Opinion
NOT FOR PUBLICATION
Argued and Submitted at San Francisco, California: September 17, 2008
Appeal from the United States Bankruptcy Court for the Northern District of California. Bk. No. 03-42684. Hon. Edward D. Jellen, Bankruptcy Judge, Presiding.
Before: DUNN, JURY and TAYLOR, [ Bankruptcy Judges.
Hon. Laura S. Taylor, Bankruptcy Judge for the Southern District of California, sitting by designation.
MEMORANDUM
John G. Warner, counsel for the former chapter 11 debtor, Bay Voltex Corporation (" Bay Voltex"), initiated a state court action against Bay Voltex, David E. Pease, the former principal of Bay Voltex, and BV Thermal Systems, Inc. (" BV Thermal") to recover fees incurred for services rendered in Bay Voltex's behalf in its bankruptcy case following the appointment of the chapter 11 trustee. Warner appeals the bankruptcy court's order interpreting the terms of its earlier orders which effectively prevented Warner from seeking recovery of fees from Bay Voltex, Pease and BV Thermal in the state court action. Warner also appeals the bankruptcy court's order sanctioning him for initiating the state court action in violation of the terms of Warner's employment as counsel for Bay Voltex. We AFFIRM.
Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. § § 101-1330, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037, as enacted and promulgated prior to October 17, 2005, the effective date of most of the provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. 109-8, April 20, 2005, 119 Stat. 23.
I. FACTS
On May 7, 2003, Bay Voltex filed a voluntary chapter 11 petition. Warner filed an application for employment as Bay Voltex's chapter 11 counsel (" Employment Application"). The Employment Application explicitly stated that Warner had " no previous or present connection with any creditor or with any interested party herein" and that he " represent[ed] no interest adverse to the estate or to [Bay Voltex] . . . ." Application for Leave to Employ Attorney for Debtor-in-Possession, 2:4-6.
The Employment Application provided that Warner's compensation " would be such as the [bankruptcy] court would allow." Id., 2:13. The Employment Application also disclosed that Warner received a $15,000 retainer from Bay Voltex prepetition. In a declaration accompanying the Employment Application, Warner stated that he would apply $7,500 of the retainer to future fee applications.
The Employment Application included a copy of the fee agreement between Bay Voltex and Warner (" Fee Agreement"). Pease signed the Fee Agreement as president of Bay Voltex.
Under the Fee Agreement, Bay Voltex employed Warner " to provide legal services in connection with . . . [the] [h]andling of [the] Chapter 11 case." Application for Leave to Employ Attorney for Debtor-in-Possession, Exh. A, Attorney-Client Fee Agreement at 1. The Fee Agreement provided " any fees or reimbursement of expenses claimed by [Warner] shall require prior approval of the bankruptcy court." Application for Leave to Employ Attorney for Debtor-in-Possession, Exh. A, Attorney-Client Fee Agreement at 3. The Fee Agreement further provided that Bay Voltex agreed to pay Warner's fees; the Fee Agreement did not list any other party liable for the payment of Warner's fees.
Warner also filed a verified statement as required under Rule 2014 (" Rule 2014 Statement"). Per the Rule 2014 Statement, Warner represented, under penalty of perjury, that he had " no connection past or present with [Bay Voltex] . . . with any creditor of [Bay Voltex], [or] with any other party in interest . . . ." Verified Statement of Nominated Attorney, 1:24-25. He asserted that, to the best of his knowledge, he had no interest adverse to Bay Voltex. Id., 1:28.
On June 2, 2003, the bankruptcy court entered an order approving the Employment Application (" Employment Order"). The Employment Order provided that " [n]o fees shall be paid to [Warner] post-petition" without prior approval of the bankruptcy court. Order Approving Employment of Attorney for Debtor-in-Possession, 1:24-25. The Employment Order also stated that " [a]ny compensation paid to [Warner] shall be fixed by the [bankruptcy] court pursuant to applicable bankruptcy law . . . ." Id., 2:1-3.
Approximately one year later, the bankruptcy court appointed a chapter 11 trustee. The trustee employed other counsel to represent her.
Warner continued to represent Bay Voltex as its chapter 11 counsel. He filed papers in behalf of Bay Voltex, including a plan and disclosure statement, which the bankruptcy court did not approve.
