Court Opinion

ID: 9651920
Source: CourtListenerOpinion
Date Created: 2023-08-23 17:00:48.743275+00
Date Added: 2024-06-11T14:56:52.114184
License: Public Domain

NOT RECOMMENDED FOR PUBLICATION

                                        File Name: 23b0003n.06

                       BANKRUPTCY APPELLATE PANEL
                                     OF THE SIXTH CIRCUIT

                                                           ┐
  IN RE: ISLAND INDUSTRIES INC.
                                                           │
                                       Debtor.
                                                           │
   __________________________________________              >       No. 23-8007
                                                           │
  GLANKLER BROWN, PLLC,
                                                           │
                              Movant-Appellant.
                                                           │
                                                           ┘

                        Appeal from the United States Bankruptcy Court
                       for the Western District of Tennessee at Memphis.
                      No. 22-bk-20380—Jennie D. Latta, Bankruptcy Judge.

                               Decided and Filed: August 23, 2023

    Before: BAUKNIGHT, DALES, and MASHBURN, Bankruptcy Appellate Panel Judges.

                                       _________________

                                            COUNSEL

ON BRIEF: Michael P. Coury, Ricky L. Hutchens, GLANKLER BROWN, PLLC, Memphis,
Tennessee, for Appellant.
                                       _________________

                                             OPINION
                                       _________________

       RANDAL S. MASHBURN, Bankruptcy Appellate Panel Judge. This appeal concerns the
bankruptcy court’s sua sponte 25% reduction of debtor’s bankruptcy counsel’s fees without notice.
The appellant asks the Panel to determine whether the reduction was made pursuant to the court’s
independent review of counsel’s fee application pursuant to 11 U.S.C. § 330 with consideration of
the “results obtained” in the dismissed Chapter 11 case, or as a sanction, and in either case, whether
counsel was denied due process. Given the bankruptcy court’s reliance on the concept of
deterrence in making the reduction, the Panel finds that the reduction was a sanction for which
  No. 23-8007                           In re Island Indus. Inc.                           Page 2

counsel was denied notice and an opportunity to respond to the court’s concerns and, thus, denied
due process. Although the appeal also raises due process issues in the context of fee applications
generally, the Panel finds it unnecessary to resolve those questions in view of the bankruptcy
court’s heavy emphasis on sanctions-related reasoning in its decision.

                                      ISSUES ON APPEAL

       Appellant Glankler Brown, PLLC (“Glankler” or “Appellant”), bankruptcy counsel to
debtor Island Industries, Inc., asks the Panel to review whether the bankruptcy court denied it due
process by (i) reducing its compensation as a sanction without notice and (ii) holding a hearing on
its unopposed fee application without notice and in contravention of a local rule. Because the
Panel holds that the bankruptcy court imposed the fee reduction as a sanction without affording
counsel due process, the Panel does not address the second issue. Additionally, because the Panel
is remanding the matter to the bankruptcy court for further proceedings, the Panel declines to
review the merits of the fee reduction in this appeal.

                      JURISDICTION AND STANDARD OF REVIEW

       The Bankruptcy Appellate Panel of the Sixth Circuit (the “BAP” or the “Panel”) has
jurisdiction to decide this appeal. The United States District Court for the Western District of
Tennessee has authorized appeals to the Panel, and no party has timely elected to have this appeal
heard by the district court. See 28 U.S.C. § 158(b)(6), (c)(1).

       A final order may be appealed as of right pursuant to 28 U.S.C. § 158(a)(1). “Orders in
bankruptcy cases qualify as ‘final’ when they definitively dispose of discrete disputes within the
overarching bankruptcy case.” Ritzen Grp., Inc. v. Jackson Masonry, LLC, 140 S. Ct. 582, 586
(2020) (citing Bullard v. Blue Hills Bank, 575 U.S. 496, 501, 135 S. Ct. 1686 (2015)). This appeal
involves a post-dismissal, final application for approval of debtor’s counsel’s fees and what
counsel contends is a sua sponte imposition of sanctions by the bankruptcy court.

       The matters were fully resolved by an order of the bankruptcy court with no further
proceedings anticipated for the professional fee and sanctions matter or in the dismissed
  No. 23-8007                           In re Island Indus. Inc.                            Page 3

bankruptcy case. Under a Bullard and Ritzen analysis, the order denying Appellant’s fee request
and/or imposing sanctions against it is a final order.

