Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-95-04017/USCOURTS-ca10-95-04017-0/pdf.json

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

---

.., 

PUBLISH 

UNITED STATES COURT OF APPEALS FILED 

United States Court of Appeals 

Tenth Circuit 

TENTH CIRCUIT 

In re: REX MONTIS SILVER COMPANY, 

Debtor, 

) 

) 

) ______________________________) 

DR. HAROLD MASUNAGA; YUKIO 

AYABE; THE ESTATE OF MARIAN 

HARADA; RESOURCE CONCEPTS, 

INC.; TELEGRAPH GOLD 

CORPORATION, in its own capacity 

and as the Assignee of Claims of 

Dr. George Pingree; INTERPHASE 

CORPORATION; CASCADE ENERGY & 

METALS CORPORATION; SCOTT 

BROADHEAD; DELANO S. FINDLAY, 

and 

RICHARD N. BIGELOW, 

Appellant, 

v. 

HERBERT W. STOLTENBERG, H. E. 

MOSES, EDWIN STOLTENBERG, 

CHRIS WAUGH, SAM HARMATZ, 

BERNARD HODOWSKI, PATRICIA 

STOLTENBERG, DELFORD R. ASHLEY, 

SAM HAMBARIAN, ALYCE 

HAMBARIAN, LIONEL ASCHER, A.C. 

NEJEDLY, GRACE V. DUNCAN, ELLIOT 

WEINBERG, ROSALIE DONAHEY, 

Appellees. 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) ______________________________ ) 

JUN 2 7 1996 

PATRICK FISHER 

Clerk 

No. 95-4017 

Appellate Case: 95-4017 Document: 01019279500 Date Filed: 06/27/1996 Page: 1 
Appeal from the United States District Court 

for the District of Utah 

(D.C. No. 94C-767J) 

Delano S. Findlay, Salt Lake City, Utah, for Appellant. 

Gerald H. Suniville (Eric C. Olson with him on the brief) of VanCott, Bagley, Cornwall & 

McCarthy, Salt Lake City, Utah, for Appellees. 

Before SEYMOUR, Chief Judge, and BARRETT and LIVEL Y1

, Circuit Judges. 

LIVELY, Circuit Judge. 

An attorney appeals from the district court's affirmance of the bankruptcy court's 

imposition of sanctions on the appellant for violation of Bankruptcy Rule 9011. The 

bankruptcy court found that attorney Bigelow violated Rule 9011 by proposing a nominee for 

permanent trustee in a Chapter 7 bankruptcy proceeding and voting on behalf of his clients for 

that person. The court found that Bigelow knew or reasonably should have known that his 

clients were not eligible to participate in the selection of the trustee because they did not meet 

the statutory requirements for voting. 

I. 

This case arose out of a long-running and bitterly-contested dispute involving W. David 

1 The Honorable Pierce Lively, United States Circuit Judge for the Sixth Circuit, sitting by designation. 

2 

Appellate Case: 95-4017 Document: 01019279500 Date Filed: 06/27/1996 Page: 2 
Weston (and affiliated entities) and investors in a gold mine promoted by Weston. See 

Cascade Energy and Metals Corp. v. Banks, 896 F.2d 1557 (lOth Cir.), cert. denied, sub 

nom. Weston v. Banks, 498 U.S. 849 (1990). The present bankruptcy proceedings involve a 

Weston entity, Rex Montis Silver Company. Representing a group called "surety creditors" in 

the Rex Montis proceedings, attorney Bigelow signed and filed a request at the first meeting of 

creditors for election of Kevin R. Huntington as permanent trustee. (Bigelow first appeared in 

the proceedings on behalf of Rex Montis and when the bankruptcy court disqualified him as 

attorney for the bankrupt debtor on grounds of a conflict of interest, he then appeared as 

attorney for the surety creditors). Also, on the day of the first meeting of creditors, attorney 

Bigelow signed and filed a statement to accompany the proofs of claim of the "surety 

creditors. " 

The bankruptcy court found that attorney Bigelow violated Rule 9011 by filing these 

proofs of claim with the accompanying statement and filing pleadings in connection with the 

election process. The court further found that these activities "were for improper purposes 

such as recited in the rule to harass, cause unnecessary delay, or needless increase of costs of 

litigation and administration of the case." /d. The court imposed a sanction of $10,000 on 

attorney Bigelow in favor of the objecting creditors. 

