FILED AUG 16 2016 SUSAN M. SPRAUL, CLERK 1 NOT FOR PUBLICATION U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 2 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. NC-15-1383-KiTaJu ) 6 ROSARIO M. CARRERA, ) Bk. No. 3:15-bk-30689 ) 7 Debtor. ) ) 8 ) In re: ) BAP No. NC-15-1384-KiTaJu 9 ) TRISHA AINNE VIZCONDE, ) Bk. No 3:15-bk-30741 10 ) Debtor. ) 11 ) ) 12 TIMOTHY L. MCCANDLESS, ) ) 13 Appellant, ) ) 14 v. ) M E M O R A N D U M1 ) 15 UNITED STATES TRUSTEE; DAVID ) BURCHARD, Chapter 13 trustee, ) 16 ) Appellee. ) 17 ______________________________) 18 Argued and Submitted on July 28, 2016, at San Francisco, California 19 Filed - August 16, 2016 20 Appeal from the United States Bankruptcy Court 21 for the Northern District of California 22 Honorable Hannah L. Blumenstiel, Bankruptcy Judge, Presiding 23 Appearances: Appellant Timothy L. McCandless argued pro se; 24 Lilian Guan Tsang, Staff Attorney, argued for Appellee David Burchard, Chapter 13 Trustee. 25 26 1 27 This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may 28 have, it has no precedential value. See 9th Cir. BAP Rule 8024-1. 1 Before: KIRSCHER, TAYLOR and JURY, Bankruptcy Judges. 2 Attorney Timothy Lee McCandless appeals two orders 3 sanctioning him $2,000 each for his involvement in what the 4 bankruptcy court determined were bad faith chapter 132 filings by 5 his clients.3 We AFFIRM. 6 I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY 7 A. The Carrera case - appeal no. 15-1383 8 Debtor Rosario M. Carrera filed a skeletal chapter 13 9 bankruptcy case on May 28, 2015. McCandless represented Carrera. 10 Carrera disclosed no prior bankruptcies in the petition. She 11 listed one creditor — HSBC Bank USA, NA. In the attached 12 Exhibit D, Carrera sought a waiver of the required prepetition 13 credit counseling, claiming that exigent circumstances — a pending 14 civil case — prevented Carrera from completing the counseling 15 prior to filing. McCandless did not file a Rule 2016(b) statement 16 disclosing his compensation. Carrera never filed any schedules 17 but listed a street address at a property located on Marlin Avenue 18 in San Mateo, California. Prior to the instant bankruptcy filing, 19 McCandless had represented Carrera in 2012 in a civil suit against 20 HSBC Bank and other lenders based on their alleged misconduct in 21 financing for the Marlin Avenue property and wrongful foreclosure. 22 23 2 Unless specified otherwise, all chapter, code and rule references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and 24 the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. The Federal Rules of Civil Procedure are referred to as “Civil Rules.” 25 3 McCandless claims the court imposed sanctions against him 26 and his clients jointly and severally, so therefore he and his respective client are the appellants in each case. He is 27 incorrect. The court entered monetary sanctions against McCandless only. Therefore, he is the only appellant in each 28 case.
