Richard DeLauro v. Ralph F. Porto

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FILED
FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS
________________________ ELEVENTH CIRCUIT
JULY 8, 2011
Nos. 09-15249 & 09-15251 JOHN LEY
CLERK
________________________
D. C. Docket Nos. 08-01904-CV-ORL-35, 08-10905-CV-ORL-35
Bankruptcy Nos. 07-BK-00075, 07-BK-00996-ABB
In Re: RALPH F. PORTO,
Debtor.
_______________________________________________
RICHARD DELAURO,
Plaintiff-Appellant-
Cross-Appellee,
versus
RALPH F. PORTO,
Defendant-Appellee-
Cross-Appellant.
________________________
Appeals from the United States District Court
for the Middle District of Florida
_________________________
(July 8, 2011)
Before TJOFLAT, CARNES and HILL, Circuit Judges.
CARNES, Circuit Judge:
For nearly a quarter of a century Richard DeLauro has been trying to collect
a $725,000 judgment debt from Ralph F. Porto. DeLauro’s latest efforts not only
proved unsuccessful but also resulted in his being ordered to pay more than
$15,000 in attorney’s fees to Porto as a sanction for what the bankruptcy court
viewed as his frivolous objection to the discharge of Porto’s debt to him. DeLauro
viewed this turn of events in which he as a creditor was ordered to pay his debtor
as not only ironic but bitterly so. He has appealed the district court’s order
affirming the bankruptcy court’s sanctions order against him. He also has
attempted to appeal the district court’s order affirming the discharge of Porto’s
debt to him, but there is a jurisdictional problem with that aspect of the appeal, as
we will discuss.
I.
Porto filed his Chapter 7 bankruptcy proceeding on March 16, 2007. One
of the debts he sought to discharge was a personal injury judgment debt he had
owed DeLauro since 1985. DeLauro filed a complaint objecting to the discharge
of Porto’s debt to him on the ground that Porto had fraudulently avoided satisfying
that debt since the judgment underlying it was entered 22 years before. Although
2
DeLauro’s complaint contained multiple factual allegations of fraud, the only legal
remedy it sought was the denial of Porto’s discharge pursuant to 11 U.S.C. §
727(a)(5), which forbids discharge where “the debtor has failed to explain
satisfactorily . . . any loss of assets or deficiency of assets to meet the debtor’s
liabilities.”
The bankruptcy court entered judgment in favor of Porto, denying the relief
that DeLauro sought under 11 U.S.C. § 727(a)(5), and it awarded attorney’s fees to
Porto as a sanction for DeLauro’s meritless complaint. DeLauro appealed both
orders to the district court. In an order dated May 26, 2009, the district court
affirmed the bankruptcy court’s judgment on the merits of DeLauro’s claims, but it
requested further briefing on the issue of whether the bankruptcy court properly
granted Porto’s motion to sanction DeLauro.1 In the meantime, Porto filed motions
in the district court for additional sanctions and to tax costs against DeLauro for
1
The district court reserved its ruling on the issue of attorney’s fees because it had
reservations about whether the bankruptcy court’s failure to observe the 21-day safe-harbor
provision contained in section 57.105(4) of the Florida Statutes precluded the imposition of
sanctions. See Fla. Stat. § 57.105(4). Those reservations were resolved when we issued our
decision in In re Evergreen Security, Ltd., 570 F.3d 1257 (11th Cir. 2009), affirming a
bankruptcy court’s award of sanctions against a creditor in an adversarial proceeding pursuant to
§ 105(a) when the debtor had moved for the sanctions pursuant to Federal Rule of Bankruptcy
Procedure 9011 but had failed to provide the creditor with the requisite 21 days notice provided
for under that Rule. Id. at 1273. The district court in the present case noted that the notice
provision found in Rule 9011 was substantially similar to the one in § 57.105(4), see In re
University Centre Hotel, Inc., 323 B.R. 306, 310 (Bankr. N.D. Fla. 2005), and on that basis
concluded that the notice provision of § 57.105(4) did not preclude the bankruptcy court from
awarding fees pursuant to § 105 of the Bankruptcy Code.
3
pursuing a frivolous appeal from the bankruptcy court. After further briefing, the
district court in an order dated September 15, 2009 affirmed the bankruptcy court’s
judgment awarding attorney’s fees to Porto, but it later denied Porto’s renewed
request for additional sanctions against DeLauro for appealing the bankruptcy
court orders because it concluded that those appeals were colorable.
