Baker v. Harrington , 827 F.3d 191 ( 2016 )

United States Court of Appeals
For the First Circuit
No. 15-2384
IN RE: JOHN E. HOOVER, III,
Debtor,
DAVID G. BAKER,
Appellant,
v.
WILLIAM K. HARRINGTON, United States Trustee for Region 1,
Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Timothy S. Hillman, U.S. District Judge]
Before
Lynch, Kayatta, and Barron,
Circuit Judges.
David G. Baker pro se for appellant.
John Postulka, Trial Attorney, Executive Office for U.S.
Trustees, Department of Justice, with whom Eric K. Bradford, Trial
Attorney, Office of the United States Trustee, Department of
Justice, Ramona D. Elliott, Deputy Director/General Counsel,
Executive Office for U.S. Trustees, Department of Justice, P.
Matthew Sutko, Associate General Counsel, Executive Office for
U.S. Trustees, Department of Justice, Noah M. Schottenstein, Trial
Attorney, Executive Office for U.S. Trustees, Department of
Justice, William K. Harrington, United States Trustee for Region
1, Richard T. King, Assistant United States Trustee, and Lisa D.
Tingue, Trial Attorney, Office of the United States Trustee,
Department of Justice, were on brief, for appellee.
June 29, 2016
KAYATTA, Circuit Judge. Attorney David G. Baker appeals
an order of the U.S. Bankruptcy Court imposing a sanction on him
for twice describing the applicable law in a manner that it deemed
to be misleading. Finding that the bankruptcy court did not abuse
its discretion in construing Baker's submissions as sufficiently
misleading so as to warrant a sanction, we affirm.
I.
Baker is a very experienced bankruptcy practitioner who
regularly appears before the U.S. Bankruptcy Court. In this case,
he represented the Debtor, John E. Hoover, III ("Hoover"), who
sought relief under Chapter 11 of the U.S. Bankruptcy Code.
Hoover, through Baker, filed his bankruptcy petition on March 15,
2014, four days before the day on which Bank of America, N.A.
("BOA") was to sell his business property in foreclosure. Hoover's
petition was also prompted by the significant tax debt that he
owed to the Massachusetts Department of Revenue.
In the wake of Hoover's March 15 filing for bankruptcy
protection, BOA did not proceed with the foreclosure sale as
previously scheduled. Instead, BOA continued the sale to June 18,
2014, sending Hoover on April 7 a written notice of the rescheduled
date. BOA also suggested to Hoover its intent to file a motion
for relief from the automatic stay. Seven days later, on April 14,
Baker on behalf of Hoover filed a motion seeking sanctions against
BOA for violating the automatic stay provisions of the U.S.
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Bankruptcy Code. See 11 U.S.C. § 362. In that motion, Baker
argued that rescheduling the foreclosure sale constituted an
improper continuation of debt collection activity under § 362 that
warranted sanctions and a cancellation of the rescheduled sale.
In support of this motion, Baker wrote as follows:
8. Where a creditor has notice, continuation of a
mortgage foreclosure sale post-petition, without
obtaining relief from the automatic stay, is a willful
violation. See In re Lynn-Weaver, 385 B.R. 7
(Bkrtcy.D.Mass. 2008), citing In re Heron Pond, LLC, 258
B.R. 529 (Bkrtcy.D. Mass. 2001) (both by Hillman, J.);
Hart v. GMAC Mortgage Corp., 246 B.R. 709 (Bkrtcy.D.Mass.
2000) (Feeney, J.).
9. The cases cited in the previous paragraph held, in
essence, that a single continuance of a foreclosure sale
is not a stay violation so long as the creditor seeks
relief from the stay prior to the sale date. However,
Judge Hillman's holding in Heron Pond was based on "the
obscurity of the prevailing legal rule (at least prior
to this decision)". That decision was about 13 years
ago, and the Lynn-Weaver decision was 6 years ago. The
"prevailing legal rule" is no longer obscure. See also
In re Derringer, 375 B.R. 903 (10th Cir. BAP, 2007).
(citation formatting and spacing as in original).