-2- 1 On May 29, 2015, the bankruptcy court issued a notice of 2 Carrera's prior bankruptcy filings, indicating that Carrera had 3 filed four cases since 2010. 4 On June 9, 2015, chapter 13 trustee David Burchard filed a 5 motion for order requiring Carrera or McCandless to appear and to 6 show cause why the case should not be dismissed with prejudice 7 with a two-year refiling bar. Trustee asserted the instant case 8 had been filed in bad faith; it was the fifth bankruptcy case 9 Carrera had filed since May 2010. Carrera's four prior cases, all 10 pro se, were dismissed for failure to file schedules, a chapter 13 11 plan and other required documents. In the fourth case the 12 Honorable Stephen L. Johnson found that it had been filed in bad 13 faith and dismissed it with prejudice with a two-year refiling 14 bar. Trustee argued that based on Carrera's history of serial, 15 skeletal filings with nothing more, her intent was not to 16 reorganize and receive a discharge but rather to frustrate 17 creditors by improperly invoking the automatic stay. A hearing 18 for Trustee's show cause motion was set for July 15, 2015. Notice 19 was sent to McCandless and Carrera. 20 On July 8, 2015, the bankruptcy court held a hearing on Wells 21 Fargo's motion for relief from stay respecting the Marlin Avenue 22 property. Neither Carrera nor McCandless appeared or filed any 23 opposition to the motion. As a result, the court granted relief. 24 Carrera's first meeting of creditors was scheduled for 25 July 9, 2015. According to Trustee, neither Carrera nor 26 McCandless appeared, and neither of them appeared at the continued 27 meeting on July 30, 2015. McCandless contended he "had somebody 28 appear" for Carrera. The bankruptcy court ultimately found
-3- 1 otherwise. 2 The hearing on Trustee's show cause motion went forward on 3 July 15. Neither Carrera nor McCandless appeared or filed any 4 papers responsive to the motion. As a result, Trustee's motion 5 was granted. Following the hearing, the bankruptcy court issued 6 an Order to Show Cause ("First OSC"), requiring Carrera and 7 McCandless to appear on August 19, 2015, and to file and serve a 8 written response at least 7 days prior to the hearing. The First 9 OSC stated that Carrera's pattern of filing cases without 10 prosecuting them appeared to be an abuse of the bankruptcy system 11 and warranted dismissal and a bar to refiling. The First OSC 12 warned that failure to appear and/or file a timely response could 13 result in dismissal with a two-year refiling bar. 14 Carrera and McCandless failed to appear at the August 19 15 First OSC hearing and did not file a written response. As a 16 result, the bankruptcy court dismissed Carrera's case with a 17 two-year refiling bar and, on August 20, 2015, issued an Order to 18 Show Cause re Sanctions ("Second OSC"). The Second OSC, directed 19 only at McCandless, ordered that he "appear and show cause as to 20 why he should not be sanctioned for his failure to comply with the 21 [First OSC], and for his apparent facilitation of or involvement 22 in [Carrera's] scheme to manipulate the bankruptcy process." The 23 bankruptcy court ordered McCandless to appear on October 21, 2015, 24 and to file a written response on or before October 14, 2015. 25 McCandless filed a late response to the Second OSC on 26 October 15, 2015. He explained that Carrera filed the instant 27 chapter 13 petition to stop the lender from proceeding with its 28 pending unlawful detainer action, to allow her to reorganize her
-4- 1 debts, to give her time to file an appeal and to help reach an 2 agreement with the lender as to the Marlin Avenue property. 3 McCandless explained that once Wells Fargo obtained relief from 4 the automatic stay, Carrera was unable to proceed with the 5 bankruptcy case and had to seek an alternate means to reach an 6 agreement with Wells Fargo. 7 McCandless appeared at the Second OSC hearing on October 21. 8 McCandless stated that when he filed Carrera's case he was not 9 aware of her prior bankruptcy filings, even though he had asked 10 her whether she had filed any. McCandless conceded the case was 11 filed to prevent losing the Marlin Avenue property but noted that 12 Carrera ultimately lost the property after negotiations failed and 13 the lender was granted relief from stay. When asked why he failed 14 to appear at the hearing on the First OSC, McCandless explained 15 that because he had been caring for his mother who had suffered a 16 stroke, "some things might have fallen through the cracks." 17 The bankruptcy court then noted McCandless's failure to 18 appear for the First OSC and that it had dismissed Carrera's case 19 for abuse. It then made the following findings to sanction 20 McCandless: 21 This Debtor had four prior cases, all of which were dismissed for lack of prosecution, and this case appears 22 to be more of the same. It is clear to me that it was filed just to buy time to cut a deal. That's not a proper 23 purpose for filing a bankruptcy case. 24 You failed to comply with [the First OSC] by failing to file and serve a timely response and by failing, without 25 any explanation until today, whatsoever, to appear as ordered. There was no appearance at a 341 meeting, either 26 the initial or continued 341 meeting. Not all the required documents were filed, and so I can only find and 27 conclude that you participated in and facilitated the filing of a case that constituted an abuse of the 28 bankruptcy process, and that you did so wilfully. In my
