Naomi Isaacson v. Nauni Jo Manty ( 2013 )

United States Court of Appeals
For the Eighth Circuit
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No. 12-2384
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Naomi Isaacson,
lllllllllllllllllllll Plaintiff - Appellant,
v.
Nauni Jo Manty,
lllllllllllllllllllll Defendant - Appellee.
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Appeal from United States District Court
for the District of Minnesota - Minneapolis
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Submitted: December 12, 2012
Filed: July 19, 2013
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Before LOKEN, MELLOY, and COLLOTON, Circuit Judges.
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COLLOTON, Circuit Judge.
Naomi Isaacson was sanctioned by the United States Bankruptcy Court for the
District of Minnesota for making factually unsupported and harassing statements in
documents filed with the court. Isaacson appeals, arguing principally that the
bankruptcy judge’s failure to recuse herself from the sanctions proceedings violated
Isaacson’s rights under the Due Process Clause of the Fifth Amendment. We affirm.
I.
Isaacson is the president of Yehud-Monosson USA, Inc., a New York
corporation that filed a petition for relief under Chapter 11 of the Bankruptcy Code
in the Southern District of New York. The bankruptcy case was transferred to the
District of Minnesota and converted to a Chapter 7 proceeding.
A discovery dispute arose between the Chapter 7 trustee, Nauni Manty, and
Isaacson. Manty asserted that Isaacson had not turned over certain documents and
filed a motion for turnover. The court granted Manty’s motion and entered a turnover
order stating that if Isaacson failed to turn over certain materials and Manty filed an
affidavit identifying those materials, then the court would “issue the appropriate
sanctions against Naomi Isaacson for her failure to comply with this court’s order,
which may include monetary sanctions and/or a finding of contempt punishable by
arrest and incarceration.” Manty then filed an affidavit of noncompliance. The
bankruptcy judge who had issued the turnover order recused himself, and the case
was reassigned to a new judge.
Manty filed a motion for contempt, and the hearing on that motion was
continued and rescheduled for December 6. On November 17, 2011, the new
bankruptcy judge1 issued an order requiring Isaacson to appear at the December 6
hearing, because contempt was sought against her personally rather than against the
debtor. On November 25, Isaacson moved to vacate the order and filed a
memorandum in support of her motion. In that memorandum, Isaacson leveled
accusations of bigotry, prejudice, and conspiracy against both bankruptcy judges,
trustee Manty, the United States trustee, and the entire judicial system. Among other
things, Isaacson referred to the new bankruptcy judge as a “black-robed bigot” and
1
The Honorable Nancy C. Dreher, late a United States Bankruptcy Judge for
the District of Minnesota.
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“Catholic Knight Witch Hunter,” described Manty’s “track record of lies, deceit,
treachery, and connivery,” called the United States trustee a “priest’s boy,” accused
the judge and trustees of ex parte communications, and declared that “[a]cross the
country the court systems and particularly the Bankruptcy Court in Minnesota, are
composed of a bunch of ignoramus, bigoted Catholic beasts that carry the sword of
the church.”
At a November 29 hearing on the motion to vacate, Isaacson’s attorney
acknowledged that Isaacson had written the memorandum. The court denied the
motion to vacate. Isaacson did not appear as ordered at the December 6 contempt
hearing, and the court issued an order finding Isaacson in civil contempt for her
failure to comply with the turnover order and for her failure to appear. The order
provided that Isaacson could purge herself of the contempt for failure to comply by
turning over certain documents to Manty, and of the contempt for failure to appear
by appearing at a hearing on January 4, 2012.
The bankruptcy court also sua sponte issued an order to show cause related to
Isaacson’s November 25 memorandum. The court identified ten “unsupported” and
“outrageous” statements, and ordered Isaacson and her attorney to appear at the
January 4 hearing to show cause why sanctions should not be imposed against each
of them pursuant to Federal Rule of Bankruptcy Procedure 9011, which closely tracks
Federal Rule of Civil Procedure 11. See Snyder v. Dewoskin (In re Mahendra), 131
F.3d 750, 759 (8th Cir. 1997). The order stated that sanctions may include monetary
fines of $1,000 for each factually unsupported statement.
