William E. Grant v. Richard A. Koehler ( 1997 )

United States Bankruptcy Appellate Panel
FOR THE EIGHTH CIRCUIT
No. 97-6053
Richard A. Koehler, *
*
Appellant, *
* Appeal from the United
v. * States Bankruptcy Court
* for the Western District
* of Missouri.
William E. Grant, *
*
Appellee. *
Submitted: September 30, 1997
Filed: October 31, 1997
Before KRESSEL, SCHERMER and SCOTT, Bankruptcy Judges.
KRESSEL, Bankruptcy Judge.
Richard A. Koehler appeals from the bankruptcy court’s1 order
finding him in contempt and imposing sanctions in the amount of
$15,082.01. We affirm.
1
The Honorable Karen M. See, United States Bankruptcy Judge
for the Western District of Missouri.
1
BACKGROUND
William E. Grant and Richard A. Koehler first met in connection
with Grant’s attempt to obtain refinancing on a commercial property
located in Butler, Missouri. In February of 1992, Grant contacted the
First Bank of Butler to refinance a loan on his restaurant. Richard
Koehler was employed by First Bank as a loan officer.2 Koehler assisted
Grant in the refinancing, and eventually helped him to secure a
favorable rate.
When Grant became unable to operate the restaurant in June of
1992, Koehler assisted Grant in finding a purchaser and negotiating a
purchase contract. When the contract fell through and Grant was
threatened with foreclosure, Koehler advised Grant to file bankruptcy.
With Koehler’s assistance, Grant filed his Chapter 11 petition on
December 24, 1992.
At the meeting of creditors, the United States Trustee told
Koehler to file an application with the court to approve his employment.
Despite a follow-up request, Koehler never applied for court approval to
represent the debtor. On March 16, 1993,
2
During the time that Grant was refinancing his loan, First
Bank of Butler was purchased by Bates County National Bank.
Subsequently, Koehler became an employee of Bates County National
Bank.
2
the United States Trustee filed a motion for disqualification, alleging
that Koehler’s employment by Bates County National Bank rendered him an
interested party.3 On April 9, 1993, the bankruptcy court sustained the
objections and entered an order disqualifying Koehler. The court
expressly determined that Koehler’s dual representation of the debtor
and Bates County National Bank, a major secured creditor, created an
actual conflict of interest. Accordingly, the court ordered Grant to
obtain new counsel. The court also required Koehler to file and serve
on the United States trustee and all creditors an accounting of any fees
collected in conjunction with the bankruptcy case. Neither the debtor
nor Koehler appealed the order.
Upon Koehler’s recommendation, Grant subsequently sought approval
to hire Charles C. Curry as his bankruptcy attorney and approval was
granted. On August 25, 1993, the debtor’s amended plan was confirmed.
In the ensuing months, Grant continued to comply with the terms of his
plan and made his final payment in October of 1994. On March 16, 1995,
Grant’s case was closed.
3
11 U.S.C. § 327(a) provides: “Except as otherwise provided
in this section, the trustee, with the court’s approval, may
employ one or more attorneys . . . that do not hold or represent
an interest adverse to the estate, and that are disinterested
persons. . . .” Pursuant to § 1107(a), debtors in possession and
their attorneys are subject to the same requirement.
3
After the entry of the disqualification order, Koehler continued
to represent Grant for approximately two years. Koehler continued to
negotiate with Grant’s insurance carrier in connection with a fire claim
and he regularly consulted with Curry regarding Grant’s bankruptcy case.
In fact, Koehler frequently prepared documents and pleadings and then
sent them to Curry to sign and file. Despite their long-standing
alliance, the parties never entered into a written fee agreement, nor
did Grant pay for Koehler’s services.
In March of 1994, the parties allegedly reached a verbal fee
arrangement under which Grant agreed to compensate Koehler $6,400.00 for
work performed in connection with the bankruptcy case. Pursuant to the
arrangement, Grant paid Koehler $3,600.00 on December 1, 1994. When
Grant failed to pay the balance by March of 1995, Koehler submitted a
statement to Grant itemizing his services and demanding payment. Grant
proferred two additional payments, which Koehler refused. On April 26,
1995, Koehler initiated collection proceedings against Grant in the
Associate Division of the Bates County Circuit Court.
On May 10, 1995, Grant filed a motion in the bankruptcy court
seeking sanctions for Koehler’s violation of the court’s
disqualification order. The court held hearings on May 25 and
4
June 22, 1995. At the time of the first hearing, the court reopened
Grant’s bankruptcy case.4 The court subsequently entered an order
finding Koehler in contempt and imposing sanctions in the amount of
$15,802.01. Koehler appeals.
DISCUSSION
In his appeal, Koehler raises three principle arguments. First,
he suggests that the bankruptcy court lacked subject matter jurisdiction
to enter its contempt order since the debtor’s bankruptcy case was
closed prior to the contempt hearing. Second, Koehler argues that the
court erred in issuing the contempt order since the disqualification
order on which it was based was ambiguous. Finally, Koehler contends
that the decision of the bankruptcy court should be reversed because of
alleged gender bias by the judge.
