The Ninth Circuit Bankruptcy Appellate Panel recently explained the distinctions among the sanctions a court can impose under Bankruptcy Rule 9011, Section 105(a) and the court’s inherent authority.
The Panel’s April 21 opinion also lays out the findings and conclusions required for each of the three types of sanctions, which are not interchangeable.
The BAP upheld some $15,000 in sanctions imposed by the bankruptcy court on counsel for a corporate chapter 7 debtor at the behest of the chapter 7 trustee. The lawyer put the company in chapter 7 and later decided it “was not such a great idea and certainly not in the best interest of his clients,” the Panel said. In the meantime, the lawyer engaged in all manner of shenanigans in bankruptcy court, state court and district court, including a lawsuit in violation of the Barton doctrine.
Quoting the Ninth Circuit, the Panel said that civil contempt is a remedy for violation of a specific order or the automatic stay while the inherent authority is designed to deter and provide “compensation for a broad range of improper litigation tactics.” See Knupfer v. Lindblade (In re Dyer), 322 F.3d 1178, 1196 (9th Cir. 2003).
The inherent power, the BAP said, is “broader than Rule 9011 sanctions” and covers a “full range” of litigation abuses. The Panel added, “A court may sanction under its inherent power even when the same conduct may also be punishable under another sanctioning statute or rule, such as Rule 9011.”
To impose sanctions under the court’s inherent authority, unlike civil contempt under Section 105(a), the BAP said that the court must find either bad faith or recklessness, along with additional factors such frivolousness, harassment or improper purpose. The Panel added that “a court may sanction under its inherent authority a party who has engaged in bad-faith conduct over the course of a case.”
The lawyer contended that a finding of bad faith under the court’s inherent power requires conduct akin to fraud. “That is simply not the law,” the BAP said.
The lawyer also argued that the court could not sanction under inherent authority when Rule 9011 was equally available. The Panel responded by quoting the Supreme Court for saying that if “neither the statute nor the Rules are up to the task, the court may safely rely on its inherent power.” Chambers v. NASCO, Inc., 501 U.S. 32, 50 (1991).
In the case on appeal, the BAP said that the court correctly invoked inherent power because the lawyer had engaged in bad faith conduct throughout the proceedings, but some of the conduct was not in writing and thus could not be reached by Rule 9011.
The BAP affirmed because the bankruptcy court had made findings of bad faith to support the award of $15,000 to cover the trustee’s attorneys’ fees.
The Panel that issued the nonprecedential, per curiam opinion consisted of Bankruptcy Judges Julia W. Brand, Gary A. Spraker and Robert J. Faris.
The Ninth Circuit Bankruptcy Appellate Panel recently explained the distinctions among the sanctions a court can impose under Bankruptcy Rule 9011, Section 105(a) and the court’s inherent authority.
The Panel’s April 21 opinion also lays out the findings and conclusions required for each of the three types of sanctions, which are not interchangeable.
The BAP upheld some $15,000 in sanctions imposed by the bankruptcy court on counsel for a corporate chapter 7 debtor at the behest of the chapter 7 trustee. The lawyer put the company in chapter 7 and later decided it “was not such a great idea and certainly not in the best interest of his clients,” the Panel said. In the meantime, the lawyer engaged in all manner of shenanigans in bankruptcy court, state court and district court, including a lawsuit in violation of the Barton doctrine.