Court Opinion

ID: 4573617
Source: CourtListenerOpinion
Date Created: 2020-10-06 23:00:41.247502+00
Date Added: 2024-06-11T13:31:59.619286
License: Public Domain

FILED
                                                                          OCT 6 2020
                           NOT FOR PUBLICATION
                                                                     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. HI-20-1036-BGTa
ADAM LEE,
                    Debtor.                           Bk. No. 13-01356

BOON HAN SIA,                                         Adv. No. 19-90030
              Appellant,
v.                                                    MEMORANDUM*
DANE FIELD, Chapter 7 Trustee,
              Appellee.

                 Appeal from the United States Bankruptcy Court
                             for the District of Hawaii
                   Robert J. Faris, Bankruptcy Judge, Presiding

Before: BRAND, GAN, and TAYLOR, Bankruptcy Judges.

                                   INTRODUCTION

      Appellant Boon Han Sia appeals an order sanctioning him for filing what

the bankruptcy court found were frivolous complaints naming the chapter 7 1

       *
         This disposition is not appropriate for publication. Although it may be cited
 for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no
 precedential value, see 9th Cir. BAP Rule 8024-1.
       1
        Unless 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, and all "Civil Rule" references are to the Federal Rules of Civil
                                                                               (continued...)
trustee, Dane Field ("Trustee"). Although sanctions were not available under

Rule 9011, which is what Trustee requested, we conclude that the record

supports the bankruptcy court's decision to impose sanctions under its

inherent authority, and we AFFIRM.

          I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

A.    Events leading to Trustee's motions for sanctions

      During the course of this chapter 7 case, Trustee sued the debtor to set

aside two alleged fraudulent transfers of real property. The debtor had

claimed an exemption for both properties. Ultimately, the bankruptcy court

found that the transfers were fraudulent and ordered that they be avoided for

the benefit of the estate.

      In opposing Trustee's attempts to obtain possession of the properties, the

debtor argued that Trustee had not timely objected to his claimed exemptions

under Rule 4003 and therefore the exemptions were valid notwithstanding the

court's avoidance of the transfers. In essence, the debtor contended that

Trustee's adversary complaint seeking to avoid the transfers, though filed

within 30 days after the § 341(a) meeting of creditors, was not a proper

"objection" under Rule 4003. The bankruptcy court disagreed and granted the

turnover order, thus denying the claimed exemptions. The debtor appealed.

The district court affirmed the bankruptcy court, and the Ninth Circuit Court

      1
      (...continued)
 Procedure.

                                        2
of Appeals affirmed the district court. Lee v. Field (In re Lee), 889 F.3d 639 (9th

Cir. 2018). The Circuit expressly held that filing the adversary complaint

contesting the basis for the exemptions satisfied the procedural requirements

of Rule 4003.

      After the Ninth Circuit's ruling, Tom Ishimaru, purported creditor of the

debtor's chapter 7 estate, filed a complaint against Trustee challenging the

denial of the debtor's claimed exemptions and asserting that Trustee's

adversary complaint did not comply with the procedural requirements of Rule

4003 — the exact issue decided in the debtor's appeal of the turnover order.

