Charbono v. Sumski (In Re Charbono) , 790 F.3d 80 ( 2015 )

United States Court of Appeals
For the First Circuit
No. 14-2151
IN RE KEVIN CHARBONO,
Debtor.
__________________
KEVIN CHARBONO,
Appellant,
v.
LAWRENCE P. SUMSKI, Trustee,
Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
[Hon. Steven J. McAuliffe, U.S. District Judge]
[Hon. J. Michael Deasy, U.S. Bankruptcy Judge]
Before
Howard, Selya and Kayatta,
Circuit Judges.
Michelle Kainen, with whom Kainen Law Office, PC was on brief,
for appellant.
Tara Twomey, Ray DiGuiseppe, and National Consumer Bankruptcy
Rights Center on brief for National Association of Consumer
Bankruptcy Attorneys, amicus curiae.
Lawrence P. Sumski for appellee.
June 15, 2015
SELYA, Circuit Judge. This appeal poses the question
of whether a bankruptcy court has inherent power to sanction
parties for noncompliance with court orders. We hold that it
does — and we reject the debtor's attempt to subsume this power
within the bankruptcy court's authority to punish for criminal
contempt. After placing the sanction imposed by the bankruptcy
court in perspective, we conclude that the district court did
not err in upholding it.
I. BACKGROUND
Facing straitened circumstances, Kevin Charbono (the
debtor) filed a voluntary petition for relief under Chapter 13
of the Bankruptcy Code. See 11 U.S.C. §§ 1301-1330. The
bankruptcy court appointed Lawrence P. Sumski as Trustee, and
the court confirmed the debtor's Chapter 13 plan (the Plan) on
August 21, 2012.
The Plan was filed using the standard form, see Bankr.
D.N.H. LBR 3015-1; Bankr. D.N.H. LBF 3015-1A, which contains a
tax return production requirement that makes pellucid the
debtor's "ongoing obligation to provide a copy of each federal
income tax return (or any request for extension) directly to
the Trustee within seven days of the filing of the return (or
any request for extension) with the taxing authority." The
bankruptcy court's decree confirming the Plan incorporated the
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tax return production requirement and, thus, that requirement
became an order of the court. See 11 U.S.C. § 1327(a) ("The
provisions of a confirmed plan bind the debtor and each
creditor . . . .").
The debtor's 2012 federal income tax return was due
April 15, 2013. See 26 C.F.R. § 1.6072-1(a)(1). In January,
the Trustee sent the debtor a letter reminding him of his
obligation to furnish a copy of his return or any request for
extension of the filing date within the time parameters
specified in the Plan. As April 15 approached, the debtor's
wife, acting on his behalf and with his knowledge, filed a
request for an extension of the filing deadline with the
Internal Revenue Service. A copy of this extension request was
not provided to the Trustee within the mandated seven-day
period.
Not having received a copy of either the debtor's tax
return or an extension request, the Trustee filed a motion on
June 13 alerting the bankruptcy court to the debtor's failure
to comply with the tax return production requirement. The
Trustee's motion sought alternative relief: dismissal of the
Chapter 13 bankruptcy or a $200 sanction. The debtor objected
and belatedly furnished the Trustee with a copy of the by-then-
approved extension request.
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When the matter was heard before the bankruptcy court
on September 20, the Trustee did not press for dismissal.1 He
argued instead that the debtor's untimely compliance with the
tax return production requirement was "sanctionable behavior."
The debtor countered that no sanction was warranted because he
had by then "purged" his noncompliance.
On September 24, the bankruptcy court entered an
order imposing a $100 sanction on the debtor for his failure to
comply with the tax return production requirement in a timeous
manner. The debtor took a first-tier appeal to the district
court. See 28 U.S.C. § 158(a), (c)(1). That court upheld the
sanction. See Charbono v. Sumski, No. 13-471, 2014 WL 4922988,
at *5 (D.N.H. Sept. 30, 2014). This timely second-tier appeal
followed.
