In re: Ronald Alvin Neff

FILED
MAY 07 2013
1
SUSAN M SPRAUL, CLERK
U.S. BKCY. APP. PANEL
2 OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5 In re: ) BAP No. CC-12-1412-TaPaKi
)
6 RONALD ALVIN NEFF, ) Bk. No. SV 11-22424-VK
)
7 Debtor. ) Adv. No. SV 12-01101-VK
______________________________)
8 )
MICHAEL D. KWASIGROCH; LAW )
9 OFFICES OF MICHAEL D. )
KWASIGROCH, )
10 )
Appellants, )
11 )
v. ) MEMORANDUM*
12 )
DOUGLAS J. DENOCE, )
13 )
Appellee. )
14 )
15 Argued and Submitted on March 22, 2013
at Pasadena, California
16
Filed: May 7, 2013
17
Appeal from the United States Bankruptcy Court
18 for the Central District of California
19 The Honorable Victoria S. Kaufman, Bankruptcy Judge, Presiding
20
21 Appearances: Michael D. Kwasigroch of the Law Offices of
Michael D. Kwasigroch on behalf of the Appellants
22 and Patrick Laird Swanstrom of the Law Offices of
Patrick Laird Swanstrom on behalf of the Appellee.
23
24
25 Before: TAYLOR, PAPPAS, and KIRSCHER, Bankruptcy Judges.
26
27 *
This disposition is not appropriate for publication.
28 Although it may be cited for whatever persuasive value it may
have (see Fed. R. App. P. 32.1), it has no precedential value.
See 9th Cir. BAP Rule 8013-1.
1 INTRODUCTION
2 Appellants-Defendants Michael D. Kwasigroch and the Law
3 Offices of Michael D. Kwasigroch (jointly, “Kwasigroch”) removed
4 a state court civil action to the bankruptcy court. Appellee-
5 Plaintiff Douglas DeNoce (“DeNoce”) sought remand and recovery of
6 costs and expenses under 28 U.S.C. § 1447(c) (“§ 1447(c)”). The
7 bankruptcy court granted DeNoce’s motion and awarded him
8 $3,015.62 in costs and expenses. Kwasigroch appeals only from
9 the order awarding costs and expenses. We AFFIRM.
10 During the appeal, DeNoce separately moved for sanctions
11 against Kwasigroch. We GRANT in part DeNoce’s sanctions motion.
12 Also during the appeal, Kwasigroch moved to supplement the
13 record on appeal. We DENY this request.
14 FACTS
15 DeNoce and Kwasigroch have a long acrimonious history that
16 began when Kwasigroch represented a party in unrelated litigation
17 against DeNoce. It continued as Kwasigroch represented debtor
18 Ronald Neff (“Debtor”) as a defendant in a state court dental
19 malpractice action and other litigation initiated by DeNoce and
20 in three bankruptcy cases and six adversary proceedings where
21 DeNoce was a creditor or adverse party. The present appeal
22 arises in the most recent adversary proceeding and in Debtor’s
23 third bankruptcy case. It involves claims DeNoce now asserts
24 against Kwasigroch personally.
25 Debtor was a licensed dentist,2 and DeNoce was one of his
26 patients. At some time prior to the bankruptcies, Debtor injured
27
28 2
Apparently, the Dental Board of California revoked
Debtor’s dental license in January 2010.
2
1 DeNoce during dental surgery. DeNoce then filed two actions
2 against Debtor in state court, the first for dental malpractice.3
3 As this litigation continued, Debtor initiated a series of
4 bankruptcy cases. The bankruptcy court dismissed the first case,
5 a chapter 13 case, when Debtor failed to appear at his § 341(a)
6 meeting of creditors.
7 The Debtor promptly filed a second chapter 13 case, and
8 Kwasigroch, on behalf of Debtor, removed DeNoce’s state court
9 actions to the bankruptcy court. DeNoce immediately sought
10 remand. The bankruptcy court remanded the dental malpractice
11 action.
12 Concurrently, DeNoce moved to dismiss Debtor’s second
13 bankruptcy case as a bad faith filing and requested a 180-day bar
14 against a subsequent filing. DeNoce also commenced an adversary
15 proceeding against Debtor and Kwasigroch (the “2010 Adversary
16 Proceeding”). The 2010 Adversary Proceeding asserted claims
17 under bankruptcy and state law. At some point thereafter, the
18 bankruptcy court instructed or suggested that DeNoce dismiss
19 Kwasigroch as a named defendant to the 2010 Adversary Proceeding,
20 and DeNoce did so. Kwasigroch, however, continued as Debtor’s
21 counsel and moved to dismiss the 2010 Adversary Proceeding.
22 This motion to dismiss came before the bankruptcy court on
23 June 22, 2011. Kwasigroch represented Debtor at the hearing.
24 The bankruptcy court indicated its intent to dismiss DeNoce’s
25 bankruptcy-based claims with leave to amend and to dismiss his
26
27 3
The second action involved claims based on, among other
28 things, alleged fraudulent transfers. Its disposition is not
relevant to the disputes here.
