Opinion ID: 16726
Heading Depth: 2
Heading Rank: 3

Heading: The Imposition of Personal Liability

Text: 36 In its closing and severance orders, the district court ordered Goldin individually to pay certain trust expenses in his personal capacity. This portion of the judgment is clearly not moot. Goldin personally has suffered an injury in fact that is not affected by trust termination and his loss of trustee status. The issue is thus not mooted. Appellees contend that Goldin has waived this issue due to his failure to appeal in his personal capacity. We disagree. Rule 3(c) of the Federal Rules of Appellate Procedure states that an appeal will not be dismissed for failure to name a party whose intent to appeal is otherwise clear from the notice. Fed. R.App. P. 3(c). Goldin clearly has challenged the imposition of personal liability on appeal. We reverse the district court's imposition of personal liability on the former trustee. 37 The closing and severance order did not specify the grounds on which Goldin was held personally liable for trust expenses. Goldin contends the award constituted an unauthorized modification of the bankruptcy plan, while appellees defend the award as a sanction. While we find the latter interpretation more convincing, 15 the result in either case is the same. If the award was a plan modification, it had to be labeled and approved as such. It clearly was not, and nothing on the record indicates any attempt to modify the plan. If the award was intended as a sanction, on the record before us it lacked the predicate notice, hearing, and findings our cases require. 38 We review the imposition of sanctions for abuse of discretion. See Riley v. City of Jackson, 99 F.3d 757, 759 (5th Cir.1996). The sanctions here might be interpreted as stemming from a sua sponte Rule 11(c)(1)(B) decision. If so, the district court was required to afford Goldin notice describing the offending conduct and allow him an opportunity to show cause why sanctions should not be imposed. See Merriman v. Security Insurance Co. of Hartford, 100 F.3d 1187, 1191 (5th Cir.1996). The record reveals that Goldin was given no such notice or opportunity. No formal order was issued, and we are unconvinced that the district court's brief mention of cost shifting provided such notice. The statements in the record are as consistent with the determination that appellees are entitled to contractual indemnification as they are with notice of sanctions, and there is nothing in the record which would give any notice to Goldin that he might be held personally liable as a sanction for his conduct. We find that imposing Rule 11(c)(1)(B) sanctions without notice and hearing would constitute an abuse of discretion by the district court. Moreover, the record here does not reflect such unusual circumstances (see Advisory Committee notes to 1993 amendments to Rule 11) as would authorize Rule 11 sanctions against a represented party but not his counsel. 39 Alternatively, the sanctions might be interpreted as an exercise of the district court's inherent powers. The imposition of sanctions using inherent powers must be accompanied by a specific finding of bad faith. We have reversed sanctions awards when, as here, the district court merely made general complaints about the sanctioned party. See Elliott v. Tilton, 64 F.3d 213, 217 (5th Cir.1995) (Although the district court clearly indicated its displeasure at Byrd's conduct of the case, it failed to make a specific finding of bad faith.). Cf. Travelers Insurance Co. v. St. Jude Hospital of Kenner, La., Inc., 38 F.3d 1414, 1417 n. 6 (5th Cir.1994) (finding of bad faith for purposes of section 1927 supported by five paragraphs in order specifically addressing plaintiff's conduct). Moreover, the standard for the imposition of sanctions using the court's inherent powers is extremely high. The court must find that the very temple of justice has been defiled by the sanctioned party's conduct. See Boland Marine & Mfg. v. Rihner, 41 F.3d 997, 1005 (5th Cir.1995). Nothing in the record reflects conduct that reaches this level. We find that the imposition of sanctions using the court's inherent powers when no bad faith is specifically found and the record does not support the required high level of culpability constitutes an abuse of discretion. 40 We conclude that the district court abused its discretion in holding Goldin personally liable for trust expenses under any theory; and we accordingly reverse the district court's order requiring Goldin to personally pay any trust expenses.