II. ANALYSIS
Bankruptcy court orders are subject to two tiers of
intermediate appellate review. The first tier is through an
appeal either to the Bankruptcy Appellate Panel or to the
district court. See 28 U.S.C. § 158(a), (c). A second-tier
appeal thereafter lies to the court of appeals. See
1The extension ran until October 15, 2013. Accordingly,
the debtor was in compliance with the tax return production
requirement at the time of the hearing.
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id. §§ 158(d)(1), 1291. Because the second-tier appeal
involves de novo review of the district court's decision, our
review is in effect direct review of the bankruptcy court's
order. See Shamus Holdings, LLC v. LBM Fin., LLC (In re Shamus
Holdings, LLC), 642 F.3d 263, 265 (1st Cir. 2011); HSBC Bank
USA v. Branch (In re Bank of New Eng. Corp.), 364 F.3d 355, 361
(1st Cir. 2004).
A bankruptcy court's imposition of a sanction
typically embodies a judgment call, and, thus, review is for
abuse of discretion. See Jamo v. Katahdin Fed. Credit Union
(In re Jamo), 283 F.3d 392, 403 (1st Cir. 2002); see also
Gannett v. Carp (In re Carp), 340 F.3d 15, 23 (1st Cir. 2003).
This standard, though generally deferential, is not monolithic.
For example, a material error of law is invariably an abuse of
discretion. See Berliner v. Pappalardo (In re Sullivan), 674
F.3d 65, 68 (1st Cir. 2012). Accordingly, if a bankruptcy
court lacks the authority to impose a particular sanction, the
imposition of such a sanction will constitute an error of law
and, thus, demand reversal. See Jamo, 283 F.3d at 403-04.
Before us, the debtor questions the bankruptcy
court's authority to impose the challenged sanction, the
process by which the sanction was levied, and the selection of
the sanction itself. We address these matters sequentially.
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A. The Bankruptcy Court's Authority.
The debtor first posits that the challenged sanction
is tantamount to a fine for criminal contempt. That fine, he
asserts, was beyond the bankruptcy court's authority for two
reasons: as a jurisdictional matter and as a result of the
court's noncompliance with the procedural prerequisites for
such a fine.2 But the premise on which this binary assertion
rests mischaracterizes the bankruptcy court's action. While
the challenged sanction shares certain features of a criminal
contempt fine — after all, the sanction is punitive (that is,
one imposed to vindicate the authority of the court) rather
than coercive (that is, one imposed to force compliance with a
court order) — a criminal contempt fine is not the only type of
punitive sanction that lies within a court's armamentarium.
In United States v. Kouri-Perez, we explicitly
renounced the proposition that any punitive sanction is
perforce a criminal contempt sanction. 187 F.3d 1, 8-9 (1st
Cir. 1999). We recognized that a district court may, in
appropriate circumstances, impose "punitive non-contempt
2 A fine for criminal contempt may only be imposed in
conformity with the requirements of Federal Rule of Criminal
Procedure 42. See United States v. Burgos-Andújar, 275 F.3d
23, 31 (1st Cir. 2001). The bankruptcy court made no effort
to satisfy these prerequisites.
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sanctions." See id. at 7. In other words, the contempt power
is merely one of many inherent powers that a court possesses;
it is not the only type of inherent power that can be deployed.
See Chambers v. NASCO, Inc., 501 U.S. 32, 43-44 (1991)
(describing the power to punish for contempt as one of multiple
inherent powers of the courts arising out of courts' authority
to manage their own affairs); United States v. Pina, 844 F.2d
1, 14 (1st Cir. 1988) (noting that the "contempt power . . . is
not the only weapon available to a judge to protect the order
and dignity of the courtroom"). The authority to issue a
punitive sanction also may reside in "a court's inherent power
to police itself, thus . . . 'vindicat[ing] judicial authority
without resort to the more drastic sanctions available for
contempt of court.'" Chambers, 501 U.S. at 46 (second
alteration in original) (quoting Hutto v. Finney, 437 U.S. 678,
689 n.14 (1978)). Exercising this authority, courts may levy
sanctions (including punitive sanctions) for such varied
purposes as disciplining attorneys, remedying fraud on the
court, and preventing the disruption of ongoing proceedings.