DeLauro filed two separate notices of appeal to this Court on October 15,
2009. One of them appealed the district court’s order affirming the bankruptcy
court’s order overruling his objections and discharging Porto’s debt to him. The
other one appealed the district court’s order affirming the bankruptcy court’s award
of attorney’s fees to Porto as a sanction against DeLauro for filing the objections.
Porto cross-appealed the district court’s order denying his motion for sanctions and
costs against DeLauro for having filed what Porto characterized as frivolous
appeals to the district court.
II.
The threshold issue regarding DeLauro’s appeal from the district court’s
decision affirming the bankruptcy court’s order rejecting his objections to Porto’s
discharge is whether we have jurisdiction over that decision. See In re Donovan,
532 F.3d 1134, 1136 (11th Cir. 2008). That jurisdictional issue turns on the
timeliness of DeLauro’s October 15, 2009 notice of appeal from the district court’s
4
decision. Under Federal Rule of Appellate Procedure 4(a)(1), DeLauro had 30
days to file a notice of appeal from the final order resolving the matter. See Fed.
R. App. P. 4(a)(1); see also 28 U.S.C. §§ 158(d)(1) and 1291 (giving the courts of
appeals jurisdiction over final orders and decisions of district courts in bankruptcy
cases).
The timeliness of that October 15, 2009 notice of appeal in turn depends on
whether the district court’s May 26, 2009 order affirming the bankruptcy court’s
judgment that there was no merit in DeLauro’s objections was a final, which is to
say, appealable order. If it was, DeLauro’s notice of appeal came three-and-a-half
months too late. If, on the other hand, the district court’s May 26, 2009 order on
the merits of the objections did not become final until September 15, 2009 when
that court entered its order resolving the sanctions issue, then DeLauro’s October
15 notice of appeal came in time to bring up both of the district court’s orders.
A final order is “‘one which ends the litigation on the merits and leaves
nothing for the court to do but execute the judgment.’” Jove Eng’g, Inc. v. IRS, 92
F.3d 1539, 1547 (11th Cir. 1996) (quoting Catlin v. United States, 324 U.S. 229,
233, 65 S.Ct. 631, 633 (1945)). The question is whether an undecided attorney’s
fees issue means that the litigation on the merits is not ended for final judgment
purposes. The answer is that the Supreme Court has established a bright line rule
5
that the issue of attorney’s fees is always collateral to the merits, and a decision on
the merits, even if the attorney’s fees issue remains unresolved, is immediately
appealable under 28 U.S.C. § 1291. Budinich v. Becton Dickinson & Co., 486
U.S. 196, 202–03, 108 S.Ct. 1717, 1722 (1988). Thus, “[w]here an order disposes
of a party’s substantive claims, but does not dispose of claims relating to attorney’s
fees, the time for appeal of the substantive claims starts to run from the date of the
first order unless the district court grants a delay.” Fluor Constructors, Inc. v.
Reich, 111 F.3d 94, 96 (11th Cir. 1997). Although we have applied Budinich to
appeals under 28 U.S.C. § 1291 and appeals from administrative agency decisions,
this is the first time we have had occasion to apply that decision to cases appealed
to this Court from a district court exercising appellate review of a bankruptcy
court’s order under 28 U.S.C. § 158(a). See, e.g., Fluor Constructors, 111 F.3d at
96 (appeal from an administrative agency decision); Golub v. J.W. Gant & Assoc.,
863 F.2d 1516, 1518 (11th Cir. 1989) (appeal from a district court judgment).
There is no reason not to apply Budinich to appeals from the district court in
bankruptcy cases.
In Budinich the plaintiff had filed in the district court motions for a new trial
and for attorney’s fees. Budinich, 486 U.S. at 197; 108 S.Ct. at 1719. The district
court issued an order denying the plaintiff’s motion for a new trial and finding that
6
he was entitled to attorney’s fees, but the court requested further briefing on the
issue of the amount of fees it should award. The district court’s final order setting
the amount of attorney’s fees did not come until several months later. After that
order was issued, the plaintiff appealed all of the district court’s orders, including
the earlier one denying his motion for a new trial. The court of appeals concluded
that the appeal from the district court’s order denying the plaintiff’s motion for a
new trial was untimely because that order was a final, appealable one despite the
fact that the issue of attorney’s fees remained unsettled. Id., 108 S.Ct. at 1719.