Isaacson’s written response to the order to show cause defended the veracity
of all statements in her November 25 memorandum and made similar statements
anew. Among other statements, Isaacson explained that her description of the
bankruptcy judge as a “Catholic judge” did not refer to the Roman Catholic Church,
but rather to “a mentality and an adherence to a universal creed of White Supremacy.”
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Isaacson then failed to appear at the January 4 hearing. The bankruptcy judge ruled
that Isaacson had violated Federal Rule of Bankruptcy Procedure 9011(b)(1) and (3),
and imposed a $500 sanction per “outrageous” statement in the November 25
memorandum, for a total penalty of $5,000 payable to the clerk of the court.
The district court,2 applying Rule 9011, affirmed the sanctions, and Isaacson
appeals. She argues that the $5,000 penalty payable to the court constitutes a criminal
penalty, and that criminal sanctions proceedings require heightened procedural
protections not employed in this case—specifically, recusal of the bankruptcy judge
who imposed the sanctions. She also argues that the bankruptcy court abused its
discretion in determining the amount of the monetary sanctions.
II.
A.
Before reaching the merits, we must first consider our jurisdiction over this
appeal. The Supreme Court held in Cunningham v. Hamilton County, Ohio, 527 U.S.
198 (1999), that an order of sanctions against counsel pursuant to Federal Rule of
Civil Procedure 37(a)(4) is not “final” within the meaning of 28 U.S.C. § 1291, and
thus cannot be appealed immediately. Id. at 205-10. Other circuits have applied
Cunningham’s rationale to conclude that orders issued under Federal Rule of
Bankruptcy Procedure 9011, Klestadt & Winters, LLP v. Cangelosi, 672 F.3d 809,
816-19 (9th Cir. 2012), and pursuant to the sanctioning court’s inherent authority to
impose civil contempt sanctions, Comuso v. Nat’l R.R. Passenger Corp., 267 F.3d
331, 335-39 (3d Cir. 2001), are not final, appealable orders under § 1291.
2
The Honorable Joan N. Ericksen, United States District Judge for the District
of Minnesota.
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Our jurisdiction over bankruptcy appeals, however, is governed by 28 U.S.C.
§ 158(d)(1), which establishes a “more flexible” standard of finality than does § 1291.
Contractors, Laborers, Teamsters and Eng’rs Health & Welfare Plan v. Killips (In
re M&S Grading, Inc.), 526 F.3d 363, 368 (8th Cir. 2008). Under this standard,
finality depends on the extent to which (1) the order being appealed “leaves the
bankruptcy court nothing to do but execute the order,” (2) delay in appellate review
would prevent “effective relief,” and (3) a later reversal “would require
recommencement of the entire proceeding.” Id. (internal quotation omitted).
The bankruptcy court invoked Federal Rule of Bankruptcy Procedure 9011 in
sanctioning Isaacson. If the $5,000 penalty is a civil sanction pursuant to Rule 9011,
then the second and third prongs of the § 158(d) analysis suggest that we lack
jurisdiction: delay would not prevent Isaacson from receiving effective relief from
monetary sanctions, and reversal of the sanctions order would not require reopening
of the bankruptcy proceeding. See Winslow v. Hunter (In re Winslow), No. 91-1239,
1992 WL 19837, at *2 (10th Cir. Feb. 5, 1992); Oxley v. Watson (Matter of Watson),
884 F.2d 879, 880-81 (5th Cir. 1989); cf. Klestadt & Winters, 672 F.3d at 816 n.7; In
re Rimsat, Ltd., 212 F.3d 1039, 1044 (7th Cir. 2000). But Isaacson contends that the
sanctions issued against her are criminal in nature, because the monetary penalty was
punitive and not intended to compensate the court. If the sanctions order is criminal
rather than civil, then it is a final, appealable order. Union Tool Co. v. Wilson, 259
U.S. 107, 111 (1922).
As presented by the parties, therefore, the jurisdictional inquiry seems to turn
on whether a non-compensatory monetary sanction made payable to the court and
issued under Rule 9011 is a “criminal” sanction that is immediately appealable. The
leading authorities suggest that the answer may be “no,” because Rule 9011 and Rule
11 contemplate the imposition of civil sanctions that are non-compensatory. See Fed.
