Opinion
Case No. 8:22-cv-00329-SB Bankruptcy No. 8:21-bk-10635-ES
2022-08-25
Alicia Marie RICHARDS, Appellant, v. Richard A. MARSHACK, Chapter 7 Trustee, Appellee.
D. Edward Hays, Marshack Hays LLP, Irvine, CA, for Appellee.
D. Edward Hays, Marshack Hays LLP, Irvine, CA, for Appellee.
ORDER AFFIRMING CIVIL CONTEMPT ORDER
Stanley Blumenfeld, Jr., United States District Judge
Appellant Alicia Marie Richards, a Chapter 7 debtor, appeals a bankruptcy court order holding her in civil contempt for failure to obey the court's order to turn over real property. Dkt. No. 1. While Richards's desire to retain her home is understandable, the law does not permit a party to disobey a court order even when the consequences of that order may appear harsh and result in hardship. Accordingly, the bankruptcy court's civil contempt order is affirmed.
I.
On March 12, 2021, Richards filed a voluntary Chapter 7 petition. Bankr. Dkt. No. 1. In her bankruptcy petition, Richards disclosed an interest in real property in Newport Beach, California (the Property) and claimed a homestead exemption. Id. at 13. Richards indicated that the Property was community property and that another person also had an interest in it. Id.
On September 30, 2021, Marshack, the Chapter 7 trustee, filed motions to sell the Property free and clear of liens under 11 U.S.C. § 363(f) and to turn over the Property. Bankr. Dkt. Nos. 320, 324. The bankruptcy court granted both motions and, at Richards's request, set the turnover date for December 4, 2021. Bankr. Dkt. Nos. 413, 414. After Richards and her father filed objections to the turnover order, the following day the bankruptcy court entered amended orders overruling those objections. Bankr. Dkt. Nos. 420, 421. On November 30, the same day the amended orders were filed, Richards filed an ex parte motion to stay the amended turnover and sale orders, which the bankruptcy court denied on December 2. Bankr. Dkt. Nos. 422, 434. On December 3, Richards filed an objection to the bankruptcy court's denial order, which the bankruptcy court overruled. Bankr. Dkt. Nos. 438, 439. The same day, Richards appealed the amended sale and turnover orders to a Bankruptcy Appellate Panel (BAP) and filed an emergency motion to stay the amended turnover order pending appeal. Bankr. Nos. 440, 441. The BAP denied Richards's emergency motion to stay the amended turnover order the same day. Richards v. Marshack , BAP No. CC-21-1263, Dkt. No. 2 (B.A.P. 9th Cir. Dec. 3, 2021). Thus, on December 4, 2021, Richards had a legal obligation to turn over the Property pursuant to the bankruptcy court's order.
Throughout December, Richards, her father, and the Remsen Family Trust filed several additional notices of appeal regarding the amended turnover order and ex parte denial order.
Richards did not comply. On January 4, 2022, Marshack moved for an order to show cause why Richards should not be held in contempt for violation of the amended turnover order. Bankr. Dkt. No. 476. The bankruptcy court entered such an order and subsequently held Richards in civil contempt for her failure to comply with the amended turnover order. Bankr. Dkt. Nos. 509, 554. The bankruptcy court's civil contempt order, Dkt. No. 19-3, is the subject of this appeal.
Marshack obtained from the BAP a limited remand in order to move the bankruptcy court for entry of a second amended turnover order that included language necessary for the U.S. Marshal Service to remove Richards from the Property. Bankr. Dkt. No. 536. After the bankruptcy court entered the second amended turnover order, the U.S. Marshal Service removed Richards from the Property and the Property was sold. Bankr. Dkt. No. 569.
II.
The Court has "jurisdiction to hear appeals ... (1) from final judgments, orders, and decrees; ... of bankruptcy judges ...." 28 U.S.C. § 158(a). A civil contempt order that imposes sanctions is a final order. Shuffler v. Heritage Bank , 720 F.2d 1141, 1145 (9th Cir. 1983). District courts review decisions of bankruptcy courts as appellate courts, applying the same standards of review as the federal courts of appeal. In re Guadarrama , 284 B.R. 463, 468 (C.D. Cal. 2002).