The trustee and Pease later entered into an agreement to settle the estate's claims against Pease (" Settlement Agreement"). Pease employed Iain A. Macdonald as counsel to represent him in negotiating the Settlement Agreement with the trustee. The Settlement Agreement provided that the bankruptcy court retained jurisdiction over any disputes arising out of the Settlement Agreement.
Under the Settlement Agreement, Pease agreed to pay the trustee $100,000 for the trustee's release of all claims against him. The trustee intended to disburse these funds pro rata to the administrative claimants, whose claims totaled approximately $175,000.
Additionally, BV Thermal, an entity wholly owned by Pease, agreed to pay the trustee $25,000 for the debtor's assets. BV Thermal further agreed to assume liability for and indemnify Bay Voltex from all postpetition accounts payable, which totaled approximately $40,000. Pease guaranteed the obligation.
Paragraph 4 of the Settlement Agreement provided:
Warner filed an opposition in behalf of Bay Voltex. He opposed the Settlement Agreement on the grounds that the administrative claimants would receive only 30% of their allowed claims. Warner later withdrew the objection, and the bankruptcy court entered an order on October 5, 2006 (" Settlement Order"), approving the Settlement Agreement.
On October 31, 2006, Warner filed an application for fees and reimbursement of expenses as Bay Voltex's chapter 11 counsel (" Fee Application"). Warner sought fees in the amount of $58,152.50 for services rendered to Bay Voltex, which included his attempts to sell Bay Voltex's business and the preparation of the disclosure statement and plan. Warner also filed a proof of claim for these fees and expenses.
Warner also requested $916.05 in expenses, to which the trustee did not object. The bankruptcy court allowed the expenses in full.
The trustee objected to Warner's fees to the extent that the services rendered by Warner following the trustee's appointment were unnecessary and did not benefit the estate. In response, Warner contended that, contrary to the trustee's assertions, his services provided an identifiable benefit to the estate. After the December 7, 2006 hearing on the Fee Application, the bankruptcy court took the matter under submission.
The following day, Warner wrote a letter to Macdonald regarding the issue of Warner's fees. Declaration of Iain A. Macdonald in Support of Motion for Order Interpreting Order and for Other Relief (" Macdonald Declaration"), Exh. A. In the letter, Warner contended that the Settlement Agreement provided that BV Thermal was liable for any fees not paid by the estate and that Pease personally guaranteed the obligation. In another letter, dated January 23, 2007, Warner advised Macdonald that any attorney's fees paid out of the bankruptcy estate " would become a credit against [his attorney's fees]." Macdonald Declaration, Exh. C.
On December 29, 2006, the bankruptcy court issued its memorandum decision, ruling that Warner's services rendered after the trustee's appointment were not compensable out of estate funds. Relying on Lamie v. U.S. Trustee, 540 U.S. 526, 124 S.Ct. 1023, 157 L.Ed.2d 1024 (2004), the bankruptcy court determined that § 330(a) did not provide for compensation from estate funds to a professional employed by a debtor who is not the representative of the estate. The bankruptcy court approved Warner's fees in the reduced amount of $40,122.50. The bankruptcy court further required Warner to apply the $15,000 retainer to the allowed fees. The bankruptcy court concluded that any excess fees would be disallowed.
The bankruptcy court entered its order on the Fee Application on the same day (" Fee Order"). Warner did not appeal the Fee Order.
Three months later, on the trustee's motion, the bankruptcy court authorized the trustee to pay administrative claimants from estate funds and dismissed the case. The case closed on March 12, 2007.
Warner subsequently commenced a state court action against Bay Voltex, Pease and BV Thermal, seeking to recover $46,115.50 in fees and expenses allegedly owed by Bay Voltex, Pease and BV Thermal under the Fee Agreement. Warner attached a copy of the Fee Agreement to the complaint.
We recognize that the fee amounts requested by Warner in the underlying bankruptcy case and in the state court action differ. However, there is not adequate information in the record to explain the differences.