-5- 1 opinion, that justifies sanctions, so I will sanction you in the amount of $2,000 payable within 30 days. I will 2 also refer this case to the United States Trustee for investigation. I will enter an order to that effect. 3 4 Hr'g Tr. (Oct. 21, 2015) at 6:18-7:10. 5 In its "Order Sanctioning Debtor's Counsel" entered on 6 October 22, 2015 ("Carrera Sanctions Order"), the bankruptcy court 7 found: (1) that McCandless had conceded the case was filed to 8 delay a foreclosure and buy time to induce the lender into 9 resolving a dispute outside of bankruptcy; (2) that he had failed 10 to explain adequately how Carrera's case was filed with any 11 attempt at reorganization; and (3) that he failed to explain 12 adequately why he did not comply with the First OSC. McCandless 13 was sanctioned $2,000 payable to the court because he "knowingly 14 and wilfully participated in and facilitated the abuse and bad 15 faith manipulation of the bankruptcy process." 16 McCandless timely appealed the Carrera Sanctions Order. 17 B. The Vizconde case - appeal no. 15-1384 18 Debtor Trisha Ainne Vizconde filed a skeletal chapter 13 19 bankruptcy case on June 5, 2015. McCandless represented Vizconde. 20 Vizconde listed no prior bankruptcies in the petition. She listed 21 only one creditor — 21st Mortgage. In the attached Exhibit D, 22 Vizconde sought a waiver of the required prepetition credit 23 counseling, claiming that exigent circumstances — a pending 24 foreclosure sale — prevented Vizconde from completing the 25 counseling prior to filing. McCandless did not file a 26 Rule 2016(b) statement disclosing his compensation. Vizconde 27 never filed any schedules, but listed a street address at a 28 property located on Hacienda Street in San Mateo, California.
-6- 1 Prior to the instant bankruptcy filing, McCandless had represented 2 a woman named Regina B. Manantan (whose identity will become more 3 important later on) in a civil suit against 21st Mortgage and 4 other lenders for their alleged misconduct respecting financing 5 for the Hacienda Street property. 6 On June 8, 2015, the bankruptcy court issued a notice of 7 Vizconde's prior bankruptcy filings, indicating that she had filed 8 two cases since 2011. 9 On June 19, 2015, Trustee moved to dismiss Vizconde's case 10 under § 1307(c) with a two-year refiling bar. Trustee asserted 11 the instant case had been filed in bad faith; it was the third 12 bankruptcy case Vizconde had filed since 2011. Vizconde's two 13 prior cases, filed pro se, were both dismissed for failure to file 14 schedules, a chapter 13 plan and other required documents. It 15 also appeared that Vizconde was engaged in a series of "tag-team" 16 bankruptcy filings with two other individuals — Regina B. Manantan 17 and Patrick C. Vizconde. Between Vizconde, Manantan and Patrick, 18 they had filed 13 bankruptcy cases within the last five years, all 19 skeletal filings, with no confirmed plan or discharge. Each 20 individual had claimed an ownership interest in at least one of 21 three properties, including the Hacienda Street property. Trustee 22 argued that the long history of bankruptcy filings and dismissals 23 showed these three individuals were filing petitions in bad faith 24 and only to thwart creditors or a pending foreclosure regarding 25 the three properties. Thus, argued Trustee, Vizconde's intent was 26 not to reorganize and receive a discharge, but rather to engage in 27 a fraudulent scheme of improperly invoking the automatic stay. 28 Coincidentally, McCandless had represented Manantan and
-7- 1 Patrick in their more recent chapter 13 cases. In Patrick's most 2 recent case filed in January 2015, his fourth case filed since 3 2011, McCandless was ordered to disgorge his fees upon Trustee's 4 motion for review of attorney's fees. McCandless also represented 5 Patrick in the case prior to that one filed in November 2014, 6 which was dismissed for failure to file the required documents. 7 Trustee stated that it was unclear as to the extent of 8 McCandless's involvement with these individuals and their scheme 9 of fraudulent filings. A hearing was set for August 19, 2015, the 10 same day as the First OSC hearing in the Carrera case. 11 On July 16, 2015, the bankruptcy court held a hearing on 21st 12 Mortgage's motion for relief from stay. Neither Vizconde nor 13 McCandless appeared or filed any opposition to the motion. As a 14 result, the court granted 21st Mortgage relief from stay. 15 Vizconde's first meeting of creditors was scheduled for 16 July 24, 2015. Neither Vizconde nor McCandless appeared. 17 The hearing on Trustee's dismissal motion went forward on 18 August 19. Neither Vizconde nor McCandless appeared or filed any 19 responsive papers to the motion. As a result, Trustee's motion 20 was granted and Vizconde's case was dismissed on August 21, 2015. 21 That same day, the bankruptcy court issued an Order to Show Cause 22 re Sanctions ("Vizconde OSC") ordering McCandless to appear on 23 October 21, 2015 — the same day as the Second OSC hearing in the 24 Carrera case — and to file and serve a written response by no 25 later than October 14, 2015. McCandless was to appear and show 26 cause why he should not be sanctioned for his facilitation of or 27 involvement in Vizconde's scheme to manipulate the bankruptcy 28 process.
