Court Opinion

ID: 2808503
Source: CourtListenerOpinion
Date Created: 2015-06-15 21:00:44.53493+00
Date Added: 2024-06-11T12:10:35.991632
License: Public Domain

United States Court of Appeals
                      For the First Circuit

No. 14-2151

                      IN RE KEVIN CHARBONO,

                             Debtor.

                        __________________

                         KEVIN CHARBONO,

                            Appellant,

                                v.

                   LAWRENCE P. SUMSKI, Trustee,

                            Appellee.

          APPEAL FROM THE UNITED STATES DISTRICT COURT

                FOR THE DISTRICT OF NEW HAMPSHIRE

         [Hon. Steven J. McAuliffe, U.S. District Judge]
          [Hon. J. Michael Deasy, U.S. Bankruptcy Judge]

                              Before

                    Howard, Selya and Kayatta,
                          Circuit Judges.

     Michelle Kainen, with whom Kainen Law Office, PC was on brief,
for appellant.
     Tara Twomey, Ray DiGuiseppe, and National Consumer Bankruptcy
Rights Center on brief for National Association of Consumer
Bankruptcy Attorneys, amicus curiae.
Lawrence P. Sumski for appellee.

                     June 15, 2015
            SELYA, Circuit Judge.    This appeal poses the question

of whether a bankruptcy court has inherent power to sanction

parties for noncompliance with court orders.          We hold that it

does — and we reject the debtor's attempt to subsume this power

within the bankruptcy court's authority to punish for criminal

contempt.      After placing the sanction imposed by the bankruptcy

court in perspective, we conclude that the district court did

not err in upholding it.

I.    BACKGROUND

            Facing straitened circumstances, Kevin Charbono (the

debtor) filed a voluntary petition for relief under Chapter 13

of the Bankruptcy Code.         See 11 U.S.C. §§ 1301-1330.          The

bankruptcy court appointed Lawrence P. Sumski as Trustee, and

the court confirmed the debtor's Chapter 13 plan (the Plan) on

August 21, 2012.

            The Plan was filed using the standard form, see Bankr.

D.N.H. LBR 3015-1; Bankr. D.N.H. LBF 3015-1A, which contains a

tax   return    production   requirement   that   makes   pellucid   the

debtor's "ongoing obligation to provide a copy of each federal

income tax return (or any request for extension) directly to

the Trustee within seven days of the filing of the return (or

any request for extension) with the taxing authority."               The

bankruptcy court's decree confirming the Plan incorporated the

                                 - 3 -
tax return production requirement and, thus, that requirement

became an order of the court.              See 11 U.S.C. § 1327(a) ("The

provisions   of   a     confirmed    plan    bind    the   debtor    and   each

creditor . . . .").

            The debtor's 2012 federal income tax return was due

April 15, 2013.       See 26 C.F.R. § 1.6072-1(a)(1).             In January,

the Trustee sent the debtor a letter reminding him of his

obligation to furnish a copy of his return or any request for

extension    of   the    filing     date    within   the   time     parameters

specified in the Plan.        As April 15 approached, the debtor's

wife, acting on his behalf and with his knowledge, filed a

request for an extension of the filing deadline with the

Internal Revenue Service.         A copy of this extension request was

not provided to the Trustee within the mandated seven-day

period.

            Not having received a copy of either the debtor's tax

return or an extension request, the Trustee filed a motion on

June 13 alerting the bankruptcy court to the debtor's failure

to comply with the tax return production requirement.                       The

Trustee's motion sought alternative relief: dismissal of the

Chapter 13 bankruptcy or a $200 sanction.              The debtor objected

and belatedly furnished the Trustee with a copy of the by-then-

approved extension request.

                                     - 4 -
            When the matter was heard before the bankruptcy court

on September 20, the Trustee did not press for dismissal.1            He

argued instead that the debtor's untimely compliance with the

tax return production requirement was "sanctionable behavior."

The debtor countered that no sanction was warranted because he

had by then "purged" his noncompliance.