      Trustee then served Ishimaru with correspondence designated as a

"motion for sanctions" under Rule 9011 ("Ishimaru Letter"). Trustee asserted

that Ishimaru's complaint was a frivolous collateral attack on the turnover

order that was challenged and upheld by the Ninth Circuit. Trustee also

speculated that the debtor was behind the claims asserted in the complaint,

because he raised these same claims in opposition to the turnover order and

only he benefitted from allowing the exemptions; there was no benefit to

creditors. The Ishimaru Letter provided the 21-day safe harbor provision of

Rule 9011 and advised Ishimaru that, if he did not withdraw the objectionable

pleading, Trustee would file a motion seeking sanctions against him, to

include attorney's fees and costs incurred in defending against the frivolous

                                          3
complaint. Eight months later, Ishimaru moved to dismiss his complaint.2

      Soon after Ishimaru filed his complaint, Sia, also a purported creditor of

the debtor's chapter 7 estate, filed a complaint against Trustee essentially

identical to Ishimaru's. Trustee promptly served Sia with correspondence

designated as a "motion for sanctions" under Rule 9011 similar to the Ishimaru

Letter ("Sia Letter"). The Sia Letter provided the 21-day safe harbor provision

of Rule 9011 and advised Sia that, if he did not withdraw the objectionable

pleading, Trustee would file a motion seeking sanctions against him, to

include attorney's fees and costs incurred in defending against the frivolous

complaint.

      Sia failed to attend the initial scheduling conference. The bankruptcy

court dismissed Sia's complaint on June 10, 2019, for failure to prosecute.

      Undeterred, Sia filed a second complaint against Trustee on September

16, 2019, which was essentially identical to his first. Trustee again served Sia

with correspondence designated as a "motion for sanctions" under Rule 9011

(together with the Sia Letter, the "Sia Letters," and collectively with the

Ishimaru Letter, the "Letters"). Trustee maintained that this second complaint

was frivolous and unwarranted for the same reasons as the first. Trustee

advised Sia that, if he did not withdraw it within 21 days, Trustee would file a

motion seeking sanctions against him, to include attorney's fees and costs

       2
         The bankruptcy court held the hearing for Ishimaru's motion to dismiss on the
 same day as the hearing for Trustee's Rule 9011 motions against Ishimaru and Sia. The
 court entered an order granting Ishimaru's motion to dismiss on January 29, 2020.

                                            4
incurred in defending against both frivolous complaints.

      The bankruptcy court dismissed Sia's second complaint on December 11,

2019, for failure to prosecute. Sia again failed to attend the initial scheduling

conference. The court reserved jurisdiction to consider a motion for sanctions,

if Trustee decided to seek sanctions against Sia.

B.    Trustee's sanctions motions under Rule 9011

      Trustee filed and served Rule 9011 motions against Sia and Ishimaru. He

argued that the complaints were frivolous because the issues they raised had

already been decided by the Ninth Circuit. Further, Sia had neither prosecuted

his complaints nor responded to Trustee. For Sia, Trustee requested $7,980 for

attorney's fees and costs incurred defending against his two complaints and

prosecuting the sanctions motion.

      Sia and Ishimaru filed essentially identical oppositions to the Rule 9011

motions, arguing that the complaints were not frivolous, and that the Letters

were insufficient and did not satisfy Rule 9011. They maintained Rule 9011

requires that the offending party be served with the "actual motion" — not a

warning letter — to trigger the 21-day safe harbor provision. In response,

Trustee argued that Sia and Ishimaru were putting form over substance. The

Letters were designated as a "motion for sanctions" and were in all material

respects identical to the motions filed. The Letters identified the exact nature of

the objectionable conduct, provided the 21-day safe harbor, and further

advised that, if the objectionable pleadings were not withdrawn, Trustee

                                         5
would seek sanctions. The only difference between the Letters and the

motions, argued Trustee, was a caption and a cover page. Thus, in Trustee's

opinion, the Letters complied with Rule 9011's procedural requirements and

were not a basis for denying the motions.

      The bankruptcy court held consecutive hearings on the Rule 9011

motions, hearing the Ishimaru matter first. After hearing argument from

Ishimaru and counsel for Trustee, the court stated that, while it did not like the

result, it agreed with Ishimaru — the offending party must be served with the

actual motion. Thus, it "reluctantly" denied sanctions against Ishimaru.

      Sia did not appear for his sanctions hearing. Counsel for Trustee again

asserted that the Sia Letters complied with Rule 9011. In response, the court

stated that it would grant the motion in Sia's case because, unlike Ishimaru, Sia

made no efforts to withdraw his "frivolous" complaint. The court ruled that it

could also sanction Sia under its inherent authority. The court later entered a

written order sanctioning Sia and awarding Trustee $7,980 for attorney's fees

and costs. Sia timely appealed.

