Nevada and Ninth Circuit Bankruptcy Blog

Berry v. U.S. Trustee (In re Sustaita), ___ Fed. Appx. ___, Case No. 10-60039, 2011 WL 5929012(9th Cir. Nov. 29, 2011) (mem.), aff’g 438 B.R. 198 (BAP 9th Cir. 2010) (Jury, J.; Markell, J., on panel)

Affirming sanctions against petition preparer for Code violations. Bankruptcy Court did not abuse discretion in refusing to continue evidentiary hearing when Appellant had ample time to prepare but was not diligent, and continuance was inconvenient to others involved.

Bankruptcy Court also did not abuse its discretion in refusing to recuse itself without evidence of favoritism or prejudice so pronounced that it creates appearance of partiality.

USACM Liquidating Trust v. Winthrop Couchot P.C. (In re USA Commercial Mortgage Co.), ___ Fed. Appx. ___, Case No. 10-16557, 2011 WL 6325882 (9th Cir. Dec. 19, 2011) (mem., aff’g Jones, J.)

In adversary proceeding for unjust enrichment, Judge Jones properly exercised his inherent authority in issuing sanctions against counsel for discovery abuse. The explicit finding of bad faith supports an inference that the sanction was based upon the Court’s inherent authority.

The decision was distinguished from other appellate decisions because the movant asserted the court’s inherent authority, thus noticing the defendant and putting the issue before the court. The Circuit declined to consider whether the court properly award sanctions against counsel under Rule 37(c), noting that three other circuits had held the rule did not permit such sanctions against counsel.

Winteron v. Humitech of N. Cal., LLC (In re Blue Pine Group, Inc.), 457 B.R. 64 (BAP 9th Cir. 2011) (Hollowell, J.), aff’g 448 B.R. 267 (Bankr. D. Nev. 2010) (Markell, J.)

BAP affirmed sanction of $109,000 against debtor’s counsel in violation of Rule 9011 for filing a corporate bankruptcy without proper authorization, failing to conduct a reasonable inquiry in client’s corporate affairs and, after being put on notice that he lacked proper authorization, continuing to advocate the improper filing. Case arose in dispute among members of entity. Debtor counsel filed petition based on representations of one principal of entity and corporate counsel. While the filing may have been reasonable even absent corporate resolution required under LR 1002(b), continued activity was not reasonable when alerted to inconsistencies in representations.

Counsel later received corporate records but did not review them to confirm they complied with Nevada statutory requirements, erroneously relying on representations from Debtor’s corporate counsel. Counsel’s investigation only after receipt of motion to dismiss and on eve of hearing was insufficient to comply with obligations under Rule 9011. The BAP also affirmed the reasonableness of the sanction, based on the other principals’ cost to prosecute dismissal of the case.

In re Smith, ___ B.R. ___, Case No. BK-S-16383-BAM, 2011 WL 5239691 (Bankr. D. Nev. Oct. 28, 2011) (Markell, J.)

Judge Markell held debtor’s counsel in civil contempt. Counsel already had history of sanctions and noncompliance, and Court already had banned counsel from filing new cases. But counsel electronically filed a new case with a thirdparty counsel’s electronic signature.

Third-party attorney never signed papers or authorized filing with his signature. Counsel sanctioned with one-year bar on filing new cases, subject to petition after then to file new cases. Matter referred to state bar and U.S. Attorney.

In re Schivo, ___ B.R. ___, Case No. BK-S-05-28163-BAM, 2011 WL 4899940 (Bankr. D. Nev. Oct. 13, 2011) (Markell, J.)

Judge Markell sanctioned debtor’s counsel for filing motions based on a bogus press release dated April 1, and therefore not supported by legal authority under Rule 9011. Debtor’s counsel had been sanctioned for failure to timely file petitions prior to the effective date of BAPCPA.

Five years later, he reopened a case and moved to have it set aside based on a release stating the president altered the time to file petitions tied to BAPCPA. When neither counsel nor Court could find any evidence of the purported change, the Court sanctioned counsel with the publication of this opinion, limitations on counsel’s ability to practice in bankruptcy court, and referral to the State Bar.

