1 United States Court of Appeals,

Fifth Circuit.

No. 93-9180.

Summary Calendar.

In the Matter of Gordon F. SADKIN, Debtor.

Perkins COIE, Appellant,

v.

Gordon F. SADKIN, Appellee.

Nov. 2, 1994.

Appeal f rom the United States District Court for the Northern

District of Texas.

Before KING, HIGGINBOTHAM and BARKSDALE, Circuit Judges.

PER CURIAM:

Appellant Perkins Coie ("Perkins"), a law firm headquartered

in California, appeals from the district court's affirmance of the

bankruptcy court's order that allow ed Gordon F. Sadkin's claimed

exempti on of his wrongful garnishment cause of action and denied

all relief requ ested by Perkins. We affirm the judgment of the

district court.

I. BACKGROUND

Prior to events giving rise to this bankruptcy, Perkins

represented the debtor Gordon F. Sadkin ("Sadkin") in various real

estate vent ures, allegedly earning attorneys' fees of more than

$18 0,000. When a dispute over legal fees arose, Perkins filed a

pre-judgment garnishment suit in a Texas district court. The court

later granted Sadkin's Motion to Dissolve the Garnishment, ruling

that the debt was not liquidated. Following the dissolution order,1 Bankruptcy Rule 4003(b) provides in relevant part that "The

trustee or any creditor may file objections to the list of

property claimed as exempt within 30 days after the conclusion of

the meeting of creditors held pursuant to Rule 2003(a) or the

filing of any amendment to the list or supplemental schedules

unless, within such period, further time is granted by the

court." Bankr.Rule 4003(b), 11 U.S.C.A. (emphasis added).

2 on March 21, 1991, Sadkin filed a petition for relief under Chapter

11 of the Bankruptcy Code. On February 14, 1992, the bankruptcy

court converte d the case to a proceeding under Chapter 7 of the

Bankruptcy Code. On March 25, 1992, Sadkin filed amended Chapter

7 schedules, including a schedule of property claimed to be exempt

from distribution to creditors. Listed on that exemption schedule

was a "[p]otential cause of action against Perkins Coie for damages

for lost income due to wrongful garnishment." Although an initial

creditors' meeting on March 30, 1992 was postponed, S adkin's

creditors, including a representative of Perkins, did meet on April

3, 1992.

On May 21, 1992, Perkins filed a late objection to Sadkin's

"wrongful garnishment" exemption, 1 coupled with a motion for

sanctions. In essence, Perkins' objection alleged that Sadkin had

no legal basis for his claimed exemption of a potential wrongful

garnishment cause of action. As a consequence, Perkins requested

that the claimed exemption be stricken. Moreover, Perkins

maintained that sanctions were warranted because Sadkin's cause of

action was fraudulently and falsely designated as exempt property.

At a July 27, 1992 hearing, the bankruptcy court found no fraud in

Sadkin's actions. On August 14, 1992, the bankruptcy court issued

a writt en order allowing Sadkin's exemption for a wrongful3

gar nishment cause of action and denying all relief requested by

Perkins. Similarly, in both an August 31, 1993 order and a

November 22, 1993 order, the district court affirmed the decision

of the bankruptcy court. The district court noted that "[t]aken as

a whole, Sadkin's pleading is equivocal on the issue of whether

Sadkin filed a false claim of exemption and, therefore, does not

establish that sanctions are warranted."

II. STANDARD OF REVIEW

A bankruptcy court's findings of fact are subject to the

clearly erroneous standard of review. S ee Haber Oil Co. v.

Swinehart (In re Haber Oil Co.), 12 F.3d 426, 434 (5th Cir.1994).

When the district cour t has affirmed the bankruptcy court's

findings, this standard is strict ly applied, and reversal is

appropriate only when there is a firm conviction that error has

been committed. See Chiasson v. Bingler (In re Oxford Management

Inc.), 4 F.3d 1329, 1333 (5th Cir.1993). Similarly, the imposition

of sanctions is a matter of discretion for the bankruptcy court;

thus, we review under an abuse of discretion standard. S ee Shipes

v. Trinity Indus., 987 F.2d 311, 323 (5th Cir.), cert. denied,

---

U.S. ----, 11 4 S.Ct. 548, 126 L.Ed.2d 450 (1993); T homas v.

