FILED
AUG 16 2016
SUSAN M. SPRAUL, CLERK
1 NOT FOR PUBLICATION U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
2
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5 In re: ) BAP No. NC-15-1383-KiTaJu
)
6 ROSARIO M. CARRERA, ) Bk. No. 3:15-bk-30689
)
7 Debtor. )
)
8 )
In re: ) BAP No. NC-15-1384-KiTaJu
9 )
TRISHA AINNE VIZCONDE, ) Bk. No 3:15-bk-30741
10 )
Debtor. )
11 )
)
12 TIMOTHY L. MCCANDLESS, )
)
13 Appellant, )
)
14 v. ) M E M O R A N D U M1
)
15 UNITED STATES TRUSTEE; DAVID )
BURCHARD, Chapter 13 trustee, )
16 )
Appellee. )
17 ______________________________)
18 Argued and Submitted on July 28, 2016,
at San Francisco, California
19
Filed - August 16, 2016
20
Appeal from the United States Bankruptcy Court
21 for the Northern District of California
22 Honorable Hannah L. Blumenstiel, Bankruptcy Judge, Presiding
23
Appearances: Appellant Timothy L. McCandless argued pro se;
24 Lilian Guan Tsang, Staff Attorney, argued for
Appellee David Burchard, Chapter 13 Trustee.
25
26
1
27 This disposition is not appropriate for publication.
Although it may be cited for whatever persuasive value it may
28 have, it has no precedential value. See 9th Cir. BAP Rule 8024-1.
1 Before: KIRSCHER, TAYLOR and JURY, Bankruptcy Judges.
2 Attorney Timothy Lee McCandless appeals two orders
3 sanctioning him $2,000 each for his involvement in what the
4 bankruptcy court determined were bad faith chapter 132 filings by
5 his clients.3 We AFFIRM.
6 I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
7 A. The Carrera case - appeal no. 15-1383
8 Debtor Rosario M. Carrera filed a skeletal chapter 13
9 bankruptcy case on May 28, 2015. McCandless represented Carrera.
10 Carrera disclosed no prior bankruptcies in the petition. She
11 listed one creditor — HSBC Bank USA, NA. In the attached
12 Exhibit D, Carrera sought a waiver of the required prepetition
13 credit counseling, claiming that exigent circumstances — a pending
14 civil case — prevented Carrera from completing the counseling
15 prior to filing. McCandless did not file a Rule 2016(b) statement
16 disclosing his compensation. Carrera never filed any schedules
17 but listed a street address at a property located on Marlin Avenue
18 in San Mateo, California. Prior to the instant bankruptcy filing,
19 McCandless had represented Carrera in 2012 in a civil suit against
20 HSBC Bank and other lenders based on their alleged misconduct in
21 financing for the Marlin Avenue property and wrongful foreclosure.
22
23 2
Unless specified otherwise, all chapter, code and rule
references are to the Bankruptcy Code,
11 U.S.C. §§ 101-1532, and
24 the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. The
Federal Rules of Civil Procedure are referred to as “Civil Rules.”
25
3
McCandless claims the court imposed sanctions against him
26 and his clients jointly and severally, so therefore he and his
respective client are the appellants in each case. He is
27 incorrect. The court entered monetary sanctions against
McCandless only. Therefore, he is the only appellant in each
28 case.
-2-
1 On May 29, 2015, the bankruptcy court issued a notice of
2 Carrera's prior bankruptcy filings, indicating that Carrera had
3 filed four cases since 2010.
4 On June 9, 2015, chapter 13 trustee David Burchard filed a
5 motion for order requiring Carrera or McCandless to appear and to
6 show cause why the case should not be dismissed with prejudice
7 with a two-year refiling bar. Trustee asserted the instant case
8 had been filed in bad faith; it was the fifth bankruptcy case
9 Carrera had filed since May 2010. Carrera's four prior cases, all
10 pro se, were dismissed for failure to file schedules, a chapter 13
11 plan and other required documents. In the fourth case the
12 Honorable Stephen L. Johnson found that it had been filed in bad
13 faith and dismissed it with prejudice with a two-year refiling
14 bar. Trustee argued that based on Carrera's history of serial,
15 skeletal filings with nothing more, her intent was not to
16 reorganize and receive a discharge but rather to frustrate
17 creditors by improperly invoking the automatic stay. A hearing
18 for Trustee's show cause motion was set for July 15, 2015. Notice
19 was sent to McCandless and Carrera.
