In re: Mega-C Power Corporation ( 2014 )

FILED
OCT 30 2014
1 NOT FOR PUBLICATION
SUSAN M. SPRAUL, CLERK
2 U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5 In re: ) BAP No. NV-13-1330-JuHlPa
) BAP No. NV-13-1338-JuHlPa
6 MEGA-C POWER CORPORATION, ) (cross appeals)
)
7 Debtor. ) Bk. No. NV-04-50962-GWZ
______________________________)
8 )
WILLIAM A. LEONARD, JR., )
9 Liquidation Trustee for the )
Mega-C Liquidation Trust, )
10 )
Appellant/Cross-Appellee,)
11 )
v. )
12 ) M E M O R A N D U M*
JOSEPH PICCIRILLI, Trustee )
13 of the Mega-C Second Amended )
Shareholders’ Trust, )
14 )
Appellee/Cross-Appellant.)
15 ______________________________)
16 Argued and Submitted on September 18, 2014
at Las Vegas, Nevada
17
Filed - October 30, 2014
18
Appeal from the United States Bankruptcy Court
19 for the District of Nevada
20 Honorable Gregg W. Zive, Bankruptcy Judge, Presiding
_________________________
21
Appearances: William M. Noall, Esq., of Gordon Silver, argued
22 for appellant/cross-appellee William A. Leonard,
Jr.; Alice Campos Mercado, Esq., of Lemons,
23 Grundy & Eisenberg, argued for appellee/cross-
appellant Joseph Piccirilli.
24 ________________________
25
26 *
This disposition is not appropriate for publication.
27 Although it may be cited for whatever persuasive value it may
have (see Fed. R. App. P. 32.1), it has no precedential value.
28 See 9th Cir. BAP Rule 8013-1.
-1-
1 Before: JURY, HOULE,1 and PAPPAS, Bankruptcy Judges.
2 This appeal and cross-appeal arise from contempt sanctions
3 issued by the bankruptcy court against Joseph Piccirilli
4 (Shareholders’ Trustee or ST), trustee of the Second Amended and
5 Restated Trust Agreement for the Benefit of the Shareholders of
6 Mega-C Power Corporation (Mega-C or debtor).
7 The bankruptcy court found ST in contempt for violating its
8 orders dated July 26, 2011, and June 1, 2012, both of which
9 required him to turn over shares of Axion Power International,
10 Inc. (Axion) as required under the terms of debtor’s confirmed
11 second amended plan (Plan) to William A. Leonard, Jr.
12 (Liquidation Trustee or LT), trustee of the Mega-C liquidation
13 trust. In considering the appropriate sanctions, the court
14 rejected LT’s request for damages based on the decline of the
15 stock’s value during the contempt period and reduced his request
16 for over $100,000.00 in attorney’s fees to $9,439.00.
17 On appeal, LT challenges the bankruptcy court’s
18 determination of the sanctions amount. In the cross-appeal, ST
19 maintains that the court erred in finding him in contempt and
20 thus the award of sanctions was improper. Finding no error, we
21 AFFIRM.
22 I. FACTS
23 In April 2004, Axion, along with two other creditors, filed
24 an involuntary petition for relief under chapter 112 against
25
1
26 The Honorable Mark D. Houle, U.S. Bankruptcy Judge for the
Central District of California, sitting by designation.
27
2
Unless otherwise indicated, all chapter and section
28 (continued...)
-2-
1 Mega-C. Mega-C consented to the entry of an order for relief,
2 which the bankruptcy court entered on May 3, 2004. Within a few
3 months, the court appointed William M. Noall3 as the chapter 11
4 trustee. Early on, the bankruptcy court identified the
5 bankruptcy proceeding as a classic “shareholders’ dispute.”
6 Before the petition date, Axion created a shareholders’
7 trust (Shareholder Trust) under a trust agreement for the
8 benefit of shareholders of Mega-C, containing 7,327,500 shares
9 of Axion common stock (Axion Stock) for the benefit of debtor’s
10 creditors and equity security holders. After the petition date,
11 the Shareholder Trust increased its holdings to 7,827,500 shares
12 of Axion Stock under a first amended and restated trust
13 agreement.
14 In December 2005, a settlement agreement (2005 Settlement
15 Agreement) was reached to resolve a series of disputes and
16 claims among a wide range of parties including, among others,
17 the estate, through the chapter 11 trustee, Axion, and the
18 Shareholder Trust. The 2005 Settlement Agreement set forth the
19 terms of a proposed plan that was to be filed with the
20 bankruptcy court. Among other things, the agreement provided
21 that on the effective date (Effective Date) of the Plan,
22 5,700,000 shares of Axion Stock (the Plan Funding Shares) in the
23 Shareholder Trust would be allocated to pay priority claims,
24
25 2
(...continued)
26 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
“Rule” references are to the Federal Rules of Bankruptcy
27 Procedure.
28 3
Mr. Noall later became LT’s attorney.
-3-
1 unsecured claims, and other expenses.
2 Before the Effective Date, Ms. Sally Fonner, the
3 predecessor Shareholders’ Trustee to Joseph Piccirilli, was
4 authorized to liquidate up to 1,000,000 of the Plan Funding
5 Shares for the purposes of paying the administration fees and
6 costs of debtor’s estate and providing the cash required to
7 confirm the Plan. The 2005 Settlement Agreement further
8 provided for the distribution of additional Plan Funding Shares
9 to a liquidation trust (Mega-C Liquidation Trust) in the
10 following manner:
11 In the event the net liquidation proceeds of the
shares of the Plan Funding Shares to be liquidated by
12 Fonner prior to the Effective Date is inadequate to
pay unclassified claims allowed prior to the Effective
13 Date, unclassified claims (including 326 Fees) not yet
allowed, allowed priority and unsecured claims to be
14 paid on the Distribution Date and any disputed claims
reserve, the [LT] may immediately commence the orderly
15 liquidation of sufficient Plan Funding Shares to
satisfy such claims and reserves. Sufficient shares
16 of Plan Funding Shares for this purpose shall be
determined based upon the average closing bid price of
17 Axion stock for the thirty (30) trading days
immediately prior to the Effective Date . . . .
18
19 Finally, the agreement provided for the formation of the Mega-C
20 Liquidation Trust and the amendment and restatement of the
21 Shareholder Trust by a second amended and restated trust
22 agreement (as amended, the Shareholders’ Trust Agreement).
23 The plan, which incorporated the 2005 Settlement Agreement,
24 was subsequently filed in the bankruptcy court. On November 8,
25 2006, the bankruptcy court confirmed the Plan with an Effective
26 Date of November 21, 2006. Before the Effective Date of the
27 Plan, Axion shares were trading at a little over $2.00 per
28 share.
