But I Have an Order Practical Tips to Assist in the Enforcement of Bankruptcy Court Orders

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Feb 2004

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Armed with an order from a U.S. Bankruptcy Court, the difficult part is behind you—namely, obtaining the
order—or so you think! You face the opposing party and request compliance with the provisions of the order, but
they refuse to comply. This situation sounds like one that is easily rectified, but how do you actually enforce the
terms of a bankruptcy court order? In many situations, especially in the context of executing what is necessary to
carry out the terms of a §363 sale order, it is anything but simple. For example, many §363 sales orders will
provide that parties to contracts that have been assumed by the purchaser must take, or not take, certain actions.
Often, there are hundreds of executory contracts involving parties with varying levels of sophistication and
knowledge of the bankruptcy process. When approached with the sale order, parties may be hesitant to comply out
of sheer ignorance of the process. Other times, parties will begin to quarrel over the true meaning of the terms of the
sales order. Similar situations arise in enforcing cash collateral and debtor-in-possession (DIP) financing orders.
Additionally, compliance issues arise in the enforcement of the automatic stay, non-dischargeability and turnover
orders. This article seeks to provide practical assistance in enforcing compliance with a bankruptcy court order.

<h3>Civil Contempt Power</h3>

Obviously, the easiest and most efficient way to proceed is to reach an agreement with the party against whom you
are trying to enforce the order. However, if your request for compliance falls on deaf ears, it may be necessary to
seek the bankruptcy court's assistance in the enforcement of the order. It is now well-settled that the authority under
11 U.S.C. §105 is broad enough to allow the bankruptcy court to use the civil contempt power to police court
orders.<a href="#2" name="2a">2</a> This power extends to a variety of actions, including §363 sales orders, enforcing the automatic stay<a href="#3" name="3a">3</a> and
the enforcement of turnover, DIP, dischargeability<a href="#4" name="4a">4</a> and cash-collateral orders.<a href="#5" name="5a">5</a> Imposition of civil contempt in
these matters seeks to compensate for losses or damages caused by the defendant's non-compliance with the court's
order.<a href="#6" name="6a">6</a>

There is an important difference between civil and criminal contempt. Criminal contempt involves the power of the
court to maintain and vindicate the dignity of the courts and is punitive in nature.<a href="#7" name="7a">7</a> Underlying the distinction
between criminal and civil contempt sanctions is the procedural protections due a litigant before any particular
contempt penalty may be imposed. Because civil contempt sanctions are considered non-punitive and avoidable,
fewer procedural protections are required.<a href="#8" name="8a">8</a> Generally, a jury trial is required for the imposition of criminal
sanctions, and there is an open question as to whether bankruptcy courts have the authority to impose criminal
sanctions.<a href="#9" name="9a">9</a> Where a sanction is imposed retrospectively for a completed act of disobedience, the contempt is
"criminal." However, "if the objective of the sanction is to compel compliance with a court order or to compensate
complainant for losses sustained, the contempt is civil."<a href="#10" name="10a">10</a> As discussed later in this article, different relief is
requested when requesting a finding of civil contempt versus criminal contempt, and one must be vigilant in
drafting the requested relief. Otherwise, certain requests can be construed for an exercise of authority to impose
criminal contempt sanctions and may be denied by the bankruptcy court for lack of authority.

In seeking the court's exercise of its civil contempt powers, it is important to follow the proper procedures. Federal
Rule of Bankruptcy Procedure 9020(b) was enacted in 1987 and provided in part: "Contempt committed in a case or
proceeding pending before a bankruptcy judge...may be determined by the bankruptcy judge only after a hearing on
notice." However, FRBP 9020(b) was unclear exactly as to how the notice was to be issued by the court. Rule 9020
was repealed in 2001 and now simply provides that contempt motions are governed by FRBP 9014 (a generic rule
regarding all "contested matters"). The advisory notes explaining this change emphasize the conflicting authorities
and state that "[i]ssues relating to the contempt power of bankruptcy judges are substantive and are left to statutory
and judicial development, rather than procedural rules." At least one commentator has stated "[T]he more detailed
treatment of contempt was promulgated at a time when there were doubts as to whether bankruptcy judges were
empowered to punish for contempt. Now that that issue has been resolved in favor of the existence of the contempt
power, a more traditional approach to treatment of contempt is possible."<a href="#11" name="11a">11</a> Accordingly, it seems that pursuant to
the Rules, a motion requesting contempt remedies or an order to show cause pursuant to FRBP 9020 and 9014
would be the best way to proceed.

