In re: Rimsat

Decision Date18 May 2000
Docket NumberNos. 99-1625 and 99-1636,s. 99-1625 and 99-1636
Parties(7th Cir. 2000) In re: Rimsat, Limited, Debtor, Appeals of: Kauthar Sdn Bhd, et al
CourtU.S. Court of Appeals — Seventh Circuit

Appeals from the United States District Court for the Northern District of Indiana, Fort Wayne Division. Nos. 1:98cv363 and 1:98cv370--William C. Lee, Chief Judge. [Copyrighted Material Omitted]

[Copyrighted Material Omitted] Before Coffey, Easterbrook, and Williams, Circuit Judges.

Williams, Circuit Judge.

Kauthar Sdn Bhd and three of its former attorneys, Daniel Voelker, William Howard, and William Factor, seek review of a bankruptcy court order sanctioning them for improper conduct during a bankruptcy proceeding. For various reasons, the appellants contend that the sanctions order must be reversed. Because the bankruptcy court committed no reversible error in sanctioning the appellants, however, we affirm.

I

Kauthar Sdn Bhd is a Malaysian entity that invested a substantial sum of money in Rimsat, Ltd., a firm that planned to provide satellite service to the Pacific Rim using satellite rights allotted to the island nation of Tonga and controlled by Tongasat, a Tongan company. However, Rimsat ran into financial trouble and filed for bankruptcy. Tongasat and Rimsat attempted to settle their claims against each other on two occasions, but Kauthar objected to both of the proposed compromises contending that Tongasat was being let off too easy, to the detriment of Kauthar's investment in Rimsat. In contesting the Tongasat/Rimsat compromises, Kauthar's attorneys pursued an aggressive litigation strategy to force a more favorable settlement plan. Their strategy earned them at least one warning from the bankruptcy judge about unnecessary and purely strategic litigiousness before the events leading up to the bankruptcy judge's ultimate decision to sanction them.

In challenging the second proposed Tongasat/Rimsat compromise, Kauthar sought to depose a number of individuals associated with Tongasat, including the Princess of Tonga, who chaired Tongasat's Board of Directors, and Edward Lau, Tongasat's outside general counsel and its deposition designee. Tongasat filed a motion for a protective order and the bankruptcy court held a hearing on the matter. At the hearing, the bankruptcy judge expressed concern that Kauthar's discovery requests had gone beyond the limited scope relevant to the compromise and ruled that Kauthar could only depose one person from Tongasat. William Factor, who represented Kauthar at the hearing, informed the court that Kauthar would choose to depose the Princess. Tongasat objected on the ground that the Princess lacked personal knowledge regarding the disputed issues. With the understanding that the Princess would submit an affidavit attesting to her lack of personal knowledge, the bankruptcy judge ruled that Kauthar would have to depose someone else, and on Kauthar's behalf, Factor selected Edward Lau. Kauthar's attorneys then filed a motion to compel the deposition of the Princess asserting that the Princess had personal knowledge of disputed issues.

Meanwhile, Daniel Voelker and William Howard represented Kauthar at Lau's deposition. Voelker, who conducted the deposition, focused his inquires on whether Lau believed he could disclose information he had acquired from the Princess. Dissatisfied with Lau's refusal to answer yes or no in general to these inquires, Voelker began to argue with and ask harassing questions of Lau. For instance, at one point, he asked Lau, "In the conversation you had in August of 1995, what did the Princess say to you, and what did you say to her? I want to know everything she said to you, Mr. Lau, every single word she uttered?" Voelker then began to bicker with Lau and Lau's counsel, implying that Lau intended to be dishonest in answering and intended to improperly invoke attorney-client privilege when he asked, "Are you going to answer [my question] fully and completely and honestly, or are you going to selectively answer the question and assert in your own mind, Mr. Lau, the attorney-client privilege?" Unable to get the answers he wanted regarding Lau's ability to disclose information acquired from the Princess and claiming that Lau was not a proper deposition designee, Voelker terminated the deposition without asking a single question regarding the proposed Tongasat/Rimsat compromise.

Afterwards, Tongasat filed a motion for sanctions based on the deposition. The motion alleged that Kauthar's attorneys never had any intention to depose Lau and intentionally sabotaged the Lau deposition. The motion sought attorneys' fees and other costs associated with the deposition.

When the parties next came before the bankruptcy judge, the judge informed "Kauthar's counsel" that he was disturbed by the deposition and, in light of their previous conduct in the litigation, he was seriously considering not only imposing a monetary sanction but also revoking their pro hac vice status.1 Kauthar's counsel filed a response to Tongasat's sanctions motion contending that their conduct was entirely reasonable. Tongasat then filed a reply disputing the contentions of Kauthar's counsel and requesting, among other additional sanctions, that the pro hac vice status granted Kauthar's counsel be revoked.