-4-
1 On the Effective Date, the Mega-C Liquidation Trust
2 agreement (Liquidation Trust Agreement) and Shareholder Trust
3 agreement were executed, thereby creating the liquidating trust
4 and providing for the funding of the Mega-C Liquidation Trust in
5 substantially the same manner as set forth in the Plan, and
6 Leonard was appointed the LT. Distribution of the Plan Funding
7 Shares in accordance with the Plan and the Shareholder Trust
8 agreement was identified as one of the explicit powers of the
9 ST.
10 After the Effective Date, Plan Funding Shares were
11 transferred to the Mega-C Liquidation Trust. However, LT
12 subsequently learned that some shares were sold while others
13 were unaccounted for. Furthermore, LT’s records showed that
14 $321,551.45 in administrative claims and $455,600.00 in allowed
15 general unsecured claims remained unpaid. The Mega-C
16 Liquidation Trust also incurred $1,238,789.39 through
17 February 28, 2011 in post-Effective Date trust expenses that
18 remained unpaid as of April 7, 2011. These expenses were
19 partially related to an adversary proceeding pursued by the
20 chapter 11 trustee, and then by LT, against Fogler Rubinoff, a
21 law firm that formerly represented debtor (Fogler Rubinoff
22 Litigation).4 Although the Mega-C Liquidation Trust held
23
4
24 The complaint against Fogler, filed in May 2006, asserted
claims for breach of fiduciary duty, negligence and breach of
25 contract. In November 2009, the bankruptcy court held a multi-
26 day trial and then took the matter under submission. The court
issued its findings of fact and conclusions of law and judgment
27 in late September 2012. The judgment required Fogler to disgorge
fees of over $277,000.00 but the court found Fogler had no
28 (continued...)
-5-
1 $41,286.26 in assets available for distribution on the unpaid
2 claims, this amount was inadequate to pay the claims and
3 liquidating trust expenses.
4 In mid-November 2010, LT sent a demand letter to the then
5 acting ST, Mark Dolan, demanding that he take any and all
6 actions necessary to assure that the Shareholder Trust transfer
7 the remaining Plan Funding Shares to the Mega-C Liquidation
8 Trust to satisfy the requirements of the Plan. LT stated his
9 intent to sell the remaining Plan Funding Shares solely to the
10 extent necessary to raise sufficient proceeds to pay all unpaid
11 claims and trust expenses. Dolan died on March 15, 2011,
12 without complying with the demand.
13 A. The July 2011 Order
14 Having received no response to his demand letter, on
15 April 7, 2011, LT filed a motion to compel the turnover of all
16 remaining shares of Axion Stock. Twenty days later, Piccirilli
17 was named the ST.
18 ST then opposed in part LT’s motion to compel. ST did not
19 oppose releasing sufficient shares to pay the remaining fees
20 owed under the Plan to certain parties listed in LT’s motion.
21 However, ST conditioned the release of additional shares on a
22 complete accounting of all trust expenses incurred (regardless
23 of whether or not already paid) and the bankruptcy court’s
24 determination that the fees and expenses were reasonable in
25 light of the outcome of the Fogler Rubinoff Litigation. ST also
26
27
4
(...continued)
28 liability for the conduct alleged.
-6-
1 requested the bankruptcy court to establish a mechanism for the
2 measured liquidation of the shares. This request was based on
3 ST’s belief that liquidating all the shares at once would dilute
4 their value.
5 In reply, LT maintained that he had no fiduciary duty to
6 the Shareholder Trust and that the reasonableness of the fees
7 incurred was not a condition precedent to the Shareholder
8 Trust’s turnover of the Plan Funding Shares. LT also argued
9 that ST’s request for the measured liquidation of the Axion
10 Stock was nothing more than an attempt to rewrite and
11 renegotiate the terms of the Plan and Mega-C Liquidation Trust.
12 At the June 6, 2011 hearing, the bankruptcy court noted
13 that the provisions of the Plan and the trust agreements
14 required ST to turn over the Plan Funding Shares to LT at LT’s
15 request. Accordingly, the bankruptcy court ordered ST to turn
16 over the remaining shares to LT stating “[t]hat should happen as
17 soon as possible.”
18 On July 26, 2011, the court entered the order directing ST
19 to transfer the remaining Plan Funding Shares to LT (the July
20 2011 Order), which order states in part:
21 The [s]hareholders’ trustee is hereby ordered to
immediately transfer the Remaining Plan Funding Shares
22 from the Shareholder[] Trust to the Liquidation
Trustee for liquidation to fund payment of Unpaid
23 Claims and Trust Expenses.
24 ST did not seek to modify the July 2011 Order in any manner, or
25 to appeal the order, and the order became final.
26 B. The October 2011 Agreement
27 After the June 6, 2011 hearing, ST and LT entered into
28 negotiations to facilitate the transfer and liquidation of Axion
-7-
1 Stock necessary to satisfy the terms of the July 2011 Order. A
2 preliminary agreement required ST to transfer the remaining Plan
3 Funding Shares to a brokerage account within five days after the
4 parties executed the agreement, provided for an orderly
5 liquidation of the Plan Funding Shares over several months, and
6 required ST to make varying monthly cash payments to LT if the
7 liquidation of the stock resulted in less than designated
8 amounts.5 In essence, ST was required to transfer the shares to
9 a brokerage account under the control of LT, but ST would
10 control the sales of the shares over several months for the
11 purpose of making the cash payments. If ST breached the
12 agreement, then he would lose his ability to trade the shares.
13 The parties continued their negotiations regarding the
14 transfer and orderly liquidation of the shares after the
15 bankruptcy court entered the July 2011 Order. During the
16 negotiations, ST liquidated shares and distributed $100,000.00
17 to LT’s attorney at Gordon & Silver and $31,850.03 to ST’s
18 attorney, Jeffery Hartman.
19 Concerned that an agreement would never be reached, on
20 October 11, 2011, LT filed his first motion for order to show
21 cause (OSC) why Plan Funding Shares have not been turned over
22 under the July 2011 Order. Some version of an agreement was
23 executed by ST on October 31, 2011 (the October 2011 Agreement),
24 the day of the scheduled hearing on the OSC. At the hearing,
25 the parties explained that they had reached a resolution
26
27
5
$200,000 was to be paid by November 28, 2011; $400,000 by
28 December 22, 2011, and $800,00 by January 27, 2012.
-8-
1 regarding the OSC under the terms of the October 2011 Agreement.
2 In reality, however, the agreement was not yet finalized.
3 It was not until December 2011 that the parties agreed to the
4 final terms. On December 21, 2011, signatures for the final
5 version of the agreement were exchanged by e-mail. The record
6 shows that the parties never sought court approval of this
7 agreement despite the fact that it was inconsistent with the
8 July 2011 Order in that it did not require ST to immediately
9 turn over the shares to LT. By its terms, the agreement
10 required ST to turn over all remaining shares to a brokerage
11 account under the control of LT no later than December 26, 2011,
12 which he did not do. ST also failed to make the cash payment
13 required by the agreement on January 2012.
14 C. The June 2012 Order
15 In late February 2012, LT filed a second motion for an OSC
16 seeking ST’s compliance with the July 2011 Order and October
17 2011 Agreement. ST did not respond to the motion, but Axion
18 filed an opposition arguing for an orderly liquidation of the
19 shares.
20 At the May 29, 2012 hearing, the bankruptcy court noted
21 that ST was told in July 2011 to turn over the shares and he had
22 not done so, nor did he seek any relief from the court’s July
23 2011 Order. Moreover, although the court had not yet issued its
24 decision on the Fogler Rubinoff Litigation, the court observed
25 there was no change in circumstances since its July 2011 Order.