R. Civ. P. 11 advisory committee’s note on 1993 amendments (noting that “[s]ince
the purpose of Rule 11 sanctions is to deter rather than to compensate, the rule
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provides that, if a monetary sanction is imposed, it should ordinarily be paid into
court as a penalty”); Miller v. Cardinale (In re DeVille), 361 F.3d 539, 552 (9th Cir.
2004) (“The 1993 notes provide controlling insight into current Rule 11 and current
Rule 9011, foreclosing the contention that the drafters of either rule were
contemplating a criminal process.”); Donaldson v. Clark, 819 F.2d 1551, 1558-59
(11th Cir. 1987) (“A violation of Rule 11 is fundamentally different from an
infraction of criminal contempt and therefore warrants different sanction
proceedings.”).
On close review, however, we conclude that Rule 9011 did not authorize the
sanctions imposed in this case. Rule 9011 authorizes a court to impose “an
appropriate sanction upon the attorneys, law firms, or parties” who violate the rule’s
requirements governing representations to the court. Fed. R. Bankr. P. 9011(c)
(emphasis added). Isaacson was not an attorney, a law firm, or a party: she was an
officer of a corporate party. The plain language of the rule thus excludes authority
to sanction Isaacson. Where the rulemakers have authorized courts to sanction not
only attorneys, law firms, and parties but also the individual officers of parties, they
have done so expressly. See Fed. R. Civ. P. 37(b)(2) (authorizing sanctions against
“a party or a party’s officer, director, or managing agent”). The bankruptcy court thus
had no authority under Rule 9011 to sanction Isaacson. Cf. Gelt v. Janowitz (In re
Chisholm Co.), 166 B.R. 706, 713-15 (D. Colo. 1994) (applying former rule);
Leventhal v. New Valley Corp., 148 F.R.D. 109, 112 (S.D.N.Y. 1993) (same);
PaineWebber, Inc. v. Can Am Fin. Grp., Ltd., 121 F.R.D. 324, 335-36 (N.D. Ill. 1988)
(same); but cf. Caldwell v. Unified Capital Corp. (In re Rainbow Magazine), 77 F.3d
278, 282 (9th Cir. 1996) (applying former rule); Project 74 Allentown, Inc. v. Frost,
143 F.R.D. 77, 83 n.7 (E.D. Pa. 1992) (same), aff’d, 998 F.2d 1004 (3d Cir. 1993).
That Rule 9011 is inapplicable does not mean that the bankruptcy court lacked
authority to sanction Isaacson altogether. Federal courts possess certain inherent
powers, including the “power to punish for contempts,” which “reaches both conduct
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before the court and that beyond the court’s confines.” Chambers v. NASCO, Inc.,
501 U.S. 32, 44 (1991) (internal quotation omitted). Unlike the sanctioning authority
conferred by Rule 9011, the inherent authority of a court to police itself includes the
authority to sanction the bad-faith conduct of individuals other than attorneys, law
firms, and parties. See id. at 40 n.5, 50-51. Action against Isaacson thus falls well
within the scope of the bankruptcy court’s inherent sanctioning power, as she was the
debtor’s representative in the bankruptcy proceedings and was responsible for the
content of filings with the court.
Even where a court cites incorrect authority as the basis for contempt sanctions,
we may consider alternative grounds for the imposition of those sanctions, so long
as the court could have sanctioned the same conduct under another source of
authority, the court’s findings are adequate to meet the applicable standard, and the
contemnor’s due process rights are protected. Fellheimer, Eichen & Braverman, P.C.
v. Charter Techs., Inc., 57 F.3d 1215, 1225-27 (3d Cir. 1995); In re Courtesy Inns,
Ltd., 40 F.3d 1084, 1089-90 (10th Cir. 1994). The bankruptcy court determined that
Isaacson caused the filing of papers that contained “unbelievably and unmitigatingly
outrageous” assertions. This is the sort of contumacious conduct that is sanctionable
under the court’s inherent power. See Chambers, 501 U.S. at 50; Caldwell, 77 F.3d
at 283-85; United States v. Thoreen, 653 F.2d 1332, 1340 (9th Cir. 1981); Chilcutt
v. United States, 4 F.3d 1313, 1328 (5th Cir. 1993) (Jones, J., concurring). As
Isaacson received notice of the “precise ground for the imposition of sanctions” and
an opportunity to be heard, we may consider whether the award should be affirmed
based on the bankruptcy court’s inherent power. Fellheimer, 57 F.3d at 1227.
