Nett v. Manty (In re Yehud–Monosson USA, Inc.), Bankruptcy No. 11–42834.

• Decision Date: 11 May 2012
• Docket Number: Bankruptcy No. 11–42834.,Civil No. 12–448 (JNE).
• Citation: 472 B.R. 795
• Parties: In re YEHUD–MONOSSON USA, INC., Debtor. Rebekah Nett, Appellant, v. Nauni Jo Manty, Appellee.
• Court: U.S. District Court — District of Minnesota

472 B.R. 795

In re YEHUD–MONOSSON USA, INC., Debtor.Rebekah Nett, Appellant,

v.Nauni Jo Manty, Appellee.

Bankruptcy No. 11–42834.

Civil No. 12–448 (JNE).

United States District Court, D. Minnesota.

May 11, 2012.

Rebekah M. Nett, Hastings, MN, pro se.

Timothy J. Pramas, Manty & Associates, PA, Minneapolis, MN, for Appellee.

ORDER

JOAN N. ERICKSEN, District Judge.

This matter is before the Court on attorney Rebekah Nett's appeal from the United States Bankruptcy Court for the District of Minnesota's January 4, 2012 Order for Sanctions. For the reasons set forth below, the Court affirms the decision of the bankruptcy court.

I. BACKGROUND

On March 23, 2011, an entity called Yehud–Monosson USA, Inc. (“Yehud”) filed a Chapter 11 bankruptcy petition in the Southern District of New York. The case was transferred to the bankruptcy court for the District of Minnesota and was subsequently converted to Chapter 7. Issues arose during the bankruptcy proceedings related to the turnover of various documents—the Chapter 7 Trustee, Nauni Jo Manty, asserted that certain documents were not turned over; the debtor's representative and president, Naomi Isaacson, contended that she had turned over all documents in her possession. The trustee filed a motion for turnover with the bankruptcy court on September 14, 2011. United States Bankruptcy Judge Dennis D. O'Brien held a hearing on October 6, 2011 and entered an order granting the motion for turnover on October 7, 2011 (“Turnover Order”). The Turnover Order stated that if Isaacson failed to turn over the books, records, documents and information described in the Order, and the trustee submitted an affidavit identifying the missing material, 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.”

The trustee believed that Isaacson failed to comply with the Turnover Order and filed an affidavit of non-compliance on October 17, 2011. Judge O'Brien recused himself on October 19, and United States Bankruptcy Judge Nancy C. Dreher took over the case. The trustee filed a motion for contempt on November 2, 2011. The hearing on the contempt motion was scheduled for 1:00 p.m. on November 17, 2011—but there was an error in the notice provided to Isaacson, which noticed the hearing at 1:30 p.m. instead of 1:00 p.m. Rebekah Nett, the attorney representing the debtor, appeared at 1:20 p.m. and learned of the mistake. During the hearing, it was also revealed that Isaacson may not have been properly served with the Turnover Order. The court continued the hearing and rescheduled it for December 6, 2011. On November 18, 2011, the bankruptcy court issued an order that continued the hearing on the trustee's contempt motion. The November 18 Order stated that “[a]t the continued hearing, the trustee will be permitted to make a record—one that meets the test for a finding of contempt—that Naomi Isaacson ... received notice of, or otherwise had knowledge of the court's [Turnover Order].”

Isaacson and Nett erroneously believed that the November 18 Order already found that Isaacson was in contempt for violating the Turnover Order and that she no longer had an opportunity to present her arguments to the court. In response, on November 25 Isaacson filed a motion to vacate the November 18 Order. She submitted a memorandum in support of her motion to vacate, signed by Nett and verified by Isaacson. The “factual background” section of the memorandum contained numerous allegations of bigotry, deceit, and conspiracy against Judge Dreher, Judge O'Brien, the Chapter 7 Trustee, the United States Trustee, and bankruptcy courts in general.¹ A hearing was held on the motion to vacate on November 29 and the bankruptcy court denied the motion. At that hearing, Nett admitted that Isaacson had written the inflammatory statements and that she had merely signed off on the memorandum. Nett also acknowledged that she had an obligation to make a reasonable inquiry into the law and facts before signing papers submitted to the court.