26 The court questioned ST’s attorney Mr. Hartman why ST had not
27 yet turned over the shares. Mr. Hartman replied: “Well, your
28 Honor, I will instruct Mr. Piccirilli tomorrow morning to take
-9-
1 the necessary steps to deliver the funding shares to Gordon &
2 Silver . . . .” In the end, the court stated that it was going
3 to enter an order “confirming my earlier order requiring that
4 all the Plan Funding Shares be turned over to the Liquidation
5 Trust.” The court also told Mr. Hartman that ST should turn
6 over the shares by 2:00 p.m. on June 1, 2012 and that a full
7 accounting should be provided by June 29, 2012.
8 On June 1, 2012, the bankruptcy court entered the order
9 granting LT’s motion which required ST to transfer all the Plan
10 Funding Shares no later than 2:00 p.m. on June 1, 2012, and
11 provide a full accounting to the LT no later than close of
12 business on June 29, 2012 (June 2012 Order). The order further
13 stated that the matter of sanctions against ST for violation of
14 the July 2011 Order was not before the court.
15 On June 22, 2012 — three weeks after he was ordered to do
16 so — ST transferred the remaining Plan Funding Shares to LT,
17 along with $13,948.19 in cash. LT sold the shares over a
18 thirty-day period, netting $619,241.28 for an average price of
19 $.305447 per share.
20 On June 29, 2012, ST filed brokerage account statements for
21 the Shareholder Trust. These statements showed checks by number
22 and the amount written from the account. The realized
23 gains/losses section of each statement showed the sales of Axion
24 Stock by date, quantity, sale price per share and proceeds
25 received for each stock sale. The statements did not identify
26 who received the cash payments.
27 D. The Ex Parte Application For OSC
28 In late July 2012, LT filed an ex parte application seeking
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1 a full and complete accounting and sanctions. On August 17,
2 2012, the bankruptcy court issued an OSC, which states in
3 relevant part:
4 [Mr. Piccirilli] is ordered by this Court to
personally appear before this Court on September 27,
5 2012 at 2:00 p.m. to show cause why he should not be
sanctioned for not filing with the Court and providing
6 the Liquidation Trustee:
7 1. A full and complete accounting, including all
backup Records . . . of his activities as the
8 Shareholder Trustee from the date of his appointment
as the successor Shareholder Trustee by order of the
9 Court entered on April 27, 2011, including the
receipt, management, and disposition of Plan Funding
10 Shares, as well as the use of proceeds from any such
disposition; and
11
2. Any and all other records, . . . in his
12 possession or accessible to him evidencing the
receipt, management, and disposition of Plan Funding
13 Shares including the use of all proceeds from any such
disposition by the prior trustees of the Shareholder
14 Trust.
15 On September 25, 2012, the bankruptcy court held a hearing
16 regarding ST’s request for a continuance of the matter and
17 stated that it would conduct a hearing regarding the request for
18 sanctions. On the same day, ST filed his declaration with an
19 accounting and back-up documents. The court scheduled the
20 sanctions hearing for November 15, 2012.
21 E. The November 15, 2012 Hearing
22 On October 18, 2012, LT filed a supplement to his ex parte
23 application requesting $1,711,740.40 in sanctions due to ST’s
24 noncompliance with the July 2011 and June 2012 Orders. That
25 amount was comprised of $141,010.96 for attorney’s fees and
26 costs incurred from April 26, 2011, through October 15, 2012,
27 and $1,570,729.44 for damages resulting from the delayed sale of
28 the Plan Funding Shares, on the basis that the Axiom Stock had
-11-
1 declined in value. LT calculated the damages related to the
2 delayed sale of the stock under a date of loss and averaging
3 methodology set forth in U.S. v. Gordon where the district court
4 had used this method to award restitution in a criminal case
5 involving the embezzlement of stock. 393 F.3d 1044, 1151-55
6 (9th Cir. 2004).
7 In response, ST argued against the requested sanctions on
8 the grounds that: (1) the only order LT ever attempted to
9 enforce was the June 2012 Order; (2) LT filed his motion to
10 compel transfer of the shares before ST was even appointed;
11 (3) after the bankruptcy court entered the July 2011 Order, the
12 parties negotiated the October 2011 Agreement for the transfer
13 and orderly liquidation of the stock which superceded the
14 court’s July 2011 Order; and (4) he substantially complied with
15 the June 2012 Order by transferring the shares on June 22, 2012,
16 and filing the account statements.
17 At the hearing on sanctions, ST testified that after he
18 became the trustee, he believed he had an obligation to transfer
19 the Plan Funding Shares when LT requested him to do so. He also
20 testified that under the October 2011 Agreement, the deadline to
21 transfer the shares was in December 2011. ST admitted that he
22 did not transfer the shares in accordance with the October 2011
23 Agreement, but conceded that he had no good answer why he did
24 not do so. Later, ST testified that the reason he did not turn
25 over the shares was his hope that the Fogler Rubinoff Litigation
26 would be resolved before the hearing on the sanctions and that
27 such resolution would have provided cash to LT in lieu of
28 liquidating Axion Stock. He then admitted that he did not
-12-
1 believe the resolution of the Fogler Rubinoff Litigation would
2 absolve him of his obligation to turn over the shares.
3 The bankruptcy court stated at the hearing that it
4 understood that the shares were not turned over earlier because
5 of the October 2011 Agreement. However, the court stated that
6 once the agreement was not fulfilled, “there is no doubt in my
7 mind that those shares of stock should have been turned over and
8 not just relying on some hope that Fogler Rubinoff Litigation
9 might be decided, because even if it was . . . it would have no
10 real determinative effect on the turnover of the stock.” The
11 bankruptcy court determined that damages arising out of the
12 contempt would not be awarded for the period before January 2012
13 because the parties “reset the clock” by entering into the
14 October 2011 Agreement. The court requested the parties to file
15 supplemental briefs on the issue of damages, fees, and costs.
16 LT filed his supplemental brief, arguing that under the
17 Gordon methodology the proper period for the date of loss
18 spanned from January 10, 2012, through February 20, 2012. LT
19 explained that ST executed the October 2011 Agreement on
20 December 21, 2011, and thus he was required to distribute the
21 shares no later than December 26, 2011. LT maintained that due
22 to the holidays, he would not have started selling the shares
23 until January 10, 2012. He also asserted that the date of loss
24 should span thirty trading days through February 20, 2012.
25 Based on this period, under the methodology in Gordon, LT
26 asserted that his damages were $495,254.25 from the delayed sale
27 of the shares. In addition, LT requested $104,496.45 in
28 attorney’s fees and expenses for the time period January 10,
-13-
1 2012 through November 29, 2012.