            On September 24, the bankruptcy court entered an

order imposing a $100 sanction on the debtor for his failure to

comply with the tax return production requirement in a timeous

manner.     The debtor took a first-tier appeal to the district

court.    See 28 U.S.C. § 158(a), (c)(1).          That court upheld the

sanction.    See Charbono v. Sumski, No. 13-471, 2014 WL 4922988,

at *5 (D.N.H. Sept. 30, 2014).        This timely second-tier appeal

followed.

II.   ANALYSIS

            Bankruptcy court orders are subject to two tiers of

intermediate appellate review.         The first tier is through an

appeal either to the Bankruptcy Appellate Panel or to the

district court.    See 28 U.S.C. § 158(a), (c).            A second-tier

appeal    thereafter   lies   to    the    court    of   appeals.    See

      1The extension ran until October 15, 2013. Accordingly,
the debtor was in compliance with the tax return production
requirement at the time of the hearing.

                                   - 5 -
id. §§ 158(d)(1),      1291.       Because     the   second-tier       appeal

involves de novo review of the district court's decision, our

review is in effect direct review of the bankruptcy court's

order.    See Shamus Holdings, LLC v. LBM Fin., LLC (In re Shamus

Holdings, LLC), 642 F.3d 263, 265 (1st Cir. 2011); HSBC Bank

USA v. Branch (In re Bank of New Eng. Corp.), 364 F.3d 355, 361

(1st Cir. 2004).

            A   bankruptcy     court's      imposition    of    a     sanction

typically embodies a judgment call, and, thus, review is for

abuse of discretion.        See Jamo v. Katahdin Fed. Credit Union

(In re Jamo), 283 F.3d 392, 403 (1st Cir. 2002); see also

Gannett v. Carp (In re Carp), 340 F.3d 15, 23 (1st Cir. 2003).

This standard, though generally deferential, is not monolithic.

For example, a material error of law is invariably an abuse of

discretion.     See Berliner v. Pappalardo (In re Sullivan), 674

F.3d 65, 68 (1st Cir. 2012).             Accordingly, if a bankruptcy

court lacks the authority to impose a particular sanction, the

imposition of such a sanction will constitute an error of law

and, thus, demand reversal.        See Jamo, 283 F.3d at 403-04.

            Before    us,    the   debtor    questions    the       bankruptcy

court's   authority    to    impose   the    challenged    sanction,      the

process by which the sanction was levied, and the selection of

the sanction itself.        We address these matters sequentially.

                                   - 6 -
                 A.     The Bankruptcy Court's Authority.

            The debtor first posits that the challenged sanction

is tantamount to a fine for criminal contempt.                  That fine, he

asserts, was beyond the bankruptcy court's authority for two

reasons: as a jurisdictional matter and as a result of the

court's noncompliance with the procedural prerequisites for

such a fine.2         But the premise on which this binary assertion

rests mischaracterizes the bankruptcy court's action.                     While

the challenged sanction shares certain features of a criminal

contempt fine — after all, the sanction is punitive (that is,

one imposed to vindicate the authority of the court) rather

than coercive (that is, one imposed to force compliance with a

court order) — a criminal contempt fine is not the only type of

punitive sanction that lies within a court's armamentarium.

            In    United     States    v.     Kouri-Perez,      we   explicitly

renounced   the        proposition    that    any    punitive    sanction   is

perforce a criminal contempt sanction.                187 F.3d 1, 8-9 (1st

Cir. 1999).           We recognized that a district court may, in

appropriate       circumstances,       impose       "punitive    non-contempt

     2 A fine for criminal contempt may only be imposed in
conformity with the requirements of Federal Rule of Criminal
Procedure 42. See United States v. Burgos-Andújar, 275 F.3d
23, 31 (1st Cir. 2001). The bankruptcy court made no effort
to satisfy these prerequisites.

                                      - 7 -
sanctions."      See id. at 7.      In other words, the contempt power

is merely one of many inherent powers that a court possesses;

it is not the only type of inherent power that can be deployed.

