FILED NOV 15 2013 1 SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 2 UNITED STATES BANKRUPTCY APPELLATE PANEL 3 OF THE NINTH CIRCUIT 4 5 In re: ) BAP No. WW-12-1522-KuDTa ) 6 SIRFIANI CARLSON, ) Bk. No. 08-41652 ) 7 Debtor. ) ______________________________) 8 ) JAMES H. MAGEE, ) 9 ) Appellant, ) 10 ) v. ) MEMORANDUM* 11 ) DAVID M. HOWE, Chapter 13 ) 12 Trustee; SIRFIANI CARLSON, ) ) 13 Appellees. ) ______________________________) 14 Argued and Submitted on October 17, 2013 15 in Seattle, Washington 16 Filed – November 15, 2013 17 Appeal from the United States Bankruptcy Court for the Western District of Washington 18 Honorable Brian D. Lynch, Bankruptcy Judge, Presiding 19 20 Appearances: Deirdre P. Glynn Levin of Keller Rohrback LLP argued for appellant James H. MaGee; Michael G. 21 Malaier argued for appellee David M. Howe, chapter 13 trustee. 22 23 Before: KURTZ, DUNN and TAYLOR, 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 8013-1. 1 INTRODUCTION 2 James MaGee appeals from the bankruptcy court’s order 3 imposing against him $2,685 in sanctions. MaGee also appeals 4 from the bankruptcy court’s denial of his motion for 5 reconsideration. We AFFIRM both orders. 6 FACTS 7 Debtor Sirfiani Carlson filed her chapter 131 petition and 8 her proposed chapter 13 plan on April 17, 2008. On June 25, 9 2008, the bankruptcy court entered an order confirming 10 Ms. Carlson's plan. In relevant part, the confirmation order 11 provided that "the debtor shall inform the Trustee of any changes 12 in circumstances or receipt of additional income. . . ." In 13 April 2009, Ms. Carlson and her family were involved in a serious 14 motor vehicle collision, in which their automobile was “rear- 15 ended” by another automobile. Within days, Ms. Carlson retained 16 the Carr Law Firm (“Carr”) to represent her regarding her claim 17 against the driver of the other automobile (“Third Party Claim”). 18 Her other family members also retained Carr to represent them 19 regarding their third party claims. 20 In May 2009, Ms. Carlson and her husband met with MaGee to 21 discuss the modification of her chapter 13 plan. At that 22 meeting, Ms. Carlson discussed with MaGee the fact that her 23 husband had lost his job, thereby leaving them with less income 24 available to make her chapter 13 plan payments. Neither 25 1 Unless specified otherwise, all chapter and section 26 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and all "Rule" references are to the Federal Rules of Bankruptcy 27 Procedure, Rules 1001-9037. All “Civil Rule” references are to 28 the Federal Rules of Civil Procedure.
2 1 Ms. Carlson nor her husband mentioned at that meeting that they 2 had been involved in the motor vehicle collision or that she had 3 retained counsel to represent her regarding her Third Party 4 Claim. 5 In November 2009, Ms. Carlson reached a settlement with the 6 other party to the motor vehicle collision, pursuant to which the 7 other party's insurer agreed to pay $25,000, the policy limits, 8 in settlement of Ms. Carlson's Third Party Claim. Ms. Carlson 9 used the entire $25,000 settlement to pay her medical bills and 10 attorneys fees.2 11 In June 2010, Ms. Carlson commenced a lawsuit in state court 12 against her own insurer regarding her underinsured motorist 13 coverage (“UIM Claim”). Between late 2010 and early 2011, 14 discovery was taken in the UIM Claim litigation. According to 15 Ms. Carlson and her husband, John Carlson (“Mr. Carlson”), during 16 the course of this discovery, they disclosed Ms. Carlson's 17 bankruptcy filing to both Carr and their insurer. As the 18 Carlsons tell it, Carr thereafter directed the Carlsons to 19 contact their bankruptcy counsel to inquire whether their 20 collision-related claims needed to be disclosed in Ms. Carlson’s 21 bankruptcy case. The Carlsons further testified that they then 22 telephoned MaGee’s law offices, spoke with one or more of MaGee’s 23 24 2 There was some debate about this. Not all of the 25 settlement funds were paid directly to Ms. Carlson’s attorneys and health care providers. Apparently, some funds were paid 26 directly to Ms. Carlson. But she testified that she used the funds paid directly to her to pay medical bills that were not 27 otherwise satisfied. We have found no evidence in the record 28 contradicting this testimony.