2 ST then filed his supplemental brief, arguing that stock
3 price damages were unwarranted and unproven. ST pointed out
4 that the Plan set aside a finite number of Axion shares to be
5 available to pay claims and administrative expenses, but it did
6 not identify a specific value or required amount that these
7 shares would bring. ST also maintained that LT failed to
8 establish that ST intended to delay delivery of the shares;
9 rather, his only motive was to attempt to preserve value for the
10 shareholders of Axion. ST asserted that there was no evidence
11 that the sales would have occurred if the shares were turned
12 over in December 2011 as required. Finally, ST maintained that
13 the alleged loss of value of the stock as a basis for sanction
14 was unsupported by the law and was an inappropriate measure of
15 damages based upon a false assumption that the shares would have
16 been sold on a straight-line basis over thirty trading days.
17 ST argued that sanctions, if any, should be limited to the
18 costs and attorney’s fees incurred for enforcing the turnover
19 obligations by motion in June 2012. ST noted that the total
20 attorney’s fees requested by LT were related to three large
21 categories of work: first, fees for researching and preparing
22 the motion and the reply, and for appearing at the hearing on an
23 unopposed 2012 turnover motion; second, fees for researching and
24 preparing the reply to the ex parte application for OSC
25 regarding the accounting issues, filed after ST filed his
26 account statements; and third, fees for researching and
27 preparing the motion and reply regarding the supplement to ex
28 parte application for OSC regarding the accounting issue.
-14-
1 ST argued that neither of these last two categories should
2 form the basis for sanctions for violation of the turnover
3 orders. Specifically, the second category dealt with a
4 challenge to the accounting contained in the account statements
5 which, according to ST, the court rejected as a basis for
6 sanctions and the third category was based upon the ex parte
7 application regarding the accounting issues in which counsel
8 asserted claims for sanctions on the turnover issue even though
9 the turnover occurred four and a half months earlier.
10 In the end, ST asserted that, as in Dyer, sanctions should
11 not be awarded for unsuccessful motions or for fees incurred for
12 motions unrelated to the performance the court had already
13 compelled.
14 F. The February 13, 2013 Hearing
15 At the February 13, 2013 hearing on sanctions, the
16 bankruptcy court stated that it had some concern about applying
17 the Gordon rationale for full restitution in a criminal case to
18 a contempt case when there were limitations on the ability of
19 the bankruptcy court to impose monetary sanctions for contempt.
20 The court also noted that the methodology in Gordon was only
21 “one methodology” and that it was complex.
22 At another point, the court found ST’s explanation for his
23 failure to turn over the shares based on the outcome of the
24 Fogler Rubinoff Litigation unreasonable “because it did not
25 affect his obligation to turn it over.”
26 ST’s attorney also spent considerable time reviewing the
27 requested attorney’s fees and costs, pointing out discrepancies
28 along the way, and argued that the only fees related to the
-15-
1 June 2012 motion and related order totaled $9,400, not $36,069
2 as sought by LT.
3 The court also questioned LT’s counsel regarding the scope
4 of the damages:
5 THE COURT: Your position is none of this would have
been necessary but for Mr. Piccirilli’s failure to
6 comply with the terms of the October 2011 agreement.
7 MR. NOALL: Yes
8 THE COURT: Which also kept in effect the order that I
entered in 2011.
9
MR. NOALL: Expressly so in paragraph 11.
10
THE COURT: That’s what I understand your position [is]
11 . . .
12 At the end of the hearing the court took the matter under
13 submission.
14 G. The Bankruptcy Court’s Ruling
15 On June 28, 2013, the bankruptcy court issued its findings
16 of fact and conclusions of law. The court found that ST had
17 violated the court’s July 2011 Order by failing to turn over the
18 Plan Funding Shares to LT in accordance with that order, and
19 that ST had violated the June 2012 Order by failing to turn over
20 the shares by the deadline contained in the order. The court
21 further found that:
22 Both Orders clearly command the Shareholders’ Trustee
to immediately turn over the Plan Funding Shares to
23 the Liquidation Trustee. Mr. Piccirilli failed to
substantially comply with either of the Court’s
24 Orders. Mr. Piccirilli’s actions were not based on
good faith or a reasonable interpretation. Instead,
25 Mr. Piccirilli acted in bad faith by not complying
with either Order. The Court finds clear and
26 convincing evidence that Mr. Piccirilli willfully
violated both Orders and should be held in contempt.
27
28 In determining the amount of the sanctions, the bankruptcy court
-16-
1 decided that the test set forth in Gordon was inapplicable
2 because that case involved criminal embezzlement and a
3 restitution calculation, while ST’s delay in turning over the
4 Plan Funding Shares was not criminal.
5 The bankruptcy court then limited the sanctions to LT’s
6 reasonable attorney’s fees and costs incurred in bringing and
7 enforcing LT’s second motion for OSC that resulted in the June
8 2012 Order. In evaluating the requested fees for that time
9 period, the bankruptcy court concluded that certain fees were
10 not related to the turnover of the shares and other fees were
11 excessive. In the end, the court found the amount of $9,439.006
12 was appropriate. The court also noted that ST would have to pay
13 his own attorney’s fees for the litigation. The court found
14 that those fees, plus the sanction award of $9,439.00, were
15 sufficient and appropriate sanctions for ST’s wrongful conduct.
16 The bankruptcy court entered the order consistent with its
17 decision on June 28, 2013. LT filed a timely notice of appeal
18 on July 12, 2013. ST filed a timely notice of his cross-appeal
19 on July 15, 2013, which was subsequently amended on July 19,
20 2013.
21 II. JURISDICTION
22 The bankruptcy court had jurisdiction under 28 U.S.C.
23 §§ 1334 and 157(b)(2)(A). We have jurisdiction under 28 U.S.C.
24 § 158.
25
6
26 Of this amount, $3,651.00 was for Mr. Gordon’s time on
May 23 and May 28 preparing for the May 29, 2012 hearing on the
27 OSC; $5,168.00 was for Mr. Gordon’s time spent at the May 29,
2012 hearing; and $620.00 was for Mr. Gordon’s time spent
28 preparing the June 2012 Order.
-17-
1 III. ISSUES
2 On appeal, we consider whether the bankruptcy court erred
3 in calculating the sanctions by (a) refusing to apply the
4 remedial methodology announced in Gordon, or another similar
5 methodology, to determine the proper measure of damage caused by
6 ST’s failure to distribute Plan Funding Shares in accordance
7 with the court’s orders; (b) limiting the award of sanctions to
8 LT’s reasonable costs and attorney’s fees for work directly
9 related to the June 2012 Order; and (c) reducing the amount of
10 attorney’s fees for this time period.
11 In the cross-appeal, we consider whether the bankruptcy
12 court erred by finding ST in contempt of the July 2011 Order and
13 the June 2012 Order.
14 IV. STANDARDS OF REVIEW
15 We review the bankruptcy court’s determination of contempt
16 for an abuse of discretion. Price v. Lehtinen (In re Lehtinen),
17 332 B.R. 404, 411 (9th Cir. BAP 2005), aff’d, 564 F.3d 1052 (9th
18 Cir. 2009). We also review the court’s determination to impose
19 sanctions for contempt for an abuse of discretion. See
20 Hansbrough v. Birdsell (In re Hercules Enters., Inc.), 387 F.3d
21 1024, 1027 (9th Cir. 2004).
