This disposit ion is not appropriate f or publication and is not pre cedent except as * provided by

9th Cir. R. 36-3.
1

NOT F OR P UB L I CAT I ON UN I TE D STATE S C OU RT OF APPE ALS FOR T HE NI NTH CI RC UI T

I n th e Ma t t e ro f: AS T ON
- NE VA DA LI M I TED PA RTN ERSH I P

In re ,

-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - SCO TT CH A PM A N ; K U RT K
. H A RRI S; M I CH A EL R. M ERRI TT; H A RRI S, M E R R I T T , C H A P M A N , L T D ., A p p el l an t s,
v. U. S. TR USTE E, A pp el l ee . N o. 08- 15792 D
. C. N o . CV
- 0 6
- 0 0 1 4 1
- BESP AL

ME MOR AN DU M *

A pp ea l fr om the U ni t ed S t at es D i stri ctC ou rt

f orthe D i s tr i c tof

N e va da B r i a n E
. S a ndova l , D i s tr i c tJ udge , P r e s i di ng
A r gue d a nd S ubm i t t e d O c t obe r5, 2010 * S a n F r a n c is c o , C a lif

o r n ia 

# FI LED
DE C 01 2010 M OLLY C. DW Y ER, CLERK U

. S. C O U R T OF APPE ALSThe Honorable Kevin Thomas Duffy, United States District Judg e for the *** Southern District of New York, sitting by designation. 2 B ef ore: F E RN A N D E Z and S IL V E R M A N , C i rc ui tJudg es , and D U F F Y , D i stri ct Judg e. *** A p p e lla n ts S c o tt E . C h a p m a n , E s q ., K u r t K
. H a r r i s , E s q ., M ic h a e l R . M e r r itt, E sq. , and the l aw fi rm H arri s M erri t t C hapm an, L t d. (c ol l ec ti v ely, “A pp el l ant s” )
a ppe a l f r om the j udgm e nt of the di s tr i c t c our t e nt e r e d on F e brua r y 28, 2008, a f f i r m i ng the j ud gm entof the bank rupt cy court(B ruce M ar kel l , B
. J.) th atsua s po nt e i m po se d
e x te n s iv e s a n c tio n s a g a in s t A p p e lla n ts s te m m in g f r o m w o r k C h a p m a n p e r f o r m e d in
a n unde r l yi n g C h ap t er11 ba nkrupt c y c a s e . W e ha ve j ur i s di c t i on pur s ua ntt o 28 U
. S
. C
. § 158( d)
. W e R E V E R S E the di s tr i c tc our t ’ s j udgm e ntr e ga r di ng the s a nc t i ons and V A C A T E the bank rupt cy court ’ s order
.

F AC T UA L AN D P RO CE DU RA L B AC KG RO UN D C ha pt e r11 B a nkrupt c y F i l i ng a nd R e l a t e d P r oc e e di ngs O n or a bout J ul y 30, 2004, de bt or A s t on- N e va da L i m i t e d P a r tne r s hi p ( “ A s t onN e v a d a ” ) , th r o u g h its o w n e r , K e r r y R o g e r s , f ile d f o rC h a p te r1 1 b a n k ru p tc y . P h illip L e V illie r , a b u s in e s s a s s o c ia te o f R o g e r s a n d a n u n lic e n s e d a tto r n e y o rp a r a le g a l, pr e pa r e d a n d s i gne d the ba nkrupt c y pe t i t i on. S i l ve rS t a t e B a nk, the s ol e c r e di t orof the ba nkrupt c y e s t a t e , f

i l e d a m ot i on f

orr e l i e f f r om the ba nkrupt c y s t a y on A ugus t13, 2004. T he ba nkrupt c y c our ts e ta he a r i ng da t e on the m ot i on fo r A u g u st 2 4, 2004.3

A s R oge r s c oul d not r e pr e s e ntthe e s t a t e pr o s e , he m e tw i th C ha pm a n on A ugus t20, 2004, a nd r e t a i ne d hi m t o r e pr e s e ntthe e s t a t e i n the ba nkrupt c y c a s e . O n A ugus t23, 2004, C ha pm a n f

i l e d a n oppos i t i on t o S i l ve rS t a t e B a nk’ s m ot i on f orr e l i e f f

r om the b an k ru p t cy st ay an d ap p eared o n b eh al f o f th e est at e atth e h eari n g th e n ex td ay. P rio r t o ret ai ni ng C hapm an, R og er s f i l ed the af

orem ent i on ed bank rupt cy p e titio n th a t r e v e a le d th a t A s to n - N e v a d a h a d o n ly o n e a s s e t, a 1 9 9 9 P o r s c h e 9 1 1 . T h is P o r s c h e h a d b e e n p u t u p a s c o lla te r a l to s e c u r e a p e r s o n a l d e b t th a t R o g e r s o w e d to S i l ve rS t a t e B a nk. T hi s de btw a s the s ubj e c tof a n on- goi ng s t a t e c our ta c t i on f i l e d by S i l ver S t at e B ank i n an at t em ptt o col l ec tfr om R og er s. T here w as a hea ri ng sc hedu l ed i n the s t a t e c our t a c t i on on A ugus t2, 2004, w hi c h w a s s t a y e d by the ba nkrupt c y f i l i ng. S i l ve rS t a t e B a nk s oughtr e l i e f f ro m the s t a y i n or de rt o pur s ue i t s c ol l e c t i on a c t i on in s ta te c o u r t. H eari n g o n S i l v er S t at e B an k ’ s M o t i o n fo r R el i ef fro m th e B an k ru p t cy S t ay A tthe A u g u st 2 4 , 2004 he a r i ng on S i l ve rS t a t e B a nk’ s m ot i on f orr e l i e f f r om the s t a y , C ha pm a n s oughta c ont i nua nc e t o f a m i l i a r i z e hi m s e l f

