Opinion
NOT FOR PUBLICATION
Argued and Submitted at San Francisco, California: January 24, 2008
Appeal from the United States Bankruptcy Court for the Northern District of California. Honorable Leslie Tchaikovsky, Bankruptcy Judge, Presiding. Bk. No. 01-45924.
Before: Markell, Klein and Jury, Bankruptcy Judges.
MEMORANDUM
Linda Shao and the Law offices of Linda Shao, APLC (collectively " Shao") appeal the bankruptcy court's award of compensatory sanctions in the amount of $26, 663 following remand from a previous appeal to the BAP (" First Appeal"). The bankruptcy court's order is AFFIRMED.
I. FACTS
Shao represented the debtor, Media Group, Inc. (" Debtor"), in certain state court matters. In October 2000, without Shao's endorsement, the Debtor deposited, and its bank credited to Debtor's account, a settlement check payable jointly to Shao and Debtor. On November 5, 2001, Debtor filed a chapter 11 petition.
The automatic stay provision then prevented Shao from suing the Debtor to recover any of the funds deposited. Shao, however, initiated action in state court against the depositary bank and certain of Debtor's officers seeking damages for fraud and breach of contract (" State Court Action"). Without obtaining relief from stay, the bank debited the Debtor's bank account in an amount equal to the check deposited and then interpleaded the funds with the state court. Id.
On October 25, 2002, Debtor's chapter 11 case was converted to one under chapter 7, and Lois Brady was appointed trustee (the " Trustee"). The Trustee hired Reidun Stromsheim (" Stromsheim") as counsel. Stromsheim filed a complaint against Shao for, among other things, a violation of the automatic stay. The complaint was dismissed in large part, and Shao sought sanctions against Stromsheim for a violation of Rule 9011, which the bankruptcy court granted and the BAP upheld.
Shao then settled the claims against the bank, but the State Court Action apparently remained pending against the Debtor's officers. On April 26, 2004, while the appeal regarding Stromsheim's sanctions was pending before the BAP, Shao issued a subpoena, in the State Court Action, directing Stromsheim to appear at deposition and produce documents. Shao contended that the Trustee and Stromsheim were percipient witnesses in connection with the State Court Action despite the fact that they were not appointed until well over a year after the check was improperly deposited. The Trustee contended that documents listed in the subpoena indicated an improper intent, presumably harassment or unfair settlement leverage, on Shao's part in seeking the deposition.
The bankruptcy court, in its " Order Awarding Sanctions against Linda Shao and the Law Offices of Linda Shao, APLC" (" Order Awarding Sanctions") granted the Trustee's motion on October 24, 2005, pursuant to its inherent authority under section 105(a). The court also found that Beck v. Ft. James Corp. (In re Crown Vantage, Inc.), 421 F.3d 963 (9th Cir. 2005) held that the Barton Doctrine applied to trustees in bankruptcy and required that Shao seek leave of the court prior to deposing Stromsheim.
The bankruptcy court further found that Shao acted in bad faith by engaging in improper litigation tactics by issuing and refusing to withdraw the subpoena. The court based its finding on two independent grounds: 1) Shao was advised by the Trustee that, under the authority of Crown Vantage, a party may not take discovery of a trustee and or her counsel without first obtaining leave (" Barton Doctrine Grounds"); and 2) that there was no rational ground for deposing Stromsheim in the State Court Action with respect to actions that had occurred over one year prior to the Trustee's appointment and Stromsheim's employment(" Abuse of Process Grounds"). After considering the record, the bankruptcy court accepted the Abuse of Process Grounds, finding Shao's actions to be an abuse of state court process.
The bankruptcy court also concluded that Shao's bad faith in engaging in improper litigation tactics was demonstrated in other ways as well, including the use of delay tactics. In accordance with its findings in its Original Sanctions Memorandum, the bankruptcy court's Order Awarding Sanctions granted the Trustee's motion and awarded " compensatory sanctions against Shao in the amount of $29, 062.50 pursuant to its inherent authority under section 105(a)" .
On November 1, 2005, Shao filed the First Appeal. The BAP reversed the bankruptcy court as to the Barton Doctrine Grounds and as to certain of the court's findings of bad faith, but affirmed on the Abuse of Process Grounds. Unable to allocate the award to each area of misconduct, the BAP vacated the amount of the sanction and remanded for determination of the appropriate amount, if any, in light of its rulings.
On remand the bankruptcy court granted the Trustee's motion for sanctions in the reduced amount of $26, 663 (" Order after Remand"). In calculating the revised amount of sanctions, the court deducted charges that implicated discovery and the Barton Doctrine from the itemization of fees.
Shao now appeals (" Second Appeal").
II. JURISDICTION
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. § § 157(b)(1) and (b)(2)(A). We have jurisdiction pursuant to 28 U.S.C. § § 158(a)(1) and (c)(1).
III. ISSUES
1. Whether the bankruptcy court abused its discretion in calculating the amount of sanctions assessed against Shao in light of the BAP's ruling in the First Appeal.
2. Whether the bankruptcy court's award of compensatory sanctions for civil contempt on remand is reversible error.
IV. STANDARDS OF REVIEW
" This court reviews the bankruptcy court's conclusions of law and questions of statutory interpretation de novo, and factual findings for clear error." Village Nurseries v. Gould (In re Baldwin Builders), 232 B.R. 406, 410 (9th Cir. BAP 1999) (citations omitted).