Because the monetary penalty was punitive, payable to the court, and non-
compensatory, the penalty imposed was criminal in nature. Hicks v. Feiock, 485 U.S.
624, 631-32 (1988). We therefore have jurisdiction over this appeal. Union Tool
Co., 259 U.S. at 111.
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B.
Isaacson challenges the bankruptcy judge’s failure to recuse herself from the
contempt proceedings. Isaacson asserts that the statements for which she was
sanctioned “greatly offended the personal sensitivities of the judge,” and that the
rationale of Mayberry v. Pennsylvania, 400 U.S. 455 (1971), required the judge to
recuse. Mayberry held that where a judge was the target of a litigant’s ongoing
“brazen efforts to denounce, insult, and slander the court” during a twenty-one-day
trial, id. at 462, and became “embroiled in a running, bitter controversy” with the
litigant, recusal was necessary. Id. at 465. “No one so cruelly slandered,” thought
the Court, “is likely to maintain that calm detachment necessary for fair adjudication.”
Id.; see also Taylor v. Hayes, 418 U.S. 488, 501 (1974) (reassignment required where
judge had “become embroiled in a running controversy” with putative contemnor,
despite the absence of “personal attack”).
Isaacson, however, did not move for recusal or object to the judge’s
participation, and she therefore forfeited any objection. We review forfeited
objections in a criminal proceeding under the plain-error standard of Federal Rule of
Criminal Procedure 52(b), which requires the appellant to show an obvious error that
affected her substantial rights and seriously affected the fairness, integrity, or
reputation of judicial proceedings. United States v. Olano, 507 U.S. 725, 732-34
(1993). Isaacson has not satisfied that standard, because the bankruptcy court did not
commit an obvious error by failing to recuse sua sponte, and there is no showing of
prejudice or miscarriage of justice.
In Mayberry, the Supreme Court held that “a defendant in criminal contempt
proceedings should be given a public trial before a judge other than the one reviled
by the contemnor.” 400 U.S. at 466. But the Court also explained that “not every
attack on a judge . . . disqualifies him from sitting.” Id. at 465. The Court
distinguished Ungar v. Sarafite, 376 U.S. 575 (1964), which affirmed a contempt
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conviction where the same judge who had been the subject of the contemnor’s vitriol
presided over the contempt proceedings. In Ungar, a hostile prosecution witness
refused to answer questions and accused the court of badgering him and suppressing
evidence. Id. at 579-80. The trial judge did not become “embroiled in intemperate
wrangling” with the witness, but “strongly admonished [him] that his conduct was
disruptive and disorderly and that he would be held to the natural consequences of his
acts.” Id. at 585. Ungar held that the judge’s participation in the contempt
proceedings was not a due process violation, because the record did not create “an
abiding impression that the trial judge permitted himself to become personally
embroiled with the petitioner.” Id. Although the witness had offered “disruptive,
recalcitrant and disagreeable commentary, [it was] hardly an insulting attack upon the
integrity of the judge carrying such potential for bias as to require disqualification.”
Id. at 584.
The line between Ungar and Mayberry is indistinct, and this case is not
obviously governed by Mayberry and its requirement of recusal. In Mayberry, the
contemnor persistently antagonized the judge over twenty-one days, calling him a
“dirty, tyrannical old dog,” “stumbling dog,” and “fool” to his face. 400 U.S. at 456-
61. The Court determined that this behavior was “apt to strike at the most vulnerable
and human qualities of a judge’s temperament,” and thus required a different judge
to preside over the contempt proceedings. Id. at 466 (internal quotation omitted).
