Court Opinion

ID: 2809232
Source: CourtListenerOpinion
Date Created: 2015-06-17 15:01:44.465373+00
Date Added: 2024-06-11T11:30:12.036943
License: Public Domain

United States Court of Appeals
                         For the Eighth Circuit
                     ___________________________

                             No. 14-1665
                     ___________________________

          In re: Jonathan Michael Young, also known as Jon Young

                           lllllllllllllllllllllDebtor

                          ------------------------------

                          Jonathan Michael Young

                                       v.

                              Kristalynn Young

                          ------------------------------

                                Kathy A. Cruz

                          lllllllllllllllllllllAppellant
                                 ____________

                 Appeal from the United States Bankruptcy
                   Appellate Panel for the Eighth Circuit
                              ____________

                         Submitted: January 15, 2015
                            Filed: June 17, 2015
                              ____________

Before LOKEN, MELLOY, and GRUENDER, Circuit Judges.
                           ____________

MELLOY, Circuit Judge.
      The bankruptcy court1 sanctioned attorney Kathy Cruz under Rule 9011 of the
Federal Rules of Bankruptcy Procedure during her representation of a client, Jonathan
Young. Cruz appeals the imposition of sanctions. For the reasons stated below, we
affirm.

                                        I

                                        A

       This case has a complicated history. In order to put this appeal in context, a
brief overview of how domestic support obligations are treated under the United
States Bankruptcy Code (Code) is warranted. Simply put, the Code provides
preferential treatment to domestic support obligations. For example, past-due
alimony, owed on the date of filing bankruptcy, may be paid through monthly Chapter
13 payments. The past-due prepetition alimony is given priority status, meaning it
is paid out of the monthly payments before payment is made to general unsecured
creditors. Further, after a debtor files a petition, alimony that accrues postpetition
must be paid by a debtor as an ongoing expense. In order to get a Chapter 13 plan
confirmed, the debtor must show he or she has the financial ability to pay postpetition
alimony and that it is, in fact, being paid. Failure of a debtor to pay postpetition
alimony is a reason for dismissal.

       Young filed for bankruptcy shortly after he and his wife, Kristalynn Young
(now "Stephens"), divorced. The divorce decree required Young to pay alimony.
Young did not pay, and as a result, Stephens filed contempt proceedings against him
in state court in arguable violation of a bankruptcy stay order.2 Young responded by

      1
        The Honorable Richard D. Taylor, Chief Judge, United States Bankruptcy
Court for the Eastern and Western Districts of Arkansas.
      2
        Young appealed the divorce decree, which was pending at the time he filed
for bankruptcy. Before Stephens responded to the appeal, she filed a motion for relief

                                            -2-
filing an adversary proceeding against Stephens in the bankruptcy court, alleging a
violation of the stay.

       In the Chapter 13 bankruptcy, including the adversary proceeding, attorney
Cruz represented Young. During the course of this representation, she repeatedly
mischaracterized past-due postpetition alimony obligations as past-due prepetition
obligations. In addition, she falsely asserted Young was current on his alimony
payments. Further, she represented to the bankruptcy court that Young would
"continue" to make his alimony payments even though, up to that point, he had not
been making any such payments. In reliance on these representations, the bankruptcy
court confirmed a plan. After discovering Cruz's false statements and her inaccurate
characterization of the alimony, the bankruptcy court entered a show-cause order and,
eventually, sanctions against Cruz. Cruz appeals the sanctions.

                                        B

       On November 1, 2007, Young and Stephens finalized their divorce. The
divorce decree required Young to pay $1,100 per month in alimony, $10,890 in
attorney's fees, and $2,350 in restitution (mainly marital debts, including credit card
debt). Shortly thereafter, a state court jailed Young for contempt, finding that he
failed to pay his domestic support obligations. He was released from jail after his
parents posted a $5,000 bond. Young appealed the divorce decree and the contempt
ruling. On January 24, 2008, while his appeals were pending, Young filed a petition
for relief under Chapter 7 of the Code. Young listed $13,240 in domestic support
obligations owed as of the date of filing of the Chapter 7 petition. He also listed
$1,100 in monthly alimony on Schedule J, which lists "Current Expenditures of
Individual Debtor."

from the automatic stay in the bankruptcy court. With the parties' agreement, the
bankruptcy court entered a stay order granting the motion for relief in June 2008.

