Opinion
NOT FOR PUBLICATION
Argued and Submitted at Las Vegas, Nevada: July 21, 2006
Appeal from the United States Bankruptcy Court for the District of Nevada. Honorable Bruce A. Markell, Bankruptcy Judge, Presiding. Case No. 03-19478. Ref. Nos. 05-23. 05-24. 05-25.
Before: PERRIS, [ KLEIN and PAPPAS, Bankruptcy Judges. KLEIN, Bankruptcy Judge, CONCURRING.
Hon. Elizabeth L. Perris, Chief United States Bankruptcy Judge for the District of Oregon, sitting by designation.
MEMORANDUM
John Saba and Gregory Grantham (appellants) appeal from an order of the bankruptcy court imposing various sanctions for the filing of certain pleadings and other conduct in this bankruptcy case. They raise a myriad of arguments why the order should be reversed. For the reasons explained below, we VACATE the order and REMAND.
FACTS
The underlying facts of the bankruptcy case are not particularly relevant to this appeal. Creditor Emerald Gate Construction, Inc. (Emerald Gate), the appellee in this appeal, filed an involuntary chapter 7 bankruptcy petition against Flamingo 55, Inc. in 2003. An order for relief was entered. A related entity, Vegas Townhome Partners, LP, filed a voluntary chapter 11 petition. That bankruptcy case was converted to a chapter 7, and was substantively consolidated with the Flamingo 55 chapter 7 case.
Unless otherwise indicated, all chapter, section and rule references are to the version of the Bankruptcy Code, 11 U.S.C. § § 101-1330, in effect before the 2005 amendments, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9036.
Appellants are California attorneys who, throughout this bankruptcy case, have asserted various interests in or claims against debtors. Currently, they assert that they own 100 percent of the equity interest in both debtors, through their ownership of an entity called Acorn Development, Inc. Appellants objected to the proof of claim filed by Emerald Gate, and have apparently appeared at various proceedings in this case. They filed a $5,000,000 secured claim against the estate, which the court disallowed.
It is clear from reading the record that this case has a long and contentious history, particularly where appellants are concerned. It is difficult to determine exactly the relationship between appellants and debtors. It appears, however, that appellants have been very active in this bankruptcy case, and that it is against this background of their changing positions with relation to debtors that the motions for sanctions and order to show cause were filed.
As relevant to this appeal, in December 2004, appellants filed amended Schedules D, F, and H, purportedly on behalf of Vegas Townhome. In early March 2005, appellants filed an amended Schedule A, again purportedly on behalf of Vegas Townhome, in which they asserted that debtor holds only bare legal title to the real property of Vegas Townhome and that appellants hold the entire equitable interest.
Emerald Gate filed a motion to strike the amended schedules. Before the hearing on that motion was held, on April 11, 2005, appellant Saba, purportedly acting on behalf of both debtors, filed an amendment to the bankruptcy petitions of both debtors, pursuant to Rule 1007(a)(3), amending the list of equity security holders to show Acorn Development, Inc. as the sole equity security holder of debtors.
On April 15, 2005, Saba, purportedly on behalf of both debtors, filed a motion to dismiss the consolidated case or convert it to chapter 11.
The court held a hearing on the motion to strike the amended schedules on April 27, 2005. On May 13, 2005, it entered an order striking the amended schedules, finding that the schedules " contravene the prior final orders of this Court, including the denial of the claim of Gregory Grantham and John Saba, " and that the amended schedules were filed in bad faith.
On May 17, 2005, the court held a hearing on Saba's motion to convert or dismiss, and denied the motion by order entered May 31, 2005.
In the meantime, on May 3, 2005, Emerald Gate's counsel sent Saba a letter enclosing a draft motion for sanctions for filing the amendment to the bankruptcy petition (amended list of equity security holders). On the same date, Emerald Gate's counsel sent Saba a second letter enclosing a draft motion for sanctions for filing the motion to dismiss or convert. Both letters cited Rule 9011 and gave Saba 21 days to allow him to correct the action.
This motion did not relate to the filing of the amended schedules, which the court had ordered stricken (the hearing was held on April 27, 2005, and the order striking was entered on May 13, 2005).
Saba did not withdraw either the amendment to the bankruptcy petitions (amended list of equity security holders) or the motion to dismiss or convert. Emerald Gate filed both motions for sanctions on June 7, 2005.
Saba filed oppositions to both motions for sanctions. Saba and Grantham appeared telephonically at the hearing on the motions for sanctions. During the course of the hearing, the court found Grantham in contempt and fined him $100 for disrespect for the court. Transcript of July 27, 2005 hearing at 36. The court found that there were grounds for sanctions based on both of Emerald Gate's motions, and continued the hearing to consider what sanctions would be appropriate. The court also indicated that it would issue an order to show cause why Grantham and Saba should not be sanctioned for their conduct at the hearing. Id. at 49.