20 On July 8, 2015, the bankruptcy court held a hearing on Wells
21 Fargo's motion for relief from stay respecting the Marlin Avenue
22 property. Neither Carrera nor McCandless appeared or filed any
23 opposition to the motion. As a result, the court granted relief.
24 Carrera's first meeting of creditors was scheduled for
25 July 9, 2015. According to Trustee, neither Carrera nor
26 McCandless appeared, and neither of them appeared at the continued
27 meeting on July 30, 2015. McCandless contended he "had somebody
28 appear" for Carrera. The bankruptcy court ultimately found
-3-
1 otherwise.
2 The hearing on Trustee's show cause motion went forward on
3 July 15. Neither Carrera nor McCandless appeared or filed any
4 papers responsive to the motion. As a result, Trustee's motion
5 was granted. Following the hearing, the bankruptcy court issued
6 an Order to Show Cause ("First OSC"), requiring Carrera and
7 McCandless to appear on August 19, 2015, and to file and serve a
8 written response at least 7 days prior to the hearing. The First
9 OSC stated that Carrera's pattern of filing cases without
10 prosecuting them appeared to be an abuse of the bankruptcy system
11 and warranted dismissal and a bar to refiling. The First OSC
12 warned that failure to appear and/or file a timely response could
13 result in dismissal with a two-year refiling bar.
14 Carrera and McCandless failed to appear at the August 19
15 First OSC hearing and did not file a written response. As a
16 result, the bankruptcy court dismissed Carrera's case with a
17 two-year refiling bar and, on August 20, 2015, issued an Order to
18 Show Cause re Sanctions ("Second OSC"). The Second OSC, directed
19 only at McCandless, ordered that he "appear and show cause as to
20 why he should not be sanctioned for his failure to comply with the
21 [First OSC], and for his apparent facilitation of or involvement
22 in [Carrera's] scheme to manipulate the bankruptcy process." The
23 bankruptcy court ordered McCandless to appear on October 21, 2015,
24 and to file a written response on or before October 14, 2015.
25 McCandless filed a late response to the Second OSC on
26 October 15, 2015. He explained that Carrera filed the instant
27 chapter 13 petition to stop the lender from proceeding with its
28 pending unlawful detainer action, to allow her to reorganize her
-4-
1 debts, to give her time to file an appeal and to help reach an
2 agreement with the lender as to the Marlin Avenue property.
3 McCandless explained that once Wells Fargo obtained relief from
4 the automatic stay, Carrera was unable to proceed with the
5 bankruptcy case and had to seek an alternate means to reach an
6 agreement with Wells Fargo.
7 McCandless appeared at the Second OSC hearing on October 21.
8 McCandless stated that when he filed Carrera's case he was not
9 aware of her prior bankruptcy filings, even though he had asked
10 her whether she had filed any. McCandless conceded the case was
11 filed to prevent losing the Marlin Avenue property but noted that
12 Carrera ultimately lost the property after negotiations failed and
13 the lender was granted relief from stay. When asked why he failed
14 to appear at the hearing on the First OSC, McCandless explained
15 that because he had been caring for his mother who had suffered a
16 stroke, "some things might have fallen through the cracks."
17 The bankruptcy court then noted McCandless's failure to
18 appear for the First OSC and that it had dismissed Carrera's case
19 for abuse. It then made the following findings to sanction
20 McCandless:
21 This Debtor had four prior cases, all of which were
dismissed for lack of prosecution, and this case appears
22 to be more of the same. It is clear to me that it was
filed just to buy time to cut a deal. That's not a proper
23 purpose for filing a bankruptcy case.
24 You failed to comply with [the First OSC] by failing to
file and serve a timely response and by failing, without
25 any explanation until today, whatsoever, to appear as
ordered. There was no appearance at a 341 meeting, either
26 the initial or continued 341 meeting. Not all the
required documents were filed, and so I can only find and
27 conclude that you participated in and facilitated the
filing of a case that constituted an abuse of the
28 bankruptcy process, and that you did so wilfully. In my
-5-
1 opinion, that justifies sanctions, so I will sanction you
in the amount of $2,000 payable within 30 days. I will
2 also refer this case to the United States Trustee for
investigation. I will enter an order to that effect.