                                         -3-
       Proceedings not relevant to this appeal ensued in the Chapter 7 bankruptcy,
mainly over the issues of dischargeability of debts owed to Stephens and relief from
the stay order. Cruz then entered her appearance for Young and converted his
bankruptcy case to Chapter 13.3

        The original Chapter 13 plan did not mention Stephens, even though Young's
Schedule E listed prepetition obligations of $2,350 in restitution and $10,890 in
attorney's fees and Young's Schedule J listed $1,100 per month in alimony as a
postpetition obligation. Stephens objected to the original Chapter 13 plan because
it did not address alimony, attorney's fees, or restitution and because it listed alimony
as a Schedule J "expense" even though Young had not paid any alimony.

        In September 2008, a state appellate court affirmed the divorce decree.
Stephens then sent a letter to Young in October 2008. The October 2008 Letter
detailed Young's alimony arrearages from October 2007 to October 2008 (most of
which accrued after filing the Chapter 7 petition in January 2008). The October 2008
Letter stated that if Stephens did not receive assurances of payment, she would again
file a petition for contempt against Young in state court.

       In response to the October 2008 Letter, Cruz amended Young's Schedule E to
include $9,300 in alimony as a § 507(a)(1) unsecured priority claim. Also, Cruz filed
a "Modification of Chapter 13 Plan" (Modified Plan), which included the $9,300 in
alimony as past-due priority debt. Cruz asserted that Young would "continue" to
make his alimony payments to Stephens directly, even though Young had not made
a single payment. The Modified Plan also noted that the restitution and attorney's
fees from the divorce decree would be paid in full.

      3
       Attorney Michael Sanders originally represented Young in his Chapter 7.
Cruz, however, took over for the Chapter 13.

                                          -4-
       Because Stephens was dissatisfied with Young's response to her October 2008
Letter, she filed an objection to the Modified Plan in the bankruptcy court and a
petition for contempt against Young in the state court. The state court held a
contempt hearing in December 2008 and found Young in contempt for failure to pay
alimony and attorney's fees.4 The state court judge held the contempt order in
abeyance, however, to allow Young to determine the effect of the bankruptcy court's
stay order on the contempt proceedings.

       The state court judge held another contempt hearing in March 2009. Young
stated that he was making his disposable income payments to the trustee in the
bankruptcy case and that Stephens would receive those funds once she filed a notice
of claim. The state court judge sent Young to jail at the conclusion of the proceeding
for failing to pay past-due alimony and attorney's fees. Although Young made
monthly disposable income payments to the trustee, Young made no alimony
payments (even though they were included in his Schedule J as a monthly expense).5

       Stephens withdrew her objection to the Modified Plan in January 2009. The
Chapter 13 trustee, however, filed objections to Young's plan in 2008 and 2009. The
trustee stated Young "did not provide proof that [he] has paid all amounts required
to be paid under a domestic support obligation." Because of the trustee's pending
objections, the bankruptcy court did not confirm Young's plan.

       After Cruz filed the Modified Plan in October 2008, she modified Young's
plan two more times. In March 2009, Cruz filed a second modification (Second
Modified Plan), which essentially made no changes to the plan. Cruz, however, filed
an amended Schedule J, listing an $800 alimony expense. The Chapter 13 trustee

      4
          Young appeared pro se in the contempt proceedings.
      5
        Young's monthly disposable income payment was calculated after deducting
the $1,100 monthly alimony payment.

