Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_08-cv-02182/USCOURTS-caed-2_08-cv-02182-1/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 28:1334 Bankruptcy Appeal

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IN THE UNITED STATES DISTRICT COURT 

FOR THE EASTERN DISTRICT OF CALIFORNIA 

In re: LAWRENCE PAUL FEDERICO, 

fdba Fargo Construction, fdba 

Construction Offices, fdba 

Specialty Equipment, fdba D&L 

Fargo, 

Debtor, 

______________________________ 

 

BRIAN FEDERICO, WILLIAM 

FEDERICO, DOUGLAS BROWN, AND 

TERRI BROWN, 

Appellants, 

v. 

MICHAEL D. MCGRANAHAN, Chapter 7 

Trustee, 

Appellee. 

________________________________

Case No. 2:08-cv-2182-JAM 

Bankruptcy No. 07-21245-B-7 

ORDER DENYING APPELLEE’S MOTION 

FOR ATTORNEY’S FEES AND DOUBLE 

COSTS 

This matter comes before the Court on Appellee Michael D. 

McGranahan’s (“Appellee’s) Motion for Attorney’s Fees and Double 

Costs. Appellants Brian Federico, William Federico, and Douglas 

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and Terri Brown (collectively “Appellants”) oppose the motion. 

For the reasons set forth below, Appellee’s motion is DENIED.1 

FACTUAL AND PROCEDURAL BACKGROUND 

Appellee, as Chapter 7 trustee of Lawrence Paul Federico’s 

(“Debtor’s”) bankruptcy estate, filed a motion in the Bankruptcy 

Court to sell certain property that was housed in a storage yard 

leased to Debtor (the “Property”) free and clear of liens on 

October 1, 2007. On October 16, 2007, Brian Federico filed a 

written opposition, arguing that the Bankruptcy Court needed to 

have an adversary proceeding to first determine whether the 

Property belonged to the bankruptcy estate. In a supporting 

declaration, Brian Federico claimed to be the owner of most of 

the personal property which was the subject of the Motion. He 

stated that Debtor owed him money and gave him most of the 

Property to satisfy the debt. He asserted that the Debtor did 

not have any ownership interest in the Property, and that he had 

certificates of ownership for most of the vehicles at issue. A 

hearing was set for October 30, 2007. The hearing was continued 

until November 14, 2007, and the parties were given until 

November 7, 2007 to submit supplemental evidence. Brian Federico 

did not submit supplemental evidence. Appellee submitted 

1

 This motion was determined to be suitable for decision without 

oral argument. E.D. Cal. L.R. 230(g).

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supplemental evidence, including 106 pages of vehicle 

registration inquiry reports. 

At the November 14, 2007 hearing, the Bankruptcy Court 

granted Appellee’s motion to sell the Property, with the 

exception of three vehicles that Appellee determined were not 

part of the Debtor’s bankruptcy estate. Furthermore, Appellee 

noted that the Debtor did not disclose that he was holding any 

property for others in his bankruptcy schedule. Appellee was 

permitted to sell the Property free and clear of the interest of 

Brian Federico. However, the Bankruptcy Court also decided that 

Brian Federico’s interest, if any, would attach to the proceeds 

of the sale and be determined at a later date. 

The order approving the sale was entered on November 26, 

2007. The order was not appealed and became final on December 6, 

2007. A sale of some or all of the Property occurred on or 

around January 19, 2008. On June 30, 2008, Appellants filed a 

motion in the Bankruptcy Court to set aside the sale order as 

void for due process violations, pursuant to Federal Rule of 

Civil Procedure 60(b)(4). The Bankruptcy Court denied the 

motion. On September 15, 2008, Appellants appealed the decision 

to this Court pursuant to 28 U.S.C. § 158(a). Appellee opposed 

the appeal and asked the Court to find the appeal frivolous and 

award fees and costs. On September 8, 2009 this Court affirmed 

the decision of the Bankruptcy Court, and stated that any 

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request for attorney’s fees should be filed as a separate 

motion. Appellee now moves for attorney’s fees and double costs 

on the grounds that the appeal to this Court was frivolous. 

 

I. OPINION 

A. Legal Standard

Pursuant to Federal Rule of Bankruptcy Procedure 8014 and 

Federal Rule of Appellate Procedure 39, when the order of the 

Bankruptcy Court is affirmed on appeal, costs of the appeal are 

to be taxed against appellants as the losing party. 