3
1 state law causes of action with prejudice. In doing so, the
2 bankruptcy court expressly stated to the parties:
3 [T]his is the way we’re going to do it. This Court is
abstaining from any state law causes of action. If you
4 have a state law cause of action, this Court is
abstaining. Focus -- so if it’s not based on a
5 Bankruptcy Code provision, don’t include it in your
complaint, because this Court’s abstaining.
6
7 Hr’g Tr. (June 22, 2011) at 37:23-25; 38:1-3.
8 In reiterating that the bankruptcy court was not the proper
9 forum for state law causes of action, it further stated:
10 The problem is when somebody who is not a bankruptcy
lawyer . . . and doesn’t understand what the Bankruptcy
11 Code means, now wants to act as though we weren’t in a
bankruptcy case and wants to assert state law fraud
12 causes of action in a complaint filed in a bankruptcy
case, it just -- it just isn’t -- it’s just not right.
13
14 Id. at 45:1-2; 4-8.
15 DeNoce asserted his belief that state law causes of action
16 were acceptable based on the pendency of Debtor’s adversary
17 proceeding seeking recovery against insurance companies based on
18 state law claims. In response, the bankruptcy court stated: “if
19 it had come to this judge, this Court might have abstained from
20 those too if they were filed here.”4 Id. at 49:2-4.
21 DeNoce thereafter complied with the clear directives from
22 the bankruptcy court; he filed an amended adversary complaint
23 that solely alleged causes of action arising under the bankruptcy
24 code. Debtor, still represented by Kwasigroch, filed his Answer
25 to the amended complaint and included a counterclaim against
26 DeNoce and cross-claims against Roe defendants based on state law
27
28 4
Another bankruptcy judge initially heard matters in the
second bankruptcy case and related adversary proceedings.
4
1 causes of action. DeNoce moved to dismiss. The bankruptcy court
2 set the dismissal motion for hearing and required the parties to
3 brief the impact of Stern v. Marshall, 131 S.Ct. 2594 (2011), on
4 the bankruptcy court’s authority in relation to Debtor’s state
5 law causes of action.
6 Meanwhile, DeNoce actively participated in Debtor’s second
7 bankruptcy case; he filed objections to Debtor’s proposed
8 chapter 13 plan, Debtor’s claimed exemptions, and various
9 proposed settlements between Debtor and other creditors.
10 Approximately 14 months after DeNoce initially moved to dismiss,
11 the bankruptcy court entered an order dismissing Debtor’s second
12 bankruptcy case. The order contained a 180-day bar against
13 filing under chapters 11 or 13, but did not bar filing under
14 chapter 7. The order further provided that all pending adversary
15 proceedings were dismissed, including the 2010 Adversary
16 Proceeding. Thus, the bankruptcy court dismissed the 2010
17 Adversary Proceeding before the parties filed briefs regarding
18 Stern.
19 Before the order dismissing the second bankruptcy case was
20 entered, Debtor, still represented by Kwasigroch, filed a third
21 bankruptcy case under chapter 7. DeNoce again commenced
22 adversary proceedings against Debtor, one alleging the
23 nondischargeability of his claims and the other seeking a denial
24 of Debtor’s discharge. Pursuant to the bankruptcy court’s
25 instructions, DeNoce pursued his state law causes of action
26 outside of the bankruptcy court. He commenced an action in state
27 court (“Torts Action”) and solely named Kwasigroch as the
28 defendant. DeNoce asserted nine causes of actions against
5
1 Kwasigroch: (1) defamation; (2) invasion of privacy; (3) false
2 light; (4) malicious prosecution; (5) abuse of process; (6) fraud
3 and deceit; (7) intentional and negligent interference with
4 prospective business/economic advantage; (8) intentional/reckless
5 infliction of emotional distress; and (9) preliminary and
6 permanent injunction.
7 Kwasigroch, notwithstanding the bankruptcy court’s clear
8 instruction and his knowledge of the potential impact of the
9 Stern decision, immediately removed the Torts Action to the
10 bankruptcy court and promptly moved to dismiss the removed case.5
11 In response, DeNoce moved for remand of the Torts Action or, in
12 the alternative, for the bankruptcy court’s abstention. He also
13 moved for costs and expenses incurred as a result of the removal
14 pursuant to § 1447(c).
