FILED 1 NOT FOR PUBLICATION OCT 07 2015
2 SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. WW-14-1262-JuKiF ) 6 CINDY SHANNON ANDERSON, ) Bk. No. 09-43049-PBS ) 7 Debtor. ) ______________________________) 8 ) MARK G. OLSON, ) 9 ) Appellant, ) 10 ) v. ) M E M O R A N D U M* 11 ) CINDY SHANNON ANDERSON; DON ) 12 THACKER, Chapter 7 Trustee, ) ) 13 Appellees. ) ______________________________) 14 Argued and Submitted on September 25, 2015 15 at Seattle, Washington 16 Filed - October 7, 2015 17 Appeal from the United States Bankruptcy Court for the Western District of Washington 18 Honorable Paul B. Snyder, Bankruptcy Judge, Presiding 19 ________________________ 20 Appearances: Chris Graver of Keller Rohrback LLP argued for appellant Mark G. Olson; Thomas W. Stilley of 21 Sussman Shank LLP argued for appellee Don Thacker, Chapter 7 Trustee. 22 ________________________ 23 Before: JURY, KIRSCHER, and FARIS, Bankruptcy Judges. 24 25 26 * This disposition is not appropriate for publication. 27 Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. 28 See 9th Cir. BAP Rule 8024-1.
-1- 1 Appellee chapter 71 trustee, Don Thacker (Trustee), 2 employed appellant attorney, Mark G. Olson (Olson), to pursue a 3 personal injury claim (PI claim) held by debtor, Cindy S. 4 Anderson (Debtor). More than three years later, Olson settled 5 the PI claim for $41,000 without Trustee’s knowledge or consent. 6 Olson paid himself a portion of the settlement proceeds and 7 disbursed the rest to Debtor. These actions were in direct 8 contravention of the express terms of Olson’s employment 9 agreement with Trustee, which required Trustee’s approval of any 10 settlement, and the bankruptcy court’s employment order, which 11 required Olson to obtain court approval of his fees. Moreover, 12 Olson disbursed property of the bankruptcy estate to Debtor who 13 had not yet claimed an exemption in the PI Claim. Debtor spent 14 most of the money by the time Trustee learned about the 15 settlement. 16 Trustee asked Olson and Debtor to turn over the settlement 17 proceeds. Trustee settled with Debtor, but Olson refused the 18 request. Trustee filed a motion seeking turnover of the 19 settlement proceeds, followed by a separate motion for sanctions 20 against Olson under Rule 9011 and 28 U.S.C. § 1927. After a 21 hearing, the bankruptcy court entered an order granting 22 Trustee’s motions for turnover and for sanctions, but deferred 23 deciding the amount of the sanctions until Trustee’s attorneys 24 25 1 26 Unless otherwise indicated, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532. 27 “Rule” references are to the Federal Rules of Bankruptcy Procedure and “Civil Rule” references are to the Federal Rules of 28 Civil Procedure.
-2- 1 filed their fee application.2 The order regarding the sanctions 2 became final when the court subsequently entered an order fixing 3 the amount of the sanctions as $13,696 in fees and $639.02 in 4 costs, which amounts represented fees and costs incurred by 5 Trustee’s counsel (Sanctions Order). Olson appeals from the 6 Sanctions Order. We AFFIRM. 7 I. FACTS3 8 The material facts are undisputed. Debtor filed a 9 chapter 7 bankruptcy petition on April 30, 2009. Debtor neither 10 disclosed nor exempted the PI Claim in her schedules. On 11 June 15, 2009, Debtor amended her Schedule B to include the 12 PI Claim as an asset but she did not assert an exemption in it. 13 In June 2009, Debtor hired Olson to represent her in 14 connection with the PI claim. Since her injuries were sustained 15 at a hotel and casino in Nevada, Olson associated with a Nevada 16 attorney, Justin Wilson. 17 On June 29, 2009, Trustee and Olson entered into an 18 Attorney-Client Fee Agreement (Fee Agreement), under which Olson 19 agreed to pursue the PI claim on behalf of the bankruptcy 20 21 2 The order also required Olson to turn over the amount he 22 had paid himself from the settlement proceeds and denied his motion for attorneys’ fees for representing the estate. Pursuant 23 to an Order Defining Scope of Appeal filed on July 7, 2014, a motions panel determined that the order was final as to the 24 turnover and attorney fee denial which Olson did not timely appeal. However, the Sanction Order was not final since the 25 court had not yet determined the amount of sanctions. Therefore, 26 the scope of this appeal was limited to the sanction award as reflected in the orders of February 14 and May 6, 2014. 27 3 We borrow heavily from the bankruptcy court’s recitation 28 of the facts in its February 14, 2014 ruling.