On appeal the district court held in an order entered on March 9, 1994 that the 

bankruptcy court did not abuse its discretion in imposing sanctions. More specifically, the 

district court found that the bankruptcy court had not "based its ruling on an erroneous view of 

the law or on a clearly erroneous assessment of the evidence." Aplee. Supp. App. at 436 

3 

Appellate Case: 95-4017 Document: 01019279500 Date Filed: 06/27/1996 Page: 3 
(quoting Cooter & Gell v. Hartmax Corp., 496 U.S. 384, 405 (1990)). The district court 

found, however, that the bankruptcy court had failed to consider expressly the factors 

delineated in White v. General Motors Corp., Inc., 908 F.2d 675, 685 (lOth Cir. 1990), cert. 

denied, 498 U.S. 1069 (1991), in determining the amount of the sanctions. 

The White decision requires express consideration of a non-exclusive list of three 

factors when determining the amount of sanctions to be imposed for violation of FED. R. Crv. 

P. 11. Rulings under FED. R. Crv. P. 11 are authoritative in cases involving Bankruptcy Rule 

9011. On remand, the bankruptcy court considered "the White factors" and again imposed 

sanctions in the amount of $10,000. The district court affirmed in an order entered on 

December 30, 1994, and Bigelow now appeals. 

II. 

The appellees have raised a jurisdictional issue that we must resolve before reaching 

the merits of Bigelow's appeal. The appellees argue that Bigelow waived his right to appeal 

the imposition of sanctions by failing to appeal from the district court's March 9, 1994 

memorandum opinion and order affirming the bankruptcy court's imposition of sanctions. In 

support of this claim, the appellees point to Bigelow's notice of appeal, in which he only 

purports to appeal the district court's memorandum and order entered on December 30, 1994, 

and the fact that no notice of appeal was filed regarding the prior decision of the district court 

on the imposition of sanctions. 

This court has considered the question of finality of district court orders when acting as 

4 

Appellate Case: 95-4017 Document: 01019279500 Date Filed: 06/27/1996 Page: 4 
an appellate court in bankruptcy matters and adopted the traditional view of finality. In re 

Commercial Contractors, Inc., 771 F.2d 1373, 1375 (lOthCir. 1985). Under this view, "a 

decision of the district court on appeal from a bankruptcy judge's final order is not itself final 

if the decision remands the case to the bankruptcy judge for significant further proceedings 

.... " /d. (quoting In re Riggsby, 745 F.2d 1153, 1156 (7th Cir. 1984)). Although one 

holding of the court in Commercial Contractors was undercut by the Supreme Court in 

Connecticut Nat'l Bank v. Germain, 503 U.S. 249 (1992), this court has held that Commercial 

Contractors "continues to provide the test for the finality of district court decisions in 

bankruptcy proceedings." Temex Energy, Inc. v. Underwood, Wilson, Berry, Stein & 

Johnson, 968 F.2d 1003, 1005 (10th Cir. 1992). 

Thus, we must determine whether the district court's order of March 9 remanded to the 

bankruptcy judge for "significant further proceedings." As the court noted in In re Bucyrus 

Grain Co., Inc., 905 F.2d 1362 (lOth Cir. 1990), there is no single test for determining the 

nature of a remand. Nevertheless, the district court's order of remand is not final when it 

requires the bankruptcy court to perform "more than a mere 'ministerial' duty," or if it 

involves the "exercise of considerable judicial discretion." ld. at 1366 (citations omitted). On 

the other hand, if matters on remand are "'unlikely either to generate a new appeal or to affect 

the issue that the disappointed party wants to raise on appeal from the order of remand,' the 

district court's order is considered final." (citation omitted). 

More recently, in In re Wiston XXIV Limited Pannership, 988 F.2d 1012 (lOth Cir. 