3
4 Hr'g Tr. (Oct. 21, 2015) at 6:18-7:10.
5 In its "Order Sanctioning Debtor's Counsel" entered on
6 October 22, 2015 ("Carrera Sanctions Order"), the bankruptcy court
7 found: (1) that McCandless had conceded the case was filed to
8 delay a foreclosure and buy time to induce the lender into
9 resolving a dispute outside of bankruptcy; (2) that he had failed
10 to explain adequately how Carrera's case was filed with any
11 attempt at reorganization; and (3) that he failed to explain
12 adequately why he did not comply with the First OSC. McCandless
13 was sanctioned $2,000 payable to the court because he "knowingly
14 and wilfully participated in and facilitated the abuse and bad
15 faith manipulation of the bankruptcy process."
16 McCandless timely appealed the Carrera Sanctions Order.
17 B. The Vizconde case - appeal no. 15-1384
18 Debtor Trisha Ainne Vizconde filed a skeletal chapter 13
19 bankruptcy case on June 5, 2015. McCandless represented Vizconde.
20 Vizconde listed no prior bankruptcies in the petition. She listed
21 only one creditor — 21st Mortgage. In the attached Exhibit D,
22 Vizconde sought a waiver of the required prepetition credit
23 counseling, claiming that exigent circumstances — a pending
24 foreclosure sale — prevented Vizconde from completing the
25 counseling prior to filing. McCandless did not file a
26 Rule 2016(b) statement disclosing his compensation. Vizconde
27 never filed any schedules, but listed a street address at a
28 property located on Hacienda Street in San Mateo, California.
-6-
1 Prior to the instant bankruptcy filing, McCandless had represented
2 a woman named Regina B. Manantan (whose identity will become more
3 important later on) in a civil suit against 21st Mortgage and
4 other lenders for their alleged misconduct respecting financing
5 for the Hacienda Street property.
6 On June 8, 2015, the bankruptcy court issued a notice of
7 Vizconde's prior bankruptcy filings, indicating that she had filed
8 two cases since 2011.
9 On June 19, 2015, Trustee moved to dismiss Vizconde's case
10 under § 1307(c) with a two-year refiling bar. Trustee asserted
11 the instant case had been filed in bad faith; it was the third
12 bankruptcy case Vizconde had filed since 2011. Vizconde's two
13 prior cases, filed pro se, were both dismissed for failure to file
14 schedules, a chapter 13 plan and other required documents. It
15 also appeared that Vizconde was engaged in a series of "tag-team"
16 bankruptcy filings with two other individuals — Regina B. Manantan
17 and Patrick C. Vizconde. Between Vizconde, Manantan and Patrick,
18 they had filed 13 bankruptcy cases within the last five years, all
19 skeletal filings, with no confirmed plan or discharge. Each
20 individual had claimed an ownership interest in at least one of
21 three properties, including the Hacienda Street property. Trustee
22 argued that the long history of bankruptcy filings and dismissals
23 showed these three individuals were filing petitions in bad faith
24 and only to thwart creditors or a pending foreclosure regarding
25 the three properties. Thus, argued Trustee, Vizconde's intent was
26 not to reorganize and receive a discharge, but rather to engage in
27 a fraudulent scheme of improperly invoking the automatic stay.
28 Coincidentally, McCandless had represented Manantan and
-7-
1 Patrick in their more recent chapter 13 cases. In Patrick's most
2 recent case filed in January 2015, his fourth case filed since
3 2011, McCandless was ordered to disgorge his fees upon Trustee's
4 motion for review of attorney's fees. McCandless also represented
5 Patrick in the case prior to that one filed in November 2014,
6 which was dismissed for failure to file the required documents.
7 Trustee stated that it was unclear as to the extent of
8 McCandless's involvement with these individuals and their scheme
9 of fraudulent filings. A hearing was set for August 19, 2015, the
10 same day as the First OSC hearing in the Carrera case.