3 1 three staff members, and were told that they did not need to 2 disclose their claims, that they did not need to worry about the 3 claims because they did not constitute income. 4 Carr attorney Matthew Van Gieson’s declaration testimony 5 generally tends to corroborate the Carlsons’ version of these 6 events. But the specifics of the Carlsons’ phone conversation(s) 7 with MaGee’s staff, particularly the date(s) the conversations 8 occurred and the MaGee staff members involved, are unclear at 9 best and internally inconsistent at worst. Furthermore, all 10 three of MaGee’s staff members offered live testimony that they 11 did not recall any such phone conversations ever taking place or 12 that they never spoke to either of the Carlsons about the motor 13 vehicle accident or the claims. 14 Ms. Carlson’s husband John Carlson filed his own separate 15 bankruptcy case in February 2011. He also retained MaGee as his 16 bankruptcy counsel. According to Ms. Carlson, she attended one 17 of the pre-bankruptcy meetings between Mr. Carlson and MaGee, a 18 meeting held on December 30, 2010, at which the Carlsons 19 delivered to MaGee Mr. Carlson’s “W-2” and other documentation. 20 Ms. Carlson testified that she spoke directly with MaGee at this 21 meeting and asked him whether the claims needed to be disclosed 22 to anyone. As Ms. Carlson explained it, MaGee gave her two 23 answers. The first answer matched the answer she claims to have 24 received from MaGee’s employees, that she did not need to worry 25 about the claims because they were not income. The second 26 answer, according to Ms. Carlson, was unique to MaGee. MaGee 27 supposedly told Ms. Carlson that she did not need to worry about 28 reporting the claims because the chapter 13 trustee's office was
4 1 "a mess" due to internal issues and therefore was unlikely to 2 catch any failure to disclose. While Mr. Carlson could not 3 recall the specifics of the discussion concerning the claims, his 4 live testimony generally tended to corroborate Ms. Carlson’s 5 statement that the claims were discussed during the December 30, 6 2010 meeting with MaGee. 7 MaGee offered a different version of these events. 8 Initially, he asserted that he simply could not recall whether he 9 had any in-person discussions directly with the Carlsons 10 regarding either the motor vehicle collision or the claims. 11 Later on, apparently having reviewed his notes and possibly other 12 law office records, he more-categorically denied that any such 13 discussion ever took place on December 30, 2010, or at any other 14 time. According to MaGee, if he had known about the retention of 15 Carr, he would have sought to obtain bankruptcy court approval of 16 that employment. 17 Ms. Carlson never disclosed the claims to either the 18 chapter 13 trustee or the bankruptcy court. In May 2011, an 19 arbitrator awarded Ms. Carlson close to $50,000 on account of her 20 UIM Claim. And in June 2011, she filed a motion seeking to have 21 the arbitration award reduced to judgment. In response, her 22 insurer filed a motion in the state court seeking to clarify to 23 whom the arbitration award should be paid in light of 24 Ms. Carlson's bankruptcy. The insurer also apparently notified 25 the chapter 13 trustee regarding the arbitration award. 26 Upon receipt of notice of the arbitration award, the trustee 27 commenced discharge revocation proceedings against Ms. Carlson, 28 and on March 8, 2012, the bankruptcy court entered an order
5 1 revoking Ms. Carlson's discharge. Based on the evidence 2 presented during the discharge revocation proceedings, primarily 3 Ms. Carlson’s declaration testimony that she told Carr about her 4 bankruptcy and Magee’s staff about the claims, the bankruptcy 5 court stated that it would reserve the issue of whether sanctions 6 should be imposed against counsel. 7 On the heels of the discharge revocation proceedings, the 8 chapter 13 trustee filed a motion seeking to modify Ms. Carlson’s 9 chapter 13 plan. By way of the plan modification motion, the 10 trustee sought to use most of the proceeds from Ms. Carlson’s 11 $50,000 arbitration award judgment to pay the remaining amount 12 owed to her unsecured creditors. Ms. Carlson opposed that 13 motion. After holding two hearings on the plan modification 14 motion, the bankruptcy court determined that only $850 of the 15 arbitration award judgment was attributable to Ms. Carlson’s lost 16 wages, and only that portion of the judgment was property of the 17 estate that could and would be distributed pursuant to the 18 trustee’s proposed plan modification. 