Utah Power Sys., LLC v. Lang (In re Lang)

• Citation: 642 B.R. 76
• Decision Date: 05 August 2022
• Docket Number: Case No: 2:21-cv-391-JES, Case No: 2:20-bk-08895-FMD
• Parties: IN RE: Thomas John LANG Utah Power Systems, LLC, Creditor, Appellant, v. Thomas John Lang, Debtor, Jonathan Tolentino, and Jonathan Tolentino, P.A., Appellees.
• Court: U.S. District Court — Middle District of Florida

642 B.R. 76

IN RE: Thomas John LANGUtah Power Systems, LLC, Creditor, Appellant,

v.Thomas John Lang, Debtor, Jonathan Tolentino, and Jonathan Tolentino, P.A., Appellees.

Case No: 2:21-cv-391-JES

Case No: 2:20-bk-08895-FMD

United States District Court, M.D. Florida, Fort Myers Division.

Signed August 5, 2022

Jason Goldstein, Joshua Saval, Goldstein & Company, Coral Gables, FL, for Appellant.

Jonathan Tolentino, Jonathan Tolentino, PA, Naples, FL, Luis Ernesto Rivera, II, GrayRobinson, P.A., Fort Myers, FL, for Appellee Thomas John Lang.

OPINION AND ORDER

JOHN E. STEELE, SENIOR UNITED STATES DISTRICT JUDGE

This matter comes before the Court on an appeal from the Bankruptcy's Court's Order Denying Creditor, Utah Power System, LLC's Motion for Disgorgement (Doc. #2-2)¹ and the Order Denying Motion for the Imposition of Sanctions (Doc. #2-3). Appellant filed an Initial Brief (Doc. #6), appellee filed an Answer Brief (Doc. #8), and appellant filed a Reply Brief (Doc. #9). Appellant argues that the Bankruptcy Court erred when it denied disgorgement and sanctions because it applied incorrect legal standards and/or improperly applied the facts and the law. Finding no error, the Court affirms.

I.

On October 19, 2018, attorney Jonathan Tolentino (Tolentino) and his law firm filed a Voluntary Petition under Chapter 13 of the Bankruptcy Code on behalf of Thomas John Lang (Lang or Debtor). At the time the Voluntary Petition was filed, Sweeney and Connolly Gulf Realty, L.C. (Sweeney & Connolly) had obtained a state court judgment in 2014 against Lang and Marco Island Electronics, LLC (MIE) in the amount of $629,381.38 for nonpayment of rent. Lang and MIE were also defendants in a civil suit pending in New York (the New York Case). Additionally, Lang and others were defendants in a civil suit filed by Utah Power Systems, LLC (Utah Power or appellant) in state court in Miami-Dade County, Florida (the Miami Case). Lang was also a defendant in a civil case in Texas. In his Chapter 13 schedule of creditors, Lang identified Sweeney & Connolly as a creditor, stating that the amount of the debt was unknown and was disputed, contingent and unliquidated. The schedule did not refer to the existence of a state judgment. Filing the Voluntary Petition triggered the automatic stay of further proceedings in the other court cases. See 11 U.S.C. § 362.

On January 11, 2019, Utah Power filed a motion for relief from the automatic stay in connection with the Miami Case. Lang filed a response in opposition, but the Bankruptcy Court granted relief and allowed the Miami Case to proceed. On June 21, 2019, the bankruptcy case was involuntarily dismissed because Lang failed to make two payments under his Chapter 13 Plan. Tolentino and his law firm charged and received $4,100 for their services in the case.

Both the Miami Case and the New York Case continued after the dismissal of the bankruptcy case. In the Miami Case, Utah Power filed a motion in October 2020 to amend its complaint, scheduling a hearing for December 7, 2020. Plaintiff in the New York case had filed a motion for summary judgment in November 2020.

Instead of responding to either motion, on December 4, 2020, Lang filed another Chapter 13 Voluntary Petition, again represented by attorney Tolentino and his law firm. Once again, filing the Voluntary Petition resulted in an automatic stay of the other court proceedings. In his Chapter 13 schedule of creditors, Lang again identified Sweeney & Connolly as a creditor, stating that the amount of the debt was unknown and was disputed, contingent and unliquidated. No reference was made to the existence of the Judgment.

On December 29, 2020, Utah Power filed an Amended Motion for Relief From the Automatic Stay seeking to pursue the Miami Case and arguing that the second bankruptcy petition had been filed in bad faith. Through counsel, Lang filed a response opposing relief from the automatic stay. On February 2, 2021, the Bankruptcy Court granted Utah Power's Amended Motion, allowing that state court litigation to proceed.

On February 18, 2021, Utah Power filed objections to the confirmation of Lang's Chapter 13 plan. One of the objections asserted that Lang had "hidden" the 2014 Judgment in the Sweeney & Connolly case from the Bankruptcy Court and the creditors.

On February 19, 2021, Lang's counsel filed a motion to dismiss the second bankruptcy case because Lang "is unable and/or does not wish to proceed." (Doc. #2-9, p. 3.) On February 22, 2021, the Bankruptcy Court granted the motion, dismissed the bankruptcy case, and retained jurisdiction to examine the attorney fees paid. Tolentino and his law firm charged $4,500 for their services in the second bankruptcy case but had received only $2,500.