-8- 1 McCandless filed a late response to the Vizconde OSC on 2 October 15, 2015. He explained that Vizconde filed the instant 3 chapter 13 petition to stop a foreclosure sale scheduled for that 4 day. McCandless explained he and his client were in negotiations 5 with 21st Mortgage prior to the filing, but were unable to obtain 6 a postponement of the sale. Ultimately, Vizconde retained the 7 property. As for Manantan's and Patrick's bankruptcy cases, 8 McCandless explained that Patrick's third case was dismissed due 9 to Patrick's inability to provide McCandless with his current 10 income tax return; his fourth and most recent case was dismissed 11 for similar reasons. Manantan had filed her most recent case to 12 protect her interest in the Hacienda Street property. McCandless 13 explained that due to Manantan's interest in multiple properties 14 and the pending civil suit against 21st Mortgage, she was unable 15 to continue with her bankruptcy case. McCandless noted that 16 besides these most recent cases, he was not involved in any of 17 these parties' other bankruptcy cases. He contended that the 18 cases he filed were in good faith in an attempt to allow them to 19 retain their property and reorganize their debts. 20 McCandless appeared at the Vizconde OSC hearing on 21 October 21. After noting that Vizconde's case was dismissed in 22 August without opposition as part of a scheme to evade creditors 23 involving three properties and a total of three debtors, the 24 bankruptcy court asked McCandless what he had to say for himself. 25 McCandless explained that Vizconde's case was filed because the 26 lender was not accepting the loan modification it had originally 27 offered, which is why the civil suit was filed. Ultimately, they 28 settled that suit, explained McCandless, and Vizconde was able to
-9- 1 tender $58,000 to the lender and get the modification. Upon that, 2 the following colloquy ensued: 3 THE COURT: So again, you filed this case just to buy some time so you could cut a deal outside of here, right? 4 MR. MCCANDLESS: No. No — I 5 THE COURT: Really? Because — where are the schedules? 6 Where is the Plan? Where is the 341 appearance? Nothing happened. You got the benefit of this court's shelter, 7 and your clients didn't lift a finger to fulfill their obligations as debtors. 8 MR. MCCANDLESS: They tendered $58,000 to the lender in 9 order to reinstate their debt. 10 THE COURT: You could have done that without my involvement. 11 MR. MCCANDLESS: No. The foreclosure was set. They 12 would have lost their property. There would have been no ability to reinstate the loan. 13 14 Hr'g Tr. (Oct. 21, 2015) at 4:11-22. In answering the court's 15 question as to why nothing was filed in this case or why no 16 appearances were made at the § 341(a) meetings, McCandless 17 explained that without the bankruptcy stay, the lender would not 18 have accepted the $58,000 tender. Id. at 5:9-14. 19 After hearing further from McCandless and noting that 20 Vizconde's case had been dismissed as part of a scheme of abuse, 21 the bankruptcy court sanctioned McCandless $2,000, making the 22 following findings: 23 THE COURT: I find and conclude that Mr. McCandless wilfully facilitated that scheme by helping the Debtor 24 and others file cases that they had no intent of prosecuting in good faith. 25 In this case, Mr. McCandless concedes that he filed it 26 for the sole purpose of obtaining the benefit of the automatic stay, to obtain the benefit of shelter in this 27 court without fulfilling any of the Debtor's concurrent obligations. 28