The Supreme Court affirmed. Id. at 202–03, 108 S.Ct. at 1722. In doing so,
the Court explained that “[c]ourts and litigants are best served by the bright-line
rule, which accords with traditional understanding, that a decision on the merits is
a ‘final decision’ for purposes of § 1291 whether or not there remains for
adjudication a request for attorney’s fees attributable to the case.” Id. at 202–03,
108 S.Ct. at 1722. The Supreme Court insisted on a bright-line rule because “[t]he
time of appealability, having jurisdictional consequences, should above all be
clear.” Id. at 202, 108 S.Ct. at 1722. In the interests of clarity, the Court
determined that “the § 1291 effect of an unresolved issue of attorney’s fees for the
litigation at hand should not turn upon the characterization of those fees [as part of
the relief on the merits] by the statute or decisional law that authorizes them.” Id.
7
at 201; 108 S.Ct. at 1721. It stated that “what is of importance here is not
preservation of conceptual consistency in the status of a particular fee authorization
as ‘merits’ or ‘nonmerits,’ but rather preservation of operational consistency and
predictability in the overall application of § 1291.” Id. at 202; 108 S.Ct. at 1722.
“This requires, we think, a uniform rule that an unresolved issue of attorney’s fees
for the litigation in question does not prevent judgment on the merits from being
final.” Id., 108 S.Ct. at 1722.
The circuits that have considered this issue have held that Budinich applies
to appeals brought under 28 U.S.C. § 158(d) where, as here, the district court
entered a final order on the merits of the underlying dispute but left unresolved the
issue of attorney’s fees. See In re Pratt, 524 F.3d 580, 585 (5th Cir. 2008)
(“[I]rrespective of [the district court’s] remand of the issue of attorney’s fees, the
district court’s order affirming the bankruptcy court’s denial of sanctions is a final
judgment on the merits appealable under § 158(d).”); In re Johnson, 501 F.3d
1163 (10th Cir. 2007) (same); In re Rivera Torres, 432 F.3d 20, 22–23 (1st Cir.
2005) (“The fact that here we are operating under § 158(d) rather than § 1291
makes little difference . . . given the great similarity between an adversary
proceeding in bankruptcy and an ordinary civil action.” (quotation marks and
alteration omitted)); In re Colon, 941 F.2d 242, 245–46 (3d Cir. 1991) (affirming
8
district court’s dismissal for lack of jurisdiction because the “order of the
bankruptcy court, apart from its allowance of attorneys’ fees, was a final
appealable decision on the merits within the meaning of 28 U.S.C. § 158(a)”). We
agree with our sister circuits that the Budinich rule applies in the bankruptcy
context.
We recognize that this Court and others have held that when attorney’s fees
are awarded pursuant to a contract or are computed as part of the damages award,
an order on the merits does not become final and appealable until the attorney’s
fees issue is resolved. See, e.g., Brandon, Jones, Sandall, Zeide, Kohn, Chalal &
Musso, P.A. v. MedPartners, Inc., 312 F.3d 1349, 1355 (11th Cir. 2002) (“In this
Circuit, a request for attorneys’ fees pursuant to a contractual clause is considered a
substantive issue; and an order that leaves a substantive fees issue pending cannot
be ‘final.’”); In re Atlas, 210 F.3d 1305, 1308 (11th Cir. 2000) (“[A] bankruptcy
court’s order is not final for purposes of appellate jurisdiction where the
bankruptcy court finds liability for violation of the automatic stay, but defers
assessment of damages.”); In re Fugazy Exp., Inc., 982 F.2d 769, 776 (2d Cir.
1992) (“In sum, for a bankruptcy court order to be final within the meaning of [28
U.S.C.] § 158(a), the order . . . must completely resolve all of the issues pertaining
to a discrete claim, including issues as to the proper relief.”); In re Morrell, 880
9
F.2d 855, 856 (5th Cir. 1989) (“The Supreme Court has stated that ‘where
assessment of damages or awarding of other relief remains to be resolved
[judgments] have never been considered to be “final” within the meaning of 28
U.S.C. § 1291.’”) (quoting Liberty Mut. Ins. Co. v. Wetzel, 424 U.S. 737, 744, 96
S.Ct. 1202, 1206 (1976)).