w i th the na tur e a nd
e xt e ntof the ba nkrupt c y e s t a t e c a s e . C ha pm a n a dm i t t e d be f or e the ba nkrupt c y j udge tha the ha d notc he c ke d the doc ke ti n the ba nkrupt c y c a s e orr e vi e w e d A s t onN e v a d a ’s p e titio n o r a s s e t s c h e d u le s to f a m ilia r iz e h im s e lf

w ith th e c a s e o ra s s e s s its vi abi l i ty. T he bank rupt cy j ud ge as ked C hapm an at the hear i ng i f t he es t at e w as a one-4

a s s e t e s ta te . C h a p m a n r e s p o n d e d th a t h e d id n o t y e t k n o w , b u t a s s u r e d S i l v e rS ta te B ank t hatA st on -N evada w ou l d see k i m m edi at e di sm i ss al of the pet i t i on i f he w er e t o d i sc o v er thatthe es t at e w as a one-as se tes t at e. T he bank rupt cy courtdeni ed C ha pm a n the c ont i nua nc e a nd gr a nt e d S i l ve rS t a t e B a nk’ s m ot i on f orr e l i e f f r om the
s t a y . F ol l ow i ng the he a r i ng, R oge r s i nf or m e d C ha pm a n tha tthe e s t a t e onl y ha d one
a s s e t , the P or s c he , a nd on e credi t or , S i l ve rS t a t e B a nk. T he ne xtda y , A ugus t25, 2 0 0 4 , C h a p m a n f

ile d a m o tio n to v o lu n ta r ily d is m is s th e b a n k ru p tc y c a s e . S i l ve rS t a t e B a nk’ s R ul e 2004 A ppl i c a t i on A l s o on A ugus t25, S i l ve rS t a t e B a nk f i l e d a n a ppl i c a t i on f

ora n e xa m i na t i on pur s ua ntt o R ul e 2004 of the F e de r a l R ul e s of

B a nkrupt c y P r oc e dur e ( “ R ul e 2004
e xa m i na t i on” ) o f the pe r s on m os tknow l e dge a bl e a boutA s t on- N e va da
. T he ba nkrupt c y c our tg ran t ed t h e m ot i on tha ts a m e da y a nd or de r e d tha tthe R ul e 2004
exam i nat i on occur on S ept em ber 9, 20 04
. C hapm an i nform ed R o g er s, w ho i n turn i dent i fi ed L eV i l l i eras the pers on m ostkn ow l edgeabl e abo utA st on -N evada. H ow e ve r , R oge r s e xpr e s s e d i nt e r e s ti n a t t e ndi ng the e xa m i na t i on t o he a rthe t e s t i m ony thatL eV i l l i erw ou l d g i ve. C hapm an re q uest ed a one-w ee k con t i nu ance , as R og er s
w a s n o t a v a ila b le o n S e p te m b e r9 . S ilv e rS ta te B a n k a s s e n te d to a c o n tin u a n c e u n til S e pt e m be r16, 2004, butw a r ne d C ha pm a n tha tno f ur the rc ont i nua nc e s w oul d be gr a nt e d. O n S e pt e m be r 15 or 16, 2004, R oge r s i nf or m e d C ha pm a n tha the w oul d not5

be a bl e t o a t t e nd the R ul e 2004 e xa m i na t i on be c a us e he w a s de t ai n ed outof the
c ountr y . C ons e que nt l y , C ha pm a n a t t e nde d the e xa m i na t i on on S e pt e m be r16, 2004,
w i th L e V i l l i e r . T he R ul e 2 0 0 4 e xa m i na t i on l e f tS i l ve rS t a t e B a nk
uns a t i s f i e d— L e V i l l i e rdi d notknow w he r e the P or s c he w a s a t the t i m e of the he a r i ng or i f i t w as then i nsured. A l l he coul d t el l S i l ver S t at e B ank w as thathe had l as tse en it o n th e s tr e e t n e a rR o g e r s ’ h o u s e a n d th a t it lo o k e d c le a n . M ot i ons f

orV ol unt a r y D i s m i s s a l a nd S a nc t i ons B e tw e e n A u g u s t 2 5 a n d S e p te m b e r9 , 2 0 0 4 , th e p a r tie s h a d b e e n e n g a g e d in
s e t t l e m e ntdi s c us s i ons . O n S e pt e m b er 9 , 2004, c ouns e l f orS i l ve rS t a t e B a nk i nform ed C hapm an by l ett erthat h is A u g u st25 pet i t i on for vol un t ary di sm i ss al w as notthe pr ope rf

or m a nd tha t C ha pm a n s houl d f i l e a pr ope r m ot i on. A c c or di ng t o the bank rupt cy court , the i ni t i al appl i ca t i on w as “ fa t al l y f l aw ed” i n t hati t“ cont ai ned
n u m ero u s n o n sen si cal referen ces, ” w as n o t serv ed o n S i l v er S t at e B an k , an d b ecau se C h a p m a n d id n o t o b ta in a h e a r in g d a te f o rit. C ha pm a n f

i l e d a pr ope rm ot i on t o d i sm i s s on S e pt e m be r20, 2004. T he ba nkrupt c y c our the l d a he a r i ng on the m ot i on on O c t obe r7, 2004, an d g r a nt e d the
m ot i on re troac t i vel y t o S ept em ber 27, 20 04
. In the order, the bank ru pt cy court
e xpr e s s l y r e t a i ne d j ur i s di c t i on t o he a rS i l ve rS t a t e B a nk’ s S e pt e m be r24, 2004 m ot i on for s anct i on s a gai nstA st on -N evada, R og er s, and L eV i l l i er . A hearin g dat e w as se t6

f o rN o v e m b e r1 0 , 2 0 0 4
. S a nc t i ons O r de r e d a tthe N ove m be r10 H e a r i ng A t th e e n d o f th e h e a r i n g o n Si l v e r St a t e Ba n k ’ s mo t i o n f o r s a n c t i o n s , t he b a n k ru p tc y c o u r t o r d e r e d s a n c tio n s p u r s u a n t to R u le 9 0 1 1 a n d its in h e r e n t p o w e rto
m a na ge i t s a f

