Opinion ID: 2966611
Heading Depth: 1
Heading Rank: 1

Heading: jurisdiction

Text: to abandon it. B. The bankruptcy court found, as a matter of fact, that the liens on Lot 3 exceeded its value and that the property therefore had little, if any, equity. Accordingly, the court granted the trustee's motion to abandon Weiss's interest in the property. McGahren argues that even if the bankruptcy court did have jurisdiction over the matter, it should not have abandoned Weiss's interest in Lot 3 because the property was worth a substantial amount of money. Before a bankruptcy court may abandon property of the estate, the trustee must ascertain the property's fair market value and the amount and validity of the outstanding liens against the property. New Jersey Dep't of Envtl. Protection v. National Smelting of N.J., Inc. (In re National Smelting of N.J., Inc.), 49 B.R. 1012, 1014 (D. Colo. 1985). At the abandonment hearing, First Citizens Bank presented testimony and evidence regarding the outstanding indebtedness on the mortgage. The evidence revealed that the amount owed on the mortgage totaled $52,557.83. The evidence also established that McGahren owed $1,016.75 in real estate taxes. Moreover, the bank had incurred almost $5,000 in attorneys' fees and costs in its attempts to collect on the mortgage. Thus, the record supports the bankruptcy court's finding that the liens against the property amounted to over $58,000. The parties presented conflicting evidence at the hearing regarding Lot 3's fair market value. First Citizens Bank's expert, Ted Vish, appraised the property at $55,000. The house on Lot 3 had sustained substantial fire and water damage that required extensive reconstruc- tion. At the time that Vish appraised the property, McGahren had not completed the repairs. After McGahren received a copy of Vish's appraisal, however, he began to complete the repairs in what the dis- trict court described as a rather slipshod manner. McGahren then hired an architect and a real estate salesman to appraise Lot 3. They testified that Lot 3 was worth between $68,000 and $75,000. The bankruptcy court credited Vish's opinion. The court found that McGahren's architect had not yet been licensed as an appraiser. In 12 addition, McGahren's appraisers based their estimates on incomplete and incorrect information. For example, McGahren failed to inform them that he had recently modified Lot 3's property restrictions, that many other property restrictions existed, and that Lot 3 had a history of water seepage. Furthermore, McGahren's position that Lot 3 is worth between $68,000 and $75,000 does not make sense. The district court rightly pointed out that if the property was worth that much, McGahren's dogged determination to include Lot 3 in the bankruptcy estate would be incomprehensible since that would mean that McGahren would receive only one-half of the property's equity, as opposed to all of the equity if the bankruptcy court abandoned the property. The district court noted that McGahren's property values were less than credible and that his efforts to include Lot 3 in the bankrupt estate probably resulted from his desire to avoid the financial difficulties that would result from a foreclosure action against him. Thus, we find that the bankruptcy court did not clearly err when it credited First Citizens Bank's expert over McGahren's experts. The facts established at the abandonment hearing support the bankruptcy court's conclusion. Moreover, since Vish appraised Lot 3 at only $55,000, the bankruptcy court correctly concluded that the property's liens exceeded its value and that the property therefore was of incon- sequential value to the estate. Thus, we hold that the district court properly affirmed the bankruptcy court's order abandoning the bankrupt estate's interest in Lot 3 and granting relief from the automatic stay on the property. III. McGahren also sued Heck in a separate adversary proceeding for negligence and intentional misconduct. McGahren claimed that since Lot 3 itself was part of the bankrupt estate, Heck should have sold the property pursuant to the $68,000 offer that McGahren received in 1989 before the fire partially destroyed the property. The bankruptcy court granted summary judgment to Heck, and the district court affirmed. In light of its finding that Lot 3 itself never became property of the bankrupt estate, the district court held that Heck had no duty to collect and sell it. 13 We review the district court's grant of summary judgment de novo. See M & M Medical Supplies and Serv., Inc. v. Pleasant Valley Hosp., Inc., 981 F.2d 160, 163 (4th Cir. 1992). In order to prevail on a motion for summary judgment, the moving party must establish that no genuine issues of material fact exist and that it is entitled to judg- ment as a matter of law. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). If the moving party carries its burden, the nonmoving party may not rest on the allegations in its complaint, but must pro- duce sufficient evidence that demonstrates that a genuine issue exists for trial. Id. at 324. We view the facts in the light most favorable to the nonmoving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). We have previously outlined the nature and scope of a bankruptcy trustee's liability. In Yadkin Valley Bank & Trust Co. v. McGee, 819 F.2d 74, 76 (4th Cir. 1987), we held that a bankruptcy trustee may be held liable in his or her official capacity as a trustee for acts of negli- gence. However, a trustee may be held personally liable only for will- ful or intentional misconduct. Id. McGahren first contends that Heck should be held liable in her official capacity. However, Heck did not act negligently when she failed to collect and sell Lot 3 pursuant to the 1989 offer. As stated above, Lot 3 itself never became property of Weiss's bankrupt estate because it remained titled to W&M. See In re Signal Hill-Liberia Ave. Ltd. Partnership, 189 B.R. 648, 652 (Bankr. E.D. Va. 1995) (holding that partnership property itself does not become property of an indi- vidual partner's bankrupt estate). Since Lot 3 itself never entered the bankrupt estate, the district court correctly concluded that Heck had no duty to sell Lot 3. Although the bankruptcy estate did include Weiss's partnership interest in Lot 3, we held above that Weiss's interest was of inconsequential value to the estate given the substan- tial liens on the property. Thus, contrary to McGahren's assertion, Heck would have breached her duty to the estate if she had collected Weiss's interest and incurred the significant costs entailed in selling it. McGahren next contends that even if Heck had no duty to collect and sell Lot 3, she acted outside the scope of her duties and should be held personally liable. When McGahren first discovered the title 14 problem in late December 1989 or early January 1990, he contacted Heck. He claims that Heck told him at that time that he would have to pay the bankrupt estate out of the proceeds of any sale of the prop- erty. McGahren contends that Heck's statement prevented him from selling Lot 3 and caused the 1989 offer to fall through. As stated above, however, we may hold bankruptcy trustees personally liable only for willful or intentional misconduct. See Yadkin Valley Bank & Trust, 819 F.2d at 76. McGahren fails to demonstrate that Heck engaged in any willful or deliberate misconduct. The record reveals that Heck, the bankruptcy court, and First Citizens Bank all tried to help McGahren clear the title to Lot 3. In September 1991, Heck offered to abandon the property. In October 1991, a representa- tive of First Citizens Bank wrote to McGahren and advised him of three different methods to clear the title, including abandonment of the property by the trustee. In March 1992, Heck moved to abandon the property, and the bankruptcy court granted her motion. The court advised McGahren that if the abandonment did not clear his title, he should proceed to do so in state court. In August 1992, another bank representative advised McGahren that the bank would help him clear the title if he brought the mortgage current. The undisputed facts in the record demonstrate that when McGahren first learned of the title error, he adamantly insisted that he owned the property exclusively and that the bankrupt estate had no interest. He did not change his position until after the fire damaged the property. At that point, McGahren unrelentingly tried to have the property included in the bankrupt estate. As the bankruptcy court stated: it would be absolutely impossible for the trustee, as it has been impossible for the Court or anybody else to satisfy Mr. McGahren. In fact, the case started out by the trustee offering to do exactly what Mr. McGahren had moved the Court to order the trustee to do and Mr. McGahren immediately changed his position. Thus, McGahren clearly failed to establish that Heck engaged in any intentional misconduct. The record reveals instead that Heck acted only to help McGahren. We therefore hold that the district court 15 properly affirmed the bankruptcy court's order granting summary judgment to Heck. IV. The bankruptcy court imposed sanctions on McGahren pursuant to Federal Rule of Bankruptcy Procedure 9011 and the inherent power of the court for his conduct in opposing Heck's motion for abandonment and First Citizens Bank's motion to lift the stay. McGahren appealed, and the district court affirmed the bankruptcy court's deci- sion to impose sanctions. We review the bankruptcy court's order for abuse of discretion. See Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405 (1990).