                              II. JURISDICTION

      The bankruptcy court had jurisdiction to award sanctions under 28

U.S.C. § 157(b)(1) and (b)(2)(A). We have jurisdiction under 28 U.S.C. § 158(b).

                                   III. ISSUE

      Did the bankruptcy court abuse its discretion in sanctioning Sia?

                                        6
                         IV. STANDARDS OF REVIEW

      We review a bankruptcy court's interpretation and application of the

bankruptcy rules de novo. All Points Capital Corp. v. Meyer (In re Meyer), 373
B.R. 84, 87 (9th Cir. BAP 2007).

      We review an award of sanctions for an abuse of discretion. See Caldwell

v. Unified Capital Corp. (In re Rainbow Magazine, Inc.), 77 F.3d 278, 283 (9th Cir.

1996) (reviewing sanctions imposed under Rule 9011 and the bankruptcy

court's inherent power to sanction); Shalaby v. Mansdorf (In re Nakhuda), 544
B.R. 886, 898 (9th Cir. BAP 2016), aff'd, 703 F. App'x 621 (9th Cir. 2017). A

bankruptcy court abuses its discretion if it applies the wrong legal standard, or

misapplies the correct legal standard, or if it makes factual findings that are

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, 1262 (9th

Cir. 2009) (en banc).

                                   V. DISCUSSION

      We are not sure if the bankruptcy court imposed sanctions against Sia

under only the court's inherent authority or under both the court's inherent

authority and Rule 9011. It appears that the court did both, even though it

denied sanctions in the Ishimaru case because the Ishimaru Letter did not

comply with Rule 9011. However, the court also stated at Sia's hearing that it

denied Rule 9011 sanctions in the Ishimaru case because Ishimaru withdrew

his complaint. The Sia order is silent as to what authority the court relied upon

                                          7
to award sanctions against Sia. Thus, we will analyze the Sia order under both

Rule 9011 and the court's inherent authority.

A.    Rule 9011 was not a basis for sanctions against Sia.

      Rule 9011(b) requires attorneys and unrepresented parties to ensure

papers filed before a bankruptcy court are "not being presented for any

improper purpose," that the claims asserted are "warranted by existing law or

by a nonfrivolous argument for the extension, modification, or reversal of

existing law or the establishment of new law," and that the "allegations and

other factual contentions have evidentiary support." Rule 9011(b)(1), (2), (3).

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). Signing or advocating a

paper which violates these standards may result in the imposition of sanctions.

Rule 9011(c).

      A party filing a motion for sanctions under Rule 9011 must comply with

Rule 9011(c)(1)(A).3 The question here is whether the Sia Letters complied. In

       3
           Rule 9011(c)(1)(A) provides, in relevant part:

       (c) Sanctions. If, after notice and a reasonable opportunity to respond, the
       court determines that subdivision (b) has been violated, the court may,
       subject to the conditions stated below, impose an appropriate sanction upon
       the . . . parties that have violated subdivision (b) or are responsible for the
       violation.
       (1) How Initiated.
                (A) By Motion. A motion for sanctions under this rule shall be made
                separately from other motions or requests and shall describe the
                specific conduct alleged to violate subdivision (b). . . . The motion for
                                                                                     (continued...)

                                                8
other words, does a "letter" notice suffice, notwithstanding the rule's clear

reference to service of a "motion" to initiate the safe harbor period? Sia

contends that the Sia Letters did not comply, arguing that the movant must

serve the offending party with the actual motion to be filed. Trustee contends

that the Sia Letters complied with the rule because they were essentially

identical to the motion filed; the only thing missing was a caption and a cover

page. The bankruptcy court opined in connection with the Ishimaru motion

that, while the Ninth Circuit has not yet decided this precise issue, it would

likely agree with the Sixth Circuit in Ridder v. City of Springfield, 109 F.3d 288

(6th Cir. 1997), that the party must be served with the actual motion that is to

be filed.