       Topically, the finality of the order is also supported by Sixth Circuit and BAP
jurisprudence. An order on a professional’s fee application is considered final when the applicant’s
role in the proceeding is at an end. Dean v. Lane (In re Lane), 598 B.R. 595, 598 (B.A.P. 6th Cir.
2019); see also Cupps & Garrison, LLC v. Rhiel (In re Two Gales, Inc.), 454 B.R. 427, 429 (B.A.P.
6th Cir. 2011) (An order denying a professional’s final fee application is a final order.). Orders
imposing sanctions are also considered final orders once the monetary sanctions are assessed. See
Spradlin v. Richard, 572 F. App’x 420, 428 (6th Cir. 2014); Hoover v. Jones (In re Jones), 546 B.R.
12, 15 (B.A.P. 6th Cir. 2016).

       The Panel reviews the question of whether the bankruptcy court has committed a due
process violation de novo. Haffey v. Crocker (In re Haffey), 576 B.R. 540, 543 (B.A.P. 6th Cir.
2017); see also Adell v. John Richards Homes Bldg. Co., L.L.C. (In re John Richards Homes Bldg.
Co., L.L.C.), 439 F.3d 248, 265 (6th Cir. 2006).

                                              FACTS

       Island Industries, Inc. (“Island” or “Debtor”) filed a petition for relief under Chapter 11,
Subchapter V, in February 2022. Island’s president, Mr. R. Glenn Sanders, signed the petition.
Glankler, and specifically Michael P. Coury and Ricky L. Hutchens of that firm, represented Island
with its bankruptcy filing and throughout its bankruptcy case.

       In May 2022, shortly after Island had filed its proposed plan of reorganization, Sigma
Corporation (“Sigma”) filed an adversary proceeding against Island seeking $40 million for
alleged violations of various trade secret acts (the “Trade Secret Litigation”). At Island’s request,
the U.S. District Court withdrew the reference from the bankruptcy court in October 2022, thus
assuming jurisdiction over the Trade Secret Litigation.

       Sigma moved to dismiss Island’s bankruptcy case on grounds of bad faith in July 2022,
and ASC Engineered Solutions, LLC (“ASC”), another creditor, joined the motion. Sigma and
ASC asserted that Island filed the bankruptcy in bad faith as a litigation tactic. Island opposed the
  No. 23-8007                                    In re Island Indus. Inc.                                         Page 4

motion to dismiss. The bankruptcy court conducted an evidentiary hearing in October 2022 and
dismissed Island’s bankruptcy case as a bad faith filing on November 15, 2022. Island did not
appeal the dismissal.

         On December 13, 2022, Glankler filed its final application for allowance of compensation
and reimbursement of expenses, requesting total fees of $249,306.75 and expenses of $7,813.17.
(“Fee Application,” Bankr. Case. No. 22-20380, ECF 223.) Glankler asserts that approximately
$100,000 of the fees related to representing Debtor in the bankruptcy case and approximately
$150,000 related to defending Debtor against trade secret claims asserted by Sigma both before
and after Sigma filed the Trade Secret Litigation. The bankruptcy court made no finding about
the allocation of fees.

         The next day, the Court issued a Notice of Hearing on the Fee Application. (“Notice of
Hearing,” Bankr. Case No. 22-20380, ECF 224.) The Notice of Hearing was issued in accordance
with Local Rule 9013-11 and stated:

         1. The Hearing to consider the above shall be held on January 19, 2023 at 10:15
         AM , 200 Jefferson Ave, Room 645, Memphis, TN 38103 , BUT ONLY IF an
         objection to such relief requested is filed by January 12, 2023
         ...

