Court Opinion

ID: 8493656
Source: CourtListenerOpinion
Date Created: 2022-11-22 22:21:02.72694+00
Date Added: 2024-06-11T16:50:26.690111
License: Public Domain

KLEIN, Bankruptcy Judge,
dissenting.
Although the majority is correct that Rule 9011 cannot support the award that is *375appealed, the error is harmless because we should affirm on the basis of 28 U.S.C. § 1927.
We are compelled to refrain from reversing on account of error that does not affect the substantive rights of the parties. 28 U.S.C. § 2111; Fed.R.Civ.P. 61, incorporated by Fed. R. Bankr.P. 9005. Hence, we are authorized to affirm for another reason supported by the record. Dittman v. California, 191 F.3d 1020, 1027 n. 3 (9th Cir.1999); Shubov, 253 B.R. at 547.
Although Rule 9011 no longer suffices to support an award shifting fees on the court’s own motion, there is available to the bankruptcy court more potent sanctioning authority that does authorize fee-shifting awards.
The bankruptcy court’s thirty-page Order to Show Cause and its subsequent determination document what plainly is “bad faith” conduct by appellant.
Where “bad faith” conduct is involved, there are two heavier caliber weapons than Rule 9011: Judicial Code § 1927 and “inherent authority” sanctions. 28 U.S.C. § 1927; Chambers v. NASCO, 501 U.S. 32, 42-47, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991); Caldwell v. Unified Capital Corp. (In re Rainbow Magazine, Inc.), 77 F.3d 278, 284 (9th Cir.1996) (“Rainbow Magazine ”).
The differences in “bad faith” conduct sufficient to trigger fee shifting as Judicial Code § 1927 sanctions and Rainbow Magazine inherent authority sanctions are largely a matter of degree. In this instance, the appellant’s “bad faith” litigation conduct may not be bad enough to warrant Rainbow Magazine inherent authority sanctions, but is, in my view, ample to justify sanctions under Judicial Code § 1927.
The difficulty on this account, however, is that we have in the past assumed, but not squarely decided, that bankruptcy judges may not impose Judicial Code § 1927 sanctions. Our premise has been that the Ninth Circuit holds that bankruptcy courts are not “courts of the United States” for purposes of the Judicial Code. Perroton v. Gray (In re Perroton), 958 F.2d 889, 893 (9th Cir.1992) (28 U.S.C. § 1915).
Upon scrutiny of the language of Judicial Code § 1927, however, it is not essential that sanctions under that provision be imposed by a “court of the United States.” I shall proceed to explain.
Judicial Code § 1927, entitled “Counsel’s liability for excessive costs,” provides:
Any attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.
28 U.S.C. § 1927.
Under the law of this circuit, § 1927 sanctions in the form of shifting costs, expenses, and fees may be imposed upon an attorney who acts either recklessly or in “bad faith.” Fink v. Gomez, 239 F.3d 989, 993 (9th Cir.2001).
Chase’s motions that were determined to have been filed in “bad faith” fit squarely within the zone of conduct addressed by § 1927. The determination that Chase acted in “bad faith” in filing the two conversion motions necessarily subsumes recklessness. The sanctions imposed are precisely those permitted by § 1927, which section appears to be tailored to the situation at hand. The key question is whether a bankruptcy judge is authorized to impose § 1927 sanctions.
*376It is an open question in the Ninth Circuit, which has not squarely ruled on the question, whether a bankruptcy judge is authorized to impose § 1927 sanctions.
Our decisions regarding the use of § 1927 in bankruptcy are not consistent. We have said, in a decision that was affirmed by the Ninth Circuit without a square holding on the question, that § 1927 sanctions may be imposed by bankruptcy judges. Mortgage Mart. Inc. v. Rechnitzer (In re Chisum), 68 B.R. 471, 473 (9th Cir. BAP 1986), aff'd, 847 F.2d 597 (9th Cir.1988); accord, Norwood Fed. Sav. & Loan Ass’n v. Guiltinan (In re Guiltinan), 58 B.R. 542, 545 (Bankr.S.D.Cal.1986) (Adler, B.J.).
We have, however, assumed in other instances that § 1927 is not in the bankruptcy judge’s arsenal in this circuit. E.g., Miller v. Cardinale (In re Deville), 280 B.R. 483, 494 (9th Cir. BAP 2002); Determan v. Sandoval (In re Sandoval), 186 B.R. 490, 495-96 (9th Cir. BAP 1995).
Our assumption that § 1927 is not available has been based on an easy, but dubious, extrapolation of a Ninth Circuit decision holding that the bankruptcy appellate panel lacks authority to authorize in forma pauperis proceedings under 28 U.S.C. § 1915. In re Perroton, 958 F.2d at 893. There, the Ninth Circuit reasoned that a bankruptcy court is not a “court of the United States” for purposes of 28 U.S.C. § 451 and that, hence, bankruptcy courts lack authority to make in forma pauperis determinations under 28 U.S.C. § 1915.
While we have assumed that Perroton’s analysis of the status of bankruptcy courts regarding § 1915 applies equally to § 1927, we have not heretofore closely examined the question. On closer scrutiny, flaws emerge that change the picture. In short, it does not follow from Perroton that § 1927 cannot be used by bankruptcy judges.
I submit that bankruptcy judges can impose § 1927 sanctions, despite Perroton, for a number of reasons.