Approximately eleven months after receiving Tongasat's reply, and thirteen months after approving the proposed Tongasat/Rimsat compromise, the bankruptcy court ruled on the sanctions motion. It concluded that in light of the conduct of Kauthar's counsel throughout the litigation and the behavior of their counsel at the Lau deposition, there could be no doubt that Kauthar's counsel never had any intention of seeking relevant information from Lau, but rather sought only to increase the cost and inconvenience of the litigation and delay the then-imminent hearing regarding the Tongasat/Rimsat compromise. Pursuant to its authority to impose sanctions under 11 U.S.C. sec. 105(a) and the inherent powers doctrine, the bankruptcy court ordered Kauthar and its attorneys to pay $10,890.81 in costs associated with the Lau deposition and revoked Voelker's, Howard's, and Factor's pro hac vice status. Kauthar and its attorneys appealed to the district court, but the district court affirmed the sanctions order. Now Kauthar and its attorneys appeal to this court,2 contending that they were denied due process when the bankruptcy court sanctioned them, that the bankruptcy court abused its discretion in sanctioning them, and that the sanctions order against them must be vacated because the bankruptcy court waited too long to issue it.3

II

Before we consider the appellants' challenges to the bankruptcy court's sanctions order, we must determine whether we have jurisdiction over the present appeal. The general rule is that a court of appeals has jurisdiction over a bankruptcy appeal only if the bankruptcy court's original order and the district court's order reviewing the bankruptcy court's original order are both final. 28 U.S.C. sec. 158(d); In re Devlieg, Inc., 56 F.3d 32, 33 (7th Cir. 1995) (per curiam); In re Morse Elec. Co., 805 F.2d 262, 264 (7th Cir. 1986); 16 Charles Alan Wright, Arthur R. Miller, & Edward H. Cooper, Federal Practice and Procedure sec. 3926.2, at 273 (2d ed. 1996). In the bankruptcy context, however, finality does not require a final order concluding the entire bankruptcy proceeding; certain orders entered prior to the conclusion of the bankruptcy proceeding will be deemed final. In re Forty- Eight Insulations, Inc., 115 F.3d 1294, 1298-99 (7th Cir. 1997); In re Official Committee of Unsecured Creditors of White Farm Equip. Co., 943 F.2d 752, 754-55 (7th Cir. 1991). Where an order terminates a discrete dispute that, but for the bankruptcy, would be a stand-alone suit by or against the trustee, the order will be considered final and appealable. In re Szekely, 936 F.2d 897, 899-900 (7th Cir. 1991); Wright, Miller, & Cooper, supra, sec. 3926.2, at 272-73.

Dicta in In re Wade, 991 F.2d 402, 406 (7th Cir. 1993), suggests that sanctions orders fall into this category, but it is unclear whether such a position can be maintained in the wake of Cunningham v. Hamilton County, Ohio, 119 S. Ct. 1915 (1999), which holds that sanctions orders are not automatically appealable prior to final judgment, at least in the non-bankruptcy context. Even if it was not final at the time it was issued, we are persuaded that the bankruptcy court's sanctions order has since become final. Kauthar's claims against the bankruptcy estate have been valued and accepted, and the final distribution of the bankruptcy estate's claims has been approved. Because Kauthar's dispute with the bankruptcy estate has been resolved, orders relating to Kauthar's participation in the bankruptcy proceeding are now final. White Farm Equip., 943 F.2d at 755; Szekely, 936 F.2d at 899-900; see also Forty-Eight Insulations, 115 F.3d at 1298-99. That this finality arose after the present appeals were filed is no barrier to jurisdiction, as the doctrine of cumulative finality allows an appeal from a non-final order to be "saved" by subsequent events that establish finality. See In re Emerson Radio Corp., 52 F.3d 50, 52 (3d Cir. 1995); In re Interwest Bus. Equip., Inc., 23 F.3d 311, 314-15 (10th Cir. 1994); Wright, Miller, & Cooper, supra, sec. 3926.2, at 290. Therefore, and since there is no reason to doubt the finality of the district court's order simply affirming the bankruptcy court's order, our jurisdiction over this appeal is secure. We now turn to the challenges the appellants raise to the bankruptcy court's sanctions order.

III
A. Due Process

The appellants first challenge the bankruptcy court's sanctions order on constitutional grounds. They contend that the bankruptcy court failed to afford them the fair notice and opportunity to be heard that the Fifth Amendment's due...

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