Jurisdiction
Koehler argues that the bankruptcy court lacked subject matter
jurisdiction to enter the contempt order since the
4
11 U.S.C. § 350 (b) provides that “[a] case may be
reopened in the court in which such case was closed to administer
assets, to accord relief to the debtor, or for other cause.”
5
debtor’s bankruptcy case was closed before the contempt hearing.5
Jurisdiction is primarily a creature of statute. Bankruptcy courts
derive their jurisdiction from 28 U.S.C. § 1334. This statute confers
jurisdiction on bankruptcy courts to hear proceedings “arising under
title 11, or arising in or related to cases under title 11.” 28 U.S.C.
§ 1334(b).6
The court’s jurisdiction does not end once a plan is confirmed or
the case is closed. In fact, it is well-established that courts retain
jurisdiction to enforce their own orders. Ex
5
On a related note, Koehler argues that the bankruptcy court
lacked jurisdiction because the debtor did not affirmatively
allege a basis for jurisdiction in his motion. Jurisdiction
exists independent of the parties’ pleadings. Parties cannot,
through mutual agreement, confer jurisdiction which is otherwise
lacking, nor can a court be deprived of jurisdiction simply
because a litigant fails to plead it. Furthermore, a party’s
failure to plead jurisdiction does not relieve a court of its
obligation to determine its jurisdiction sua sponte. For his
part, Grant argues that the court possessed jurisdiction because
the plan contained a provision which authorized the court to
exercise jurisdiction. The debtor’s argument is similarly off-
track. A court cannot invest itself with jurisdiction beyond
that jurisdiction which is provided for under law. See Harstad
v. First Am. Bank, 39 F.3d 898, 902 n.7 (8th Cir. 1994) (holding
that plan provision “cannot and does not confer jurisdiction upon
the court, as only Congress may do that.”); Walnut Assocs. v.
Saidel, 164 B.R. 487, 495 (E.D. Pa. 1994) (holding that court
cannot retain jurisdiction simply “by inserting a provision in
the plan or order of confirmation. . . .”).
6
11 U.S.C. § 1334 actually confers jurisdiction on the
district courts. Jurisdiction is passed on to the bankruptcy
courts under 28 U.S.C. § 157.
6
parte Robinson, 86 U.S. 505, 510 (1873) (“The power to punish for
contempt is inherent in all courts; its existence is essential to the
preservation of order in judicial proceedings, and to the enforcement of
the judgments, orders, and writs of the courts. . . .”); Brown v. Ramsay
(In re Ragar), 3 F.3d 1174, 1179 (8th Cir. 1993) (“If a bankruptcy court
can decide the qualification of attorneys to represent parties before it
. . . and if such decisions are necessary or appropriate in the
execution of the court’s duties under Title 11 . . . it is likewise
necessary or appropriate for the court to enforce its own orders.”);
Shillitani v. United States, 384 U.S. 364, 370 (1966) (“There can be no
question that courts have inherent power to enforce compliance with
their lawful orders through civil contempt.”).
The bankruptcy court’s contempt power issues specifically
from 11 U.S.C. § 105(a).7 Section 105(a) provides, in part:
7
Rule 9020 of the Federal Rules of Bankruptcy Procedure
implements the bankruptcy court’s contempt power. See Mayex II
v. Du-An Prod., Inc. (In re Mayex II Corp.), 178 B.R. 464, 469
(Bankr. W.D. Mo. 1995) (holding that court’s authority to enter
civil contempt orders is “expressly provided for” in Rule 9020).
Rule 9020 entitles a party to de novo review in the district
court:
The order shall be effective 10 days after service of
the order and shall have the same force and effect as
an order of contempt entered by the district court
unless, within the 10 day period, the entity named
therein serves and files objections prepared in the
manner provided in Rule 9033(b).
In this case, Koehler did not avail himself of de novo review by
the district court, but instead allowed the order to become
final. Therefore, the contempt order is subject to ordinary
7
The court may issue any order, process, or judgment that is
necessary or appropriate to carry out the provisions of this
title.
11 U.S.C. § 105(a); Brown v. Ramsay (In re Ragar), 3 F.3d at 1179;
Mountain Am. Credit Union v. Skinner (In re Skinner), 917 F.2d 444, 447
(10th Cir. 1990) (“[S]ection 105(a) empowers bankruptcy courts to enter
civil contempt orders.”); Burd v. Walters (In re Walters), 868 F.2d 665,
669 (4th Cir. 1989) (holding that 11 U.S.C. § 105 authorized court to
enter contempt order against attorney who failed to comply with court
order requiring him to remit attorney’s fees). We therefore conclude
that the bankruptcy court had jurisdiction.
