Court Opinion

ID: 9918508
Source: CourtListenerOpinion
Date Created: 2024-01-13 21:01:00.309097+00
Date Added: 2024-06-11T08:01:00.349884
License: Public Domain

FILED
                                                                                DEC 29 2023
                           ORDERED PUBLISHED
                                                                            SUSAN M. SPRAUL, CLERK
                                                                              U.S. BKCY. APP. PANEL
                                                                              OF THE NINTH CIRCUIT
          UNITED STATES BANKRUPTCY APPELLATE PANEL
                    OF THE NINTH CIRCUIT

 In re:                                            BAP No. CC‐23‐1112‐FLG
 KIRK EUGENE FRANTZ and MARY
 ELIZABETH FRANTZ,                                 Bk. No. 6:15-bk-19432-MH
              Debtors.

 JENNY L. DOLING,
               Appellant.                          OPINION

               Appeal from the United States Bankruptcy Court
                    for the Central District of California
                Mark D. Houle, Bankruptcy Judge, Presiding

                            APPEARANCES
Appellant Jenny L. Doling argued pro se.

Before: FARIS, LAFFERTY, and GAN, Bankruptcy Judges.

FARIS, Bankruptcy Judge:

                                 INTRODUCTION

      Appellant Jenny L. Doling represented debtors Kirk Eugene Frantz

and Mary Elizabeth Frantz during their chapter 131 bankruptcy case. At the

      1Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1532, all “Rule” references are to the Federal Rules
of Bankruptcy Procedure, all “Civil Rule” references are to the Federal Rules of Civil
Procedure, and all “LBR” references are to the Local Bankruptcy Rules of the United
end of the plan term, the chapter 13 trustee sought to dismiss the case

because the Debtors were over $50,000 delinquent on direct mortgage

payments. Ms. Doling nevertheless told the bankruptcy court that the

Debtors had completed their chapter 13 plan. The bankruptcy court found

that the statement was knowingly false and intended to mislead the court

because the Debtors could not have completed the plan if they were

delinquent on their direct mortgage payments. The court sanctioned her

and denied her motion for reconsideration.

      On appeal, Ms. Doling argues that the bankruptcy court clearly erred

in finding that she intentionally made a false statement to deceive the court

and that the sanction was excessive. Although we recognize the

bankruptcy court’s frustration with Ms. Doling’s substandard performance,

her statement ultimately was not frivolous as a matter of law because her

position had some basis in law. We therefore REVERSE the bankruptcy

court’s imposition of sanctions.

      We publish to highlight the standards for and limitations of Rule

9011 sanctions, particularly when the court initiates the sanctions process.

                                        FACTS

A.    The Debtors’ chapter 13 petition, plan, and motion to avoid lien

      In September 2015, the Debtors, represented by Ms. Doling, filed a

chapter 13 petition. They scheduled their residence located in Big River,

States Bankruptcy Court for the Central District of California.

                                            2
California (the “Property”) with a value of $360,000 that was subject to a

first mortgage lien in favor of Ditech Financial LLC. Ditech Financial filed a

proof of claim for $503,423.38.

      The Debtors also scheduled a $100,000 lien against the Property held

by John Irving, Trustee of the Irving Family Trust (the “Irving Lien”).

      In 2015, the bankruptcy court confirmed the Debtors’ plan. The plan

required the Debtors to make payments to the trustee for five years (which

the Trustee would use in part to cure the prepetition arrears on the first

mortgage) and to make the regular contractual postpetition payments on

the first mortgage directly to Ditech Financial.

      While plan confirmation was pending, the Debtors filed a motion to

avoid the Irving Lien (the “Lien Avoidance Motion”). They argued that the

amount of the first mortgage lien exceeded the value of the Property,

which rendered the Irving Lien wholly unsecured and avoidable. The

bankruptcy court granted the Lien Avoidance Motion and provided that

the avoidance was effective upon “completion of the chapter 13 plan.”

      The Debtors had great difficulty carrying out their plan. The trustee

filed fourteen motions to dismiss because the Debtors failed to make their

payments to the trustee. The Debtors modified their plan multiple times,

including extending the plan term from five years to seventy-eight

months.2

      2
       Under current law, the maximum duration of a chapter 13 plan is five years
from the due date of the first plan payment. Section 1329(d) (which has since expired)
                                           3
B.      The trustee’s motion to dismiss

        In May 2022, the trustee filed his notice of intent to file a final report,

indicating that the Debtors had made all of the required payments to the

trustee, that the prepetition arrears on the first mortgage had been paid in

full, and that the case was nearing its end. The Bank of New York Mellon

(“BNYM”), which had since acquired the first mortgage, responded that

the Debtors were $52,439.58 delinquent on their postpetition, direct

mortgage payments.