1993), this court summarized its holdings on finality as follows: 

5 

Appellate Case: 95-4017 Document: 01019279500 Date Filed: 06/27/1996 Page: 5 
This court has held that a remand to the bankruptcy court for de novo 

hearings constitutes significant further proceedings, see Commercial 

Contractors, 771 F.2d at 1374-75, as does a remand for additional findings of 

fact concerning the dispositive issue in a case, see Coats State Bank v. Grey (In 

re Grey), 902 F.2d 1479, 1481 (lOth Cir.l990), and a remand for a 

determination of the amount of a claim, see State Bank of Spring Hill v. 

Anderson (In re Bucyrus Grain Co.), 905 F.2d 1362, 1366 (lOth Cir.l990). 

However, if the purpose of the remand is to effectuate a ministerial task, 

or conduct additional proceedings involving little judicial discretion, the district 

court's order will be considered final. State Bank of Spring Hill v. Anderson 

(In re Bucyrus Grain Co.), 905 F.2d 1362, 1366 (lOth Cir.l990). If the 

remanded matter is unlikely to spawn another appeal or affect the issue on 

appeal, a district court's remand order may be considered final. ld. 

ld. at 1013. 

Applying these criteria, we conclude that the district court's order of March 9 

remanding the case to the bankruptcy court for consideration of the White factors was not a 

final order that was immediately appealable to this court. The remand was likely to, and did 

lead to an evidentiary hearing before the bankruptcy court. As with all proceedings in this 

case, the hearing on remand was lengthy, with the transcript running to almost 200 pages. 

Furthermore, predictably, there was another appeal to the district court following the order on 

remand. 

This court has jurisdiction over the issue of the imposition of the sanctions as well as 

the amount. 

III. 

A. 

6 

Appellate Case: 95-4017 Document: 01019279500 Date Filed: 06/27/1996 Page: 6 
We now consider the merits of Bigelow's appeal. FED. R. BANKR. P. 9011, which is 

derived from FED. R. CIV. P. 11 , provides in pertinent part: 

The signature of an attorney or a party constitutes a certificate that the attorney 

or party has read the document; that to the best of the attorney's or party's 

knowledge, information, and belief formed after reasonable inquiry it is well 

grounded in fact and is warranted by existing law or a good faith argument for 

the extension, modification, or reversal of existing law; and that it is not 

interposed for any improper purpose, such as to harass or to cause unnecessary 

delay or needless increase in the cost of litigation or administration of the case. 

If a document is not signed, it shall be stricken unless it is signed promptly after 

the omission is called to the attention of the person whose signature is required. 

If a document is signed in violation of this rule, the court on motion or on its 

own initiative shall impose on the person who signed it, the represented party, 

or both, an appropriate sanction, which may include an order to pay to the other 

party or parties the amount of the reasonable expenses incurred because of the 

filing of the document, including a reasonable attorney's fee. 

The Supreme Court prescribed the standard to be applied by an appellate court in 

reviewing a lower court's imposition of Rule 11 sanctions in Cooter & Gel/ v. Hanmax Corp., 

496 U.S. 384 (1990). The appellate court must apply an abuse-of-discretion standard in 

reviewing "all aspects" of a Rule 11 determination. /d. at 405. The Court specifically 

rejected the view that a reviewing court follows a three-tiered approach, one standard (clearly 

erroneous) for factual questions, another standard (de novo) for the question of whether the 

facts constituted a Rule 11 violation, and a third standard (abuse of discretion) for the choice 

of sanction to be imposed. /d. This court anticipated the Supreme Court's ruling on the 

question. In Adamson v. Bowen, 855 F.2d 668, 673 (lOth Cir. 1988), we adopted an abuseof-discretion standard "across the board to all Rule 11 issues." 

B. 

7 

Appellate Case: 95-4017 Document: 01019279500 Date Filed: 06/27/1996 Page: 7 
Turning to the facts disclosed by the record, the surety creditors did have claims 

against Rex Montis. It is clear, however, that these claims did not entitle them to vote in the 

selection of a trustee. The surety creditors' claims did not satisfy the criteria of 11 U.S.C. 