11 On July 16, 2015, the bankruptcy court held a hearing on 21st
12 Mortgage's motion for relief from stay. Neither Vizconde nor
13 McCandless appeared or filed any opposition to the motion. As a
14 result, the court granted 21st Mortgage relief from stay.
15 Vizconde's first meeting of creditors was scheduled for
16 July 24, 2015. Neither Vizconde nor McCandless appeared.
17 The hearing on Trustee's dismissal motion went forward on
18 August 19. Neither Vizconde nor McCandless appeared or filed any
19 responsive papers to the motion. As a result, Trustee's motion
20 was granted and Vizconde's case was dismissed on August 21, 2015.
21 That same day, the bankruptcy court issued an Order to Show Cause
22 re Sanctions ("Vizconde OSC") ordering McCandless to appear on
23 October 21, 2015 — the same day as the Second OSC hearing in the
24 Carrera case — and to file and serve a written response by no
25 later than October 14, 2015. McCandless was to appear and show
26 cause why he should not be sanctioned for his facilitation of or
27 involvement in Vizconde's scheme to manipulate the bankruptcy
28 process.
-8-
1 McCandless filed a late response to the Vizconde OSC on
2 October 15, 2015. He explained that Vizconde filed the instant
3 chapter 13 petition to stop a foreclosure sale scheduled for that
4 day. McCandless explained he and his client were in negotiations
5 with 21st Mortgage prior to the filing, but were unable to obtain
6 a postponement of the sale. Ultimately, Vizconde retained the
7 property. As for Manantan's and Patrick's bankruptcy cases,
8 McCandless explained that Patrick's third case was dismissed due
9 to Patrick's inability to provide McCandless with his current
10 income tax return; his fourth and most recent case was dismissed
11 for similar reasons. Manantan had filed her most recent case to
12 protect her interest in the Hacienda Street property. McCandless
13 explained that due to Manantan's interest in multiple properties
14 and the pending civil suit against 21st Mortgage, she was unable
15 to continue with her bankruptcy case. McCandless noted that
16 besides these most recent cases, he was not involved in any of
17 these parties' other bankruptcy cases. He contended that the
18 cases he filed were in good faith in an attempt to allow them to
19 retain their property and reorganize their debts.
20 McCandless appeared at the Vizconde OSC hearing on
21 October 21. After noting that Vizconde's case was dismissed in
22 August without opposition as part of a scheme to evade creditors
23 involving three properties and a total of three debtors, the
24 bankruptcy court asked McCandless what he had to say for himself.
25 McCandless explained that Vizconde's case was filed because the
26 lender was not accepting the loan modification it had originally
27 offered, which is why the civil suit was filed. Ultimately, they
28 settled that suit, explained McCandless, and Vizconde was able to
-9-
1 tender $58,000 to the lender and get the modification. Upon that,
2 the following colloquy ensued:
3 THE COURT: So again, you filed this case just to buy
some time so you could cut a deal outside of here, right?
4
MR. MCCANDLESS: No. No — I
5
THE COURT: Really? Because — where are the schedules?
6 Where is the Plan? Where is the 341 appearance? Nothing
happened. You got the benefit of this court's shelter,
7 and your clients didn't lift a finger to fulfill their
obligations as debtors.
8
MR. MCCANDLESS: They tendered $58,000 to the lender in
9 order to reinstate their debt.
10 THE COURT: You could have done that without my
involvement.
11
MR. MCCANDLESS: No. The foreclosure was set. They
12 would have lost their property. There would have been no
ability to reinstate the loan.
13
14 Hr'g Tr. (Oct. 21, 2015) at 4:11-22. In answering the court's
15 question as to why nothing was filed in this case or why no
16 appearances were made at the § 341(a) meetings, McCandless
17 explained that without the bankruptcy stay, the lender would not
18 have accepted the $58,000 tender. Id. at 5:9-14.
19 After hearing further from McCandless and noting that
20 Vizconde's case had been dismissed as part of a scheme of abuse,
21 the bankruptcy court sanctioned McCandless $2,000, making the
22 following findings:
23 THE COURT: I find and conclude that Mr. McCandless
wilfully facilitated that scheme by helping the Debtor
24 and others file cases that they had no intent of
prosecuting in good faith.