-3- 1 estate. Under the agreement, Olson was entitled to a forty 2 percent contingency fee if the matter was settled prior to 3 trial, forty-five percent if the case went to trial, and fifty 4 percent if there was an appeal. The terms of the agreement 5 required Trustee’s approval prior to any settlement: “Neither 6 [Olson] nor [Trustee] shall settle or compromise any aspect of a 7 lawsuit without agreement between client and attorney.” 8 On August 28, 2009, Trustee filed an application to employ 9 Olson. Olson signed a Declaration of Disinterestedness, in 10 which he declared under penalty of perjury that he had read and 11 was familiar with Bankr. Local Rule 2016-1 regarding 12 compensation of professionals. On the same day, the bankruptcy 13 court entered an order approving Olson’s employment. The 14 employment order provided that any compensation to Olson was 15 subject to court approval. 16 On November 2, 2009, Debtor received her § 727 discharge, 17 but her case remained open. 18 On August 9, 2010, Olson, in connection with co-counsel 19 Justin Wilson, filed a personal injury lawsuit on behalf of 20 Debtor against the Nevada hotel and casino. 21 In December 2012, without Trustee’s knowledge or consent, 22 and without obtaining the bankruptcy court’s approval, Debtor 23 and Olson settled the lawsuit for $41,000. After receiving this 24 amount, Olson paid himself a forty percent contingency fee of 25 $16,4004 and expenses of $3,376.22, and distributed the 26 27 4 Olson asserts that he gave one-half of this amount, or 28 $8,200, to Wilson.
-4- 1 remaining $21,223.78 to Debtor, again without communicating with 2 Trustee or obtaining the bankruptcy court’s approval. 3 In January 2013, Trustee sent an email to Olson inquiring 4 about the status of the PI Claim. Olson informed Trustee that 5 the claim had been settled and the proceeds used to pay his 6 attorneys’ fees with the remainder distributed to Debtor. 7 According to Trustee, he advised Olson that he had no authority 8 to settle the case or pay himself attorneys’ fees, and that he 9 should not have disbursed any proceeds to Debtor as she had 10 claimed no exemption in the PI Claim. Trustee demanded that 11 Olson and Debtor turn over the settlement proceeds, but both 12 failed and refused to do so. 13 On March 14, 2013, Debtor filed an amended Schedule C, 14 claiming for the first time that $20,200 of the settlement 15 proceeds were exempt. Trustee objected to Debtor’s claim of 16 exemption. 17 On May 16, 2013, Trustee filed a motion for turnover, 18 seeking to recover the $41,000 in settlement proceeds from 19 Debtor and Olson. Debtor and Olson objected to the motion. On 20 August 8, 2013, Olson filed a declaration that included the 21 following: 22 7. . . . Given that Ms. Anderson’s bankruptcy had been completely discharged and there were no 23 outstanding bills or creditors, it is not clear what Mr. Thacker’s intentions were regarding these funds. 24 As the funds were entirely distributed in accordance with the fee agreements, there was nothing left from 25 the modest settlement to pass on to Mr. Thacker in any event. 26 8. . . . However, given that Mr. Thacker had agreed to 27 the contingency fee arrangement and that he had agreed to at least the $16,000 personal exemption amount to 28 be awarded to Ms. Anderson in the personal injury
-5- 1 matter, I do not believe that he had a legal right to the $50,000 he is claiming in this proceeding. 2 Mr. Thacker’s position is unreasonable and being taken in bad faith. 3 4 Trustee disputed those statements, contending that they were 5 without evidentiary support and not warranted by existing law in 6 violation of Rule 9011. 7 In September 2013, Trustee and Debtor settled Trustee’s 8 objection to her claim of exemption for $3,883.78. Trustee 9 later testified at the evidentiary hearing on the turnover 10 motion that his primary motivation for the settlement was that 11 Debtor already had spent most of the settlement proceeds and 12 remained insolvent. The bankruptcy court entered an order 13 approving the settlement on December 26, 2013. 