UNITED STATES DISTRICT COURT
DISTRICT OF NEW HAMPSHIRE
Kevin Charbono
v. Case No. 13-cv-471-SM Opinion No. 2014 DNH 204 Lawrence P. Sumski, Chapter 13 Trustee
O R D E R
The debtor in this Chapter 13 bankruptcy proceeding, Kevin
Charbono, appeals an order of the bankruptcy court imposing a
fine of $100.00 against him as a sanction for failing to deliver
a copy of his tax return to the Trustee within the time allowed
under the terms of his confirmed plan. Charbono raises a number
of objections. First, he says the fine was, in substance, a
criminal contempt sanction, which the bankruptcy court lacked
authority to impose. Next, he claims the sanction was imposed
without first affording him the due process required. And,
finally, he asserts that the bankruptcy court’s apparent policy
of routinely imposing such sanctions is unsustainable. The
Trustee counters that the bankruptcy court is plainly authorized
to impose reasonable ad hoc penalties to enforce its own orders,
the imposed sanction was reasonable under the circumstances, and
it ought to be affirmed. Standard of Review
District courts have jurisdiction to hear appeals from final
judgments, orders, and decrees issued by the bankruptcy court.
28 U.S.C. § 158(a)(1). The bankruptcy court’s legal rulings are
reviewed de novo, but its factual findings are entitled to
deference and will not be overturned unless clearly erroneous.
In re SW Boston Hotel Venture, LLC, 748 F.3d 393, 402 (1st Cir.
2014). Interpretations of governing statutes are legal rulings,
but the bankruptcy court’s application of a legal ruling to the
facts “presents a mixed question of law and fact that [is]
review[ed] for clear error unless its analysis was infected by
legal error.” Id. (internal quotation marks omitted).
Background
Kevin Charbono filed a voluntary bankruptcy petition on June
13, 2012. Under the local rules of the bankruptcy court,
Charbono was required to file his Chapter 13 plan on Local
Bankruptcy Form (“LBF”) 3015-1A. See LBR 2015-1. That form
includes the following provision: “Duty to Provide Tax Returns:
The Debtor has an ongoing obligation to provide a copy of each
federal income tax return (or any request for extension) directly
to the Trustee within seven days of the filing of the return (or
2 any request for extension with the taxing authority.)” LBF 3015-
1A, II, A.
Charbono’s Chapter 13 plan was confirmed on August 21, 2012,
making it an order of the court. Beginning in April of 2013,
then, Charbono was obligated by court order to provide the
Trustee with a copy of his tax return, or any request for a
deadline extension, within seven days of its filing. In January
of 2013, the Trustee sent a letter to Charbono specifically
requesting a copy of his 2013 tax return when it was filed. In
April, Charbono’s wife, on his behalf, filed a request with the
Internal Revenue Service for an extension of time to file his
federal tax return, but a copy was not provided to the Trustee
within seven days, as required by the confirmed plan.
On June 13, 2013, the Trustee moved the court to dismiss
Charbono’s bankruptcy case and to sanction him by imposing a fine
of $200.00 for failing to comply with a material requirement of
the confirmed plan. Charbono objected to the motion. A hearing
was held before the bankruptcy judge on September 20, 2013.
Prior to the hearing, Charbono finally provided the Trustee with
a copy of his request for an extension which, at that point, the
3 IRS had granted. The tax return filing deadline had been
extended to October 15, 2013, well after the hearing date.
Counsel for Charbono argued that dismissal or imposition of
a sanction would be inappropriate, because Charbono did comply
with the requirement by providing the Trustee with a copy of his
request for an extension, albeit late. A sanction imposed
following compliance, counsel argued, would necessarily amount to
punishment, and not coercion, so would constitute a criminal
contempt sanction, rather than a civil contempt sanction. The
Trustee countered that a sanction should be imposed, because
failure to comply with the tax return requirement within the time
allowed is “sanctionable behavior.” (The Trustee also expressed
collateral concerns arising from the fact that the same sanction
had routinely been imposed in “hundreds” of other late-filing
cases with identical facts; he feared having to refund those
fines if a different decision were made in Charbono’s case.)