f a i r s , s pe c i f

i c a l l y f i ndi ng tha t the ba nkrupt c y f i l i ng a nd the ha ndl i ng of the R ul e 2004 e xa m i na t i on w e r e i n ba d f a i th. T he ba nkrupt cy cour tor de r e d A s t onN ev ad a, R o g er s, an d L eV il li er jo in tl y a n d se v er a ll y li a b le fo r S il v er S tate B an k ’s
a t t or ne y s ’ f

e e s buti m pos e d no non- m one t a ry s a nc t i ons on the m . D ur i ng the he a r i ng, the bank rupt cy j ud ge express l y s t at ed thatno sa nct i on s or m on et ary dam ages w er e
o rd er ed ag ain st th e a tt o rn ey s f o r e ith er sid e in co n n ec ti o n w ith S il v er S tate B an k ’s
m o tio n f o rs a n c tio n s . N o f

u r th e rh e a r in g w a s s e t a t th a t tim e . M arch 2 1 O p i n i o n an d O rd er t o S h o w C au se O n M arch 2 1 , 2 0 0 5 , th e b an k ru p t cy co u rti ssu ed i t s fi rsto p i n i o n o n san ct i o n s. Itm em o ri al i zed th e c o u r t’s o ral o rd er an d i m p o sed m o n et ary san ct i o n s ag ai n st R oge r s , L e V i l l i e r , a nd A s t on- N e va da , j oi nt l y an d sev er a l l y , i n the a m ountof $1 2, 10 8. 50 , re presen ti ng S i l ver S t at e B ank’ s a t t orneys ’ fe es , and add ed t o i t s ora l
o rd er su a sp o n t e an o rd er t o sh o w cau se w h y san ct i o n s sh o u l d n o t is s u e ag ai n st C hapm an and H arri s M erri t tC hapm an, L t d. T he op i ni on , char ac t er i ze d b y the court
a s i t s “ fi n d i n gs of

f a c ta nd c onc l us i ons of

l a w unde rF e d. R
. B a nkr
. P r o. 7052, ” a nd7

f ile d p u b l i cl y u p o n b ei n g i ssu ed , ex t en si v el y ch ast i sed C h ap m an an d H arri s M erritt C hap m an, L t d. f

orha vi ng “

j oi nt l y c ons pi r e d” w i th R oge r s , A s t on- N e va da , a nd L eV i l l i erand for “ b ein g co m pl i ci ti n [the debt or’ s] ruse ” t o p re se ntsom eone ot her tha n the pe r s on m os tknow l e dge a bl e a tthe R ul e 2004 e xa m i na t i on. T he M a r c h 21 opi ni on a l s o s pe c ul a t e d tha tC ha pm a n m a y ha ve ghos t - w r i t t e n th e pe t i t i on f orthe debt or. F urther, the op i ni on re pri m anded C hapm an and hi s fi rm for e ver havi ng fi l ed an op po si t i on t o S i l ver S t at e B ank’ s m ot i on for r el i ef fr om the st ay . T he bank rupt cy court base d i t s concl usi on on the erroneou s fi nd i ng that R og er s had t ol d C hapm an that the es t at e h ad o ne as se tbefore the heari ng on S i l ver S t at e B ank’ s m ot i on for r el i ef fr om the st ay , w hen t he evi dence is clea r th atC hapm an di d n otkn ow the es t at e had
o n ly o n e a s s e t u n til a f

te rth e h e a r in g . A ppe l l a nt s ’ R e s pons e t o the O r de rt o S how C a us e a nd the S ubs e que ntH e a r i ng O n A pr i l 29, 2005, A ppe l l a nt s r e s ponde d t o t h e i ss ue s r a i s e d i n the M a r c h 21 opi ni on. I n the i r r e s pons e , C ha pm a n a nd H a r r i s M e r r i t tC ha pm a n, L t d. c ha l l e nge d the ba nkrupt c y c our t ’ s c haract er i z a t i on of the i rr e pr e s e nt a t i on a nd r e que s t e d a he a r i ng. T he ba nkrupt c y c ou rt he l d a he a r i ng on the i s s ue of s a nc t i ons a ga i ns tA ppe l l a nt s on June 17 , 20 05
. T he courthear d t es t i m on y f rom C ha p m an, M erri t t , and R i char d Y oung, E s q. , a n at t o r ne y l i c e ns e d i n N e va da w ho ha d w or ke d w i th C ha pm a n i n the past . C h ap m a n a nd M e r r i t te xpl a i ne d tha tthe i ri nt e nt i on a f t e rde t e r m i ni ng tha tthe8

ca se di d n otbel on g i n b ankrup t cy court , w as t o d i sm i ss the case as qu i ckl y a s pos s i bl e . A s e vi de nc e , the y poi nt e d t o C ha pm a n’ s ne a r - i m m e di a t e f i l i ng of a m ot i on t o di s m i s s , a l be i tf

a ul ty , the da y a f

t e r t h e h eari n g on S i l ve rS t a t e B a nk’ s m ot i on f or
r e l i e f fro m st ay a nd hi s e f

f or t s t o r e s ol ve the c a s e vi a s e t t l e m e nt . C ha pm a n a nd M erri t tal so t est i fi ed th atth ey h ad l earn ed t o b e m o re sel ect i v e i n accep t i n g cases, l ess l i kel y t o acc eptca se s on sh o rt no t i ce , and m ore l i kel y t o d o d ue di l i gence before si gn i ng a pl ea di ng or fi l i ng a m ot i on . T he bank rupt cy j ud ge se em ed atl ea stsom ew hat
r e c e p tiv e to C h a p m a n a n d M e r r itt’s a r g u m e n ts . J a nua r y 25 O pi ni on a nd O r de ron S a nc t i ons O n J a nua r y 25, 2006, the ba nkrupt c y c our ti s s ue d i t s f i na l opi ni on a nd or de ron
s a nc t i ons a ga i ns tC ha pm a n a nd H a r r i s M e r r i t tC ha pm a n, L t d. D e s pi t e seem i ng
s o m e w h a t r e c e p tiv e t o th e ira r g u m e n ts a t th e h e a r in g , C h a p m a n a n d H a r r is M e r r itt C h a p m a n , L td . w e r e h e a v ily s a n c tio n e d , in c lu d in g :