        Shortly thereafter, the trustee filed a motion to dismiss the case (the

“Motion to Dismiss”). The trustee argued that, pursuant to Derham-Burk v.

Mrdutt (In re Mrdutt), 600 B.R. 72 (9th Cir. BAP 2019), and In re Evans, 543

B.R. 213 (Bankr. E.D. Va. Jan. 5, 2016), “direct payments made by a debtor

in a chapter 13 plan constitute ‘payments under the plan’ for purposes of

eligibility for discharge under . . . § 1328(a).” The trustee contended that the

failure to make those payments constituted a material default under the

plan.

        The Debtors did not file an opposition to the Motion to Dismiss, but

Ms. Doling appeared at the hearing on the motion. She did not contest the

legal basis of the Motion to Dismiss but instead argued that a pending loan

modification would eliminate the postpetition mortgage arrears. The

allowed chapter 13 debtors who were experiencing financial hardship due to the
COVID-19 pandemic to modify confirmed plans by (among other things) extending the
life of the plan to seven years.
                                          4
bankruptcy court granted her request for a four-week continuance to

resolve the matter with BNYM. It explicitly directed her to file a declaration

if the matter was not resolved prior to the hearing.

      Ms. Doling ignored the court’s directive to file a declaration. But she

did file a local form document, “Debtor’s Certificate of Compliance Under

11 U.S.C. § 1328(a) and Application for Entry of Discharge,” for each of the

Debtors. She checked the box indicating: “I have completed all payments

required by my confirmed plan.” By the time she filed these papers for the

Debtors, Ms. Doling knew that the Debtors had not made their direct

mortgage payments, that the trustee and the court believed that dismissal

was appropriate because the plan required them to make those payments,

and that she had not argued otherwise.

      At the second hearing, the Debtors had not cured the mortgage loan

default or filed the required declaration. Counsel for the trustee

represented that the mortgage servicer had approved a loan modification.

Ms. Doling apologized for not filing the declaration as directed by the

court, but she maintained her belief that BNYM would amend its response

to indicate that the Debtors were current on their direct payments and that

the trustee would withdraw the Motion to Dismiss.

      The bankruptcy court expressed frustration with the case and

skepticism of Ms. Doling’s position. It agreed to continue the hearing for

about a month but cautioned that it would dismiss the case unless the court

was presented with an “unqualified withdrawal” of BNYM’s response that

                                      5
the first mortgage was in default.

     After the second hearing, Ms. Doling signed and filed a form

document titled, “Declaration re: Debtor’s Motion to Avoid Lien on

Principal Residence” (the “Doling Declaration”). The Doling Declaration

recounted that the court had granted the Lien Avoidance Motion in 2015

but had “provided that the avoidance of the junior lien of [John Irving]

would be effective upon . . . Completion of the Chapter 13 plan[.]” She

checked the box indicating that “Debtor [sic] has completed the Chapter 13

plan.” Ms. Doling also uploaded a proposed order granting the Lien

Avoidance Motion and avoiding the Irving Lien, but she did not set the

matter for hearing.

     When Ms. Doling filed these papers, she knew that the Debtors had

not made the direct mortgage payments that the plan required and that

they had not cured their default. She also knew that the court believed that

the plan required the Debtors to make the direct payments in addition to

the payments to the trustee.

     The bankruptcy court did not enter Ms. Doling’s proposed order;

instead, it set the Lien Avoidance Motion for hearing along with the third

hearing on the Motion to Dismiss.

     Mr. Frantz filed a declaration in response to the Motion to Dismiss.

He stated that he and his wife had successfully completed a trial loan

modification and were awaiting the final loan modification from the

lender.

                                     6
      Ms. Doling also filed a declaration. She echoed Mr. Frantz’s

declaration and stated that “Debtors’ loan is now deemed current after trial

loan modification payments have been made[,]” and “Debtors are awaiting

final loan modification paperwork from lender.”

      At the third hearing, counsel for BNYM’s servicer indicated that it

was “in the process of finalizing a loan modification with the Debtors, but

by virtue of it not having been finalized, we can’t say that it’s been

wrapped up, but it’s imminent.” He stated that, until the loan modification

agreement was finalized, “their default exists.”