25
In this case, Mr. McCandless concedes that he filed it
26 for the sole purpose of obtaining the benefit of the
automatic stay, to obtain the benefit of shelter in this
27 court without fulfilling any of the Debtor's concurrent
obligations.
28
-10-
1 There were no schedules filed, no Statement of Financial
Affairs filed or other required documents filed. There
2 was no opposition to a relief from stay motion which also
supports the conclusion that this was a frivolous filing
3 rather than a good faith effort to reorganize.
4 There was also no appearance at a 341 meeting as required
by the Bankruptcy Code. This kind of wilful
5 participation in a scheme to abuse and manipulate the
bankruptcy process justifies a sanction of $2,000 payable
6 within 30 days and a referral to the United States
Trustee for investigation.
7
8 Id. at 6:11-7:5.
9 The bankruptcy court entered an "Order Sanctioning Debtor's
10 Counsel" on October 22, 2015 ("Vizconde Sanctions Order"). In
11 addition to the findings announced on the record, the court found
12 that because McCandless (1) had conceded the case was filed to
13 delay a foreclosure and buy time to induce the lender into
14 resolving a dispute outside of bankruptcy, and (2) had
15 acknowledged the case was not filed with any intent to attempt a
16 reorganization, McCandless had "knowingly and willfully
17 participated in and facilitated the abuse and bad faith
18 manipulation of the bankruptcy process."
19 McCandless timely appealed the Vizconde Sanctions Order.
20 II. JURISDICTION
21 The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334
22 and 157(b)(2)(A). We have jurisdiction under
28 U.S.C. § 158.
23 III. ISSUES
24 1. Did the bankruptcy court abuse its discretion in imposing
25 sanctions against McCandless?
26 2. Did the bankruptcy court violate McCandless's due process
27 rights?
28 / / /
-11-
1 IV. STANDARDS OF REVIEW
2 The bankruptcy court's imposition of sanctions under
3 Rule 9011 is reviewed for an abuse of discretion. Fjeldsted v.
4 Lien (In re Fjeldsted),
293 B.R. 12, 18 (9th Cir. BAP 2003)
5 (citing Miller v. Cardinale (In re DeVille),
280 B.R. 483, 492
6 (9th Cir. BAP 2002)). See also Simpson v. Lear Astronics Corp.,
7
77 F.3d 1170, 1177 (9th Cir. 1996) (in reviewing sanctions imposed
8 under Rule 11, we "review findings of historical fact under the
9 clearly erroneous standard, the determination that counsel
10 violated the rule under a de novo standard, and the choice of
11 sanction under an abuse of discretion standard."). A bankruptcy
12 court abuses its discretion if it applies the wrong legal
13 standard, misapplies the correct legal standard, or if its factual
14 findings are clearly erroneous. TrafficSchool.com, Inc. v.
15 Edriver Inc.,
653 F.3d 820, 832 (9th Cir. 2011). The bankruptcy
16 court has broad fact-finding powers with respect to sanctions, and
17 its findings warrant great deference. See Primus Auto Fin. Serv.,
18 Inc. v. Batarse,
115 F.3d 644, 649 (9th Cir. 1997).
19 Whether a sanction comported with due process is a question
20 of law we review de novo. In re Fjeldsted,
293 B.R. at 18 (citing
21 In re DeVille,
280 B.R. at 492).
22 We may affirm on any ground supported by the record,
23 regardless of whether the bankruptcy court relied upon, rejected
24 or even considered that ground. Fresno Motors, LLC v Mercedes
25 Benz USA, LLC,
771 F.3d 1119, 1125 (9th Cir. 2014).
26 / / /
27 / / /
28 / / /
-12-
1 V. DISCUSSION
2 The bankruptcy court was authorized to impose the $2,000
sanctions under Rule 9011.
3
4 McCandless contends the sanctions imposed in both cases were
5 punitive or criminal in nature and therefore not permitted under
6 the bankruptcy court's inherent authority. Trustee argues that
7 the sanctions were not criminal in nature because lawyer
8 disciplinary proceedings are not a criminal proceeding; they are
9 neither civil nor criminal, but an investigation into the conduct
10 of the lawyer. See Canatella v. Cal.,
404 F.3d 1106, 1110 (9th
11 Cir. 2005); Price v. Lehtinen (In re Lehtinen),
332 B.R. 404,
12 412-13 (9th Cir. BAP 2005), aff'd,
322 F.3d 178 (9th Cir. 2009).
13 While Trustee is correct as to the law, he is incorrect as to the
14 facts. Nothing in the record suggests the proceedings here were
15 in the nature of a professional disciplinary proceeding.