         3. If no objection is filed by any creditor or interested party, including the debtor,
         by the date stated above in paragraph one, the movant shall promptly file a
         certificate in compliance with L.B.R. 9013−1 and the proposed order on such matter

         1LBR 9013-1 applies to “all motions, applications, objections to claims, and proposed consent orders in
which relief is sought after notice and hearing,” with limited, non-applicable exceptions. TNWB LBR 9013-1. For
Chapter 11 cases, the rule provides that the court “will fix a date for the filing of objections, if any, and an initial date
and time for hearing.” LBR 9013-1(b)(1). The rule further provides:
         (2) If No Objection is Filed. If no objection is timely filed, the relief sought may be granted without
         an actual hearing. Once the deadline for filing objections has passed, the moving party may submit
         a proposed order together with a certificate indicating that the moving party has reviewed the docket
         and determined that no objection was timely filed (Local Form 008F). Only the signature of the
         party or attorney preparing the order must appear on the order. See generally TNWB LBR 9074-1
         for the signatures required on other proposed orders.
         (3) If an Objection is Filed. If an objection is timely filed, the matter will be heard when scheduled.
LBR 9013-1(b)(2)-(3).
  No. 23-8007                                In re Island Indus. Inc.                                    Page 5

        with the Bankruptcy Court for entry thereof, and there will not be a hearing
        conducted on the date stated in paragraph one above.

(Id. (emphasis original).) On January 16, 2023, Glankler filed a Certificate of Compliance with
LBR 9013-1 stating that there had been no objection to its Fee Application.

        Meanwhile, Sigma had filed a Motion for Sanctions on December 20, 2022, seeking
monetary sanctions against Debtor and its president, Mr. Sanders, pursuant to 11 U.S.C. § 105(a)
and Federal Rule of Bankruptcy Procedure 9011 based on Debtor’s bad faith filing of bankruptcy.
(“Motion for Sanctions,” Bankr. Case No. 22-20380, ECF 227.) Sigma sought a monetary sanction
of $200,000 to be assessed against Debtor and Mr. Sanders jointly and severally but did not seek
sanctions against any other party or any attorney. Glankler objected to the Motion for Sanctions
on behalf of Debtor and Mr. Sanders, and Sigma filed a reply. The court set the Motion for
Sanctions for hearing on January 19, 2023, in the event of any timely-filed objection – in the same
manner that the court had set the hearing on Glankler’s Fee Application. Because an objection
was filed to the Motion for Sanctions, it was clear under both the local rule and the notice of
hearing for the Motion for Sanctions that a hearing would be held on that motion on January 19.

        In contrast to the situation with the Motion for Sanctions, Glankler could not have
anticipated or prepared for any hearing on the Fee Application. With no objection to the Fee
Application, the local rule and the express language in the Notice of Hearing indicated there would
be no actual hearing on the Fee Application on the tentative hearing date of January 19, 2023. The
court provided no other notice on the case docket that the hearing on Glankler’s Fee Application
would go forward on January 19 despite the lack of a filed objection. However, the court did
proceed to hold a hearing that day immediately after the hearing on the Motion for Sanctions. 2
Mr. Coury was in the courtroom at that time only because he was there in his role as Debtor’s
counsel opposing the Motion for Sanctions.

        At the hearing, Glankler’s counsel and the court had this exchange about notice:

        THE COURT: …. Okay. Now, what I want to do is hear about these fee
        applications, which, frankly, I think are related to this whole discussion. So I know

        2The court also held a hearing on a fee application filed by another lawyer who had represented Debtor in a
more limited capacity. That application is not at issue in this appeal.
  No. 23-8007                           In re Island Indus. Inc.                            Page 6

       there was not an objection filed, but as you both know, the Court has an independent
       obligation to review fee applications.
       And so, Mr. Coury, I want to hear from you in support of your fee application.
       MR. COURY: Your Honor, I didn't even bring a copy of the fee application with
       me because it was unopposed.
       THE COURT: But it was set for hearing.
       MR. COURY: Well, it was. I filed a 9013, and I didn’t expect the Court was going
       to have any -- any question.
       THE COURT: Well, I’m sorry about that. Because I do communicate when I want
       something heard. We do have a calendar that’s public. And I review everything
       the week before, and I set this for hearing.
       MR. COURY: Fine. I’m happy to answer any questions the Court has. We’ve
       recited some parameters in our response. . . .

(Hearing Transcript at 48:22-24, Bankr. Case No. 22-20380, ECF 286.) There is nothing in the
record on appeal regarding any hearing being included on a public calendar. Regardless, it is clear
that Glankler was relying on the local rule and the Notice of Hearing, and there is no reason to
think that anyone other than the bankruptcy court expected a hearing to occur when Glankler had
already submitted its certification that no objection was filed. As Mr. Coury noted, he did not even
bring a copy of the Fee Application with him to court. Glankler simply had no reason to suspect
there might be a hearing on the Fee Application.

