FILED OCT 6 2020 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT
In re: BAP No. HI-20-1036-BGTa ADAM LEE, Debtor. Bk. No. 13-01356
BOON HAN SIA, Adv. No. 19-90030 Appellant, v. MEMORANDUM* DANE FIELD, Chapter 7 Trustee, Appellee.
Appeal from the United States Bankruptcy Court for the District of Hawaii Robert J. Faris, Bankruptcy Judge, Presiding
Before: BRAND, GAN, and TAYLOR, Bankruptcy Judges.
INTRODUCTION
Appellant Boon Han Sia appeals an order sanctioning him for filing what
the bankruptcy court found were frivolous complaints naming the chapter 7 1
* This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential value, see 9th Cir. BAP Rule 8024-1. 1 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, all "Rule" references are to the Federal Rules of Bankruptcy Procedure, and all "Civil Rule" references are to the Federal Rules of Civil (continued...) trustee, Dane Field ("Trustee"). Although sanctions were not available under
Rule 9011, which is what Trustee requested, we conclude that the record
supports the bankruptcy court's decision to impose sanctions under its
inherent authority, and we AFFIRM.
I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
A. Events leading to Trustee's motions for sanctions
During the course of this chapter 7 case, Trustee sued the debtor to set
aside two alleged fraudulent transfers of real property. The debtor had
claimed an exemption for both properties. Ultimately, the bankruptcy court
found that the transfers were fraudulent and ordered that they be avoided for
the benefit of the estate.
In opposing Trustee's attempts to obtain possession of the properties, the
debtor argued that Trustee had not timely objected to his claimed exemptions
under Rule 4003 and therefore the exemptions were valid notwithstanding the
court's avoidance of the transfers. In essence, the debtor contended that
Trustee's adversary complaint seeking to avoid the transfers, though filed
within 30 days after the § 341(a) meeting of creditors, was not a proper
"objection" under Rule 4003. The bankruptcy court disagreed and granted the
turnover order, thus denying the claimed exemptions. The debtor appealed.
The district court affirmed the bankruptcy court, and the Ninth Circuit Court
1 (...continued) Procedure.
2 of Appeals affirmed the district court. Lee v. Field (In re Lee), 889 F.3d 639 (9th
Cir. 2018). The Circuit expressly held that filing the adversary complaint
contesting the basis for the exemptions satisfied the procedural requirements
of Rule 4003.
After the Ninth Circuit's ruling, Tom Ishimaru, purported creditor of the
debtor's chapter 7 estate, filed a complaint against Trustee challenging the
denial of the debtor's claimed exemptions and asserting that Trustee's
adversary complaint did not comply with the procedural requirements of Rule
4003 — the exact issue decided in the debtor's appeal of the turnover order.
Trustee then served Ishimaru with correspondence designated as a
"motion for sanctions" under Rule 9011 ("Ishimaru Letter"). Trustee asserted
that Ishimaru's complaint was a frivolous collateral attack on the turnover
order that was challenged and upheld by the Ninth Circuit. Trustee also
speculated that the debtor was behind the claims asserted in the complaint,
because he raised these same claims in opposition to the turnover order and
only he benefitted from allowing the exemptions; there was no benefit to
creditors. The Ishimaru Letter provided the 21-day safe harbor provision of
Rule 9011 and advised Ishimaru that, if he did not withdraw the objectionable
pleading, Trustee would file a motion seeking sanctions against him, to
include attorney's fees and costs incurred in defending against the frivolous
3 complaint. Eight months later, Ishimaru moved to dismiss his complaint.2
Soon after Ishimaru filed his complaint, Sia, also a purported creditor of
the debtor's chapter 7 estate, filed a complaint against Trustee essentially
identical to Ishimaru's. Trustee promptly served Sia with correspondence
designated as a "motion for sanctions" under Rule 9011 similar to the Ishimaru
Letter ("Sia Letter"). The Sia Letter provided the 21-day safe harbor provision
of Rule 9011 and advised Sia that, if he did not withdraw the objectionable
pleading, Trustee would file a motion seeking sanctions against him, to
include attorney's fees and costs incurred in defending against the frivolous
complaint.
Sia failed to attend the initial scheduling conference. The bankruptcy
court dismissed Sia's complaint on June 10, 2019, for failure to prosecute.