16 Suspension, disbarment, or even the Rules of Professional Conduct
17 were never mentioned or discussed by the bankruptcy court. The
18 court never alleged that McCandless was incompetent or
19 irresponsibly represented his clients. See Hale v. U.S. Trustee,
20
509 F.3d 1139, 1148-49 (9th Cir. 2007).
21 Unfortunately, the bankruptcy court did not cite which
22 authority it relied upon for imposing sanctions against McCandless
23 in either case. Nonetheless, we conclude that the record supports
24 its decision to sanction McCandless under Rule 9011.
25 Rule 9011 is the counterpart to Civil Rule 11. Case law
26 interpreting Civil Rule 11 is applicable to Rule 9011. Shalaby v.
27 Mansdorf (In re Nakhuda),
544 B.R. 886, 899 (9th Cir. BAP 2016)
28 (citing Marsch v. Marsch (In re Marsch),
36 F.3d 825, 829 (9th
-13-
1 Cir. 1994)).
2 By presenting a petition (or pleading, written motion, or
3 other paper) to the court, the signing attorney is certifying, to
4 the best of the attorney’s knowledge, information, and belief,
5 formed after an inquiry reasonable under the circumstances, that
6 the petition is not being presented for any improper purpose; the
7 claims, defenses and other legal contentions are warranted by
8 existing law or by a nonfrivolous argument for the extension,
9 modification, or reversal of existing law or the establishment of
10 new law; and the factual allegations have or are likely to have
11 evidentiary support. Rule 9011(b); Crofford v. Conseco Fin. Serv.
12 Corp. (In re Crofford),
301 B.R. 880, 884 (8th Cir. BAP 2003).
13 Rule 9011(b) “provides for the imposition of sanctions when a
14 filing is frivolous, legally unreasonable, or without factual
15 foundation, or is brought for an improper purpose.” Simpson,
16
77 F.3d at 1177 (citing Warren v. Guelker,
29 F.3d 1386, 1388 (9th
17 Cir. 1994)).
18 The court can award an appropriate sanction on its own
19 initiative under Rule 9011 if it first issues an order to show
20 cause describing the specific misconduct. Rule 9011(c)(1)(B). If
21 the court determines that a petition was presented for an improper
22 purpose or is frivolous, the court may impose sanctions on the
23 attorney who filed the petition. Rule 9011(c). Sanctions may be
24 monetary or non-monetary; however, where the court initiates the
25 award of sanctions by a show cause order, monetary sanctions are
26 limited to the award of a penalty payable to the court.
27 Rule 9011(c)(2): In re DeVille,
280 B.R. at 494; In re Crofford,
28
301 B.R. at 885. The sanction of $2,000 assessed in each case
-14-
1 here was payable to the court.
2 McCandless contends that if the bankruptcy court assessed
3 sanctions under Rule 9011, the sanctions could only be imposed if
4 the court implemented procedures comporting with those required
5 for a criminal contempt proceeding. Relying on Mackler Products,
6 Inc. v. Cohen,
146 F.3d 126 (2d. Cir. 1998), McCandless contends
7 he was entitled to a jury trial with the right to cross-examine
8 witnesses and a burden of proof beyond a reasonable doubt. The
9 Ninth Circuit Court of Appeals expressly rejected this same
10 argument in Miller v. Cardinale (In re DeVille), holding that
11 penalties under Rule 9011 do not require a criminal contempt
12 proceeding.
361 F.3d 539, 551-53 (9th Cir. 2004). See also
13 In re Nakhuda, 544 B.R. at 899 (when assessing sanctions sua
14 sponte the court is required only to provide notice and an
15 opportunity to be heard).