Along those lines, in In re Atlas we held that an order by the bankruptcy
court that decides the merits but defers assessment of damages is not a final,
appealable order. In re Atlas, 210 F.3d at 1307–08. In that case, the bankruptcy
court’s order was not final because the order did not “leave for future resolution
only the amount of attorney’s fees and costs, but also [left] for assessment punitive
and actual damages.” Id. at 1308. We distinguished that case from Budinich by
noting that “this case concerns an award of damages, not just attorney’s fees,
which has not yet been assessed.” Id. That “distinction [was] crucial to our
analysis.” Id. Likewise, in MedPartners we held that a district court’s order ruling
on all of the plaintiff’s requests for relief and “closing” a case was not a final
appealable order because there remained an issue of contracted-for attorney’s fees.
MedPartners, 312 F.3d at 1355. As we explained, “the district court explicitly
retained jurisdiction to award attorneys’ fees,” and “[i]n this Circuit, a request for
attorneys’ fees pursuant to a contractual clause is considered a substantive issue[,]
10
and an order that leaves a substantive fees issue pending cannot be ‘final.’” Id.(citing Ierna v. Arthur Murray Int’l, Inc., 833 F.2d 1472, 1476 (11th Cir. 1987)).
This case is unlike MedPartners, In re Atlas, and others of that type because
here the unresolved issue of attorney’s fees was not part of an award of damages
pursuant to contract or otherwise. It was, instead, part of a sanctions award issued
in addition to and separate from the merits judgment in the case, and it therefore
falls on the Budinich side of the bright line of finality. As a result, DeLauro had 30
days from May 26, 2009 to file his notice of appeal from the district court’s order
affirming the bankruptcy court’s merits decision. See Fed. R. App. P. 4(a)(1).
Because his October 15, 2009 notice of appeal missed that deadline by more than
three months, we lack jurisdiction to review the district court’s judgment affirming
the bankruptcy court’s order denying DeLauro’s objections on the merits. See
United States v. Ward, 696 F.2d 1315, 1317 (11th Cir. 1983) (“The timely filing of
a notice of appeal is a mandatory prerequisite to the exercise of appellate
jurisdiction.”).
III.
We do have jurisdiction over DeLauro’s appeal from the district court’s
September 15, 2009 order affirming the bankruptcy court’s award of attorney’s
fees as a sanction against him, because his October 15, 2009 notice of appeal from
11
that order was timely.
A.
The objections in DeLauro’s complaint claimed that Porto could not
legitimately explain the loss of assets during the two decades since the judgment
had been entered against him and that the unexplained loss of assets had prevented
DeLauro from collecting on the judgment. Specifically, DeLauro alleged that
Porto had prevented him from collecting on his personal injury judgment by:
concealing his interest in a condo at Monmouth Beach, New Jersey by conveying it
to his wife; following his divorce, causing a 50 percent share in his home in
Montville, New Jersey to be conveyed to a third party “wholly controlled” by him;
creating and controlling a corporate entity called L-Falls Realty, LLC, which was
designed to conceal his ownership and control of other real property; making
pre-petition payments to American Express out of undisclosed assets; and failing to
explain how he was able to meet his monthly liabilities, which exceeded his
monthly income by almost $2,000 per month.
On September 23, 2008, the bankruptcy court issued an order noting that
DeLauro’s complaint cited only § 727(a)(5) as its basis for asserting that Porto’s
discharge should be denied. It found that DeLauro had “strayed far beyond the
Complaint in his trial presentation and post-hearing brief.” The bankruptcy court
12
stated that DeLauro’s evidence and arguments had little to do with a complaint
under § 727(a)(5), and his post-hearing brief in fact contained allegations of
non-dischargeability under Bankruptcy Code §§ 523(a)(4), 523(a)(5), and
523(a)(6), and asset concealment, asset transfer, and false oaths under Bankruptcy
Code §§ 727(a)(2) and 727(a)(4). In other words, the complaint cited the wrong
section and subsection of the Code. The bankruptcy court declined to consider the
merits of DeLauro’s objections on any basis other than as a request for relief under
§ 727(a)(5) because DeLauro had never amended his complaint. The court further
found that Porto’s testimony denying DeLauro’s allegations was credible and
supported by the other evidence.