Generally, the party seeking relief has the burden of establishing civil contempt by clear and convincing evidence.<a href="#12" name="12a">12</a>
In order to be found in contempt, the offending party must have knowingly and willfully violated a definite and
specific court order,<a href="#13" name="13a">13</a> although contempt is not dependent upon the intent of the defendant.<a href="#14" name="14a">14</a> To satisfy the
requirements that parties had knowledge of an order requiring them to perform or refrain from performing particular
acts, all that is required is showing that parties had actual notice of the court's order.<a href="#15" name="15a">15</a> Once the moving party
makes a prima facie showing that a court order was violated, the burden of production shifts to the non-moving
party to show a "present inability to comply that goes beyond a mere assertion of inability."<a href="#16" name="16a">16</a>

Among the remedies available to the bankruptcy court in a civil contempt proceeding is the imposition of a fine
payable to the complainant for damages sustained as a result of the contumacious conduct.<a href="#17" name="17a">17</a> The purposes of civil
contempt sanctions "are to (1) compensate the claimant for losses and expenses it incurred because of the
contemptuous conduct and (2) coerce the contemnor into complying with the court order or injunction."<a href="#18" name="18a">18</a>

<blockquote><blockquote>
<hr>
<big><center>
One of the easiest ways to avoid issues associated with
compliance with any bankruptcy court order is to ensure that
the proposed orders presented to the bankruptcy court are as
detailed and clear as possible so as to avoid issues of
interpretation in the future.
</center></big>
<hr>
</blockquote></blockquote>

Remedies available upon a finding of civil contempt include an award of actual damages and attorneys fees and
expenses.<a href="#19" name="19a">19</a> In addition, so long as the purpose is to coerce compliance with an order of the court, a bankruptcy
court may impose a fine conditioned on the observance of a future course of conduct, such as compliance with the
order in question. A "characteristic of a coercive sanction is that it incorporates a mechanism for the contemnor
to purge itself and thereby reduce or eliminate the sanction."<a href="#20" name="20a">20</a> Additionally, although bankruptcy law is loath to
award attorneys fees absent some basis in statute or contract, there are two limited exceptions that apply in
bankruptcy proceedings. The first permits recovery of attorneys fees where a common benefit is bestowed on a
class protected by a common fund. The second exception is where fee-shifting is used as an equitable remedy to
further the interest of justice and rectify certain aggravated conduct amounting to abusive or bad-faith litigation
practices such as willful disobedience of a court order.<a href="#21" name="21a">21</a>

Conversely, "a flat unconditional fine totaling even as little as $50" could be criminal "if the contemnor has no
subsequent opportunity to reduce or avoid the fine through compliance," and the fine is not compensatory.<a href="#22" name="22a">22</a> This
is so regardless of whether the non-compensatory fine is payable to the court or to the complainant.<a href="#23" name="23a">23</a> Whether the
fine is payable to the complainant may, however, be one relevant factor in determining whether the fine is
compensatory or punitive.<a href="#24" name="24a">24</a> Accordingly, if a request is made, which the court would construe as purely punitive
(not coercive orders in the context discussed above), for actions previously taken in which the contemnor has no
ability to purge itself of non-compliance or control the reduction or elimination of the sanction, then the court is
likely to view such a request as one for the imposition of criminal sanctions: The bankruptcy court would not be
able to move quickly on the request and ultimately may wind up referring it out to the district court as there is
much debate among the circuits concerning the bankruptcy court's ability to adjudicate and punish criminal
contempt.<a href="#25" name="25a">25</a> An example of a request that may rise to the level of a criminal sanction versus one that would seek to
coerce compliance could be a request by a party for the imposition of a disproportionate fine for failure to comply
with a §363 sale order, requiring a party to an assigned contract to operate in accordance with the terms of the
contract instead of requesting fees and costs incurred due to the non-compliance, immediate compliance and
possibly, depending on the exigencies of the facts in the case, a daily imposition of a fine until compliance is
accomplished. In the latter request, the contemnor is not being "punished" per se, but rather possesses the ability
to control or eliminate the possible sanction based on conduct completely within the contemnor's control.