14 On October 9, 2013, in a final effort to resolve the matter 15 and avoid further fees and costs, Trustee served Olson’s 16 attorneys with a letter dated October 9, 2013, and a Motion for 17 Sanctions, giving Olson twenty-one days to withdraw his 18 objection to the turnover motion and to agree to turn over the 19 settlement proceeds or face a motion for sanctions for his 20 continuing unjustifiable refusal to turn over the funds.5 21 Trustee received no response to that letter. Before the 22 turnover motion was heard, on November 5, 2014, Trustee filed a 23 motion for sanctions (Sanctions Motion). 24 On December 17, 2013, Olson sought approval of his fees in 25 the amount of $16,400 and costs of $3,376.22 by filing a fee 26 5 27 There is no dispute that the service of the motion complied with the “safe-harbor” provisions under 28 Rule 9011(c)(1)(A).
-6- 1 application. 2 On February 3, 2014, the bankruptcy court conducted an 3 evidentiary hearing on the turnover motion, the Sanctions 4 Motion, and Olson’s fee application. 5 On February 14, 2014, the bankruptcy court issued an oral 6 ruling. The bankruptcy court acknowledged that Trustee sought 7 turnover of the settlement proceeds under § 542(a). However, as 8 Olson had already paid himself his fees and costs from the 9 settlement, the court found that Trustee’s motion was in effect 10 a motion to disgorge fees.6 The bankruptcy court noted that it 11 had broad and inherent authority to deny or order disgorgement 12 of compensation when an attorney failed to meet the requirements 13 of §§ 327, 329, 330, or 331 under In re Alvarado, 496 B.R. 200, 14 213 (N.D. Cal. 2013) (citing Am. Law Ctr. PC v. Stanley 15 (In re Jastrem), 253 F.3d 438, 443 (9th Cir. 2001) (finding that 16 bankruptcy court had the authority under § 329 to order an 17 attorney to return fees that it determined were excess or 18 unreasonable)); In re New River Dry Dock, Inc., 451 B.R. 586, 19 592 (Bankr. S.D. Fla. 2011) (noting that “[d]isgorgement is the 20 expected remedy when a professional does not comply with the 21 Bankruptcy Code or its Rules”). 22 In deciding whether Olson was entitled to any fees, the 23 bankruptcy court considered whether Olson’s services had 24 benefitted the estate under § 330(a)(3). The court ultimately 25 26 6 Under Rule 7001(1) Trustee was required to bring a request 27 for turnover in an adversary proceeding. By characterizing the motion as one for disgorgement, Trustee’s request was properly 28 before the court by motion.
-7- 1 concluded that his services resulted in a loss, rather than a 2 benefit to the estate. In reaching this conclusion, the court 3 found that by settling the PI Claim without authority, Olson 4 denied Trustee and the court the opportunity to evaluate the 5 proposed settlement. Thus, it remained unknown whether the 6 $41,000 settlement was in the best interest of the estate. The 7 court further found that Olson’s disbursement of $21,223.78 in 8 settlement proceeds to Debtor caused prejudice to the estate by 9 at least that amount since by the time Trustee became aware of 10 the settlement and distribution, Debtor had spent most of the 11 money. 12 When considering the Sanctions Motion, the bankruptcy court 13 concluded that ¶¶ 7 and 8 of Olson’s declaration filed in 14 opposition to Trustee’s request for turnover ignored the 15 uncontested facts in the case and were in direct conflict with 16 bankruptcy law, including § 330 and Rule 9019. For these 17 reasons, the bankruptcy court found that Olson’s resistance to 18 turning over estate property was without a factual or legal 19 basis in violation of Rule 9011. 20 The court also agreed with Trustee that Olson violated 21 28 U.S.C. § 1927 by unreasonably multiplying the proceedings in 22 this case when he failed to immediately turn over the settlement 23 proceeds upon Trustee’s demand. In the end, the bankruptcy 24 court decided that the estate was entitled to recover the 25 attorneys’ fees and costs it incurred in pursuing turnover of 26 the settlement proceeds from Olson, but it required Trustee’s 27 counsel to file a separate motion to quantify the reasonable 28 fees.