Shortly thereafter, the court entered the Order to Show Cause (OSC) pursuant to Rule 9011(c)(1)(B), setting out three grounds for sanctions against Saba alone, two grounds for sanctions against Grantham alone, and one ground for sanctions against both Saba and Grantham.
The court held a joint hearing on the OSC and on what sanctions were appropriate on Emerald Gate's motions. The court concluded that Saba and Grantham had failed to show cause why they should not be sanctioned. Transcript of October 25, 2005 hearing beginning at 19. The court then imposed various sanctions jointly and severally against both appellants. It barred them from appearing as attorneys in the Nevada bankruptcy court for one year, unless they first completed a continuing legal education course on basic civil procedure; if they completed the continuing legal education course, they could not associate with any local counsel that is affiliated with them in any business capacity; it indicated it would have the proceedings transcribed and submitted to the California State Bar; and it ordered payment of $15,000 in sanctions, to be paid into the court's registry. Id. at 22-26. The court entered an order imposing those sanctions, and appellants timely appealed.
ISSUES
1. Whether the bankruptcy court abused its discretion in sanctioning Saba for filing the amendment to the bankruptcy petitions (amended list of equity security holders).
2. Whether the bankruptcy court abused its discretion in sanctioning Saba for filing the motion to dismiss or convert.
3. Whether the bankruptcy court erred in sanctioning both Saba and Grantham for conduct outlined in the court's OSC.
STANDARD OF REVIEW
We review " all aspects of a decision to impose Rule 9011 sanctions for abuse of discretion." In re Brooks-Hamilton, 329 B.R. 270, 277 (9th Cir. BAP 2005). A court abuses its discretion " if it base[s] its ruling on an erroneous view of the law or on a clearly erroneous assessment of the evidence." Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1990).
DISCUSSION
The bankruptcy court imposed pursuant to Rule 9011. That rule provides, as relevant:
(b) Representations to the Court. By presenting to the court (whether by signing, filing, submitting, or later advocating) a petition, pleading, written motion, or other paper, an attorney or unrepresented party is certifying that to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances, --
(1) it is not being presented for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation;
(2) the claims, defenses, and other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law;
(3) the allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery; and
(4) the denials of factual contentions are warranted on the evidence or, if specifically so identified, are reasonably based on a lack of information or belief.
(c) Sanctions. If, after notice and a reasonable opportunity to respond, the court determines that subdivision (b) has been violated, the court may, subject to the conditions stated below, impose an appropriate sanction upon the attorneys, law firms, or parties that have violated subdivision (b) or are responsible for the violation. (1) How Initiated.
(A) By Motion. A motion for sanctions under this rule shall be made separately from other motions or requests and shall describe the specific conduct alleged to violate subdivision (b). . . . The motion for sanctions may not be filed with or presented to the court unless, within 21 days after service of the motion . .., the challenged paper, claim, defense, contention, allegation, or denial is not withdrawn or appropriately corrected . . . .
(B) On Court's Initiative. On its own initiative, the court may enter an order describing the specific conduct that appears to violate subdivision (b) and directing an attorney, law firm, or party to show cause why it has not violated subdivision (b) with respect thereto.
Rule 9011. An attorney's conduct is measured " objectively against a reasonableness standard, which consists of a competent attorney admitted to practice before the involved court." Brooks-Hamilton, 329 B.R. at 283 (quoting In re Grantham Bros., 922 F.2d 1438, 1441 (9th Cir. 1991)). Rule 9011 is not, however, " intended to remedy all manner of attorney misconduct occurring before or during" the trial or hearing; the conduct must fit within the confines of Rule 9011 to be sanctionable under that rule. Zaldivar v. City of Los Angeles, 780 F.2d 823, 829 (9th Cir. 1986), overruled on other grounds by Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1990))(discussing Fed.R.Civ.P. 11).
Any sanction that the court imposes " shall be limited to what is sufficient to deter repetition of such conduct or comparable conduct by others similarly situated." Rule 9011(c)(2). Sanctions may include both monetary and nonmonetary components. Id.
1. Sanctions for filing the amendment to the bankruptcy petitions (amended list of equity security holders)
Saba filed an amended list of equity security holders as an amendment to the bankruptcy petitions, in which he indicated that Acorn Development, the corporation owned by him and Grantham, owned 100 percent of the equity in both debtors. Emerald Gate sought sanctions against Saba for filing that document, arguing that Rule 1007(a)(3), pursuant to which the list was filed, applies only in chapter 11 cases, not in chapter 7 cases such as this one. The motion for sanctions also asserted that the representations in the list of equity security holders were not true. The motion asserted that Saba and Grantham had previously filed amended schedules in the case in bad faith, and that the list of equity security holders was filed for the improper purpose of establishing prima facie evidence of Acorn Development's interest in debtors.