15 The bankruptcy court heard DeNoce’s remand motion on May 16,
16 2012. After argument, it ordered remand and an award of costs
17 and expenses to DeNoce under § 1447(c). Prior to establishing
18 the amount of the award, it required evidence from DeNoce as to
19 the amount of his costs and expenses and provided Kwasigroch with
20 an opportunity to respond. The bankruptcy court later entered
21
22
5
Kwasigroch also filed a third-party cross-complaint
23 against Debtor for indemnity and declaratory relief. In
24 addition, Kwasigroch moved to consolidate the removed action with
DeNoce’s adversary proceedings in Debtor’s third bankruptcy case;
25 to intervene on Debtor’s behalf; and for compulsory joinder of
Debtor. He then re-filed his motion for compulsory joinder to
26 remove the request for consolidation. On the eve of the remand
27 hearing, Kwasigroch and Debtor filed a third-party cross-
complaint against Debtor’s bankruptcy estate for indemnity,
28 contribution, and declaratory relief.
6
1 the order remanding the Torts Action.6
2 The bankruptcy court heard the § 1447(c)recovery request on
3 July 11, 2012. Prior to the hearing, DeNoce filed a declaration
4 with exhibits and Kwasigroch filed an opposition and evidentiary
5 objections to DeNoce’s declaration and exhibits. On July 31,
6 2012, the bankruptcy court entered a memorandum opinion and order
7 (“Award Order”) awarding DeNoce $915.62 in costs and $2,100 in
8 fees, for a total award of $3,015.62. In its order, the
9 bankruptcy court also overruled Kwasigroch’s evidentiary
10 objections as lacking merit.
11 Kwasigroch timely filed his appeal from the Award Order.
12 JURISDICTION
13 The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
14 §§ 1334 and 157(b)(2)(A). We have jurisdiction under 28 U.S.C.
15 § 158.
16 ISSUE
17 Did the bankruptcy court err in awarding costs and expenses
18 under § 1447(c)?
19 STANDARD OF REVIEW
20 We review the bankruptcy court’s legal conclusions de novo,
21 and its findings of fact for clear error. Allen v. US Bank, N.A.
22 (In re Allen), 472 B.R. 559, 564 (9th Cir. BAP 2012). We review
23 an award of costs and expenses for abuse of discretion.
24 Lussier v. Dollar Tree Stores, Inc., 518 F.3d 1062, 1065
25
6
The remand order vacated the scheduled hearings on
26 Kwasigroch’s motion to dismiss the removed action and his motions
27 to intervene and join. While it is not entirely clear, it
appears that, following remand, the bankruptcy court did not rule
28 on Kwasigroch’s cross-claims.
7
1 (9th Cir. 2008).
2 An abuse of discretion evaluation involves a two-prong test;
3 first, we determine de novo whether the bankruptcy court
4 identified the correct legal rule for application. See United
5 States v. Hinkson, 585 F.3d 1247, 1261-62 (9th Cir. 2009) (en
6 banc). If not, then the bankruptcy court necessarily abused its
7 discretion. See id. at 1262. Otherwise, we next review whether
8 the bankruptcy court’s application of the correct legal rule was
9 clearly erroneous; we will affirm unless its findings were
10 illogical, implausible, or without support in the record. See
11 id.12 DISCUSSION
13 A. An Award of Costs and Expenses Under § 1447(c) is Available
in a Bankruptcy Case.
14
15 Kwasigroch contends that the bankruptcy court erred as a
16 matter of law by awarding costs and expenses under § 1447(c) and
17 relies on Billington v. Winograde (In re Hotel Mt. Lassen,
18 Inc.), 207 B.R. 935, 938 (Bankr. E.D. Cal. 1997) to support his
19 position. We disagree. It is well settled that § 1447(c)
20 applies to bankruptcy removals and remands. Miller v. Cardinale
21 (In re Deville), 280 B.R. 483, 494 (9th Cir. BAP 2002) (citation
22 omitted), aff’d on other grounds, 361 F.3d 539 (9th Cir. 2004).
23 Contrary to Kwasigroch’s assertion, 28 U.S.C. § 1452 is not the
24 exclusive source of relief for a remand in a bankruptcy case.
25 Id. In re Hotel Mt. Lassen does not compel a different result
26 and, in fact, supports the same result. See 207 B.R. at 942-43
27 (bankruptcy court remanded five civil actions removed under 28
28 U.S.C. § 1452 back to state court pursuant to § 1447(c)). Thus,
8
1 we reject the argument that the bankruptcy court could not award
2 fees and costs under § 1447(c).
3 B. The Bankruptcy Court Did Not Abuse Its Discretion in
Awarding Costs and Expenses Under § 1447(c).
4
5 In relevant part, § 1447(c) provides that an order remanding
6 a case to state court may include an award for costs and expenses
7 incurred (including attorney’s fees) that resulted from the
8 removal. Under § 1447(c), whether the removal was “improper” or
9 “defective” is neither dispositive nor the proper inquiry.
10 Gardner v. UICI, 508 F.3d 559, 562 (9th Cir. 2007). Instead, the
11 proper inquiry turns on the reasonableness of the removal.
