In re Ministries

Decision Date31 March 2020
Docket NumberCase No. 2:12-bk-15665-RK
CourtU.S. Bankruptcy Court — Central District of California


Chapter 11


Pending before the court is the Motion of Carol Milner for Sanctions against Debtor Crystal Cathedral Ministries and Debtor's Counsel pursuant to Federal Rule of Bankruptcy Procedure 9011 ("Bankruptcy Rule 9011")1 or the court's inherent authority, filed on July 2, 2019 (the "Sanctions Motion" or "Motion for Sanctions"), Electronic Case Filing ("ECF") 2100. In this memorandum decision, the court refers to Carol Milner as "Milner," her counsel as "Movant's Counsel," Crystal Cathedral Ministries as "CCM," and CCM's counsel as "Debtor's Counsel."

In her Motion for Sanctions, Milner asserts that CCM and Debtor's Counsel filed a frivolous Motion for an Order to Show Cause RE Contempt, ECF 2043 (the "Contempt Motion"), seeking to hold her and her attorney, Harold J. Light ("Light"), in contempt for allegedly violating the discharge injunction in this bankruptcy case, without making a reasonable inquiry or having a legal or factual basis for the filing of the Contempt Motion. Specifically, Milner contends that her written objection to the issuance of an order to show cause requested in the Contempt Motion, filed on June 12, 2018 (ECF 2050 and 2051) and the July 11, 2018 e-mail from Movant's Counsel to Debtor's Counsel, attaching a warning letter (the "Bankruptcy Rule 9011 Warning Letter"), put CCM and Debtor's Counsel on notice that the facts and law established that a 2006 settlement agreement between Milner and CCM (the "Settlement Agreement") was an enforceable contract, which was no longer executory, and was thus never rejected in CCM's bankruptcy case, which arguments showed that the Contempt Motion lacked merit. Sanctions Motion, ECF 2100 at 14 (citing inter alia, In re Parkwood Realty Corp., 157 B.R. 687 (Bankr. W.D. Wash. 1993) and In re Continental Country Club, Inc., 114 B.R. 763 (Bankr. M.D. Fla. 1990)). According to Milner, a reasonable review of the Settlement Agreement indicated that it was not an executory contract which could be rejected by CCM in its bankruptcy case. Id. at 13-14 (citing In re Robert L. Helms Construction & Development Company, Inc., 139 F.3d 702, 705 and n. 7 (9th Cir. 1998)). Milner also asserts that Debtor's Counsel, on behalf of CCM, erroneously claimed that the relevant date for rejection or breach under 11 U.S.C. § 1141(b) was the date the final decree was entered in the case, not the "effective date of the plan." Id. at 14. Milner further asserts that CCM ignored the Ninth Circuit's decisions in In re Ybarra, 424 F.3d 1018 (9th Cir. 2005) and In re Taggart, 888 F.3d 438 (9th Cir. 2018)2, and wrongfully contended that she violated the discharge injunction by filing an answer in a state court action commenced by CCM against her in November 2017 (the "State Court Action"). Id. at 14-15.

Milner contends that Debtor's Counsel and CCM filed a trial brief in support of the Contempt Motion that advanced false factual arguments and misstated the law, ECF 2071 (the "CCM Trial Brief"). Sanctions Motion, ECF 2100 at 15. Milner contends that CCM's position in its Trial Brief filed by Debtor's Counsel, arguing in the alternative that CCM never transferred ownership of the subject property to Milner and that she must present evidence of her ownership of the property at trial, was false and contradictory to its litigating position taken in the State Court Action that she owned the subject property. Id. Milner also asserts that CCM through Debtor's Counsel falsely recited California law as requiring a bill of sale to transfer property, misreading Hull v. Ray, 80 Cal.App. 284 (1926), and wrongfully argued that there was no consideration for the transfer of the subject property to Milner, which CCM contended defeated her claims. Id.

Milner further argues that the post-trial brief filed by CCM through Debtor's Counsel presented additional frivolous arguments not warranted by fact or law, ECF 2077 (the "CCM Post-Trial Brief"). Sanctions Motion, ECF 2100 at 16. Milner contends that Debtor's Counsel's claim at trial that Ninth Circuit authority supported the proposition that Milner had an implied duty to inspect or "timely" retrieve the subject property, and his subsequent failure to produce such authority in the CCM Post-Trial Brief or retract the claim in the same brief, amounted to a frivolous legal argument. Id.

Milner thus argues in the Sanctions Motion that the court may impose sanctions against Debtor's Counsel and CCM pursuant to Bankruptcy Rule 9011 or the court's inherent authority because the Contempt Motion, CCM Trial Brief, and CCM Post-Trial Brief included arguments not warranted by fact or law, and the Contempt Motion was filed by CCM to "harass Ms. Milner in an . . . attempt . . . to persuade her to release CCM from any and all damage claims that she may have against CCM and Crystal Cathedral for their failure to properly store her property." Id. at 17.