-10- 1 There were no schedules filed, no Statement of Financial Affairs filed or other required documents filed. There 2 was no opposition to a relief from stay motion which also supports the conclusion that this was a frivolous filing 3 rather than a good faith effort to reorganize. 4 There was also no appearance at a 341 meeting as required by the Bankruptcy Code. This kind of wilful 5 participation in a scheme to abuse and manipulate the bankruptcy process justifies a sanction of $2,000 payable 6 within 30 days and a referral to the United States Trustee for investigation. 7 8 Id. at 6:11-7:5. 9 The bankruptcy court entered an "Order Sanctioning Debtor's 10 Counsel" on October 22, 2015 ("Vizconde Sanctions Order"). In 11 addition to the findings announced on the record, the court found 12 that because McCandless (1) had conceded the case was filed to 13 delay a foreclosure and buy time to induce the lender into 14 resolving a dispute outside of bankruptcy, and (2) had 15 acknowledged the case was not filed with any intent to attempt a 16 reorganization, McCandless had "knowingly and willfully 17 participated in and facilitated the abuse and bad faith 18 manipulation of the bankruptcy process." 19 McCandless timely appealed the Vizconde Sanctions Order. 20 II. JURISDICTION 21 The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 22 and 157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158. 23 III. ISSUES 24 1. Did the bankruptcy court abuse its discretion in imposing 25 sanctions against McCandless? 26 2. Did the bankruptcy court violate McCandless's due process 27 rights? 28 / / /
-11- 1 IV. STANDARDS OF REVIEW 2 The bankruptcy court's imposition of sanctions under 3 Rule 9011 is reviewed for an abuse of discretion. Fjeldsted v. 4 Lien (In re Fjeldsted), 293 B.R. 12, 18 (9th Cir. BAP 2003) 5 (citing Miller v. Cardinale (In re DeVille), 280 B.R. 483, 492 6 (9th Cir. BAP 2002)). See also Simpson v. Lear Astronics Corp., 7 77 F.3d 1170, 1177 (9th Cir. 1996) (in reviewing sanctions imposed 8 under Rule 11, we "review findings of historical fact under the 9 clearly erroneous standard, the determination that counsel 10 violated the rule under a de novo standard, and the choice of 11 sanction under an abuse of discretion standard."). A bankruptcy 12 court abuses its discretion if it applies the wrong legal 13 standard, misapplies the correct legal standard, or if its factual 14 findings are clearly erroneous. TrafficSchool.com, Inc. v. 15 Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011). The bankruptcy 16 court has broad fact-finding powers with respect to sanctions, and 17 its findings warrant great deference. See Primus Auto Fin. Serv., 18 Inc. v. Batarse, 115 F.3d 644, 649 (9th Cir. 1997). 19 Whether a sanction comported with due process is a question 20 of law we review de novo. In re Fjeldsted, 293 B.R. at 18 (citing 21 In re DeVille, 280 B.R. at 492). 22 We may affirm on any ground supported by the record, 23 regardless of whether the bankruptcy court relied upon, rejected 24 or even considered that ground. Fresno Motors, LLC v Mercedes 25 Benz USA, LLC, 771 F.3d 1119, 1125 (9th Cir. 2014). 26 / / / 27 / / / 28 / / /
-12- 1 V. DISCUSSION 2 The bankruptcy court was authorized to impose the $2,000 sanctions under Rule 9011. 3 4 McCandless contends the sanctions imposed in both cases were 5 punitive or criminal in nature and therefore not permitted under 6 the bankruptcy court's inherent authority. Trustee argues that 7 the sanctions were not criminal in nature because lawyer 8 disciplinary proceedings are not a criminal proceeding; they are 9 neither civil nor criminal, but an investigation into the conduct 10 of the lawyer. See Canatella v. Cal., 404 F.3d 1106, 1110 (9th 11 Cir. 2005); Price v. Lehtinen (In re Lehtinen), 332 B.R. 404, 12 412-13 (9th Cir. BAP 2005), aff'd, 322 F.3d 178 (9th Cir. 2009). 13 While Trustee is correct as to the law, he is incorrect as to the 14 facts. Nothing in the record suggests the proceedings here were 15 in the nature of a professional disciplinary proceeding. 