      We believe the Ninth Circuit addressed this issue in Barber v. Miller, 146
F.3d 707, 710 (9th Cir. 1998), holding that informal warning letters do not

substitute for service of a motion. In Barber, the movant had warned the

offending party in two separate letters that his claims were baseless, putting

him on notice that the movant would seek Civil Rule 11 sanctions if the

purportedly frivolous complaint was not withdrawn. The case was later

      3
          (...continued)
                   sanctions may not be filed with or presented to the court unless,
                   within 21 days after service of the motion (or such other period as the
                   court may prescribe), the challenged paper, claim, defense, contention,
                   allegation, or denial is not withdrawn or appropriately corrected . . .
                   If warranted, the court may award to the party prevailing on the
                   motion the reasonable expenses and attorney's fees incurred in
                   presenting or opposing the motion[.]

                                                  9
dismissed. Approximately two months after the dismissal, the movant

informed the offending party by letter that it would seek sanctions under Civil

Rule 11. One month later, the movant filed a motion for sanctions and served

the offending party with the motion. The Ninth Circuit reversed the district

court's award of sanctions to the movant, holding that the "safe harbor"

expressly requires service of a motion in compliance with Civil Rule 11(c)(2).4
Id. "It would . . . wrench both the language and purpose of . . . the Rule to

permit an informal warning to substitute for service of a motion." Id.

      The Ninth Circuit further discussed its holding in Barber in Radcliffe v.

Rainbow Construction Co., 254 F.3d 772 (9th Cir. 2001):

      In Barber, we held that the procedural requirements of Rule
      11(c)(1)(A)'s "safe harbor" are mandatory. Thus, in Barber, we
      concluded that, although a defendant had given informal warnings
      to the plaintiffs threatening to seek Rule 11 sanctions, these
      warnings did not satisfy the strict requirement that a motion be
      served on the opposing party twenty-one days prior to filing. It is
      the service of the motion that gives notice to a party and its
      attorneys that they must retract or risk sanctions. In light of our
      holding in Barber, the fact that the plaintiffs had advance warning
      that Rainbow objected to their conspiracy allegation did not cure
      Rainbow's failure to comply with the strict procedural requirement

        4
         Civil Rule 11(c)(2) is the equivalent to Rule 9011(c)(1)(A). Because Rule 9011
 parallels Civil Rule 11, courts apply the same standard in interpreting cases under Rule
 9011 as in cases involving Civil Rule 11. Miller v. Cardinale (In re DeVille), 361 F.3d 539,
 551-52, n.5 & 8 (9th Cir. 2004) (noting that the Ninth Circuit still looks to the Advisory
 Committee Notes to the 1993 Amendments to Civil Rule 11 to inform judgments about
 the procedures required in imposing sanctions under Rule 9011).

                                          10
      of Rule 11(c)(1)(A). The district court abused its discretion when it
      concluded otherwise.
Id. at 789 (internal citations omitted). To comply with the rule, the defendant

was required to serve its Civil Rule 11 motion on the plaintiffs, with a demand

for retraction of the offending allegations, and then to allow the plaintiffs at

least 21 days to retract the pleading before filing the motion with the court. Id.

at 788-89. See also Truesdell v. S. Cal. Permanente Med. Grp., 293 F.3d 1146, 1151

(9th Cir. 2002) (observing Civil Rule 11 contemplates service of a "filing-ready

motion" 21 days prior to filing the actual motion with the court in order to

trigger the safe harbor period).5

      Thus, even though the Sia Letters contained the same facts and requested

the same relief as the Rule 9011 motion, they did not substitute for service of

the motion itself, which had to be served on Sia at least 21 days before it was

filed with the court. Therefore, Rule 9011 was not a proper basis for imposing

sanctions against Sia.