       Presumably in response to the judge stating that she “want[ed] to hear from [Mr. Coury] in
support of [his] fee application,” Mr. Coury described the services his firm provided, including
informing the court that approximately $150,000 of the requested fees related to defending Debtor
against the Trade Secret Litigation, not the bankruptcy case, and asserting that Glankler had case
law support for it not being bad faith for a debtor to file bankruptcy to avoid posting a litigation
bond. (Id. at 48-52.) The court listened but did not ask Mr. Coury any questions and at no time
suggested the possibility of sanctions for counsel. The court even stated: “No. I think that’s fine,”
when Mr. Coury offered to answer any questions the court might have. (Id. at 52:22.)
  No. 23-8007                            In re Island Indus. Inc.                           Page 7

          At the end of the hearing, the court announced:

          I am going to enter written rulings on these.
          Obviously, when a bankruptcy case is dismissed, there is concern. Sanctions to me
          again are somewhat related only in that you've asked me to consider the impact to
          the debtor. So I have to consider the impact of fees to the debtor, as well. That’s
          – I’m going to be giving some thought to it.

(Id. at 59:7-14.) The court then concluded the hearing without alerting counsel to the possibility
of sanctions against Glankler.

          On February 8, 2023, the bankruptcy court entered orders on Sigma’s Motion for
Sanctions, as well as Glankler’s Fee Application and that of another attorney (not involved in this
appeal). The Order on the Fee Application merely provides that fees and expenses were awarded
to Glankler in a certain amount, “[c]onsistent with” the court’s Opinion. (Order, Bankr. Case. No.
22-20380, ECF 249.) The court entered one opinion in support of all three orders. (Memorandum
Opinion on Motion for Sanctions and Fee Applications (“Opinion”), Bankr. Case. No. 22-20380,
ECF 248.) In the Opinion, the court explained its decision to reduce the entire amount of
Glankler’s fees by 25%, which resulted in a reduction of compensation by more than $62,000. (Id.
at 18.)

          Glankler timely appealed the Order to the Panel. Given the sua sponte nature of the order
under review, there is no appellee involved in this appeal.

                                            DISCUSSION

          Glankler argues that the reduction of its compensation by 25% was a sua sponte sanction
by the bankruptcy court for which it received no notice and opportunity for hearing, resulting in a
patent denial of due process. To the extent the bankruptcy court reduced Glankler’s compensation
pursuant to the court’s independent obligation to review professional fee applications under
11 U.S.C. § 330, Glankler also argues that it had no notice that there would be a hearing so it was
denied due process under this theory as well.
  No. 23-8007                             In re Island Indus. Inc.                          Page 8

I. Was the Denial of Fees a Sanction or a § 330(a) Fee Reduction?

       Unquestionably, a bankruptcy court “may, on its own motion[,] award compensation that
is less than the amount of compensation that is requested” by a professional employed by the
trustee/debtor-in-possession. 11 U.S.C. § 330(a)(2). Bankruptcy courts enjoy wide discretion in
determining the amount of fees to award, In re Vill. Apothecary, Inc., 45 F.4th 940, 948–49 (6th
Cir. 2022), and one of the factors they may consider is the “results obtained” in the case, id. at
947-51. Therefore, the bankruptcy court had the authority under § 330 to reduce Glankler’s fees
based on the fact that Island’s bankruptcy case had been dismissed for bad faith. But is that what
the bankruptcy court did? The Panel concludes it was not.

       Throughout the Opinion, the court equivocated about whether the fee reduction was a
sanction or garden-variety exercise of the court’s authority under § 330(a). The court noted that
“[a]lthough no objection was filed with respect to either of the[] [fee] applications, the court took
both under submission to consider them in connection with the Motion for Sanctions,” implicating
the premise of deterrence. (Id. at 6.) The court also stated, however, that it “has exercised its
independent obligation to review these applications in light of the result obtained in this case,”
referring to the exercise of discretion under § 330(a). (Id. at 2.)