19 As for the attorney sanctions issue, the court stated at one 20 of the plan modification hearings that it was prepared to issue 21 an order to show cause regarding whether sanctions might be 22 appropriate against MaGee and Carr for “their knowing and 23 intentional failure to disclose to the trustee the material 24 change in [Ms. Carlson's] circumstances.” Hr’g Tr. (Mar. 14, 25 2012) at 14:12-15. 26 On March 19, 2012, pursuant to the court's statements 27 regarding sanctions at the March 14, 2012 plan modification 28 hearing, the court issued its order to show cause. That order
6 1 laid out the facts on which the court felt sanctions might be 2 imposed; however, that order did not specify the legal basis 3 pursuant to which sanctions might be imposed. Nonetheless, on 4 March 28, 2012, the bankruptcy court held a status conference on 5 the order to show cause at which it notified MaGee that it was 6 relying on its inherent authority as the legal basis for 7 potentially issuing sanctions.3 8 The bankruptcy court held a two-day evidentiary hearing on 9 the order to show cause in July 2012. Ultimately, it determined 10 that, under its inherent authority, it would impose $2,685 in 11 sanctions against MaGee, payable to the trustee and for 12 distribution to Ms. Carlson's creditors under her modified 13 chapter 13 plan.4 The bankruptcy court held that MaGee’s 14 response to Ms. Carlson's inquiry regarding the claims amounted 15 to bad faith and was an intentional or reckless misstatement 16 regarding the disclosure requirement under the plan confirmation 17 order. 18 The bankruptcy court primarily based its sanctions award on 19 MaGee’s conduct at the December 30, 2010 meeting with the 20 Carlsons. The bankruptcy court credited Ms. Carlson's testimony 21 that MaGee told her at this meeting that she did not have to 22 23 3 To the extent MaGee might have raised some sort of due 24 process issue regarding the notice he received that the court was relying on its inherent authority, MaGee has forfeited that issue 25 by not raising it either in the bankruptcy court or in this 26 appeal. See Rains v. Flinn (In re Rains), 428 F.3d 893, 902 (9th Cir. 2005). 27 4 The bankruptcy court did not award any sanctions against 28 Carr, and no one has appealed that ruling.
7 1 disclose the claims or any resulting recoveries because they were 2 not income. The court also credited Ms. Carlson’s testimony that 3 MaGee told her that the trustee was unlikely to subsequently 4 discover the claims, in light of the internal difficulties the 5 trustee’s office was experiencing at the time. 6 The bankruptcy court further found that MaGee's testimony 7 was not credible regarding the December 30, 2010 meeting. The 8 court explained that it did not believe MaGee’s contentions that 9 Ms. Carlson did not attend the December 30, 2010 meeting and that 10 he did not discuss the claims at that meeting. The court entered 11 an order imposing $2,685 in sanctions against MaGee on August 31, 12 2012. 13 On September 10, 2012, MaGee filed a motion for 14 reconsideration of the sanctions award. In essence, MaGee argued 15 that the bankruptcy court had erred in crediting Ms. Carlson's 16 testimony over his own testimony. According to MaGee, 17 Ms. Carlson's testimony regarding her post-confirmation contacts 18 with MaGee and his employees was inconsistent with her other, 19 prior statements under oath regarding the same subject matter. 20 MaGee further argued that it was improper for the court to 21 ascribe any bad faith motive, or to conclude that he was being 22 coy, based on the uncertain and tentative nature of his initial 23 statements regarding whether he had any discussions with 24 Ms. Carlson concerning the claims. As MaGee put it, the 25 uncertainty and tentativeness of his initial statements reflected 26 nothing more than his need to refresh his recollection by going 27 back and checking his own records before he could categorically 28 deny that he had met with Ms. Carlson and discussed the claims.