District courts review bankruptcy courts’ civil contempt orders for abuse of discretion. In re Taggart , 888 F.3d 438, 443 (9th Cir. 2018) ; In re Freeman , 608 B.R. 228, 233 (B.A.P. 9th Cir. 2019). A lower court abuses its discretion if it applied an incorrect legal rule, or if it identified the correct legal rule but applied it in a way that was illogical, implausible, or without support in inferences that may be drawn from facts in the record. U.S. v. Hinkson , 585 F.3d 1247, 1261-62 (9th Cir. 2009). A lower court rejecting an impossibility defense is reviewed for clear error. F.T.C. v. Affordable Media , 179 F.3d 1228, 1239 (9th Cir. 1999). Whether lower courts provided an alleged contemnor due process is reviewed de novo. Thomas, Head and Greisen Employees Trust v. Buster , 95 F.3d 1449, 1458 (9th Cir. 1996).
Here, the bankruptcy court first identified the source of its contempt powers. Dkt. No. 19-3 (citing, among other authority, 11 U.S.C. § 105(a), Rules 9020 & 9014, and Knupfer v. Lindblade (In re Dyer) , 322 F.3d 1178, 1189–90 (9th Cir. 2003)). It then articulated the rule for holding a party in contempt as follows:
To find a party in civil contempt, the court must find that the offending party knowingly violated a definite and specific court order, and the moving party has the burden of showing the violation by clear and convincing evidence. In re Dyer , 322 F.3d at 1190–91 ; In re Wallace , 490 B.R. 898, 905 (B.A.P. 9th Cir. 2013). But "civil contempt should not be resorted to where there is a fair ground of doubt as to the wrongfulness of the defendant's conduct." Taggart v. Lorenzen , ––– U.S. ––––, 139 S. Ct. 1795, 1801-02, 204 L.Ed.2d 129 (2019) (citation omitted) (establishing the objective fair ground of doubt standard in the context of a discharge order).
The burden then shifts to the contemnors to demonstrate why they were unable to comply. FTC v. Affordable Media , 179 F.3d 1228, 1239 (9th Cir. 1999). A person fails to act as ordered by the court when he fails to take all the reasonable steps within his power to insure compliance with the court's order. Shuffler v. Heritage Bank , 720 F.2d 1141, 1146–47 (9th Cir. 1983).
Dkt. No. 19-3.
Richards has not identified any error with the bankruptcy court's statement of the applicable rule. Accordingly, this appeal turns on whether the bankruptcy court applied the rule in an illogical, implausible, or unsupported manner.
III.
As explained above, Richards was under a court order to turn over the Property to Marshack on December 4, 2021—a date that she herself requested. In clear violation of that specific order, she remained in possession of the Property beyond the turnover date and only left when the U.S. Marshals came to remove her on February 25, 2022. Richards's several claims that the bankruptcy court abused its discretion in holding her in contempt for failing to turn over the Property are unpersuasive.
A.
The bankruptcy court did not clearly err in rejecting Richards's affirmative defense that it was impossible for her to comply with the amended turnover order. It is true that a party can "not be held in contempt for failing to do the impossible—[such as] turn[ing] over property it no longer possesse[s]." Shapiro v. Henson , 739 F.3d 1198, 1202 (9th Cir. 2014). However, where an alleged contemnor is in control of property subject to a court order directing disposition of the property, it is not impossible for her to comply with the order. Affordable Media , 179 F.3d at 1241-42. This is true even where compliance with the order would produce hardship. RG Abrams Ins. v. Law Offices of C.R. Abrams , Case No. 2:21-cv-00194-FLA (MAAx), 2021 WL 5213103, at *7 (C.D. Cal. Nov. 9, 2021) (finding that contemnors did not prove that it was impossible to pay court-ordered amounts despite their claim that they were "low on money"). An alleged contemnor must show "categorically and in detail" why compliance is impossible. Affordable Media , 179 F.3d at 1240-41. As the bankruptcy court explained, Richards did not satisfy this stringent standard:
Debtor asserts that compliance with the Amended Turnover Order is factually impossible. She states that she cannot vacate the Property because she has no money to move elsewhere and has no other place to reside. Specifically, Debtor stated, "Debtor has no relatives that will allow her to move in with." Opp'n, 15:21-22. Assuming this assertion is true, the Trustee has offered in writing to advance at least $5,000 to Debtor in order for her to secure temporary housing (such as a hotel, Airbnb, or rental of a dwelling space) before escrow closes, which Debtor has failed to accept. Reply 15 of 19. Lastly, Debtor has provided no evidence that she has even attempted to locate alternative housing, such as applying to rent an apartment or other dwelling, employing a real estate agent to assist her with the purchase or rental of an alternative home, or applying for financing to purchase any home. Debtor fails to meet the burden of proving "categorically and in detail" why Debtor cannot comply with the Amended Turnover Order.