      The bankruptcy court noted that the seventy-eight-month plan term

had ended six months prior. It acknowledged that the loan modification

was in progress but stated that it was unwilling to delay ruling on the

Motion to Dismiss again. It noted the fourteen motions to dismiss and

stated that the “case appear[ed] to have been infeasible on inception.”

      Ms. Doling argued that the Debtors had worked hard to cure their

loan defaults and insisted that “[t]hey have completed their plan.” She

asked for another continuance, stating that, if the case were dismissed, the

Irving Lien would not be avoided, and the Debtors would lose their home.

      The bankruptcy court denied any further continuance and granted

the Motion to Dismiss.3 It then questioned Ms. Doling as to why she had

stated in the Doling Declaration that the Debtors had completed the

      3
          The Debtors did not appeal the order granting the Motion to Dismiss.
                                            7
chapter 13 plan. The court explained that, “under applicable law, those

direct plan payments are plan payments,” so it was not true that the

Debtors had completed their plan. The bankruptcy court was also

displeased that Ms. Doling had filed the Doling Declaration and lodged the

proposed order without setting the Lien Avoidance Motion for hearing,

because the court might have entered the order based on a false

representation if the matter had “slipped through.” Ms. Doling disagreed,

arguing the Debtors had completed all of their monthly plan payments to

the trustee.

C.     The order to show cause

       The bankruptcy court issued an order (the “OSC”) directing

Ms. Doling to show cause why she should not be sanctioned under Rule

9011 or the bankruptcy court’s inherent sanction authority and LBR 2090-2

for her “knowingly false statement.”

       Ms. Doling responded aggressively. She defended her reputation and

disputed that she would ever knowingly make a false statement to the

court. She placed blame on everyone but herself: she questioned the court’s

judgment, commenting that it would repeatedly “misdirect” its frustration

at her and other attorneys 4 and implying that it was “intimidating” her for

       4
         Ms. Doling stated that she is “the go-to referral for cases from highly qualified
attorneys who will no longer file cases in the Riverside Division of the Central District
of California.” She complained that, “[t]ime and again, Counsel felt this court’s
frustration was misdirected at her, as seems to be the case with many attorneys
appearing on behalf of consumer debtors.” She also implied that the bankruptcy court
                                             8
advocating for the Debtors; she claimed that her paralegal followed a “tried

and true” internal checklist when generating the Doling Declaration and

lodging the proposed order; and she complained that BNYM had not

provided a courtesy notice to the Debtors that they were delinquent on

their direct mortgage payments.

      Ms. Doling never admitted that her statement was incorrect and

instead disputed the court’s statements that direct mortgage payments

constituted payments under the plan. She insisted that “there is no binding

Ninth Circuit authority that direct mortgage payments are payments under

the plan.” She contended that the bankruptcy court’s reliance on the BAP’s

Mrdutt decision was misplaced, because the BAP was focused on a

different issue and the BAP decision “is not precedent[.]” Similarly, she

contended that the Ninth Circuit’s decision in Silva v. Danielson (In re Silva),

No. 21-55873, 2022 WL 2340802 (9th Cir. June 29, 2022), was inapplicable

because it was not published. Rather, she cited out-of-circuit cases for the

proposition that direct mortgage payments are not “payments under the

plan.”

      Ms. Doling also insisted that she did not try to “sneak” anything past

was not busy and would be at fault if it did not catch the parties’ mistakes: she argued
that the court’s concerns ignored its “independent duty and judgment to review the
orders before entering them[ ]” and that she had “no reason to believe this Court would
ever enter an order it did not approve, especially in a time where bankruptcy filings are
at a historical low, and this Division of the Central District of California just gained a
fourth bankruptcy judge to share the historically low case load.”
                                            9
the court and instead believed that, if the case were dismissed, the Lien

Avoidance Motion would be denied.5

D.    The order sanctioning Ms. Doling

      At the hearing on the OSC, the bankruptcy court noted that

Ms. Doling still did not acknowledge “that what was done was improper.”

It said that it would sanction her $5,000, which would require reporting to

the California state bar.

      Four months later, the bankruptcy court entered its order sanctioning

Ms. Doling (“Sanctions Order”). 6 It stated that Ms. Doling did not file any

opposition or otherwise challenge the legal basis for the Motion to Dismiss:

that the Debtors were in material default with respect to direct mortgage

payments pursuant to Mrdutt and Silva, which hold that direct payments

are plan payments. Rather, it said that the Debtors and Ms. Doling filed

multiple documents unrelated to the Motion to Dismiss that declared that

all plan payments were made and hoped that the court would sign the

proposed order granting the Lien Avoidance Motion.