16 Thus, procedurally, all that Rule 9011(c) requires is "notice
17 and a reasonable opportunity to respond." That was done in this
18 case. Although the Second OSC (in Carrera) and the Vizconde OSC
19 did not specifically reference Rule 9011, the bankruptcy court
20 described the offending conduct and informed McCandless that he
21 was subject to sanctions for that alleged misconduct. Precisely,
22 in the Second OSC, the court noted that Carrera's latest
23 bankruptcy case had been dismissed for abuse. McCandless was
24 ordered to appear and show cause why he should not be sanctioned
25 "for his apparent facilitation of or involvement in Debtor's
26 scheme to manipulate the bankruptcy process." In the Vizconde
27 OSC, the bankruptcy court noted that Vizconde was involved with
28 two other debtors who together had filed 13 bankruptcy cases
-15-
1 within the last five years, all of which were skeletal filings,
2 involved at least one of the same three properties, and resulted
3 in dismissal without discharge. McCandless was counsel of record
4 for each of the debtor’s most recent filing. The court ordered
5 that McCandless appear and show cause why he should not be
6 sanctioned "for his facilitation of or involvement in Debtor's
7 scheme to manipulate the bankruptcy process."
8 Each of the show cause orders explained the factual bases for
9 why McCandless was subject to sanctions. He was given nearly two
10 months to prepare a defense and file his response in both cases.
11 The bankruptcy court also held a hearing in both cases and gave
12 McCandless the opportunity to be heard. Accordingly, McCandless
13 received sufficient due process.
14 In some cases involving Rule 9011 sanctions, McCandless
15 would be entitled to a heightened standard of conduct in order for
16 the court to impose sanctions under Rule 9011. We recently held
17 that when the bankruptcy court assesses sanctions on its own
18 initiative under Rule 9011(c)(1)(B), the court must a apply a
19 higher standard "akin to contempt" than in a case of party-
20 initiated sanctions. In re Nakhuda, 544 B.R. at 899 (citing
21 United Nat'l Ins. Co. v. R & D Latex Corp.,
242 F.3d 1102, 1115-16
22 (9th Cir. 2001)). In other words, the offender's transgressions
23 must exceed those for party-initiated sanctions. Id. at 901.
24 "The reason behind the heightened standard is because, unlike
25 party-initiated motions, court-initiated sanctions under
26 Rule 9011(c)(1)(B) do not involve the 21-day safe harbor provision
27 for the offending party to correct or withdraw the challenged
28
-16-
1 submission."4 Id. at 899 (citing R & D Latex Corp.,
242 F.3d at
2 1116) (citing Barber v. Miller,
146 F.3d 707, 711 (9th Cir.
3 1998)). Thus, in a case where the safe harbor otherwise would
4 give McCandless an opportunity to withdraw or correct a document,
5 the court must find: (1) that the offender acted in bad faith,
6 acted for an improper purpose or acted knowingly or intentionally;
7 or (2) that the conduct was particularly egregious.
Id. at
8 901-02.
9 Here, however, McCandless was not entitled to any safe harbor
10 because his Rule 9011(b) violation arose in the petition itself.
11 See Rule 9011(c)(1)(A) (stating that the 21-day safe harbor does
12 not apply “if the conduct alleged is the filing of a petition in
13 violation of subdivision (b)).” Arguably, the heightened standard
14 of Nakhuda and R & D Latex Corp. is not applicable. We need not
15 decide the issue, however, because the court made findings meeting
16 the heightened standard.
17 At the hearing on the Second OSC, the bankruptcy court noted
18 that: (1) McCandless had failed to disclose Carrera's prior
19 bankruptcy cases before filing the petition; (2) he had failed to
20 respond to the motion for relief from stay; (3) he had failed to
21 appear at the § 341(a) meetings; (4) he had failed to respond to
22 the First OSC; (5) none of the required documents were filed;
23
24 4
On the other hand, the heightened standard of conduct may
not apply in this case. The Rule 9011 "safe harbor" exception
25 does not apply when, as in this case, the violation involves the
petition, since the filing of the petition has immediate serious
26 consequences to creditors, including the imposition of the
automatic stay. Rule 9011(c)(1)(A). Nonetheless, even if the
27 heightened standard applied, the bankruptcy court made the
necessary findings to support its ruling to impose sanctions in
28 both cases.