The bankruptcy judge noted that the term requiring debtors
to provide tax return information to the Trustee was based on In
re Michaud, 399 B.R. 365 (Bkrtcy. D.N.H. 2008). The bankruptcy
judge further explained that the “policy” of imposing fines for
failure to comply with the tax return filing requirement was
4 intended as a less serious alternative to dismissing Chapter 13
cases under the provisions of 11 U.S.C. § 1307(c).1 The judge
noted that in other districts Chapter 13 cases were routinely
dismissed for failure to comply with the terms of a confirmed
plan — a practice that burdened debtors, trustees, and the court
in that in such cases trustees must seek compliance, debtors must
first comply with the filing requirement and then move the court
to vacate the order of dismissal and reinstate the case, and the
court must then devote time and attention to routine matters that
should not have arisen in the first place. The bankruptcy judge
characterized the alternative lesser sanction as an effort “to
get people’s attention,” and obtain compliance, thereby avoiding
a waste of resources and facilitating the efficient management of
bankruptcy proceedings.
The bankruptcy court issued its order on September 24, 2013.
The court denied the Trustee’s motion to dismiss the case, but
subject to certain terms. Charbono was required to deliver a
1 Title 11 U.S.C. § 1307(c) provides, in relevant part: “Except as provided in subsection (e) of this section, on request of a party in interest or the United States Trustee and after notice and a hearing, the court may convert a case under this chapter to a case under Chapter 7 of this title, or may dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, for cause, including — . . . (6) material default by the debtor with respect to a term of a confirmed plan.”
5 copy of his filed tax return, and any excess tax refund he
received, to the Trustee on or before November 15, 2013. He was
also sanctioned for having failed to timely comply with the tax
return production requirement. The court imposed a $100.00 fine,
to be paid to the Trustee on or before January 15, 2014. The
order provided that if Charbono failed to comply with its
provisions and the Trustee filed an affidavit asserting that
failure, the case would then be dismissed as allowed under the
Bankruptcy Code.
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UNITED STATES DISTRICT COURT
DISTRICT OF NEW HAMPSHIRE
Kevin Charbono
v. Case No. 13-cv-471-SM Opinion No. 2014 DNH 204 Lawrence P. Sumski, Chapter 13 Trustee
O R D E R
The debtor in this Chapter 13 bankruptcy proceeding, Kevin
Charbono, appeals an order of the bankruptcy court imposing a
fine of $100.00 against him as a sanction for failing to deliver
a copy of his tax return to the Trustee within the time allowed
under the terms of his confirmed plan. Charbono raises a number
of objections. First, he says the fine was, in substance, a
criminal contempt sanction, which the bankruptcy court lacked
authority to impose. Next, he claims the sanction was imposed
without first affording him the due process required. And,
finally, he asserts that the bankruptcy court’s apparent policy
of routinely imposing such sanctions is unsustainable. The
Trustee counters that the bankruptcy court is plainly authorized
to impose reasonable ad hoc penalties to enforce its own orders,
the imposed sanction was reasonable under the circumstances, and
it ought to be affirmed. Standard of Review
District courts have jurisdiction to hear appeals from final
judgments, orders, and decrees issued by the bankruptcy court.
28 U.S.C. § 158(a)(1). The bankruptcy court’s legal rulings are
reviewed de novo, but its factual findings are entitled to
deference and will not be overturned unless clearly erroneous.
In re SW Boston Hotel Venture, LLC, 748 F.3d 393, 402 (1st Cir.
2014). Interpretations of governing statutes are legal rulings,
but the bankruptcy court’s application of a legal ruling to the
facts “presents a mixed question of law and fact that [is]
review[ed] for clear error unless its analysis was infected by
legal error.” Id. (internal quotation marks omitted).