Capital Sec. Servs., Inc., 836 F.2d 866, 872-73 (5th Cir.1988) (en

banc) . Finally, conclusions of law are reviewed de novo. S ee

Chiasson, 4 F.3d at 1333.

III. ANALYSIS AND DISCUSSION

A. Due Process

Perkins initially argues that the bankruptcy court's refusal4

to consider its belated objection to the potential cause of action

e xemption denied its right to due process. Perkins' argument

hinges on an interpretation of Bankruptcy Rule 1009(a), which

states in the following relevant part:

[a] voluntary petition, list, schedule, or statement may be

amended by the debtor as a matter of course at any time before

the case is closed. T he debtor shall give notice o f the

amendment to the trustee and to any entity affected thereby.

Bankr.Rule 1009(a), 11 U.S.C.A. (emphasis added). Perkins alleges

that Sadkin failed to provide notice of the amended list of

exemptions, and as a consequence, Perkins claims that it did not

learn of the disputed exemption until after the time for filing

objections had passed. S ee Ban kr.Rule 4003(b), 11 U.S.C.A.

(providing a thirty-day time period for obj ecting to claimed

exemptions).

We reject Perkins' contentions. Rule 1009(a) does not require

any particular type of notice. Even though Sadkin's amended

schedules were not served on Perkins, the bankruptcy court

implicitly found that Perkins had actual notice of Sadkin's claimed

exemption. Such notice is adequate to satisfy Rule 1009(a) and to

meet due process concerns. S ee First Nat'l Bank v. Peterson (In re

Peterson), 929 F.2d 385, 386-88 (8th Cir.1991) (finding that a

creditor's receipt of a trustee's objection to amended exemptions

provided actual notice of the c laimed exemptions to satisfy Rule

1009(a)); I n re Cooke, 84 B.R. 67, 68-69 (Bankr.N.D.Tex.1988)

(concluding that a debtor's announcement of a homestead claim at a

meeting o f creditors provided actual notice of the claimed

exemption to satisfy Rule 1009(a)). It is undisputed that on March2 The Ninth Circuit has noted that "[w]hen there is an

independent trustee, most creditors, particularly smaller ones,

are likely to rely on the trustee to smoke out any assets

properly belonging to the estate. The debtor's responsibility to

serve creditors is therefore narrower." Fireman's Fund Ins. Co.

v. Woodson (In re Woodson), 839 F.2d 610, 615 n. 6 (9th

Cir.1988).

5 25, 1992, Sadkin filed amended schedules, including the contested

exemption. Perkins had knowledge that these amended schedules had

been filed, and therefore, Perkins knew that changes had been made.

In addition, at an April 3, 1992 creditors' meeting attended by a

representative of Perkins, Sadkin discussed and answered questions

about his purported claim of wrongful garnishment against Perkins.

In fact, the record states that the trustee questioned Sadkin at

that meeti ng about his purported claim of wrongful garnishment.

The record further notes that the trustee, after ques tioning

Sadkin, determined that the claim was of d e minimis value to the

estate and decided to abandon it. 2 Nevertheless, despite the

discussions about the claim, Perkins did not object until May 21,

1992—well after the thirty-day deadline of Rule 4003(b).

The bankruptcy court allowed the exemption and denie d all

relief, implicitly f i nding that the discussions involving the

potential wrongful garnis hment cause of action provided actual

notice that the claim had been designated as exempt. C f. Norman v.