Warner asserted breach of contract and common counts as the bases for the state court action. Under the common counts cause of action, Warner alleged that Bay Voltex, Pease and BV Thermal became indebted to him for services " rendered at the special instance and request of [Bay Voltex, Pease and BV Thermal] and for which [they] promised to pay [Warner]." Request for Judicial Notice in Support of Motion for Order Interpreting Order and for Other Relief, Exh. J, Complaint at 4.
In response, Pease filed a motion for an order interpreting the Settlement Order (" Motion to Interpret") in the bankruptcy court. Specifically, Pease asked that the bankruptcy court interpret the Settlement Agreement to exclude professional fees from the term " accounts payable, " and to limit the term to Bay Voltex's postpetition trade debt. Pease also requested that the bankruptcy court award him attorney's fees and costs incurred in bringing the Motion to Interpret on the ground that Warner filed the state court action in bad faith.
Pease did not file a motion to reopen the case when he filed the Motion to Interpret. On May 21, 2008, the bankruptcy court entered an order reopening the case in light of Warner's filing of the instant appeal. Order to Reopen Case, Docket #219.
Pease also sought to enjoin Warner from proceeding with the state court action. At the hearing on the Motion to Interpret, the bankruptcy court noted that Pease needed to initiate an adversary proceeding to obtain an injunction against Warner. Tr. of January 31, 2008 Hr'g, 4:16-18, 4:25, 5:1, Docket #216. The bankruptcy court stated that it would not issue an injunction absent an adversary proceeding. Tr. of January 31, 2008 Hr'g, 10:10-11, Docket #216.
Warner opposed, arguing that the bankruptcy court lacked jurisdiction to resolve the fee dispute and should remand the matter to state court. He contended that Lamie did not prohibit him from seeking recovery of his attorney's fees from Bay Voltex, Pease and BV Thermal. According to Warner, Lamie prohibited professionals employed under § 327 from recovering from the estate fees for services rendered after conversion of a chapter 11 case to chapter 7. Unlike the debtor's attorney in Lamie, Warner asserted that he was seeking payment, not from the estate, but from Pease, BV Thermal, and Bay Voltex directly, for fees incurred working in their behalf after he ceased serving as a professional under § 327.
Warner also claimed that, under the Settlement Agreement, BV Thermal and Pease were liable for all postpetition accounts payable, which included his attorney's fees and costs. Moreover, Warner argued, the Fee Agreement required Bay Voltex to pay all of his postpetition fees, including fees incurred for legal services rendered after the trustee's appointment.
Following the January 31, 2008 hearing on the Motion to Interpret, the bankruptcy court issued its findings of fact and conclusions of law. At the outset, the bankruptcy court determined that it had jurisdiction to enforce and interpret the Employment Order and the Settlement Agreement under 28 U.S.C. § 1334(a) and (b).
The bankruptcy court found that the term " accounts payable" in the Settlement Agreement did not include administrative expenses, as the Settlement Agreement expressly distinguished between accounts payable and administrative expenses. The bankruptcy court further noted that at the time it approved the Settlement Agreement, the bankruptcy court had not allowed Warner any fees. Thus, the bankruptcy court concluded, Warner's fees were not a liability or an account payable of the estate. The bankruptcy court also found that, in approving the Settlement Agreement, it did not intend to require BV Thermal or Pease to pay administrative expenses.
The bankruptcy court determined that, in initiating the state court action, Warner was in violation of the terms of his employment, as approved by the bankruptcy court. Relying on its inherent sanctions authority and its authority under § 105(a), the bankruptcy court imposed sanctions against Warner for his misconduct in the amount of $6,500 in attorney's fees incurred by Pease in bringing the Motion to Interpret.
On February 20, 2008, the bankruptcy court entered its order granting the Motion to Interpret.
Warner appeals.
II. JURISDICTION
Warner contends that the bankruptcy court lacked jurisdiction to decide his fee dispute with Bay Voltex, Pease and BV Thermal because the fees at issue do not concern the estate. Thus, as a threshold matter, we must determine whether the bankruptcy court had jurisdiction to adjudicate the fee dispute and whether we, in turn, have jurisdiction to review the order on appeal. See Krasnoff v. Marshack (In re General Carriers Corp.), 258 B.R. 181, 188-89 (9th Cir. BAP 2001). We review de novo the bankruptcy court's assertion of jurisdiction. See McGhan v. Rutz (In re McGhan), 288 F.3d 1172, 1178 (9th Cir. 2002).