                                        -5-
renewed the previous objection that Young did not provide proof that he was paying
his domestic support obligations and was current on his alimony. In March 2011,
after receiving seventeen continuances, Cruz filed a third modification (Third
Modified Plan). The Third Modified Plan did not change the payment terms but
stated that Young "believes he is current on all domestic support obligations that were
due after the filing of his chapter 13 plan." The statement satisfied the trustee, and
the bankruptcy court entered an order confirming Young's plan in April 2011.

       In December 2010, during a delay pending confirmation of the plan, Cruz filed
an adversary proceeding on behalf of Young against Stephens, alleging that Stephens
violated the bankruptcy's stay order by filing the petition for contempt in the state
court. In the complaint, Cruz asserted that Stephens had not been paid because
Stephens continued to object to confirmation of the plan and failed to file a proof of
claim.

      After the bankruptcy court held a trial in the adversary proceeding, it issued a
decision on the merits and also set forth its basis for a separate Order to Appear and
Show Cause (OSC). The OSC was directed at Young and Cruz.6

       The bankruptcy court's OSC asked Cruz to address four areas of concern: first,
why Cruz characterized the $9,300 of past-due postpetition alimony as "prepetition"
in the Modified Plan; second, why Cruz amended Young's Schedule E to include
past-due postpetition alimony and Young's Schedule J to include a monthly alimony
expense of $1,100 (even though Young was not paying alimony); third, why Cruz
stated that Young would "continue" to make alimony payments; and fourth, why Cruz
filed the Third Modified Plan asserting that Young believed he was current on all
postpetition domestic support obligations due after the Chapter 13 petition.

      6
          The bankruptcy court eventually withdrew the OSC against Young.

                                         -6-
       After the bankruptcy court held a hearing on the OSC, it issued an order
imposing sanctions against Cruz for three of the four items listed in the OSC.7 First,
the order imposing sanctions devoted substantial discussion to Cruz's characterization
of postpetition alimony as prepetition in the Modified Plan. As the court noted, a
debtor must continue to pay his or her postpetition alimony as an ongoing expense
under the Code. "[F]ailure of the debtor to pay any domestic support obligation that
first becomes payable after the date of the filing of the petition" is a basis for
conversion or dismissal of the bankruptcy case. 11 U.S.C. § 1307(c)(11). Further,
a debtor must certify that he has paid all of his postpetition alimony as a condition for
discharge. 11 U.S.C. § 1328(a). The bankruptcy court concluded that Cruz
characterized the postpetition alimony as prepetition in order to avoid a dismissal of
the bankruptcy proceeding. The court based its finding on: (1) the timing and
similarities between the October 2008 Letter and the Modified Plan and (2)
Stephens's proof of claim.

        In the October 2008 Letter, Stephens asserted that Young owed $14,300 in
accrued alimony. Stephens deducted the $5,000 bond from $14,300 in alimony,
which left a remaining alimony balance of $9,300. The bankruptcy court noted a
substantial amount, if not all, of the $9,300 was postpetition alimony. Two days after
Young received the October 2008 Letter, Cruz filed the Modified Plan, stating "the
priority debt to [Stephens] in the amount of $9,300 for past due alimony shall be paid
in full during the life of the plan with a pro-rata monthly payment and 0% interest."
Even though this postpetition alimony was a domestic support obligation that first
became payable after the date of the petition, Cruz listed it as a prepetition domestic
support obligation.

      7
        The court did not sanction Cruz for misrepresentations on the amended
schedules E and J, finding that schedules were not subject to Rule 9011. In this
appeal, we need not address whether schedules are subject to Rule 9011.

                                          -7-
       The bankruptcy court further supported its finding that Cruz intentionally
characterized postpetition alimony as prepetition with Stephens's proof of claim. The
original Chapter 13 plan, filed by Cruz in July 2008, did not account for past-due
alimony Young owed to Stephens. As a result, Stephens filed a proof of claim in the
amount of $25,840. Stephens did not itemize the $25,840; she listed the full amount
as a lump sum for domestic support obligations under § 507(a)(1)(A). The parties
later amended the amount to $21,440. The bankruptcy court astutely broke down the
$21,440, demonstrating that Cruz knew about the past-due postpetition alimony and
characterized it as past-due prepetition alimony.