Background
Kevin Charbono filed a voluntary bankruptcy petition on June
13, 2012. Under the local rules of the bankruptcy court,
Charbono was required to file his Chapter 13 plan on Local
Bankruptcy Form (“LBF”) 3015-1A. See LBR 2015-1. That form
includes the following provision: “Duty to Provide Tax Returns:
The Debtor has an ongoing obligation to provide a copy of each
federal income tax return (or any request for extension) directly
to the Trustee within seven days of the filing of the return (or
2 any request for extension with the taxing authority.)” LBF 3015-
1A, II, A.
Charbono’s Chapter 13 plan was confirmed on August 21, 2012,
making it an order of the court. Beginning in April of 2013,
then, Charbono was obligated by court order to provide the
Trustee with a copy of his tax return, or any request for a
deadline extension, within seven days of its filing. In January
of 2013, the Trustee sent a letter to Charbono specifically
requesting a copy of his 2013 tax return when it was filed. In
April, Charbono’s wife, on his behalf, filed a request with the
Internal Revenue Service for an extension of time to file his
federal tax return, but a copy was not provided to the Trustee
within seven days, as required by the confirmed plan.
On June 13, 2013, the Trustee moved the court to dismiss
Charbono’s bankruptcy case and to sanction him by imposing a fine
of $200.00 for failing to comply with a material requirement of
the confirmed plan. Charbono objected to the motion. A hearing
was held before the bankruptcy judge on September 20, 2013.
Prior to the hearing, Charbono finally provided the Trustee with
a copy of his request for an extension which, at that point, the
3 IRS had granted. The tax return filing deadline had been
extended to October 15, 2013, well after the hearing date.
Counsel for Charbono argued that dismissal or imposition of
a sanction would be inappropriate, because Charbono did comply
with the requirement by providing the Trustee with a copy of his
request for an extension, albeit late. A sanction imposed
following compliance, counsel argued, would necessarily amount to
punishment, and not coercion, so would constitute a criminal
contempt sanction, rather than a civil contempt sanction. The
Trustee countered that a sanction should be imposed, because
failure to comply with the tax return requirement within the time
allowed is “sanctionable behavior.” (The Trustee also expressed
collateral concerns arising from the fact that the same sanction
had routinely been imposed in “hundreds” of other late-filing
cases with identical facts; he feared having to refund those
fines if a different decision were made in Charbono’s case.)
The bankruptcy judge noted that the term requiring debtors
to provide tax return information to the Trustee was based on In
re Michaud, 399 B.R. 365 (Bkrtcy. D.N.H. 2008). The bankruptcy
judge further explained that the “policy” of imposing fines for
failure to comply with the tax return filing requirement was
4 intended as a less serious alternative to dismissing Chapter 13
cases under the provisions of 11 U.S.C. § 1307(c).1 The judge
noted that in other districts Chapter 13 cases were routinely
dismissed for failure to comply with the terms of a confirmed
plan — a practice that burdened debtors, trustees, and the court
in that in such cases trustees must seek compliance, debtors must
first comply with the filing requirement and then move the court
to vacate the order of dismissal and reinstate the case, and the
court must then devote time and attention to routine matters that
should not have arisen in the first place. The bankruptcy judge
characterized the alternative lesser sanction as an effort “to
get people’s attention,” and obtain compliance, thereby avoiding
a waste of resources and facilitating the efficient management of
bankruptcy proceedings.
The bankruptcy court issued its order on September 24, 2013.
The court denied the Trustee’s motion to dismiss the case, but
subject to certain terms. Charbono was required to deliver a
1 Title 11 U.S.C. § 1307(c) provides, in relevant part: “Except as provided in subsection (e) of this section, on request of a party in interest or the United States Trustee and after notice and a hearing, the court may convert a case under this chapter to a case under Chapter 7 of this title, or may dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, for cause, including — . . . (6) material default by the debtor with respect to a term of a confirmed plan.”
5 copy of his filed tax return, and any excess tax refund he
received, to the Trustee on or before November 15, 2013. He was
also sanctioned for having failed to timely comply with the tax
return production requirement. The court imposed a $100.00 fine,
to be paid to the Trustee on or before January 15, 2014. The
order provided that if Charbono failed to comply with its
provisions and the Trustee filed an affidavit asserting that
failure, the case would then be dismissed as allowed under the
Bankruptcy Code. Charbono appealed on October 25, 2013.