22 In determining whether the bankruptcy court abused its
23 discretion we first determine de novo whether the trial court
24 identified the correct legal rule to apply to the relief
25 requested and then, if the correct legal standard was applied,
26 we determine whether the court’s application of that standard
27 was “(1) illogical, (2) implausible, or (3) without support in
28 inferences that may be drawn from the facts in the record.”
-18-
1 United States v. Loew, 593 F.3d 1136, 1139 (9th Cir. 2010).
2 We review for clear error the bankruptcy court’s findings
3 of fact in connection with the contempt order. F.T.C. v.
4 Affordable Media, LLC, 179 F.3d 1228, 1239 (9th Cir. 1999).
5 A court’s findings of fact are clearly erroneous if they are
6 illogical, implausible, or without support in the record. Retz
7 v. Sampson (In re Retz), 606 F.3d 1189, 1197 (9th Cir. 2010).
8 “Clear error exists only when the reviewing court is left with a
9 definite and firm conviction that a mistake has been committed.”
10 Computer Task Group, Inc. v. Brotby (In re Brotby), 303 B.R.
11 177, 184 (9th Cir. BAP 2003). “If two views of the evidence are
12 possible, the trial judge’s choice between them cannot be
13 clearly erroneous.” In re Lehtinen, 332 B.R. at 411.
14 V. DISCUSSION
15 A. Contempt And Sanctions: Legal Standards
16 Bankruptcy courts have the power to issue sanctions under
17 their civil contempt authority under § 105(a)7 and their
18 inherent sanction authority. In re Lehtinen, 564 F.3d at 1058.
19 The bankruptcy court’s inherent authority differs from the
20 court’s civil contempt power under § 105(a) and the two are not
21
22 7
Section 105(a) provides:
23
The court may issue any order, process, or judgment
24 that is necessary or appropriate to carry out the
provisions of this title. No provision of this title
25 providing for the raising of an issue by a party in
26 interest shall be construed to preclude the court from,
sua sponte, taking any action or making any
27 determination necessary or appropriate to enforce or
implement court orders or rules, or to prevent an abuse
28 of process.
-19-
1 interchangeable. Knupfer v. Lindblade (In re Dyer), 322 F.3d
2 1178, 1196 (9th Cir. 2003). The inherent power allows the court
3 to sanction a broad range of conduct, unlike the civil contempt
4 authority, which permits a court to remedy a violation of a
5 specific order. Id. Further, unlike the civil contempt
6 authority, a bankruptcy court must make an explicit finding of
7 bad faith or willful misconduct before imposing sanctions under
8 its inherent authority. In re Lehtinen, 564 F.3d at 1058.
9 Whether acting under its inherent authority or civil
10 contempt authority, the bankruptcy court does not have authority
11 to impose significant punitive damages. Id. at 1059. “Civil
12 penalties must either be compensatory or designed to coerce
13 compliance.” Id. Although the Ninth Circuit has never
14 “‘develop[ed] . . . a precise definition of the term “serious”
15 punitive (criminal) sanctions,’ it has stated that a penalty is
16 criminal in nature ‘if the contemnor has no subsequent
17 opportunity to reduce or avoid the fine through compliance, and
18 the fine is not compensatory.’” Id. It is also criminal if the
19 sanction was intended “‘to vindicate the authority of the
20 court.’” Id. However, actual damages, including attorney’s
21 fees incurred as a result of the noncompliant conduct, can be
22 recovered as part of a compensatory civil contempt sanctions
23 award. See In re Dyer, 322 F.3d at 1195. To award such
24 sanctions, the bankruptcy court must find that actual damages
25 flowed from the contemnor’s noncompliant conduct. Id.; see also
26 Shuffler v. Heritage Bank, 720 F.2d 1141, 1148 (9th Cir. 1983)
27 (Compensatory contempt sanctions must be based on “actual losses
28 sustained as a result of the contumacy.”).
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1 Here, it appears the bankruptcy court invoked its inherent
2 power to sanction by making findings of bad faith and invoked
3 its civil contempt power under § 105(a) by applying the
4 standards for civil contempt. “The standard for finding a party
5 in civil contempt is well settled: The moving party has the
6 burden of showing by clear and convincing evidence that the
7 contemnors violated a specific and definite order of the court.
8 The burden then shifts to the contemnors to demonstrate why they
9 were unable to comply.” Affordable Media, 179 F.3d at 1239;
10 Renwick v. Bennett (In re Bennett), 298 F.3d 1059, 1069 (9th
11 Cir. 2002). In other words, the contemnor may purge the
12 contempt by showing that it was impossible to comply. “Where
13 compliance is impossible, neither the moving party nor the court
14 has any reason to proceed with the civil contempt action.”
15 United States v. Rylander, 460 U.S. 752, 757 (1983).
16 Substantial compliance is also a defense to civil contempt.
17 Vertex Distrib., Inc. v. Falcon Foam Plastics, Inc., 689 F.2d
18 885, 891 (9th Cir. 1982). “Technical or inadvertent violations
19 of the order” are not fatal to a substantial compliance defense
20 where the party “has taken ‘all reasonable steps’ to comply with
21 the court order. . . .” Gen. Signal Corp. v. Donallco, Inc.,
22 787 F.2d 1376, 1379 (9th Cir. 1986). To show substantial
23 compliance, the contemnor must come forward with evidence that
24 he has taken all reasonable steps within his power to comply
25 with the court’s order. Go–Video, Inc. v. Motion Picture Ass’n
26 of Am. (In re Dual–Deck Video Cassette Recorder Antitrust
27 Litig.), 10 F.3d 693, 695 (9th Cir. 1993). Such evidence must
28 be credible under the circumstances, for a contemnor cannot
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1 satisfy his burden of production “by evidence or by his own
2 denials which the court finds incredible in context.” Maggio v.
3 Zeitz, 333 U.S. 56, 75–76 (1948). The contemnor must show
4 “‘categorically and in detail’ why he is unable to comply.”
5 Affordable Media, 179 F.3d at 1241.
6 Finally, civil contempt “‘need not be willful,’ and there
7 is no good faith exception to the requirement of obedience to a
8 court order. [However], a person should not be held in contempt
9 if his action ‘appears to be based on a good faith and
10 reasonable interpretation of the [court’s order].’” Go–Video,
11 10 F.3d at 695.
12 In light of the above-referenced standards, our first task
13 is to determine whether the bankruptcy court could properly
14 determine that (1) ST violated the court orders at issue,
15 (2) beyond substantial compliance, (3) not based on a good faith
16 and reasonable interpretation of the orders, and (4) by clear
17 and convincing evidence. Go–Video, 10 F.3d at 692; see also
18 Dardashti v. Golden (In re Dardashti), 2008 WL 8444787, at *7
19 (9th Cir. BAP February 12, 2008). If the bankruptcy court’s
20 finding of contempt was proper, we then consider whether the
21 bankruptcy court abused its discretion in determining the
22 sanction amount.
23 B. The Bankruptcy Court Did Not Clearly Err In Finding ST In
Contempt Of the July 2011 Order And The July 2012 Order.
