Isaacson v. Manty

• Citation: 721 F.3d 533
• Decision Date: 05 September 2013
• Docket Number: No. 12–2384.,12–2384.
• Parties: Naomi ISAACSON, Plaintiff–Appellant, v. Nauni Jo MANTY, Defendant–Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

721 F.3d 533

Naomi ISAACSON, Plaintiff–Appellant,

v.Nauni Jo MANTY, Defendant–Appellee.

No. 12–2384.

United States Court of Appeals,

Eighth Circuit.

Submitted: Dec. 12, 2012.

Filed: July 19, 2013.

Rehearing and Rehearing En Banc Denied Sept. 5, 2013.

Orva Lee Boothby, argued, Washington, DC (James Allen Jardine, on the brief, Saint Paul, MN), for appellant.

Timothy Joseph Pramas, argued, Minneapolis, MN (Nauni Manty, on the brief), for appellee.

Before LOKEN, MELLOY, and COLLOTON, Circuit Judges.

COLLOTON, Circuit Judge.

Naomi Isaacson was sanctioned by the United States Bankruptcy Court for the District of Minnesota for making factually unsupported and harassing statements in documents filed with the court. Isaacson appeals, arguing principally that the bankruptcy judge's failure to recuse herself from the sanctions proceedings violated Isaacson's rights under the Due Process Clause of the Fifth Amendment. We affirm.

I.

Isaacson is the president of Yehud–Monosson USA, Inc., a New York corporation that filed a petition for relief under Chapter 11 of the Bankruptcy Code in the Southern District of New York. The bankruptcy case was transferred to the District of Minnesota and converted to a Chapter 7 proceeding.

A discovery dispute arose between the Chapter 7 trustee, Nauni Manty, and Isaacson. Manty asserted that Isaacson had not turned over certain documents and filed a motion for turnover. The court granted Manty's motion and entered a turnover order stating that if Isaacson failed to turn over certain materials and Manty filed an affidavit identifying those materials, then the court would “issue the appropriate sanctions against Naomi Isaacson for her failure to comply with this court's order, which may include monetary sanctions and/or a finding of contempt punishable by arrest and incarceration.” Manty then filed an affidavit of noncompliance. The bankruptcy judge who had issued the turnover order recused himself, and the case was reassigned to a new judge.

Manty filed a motion for contempt, and the hearing on that motion was continued and rescheduled for December 6. On November 17, 2011, the new bankruptcy judge ¹ issued an order requiring Isaacson to appear at the December 6 hearing, because contempt was sought against her personally rather than against the debtor. On November 25, Isaacson moved to vacate the order and filed a memorandum in support of her motion. In that memorandum, Isaacson leveled accusations of bigotry, prejudice, and conspiracy against both bankruptcy judges, trustee Manty, the United States trustee, and the entire judicial system. Among other things, Isaacson referred to the new bankruptcy judge as a “black-robed bigot” and “Catholic Knight Witch Hunter,” described Manty's “track record of lies, deceit, treachery, and connivery,” called the United States trustee a “priest's boy,” accused the judge and trustees of ex parte communications, and declared that “[a]cross the country the court systems and particularly the Bankruptcy Court in Minnesota, are composed of a bunch of ignoramus, bigoted Catholic beasts that carry the sword of the church.”

At a November 29 hearing on the motion to vacate, Isaacson's attorney acknowledged that Isaacson had written the memorandum. The court denied the motion to vacate. Isaacson did not appear as ordered at the December 6 contempt hearing, and the court issued an order finding Isaacson in civil contempt for her failure to comply with the turnover order and for her failure to appear. The order provided that Isaacson could purge herself of the contempt for failure to comply by turning over certain documents to Manty, and of the contempt for failure to appear by appearing at a hearing on January 4, 2012.

The bankruptcy court also sua sponte issued an order to show cause related to Isaacson's November 25 memorandum. The court identified ten “unsupported” and “outrageous” statements, and ordered Isaacson and her attorney to appear at the January 4 hearing to show cause why sanctions should not be imposed against each of them pursuant to Federal Rule of Bankruptcy Procedure 9011, which closely tracks Federal Rule of Civil Procedure 11. See Snyder v. Dewoskin ( In re Mahendra ), 131 F.3d 750, 759 (8th Cir.1997). The order stated that sanctions may include monetary fines of $1,000 for each factually unsupported statement.

Isaacson's written response to the order to show cause defended the veracity of all statements in her November 25 memorandum and made similar statements anew. Among other statements, Isaacson explained that her description of the bankruptcy judge as a “Catholic judge” did not refer to the Roman Catholic Church, but rather to “a mentality and an adherence to a universal creed of White Supremacy.” Isaacson then failed to appear at the January 4 hearing. The bankruptcy judge ruled that Isaacson had violated Federal Rule of Bankruptcy Procedure 9011(b)(1) and (3), and imposed a $500 sanction per “outrageous” statement in the November 25 memorandum, for a total penalty of $5,000 payable to the clerk of the court.