Saba argued in opposition that the motion failed to comply with the local rule requiring every motion to contain a statement of relief sought and a legal memorandum. He further argued that the motion lacked any evidentiary support, and that the amended list of equity security holders was filed in good faith, because Acorn Development in fact held the equity in debtors.
The court granted the motion for sanctions. It concluded that Emerald Gate's motion was procedurally adequate. Because there is a question about the basis of the court's ruling, we set it out below in some detail. The court said:
Now, with respect to the actual motions itself [sic], let me first take the motion for the violation by Mr. Saba for signing the motion seeking to add the additional schedules.
Despite the protestations which I cannot understand of Mr. Grantham and Mr. Saba, there very clearly is an order entered on the docket of this court that the filing of those schedules were, one -- and I am reading from line 26, the order entered on May 13th -- that, quote, " The amended schedules contravene the prior final orders of this Court including denial of the claim of Gregory Gantham (sic) excuse me -- Gregory Grantham and John Saba which constitute res judicata against the parties thereto. Two, the amended schedules were filed in bad faith."
That is as Mr. Saba has admitted an unappealed final order of this Court and establishes that, in fact, the documents that were filed that relate to the motion for the schedules violate the various provisions of Rule 9011.
. . . .
For those, I am paraphrasing 9011(b), but I believe that the findings entered on May 13th establish that that motion was filed in contravention of that.
. . . .
Thus, I believe that there is a violation of Rule 9011(b) at least with respect to the filing of the papers related to the amended petition.
Transcript of July 27, 2005 hearing at 39:19 - 41:8 (emphasis supplied).
Appellants argue that the court erred, because the information contained in the amended list of equity security holders was correct, and that the court erroneously sanctioned them for filing the amended schedules, which had been stricken, and not for filing the amended list of equity security holders, which was the subject of the motion for sanctions.
We need not decide whether the information contained in the amended list of equity security holders was correct, because appellants are correct that the court focused on the wrong documents in granting the motion for sanctions. The motion related specifically to the filing of the amendment to the bankruptcy petitions, which amended the list of equity security holders. And yet, the court focused on the finding of bad faith that it had made in connection with its decision to strike the amended schedules. The amended list of equity security holders on which the motion for sanctions was based had never been stricken, and there had never been a finding of bad faith made with regard to that amended list.
As appellants point out, the motion could not have related to the filing of the amended schedules, because the court had ordered those schedules stricken before the 21-day safe harbor period required by Rule 9011 had expired. The motion for sanctions was served on May 3, 2005, and the amended schedules were stricken on May 13, less than 21 days later. Therefore, appellants would not have had the required 21 days allowed to withdraw those schedules and avoid sanctions. See Barber v. Miller, 146 F.3d 707, 710 (9th Cir. 1998)(purpose of safe harbor is to give offending party opportunity to withdraw pleading and so avoid sanctions); Advisory Committee Notes to 1993 amendment to Rule 11 (noting that safe harbor provision allows party presenting paper to court to withdraw it and avoid sanction); 5A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1337.2 at 722 (2004)(same).
Emerald Gate argues that the court was not mistaken about which documents were the subject of the sanction motion, asserting that the court was simply considering appellants' recent conduct in considering what the appropriate sanction would be. That argument disregards the court's explicit findings that it was granting the motion for sanctions because of the finding in the earlier order striking the amended schedules that those schedules had been filed in bad faith.
It is apparent from the transcript that the court considered Saba's bad faith in filing the amended schedules as the basis for awarding sanctions on this motion. Although the evidence may have supported a finding of bad faith in filing the amended list of equity security holders (because amended Schedule A and the amended list of equity security holders contained similar information), the court did not articulate any connection, and we cannot imply a finding of bad faith in filing an amended list of equity security holders from a finding of bad faith in filing amended schedules.
The amended Schedule A, filed on March 4, 2005, and stricken on May 13, 2005, indicated that debtor held only naked legal title to the real estate, and that Grantham and Saba owned all equitable interest. The amended list of equity security holders, filed on April 11, 2005, indicates that Acorn Development is the 100 percent owner of all equity interest in debtors pursuant to a 2004 judgment.
There were other bases alleged for the sanctions motion, such as that the amended list of equity security holders was not to be filed in a chapter 7 case, and that appellants had no standing to act on behalf of debtors in filing the amended list. However, the court did not make either of those findings. Instead, the court relied exclusively on the bad faith determination from the earlier order striking the amended schedules.
Because the bankruptcy court's explanation does not support the award of sanctions for filing the amendment to the bankruptcy petitions (amended list of equity security holders), we conclude that the award of sanctions for filing the amended list of equity security holders cannot stand. However, because there may be other bases on which the bankruptcy court could award sanctions on this motion, on remand the bankruptcy court may, if it deems it appropriate, grant the motion on a different basis.