On December 7, the Court, sua sponte, issued two Orders to Show Cause related to the November 25 submissions—one directed at Rebekah Nett, and the other at Naomi Isaacson. The Orders stated that “[t]o be clear, the court's November 17, 2011 order made absolutely no ruling on the merits of the trustee's motion for contempt” ² and that the “factual background” section of the memorandum in support of the motion to vacate the November 18 Order “was replete with unsupported and outrageous allegations of bigotry, deceit, [and] conspiracy.” It identified ten separate statements contained within the memorandum and ordered Nett and Isaacson to appear at the January 4 hearing to show cause as to why sanctions should not be imposed against them pursuant to Rule 9011 of the Federal Rules of Bankruptcy Procedure. ³ The Order to Show Cause stated that possible sanctions may include, among other things, a monetary sanction of $1,000 per factually unsupported statement, payable within ten days of any sanction order.⁴

In response to the Order to Show Cause, Nett submitted a written response, in which she explained that her client and its principals “absolutely know that all decisions against them in every situation are due to organized discrimination and prejudice” and that they “believe that all the statements made in the November 25, 2011 motion were in fact supported by fact.” As a means of clarifying the offensive statements contained within the November 25 submissions, Nett referred the bankruptcy court to a section in her response memorandum entitled “Historical Facts Supporting Controversial Statements,” a twenty-six page dissertation chronicling what Nett called the “infiltration of our justice system” by “the Roman cult and their military arm-the Jesuit Order.” Beginning with the sixteenth century, the memorandum reviewed the Jesuits' alleged involvement with, among other things, the African slave trade, the French Revolution, the Congress of Vienna, the American Civil War, Nazi Germany and the Holocaust, the Vietnam War, the assignation of President John F. Kennedy, terrorism in the United States, and the sinking of the Titanic. From this purported historical background, Nett argued that the statements in the November 25 submissions “are unfortunately statements founded in truth” and that the bankruptcy court and trustee “are working for this infiltrated system to bring about the Debtor's harm rather than justice.” Nett therefore contended that each of the ten identified statements was factually supported. She also argued that because of the uniqueness of her client's case, there was little likelihood of repetition of the conduct in the future, and so a monetary sanction amounting to $10,000 was excessive and unnecessary. Finally, without providing facts or evidence relating to her ability to pay the sanction, she requested that the bankruptcy court inquire as to her ability to pay and make provisions to pay the sanction over an extended period of time.

At the hearing on January 4, Nett acknowledged that her response memorandum did not effectively deal with the derogatory name-calling, but argued that she had been trying to provide some historical context as to her client's position and beliefs. She also asserted that “this is a one-of-a-kind case” and that such conduct was not likely to recur, so the court should limit the sanctions to what is sufficient to prevent further conduct. With respect to the specific monetary amount, Nett argued that she would be unable to pay the amount within ten days, and requested a longer period of time.

The bankruptcy judge found that Nett had not made a reasonable investigation into the facts before making the offensive statements identified in the Order to Show Cause. The judge referred to the November 29 hearing, in which Nett admitted that she had not made a reasonable inquiry, but rather allowed Isaacson to write the inflammatory document and then simply signed off on it. The bankruptcy judge explained that the statements were not merely “statements of thought, philosophy, or religious view,” but were unsubstantiated, uninvestigated, and unfounded “statements of fact” about the bankruptcy court, the United States courts in general, and the practice of ex parte communications. For that reason, the bankruptcy judge held that Nett violated Federal Rule of Bankruptcy Procedure 9011(b)(1) and (3). The judge, however, reduced the sanction from $1,000 per statement to $500 per statement, based upon Nett's discussion of her ability to pay—amounting to a total monetary sanction of $5,000. The judge also made the penalty payable within ninety days, rather than ten days. Nett was enjoined from filing future documents referring to the religious beliefs of the court or other parties to the litigation. The bankruptcy court ordered Nett to attend ten hours of legal ethics training within twelve months, and referred Nett to the United States District Court for possible removal. Nett now appeals from this Order for Sanctions.⁵

II. DISCUSSION

The Court has authority to hear appeals from final orders of the bankruptcy court. 28 U.S.C. § 158(a)(1) (2006). The Court also has discretion to hear appeals from interlocutory bankruptcy court orders. Id. § 158(a)(3); In re M & S Grading, Inc., 526 F.3d 363, 368 (8th Cir.2008). “To determine the finality of a bankruptcy court order we consider ‘the extent to which (1) the order leaves the bankruptcy court nothing to do but execute the order; (2) the extent to which delay in obtaining review would prevent the aggrieved party from obtaining effective relief; (3) the extent to which a later reversal on [the contested] issue would require recommencement of the entire proceeding.’ ” In re M & S Grading, 526 F.3d at 368 (citation omitted). “Although this...