The bankruptcy court made some other findings about DeLauro’s
allegations. It found that he had failed to carry his burden of establishing that
Porto could not account for significant assets that he formerly owned but that were
unavailable for distribution to creditors. See 11 U.S.C. § 727(a)(5). With respect
to the alleged gap between Porto’s monthly income and expenses, the court
observed that allegation did not relate to the loss of an asset but instead to a false
oath allegation under § 727(a)(4). With respect to the American Express
payments, the bankruptcy court found that to deny Porto’s discharge based on §
727(a)(5) would require “leaps of logic,” including an assumption that Porto made
13
the payments using cash assets that would have been the property of the estate at
the time of his petition and available for distribution to creditors. The bankruptcy
court refused to take those leaps, or make those inferences, noting that Porto could
have claimed those funds as exempt anyway.
According to the bankruptcy court’s findings, DeLauro’s contention that
Porto inexplicably lost his interest in the Montville home also could not form the
basis of a § 727(a)(5) claim because that interest was not “lost.” In fact, Porto’s
interest in the Montville home was an asset that was liquidated by the Trustee.
Likewise, the court found that Porto’s interest in the Monmouth Beach condo was
not lost, but was transferred to his wife in a pre-petition property settlement
agreement. And the bankruptcy court found that even assuming Porto had
transferred the property to his wife in 1984 in order to prevent DeLauro from
collecting on his judgment, that alleged conduct related to an unpleaded fraudulent
transfer recovery cause of action instead of to a § 727(a)(5) unexplained loss of
assets cause of action. As for DeLauro’s contention that Porto used L-Falls Realty,
LLC, to hide income and assets, the court found those allegations also related to a
fraudulent transfer recovery cause of action and not to a § 727(a)(5) cause of
action. Furthermore, DeLauro had failed to establish that Porto had an ownership
interest in L-Falls or its assets and real estate transactions.
14
Before the bankruptcy court denied DeLauro’s objections, Porto filed a
motion requesting that the court award him attorney’s fees and costs for defending
against DeLauro’s complaint, which Porto contended lacked any support in law or
fact. Porto brought his motion for attorney’s fees under section 57.105(1) of the
Florida Statutes,2 which provides for an award of fees where the losing party or his
attorney knew or should have known that his claim lacked factual or legal merit.
See Fla. Stat. § 57.105(1). Alternatively, he sought attorney’s fees as sanctions
under § 105 of the Bankruptcy Code.3 See 11 U.S.C. § 105(a). That Code
provision permits bankruptcy courts to impose sanctions for conduct in violation of
Bankruptcy Rule 9011, which authorizes them to impose sanctions where a signed
pleading is frivolous or is filed in bad faith. In re Mroz, 65 F.3d 1567, 1572 (11th
Cir. 1995) (“Sanctions under Bankruptcy Rule 9011 are warranted when (1) the
papers are frivolous, legally unreasonable or without factual foundation, or (2) the
pleading is filed in bad faith or for an improper purpose.”).
In the same order in which it denied DeLauro’s complaint and granted
Porto’s discharge, the bankruptcy court also granted Porto’s motion for attorney’s
2
The bankruptcy court observed that it could award attorney’s fees pursuant to §
57.105(1) in an adversary proceeding, citing In re Wille, 333 B.R. 891, 893 (Bankr. M.D. Fla.
2005). DeLauro does not contest that, but we have no need to pass on the correctness of that
implicit concession. See infra, n.8.
3
Section 105 provides that: “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).
15
fees, finding that DeLauro’s complaint objecting to Porto’s discharge lacked any
factual or legal merit, that DeLauro knew or should have known as much, and that
the adversary proceeding was brought in bad faith and therefore constituted
unreasonable and vexatious litigation that was designed only “to harass [Porto] and
delay his bankruptcy case.”
B.
The district court affirmed the bankruptcy court’s award of attorney’s fees
based on that court’s power to take any action “to prevent an abuse of process.”