Discussion
On appeal, Charbono challenges the imposed sanction on
grounds that: 1) it amounts to a fine in the nature of a criminal
contempt sanction, which the bankruptcy court lacked jurisdiction
to impose; 2) the sanction was imposed without affording the
process required by Federal Rule of Criminal Procedure 42(a)
related to criminal contempt; and 3) the bankruptcy court’s
sanction “policy” was adopted in the absence of any rule-making
processes. The Trustee reiterates that Charbono was required by
the confirmed plan to provide information about his tax return,
which he failed to do within the time allowed by the plan. And,
says the Trustee, because the Bankruptcy Court could dismiss a
case for a material default by a debtor with respect to a term of
6 the confirmed plan, under the authority conferred by 11 U.S.C.
§ 1307(c), the bankruptcy court may certainly impose a lesser
sanction of a fine, under the authority conferred by 11 U.S.C. §
105, in lieu of dismissing the case.
A. Criminal Contempt Sanction
Sanctions imposed for civil contempt are coercive in nature.
They are meant to force the contemnor to comply with the court’s
order. In re Grand Jury Proceedings, 744 F.3d 211, 214 (1st Cir.
2014). Therefore, civil contempt sanctions “are necessarily
limited to the period in which the contemnor can unlock the
figurative prison door by purging himself of contempt.” Id. In
contrast, sanctions for criminal contempt are meant to punish the
contemnor and to vindicate the authority of the court. United
States v. Henry, 519 F.3d 68, 72-73 (1st Cir. 2008). Fines
imposed for civil contempt “are remedial, designed primarily to
coerce an offending party into prompt compliance with a judicial
mandate. Once the contemnor comes into compliance, the contempt
is purged and no further fines are incurred.” United States v.
Kouri-Perez, 187 F.3d 1, 7 n.2 (1st Cir. 1999). Fines for
criminal contempt, however, assess “a one-time penalty for past
disobedience of a court order.” Id.
7 It is undisputed that Charbono failed to timely provide the
Trustee with a copy of his request for an extension to file his
tax return. But, by the time of the hearing, and before the
bankruptcy court’s sanction order was issued, Charbono had
substantially complied — he provided the required information to
the Trustee, albeit late. Given the bankruptcy judge’s
discussion with counsel and the Trustee at the hearing, it seems
clear that everyone understood that the fine imposed was meant as
punishment for Charbono’s past failure to timely comply with the
confirmed plan’s requirements. And, unlike a remedial civil
contempt sanction, the fine imposed was based upon a fixed
amount, here $100.00, and not a continuing or escalating amount
pending compliance.
The fine imposed in this case has many of the attributes of
a criminal contempt sanction, and none of a civil contempt
sanction. The bankruptcy court did not specifically address its
authority to impose criminal contempt sanctions, though the issue
was argued at the hearing by both Charbono’s counsel and the
Trustee.2 On appeal, Charbono again focuses on his claim that
2 The bankruptcy judge explained that the court’s policy of imposing fines under such circumstances had been implemented as a means of coping with the large volume of cases, leading to backlogs.
8 the bankruptcy court is without legal authority to impose a
criminal contempt sanction, and the Trustee again counters that
the bankruptcy court may impose a criminal contempt sanction
under § 105(a), arguing that the court’s “internal office policy”
of imposing fines, rather than dismissing cases or ignoring non-
compliance, should be construed as an appropriate means of
enforcing court orders.
Section 105(a) of the Bankruptcy Code provides that “[t]he
court may issue any order, process, or judgment that is necessary
or appropriate to carry out the provisions of this title.”
Section 105(a) authorizes bankruptcy courts to take action
“within the confines of the Bankruptcy Code;” it does not,
however, allow action that the Code prohibits. See Law v.