12 Martin v. Franklin Capital Corp., 546 U.S. 132, 141 (2005).
13 Absent unusual circumstances, the court may award costs and
14 expenses under § 1447(c) only if the removing party lacks an
15 objectively reasonable basis for seeking removal. Id.
16 Conversely, if the removing party has an objectively reasonable
17 basis for removal, costs and expenses should be denied. Id.
18 Here, the bankruptcy court determined that Kwasigroch could
19 not have reasonably believed that the bankruptcy court had
20 jurisdiction over the Torts Action. The bankruptcy court further
21 determined that, even if it had jurisdiction, Kwasigroch could
22 not have reasonably believed that it would exercise jurisdiction
23 based on the bankruptcy court’s prior statements to the parties.
24 This included not just the bankruptcy court’s clear statements at
25 the hearing dismissing the 2010 Adversary Proceeding, but also
26 the requirement that Kwasigroch brief the impact of Stern on
27 state law-based counter- and cross-claims.
28 In so holding, the bankruptcy court recognized that its
9
1 decision turned on the reasonableness of Kwasigroch’s removal.
2 This encapsulates the proper standard for awarding costs and
3 expenses pursuant to § 1447(c): whether Kwasigroch had an
4 objectively reasonable basis for removing the Torts Action.
5 Although the bankruptcy court stated that its determination was
6 based an improper removal, on this record, it is a distinction
7 without a difference. The record clearly supports that it
8 assessed the reasonableness of Kwasigroch’s removal in the
9 context of awarding the costs and expenses. Thus, the bankruptcy
10 court applied the correct legal rule.
11 The bankruptcy court then made several findings in rendering
12 its decision to award costs and expenses. First, it found that
13 DeNoce complied with its prior instructions with respect to state
14 law causes of action; DeNoce filed an amended adversary complaint
15 in the 2010 Adversary Proceeding based solely on bankruptcy law
16 claims. DeNoce thereafter separately pursued his state law
17 claims in state court and through the Torts Action. It then
18 found that Kwasigroch, in the teeth of its prior instruction and
19 direction, removed the Torts Action, and did so despite the fact
20 that Debtor was not a named defendant in the action and despite
21 the fact that it solely consisted of state law causes of action.
22 In doing so, the bankruptcy court determined that Kwasigroch’s
23 removal typified the:
24 [L]atest step in what has become a pattern of delaying
the resolution of matters properly initiated in state
25 court and attempting to litigate before [the bankruptcy
court] state law claims that, as the [bankruptcy court]
26 has reiterated, belong in state court.
27 Award Order at 11.
28 The bankruptcy court determined that its prior statements as
10
1 to state law causes of action were clear: it would not hear any
2 causes of action solely predicated on state law. We agree and
3 note that its requirement of briefing on issues arising under
4 Stern underscored the bankruptcy court’s instruction. It is not
5 significant that the bankruptcy court made these statements in a
6 prior adversary proceeding.
7 At oral argument, Kwasigroch pointed out that he was no
8 longer a party to the 2010 Adversary Proceeding at the pertinent
9 hearing and argued that, consequently, the bankruptcy court’s
10 directives did not apply to him. While it is true that
11 Kwasigroch was no longer a party, he represented Debtor in the
12 2010 Adversary Proceeding and actively participated at the June
13 2011 hearing. Kwasigroch’s contention is disingenuous. We
14 reject it. The issue here is not whether Kwasigroch violated a
15 court order; it is whether, given the bankruptcy court’s
16 unambiguous directive, a litigant in Kwasigroch’s position could
17 have reasonably believed that the bankruptcy court would preside
18 over the Tort Action after removal.
19 The bankruptcy court also supported its cost and expenses
20 award with a determination that it lacked jurisdiction over the
21 Torts Action. Kwasigroch emphatically contends that the
22 bankruptcy court possessed “related to” jurisdiction based on
23 indemnity provisions in retention agreements executed by Debtor.
24 He asserts that the indemnity provision requires Debtor to
25 indemnify Kwasigroch for any liabilities incurred as a result of
26 representing Debtor. DeNoce alleges that the retention
27 agreements allegedly providing indemnity to Kwasigroch were back-
28 dated and manufactured.
11
1 A cursory review of the record supports the bankruptcy
2 court’s determination that it lacked “related to” jurisdiction
3 over the Torts Action. Bankruptcy jurisdiction includes all
4 civil proceedings that are “related to” bankruptcy cases. See 28
5 U.S.C. § 1334(b). A civil proceeding is “related to” a
6 bankruptcy case if the outcome of the proceeding could
7 conceivably have any effect on the administration of the
8 bankruptcy estate. Fietz v. Great W. Sav. (In re Fietz), 852
9 F.2d 455, 457 (9th Cir. 1988) (adopting the test in Pacor, Inc.
10 v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984) (hereafter,
11 “Fietz/Pacor”)).