See   Chambers    v.   NASCO,     Inc.,   501    U.S.   32,    43-44      (1991)

(describing the power to punish for contempt as one of multiple

inherent powers of the courts arising out of courts' authority

to manage their own affairs); United States v. Pina, 844 F.2d

1, 14 (1st Cir. 1988) (noting that the "contempt power . . . is

not the only weapon available to a judge to protect the order

and dignity of the courtroom").               The authority to issue a

punitive sanction also may reside in "a court's inherent power

to police itself, thus . . . 'vindicat[ing] judicial authority

without resort to the more drastic sanctions available for

contempt    of    court.'"        Chambers,     501   U.S.    at    46    (second

alteration in original) (quoting Hutto v. Finney, 437 U.S. 678,

689 n.14 (1978)).      Exercising this authority, courts may levy

sanctions    (including      punitive     sanctions)     for       such   varied

purposes as disciplining attorneys, remedying fraud on the

court, and preventing the disruption of ongoing proceedings.

See id. at 43-44 (collecting cases).

            The   courts     of   appeals,    too,    have    recognized      the

authority of federal courts to impose inherent-power sanctions

without a finding of contempt.            See, e.g., Mark Indus., Ltd.

                                    - 8 -
v. Sea Captain's Choice, Inc., 50 F.3d 730, 733 (9th Cir. 1995)

(explaining that a non-contempt inherent-power sanction can be

employed to vindicate a court's authority); Harlan v. Lewis,

982 F.2d 1255, 1259 (8th Cir. 1993) (approving imposition of a

non-contempt      monetary   sanction     as   within    district    court's

inherent powers).      Indeed, such a principle is part of the warp

and woof of this court's jurisprudence.                 See, e.g., United

States v. Romero-López, 661 F.3d 106, 108 (1st Cir. 2011); Aoude

v. Mobil Oil Corp., 892 F.2d 1115, 1119 (1st Cir. 1989).

           For ease in exposition, we will from this point

forward use the term "inherent-power sanction" as a shorthand

for a non-contempt inherent-power sanction.              Factors relevant

in distinguishing between contempt sanctions and inherent-power

sanctions include whether the issuing court made an express

finding of contempt, whether the underlying conduct evinces a

criminal   mens    rea,   and   whether    the   order    falls     within   a

recognized inherent power of the court (other than the contempt

power).    See Romero-López, 661 F.3d at 108; Kouri-Perez, 187

F.3d at 8-9.        Here, these factors point unerringly to the

conclusion that the bankruptcy court's ukase, though punitive,

was an inherent-power sanction.         The bankruptcy court not only

made no finding of contempt but also expressly disavowed any

notion that its order was meant to be a criminal sanction.

                                  - 9 -
What is more, the court acknowledged that the debtor's delayed

compliance was not the product of any malign intent.                   Last —

but far from least — the $100 impost fell squarely within the

long-recognized authority of courts to "impose . . . submission

to their lawful mandates."        Chambers, 501 U.S. at 43 (quoting

Anderson v. Dunn, 19 U.S. (6 Wheat.) 204, 227 (1821)).                     We

conclude, therefore, that the bankruptcy court imposed a garden

variety   inherent-power     sanction,     not    a   criminal    contempt

sanction.

            The question remains whether a bankruptcy court, like

other federal courts, has the authority to impose punitive non-

contempt sanctions. The debtor argues that because bankruptcy

courts are creatures of statute and have limited jurisdiction,

they lack the inherent power to issue such sanctions.             We reject

this crabbed view.

            To    begin,   the   Supreme   Court      has    implied     that

bankruptcy courts possess inherent sanctioning powers beyond

those expressly authorized by statute or rule.                  See Law v.

Siegel, 134 S. Ct. 1188, 1198 (2014); see also Marrama v.

Citizens Bank of Mass., 549 U.S. 365, 375-76 (2007).                     This

acknowledgment dovetails with Chambers, in which the Court

explained that by the very nature of their institution, all

courts    are    "necessarily    vested"   with    the      inherent    power

                                  - 10 -
required to carry out their judicial functions to "achieve the

orderly and expeditious disposition of cases."            501 U.S. at 43

(internal quotation mark omitted).            The Chambers Court stated

that even though a district court's inherent power "can be

limited by statute and rule," it would not "lightly assume that

Congress . . . intended to depart from established principles

such as the scope of a court's inherent power."                 Id. at 47

(internal quotation mark omitted).            This reasoning readily can

be applied to bankruptcy courts, which by the nature of their

institution must possess inherent power sufficient to "manage

their own affairs" and "impose . . . submission to their lawful

mandates."      Id. at 43 (internal quotation marks omitted).