On March 8, 2021, Utah Power filed a Motion for Disgorgement seeking to have the Bankruptcy Court examine the fees paid to Lang's attorney and to disgorge any portion deemed excessive. Utah Power argued that the second bankruptcy case was a mere continuation of the first, and therefore counsel was not permitted any fees for the second case. On the same date, Utah Power also filed a Motion for the Imposition of Sanctions requesting that the Bankruptcy Court find that both bankruptcy cases were filed in bad faith by Debtor and his counsel. Utah Power argued that both bankruptcy petitions were filed to delay the state court cases and with knowledge that Lang could never be a proper Chapter 13 debtor because the amount of the Judgment exceeded that allowed by 11 U.S.C. § 109(e). Pursuant to 11 U.S.C. § 105(a) and Bankruptcy Rule 9011, Utah Power requested monetary fines and an injunction prohibiting Lang from filing in bankruptcy for two years.

At a hearing on April 27, 2021, the Bankruptcy Court rejected Lang's argument that it had no jurisdiction to consider the two motions after the voluntary dismissal of the bankruptcy case. "The Court first notes that despite the dismissal of Debtor's Chapter 13 case the Court has jurisdiction to consider the sanctions motion." (Doc. #4, p. 10, citing two Bankruptcy Court decisions.) On the merits of the disgorgement issue, the Bankruptcy Court stated:

I'm going to go ahead and deny the motion for disgorgement. The fees that Mr. Tolentino charged were allowed by this Court as reasonably -– presumptively reasonable fees. He's followed the schedule that this Court has approved for some time. He didn't receive the entire fee he worked in connection with this case and I don't see a basis for disgorgement; and even if there were a basis for disgorgement the fees would be disgorged to the Debtor, would not be available for creditors generally and particularly not to a judgment creditor who -– excuse me -– a creditor, an unsecured creditor who doesn't yet have a judgment.

(Doc. #2-26, pp. 21-22.)

At a hearing on May 13, 2021, the Bankruptcy Court summarized the competing positions concerning sanctions:

In its motion for sanctions Utah Power request an award of monetary sanctions against Debtor and Debtor's attorney based upon their bad faith in filing the first case and the second case and also request an order barring the Debtor from filing any further bankruptcy cases for two years.

The motion is filed under Federal Bankruptcy Rule of Procedure 9011 and 11 U.S.C. Section 105(a). Rule 9011(c) authorizes sanctions for filing papers that are frivolous, legally unreasonable, or without factual foundation or for filing papers in bad faith or for an improper purpose. That's In re: Mroz, M-R-O-Z, 65 F.3d 1567 at 1572 and an Eleventh Circuit case from 1995. Section 105(a) authorizes the court to enter any order that is necessary or appropriate to carry out the provisions of the bankruptcy code.

Generally, Utah Power asserts that the Debtor filed the bankruptcy cases solely to delay the state court lawsuits against him and that Debtor wrongfully opposed Utah Power's motion for relief from stay in the second case. That's Docket Number 46, Pages 14 to 15.

In response, Debtor contends that he has unsecured debts totaling about $99,000, he says excluding amounts asserted as unknown, and that the bankruptcy cases were filed for the proper purpose of reorganizing those debts. Debtor also contends that he properly opposed Utah Power's motion to lift the stay because this Court, the Bankruptcy Court is better equipped to administer the unliquidated claims. Debtor's response was Docket Number 50. That was at Pages 8 and 9.

In addition, Debtor contended that Utah Power failed to comply with the ‘safe harbor’ provisions of Rule 9011(c)(1)(A).

(Doc. #4, pp. 8-10.) The Bankruptcy Court concluded:

In the Eleventh Circuit the analysis of whether a bankruptcy case is filed in good faith includes consideration of the facts and circumstances of the specific case including factors such as the debtor's motive in filing the petition and whether the debtor misrepresented facts in his bankruptcy papers. That's my decision in In re: Howe, H-O-W-E, 2020 Westlaw 5745651. That decision was January 21st, 2020.

Under this analysis, as the Court stated in Howe, the basic inquiry is whether there has been an abuse of the provisions, purpose, or spirit of the bankruptcy code. On the merits of the motion for sanctions the Court finds that filing the bankruptcy petition to stay litigation pending in another forum without more is not sufficient to demonstrate bad faith. On the contrary, a debtor's purpose to stay nonbankruptcy litigation only establishes bad faith if the debtor cannot demonstrate that he also has an intent and ability to reorganize his financial affairs. That's In re: Zaber, Z-A-B-E-R, 520 B.R. 159 at 166 [(Bankr. M.D. Pa. 2014)], decision from the Bankruptcy Court for the Middle District of Pennsylvania in 2014.

As this Court held in Howe, dismissal of a case for bad faith should be reserved for egregious situations such as those involving the concealment or misrepresentation of assets or conduct amounting to fraud or gross negligence. The Zaber case at 520 B.R. at

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