First, the Ninth Circuit has itself recently assumed that bankruptcy judges may impose § 1927 sanctions. Holding that federal sanctions law trumped state sanctions law in a particular situation, it reversed a bankruptcy court’s sanctions award under state law, noting that the bankruptcy court could on remand consider an award under federal sanctions law, which it described as including § 1927. Galam v. Carmel (In re Larry’s Apt., LLC), 249 F.3d 832, 840 (9th Cir.2001).
Second, Perroton did not purport to decide the specific question of a bankruptcy judge’s § 1927 authority. Under its facts, the narrow question was whether the bankruptcy appellate panel created pursuant to 28 U.S.C. § 158(b)(1) had in forma pauperis authority under § 1915. The answer, which was in the negative, focused on the status of bankruptcy courts without distinguishing between a bankruptcy court and a bankruptcy appellate panel, and did not mention § 1927. Thus, Perroton is of limited precedential value.
Third, the statutory language of § 1927, unlike § 1915, is not limited to Article III judges. Rather, § 1927 authorizes courts of any territory of the United States to impose its sanctions, in addition to the “courts of the United States” upon which the Perroton panel focused.
This introduces an ambiguity not present in § 1915 relating to whether other non-Article III judges might also be implicitly authorized to impose § 1927 sanctions. Indeed, much of the analysis in Perroton constituted a fruitless quest for some indication that Congress intended for § 1915 power to be exercised by judges who lack Article III tenure. In contrast, evidence of non-Article III intent is on the *377face of § 1927. Thus, regardless of whether bankruptcy courts are “courts of the United States” under § 451, bankruptcy judges may apply § 1927.
Fourth, in light of subsequent Ninth Circuit authority, the better reading of Perroton is that, to the extent its § 451 “court of the United States” analysis applies, a § 1927 sanctions question is, at a minimum, a “noncore” proceeding under 28 U.S.C. § 157(c) over which the bankruptcy court has authority to make a report and recommendation.
Specifically, the Ninth Circuit’s analysis in Perroton rests on an unexplored premise that the bankruptcy court is a separate court from the district court. The Perro-ton panel did not consider the implications of the statutes providing that the bankruptcy court is a “unit” of the district court that exercises much of the jurisdiction of the district court with respect to bankruptcy matters. 28 U.S.C. §§ 151, 157 & 1334.
Nor did the Perroton panel consider the fact that a district court, which is unquestionably a “court of the United States” under § 451, is entitled to withdraw the reference of a bankruptcy case and handle it itself. In the face of a withdrawn reference, it would then have had to face the larger question of whether § 1915 applies in bankruptcy, the outcome of which was probably not really in doubt in view of the fact that the Supreme Court had held that fees could be required in bankruptcy as a condition of discharge and the fact that nothing about the 1978 Bankruptcy Code suggested a change in that aspect of bankruptcy law. United States v. Kras, 409 U.S. 434, 444-46, 93 S.Ct. 631, 34 L.Ed.2d 626 (1973).
These omitted questions operate to limit the utility of the Perroton § 1915 decision as a § 1927 precedent. Questions lurking in a record that are neither brought to the attention of the court nor ruled upon are not regarded as having been so decided as to constitute precedents. Galam, 249 F.3d at 839, quoting Webster v. Fall, 266 U.S. 507, 511, 45 S.Ct. 148, 69 L.Ed. 411 (1925). Instead, one must attend to the holdings of cases, rather than their dicta. Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 379, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994).
Fifth, in an analogous situation subsequent to Perroton, the Ninth Circuit did deal directly with the jurisdictional statutes fixing the relationship of the district and bankruptcy courts and concluded that they are not, as had been assumed in Perroton, separate courts. Rather, it held that “bankruptcy courts are, for jurisdictional purposes, inseparable from the district court” and do not need to be separately described in legislation that refers to the power of district courts to award fees. United States v. Yochum (In re Yochum), 89 F.3d 661, 669 (9th Cir.1996) (26 U.S.C. § 7430).
Although Yochum distinguished Perro-ton as arising under a different title of the United States Code, Yochum’s reasoning regarding the structure of the courts, and the unitary relationship for jurisdictional purposes, cannot be gainsaid.
Reading Perroton in light of Yochum, implies that a § 1927 sanctions issue in the bankruptcy court is, at a minimum, a “non-core” proceeding that a bankruptcy judge may resolve unless the parties insist upon a decision by the district court under the report and recommendation procedure. 28 U.S.C. § 157(c); Fed. R. Bankr.P. 9033. Chase did not insist upon the report and recommendation procedure.
Sixth, the absence of § 1927 sanctioning authority (or even the requirement of a report and recommendation) would leave a nonsensical lacuna in bankruptcy sanctioning authority. It is beyond cavil that the bankruptcy court has the heavy artillery of “inherent authority” sanctioning power as recognized in Rainbow Magazine. If the *378bankruptcy court has the more powerful sanctioning authority, it makes no sense for there to be a gap in the continuum that leaves the court without a lighter, more-accurate weapon that could be used without overkill.
In short, I would hold that the plain language of § 1927 demonstrates that Congress did not mean to limit § 1927 sanctions to Article III judges. In the alternative, I would hold that, even if the authorization for other non-Article III courts to impose § 1927 sanctions does not warrant an inferential authorization for bankruptcy judges, § 1927 sanctions are, at a minimum, “noncore” proceedings that a bankruptcy judge may properly entertain in the same fashion as any other “noncore” matter.
Chase’s conduct is squarely covered by § 1927. At best, his conduct was reckless. Since I would affirm on the basis of Judicial Code § 1927,1 DISSENT.