A. The bankruptcy court had jurisdiction over Warner's fee dispute with Bay Voltex
Warner cites to Hines v. Gordon (In re Hines), 147 F.3d 1185 (9th Cir. 1998), for the proposition that the bankruptcy court lacked jurisdiction to adjudicate his fees for services rendered after the trustee's appointment. According to Warner, under Hines, an attorney may seek from the debtor fees incurred in the debtor's behalf following the trustee's appointment, though the attorney cannot look to the estate for payment of those fees once disallowed by the bankruptcy court.
We agree with the bankruptcy court that Hines is not dispositive here. Hines holds that attorney's fees for services rendered postpetition can constitute a nondischargeable debt that the attorney may seek to recover during the pendency of the bankruptcy case without violating the automatic stay. Id . at 1191. Accord Sanchez v. Gordon (In re Sanchez), 241 F.3d 1148, 1150-51 (9th Cir. 2001). Nothing in Hines divests the bankruptcy court of jurisdiction over fee disputes arising with respect to the bankruptcy case.
In Hines, prior to conversion of her bankruptcy case from chapter 13 to chapter 7, the debtor agreed to pay her attorney in installments, supported by a promissory note and postdated checks to be cashed postpetition. 147 F.3d at 1187. After conversion, the attorney proceeded to act in the debtor's behalf postpetition and cashed two of the checks. Id . The debtor later replaced the attorney with another and moved for contempt against the attorney for willful violation of the automatic stay. Id . at 1188. The Ninth Circuit determined that the attorney's fees for postpetition services were nondischargeable and that his attempt to recover the fees in the course of the debtor's bankruptcy did not violate the stay.
Warner tries to bypass the bankruptcy court's jurisdiction by distinguishing the services he performed in behalf of Bay Voltex when it no longer was debtor-in-possession. Warner argues that the Employment Order contemplated his employment as Bay Voltex's attorney under § 327 while Bay Voltex still was debtor-in-possession. Once Bay Voltex's status as debtor-in-possession was terminated, Warner claims he ceased serving as a professional under § 327. Thus, Warner asserts, the procedures for compensation under § 327 have no bearing on his claim for compensation for services rendered after the appointment of the chapter 11 trustee.
Regardless of whether Bay Voltex was or was not the debtor-in-possession when Warner rendered legal services in its behalf, in the end, Warner's services were rendered in connection with Bay Voltex's bankruptcy. The bankruptcy court thus had jurisdiction to decide the fee dispute. See DeRonde v. Shirley (In re Shirley), 134 B.R. 940, 943 (9th Cir. BAP 1992)(stating that the Bankruptcy Code provisions concerning employment of professionals and payment of fees govern fee disputes with respect to bankruptcy-related services).
We note that the Fee Agreement made no distinction as to the legal services rendered to Bay Voltex in its capacity as the debtor-in-possession or as the debtor. The Fee Agreement merely stated that Bay Voltex employed Warner to provide legal services in connection with the handling of the chapter 11 case. Additionally, under the Employment Order, the bankruptcy court had the authority to determine whether Warner would receive compensation postpetition and to fix the allowed amount of his fees. The change in Bay Voltex's debtor-in-possession status does not affect the bankruptcy court's authority to adjudicate the fee dispute.
Using another tack, Warner concedes that, under Elias v. United States Trustee (In re Elias), 188 F.3d 1160 (9th Cir. 1999), the bankruptcy court may have had ancillary jurisdiction to adjudicate his fee dispute with Bay Voltex. If the bankruptcy court declines to exercise its ancillary jurisdiction, Warner continues, he should have been allowed to proceed to litigate the fee dispute in state court. Here, according to Warner, as the bankruptcy court " expressly declined" to exercise its ancillary jurisdiction over the fee dispute with Bay Voltex, he may proceed with the state court action against Bay Voltex.