Federal Rule of Bankruptcy Procedure 9011 provides in pertinent part: Every petition, pleading, motion and other paper served or filed in a case . . . on behalf of a party represented by an attorney . . . shall be signed by at least one attorney of record. . . . A party who is not represented by an attorney shall sign all papers . . . . 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 signed in violation of this rule, the court on motion or on its own initiative, shall impose on the person who signed it . . . 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. 16 Fed.R.Bankr.P. 9011(a). The bankruptcy court concluded that McGahren violated all three prongs of Rule 9011. The court found that McGahren maintained frivolous factual and legal positions and that he maintained those positions for the improper purpose of delay- ing Lot 3's ultimate foreclosure. In deciding cases based on violations of Rule 9011, courts may look to cases that interpret Federal Rule of Civil Procedure 11. See Valley Nat'l Bank of Ariz. v. Needler (In re Grantham Bros.) , 922 F.2d 1438, 1441 (9th Cir. 1991). In determining whether a signatory violated Rule 11, the court must apply an objective standard of rea- sonableness. See Robeson Defense Comm. v. Britt (In re Kunstler) , 914 F.2d 505, 514 (4th Cir. 1990). The fact that McGahren represented himself pro se in the proceedings below does not change our analysis. Rule 9011 does not exempt pro se litigants from its opera- tion; a pro se litigant has the same duties under Rule 9011 as an attor- ney. See Upadhyay v. Burse (In re Burse), 120 B.R. 833, 837 (Bankr. E.D. Va. 1990); In re 1801 Restaurant, Inc. , 40 B.R. 455, 457-58 (Bankr. D. Md. 1984). The bankruptcy court based sanctions in part on a violation of the first prong of Rule 9011; the court found that McGahren's documents were not well grounded in fact. The court correctly noted numerous misstatements of fact. The record reveals that McGahren initially stated in his documents that he owned Lot 3 exclusively. He also took the inconsistent position that Heck should have sold the property pur- suant to the 1989 offer and that Heck's failure to do so caused him to lose the offer. However, the record reveals that the buyers with- drew their offer not because of title problems, but because the house had serious structural problems and the buyer lost her job. Moreover, McGahren employed false and deceptive methods to prove Lot 3's fair market value. McGahren stated in various signed documents that State Farm had insured Lot 3 for $75,000. However, the record reveals that although State Farm issued a temporary binder while it appraised the property, it ultimately declined to insure the property for any value and denied McGahren's application. As the district court found, [t]his is a prime example of McGahren's use of half-truths to attempt to prove his case. In addition, McGahren's experts based their appraisals on incorrect information; McGahren 17 failed to tell them about property restrictions and water problems. Thus, the property values that McGahren asserted in his documents were deceptive. We therefore hold that the bankruptcy court did not abuse its discretion in concluding that McGahren's signed documents were not well grounded in fact. The district court also found that McGahren's documents were not well grounded in law. We agree. McGahren's contention throughout the abandonment proceedings that the bankrupt estate included Lot 3 was not warranted by existing law. As stated above, courts consistently have held that partnership property itself does not become prop- erty of an individual partner's bankruptcy estate. See, e.g., In re Signal Hill-Liberia Ave. Ltd. Partnership, 189 B.R. 648, 652 (Bankr. E.D. Va. 1995); Magers v. Thomas (In re Vannoy) , 176 B.R. 758, 770 (Bankr. M.D.N.C. 1994). McGahren failed to make a good-faith argument, or any argument at all, for the reversal of such well established law. As one district court noted: To prevail on an appeal from the imposition of . . . sanctions, appellant[ ] must show that the Bankruptcy Court abused its discretion in finding that [his] conduct was not reasonable. . . . Because a determination of whether a legal position is substantially justified depends greatly on factual determinations, [the bankruptcy judge] was better posi- tioned to make such factual determinations. In re Studio Camera Supply, Inc. , 116 B.R. 70, 73-74 (E.D. Mich. 1990). We hold that the bankruptcy court in the instant case did not abuse its discretion in finding that McGahren's signed documents were not well grounded in law. The bankruptcy court could have imposed sanctions for the violations already discussed, see In re Kunstler, 914 F.2d at 518, but the bankruptcy court also based its award of sanctions on McGahren's improper purpose in filing his documents. Rule 9011 provides that improper purposes