             The proof of the pudding is in the case law.             The

courts of appeals consistently have recognized that bankruptcy

courts may impose various forms of inherent-power sanctions.

See, e.g., Isaacson v. Manty, 721 F.3d 533, 538-39 (8th Cir.

2013); McGahren v. First Citizens Bank & Trust Co. (In re

Weiss),   111    F.3d   1159,   1171   (4th    Cir.   1997);   Mapother   &

Mapother, P.S.C. v. Cooper (In re Downs), 103 F.3d 472, 477-78

(6th Cir. 1996); Caldwell v. Unified Capital Corp. (In re

Rainbow Magazine, Inc.), 77 F.3d 278, 284 (9th Cir. 1996);

Glatter v. Mroz (In re Mroz), 65 F.3d 1567, 1575 (11th Cir.

1995); Fellheimer, Eichen & Braverman, P.C. v. Charter Techs.,

                                 - 11 -
Inc., 57 F.3d 1215, 1224 (3d Cir. 1995); Citizens Bank & Trust

Co. v. Case (In re Case), 937 F.2d 1014, 1023 (5th Cir. 1991).

Our court has joined in this chorus.           See Pearson v. First NH

Mortg. Corp., 200 F.3d 30, 42 n.7 (1st Cir. 1999).            We therefore

hold, without serious question, that bankruptcy courts possess

the inherent power to impose punitive non-contempt sanctions

for failures to comply with their orders.

             There is one loose end.       The parties agree that the

debtor's failure to comply with the tax return production

requirement was inadvertent and did not exhibit bad faith.

With this in mind, a colloquy ensued at oral argument in this

court about whether a finding of bad faith was a prerequisite

for the imposition of an inherent-power sanction.

             This argument is procedurally defaulted several times

over.   The debtor did not advance it in the bankruptcy court,

in the district court, or in his briefing before this court.

Consequently, the argument has not been preserved.             See Limone

v. United States, 579 F.3d 79, 100 n.11 (1st Cir. 2009).

             Even if we assume, favorably to the debtor, that the

argument was forfeited rather than waived, see United States v.

Rodriguez,    311   F.3d   435,   437   (1st   Cir.   2002)   (discussing

distinction between waiver and forfeiture), the challenged

sanction would still stand.             The argument for a bad-faith

                                  - 12 -
requirement prescinds from the Supreme Court's review of an

inherent-power sanction in the form of an award of attorneys'

fees.       See Roadway Express, Inc. v. Piper, 447 U.S. 752, 767

(1980).      The Roadway Express Court noted that "a finding [of

bad faith] would have to precede any sanction under the court's

inherent powers."         Id.   The Supreme Court later clarified this

holding      explaining    that   "nothing   in   the   other   sanctioning

mechanisms or prior cases . . . warrants a conclusion that a

federal court may not, as a matter of law, resort to its

inherent power to impose attorney's fees as a sanction for bad-

faith conduct."      Chambers, 501 U.S. at 50 (emphasis supplied).

              For the most part, the courts of appeals have read

these precedents narrowly, limiting them to instances in which

an inherent-power sanction takes the form of an award of

attorneys' fees.3         See, e.g., United States v. Seltzer, 227

F.3d 36, 41-42 (2d Cir. 2000); Republic of the Philippines v.

Westinghouse Elec. Corp., 43 F.3d 65, 74 n.11 (3d Cir. 1994);

Harlan, 982 F.2d at 1260.         This limitation makes eminently good

        3
       The Fifth Circuit is an outlier.      See, e.g., In re
Thalheim, 853 F.2d 383, 389 (5th Cir. 1988). Even that court
has acknowledged that its expansive application of the bad-
faith requirement may be open to question.      See Elliott v.
Tilton, 64 F.3d 213, 217 n.3 (5th Cir. 1995). In any event,
we join the majority of our sister circuits in rejecting the
Fifth Circuit's more sweeping use of the bad-faith requirement.