See id. at 43-44 (collecting cases).
The courts of appeals, too, have recognized the
authority of federal courts to impose inherent-power sanctions
without a finding of contempt. See, e.g., Mark Indus., Ltd.
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v. Sea Captain's Choice, Inc., 50 F.3d 730, 733 (9th Cir. 1995)
(explaining that a non-contempt inherent-power sanction can be
employed to vindicate a court's authority); Harlan v. Lewis,
982 F.2d 1255, 1259 (8th Cir. 1993) (approving imposition of a
non-contempt monetary sanction as within district court's
inherent powers). Indeed, such a principle is part of the warp
and woof of this court's jurisprudence. See, e.g., United
States v. Romero-López, 661 F.3d 106, 108 (1st Cir. 2011); Aoude
v. Mobil Oil Corp., 892 F.2d 1115, 1119 (1st Cir. 1989).
For ease in exposition, we will from this point
forward use the term "inherent-power sanction" as a shorthand
for a non-contempt inherent-power sanction. Factors relevant
in distinguishing between contempt sanctions and inherent-power
sanctions include whether the issuing court made an express
finding of contempt, whether the underlying conduct evinces a
criminal mens rea, and whether the order falls within a
recognized inherent power of the court (other than the contempt
power). See Romero-López, 661 F.3d at 108; Kouri-Perez, 187
F.3d at 8-9. Here, these factors point unerringly to the
conclusion that the bankruptcy court's ukase, though punitive,
was an inherent-power sanction. The bankruptcy court not only
made no finding of contempt but also expressly disavowed any
notion that its order was meant to be a criminal sanction.
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What is more, the court acknowledged that the debtor's delayed
compliance was not the product of any malign intent. Last —
but far from least — the $100 impost fell squarely within the
long-recognized authority of courts to "impose . . . submission
to their lawful mandates." Chambers, 501 U.S. at 43 (quoting
Anderson v. Dunn, 19 U.S. (6 Wheat.) 204, 227 (1821)). We
conclude, therefore, that the bankruptcy court imposed a garden
variety inherent-power sanction, not a criminal contempt
sanction.
The question remains whether a bankruptcy court, like
other federal courts, has the authority to impose punitive non-
contempt sanctions. The debtor argues that because bankruptcy
courts are creatures of statute and have limited jurisdiction,
they lack the inherent power to issue such sanctions. We reject
this crabbed view.
To begin, the Supreme Court has implied that
bankruptcy courts possess inherent sanctioning powers beyond
those expressly authorized by statute or rule. See Law v.
Siegel, 134 S. Ct. 1188, 1198 (2014); see also Marrama v.
Citizens Bank of Mass., 549 U.S. 365, 375-76 (2007). This
acknowledgment dovetails with Chambers, in which the Court
explained that by the very nature of their institution, all
courts are "necessarily vested" with the inherent power
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required to carry out their judicial functions to "achieve the
orderly and expeditious disposition of cases." 501 U.S. at 43(internal quotation mark omitted). The Chambers Court stated
that even though a district court's inherent power "can be
limited by statute and rule," it would not "lightly assume that
Congress . . . intended to depart from established principles
such as the scope of a court's inherent power." Id. at 47(internal quotation mark omitted). This reasoning readily can
be applied to bankruptcy courts, which by the nature of their
institution must possess inherent power sufficient to "manage
their own affairs" and "impose . . . submission to their lawful
mandates." Id. at 43 (internal quotation marks omitted).
The proof of the pudding is in the case law. The
courts of appeals consistently have recognized that bankruptcy
courts may impose various forms of inherent-power sanctions.
