Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-92-01169/USCOURTS-ca10-92-01169-0/pdf.json

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

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UNITED STATES COURT OF APPEALS 

FOR THE TENTH CIRCUIT 

FILLD C 

In re: DOUGLAS L. CANADY, also ) 

known as Douglas Lee Canady, also known) 

as Doug Canady, individually and as ) 

officer, director & sole shareholder of) 

Interior Services, Inc., a Colorado ) 

corporation, and joint venturer in ) 

Viaduct Associates, and Creative ) 

Partners, Colorado joint ventures, ) 

) 

Debtor, ) 

) 

) 

GLEN K. SANDLIN, ) 

) 

Plaintiff, ) 

) 

V • ) 

) 

DOUGLAS L . CANADY, ) 

) 

Defendant-Appellee, ) 

) 

) 

) 

DAVID L . SMITH, ) 

) 

Attorney-Appellant. ) 

ORDER AND JUDGMENT* 

United States Co~rl (?f AppeaL Tenth C1rcU1t 

FEBO ·1 1993 

ROBERT L. HOECKER 

Clerk 

No. 92-1169 

(D.C. No. 92-Z-313 ) 

(D . Colo.) 

* This order and judgment has no precedential value and shall 

not be cited, or used by any court within the Tenth Circuit, 

except for purposes of establishing the doctrines of the law of 

the case, res judicata, or collateral estoppel. 10th Cir. R. 

36.3. 

Appellate Case: 92-1169 Document: 010110165566 Date Filed: 04/27/1993 Page: 1 
Before TACHA and BALDOCK, Circuit Judges, and BROWN,** Senior 

District Judge. 

**Honorable Wesley E. Brown, Senior District Judge, United States 

District Court for the District of Kansas, sitting by designation. 

After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

assist the determination of this appeal. See Fed. R. App. P . 

34(a) ; 10th Cir. R. 34.1.9. 

submitted without oral argument . 

The case is therefore ordered 

David L. Smith, attorney for Glen K. Sandlin, appeals from a 

judgment affirming in part the bankruptcy court's imposition of 

monetary sanctions against Smith pursuant to Fed. R. Bankr. P. 

9011. He argues that the imposition of sanctions was an abuse of 

discretion. We disagree and affirm. 

Sandlin, a former employee of Corporate Interiors, Inc. , 

obtained a judgment against Corporate Interiors for age 

discrimination. Douglas Canady, also a former employee of 

Corporate Interiors, acquired certain assets from Corporate 

Interiors and formed Interior Services, Inc. He was president and 

sole director and shareholder of Interior Services. 

Canady then filed a voluntary petition for personal 

bankruptcy. Sandlin, asserting he was a creditor of Interior 

Services because it was a successor in interest to Corporate 

Interiors, commenced an adversary proceeding. He objected to a 

discharge on the ground that Canady knowingly made a false oath or 

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Appellate Case: 92-1169 Document: 010110165566 Date Filed: 04/27/1993 Page: 2 
account by including business debts while excluding business 

property on his bankruptcy 1 schedule. The bankruptcy court 

dismissed the claims, then imposed sanctions against Smith 

pursuant to Rule 9011. The district court upheld the sanction as 

to the§ 727 claim. 2 

We review the legal and factual determinations underlying a 

court's imposition of sanctions under Rule 9011 for abuse of 

discretion. Lawrence Nat'l Bank v. Edmonds (In re Edmonds). 924 

F. 2d 176, 181 (10th Cir. 1991). The test is one of objective 

reasonableness: "whether a reasonable attorney admitted to 

practice before the district court would file such a document." 

Adamson v. Bowen, 855 F.2d 668, 673 (10th Cir. 1988). The 

attorney must form a reasonable belief that the pleading is "'well 

grounded in fact and is warranted by existing law.'" Id. (quoting 

Eastway Constr. Corp. v. City of New York, 762 F.2d 243, 254 (2d 

Cir. 1985)). 

Smith contends he presented a colorable claim that Canady 

falsely completed his bankruptcy schedule by including a 

$242,231.07 debt for a secured claim on real property located at 

2565 Blake St., Denver, and a $124,002.38 debt for a secured claim 

on real estate located at 1449 Josephine St., Denver, without 

1 11 U.S.C. § 727(a) (4) (A) provides 

bankruptcy shall be denied if the 

fraudulently, in or in connection with the 

or account." 

that a discharge in 

debtor "knowingly and 

case--made a false oath 

2 It reversed the bankruptcy court's imposition of sanctions as 

to another claim not at issue in this appeal. 