We review the bankruptcy court's assessment of sanctions for an abuse of discretion. Caldwell v. Unified Capital Corp. (In re Rainbow Magazine, Inc.), 77 F.3d 278, 284 (9th Cir. 1996). A court abuses its discretion if it bases its ruling " on an erroneous view of the law or on a clearly erroneous assessment of the evidence." In re Deville, 280 B.R. 483, 492 (9th Cir. BAP 2002) aff'd Miller v. Cardinale (In re Deville), 361 F.3d 539 (9th Cir. 2004).
V. DISCUSSION
In this appeal Shao raises two questions that the BAP need address: the proper basis for awarding sanctions on remand; and the bankruptcy court's purported award of sanctions for civil contempt. Shao attempts to raise additional issues, but for the most part these are simply rearguments of issues lost on the First Appeal. Indeed, in many cases the arguments are presented verbatim from the First Appeal. The BAP resolved these issues in its ruling on the First Appeal and will not now revisit them.
Whether Any or Sufficient Bad Faith Existed
Shao does not take issue with the actual calculation of the sanctions award on remand. Rather, Shao argues that (I) the prior BAP decision reversed all findings of bad faith, and thus deprived the court on remand of any basis to assess sanctions under section 105 or the court's inherent powers; and (ii) to the extent that the BAP did not reverse all findings of bad faith, any bad faith shown was not sufficient to support the amount of the sanctions awarded.
Prior Bad Faith Findings
At oral argument in the Second Appeal, Shao argued that the BAP had reversed all of the bankruptcy court's finding of bad faith in the First Appeal. Shao contends that even under its inherent authority, the court was required to make a new finding of bad faith on remand.
Our review of the BAP's decision indicates this is an overstatement. The BAP made clear that it found error " to the extent that the bankruptcy court's finding of bad faith is based on [the Barton Doctrine] premise." It specifically affirmed, however, as to the use of improper litigation tactics. Had the BAP intended to wholly reverse as to bad faith, it would simply have reversed the Original Sanction Order in whole; a remand to determine sanctions would have been as inconsistent as it would have been unnecessary.
Thus, the BAP's remand instructions to the bankruptcy court required it merely to revisit the amount of the appropriate sanction. A new or additional finding of bad faith was unnecessary to determine the amount of the sanction on remand.
Renewed Attacks on Prior Findings of Bad Faith
Shao continues to press the basis of the original findings of bad faith. As indicated above, findings of bad faith sufficient to sustain sanctions were left undisturbed by the First Appeal. Shao cannot now reopen that issue.
We give special deference to the findings of fact by a bankruptcy court. Rule 8013. Evidence of an itemization of fees the Trustee had incurred had been presented to the bankruptcy court by declaration for determination of the original sanctions award. The bankruptcy court considered this evidence as well as Shao's opposition in determining the amount of compensatory sanctions in issuing its Order Awarding Sanctions. The court reviewed the evidence already available to it in light of the BAP's instruction in the First Appeal in determining the revised amount of the sanction. Further hearings were unnecessary.
On remand, the bankruptcy court's award took into consideration the costs the Trustee had incurred with respect to research of the Barton Doctrine and deducted those costs from the total. The court did not make a further deduction for reversal of the bad faith finding as to delay tactics because the court had issued that sanction sua sponte. The Trustee had incurred no costs related to that finding, so the bankruptcy court made no further deductions on remand.
The bankruptcy court's determination of sanctions was reasonably based on evidence before it, took into consideration the BAP's ruling and instructions on remand, and therefore it did not clearly err in its calculation of the amount of sanctions on remand.
Civil Contempt
In its Order on Remand, the bankruptcy court granted the Trustee's motion and " awarded compensatory sanctions for civil contempt in the amount of $26, 663." Shao seizes on the use of the term " civil contempt, " and argues that without a violation of a general or specific order of the bankruptcy court, she cannot be found in civil contempt, thus the award of sanctions is error.
Pursuant to section 105(a), a bankruptcy court may take any necessary or appropriate action to enforce or implement court orders or rules, or to prevent an abuse of process. Rainbow Magazine, 77 F.3d at 284. Thus, a court may issue compensatory sanctions under either its ordinary civil contempt authority or its inherent sanction authority. Knupfer v. Lindblade (In re Dyer), 322 F.3d 1178, 1195-96 (9th Cir. 2003).
Section 105(a) provides in full that:
(a) The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.
A court exercises its power under civil contempt to remedy violation of a specific order. It exercises its inherent sanction authority more broadly; " to deter and provide compensation for a broad range of improper litigation tactics." Dyer, 322 F.3d at 1196 (emphasis added).
Shao believes that the bankruptcy court's mindset was fashioning punishment for a civil contemnor. Shao clearly misconstrues the bankruptcy court's intent. The Trustee's original motion was for civil contempt sanctions. The bankruptcy court, however, citing to Dyer, distinguished between its power to sanction under civil contempt and under its inherent authority. In its Original Sanction Memorandum the court made clear that the award was granted under its inherent sanction authority pursuant to section 105(a) for an abuse of process. It was on that basis that the BAP affirmed in the First Appeal and that the bankruptcy court awarded sanctions pursuant to its Memorandum of Decision on Remand re Motion for Sanctions (" Remand Memorandum").
Before imposing sanctions under its inherent sanctioning authority, a court must make an explicit finding of bad faith or " willful misconduct" .