                                    - 13 -
sense.   The Roadway Express Court's reasoning took into account

the venerable "American Rule," which provides that litigants

ordinarily shall pay their own lawyers. See Roadway Express,

447 U.S. at 765-66; see also Alyeska Pipeline Serv. Co. v.

Wilderness Soc'y, 421 U.S. 240, 247 (1975).   Where an inherent-

power sanction has the effect of reversing this rule, that

sanction   demands   heightened   justification.     See   Roadway

Express, 447 U.S. at 765-66.       But where an inherent-power

sanction does not take the form of an award of attorneys' fees

(and thus does not involve a departure from the American Rule),

a finding of bad faith is not ordinarily required.   See Seltzer,

227 F.3d at 40-42; United States v. Mottweiler, 82 F.3d 769,

772 (7th Cir. 1996); Harlan, 982 F.2d at 1260; Mulvaney v.

Rivair Flying Serv., Inc. (In re Baker), 744 F.2d 1438, 1441-

42 (10th Cir. 1984) (en banc); see also Romero-López, 661 F.3d

at 108 (affirming imposition of inherent-power sanction, not in

form of fee award, without requiring showing of bad faith);

Sacramona v. Bridgestone/Firestone, Inc., 106 F.3d 444, 447

(1st Cir. 1997) (same).     It follows that the absence of bad

faith does not serve to undermine the inherent-power sanction

imposed by the bankruptcy court.

           Of course, the absence of a bad faith requirement

should not be thought to give the bankruptcy court free reign

                             - 14 -
to impose sanctions without restraint.             The admonition that

"courts [are] to be cautious in using their inherent power to

sanction" remains true.        See Romero-López, 661 F.3d at 108

(citing Chambers, 501 U.S. at 44).              Here, however, we are

satisfied that the bankruptcy court, in choosing this modest

sanction    (rather   than,    say,     dismissing      the   Chapter   13

proceeding in its entirety), opted for "the least extreme

sanction    reasonably   calculated     to    achieve   the   appropriate

punitive and deterrent purposes."           Kouri-Perez, 187 F.3d at 8.

                              B.    Due Process.
            It is common ground that a court's inherent powers

must be exercised circumspectly and with particular regard for

due process protections.      See Roadway Express, 447 U.S. at 767;

United States v. Horn, 29 F.3d 754, 760 (1st Cir. 1994);

Boettcher v. Hartford Ins. Grp., 927 F.2d 23, 26 (1st Cir.

1991).     These protections include notice and the opportunity

to be heard.    See Roadway Express, 447 U.S. at 767.             Against

this backdrop, the debtor claims that the bankruptcy court

transgressed his due process rights by failing to provide notice

of what he describes as the court's "uniform policy" of imposing

a monetary sanction for noncompliance with the tax return

production requirement.

                                   - 15 -
            The lack-of-notice claim is empty. "Notice can come

from the party seeking sanctions, from the court, or from both."

Glatter, 65 F.3d at 1575.           Here, the Trustee's motion made

plain that the Trustee was seeking a monetary sanction as an

alternative to dismissal of the bankruptcy proceeding.

            So, too, the debtor had a full opportunity to be

heard.   His counsel filed a written objection to the Trustee's

motion and appeared with the debtor at a hearing that aired a

host of arguments.        No more was exigible to safeguard the

debtor's right to fundamental fairness.         See Jensen v. Phillips

Screw Co., 546 F.3d 59, 65 (1st Cir. 2008); HMG Prop. Investors,

Inc. v. Parque Indus. Rio Canas, Inc., 847 F.2d 908, 918 & n.14

(1st Cir. 1988).

            The debtor nonetheless suggests that the bankruptcy

court was following a policy that was the functional equivalent

of   a   local   rule,    promulgated    without   heed    to   customary

rulemaking procedures.         See Fed. R. Civ. P. 83(a)(1); Fed. R.

Bankr. P. 9029(a)(1).      Building on this foundation, the debtor

complains that he had no way to know in advance that his

violation of the tax return production requirement could result

in a monetary sanction.

            We   agree,   of   course,   that   courts    should   provide

notice prior to attempting to enforce new rules.           See Weisburgh

                                  - 16 -
v. Fidelity Magellan Fund (In re Fidelity/Micron Sec. Litig.),

167 F.3d 735, 737 n.1 (1st Cir. 1999).                 We have encouraged

district courts "to avoid incipient problems of this type by

incorporating standing orders into local rules, or, at least,

making them readily available in the office of the Clerk."                 Id.