Thompson v. American Family Mut. Ins. Co., Case No. 2:09-cv-905-JCM-RJJ, 2011 WL 4729867 (D. Nev. Oct. 5, 2011) (Mahan, J.), granting and denying in part fee application for sanctions granted in 2011 WL 3651367 (D. Nev. Aug. 18, 2011)

Denying reconsideration of 2011 WL 3584578 (D. Nev. Aug. 12, 2011)

Considering Defendant’s fee application following award of sanctions for Plaintiff’s failure to disclose prior bankruptcy for two years in litigation and thus avoiding issue of Plaintiff’s standing. Defendant sought $257,000 in fees, which it asserted was only a third of its costs in case.

The District Court was unable to review more than 200 pages of attorney invoices. But Court exercised discretion to reduce award to $125,000. He reduced the amount due to amount awarded as prior sanctions; substantial sums involving co-plaintiff not sanctioned; and overbilling and duplicative work. Denying motion for reconsideration of sanctions order.

Plaintiff sought reconsideration on grounds that schedules and statements were sent to Defendant’s corporate headquarters. District Court rejected assertion on grounds that an affiliate of Defendant was listed on schedules or statements, so the mailing to the affiliate at the corporate headquarters did not constitute notice. Also rejecting assertion that it constitutes new evidence.

Law v. Siegel (In re Law), Case No. 09-60046, 2011 WL 2181198 (9th Cir. June 6, 2011) (mem.), aff’g Case No. CC-09-1077-PaMkH (BAP 9th Cir. Oct. 22, 2009) (mem.; Markell, J., on panel)

The Circuit affirmed the BAP’s affirmation of a surcharge against Debtor’s homestead exemption and imposition of discovery sanctions. The surcharge compensated the estate for actual monetary costs imposed by Debtor’s misconduct, and was warranted to protect the integrity of the process.

In re Glover, Case No. OR-10-1217-JuMkH (BAP 9th Cir. April 22, 2011) (mem.; Markell, J., on panel)

The BAP affirmed dismissal of Chapter 13 petition with five-year ban on refiling after filing eight cases over 11 years (with discharge received only in first case). The Bankruptcy Court did not abuse its discretion in considering the totality of circumstances under Sections 105(a) and 349(a). The BAP rejected Debtor’s argument that Section 1307(c) was the only authority to dismiss case.

Brincko v. Rio Props., Inc. (In re National Consumer Mortgage, LLC), Case No. 2:10-cv-00930-PMP-PAL, 2011 WL 1300540 (D. Nev. March 31, 2011) (Leen, M.J.)

Chapter 11 Trustee sued to recover funds allegedly fraudulently transferred by debtor’s principal in exchange for casino chips. After reference was withdrawn, defendant moved for dispositive sanctions due to alleged spoliation of evidence.

Judge Leen denied the motion, noting that it was not unusual that a debtor operating a Ponzi scheme would not have organized records, that debtor’s counsel had ordered a litigation hold before the bankruptcy, that debtor had hired an accounting firm to organize its records, and there was no evidence that any destroyed records were not financial in nature.

Goldberg v. Pagaduan (In re Pagaduan), ___ B.R. ___, Case No. 2:10-cv-00588-KJD, 2011 WL 1113281 (D. Nev. March 25, 2011) (Dawson, J.), aff’g in part & rem’g in part 429 B.R. 752 (Bankr. D. Nev. 2010) (Markell, J.)

Judge Markell sanctioned appellant, counsel Randolph Goldberg. Judge Dawson affirmed: (1) consideration of testimonial evidence of debtor, even after Judge Markell withdrew his subpoena for debtor, as debtor testified voluntarily; (2) finding of forgery by appellant on debtor’s signature for credit counseling, based on factual deference to trial court and appellant’s responsibility for tasks delegated to staff; and (3) sanctions of almost $5,000 due to ineffective prior sanctions.

Judge Dawson vacated the extension of sanctions issued in a prior case, as there was no evidence that appellant had violated the order from the earlier case.