Franken v. Mukamal (In Re Creative Desperation Inc.) ( 2011 )

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________ FILED
U.S. COURT OF APPEALS
No. 11-12191 ELEVENTH CIRCUIT
Non-Argument Calendar OCTOBER 5, 2011
________________________ JOHN LEY
CLERK
D.C. Docket No. 0:10-cv-61207-FAM
Bkcy No. 0:08-bkc-19067-JKO
IN RE: CREATIVE DESPERATION INC.,
Debtor .
___________________________
CHARLES FRANKEN,
CHARLES D. FRANKEN PA,
llllllllllllllllllllllllllllllllllllllll Plaintiffs - Appelees,
versus
BARRY E. MUKAMAL,
Trustee,
llllllllllllllllllllllllllllllllllllllll Defendant - Appellant.
________________________
Appeal from the United States District Court
for the Southern District of Florida
________________________
(October 5, 2011)
Before HULL, PRYOR and BLACK, Circuit Judges.
PER CURIAM:
Barry Mukamal, as the successor Chapter Seven Trustee (Trustee) of debtor
Creative Desperation, Inc., appeals an order denying attorneys’ fees incurred while
defending a bankruptcy court sanction award on appeal. After review, we affirm
the district court.
I. BACKGROUND
On September 11, 2009, the United States Bankruptcy Court for the
Southern District of Florida, relying on its inherent powers, sanctioned Charles D.
Franken (Franken) for unauthorized and frivolous pleadings filed during a
bankruptcy proceeding. On January 26, 2011, the district court affirmed the
sanction order and the amount of the sanction. On March 28, 2011, the Trustee
requested an award of attorneys’ fees by the district court for defending the
sanctions award. The Trustee failed to cite any statute or rule authorizing a
recovery of attorneys’ fees, but rather based his request solely on a causation
argument extrapolated from dicta in Norelus v. Denny’s, Inc., 628 F.3d 1270 (11th
Cir. 2010). On April 15, 2011, the district court denied the request without
explanation. On May 3, 2011, the Trustee filed a notice of appeal.
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II. STANDARD OF REVIEW
A court reviews the denial of a request for attorneys’ fees and costs for
abuse of discretion. Sahyers v. Prugh, Holliday & Karatinos, P.L., 560 F.3d 1241,
1244 (11th Cir. 2009). A court’s decision to deny sanctions is also reviewed for
an abuse of discretion. Peer v. Lewis, 606 F.3d 1306, 1311 (11th Cir. 2010). This
court will find an abuse of discretion only when a decision is in clear error, the
district court applied an incorrect legal standard or followed improper procedures,
or when neither the district court’s decision nor the record provide sufficient
explanation to enable meaningful appellate review. Id.; Cox Enters., Inc. v. News-
Journal Corp., 510 F.3d 1350, 1360 (11th Cir. 2007).
III. DISCUSSION
The Trustee raises two issues. First, the Trustee argues the district court
abused its discretion by refusing to award attorneys’ fees for the defense of the
sanction order on appeal. Alternatively, the Trustee argues the district court failed
to explain its denial, preventing this court from adequately reviewing the district
court’s decision, and mandating a remand to the district court.
Section 105 of Tile 11 of the United States Code imbues bankruptcy courts
with the same inherent powers as federal district courts to sanction abusive
conduct. In re Porto, 645 F.3d 1294, 1304 n.6 (11th Cir. 2011). The key to
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awarding sanctions under a court’s inherent powers is a finding of bad faith by the
sanctioned person. Id. at 1304. Here, the bankruptcy judge awarded sanctions
pursuant to his inherent powers under 11 U.S.C. § 105.
On appeal to a district court from a bankruptcy court, a party can seek
sanctions in manners similar to those available in a court of appeals. A party can
be sanctioned under 28 U.S.C. § 1927 for actions taken on appeal. See Reynolds v.
Roberts, 207 F.3d 1288, 1302 (11th Cir. 2000); Bonfiglio v. Nugent, 986 F.2d
1391, 1394–95 (11th Cir. 1993). In addition, a district court may order sanctions
for a frivolous bankruptcy appeal under Bankruptcy Rule 8020, the bankruptcy
equivalent of Rule 38 of the Federal Rules of Appellate Procedure. Finally, a
court’s inherent power to sanction extends to the conduct of parties during
appeals. See Gallop v. Cheney, 642 F.3d 364, 370 (2d Cir. 2011); Wheeler v.
C.I.R., 528 F.3d 773, 782 (10th Cir. 2008); Stalley v. Methodist Healthcare, 517
F.3d 911, 920 (6th Cir. 2008); FEC v. Toledano, 317 F.3d 939, 953 (9th Cir.
2002); Perry v. Pogemiller, 16 F.3d 138, 140 (7th Cir. 1993).
Despite the extensive number of available methods to seek and obtain
attorneys’ fees as a sanction in the district court, the Trustee did not ground his
request in any of them. Instead, the Trustee sought an attorneys’ fee award by
requesting an extension of the public-policy rationale outlined in Norelus.
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Norelus involved a district court’s award of sanctions under 28 U.S.C.