-8- 1 On February 14, 2014, the bankruptcy court entered an order 2 (1) requiring Olson to turn over (disgorge) $19,776.22 ($16,400 3 in fees and $3,376.22 in costs) that he paid himself from the 4 settlement proceeds, (2) denying Olson’s fee application in its 5 entirety, and (3) awarding sanctions against Olson in an amount 6 yet to be determined. 7 Olson did not appeal the turnover order until May 20, 2014. 8 The Panel dismissed that appeal, which included the turnover 9 order and the order denying Olson’s fees, as untimely. That 10 dismissal was not further appealed. 11 On April 8, 2014, Trustee’s counsel filed their fee 12 application seeking $18,696 in fees and $639.02 in costs to be 13 paid directly by Olson. These fees and costs were incurred in 14 connection with the turnover motion, the denial of Olson’s 15 attorneys’ fees, and the Sanctions Motion. Counsel noted that 16 if these amounts were paid by Olson, the distribution to 17 creditors of approximately forty-eight percent would not be 18 diminished. Attached to the declaration accompanying the motion 19 were the relevant time records. 20 Olson responded to the motion, contending that he had 21 already been penalized by the court when it denied his fee 22 application in its entirety. Olson also maintained that 23 counsel’s fees were unreasonable and excessive for several 24 reasons. First, the hourly rate of $430-$450 was unreasonable 25 and higher than the usual and customary rate for this type of 26 matter. Second, the number of hours billed was unreasonable 27 especially as related to the 14.1 hours spent preparing for the 28 evidentiary hearing. Olson contended this was far more than
-9- 1 necessary for a less than two hour hearing. Finally, Olson 2 objected to the allocation of work among available personnel, as 3 all but 1.9 hours of the 43.4 hours requested were billed by 4 Mr. Stilley at the highest possible rate. 5 On May 6, 2014, the bankruptcy court held a hearing on 6 Trustee’s attorneys’ fee application. The court found Olson’s 7 double penalty argument without merit. 8 THE COURT: Let me ask you: Is this really a double penalty? As I understand it, the first issue is 9 whether he should be entitled to any fees because there was no approval. Mr. Thacker did not have an 10 opportunity to even review the settlement; and there was very little money, as a consequence, that came 11 into the estate. That’s one issue. 12 Then the second issue is, given that, whether he should have been so resistant to the turnover that it 13 caused the trustee to have to, not only file an action against him, but take it all the way to an evidentiary 14 hearing in a case where the law -- when I looked at it, it seemed fairly clear to me what the end result 15 would be. 16 In the end, the court concluded that the double penalty 17 argument was, in essence, a motion for reconsideration of the 18 court’s earlier order which denied Mr. Olson his fees and 19 concurrently granted sanctions against him. Since Olson did not 20 seek reconsideration of or appeal that order, the court found 21 that the order was final and not subject to collateral attack. 22 The court next considered the reasonableness of the fees 23 requested. It found that the hourly rate of $430-$450 per hour 24 was reasonable. Upon questioning Trustee’s counsel, the court 25 concluded that the amount of time preparing for the evidentiary 26 hearing was unreasonable and thus reduced the fees requested by 27 $5,000. The court also found unpersuasive Olson’s argument that 28 Trustee’s attorney should have allocated some of the legal work