8 1 MaGee further pointed to several instances in which the 2 Carlsons’ testimony supposedly had been impeached or the Carlsons 3 had failed to inform him or anyone else of assets and changes in 4 income notwithstanding their duty to disclose these items. These 5 instances, MaGee reasoned, fatally undermined the Carlsons’ 6 credibility. 7 On October 3, 2012, the bankruptcy court entered an order 8 denying MaGee’s reconsideration motion. The court explained in 9 detail its reasoning for crediting Ms. Carlson's testimony over 10 MaGee's testimony. According to the bankruptcy court, there was 11 no genuine and material inconsistency between Ms. Carlson's live 12 testimony and her prior statements regarding her meeting with 13 MaGee on December 30, 2010, and their discussion concerning the 14 claims. The bankruptcy court also explained that its credibility 15 assessments of both witnesses were based on its observation of 16 their live testimony and that MaGee had not presented any new 17 evidence or law that would justify reconsideration of the court's 18 sanctions order. 19 On October 12, 2012, MaGee timely filed a notice of appeal 20 from the sanctions order and the order denying his 21 reconsideration motion. 22 JURISDICTION 23 The bankruptcy court had jurisdiction pursuant to 28 U.S.C. 24 §§ 1334 and 157(b)(2)(A). We have jurisdiction under 28 U.S.C. 25 § 158. 26 ISSUE 27 Did the bankruptcy court err when it imposed sanctions 28
9 1 against MaGee?5 2 STANDARDS OF REVIEW 3 We review the bankruptcy court’s sanctions award for an 4 abuse of discretion. See Price v. Lehtinen (In re Lehtinen), 5 564 F.3d 1052, 1058 (9th Cir. 2009). 6 The bankruptcy court abuses its discretion if it applies an 7 incorrect legal standard or its findings of fact are illogical, 8 implausible, or not supported by the record. United States v. 9 Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc). 10 Whether the bankruptcy court proceedings comported with the 11 requirements of due process is a question of law we review de 12 novo. Alonso v. Summerville (In re Summerville), 361 B.R. 133, 13 139 (9th Cir. BAP 2007). 14 DISCUSSION 15 Bankruptcy courts have inherent authority to sanction 16 attorneys appearing before them for a broad range of improper 17 conduct, even if the improper conduct was not specifically 18 prohibited by court order and even in the absence of explicit 19 statutory sanctioning authority. See In re Lehtinen, 564 F.3d at 20 1058. When an attorney intentionally or recklessly misconstrues 21 applicable law for an improper purpose, the attorney’s conduct 22 5 23 Even though MaGee’s notice of appeal referenced both the sanctions order and the order denying his motion for 24 reconsideration, MaGee’s appeal briefs do not contain any arguments challenging the court’s order on the reconsideration 25 motion. Consequently, MaGee has forfeited any such arguments. 26 See Brownfield v. City of Yakima, 612 F.3d 1140, 1149 n.4 (9th Cir. 2010) (citing Greenwood v. Fed. Aviation Admin., 28 F.3d 27 971, 977 (9th Cir. 1994)); Cashco Fin. Servs., Inc. v. McGee (In re McGee), 359 B.R. 764, 771 n.7 (9th Cir. BAP 2006) (citing 28 Doty v. County of Lassen, 37 F.3d 540, 548 (9th Cir. 1994)).