2. Motion for sanctions for filing motion to dismiss or convert
The court also awarded sanctions for Saba's filing of a motion to dismiss the case or, in the alternative, to convert the case to chapter 11. Appellants argue that the court abused its discretion in awarding sanctions for filing that motion, because (1) it failed to comply with the safe harbor provisions of Rule 9011; (2) changed circumstances existed to provide a real prospect for reorganization; and (3) the motion was not filed for an improper purpose.
As with the sanctions for filing the amended list of equity security holders, the court's ruling is critical. In addressing this motion, the court said:
With respect to the motion to dismiss, again, as stated in Mr. Stern's argument, the motion to dismiss was in some respects more egregious than the attempt to amend the schedules in the sense that it was fairly nothing less than a transparent attempt to derail the estate's legitimate efforts to sell the property.
With respect to those sales, too, (indiscernible) have really -- and, again, I will incorporate my findings with respect to the motion to dismiss.
There was no legitimate basis for rebringing that motion which had been brought as Mr. Stern indicates twice before or at least directly once before this Court.
And, indeed, as at the time and as now, it was a relatively-transparent attempt to take the property back from the estate.
That is not to say that there are not legitimate disagreements between Grantham and Saba and their related entities on the one hand and the trustee and the estate on the other. There are.
There are appeals which will ultimately resolve that, but simply to say that there is a legitimate dispute between the parties does not validate or legitimate illegitimate attempts to attempt to win that dispute.
And as found in my prior orders with respect to striking the amended schedules and with respect to denying the motion to dismiss, I found Mr. Saba and Mr. Grantham had crossed the line with respect to the legitimacy of their actions. Those were again unappealed orders, prior orders, of this Court.
Transcript of July 27, 2005 hearing at 41:9 - 42:12 (emphasis supplied).
This ruling indicates that the court relied on the earlier findings it had made in denying the motion to dismiss or convert to support the award of sanctions for filing that motion. The motion to dismiss was denied by order dated May 31, 2005 after a hearing held on May 17, 2005. The May 31 order did not set out the court's findings and conclusions, but instead indicated that the court had " rendered its findings of fact and conclusions of law on the record." Order Denying Motion to Dismiss Chapter 7 Case at 2.
Appellants have not provided us with a transcript of the hearing on the motion to dismiss or convert, in which the court explained its reasons for denying that motion. Therefore, there is no way for this panel to know why the court denied the motion to dismiss, which reasons then form the basis for granting the motion for sanctions.
The appellant has the burden of providing a sufficient record on appeal pursuant to Rule 8009(b)(9); failure to provide an adequate record may be grounds for affirming the bankruptcy court's decision. In re Massoud, 248 B.R. 160, 163 (9th Cir. BAP 2000); In re Burkhart, 84 B.R. 658, 660 (9th Cir. BAP 1988). Because the appellant has the burden to demonstrate the merits of its appeal, the appellant bears the burden of a deficient record. In re Webb, 212 B.R. 320 (8th Cir. BAP 1997). When the appellant fails to provide a complete record, we are entitled to presume that the appellant does not regard the missing portions as helpful to the appellant's appeal. In re McCarthy, 230 B.R. 414, 417 (9th Cir. BAP 1999).
Here, appellants have not provided a copy of the transcript of the May 17 hearing, at which the court set out its findings and conclusions in denying the motion to dismiss or convert. The court expressly relied on those findings and conclusions in sanctioning appellants for filing the motion to dismiss or convert. Because those findings and conclusions could support the award of sanctions, we cannot say that the bankruptcy court abused its discretion in awarding sanctions for the filing of the motion to dismiss or convert.
3. Sanctions awarded on order to show cause
The court also awarded sanctions against both appellants based on its order to show cause. That order followed on the heels of the July 27, 2005, hearing, and addressed what the court considered to be sanctionable conduct that occurred at that hearing. The order to show cause required appellants to show cause why they should not be sanctioned for the following reasons:
[(A)] As to Mr. Saba, being unprepared in that he did not have, and could not locate, a copy of the motion being argued;
[(B)] As to Mr. Saba, that he continued to argue the good faith of his prior actions in the face of an unappealed court order to the contrary, and his interposition of an " exhaustion" defense;
[(C)] As to Mr. Saba, his request to file paper pleading in light of the court's prior order specifically barring him (and Mr. Grantham) from such paper filings, and his omission, from that paper filing, of any reference to the court's prior order;
[(D)] As to Mr. Grantham, his failure to adhere to the court's admonition to confine his remarks to the effect of the motion on his personal interests, and his making of inflammatory statements, including, without limitation, his references to the court's imposition of slavery and the 13th Amendment;
[(E)] As to Mr. Grantham, his " later advocating" (as that term is used in Rule 9011(b)) of each of Mr. Saba's positions above;
[(F)] As to Mr. Saba and Mr. Grantham, their non-compliance with this court's rules regarding pro hac vice practice, and the attempt to have Mr. Grantham speak for Mr. Saba during the hearing.
Order to Show Cause at 1-2.