-10- 1 to associates with a lower billable hourly rate. Finally, the 2 court dispensed with Olson’s contention that Trustee’s attorney 3 should not be awarded fees for opposing his fee application 4 because it was unlikely that Trustee would have objected to 5 Olson’s fees if Olson had turned over the settlement proceeds. 6 The bankruptcy court entered an order awarding Trustee’s 7 counsel $13,696 in fees and $639.02 in costs to be paid by 8 Olson. Olson timely appealed the Sanctions Order on May 20, 9 2014. 10 II. JURISDICTION 11 The bankruptcy court had jurisdiction pursuant to 28 U.S.C. 12 §§ 1334 and 157(b)(2)(A) and (E). We have jurisdiction under 13 28 U.S.C. § 158. 14 III. ISSUES 15 Did the bankruptcy court abuse its discretion by imposing 16 sanctions against Olson under 28 U.S.C. § 1927? 17 Did the bankruptcy court abuse its discretion by finding 18 sanctions were warranted against Olson under Rule 9011 and in 19 determining that $13,696 in fees and $639.02 in costs was an 20 appropriate sanction? 21 IV. STANDARDS OF REVIEW 22 We review all aspects of a bankruptcy court’s decision to 23 impose Rule 9011 sanctions for abuse of discretion. Valley 24 Nat’l Bank v. Needler (In re Grantham Bros.), 922 F.2d 1438, 25 1441 (9th Cir. 1991). We apply a two-part test to determine 26 whether the bankruptcy court abused its discretion. United 27 States v. Hinkson, 585 F.3d 1247, 1261–62 (9th Cir. 2009) (en 28 banc). First, we consider de novo whether the bankruptcy court
-11- 1 applied the correct legal standard to the relief requested. Id. 2 Then, we review the bankruptcy court's fact findings for clear 3 error. Id. at 1262 & n. 20. We must affirm the bankruptcy 4 court’s fact findings unless we conclude that they are 5 “(1) ‘illogical,’ (2) ‘implausible,’ or (3) without ‘support in 6 inferences that may be drawn from the facts in the record.’” 7 Id. at 1262. 8 The bankruptcy court has “broad fact-finding powers with 9 respect to sanctions, and its findings warrant great 10 deference. . . .” Primus Auto. Fin. Serv., Inc. v. Batarse, 11 115 F.3d 644, 649 (9th Cir. 1997) (quoting Townsend v. Holman 12 Consulting Corp., 929 F.2d 1358, 1366 (9th Cir. 1990)(en banc)). 13 We do not reverse for errors not affecting substantial 14 rights of the parties and may affirm for any reason supported by 15 the record. COM-1 Info, Inc. v. Wolkowitz (In re Maximus 16 Computers, Inc.), 278 B.R. 189, 194 (9th Cir. BAP 2002). 17 V. DISCUSSION 18 A. 28 U.S.C. § 1927 19 28 U.S.C. § 1927 provides that “[a]ny attorney or other 20 person admitted to conduct cases in any court of the United 21 States . . . who so multiplies the proceedings in any case 22 unreasonably and vexatiously may be required by the court to 23 satisfy personally the excess costs, expenses, and attorneys’ 24 fees reasonably incurred because of such conduct.” Therefore, 25 to be sanctionable under 28 U.S.C. § 1927, counsel’s conduct 26 must multiply the proceedings in both an unreasonable and 27 vexatious manner. B.K.B. v. Maui Police Dep’t, 276 F.3d 1091, 28
-12- 1 1107 (9th Cir. 2002). A finding that the attorney recklessly7 2 raised a frivolous argument which resulted in the multiplication 3 of the proceedings is sufficient to impose sanctions under 4 28 U.S.C. § 1927. Id. 5 Olson complains on appeal that the bankruptcy court’s 6 findings fell short of these standards and thus imposition of 7 the sanctions based on 28 U.S.C. § 1927 was in error. We need 8 not address these arguments because the Ninth Circuit does not 9 consider a bankruptcy court as a “court of the United States.” 10 Miller v. Cardinale (In re Deville), 361 F.3d 539, 546 (9th Cir. 11 2004). Therefore, a bankruptcy court has no power to impose 12 sanctions under 28 U.S.C. § 1927. Because this was an 13 alternative ground for imposing sanctions against Olson, the 14 bankruptcy court’s reliance on 28 U.S.C. § 1927 was harmless 15 error. See Rule 9005 (incorporating Fed. R. Civ. Proc. 61 which 16 provides in part: “The court at every stage of the proceeding 17 must disregard any error or defect in the proceeding which does 18 not affect the substantial rights of the parties.”). 19 B. The bankruptcy court did not abuse its discretion by imposing sanctions against Olson under Rule 9011. 20 21 Rule 9011(b) “Representations to the court” states: 22 By presenting to the court (whether by signing, filing, submitting, or later advocating) a petition, 23 pleading, written motion, or other paper, an attorney or unrepresented party is certifying that to the best 24 of the person's knowledge, information, and belief, formed after an inquiry reasonable under the 25 circumstances, -- 26 27 7 At one point in his opening brief Olson concedes that 28 perhaps he acted recklessly.