However, as a bottom line matter, the bankruptcy court retains jurisdiction to interpret and enforce its own orders entered prior to dismissal of the underlying bankruptcy case. Tsafaroff v. Taylor (In re Taylor), 884 F.2d 478, 481 (9th Cir. 1989). The bankruptcy court's jurisdiction extends to ancillary matters, such as fee disputes involving services rendered by an attorney in connection with the underlying bankruptcy case. See Elias, 188 F.3d at 1162. The bankruptcy court has discretion to exercise its ancillary jurisdiction. Id.
We discern nothing in the record before us indicating that the bankruptcy court " expressly declined" to exercise its ancillary jurisdiction. To the contrary, the bankruptcy court categorically exercised its jurisdiction by conducting a hearing, issuing its memorandum of decision and its findings of fact and conclusions of law, and entering its order thereon.
More importantly, Warner expressly agreed to subject his fees and costs to review and approval by the bankruptcy court. The Employment Application provided that Warner's compensation " would be such as the [bankruptcy] court would allow." Application for Leave to Employ Attorney for Debtor-in-Possession, 2:13. The Fee Agreement stated that any fees or expenses claimed by Warner required prior approval of the bankruptcy court. The Employment Order provided that no fees would be paid to Warner postpetition without the bankruptcy court's approval. The Employment Order also provided that the bankruptcy court would determine any compensation to be paid to Warner pursuant to applicable bankruptcy law.
Because the fee dispute relates to services rendered in connection with Bay Voltex's bankruptcy, and because the Employment Application, Employment Order and Fee Agreement authorize the bankruptcy court to adjudicate fee issues, we conclude that the bankruptcy court had jurisdiction to determine Warner's fee dispute with Bay Voltex.
B. The bankruptcy court had jurisdiction over Warner's fee dispute with Pease and BV Thermal
Warner asserts that the bankruptcy court lacked jurisdiction to adjudicate his fee dispute with Pease and BV Thermal because neither Pease nor BV Thermal were debtors in the underlying chapter 11 case.
As we noted earlier, the bankruptcy court has jurisdiction to interpret and enforce its own orders entered prior to dismissal of the bankruptcy case. See Taylor, 884 F.2d at 481.
Warner bases his right to recover fees from Pease and BV Thermal on the terms of the Settlement Agreement and the Fee Agreement. Warner contends that, under the Settlement Agreement, Pease and BV Thermal were liable for the fees incurred for the legal services he rendered in Bay Voltex's behalf following the trustee's appointment. Warner also alleges in the state court complaint that Pease and BV Thermal owed him fees under the Fee Agreement.
The bankruptcy court approved the Settlement Agreement, setting forth obligations of Pease and BV Thermal to the estate. Under the Settlement Agreement, the bankruptcy court retained jurisdiction to resolve disputes as to its terms. The bankruptcy court further approved Warner's employment by Bay Voltex under the Fee Agreement but subject to the terms of the Employment Order. In these circumstances, the bankruptcy court had jurisdiction to decide the fee dispute.
We conclude that the bankruptcy court had jurisdiction to adjudicate Warner's fee dispute under 28 U.S.C. § § 1334 and 157(b)(2)(A) and (O). We have jurisdiction under 28 U.S.C. § 158.
III. ISSUES
(1) Whether the bankruptcy court properly determined that Pease was not personally liable for the payment of Warner's fees under the Settlement Agreement.
(2) Whether the bankruptcy court abused its discretion in imposing sanctions on Warner.
IV. STANDARDS FOR REVIEW
We review a bankruptcy court's conclusions of law de novo and findings of fact for clear error. Vacation Village, Inc. v. Clark County, Nev., 497 F.3d 902, 910 (9th Cir. 2007). We accept the bankruptcy court's findings of fact unless we have a definite and firm conviction that the bankruptcy court committed a mistake. Id.
" We review the bankruptcy court's award of sanctions, including an award of attorney's fees, for an abuse of discretion." Hansbrough v. Birdsell (In re Hercules Enters.), 387 F.3d 1024, 1027 (9th Cir. 2004). Under the abuse of discretion standard, we will not reverse the bankruptcy court unless we have a definite and firm conviction that it committed clear error in the conclusion that it reached after weighing all of the relevant factors. Law Offices of David A. Boone v. Derham-Burk (In re Eliapo), 468 F.3d 592, 596 (9th Cir. 2006).