Contempt
Koehler also argues that the bankruptcy court erred because the
disqualification order which formed the basis for its contempt finding
was ambiguous. A court cannot issue a contempt order unless a party has
violated a specific order of which he or
appellate review.
8
she is aware. See United States v. Di Mauro, 441 F.2d 428, 439 (8th
Cir. 1971) (“[I]n order to cite a person for contempt, it must be shown
that the alleged contemnor had knowledge of the order which he is said
to have violated and that order must be specific and definite.”); United
States v. Cutler, 58 F.3d 825, 834 (2d Cir. 1995) (“A defendant cannot
be held in contempt absent a ‘definite and specific’ order of which he
had notice.”). In a proceeding for civil contempt, the movant
must establish both elements by clear and convincing evidence.8
Commodity Futures Trading Comm’n v. Wellington Precious Metals, Inc.,
950 F.2d 1525, 1529 (11th Cir. 1992). Once the plaintiff has made this
prima facie showing, the burden shifts to the defendant to show that he
or she was unable to comply with the court’s order. Id. We review the
bankruptcy court’s issuance of the contempt order under an abuse of
discretion standard. Wright v. Nichols, 80 F.3d 1248, 1250 (8th Cir.
1996).
In this case, it is undisputed that Koehler was on notice of the
disqualification order since he was the party to whom the order was
directed and attended the hearing in his own defense.
8
Willfulness is not an element of a civil contempt claim.
Rolex Watch U.S.A., Inc. v. Crowley, 74 F.3d 716, 720 (6th Cir.
1996). Therefore, Koehler’s intent in violating the
disqualification order is irrelevant.
9
Additionally, the disqualification order was both direct and specific.
The order identified the conflict and prohibited Koehler from
representing the debtor.
Bias
Koehler also alleges a host of vague and ill-supported accusations
of gender bias as the basis for reversal. We find no support in the
record or any basis for these contentions.
Defenses
On appeal, Koehler offers several defenses for his failure to
comply with the disqualification order. First, Koehler contends that
his continued efforts on Grant’s behalf, particularly his consultations
with Curry, were excusable, since he was already familiar with the
bankruptcy file and therefore best situated to provide assistance.
While Koehler’s desire to share his professional insight with his
replacement might in some situations be considered laudable, it was
impermissible in bankruptcy. Once disqualified, Koehler was
categorically precluded from acting on Grant’s behalf.
In addition, Koehler argues that he was encouraged, through the
continued solicitations of the debtor, to disregard the
10
disqualification order.9 Koehler is again off the mark, since the
debtor’s imprecations and understanding are irrelevant. As the party to
whom the disqualification order was directed, Koehler was obligated to
discontinue his representation of the debtor and simply should have
refused to provide assistance.
Damages
It is appropriate for a court to impose monetary sanctions in
connection with an order for contempt. In this case, the bankruptcy
court imposed sanctions against Koehler in the amount of $15,082.01. In
reaching this figure, the court took into account the attorney’s fees
incurred by Grant in bringing the contempt motion, fees advanced by
Grant to Koehler, and Grant’s physical injuries and travel expenses.10
We cannot say that the bankruptcy court abused its discretion in
arriving at an amount
9
At the contempt hearing, Grant testified that he assumed
the order only prevented Koehler from collecting fees until the
plan was consummated. We find it unremarkable that the debtor, a
non-lawyer, should fail to appreciate the parameters of the
disqualification order. At any rate, Koehler’s suggestion that
he was somehow obligated to entertain Grant’s understanding of
the order is unavailing.
10
The judgment breaks down as follows: $6,527.51 in
attorney’s fees, $5,000 for “stress, anxiety, and related
physical illness,” $2,602 for payments by Grant to Koehler, and
$952.50 for Grant’s travel expenses.
11
based upon these considerations. However, the parties agree that the
court inflated the judgment by counting a portion of Grant’s attorney’s
fees twice.11 Therefore, the original judgment must be reduced by $1,750
to reflect this error.
CONCLUSION
For the foregoing reasons, we conclude that the bankruptcy court
did not abuse its discretion in issuing an order finding Koehler in
contempt and imposing sanctions. Accordingly, we affirm. However, this
case is remanded to the bankruptcy court with directions to enter an
amended judgment against Koehler in the amount of $13,332.01.
A true copy.
Attest:
CLERK, U.S. BANKRUPTCY APPELLATE PANEL FOR THE
EIGHTH CIRCUIT.
11
The court’s original contempt order imposed sanctions
against Koehler in the amount of $11,534.50, including $1,750 in
fees and expenses for Grant’s attorney, Erlene Krigel. At the
conclusion of the contempt hearing, the court asked Krigel to
submit an affidavit itemizing her fees and expenses for the
period following the May 25, 1993 hearing. However, Krigel
submitted an itemization of her total fees and expenditures in
the amount of $3,547.51. When the court entered its final order,
it relied on this figure, thereby duplicating Krigel’s attorney’s
fees by $1,750.
12