Undeterred, Sia filed a second complaint against Trustee on September
16, 2019, which was essentially identical to his first. Trustee again served Sia
with correspondence designated as a "motion for sanctions" under Rule 9011
(together with the Sia Letter, the "Sia Letters," and collectively with the
Ishimaru Letter, the "Letters"). Trustee maintained that this second complaint
was frivolous and unwarranted for the same reasons as the first. Trustee
advised Sia that, if he did not withdraw it within 21 days, Trustee would file a
motion seeking sanctions against him, to include attorney's fees and costs
2 The bankruptcy court held the hearing for Ishimaru's motion to dismiss on the same day as the hearing for Trustee's Rule 9011 motions against Ishimaru and Sia. The court entered an order granting Ishimaru's motion to dismiss on January 29, 2020.
4 incurred in defending against both frivolous complaints.
The bankruptcy court dismissed Sia's second complaint on December 11,
2019, for failure to prosecute. Sia again failed to attend the initial scheduling
conference. The court reserved jurisdiction to consider a motion for sanctions,
if Trustee decided to seek sanctions against Sia.
B. Trustee's sanctions motions under Rule 9011
Trustee filed and served Rule 9011 motions against Sia and Ishimaru. He
argued that the complaints were frivolous because the issues they raised had
already been decided by the Ninth Circuit. Further, Sia had neither prosecuted
his complaints nor responded to Trustee. For Sia, Trustee requested $7,980 for
attorney's fees and costs incurred defending against his two complaints and
prosecuting the sanctions motion.
Sia and Ishimaru filed essentially identical oppositions to the Rule 9011
motions, arguing that the complaints were not frivolous, and that the Letters
were insufficient and did not satisfy Rule 9011. They maintained Rule 9011
requires that the offending party be served with the "actual motion" — not a
warning letter — to trigger the 21-day safe harbor provision. In response,
Trustee argued that Sia and Ishimaru were putting form over substance. The
Letters were designated as a "motion for sanctions" and were in all material
respects identical to the motions filed. The Letters identified the exact nature of
the objectionable conduct, provided the 21-day safe harbor, and further
advised that, if the objectionable pleadings were not withdrawn, Trustee
5 would seek sanctions. The only difference between the Letters and the
motions, argued Trustee, was a caption and a cover page. Thus, in Trustee's
opinion, the Letters complied with Rule 9011's procedural requirements and
were not a basis for denying the motions.
The bankruptcy court held consecutive hearings on the Rule 9011
motions, hearing the Ishimaru matter first. After hearing argument from
Ishimaru and counsel for Trustee, the court stated that, while it did not like the
result, it agreed with Ishimaru — the offending party must be served with the
actual motion. Thus, it "reluctantly" denied sanctions against Ishimaru.
Sia did not appear for his sanctions hearing. Counsel for Trustee again
asserted that the Sia Letters complied with Rule 9011. In response, the court
stated that it would grant the motion in Sia's case because, unlike Ishimaru, Sia
made no efforts to withdraw his "frivolous" complaint. The court ruled that it
could also sanction Sia under its inherent authority. The court later entered a
written order sanctioning Sia and awarding Trustee $7,980 for attorney's fees
and costs. Sia timely appealed.
II. JURISDICTION
The bankruptcy court had jurisdiction to award sanctions under 28
U.S.C. § 157(b)(1) and (b)(2)(A). We have jurisdiction under 28 U.S.C. § 158(b).
III. ISSUE
Did the bankruptcy court abuse its discretion in sanctioning Sia?
6 IV. STANDARDS OF REVIEW
We review a bankruptcy court's interpretation and application of the
bankruptcy rules de novo. All Points Capital Corp. v. Meyer (In re Meyer), 373
B.R. 84, 87 (9th Cir. BAP 2007).
We review an award of sanctions for an abuse of discretion. See Caldwell
v. Unified Capital Corp. (In re Rainbow Magazine, Inc.), 77 F.3d 278, 283 (9th Cir.
1996) (reviewing sanctions imposed under Rule 9011 and the bankruptcy
court's inherent power to sanction); Shalaby v. Mansdorf (In re Nakhuda), 544
B.R. 886, 898 (9th Cir. BAP 2016), aff'd, 703 F. App'x 621 (9th Cir. 2017). A
bankruptcy court abuses its discretion if it applies the wrong legal standard, or
misapplies the correct legal standard, or if it makes factual findings that are
illogical, implausible, or without support in inferences that may be drawn
from the facts in the record. United States v. Hinkson, 585 F.3d 1247, 1262 (9th
Cir. 2009) (en banc).