include purposes to harass or to cause unneces- sary delay or needless increase in the cost of litigation. Fed.R.Bankr.P. 9011. The purposes that Rule 9011 lists are not exclu- 18 sive. See In re Kunstler, 914 F.2d at 518. We agree with the district court that documents filed for the central purpose of delaying or avoiding a collateral state foreclosure constitute documents filed for an improper purpose. In order to determine whether a particular signatory acted with an improper purpose, a district court must judge the signatory's conduct under an objective standard of reasonableness. In re Kunstler, 914 F.2d at 518. In other words, it is not enough that the injured party sub- jectively believes that the signatory filed a document to harass him. Id. Instead, the court must derive the signer's purposes from objective evidence of the signer's motive in filing the document. Id. at 518-19. The court may consider circumstantial facts that surround the filing as evidence of the signer's purpose. Id. at 519. Baseless allegations also indicate an improper purpose. Id. The bankruptcy court in the instant case did not abuse its discretion in finding that the evidence objectively demonstrated that McGahren objected to Heck's motion to abandon for the improper purpose of delaying foreclosure. McGahren openly admitted several times during the course of the abandonment hearings that his efforts to include Lot 3 in the bankrupt estate resulted from his desire to avoid the financial difficulties that would result from a foreclosure action against him. In addition, the fact that McGahren's allegations and asserted property values lacked a factual or legal basis strongly indicates that he filed his documents for an improper purpose. Thus, we affirm the bankruptcy court's finding that McGahren also violated the improper pur- pose prong of Rule 9011. Accordingly, we hold that the bankruptcy court did not abuse its discretion in finding that McGahren violated all three prongs of Rule 9011. McGahren filed questionable documents with inadequate legal foundations that caused the trustee and the bank to incur significant legal expenses in defense.
A federal court also possesses the inherent power to regulate litigants' behavior and to sanction a litigant for bad-faith conduct. See Chambers v. NASCO, Inc., 501 U.S. 32, 43-44 (1991). A court may 19 invoke its inherent power in conjunction with, or instead of, other sanctioning provisions such as Rule 9011. Id. at 46-50. See also In re Heck's Properties, Inc., 151 B.R. 739, 765 (S.D. W.Va. 1992) (It is well-recognized, however, quite apart from Rule 9011, that courts have the inherent authority to impose sanctions upon[litigants] who [are] found to have acted in bad faith, vexatiously, wantonly or for oppressive reasons.). The bankruptcy court sanctioned McGahren pursuant to its inherent powers as well as Rule 9011. McGahren claims that he did not act in bad faith and that the bankruptcy court improperly invoked its inher- ent powers. McGahren's behavior in the bankruptcy proceedings, however, clearly constitutes bad-faith conduct. For example, in July 1992, McGahren appeared before the bankruptcy court at the abandonment hearing and asked the court for a quitclaim deed from Heck. Heck tendered a deed the next day, but McGahren refused to accept it. McGahren also attacked witnesses who testified for Heck. He filed complaints with the North Carolina Real Estate Commission against appraisers that Heck and the bank employed. He sued Heck and the attorney who represented the original buyers of the property in state court. He also sued First Citizens Bank, its officers, and attorneys in state and federal court. In addition, McGahren repeatedly interrupted witnesses during their testimony in order to cut off unfavorable answers. At times, he became so upset that the bankruptcy court had to warn him of the presence of federal officers. He also repeatedly ignored the bankruptcy court's warnings to move the hearings expedi- tiously. The conduct described above does not technically fall under the auspices of Rule 9011 since it occurred during hearings rather than in the context of signed pleadings. However, it clearly fits within the inherent power of the court to sanction. Much of McGahren's conduct involved deceptions, half-truths, and misrepresentations presented to the bankruptcy court itself. As the Supreme Court found in a similar case, his entire course of conduct throughout the [proceedings] evi- denced bad faith and an attempt to perpetrate a fraud on the court, and the conduct sanctionable under the Rules was intertwined within con- duct that only the inherent power could address. Chambers, 501 U.S. at 51. Thus, we hold that the bankruptcy court did not abuse its dis- cretion in imposing sanctions pursuant to its inherent powers. 20 V. Although the district court affirmed the bankruptcy court's