       5
          We further note that in the 1993 Amendments to Civil Rule 11 the Advisory
 Committee refers to letters as "informal notice" and recommends that attorneys send a
 warning letter as a professional courtesy "before proceeding to prepare and serve a Rule
 11 motion." See Civil Rule 11 Advisory Committee Notes (1993 Amendments). See also
 Roth v. Green, 466 F.3d 1179, 1192 (10th Cir. 2006) ("[T]he Advisory Committee's Notes
 clearly suggest that warning letters . . . are supplemental to, and cannot be deemed an
 adequate substitute for, the service of the motion itself.").

                                            11
B.    The bankruptcy court did not abuse its discretion in sanctioning Sia
      under its inherent authority to sanction.

      The bankruptcy court alternatively ruled that it could sua sponte impose

sanctions against Sia under its inherent authority. Sia offers no argument for

how the court abused its discretion by sanctioning him on that basis. In any

case, we first consider whether Sia received due process since Trustee did not

request sanctions pursuant to the bankruptcy court's inherent authority.

      Trustee requested sanctions only under Rule 9011. Neither he nor the

court gave Sia any prior notice that inherent authority sanctions were a

possibility. Although inherent authority sanctions may be imposed sua sponte,

due process must nonetheless be provided. Miller v. Cardinale (In re DeVille),

280 B.R. 483, 495-96 (9th Cir. BAP 2002), aff'd sub nom. Miller v. Cardinale (In re

DeVille), 361 F.3d 539 (9th Cir. 2004). Ordinarily, the person to be sanctioned

must be notified of the alleged misconduct and the particular disciplinary

authority under which sanctions are to be imposed. In re Deville, 361 F.3d at

548. The failure to provide the disciplinary authority may not be fatal where

the sanctionee is provided with sufficient advance notice of exactly what

conduct is alleged to be sanctionable and that he stood accused of acting in bad

faith. Id. at 548-49. In DeVille, the Ninth Circuit held that due process was

accorded when the court's order to show cause cited Rule 9011 as the basis for

sanctions but the court ultimately imposed sanctions under its inherent

authority, because the sanctionee was aware that his conduct was sanctionable

                                         12
and that he was accused of acting in bad faith. Id. at 549-550.

      In his motion and the Sia Letters, Trustee specifically identified the

sanctionable conduct as Sia's filing of two complaints which Sia knew to be an

impermissible and frivolous collateral attack on the Ninth Circuit's ruling on

the debtor's claimed exemptions. Trustee also asserted that Sia's complaints

were likely drafted by the debtor and filed at his behest, because the debtor

was the only one to benefit from the claimed exemptions. Trustee further

noted that Sia had failed to prosecute either complaint or respond to Trustee.

      Thus, Sia was aware that his conduct was alleged to be sanctionable and

that he was accused of acting in bad faith. Sia was also given an opportunity to

respond in writing to Trustee's motion, which he did, and to appear and testify

at a hearing, which he did not do.6 See Mullane v. Cent. Hanover Bank & Tr. Co.,

339 U.S. 306, 314 (1950) (the fundamental question related to due process is

whether the appellant received any type of notice that was reasonably

calculated under all the circumstances to apprise it of the pendency of the

action and afford it an opportunity to present an objection). In light of the

record, we conclude that Sia was not deprived of due process.

      A bankruptcy court's inherent sanction authority is recognized under

       6
        Sia contends that he intended to appear at the sanctions hearing via court call
 but was unable to do so due to technical problems.

                                            13
§ 105(a).7 In re Rainbow Magazine, Inc., 77 F.3d at 284. This authority is broader

than Rule 9011 sanctions and "extends to a full range of litigation abuses." In re

DeVille, 280 B.R. at 495 (quoting Chambers v. NASCO, Inc., 501 U.S. 32, 46

(1991)). "[A] court may sanction pursuant to its inherent authority even when

the same conduct may also be punished under another sanctioning statute or

rule." Id. (string citation omitted).