See 11 U.S.C. § 105(a). This power includes the authority to impose sanctions,
including an award of attorney’s fees, if a party violates a court order or rule. In re
Evergreen Sec., Ltd., 570 F.3d 1257, 1273 (11th Cir. 2009). A bankruptcy court
also has the authority to impose sanctions based on a finding of bad faith. Id.; In re
Sunshine Jr. Stores, Inc., 456 F.3d 1291, 1304 (11th Cir. 2006). Bad faith exists
where an attorney “‘knowingly or recklessly raises a frivolous argument.’” In re
Evergreen Sec., Ltd., 570 F.3d at 1273 (quoting In re Walker, 532 F.3d 1304, 1309
(11th Cir. 2008)).4 The district court found that the bankruptcy court’s finding of
4
The Evergreen opinion also stated that bad faith exists where an attorney “argues a
meritorious claim for the purpose of harassing an opponent.” In re Evergreen Sec., Ltd., 570
F.3d at 1273. That additional statement was dicta in Evergreen, and in the opinion of this Court
that Evergreen quoted for that statement, see In re Walker, 532 F.3d at 1309, and in the opinion
of this Court that Walker quoted for it, see Byrne v. Nezhat, 261 F.3d 1075, 1121 (11th Cir.
2001), and in the opinion of this Court that Byrne quoted for it, see Barnes v. Dalton, 158 F.3d
1212, 1214 (11th Cir. 1998).
16
bad faith was not clearly erroneous and that its award of fees was not an abuse of
discretion based on its own “review of the record and for the reasons cited . . . in
[the district court’s order] upholding the Bankruptcy Court’s substantive
decision.”5
Our standard of review is abuse of discretion. See Planetary Motion, Inc. v.
Techsplosion, Inc., 261 F.3d 1188, 1205 (11th Cir. 2001). An abuse of discretion
exists where a court applies the wrong legal standard, makes clearly erroneous
findings of fact, or bases its decision on a clear error in judgment. In re Sunshine
Jr. Stores, Inc., 456 F.3d at 1304; United States v. Frazier, 387 F.3d 1244, 1259
(11th Cir. 2004) (en banc) (“[W]hen employing an abuse-of-discretion standard,
we must affirm unless we find that the district court has made a clear error of
judgment, or has applied the wrong legal standard.”). A finding of bad faith is a
finding of fact that we review only for clear error. See Maritime Management, Inc.
v. United States, 242 F.3d 1326, 1331 (11th Cir. 2001) (citing Long v. Florida, 805
5
At the same time it affirmed the bankruptcy court’s denial of DeLauro’s objections to
Porto’s discharge, the district court denied Porto’s motion requesting that the court add another
sanction award against DeLauro for appealing the bankruptcy court’s rejection of his objections
to the discharge. There is some tension between those two rulings of the district court. If, as the
district court affirmed, DeLauro filed his objections in bad faith and with the intent to harass
Porto, it is difficult to understand how his appeal from the bankruptcy court’s rejection of those
objections could have been “colorable,” as the district court found in denying Porto’s motion for
more sanctions. We need not concern ourselves with that apparent inconsistency, however,
because we independently examine the factual and legal determinations of the bankruptcy court.
See In re Issac Leaseco, Inc., 389 F.3d 1205, 1209 (11th Cir. 2004); In re St. Laurent, 991 F.2d
672, 675 (11th Cir. 1993).
17
F.2d 1542, 1550 (11th Cir. 1986), rev’d on other grounds, 487 U.S. 223, 108 S.Ct.
2354 (1988)). “While bad faith is the key to unlocking the court’s inherent power,
a court must do more than conclude that a party acted in bad faith; it should make
specific findings as to the party’s conduct that warrants sanctions.” Byrne v.
Nezhat, 261 F.3d 1075, 1123 (11th Cir. 2001) (quotation marks and citation
omitted).6
In Byrne, although we affirmed a district court’s imposition of sanctions
against an attorney, id. at 1115–17, we reversed its sanctions against the plaintiff
herself because the court had failed to make sufficiently specific factual findings to
support a finding that the plaintiff had acted in bad faith, id. at 1121–27. The
district court in Byrne found that the plaintiff’s attorney had brought a negligence
claim long after the statute of limitiations had expired, he had claimed that the
limitations period was tolled by fraudulent acts without specifying what those
fraudulent acts were, he had alleged racketeering activity without any evidentiary
basis, he had renewed those frivolous allegations in an amended complaint, and he
6
We recognize that the bankruptcy court in this case based its award of attorney’s fees as
a sanction on its statutory powers under § 105(a) of the Bankruptcy Code, whereas Byrne dealt
with a district court’s inherent authority to sanction misconduct. However, we agree with the
Tenth Circuit “that § 105 [was] intended to imbue the bankruptcy courts with the inherent power
recognized by the Supreme Court in [Chambers v. NASCO, Inc., 501 U.S. 32, 44–45, 111 S.Ct.