10 1 constitutes bad faith and may subject the attorney to inherent 2 authority sanctions. See Fink v. Gomez, 239 F.3d 989, 993-94 3 (9th Cir. 2001). 4 Here, the bankruptcy court explicitly found that MaGee’s 5 conduct constituted bad faith in that MaGee intentionally or 6 recklessly misconstrued the disclosure requirements set forth in 7 the confirmation order for the improper purpose of concealing the 8 claims from the trustee and the bankruptcy court. 9 MaGee argues on appeal that he had no duty, as Ms Carlson’s 10 counsel, to disclose the claims or the associated recoveries. As 11 MaGee puts it, because he had no such duty, the bankruptcy court 12 should not have imposed sanctions against him based on the 13 nondisclosure of the claims. According to MaGee, he had no such 14 disclosure duty here because he did not “objectively know” about 15 the claims or the recoveries. He further argues that, absent his 16 actual knowledge, there is no legal basis for imposing upon him, 17 as the debtor’s counsel, a duty to inquire or to investigate 18 whether any post-confirmation changes of circumstances had 19 occurred that were subject to disclosure. 20 MaGee’s argument regarding duty is premised on his asserted 21 lack of knowledge of the claims. But the bankruptcy court found 22 that MaGee knew of the claims no later than December 30, 2010, 23 when he met in person with Ms. Carlson, and she asked him whether 24 the claims needed to be disclosed. MaGee disputes that this 25 meeting ever took place and that he ever told Ms. Carlson that 26 she did not need to disclose the claims. Therefore, the efficacy 27 of MaGee’s argument regarding duty hinges on MaGee’s ability to 28 successfully challenge the bankruptcy court’s findings concerning
11 1 the December 30, 2010 meeting. 2 There is no basis for us to overturn the bankruptcy court’s 3 findings concerning the December 30, 2010 meeting. There is 4 sufficient evidence in the record, in the form of Ms. Carlson’s 5 testimony, that she attended the December 30, 2010 meeting and 6 inquired regarding whether the claims needed to be disclosed. 7 According to Ms. Carlson’s testimony, MaGee in response told her 8 that there was no need to disclose the claims because they were 9 not income and because the chapter 13 trustee was unlikely to 10 later discover the claims in light of internal troubles within 11 the trustee’s office. 12 While MaGee’s own testimony told a different story, that 13 Ms. Carlson did not attend the December 30, 2010 meeting and that 14 he never spoke with her about the claims, the bankruptcy court 15 chose to credit Ms. Carlson’s testimony over MaGee’s testimony. 16 The bankruptcy court explicitly found that Ms. Carlson’s 17 testimony on this point was credible and that MaGee’s testimony 18 on this point was not credible. 19 “We must accord great deference to the trial court's 20 determination regarding whether a witness speaks the truth.” 21 Cooper v. Allustiarte (In re Allustiarte), 786 F.2d 910, 917 (9th 22 Cir. 1986). The considerable deference conferred on credibility 23 findings is mandated by Civil Rule 52(a)(6) and its Bankruptcy 24 Rule cognate, Rule 8013. See Anderson v. City of Bessemer City, 25 N.C., 470 U.S. 564, 575 (1985) (“When findings are based on 26 determinations regarding the credibility of witnesses, [Civil 27 Rule] 52(a) demands even greater deference to the trial court's 28 findings; for only the trial judge can be aware of the variations
12 1 in demeanor and tone of voice that bear so heavily on the 2 listener's understanding of and belief in what is said.”). 3 We acknowledge that the deference afforded to the bankruptcy 4 court’s credibility findings is not limitless. As Anderson 5 explained: 6 Documents or objective evidence may contradict the witness' story; or the story itself may be so 7 internally inconsistent or implausible on its face that a reasonable factfinder would not credit it. Where 8 such factors are present, the court of appeals may well find clear error even in a finding purportedly based on 9 a credibility determination. 10 Anderson, 470 U.S. at 575. 