      5   Ms. Doling later filed a supplemental response that attached an amicus curiae
brief filed by the United States Solicitor General in an unrelated case.
      6  The bankruptcy court acknowledged the delay in entering the Sanctions Order.
It explained that it had considered dismissing the OSC but ultimately concluded it
could not “sweep the matter under the rug” and needed to protect the integrity of the
bankruptcy system because “Ms. Doling’s advocacy in this matter crossed the line from
zealous to overzealous to, ultimately, unethical, and thus the Court feels compelled to
issue this order to prevent similar behavior in the future, or at least make clear it will
not go unaddressed.”

                                            10
      Regarding the statement in the Doling Declaration that the Debtors

had “completed the Chapter 13 plan,” the bankruptcy court stated that,

while the plan term had ended, the plan was not “completed” until all plan

payments had been made. It found that she was aware of the court’s

position yet knowingly and intentionally represented that the Debtors had

completed the chapter 13 plan; it also said that her statement was not

inadvertent or mistaken, as she continued to defend the appropriateness of

the statement.

      The bankruptcy court rejected Ms. Doling’s argument that the direct

payments were not payments under the plan. It said that she could have

made that argument in opposition to the Motion to Dismiss but neglected

to do so; as such, she was “not free to simply . . . retroactively adopt a

minority position and revise the history of this matter. Quite simply, the

legal conclusion that direct payments are plan payments was uncontested

in this case, and, therefore, the factual statement that Debtors had

completed the plan was not true.”

      The court concluded that Ms. Doling’s “actions and the attempt to

obtain an order avoiding the Irving Family Lien, as well as the attempt to

obtain discharges of Debtors . . . constitutes willful and subjective bad faith

by Ms. Doling given the circumstances of the case.” It held that sanctions

were warranted under Rule 9011(c) or, alternatively, under its inherent

sanction authority and LBR 2090-2 for “willful, bad faith conduct.”

                                       11
E.    The motion for reconsideration

      Ms. Doling filed a motion requesting that the bankruptcy court

reconsider the Sanctions Order (“Motion for Reconsideration”). Her motion

adopted a somewhat more contrite tone and for the first time admitted that

she had made a “mistake.” She stated that she never knowingly or

intentionally made a material misrepresentation to the court and that she

had no intention to deceive the court. She claimed that, after reading the

Sanctions Order, she realized that her responses to the OSC lacked clarity

and she did not realize that the court had expected her to be contrite.

      Ms. Doling undercut her stated contrition by again attacking the

bankruptcy court. She claimed that “outstanding” attorneys “have recently

been threatened with sanctions, issued sanctions, or have felt vulnerable in

practice here, something never before experienced and that has caused

respected attorneys to abandon this division. This was my failed attempt to

bring to light concerns and a desire to restore a collegial atmosphere.”

      She argued again that it was not well-settled law that direct

payments are “payments under the plan.” She stated that she believed that

the Debtors had made all plan payments and therefore it was appropriate

to lodge the order granting the Lien Avoidance Motion.

      Ms. Doling insisted that she believed that the dismissal of the case

“controlled,” i.e., that dismissal of the case would obviate the Lien

Avoidance Motion, so her statement was not meant to mislead the court.

She stated that she had corrected her office procedures to ensure that this

                                      12
error would not happen again.

      She also asked the court to reduce the sanction from $5,000 to $1,000,

so she would not have to report it to the state bar.

      After a hearing, the court issued an order denying the Motion for

Reconsideration (“Reconsideration Order”). It held that Ms. Doling’s

factual assertions “simply are not logical, realistic or supported when

viewed as a whole.” It pointed out inconsistencies in her arguments and

declined to address her continued implication that many bankruptcy

practitioners felt the bankruptcy court was unfair. The court rejected the

request to reduce the sanction, reflecting that it had “struggled greatly at

significant length” with the issues but ultimately decided that sanction was

necessary to require candor from counsel.

      Ms. Doling timely appealed from the Sanctions Order and the

Reconsideration Order. At no point did she withdraw the offending

documents.

                              JURISDICTION

      The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and

157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158.

                                    ISSUE

      Whether the bankruptcy court erred in sanctioning Ms. Doling for

making knowingly false statements to the court.