V. DISCUSSION
We are not sure if the bankruptcy court imposed sanctions against Sia
under only the court's inherent authority or under both the court's inherent
authority and Rule 9011. It appears that the court did both, even though it
denied sanctions in the Ishimaru case because the Ishimaru Letter did not
comply with Rule 9011. However, the court also stated at Sia's hearing that it
denied Rule 9011 sanctions in the Ishimaru case because Ishimaru withdrew
his complaint. The Sia order is silent as to what authority the court relied upon
7 to award sanctions against Sia. Thus, we will analyze the Sia order under both
Rule 9011 and the court's inherent authority.
A. Rule 9011 was not a basis for sanctions against Sia.
Rule 9011(b) requires attorneys and unrepresented parties to ensure
papers filed before a bankruptcy court are "not being presented for any
improper purpose," that the claims asserted 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," and that the "allegations and
other factual contentions have evidentiary support." Rule 9011(b)(1), (2), (3).
The central purpose of the rule is to deter baseless filings. Cooter & Gell v.
Hartmarx Corp., 496 U.S. 384, 393 (1990) (Civil Rule 11). Signing or advocating a
paper which violates these standards may result in the imposition of sanctions.
Rule 9011(c).
A party filing a motion for sanctions under Rule 9011 must comply with
Rule 9011(c)(1)(A).3 The question here is whether the Sia Letters complied. In
3 Rule 9011(c)(1)(A) provides, in relevant part:
(c) Sanctions. 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 . . . parties that have violated subdivision (b) or are responsible for the violation. (1) How Initiated. (A) By Motion. A motion for sanctions under this rule shall be made separately from other motions or requests and shall describe the specific conduct alleged to violate subdivision (b). . . . The motion for (continued...)
8 other words, does a "letter" notice suffice, notwithstanding the rule's clear
reference to service of a "motion" to initiate the safe harbor period? Sia
contends that the Sia Letters did not comply, arguing that the movant must
serve the offending party with the actual motion to be filed. Trustee contends
that the Sia Letters complied with the rule because they were essentially
identical to the motion filed; the only thing missing was a caption and a cover
page. The bankruptcy court opined in connection with the Ishimaru motion
that, while the Ninth Circuit has not yet decided this precise issue, it would
likely agree with the Sixth Circuit in Ridder v. City of Springfield, 109 F.3d 288
(6th Cir. 1997), that the party must be served with the actual motion that is to
be filed.
We believe the Ninth Circuit addressed this issue in Barber v. Miller, 146
F.3d 707, 710 (9th Cir. 1998), holding that informal warning letters do not
substitute for service of a motion. In Barber, the movant had warned the
offending party in two separate letters that his claims were baseless, putting
him on notice that the movant would seek Civil Rule 11 sanctions if the
purportedly frivolous complaint was not withdrawn. The case was later
3 (...continued) sanctions may not be filed with or presented to the court unless, within 21 days after service of the motion (or such other period as the court may prescribe), the challenged paper, claim, defense, contention, allegation, or denial is not withdrawn or appropriately corrected . . . If warranted, the court may award to the party prevailing on the motion the reasonable expenses and attorney's fees incurred in presenting or opposing the motion[.]
9 dismissed. Approximately two months after the dismissal, the movant
informed the offending party by letter that it would seek sanctions under Civil
Rule 11. One month later, the movant filed a motion for sanctions and served
the offending party with the motion. The Ninth Circuit reversed the district
court's award of sanctions to the movant, holding that the "safe harbor"
expressly requires service of a motion in compliance with Civil Rule 11(c)(2).4
Id. "It would . . . wrench both the language and purpose of . . . the Rule to
permit an informal warning to substitute for service of a motion." Id.
The Ninth Circuit further discussed its holding in Barber in Radcliffe v.