A. Saba's lack of preparation for the hearing on the motion for sanctions
At the July 27 hearing on the motion for sanctions, at which appellants appeared telephonically, the bankruptcy court directed Saba to look at the May 3 letter threatening sanctions. Saba apparently did not have access to a copy of the motion for sanctions. The following colloquy occurred:
THE COURT: Do you have a copy of motion for sanctions in front of you, sir?
MR. SABA: No, sir. I don't have it here.
THE COURT: Why do you not have it in front of you? Did you not request to appear telephonically today?
MR. SABA: I did request to appear telephonically.
THE COURT: And you don't have the documents necessary for you to make any arguments or answer any of the questions of the Court before you?
MR. SABA: Well, frankly, your Honor, we thought it was tomorrow for some reason. We thought it was the hearing was going to be tomorrow.
THE COURT: Well, your letter did request something for Thursday the 27th, so you were --
MR. SABA: I --
THE COURT: -- ambiguous.
MR. SABA: I know, your Honor. Again, we're very busy, and I was out of the office this morning. I came in, and Greg was alone in the office, and he --
THE COURT: Is --
MR. SABA: -- thought --
THE COURT: Is --
MR. SABA: -- it was going --
THE COURT: Is --
MR. SABA: -- to be tomorrow.
THE COURT: Is anyone --
MR. SABA: And I thought it was for --
THE COURT: Is anyone able to get the motion and bring it to you right now within the next minute or so?
MR. SABA: Greg is looking for it, your Honor.
THE COURT: Please keep looking.
Transcript of July 27, 2005 hearing at 25:20 - 26:25. Counsel then said he was trying to access PACER, because he could not find the motion. The hearing continued with a discussion of the authority set out in the letter threatening sanctions.
In response to the order to show cause, Saba reiterated that he had been out of the office until shortly before the hearing was to begin, and mistakenly thought the hearing was the next day. He said that the file in the case " consists of approximately eight banker's boxes and it was difficult for Mr. Saba to conduct a proper search and at the same time make his appearance before this court." Response to OSC Re Sanctions at 2.
The court found that response insufficient, and chastised Saba for not informing the court that he was unprepared until the court asked about it. Transcript of October 25, 2005 hearing at 19:18 - 20:3.
On appeal, appellants now argue that Saba's lack of preparation is not sanctionable conduct under Rule 9011, because " Rule 9011(b) relates to the legal and factual support for pleadings and papers signed by an attorney or unrepresented party." Appellants' Brief at 27. Emerald Gate attempts to fit Saba's lack of preparation into Rule 9011 by arguing that Saba requested in writing to appear at the hearing by telephone when he never intended to personally participate in the hearing.
We agree with appellants that lack of preparation is not a violation of Rule 9011(b). That rule relates to the presentation of pleadings, motions, or other papers to the court, which presentation constitutes a certification that, to the best of the person's knowledge, the factual and legal assertions have support and the document is not being presented for an improper purpose. There is no evidence (nor was there any argument to the bankruptcy court) that Saba's request to appear telephonically was unsupported by facts or presented for an improper purpose. His lack of preparation was not an argument related to any paper he had filed. It may have been sanctionable under some theory other than Rule 9011, but it did not violate Rule 9011, which prohibits presenting papers or documents to the court that lack evidentiary or legal support or are for an improper purpose. Thus, we conclude that the bankruptcy court abused its discretion in sanctioning Saba under Rule 9011 for lack of preparation.
The sanction cannot be affirmed as an award pursuant to the court's inherent authority, because such a sanction requires a finding of bad faith, which the court did not make here. See In re Fjeldsted, 293 B.R. 12, 26 (9th Cir. BAP 2003)(court has inherent authority to sanction bad faith, but must make explicit finding of bad faith).
B. Saba's continued argument that the amendment to bankruptcy schedules had been filed in good faith, in light of the unappealed court order to the contrary, and his interposition of an " exhaustion" defense for failure to appeal the bad faith order
At the July 27 hearing on Emerald Gate's motions for sanctions, Saba argued that the amended schedules, which had been stricken, had been filed in good faith, and that he had failed to appeal the order finding bad faith in the filing of the amended schedules because he was exhausted. Transcript of July 27, 2005 hearing at 22:7 - 24:5.
Saba's response to the OSC argued that an order striking an amended schedule is not a final, appealable order, so appellants had until the end of the bankruptcy case to appeal it. Thus, he argued, he was free to continue to argue that the amended schedules had been filed in good faith, despite the court's ruling to the contrary. Saba further reargued the bad faith determination, asserting that the amendment to the schedules was correct because the schedules should reflect the debtor's assets and liabilities as of the date of the petition. Response to OSC Re Sanctions at 2-4.
The court rejected this explanation, noting that an order is binding until it is changed or reversed. Transcript of October 25, 2005 hearing at 20:4-13.