24
25 1. The July 2011 Order. ST argues that none of the
26 Go-Video factors are met with respect to the July 2011 Order.
27 First, he contends that he did not violate the July 2011 Order
28 because it was superceded by the parties’ October 2011
-22-
1 Agreement. In this regard, ST relies on the bankruptcy court’s
2 tentative comments at the November 15, 2012 hearing which
3 suggested that the October 2011 Agreement superseded the July
4 2011 Order. Second, ST asserts that he reasonably and in good
5 faith relied on the October 2011 Agreement, which essentially
6 modified the terms of the bankruptcy court’s July 2011 Order.
7 Next, ST maintains that he did not disobey the July 2011 Order
8 or fail to deliver the shares in bad faith or for any improper
9 purpose. Finally, ST asserts that to the extent the bankruptcy
10 court’s sanction order was based upon his non-compliance with
11 the October 2011 Agreement, it was error, as non-compliance with
12 an agreement does not constitute the willful disobedience of a
13 court order.
14 These arguments are not persuasive. At the May 29, 2012
15 hearing, the bankruptcy court noted that ST was told in July
16 2011 to turn over the shares and he had not done so, nor did he
17 seek any relief from the court’s July 2011 Order. In other
18 words, the court implicitly recognized that its July 2011 Order
19 was final and therefore fully enforceable. Further, the
20 bankruptcy court’s comments at the November 15, 2012 hearing did
21 not constitute its findings of fact with respect to ST’s
22 contempt for violating the July 2011 Order. Indeed, at that
23 hearing the court stated that in its mind once the October 2011
24 Agreement was not fulfilled, the stock should have been
25 immediately turned over. Again, the court implicitly recognized
26 that its July 2011 Order was in effect.
27 Later at the February 13, 2013 hearing on sanctions, the
28 record shows that the bankruptcy court was still considering
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1 LT’s position that the damages would not have occurred “but for”
2 ST’s failure to comply with the terms of the October 11
3 Agreement which “kept in effect” the July 2011 Order. In this
4 regard, LT pointed out that the October 11 Agreement referenced
5 the bankruptcy court’s July 2011 Order in Recital B and defined
6 it as the “Court Order.” Recital D states that the parties were
7 entering into the agreement to “facilitate the transfer and
8 liquidation of the shares necessary to satisfy the terms of the
9 Court Order.” Paragraph 11 further provides:
10 Court Order and Bankruptcy Court Jurisdiction. Except
as otherwise expressly provided by this Agreement, all
11 of the Shares that have not been sold by LT shall be
under the control of LT, consistent with the Court
12 Order and the Plan. Nothing in this Agreement shall
be deemed or construed as affecting the validity or
13 enforceability of the Court Order or impairing the
jurisdiction of the Bankruptcy Court to enforce the
14 Court Order or to resolve any issue with regard to the
Shares.
15
16 Nowhere does the agreement explicitly state that it superceded
17 the July 2011 Order. Instead, the plain language of the above-
18 cited provisions indicates the parties’ intent that the July
19 2011 Order would remain valid and enforceable.
20 That order, in no uncertain terms, required ST to turn over
21 the shares. It follows that if the terms of the agreement were
22 not fulfilled, the July 2011 Order controlled. In sum, ST’s
23 subjective belief that the October 2011 Agreement somehow
24 superceded the bankruptcy court’s July 2011 Order was not a
25 legal justification for his disobedience of the court’s July
26 2011 Order.
27 Moreover, the Plan specifically required ST to turn over
28 the shares when LT requested him to do so. Thus, even before
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1 the bankruptcy court entered the July 2011 Order, ST knew he had
2 to turn over the shares to comply with the Plan as demonstrated
3 by his testimony at the November 15, 2012 hearing; i.e., after
4 he became the trustee, he believed he had an obligation to
5 transfer the Plan Funding Shares when requested to do so by LT.
6 Accordingly, the July 2011 Order was simply consistent with ST’s
7 existing obligations under the Plan, which were known to him.
8 We are also not persuaded by ST’s argument that he was
9 somehow improperly held in contempt for breaching the October
10 2011 Agreement. The bankruptcy court did not mention in its
11 findings of fact or conclusions of law that ST’s breach of the
12 October 2011 Agreement was the basis for finding ST in contempt.
13 Although the court acknowledged that the agreement “reset the
14 clock” as far as LT’s damages, the bankruptcy court never
15 explicitly found that the agreement replaced its July 2011
16 Order.8
17 Finally, ST contends his failure to comply with the court’s
18 July 2011 Order was not in “bad faith” or “willful.” With
19 respect to civil contempt matters there is no requirement that
20 the contempt be willful and there is no good faith exception to
21 the requirement of obedience to a court order. See Go-Video,
22 10 F.3d at 695. “Intent is irrelevant to a finding of civil
23 contempt and, therefore, good faith is not a defense.” Stone v.
24
25 8
We note that even if the October 2011 Agreement was
26 modified or became a substitute for the July 2011 Order, ST
failed also to comply with its deadlines. This failure would
27 have also provided a factual basis for the finding of contempt.
ST’s arguments, therefore, are a distinction without a
28 difference.
-25-
1 City & Cnty. of S.F., 968 F.2d 850, 862 (9th Cir. 1992).
2 In any event, we conclude that the bankruptcy court’s
3 finding of bad faith was not error. The record shows that ST
4 never provided a satisfactory reason why he did not turn over
5 the stock to LT in compliance with the July 2011 Order even
6 after he breached the October 2011 Agreement. At the
7 November 15, 2012 evidentiary hearing, ST admitted that he did
8 not transfer the shares pursuant to the agreement, but stated
9 that he had no good answer as to why he did not do so. Later,
10 ST testified that the reason he did not turn over the shares was
11 his hope that the Fogler Rubinoff Litigation would be resolved
12 in favor of the estate before the hearing and would provide cash
13 to LT in lieu of liquidating Axion Stock. He then stated that
14 he did not believe the resolution of the Fogler Rubinoff
15 Litigation would absolve him of his obligation to turn over the
16 shares. At the February 13, 2013 hearing on sanctions, the
17 bankruptcy court found that it was unreasonable for ST to “hope”
18 the Fogler Rubinoff Litigation would somehow relieve him of his
19 duty to turn over the stock which was required by the confirmed
20 Plan and the court’s July 2011 Order. Based on these facts, and
21 all reasonable inferences from these facts, the bankruptcy court
22 could properly conclude that ST acted in bad faith when he
23 failed to turn over the shares. “If two views of the evidence
24 are possible, the trial judge’s choice between them cannot be
25 clearly erroneous.” In re Lehtinen, 332 B.R. at 411.
26 In sum, we find nothing in the record to support ST’s
27 arguments. Therefore, the bankruptcy court did not clearly err
28 by finding ST in contempt for violating the July 2011 Order.
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1 2. The June 2012 Order. ST also contends that the
2 bankruptcy court erred by finding him in contempt of the July
3 2012 Order because he substantially complied with the order. ST
4 maintains that once he found out about the order, he promptly
5 obeyed it by immediately directing the custodian of the stock to
6 deliver the shares to the new custodial account that LT had set
7 up and executing all documents for the transfer in a timely
8 manner. In essence, ST asserts that there was nothing else he
9 could do to effectuate the transfer by the June 1, 2012 deadline
10 set forth in the order.
