In re Walker

• Decision Date: 07 July 2008
• Docket Number: No. 07-14049 Non-Argument Calendar.,07-14049 Non-Argument Calendar.
• Citation: 532 F.3d 1304
• Parties: In re: James F. WALKER, Debtor. Mary Alice Gwynn, Plaintiff-Appellant Cross-Appellee, v. James F. Walker, Defendant-Appellee Cross-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

532 F.3d 1304

In re: James F. WALKER, Debtor Mary Alice Gwynn, Plaintiff-Appellant Cross-Appellee, v. James F. Walker, Defendant-Appellee Cross-Appellant.

No. 07-14049 Non-Argument Calendar.

United States Court of Appeals, Eleventh Circuit.

July 7, 2008.

Mary Alice Gwynn, Saylor & Gwynn, Delray Beach, FL, pro se.

Gary J. Rotella, Jay Lewis Farrow, Gary J. Rotella & Associates, P.A., Ft. Lauderdale, FL, for Walker.

Appeals from the United States District Court for the Southern District of Florida.

Before DUBINA, BLACK and PRYOR, Circuit Judges.

PER CURIAM:

Mary Alice Gwynn, counsel for a creditor in a bankruptcy proceeding, appeals pro se an award of sanctions against her, a denial of her motion for fees under Bankruptcy Rule 9011, and a denial of her motion for recusal. James F. Walker cross-appeals a separate order that vacated an award of sanctions against Gwynn. We affirm.

I. BACKGROUND

Most of the issues on appeal involve two motions for sanctions. Gary Rotella, counsel for Walker, filed both motions in response to motions filed by Gwynn that alleged misconduct by Rotella. In each instance, Rotella was not found to have engaged in misconduct.

Rotella filed the first motion after Gwynn filed a motion to disqualify Rotella as counsel for Walker. Rotella responded to the motion and moved to shorten the notice period for filing a motion for sanctions under Rule 9011. Rotella notified Gwynn that he would seek sanctions under Rule 9011 if she did not withdraw the motion to disqualify. After a hearing, the bankruptcy court denied both the motion to disqualify and the motion to shorten the notice period. Gwynn then filed a renewed motion to disqualify Rotella from representing Walker. That same day, Rotella filed a motion for sanctions against Gwynn under Rule 9011. Ten days later, the bankruptcy court denied the renewed motion to disqualify and granted the motion for sanctions.

Gwynn appealed the award of sanctions to the district court. The district court vacated the award of sanctions because Gwynn had not been afforded twenty-one days to withdraw her motion. Gwynn then filed a motion for attorney's fees and costs as the prevailing party under Rule 9011 and Bankruptcy Local Rule 8014. The bankruptcy court granted in part and denied in part the motion and taxed costs in the amount of $1,591.58 against Rotella, his law firm, and Walker.

Rotella filed the second motion in response to another motion filed by Gwynn. Gwynn had alleged that Rotella made false representations to the court, committed fraud against the court, and planned to benefit personally at the expense of the creditors. The bankruptcy court granted Rotella's motion for sanctions and ordered Gwynn to pay Rotella $14,000.

II. STANDARDS OF REVIEW

We review the imposition of sanctions for abuse of discretion. Glatter v. Mroz (In re Mroz), 65 F.3d 1567, 1571-72 (11th Cir.1995). Under this standard, we "must affirm unless [we find] that the [lower] court has made a clear error of judgment, or has applied the wrong legal standard." Amlong & Amlong, P.A. v. Denny's Inc., 500 F.3d 1230, 1238 (11th Cir.2007). We may affirm on any legal ground supported by the record. Brown v. Johnson, 387 F.3d 1344, 1351 (11th Cir. 2004). We also review a denial of a motion for recusal for abuse of discretion. Christo v. Padgett, 223 F.3d 1324, 1333 (11th Cir.2000).

III. DISCUSSION

Our discussion is divided in four parts. First, we address Walker's argument that the district court should not have vacated the first sanction against Gwynn. Second, we address Gwynn's argument that the bankruptcy court abused its discretion in denying her request for fees and costs related to Gwynn's appeal of the first sanction and the denial of some of the expenses for which Gwynn sought reimbursement. Third, we address Gwynn's argument that the bankruptcy court abused its discretion in awarding a sanction of $14,000. Fourth, we address Gwynn's argument that the bankruptcy court erred when it denied Gwynn's motion for recusal.

A. The District Court Did Not Err when It Vacated the First Sanction Against Gwynn.

A party who moves for sanctions under Bankruptcy Rule 9011 must follow a two-step process. See Fed. R. Bankr.P. 9011(c)(1)(A). The party first must serve the motion on the opposing party and then, at least twenty-one days later, file the motion with the court. Id. This process provides a "safe harbor" in which the offending party can avoid sanctions by withdrawing or correcting the challenged document or position after receiving notice of the alleged violation.