Now, on appeal, Saba contends that the argument that the amended schedules were filed in good faith, despite the court's order to the contrary, was justified, because the bankruptcy court was mistakenly focused on the filing of the amended schedules rather than the amended list of equity security holders. Although Saba is correct that he could argue that the amended list of equity security holders was filed in good faith, the conduct for which he was sanctioned under the order to show cause was arguing that the amended schedules were filed in good faith. The court's mistaken belief that the underlying motion for sanctions related to the filing of the amended schedules does not justify Saba's argument of good faith in the filing of the amended schedules in the face of a court finding to the contrary. The court did not abuse its discretion in ordering sanctions for Saba's continued advocacy of good faith in filing the amended schedules.
Appellants do not argue that Rule 9011 does not authorize an award of sanctions for oral advocacy. Nor do they make any argument about the " exhaustion defense."
C. Saba's request to file a paper pleading and failure to disclose in that request the court order barring him from paper filings
On May 6, 2005, the court entered an Order Denying Application for Order Shortening Time, in which the court said:
The court permitted [documents related to a motion] to be filed in paper format, but hereby warns Mr. Grantham and Mr. Saba that the court will no longer sign orders permitting them to file their documents in paper form. They state that they took the necessary training in February, and three months is sufficient time to do the necessary follow-up work. Alternatively, since Acorn Development, Inc. has local counsel, that local counsel may be used to electronically file documents. In any event, the papers filed on May 5, 2005 will be the last paper filings permitted to Mr. Saba and Mr. Grantham.
Order Denying Application for Order Shortening Time at 1 n.1.
Despite that order, on June 30, 2005, Saba filed a Motion for Permission to File in Paper Format, requesting that he be able to file the oppositions to the two motions for sanctions in paper form. The motion indicated that there had been approximately eight prior requests for paper filing, all of which had been granted. It was silent with regard to the court's admonition that it would no longer allow paper filings.
Saba's response to the order to show cause was simply that the court was well aware of its prior order requiring him to file electronically only, that the request to file paper pleadings was not done to mislead or deceive, and that the motion adequately explained that this would likely be the last time he would be filing any pleadings with the court, so he should not have to go through the effort of obtaining an ID and password for the electronic filing system. Response to OSC Re Sanctions at 4-5.
The court found that response to be " insufficient and unconvincing." Transcript of October 25, 2005 hearing at 21:19-20.
On appeal, Saba argues for the first time that filing a document in paper form rather than electronically does not violate Rule 9011. That argument does not show that the court erred in sanctioning him. Saba was not sanctioned for filing documents in a paper format; he was sanctioned for making a written request to file in a paper format, without disclosing that he had previously been barred from doing so. Rule 9011 provides that the presentation to the court of a written motion constitutes a certification that the information contained in the motion has evidentiary support. Rule 9011(b). Saba's motion for permission to file in a paper format was misleading in that it failed to inform the court that he had been barred from making just such a request. The court did not abuse its discretion in sanctioning Saba for filing the motion, which lacked factual support.
D. and F. (1) Grantham's failure to limit his argument to matters affecting his personal interests, in light of the fact that he was not admitted to practice in the bankruptcy court, and both Saba and Grantham's failure to comply with court's pro hac vice rules; (2) Grantham's making of certain inflammatory statements (1) The conduct set out in the fourth and sixth bullet points
of the order to show cause largely address the same issue - Grantham's attempt to argue on behalf of Saba despite not being admitted to practice before the Nevada bankruptcy court, and Saba's acquiescence in having Grantham argue on his behalf.
At the outset of the July 27 hearing on the motions for sanctions, Grantham stated that he was appearing on behalf of the Law Office of John Saba. Transcript of July 27, 2005 hearing at 4:20-24. After some preliminary matters, the court questioned whether Grantham should be speaking on behalf of Saba, against whom the motions for sanctions had been filed, because Grantham was not admitted to practice before the Nevada court. This colloquy followed:
MR. GRANTHAM: Well, I'm associated in with the Law Office of John Saba. We're both attorneys. We're partners. Basically, on the bankruptcy side of it, Mr. Saba has more experience in that field.
And, generally, when we practice, we do it under his name in the bankruptcy. And in state courts where I have more experience, it generally goes under my name.
THE COURT: I understand that. But while I would let Mr. Saba speak in his own defense because I always let people who are representing themselves appear in their own, I do not believe that you have been admitted to the bar of this court, have you?
MR. GRANTHAM: No. I don't think that I have filed an application. I may do so soon, though.
THE COURT: But you haven't done it, yet, correct?
MR. GRANTHAM: That's correct.
THE COURT: So, I mean, it is not like you are a stranger to this courtroom nor is this case a stranger to people being admitted pro hac vice; thus, I will not let you speak for Mr. Saba today.
If he is there, he may speak for himself, but you are not authorized or admitted to this court to represent clients, and so I will not allow you to appear on behalf of Mr. Saba at this point. If he is there, he may talk.