Here, however, there was no standing order.                    Although the

bankruptcy court did refer to a "policy" of imposing sanctions,

the court was merely noting its usual practice.4               The fact that

a   court's    approach    to   a     particular   type   of   situation   is

predictable or is referred to as a "policy" does not, without

more, make it the sort of unwritten rule that requires formal

adoption.

              What remains of the debtor's lack-of-notice argument

is foreclosed by our decision in Zebrowski v. Hanna, 973 F.2d

1001 (1st Cir. 1992).           There, the plaintiffs were sanctioned

for noncompliance with a court order requiring payment into an

escrow    account.        See   id.    at   1001-02.      We   rejected    the

plaintiffs' lack-of-notice argument, concluding that they could

not complain about a lack of notice vis-à-vis the possibility

      4The transcript of the hearing discloses that the
bankruptcy court mentioned a "policy" only in reference to its
aspirational goal of treating similarly situated debtors even-
handedly. The court said that if it "is going to have a policy
to enforce provisions of confirmation orders," it would "have
to apply [that policy] with a reasonable degree of uniformity."

                                      - 17 -
of sanctions since they were indisputably on notice that the

failure to fund the escrow was in direct contravention of a

court order.        See id. at 1007 (distinguishing Boettcher, 927

F.2d at 26).

               C.     Appropriateness of the Sanction.

          The debtor submits that the bankruptcy court abused

its discretion by imposing a $100 sanction without adequate

regard for the debtor's specific circumstances.          These include

the debtor's eventual compliance with the tax return production

requirement,    his    good   faith,   his   impecuniousness,   and   his

manifest difficulties in managing his affairs.

          When a court confronts a violation of its own order,

"it may choose from a broad universe of possible sanctions."

Velázquez Linares v. United States, 546 F.3d 710, 711 (1st Cir.

2008) (internal quotation marks omitted).           In exercising this

considerable    discretion,      however,     the   court   must      give

"individualized consideration to the particular circumstances,"

id., and "balance a myriad of factors," Young v. Gordon, 330

F.3d 76, 81 (1st Cir. 2003).       In turn, our review of an imposed

sanction for abuse of discretion requires that we evaluate

whether "a material factor deserving significant weight was

ignored, whether an improper factor was relied upon, or whether

when all proper and no improper factors were assessed[,] the

                                 - 18 -
court made a serious mistake in weighing them."                 United States

v. One 1987 BMW 325, 985 F.2d 655, 657-58 (1st Cir. 1993)

(alterations and internal quotation marks omitted).

                 The record shows beyond any hope of contradiction

that       the   bankruptcy   court   paid     attention   to   the    debtor's

individual circumstances in selecting a sanction.                     The court

acknowledged that the debtor, by the time of the hearing, had

complied (albeit belatedly) with the tax return production

requirement and that his initial noncompliance was inadvertent

and not driven by a desire to withhold information from the

Trustee.         The court further acknowledged that the debtor was

unlikely to receive a tax refund for the calendar year 2012, so

the delay did not have the effect of withholding funds from

creditors.

                 Similarly, the court factored into the equation the

debtor's         "dire   straits."    Although       the   court   ultimately

concluded that a sanction was warranted to send a message to

the    debtor      and   others   regarding    the    importance   of    timely

compliance with the tax return production requirement, 5 it

       5
       The bankruptcy court explained that certain basic
requirements must be met in order to receive the benefit of the
Chapter 13 process.     It ranked the tax return production
requirement among those obligations. And the court said that
this debtor — like others similarly situated — must face some
consequence for noncompliance.

                                      - 19 -
exhibited some flexibility and invited the debtor to suggest an

alternative sanction.    In the end, the court halved the $200

sanction requested by the Trustee because the debtor had a cash-

flow problem.   For this same reason, the court made the sanction

payable on January 15, 2014 — more than three months after the

date of the order.   In light of the court's careful assessment

of the full range of circumstances, we cannot say that the

challenged sanction fell outside the wide encincture of its

discretion.

III. CONCLUSION

            We need go no further.    For the reasons elucidated

above, we reject the debtor's challenge to the sanction.

Affirmed.

                             - 20 -