Dkt. No. 19-3. The bankruptcy court also found "wholly unpersuasive" that "the approved homestead distribution from escrow, i.e., $300,000 [was] insufficient to permit [Richards] to find more permanent housing." Id.
The record supports the bankruptcy court's finding that, contrary to Richards's assertions, her failure to turn over the Property was not because it was impossible for her to do so. Richards's argument was one of hardship, not impossibility. And even then, as the bankruptcy court noted, Richards turned down relocation assistance—initially in the amount of $5,000, which was subsequently increased to $10,000. Bankr. Dkt. No. 569. Several days before being held in contempt, Richards refused to accept $10,000 from Marshack's agent to help her relocate. Bankr. Dkt. No. 558. Given the facts before it, the bankruptcy court did not clearly err in finding that Richards had not demonstrated that she took "all the reasonable steps" within her power to comply with the amended turnover order. Shuffler , 720 F.2d at 1146–47.
B.
Richards next argues that the amended turnover order was void and therefore cannot be the basis for the bankruptcy court's contempt order. "A judgment is not void ... simply because it is or may have been erroneous." United Student Aid Funds, Inc. v. Espinosa , 559 U.S. 260, 270, 130 S.Ct. 1367, 176 L.Ed.2d 158 (2010). Rather, "a void judgment is one so affected by a fundamental infirmity that the infirmity may be raised even after the judgment becomes final." Id. "The list of such infirmities is exceedingly short...." Id. ; see also id. at 271, 130 S.Ct. 1367 (noting that a judgment is void under Fed. R. Civ. P. 60(b)(4) when it is based on fundamental jurisdictional error or due process violation). Since "a court has jurisdiction to determine its own jurisdiction[,]" if there is even an arguable basis for jurisdiction, an order is not void. 12 Moore's Federal Practice , § 60.44 (Matthew Bender 3d Ed.).
In support of her position, Richards points to a litany of supposed jurisdictional defects, including that the Property was not property of the bankruptcy estate, the bankruptcy court lacked personal jurisdiction over Richards, the Property was subject to an ongoing ownership dispute in state family court, and the bankruptcy court disregarded Richards's father's purported security interest in the Property. None of these alleged defects renders the turnover order void.
The first two challenges are plainly meritless. See In re Mantle , 153 F.3d 1082, 1085 (9th Cir. 1998) ("For purposes of [ 11 U.S.C.] § 541(a)(2), all community property not yet divided by a state court at the time of the bankruptcy filing is property of the bankruptcy estate."); In re Sasson , 424 F.3d 864, 870 (9th Cir. 2005) ("The debtor invoked bankruptcy court subject matter and in personam jurisdiction by filing a voluntary petition in bankruptcy."). The third challenge is likewise without merit. It was Richards's decision to file for bankruptcy that halted the family court proceeding pursuant to 11 U.S.C. § 362. The fourth challenge fares no better. Even assuming Richards has standing to assert the interests of her father, his claimed status as a secured creditor did not vitiate the turnover order. Rather, the father's rights will be considered in determining the appropriate distributions from the bankruptcy estate.
Richards also seeks to reverse the contempt finding by asserting her subjective belief that the amended turnover order was void. The test for civil contempt, however, is objective. Taggart v. Lorenzen , ––– U.S. ––––, 139 S. Ct. 1795, 1799, 204 L.Ed.2d 129 (2019) ("[C]ivil contempt may be appropriate if there is no objectively reasonable basis for concluding that the [contemnor's] conduct might be lawful."). "If a person to whom a court directs an order believes that order is incorrect the remedy is to appeal, but, absent a stay, he must comply promptly with the order pending appeal." Maness v. Meyers , 419 U.S. 449, 458, 95 S.Ct. 584, 42 L.Ed.2d 574 (1975). Richards was obligated to turn over the Property on December 4, whether she believed the amended turnover order was void or not. C.