                         STANDARD OF REVIEW

      We review for an abuse of discretion the bankruptcy court’s

                                      13
imposition of sanctions under both Rule 9011 and its inherent sanctioning

authority. See Fjeldsted v. Lien (In re Fjeldsted), 293 B.R. 12, 18 (9th Cir. BAP

2003); see also Shalaby v. Mansdorf (In re Nakhuda), 544 B.R. 886, 898 (9th Cir.

BAP 2016) (“We also review the bankruptcy court’s interpretation and

application of a local rule for an abuse of discretion.”), aff’d, 703 F. App’x

621 (9th Cir. 2017). The court’s denial of a motion for reconsideration is also

reviewed for an abuse of discretion. See Ocwen Loan Servicing, LLC v.

Marino (In re Marino), 577 B.R. 772, 781 (9th Cir. BAP 2017), aff’d in part,

appeal dismissed in part, 949 F.3d 483 (9th Cir. 2020).

      To determine whether the bankruptcy court has abused its discretion,

we conduct a two-step inquiry: (1) we review de novo whether the

bankruptcy court “identified the correct legal rule to apply to the relief

requested” and (2) if it did, we consider whether the bankruptcy court’s

application of the legal standard was illogical, implausible, or without

support in inferences that may be drawn from the facts in the record.

United States v. Hinkson, 585 F.3d 1247, 1263 (9th Cir. 2009) (en banc).

                                 DISCUSSION

A.    The bankruptcy court has discretion to sanction attorneys for
      misconduct and improper litigation tactics.

      1.    Rule 9011

      The bankruptcy court first determined that sanctions were

appropriate under Rule 9011. Rule 9011(b) provides, in summary, that

when an attorney signs or files a document with the court, she is certifying

                                        14
to the best of her knowledge that she is not presenting the document “for

any improper purpose,” that the legal contentions are warranted, and that

the factual assertions have evidentiary support. The bankruptcy court may

initiate Rule 9011 proceedings on its own initiative. Rule 9011(c)(1)(B). If

the bankruptcy court determines that the attorney has violated the rule, it

may impose a sanction “limited to what is sufficient to deter repetition of

such conduct or comparable conduct by others similarly situated.” Rule

9011(c)(2). The central purpose of the rule is to deter baseless filings. Cooter

& Gell v. Hartmarx Corp., 496 U.S. 384, 393 (1990) (Civil Rule 11).

      We have stated that

      Rule 9011 empowers bankruptcy courts to impose sanctions
      upon the signers of paper where a) the paper is frivolous, or
      b) the paper is filed for an improper purpose. In fact, the
      bankruptcy court is required to impose sanctions on the signer
      of a paper if he or she files a frivolous paper or files a paper for
      an improper purpose.

In re Brooks-Hamilton, 400 B.R. 238, 249 (9th Cir. BAP 2009) (cleaned up).

However, the Ninth Circuit has urged restraint when imposing Civil Rule

11 sanctions: “[F]orceful and effective representation often will call for

innovative arguments. For this reason, sanctions should be reserved for the

rare and exceptional case where the action is clearly frivolous, legally

unreasonable or without legal foundation, or brought for an improper

purpose.” Primus Auto. Fin. Servs., Inc. v. Batarse, 115 F.3d 644, 649 (9th Cir.

                                       15
1997) (cleaned up).

      “Rule 9011(b) incorporates a reasonableness standard which focuses

on whether a competent attorney admitted to practice before the involved

court could believe in like circumstances that his actions were legally and

factually justified.” In re Nakhuda, 544 B.R. at 899. Additionally, when the

court imposes sanctions on its own initiative, it must “apply a higher

standard ‘akin to contempt’ . . . .” Id. The Ninth Circuit has explained that:

      This [Civil Rule 11] standard is applied with particular
      stringency where, as here, the sanctions are imposed on the
      court’s own motion. In that circumstance – unlike the situation
      in which an opposing party moves for [Civil] Rule 11 sanctions
      – there is no “safe harbor” in the Rule allowing lawyers to
      correct or withdraw their challenged filings. In light of this
      important distinction, sua sponte sanctions will ordinarily be
      imposed only in situations that are akin to a contempt of court.
United Nat’l Ins. Co. v. R&D Latex Corp., 242 F.3d 1102, 1115-16 (9th Cir.

2001) (cleaned up).

      2.    Inherent authority

      The bankruptcy court also held that sanctions were warranted

pursuant to its inherent authority and LBR 2090-2.