11 ST’s claim of substantial compliance is unpersuasive. ST
12 had the burden of producing evidence showing that he had taken
13 all reasonable steps within his power to comply with the court’s
14 order to prove the defense. Go–Video, 10 F.3d at 695. In
15 assessing whether an alleged contemnor has taken “every
16 reasonable step” to comply with the terms of a court order, the
17 bankruptcy court can consider (1) a history of noncompliance and
18 (2) a failure to comply despite the pendency of a contempt
19 motion. See Stone, 968 F.2d at 857. Here, the record shows
20 that ST had a history of noncompliance with respect to
21 transferring the shares to LT. Despite the plain language of
22 the Plan, the bankruptcy court’s July 2011 Order, and the
23 October 2011 Agreement — all of which required him to transfer
24 the shares in a timely manner — he never did so. Moreover, when
25 LT filed the second motion for an OSC, ST still did not comply.
26 Finally, the record shows that the bankruptcy court
27 informed ST’s attorney at the May 29, 2012 hearing on LT’s
28 second motion for OSC that ST should turn over the shares by
-27-
1 2:00 p.m. on June 1, 2012. ST never moved for an extension of
2 time based on his after-the-fact argument that it was impossible
3 for him to comply. Rather, he transferred the shares to LT
4 three weeks later. Although ST argues that he did all that he
5 could do, there is no evidence in the record that compliance by
6 the June 1, 2012 date was impossible. Affordable Media,
7 179 F.3d at 1241 (contemnor must show “‘categorically and in
8 detail’ why he is unable to comply.”). Given the absence of
9 such evidence, we cannot say the bankruptcy court’s
10 interpretation of the facts and finding of contempt was
11 implausible on its face. As fact finder, the bankruptcy court
12 was in the best position to determine ST’s credibility about
13 what steps he had taken to comply with the court’s order and
14 whether those steps were reasonable under the circumstances.
15 See Maggio, 333 U.S. at 75-76 (evidence of what reasonable steps
16 were taken must be credible under the circumstances).
17 In short, on this record, we are not left with a firm and
18 definite conviction that a mistake has been made. Accordingly,
19 we discern no error with the bankruptcy court’s decision finding
20 ST in contempt of the June 2012 Order.
21 C. The Bankruptcy Court Did Not Abuse Its Discretion In
Awarding Sanctions Of $9,439.00.
22
23 1. The Gordon Methodology. LT first argues that the
24 bankruptcy court erred in rejecting the methodology in Gordon as
25 an appropriate measure of damages caused by ST’s failure to
26 distribute the shares in accordance with the bankruptcy court’s
27 orders. We disagree.
28 The Gordon case arose in the context of the Mandatory
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1 Victims Restitution Act. In re Gordon, 393 F.3d at 1049.
2 There, the defendant worked at Cisco from 1995 through 2011. In
3 1995, Cisco had acquired 896,834 shares of a corporation called
4 Terayon. In 1998, without the company’s knowledge, Gordon sold
5 short 54,525 of Cisco’s Terayon shares. Then, in June 1999,
6 Gordon embezzled another 100,000 Terayon shares from Cisco’s
7 account without Cisco’s knowledge. From July 21, 1999, through
8 March 6, 2011, Cisco sold all of its Terayon shares (excluding
9 the Gordon shares it did not know were missing). The district
10 court found Cisco would have sold the Gordon shares as well had
11 Gordon not wrongfully taken them without Cisco’s knowledge.
12 In determining the proper method of restitution, the
13 district court first had to determine the date of loss. The
14 court noted that the date of loss is the date on which the
15 shares would have been sold. However, Cisco disposed of the
16 shares over the course of twenty-one months and, therefore, the
17 district court concluded that the date of loss was the entire
18 period in which Cisco was disposing of the Terayon shares. To
19 determine a proper restitution amount based on this range of
20 dates, the district court computed the loss by using the average
21 closing price of Terayon shares from July 21, 1999 through
22 March 6, 2001. The Ninth Circuit affirmed the district court’s
23 methodology, stating that the “district court reasonably
24 construed the loss to Cisco concerning the Terayon stock to be
25 its inability to liquidate the stock between July 21, 1999 and
26 March 6, 2011.” Id. at 1054.
27 At one point the bankruptcy court acknowledged the Gordon
28 methodology for determining damages arising from the alleged
-29-
1 loss of stock value as the basis of sanctions. However, at
2 another point, the court observed that the methodology in Gordon
3 was only “one methodology” and thus the court was not compelled
4 to use it. This later statement is correct — a bankruptcy court
5 has wide discretion in determining the nature and amount of the
6 sanctions in contempt matters. See United States v. Asay,
7 614 F.2d 655, 660 (9th Cir. 1980) (citing United States v.
8 United Mine Workers, 330 U.S. 258, 304 (1947)). There is thus
9 no basis for us to remand for the purpose of mandating the
10 application of the Gordon formula.
11 While it is true that Gordon did not arise in the context
12 of contempt, the more important question LT raises on appeal is
13 whether the bankruptcy court abused its discretion by not
14 awarding any sanctions based on the alleged loss of the stock’s
15 value. Based on our review of the record, we determine it did
16 not. The bankruptcy court’s finding of contempt does not create
17 an entitlement to all expenses involved in this matter.
18 As discussed below, the bankruptcy court properly
19 considered whether the damages requested for the loss of stock
20 value were appropriate as a remedial measure or whether the
21 request in essence became a punitive damage award rather than
22 compensatory. The bankruptcy court also properly considered
23 whether LT’s actual damages for loss of stock value were caused
24 by ST’s failure to comply with the court’s orders. Therefore,
25 the court applied the correct legal standard in determining
26 whether the damages for loss of stock value were proper
27 sanctions.
28 In particular, as the bankruptcy court observed, the
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1 parties entered into the October 2011 Agreement which required
2 ST to turn over the shares by December 26, 2011. The parties
3 therefore “reset the clock” as far as damages, and any “but for”
4 losses from the stock value would have been incurred by LT after
5 that date. LT maintains that had he received the stock by
6 December 26, 2011, he would have started the sales by
7 January 10, 2012. However, the record shows that LT failed to
8 mitigate any alleged damages by promptly seeking to retrieve or
9 protect the value of the Axion Stock between the breach date,
10 December 26, 2011, and February 29, 2012, when he filed the
11 second motion for OSC. Hence, there is nothing beyond mere
12 speculation to directly connect ST’s actions with LT’s inability
13 to sell the stock starting January 10, 2012.
14 Moreover, the evidence in the record does not conclusively
15 establish that LT suffered actual damages related to the alleged
16 loss of stock value. ST’s evidence showed that for sales
17 conducted after the December 26, 2011 date, the sale price was
18 $0.26 per share. When LT sold the stock between July 10, 2012
19 and July 31, 2012, he realized on average $.31 per share.
20 Therefore, the bankruptcy court could reasonably conclude that
21 had the shares been turned over on December 26, 2011, and
22 promptly sold, LT would have received less from the sales than
23 he did in July 2012. “If two views of the evidence are
24 possible, the trial judge’s choice between them cannot be
25 clearly erroneous.” In re Lehtinen, 332 B.R. at 411.