(1 ) $ 9 ,6 4 0 in m o n etar y s an ctio n s p u r su an t t o th e c o u rt’s in h e r e n t p o w e r ; ( 2) publ i c r e pr i m an d i n the f or m of the publ i c a t i on of

the c o u r t’s o p in io n ; ( 3 ) a p r o h ib itio n o n C h a p m a n a n d a n y a tto r n e y f r o m H a r r is M e r r i t tC ha pm an , L t d. f r om a ppe a r i ng orf

i l i ng a ny doc um e nti n the B a nkrupt c y C our tf orthe D i s tr i c tof N evada unl es s he or s he ( a ) f i r s tf i l e s a de c l a r a t i on s t a t i n g t h a t , dur i ng the tw enty- four m on ths i m m edi at el y pre ce di ng the desired fi l i n g o r ap p earan ce, h e o r sh e h as

(i ) t aken ei gh t ho urs of cont i nu i ng legal9 e d u c a tio n in b a n k ru p tc y ,

(i i ) t aken at l ea stfour ho urs of c on t i nu i ng l egal e duc a t i on i n e thi c s orpr of e s s i ona l r e s pons i bi l i ty , a nd (b ) at ta c h e s t o th e d ecl arat i o n , fo r fi l i n g i n th e case i n w hi ch he or she desi re s t o app ea r

( i ) a copy of

the J a nua r y 25, 2006 opi ni on, a nd ( i i ) a c opy of

the br oc hur e orothe r pr oof of the s c ope of the c ont i n u i n g l e ga l e duc a t i on pr ogr a m a t t e nde d; ( 4) a pr ohi bi t i on on C ha pm a n a nd H a r r i s M e r r i t tC ha pm a n, L t d. fr om l i st i ng bank rupt cy as an ar ea of spec i al ty o r e ven as an ar ea of prac t i ce on i t s w ebsi t e or i n o ther prom ot i on al m at er i al un l es s a nd un t i l atl ea ston e p ar tn er of the fi rm m e e t s the c o n t i nui ng l e ga l e duc a t i on r e qui r e m e nt s of the pr e c e di ng s a nc t i on; a nd ( 5 ) d is g o r g e m e n t o f th e $ 2 ,3 8 4 .8 7 C h a p m a n a n d H a r r is M e r r i t tC ha pm a n, L t d. w e r e pa i d by R oge r s on be ha l f of A s t on- N ev ad a t o e i the rthe c our tr e gi s tr y ora pr o bono le g a l s e r v ic e s o r g a n iz a tio n . T he pr ohi bi t i on f

r om ap p ea r i ng orf

i l i ng a ny thi ng i n the B a nkrupt c y C our tf orthe D i stri ct of N evada w i tho ut adheri ng t o the cont i nu i ng l egal educat i on and d i sc l osure
r e qui r e m e nt s c ont i nue d f orf i ve y e a r s f

r om the da t e of

the opi ni on, J a nua r y 25, 2006,
a n d w o u ld r e n e w a u to m a t ic a lly f o ra n o th e rf

iv e y e a r s u n le s s C h a p m a n o rH a r r is M e r r i t t C h ap m an, L t d. w e r e t o f i l e a r e que s tt o be r e l i e ve d of the r e s tr i c t i on, d e m o n s tr a tin g to th e c o u r t w h y th e r e s tr ic tio n s h o u ld b e lif te d
. I n i t s J a n u a r y 2 5 o p i n i o n , th e b a n k ru p t c y c o u r tp e r s i s t e d i n m o s to f th e v i e ws it e x p r e s s e d in its M a r c h 2 1 o p in io n a n d d is r e g a r d e d a lm o s t a ll o f w h a t A p p e lla n ts proffe re d atthe June 17 hear i ng . F or exam pl e, the bank rupt cy cou rt re stat ed that10

C h ap m an an d H arri s M erri t tC h ap m an , L t d
. h ad a d v o c a te d th e p ro p ri ety o f R o g ers’ fi l i ng by op po si ng S il ver S t at e B ank’ s m ot i on for s anct i on s. H ow ever , C hapm an
r e pe a t e dl y m a de i tc l e a rtha ti n oppos i ng the s a nc t i ons , he w a s n o t co n doni ng the fi l i ng , bu tm er el y a rgui ng thatw hi l e R og er s’ fi l i ng the pet i t i on w as i m prop er , i tw as notm a l i c i ous a nd s houl d notbe s a nc t i one d. T he J a nua r y 25 opi ni on a l s o f oc us e d on th e f a c t th a t R o g e r s a n d C h a p m a n b o th p r o f e s s e d to b e in te r e s te d in o b ta in in g th e a id of a neutra l bank rupt cy trust ee , bu tnei ther e ve r em pl oyed on e. C hapm an expl ai ned thathe di d not em pl oy a trust ee beca use he tho ug ht the bet t ercourse w ou l d b e t o g et the ca se di sm i ss ed or se t t l ed. O vera l l , the courtre j ec t ed an y a nd al l i nfer ence s that C hapm an’ s a ct i on s w er e “ t aken i n g oo d fai th b y a n i neptand i nexp er i ence d l i t i gat or,
ou tof hi s e l em enti n b ankrup t cy court . ” A pp ea l t o t he D i stri ctC ou rtand t hi s C ou rt C h ap m an an d H ar ris M er ritt C h ap m an , L td
. ap p ea led th e b an k ru p tc y c o u rt’s Ja nu ary 2 5, 20 06 op i ni on and corr es po nd i ng order t o the D i stri ctC ou rtfor the D i stri ct
o f N ev ad a o n F eb ru ar y 3 , 2 0 0 6 . T h e d istrict co u rt af firm ed th e b a n k ru p tcy c o u rt’s opi ni on a nd or de ron F e brua r y 28, 2008. T hi s t i m e l y a ppe a l f ol l ow e d. STA N D A R D O F R EVI EW Th i s c o u r tr e v i e w s “ d e n o v o a d i s tr i c tc o u r t ’ s j u d g me n to n a p p e a l f r o m a bank rupt cy court , ” app l yi ng “ the sa m e s t andard of revi ew appl i ed by the di stri ct11