2123, 2133 (1991)],” in which the Supreme Court recognized the inherent power of a federal
district court to sanction “conduct which abuses the judicial process.” In re Courtesy Inns, Ltd.,
40 F.3d 1084, 1089 (10th Cir. 1994).
18
had failed to inform his client that he was bringing a RICO claim. Id. at 1121–22.
The district court inferred from those findings about the attorney’s conduct that he
had acted in bad faith, and we affirmed its imposition of sanctions on the attorney.
Id. at 1117.
The imposition of sanctions on the Byrne plaintiff herself was another
matter. The district court had based that part of its sanction award on the same
misconduct of her attorney that had led to the award against him. Id. at 1124.
While a client may be made to suffer litigation losses because of her attorney’s
missteps, the Byrne decision rejects the notion that an innocent client must also
suffer sanctions because of misconduct by her attorney that is not fairly attributable
to her. Without more, the rule that the sins of the lawyer are visited on the client
does not apply in this context, and a court must specify conduct of the plaintiff
herself that is bad enough to subject her to sanctions. See id. at 1124 (concluding
that the finding of bad faith on the part of the plaintiff herself was clearly
erroneous, and the district court’s “failure to specify [the plaintiff’s] sanctionable
conduct render[ed] us unable to affirm.”).
Those principles prevent us from affirming the award of sanctions against
DeLauro in this case. After referring to its legal authority to impose sanctions, this
is the entire explanation of the bankruptcy court for its decision to sanction
19
DeLauro:
The Plaintiff’s allegations have no factual or legal merit. He knew or
should have known his Complaint has no factual or legal basis. This
adversary proceeding was not brought in good faith and constitutes
unreasonable, vexatious litigation.
...
The Plaintiff did not bring this action in good faith, but brought it to
harass the Debtor and delay his bankruptcy case.
Without further elaboration, the bankruptcy court concluded that “[t]he Debtor is
entitled to an award of his reasonable attorney’s fees.” That is not enough.
We reiterate what we have said before: a conclusory finding of bad faith is
not sufficient to withstand appellate review. See Byrne, 261 F.3d at 1123 (“Unless
the evidence on the issue of bad faith is uncontroverted, a district court should
examine a party’s conduct and make findings on that issue.”); Rothenberg v. Sec.
Mgmt. Co., 736 F.2d 1470, 1472–73 (11th Cir. 1984) (remanding for factual
findings as to bad faith because “bald assertions provide no meaningful basis for
this court to review the ultimate finding of ‘bad faith.’”); cf. In re Sunshine Jr.
Stores, Inc., 456 F.3d at 1304–05 (affirming award of sanctions pursuant to
bankruptcy court’s inherent powers where the court’s “sanctions order contained a
detailed chronology of [the creditor’s] repeated failure to respond to court orders,
its failure to appear before the court when ordered, and its refusal to provide
20
discovery pursuant to the court’s [order]”).
Not only are the bankruptcy court’s findings inadequate to support sanctions
against DeLauro, but there is nothing in the record to support any findings about
what DeLauro personally knew or did not know before his attorney filed the
complaint containing the objections to Porto’s discharge. The court seems to have
reasoned that because the claims contained in DeLauro’s complaint were not
properly pleaded or were not proven at the hearing, DeLauro — not his attorney,
but DeLauro personally — must have made them unreasonably, in bad faith, or to
harass the defendant. That is, however, a leap in logic as large as any the court
declined to make in favor of the allegations in the complaint. It equates lack of
merit with bad faith, a fallacy that would lead to the conclusion that every losing
party had litigated in bad faith. In the past we have reiterated the Supreme Court’s
warning that:
[I]t is important that courts not engage in post hoc reasoning by
concluding that, because a plaintiff did not ultimately prevail, his
action must have been unreasonable or without foundation. This kind
of hindsight logic could discourage all but the most airtight claims, for
seldom can a prospective plaintiff be sure of ultimate success.