12 Here, the bankruptcy court rejected Kwasigroch’s alleged
13 indemnity claim against Debtor and the bankruptcy estate as a
14 basis for jurisdiction. It found that the possibility of an
15 indemnity or contribution claim against Debtor or the estate,
16 which existed only to the extent that Kwasigroch was first
17 determined liable, was insufficient to establish jurisdiction.
18 It noted that Kwasigroch’s argument was precisely the argument
19 rejected by the Pacor court.
20 In Pacor, the court determined that an action between non-
21 debtor third parties had no effect on the debtor’s bankruptcy
22 estate. 743 F.2d at 995. It concluded that although the outcome
23 of the subject action potentially gave rise to an indemnity claim
24 against the estate, in the absence of contractual liability on
25 the debtor’s part, the outcome in the action would not
26 definitively bind the debtor or determine its rights,
27 liabilities, or next course of action. Id.28 As the bankruptcy court here further noted, demonstrating
12
1 that Debtor was contractually obligated to indemnify Kwasigroch
2 might have established “related to” jurisdiction. Kwasigroch,
3 however, never presented the bankruptcy court with evidence of
4 the retention agreements establishing such contractual liability.
5 He referenced the potential indemnity claim in various papers,
6 but did not refer to or attach any such retention agreements.
7 At the July 2012 hearing on the § 1447(c) award, Kwasigroch
8 stated that he had a retention agreement with an indemnity
9 provision. The record shows that he filed an amended proof of
10 claim in Debtor’s third bankruptcy case on the same day as the
11 hearing, and he attached three copies of retention agreements
12 executed by Debtor. Kwasigroch included the same copies in his
13 excerpts of record. At the hearing, Kwasigroch advised the
14 bankruptcy court that he amended his claim. The record, however,
15 establishes that he never presented the bankruptcy court with the
16 retention agreements directly and never otherwise provided
17 evidence of their specific terms. Thus, notwithstanding that the
18 retention agreements are part of Kwasigroch’s excerpts of record,
19 we do not consider them on appeal because Kwasigroch did not
20 properly present them to the bankruptcy court. See Harkins
21 Amusement Enters., Inc. v. Gen. Cinema Corp., 850 F.2d 477, 482
22 (9th Cir. 1988) (only documents properly presented to the trial
23 court are part of the record on appeal and, thus, subject to
24 consideration on appeal). Therefore, the bankruptcy court
25 correctly concluded based on the only actual evidence before it
26 that Kwasigroch’s alleged indemnity claim was insufficient to
27 establish “related to” jurisdiction under Fietz/Pacor as there
28 was no evidence establishing actual contractual liability.
13
1 The bankruptcy court also determined, and we agree, that the
2 Torts Action exclusively consisted of state law causes of action
3 solely between non-debtor parties. Only one cause of action -
4 for malicious prosecution – contained allegations involving
5 Kwasigroch’s acts in the bankruptcy proceedings. That cause of
6 action, however, is based on state law, not bankruptcy law, and
7 related to an adversary proceeding in Debtor’s second bankruptcy
8 case. This does not, in and of itself, satisfy the test for
9 “related to” jurisdiction under Fietz/Pacor. Neither does the
10 fact that DeNoce is a personal injury creditor of Debtor or that
11 Kwasigroch is Debtor’s bankruptcy counsel. Therefore, the record
12 supports the bankruptcy court’s determination that it lacked
13 jurisdiction over the Torts Action.
14 Even if jurisdiction existed, however, the result under
15 these facts would be the same; and the bankruptcy court expressly
16 so stated. Kwasigroch erroneously equates bankruptcy
17 jurisdiction with an objectively reasonable basis for removal.
18 In many instances, jurisdiction may supply an objectively
19 reasonable basis for seeking removal. Here, however, “related
20 to” jurisdiction would not justify removal. Kwasigroch is an
21 attorney. He was an active participant at the hearing where the
22 bankruptcy court expressly stated that it would not hear state
23 court claims. He was aware of the Stern decision. The Torts
24 Action involved only non-debtor parties and only state court
25 causes of action. On this record, we find nothing illogical,
26 implausible, or unsupported by the record in relation to the
27 bankruptcy court’s determination to award a modest amount of fees
28 and costs under § 1447(c). Therefore, we affirm the Award Order.
14
1 C. Kwasigroch Waived Issues and Arguments By Failing To
Adequately Advance Them In His Opening Brief.
2
3 In his opening brief, Kwasigroch made one brief reference to
4 the bankruptcy court’s evidentiary ruling. He states that
5 DeNoce’s declaration and exhibits were “not properly
6 authenticated and [that] the declaration [was] full of argument,
7 conjecture, speculation, and completely unfounded and lacking in
8 personal knowledge as to the charges claimed.” Apl’t Op. Br. at
9 20-21. He did not elaborate on this point.
10 We do not consider matters not specifically and distinctly
11 raised and argued in an opening brief, or arguments and
12 allegations raised for the first time on appeal. See Padgett v.