-13- 1 (1) it is not being presented for any improper purpose, such as to harass or to 2 cause unnecessary delay or needless increase in the cost of litigation; 3 (2) the claims, defenses, and other legal 4 contentions therein are warranted by existing law or by a nonfrivolous argument 5 for the extension, modification, or reversal of existing law or the establishment of new 6 law; 7 (3) the allegations and other factual contentions have evidentiary support or, if 8 specifically so identified, are likely to have evidentiary support after a reasonable 9 opportunity for further investigation or discovery; and 10 (4) the denials of factual contentions are 11 warranted on the evidence or, if specifically so identified, are reasonably 12 based on a lack of information or belief. 13 The language of Rule 9011 parallels that of Civil Rule 11. 14 Therefore, courts analyzing sanctions under Rule 9011 may 15 appropriately rely on cases interpreting Civil Rule 11. See 16 Marsch v. Marsch (In re Marsch), 36 F.3d 825, 829 (9th Cir. 17 1994). 18 An attorney has a duty to conduct a reasonable factual 19 investigation as well as to perform adequate legal research that 20 confirms that his position is warranted by existing law (or by a 21 good faith argument for a modification or extension of existing 22 law). Christian v. Mattel, Inc., 286 F.3d 1118, 1127 (9th Cir. 23 2002). The bankruptcy court must measure the attorney’s conduct 24 “objectively against a reasonableness standard, which consists 25 of a competent attorney admitted to practice before the involved 26 court.” In re Grantham Bros., 922 F.2d at 1441. 27 In its oral decision, the bankruptcy court set forth 28 detailed findings of fact explaining why Olson’s opposition to
-14- 1 Trustee’s turnover motion violated Rule 9011. Olson does not 2 point to any specific error in the court’s factual findings, 3 instead making various arguments as to why sanctions were not 4 warranted based on his interpretation of the facts and his 5 subjective belief that he did not act unreasonably. 6 Olson contends that while his conduct might have been 7 deficient, it was based on a misunderstanding of the law which 8 was not unreasonable since he is not a bankruptcy specialist. 9 He further maintains that he had no prior offenses, demonstrated 10 proficiency in representing the client, and fully disclosed 11 information about the settlement to Trustee. Olson also asserts 12 that there was no evidence that a better result was obtainable 13 or that Debtor could have received a significantly larger jury 14 verdict. At bottom, this appears to be a “no harm, no foul” 15 argument. 16 Next, although the bankruptcy court did not expressly 17 address the ABA Standards, Olson argues that none of those 18 standards are met here:8 (1) whether the duty violated was to a 19 client, the public, the legal system, or the profession; 20 (2) whether the attorney acted intentionally, knowingly or 21 negligently; (3) the seriousness of the actual or potential 22 injury caused by the attorney’s misconduct; and (4) the 23 existence of aggravating and mitigating factors. In re Nguyen, 24 447 B.R. at 277. According to Olson, he violated no duty to his 25 26 8 Olson acknowledges that it was not mandatory for the 27 bankruptcy court to make specific findings regarding the applicability of the ABA standards under In re Nguyen, 447 B.R. 28 268, 277 (9th Cir. BAP 2011)(en banc).