court , re vi ew i ng the bank rupt cy court ’ s l egal concl usi on s de nov o and i t s f ac tual de t e r m i na t i ons f

orc l e a re r r or . ” N e i l s on v. U ni t e d S t a t e s ( I n r e O l s ha n) , 356 F
. 3d 1 0 7 8 , 1 0 8 3 ( 9 th C ir . 2 0 0 3 ) ( c ita tio n s o m itte d ) . A ls o , “[ j]u r is d ic tio n a l is s u e s in bank rupt cy ar e r evi ew ed de no vo . ” M ant z v. C al
. S t at e B d. of E qu al i za t i on (I n re M an tz), 3 4 3 F .3 d 1 2 0 7 , 1 2 1 1 (9 th C ir. 2 0 0 3 ). H o w ev er , a b an k ru p tcy c o u rt’s
aw ar d o f s anct i on s i s r evi ew ed on l y f or an abuse of di sc re t i on . H al e v. U ni t ed S t a t e s T r . , 509 F
. 3d 1139, 1146 ( 9th C i r . 2007)
. F ur the r , a c our t ’ s a w a r d of
s a n c tio n s p u r s u a n t to its in h e r e n t p o w e ris a ls o r e v ie w e d f o ra n a b u s e o f

d is c r e tio n . D o i v . H a le k u la n i C o rp ., 2 7 6 F .3 d 1 1 3 1 , 1 1 4 0 ( 9 th C ir . 2 0 0 2 ) . A c o u r t a b u s e s its di s c r e t i on i n i m pos i ng s a nc t i ons “ i f i tba s e d i t s rul i ng on a n e r r one ous vi e w of the l aw or on a c l ea rl y e rr on eous as se ss m entof the evi dence. ” R et ai l F l oo ri ng D ea l er s of A m . , I nc . v. B e a ul i e u of A m . , L L C , 339 F
. 3d 1146, 1150 ( 9th C i r . 2003) (c i t at i on and i nt ernal qu ot at i on m ar ks om i t t ed). DI S CUS S I ON I . J ur i s di c t i o n o f

t he ba nk r upt c y c o ur t t o i m po s e s a nc t i o ns A s a n i ni t i a l m a t t e r , the ba nkrupt c y c our t ha d j ur i s di c t i on t o i m pos e s a nc t i ons upon c ouns e l s ua s pont e a f t e rthe f or m a l di s m i s s a l of

the ba nkrupt c y c a s e e ve n though i tonl y e xpr e s s l y r e s e r ve d j ur i s di c t i on ove rS i l ve rS t a t e B a nk’ s m ot i on f ors a nc t i ons
a g a in s t R o g e r s , L e V illie r , a n d A s to n - N e v a d a a n d d id n o t m e n tio n C h a p m a n o rH a r r isAlthough Cooter & G ell was de cided in the c ontextof Rule 11 of the F ederal Rules of 1 Civil Procedure, bec ause thelanguag e of Rule 9011 of the Fe deral Rules of Ba

nkruptcy Procedure “pa

rallels that of F ed. R. Civ. P. 11, . . . courts analy zing sanc tions under Rule 9011 commonly

rely on case s interpre ting Rule 11.”Miller v. Cardinale ( In re D eVille), 361 F .3d 539, 551 n.5 (9th Cir. 2004). 12 M e r r i t tC ha pm a n, L t d. i n i t s r e s e r va t i on. S e e C oot e r & G e l l v. H a r t m a r x C orp. , 496 U
. S
. 384, 395 ( 1990)
. F ur ther, t o t h e e xt e nts a nc t i ons w e r e pr ope ri n thi s c a s e , the 1 b a n k ru p tc y c o u r t c o u ld h o ld H ar ris M erri t tC hapm an, L t d. and C hapm an’ s par tners
a n d a s s o c i a t e s w h o w e r e n o t d ir e c tly in v o lv e d in r e p r e s e n tin g A s to n - N e v a d a in its C ha pt e r11 ba nkrupt c y c a s e r e s pons i bl e . R ul e 9011( c ) ( 1) ( A ) of the F e de r a l R ul e s of B a n k ru p tc y P r o c e d u r e p r o v id e s , “[ a ]b s e n t e x c e p tio n a l c ir c u m s ta n c e s , a la w f ir m s h a ll be he l d j oi nt l y r e s pons i bl e f orvi ol a t i ons c om m i t t e d by i t s pa r tne r s , a s s oc i a t e s , a nd
em pl oyee s. ” F ED . R. B ANKR . P. 90 11 ( c ) ( 1) ( A ) ; Se e M i l l e r v. Ca r di na l e (I n re D e V ille ) , 3 6 1 F .3 d 5 3 9 , 5 4 8

