Court Opinion

ID: 8493655
Source: CourtListenerOpinion
Date Created: 2022-11-22 22:21:02.723593+00
Date Added: 2024-06-11T16:50:26.687174
License: Public Domain

OPINION

MARLAR, Bankruptcy Judge.
This is an appeal from the bankruptcy court’s order awarding attorney’s fees to a party responding to frivolous motions. We REVERSE and REMAND.

FACTS

Debtor filed a chapter 13 bankruptcy case on May 16, 2001. Appellant David Chase did not formally appear as counsel until one month later, but he was involved in the case from the outset.
The court converted the case to chapter 11 on its own motion because the debtor was ineligible for chapter 18 relief and later converted it to chapter 7 on the United States trustee’s motion.
Thereafter, Chase filed two serial motions to re-convert the case to chapter 13 even though the debtor remained ineligible for chapter 13 relief.
In connection with the second motion to convert, the court sua sponte ordered the debtor and Chase to show cause why the case should not be dismissed “with prejudice” and with Federal Rule of Bankruptcy Procedure Rule 9011 (“Rule 9011”) sanctions.
The court’s 30-page Order to Show Cause (“OSC”) itemized questionable actions during the bankruptcy case, including Chase’s “filing of a misleading (or fraudulent), meritless, harassing, bad faith motion(s) to convert coupled with his prior bad faith conduct throughout this case.”
Following hearing, the court found that Chase filed the two motions to convert in “bad faith” and sanctioned Chase but not the debtor, who agreed to dismissal “with prejudice.”
Although Chase omitted that sanction order from the excerpts of record supplied to us, the clerk’s docket reveals that it required Chase to pay $1,000 to the United States, imposed an education requirement, and invited fee applications from others:
(3) any harmed party seeking to recover attorney fees under 9011 on account of the filing of the 2 motions to dismiss shall file declarations and proposed orders.
Clerk’s Docket Item 121. Chase did not appeal the penalty.
Appellee Kosmala, the chapter 7 trustee, accepted the court’s invitation and requested an award of $3,593 as attorney’s fees arising from the motions to dismiss.
Chase’s written response offered nothing to posit an issue of fact that would warrant an evidentiary hearing.
The court, noting that it had previously determined that the motions had been filed in “bad faith,” awarded the full $3,593 as reasonable attorney’s fees and costs.
This appeal ensued.

JURISDICTION

The bankruptcy court had jurisdiction via 28 U.S.C. §§ 1334 and 157(b)(1). We have jurisdiction under 28 U.S.C. § 158(a)(1).

ISSUE

Whether fee-shifting sanctions can be awarded on the court’s motion under Rule 9011.

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STANDARD OF REVIEW

We review an award of sanctions under Rule 9011 for an abuse of discretion. Barber v. Miller, 146 F.3d 707, 709 (9th Cir.1998); Miller v. Cardinale (In re Deville), 280 B.R. 483, 492 (9th Cir. BAP 2002). A bankruptcy court necessarily abuses its discretion if it bases its decision on an erroneous view of the law or clearly erroneous factual findings. See Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1990).

DISCUSSION

Acting pursuant to Rule 9011(c)(1)(B), the court ordered Chase to pay Kosmala’s attorney’s fees. The problem is that the sanctions awarded on the court’s own motion may not include shifting of fees. See Fed. R. Bankr.P. 9011(c)(2). It is settled law of this circuit that, under Rule 9011, “the court, while empowered to order payment of a penalty into court when acting on its own initiative, cannot shift attorney’s fees and other expenses directly resulting from the violation except upon motion of a party. Fed. R. Bankr.P. 9011(c)(2). Thus, if the court acted on its own initiative, a monetary award other than payment of a penalty into the court would have been unauthorized.” Polo Bldg. Group, Inc. v. Rakita (In re Shubov), 253 B.R. 540, 546 (9th Cir. BAP 2000) (citing Miller, 146 F.3d at 711). See also Markus v. Gschwend (In re Markus), 313 F.3d 1146, 1151 (9th Cir.2002)(“It is clear that attorneys’ fees and expenses incurred as a result of violating Bankruptcy Rule 9011 can be shifted only at the motion of one of the parties, and only after the rule-offending party has been given the benefit of the Rule’s 21-day safe harbor.”); Deville, 280 B.R. at 494.
Here, the fee-shifting was done on the court’s own initiative, and not by a party’s motion as required. The fact that the court invited the motion does not suffice to qualify it as made under Rule 9011(c)(2) because the motion contemplated by Rule 9011(c)(2) is the motion provided for by Rule 9011(c)(1), which requires mandatory compliance with the Rule 9011(c)(1) “safe harbor” procedure.

CONCLUSION

The order requiring Chase to pay Kos-mala’s attorney’s fees was unauthorized by Rule 9011(c)(1)(B).1 We, therefore, REVERSE that portion of the bankruptcy court’s order imposing sanctions against Chase,2 and REMAND for any further sanction proceedings in accordance with this disposition.

. We cannot agree with Judge Klein's thoughtful and painstaking attempt to find a basis to affirm. The arguments that he sets forth in favor of construing Judicial Code section 1927 to give bankruptcy courts the power to impose section 1927 sanctions are better left to resolution by the Ninth Circuit. There are two obstacles to our acceptance of those arguments at this level: we view the analysis in Perroton v. Gray (In re Perroton), 958 F.2d 889 (9th Cir.1992) and our statements in our own prior decisions that section 1927 is not available to bankruptcy courts Deville, 280 B.R. at 494 and Determan v. Sandoval (In re Sandoval), 186 B.R. 490, 495-96 (9th Cir. BAP 1995), which was followed by our colleagues on another bankruptcy appellate panel (see Smolen v. Hatley (In re Hatley), 227 B.R. 757, 761 (10th Cir. BAP 1998), aff'd, 194 F.3d 1320 (10th Cir.1999)) as binding on this panel. See Ball v. Payco-Gen. Am. Credits, Inc. (In re Ball), 185 B.R. 595, 596-98 (9th Cir. BAP 1995).

. The underlying sanctions order, finding that Chase violated Rule 9011 and ordering him to pay sanctions into the court and to take a law school bankruptcy course, is not on appeal, is final, and is still in force.