In re Walter, BAP No. CC-87-1162
| Decision Date | 03 February 1988 |
| Docket Number | Bankruptcy No. SA 87-0006 JR,BAP No. CC-87-1162,SA 86-01901 JR.,CC-87-1384 |
| Citation | 83 BR 14 |
| Parties | In re Ronald C. WALTER, aka Ron C. Walter, Debtor. Ronald C. WALTER, aka Ron C. Walter, Appellant/Debtor, v. SUNWEST BANK, Appellee/Defendant. SUNWEST BANK, Appellant/Plaintiff, v. Ronald C. WALTER, aka Ron C. Walter, Appellee/Defendant. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
Theodore Albert, Buchalter, Nemer, Fields, Chrystie, & Younger, Newport Beach, Cal., for appellants.
Steven Skacevic, Frandzel & Share, Beverly Hills, Cal., for appellees.
Before VOLINN, JONES and MOOREMAN, Bankruptcy Judges.
In these two appeals, the debtor and an unsecured creditor each appeal from a separate order. Both orders, however, arise out of the same dispute. The unsecured creditor, Sunwest Bank, appeals from an order imposing sanctions upon it. The debtor appeals from an order prohibiting him from withdrawing any monies from a fund subject to a contested claim of exemption.
We affirm both rulings.
Ronald C. Walter and his wife Freida Suzanne Walter filed separate Chapter 11 bankruptcy petitions on April 11, 1986. For the past several years, Mr. Walter's business had been buying and selling real property. His bankruptcy estate consisted primarily of real estate holdings.
In his bankruptcy schedules, Mr. Walter listed as exempt a pension plan which he had established when he did business as Ronson Equities, Inc. He was always the sole trustee and administrator of the pension plan. At times pertinent hereto, he and his wife held a 91.5 percent interest in it, and were the only participants in it. The plan was a substantial asset of approximately $1,200,000, drawing interest of approximately $120,000 annually.1 After filing his Chapter 11 petition, Mr. Walter withdrew $10,000 per month from the pension plan for living expenses for himself and his family.
On July 16, 1986, Sunwest Bank filed an objection to this claimed exemption. The bank asserted that in 1981 and 1982 Mr. Walter had borrowed approximately $678,000 from this pension plan in order to finance his businesses.
Sunwest asserted that this so-called pension fund was really a "slush fund," and thus Mr. Walter should not be allowed to draw monies from it in his claimed retirement. On Jan. 6, 1987 Sunwest set an "ex parte" emergency hearing, for January 8, 1987, some nine months after the bankruptcy petitions were filed, claiming that there was a continuing emergency whereby immediate and irreparable harm would be done to Sunwest if Mr. Walter continued to withdraw money from the plan.2
Counsel for Mr. and Mrs. Walter countered that the motion was improperly brought on an emergency basis, because no emergency existed in light of the bank's at least five-months knowledge and inaction as to the withdrawals of $10,000 per month from the pension plan by Mr. Walter for his and his family's personal use.
The bankruptcy court agreed with counsel for debtors, noting that the bank could have brought a motion to shorten time on notice, thus giving due process notice to the debtors. The court thereafter set a hearing on the bank's Application for Temporary Restraining Order, relative to the same relief, for January 13, 1987. It imposed sanctions against the bank in the amount of $3,535.00 for misuse of the ex parte process. The court arrived at the amount after hearing from counsel for each of the Walters, regarding how much time they had put into the proceeding.
On January 13, 1987, the court, having heard the matter, issued a temporary restraining order, restraining Mr. Walter from taking any monies from the pension plan for his personal use, finding that otherwise property in the bankruptcy estate would be disposed of and would not be recoverable.
At a hearing on February 5, 1987, the court considered applications by Mr. and Mrs. Walter for authority, pursuant to § 363 of the Bankruptcy Code, to use funds from the pension plan for personal purposes during the pendency of their respective Chapter 11 proceedings. On February 26, 1987, the court ruled that the pension plan constituted property of the Walters' respective bankruptcy estates and thus they were prohibited by law from using assets or funds contained in the pension plan. Specifically, the court ordered as follows:
Whether specific conduct violates a court rule or rules and calls for the imposition of sanctions is a legal question which must be reviewed de novo. Golden Eagles Dist. Corp. v. Burroughs Corp., 801 F.2d 1531, 1538 (9th Cir.1986); In re Lewis, 79 B.R. 893 (9th Cir. BAP 1987). However, since the bankruptcy court has wide discretion in determining what sanctions should be imposed for violation of a rule or rules, the propriety of the sanctions is reviewed under an abuse of discretion standard. Golden Eagle, supra, at 1538; In re Lewis, supra at 895.
The bankruptcy court has considerable discretion in deciding whether to approve or disapprove the use of estate property by a debtor in possession, in the light of sound business justification. In re Baldwin United Corporation, 43 B.R. 888, 905 (S.D.Ohio W.D.1984); In re Lionel Corporation, 722 F.2d 1063, 1066 (2d Cir. 1983); In re Continental Air Lines, Inc., 780 F.2d 1223 (5th Cir.1986).
The authority upon which the bankruptcy court relied in imposing sanctions is not specified anywhere in the record. Appellant Sunwest Bank argues in its brief that the appropriate rules to be applied are Fed.R.Civ.P. 11 and Bankruptcy Rule 9011(a).
Appellee debtors counter that, since Local Rule 27.1 and Local Bankruptcy Rule 904(i) are more specific than the general federal rule and bankruptcy rule, the more specific local rules apply. These rules are more specifically described below. Appellee debtors cite as authority for this position Zaldivar v. City of Los Angeles, 780 F.2d 823 (9th Cir.1986). Appellee's reliance on Zaldivar is misplaced. In Zaldivar, the court said that Rule 11 did not apply to discovery when other rules were more directly applicable.
Here, Rule 11 is directly applicable and is consistent with the special rules. The general and local rules both apply to this factual situation. Since the local rules are consistent they may be considered. See Miranda v. Southern Pacific Transportation Company, 710 F.2d 516, 521 (9th Cir. 1983).
District courts also have broad discretion in interpreting and applying their local rules. Miranda, supra, at 521; Lance, Inc. v. Dewco Services, Inc., 422 F.2d 778, 783-84 (9th Cir.1970).
Recently the Eighth Circuit held that Rule 11 may be appropriately invoked in bankruptcy court. In the case of In re Arkansas Communities, Inc., 827 F.2d 1219 (8th Cir.1987), the district court on appeal had approved the imposition of sanctions under 28 U.S.C. § 1927 and B.R. 9011. Section 1927 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.
The Circuit, on appeal, noted with some reservation that the application of 28 U.S.C. § 1927 by a bankruptcy court was approved without discussion in the case of In re TCI, Ltd., 769 F.2d 441 (7th Cir.1985). However, the Circuit unreservedly endorsed the use of B.R. 9011 by the bankruptcy court stating:
Local Rule 27.1 of the District Court for the Central District of California authorizes the imposition of "penalties,...
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