13 Wright, 587 F.3d 983, 985 n.2 (9th Cir. 2009) (per curiam). As
14 such, we do not consider the bankruptcy court’s evidentiary
15 ruling because Kwasigroch did not specifically or distinctly
16 raise and argue that issue in his opening brief. We also note
17 that much of the briefing and record on appeal involve a
18 concerted effort by both parties to make irrelevant points about
19 the nefarious nature of the other party. Nothing in the record
20 shows that the bankruptcy court relied on such evidence in
21 relation to the Award Order. As a result, any error in this
22 regard would be harmless. See Van Zandt v. Mbunda (In re
23 Mbunda), 484 B.R. 344, 355 (9th Cir. BAP 2012).
24 Kwasigroch also advances a number of arguments in his reply
25 brief that he did not raise in his opening brief. We deem those
26 arguments waived. See Alaska Ctr. for the Env’t v. U.S. Forest
27 Serv., 189 F.3d 851, 858 n.4 (9th Cir. 1999) (“Arguments not
28 raised in [an] opening brief are waived.”).
15
1 D. Motions Filed by the Parties During the Appeal.
2 After Kwasigroch filed his reply brief, DeNoce filed a
3 separate motion seeking sanctions (“Sanctions Motion”)7 against
4 Kwasigroch under various theories,8 including Rule 8020.9
5 Kwasigroch timely opposed the Sanctions Motion, and DeNoce
6 replied.
7 On March 20, 2013, only two days prior to oral argument,
8 Kwasigroch filed a motion to supplement the record on appeal
9 (“Motion to Supplement”). He attached 14 exhibits to this
10 motion, including documents filed in Debtor’s adversary
11 proceedings and documents filed in state court. DeNoce opposed
12 prior to oral argument, and Kwasigroch replied thereafter on
13 March 26, 2013.
14 This appeal was deemed submitted on March 22, 2013.
15 Following submission, DeNoce filed a supplemental motion for
16 sanctions to include fees incurred in responding to the Motion to
17 Supplement. Kwasigroch then filed an opposition, and DeNoce
18 filed a reply. In response, this Panel entered an order on April
19 11, 2013, barring either party from filing any additional papers.
20
21 7
After considering the motion and filed responses, this
22 Panel issued an order advising that the Sanctions Motion would be
considered with the merits of the present appeal.
23
8
In addition, DeNoce moved for sanctions under 28 U.S.C.
24
§ 1927. We do not consider sanctions under this statute.
25 Pursuant to In re DeVille, 361 F.3d at 546, bankruptcy courts are
not courts of the United States. Consequently, we do not have
26 the authority to impose sanctions under 28 U.S.C. § 1927.
27 9
All “Rule” references are to the Federal Rules of
28 Bankruptcy Procedure and all “Appellate Rule” references are to
the Federal Rules of Appellate Procedure.
16
1 We address these motions as follows.
2 1. Kwasigroch’s Motion to Supplement the Record on Appeal.
3 Parties to an appeal may supplement the record if there is a
4 newly discovered fact or if it assists in clarifying the claims
5 on appeal. See Morgan v. Safeway Stores, Inc., 884 F.2d 1211,
6 1213 (9th Cir. 1989); Pl.’s Class Claimants in N.J. Action v.
7 Elsinore Corp. (In re Elsinore Corp.), 228 B.R. 731, 733 n.1 (9th
8 Cir. BAP 1998).
9 Kwasigroch contends that he filed the Motion to Supplement
10 in response to DeNoce’s “opposition brief” (presumably, DeNoce’s
11 opening brief) and the Sanctions Motion. Kwasigroch, however,
12 had the opportunity to respond to DeNoce’s opening brief and to
13 the Sanctions Motion. In fact, Kwasigroch did so. The exhibits
14 attached to his Motion to Supplement do not contain “newly
15 discovered evidence” or documents that assist us in clarifying
16 his arguments on appeal. The documents simply re-hash the
17 litigation history between the parties. Moreover, Kwasigroch
18 filed his motion and exhibits just two days prior to oral
19 argument. There was nothing in the motion or exhibits that
20 Kwasigroch could not have addressed in his reply brief or in his
21 opposition to the Sanctions Motion. Therefore, we deny
22 Kwasigroch’s Motion to Supplement.
23 2. DeNoce’s Request for Sanctions Under Rule 8020.
24 DeNoce primarily moves for sanctions based on the frivolous
25 nature of Kwasigroch’s appeal and pursuant to Rule 8020 and
26 Appellate Rule 38. He contends that a reasonable practitioner
27 would know that an appeal challenging the Award Order under an
28 abuse of discretion standard would fail. Thus, he argues that
17
1 the appeal is frivolous and that sanctions are warranted. In his
2 initial timely opposition, Kwasigroch states that the appeal is
3 not frivolous in a single heading and that he stands on his
4 briefs on appeal.