-17-
1 (6) all four of Carrera's prior cases were dismissed for lack of
2 prosecution; and (7) the latest case had been dismissed for abuse,
3 which McCandless failed to challenge. Based on these facts, and
4 its finding that the latest case was filed "just to buy time to
5 cut a deal," which the court noted was "not a proper purpose for
6 filing a bankruptcy case," the court found that McCandless
7 "participated in and facilitated the filing of a case that
8 constituted an abuse of the bankruptcy process" and that he did so
9 "wilfully." In the Carrera Sanctions Order, the court
10 additionally found McCandless "knowingly and wilfully participated
11 in and facilitated the abuse and bad faith manipulation of the
12 bankruptcy process." These findings support the court's decision
13 to impose sanctions against McCandless under Rule 9011 in the
14 Carrera case even under the heightened Nakhuda standard; we do not
15 discern any clear error.5
16 At the hearing on the Vizconde OSC, the bankruptcy court
17 noted the case had been dismissed, without opposition, as part of
18 a scheme to evade creditors involving three properties and a total
19 of three debtors, all of whom McCandless represented. The court
20 noted that Vizconde's two prior cases had been dismissed for
21 failure to file the required documents, which indicated no intent
22 to reorganize. Just as in Carrera, none of the required documents
23 had been filed, no plan had been filed, no one opposed relief from
24 stay, and no one appeared at the § 341(a) meeting. Based on these
25
5
To the extent McCandless contends the bankruptcy court
26 utilized an incorrect test to determine whether Carrera's or
Vizconde's cases were filed in bad faith, he is precluded from
27 making such an argument. McCandless and his clients were given an
opportunity to challenge the dismissals and failed to do so. They
28 also never appealed the dismissal orders.
-18-
1 facts and the court's finding that Vizconde's latest case was
2 filed for the sole purpose of invoking the automatic stay, the
3 court found that McCandless "wilfully facilitated [the scheme to
4 evade creditors] by helping [Vizconde, Manantan and Patrick] file
5 cases that they had no intent of prosecuting in good faith." In
6 addition, the court found that McCandless's failure to challenge
7 the motion for relief from stay further supported the court's
8 conclusion that this was a "frivolous filing rather than a good
9 faith effort to reorganize." Again, these findings support the
10 court's decision to impose sanctions against McCandless under
11 Rule 9011 in the Vizconde case.
12 Once a court determines that a Rule 9011 violation has
13 occurred and that sanctions are warranted, the court must decide
14 what sanctions are appropriate. In doing so, the court must
15 comply with the limitations set forth in Rule 9011.
16 In re Crofford,
301 B.R. at 887. Monetary sanctions may be
17 awarded following a show cause order only if that order was issued
18 before a voluntary dismissal or settlement of the claim out of
19 which the sanctionable conduct arose. Rule 9011(c)(2)(B);
20 In re Crofford,
301 B.R. at 887. Neither of the cases here were
21 "voluntarily" dismissed or settled before the show cause orders
22 were issued.
23 Rule 9011(c)(2) provides that the bankruptcy court may impose
24 a "penalty" that is "limited to what is sufficient to deter
25 repetition of such conduct or comparable conduct by others
26 similarly situated." Rule 9011(c)(2); In re Fjeldsted,
293 B.R.
27 at 28; In re DeVille,
280 B.R. at 498. Civil in nature, the
28 Rule 9011(c)(2) penalty parallels the court’s civil contempt and
-19-
1 inherent sanctions authority. In re Fjeldsted,
293 B.R. at 28.
2 However, the "deterrence penalty" under Rule 9011(c)(2) has
3 limitations. The court may not impose a penalty "that is a
4 'serious penalty' in the nature of criminal contempt; only an
5 amount necessary to deter the misconduct may be awarded."
Id.
6 We conclude that the $2,000 deterrence penalty assessed in
7 each case made payable to the court was an appropriate sanction
8 under the circumstances and not a "serious penalty."
9 VI. CONCLUSION
10 Although the bankruptcy court did not cite the authority upon
11 which it relied to assess sanctions against McCandless, the record
12 supports each assessment under Rule 9011. Because we are able to
13 affirm on any basis supported by the record, Fresno Motors, LLC,
14 771 F.3d at 1125, we therefore AFFIRM the Carrera Sanctions Order
15 and the Vizconde Sanctions Order.
16
17
18
19
20
21
22
23
24
25
26
27
28
-20-