16 Suspension, disbarment, or even the Rules of Professional Conduct 17 were never mentioned or discussed by the bankruptcy court. The 18 court never alleged that McCandless was incompetent or 19 irresponsibly represented his clients. See Hale v. U.S. Trustee, 20 509 F.3d 1139, 1148-49 (9th Cir. 2007). 21 Unfortunately, the bankruptcy court did not cite which 22 authority it relied upon for imposing sanctions against McCandless 23 in either case. Nonetheless, we conclude that the record supports 24 its decision to sanction McCandless under Rule 9011. 25 Rule 9011 is the counterpart to Civil Rule 11. Case law 26 interpreting Civil Rule 11 is applicable to Rule 9011. Shalaby v. 27 Mansdorf (In re Nakhuda), 544 B.R. 886, 899 (9th Cir. BAP 2016) 28 (citing Marsch v. Marsch (In re Marsch), 36 F.3d 825, 829 (9th
-13- 1 Cir. 1994)). 2 By presenting a petition (or pleading, written motion, or 3 other paper) to the court, the signing attorney is certifying, to 4 the best of the attorney’s knowledge, information, and belief, 5 formed after an inquiry reasonable under the circumstances, that 6 the petition is not being presented for any improper purpose; the 7 claims, defenses and other legal contentions are warranted by 8 existing law or by a nonfrivolous argument for the extension, 9 modification, or reversal of existing law or the establishment of 10 new law; and the factual allegations have or are likely to have 11 evidentiary support. Rule 9011(b); Crofford v. Conseco Fin. Serv. 12 Corp. (In re Crofford), 301 B.R. 880, 884 (8th Cir. BAP 2003). 13 Rule 9011(b) “provides for the imposition of sanctions when a 14 filing is frivolous, legally unreasonable, or without factual 15 foundation, or is brought for an improper purpose.” Simpson, 16 77 F.3d at 1177 (citing Warren v. Guelker, 29 F.3d 1386, 1388 (9th 17 Cir. 1994)). 18 The court can award an appropriate sanction on its own 19 initiative under Rule 9011 if it first issues an order to show 20 cause describing the specific misconduct. Rule 9011(c)(1)(B). If 21 the court determines that a petition was presented for an improper 22 purpose or is frivolous, the court may impose sanctions on the 23 attorney who filed the petition. Rule 9011(c). Sanctions may be 24 monetary or non-monetary; however, where the court initiates the 25 award of sanctions by a show cause order, monetary sanctions are 26 limited to the award of a penalty payable to the court. 27 Rule 9011(c)(2): In re DeVille, 280 B.R. at 494; In re Crofford, 28 301 B.R. at 885. The sanction of $2,000 assessed in each case
-14- 1 here was payable to the court. 2 McCandless contends that if the bankruptcy court assessed 3 sanctions under Rule 9011, the sanctions could only be imposed if 4 the court implemented procedures comporting with those required 5 for a criminal contempt proceeding. Relying on Mackler Products, 6 Inc. v. Cohen, 146 F.3d 126 (2d. Cir. 1998), McCandless contends 7 he was entitled to a jury trial with the right to cross-examine 8 witnesses and a burden of proof beyond a reasonable doubt. The 9 Ninth Circuit Court of Appeals expressly rejected this same 10 argument in Miller v. Cardinale (In re DeVille), holding that 11 penalties under Rule 9011 do not require a criminal contempt 12 proceeding. 361 F.3d 539, 551-53 (9th Cir. 2004). See also 13 In re Nakhuda, 544 B.R. at 899 (when assessing sanctions sua 14 sponte the court is required only to provide notice and an 15 opportunity to be heard). 16 Thus, procedurally, all that Rule 9011(c) requires is "notice 17 and a reasonable opportunity to respond." That was done in this 18 case. Although the Second OSC (in Carrera) and the Vizconde OSC 19 did not specifically reference Rule 9011, the bankruptcy court 20 described the offending conduct and informed McCandless that he 21 was subject to sanctions for that alleged misconduct. Precisely, 22 in the Second OSC, the court noted that Carrera's latest 23 bankruptcy case had been dismissed for abuse. McCandless was 24 ordered to appear and show cause why he should not be sanctioned 25 "for his apparent facilitation of or involvement in Debtor's 26 scheme to manipulate the bankruptcy process." In the Vizconde 27 OSC, the bankruptcy court noted that Vizconde was involved with 28 two other debtors who together had filed 13 bankruptcy cases