Siegel, 134 S. Ct. 1188, 1194-95 (2014). Courts currently
disagree about whether § 105(a) authorizes bankruptcy courts to
impose criminal contempt sanctions. See, e.g., In re Bradley,
588 F.3d 254, 266 (5th Cir. 2009); In re Dyer, 322 F.3d 1178,
1193 (9th Cir. 2003) (citing cases); In re Ragar, 3 F.3d 1174,
1179 (8th Cir. 1993). But the Court of Appeals for the First
Circuit has suggested that such authority does exist. See United
States v. Mourad, 289 F.3d 174, 178-79 (1st Cir. 2002); accord In
re Nosek, 544 F.3d 34, 43 n.8 (1st Cir. 2008). The metes and
9 bounds of § 105(a) need not be determined here with respect to
criminal contempt powers, however, because even if the bankruptcy
court was authorized to impose a criminal contempt sanction, it
did not purport to do so and, therefore, it did not follow the
required process for doing so.3 But that is of little importance
to the outcome because the bankruptcy judge acted well within his
inherent authority to impose the sanction he did.
3 18 U.S.C. § 401(3) provides that “[a] court of the United States shall have power to punish by fine or imprisonment, or both, at its discretion, such contempt of its authority, and none other, as . . . [d]isobedience or resistence to its lawful writ, process, order, rule, decree, or command.” To support criminal contempt under § 401(3), “the government must prove beyond a reasonable doubt that the defendant willfully violated a lawful order of reasonable specificity.” Mourad, 289 F.3d at 180; see also In re Webb, 308 B.R. 357, 359-60 (Bankr. E.D. Ark. 2004). A criminal contempt sanction may be imposed only in strict compliance with the requirements of Federal Rule of Criminal Procedure 42(a). United States v. Burgos-Andujar, 275 F.3d 23, 31 (1st Cir. 2001).
The Rules of Criminal Procedure provide that “[a]ny person who commits criminal contempt may be punished for that contempt after prosecution on notice” that is provided to the person in open court “in an order to show cause, or in an arrest order.” The notice must include the time and place of trial, allow the defendant reasonable time to prepare a defense, and “state the essential facts constituting the charged criminal contempt and describe it as such.” Fed. R. Crim. P. 42(a)(1). The court must also “request that the contempt be prosecuted by an attorney for the government, unless the interest of justice requires the appointment of another attorney.” Fed. R. Crim. P. 42(a)(2). Further, a defendant charged with criminal contempt is entitled to a jury trial. Fed. R. Crim. P. 42(a)(3).
10 As the Court of Appeals has explained, court-imposed
sanctions need not be strictly categorized as falling within
either “civil contempt” or “criminal contempt.” “Thus, to say
that the sanctions imposed below are punitive in nature is not to
suggest that they are tantamount to de facto criminal contempt
adjudications.” Kouri-Perez, 187 F.3d at 8. “[W]e reject the
contention that the sanction imposed . . . necessarily amounted
to an adjudication of criminal contempt simply because it was not
a civil contempt sanction.” Id. at 9 (citing Chambers v. NASCO,
501 U.S. 32, 46 (1991) (“The imposition of inherent power
sanctions . . . vindicat[es] judicial authority without resort to
the more drastic sanctions available for contempt.”)) As in
Kouri-Perez, here the pertinent distinction is between punitive
contempt sanctions and punitive non-contempt sanctions.
The bankruptcy court, like the district court, may exercise
its “inherent power” in performing its case-management function.
See e.g., In re Sheridan, 362 F.3d 96 (1st Cir. 2004); In re
Nosek, 544 F.3d 34 (1st Cir. 2008). The court’s inherent
authority and implicit powers “include the judicial authority to
sanction counsel [and litigants] for litigation abuses which
threaten to impugn the . . . court’s integrity or disrupt its
efficient management of the proceedings. Kouri-Perez, 187 F.3d
11 at 7 (citing Roadway Express, Inc. v. Piper, 447 U.S. 752, 766
(1980) (“The power of a court over members of its bar is at least
as great as its authority over litigants.”))