Apache Corp., 19 F.3d 1017, 1021 (5th Cir.1994) ("The denial of a

motion by the district court, although not formally expressed, may

be implied by the entry of a final judg ment or of an order

inconsistent with the g ranting of the relief sought by the

motion."). No evidence in the record indicates that this finding6

is clearly erroneous. Thus, Perkins' actual notice of the

exemption satisfied both the notice requirement of Rule 1009(a) and

fundamental due process con cerns. Indeed, with knowledge that

amended schedules had been filed, Perkins could have sought a time

extension under Rule 4003(b) to insure that it had fully informed

itself of the schedule changes. Moreover, considering that the

amended schedules were filed with the bankruptcy clerk on March 25,

1 992, Perkins could have examined the schedules within th e

thirty-day period for objections, and Perkins certainly could have

examined them before the May 21, 1992 filing date of its objection.

As the bankruptcy court noted in In re Cooke :

[A] procedural rule containing a time bar that requires a

party to monitor a court record for a filing does not

necessarily impose an u n reasonable burden on that party.

Analogously, the federal rules of appellate procedure require

a litigant who receives an unfa vorable court ruling to

vigilantly monitor the case for entry of a final judgment or

order if that litigant wants to preserve the right to appeal.

84 B.R. at 68. Requiring Perkins to act on its actual notice of

the potential cause of action exemption does not unreasonably

frustrate the creditor's right to object to an exemption, nor does

it undermine the creditor's due process protections. C f. Sequa

Corp. v. Christopher (In re Christopher), 28 F.3d 512, 519 (5th

Cir.1994) ("[D]ue process requires on ly notice that is both

adequate to apprise a party of the pendency of an action affecting

its rights and timely enough to allow the p arty to present its

objections.").

B. Sanctions for Fraud

Pervading Perkins' brief, and especially its second, third,3 Bankruptcy Rule 9011, which is substantially similar to

Federal Rule of Civil Procedure ("FRCP") 11, provides in relevant

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 ... of existing law; and that it is not

interposed for any improper purpose.... If a document

is signed in violation of this rule, the court on

motion or on its own initiative, shall impose ... an

appropriate sanction.

Bankr.Rule 9011(a), 11 U.S.C.A. Perkins also claims that

the Court has the authority to sanction Sadkin under FRCP

11.

4 The complete title of Perkins' initial objection to the

exemption is "Objection to False Designation of Exempt Property,

Motion to Extend Time to Object to Debtor's Claimed Exemptions,

Motion for Sanctions and to Strike Debtor's Fraudulently Claimed

Exemptions, and Motion for Relief Under Rule 60(b) and Bankruptcy

Rules 9024 and 1007."

7 and fourth arguments, are assertions that Sadkin "fraudulently" and

"falsely" designated the pote ntial wrongful garnishment claim as

exempt propert y, and Perkins' request for the court to sanction

Sadkin by striking the "meritless exemption claim" under Bankruptcy

Rule 9011. 3 Perkins offers no evidence of this misconduct except

for highlighting various paragraphs which were admitted by Sadkin

in his response to Perkins' "Objection to False Designation of

Exempt Property" ("Objection"). 4 The bankruptcy court denied all

relief requested by Perkins in its Objection, as the court did not

find any fraud on the part of the debtor. The district court

affirmed, noting that "[t]aken as a whole, Sadkin's pleading is

equivocal on the issue of whethe r Sadkin filed a false claim of8

exemption, and, therefore, does not establish that sancti ons are

warranted under Rule 9011."

We find nothing in the record to indicate that the bankruptcy

court abused its discretion in denying sanctions. The bankruptcy

court implied that Sadkin's exemption was a theory based on a loss

of future earning capacity that, regardless o f its validity, did

not warrant a Rule 9011 sanction. In addition, although Perkins

emphasizes Sadkin's admissions, there are relevant denials that

undermine the allegations of fraud and counsel against reversal of

the bankruptcy court's findings. For example, Sadkin's denials of

paragraphs 2, 7, and 9 of Perkins' Objection rebut the allegations

of fraud, intent to mislead, and willful abuse of the bankruptcy

process. By itself, Sadkin's response is not enough to compel this

Court to reverse the denial of sanctions, and with no other

evidence of fraud presented by Perkins, sanctions are not

warranted.