– 4 9 ( 9 th C ir . 2 0 0 4 )
. II. T h e s an ct i on s i m p osed b y th e b an k ru p tc y cou rt A
. N on- m one t a r y s a nc t i ons a nd the c our t ’ s ba d f a i th f i ndi ng A s the ba nkrupt c y c our ta nd di s tr i c tc our tor de r s pr ope r l y s e tout , R ul e 9011 gi ve s ba nkrupt c y c our t s the a uthor i ty t o s a nc t i on pa r t i e s , a t t or ne y s , a nd l a w f i r m s w ho p r e s e n t ( si g n , fi l e, su b m i t , o r l at er ad v o cat e) a p ap er t o a b an k ru p t cy co u rt th atis ei ther f ri vo l ou s or pres ent ed for an i m prop er pu rpose. S ee F ED . R. B ANKR . P. 90 11 (b), (c ); D re ss l erv. S ee l ey C o. (I n r e S i l berkraus ), 33 6 F
. 3d 86 4, 87 0 ( 9t h C i r. 20 03 ). “ In13

d et erm i n i n g w h eth er san ct i o n s are w arran t ed u n d er R u l e 9 0 1 1 (b ), [th i s co u rt ]
. . . m u st consi der bot h fri vo l ou snes s a nd i m prop erpu rpose on a sl i di ng sc al e, w here the m ore
com pel l i ng the show i ng as t o o ne el em ent , th e l es s dec i si ve need be t he show i ng as t o the o t he r . ” D r e s s l e r , 336 F
. 3d a t870 ( i nt e r na l quot a t i on m a r ks a nd c i t a t i ons
om i t t ed) ( em ph as i s i n o ri gi nal ). F or sa nct i on s’ pu rposes un der R ul e 901 1, “ att orney
c onduc ti s m e a s ur e d obj e c t i ve l y a ga i ns t a r e a s ona bl e ne s s s t a nda r d, w hi c h c ons i s t s of
a c o m p eten t a tt o r n e y ad m itted to p ra ctice b ef o re th e in v o lv ed co u rt.” V alley N at’l B a nk of A r i z . v. N e e dl e r( I n r e G r a ntha m B r os . ) , 922 F
. 2d 1438, 1441 ( 9th C i r . 1991) ( c ita tio n o m i t t e d ) . “A c la im is f r iv o lo u s if

it is b o th b a s e le s s a n d m a d e w ith o u t a
r e a s ona bl e a nd c om pe t e nt i nqui r y . ” I d. a t 1442 ( i nt e r na l quot a t i on m a r ks a nd c i t a t i on
om i t t ed ). A nd , “ [a ] l tho ug h t he t er m ‘ i m prop erpu rpose’ ca n b e c on strued t o requi re an i m prop ersubj ec t i ve i nt ent , thi s c ou rtanal yz es an al l egedl y i m prop erpu rpose und er
a n obj e c t i ve s t a nda r d. ” I d. a t1443. I n th is c a s e , s o m e o f

A p p e lla n ts ’ a c t i o n s , v ie w e d o b je c tiv e ly , w e r e n e g lig e n t. A s the bank rupt cy courtfoun d, C h ap m an shou l d h ave r evi ew ed the bank rupt cy p et i t i on a nd i nqui r e d i nt o the e s t a t e ’ s a s s e t s be f or e a gr e e i ng t o r e pr e s e ntA s t onN e va da i n ba nkrupt c y c our t . C ha pm a n s houl d ha ve accessed P A C E R , w hi c h he
a dm i t t e d t o ha vi ng i n hi s of f i c e , t o vi e w the pe t i t i on a nd othe r pa pe r s i f he c oul d not g e t th e m f

r o m R o g e r s . H e s h o u ld h a v e b e c o m e f a m ili a r w i t h th e u n d e r ly in g s ta te14

courtca se , re al i ze d t hatA st on -N evada onl y had on e a ss et and o ne cr edi t or, and m ov ed t o d i sm i ss the C hapt er11 ca se w i tho ut op po si ng S i l ver S t at e B ank’ s m ot i on for r el i ef f r om the s t a y . H e s houl d ha ve a s c e r t a i ne d i n m e e t i ng w i th R oge r s f orove ra n hour tha tR og ers ha d f

i l e d f orba nkrupt c y f

orthe i m pr ope rpurpos e of f or e s t a l l i ng the
u n d e r ly in g s ta te c o u r t c a s e . C h a p m a n w a s u n d o u b te d ly s lo p p y in h is h a n d lin g o f th is
c a s e . H ow ever , the bank rupt cy court di d not st op by fi nd i ng that A pp el l ants ac te d negl i gent l y. T he bank rupt cy courtal so foun d t hat they ac t ed i n bad fa i th a nd i m po se d
s a nc t i ons ba s ed o n t hi s f i ndi ng. S uc h a f

i ndi ng i s nots uppor t e d by the r e c or d. C o n s e q u e n tly , th e b a n k ru p tc y c o u r t a b u s e d its d is c r e tio n in im p o s in g s u c h e g r e g io u s ly hars h sanct i on s i n t hi s c as e. S ee R et ai l F lo o rin g D ea le rs of A m . , Inc. , 33 9 F
. 3d at 1 1 5 0
. T he ba nkrupt c y c our tba s e d i t s ba d f a i th f i ndi ng on s e ve r a l c l e a r l y e r r one ous f a c tua l f i ndi ngs a nd uns ubs t a nt i a t e d i nt e rpr e t a t i ons of C ha pm a n’ s a c t i ons . F or
e xa m pl e , the ba nkrupt c y c our te r r one ous l y f ound tha tC ha pm a n a c tua l l y kne w tha tthe
es t at e h ad on l y one as se tand o ne cr edi t or pri or t o h i s f i l i ng of the op po si t i on t o S i l ver S ta te B a n k ’s m o tio n f

o rr e lie f f r o m t h e s t a y n o tw ith s ta n d in g th e f a c t th a t th e o n ly
e v id e n c e b e f

o r e th e b a n k ru p tc y c o u r t p r o v e d th a t h e d id n o t l e a r n th o s e f a c ts u n til l at er .15