The district court,² applying Rule 9011, affirmed the sanctions, and Isaacson appeals. She argues that the $5,000 penalty payable to the court constitutes a criminal penalty, and that criminal sanctions proceedings require heightened procedural protections not employed in this case—specifically, recusal of the bankruptcy judge who imposed the sanctions. She also argues that the bankruptcy court abused its discretion in determining the amount of the monetary sanctions.

II.

A.

Before reaching the merits, we must first consider our jurisdiction over this appeal. The Supreme Court held in Cunningham v. Hamilton County, Ohio, 527 U.S. 198, 119 S.Ct. 1915, 144 L.Ed.2d 184 (1999), that an order of sanctions against counsel pursuant to Federal Rule of Civil Procedure 37(a)(4) is not “final” within the meaning of 28 U.S.C. § 1291, and thus cannot be appealed immediately. Id. at 205–10, 119 S.Ct. 1915. Other circuits have applied Cunningham's rationale to conclude that orders issued under Federal Rule of Bankruptcy Procedure 9011, Klestadt & Winters, LLP v. Cangelosi, 672 F.3d 809, 816–19 (9th Cir.2012), and pursuant to the sanctioning court's inherent authority to impose civil contempt sanctions, Comuso v. Nat'l R.R. Passenger Corp., 267 F.3d 331, 335–39 (3d Cir.2001), are not final, appealable orders under § 1291.

Our jurisdiction over bankruptcy appeals, however, is governed by 28 U.S.C. § 158(d)(1), which establishes a “more flexible” standard of finality than does § 1291. Contractors, Laborers, Teamsters and Eng'rs Health & Welfare Plan v. Killips ( In re M & S Grading, Inc.), 526 F.3d 363, 368 (8th Cir.2008). Under this standard, finality depends on the extent to which (1) the order being appealed “leaves the bankruptcy court nothing to do but execute the order,” (2) delay in appellate review would prevent “effective relief,” and (3) a later reversal “would require recommencement of the entire proceeding.” Id. (internal quotation omitted).

The bankruptcy court invoked Federal Rule of Bankruptcy Procedure 9011 in sanctioning Isaacson. If the $5,000 penalty is a civil sanction pursuant to Rule 9011, then the second and third prongs of the § 158(d) analysis suggest that we lack jurisdiction: delay would not prevent Isaacson from receiving effective relief from monetary sanctions, and reversal of the sanctions order would not require reopening of the bankruptcy proceeding. See Winslow v. Hunter ( In re Winslow ), No. 91–1239, 1992 WL 19837, at *2 (10th Cir. Feb. 5, 1992); Oxley v. Watson ( Matter of Watson ), 884 F.2d 879, 880–81 (5th Cir.1989); cf. Klestadt & Winters, 672 F.3d at 816 n. 7;In re Rimsat, Ltd., 212 F.3d 1039, 1044 (7th Cir.2000). But Isaacson contends that the sanctions issued against her are criminal in nature, because the monetary penalty was punitive and not intended to compensate the court. If the sanctions order is criminal rather than civil, then it is a final, appealable order. Union Tool Co. v. Wilson, 259 U.S. 107, 111, 42 S.Ct. 427, 66 L.Ed. 848 (1922).

As presented by the parties, therefore, the jurisdictional inquiry seems to turn on whether a non-compensatory monetary sanction made payable to the court and issued under Rule 9011 is a “criminal” sanction that is immediately appealable. The leading authorities suggest that the answer may be “no,” because Rule 9011 and Rule 11 contemplate the imposition of civil sanctions that are non-compensatory. SeeFed.R.Civ.P. 11 advisory committee's note on 1993 amendments (noting that “[s]ince the purpose of Rule 11 sanctions is to deter rather than to compensate, the rule provides that, if a monetary sanction is imposed, it should ordinarily be paid into court as a penalty”); Miller v. Cardinale ( In re DeVille ), 361 F.3d 539, 552 (9th Cir.2004) (“The 1993 notes provide controlling insight into current Rule 11 and current Rule 9011, foreclosing the contention that the drafters of either rule were contemplating a criminal process.”); Donaldson v. Clark, 819 F.2d 1551, 1558–59 (11th Cir.1987) (“A violation of Rule 11 is fundamentally different from an infraction of criminal contempt and therefore warrants different sanction proceedings.”).

On close review, however, we conclude that Rule 9011 did not authorize the sanctions imposed in this case. Rule 9011 authorizes a court to impose “an appropriate sanction upon the attorneys, law firms, or parties ” who violate the rule's requirements governing representations to the court. Fed. R. Bankr.P. 9011(c) (emphasis added). Isaacson was not an attorney, a law firm, or a party: she was an officer of a corporate party. The plain language of the rule thus excludes authority to sanction Isaacson. Where the rulemakers have authorized courts to sanction not only attorneys, law firms, and parties but also the individual officers of parties, they have done so expressly. SeeFed.R.Civ.P. 37(b)(2) (authorizing sanctions against “a...