-15- 1 client, he misunderstood the effect of Debtor’s discharge, the 2 injury was only monetary injury to the estate, and there were 3 mitigating factors such as added monetary value to the estate 4 which the bankruptcy court failed to consider. 5 Olson never argued any of these issues in the bankruptcy 6 court nor did he mention the ABA standards. Generally, we do 7 not consider issues raised for the first time on appeal. 8 O’Rourke v. Seaboard Sur. Co. (In re E.R. Fegert, Inc.), 9 887 F.2d 955, 957 (9th Cir. 1989). Further, we review claims of 10 judicial error and do not address fact-bound issues such as 11 analyzing whether Olson’s conduct violated ABA factors that the 12 bankruptcy court never examined. In addition, Olson’s mistaken 13 belief about the effect of Debtor’s discharge does not warrant 14 reversal of the bankruptcy court’s decision to award sanctions. 15 Rather, the facts in this case support the bankruptcy court’s 16 exercise of discretion to impose sanctions for Olson’s violation 17 of Rule 9011. 18 The record shows that Olson’s conduct met the standards for 19 imposition of sanctions under Rule 9011(b)(2) and (3). Olson’s 20 refusal to turn over property of the estate was squarely 21 foreclosed by the case law and the Bankruptcy Code and Rules 22 cited by the bankruptcy court. Further, as the bankruptcy court 23 properly found, the facts set forth in Olson’s declaration at 24 ¶¶ 7 and 8 were without evidentiary support given that he had 25 been employed by the bankruptcy estate and “was aware of the 26 rules regarding compensation of professionals employed in a 27 bankruptcy case.” In addition, although not mentioned by the 28 bankruptcy court, by its express terms, § 542(a) is
-16- 1 self-executing and does not require that the trustee take any 2 action or commence a proceeding or obtain a court order to 3 compel the turnover. See Mwangi v. Wells Fargo Bank, N.A. 4 (In re Mwangi), 432 B.R. 812, 823 (9th Cir. BAP 2010). Simply 5 put, Olson’s position was entirely without legal foundation and 6 the facts alleged in his declaration had no evidentiary support. 7 Accordingly, we hold the bankruptcy court did not abuse its 8 discretion in imposing sanctions. 9 C. The bankruptcy court did not abuse its discretion in determining that an award of attorneys’ fees and costs was 10 an appropriate sanction. 11 Olson also argues that the bankruptcy court abused its 12 discretion in awarding sanctions in the amount of $13,696 in 13 fees and $639.02 in costs by failing to (1) consider whether the 14 sanction imposed was proportional to the violation committed, 15 (2) make findings why imposing fees of over $15,000 was 16 necessary as an effective deterrent, and (3) consider 17 alternatives to a monetary sanction. Olson further asserts that 18 the imposition of sanctions together with the denial of his fees 19 amounts to an impermissible double penalty. This last argument 20 is the only one he made before the bankruptcy court.9 21 Once the bankruptcy court decides sanctions are warranted, 22 the court has wide discretion to determine the appropriate 23 sanction under Rule 9011. Hudson v. Moore Bus. Forms, Inc., 24 836 F.2d 1156, 1163 (9th Cir. 1987). Rule 9011(c)(2) provides 25 26 9 Olson did not raise the proportionality or penalty issues 27 before the bankruptcy court. Therefore, we need not consider these issues raised for the first time on appeal. In re E.R. 28 Fegert, Inc., 887 F.2d at 957.