T he ba nkrupt c y c our ta l s o e r r one ous l y e qua t e d C ha pm a n’ s f i l i ng of the m ot i on t o di s m i s s a nd m ount i n g a d efens e a ga i ns tS i l ve rS t a t e B a nk’ s m ot i on f ors a nc t i ons
as l at er advo ca t i ng the prop ri ety of R og er s’ i ni t i al fi l i ng . T h e c o u rt co nstrued C hapm an’ s use of the pl ural “ as se t s” and “ cr edi t or s” i n h i s i ni t i al re spon se t o S i l ver S t at e B ank’ s m ot i on for r el i ef fr om the st ay , and h i s ow n sub se q u en t f i l i ng s, as
a dvoc a t i ng the pr opr i e ty of R oge r s ’ i ni t i a l f

i l i ng. T hi s c onc l us i on i s nots uppor t e d by th e e v id en ce . R ath er , th e ev id en ce sh o w s th at, i n th e o p p o siti o n to S il v er S tate B an k ’s
m ot i on f orr e l i e f f r om the s t a y , C h a pm a n ge nui ne l y ne e de d t o r e s e a r c h the e xt e ntof th e e s ta te a n d th a t h e a s s u m e d th a t th e r e w e r e m u ltip le a s s e ts a n d c r e d ito r s . In d ef en d in g R o g er s a n d A sto n -N ev ad a w ith re sp ec t t o S il v er S tate B an k ’s
s a nc t i ons m ot i on, the ev i de nc e s uppor t s a f i ndi ng tha tC ha pm a n a t t e m pt e d t o a r gue thatR og er s’ cond uct , w h i l e i m prop er , w as no tsa nct i on abl e bec ause R og er s subj ec t i vel y bel i eved thathe w as do i ng the ri gh tthi ng t o p rot ec thi m se l f fr o m w hat he sa w as a c on spi ra cy agai nst hi m . A gai n, C hapm an m ay have been negli gentun der th e c ir c u m s ta n c e s , b u t th e f a c ts d o n o t s u p p o r t a f

in d in g o f b a d f a ith
. T he ba nkrupt c y c our t s i m i l a r l y s ke w e d othe r f a c t s a ga i ns tA ppe l l a nt s , i nc l udi ng th e irf a i l u r e t o e n g a g e a b a n k ru p tc y tru s te e a s th e d e b to ro r ig in a lly s u g g e s te d in h is p et i t i o n . T h e ev i d en ce sh o w s th at A p p el l an t s i m m ed i at el y so u g h t t o d i sm i ss th e case af t erthe heari ng on the m ot i on for r el i ef fr om st ay ra ther t han w as t e t i m e a nd m on ey16

e n g a g in g a tru s te e . T h e b a n k r u p tc y c o u r t e v e n c h a r a c te r iz e d C h a p m a n ’s m o tio n to d ism iss f il ed o n A u g u s t 2 5 , 2 0 0 4 , th e d ay af ter th e h ea rin g o n S il v er S tate B an k ’s
m ot i on for rel i ef fr om the st ay , as an exam pl e o f hi s bad fa i th. A gai n, the re cord do es
no tsupp ortsuch a f

i nd i ng . Inst ea d, the evi dence s ho w s thatA pp el l ant s’ m ot i on w as
a h a s ty e f

f o r t to g e t th e c a s e o u t o f b a n k ru p tc y c o u r t a n d b a c k to s ta te c o u r t w h e r e it b e lo n g e d . I n a ll, c o n s id e r in g th e f a c ts a s th e y w e r e p r e s e n te d to th e b a n k ru p tc y c o u r t, the evi dence d o es no tsupp orta f i nd i ng of bad fai th o n t he partof A pp el l ant s. It
s tr a in s r e a s o n to f

in d th a t a n a tto r n e y w h o a g r e e s to r e p r e s e n t a c lie n t, le a r n s w ith in
a f e w da y s that the c l i e nt ’ s pos i t i on l a c ks m e r i t , a nd s e e ks t o di s m i s s the a c t i on the
n e x t d a y , a c ts in b a d f

a ith
. I t is e q u a lly u n te n a b le th a t a n a tto r n e y w h o a r g u e s th a t h is cl i entshou l d n otbe sa nct i on ed i s nec es sa ri l y c on do ni ng the ac t i on of hi s cl i ent . T here is a d if f e r e n c e b e tw e e n r a t if

y in g a c lie n t’s c o n d u c t a n d s im p ly a r g u in g th a t, w h ile i m p ro p er, th e co n d u ct i n q u est i o n w as n o tsu ffi ci en t l y i m p ro p er t o w arran tsan ct i o n s. O n the f a c t s a s pr e s e nt e d, i tm a y be pe r f e c t l y f a i rt o c onc l ude t h atR oge r s , A s t onN evada, and L eV i l l i erac t ed i n b ad fa i th and w i th i m prop erpu rpose w hen t hey f i l ed t h e C h ap t er 11 c a s e , s e e m i ngl y t o s t a ve of f the unde r l y i ng s t a t e c our ta c t i on, a nd
c o n tin u e d to p la y f

a s t a n d lo o s e w ith th e c o u r t a n d th e ir a tto r n e y s . B u t, it is e n tir e ly d if f e r e n t to im p u te th a t b a d f a ith a n d im p r o p e rp u rp o s e to a c a r e le s s a tto r n e y a n d h is
e n tir e f ir m . C o n s e q u e n tly , w e m u s t c o n c lu d e th a t th e b a n k r u p t c y c o u r t a b u s e d itsTh eba nk ru ptc y c ourt and Appe lla nts a gre ethat mo ne tary

sa nc tio ns wereno t availa

ble 2 to the court for

any alleg ed Rule 9011 violation, as they would run af

oul of Rule 9011(c) (2)( B)
. See F ED . R. B A N KR . P. 9011(c) (2)( B) . Fur ther, be causethe bankr

uptcy court errone ously

found ba d f a ithon thepa rt of Appe lla nts in t his c a se , it

a lso e rre d in

inv okingits inh e rent p ow e r t o impose monetary

sanctions. See F ink v. Gomez, 239 F.3d 989, 993 (9th Cir. 2001) (stating“bad faith is require d for sa

nctions under the c ourt’s inherent power sa nctions”). How ever , during argument in o pe n c ourt , App e lla nts ’ c ouns e l st ate d th at mo ne tary sa nc tio ns areno t at is su ein this case. Counsel stated that the $9,640.00 fine imposed by the bankr uptcy court ha d alre ady be e n p a id t o th eB oy