Richards also objects to the bankruptcy court's failure to hold an evidentiary hearing prior to entering the civil contempt order.
Due process does not require an evidentiary hearing prior to imposing civil contempt sanctions where the violation is not in dispute and the contemnor has not "described any new evidence that they could present at a hearing, nor any existing evidence that they would challenge, if such a hearing were to be ordered." Peterson v. Highland Music, Inc. , 140 F.3d 1313, 1324 (9th Cir. 1998) ; see also U.S. v. Ayres , 166 F.3d 991, 995-96 (9th Cir. 1999) (affirming a civil contempt finding made without an evidentiary hearing where the contemnor merely challenged the validity of the order that the contemnor violated and attempted to justify his violation). Moreover, "indirect contempts involving discrete, readily ascertainable acts, such as turning over a key" can be adjudicated by hearing "since the need for extensive, impartial factfinding is less pressing" than in more complex scenarios. Int'l Union, United Mine Workers of Am. v. Bagwell , 512 U.S. 821, 838, 114 S.Ct. 2552, 129 L.Ed.2d 642 (1994).
Here, the bankruptcy court noted that Richards "failed to identify her evidence and her witnesses in support of her contentions" that she had no family or friends who could provide her temporary housing. Dkt. No. 19-3. More fundamentally, the bankruptcy court reasoned that even if Richards's contentions were true, an advance payment of $10,000 to find temporary housing prior to closing, followed by payment of the remainder of her homestead (i.e., $300,000), would be sufficient for Richards to find permanent housing. Id. Under these circumstances—especially when considered in light of the standard for impossibility—the bankruptcy court did not err in concluding that an evidentiary hearing was unnecessary. See Ayres , 166 F.3d at 996 (holding that an evidentiary hearing is not required when a party fails to raise a question of material fact that must be decided to address the relevant legal issues).
D.
Finally, Richards argues that the bankruptcy court imposed sanctions that are criminal in nature and violate the Eighth Amendment's prohibition against cruel and unusual punishment.
"The paradigmatic coercive, civil contempt sanction, ... involves confining a contemnor indefinitely until he complies with an affirmative command such as an order to ... surrender property ordered to be turned over to a receiver ...." Bagwell , 512 U.S. at 828, 114 S.Ct. 2552 (internal citation omitted). Even a fixed period of confinement is coercive "when the contemnor is given the option of earlier release if he complies." Id. The bankruptcy court imposed the following sanctions:
Debtor's failure to purge her contempt by the deadline imposed by this Order shall result in the immediate imposition of a daily coercive fine equal to one hundred dollars ($100) per calendar day commencing on February 25, 2022 for each day that Debtor remains in civil contempt. Such daily fine shall be payable to the Court by Debtor. If Debtor fails to timely purge her contempt, Trustee may request that the Court enter an order for body detention to incarcerate Debtor to coerce her compliance.
Dkt. No. 19-3.
The sanctions imposed in the contempt order fit squarely within the paradigm of civil contempt sanctions, which gave Richards the power to purge the contempt by vacating and turning over the Property to Marshack on or before February 24. The sanctions were designed to coerce compliance with the amended turnover order, not to punish. Indeed, the threat of sanctions largely served its proper purpose of achieving compliance, as Richards avoided the fines and potential detention by vacating the premises when the marshals arrived. Bankr. Dkt. No. 569. Richards's objections to the sanctions are meritless.
IV.
The bankruptcy court did not abuse its discretion in finding that Richards was in contempt for knowingly and willfully failing to comply with a specific legal order. The contempt order is therefore AFFIRMED , and the pending motions requesting leave to appeal the amended contempt order (Dkt. No. 23) and requesting consolidation of this appeal and Case No. 8:22-cv-00330-SB (Dkt. No. 29) are moot.
IT IS SO ORDERED.