       Regarding the second issue identified in the order imposing sanctions (that
Cruz stated Young would "continue" to make alimony payments), the bankruptcy
court found Cruz asserted "[Young] shall continue to pay his current monthly alimony
of $1,100.00 to [Stephens] direct." At the time, Young had not made any alimony
payments. The bankruptcy court concluded Cruz intentionally used the term
"continue" to mislead the court. The court described Cruz's deception as calculated
and disingenuous because it was "designed to both foster the impression that [Young]
had been routinely paying his postpetition alimony and abet the disguised treatment
of postpetition alimony as prepetition priority debt."

        Finally, in addressing the third reason for imposing sanctions, the bankruptcy
court stated Cruz's most serious violation was her certification in the Third Modified
Plan that Young believed he was current on all domestic support obligations due after
the filing of his Chapter 13 plan. The bankruptcy court found this statement induced
the trustee to withdraw its objection and caused the bankruptcy court to enter an order
confirming Young's plan.

       Based on the above analysis, the bankruptcy court concluded that Cruz had no
basis in law or fact for her assertions. As a result, Cruz obtained an impermissible
benefit for Young when the bankruptcy court confirmed Young's plan. The

                                         -8-
bankruptcy court was "firmly convinced that Cruz knew exactly what she was doing
in filing the self-fulfilling certification that, in effect, certified that postpetition
alimony had been paid so a plan could be confirmed." Further, the bankruptcy court
found "Cruz manipulated the Code, the court, and the bankruptcy system."

       The bankruptcy court suspended Cruz from practice in the Arkansas
bankruptcy courts for six months, fined her $1,000, and directed her to attend twelve
hours of CLE on Chapter 13 bankruptcy within six months for violating Rule 9011.
In addition, the bankruptcy court levied sanctions against Cruz for misrepresentations
during the OSC hearing. Relying on 11 U.S.C. § 105 and the court's inherent power,
the bankruptcy court imposed a six month suspension to run concurrently with the
other six month suspension and a separate $1,000 fine. Cruz filed a motion to vacate,
amend, or alter the order imposing sanctions, but the bankruptcy court denied her
request. Cruz appealed to the Bankruptcy Appellate Panel.

       The BAP affirmed in part and reversed in part. The BAP affirmed the
bankruptcy court's finding that Cruz violated Rule 9011 and the sanctions imposed
under Rule 9011. The BAP reversed the bankruptcy court's imposition of sanctions
for misrepresentations that Cruz made at the OSC hearing because the bankruptcy
court did not provide Cruz with notice and an opportunity to respond before imposing
those sanctions. In effect, the BAP affirmed the initial six-month suspension but
reversed the second.

       After the BAP issued its judgment, the bankruptcy court imposed Cruz's six-
month suspension pursuant to the Rule 9011 sanctions. Cruz appealed the imposition
of the suspension to the BAP. The BAP granted a stay of the suspension pending this
appeal. Cruz appeals the Rule 9011 sanctions to our Court.

                                         -9-
                                        II

      We review the imposition of Rule 9011 sanctions for an abuse of discretion.
Briggs v. Labarge (In re Phillips), 433 F.3d 1068, 1071 (8th Cir. 2006). We review
the bankruptcy court's factual findings for clear error and its conclusions of law de
novo. Peltz v. Edward C. Vancil, Inc., (In re Bridge Info. Sys., Inc.), 474 F.3d 1063,
1066 (8th Cir. 2007).