§ 1927. 628 F.3d at 1297. The sanctioned attorneys argued that the district court
abused its discretion by including in the sanctions award the costs, expenses, and
attorneys’ fees incurred in prosecuting the sanction proceedings. Id. Relying on
the plain language of 28 U.S.C. § 1927, the Norelus court upheld the award. Id. at
1298. The statute allows for recovery of costs “incurred because of such
conduct,” and the court reasoned that without the sanctionable conduct, no
sanction procedures would have been required. Thus, the sanctionable conduct
caused the costs of obtaining sanctions. Id. In addition, the court gave in to
“temptation” and provided an additional reason for allowing discretion to award
the costs of prosecuting a sanctions motion, specifically that not allowing such an
award would “undercut” the purposes of sanctions by preventing full
compensation to the harmed party. Id. Because an aggrieved party should not be
discouraged from pursuing sanctions, recovery of the costs associated with
pursuing sanctions must be possible. Id. at 1298–99.
Norelus did not involve the recovery of costs associated with defending a
sanction award on appeal. However, the Trustee urges this court to find that the
district court abused its discretion in refusing to extend Norelus to appellate
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attorneys’ fees. Such an extension is precluded by the Supreme Court’s holding in
Cooter & Gell v. Hartmarx, Corp., 496 U.S. 384, 407 (1990).
In Cooter & Gell, the Court overturned an award of attorneys’ fees incurred
in defending a Rule 11 sanction award on appeal. Id. at 405–06. The Court
rejected the very same causation argument advocated by the Trustee in this case.
The Court held that the costs of an appeal of a Rule 11 sanction order is not
directly caused by the underlying sanctionable conduct, but rather by the district
court’s sanction order. Id. at 407. The court recognized that additional rules
safeguard against frivolous appeals from sanction orders, that meritorious appeals
should never be discouraged, and that the traditional American Rule generally
prevents prevailing litigants from collecting attorneys’ fees from the losing party.
Id. at 407–09.
This court continues to apply Cooter & Gell to appeals from Rule 11
sanction orders, even in the bankruptcy context. In re Porto, 645 F.3d at 1306–07.
Other courts of appeals have applied Cooter & Gell’s bright-line rule to cases
ordering sanctions under 28 U.S.C. § 1927 and a court’s inherent powers. Manion
v. Am. Airlines, Inc., 395 F.3d 428, 433–34 (D.C. Cir. 2004) (§ 1927); In re
Kujawa, 270 F.3d 578, 582–83 (8th Cir. 2001) (inherent powers); Conner v.
Travis County, 209 F.3d 794, 801 (5th Cir. 2000) (inherent powers). The only
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court to adopt the Trustee’s causation argument by distinguishing between Rule 11
sanctions and a court’s inherent powers was overturned on appeal. In re Kujawa,
256 B.R. 598, 612 (8th Cir. BAP 2000), rev’d, 270 F.3d 578 (8th Cir. 2001). In
reversing, the Eighth Circuit relied solely on Cooter & Gell. Each case cited by
the Trustee in support of his position either pre-dates Cooter & Gell or does not
involve an award of appellate attorneys’ fees.
Here, the Trustee did not argue Franken’s appeal itself was frivolous, but
instead argued that the causal link between Franken’s sanctionable conduct in the
bankruptcy court was sufficient alone to justify an award of attorneys’ fees by the
district court. This argument contradicts binding Supreme Court precedent, and
the district court did not abuse its discretion by declining to adopt this incorrect
legal standard.
The Trustee also claims that the district court’s perfunctory disposition of
the motion was an abuse of discretion. When a party in a counseled case makes
only passing references to an issue in his brief, but does not devote a discrete
section of his brief to the argument of that issue and presents those references only
as background to claims that he has expressly advanced, the party has abandoned
that issue on appeal. United States v. Jernigan, 341 F.3d 1273, 1284 n.8 (11th Cir.
2003); Greenbriar, Ltd. v. City of Alabaster, 881 F.2d 1570, 1573 n.6 (11th Cir.
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1989). Here, the Trustee fails to discuss anywhere in the argument section of his
opening brief the issue of the district court’s perfunctory denial. Thus, the Trustee
abandoned this issue.
Even if the argument was not abandoned, the court would not remand the
case. Generally, a district court only abuses its discretion when both the district
court’s opinion and the record fail to provide adequate explanation to allow
meaningful appellate review. Cox Enterprises, Inc., 510 F.3d at 1360.1 Here, the
district court’s denial without explanation does not prevent meaningful appellate
review. The record demonstrates that the Trustee only presented the district court
with one legal theory of recovery. That legal theory did not require any findings
of fact by the district court, but only an application of the facts the district court
affirmed on appeal. Thus, the district court could not have abused its discretion by
failing to make factual findings. Furthermore, the district court could not have
abused its discretion by applying an incorrect legal standard. As discussed above,
rejection of the Trustee’s argument was legally correct. In sum, the district court’s
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This case should be distinguished from the court’s recent holding in Thompson v.
Relationserve Media, Inc., 610 F.3d 628, 637–38 (11th Cir. 2010). Thompson held that the
Private Securities Litigation Reform Act’s mandatory sanction procedures eliminated two key
aspects of a district court’s discretion in the Rule 11 context, and that the district court’s
perfunctory findings required remand for compliance with the PSLRA’s unique Rule 11 scheme.
Id. This is not a PSLRA case and the district court retained its traditional discretion.
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perfunctory denial of the Trustee’s legal argument does not demonstrate an abuse
of discretion. Thus, we affirm.
AFFIRMED.
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