Moreover, assuming, without deciding, that Sadkin's claimed

exemption of a potential wron gful garnishment cause of action is

without a colorable basis, striking Sadkin's exemption claim would

still not be warranted because of Perkins' belated objection to the

exemption. As the Supreme Court noted in T aylor v. Freeland &

Kronz, --- U.S. ----, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992), the

Bankruptcy Code describes the following procedure for claiming and

objecting to exemptions:

The debtor shall file a list of property that the debtor

claims as exempt under subsection (b) of this section....

Unless a party in interest objects, th e property claimed as

exempt on such list is exempt.9

Id. at ----, 112 S.Ct. at 1647 (quoting 11 U.S.C. § 522( l ) (1988))

( emphasis added). The Supreme Court continued by noting that

although Section 522( l ) does not specify the time for objecting to

a claimed exemption, Bankruptcy Rule 4003(b) provides a thirty-day

deadline. S ee id. In T aylor, the appellant filed a late objection

to the debtor's claimed exemption, but nevertheless argued that

late objections should be allowed under Section 522( l ) and

Bankruptcy Rule 4003(b) if a debtor does not have "a good-faith or

reasonably disputable basis" for claiming the exemption. Taylor,

--- U.S. at

---- - ----, 112 S.Ct. at 1647-48. The appellant

justified this interpretation by asserting that "requiring debtors

to file claims in good faith will discourage them from claiming

meritless exemptions merely in hopes that no one will object." I d.

at ----, 112 S.Ct. at 1648.

The Supreme Court squarely rejected this argument. Writing

for the Court, Justice Thomas adopted a literal approach to the

interpretation of Section 522( l ) and Bankruptcy Rule 4003(b). As

Justice Thomas explained:

Rule 4003(b) gives the trustee and creditors 30 days from the

initial creditors' meeting to obj ect. By negative

implication, the Rule indicates that creditors may not object

after 3 0 days "unless, within such period, further time is

granted by the court." The Bankruptcy Court did not extend

the 30-day period. Section 522( l ) therefore has made the

property exempt. [A trustee] cannot contest the exemption at

this time whether or not [the debtor] had a colorable

statutory basis for claiming it.

Id. (quoting Bankr.Rule 4003(b), 11 U.S.C.A.) (emphasis added).

After observing that "[d] eadlines may lead to unwelcome results,

but they prompt parties to act and they produce finality," the5 Section 105(a) of the Bankruptcy Code provides the

following:

The court may issue any order, process, or judgment

that is necessary or appropriate to carry out the

provisions of this title. No provision of this title

providing for the raising of an issue by a party in

interest shall be construed to preclude the court from,

sua sponte, taking any action or making any

determination necessary or appropriate to enforce or

implement court orders or rules, or to prevent an abuse

of process.

11 U.S.C. § 105 (1988).

6 The relevant portions of Federal Rule of Civil Procedure

60(b) provide the following:

On motion and upon such terms as are just, the court

10 Court concluded, "[w]e have no authority to limit the application

of § 522( l ) to exemptions claimed in good faith." I d. at

--- - --

--, 112 S.Ct. at 1648-49.

In the instant case, Sadkin's creditors, includin g a

representative of Perkins, met on April 3, 1992 . Perkins'

Objection to the claimed exemption was filed on May 21, 1992—well

past the thirty-day deadline of Rule 4003(b). Even if the disputed

exemption is wholly without merit and devoid of a statutory basis,

Taylor still holds that the claim is exempt under Section 522( l )

because of the late objection. Thus, we find no basis for striking

the exemption.

C. Equitable Relief

In its fifth argument, Perkins asse rts that the bankruptcy

court abused its discretion in not using t he equitable powers

granted by Section 105(a) of the Bankruptcy Code 5 or Federal Rule

of Civil Procedure 60(b) 6 to sustain Perkins' late ob jection. Wemay relieve a party or a party's legal representative

from a final judgment, order, or proceeding for the

following reasons: (1) mistake, inadvertence,

surprise, or excusable neglect ... (3) fraud[,] ...

misrepresentation, or other misconduct of an adverse

party ... or (6) any other reason justifying relief

from the operation of the judgment.

11 decline the invitation to grant relief under these provisions.