Id. at 6:20 - 7:18. Saba then spoke for himself.
Grantham later asked if he could speak " just as a party in the case." Id. at 8:12-13. The court responded that, if Grantham wanted to add something after Saba had argued the motion, the court would allow Grantham to speak with regard to his individual interest. Id. at 9:4-8.
Later in the hearing, the court allowed Grantham to address the court. His argument addressed the merits of the sanctions motions. Id. at 29:21 et seq.
After a lengthy argument, the court fined Grantham $100 for contempt of court for acting in a disrespectful manner to the court. Id. at 36:6-12. The court again asked how the arguments Grantham had made affected Grantham personally. Grantham responded that Saba was his partner, so anything Saba pays, Grantham pays. Id. at 36:20-21. The court responded:
Fair enough. Although it's unclear to me exactly how that affects your interest as a creditor in this particular case, I understand how that may affect your interest with respect to your ongoing relations with Mr. Saba.
Id. at 37:8-12.
The court's show cause order listed as bases for sanctions Grantham's continued attempt to represent Saba when Grantham was not admitted to practice before the court, and both Saba and Grantham's failure to comply with the court's pro hac vice rules.
In response to the OSC, Grantham indicated that he had believed that, by stating his personal pecuniary interest in the sanctions award, he was allowed to speak to the merits of the sanctions motions. Response to OSC Re Sanctions at 5. Both Saba and Grantham also argued that they were not aware of any pro hac vice violations, and that Grantham had only wanted to address the court because the sanctions motions affected his own pecuniary interest. Id. at 7.
The parties do not cite in their briefs any local rule regarding pro hac vice admission. Nor did the court cite to any such rule in its OSC. It appears that a local district court rule, L.R. IA 10-2, applies to bankruptcy cases.
Rule IA 10-2(a) provides:
An attorney who is not a member of the bar of this court, who has been retained or appointed to appear in a particular case may do so only with permission of the court. Application for such permission shall be by verified petition on the form furnished by the clerk. The attorney may submit the verified petition if the following conditions are met:
The rule then sets out a number of conditions, which are not relevant here. This rule appears to apply in bankruptcy cases, as it addresses the time for performing any act under the Rules of Bankruptcy Procedure, L.R. IA 10-2(d), and provides that, " [i]n bankruptcy cases, attorneys shall have ten (10) days after their first appearance to comply with all of the provisions of this rule." L.R. IA 10-2(g).
There can be little doubt that Grantham sought to represent Saba at the hearing on the sanctions motion; he stated at the outset of the hearing that he was representing the Law Office of John Saba. Transcript of July 27, 2005 hearing at 4:22-23. He also admitted to the court that he had never sought to be admitted pro hac vice to appear in Nevada bankruptcy court. Id. at 27:5-10. Thus, it is clear that Grantham violated the attorney admission rules of the bankruptcy court.
It is not clear, however, how a violation of the local pro hac vice rule translates into a violation of Rule 9011(b), which governs the presentation of papers to the court (by filing, submitting, or later advocating) as a certification that they are not frivolous and are not presented for an improper purpose. Although we agree with the bankruptcy court that appellants' explanation provided in the response to the order to show cause did not adequately explain the attempt to appear as counsel without being admitted to practice before the court, that does not explain how doing so constitutes a violation of Rule 9011.
It also is not clear, and we do not see, how Saba violated the pro hac vice rule. He apparently was admitted to practice pro hac vice for this bankruptcy case. If the violation was his willingness to allow Grantham to speak for him, we again do not see how that relates to any written document presented to the court that could form the basis for a sanction under Rule 9011.
Therefore, the bankruptcy court abused its discretion in awarding sanctions under Rule 9011 for Saba and Grantham's violations of pro hac vice requirements, if any.
(2) At the July 27 hearing, after explaining the court's ruling on the motions for sanctions against Saba, the court began considering possible sanctions. Because appellants had not been given a list of possible sanctions to which they could respond before the hearing, the court decided to continue the hearing for the purpose of determining appropriate sanctions. It set a briefing schedule for Emerald Gate to file evidence about what the appropriate sanction would be, and gave Saba time to respond. The court then set out a number of types of sanctions it would consider, including barring Saba from appearing in that court, sending a transcript of the hearing to the California State Bar, or any other type of nonmonetary sanctions that Emerald Gate might request, along with monetary sanctions. In response to the litany of possible sanctions, Grantham said, " Perhaps, servitude, too, slavery, maybe taking away children, homes. Who knows where it ends, huh?" Transcript of July 27, 2005 hearing at 48:7-9.
The court listed these " inflammatory statements" as one of the bases for the order to show cause.
In responding to the order to show cause, Grantham first argued that he had already been sanctioned for his comments and had paid the $100 fine the court had ordered. He further described his comments about possible sanctions as " hyperbole, intentionally exaggerated and designed to make a substantive point, to wit: that the list of potential sanctions . . . appeared extreme in relation to the conduct involved[.]" Response to OSC Re Sanctions at 5-6.