       Rule 9011 governs allegations and representations made in bankruptcy court.
The language of Rule 9011 is almost identical to Fed. R. Civ. P. 11, and case law
interpreting Rule 11 applies to Rule 9011 cases. Grunewaldt v. Mut. Life Ins. Co. (In
re Coones Ranch, Inc.), 7 F.3d 740, 742 n. 4 (8th Cir. 1993). An attorney "must make
a reasonable inquiry into whether there is a factual and legal basis for a claim before
filing." In re Phillips, 433 F.3d at 1071. Rule 9011 is critical for the bankruptcy
system to function because:

      The typical federal court disposes of hundreds of cases each year—a
      bankruptcy court disposes of thousands. It is not uncommon to see
      dozens of attorneys in a bankruptcy courtroom, presenting arguments
      and objections on a long list of cases, with rulings issuing at pace that
      makes a cattle auction appear leisurely. A bankruptcy court does not
      have the time district courts devote to a motion, to examine each
      petition, proof of claim, and objection; the bankruptcy judge must rely
      on counsel to act in good faith. The potential for mischief to be caused
      by an attorney who is willing to skirt ethical obligations and procedural
      rules is enormous.

In re Armstrong, 487 B.R. 764, 774 (E.D. Tex. 2012).8

      8
          Rule 9011(b) states:

      Representations to the court

                                        - 10 -
       We conclude that the bankruptcy court's findings were supported by ample
evidence in the record. Cruz had no basis in law or fact for characterizing the
postpetition alimony as prepetition, asserting Young would continue to make alimony
payments, and certifying Young was current on his postpetition domestic support
obligations. The bankruptcy court astutely analyzed and deciphered Cruz's actions.
Its reasoning and logical inferences are convincing, supported by the record, and most
certainly not an abuse of discretion.

      As discussed above, Cruz's actions demonstrate that she knew about the past-
due postpetition alimony and tried to it conceal from the bankruptcy court.
Unfortunately, Cruz's transgressions were successful; the bankruptcy court confirmed
Young's plan, even though Young was not current on his postpetition domestic
support obligations.

      By presenting to the court (whether by signing, filing, submitting, or
      later advocating) a petition, pleading, written motion, or other paper, an
      attorney or unrepresented party is certifying that to the best of the
      person's knowledge, information, and belief, formed after an inquiry
      reasonable under the circumstances, (1) it is not being presented for any
      improper purpose, such as to harass or to cause unnecessary delay or
      needless increase in the cost of litigation; (2) the claims, defenses, and
      other legal contentions therein 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; (3) the allegations and
      other factual contentions have evidentiary support or, if specifically so
      identified, are likely to have evidentiary support after a reasonable
      opportunity for further investigation or discovery; and (4) the denials of
      factual contentions are warranted on the evidence or, if specifically so
      identified, are reasonably based on a lack of information or belief.

Fed. R. Bankr. P. 9011(b).

                                        - 11 -
        The Code provides special protection for domestic support obligations. See 11
U.S.C. § 1307(c) ("[T]he court may . . . dismiss a case under this chapter . . . for
cause, including . . . (11) failure of the debtor to pay any domestic support obligation
that first becomes payable after the date of the filing of the petition."); 11 U.S.C.
§ 1328(a) ("[I]n the case of a debtor who is required by a judicial or administrative
order, or by statute, to pay a domestic support obligation, after such debtor certifies
that all amounts payable under such order or such statute that are due on or before the
date of the certification . . . have been paid . . . the court shall grant the debtor a
discharge of all debts provided for by the plan."); Burnett v. Burnett (In re Burnett),
646 F.3d 575, 580 (8th Cir. 2011); Smith v. Pritchett (In re Smith), 586 F.3d 69, 73
(1st Cir. 2009). A debtor must continue to pay postpetition domestic support
obligations (e.g., alimony payments) to obtain confirmation of a plan. 11 U.S.C.
§ 1325(a) ("[T]he court shall confirm a plan if . . . (8) the debtor has paid all amounts
that are required to be paid under a domestic support obligation and that first become
payable after the date of the filing of the petition if the debtor is required by a judicial
or administrative order, or by statute, to pay such domestic support obligation.").