Although this Circuit has never addressed whether a motion for sanctions under Rule 9011 may be filed after a court has ruled on the offending motion, the Second, Fourth, and Sixth Circuits have concluded that a motion under Federal Rule of Civil Procedure 11, which is "substantially identical" to Rule 9011, Mroz, 65 F.3d at 1572, cannot be filed "[i]f the court disposes of the offending contention before the twenty-one day `safe harbor' period expires." Ridder v. City of Springfield, 109 F.3d 288, 295 (6th Cir.1997); see also Brickwood Contractors, Inc. v. Datanet Eng'g, Inc., 369 F.3d 385, 389-90 (4th Cir. 2004) (en banc); In re Pennie & Edmonds LLP, 323 F.3d 86, 89 & nn.1-2 (2d Cir. 2003). As the Sixth Circuit explained, "any other interpretation would defeat the rule's explicit requirements." Ridder, 109 F.3d at 295. Under that interpretation of Rule 9011, Walker's argument on cross-appeal fails.

There is no doubt that Rotella's motion for sanctions was filed after the offending motion had been denied. Gwynn filed the offending motion to disqualify Rotella on April 21, 2004. Rotella gave notice that he would seek sanctions on April 24, 2004, but the bankruptcy court denied the motion to disqualify on April 28, 2004. On May 18, 2004, Gwynn filed a renewed motion to disqualify Rotella's law firm, and that same day Rotella filed a motion for sanctions under Rule 9011. Rotella's motion related to the first motion to disqualify filed by Gwynn. Although Rotella's motion for sanctions was filed more than twenty-one days after he gave notice that he would seek sanctions, the bankruptcy court had already denied Gwynn's first motion to disqualify.

We agree with the Second, Fourth, and Sixth Circuits that the service and filing of a motion for sanctions "must occur prior to final judgment or judicial rejection of the offending" motion. Id. at 297. Any argument to the contrary renders the safe harbor provision a mere formality. The provision cannot have any effect if the court has already denied the motion; it is too late for the offending party to withdraw the challenged contention. See id. The district court did not err when it vacated the award of sanctions.

B. The Bankruptcy Court Did Not Abuse Its Discretion in Its Denial of Fees, Costs, and Expenses for Gwynn.

Gwynn argues that the bankruptcy court abused its discretion when it did not award her attorney's fees and costs relating to her appeal of the award of sanctions. Gwynn also argues that the bankruptcy court abused its discretion when it did not award all of her reasonable expenses under Bankruptcy Rule 8014. We disagree.

Rotella's motion for sanctions and Gwynn's corresponding expenses could have been avoided if Gwynn had not filed her frivolous motion to disqualify Rotella in the first instance. One of the purposes of sanctions under Rule 9011 is to deter baseless filings, and courts should reduce an award of sanctions based on "the extent to which the nonviolating party's expenses could have been avoided, or mitigated." Baker v. Alderman, 158 F.3d 516, 528 (11th Cir.1998). Because Gwynn's initial frivolous filing prompted the dispute, the bankruptcy court did not abuse its discretion when it denied attorney's fees and costs under Rule 9011(c)(1)(a).

The bankruptcy court also did not abuse its discretion in its award of reasonable expenses under Rule 8014. The denial of fees for a consulting attorney and expert witness, expediting costs, and certain transcript costs was within the discretion of the court under Rule 8014. The bankruptcy court provided detailed reasons for excluding certain expenses, and Gwynn does not provide any legal support for a contrary decision.

C. The Bankruptcy Court Did Not Abuse Its Discretion when It Imposed a Sanction of $14,000 Against Gwynn.

Gwynn argues that the bankruptcy court abused its discretion in the imposition of sanctions in the amount of $14,000. The bankruptcy court found that sanctions were appropriate under two statutes, 28 U.S.C. §§ 105, 1927, and its inherent authority to manage its affairs. We need not decide whether the bankruptcy court had the authority to impose sanctions under either section 1927 or section 105 because the court did not abuse its discretion when it awarded sanctions under its inherent powers.

Federal courts, including bankruptcy courts, have the inherent power to impose sanctions on parties and lawyers. Byrne v. Nezhat, 261 F.3d 1075, 1121 (11th Cir.2001); see also Mroz, 65 F.3d at 1572. To impose sanctions under these inherent powers, the court first must find bad faith. Mroz, 65 F.3d at 1575. "A finding of bad faith is warranted where an attorney knowingly or recklessly raises a frivolous argument, or argues a meritorious claim for the purpose of harassing an opponent. A party also demonstrates bad faith by delaying or disrupting the litigation or hampering enforcement of a court order." Byrne, 261 F.3d at 1121 (citations omitted). Sanctions are "especially appropriate where counsel takes frivolous legal positions supported by scandalous accusations." Amlong & Amlong, P.A., 500 F.3d at 1238. The court must afford the sanctioned party due process both in determining that the requisite bad faith exists and in assessing fees. Chambers v. NASCO Inc., 501 U.S. 32, 49, 111 S.Ct. 2123, 2135, 115 L.Ed.2d 27 (1991).

Gwynn does not contend that she did not receive due process in the...