5 Rule 802010 provides that we may award damages and “single
6 or double costs to the appellee” upon determining that an appeal
7 is frivolous. An appeal is frivolous when the result is obvious
8 or the appellant’s arguments of error wholly lack merit. George
9 v. City of Morro Bay (In re George), 322 F.3d 586, 591 (9th Cir.
10 2003) (citation omitted).
11 Sanctions are also appropriate where the appellant simply
12 seeks to re-litigate the trial court’s factual findings without
13 mounting a meritorious appeal. See DeWitt v. W. Pac. R.R. Co.,
14 719 F.2d 1448, 1451 (9th Cir. 1983); Convergence Corp. v. Sony
15 Corp. of Am., 681 F.2d 622, 623 (9th Cir. 1982) (per curiam);
16 United States ex. rel. Ins. Co. of N. Am. v. Santa Fe Eng’rs,
17 Inc., 567 F.2d 860, 861 (9th Cir. 1978) (per curiam). Sanctions
18 may also be appropriate where the appellant pursues appeal for an
19 improper purpose. This includes using the appellate process as a
20 means to harass the appellee, see Oliver v. Mercy Med. Ctr.,
21 Inc., 695 F.2d 379, 382 (9th Cir. 1982); Franchise Tax Bd. v.
22 Roberts (In re Roberts), 175 B.R. 339, 345 (9th Cir. BAP 1994);
23
24 10
Rule 8020 is based on Appellate Rule 38. See Advisory
25 Committee Notes to Rule 8020, 1997 Amendment (by conforming to
the Appellate Rule 38 language, Rule 8020 recognizes that the BAP
26 has authority to award damages and costs in connection with
frivolous appeals). Thus, we consider DeNoce’s request under
27 Rule 8020 and not Appellate Rule 38. See Marino v. Classic Auto
28 Refinishing, Inc. (In re Marino), 234 B.R. 767, 770 (9th Cir. BAP
1999).
18
1 Young v. Beugen (In re Beugen), 99 B.R. 961, 966 (9th Cir. BAP
2 1989), or as a dilatory tactic. See DeWitt, 719 F.2d at 1451;
3 Santa Fe Eng’s, 567 F.2d at 861.
4 Finally, sanctions may be appropriate based on submission of
5 a substantively deficient appellate brief. This includes an
6 incomprehensible brief, see Hamblen v. Cnty. of Los Angeles, 803
7 F.2d 462, 464 (9th Cir. 1986) (per curiam), or citations to
8 authority that fail to support the appellant’s argument. See Mir
9 v. Little Co. of Mary Hosp., 844 F.2d 646, 653 (9th Cir. 1988).
10 We determine that sanctions under Rule 8020 are appropriate.
11 Kwasigroch’s briefs on appeal are substantively deficient.
12 Portions are incomprehensible. Kwasigroch makes allegations with
13 little or no reference to the record or relevant legal authority.
14 He copied and pasted several sections of a bankruptcy treatise
15 into his opening brief without legal analysis of the pasted
16 provisions. He presented several arguments for the first time in
17 his reply brief and attached four exhibits; documents that were
18 not part of the record on appeal and are not relevant to the
19 appeal. After filing timely documents that were deficient, he
20 apparently attempted to rectify the situation by filing the
21 Motion to Supplement two days prior to oral argument. It
22 attached 14 exhibits, consisting of 219 pages. The lengthy
23 Motion to Supplement also did not comply with the applicable
24 rules and did not contain newly discovered evidence or authority.
25 Kwasigroch has also mischaracterized Debtor’s involvement in
26 the removed Torts Action and in the present appeal. Some of his
27 documents appear to indicate that Debtor was a co-defendant in
28 the removed Torts Action or a co-appellant in the instant
19
1 appeal.11 But neither assertion is true.12
2 Were Kwasigroch a pro se litigant, his work product might be
3 explainable. But Kwasigroch is a licensed attorney. He, indeed,
4 acknowledges that he is a seasoned attorney of 25 years with no
5 prior disciplinary issues. Accepting this assertion as true, we
6 conclude that there is no excuse for the deficiencies in
7 Kwasigroch’s filings.
8 Taken together, these facts suggest that Kwasigroch filed
9 the present appeal, as the bankruptcy court aptly noted, as
10 another step in a persistent pattern of improper litigation
11 tactics. We do not make any determination as to the culpability
12 of either party in any of the bankruptcy proceedings or state
13 court matters. Our determination, however, is not made in a
14 vacuum and, by definition, a pattern is a combination of acts or
15 events forming a consistent arrangement. The quality of
16 Kwasigroch’s filings before us falls below that of a seasoned
17 attorney who genuinely seeks to avail himself of the protection
18 of the law. It is clear that Kwasigroch’s goal was not to
19 properly prosecute an appeal in relation to a small cost and fees
20 award, but to inflict costs of appeal on DeNoce. The filing of
21 the Motion to Supplement, in particular, evidences such intent.