Rainbow Construction Co., 254 F.3d 772 (9th Cir. 2001):
In Barber, we held that the procedural requirements of Rule 11(c)(1)(A)'s "safe harbor" are mandatory. Thus, in Barber, we concluded that, although a defendant had given informal warnings to the plaintiffs threatening to seek Rule 11 sanctions, these warnings did not satisfy the strict requirement that a motion be served on the opposing party twenty-one days prior to filing. It is the service of the motion that gives notice to a party and its attorneys that they must retract or risk sanctions. In light of our holding in Barber, the fact that the plaintiffs had advance warning that Rainbow objected to their conspiracy allegation did not cure Rainbow's failure to comply with the strict procedural requirement
4 Civil Rule 11(c)(2) is the equivalent to Rule 9011(c)(1)(A). Because Rule 9011 parallels Civil Rule 11, courts apply the same standard in interpreting cases under Rule 9011 as in cases involving Civil Rule 11. Miller v. Cardinale (In re DeVille), 361 F.3d 539, 551-52, n.5 & 8 (9th Cir. 2004) (noting that the Ninth Circuit still looks to the Advisory Committee Notes to the 1993 Amendments to Civil Rule 11 to inform judgments about the procedures required in imposing sanctions under Rule 9011).
10 of Rule 11(c)(1)(A). The district court abused its discretion when it concluded otherwise.
Id. at 789 (internal citations omitted). To comply with the rule, the defendant
was required to serve its Civil Rule 11 motion on the plaintiffs, with a demand
for retraction of the offending allegations, and then to allow the plaintiffs at
least 21 days to retract the pleading before filing the motion with the court. Id.
at 788-89. See also Truesdell v. S. Cal. Permanente Med. Grp., 293 F.3d 1146, 1151
(9th Cir. 2002) (observing Civil Rule 11 contemplates service of a "filing-ready
motion" 21 days prior to filing the actual motion with the court in order to
trigger the safe harbor period).5
Thus, even though the Sia Letters contained the same facts and requested
the same relief as the Rule 9011 motion, they did not substitute for service of
the motion itself, which had to be served on Sia at least 21 days before it was
filed with the court. Therefore, Rule 9011 was not a proper basis for imposing
sanctions against Sia.
5 We further note that in the 1993 Amendments to Civil Rule 11 the Advisory Committee refers to letters as "informal notice" and recommends that attorneys send a warning letter as a professional courtesy "before proceeding to prepare and serve a Rule 11 motion." See Civil Rule 11 Advisory Committee Notes (1993 Amendments). See also Roth v. Green, 466 F.3d 1179, 1192 (10th Cir. 2006) ("[T]he Advisory Committee's Notes clearly suggest that warning letters . . . are supplemental to, and cannot be deemed an adequate substitute for, the service of the motion itself.").
11 B. The bankruptcy court did not abuse its discretion in sanctioning Sia under its inherent authority to sanction.
The bankruptcy court alternatively ruled that it could sua sponte impose
sanctions against Sia under its inherent authority. Sia offers no argument for
how the court abused its discretion by sanctioning him on that basis. In any
case, we first consider whether Sia received due process since Trustee did not
request sanctions pursuant to the bankruptcy court's inherent authority.
Trustee requested sanctions only under Rule 9011. Neither he nor the
court gave Sia any prior notice that inherent authority sanctions were a
possibility. Although inherent authority sanctions may be imposed sua sponte,
due process must nonetheless be provided. Miller v. Cardinale (In re DeVille),
280 B.R. 483, 495-96 (9th Cir. BAP 2002), aff'd sub nom. Miller v. Cardinale (In re
DeVille), 361 F.3d 539 (9th Cir. 2004). Ordinarily, the person to be sanctioned
must be notified of the alleged misconduct and the particular disciplinary
authority under which sanctions are to be imposed. In re Deville, 361 F.3d at
548. The failure to provide the disciplinary authority may not be fatal where
the sanctionee is provided with sufficient advance notice of exactly what
conduct is alleged to be sanctionable and that he stood accused of acting in bad
faith. Id. at 548-49. In DeVille, the Ninth Circuit held that due process was
accorded when the court's order to show cause cited Rule 9011 as the basis for
sanctions but the court ultimately imposed sanctions under its inherent
authority, because the sanctionee was aware that his conduct was sanctionable
12 and that he was accused of acting in bad faith. Id. at 549-550.
In his motion and the Sia Letters, Trustee specifically identified the
sanctionable conduct as Sia's filing of two complaints which Sia knew to be an
impermissible and frivolous collateral attack on the Ninth Circuit's ruling on
the debtor's claimed exemptions. Trustee also asserted that Sia's complaints
were likely drafted by the debtor and filed at his behest, because the debtor
was the only one to benefit from the claimed exemptions. Trustee further
noted that Sia had failed to prosecute either complaint or respond to Trustee.
