Opinion ID: 781254
Heading Depth: 4
Heading Rank: 2

Heading: Punitive Sanctions under the Bankruptcy Court's Contempt Authority

Text: 67 Viewing the bankruptcy court award through the lens of its contempt authority we must, however, reject the Trustees' principal argument on appeal — that the entire award can be sustained as punitive sanctions. 68 As both Walls and Pace emphasize, the contempt authority conferred on bankruptcy courts under § 105(a) is a civil contempt authority. As such, it authorizes only civil sanctions as available remedies. 69 We recently explained the difference between civil sanctions and criminal sanctions: Civil penalties must either be compensatory or designed to coerce compliance. F.J. Hanshaw Enters., Inc. v. Emerald River Dev., Inc., 244 F.3d 1128, 1137-38 (9th Cir.2001). In contrast, a flat unconditional fine totaling even as little as $50 could be criminal if the contemnor has no subsequent opportunity to reduce or avoid the fine through compliance, and the fine is not compensatory. Id. at 1138 (citation omitted). See also Int'l Union, United Mine Workers of Am. v. Bagwell, 512 U.S. 821, 827-34, 114 S.Ct. 2552, 129 L.Ed.2d 642 (1994). This is so regardless of whether the noncompensatory fine is payable to the court or to the complainant. Hanshaw, 244 F.3d at 1138 n. 7. Whether the fine is payable to the complainant may, however, be one relevant factor in determining whether the fine is compensatory or punitive. Id. 70 The sanction award assessed against Mr. Lindblade, if considered without regard to the propriety of the compensatory award as the Trustee suggests, was neither intended to coerce compliance nor intended to compensate the Trustee for actual damages. It was therefore a criminal contempt sanction. 71 We have never authorized punitive ( i.e. criminal) sanctions under the contempt authority of § 105(a). In Del Mission we did state in dicta that [t]he only meaningful difference between awarding damages under § 362(h), as opposed to § 105(a), is that relief under § 362(h) is mandatory, while relief under § 105(a) is discretionary. 98 F.3d at 1152-53. Interpreted broadly, that statement could imply that because punitive damages are available under § 362(h), punitive sanctions must be similarly available under § 105(a). 72 On close inspection, however, we are convinced otherwise. In both Del Mission and the case on which Del Mission relied ( Pace ), the bankruptcy court had awarded only compensatory sanctions, in the form of costs and attorneys' fees. Those cases, therefore, could not and did not consider the availability of punitive sanctions under § 105(a). Moreover, because punitive sanctions are criminal contempt sanctions, we very much doubt that Del Mission decided both implicitly and unnecessarily a difficult issue which has engendered as much debate among our sister circuits as has a bankruptcy court's ability to adjudicate and punish criminal contempt. 15 73 Reaching the issue as one of first impression, we conclude that criminal contempt sanctions are not available under § 105(a). Section 105(a) contains no explicit grant of authority to award punitive damages. Rather, the language of § 105(a) authorizes only those remedies necessary to enforce the bankruptcy code. Walls, 276 F.3d at 507. The sanctions associated with civil contempt — that is, compensatory damages, attorney fees, and the offending creditor's compliance — adequately meet that goal, id. at 507, rendering serious punitive sanctions unnecessary. See also Sosne v. Reinert & Duree (In re Just Brakes Corp. Sys.), 108 F.3d 881, 885 (8th Cir.1997) (holding that the power to punish through punitive sanctions extends beyond the remedial goals of § 105(a)); Griffith v. Oles ( In re Hipp ), 895 F.2d 1503, 1515-16 (5th Cir.1990) (same). 74 Although relatively mild non-compensatory fines may be necessary under some circumstances, Zambrano v. Tustin, 885 F.2d 1473, 1479 (9th Cir.1989); Hanshaw, 244 F.3d. at 1140 n. 10, the language of § 105(a) simply does not allow for the serious punitive penalties here assessed (a minimum of $50,000 and, under the trustee's theory, over $200,000). As we did in Hanshaw, we leave for another day the development of a precise definition of the term serious punitive (criminal) sanctions. Id. (citing cases and implying that any fine above $5,000, at least in 1998 dollars, would be serious, but declining to reach the question). 16 Our interpretation of the language of § 105(a) is reinforced by the fundamental due process considerations we discussed in Hanshaw. That case held that due process requires that an individual accused of criminal contempt receive several procedural protections, including a jury trial, before serious criminal penalties can be imposed. 244 F.3d at 1138 (citing Bagwell, 512 U.S. at 833, 114 S.Ct. 2552). 75 The bankruptcy court is ill-equipped to provide those procedural protections. For example, the bankruptcy court is unable to preside over a jury trial absent explicit consent from the parties and the district court. 28 U.S.C. § 157(e). 17 Further, allowing a non Article III court to adjudicate criminal contempt raises fundamental constitutional questions. 18 These considerations confirm our reading of § 105(a). 76 The proposition that due process prevents a bankruptcy court from imposing serious punitive sanctions under the contempt authority of § 105(a) for an automatic stay violation has been portrayed as being in some tension with the bankruptcy court's authority to impose punitive damages under § 362(h). See Cox v. Delaware, Inc., 239 F.3d 910, 916 (7th Cir.2001) (so stating). We do not see any such tension as pertinent for present purposes. Regardless of the bankruptcy court's ability to award punitive damages under express statutory authorization such as § 362(h), we conclude that additional procedural protections are required where, as here, a court utilizes its broad contempt powers to vindicate its own authority. 77 When a court merely implements the will of Congress — such as by awarding punitive damages to litigants under § 362(h) — there is no concern that a court is abusing judicial power shielded from direct democratic control. In contrast, the contempt power is uniquely liable to abuse, in part because [u]nlike most areas of the law, where a legislature defines both the sanctionable conduct and the penalty to be imposed, civil contempt proceedings leave the offended judge solely responsible for identifying, prosecuting, adjudicating, and sanctioning the contumacious conduct. Bagwell, 512 U.S. at 831, 114 S.Ct. 2552. 78 Additional procedural protections are therefore required before that authority can be used in a punitive fashion. As the Eighth Circuit aptly stated when it held — exactly as we do here — that § 105(a) does not authorize punitive sanctions for automatic stay violations: 79 [T]he power to punish for a statutory violation is a criminal law power. It must be expressly conferred by Congress, and its exercise is often subject to the procedural safeguards that protect the criminally accused ... We conclude that Congress has conferred no power to punish for a violation of § 362(a) other than the punitive damage authority in § 362(h). 80 Just Brakes, 108 F.3d at 885 (emphasis added). See also Cox, 239 F.3d at 917 (refusing to extend bankruptcy court's ability to award punitive damages beyond express congressional grant of that authority in provisions such as § 362(h)). 81 We therefore conclude that when a bankruptcy court exercises the contempt authority of § 105(a), it may not impose serious punitive sanctions. 82