§ 702(a), which states: 

A creditor may vote for a candidate for trustee only if such creditor--

(1) holds an allowable, undisputed, fixed, liquidated, unsecured 

claim of a kind entitled to distribution under section 726(a)(2), 

726(a)(3), 726(a)(4), 752(a), 766(h), or 766(i) of this title; 

(2) does not have an interest materially adverse, other than an equity 

interest that is not substantial in relation to such creditor's 

interest as a creditor, to the interest of creditors entitled to such 

distribution; and 

(3) is not an insider. 

As the district court found, "the 'Surety Creditors' at that time were clearly not 

unsecured creditors of Rex Montis." D.C. Opinion, March 9, 1994, at p. 13. Further, it is 

undisputed that at least one of the surety creditors represented by Bigelow was an insider as 

defined in 11 U.S.C. § 101(31)(B). 

The bankruptcy court also determined that Bigelow was "not fully acquainted with the 

facts of the bankruptcy case . . . and has relied on others without any independent 

investigation or research." Aplee. Supp. App. at 431. The court concluded, based on its 

factual findings, that Bigelow knew or should have known that the surety creditors did not 

8 

Appellate Case: 95-4017 Document: 01019279500 Date Filed: 06/27/1996 Page: 8 
hold the § 702(a) claims necessary to participate in the election of the trustee. In addition, the 

court found the filings were made for an improper purpose: "to thwart and delay the 

enforcement of ... the legitimate interests of creditors." Aplt. App. at 620. The record fully 

supports these conclusions. 

The bankruptcy court did not abuse its discretion in sanctioning attorney Bigelow for 

violating Rule 9011. 

c. 

The Tenth Circuit has prescribed three factors that a court must consider in 

determining the amount of Bankruptcy Rule 9011 sanctions: (1) the opposing party's 

reasonable expenses incurred as a result of the violation, including reasonable attorney fees; 

(2) the minimum amount necessary adequately to deter future misconduct; and (3) the 

offender's ability to pay. White v. General Motors Corp., Inc., 908 F.2d 675, 684-85 (lOth 

Cir. 1990), cert. denied, 498 U.S. 1069 (1991). In addition, a court "may consider factors 

such as the offending party's history, experience, and ability, the severity of the violation, the 

degree to which malice or bad faith contributed to the violation, the risk of chilling the type of 

litigation involved, and other factors as deemed appropriate in individual circumstances." 

White, 908 F.2d at 685. 

On remand from the district court, the bankruptcy court held a hearing on the amount 

of sanctions imposed at which the parties presented evidence and argued their positions. The 

court expressly considered the White factors and found a $10,000 sanction to be reasonable 

under all the circumstances. The court also expressly indicated it believed the $10,000 

9 

Appellate Case: 95-4017 Document: 01019279500 Date Filed: 06/27/1996 Page: 9 
sanction was sufficient to deter further misconduct, and noted that Bigelow was able to pay the 

fine from the proceeds of a bond previously posted with the court. On appeal to the district 

court, Bigelow did not set forth any specific grounds for finding that the bankruptcy court 

abused its discretion in setting the sanction at $10,000. He only made "shocks the conscience" 

and "harsh and unreasonable" arguments. The district court found this line of argument 

unpersuasive, and affirmed the bankruptcy court's $10,000 sanction. 

On appeal from the district court, Bigelow offers the same "shocks the conscience" and 

"harsh and unreasonable" arguments he made before the district court. We find these 

arguments unpersuasive. There is simply no basis for this court to find an abuse of discretion. 

The sanction was less than the total cost to the appellees of the resulting litigation. 

Furthermore, it seems a reasonable sum to deter similar misconduct in the future, and is not 

overly burdensome to Bigelow, given his financial situation. The bankruptcy court did not 

abuse its discretion in its application of the White factors. Accordingly, the judgment of the 

district court is AFFIRMED. 

10 

Appellate Case: 95-4017 Document: 01019279500 Date Filed: 06/27/1996 Page: 10