Indeed, “[i]n considering appropriate sanctions for . . .
misconduct, . . . the [courts have] an array of options, ranging
from criminal contempt to non-contempt measures.” Kouri-Perez,
187 F.3d at 8. And, as in the present case, “[f]requently, there
will be sound grounds for not invoking the court’s criminal-
contempt power, especially since its potency necessitates that it
be used with restraint and discretion.” Id. (citing Chambers,
501 U.S. at 44, Whitney Bros. Co. v. Sprafkin, 60 F.3d 8, 13 (1st
Cir. 1995)). “Thus, the criminal contempt power is to be
reserved for conduct that bespeaks a criminal mens rea (i.e.
intentional or reckless conduct) and has been proven beyond a
reasonable doubt, whereas non contempt sanctions normally suffice
in circumstances involving less culpable states of mind.” Kouri-
Perez, 187 F.3d at 8.
In this case, the bankruptcy judge fully appreciated that
Charbono’s failure to comply with the terms of his confirmed plan
was misconduct far less culpable in nature than that warranting a
criminal contempt sanction. He appropriately exercised his
12 inherent authority, after providing the debtor with a hearing, to
impose a modest sanction for a modest transgression — a sanction
meant both to punish and to vindicate the court’s integrity, as
well as its interest in maintaining an efficient case management
system.
Finally, the bankruptcy court’s exercise of its inherent
authority did not contravene the Code’s requirements. It is true
that § 1307(c)(6) empowers a bankruptcy judge to dismiss a case
in the event of a material default by a debtor with respect to a
term of a confirmed plan, but that enforcement option is
discretionary. Nothing in the law compels dismissal on every
occasion of material default by a debtor. The bankruptcy court
is statutorily empowered to dismiss, or convert, but it is not
compelled to do either — it may do nothing, or it may exercise
its inherent authority to impose a lesser sanction for failure to
comply with a court order. The bankruptcy court’s inherent
authority to manage its docket, and sanction counsel or litigants
in aid of that authority, and for minor or modest transgressions,
is supplemental to and not inconsistent with the dismissal power
under § 1307(c). See e.g., Marrama v. Citizens Bank of
Massachusetts, 549 U.S. 365 (2007); In re Hutchins, 480 B.R. 374,
387 (Bankr. M.D. Fla. 2012) (“Dismissing or converting a case for
13 a material default under § 1307(c)(6) is a discretionary matter
and is appropriate when a debtor is unable to cure a default and
the plan cannot be modified to make completion feasible.”)
(citation omitted).
So, while conduct amounting to a material default with
respect to a confirmed plan obligation might well result in
dismissal or conversion under § 1307(c)(6), the bankruptcy court
is not required to dismiss. Nor is the court precluded from
imposing lesser sanctions, under its inherent authority, aimed at
obtaining compliance and insuring efficient management of its
proceedings. Here, the imposed sanction was not one imposed for
criminal contempt; it fell comfortably within the bankruptcy
court’s inherent powers; and it was imposed after a fair hearing
at which Charbono was afforded a full opportunity to present his
position on the merits and in mitigation.4 There was no error.
4 Whether the bankruptcy court’s “policy” of routinely imposing sanctions for a specified class of violations of orders is or is not valid is not a question properly presented in this case. Charbono was sanctioned for his individual violation, and after a full hearing, at which he could have shown that he in fact had not committed the violation. Alternatively, he was able to offer evidence and argument in mitigation. Moreover, it seems doubtful that the bankruptcy court could not establish a standardized sanction for standard anticipated violations of standard court orders that do not rise to the level of criminal contempt of court, particularly when individualized hearings are readily available. But those are issues for another day and a different case.
14 Conclusion
For the reasons set forth above, the bankruptcy court’s
order, issued on September 24, 2013, imposing a fine on the
debtor in the amount of $100.00 is affirmed.
SO ORDERED.
____________________________ Steven J. McAuliffe United States District Judge
September 30, 2014
cc: Michelle Kainen, Esq. Lawrence P. Sumski, Esq. Geraldine L. Karonis, Esq.