11 Here, MaGee contends that Ms. Carlson’s live testimony at 12 the sanctions hearing was inconsistent with her prior deposition 13 and declaration testimony. MaGee asserts that it is impossible 14 to reconcile Ms. Carlson’s live testimony with her failure to 15 even mention the December 30, 2010 meeting in her prior 16 statements under oath regarding her post-confirmation contact 17 with MaGee and his staff. But MaGee cross-examined Ms. Carlson 18 about this very issue at the sanctions hearing, and Ms. Carlson 19 explained that her prior statements focused exclusively on her 20 telephone contacts with MaGee’s staff. The bankruptcy court 21 found Ms. Carlson’s explanation both credible and plausible, and 22 we see no basis on this record to overturn that finding. 23 More generally, MaGee argues that the bankruptcy court 24 should not have chosen to credit Ms. Carlson’s testimony 25 regarding the December 30, 2010 meeting because of ambiguities 26 and/or inconsistencies in her story regarding her telephone 27 conversations with MaGee’s staff and because, according to MaGee, 28 Ms. Carlson failed to keep him informed regarding other changes
13 1 in her financial condition, including changes in her and her 2 husband’s employment status. Even if we assume that all of 3 MaGee’s asserted facts in this regard are true, these facts do 4 not contradict Ms. Carlson’s testimony regarding the December 30, 5 2010 meeting, nor do they render that testimony so “internally 6 inconsistent or implausible on its face that a reasonable 7 factfinder would not credit it.” Anderson, 470 U.S. at 575. 8 Simply put, the bankruptcy court’s findings regarding 9 Ms. Carlson’s and MaGee’s discussion of the claims at the 10 December 30, 2010 meeting were not illogical, implausible or 11 without support in the record. Hinkson, 585 F.3d at 1262. Thus, 12 we must uphold these findings. 13 Given that MaGee is charged with knowing of the claims as of 14 December 2010, he thereafter had a duty, as Ms. Carlson’s legal 15 representative and as an officer of the court, to help her to 16 comply with the bankruptcy court’s confirmation order by 17 facilitating her disclosure of the claims. The bankruptcy court 18 found, however, that instead of helping Ms. Carlson to comply, 19 MaGee acted in bad faith by intentionally or recklessly 20 misstating her duty to disclose for the purpose of concealing 21 information subject to the confirmation order’s disclosure 22 requirements. A litigant’s counsel engages in bad faith conduct 23 sanctionable under the bankruptcy court’s inherent authority when 24 he or she intentionally impedes enforcement of the court’s 25 orders. See Miller v. Cardinale (In re Deville), 280 B.R. 483, 26 495–96 (9th Cir. BAP 2002), aff'd, 361 F.3d 539 (9th Cir. 27 2004)(affirming inherent authority sanctions award against 28 litigant and his counsel based in part on their mutual efforts to
14 1 hamper enforcement of the court’s orders); see also Fink, 2 239 F.3d at 993-94 (holding that “reckless misstatements of law 3 and fact, when coupled with an improper purpose . . . are 4 sanctionable under a court's inherent power.”). 5 In sum, we reject MaGee’s argument regarding duty because it 6 is based on a false premise, that MaGee did not know about 7 Ms. Carlson’s claims in December 2010. 8 MaGee next posits three disparate facts which, according to 9 him, should have caused the bankruptcy court to exclude the 10 claims from the “any changes in circumstances” disclosure 11 requirement. The three posited facts are as follows: (1) the net 12 economic impact of the automobile collision and the associated 13 claims turned out to be “negative or neutral” for Ms. Carlson; 14 (2) the bankruptcy court ultimately determined that only $850 of 15 Ms. Carlson’s recoveries on her claims constituted estate 16 property; and (3) Ms. Carlson’s $50,000 recovery on the UIM Claim 17 was not reduced to judgment until after she received her 18 discharge. 19 For purposes of this appeal, we can assume the accuracy of 20 all three posited facts. Nonetheless, none of them individually 21 or jointly establish that the claims should have been excepted 22 from the “any changes in circumstances” disclosure requirement. 23 As the bankruptcy court pointed out, the disclosure requirement 24 on its face is broad and does not explicitly provide for any 25 exceptions. And as this Panel previously has opined, the types 26 of "changed circumstances" relevant to chapter 13 27 post-confirmation practice are those substantial and 28 unanticipated changes in a debtor's circumstances that can affect