      It is well settled that federal courts, including bankruptcy courts,

have inherent power to impose sanctions for a broad range of willful or

improper litigation conduct. See Knupfer v. Lindblade (In re Dyer), 322 F.3d

1178, 1196 (9th Cir. 2003). The inherent power to sanction bad-faith conduct

is broader than Rule 9011 sanctions and “extends to a full range of

                                      16
litigation abuses.” Miller v. Cardinale (In re Deville), 280 B.R. 483, 495 (9th

Cir. BAP 2002) (citation omitted), aff’d sub nom. Miller v. Cardinale (In re

DeVille), 361 F.3d 539 (9th Cir. 2004).

      The Ninth Circuit has stated that a court may impose sanctions

pursuant to its inherent authority when it finds:

      willful actions, including recklessness when combined with an
      additional factor such as frivolousness, harassment, or an
      improper purpose. . . . [A]n attorney’s reckless misstatements of
      law and fact, when coupled with an improper purpose, . . . are
      sanctionable under a court’s inherent power.

Fink v. Gomez, 239 F.3d 989, 994 (9th Cir. 2001).

      “Before awarding sanctions under its inherent powers, however, the

court must make an explicit finding that counsel’s conduct ‘constituted or

was tantamount to bad faith.’” Primus Auto. Fin. Servs., Inc., 115 F.3d at 648

(citation omitted); see also Fink, 239 F.3d at 992 (“In reviewing sanctions

under the court’s inherent power, our cases have consistently focused on

bad faith. . . . [A] specific finding of bad faith . . . must precede any sanction

under the court’s inherent powers.” (cleaned up)).

      The court also referenced LBR 2090-2. That rule provides that an

attorney “submits to the discipline of the court. If a judge has cause to

believe that an attorney has engaged in unprofessional conduct, the judge

may[,]” among other things, “[i]nitiate proceedings for civil or criminal

contempt” and “[i]mpose other appropriate sanctions[.]” LBR 2090-2(b).

                                          17
B.     As a matter of law, the bankruptcy court erred in sanctioning
       Ms. Doling under Rule 9011, its inherent powers, and the LBR.

       Ms. Doling argues on appeal that the bankruptcy court erred in its

factual findings that she knowingly made a false statement and intended to

mislead the court. She abandons her indignation at the bankruptcy court’s

ruling and criticism of the court’s perceived unfairness toward debtors’

counsel and instead admits that she was negligent (and perhaps even

reckless) and “distracted” but did not act in bad faith. We do not see any

error in the bankruptcy court’s factual findings and, if that were the only

issue before us, we would affirm.

       But the court’s finding of her intent presupposes that her statement

was false: in other words, that the Debtors had not made all of the

“payments under the plan.” This statement in turn presupposes that the

direct payments to the mortgagee were “payments under the plan.” The

question of whether direct payments are “payments under the plan” is a

pure question of law. 7 While Ms. Doling’s conduct in the bankruptcy court

       7
        Ms. Doling does not explicitly argue on appeal that the bankruptcy court erred
as a matter of law. She apparently thinks that she cannot do so because she did not raise
the argument in opposition to the Motion to Dismiss. But she did raise the argument in
her response to the OSC and Motion for Reconsideration. Because (1) she at least
touched on the argument in the bankruptcy court and in her opening brief, (2) the issue
is a purely legal matter, and (3) it is hard to disentangle the factual issue of her intent to
make a false statement from the legal question of whether that statement was false, we
will address the issue. See United States v. Ullah, 976 F.2d 509, 514 (9th Cir. 1992) (stating
that we may consider an issue not raised in the opening brief “if a failure to do so
would result in manifest injustice”).

                                             18
was unprofessional and substandard, we hold that, as a matter of law,

there was a reasonable legal basis for her argument, so the bankruptcy

court erred in sanctioning her under the authorities on which it relied.

      The Ninth Circuit has reversed sanctions where a “plausible, good

faith argument can be made by a competent attorney to the contrary.”

Zaldivar v. City of L.A., 780 F.2d 823, 833 (9th Cir. 1986), abrogated on other

grounds by Cooter & Gell v. Hartmarx Corp., 496 U.S. 384 (1990). It stated that,

“[i]f, judged by an objective standard, a reasonable basis for the position

exists in both law and in fact at the time that the position is adopted, then

sanctions should not be imposed.” Golden Eagle Distrib. Corp. v. Burroughs

Corp., 801 F.2d 1531, 1538 (9th Cir. 1986). It directed that, when imposing

Civil Rule 11 sanctions, the court must “look[ ] to whether or not a basis in

law or fact exists . . . . [S]anctions should not have been imposed where a

‘plausible good faith argument can be made.’” Id. at 1541 (quoting Zaldivar,

780 F.2d at 832).

      In this case, Ms. Doling declared to the bankruptcy court that the

Debtors had completed the chapter 13 plan. This statement implicitly

represented that the Debtors had made all of their “payments under the

plan.” § 1328(a). The bankruptcy court could not sanction Ms. Doling if her

position had a plausible, good faith legal basis, even if she did not

explicitly argue that basis when she filed the Doling Declaration.