<h3>Conclusion</h3>

One of the easiest ways to avoid issues associated with compliance with any bankruptcy court order is to ensure
that the proposed orders presented to the bankruptcy court are as detailed and clear as possible. Additionally, the
order should contain a provision in which the bankruptcy court retains jurisdiction to hear any dispute arising
from the interpretation of the order—possibly even including an expedited forum for the resolution of any such
disputes. An area where this can be especially important is with respect to the assumption and assignment of
executory contracts in the context of a §363 sale or confirmation of a reorganization plan. The order should be
clear enough to be understood standing alone by a third party with little or no bankruptcy expertise, spelling out
exactly what was assigned and the responsibilities of the contracting party to the assignee of the executory
contracts.<a href="#26" name="26a">26</a>

However, if parties cannot agree, and the issue is not one that requires further court interpretation of the
language of the order, the contempt power of the bankruptcy court pursuant to §105 of the Bankruptcy Code, as
well as FRBP 9014 and 9020, can be effective and expeditious. It is important to remember that the proper
procedural steps must be followed, and that care must be given in drafting the requested relief to ensure that it
falls within the parameters of the bankruptcy court's civil contempt powers.

<hr>
<h3>Footnotes</h3>

<a name="1">1</a> Jo Ann J. Brighton is special counsel in the Debt Finance Section of Kennedy Covington, Lobdell & Hickman in Charlotte, North Carolina. She is on the Editorial Board for the
ABI Journal, a member of ABI's Business Reorganization Committee and is certified in business bankruptcy by the American Board of Certification. <a href="#1a">Return to article</a>

<a name="2">2</a> See, e.g., In re Ware, 2003 W. L. 1960454 (Bankr. M.D.N.C. 2003), citing In re Walters, 868 F.2d 665 (4th Cir. 1989); In re Better Homes of Virginia Inc., 22 B.R. 426, 430
(E.D. Va. 1985), aff'd. 804 F.2d 289 (4th Cir. 1986); In re Alamo, 239 B.R. at 623 (M.D. Fla. 1999). See, also, 11 U.S.C. §105(a); 10 Collier on Bankruptcy ¶9020.02[1] (15th
Ed. Rev. 2002). See, generally, In re Dyer, 322 F.3d 1178, 1193 (9th Cir. 2003). <a href="#2a">Return to article</a>

<a name="3">3</a> Jore Engineering Inc. v. IRS, 92 F.3d 1539 (11th Cir. 1996). <a href="#3a">Return to article</a>

<a name="4">4</a> In re Beck, 272 B.R. 112 (Bankr. E.D. Pa. 2002). <a href="#4a">Return to article</a>

<a name="5">5</a> See, e.g., In re Shore, 193 B.R. 598 (S.D. Fla. 1996); In re Spanish Riviera Plaza Realty Co., 155 B.R. 249 (Bankr. S.D. Fla. 1993). See, also, 10 Collier on Bankruptcy
¶9020.02[1] (15th Ed. Rev. 2002). <a href="#5a">Return to article</a>

<a name="6">6</a> See McComb v. Jacksonville Paper Co., 336 U.S. 187, 69 S.Ct. 497, 93 L.Ed. 599 (1949). See, also, In re Carrico, 206 B.R. 447 (S.D. Fla. 1997). <a href="#6a">Return to article</a>

<a name="7">7</a> Hicks ex rel. Feiock v. Feiock, 485 U.S. 624, 108 S.Ct. 1423 (1988). <a href="#7a">Return to article</a>

<a name="8">8</a> In re Shore, 193 B.R. §98, 601 (S.D. Fla. 1996), citing United Mine Workers v. Baswell, 512 at 821 (1994) (other citation omitted). Clark v. Boynton, 362 F.2d 992 (5th Cir.
1996); Bush Ranch Inc. v. E.I. DuPont DeNemours & Co., 99 F.3d 363 (11th Cir. 1996) (criminal contempt damages require constitutional protections afforded defendants,
including right to jury), cert denied, 522 U.S. 906, 118 S.Ct. 263, 139 L.Ed. 2d 190 (1997). <a href="#8a">Return to article</a>

<a name="9">9</a> See more complete discussion at supra fn. 25. <a href="#9a">Return to article</a>

<a name="10">10</a> In re Aspen Limousine Service, 198 B.R. 341, 350 (D. Colo. 1996). <a href="#10a">Return to article</a>

<a name="11">11</a> 10 Collier on Bankruptcy ¶ 9020.02[1] (15th Ed. Rev. 2002). <a href="#11a">Return to article</a>

<a name="12">12</a> In re Ware, supra fn. 2, citing In re General Motors Corp., 61 F.3d 256, 258 (4th Cir. 1995). <a href="#12a">Return to article</a>

<a name="13">13</a> Alamo, 239 B.R. at 623 (other citations omitted). <a href="#13a">Return to article</a>

<a name="14">14</a> See McComb v. Jacksonville Paper Co., 336 U.S. 187, 69 S.Ct. 497, 93 L.Ed. 599 (1949). See, also, In re Carrico, 206 B.R. 447 (S.D. Fla. 1997). <a href="#14a">Return to article</a>