On April 18, four days after Hoover filed this motion,
BOA filed a motion seeking relief from the automatic stay. Hoover,
nonetheless, persisted with his claim that, by continuing the sale
for several months without having first obtained relief from the
stay, BOA violated the stay. On June 2, 2014, the bankruptcy court
issued an order denying Hoover's motion for sanctions against BOA.1
1 In its order, the bankruptcy court also rejected a second
argument that Baker made in his motion for sanctions concerning
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Separately, Baker also filed on Hoover's behalf an
objection to a motion filed by the U.S. Trustee (the "Trustee") to
convert Hoover's bankruptcy case to a case filed under Chapter 7
of the U.S. Bankruptcy Code, or to dismiss it. The Trustee's
motion concerned cash that the debtor was spending even though the
cash was subject to a tax lien. The Trustee argued that this cash
constituted "cash collateral" under 11 U.S.C. § 363(a), and,
therefore, could not be spent without the permission of the court.
Baker's attempt to parry the Trustee's motion focused on
a claim that "cash collateral" only consists of cash or other
property that is subject to a consensual lien. As Baker now
admits, no case law so holds. Nevertheless, Baker claimed that
the statute itself supported the argument. In his objection that
he filed with the bankruptcy court, he wrote that "'cash
collateral' means cash or other property 'subject to a security
interest as provided in section 552(b) . . .'." Having thus
limited the meaning of "cash collateral" to cash subject to a
security interest under 11 U.S.C. § 552(b), Baker argued that such
a security interest can only arise by agreement; hence, cash in
which a creditor has an interest by an involuntary lien is not
"cash collateral." The applicable statute, though, plainly does
not read as Baker's hybrid paraphrase and partial quote portrayed
BOA's refusal to release its trustee process attachment against
Hoover's bank account.
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it (that cash collateral "means" cash or other property subject to
a "security interest"). To the contrary, it provides that cash
collateral "means cash . . . or other cash equivalents . . . in
which the estate and an entity other than the estate have an
interest and includes [certain other things] subject to a security
interest as provided in section 552(b)." 11 U.S.C. § 363(a)
(emphasis supplied).2
After an evidentiary hearing, the bankruptcy court
allowed the Trustee's motion and converted the case to one under
Chapter 7. This decision was upheld by the district court on
appeal. In re Hoover, No. 14-40126-TSH, 2015 WL 5074479 (D. Mass.
Aug. 27, 2015). An appeal of the district court's decision is
currently pending in this court. See In re Hoover, No. 15-2383
(1st Cir. filed Nov. 17, 2015).
2 Section 363(a) provides in full that
In this section, "cash collateral" means cash,
negotiable instruments, documents of title, securities,
deposit accounts, or other cash equivalents whenever
acquired in which the estate and an entity other than
the estate have an interest and includes the proceeds,
products, offspring, rents, or profits of property and
the fees, charges, accounts or other payments for the
use or occupancy of rooms and other public facilities in
hotels, motels, or other lodging properties subject to
a security interest as provided in section 552(b) of
this title, whether existing before or after the
commencement of a case under this title.
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On June 2, 2014, the bankruptcy court ordered Baker to
show cause why he should not be sanctioned under Federal Rule of
Bankruptcy Procedure 9011(b)(2). As grounds for its order, the
court quoted from Paragraph 8 of Baker's motion for sanctions
against BOA, observing that the statement Baker made in that
paragraph was not a correct statement of law and was not supported
by the cases Baker cited therein. The bankruptcy court also
pointed to Paragraph 12 of Baker's objection to the Trustee's
motion to convert or dismiss, finding that Baker had "misquot[ed]
the definition of cash collateral" and "misstat[ed] the law by
claiming that the obligation of a debtor to obtain authority to
use cash collateral applies only where the lien on cash is a
consensual lien."
In his written response to the order to show cause, Baker
argued that the bankruptcy court read Paragraph 8 "out of context."
He offered, though, no alternative reading of Paragraph 8, in or
out of context. Instead, he pointed to the fact that the first
sentence of Paragraph 9 correctly summarized existing law. He
then described the rest of Paragraph 9 as a type of "nonfrivolous
argument for the extension [or] modification . . . of existing
law" permissible under Rule 9011. See Fed. R. Bankr. 9011(b)(2).
The "modification" Baker claims to have had in mind was a
requirement that, in order to comply with the automatic stay
provisions, a creditor must not only move for relief from the
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automatic stay before the rescheduled sale date, but must file
such a motion "promptly."
