of the allegedly offending allegations," and then allow the plaintiffs at least twenty-one days to retract the pleading before filing the motion with the court. Radcliffe v. Rainbow Construction Co., 254 F.3d at 788-789 (emphasis added). In Barber v. Miller, the Ninth Circuit held that the procedural requirements of the Safe Harbor are mandatory. 146 F.3d at 710-711. The court emphasized that the Advisory Committee Notes "make abundantly clear" that the revised Rule 9011(c)(1)(A), like Rule 11(c)(1)(A), establishes a safe harbor in that "a party will not be subject to sanctions on the basis of another party's motion unless, after receiving the motion, it refused to withdraw that position or to acknowledge candidly that it does not currently have evidence to support a specified allegation." Id. at 710 (citing Advisory Committee Notes, 1993 Amendment).

The purpose of the Safe Harbor "is to give the offending party the opportunity, within 21 days after service of the motion for sanctions, to withdraw the offending pleading and thereby escape sanctions." Id. (emphasis in original). The Safe Harbor was adopted to, among others, encourage the withdrawal of papers that violate Rule 9011 without involving the court, thereby avoiding sanction proceedings whenever possible and streamlining the litigation process. 5A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure, § 1337.2 (4th ed., online ed., August 2019 update); see also, Truesdell v. Southern California Permanente Medical Group, 293 F.3d 1146, 1151 (9th Cir. 2002) (safe harbor is meant to give an opportunity to remedy any alleged misconduct); Ellis v. Devig, No. 3:08-cv-19, 2008 U.S. Dist. LEXIS 29893, 2008 WL 1735389 at *1 (D. N.D. 2008) (purpose of safe harbor is to encourage withdrawal).Notably, in addition to service of the motion in compliance with Rule 9011(c)(1)(A), "counsel should be expected to give informal notice to the other party, whether in person or by a telephone call or letter, of a potential violation before proceeding to prepare and serve a Rule 11 motion." Barber v. Miller, 146 F.3d at 710 (citing Advisory Comm. Notes, 1993 Amend.); see also, Crane v. Rodriguez, No. 2:15-cv-0208 TLN KJN P, 2017 WL 132122 at *2 (E.D. Cal. 2017) (citing Advisory Committee Notes, 1993 Amendment and noting that plaintiff did not provide defendants with informal notice of his intention to seek sanctions contemplated under Rule 11).3

ii. The Motion Provides Insufficient Evidence that Debtor had Notice Pursuant to Rule 9011(c)(1)(A)

The purpose of the Rule 9011 Safe Harbor is to afford plaintiffs an opportunity to avoid sanctions. Here, there is insufficient evidence that the Trustee's bare service of the Motion provided Debtor the opportunity to withdraw or retract the allegedly offending pleadings. The Trustee's counsel stated that on May 24, 2019, he served the Motion on the Debtor at his address at 1139 Sanford Ave., Wilmington, California 90744. Declaration of Brett B. Curlee, ¶ 7 (ECF 408 at 16) ("Curlee Declaration"). The Trustee filed the Motion on June 22, 2019, more than twenty-one days after service of the Motion on Debtor. Debtor did not withdraw or retract any of the allegedly offending pleadings before the...

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