See, e.g., Isaacson v. Manty, 721 F.3d 533, 538-39 (8th Cir.
2013); McGahren v. First Citizens Bank & Trust Co. (In re
Weiss), 111 F.3d 1159, 1171 (4th Cir. 1997); Mapother &
Mapother, P.S.C. v. Cooper (In re Downs), 103 F.3d 472, 477-78
(6th Cir. 1996); Caldwell v. Unified Capital Corp. (In re
Rainbow Magazine, Inc.), 77 F.3d 278, 284 (9th Cir. 1996);
Glatter v. Mroz (In re Mroz), 65 F.3d 1567, 1575 (11th Cir.
1995); Fellheimer, Eichen & Braverman, P.C. v. Charter Techs.,
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Inc., 57 F.3d 1215, 1224 (3d Cir. 1995); Citizens Bank & Trust
Co. v. Case (In re Case), 937 F.2d 1014, 1023 (5th Cir. 1991).
Our court has joined in this chorus. See Pearson v. First NH
Mortg. Corp., 200 F.3d 30, 42 n.7 (1st Cir. 1999). We therefore
hold, without serious question, that bankruptcy courts possess
the inherent power to impose punitive non-contempt sanctions
for failures to comply with their orders.
There is one loose end. The parties agree that the
debtor's failure to comply with the tax return production
requirement was inadvertent and did not exhibit bad faith.
With this in mind, a colloquy ensued at oral argument in this
court about whether a finding of bad faith was a prerequisite
for the imposition of an inherent-power sanction.
This argument is procedurally defaulted several times
over. The debtor did not advance it in the bankruptcy court,
in the district court, or in his briefing before this court.
Consequently, the argument has not been preserved. See Limone
v. United States, 579 F.3d 79, 100 n.11 (1st Cir. 2009).
Even if we assume, favorably to the debtor, that the
argument was forfeited rather than waived, see United States v.
Rodriguez, 311 F.3d 435, 437 (1st Cir. 2002) (discussing
distinction between waiver and forfeiture), the challenged
sanction would still stand. The argument for a bad-faith
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requirement prescinds from the Supreme Court's review of an
inherent-power sanction in the form of an award of attorneys'
fees. See Roadway Express, Inc. v. Piper, 447 U.S. 752, 767
(1980). The Roadway Express Court noted that "a finding [of
bad faith] would have to precede any sanction under the court's
inherent powers." Id. The Supreme Court later clarified this
holding explaining that "nothing in the other sanctioning
mechanisms or prior cases . . . warrants a conclusion that a
federal court may not, as a matter of law, resort to its
inherent power to impose attorney's fees as a sanction for bad-
faith conduct." Chambers, 501 U.S. at 50 (emphasis supplied).
For the most part, the courts of appeals have read
these precedents narrowly, limiting them to instances in which
an inherent-power sanction takes the form of an award of
attorneys' fees.3 See, e.g., United States v. Seltzer, 227
F.3d 36, 41-42 (2d Cir. 2000); Republic of the Philippines v.
Westinghouse Elec. Corp., 43 F.3d 65, 74 n.11 (3d Cir. 1994);
Harlan, 982 F.2d at 1260. This limitation makes eminently good
3
The Fifth Circuit is an outlier. See, e.g., In re
Thalheim, 853 F.2d 383, 389 (5th Cir. 1988). Even that court
has acknowledged that its expansive application of the bad-
faith requirement may be open to question. See Elliott v.
Tilton, 64 F.3d 213, 217 n.3 (5th Cir. 1995). In any event,
we join the majority of our sister circuits in rejecting the
Fifth Circuit's more sweeping use of the bad-faith requirement.