V. DISCUSSION
A. The bankruptcy court properly determined that Pease was not personally liable for payment of Warner's fees under the Settlement Agreement
Warner had argued before the bankruptcy court that he could seek to recover his fees from Pease and BV Thermal because, under the Settlement Agreement, Pease was liable for all postpetition accounts payable, which included Warner's fees. Warner does not advance this argument before us, however. He instead asserts his right to recover fees from Pease and BV Thermal under the equitable remedy of quantum meruit, which he did not raise before the bankruptcy court.
As Warner acknowledges, absent exceptional circumstances, we do not consider issues raised for the first time on appeal, though we have discretion to do so. El Paso v. America West Airlines, Inc. (In re America West Airlines), 217 F.3d 1161, 1165 (9th Cir. 2000).
We note, however, that, generally, " the equitable remedy of quantum meruit is not available where the fees are barred by law under the [B]ankruptcy [Code and Bankruptcy] Rules." Law Offices of Ivan W. Halperin v. Occidental Fin. Group, Inc. (In re Occidental Fin. Group, Inc. ), 40 F.3d 1059, 1063 (9th Cir. 1994)(citing DeRonde v. Shirley (In re Shirley), 134 B.R. at 944-45). Accord McCutchen, Doyle, Brown & Enersen v. Official Committee of Unsecured Creditors (In re Weibel, Inc.), 176 B.R. 209, 212 (9th Cir. BAP 1994).
To explain his demand for recovery of fees from Pease, Warner states in his opening brief that he had rendered services in behalf of both Bay Voltex and Pease, although Pease personally was not a party to the Fee Agreement. At the time he submitted his Employment Application, Warner sought employment as chapter 11 counsel for Bay Voltex only. Warner did not disclose that he represented Pease personally in either his Employment Application or Rule 2014 Statement; in fact, he claimed, under penalty of perjury, that he had no connection with any creditor of Bay Voltex or any other party in interest.
Rule 2014 states that a professional's application for employment " shall be accompanied by a verified statement of the person to be employed setting forth the person's connections with the debtor, creditors, any other party in interest, their respective attorneys and accountants, the United States trustee, or any person employed in the office of the United States trustee." Rule 2014 has been interpreted to impose an ongoing duty to update information as circumstances change. I.G. Petroleum, L.L.C. v. Fenasci and Butler (In re West Delta Oil Co., Inc.), 432 F.3d 347, 355 (5th Cir. 2005); In re Metropolitan Environmental, Inc., 293 B.R. 871, 887 (Bankr.N.D.Ohio 2003) (" [C]ase law has uniformly held that under Rule 2014(a), (1) full disclosure is a continuing responsibility, and (2) an attorney is under a duty to promptly notify the court if any potential for conflict arises.") (citations omitted). Warner never amended his Rule 2014 statement to state that he was representing any party other than Bay Voltex in its bankruptcy case, and as noted above, Pease retained separate counsel for his negotiations with the trustee.
As Warner failed to disclose his alleged representation of Pease and thus, a substantial potential conflict of interest in his Employment Application, and Rule 2014 Statement, he is in no position to assert the equitable remedy of quantum meruit. See, e.g., Occidental Fin. Group, Inc., 134 B.R. at 1063 (determining that, because of an undisclosed conflict of interest, the attorney could not recover fees under the equitable remedy of quantum meruit). In fact, failure to disclose fully relevant information, such as potential, likely or actual conflicts of interest, may result in a denial of fees. See Nebben & Starrett, Inc. v. Chartwell Fin. Corp. (In re Park-Helena Corp.), 63 F.3d 877, 882 (9th Cir. 1995).
In any event, notwithstanding Warner's assertion of a right to a quantum meruit recovery, based on our review of the Settlement Agreement, we agree with the bankruptcy court that Pease is not personally liable for the payment of Warner's fees.
As the bankruptcy court pointed out, the term " accounts payable" in the Settlement Agreement did not include administrative expenses, as the amount of the accounts payable was substantially less than the amount of the administrative expenses. (In fact, the amount of Warner's fees alone exceeded the amount of the accounts payable.) In addition, the bankruptcy court had not allowed any of Warner's fees at the time it approved the Settlement Agreement; the bankruptcy court entered an order approving the Settlement Agreement more than 3 weeks before Warner filed his Fee Application.