Thus, Sia was aware that his conduct was alleged to be sanctionable and
that he was accused of acting in bad faith. Sia was also given an opportunity to
respond in writing to Trustee's motion, which he did, and to appear and testify
at a hearing, which he did not do.6 See Mullane v. Cent. Hanover Bank & Tr. Co.,
339 U.S. 306, 314 (1950) (the fundamental question related to due process is
whether the appellant received any type of notice that was reasonably
calculated under all the circumstances to apprise it of the pendency of the
action and afford it an opportunity to present an objection). In light of the
record, we conclude that Sia was not deprived of due process.
A bankruptcy court's inherent sanction authority is recognized under
6 Sia contends that he intended to appear at the sanctions hearing via court call but was unable to do so due to technical problems.
13 § 105(a).7 In re Rainbow Magazine, Inc., 77 F.3d at 284. This authority is broader
than Rule 9011 sanctions and "extends to a full range of litigation abuses." In re
DeVille, 280 B.R. at 495 (quoting Chambers v. NASCO, Inc., 501 U.S. 32, 46
(1991)). "[A] court may sanction pursuant to its inherent authority even when
the same conduct may also be punished under another sanctioning statute or
rule." Id. (string citation omitted).
Sanctionable conduct includes improper litigation tactics (e.g., delaying
or disrupting litigation), bad faith, vexatious or wanton conduct, willful abuses
of judicial process, or acting for oppressive reasons. Fink v. Gomez, 239 F.3d
989, 991-92 (9th Cir. 2001); In re DeVille, 280 B.R. at 495. In this context, bad
faith or willful misconduct consists of something more egregious than mere
negligence or recklessness. Rodriguez v. United States, 542 F.3d 704, 709 (9th Cir.
2008) (citing Fink, 239 F.3d at 993-94). Inherent authority sanctions can include
an award of attorney's fees. Chambers, 501 U.S. at 45.
To impose sanctions under its inherent authority, the bankruptcy court
must find either bad faith, conduct tantamount to bad faith, or recklessness
7 Section 105(a) provides:
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, sua sponte, 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.
14 with an "additional factor such as frivolousness, harassment, or an improper
purpose." Fink, 239 F.3d at 994; see also Price v. Lehtinen (In re Lehtinen), 564 F.3d
1052, 1061 & n.3 (9th Cir. 2009), abrogated on other grounds by Gugliuzza v. FTC
(In re Gugliuzza), 852 F.3d 884, 898 (9th Cir. 2017) (Fink permits the imposition
of inherent authority sanctions without an explicit finding of bad faith). In
Lehtinen, the Ninth Circuit upheld an inherent authority sanctions order even
though the bankruptcy court did not make a specific finding of bad faith.
Implied findings were sufficient for inherent authority sanctions if the court
found that the conduct was tantamount to bad faith and the record supported
a conclusion that the sanctionee acted in bad faith or engaged in willful
misconduct. 564 F.3d at 1061. The court concluded that the bankruptcy court
impliedly found "bad faith" and "willful misconduct" by finding that the
conduct at issue was "outrageously improper, unprofessional and unethical[.]"
Id.
Here, the bankruptcy court did not explicitly find that Sia's conduct
constituted "bad faith" or "willful misconduct," and the findings it did make
are meager. After careful review, we conclude it impliedly did so by finding
that Sia's complaints were "frivolous," that he had twice sued Trustee "without
any basis for doing so" and made no efforts to withdraw the offending
complaints, that he had failed to appear at the initial scheduling conferences in
either proceeding, and that he had "blown off" the sanctions hearing as well
15 despite indicating that he wanted to appear by telephone.8 When Sia's first
complaint was dismissed for failure to prosecute, he simply repackaged it
asserting the same baseless claims and again disappeared. The nature of Sia's
complaints and willful abuse of judicial process demonstrate conduct
tantamount to bad faith and is sufficient for inherent sanctions.
Accordingly, the bankruptcy court's findings combined with the record
sufficiently support the court's decision to sanction Sia under its inherent
authority and award Trustee his attorney's fees and costs. Furthermore, Sia did
not challenge the court's decision to impose inherent authority sanctions or the
amount of attorney's fees awarded and has therefore waived these issues. Orr
v. Plumb, 884 F.3d 923, 932 (9th Cir. 2018) (generally arguments not raised in
the opening brief are deemed forfeited).
VI. CONCLUSION
For the reasons stated above, we AFFIRM.
8 Even if we did not consider Sia's absence at the sanctions hearing against him, the record still supports the court's decision to impose inherent authority sanctions.