-17- 1 that in determining the appropriate sanction, a court may, “if 2 imposed on motion and warranted for effective deterrence, 3 [issue] an order directing payment to the movant of some or all 4 of the reasonable attorneys’ fees and other expenses incurred as 5 a direct result of the violation.” Under Civil Rule 11, 6 “[r]ecovery should never exceed those expenses and fees that 7 were reasonably necessary to resist the offending action.” 8 Fleisher v. Weinberg (In re Yagman), 796 F.2d 1165, 1185 (9th 9 Cir. 1986). “The measure of sanctions under this language is 10 not the actual fees and expenses incurred, but those that the 11 court determines to be reasonable.” Id. The bankruptcy court 12 here chose to measure the sum necessary to deter future 13 unwarranted resistance to a legally-mandated turnover of estate 14 property as the reasonable fees expended in compelling the 15 turnover and objecting to the unearned fees. 16 Under these standards, the record supports the bankruptcy 17 court’s imposition of sanctions in the amount of $13,696 in fees 18 and $639.02 in costs. The bankruptcy court properly conducted 19 an inquiry into the reasonableness of the fees and costs before 20 awarding sanctions. The court scrutinized the itemized time 21 records, questioned Trustee’s counsel about various expenses and 22 hours charged, and ultimately reduced the amount requested based 23 on its reasonableness determination. Since the sanctions 24 awarded by the bankruptcy court were properly calculated to 25 reimburse Trustee’s counsel for unnecessary litigation expenses, 26 the amount of the sanctions awarded did not constitute an abuse 27 of discretion. 28 Olson insists that the bankruptcy court erred by awarding
-18- 1 Trustees’ attorneys’ fees and costs as sanctions without 2 considering that it had denied his fees, claiming that he was 3 penalized twice for the same conduct. According to Olson, the 4 double penalty adds up to $34,111.24: denial of $16,400 in fees 5 and $3,376.22 in costs and sanctions for $13,696 in fees and 6 $639.02 in costs. The $34,111.24 amount, Olson contends, is 7 disproportionate to the size of the bankruptcy case and his 8 conduct. Olson also argues that the sanctions on top of the 9 denial of his fees transforms the sanctions into punitive 10 damages or a “penalty” which is not authorized under the 11 holdings in Price v. Lehtinen (In re Lehiten), 564 F.3d 1052, 12 1059 (9th Cir. 2009) (holding that the bankruptcy court’s 13 inherent sanction authority does not authorize significant 14 punitive damages), and In re DeVille, 280 B.R. 483, 494 (9th 15 Cir. BAP 2002) (finding that Rule 9011(c)(2) limits any monetary 16 sanction that is imposed pursuant to a sua sponte order to a 17 penalty payable to the court). 18 The bankruptcy court properly rejected Olson’s double 19 penalty theory. While the bankruptcy court’s decision to deny 20 his fees and impose sanctions involved some of the same conduct, 21 the denial of Olson’s fees was based on his breach of the Fee 22 Agreement and employment order and violation of § 330 and 23 Rule 9019, whereas the sanctions were imposed for his violation 24 of Rule 9011. In applying § 330 standards to Olson’s request 25 for fees, the bankruptcy court did not need to consider whether 26 the denial of his fees was a sufficient deterrent for purposes 27 of Rule 9011. The denial of fees was not a deterrent, but 28 rather was compelled by application of the § 330 standards to
-19- 1 the Fee Agreement and Olson’s performance under that Agreement. 2 In contrast, the award of Rule 9011 sanctions was based 3 solely on the pleadings signed and filed by Olson in opposition 4 to Trustee’s motion for turnover. Olson’s position in 5 opposition to turnover, which was not supported by law or fact, 6 left Trustee with no alternative but to incur the added expense 7 of pursuing recovery. Therefore, after finding Olson violated 8 Rule 9011, the bankruptcy court had to determine what sanction 9 would accomplish the purpose of deterrence. See Rule 9011(c) 10 (sanction imposed by a court should “be limited to what is 11 sufficient to deter repetition of such conduct or comparable 12 conduct by others similarly situated”). The imposition of 13 sanctions in the form of attorneys’ fees and costs is 14 specifically authorized under Rule 9011(c) for violations of 15 Rule 9011(b). By awarding Trustee’s counsel their reasonable 16 fees, the bankruptcy court implicitly determined that a lesser 17 sanction would not effectively deter Olson or others in his 18 position. We will not disturb this discretionary determination 19 on appeal. 20 VI. CONCLUSION 21 Having found no error, we AFFIRM. 22 23 24 25 26 27 28
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