Sc outs o f Ame ri c a

and that App e lla

nts areno t se e kin gto re c ov e r i t. Thu s, we a ddress only

the non-moneta

ry sanctions ordered by

the bankr uptcy court. 17 di s c r e t i on i n i m pos i ng the s a nc t i ons tha t i t di d i n thi s c a s e be c a us e “ i tba s e d i t s rul i ng
on . . . a c l ea rl y e rr on eous as se ss m entof the ev id en ce. ” S ee R et ai l F l oo ri ng D ea l er s of A m . , I nc . , 339 F
. 3d a t1150. 2 B
. S anct i on s r ose t o t he pu ni t i ve l evel W e a l s o c onc l ude tha tthe b an k ru pt c y c our ta bus e d i t s di s c r e t i on i n i m pos i ng
s a nc t i ons tha t r os e t o the puni t i ve l e ve l
. S e e R e t a i l F l oor i ng D e a l e r s of A m . , I nc . , 339 F
. 3 d a t 1 1 5 0 . W h ile w e r e c o g n iz e th a t b a n k ru p tc y c o u r ts h a v e b r o a d d is c r e tio n in
o rd eri n g san ct i o n s p u rsu an t t o R u l e 9 0 1 1 , an d h av e o rd ered a w i d e array o f san ct i o n s, i nc l udi ng f

i nes, at t o r ne y s ’ f

e e s a nd c os t s , di s gor ge m e ntof f e e s c ha r ge d f

orthe
san ct i o n ab l e co n d u ct , m an d at o ry l eg al ed u cat i o n , an d referrals t o d i sci p l i n ary b o d i es,
s e e G e or ge ne M
. V a i r o, R ul e 11 S a nc t i ons : C a s e L a w , P e r s pe c t i ve s a nd P r e ve nt a t i ve M ea sure s 566 –7 4 (R i char d G
. John son, ed. , 3d ed. 20 03 ), R ul e 901 1 st at es tha t“ [a ]
sa nct i on i m po se d for vi ol at i on of thi s rul e s hal l be l i m i t ed t o w hati s s uffi ci entt o d et er
re pet i t i on of such cond uctor com parabl e c on du ctby ot hers si m i l ar l y si tuat ed, ” F ED .Appe lla nts a lso state d in

op e n c ourt

duringora l argument t

hat th e y wi ll c e rt a inly 3 complete e ight hour s of continuingleg al educ ation in bankruptcy and four hours in ethics or p r o f e s s io n a l re s p o n s ib il it

y to me e t t h e ir o wnan d th es tate ’ s p ro f

e s s io n a l s ta

n d ard s . We encourag e such a

prac tice; however, they

need not submit proof of c ompliance with future ba nk ru ptc y fi lin g s. 18 R. B ANKR . P. 9011( c ) ( 2)
. B y e xt e ns i on, s a nc t i ons or de r e d pur s ua ntt o R ul e 9011 a nd the c our t ’ s i nhe r e ntpow e rs houl d notr i s e t o the l e ve l of a pe na l t y. S e e M i l l e rv. C a r di na l e ( I n r e D e vi l l e ) , 280 B
. R
. 483, 4 97–98 ( B
. A
. P
. 9th C i r . 2002)
. W e c a nnot undo the e f

f e c tof c om pl e t e d a c t i ons orw a i ve d i s s ue s , butw i l l va c a t e the or de rof the b an k ru p t cy co u rti n i t s en t i rety. M an y o f th e san ct i o n s h av e al read y b een fu l l y carri ed o u t b y A p p ella n ts . A s
s uc h, A ppe l l a nt s c onc e de d i n ope n c our tdur i ng or a l a r gum e nttha tthe onl y s a nc t i ons f r om w hi c h the y s e e k us t o r e l i e ve the m a r e : ( 1) the publ i c r e pr i m a nd i n the fo rm of th e p u b lic a t i o n o f

th e c o u r t’s o p in io n ; a n d ( 2 ) th e r e q u ir e m e n t th a t A p p e lla n ts f ile p r o o f o f c o m p le tio n o f e th ic s a n d b a n k ru p tc y c o n tin u in g le g a l e d u c a tio n , a lo n g w ith 3
a c opy of the J a nua r y 25, 2006 ba nkrupt c y c our tor de r , be f or e a ppe a r i ng or f

i l i ng a ny doc um e nti n the B an k ru p t c y C our tf orthe D i s tr i c tof

N e va da dur i ng the ne xtf i ve years, w h i ch co u l d b e au t o m at i cal l y ren ew ed fo r an ad d i t i o n al fi v e years. A p p el l an t s’
a r g u m e n ts a r e w e ll ta k e n . D u e , p e r h a p s , in p a r t, to th e in te m p e r a te b r ie f , w r itte n in
a nge r , i n r e s pons e t o the ba nkrupt c y c our t ’ s M a r c h 21, 2005 or de rt o s how c a us e , the bank rupt cy courtabused i t s d i sc re t i on and cam e dow n w i th these equal l y i nt em pera t e,19

p u n itiv e s a n c tio n s in its e g r e g io u s f in a l o r d e r . F orthe f or e goi n g r e a s ons , w e R E V E R S E the di s tr i c tc our t ’ s j udgm e nta nd V A C A T E th e J a n u a r y 2 5 , 2 0 0 6 o r d e ro f th e b a n k ru p tc y c o u r t.