Additionally, “If a district court or bankruptcy appellate panel 

determines that an appeal from an order, judgment or decree of a 

bankruptcy court is frivolous, it may, after a separately filed 

motion or notice from the district court or bankruptcy appellate 

panel and reasonable opportunity to respond, award just damages 

and single or double costs to the appellee.” Fed. R. Bankr. P. 

8020. 

Fed. R. Bankr. P. 8020 mirrors the language of Fed. R. App. 

P. 38, and exists to clarify that district courts and bankruptcy 

appellate panels have the authority to award damages or double 

costs for frivolous appeals. Marino v. Classic Auto Refinishing, 

Inc., 234 B.R. 767, 770 (9th Cir. BAP 1999). Rule 8020 does not 

require a showing of bad faith. In re Taylor, 390 B.R. 654, 662 

(9th Cir. BAP 2008). 

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In the Ninth Circuit, an appeal is frivolous if it is one 

in which, “the results are obvious, or the arguments of error 

are wholly without merit.” George v. City of Morro Bay, 322 F.3d 

586, 588 (9th Cir. 2003). This is because “the decision to 

appeal should be a considered one, not a knee-jerk reaction to 

every unfavorable ruling.” Id. An appeal that raises meritless 

arguments that have been repeatedly rejected may be 

characterized as frivolous. Nunley v. Commissioner, 758 F.2d 

372, 373 (9th Cir. 1985). Furthermore, when a frivolous appeal 

is filed, the court has the power to impose sanctions on the 

appellant and his or her counsel jointly, since attorney and 

client are in the best position between them to determine who 

caused the appeal to be taken. George, 322 F.3d at 588. 

B. Merits of the Appeal 

Appellants appealed the Bankruptcy Court’s order on the 

grounds that their due process rights were violated by the 

trustee’s failure to file an adversary proceeding prior to 

selling the Property free and clear of liens. Appellants relied 

on Fed. R. Bankr. P. 7001, which states that an adversary 

proceeding is required to “determine the validity, priority, or 

extent of a lien or other interest in property, other than a 

proceeding under Rule 4003(d). . .” 

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Appellants argued that their interest in the Property was 

not in bona fide dispute, which would allow the trustee to sell 

the Property and divide the proceeds amongst the claimants 

later. Thus, selling the Property without an adversary 

proceeding violated their due process rights and rendered the 

sale void. However, this Court rejected that argument, instead 

upholding the judgment of the Bankruptcy Court that the Debtor 

shared an interest in the Property with his creditors, including 

Appellants. This Court found no violation of Appellants’ due 

process rights. 

Appellee argues that the appeal had no merit, and that 

Appellants’ adversarial process argument had already been 

rejected twice by the Bankruptcy Court. Appellee further argues 

that Appellants were remiss in failing to submit supplemental 

evidence of ownership and failing to appeal the Sale Order 

before it became final. 

While it is true that Appellants did not avail themselves 

of the opportunity to appeal the Sale Order, and this Court 

denied the later appeal to set aside the Sale Order, the Court 

does not find that the appeal rose to the level of being 

frivolous. The Court noted in its Order Affirming Decision of 

the Bankruptcy Court that Appellants mistakenly relied Fed. R. 

Bankr. P. 7001 to advance the argument that an adversary 

proceeding was required. However, the Court does not find that 

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this mistake rose to the level of advancing a meritless 

argument, because the appeal is distinguishable from other cases 

in which courts have made a finding of frivolousness. 

In Nunley, 758 F.2d at 373, the Ninth Circuit held that the 

appeal was frivolous because every argument raised by Nunley had 

already been rejected by the Supreme Court and the Ninth Circuit 

in other cases. Here, in contrast, Appellants did not make 

arguments that had been widely argued and rejected before. 

Likewise, this case is distinguishable from Taylor v. Sentry 

Life Ins. Co., 729 F.2d 652, 656 (9th Cir. 1984), in which the 

appellate court found an appeal frivolous where there was both 

statutory and case law directly on point which rejected Taylor’s 

arguments. 

Accordingly, as this Court does not find the appeal was 

frivolous, the motion for attorney’s fees and double costs is 

DENIED. However, because the Court affirmed the decision of the 

Bankruptcy Court and Appellants were the losing party in the 

appeal, costs of the appeal are appropriately taxed against 

Appellants. 

// 

// 

// 

// 

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III. ORDER 

 For the reasons set forth above, Appellee’s motion for 

attorney’s fees and double costs is hereby DENIED. 

IT IS SO ORDERED. 

Dated: February 12, 2010 

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