       With respect to Cruz's assertion that Young would continue to make his
alimony payments, Cruz first argues that Young's father paid Stephens $14,000,
separate from the $5,000 bond. She also blames Stephens because Stephens "used
unilateral accounting methods" to apply the $14,000 to debts owed to her by Young.
Cruz's arguments are without merit and fail to address her false assertion. Cruz
alleged that "[Young] shall continue to pay his current monthly alimony." Even
assuming the father's alleged $14,000 payment was for alimony, Young paid no
monthly alimony. Therefore, the word "continue" was misleading. The bankruptcy
court did not err by finding that Cruz's misstatement was intentional and deliberate.

      Cruz was aware Young was not making his postpetition alimony payments.
Cruz states in her brief that she "has never denied that she knew . . . at times during
the bankruptcy that Young was in arrears in his postpetition DSO." This admitted

                                           - 12 -
knowledge is inconsistent with her separate assertion that Young would "continue"
to pay alimony. The duty imposed by Rule 9011 requires an attorney to "stop, think
and investigate more carefully before . . . filing papers" with the court or making
assertions in those papers. Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 398
(1990) (internal quotation marks omitted).

      With respect to the characterization of postpetition alimony as prepetition
alimony, Cruz argues that even if the Third Modified Plan was confirmed with past-
due postpetition alimony, she had a basis in law for asserting that the postpetition
debt could have been paid through the plan. She argues that postpetition alimony
could be included in the plan because 11 U.S.C. § 1322(b)(3-5)9 permits certain other
postpetition defaults to be included within a plan. Cruz's argument is closed off
because 11 U.S.C. § 1325(a)(8) requires a debtor to certify that his past-due
postpetition domestic support obligations have been paid before a bankruptcy court
can confirm his plan.10

      9
          11 U.S.C. § 1322(b)(3-5) states:

               (b) Subject to subsections (a) and (c) of this section, the plan may– . . .
               (3) provide for the curing or waiving of any default;
               (4) provide for payments on any unsecured claim to be made
               concurrently with payments on any secured claim or any other unsecured
               claim;
               (5) notwithstanding paragraph (2) of this subsection, provide for the
               curing of any default within a reasonable time and maintenance of
               payments while the case is pending on any unsecured claim or secured
               claim on which the last payment is due after the date on which the final
               payment under the plan is due . . . .

      10
         In addition, Cruz argues that two cases read together—Green Tree
Acceptance, Inc. v. Hoggle (In re Hoggle), 12 F.3d 1008 (11th Cir. 1994) and In re
Burnett, 646 F.3d 575—support her theory that postpetition alimony can be paid
through the plan. As discussed, postpetition alimony cannot be paid through the plan.

                                          - 13 -
       Finally, Cruz does not directly address the bankruptcy court's findings
regarding the false certification that Young "believe[d] he [was] current on all
domestic support obligations that were due after the filing date of his chapter 13
plan." As mentioned above, a prerequisite of confirmation is that a debtor must have
paid all of his postpetition domestic support obligations. The bankruptcy court
correctly found that Cruz had no basis in law or fact for the certification. The court,
in effect, concluded that Cruz carefully crafted this certification to trick the trustee
into withdrawing its objection. We find no clear error in this finding. Rule 9011
required Cruz to "make a reasonable inquiry into whether . . . a factual and legal
basis" supported the certification. See In re Phillips, 433 F.3d at 1071.

       Based on the totality of the record, the bankruptcy did not err when it found
that Cruz intentionally made misrepresentations to the court. There is substantial
evidence to support the bankruptcy court's findings. Rule 9011 requires an attorney
to conduct a reasonable investigation into the facts. Cooter & Gell, 496 U.S. at 398.
"The 'pure-heart-and-empty-head' defense is not available to anyone faced with Rule
9011 sanctions." In re Rivera, 342 B.R. 435, 460 (Bankr. D.N.J. 2006). This is
because "[t]he potential for mischief to be caused by an attorney who is willing to
skirt ethical obligations and procedural rules is enormous." Armstrong, 487 B.R. at
774. We find the bankruptcy court was well within its power to sanction Cruz
pursuant to Rule 9011.