At the show cause hearing, the court correctly pointed out that, in fact, Grantham had not previously been fined for his intemperate comments about slavery, but in fact had been fined earlier in the hearing for different conduct. Transcript of October 25, 2005 hearing at 21:1-8.
On appeal, Grantham argues that these sarcastic remarks do not violate Rule 9011. We agree. Grantham's comment was disrespectful and may have constituted contempt of court. However, Rule 9011 is designed to address the adequacy of and purpose for filing documents with the court. It is not designed to address every instance of attorney misconduct. Trulis v. Barton, 107 F.3d 685, 695 (9th Cir. 1995). When Grantham made the impertinent statement, he was not advocating a position he had taken in earlier papers filed with the court; he was responding to the court's list of possible sanctions it would consider. Impertinent statements, by themselves, do not violate the certification of Rule 9011(b) that a paper presented to the court will have legal and factual support and will not be presented for an improper purpose. Therefore, the bankruptcy court abused its discretion in imposing a sanction under Rule 9011 on Grantham for his impertinent comment.
E. Grantham's " later advocating" each of the positions set out by Saba in his written pleadings
Finally, the court imposed sanctions on Grantham for orally advocating the positions Saba had set out in his written pleadings. Because we have concluded that the court abused its discretion in sanctioning Saba for filing the amended list of equity security holders (because it based the sanction on the filing of a different pleading), the court should not have sanctioned Grantham for advocating the same position. Therefore, the court erred in imposing a sanction pursuant to Rule 9011 for advocating the good faith of the amended list of equity security holders.
We have also concluded that the court did not abuse its discretion in sanctioning Saba for filing the motion to dismiss. Therefore, Grantham's advocacy of that motion could similarly violate the certification provision of Rule 9011(b), which applies to the presentation to the court of a pleading, written motion, or other paper, " whether by signing, filing, submitting, or later advocating" the document. Rule 9011(b).
As we said above, appellants have not challenged whether orally advocating a position can be sanctionable under Rule 9011.
Nonetheless, we conclude that the court abused its discretion in sanctioning Grantham for his advocacy of the motion for sanctions on the motion to dismiss or convert, which was filed by Saba. Most of Grantham's argument at the hearing on the motions for sanctions related to the good faith of the filing of the amended list of equity security holders. The only argument made by Grantham that arguably related to the motion to dismiss or convert was a general argument, which had been raised in Saba's responses to the motion for sanctions, that Emerald Gate had failed to request any particular sanction in its motion. Transcript of July 27, 2005 hearing at 30:4 - 31:2; 48:12 - 49:3. But the court agreed with that argument, and continued the hearing until a later date so that Emerald Gate could file a request for particular sanctions and Saba and Grantham could respond. Thus, advocating that position was not advocating a position that was frivolous or asserted for an improper purpose, and did not violate Rule 9011(b).
4. Sanctions
Appellants argue that, if we conclude that the court erred in imposing sanctions for some of the conduct set out in the motions for sanctions and the OSC, we must reverse the entire sanctions order, because the court did not tailor the sanctions to each particular violation.
The bankruptcy court did not award sanctions separately for the two motions to dismiss and the OSC, let alone for the particular instances of conduct that it had listed in the OSC. We have concluded that the court's reasons for imposing sanctions on the motion relating to the filing of the amended list of equity security holders does not support the award, and that some of the sanctioned conduct set out in the OSC is not sanctionable under Rule 9011. Although there is no requirement that the court separately impose sanctions for each violation, the combined award precludes us from knowing what sanctions the bankruptcy court would have imposed based on the conduct that is sanctionable. Therefore, we will vacate the sanctions order and remand for the court to consider whether there is a different reason that supports an award of sanctions on the motion for sanctions for filing the amended list of equity security holders, and to award sanctions for the violations of Rule 9011(b) that we have upheld.
CONCLUSION
The bankruptcy court's reasoning does not support its sanction against Saba for filing the amendment to bankruptcy petitions (amended list of equity security holders). Rule 9011 does not authorize sanctioning appellants for being unprepared for the hearing, for violations of the court's pro hac vice rules, and for Grantham's arguments relating to the motion to dismiss or convert. We VACATE the sanctions order and REMAND for the bankruptcy court to consider whether the motion for sanctions for filing the amendment to bankruptcy petitions (amended list of equity security holders) should be granted for different reasons, and to reconsider what, if any, sanctions are appropriate for that violation (if the court grants the motion) and for those violations of Rule 9011 that we have upheld.
KLEIN, Bankruptcy Judge, CONCURRING:
I join the memorandum decision and write separately to note my understanding that, on remand, the bankruptcy court will be free to conduct further proceedings and to award sanctions on any appropriate theory and by any appropriate measure, which may be higher or lower in amount than, or different in nature from, what it earlier awarded.