      We cannot say that Ms. Doling’s contention about the direct

payments lacked a reasonable basis in law. In her response to the OSC, she

                                        19
urged the court to disregard Mrdutt and similar authority and cited

decisions from courts outside the circuit, which she characterized as a

“rising minority,” holding that direct payments are not “payments under

the plan.”

      It is true that we have rejected Ms. Doling’s argument. In Mrdutt, we

surveyed case law and stated that:

      when the chapter 13 plan provides for the curing of prepetition
      mortgage arrears and a debtor’s direct postpetition
      maintenance payments in accordance with § 1322(b)(5), such
      direct payments are “payments under the plan.” And if the
      debtor does not complete “all payments under the plan,” the
      debtor is not entitled to a discharge.”

600 B.R. at 77. However, this view is not uniform throughout the country.

In Mrdutt, we acknowledged two decisions that reached the opposite

conclusion and described them as “thoughtful and well-intended

decisions[.]” Id. at 80. Indeed, at least one court within the circuit has

recognized a “split in authority” and adopted the “minority position” that

courts cannot “deny discharges and dismiss cases based solely on direct

pay post-petition mortgage defaults.” In re Rivera, 599 B.R. 335, 339, 342

(Bankr. D. Ariz. 2019). Additionally, the Ninth Circuit has recognized that,

for purposes of Rule 9011, a BAP decision cannot be the basis for

sanctioning a party for seeking a contrary result in a district where the

underlying issue is unresolved. See Bank of Maui v. Est. Analysis, Inc., 904

F.2d 470, 472 (9th Cir. 1990) (“Whether a BAP decision is controlling

                                       20
authority for the circuit as a whole has not been decided by this court. . . .

We need not and do not decide the authoritative effect of a BAP decision

because, for the purposes of Bankruptcy Rule 9011, its binding effect is so

uncertain that it cannot be the basis for sanctioning a party for seeking a

contrary result in a district where the underlying issue has never been

resolved.”). Therefore, notwithstanding Mrdutt, competent counsel could

make a nonfrivolous argument that the bankruptcy court should adopt the

minority view.

      The Ninth Circuit’s decision in Silva also does not render the

argument frivolous. In Silva, the Ninth Circuit decision cited Mrdutt and

held that the debtor “committed a material default with respect to a term of

the confirmed Chapter 13 plan by failing to make contractual post-petition

payments to creditors.” 2022 WL 2340802, at *1. However, Silva is an

unpublished decision that is not precedent except in certain circumstances

not applicable here. See id. at *1 n.2; 9th Cir. Rule 36-3 (“Unpublished

dispositions and orders of this Court are not precedent, except when

relevant under the doctrine of law of the case or rules of claim preclusion

or issue preclusion.”).

      While this Panel is bound by Mrdutt (and we continue to think that it

is correct), a reasonable attorney could argue that the bankruptcy court

should follow the minority view. See generally Reiffin v. Microsoft Corp., 158

F. Supp. 2d 1016, 1029 (N.D. Cal. 2001) (“[Civil Rule] 11(b)(2) is only

violated when the claim is not warranted by existing law or a nonfrivolous

                                       21
argument for the change of that law.”); Remington Invs., Inc. v. Kadenacy,

930 F. Supp. 446, 451 (C.D. Cal. 1996) (“[A] legal claim for which no

mandatory authority exists does not present good grounds for sanctions

because the law of the jurisdiction is unsettled.”). The bankruptcy court

incorrectly held that Ms. Doling’s failure to raise this legal argument prior

to the OSC precluded her from “retroactively adopt[ing] a minority

position . . . .” Ms. Doling had a reasonable basis to argue that the

statement was not legally incorrect; she articulated that legal theory late

and ineffectively, but that does not rise to the level necessary for Rule 9011

sanctions initiated by the court.

      When the court initiates Rule 9011 sanctions, that level is a higher

standard “akin to contempt.” See United Nat’l Ins. Co., 242 F.3d at 1116

(“[S]ua sponte sanctions will ordinarily be imposed only in situations that

are akin to a contempt of court.”). The standard is not well developed, but,

“at bottom, the ‘akin to contempt’ standard seems to require conduct that is

particularly egregious and similar to conduct that would be sanctionable

under the standards for contempt.” In re Nakhuda, 544 B.R. at 901.