On August 28, 2019, CCM filed its opposition to the Sanctions Motion, arguing that the Sanctions Motion was untimely and failed to demonstrate sanctionable conduct by CCM under Bankruptcy Rule 9011. CCM Opposition to Sanctions Motion, ECF 2114.CCM argued that Milner failed to trigger the 21-day "safe harbor" under Bankruptcy Rule 9011(c)(1)(A), and, citing Islamic Shura Council of Southern California v. F.B.I., 757 F.3d 870 (9th Cir. 2014), that the Sanctions Motion was untimely because the court already adjudicated the Contempt Motion. CCM Opposition to Sanctions Motion, ECF 2114 at 10-12. CCM also argued that because it was represented by legal counsel, Debtor's Counsel, monetary sanctions pursuant to Bankruptcy Rule 9011(b)(2)—those related to claims allegedly not warranted by law—cannot be imposed against CCM.3 Id. at 15-17. Alternatively, CCM asserted that Milner did not present evidence of specific conduct indicating an "improper purpose" behind the filing of the Contempt Motion. Id. at 19. CCM asserted that any of Milner's contentions that might be construed as evidencing its specific conduct were based on claims under Bankruptcy Rule 9011(b)(2), which provision does not apply to represented parties in their individual capacities. Id. at 20-23. CCM also argued that sanctions under the court's inherent authority are without merit because Milner failed to demonstrate bad faith on its part because it relied on counsel in filing the Contempt Motion, which was a pleading supported by law. Id. at 24.

Debtor's Counsel filed a separate opposition to the Sanctions Motion on August 28, 2019, arguing that the requested relief in the Sanctions Motion should be denied on numerous grounds. Debtor's Counsel Opposition to Sanctions Motion, ECF 2120. First, Debtor's Counsel argued that because no motion to reopen the bankruptcy case was filed by Milner, the Sanctions Motion should be denied in its entirety. Id. at 6. Debtor's Counsel also made the same arguments as CCM: that the Sanctions Motion was untimely under Islamic Shura Council of Southern California v. F.B.I., 757 F.3d 870 (9th Cir. 2014), and that Bankruptcy Rule 9011 sanctions are precluded because Milner failed to satisfy the "safe harbor" requirement of Bankruptcy Rule 9011(c)(1)(A). Id. at 7-8. Additionally, Debtor's Counsel asserted that the court could not exercise its inherent authority tosanction because Bankruptcy Rule 9011 expressly covered all of the alleged misconduct and that his conduct did not reach the threshold for a finding of bad faith. Id. at 9-10, 12.

CCM and Debtor's Counsel each made a counter-request for sanctions against Milner for filing the Sanctions Motion. CCM Opposition to Sanctions Motion, ECF 2114 at 27-28; Debtor's Counsel Opposition to Sanctions Motion, ECF 2120 at 14.

On September 11, 2019, Milner filed a reply addressing these oppositions of CCM and Debtor's Counsel. Milner Reply to CCM and Debtor's Counsel Oppositions, ECF 2121. Milner argued that the Sanctions Motion was timely pursuant to Bankruptcy Rule 9011 because CCM and Debtor's Counsel had allegedly waived any objections to the 21-day "safe harbor" under Bankruptcy Rule 9011 by signing a stipulation dated July 15, 2019, the Bankruptcy Rule 9011 Warning Letter from Movant's Counsel to Debtor's Counsel satisfied the safe harbor of Bankruptcy Rule 9011, alternatively, the Contempt Motion was essentially the filing of a bad faith petition not requiring compliance with the Bankruptcy Rule 9011 safe harbor, the Sanctions Motion was filed "as soon as practicable," and the court's inherent authority to sanction is not limited by a procedural safe harbor or similar considerations. Milner Reply to CCM and Debtor's Counsel Oppositions, ECF 2121 at 5-6. Milner also made the further arguments that CCM and Debtor's Counsel acted in bad faith, asserting that he failed to independently investigate the facts or law before filing the Contempt Motion and that CCM pursued the Contempt Motion for the improper purpose of intimidating and harassing Milner. Id. at 7, 11.

The court conducted a hearing on the Sanctions Motion on September 18, 2019. At the hearing, Milner requested leave of court to file supplemental briefing and evidence in support of the Sanctions Motion.4 Debtor's Counsel and CCM orally objected to this request, and the court, after hearing argument on the objections, overruled the objections and granted the request of Milner for supplemental briefing and evidence. On September 24, 2019, CCM filed and served a formal written objection to the "order" (i.e., the court'soral ruling of September 18, 2019) allowing Milner to file "amended" or further briefing or evidence. CCM...

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