      Sanctionable conduct includes improper litigation tactics (e.g., delaying

or disrupting litigation), bad faith, vexatious or wanton conduct, willful abuses

of judicial process, or acting for oppressive reasons. Fink v. Gomez, 239 F.3d
989, 991-92 (9th Cir. 2001); In re DeVille, 280 B.R. at 495. In this context, bad

faith or willful misconduct consists of something more egregious than mere

negligence or recklessness. Rodriguez v. United States, 542 F.3d 704, 709 (9th Cir.

2008) (citing Fink, 239 F.3d at 993-94). Inherent authority sanctions can include

an award of attorney's fees. Chambers, 501 U.S. at 45.

      To impose sanctions under its inherent authority, the bankruptcy court

must find either bad faith, conduct tantamount to bad faith, or recklessness

       7
           Section 105(a) provides:

       The court may issue any order, process, or judgment that is necessary or
       appropriate to carry out the provisions of this title. No provision of this title
       providing for the raising of an issue by a party in interest shall be construed
       to preclude the court from, sua sponte, taking any action or making any
       determination necessary or appropriate to enforce or implement court orders
       or rules, or to prevent an abuse of process.

                                               14
with an "additional factor such as frivolousness, harassment, or an improper

purpose." Fink, 239 F.3d at 994; see also Price v. Lehtinen (In re Lehtinen), 564 F.3d
1052, 1061 & n.3 (9th Cir. 2009), abrogated on other grounds by Gugliuzza v. FTC

(In re Gugliuzza), 852 F.3d 884, 898 (9th Cir. 2017) (Fink permits the imposition

of inherent authority sanctions without an explicit finding of bad faith). In

Lehtinen, the Ninth Circuit upheld an inherent authority sanctions order even

though the bankruptcy court did not make a specific finding of bad faith.

Implied findings were sufficient for inherent authority sanctions if the court

found that the conduct was tantamount to bad faith and the record supported

a conclusion that the sanctionee acted in bad faith or engaged in willful

misconduct. 564 F.3d at 1061. The court concluded that the bankruptcy court

impliedly found "bad faith" and "willful misconduct" by finding that the

conduct at issue was "outrageously improper, unprofessional and unethical[.]"
Id.

      Here, the bankruptcy court did not explicitly find that Sia's conduct

constituted "bad faith" or "willful misconduct," and the findings it did make

are meager. After careful review, we conclude it impliedly did so by finding

that Sia's complaints were "frivolous," that he had twice sued Trustee "without

any basis for doing so" and made no efforts to withdraw the offending

complaints, that he had failed to appear at the initial scheduling conferences in

either proceeding, and that he had "blown off" the sanctions hearing as well

                                          15
despite indicating that he wanted to appear by telephone.8 When Sia's first

complaint was dismissed for failure to prosecute, he simply repackaged it

asserting the same baseless claims and again disappeared. The nature of Sia's

complaints and willful abuse of judicial process demonstrate conduct

tantamount to bad faith and is sufficient for inherent sanctions.

      Accordingly, the bankruptcy court's findings combined with the record

sufficiently support the court's decision to sanction Sia under its inherent

authority and award Trustee his attorney's fees and costs. Furthermore, Sia did

not challenge the court's decision to impose inherent authority sanctions or the

amount of attorney's fees awarded and has therefore waived these issues. Orr

v. Plumb, 884 F.3d 923, 932 (9th Cir. 2018) (generally arguments not raised in

the opening brief are deemed forfeited).

                                  VI. CONCLUSION

      For the reasons stated above, we AFFIRM.

       8
         Even if we did not consider Sia's absence at the sanctions hearing against him,
 the record still supports the court's decision to impose inherent authority sanctions.

                                             16