The Fee Agreement, the Employment Application and the Employment Order uniformly provided that Warner would be paid only such fees for representation of Bay Voltex in its chapter 11 case as the bankruptcy court approved. Warner's dissatisfaction with the Fee Order is evident from his numerous attempts to circumvent it. But if Warner disagreed with the Fee Order, he should have appealed it. This he did not do. The Fee Order thus became final as to the issue of Warner's allowed fees. See Rule 8002(a).
B. The bankruptcy court properly imposed sanctions on Warner in the exercise of its sanctions authority
Bankruptcy courts have both inherent sanction powers and civil contempt powers under § 105(a). See Caldwell v. Unified Capital Corp. (In re Rainbow Magazine, Inc.), 77 F.3d 278, 284-85 (9th Cir. 1996). Under its civil contempt powers, the bankruptcy court may remedy a violation of a specific order, such as a violation of the automatic stay or the discharge injunction. Knupfer v. Lindblade (In re Dyer), 322 F.3d 1178, 1196 (9th Cir. 2003). Under its inherent sanction powers, the bankruptcy court may deter and provide compensation for a broad range of improper litigation tactics. Id.
The inherent sanction powers differ from the civil contempt powers in that before the bankruptcy court can impose sanctions under its inherent sanctioning powers, it must make an explicit finding of bad faith or willful misconduct. Id . With respect to the inherent sanction powers, " bad faith or willful misconduct consists of something more egregious than mere negligence or recklessness." Id . Specific intent or other conduct in bad faith is necessary to impose sanctions under the bankruptcy court's inherent sanction powers. Id . (quoting Fink v. Gomez, 239 F.3d 989, 994 (9th Cir. 2001)).
Here, the bankruptcy court determined that Warner, in initiating the state court action against Bay Voltex, Pease and BV Thermal, violated the terms of the Employment Order and other prior orders of the court. Relying on § 105 and its " inherent authority to sanction misconduct, " the bankruptcy court awarded compensatory sanctions against Warner in the form of attorney's fees incurred by Pease. Findings of Fact and Conclusions of Law, 7:5-9. After oral argument at the hearing on the Motion to Interpret, the bankruptcy court directed counsel for Pease to draft findings and conclusions incorporating findings that " Warner's behavior was totally unjustified as a matter of fact and law, and in violation of court orders." Tr. of January 31, 2008 Hr'g, 9:1-3.
The transcript of the January 31, 2008 hearing was designated as part of the record, but was not included in the excerpts of record before us. We obtained a copy of the transcript from the bankruptcy court's electronic docket. See Atwood v. Chase Manhattan Mortgage Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).
Accordingly, the bankruptcy court made an explicit finding that Warner engaged in willful misconduct when it imposed sanctions under its inherent sanctions power. That determination was memorialized in the written findings that Warner's conduct " was unjustified as a matter of law and fact, and constitutes a violation of the terms of his employment and a violation of this court's prior orders in this case." Findings of Fact and Conclusions of Law, 7:1-4. Based on our review of the entire record in this appeal, we do not have any clear and definite impression that the bankruptcy court abused its discretion in imposing compensatory sanctions in the amount of Pease's attorney's fees.
VI. CONCLUSION
Contrary to Warner's assertions, the bankruptcy court had jurisdiction over Warner's fee dispute with Bay Voltex, Pease and BV Thermal, as the fee dispute related directly to orders entered by the bankruptcy court during the course of Bay Voltex's bankruptcy.
The bankruptcy court properly determined that Pease was not personally liable for payment of Warner's fees under the terms of the Settlement Agreement, as well as the Fee Agreement and the Employment Order. The bankruptcy court further did not abuse its discretion in imposing sanctions on Warner under its inherent sanction powers. Accordingly, we AFFIRM.
BV Thermal shall assume liability for and indemnify Bay Voltex from all postpetition accounts payable liability through the sale closing date; on such date it shall either produce releases from all such claimants or deposit funds in a trust account, which shall be earmarked for payment to such claimants who do not release the estate from all postpetition claims. Pease will guarantee BV Thermal's performance of this paragraph.