26 Further, the bankruptcy court balanced the alleged harm to
27 LT against ST’s gain from his delay in turning over the shares.
28 While LT contends that this harm/gain analysis was error, it was
-31-
1 entirely proper when determining whether the amounts requested
2 by LT for damages were remedial rather than punitive. At the
3 February 13, 2013 hearing, LT’s counsel pointed out that ST had
4 actually “hurt himself by breaching the [October 2011 Agreement]
5 because he did not have the advantage to sell.” The bankruptcy
6 court asked: “then what is the measure of the sanctions . . . I
7 mean, just because somebody shoots themselves between the eyes,
8 I don’t think I have to sanction them.”
9 Finally, although the Ninth Circuit has never developed a
10 precise definition of serious punitive sanctions, given the
11 amount requested by LT, the requested sanctions could not be
12 considered anything but serious. As a result, the bankruptcy
13 court could have considered LT’s request for loss of value
14 damages as punitive, especially since ST would have no
15 subsequent opportunity to reduce or avoid the fine through
16 compliance. In that case, the bankruptcy court may not order
17 such monetary damages, as they are punitive and not coercive.
18 See In re Lehtinen, 564 F.3d at 1058.
19 In sum, LT has not shown that the bankruptcy court erred in
20 concluding that damages for the loss of stock value were not
21 warranted under these circumstances.
22 2. Attorney’s Fees. LT also argues that the bankruptcy
23 court’s ultimate computation of LT’s costs and attorney’s fees
24 was illogical, implausible, and not supported by the record. In
25 this regard, LT asserts that every action he took after the July
26 2011 Order to recover possession of the shares must be deemed
27 compensable.
28 LT contends that he incurred $1,544.40 in fees relating to
-32-
1 the first motion for OSC. Also, to aid ST in complying with the
2 July 2011 Order, LT entered in settlement discussions that
3 ultimately resulted in the October 2011 Agreement, and LT
4 incurred $29,275.33 in negotiating and drafting the agreement.
5 By February, ST still had not complied so LT had to prepare his
6 second motion for an OSC. LT incurred $26,286.70 in attorney’s
7 fees in seeking to enforce ST’s compliance with the July 2011
8 Order. According to LT, it was only due to ST’s willful
9 noncompliance with the July 2011 Order that these fees could
10 possibly accrue.
11 LT also argues that his attorney’s fees following entry of
12 the June 2012 Order were necessarily incurred to recover
13 compensatory sanctions against ST. On July 24, 2012, LT filed
14 his third motion for OSC. The court entered the order on
15 August 17, 2012, and set a hearing on the matter for September
16 27, 2012. ST filed a motion to continue and the bankruptcy
17 court heard oral argument on September 25, 2012, and continued
18 the hearing to November 15, 2012. LT incurred $10,706.00 fees
19 relating to these initial hearings, and subsequently LT incurred
20 $18,926.50 in fees relating to his first and second supplemental
21 pleadings. Therefore, LT contends that he incurred fees of
22 $55,919.20 relating solely to obtaining the June 2012 Order and
23 attempting to recover sanctions. LT maintains that even if the
24 bankruptcy court took a narrow view of what constituted work
25 directly related to the June 2012 OSC, it could not have awarded
26 less than $26,286.70 in attorney’s fees.
27 “Attorneys’ fees frequently must be expended to bring a
28 violation of an order to the court’s attention.” Perry v.
-33-
1 O’Donnell, 759 F.2d 702, 705 (9th Cir. 1985). In Perry, the
2 Ninth Circuit stressed the need for flexibility in awarding fees
3 and expenses in civil contempt actions. Id. at 705–06. The
4 court concluded that “the trial court should have the discretion
5 to analyze each contempt case individually and decide whether an
6 award of fees and expenses is appropriate as a remedial
7 measure.” Id. at 705. Only those costs and fees related to the
8 enforcement of the court’s orders are authorized. In re Dyer,
9 322 F.3d at 1195; Flores v. Oh (In re Oh), 2008 WL 8448837, at
10 *12 (9th Cir. BAP March 19, 2008) (noting that “two factors are
11 considered when a court awards attorney’s fees as sanctions:
12 ‘(1) what expenses or costs resulted from the violation and
13 (2) what portion of those costs was reasonable, as opposed to
14 costs that could have been mitigated.’”) (citing Eskanos &
15 Adler, P.C. v. Roman (In re Roman), 283 B.R. 1, 12 (9th Cir. BAP
16 2002)).
17 Here, the bankruptcy court determined that the parties’
18 October 2011 Agreement “reset the clock” as far as damages. In
19 essence, LT’s attorney’s fees and costs after the July 2011
20 Order did not result from any violation of the court’s order.
21 Rather, LT made the decision to enter into the October 2011
22 Agreement instead of proceeding to enforce the court’s July 2011
23 Order.9
24 In addition, the bankruptcy court found many of the
25
26 9
Although LT filed his first motion for an OSC on
27 October 11, 2011, the parties explained that they had reached a
resolution of the matter at the October 31, 2011 hearing on the
28 matter.
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1 requested fees did not relate to the enforcement of the court’s
2 June 2012 Order. See In re Dyer, 322 F.3d at 1195. For
3 example, some of the fees related to ST’s failure to comply with
4 the accounting for which the bankruptcy court did not find ST in
5 contempt.
6 Furthermore, at the February 2013 hearing, counsel for ST
7 showed that not only were the fees sought unrelated to ST’s acts
8 constituting contempt, but were also unreasonable and/or
9 duplicative. Duplicative billings on May 29, 2012, showed
10 $14,000 in fees incurred by four time-keepers to prepare for a
11 hearing. The bankruptcy court took the time at the hearing to
12 review the objected-to time entries one by one. Therefore,
13 contrary to LT’s assertion, the court’s reduction of the
14 requested fees was not arbitrary.
15 Finally, the bankruptcy court explained its reluctance to
16 grant LT additional fees based on its observation that ST had
17 already been punished by his conduct in other ways because he
18 incurred substantial attorney’s fees that would not otherwise
19 have been necessary. This consideration was appropriate in
20 connection with the court’s exercise of its inherent sanctioning
21 powers which must be exercised with restraint and discretion.
22 See Chambers v. NASCO, Inc., 501 U.S. 32, 44-45 (1991).
23 In sum, the record demonstrates that the bankruptcy court
24 had a legal and factual basis for reducing LT’s request for
25 attorney’s fees. Moreover, as noted above, the bankruptcy court
26 has wide discretion in determining the proper sanction depending
27 upon the circumstances of the case, and as noted by LT’s
28 attorney at oral argument in this appeal, the bankruptcy court
-35-
1 was intimately familiar with this litigation as it unfolded
2 years after debtor’s plan was confirmed. Accordingly, there is
3 no basis for us to second guess the bankruptcy court’s
4 determination regarding the sanction amount.
5 VI. CONCLUSION
6 For the reasons stated, having found no error of fact or
7 law, we AFFIRM.
8
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