       Although the court referred to its authority to reduce fees under § 330 based on the results
obtained in the case, its decision is filled with sanctioning language and rationale, too much to
ignore given the impact of a sanction order on an attorney. For example, the court noted that
“[a]mong the inherent powers of any federal court are ‘the power to control admission to its bar
and discipline attorneys who appear before it,’ and ‘the ability to fashion an appropriate sanction
for conduct which abuses the judicial process.’” (Id. at 7 (quoting Chambers v. NASCO, Inc.,
501 U.S. 32, 41-46, 111 S. Ct. 2123 (1991)).) The court then quoted subsection (c) of Rule 9011,
which applies to sanctioning attorneys and law firms – as opposed to parties – and noted that the
central purpose of Rule 11 is to “deter baseless filings.” (Id. at 8-9 (quoting Cooter & Gell v.
Hartmarx Corp., 496 U.S. 384, 393, 110 S. Ct. 2447, 2454 (1990)).) The court later justified its
reduction of Glankler’s fees by 25% as appropriate “to deter similar conduct by these attorneys
and others in the future.” (Id. at 18.)
  No. 23-8007                           In re Island Indus. Inc.                            Page 9

        The court also lumped Glankler in with Debtor and Mr. Sanders when discussing whether
to award sanctions, such as asking: “Was the Conduct of Island’s Attorneys or Mr. Sanders
Egregious?”; “Are Further Sanctions Necessary to Deter Similar Conduct by Island’s Attorneys,
Mr. Sanders, or Third Parties?”; and was the sanction request unreasonable as to the attorneys?
(Id. at 11, 15, 16.)

        Additionally, the court said the reduction was of “fee requests related to representation of
the Debtor in connection with the bankruptcy case,” which had been dismissed, but the court did
not limit the reduction to fees for work done on the bankruptcy case. (Id. at 18.) Instead, the court
applied the reduction to all of Glankler’s fees, which included $150,000 in fees Glankler contends
it incurred in representing Debtor in the Trade Secret Litigation, which was then undecided and
for which no result had yet been obtained. The broadly-applied fee reduction signals that the court
intended the reduction as a sanction rather than a reduction in fees under § 330(a) based on the
“results obtained” in the dismissed bankruptcy case.

        This case bears similarities to Newman v. Smith (In re Smith), 256 B.R. 730 (W.D. Mich.
2000), in which the denial of professional fees was determined to be a sanction instead of a § 330
fee reduction. In that case, chapter 13 debtors substituted counsel in the first year of their
bankruptcy case. The original counsel filed a fee application, and several parties objected to,
among other things, the reasonableness of fees and the lack of benefit to the estate from work
performed. Id. at 732-33. The bankruptcy court first determined that only approximately half of
the hours billed were reasonable and that the rate of pay should be reduced based on the quality of
work. It then calculated the total fees at the reduced number of hours and rate of pay, thus
determining the reasonable amount of fees under the lodestar method, plus the amount of
reimbursable costs. Id. But the court went on to decline to award any reasonable fees or costs,
holding that the attorney should never have filed the petition without reviewing certain documents.
Id. The bankruptcy court opined: “This case, in my view, is an example of – I don’t want to use
too strong of a word here, but I’m going to, incompetence or, from my point of view, violation of
Rule 11 on making a reasonable investigation as to the facts before papers are filed with the court.”
Id.
  No. 23-8007                           In re Island Indus. Inc.                            Page 10

       On appeal, the district court in the Smith case affirmed the bankruptcy court’s
determination of the reasonable amount of fees and rate of pay, but it deemed the denial of all fees
to be a sanction for which the attorney had not been provided notice. Id. at 735-36. The court
acknowledged that the bankruptcy court’s decision not to award any fees arguably could have been
justified under § 330 because the bankruptcy court had determined that the case should never have
been filed, but that was not the impression the bankruptcy court’s opinion made upon the district
court. Id. at 735. The court stated:

       That interpretation, however, does not fully comport with the tenor of the hearing.
       While the bankruptcy court did not state that it was sanctioning [counsel’s] conduct,
       it implied that the refusal to award fees was a sanction, not a determination that the
       services rendered were not beneficial to the estate at the time they were completed.

Id. at 735–36. The district court reversed the outright denial of fees because it was a sanction for
which the bankruptcy court had not provided the attorney with notice and an opportunity for
hearing. Id. at 736.