15 1 the debtor's ability to make plan payments. See Mattson v. Howe 2 (In re Mattson), 468 B.R. 361, 368 & n.4 (9th Cir. BAP 2012) 3 (citing Anderson v. Satterlee (In re Anderson), 21 F.3d 355, 358 4 (9th Cir. 1994)). None of MaGee’s posited facts establish that, 5 at the time he counseled Ms. Carlson on the disclosure 6 requirement, the claims could not and would not affect her 7 ability to make plan payments. 8 Put another way, none of the facts MaGee now relies on 9 existed at the time he construed the disclosure requirement for 10 Ms. Carlson, and hence, none of them are relevant to the court’s 11 finding that MaGee intentionally or recklessly misconstrued the 12 disclosure requirement for the improper purpose of concealing the 13 claims from the trustee and the bankruptcy court. 14 At the discharge revocation hearing, the bankruptcy court 15 repeatedly explained to the litigants that the disclosure 16 requirement would be undermined if the party charged with 17 disclosure was granted the power to unilaterally decide for 18 themselves which changes in circumstances are material and 19 reportable and which are not. We agree. Indeed, we would state 20 this proposition even more emphatically. Our bankruptcy system 21 cannot properly function unless debtors make full, candid and 22 complete disclosure of their financial affairs when the 23 Bankruptcy Code or the bankruptcy court’s orders direct them to 24 do so. See Searles v. Riley (In re Searles), 317 B.R. 368, 378 25 (9th Cir. BAP 2004), cited with approval in, Retz v. Sampson 26 (In re Retz), 606 F.3d 1189, 1199 (9th Cir. 2010). If debtors 27 (or their counsel) are able to evade their disclosure-related 28 responsibilities by making their own unilateral and self-serving
16 1 determinations of what is and is not material, the bankruptcy 2 disclosure requirements would become largely unenforceable and 3 our entire bankruptcy system would be threatened. 4 Accordingly, on both relevancy and policy grounds, MaGee’s 5 three posited facts do not justify or excuse his conduct relating 6 to the nondisclosure of the claims. 7 MaGee next challenges the amount of sanctions that the 8 bankruptcy court imposed against him. MaGee contends that the 9 sanctions imposed were punitive in nature and hence improper. We 10 agree with MaGee’s legal premise, that the bankruptcy court’s 11 inherent sanctions authority does not include the power to impose 12 punitive sanctions; rather, such sanctions must be compensatory 13 in nature or designed to coerce compliance. See In re Lehtinen, 14 564 F.3d at 1059; Knupfer v. Lindblade (In re Dyer), 322 F.3d 15 1178, 1192, 1197-98 (9th Cir. 2003). 16 However, we disagree that the $2,685 in sanctions imposed 17 here were designed to be punitive. To the contrary, the court 18 here explicitly designed the sanctions imposed to reimburse 19 Ms. Carlson (and derivatively her unsecured creditors) for the 20 attorney’s fees MaGee charged Carlson for his pre-confirmation 21 services in her bankruptcy case. On this record, this was an 22 appropriate measure for the imposition of compensatory sanctions. 23 See generally In re Dyer, 322 F.3d at 1195 (noting that 24 reimbursement of a party’s attorney’s fees commonly is an 25 appropriate component of a compensatory civil sanctions award). 26 In essence, the bankruptcy court found that MaGee was not 27 entitled to retain those fees because his improper conduct 28 relating to the nondisclosure of the claims led to the revocation