-15- 1 within the last five years, all of which were skeletal filings, 2 involved at least one of the same three properties, and resulted 3 in dismissal without discharge. McCandless was counsel of record 4 for each of the debtor’s most recent filing. The court ordered 5 that McCandless appear and show cause why he should not be 6 sanctioned "for his facilitation of or involvement in Debtor's 7 scheme to manipulate the bankruptcy process." 8 Each of the show cause orders explained the factual bases for 9 why McCandless was subject to sanctions. He was given nearly two 10 months to prepare a defense and file his response in both cases. 11 The bankruptcy court also held a hearing in both cases and gave 12 McCandless the opportunity to be heard. Accordingly, McCandless 13 received sufficient due process. 14 In some cases involving Rule 9011 sanctions, McCandless 15 would be entitled to a heightened standard of conduct in order for 16 the court to impose sanctions under Rule 9011. We recently held 17 that when the bankruptcy court assesses sanctions on its own 18 initiative under Rule 9011(c)(1)(B), the court must a apply a 19 higher standard "akin to contempt" than in a case of party- 20 initiated sanctions. In re Nakhuda, 544 B.R. at 899 (citing 21 United Nat'l Ins. Co. v. R & D Latex Corp., 242 F.3d 1102, 1115-16 22 (9th Cir. 2001)). In other words, the offender's transgressions 23 must exceed those for party-initiated sanctions. Id. at 901. 24 "The reason behind the heightened standard is because, unlike 25 party-initiated motions, court-initiated sanctions under 26 Rule 9011(c)(1)(B) do not involve the 21-day safe harbor provision 27 for the offending party to correct or withdraw the challenged 28
-16- 1 submission."4 Id. at 899 (citing R & D Latex Corp., 242 F.3d at 2 1116) (citing Barber v. Miller, 146 F.3d 707, 711 (9th Cir. 3 1998)). Thus, in a case where the safe harbor otherwise would 4 give McCandless an opportunity to withdraw or correct a document, 5 the court must find: (1) that the offender acted in bad faith, 6 acted for an improper purpose or acted knowingly or intentionally; 7 or (2) that the conduct was particularly egregious. Id. at 8 901-02. 9 Here, however, McCandless was not entitled to any safe harbor 10 because his Rule 9011(b) violation arose in the petition itself. 11 See Rule 9011(c)(1)(A) (stating that the 21-day safe harbor does 12 not apply “if the conduct alleged is the filing of a petition in 13 violation of subdivision (b)).” Arguably, the heightened standard 14 of Nakhuda and R & D Latex Corp. is not applicable. We need not 15 decide the issue, however, because the court made findings meeting 16 the heightened standard. 17 At the hearing on the Second OSC, the bankruptcy court noted 18 that: (1) McCandless had failed to disclose Carrera's prior 19 bankruptcy cases before filing the petition; (2) he had failed to 20 respond to the motion for relief from stay; (3) he had failed to 21 appear at the § 341(a) meetings; (4) he had failed to respond to 22 the First OSC; (5) none of the required documents were filed; 23 24 4 On the other hand, the heightened standard of conduct may not apply in this case. The Rule 9011 "safe harbor" exception 25 does not apply when, as in this case, the violation involves the petition, since the filing of the petition has immediate serious 26 consequences to creditors, including the imposition of the automatic stay. Rule 9011(c)(1)(A). Nonetheless, even if the 27 heightened standard applied, the bankruptcy court made the necessary findings to support its ruling to impose sanctions in 28 both cases.