       In the Panel’s view, the fee reduction in this case functioned as a sanction. The bankruptcy
court’s decision to reduce Glankler’s fees by 25% was based primarily on an expressed intention
to deter similar conduct by counsel in the future. It was not based on an analysis of the benefit to
the estate from the work performed or what amount of compensation would be reasonable in light
of the results obtained, as might be expected under a § 330 analysis.            See generally Vill.
Apothecary, 45 F.4th at 947-49.

II. Was Appellant Afforded Due Process Prior to Being Sanctioned?

       In its Opinion, the bankruptcy court referred to Rule 9011 and its inherent authority to
sanction but did not clearly specify upon which source it relied. Under either source of sanctioning
authority, however, due process requires notice and an opportunity to be heard prior to the issuance
of sanctions.

       First, Rule 9011(c) provides that sanctions may be imposed against attorneys or law firms
“after notice and a reasonable opportunity to respond[.]” Fed. R. Bankr. P. 9011(c). When the
court intends to issue sanctions “[o]n its own initiative, the court may enter an order describing the
specific conduct that appears to violate subdivision (b) and directing an attorney, law firm, or party
  No. 23-8007                                 In re Island Indus. Inc.                                    Page 11

to show cause why it has not violated subdivision (b) with respect thereto.” Fed. R. Bankr. P.
9011(c)(1)(B). A motion for sanctions may also be brought by a party under Rule 9011(c)(1)(A),
but that did not occur here. Regardless of whether the court follows the recommended process in
subsection (c)(1)(B) of issuing a show cause order, at a minimum the court is required to provide
“notice and a reasonable opportunity to respond” according to the broader subsection (c). The
court did not issue a show cause order or provide Glankler with any other notice that it might be
sanctioned under Rule 9011.

        Courts also have inherent authority to sanction counsel for certain bad faith conduct by
assessing fees against them. Chambers, 501 U.S. at 45. “A court must . . . exercise caution in
invoking its inherent power, and it must comply with the mandates of due process, both in
determining that the requisite bad faith exists and in assessing fees.” Id. at 50 (citing Roadway
Exp., Inc. v. Piper, 447 U.S. 752, 767 (1980) (“Like other sanctions, attorney’s fees certainly
should not be assessed lightly or without fair notice and an opportunity for a hearing on the
record.”)).

        Due process requires that, “[a]t bottom, a court must give notice to the party facing
sanctions and an opportunity to be heard.” NPF Franchising, LLC v. SY Dawgs, LLC, 37 F.4th
369, 377 (6th Cir. 2022). To satisfy notice, a party must be informed that sanctions are being
sought against it specifically. KCI USA, Inc. v. Healthcare Essentials, Inc., 797 F. App’x 1002,
1006 (6th Cir. 2020) (finding that a footnote in a reply brief was insufficient to put attorneys on
notice that sanctions might be imposed against them individually in addition to their law firm,
which was the subject of the motion for sanctions).

        “[A] party or attorney facing sanctions must … have a meaningful opportunity to respond
to the allegations against them.” KCI USA, Inc., 797 F. App’x at 1007. That does not necessarily
mean a full evidentiary hearing.3 NPF Franchising, LLC, 37 F.4th at 377. The opportunity to

        3Although an evidentiary hearing may not be required, the Sixth Circuit has counseled that a supplemental
evidentiary hearing may be the wisest course when a court is sanctioning lawyers based on the record developed as to
the lawyers’ client’s conduct and credibility when the initial hearing did not include evidence concerning what the
lawyers knew or did not know. See In re Big Rapids Mall Assocs., 98 F.3d 926, 929-30 (6th Cir. 1996); see also
Chambers, 501 U.S. at 47, 49 (a sanction based on a party or counsel’s bad faith mandates such a finding prior to the
imposition of the sanction).
  No. 23-8007                                 In re Island Indus. Inc.                                    Page 12

respond may be satisfied by an opportunity to brief an issue or file a written response. Id.; Wilson-
Simmons v. Lake Cnty. Sheriff's Dep’t, 207 F.3d 818, 822 (6th Cir. 2000).

