Imposing Sanctions Judicial Code 1927 Part II

n important issue involving §1927 of Title 28, U.S.C. (the Judicial Code) is whether a bankruptcy court has

jurisdiction to impose sanctions under this statute. The U.S. Court of Appeals for the Tenth Circuit in <i>Jones v.

Bank of Santa Fe</i>^{<small><a href="#1" name="1a">1</a></small>} ruled that a bankruptcy court lacked jurisdiction to issue sanctions under §1927, which states:

</p><p></p><blockquote>Any attorney or other person admitted to conduct cases in any court of the U.S. or any territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct.^{<small><a href="#2" name="2a">2</a></small>}</blockquote>

<p>The court had to determine whether a bankruptcy court was a court of the United States. As part of analysis, the

court examined Judicial Code §451, which contained a definition of the phrase "court of the United States" and was

applicable to all of the provisions in the Judicial Code. Section 451 stated:

</p><blockquote>The term "court of the United States" includes the Supreme Court of the United States, courts of appeals and

district courts constituted by chapter 5 of this title, including the Court of International Trade and any court

created by Act of Congress the judges of which are entitled to hold office during good behavior.^{<small><a href="#3" name="3a">3</a></small>}</blockquote>

<p>Section 451 restricted courts of the U.S. to courts in which judges had lifetime appointments; however, bankruptcy

judges were appointed for 14 years. The Tenth Circuit concluded that the failure of bankruptcy judges to serve with

lifetime tenure precluded bankruptcy judges from utilizing §1927.

</p><p>Another pertinent court of appeals decision is <i>In re Volpert.</i>^{<small><a href="#4" name="4a">4</a></small>} There, the Seventh Circuit Court of Appeals

discussed whether a bankruptcy court had jurisdiction to impose sanctions under §1927. The Seventh Circuit also

thought that the critical issue was whether a bankruptcy court was a "court of the United States." The court also

analyzed §451, which stated:

</p><blockquote><blockquote>

<hr>

<big><i><center>

A practitioner would be well advised to move simultaneously

under both §§1927 and 105(a) when he or she seeks sanctions

other than under Federal Rule of Bankruptcy Procedure

9011(a).

</center></i></big>

<hr>

</blockquote></blockquote>

<blockquote>Bankruptcy courts are not listed explicitly in the section. Nor are bankruptcy courts "district courts

constituted by chapter 5 of [Title 28]," for bankruptcy courts are constituted by chapter 6 of Title 28.

Likewise, bankruptcy judges are not "entitled to hold office during good behavior." Rather, they serve a

specified term of 14 years. Moreover, as the Ninth Circuit has noted, because the "good behavior" language

contained in §451 mirrors that contained in Article III, it is reasonable to infer that the phrase "court[s] of the

United States" denotes Article III courts whose judges have life tenure and may be removed only by

impeachment. Therefore, a bankruptcy court is not a "court of the United States" within the strict meaning

of §451.^{<small><a href="#5" name="5a">5</a></small>}</blockquote>

<p>The court declined to employ §1927 to impose sanctions.^{<small><a href="#6" name="6a">6</a></small>} The Seventh Circuit affirmed the judgment based on a

bankruptcy court's authority to issue sanctions pursuant to Bankruptcy Code §105(a).^{<small><a href="#7" name="7a">7</a></small>}

</p><p>A bankruptcy court has the authority to impose sanctions pursuant to §105(a); this provision states:

</p><blockquote>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 <i>sua sponte,</i> 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.^{<small><a href="#8" name="8a">8</a></small>}</blockquote>

<p>In order to impose sanctions pursuant to §105(a) a movant must demonstrate bad faith.^{<small><a href="#9" name="9a">9</a></small>} A court may use its

inherent powers to sanction an attorney if the attorney's actions are devoid of any merit so as lead to the conclusion

that the attorney's actions were taken in furtherance of an improper purpose.^{<small><a href="#10" name="10a">10</a></small>} The Tenth Circuit Court of Appeals

has stated:

</p><blockquote>We believe, and hold, that §105 intended to imbue the bankruptcy courts with the inherent power recognized

by the Supreme Court in <i>Chambers.</i> The power to maintain order and confine improper behavior in its own

proceedings seems a necessary adjunct to any tribunal charged by law with adjudication of disputes. We

should not lightly infer its absence, and we see no reason to do so here.^{<small><a href="#11" name="11a">11</a></small>}</blockquote>

<p>The criteria for imposing sanctions under §§1927 and 105(a) are identical, therefore they are a factual record that

supports the imposition of sanctions under §1927 and §105(a).^{<small><a href="#12" name="12a">12</a></small>} For example, in <i>Jones v. Bank of Santa Fe (In re

Courtesy Inns Ltd. Inc.)</i>^{<small><a href="#13" name="13a">13</a></small>} the Tenth Circuit held that a debtor's principal could be sanctioned pursuant to §105(a)

for filing a bad faith chapter 11 case. The record made a remand unnecessary. The debtor filed the case without an

attorney. This was a single asset real estate case in which the value of the collateral was less than that of the claim

of the mortgagee. The sole purpose of filing the chapter 11 case was to forestall the secured creditor from

foreclosing.

</p><p>In conclusion, the preceding discussion raises important questions concerning a bankruptcy court's authority to

impose sanctions pursuant to §1927. A practitioner would be well advised to move simultaneously under both

§§1927 and 105(a) when he or she seeks sanctions other than under Federal Rule of Bankruptcy Procedure 9011(a).

</p><hr>

<h3>Footnotes</h3>

<p>^{<small><a name="1">1</a></small>} 40 F. 3d 1084 (10th Cir. 1994). <a href="#1a">Return to article</a>

</p><p>^{<small><a name="2">2</a></small>} 28 U.S.C. §1927. <a href="#2a">Return to article</a>

</p><p>^{<small><a name="3">3</a></small>} 28 U.S.C. §451. <a href="#3a">Return to article</a>

</p><p>^{<small><a name="4">4</a></small>} 110 F.3d 494 (7th Cir. 1997). <a href="#4a">Return to article</a>

</p><p>^{<small><a name="5">5</a></small>} <i>Id.</i> at 498. <a href="#5a">Return to article</a>

</p><p>^{<small><a name="6">6</a></small>} <i>Id.</i> at 499. <a href="#6a">Return to article</a>

</p><p>^{<small><a name="7">7</a></small>} <i>Id.</i> at 500-02. <a href="#7a">Return to article</a>

</p><p>^{<small><a name="8">8</a></small>} 11 U.S.C. §105(a). <a href="#8a">Return to article</a>

</p><p>^{<small><a name="9">9</a></small>} <i>Chambers v. NASCO Inc.,</i> 501 U.S. 32, 47 (1991); <i>In re Eatman,</i> 182 B.R. 386, 396 (Bankr. S.D.N.Y. 1995). <a href="#9a">Return to article</a>

</p><p>^{<small><a name="10">10</a></small>} <i>Oliveri v. Thompson,</i> 803 F.2d 1265, 1272-73 (2d Cir. 1986) <i>cert. denied,</i> 480 U.S. 918 (1987). <a href="#10a">Return to article</a>

</p><p>^{<small><a name="11">11</a></small>} <i>Jones v. Bank of Santa Fe (In re Courtesy Inns Ltd. Inc.),</i> 40 F. 3d 1084 (10th Cir. 1994)(citations omitted). <a href="#11a">Return to article</a>

</p><p>^{<small><a name="12">12</a></small>} <i>See In re Volpert,</i> 110 F.3d 494, 500-02 (7th Cir. 1997). <a href="#12a">Return to article</a>

</p><p>^{<small><a name="13">13</a></small>} 40 F. 3d 1084 (10th Cir. 1994). <a href="#13a">Return to article</a>