<a name="15">15</a> In re Carrico, 206 B.R. at 447. <a href="#15a">Return to article</a>

<a name="16">16</a> Id. <a href="#16a">Return to article</a>

<a name="17">17</a> In re A-1 Specialty Gasolines Inc., 246 B.R. 445 U.S. 450 (S.D. Fla. 2000) (other citations omitted). <a href="#17a">Return to article</a>

<a name="18">18</a> In re Ware, supra, note 2 at 6, citing In re Walters, 868 F.2d 665, 668 (4th Cir. 1989), and Sizzler Family Steakhouses v. Western Sizzlin Steakhouses Inc., 793 F.2d 1529, 1534
(11th Cir. 1986). <a href="#18a">Return to article</a>

<a name="19">19</a> In re Ware, supra; (Alamo), 239 B.R. at 623; In re Cox, 214 B.R. 635 (Bankr. N.D. Ala. 1997); Carrico, 206 B.R. at 4217; (Better Homes of Virginia), 52 B.R. at 431. <a href="#19a">Return to article</a>

<a name="20">20</a> In re Ware, supra, 7 (ordering that if contemnor failed to turn over vehicle to trustee within 48 hours, the contemnor was subject to monetary sanction of $10,000 per day until
vehicle is delivered." See, also, Better Homes, 52 B.R. at 431-32, citing United States v. United Mine Workers, 330 U.S. 358, 67 S. Ct. 677, 91 L. Ed. 884 (1947). <a href="#20a">Return to article</a>

<a name="21">21</a> See In re Nangle, 281 B.R. 654, 659 (8th Cir. 2002). <a href="#21a">Return to article</a>

<a name="22">22</a> F.J. Hanshaw Enters. Inc. v. Emerald River Dam Inc., 244 F.3d 1128, 1138 (9th Cir. 2001). See, also, Int'l. Union, United Mine Workers of Am. v. Bagwell, 512 U.S. 821,
827-34, 114 S.Ct. 2552, 129 L.Ed.2d 642 (1994). <a href="#22a">Return to article</a>

<a name="23">23</a> Hanshaw, 244 F.3d at 1138 n.7. <a href="#23a">Return to article</a>

<a name="24">24</a> Id. <a href="#24a">Return to article</a>

<a name="25">25</a> For circuits holding that a bankruptcy court does not have the power to impose criminal (punitive) sanctions, see, generally, In re Terrebonne Fuel & Lube, 108 F.3d 609, 613 n.
3 (5th Cir. 1997); In re Just Brakes Corp. Sys., 108 F.3d 881, 885 (8th Cir. 1997); cf. Cox v. Zale Delaware Inc., 239 F.3d 910, 916-17 (7th Cir. 2001). For circuits suggesting that
bankruptcy courts can impose punitive or criminal sanctions, see Bessette v. Avco Fin. Servs., 230 F.3d 439, 445 (1st Cir. 2000); In re Graham, 981 F.2d 1135, 1142 (10th Cir.
1992); cf. Jove Eng'g., 92 F.3d at 1558. Compare In re Ragar, 3 F.3d 1174 (8th Cir. 1993), with In re Hipp, 895 F.2d 1503, 1515-16 (5th Cir. 1990); In re Power Recovery
Systems Inc., supra, 950 F.2d 798 (1st Cir. 1991); In re Rainbow Magazine Inc., 77 F.3d 278, 284-85 (9th Cir. 1996); In re Skinner, 917 F.2d 444, 447-48 (10th Cir. 1990) (per
curiam). Not only have the other circuits struggled with this question, so have the drafters of the Federal Rules of Bankruptcy Procedure. In 1987, the drafters passed FRBP 9020,
specifying contempt procedures in bankruptcy court, but noted that the rule might be inapplicable because "bankruptcy judges may not have the power to punish for contempt."
Rule 9020 was repealed in 2001. Now, contempt motions are governed by FRBP 9014 (a generic rule regarding all "contested matters."). The advisory notes explaining this
change emphasize the conflicting authorities and state that "[i]ssues relating to the contempt power of bankruptcy judges are substantive and are left to statutory and judicial
development, rather than procedural rules." See, generally, In re Dyer, 322 F.3d 1178, 1193 (9th Cir. 2003). <a href="#25a">Return to article</a>

<a name="26">26</a> Obviously, the parties to the contracts must receive the appropriate notice under §§363 and 365 and FRBP 2002 concerning the sale of the assets and the assignment of any executory contracts. <a href="#26a">Return to article</a>

Journal Authors

Jo Ann J. Brighton

Journal Date

Sunday, February 1, 2004 - 12:00

Bankruptcy Rule

2004