                                        III

      Cruz also challenges the severity of the sanctions. We review the sanctions
imposed for an abuse of discretion. See Walton v. LaBarge (In re Clark), 223 F.3d
859, 862 (8th Cir. 2000). "A sanction imposed for violation of [Rule 9011] shall be

See 11 U.S.C. § 1325(a)(8).

                                         - 14 -
limited to what is sufficient to deter repetition of such conduct or comparable conduct
by others similarly situated." Fed. R. Bankr. P. 9011(c)(2).

       Although the sanctions in this case are serious, particularly if the bulk of Cruz's
practice is in bankruptcy court, they are supported by substantial evidence and are
limited to what is sufficient to deter repetition of comparable conduct. The
bankruptcy court specifically described the conduct it considered sanctionable in a
detailed opinion that articulated the severity of Cruz's deception. Based on the
evidence presented, Cruz's actions were not mistakes. Rather, as discussed above,
Cruz knew that the bankruptcy court would not confirm a plan if past-due postpetition
alimony was not paid. When reviewing Rule 9011 sanctions, deference should be
accorded to the determinations and findings "of courts on the front lines of litigation."
See Nett v. Manty (In re Yehud-Monosson USA, Inc.), 472 B.R. 795, 807 (D. Minn.
2012) (citation omitted).

                                         IV

       Next, Cruz argues that Rule 9011 does not authorize a bankruptcy court to
suspend an attorney from the practice of law. She asserts that the bankruptcy court,
as a unit of the district court, must follow the district court's rules for suspending an
attorney. She cites to 28 U.S.C. § 151 in support. Section 151 states:

      In each judicial district, the bankruptcy judges in regular active service
      shall constitute a unit of the district court to be known as the bankruptcy
      court for that district. Each bankruptcy judge, as a judicial officer of the
      district court, may exercise the authority conferred under this chapter
      with respect to any action, suit, or proceeding and may preside alone and
      hold a regular or special session of the court, except as otherwise
      provided by law or by rule or order of the district court.

                                          - 15 -
(emphasis added). Cruz argues that because a bankruptcy court is a "unit" of the
district court, the bankruptcy court must follow the district court's rules for
suspending an attorney.

       Cruz ignores the last part of the statute: except as otherwise provided by law
or by rule or order of the district court. The U.S. District Court for the Eastern
District of Arkansas and the U.S. District Court for the Western District of Arkansas
adopted a local rule that allows bankruptcy courts to suspend attorneys from the
practice in those bankruptcy courts:

      The standard of professional conduct for attorneys practicing in this
      Court is governed by the Arkansas Rules of Professional Conduct and
      Federal Rule of Bankruptcy Procedure 9011. The Court will refer
      violations of the Arkansas Rules of Professional Conduct to the
      Arkansas Committee on Professional Conduct for such actions and
      sanctions as the Committee deems appropriate. Additionally, the Court
      shall have such authority and discretion as are permitted by and under
      the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure,
      statutory and common law, and the express and inherent powers
      conferred upon them. Sanctions may include suspension or disbarment
      from the practice before this Court.

Bankr. Ark. Local R. 2090-2 (emphasis added).

      The bankruptcy court possessed authority under Rule 9011 and Local Rule
2090-2 to suspend Cruz from the practice of law in the Arkansas bankruptcy courts.
Further, Rule 9011(c) specifically states:

      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
      attorneys, law firms, or parties that have violated subdivision (b) or are
      responsible for the violation.

                                        - 16 -
Fed. R. Bankr. P. 9011(c). Such a sanction "is limited to what is sufficient to deter
repetition of such conduct." Rule 9011(c)(2). The sanction may be of "nonmonetary
nature." Id. Thus, the bankruptcy court had the power to suspend Cruz from the
practice of law.

                                         V

      The bankruptcy court's imposition of Rule 9011 sanctions is affirmed.
                    ______________________________

                                       - 17 -