Next, in addressing the bankruptcy court's charge that
he misquoted the definition of "cash collateral" and misstated the
law in his objection to the Trustee's motion to convert or dismiss,
Baker doubled down on his prior arguments. First, he disputed the
bankruptcy court's characterization that he "misquot[ed]" the
definition of "cash collateral," maintaining that, "at worst, I
paraphrased it and omitted words that are not relevant to the
context of the motion and objection." Second, after opining that
the bankruptcy court's "real issue" with his objection was the
merits of his argument, Baker proceeded to explain why the argument
that one must possess a consensual security interest over cash or
other property in order for that cash or property to be protected
as "cash collateral" was not frivolous. In his analysis, Baker
argued that he had only found two cases on point after "thoroughly
research[ing]" the issue, and that although both of those cases
interpreted the statute as including non-consensual security
interests, they were non-binding and unsatisfactory to him. He
also argued that dictum in another case implied support for his
position, and that the "rule of the last antecedent"--whereby a
modifier is attributed to the last term before it--is not
necessarily controlling and, in this case, is overcome by "textual
indications of contrary meaning."
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The bankruptcy court rejected Baker's explanations on
both counts. In re Hoover, No. 14-40478, 2014 WL 3893354, at *3
(Bankr. D. Mass. Aug. 6, 2014). Referring to Baker's proffered
benign reading of Paragraphs 8 and 9 as simply presenting an
argument that the law should be modified to require a prompt filing
of a motion for relief from the automatic stay, the court observed
that the motion itself said "nothing of the kind" and that the
proffered reading itself made "no sense" given what Paragraphs 8
and 9 actually said. Id. Referring to Baker's claim that assets
subject to non-consensual liens could not be "cash collateral,"
the bankruptcy court found that the part of the definitional
section of the applicable statute that Baker selectively omitted
when directly quoting it in his objection was not only relevant to
the point being made, but directly rebutted that point. Id. The
court explained the difference between "paraphrasing" and
"quoting" and found that Baker had "purported to quote a statutory
definition," but in doing so had "quot[ed] out of context part of
a statute because quoting the statute in its entirety would have
disproven his premise." Id. The court also found that Baker's
legal analysis in support of his interpretation of § 363(a), while
"beside the point," was "absurd because the statute unambiguously
states the opposite." Id.
The bankruptcy court went on to observe that this conduct
was not uncharacteristic of Baker. Id. at *4. It explained that
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on at least three prior occasions Baker had been sanctioned by
different sessions of the court for conduct that included asserting
frivolous defenses, advancing arguments contrary to express
statutory provisions, and filing a meritless motion for sanctions.
Id.
In fashioning an appropriate sanction in this case, the
bankruptcy court observed that the "hefty" monetary penalties
imposed on Baker in those prior cases had not deterred Baker from
repeating such conduct. Id. at *5. The court thus decided to
impose a non-monetary penalty "in the hope of effecting a more
lasting behavioral modification." Id. It ordered Baker to "enroll
in and attend in person (not on-line) a one semester, minimum three
credit-hour class on legal ethics or professional responsibility
in an ABA accredited law school to be completed within 13 months
of this order." Id.
II.
We review a bankruptcy court's decision to impose a
sanction for abuse of discretion. In re Charbono, 790 F.3d 80, 85
(1st Cir. 2015).
The sanction in this case was based on the bankruptcy
court's finding that Baker transgressed the dictates of Bankruptcy
Rule 9011(b)(2). That Rule is substantively identical to Federal
Rule of Civil Procedure 11(b)(2). By certifying that the papers
he filed with the bankruptcy court complied with Rule 9011, Baker
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was obligated to believe, after reasonable inquiry, that the legal
contentions he advanced in those papers were not advanced for an
improper purpose, such as misleading the court. See Fed. R. Bankr.
P. 9011(b). Like its non-bankruptcy counterpart, Rule 9011(b) "is
not a strict liability provision" and "ought not [be]
invoke[d] . . . for slight cause," but "culpably careless" conduct
is enough to warrant a sanction under it. Young v. City of
Providence ex rel. Napolitano, 404 F.3d 33, 39 (1st Cir. 2005).
A.