Unlike the “fighting words” uttered in the judge’s presence over a considerable period
of time in Mayberry, Isaacson’s statements were a scattered attack on various
participants in the legal process that were submitted to the bankruptcy court in written
memoranda. The record does not show obviously that the judge became “embroiled
in intemperate wrangling,” Ungar, 376 U.S. at 585, or that Isaacson’s attack was apt
to interfere with the judge’s temperament. Mayberry, 400 U.S. at 466. The
bankruptcy judge reasonably could have concluded that Mayberry did not apply.
There was no obvious error.
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But even if Mayberry’s analysis were applied categorically whenever the same
judge “reviled by the contemnor” presides over the contempt proceedings, id.,
Isaacson has not demonstrated prejudice or a miscarriage of justice arising from the
bankruptcy judge’s participation. While it is “structural” error for a “biased trial
judge” to preside in a case, Neder v. United States, 527 U.S. 1, 8 (citing Tumey v.
Ohio, 273 U.S. 510 (1927)), and it is an open question whether an obvious structural
error automatically satisfies the third prong of the plain-error test, Puckett v. United
States, 556 U.S. 129, 140-41 (2009), the Mayberry rule addresses the appearance of
bias. Mayberry focused on the likelihood that a judge could “maintain that calm
detachment necessary for fair adjudication,” and invoked the Court’s previous
observation that “‘justice must satisfy the appearance of justice.’” 400 U.S. at 465
(quoting Offutt v. United States, 348 U.S. 11, 14 (1954)). Later, in Caperton v. A.T.
Massey Coal Co., 556 U.S. 868 (2009), the Court distinguished a problem of actual
bias and structural error in Tumey v. Ohio from Mayberry’s objective inquiry into
whether “the average judge in his position is ‘likely’ to be neutral, or whether there
is an unconstitutional ‘potential for bias.’” Id. at 881 (quoting Mayberry, 400 U.S.
at 465-66); see also Taylor, 418 U.S. at 501 (recusal inquiry where a judge becomes
“personally embroiled” with a contemnor “must be not only whether there was actual
bias,” but also whether there was “an appearance of bias”). And where the alleged
error arises from a judge’s failure to recuse based on an appearance of bias or
partiality, as opposed to actual bias, the error is subject to prejudice analysis.
Liljeberg v. Health Servs. Acquisition Corp., 486 U.S. 847, 862 (1988); Harris v.
Champion, 15 F.3d 1538, 1571 (10th Cir. 1994).
We see no reasonable probability of a different outcome before a different
judge. The evidence of Isaacson’s contempt was undisputed and aggravated.
Isaacson’s attorney admitted that Isaacson authored the memorandum with
unsubstantiated and scurrilous allegations against the court, the trustees, and the
judicial system. After the bankruptcy court put Isaacson on notice that she could face
monetary sanctions of $1,000 for each of ten unsubstantiated statements, Isaacson
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defended their veracity and leveled similar assertions. When the bankruptcy court
afforded Isaacson an opportunity to be heard, she failed to appear at the contempt
hearing. Only then did the judge issue a sanctions order with a penalty of $500 per
statement. Isaacson has not shown a reasonable probability that another judge would
have sanctioned her differently. Given the essentially uncontroverted evidence of
contempt, there likewise is no basis for concluding that any error seriously affected
the fairness, integrity, or public reputation of judicial proceedings. See United States
v. Cotton, 535 U.S. 625, 633 (2002).
C.
Isaacson’s remaining claims about the contempt process are without merit. The
bankruptcy court adequately explained the reason for the sanctions, saying that
Isaacson’s statements were “totally devoid of any true, factual” basis, and that the
motion to vacate was “frivolous” and “inflammatory.” After the court issued an order
to show cause why Isaacson should not be sanctioned $1,000 per statement, she
continued to file documents that were replete with similar statements. We think $500
per statement in these circumstances satisfactorily reflects the seriousness of the
contumacious behavior, the public interest in terminating the contemnor’s activity,
and the importance of deterring such acts in the future. See United States v. United
Mine Workers of Am., 330 U.S. 258, 303 (1947). The bankruptcy court did not abuse
its discretion.
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For the foregoing reasons, the judgment of the district court is affirmed.
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