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sense. The Roadway Express Court's reasoning took into account
the venerable "American Rule," which provides that litigants
ordinarily shall pay their own lawyers. See Roadway Express,
447 U.S. at 765-66; see also Alyeska Pipeline Serv. Co. v.
Wilderness Soc'y, 421 U.S. 240, 247 (1975). Where an inherent-
power sanction has the effect of reversing this rule, that
sanction demands heightened justification. See Roadway
Express, 447 U.S. at 765-66. But where an inherent-power
sanction does not take the form of an award of attorneys' fees
(and thus does not involve a departure from the American Rule),
a finding of bad faith is not ordinarily required. See Seltzer,
227 F.3d at 40-42; United States v. Mottweiler, 82 F.3d 769,
772 (7th Cir. 1996); Harlan, 982 F.2d at 1260; Mulvaney v.
Rivair Flying Serv., Inc. (In re Baker), 744 F.2d 1438, 1441-
42 (10th Cir. 1984) (en banc); see also Romero-López, 661 F.3d
at 108 (affirming imposition of inherent-power sanction, not in
form of fee award, without requiring showing of bad faith);
Sacramona v. Bridgestone/Firestone, Inc., 106 F.3d 444, 447
(1st Cir. 1997) (same). It follows that the absence of bad
faith does not serve to undermine the inherent-power sanction
imposed by the bankruptcy court.
Of course, the absence of a bad faith requirement
should not be thought to give the bankruptcy court free reign
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to impose sanctions without restraint. The admonition that
"courts [are] to be cautious in using their inherent power to
sanction" remains true. See Romero-López, 661 F.3d at 108
(citing Chambers, 501 U.S. at 44). Here, however, we are
satisfied that the bankruptcy court, in choosing this modest
sanction (rather than, say, dismissing the Chapter 13
proceeding in its entirety), opted for "the least extreme
sanction reasonably calculated to achieve the appropriate
punitive and deterrent purposes." Kouri-Perez, 187 F.3d at 8.
B. Due Process.
It is common ground that a court's inherent powers
must be exercised circumspectly and with particular regard for
due process protections. See Roadway Express, 447 U.S. at 767;
United States v. Horn, 29 F.3d 754, 760 (1st Cir. 1994);
Boettcher v. Hartford Ins. Grp., 927 F.2d 23, 26 (1st Cir.
1991). These protections include notice and the opportunity
to be heard. See Roadway Express, 447 U.S. at 767. Against
this backdrop, the debtor claims that the bankruptcy court
transgressed his due process rights by failing to provide notice
of what he describes as the court's "uniform policy" of imposing
a monetary sanction for noncompliance with the tax return
production requirement.
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The lack-of-notice claim is empty. "Notice can come
from the party seeking sanctions, from the court, or from both."
Glatter, 65 F.3d at 1575. Here, the Trustee's motion made
plain that the Trustee was seeking a monetary sanction as an
alternative to dismissal of the bankruptcy proceeding.
So, too, the debtor had a full opportunity to be
heard. His counsel filed a written objection to the Trustee's
motion and appeared with the debtor at a hearing that aired a
host of arguments. No more was exigible to safeguard the
debtor's right to fundamental fairness. See Jensen v. Phillips
Screw Co., 546 F.3d 59, 65 (1st Cir. 2008); HMG Prop. Investors,
Inc. v. Parque Indus. Rio Canas, Inc., 847 F.2d 908, 918 & n.14
(1st Cir. 1988).
The debtor nonetheless suggests that the bankruptcy
court was following a policy that was the functional equivalent
of a local rule, promulgated without heed to customary
rulemaking procedures. See Fed. R. Civ. P. 83(a)(1); Fed. R.
Bankr. P. 9029(a)(1). Building on this foundation, the debtor
complains that he had no way to know in advance that his
violation of the tax return production requirement could result
in a monetary sanction.