-17- 1 (6) all four of Carrera's prior cases were dismissed for lack of 2 prosecution; and (7) the latest case had been dismissed for abuse, 3 which McCandless failed to challenge. Based on these facts, and 4 its finding that the latest case was filed "just to buy time to 5 cut a deal," which the court noted was "not a proper purpose for 6 filing a bankruptcy case," the court found that McCandless 7 "participated in and facilitated the filing of a case that 8 constituted an abuse of the bankruptcy process" and that he did so 9 "wilfully." In the Carrera Sanctions Order, the court 10 additionally found McCandless "knowingly and wilfully participated 11 in and facilitated the abuse and bad faith manipulation of the 12 bankruptcy process." These findings support the court's decision 13 to impose sanctions against McCandless under Rule 9011 in the 14 Carrera case even under the heightened Nakhuda standard; we do not 15 discern any clear error.5 16 At the hearing on the Vizconde OSC, the bankruptcy court 17 noted the case had been dismissed, without opposition, as part of 18 a scheme to evade creditors involving three properties and a total 19 of three debtors, all of whom McCandless represented. The court 20 noted that Vizconde's two prior cases had been dismissed for 21 failure to file the required documents, which indicated no intent 22 to reorganize. Just as in Carrera, none of the required documents 23 had been filed, no plan had been filed, no one opposed relief from 24 stay, and no one appeared at the § 341(a) meeting. Based on these 25 5 To the extent McCandless contends the bankruptcy court 26 utilized an incorrect test to determine whether Carrera's or Vizconde's cases were filed in bad faith, he is precluded from 27 making such an argument. McCandless and his clients were given an opportunity to challenge the dismissals and failed to do so. They 28 also never appealed the dismissal orders.
-18- 1 facts and the court's finding that Vizconde's latest case was 2 filed for the sole purpose of invoking the automatic stay, the 3 court found that McCandless "wilfully facilitated [the scheme to 4 evade creditors] by helping [Vizconde, Manantan and Patrick] file 5 cases that they had no intent of prosecuting in good faith." In 6 addition, the court found that McCandless's failure to challenge 7 the motion for relief from stay further supported the court's 8 conclusion that this was a "frivolous filing rather than a good 9 faith effort to reorganize." Again, these findings support the 10 court's decision to impose sanctions against McCandless under 11 Rule 9011 in the Vizconde case. 12 Once a court determines that a Rule 9011 violation has 13 occurred and that sanctions are warranted, the court must decide 14 what sanctions are appropriate. In doing so, the court must 15 comply with the limitations set forth in Rule 9011. 16 In re Crofford, 301 B.R. at 887. Monetary sanctions may be 17 awarded following a show cause order only if that order was issued 18 before a voluntary dismissal or settlement of the claim out of 19 which the sanctionable conduct arose. Rule 9011(c)(2)(B); 20 In re Crofford, 301 B.R. at 887. Neither of the cases here were 21 "voluntarily" dismissed or settled before the show cause orders 22 were issued. 23 Rule 9011(c)(2) provides that the bankruptcy court may impose 24 a "penalty" that is "limited to what is sufficient to deter 25 repetition of such conduct or comparable conduct by others 26 similarly situated." Rule 9011(c)(2); In re Fjeldsted, 293 B.R. 27 at 28; In re DeVille, 280 B.R. at 498. Civil in nature, the 28 Rule 9011(c)(2) penalty parallels the court’s civil contempt and
-19- 1 inherent sanctions authority. In re Fjeldsted, 293 B.R. at 28. 2 However, the "deterrence penalty" under Rule 9011(c)(2) has 3 limitations. The court may not impose a penalty "that is a 4 'serious penalty' in the nature of criminal contempt; only an 5 amount necessary to deter the misconduct may be awarded." Id. 6 We conclude that the $2,000 deterrence penalty assessed in 7 each case made payable to the court was an appropriate sanction 8 under the circumstances and not a "serious penalty." 9 VI. CONCLUSION 10 Although the bankruptcy court did not cite the authority upon 11 which it relied to assess sanctions against McCandless, the record 12 supports each assessment under Rule 9011. Because we are able to 13 affirm on any basis supported by the record, Fresno Motors, LLC, 14 771 F.3d at 1125, we therefore AFFIRM the Carrera Sanctions Order 15 and the Vizconde Sanctions Order. 16 17 18 19 20 21 22 23 24 25 26 27 28
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