22
23 11
The Notice of Appeal identifies the parties appealing as
“Michael D Kwasigroch and Ronald Neff.”
24
12
25 We also recognize DeNoce’s contention that Kwasigroch
otherwise misrepresented the record on appeal in his reply brief.
26 While there may be a basis for his assertion, it involves a
matter in Debtor’s second bankruptcy case. Neither the pertinent
27 order nor hearing transcript are part of the record on appeal.
28 While we could exercise our discretion to review those documents,
we choose not to.
20
1 Kwasigroch, as a self-represented attorney, was in a position to
2 cause DeNoce significant costs and expenses in relation to this
3 appeal. Therefore, sanctions under Rule 8020 are appropriate.
4 Having determined that sanctions are warranted, we award
5 DeNoce damages in the form of attorneys’ costs and expenses
6 incurred in defending against the appeal. See In re Roberts,
7 175 B.R. at 345. He seeks approximately $38,475 in attorneys’
8 fees, plus costs.13 We decline to award the full amount
9 requested given the small award amount at issue on this appeal,
10 and the fact that DeNoce also includes significant irrelevant
11 material in his documents. Therefore, sanctions in the amount of
12 $10,000 are appropriate.
13 3. DeNoce’s Request for Sanctions for Noncompliance with
Procedural Rules.
14
15 DeNoce also moves for sanctions based on Kwasigroch’s
16 failure to comply with various federal rules of procedure,
17 including the Rules, the BAP Rules, and the Appellate Rules.
18 In relevant part, Rule 8006 provides that an appellant must
19 file a designation of items to be included in the record on
20 appeal; the record on appeal then includes these designated items
21 and certain items delineated in the rule. Rule 8009 requires the
22 appellant to provide an excerpt of record as an appendix to its
23 brief. Fed. R. Bankr. P. 8009(b); see also 9th Cir. R. 30-1
24 (describing contents of excerpt of record). Once the record on
25 appeal is complete, the parties to the appeal may supplement the
26
27 13
DeNoce submitted the declaration of appellate counsel and
28 counsel’s time invoices, which detail the fees incurred in
defending the appeal.
21
1 record only by motion or formal request. Lowry v. Barnhart,
2 329 F.3d 1019, 1025 (9th Cir. 2003). A party to the appeal may
3 not unilaterally supplement the record, particularly with
4 documents that were not presented to the trial court. Id.5 Failure to comply with the rules typically results in
6 striking the extraneous documents. Id. In cases involving
7 particularly serious violations, however, the court may impose
8 monetary sanctions. Id. (citing 9th Cir. R. 30-2(d)).
9 In Lowry, the Ninth Circuit imposed monetary sanctions on
10 the appellee when it included a document in its excerpts of
11 record that did not exist when the trial court rendered its
12 decision or when the appellant filed his opening brief. Id. at
13 1025. In doing so, the court noted that monetary sanctions may
14 not be proper for less serious violations. Id. at 1026 n.7.
15 This includes violations where the document improperly included
16 entails a very small portion of the excerpts of record or the
17 issue is one of first impression. Id. (citations omitted). But
18 see N/S Corp. v. Liberty Mut. Ins. Co., 127 F.3d 1145, 1146
19 (9th Cir. 1997) (appellant’s briefs were struck and appeal was
20 dismissed based on appellant’s failure to comply with briefing
21 rules); Kano v. Nat’l Consumer Coop. Bank, 22 F.3d 899, 899 (9th
22 Cir. 1994) (monetary sanction for non-compliance with formatting
23 rules).
24 In his Designation of Record on Appeal (“Designation of
25 Record”), Kwasigroch identified a number of papers and exhibits,
26 including most of the docket in the removed adversary proceeding,
27 certain proofs of claim, and various documents and orders entered
28 in the other bankruptcy cases and adversary proceedings. None of
22
1 the four exhibits attached to Kwasigroch’s reply brief, however,
2 were included in his Designation of Record. Two of the exhibits
3 were entered in Debtor’s second bankruptcy case. The other two
4 exhibits have absolutely no bearing on the appeal. Kwasigroch
5 did not properly request leave to supplement the record prior to
6 attaching the documents to his reply brief.
7 We agree that this behavior warrants sanctions.
8 Nonetheless, given that we are imposing sanctions against
9 Kwasigroch under Rule 8020, we decline to impose additional
10 monetary sanctions for improperly supplementing the record.
11 Instead, the exhibits attached to his reply brief are stricken,
12 and we determine that this behavior provides a further basis for
13 the sanctions already assessed.
14 CONCLUSION
15 Based on the foregoing, we AFFIRM the bankruptcy court’s
16 order awarding costs and expenses under § 1447(c). We GRANT in
17 part DeNoce’s motion for sanctions under Rule 8020, and we DENY
18 Kwasigroch’s motion to supplement the record on appeal.
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