First, "Section 105(a) permits courts to enforce the rules in

order to prevent an abuse o f process." As noted, however, the

bankruptcy court found no fraud on th e part of the debtor and no

additional ev idence in the record suffices to undermine this

f inding. Thus, we find no "abuse of process" that calls for

invocation of Section 105(a).

Second, Section 105(a ) authorizes a bankruptcy court "to

fashion such orders as are necessary to further the substantive

provisions of the Bankruptcy Code." C hiasson v. Bingler (In re

Oxford Ma nagement Inc.), 4 F.3d 1329, 1333 (5th Cir.1993).

Nevertheless, "the powers granted by that statute must be exercised

in a manner that is consistent with the Bankruptcy Code." Id. at

1334. The statute " "does not authorize the bankruptcy courts to

create substantive rights that are otherwise unav ailable under

applicable law, or constitute a roving commission to do equity.' "

Id. (quoting United States v. Sutton, 786 F.2d 1305, 1308 (5th

Cir.1986)).

In the instant case, the use of equitable powers to sustain

Perkins' belated Objection would be inconsistent with the operation

of Section 522( l ), Bankruptcy Rule 4003(b), and the Supreme

Court's interpretation of these provisions in Taylor. Simply put,7 As Judge Easterbrook noted while denying equitable relief

under Section 105(a), "[e]nforcing the Bankruptcy Rules according

to their terms cannot be an abuse of discretion." In re

Danielson, 981 F.2d 296, 299 (7th Cir.1992).

12 Perkins missed the explicit thirty-day deadline for filing

objections, and Section 105(a) "does not allow the bankruptcy court

to override explicit mandates of other sections of the Bankruptcy

Code." 2 Collier on Bankruptcy ¶ 105.01[3] (Lawrence P. King et

al. eds., 15th ed. 1994). The bankruptcy court and the district

court saw no reason to excuse Perkins' delay, and given the Supreme

Court's holding in Taylor, the Bankruptcy Rules were properly

enforced as written. 7

Finally, Section 105(a) provides equitable powers for the

bankruptcy court to use at its discretion. S ee In re Daniels on,

981 F.2d 296, 298-99 (7th Cir.1992) ("Whatever power § 105(a)

creates, it reposes in bankruptcy judges rather than appell ate

courts and does not upset the norm of timeliness."). The

bankruptcy court found no fraud on the part of Sadkin and allowed

the exemption to stand. We find nothing in the record to indicate

that the bankruptcy court abused its equitable discretion in

reaching these conclusions.

Similarly, the bankruptcy court did not abuse its discretion

in refusing to grant relief under FRCP 60(b)(1), (3), and (6). The

court implici tly found that Perkins had actual notice of the

disputed exemption; therefore, there is no justifiable mistake,

inadvertence, or other ground that warrants relief under Rule

60(b)(1). The court found no fraud on the part of Sadkin;8 We also find that the district court did not abuse its

discretion in refusing to allow Perkins to supplement the record

on appeal. Even if the record should have been supplemented with

the transcript of the July 27, 1992 hearing before the bankruptcy

court, the district court's refusal would present only harmless

error, as the transcript is not helpful to Perkins' position.

See Fed.R.Civ.P. 61. Sadkin himself cites numerous portions of

the transcript in his brief that do not support Perkins'

arguments. Moreover, the bankruptcy court made specific findings

in the transcript that undermine Perkins' contentions. As the

bankruptcy court noted, "I don't know that there's any great

particular harm here, and I would have trouble seeing fraud." In

short, the transcript does not aid Perkins' efforts.

13 therefore, no relief is warranted under Rule 60(b)(3) . In

addition, as we have already noted, the record does not indicate

that these findings are clearly erroneous or an abuse of

discretion. Finally, with no further evidence of misconduct or

justifiable error in the record, relief under the "catch-all" Rule

60(b)(6) is also not warranted. 8

IV. CONCLUSION

For the foregoing reasons, the judgment of the district court

affirming the bankruptcy court's denial of all relief requested by

Perkins is AFFIRMED.