17 1 of Ms. Carlson’s discharge – the primary benefit a debtor 2 typically seeks to obtain by proposing and completing a 3 chapter 13 plan. MaGee has not challenged the bankruptcy court’s 4 finding of a causal link between his conduct and the revocation 5 of Ms. Carlson’s discharge, nor have we found anything in the 6 record that would support such a challenge.6 As a result, we 7 reject MaGee’s contention that the sanctions imposed were 8 punitive in nature and hence improper. 9 Magee has asserted only one other distinct argument in his 10 opening appeal brief.7 MaGee contends that the bankruptcy court 11 predetermined the issue of how and when he learned of the claims. 12 The court’s predetermination of this issue, MaGee reasons, is 13 established by the language of the court’s order to show cause, 14 which refers both to MaGee’s “knowing failure to disclose” the 15 claims and to MaGee “being informed” of the claims. Order to 16 Show Cause (Mar. 19, 2012) at pp. 1-2. According to MaGee, the 17 so-called predetermination of this issue was both an abuse of 18 6 19 In his reply brief on appeal, MaGee notes that the bankruptcy court ultimately reinstated Ms. Carlson’s discharge, 20 and he urges the panel to vacate the sanctions order on that basis. However, in reviewing the sanctions order, we are not 21 permitted to consider documents and facts that were not before 22 the bankruptcy court at or before the time it ruled. See Oyama v. Sheehan (In re Sheehan), 253 F.3d 507, 512 n.5 (9th Cir. 23 2001); Kirschner v. Uniden Corp. of Am., 842 F.2d 1074, 1077–78 (9th Cir. 1988). 24 7 MaGee’s opening brief also includes a section directly 25 challenging the bankruptcy court’s credibility findings. But we 26 already have addressed at length the court’s credibility findings in the course of our discussion of MaGee’s argument regarding 27 duty. Suffice it to say that nothing in MaGee’s argument challenging the court’s credibility findings persuades us to 28 alter our analysis and conclusion upholding those findings.
18 1 discretion and a violation of his due process rights. 2 At its most fundamental level, MaGee’s procedural due 3 process argument requires us to consider whether MaGee had “the 4 opportunity to be heard [on the sanctions issue] at a meaningful 5 time and in a meaningful manner.” See Mathews v. Eldridge, 6 424 U.S. 319, 333 (1976). The record establishes that MaGee had 7 an abundance of opportunity to be heard on the sanctions issue 8 and that the bankruptcy court carefully considered MaGee’s 9 presentation before it issued its final sanctions ruling. 10 More to the point, MaGee’s predetermination argument is both 11 factually and legally meritless. The court set and heard two 12 days of live testimony in part to help it decide how and when 13 MaGee learned of the claims. Indeed, this is precisely how the 14 bankruptcy court itself later described its decision to hear two 15 days of testimony as part of the show cause proceedings. See 16 Order Denying Motion for Reconsideration (Oct. 3, 2012) at 3:2-9. 17 Moreover, the key evidence on which the bankruptcy court relied 18 in support of its finding that MaGee knew about the claims – 19 Ms. Carlson’s live testimony regarding her December 30, 2010 20 meeting with MaGee – was offered to the court as part of the 21 two-day evidentiary hearing, which was held several months after 22 the show cause order was issued. 23 Even if there existed a genuine factual basis for MaGee’s 24 predetermination argument, as a matter of law, the order to show 25 cause was not a final order, and consequently, the bankruptcy 26 court had the authority to alter any portion of its show cause 27 ruling unless and until the final sanctions order was entered. 28 See Balla v. Idaho State Bd. of Corr., 869 F.2d 461, 465 (9th
19 1 Cir. 1989) ("Courts have inherent power to modify their 2 interlocutory orders before entering a final judgment."); see 3 also Knutson v. Price (In re Price), 410 B.R. 51, 56 n.1 (Bankr. 4 E.D. Cal. 2009) (bankruptcy court retained jurisdiction to change 5 its interlocutory order unless appellate court granted leave for 6 an interlocutory appeal). 7 CONCLUSION 8 For the reasons set forth above, we AFFIRM the bankruptcy 9 court's order imposing sanctions against MaGee and its order 10 denying MaGee’s motion for reconsideration. 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28