We agree, of course, that courts should provide
notice prior to attempting to enforce new rules. See Weisburgh
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v. Fidelity Magellan Fund (In re Fidelity/Micron Sec. Litig.),
167 F.3d 735, 737 n.1 (1st Cir. 1999). We have encouraged
district courts "to avoid incipient problems of this type by
incorporating standing orders into local rules, or, at least,
making them readily available in the office of the Clerk." Id.Here, however, there was no standing order. Although the
bankruptcy court did refer to a "policy" of imposing sanctions,
the court was merely noting its usual practice.4 The fact that
a court's approach to a particular type of situation is
predictable or is referred to as a "policy" does not, without
more, make it the sort of unwritten rule that requires formal
adoption.
What remains of the debtor's lack-of-notice argument
is foreclosed by our decision in Zebrowski v. Hanna, 973 F.2d
1001 (1st Cir. 1992). There, the plaintiffs were sanctioned
for noncompliance with a court order requiring payment into an
escrow account. See id. at 1001-02. We rejected the
plaintiffs' lack-of-notice argument, concluding that they could
not complain about a lack of notice vis-à-vis the possibility
4The transcript of the hearing discloses that the
bankruptcy court mentioned a "policy" only in reference to its
aspirational goal of treating similarly situated debtors even-
handedly. The court said that if it "is going to have a policy
to enforce provisions of confirmation orders," it would "have
to apply [that policy] with a reasonable degree of uniformity."
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of sanctions since they were indisputably on notice that the
failure to fund the escrow was in direct contravention of a
court order. See id. at 1007 (distinguishing Boettcher, 927
F.2d at 26).
C. Appropriateness of the Sanction.
The debtor submits that the bankruptcy court abused
its discretion by imposing a $100 sanction without adequate
regard for the debtor's specific circumstances. These include
the debtor's eventual compliance with the tax return production
requirement, his good faith, his impecuniousness, and his
manifest difficulties in managing his affairs.
When a court confronts a violation of its own order,
"it may choose from a broad universe of possible sanctions."
Velázquez Linares v. United States, 546 F.3d 710, 711 (1st Cir.
2008) (internal quotation marks omitted). In exercising this
considerable discretion, however, the court must give
"individualized consideration to the particular circumstances,"
id., and "balance a myriad of factors," Young v. Gordon, 330
F.3d 76, 81 (1st Cir. 2003). In turn, our review of an imposed
sanction for abuse of discretion requires that we evaluate
whether "a material factor deserving significant weight was
ignored, whether an improper factor was relied upon, or whether
when all proper and no improper factors were assessed[,] the
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court made a serious mistake in weighing them." United States
v. One 1987 BMW 325, 985 F.2d 655, 657-58 (1st Cir. 1993)
(alterations and internal quotation marks omitted).
The record shows beyond any hope of contradiction
that the bankruptcy court paid attention to the debtor's
individual circumstances in selecting a sanction. The court
acknowledged that the debtor, by the time of the hearing, had
complied (albeit belatedly) with the tax return production
requirement and that his initial noncompliance was inadvertent
and not driven by a desire to withhold information from the
Trustee. The court further acknowledged that the debtor was
unlikely to receive a tax refund for the calendar year 2012, so
the delay did not have the effect of withholding funds from
creditors.
Similarly, the court factored into the equation the
debtor's "dire straits." Although the court ultimately
concluded that a sanction was warranted to send a message to
the debtor and others regarding the importance of timely
compliance with the tax return production requirement, 5 it
5
The bankruptcy court explained that certain basic
requirements must be met in order to receive the benefit of the
Chapter 13 process. It ranked the tax return production
requirement among those obligations. And the court said that
this debtor — like others similarly situated — must face some
consequence for noncompliance.
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exhibited some flexibility and invited the debtor to suggest an
alternative sanction. In the end, the court halved the $200
sanction requested by the Trustee because the debtor had a cash-
flow problem. For this same reason, the court made the sanction
payable on January 15, 2014 — more than three months after the
date of the order. In light of the court's careful assessment
of the full range of circumstances, we cannot say that the
challenged sanction fell outside the wide encincture of its
discretion.
III. CONCLUSION
We need go no further. For the reasons elucidated
above, we reject the debtor's challenge to the sanction.
Affirmed.
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