      As we discussed above, Ms. Doling’s conduct was lacking and

negligent, but her statement was not frivolous or egregious, given the state

of the law. There would be no basis to find that she committed contempt of

court. We thus hold that the bankruptcy court erred as a matter of law in

concluding that the Doling Declaration warranted sanctions under the

heightened standard.

                                      22
     The bankruptcy court also found that Ms. Doling filed the Doling

Declaration for an improper purpose: she hoped that the bankruptcy court

would routinely enter the order avoiding the Irving Lien without a hearing

or close scrutiny. However, because the Doling Declaration was arguably

supported by the law (which would lead to avoidance of the Irving Lien

even if the direct payments were not made), its submission was not for an

improper purpose. See Golden Eagle Distrib. Corp., 801 F.2d at 1538

(emphasizing the “objective nature of the standard” when considering

whether a filing was made for an improper purpose).

     For the same reasons, the court abused its discretion in sanctioning

Ms. Doling for “willful” and “bad faith” conduct under its inherent

powers. See Fink, 239 F.3d at 994 (“[A]n attorney’s reckless misstatements of

law and fact, when coupled with an improper purpose, . . . are sanctionable

under a court’s inherent power.”). The bankruptcy court found that the

misstatement in the Doling Declaration was knowing and intentional. It

also found that she acted with an improper purpose, such that her conduct

was tantamount to bad faith. However, as we discussed above, there was

no sanctionable misstatement of law or improper purpose, since

Ms. Doling could reasonably argue that the bankruptcy court should not

follow Mrdutt.

     Likewise, Ms. Doling’s conduct did not warrant sanctions under LBR

2090-2. Taking a position that is supported by a minority of courts is not

“civil or criminal contempt.” A monetary sanction cannot be “appropriate”

                                     23
within the meaning of the local rule if neither the national rules nor the

court’s inherent powers authorizes it.

                                 CONCLUSION

      The standards for imposing monetary sanctions against counsel

either under Rule 9011 (particularly when imposed sua sponte by the

court) or pursuant to the court’s inherent power are unquestionably and

necessarily high. We do not believe that those standards were met in this

case; when judged objectively, a “plausible, good faith argument can be

made by a competent attorney” that Ms. Doling’s statements were not

false. We therefore REVERSE the bankruptcy court’s imposition of

monetary sanctions. 8

      But we are also compelled to note expressly and forcefully that in no

sense should our reversal of these monetary sanctions be considered a

“vindication,” or even a partial justification, of Ms. Doling’s conduct in this

matter. We agree with the bankruptcy court that Ms. Doling’s conduct fell

below the level we expect from bankruptcy practitioners, particularly those

with Ms. Doling’s experience. She could have resolved the issue quickly

and easily by either acknowledging her mistake and withdrawing the

Doling Declaration or supporting the reasonableness of her legal position;

instead, she decided to question the integrity of the bankruptcy court.

Indeed, her conduct before the bankruptcy court ranged from negligent to

      8
       Because we hold that the court erred in determining that sanctions were
warranted, we do not consider whether the amount of sanctions was appropriate.
                                         24
reckless to seriously misleading; her efforts to explain or justify her conduct

when responding to the court’s OSC were sorely lacking in logic and in

candor, and her tone was at times defiant. Ms. Doling’s tone was markedly

more apologetic before this Panel, although it was hardly reflective of the

potential harm her conduct has caused, in particular to the integrity of the

judicial process. That process depends on the court’s faith in, and ability to

rely upon, the complete candor, truthfulness, and professionalism of the

counsel before it.

      The court’s power to address these deficiencies is not limited solely to

the imposition of monetary sanctions. Essential to the court’s “inherent

power” is the ability to monitor counsel’s performance and to insist not

merely on competence for counsel’s clients, but that level of candor and

professionalism necessary to ensure the proper and expeditious working of

the judicial system.

      In this instance, the bankruptcy court exceeded its powers to impose

monetary sanctions, but we acknowledge that Ms. Doling’s conduct clearly

justified the court’s disapproval. Measures to address her actions might be

found in other, more rehabilitative processes, including referral to the

Central District of California Bankruptcy Court’s Disciplinary Panel,

pursuant to Sixth Amended General Order 96-05. We leave it to the sound

judgment of the bankruptcy court to decide if a referral to that panel is

warranted in this instance.

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