In Re: Bay Voltex Corporation

Opinion

NOT FOR PUBLICATION

UNITED STATES COURT OF APPEALS FILED FOR THE NINTH CIRCUIT MAR 24 2010

MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS

In re: BAY VOLTEX CORPORATION, No. 08-60044

Debtor, BAP No. NC-08-1069-DJuT

MEMORANDUM * JOHN GARY WARNER,

Appellant,

v.

DAVID E. PEASE,

Appellee.

Appeal from the Ninth Circuit Bankruptcy Appellate Panel Dunn, Jury, and Taylor, Bankruptcy Judges, Presiding

Argued and Submitted March 12, 2010 San Francisco, California

Before: HUG and BYBEE, Circuit Judges, and GWIN, ** District Judge.

* This disposition is not appropriate for publication and is not precedent except as provided by 9th Cir. R. 36-3. ** The Honorable James S. Gwin, United States District Judge for the Northern District of Ohio, sitting by designation. John Warner was appointed by the bankruptcy court to be counsel for Bay

Voltex Corporation, the debtor in possession in a Chapter 11 proceeding.

Thereafter a trustee was appointed in place of the debtor. The trustee, with the

approval of the court, appointed different counsel. A settlement was reached

between the debtor and its shareholder, David Pease.

John Warner applied to the court for his administrative fees as counsel. The

court allowed fees for his services to the debtor but disallowed fees for services

after the trustee was appointed. Warner then sued in state court against the debtor

and David Pease for the disallowed portion of the fees, which he contends were for

their benefit.

Upon a motion by David Pease to interpret the bankruptcy court’s orders, the

court held that Warner’s filing of the state court action was unjustified as a matter

of law and fact and constituted a violation of his terms of employment and a

violation of the court’s prior orders. It also awarded sanctions against Warner in

the amount of the attorney fees by Pease. which totaled $6500. Warner appealed to

the Bankruptcy Appellate Panel, which affirmed the bankruptcy court.

Warner appeals the judgment of the Bankruptcy Appellate Panel affirming

the bankruptcy court. He also appeals the Bankruptcy Appellate Panel’s decision

that the bankruptcy court’s orders do not allow him to recover under a quantum

2 meruit claim in state court. We have jurisdiction under 28 U.S.C. § 158(d), and we

affirm.

As a threshold matter, the bankruptcy court had jurisdiction under 28 U.S.C.

§ 157 to interpret its prior order appointing Warner as Chapter 11 counsel. See

Beneficial Trust Deeds v. Franklin (In re Franklin), 802 F.2d 324, 326-27 (9th Cir.

1986). The bankruptcy court’s May 28, 2003, order provides, “No fees shall be

paid to Chapter 11 counsel post-petition unless bankruptcy court approval is first

obtained and notice thereof is first given to the United States Trustee and to all

creditors and to all other parties in interest.” ER at 18. Although Bay Voltex’s

bankruptcy petition has now been dismissed, the fees sought by Warner in state

court were initially sought for his services to the bankruptcy estate. The

bankruptcy court had jurisdiction to construe its prior order as barring those fees.

The Bankruptcy Appellate Panel was correct in finding that Warner could

not recover attorney’s fees in quantum meruit. Any recovery of fees under that

theory would be in violation of the bankruptcy court’s order providing that all fees

must first meet the bankruptcy court’s approval.

The bankruptcy court made the required findings in sanctioning Warner.

The bankruptcy court stated the following: “Pursuant to 11 U.S.C. § 105 and the

court’s inherent authority to sanction misconduct, see Caldwell v. Unified Capital

3 Corp. (In re Rainbow Magazine, Inc.), 77 F.3d 278, 284 (9th Cir. 1996), sanctions

should be awarded against Warner in the amount of the attorneys fees incurred by

Pease.” ER at 251. This court has recognized Rainbow Magazine as allowing

sanctions for conduct that amounts to bad faith. Knupfer v. Lindblade (In re Dyer),

322 F.3d 1178, 1190 n.14 (9th Cir. 2003). By finding that Warner’s conduct

amounted to bad faith under Rainbow Magazine, the bankruptcy court implicitly

found that Warner knew (1) the order was applicable to his conduct and (2) he

intended actions that violated the order. See Zilog, Inc. v. Corning (In re Zilog,

Inc.), 450 F.3d 996, 1007 (9th Cir. 2006).

AFFIRMED.