We turn our attention first to Paragraphs 8 and 9 of
Baker's motion for sanctions against BOA. Paragraph 8 is a flat
out misstatement of the cases cited therein. To put a fine point
on it, even now Baker is unable to make any argument that the
statement he made in Paragraph 8 is supported by the cases he
cited.
Instead, he argues that the inaccuracy disappears if one
reads Paragraph 8 in conjunction with Paragraph 9, the first
sentence of which does accurately state what the cited cases say.
The remainder of Paragraph 9, though, clearly suggests that the
first sentence is itself no longer the law. At best, the two
paragraphs are unintelligible, saying in form: "X, although not
X when the law was obscure, and now the law is not obscure." In
theory, one might hazard a guess that Paragraph 8 should be ignored
entirely. Indeed, this is how Baker asks us to read that
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paragraph, in substance. He makes no claim, though, that he
intended it to be ignored, even now claiming it properly stands
"in context."
The bankruptcy court was familiar with Baker and his
writings. The inference that the pertinent misstatement was the
product not of reasonable mistake, but of something worse, strikes
us as reasonable.
Baker's explanation of how we should read his submission
suffers, too, from the lack of fit between what he wrote then and
what he says now. He argues now that Paragraphs 8 and 9 simply
advanced an argument that the case law should be extended or
changed so as to include a requirement that the creditor move for
relief from the automatic stay not just before the rescheduled
sale, but also "promptly." The problem, though, is that Baker
filed his motion for sanctions over two months before the
rescheduled sale date, even after BOA indicated to him that it
intended to file a motion for relief from the automatic stay, and
he still persisted even when BOA within days filed the motion.
More to the point, if Baker had wanted to argue that BOA had waited
too long to seek relief, Paragraph 8 of his motion would have been
entirely irrelevant to the motion. The bankruptcy court therefore
reasonably read it as an attempt to sow confusion by misleading
the reader into thinking that existing authority supported
sanctioning BOA merely for rescheduling the sale without first
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obtaining relief from the stay. Such an attempt transgressed the
boundary of permissible argument and, here, adequately supported
the bankruptcy court's decision to impose a Rule 9011 sanction.
See In re Taylor, 655 F.3d 274, 283 (3d Cir. 2011) (explaining
that "[i]f the reasonably foreseeable effect of [the]
representations to the bankruptcy court was to mislead the court,
they cannot be said to have complied with Rule 9011").
B.
Baker fares no better, and perhaps worse, in defending
the arguments he advanced in his objection to the Trustee's motion
to convert or dismiss. As we have described it above, he fashioned
support for an otherwise unsupported position by materially
mischaracterizing what the statute says, and by leaving out the
most relevant, and to his argument, the most discrediting, portion
of it. He took a statute that, in effect, said "A means B, and
includes C," and rewrote it to say "A means C." See Precision
Specialty Metals, Inc. v. United States, 315 F.3d 1346, 1357 (Fed.
Cir. 2003) (affirming a reprimand under Rule 11 where the attorney
"in quoting from and citing published opinions, . . . distorted
what the opinions stated by leaving out significant portions of
the citations or cropping one of them").
C.
Bankruptcy courts often need to act quickly, and should
be able to assume that counsel are truthful. Even when they fail
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to deceive a court, filings supported only by artifice serve to
delay the proceedings and impose costs on the other parties. Here,
moreover, the misleading assertions were not merely erroneous
detours made in pursuit of otherwise well-grounded filings.
Rather, Baker, in each instance, marshalled artifice to provide
illusory support for positions that were otherwise without an
apparent basis. As the bankruptcy court observed, he has a record
of using his knowledge and skills for improper purposes. The
bankruptcy court thus confronted, in short, not a lack of ability
by counsel but rather an excess of zeal. Sanctioning artifice
that is the product of such zeal was well within the bankruptcy
court's discretion.
One loose end remains. At oral argument, Baker revealed
that he has not begun to comply with the bankruptcy court's order,
suggesting that American Bar Association accredited law schools
might not allow him to take the required course. Baker has not,
however, presented such a claim to the bankruptcy court itself,
nor has he challenged the nature of the sanction. We therefore
have no cause to consider this issue on this appeal.
III.
For the foregoing reasons, we affirm the bankruptcy
court's order imposing a sanction on Baker.
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