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Appellate Case: 92-1169 Document: 010110165566 Date Filed: 04/27/1993 Page: 3 
listing the fair market value of the property securing the debts 

as "property." The bankruptcy court concluded that Canady does 

not own the real estate but rather owns an interest in 

partnerships that own the property. There was no evidence of what 

else the partnerships owned or what their debts were. Canady 

disclosed his ownership interests in the entities and stated that 

he did not know what their values were . He disclosed his view o f 

the current market value of that property. The court found no 

evidence that Canady knew the value of his interest in the 

partnerships, or that the information provided was wrong. It 

concluded that Canady's scheduling of his interests was correct, 

and that to claim otherwise was not based on any reasonable view 

of the law or facts. We find no abuse of discretion in this 

determination. 

Canady disclosed on item 1.d. of his Statement of Financial 

Affairs for Debtor Engaged in Business that he has a 38.75% 

interest in joint venture Viaduct Associates, which owns 2565 

Blake St., and a 30% interest in joint venture Creative Partners, 

which owns 1449 Josephine St., although he stated elsewhere that 

legal title may still be partly in his name. He further disclosed 

that the fair market value of the Blake St. property was 

approximately $150,000, and the fair market value of the Josephine 

St. property was approximately $100,000. He stated that the value 

of his interests in the joint ventures was unknown. 

While Sandlin's expert witness testified that Canady should 

have listed the debts on these properties only to the extent of 

his percentage interest in the joint ventures, he acknowledged 

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Appellate Case: 92-1169 Document: 010110165566 Date Filed: 04/27/1993 Page: 4 
that he had never seen the promissory notes and did not know 

whether Canady was personally liable for the entire amount of the 

notes. Canady testified that he was jointly and severally liable 

on the notes. An attorney cannot avoid sanctions by relying on 

inaccurate advice that the attorney failed to independently 

verify. See Pravic v. U.S. Indus.-Clearing, 109 F.R.D. 620, 623 

(E.D. Mich. 1986) (attorney could not avoid sanctions by relying on 

legal memorandum prepared by another attorney where he failed to 

independently verify accuracy of cases cited in memorandum). 

Sandlin also claimed Canady violated § 727 by listing as 

personal debts corporate payroll taxes of Interior Services. The 

bankruptcy court concluded that Canady was liable under applicable 

Internal Revenue Code provisions, and to argue otherwise was 

"simply specious." Aplt.'s App. at 743. 

Under 26 U.S.C. § 6672, a 100% penalty is imposed on any 

person responsible for the collection and payment of employment 

taxes who willfully fails to do so. Muck v. United States, 791 

F. Supp . 817, 819 (D . Colo. 1992). Smith's only argument 

regarding the payroll taxes is that Canady was not liable for the 

taxes because he had not signed an agency agreement with the 

Internal Revenue Service making himself personally liable. The 

requirement of an agreement applies to an agent of an employer who 

pays employee wages, not to the employer. See 26 U.S.C. § 3504; 

Treas. Reg. § 31.3504-1. Even 4 Bender's Federal Tax Service 

§ B:18:142[1], on which Smith relies, clearly applies to agents of 

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Appellate Case: 92-1169 Document: 010110165566 Date Filed: 04/27/1993 Page: 5 
the employer, not the employer himself. Smith's reliance on his 

expert witness's misrepresentation of the law cannot protect him. 

See Pravic, 109 F.R.D. at 623. 

Smith, relying on Ramos v. Lamm, 713 F.2d 546, 553-55 (1 0th 

Cir. 1983 ) , next contends that the bankruptcy cou rt lacked an 

adequate evidentiary basis for imposing sanctions because Canady's 

attorney did not allocate her fees between the§ 727 claim and the 

other claim at issue, and because she did not submit 

contemporaneous time records. Ramos does not require allocation 

of fees by claims, only by tasks. Id. at 553. Further, there is 

no per se requirement that contemporaneous records be submitted. 

Carter v. Sedgwick County, Kansas, 929 F.2d 1501, 1506 (10th Cir. 

1991) . Canady's attorney submitted a "detailed itemization of 

time spent on specific aspects of the .. 

conclude the bankruptcy court had an adequate 

case." Id. We 

evidentiary basis 

for the award and that the award was not an abuse of discretion. 

We find no merit to the contention that the bankruptcy court 

was biased against Smith because it failed to impose sanctions 

against Smith's attorney for raising the same arguments raised by 

Smith. No request was filed to sanction Smith's attorney. 

We also reject the contention that the district court failed 

to address Smith's arguments. Although Smith's contentions may 

not have been resolved to his satisfaction, they were addressed. 

In fact, he prevailed on part of his appeal. 

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Appellate Case: 92-1169 Document: 010110165566 Date Filed: 04/27/1993 Page: 6 
The judgment of the United States District Court for the 

District of Colorado is AFFIRMED. 

argument is DENIED. 

Smith's request for oral 

Entered for the Court 

Deanell Reece Tacha 

Circuit Judge 

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