         In this case, Glankler was provided no notice that it might be sanctioned. Sigma did not
request sanctions against Glankler in its Motion for Sanctions. The court did not enter a show
cause order or provide any other notice to Glankler that the court was contemplating sanctioning
it and providing the reasons why. Even at the hearing on the Motion for Sanctions and Glankler’s
Fee Application, the bankruptcy court did not ask Glankler why it should not be sanctioned along
with Debtor and its principal or otherwise inform Glankler that the court was considering
sanctioning the firm. The Panel does not suggest that notice provided for the first time at the
hearing would have satisfied due process, but its absence even at that stage is notable. Without
any notice, Glankler had no meaningful opportunity to respond to the court’s concerns in writing
or at the hearing.

         Whether assessed under Rule 9011 or pursuant to the court’s inherent power, Glankler was
due, but denied, notice of the court’s intent to sanction Glankler through reduction of its fees and
the opportunity to be heard regarding such sanction. Thus, Glankler was denied due process.

         Whether imposed as a sanction or to ensure reasonableness, a 25% reduction in fees hits a
law firm’s bottom line in the same way. A sanction, however, sends a very different message,
potentially tarnishing a lawyer’s reputation and professional standing in a manner that raises the
stakes. In that situation, it is even more critical to follow the “specific dictates of due process.”
Mathews v. Eldridge, 424 U.S. 319, 335, 96 S. Ct. 893, 903 (1976). Nothing in this opinion should
be read to limit the bankruptcy court’s authority to impose or withhold a sanction on remand if due
process requirements are met and the record reflects justification for such action. Likewise, this
opinion should not be read to restrict the bankruptcy court from embracing § 330(a) as its rationale
for an appropriate reduction if warranted. However, given the stakes involved, due process
considerations may still apply.4

         4 Because we find the fee reduction to have been a sanction, the Panel does not review the issue of whether
Glankler was afforded due process to the extent the bankruptcy court was reducing Glankler’s fees pursuant to
11 U.S.C. § 330(a)(2). However, the Panel notes that there is substantial authority from other circuits interpreting
§ 330 (or a similar provision in Rule 2017(b)) and § 102(1) as requiring notice by the court of a potential sua sponte
  No. 23-8007                                  In re Island Indus. Inc.                                      Page 13

                                                 CONCLUSION

         For the reasons explained, the Order on Glankler’s Fee Application is VACATED, and the
matter is REMANDED to the bankruptcy court for further proceedings consistent with this
opinion.

fee reduction and a meaningful opportunity to respond in writing or at a hearing. See, e.g., In re Busy Beaver Bldg.
Centers, Inc., 19 F.3d 833, 845-47 (3d Cir. 1994) (holding that if the bankruptcy court plans to disallow compensation
under § 330, the Code and dictates of due process require the court to inform the applicant of its concerns and allow
the applicant, upon request, an opportunity to present evidence or argument in support of its application and in
response to the court’s concerns at a hearing); In re Eliapo, 468 F.3d 592, 602, 603 (9th Cir. 2006) (citations omitted)
(holding that if a court, under Rule 2017(b), “materially reduces the amount requested, the bankruptcy court has
assumed a role that is adverse to the fee applicant,” and “the court should give counsel a meaningful opportunity to be
heard” by informing counsel of its questions and objections and giving the applicant an opportunity to respond,
whether in writing or at a hearing); In re Peterson, 251 B.R. 359, 366 (B.A.P. 8th Cir. 2000), aff’d, 13 F. App’x 491
(8th Cir. 2001) (“We agree with the Busy Beaver Court that fee applicants are entitled to a meaningful hearing
regarding the reasonableness of their requested fees.”); In re Pfleghaar, 215 B.R. 394, 397–98 (B.A.P. 8th Cir. 1997)
(same); In re Burlington Motor Holdings, Inc., No. CIV. A. 98-77 MMS, 1998 WL 864827, at *2–3 (D. Del. Nov. 24,
1998), aff’d, No. 95-1559 (JKF), 2002 WL 63595 (D. Del. Jan. 17, 2002) (holding that the bankruptcy court had
denied a fee applicant a meaningful hearing when the court’s only two questions of the applicant did not raise any of
the concerns the court used to justify its decision to reduce fees, and noting: “[h]ad the Bankruptcy Court timely voiced
these concerns during the hearing, the appellant would have had an opportunity to offer evidence in support of its fee
application and to allay the court’s concerns”).