Cordoba v. Dillard’s, Inc., 419 F.3d 1169, 1181–82 (11th Cir. 2005) (quoting
Christiansburg Garment Co. v. EEOC, 434 U.S. 412, 421–22, 98 S.Ct. 694, 700
(1978)).
21
There is another problem here. Apart from its failure to specify the conduct
or knowledge of DeLauro himself that warranted a finding of bad faith on his part,
much of the bankruptcy court’s disapproving discussion of the objections to
discharge emphasize that particular objections were brought under the wrong
section or subsection of the Bankruptcy Code. That emphasis points away from a
finding that DeLauro was culpable. The failure to cite the proper legal authority
for a proposition is a failure of legal pleading; at most it is bad lawyering, and
DeLauro was not the lawyer. The lawyer responsible for pleading all of the
objections, and for all the errors of pleading that the court identified, escaped any
sanctions, while the client who may have suffered an adverse judgment in part
because of the pleading errors got sanctioned. That anomaly requires justification,
and there is none in the court’s order. We said in Byrne that “[s]anctionable
conduct by a party’s counsel does not necessarily parlay into sanctionable conduct
by a party.” Byrne, 261 F.3d at 1123 (citing Donaldson v. Clark, 819 F.2d 1551,
1557 n.6 (11th Cir. 1987)). All the more, unsanctioned conduct by a party’s
counsel should not be parlayed into a sanction against the party.
Without specific factual findings as to what constituted bad faith on
DeLauro’s part, the bankruptcy court characterized the filing of the complaint as a
“final attempt to get his proverbial ‘pound of flesh’” from Porto. As a matter of
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fact, the judgment debt in this case resulted from a personal injury lawsuit DeLauro
filed against Porto involving a botched hair transplant. All these years later
DeLauro might be more aptly described as still mourning his ravished locks
instead of seeking a pound of flesh.7 In any event, we must remand this case to the
bankruptcy court so that it can either flesh out its reasons for sanctioning DeLauro
or decide that he is not to be sanctioned.8
IV.
Our decision on DeLauro’s appeal disposes of Porto’s cross-appeal of the
7
Compare Alexander Pope, “The Rape of the Lock,” Canto V, lines 141–42 (1712)
(“Then cease, bright nymph! to mourn the ravish’d hair / Which adds new glory to the shining
sphere!”), with William Shakespeare, The Merchant of Venice, Act IV, Scene I, lines 100–01
(1600) (“The pound of flesh, which I demand of him, / Is dearly bought; ‘tis mine and I will have
it.”).
8
Because the district court sustained the bankruptcy court’s award of attorney’s fees as
sanctions pursuant to § 105(a) of the Bankruptcy Code, it declined to address the alternative
legal basis the bankruptcy court cited for the award, which was § 57.105(1). See Fla. Stat. §
57.105(1) (providing for an award of sanctions where the court finds that a losing party or his
attorney knew or should have known that his claim “[w]as not supported by the material facts
necessary to establish the claim or defense”). We have not, however, been cited to any
controlling authority permitting a bankruptcy court to award sanctions under that state statute in
this type of proceeding.
Even assuming that a bankruptcy court sitting in Florida may award sanctions under §
57.105, the record indicates that Porto did not comply with the safe harbor provision contained
in that statute. Section 57.105(4) provides that “[a] motion by a party seeking sanctions under
this section must be served but may not be filed with or presented to the court unless, within 21
days after service of the motion, the challenged . . . allegation . . . is not withdrawn or
appropriately corrected.” Fla. Stat. § 57.105(4). Porto served DeLauro with his motion for
attorney’s fees as sanctions on April 30, 2008, and his motion was filed with the bankruptcy
court on the same day. Therefore, Porto did not provide DeLauro an opportunity to amend or
withdraw his objections within 21 days before he filed the motion for sanctions, as the statute
requires. Moreover, we have no reason to believe that § 57.105 does not require the same
foundation of specific findings that Bankruptcy Code §105(a) does.
23
district court’s order denying his motions for sanctions and to tax costs. Porto
asked the district court to award sanctions against DeLauro under Bankruptcy Rule
8020 for costs, including attorney’s fees, associated with DeLauro’s appeals from
the bankruptcy court’s orders. See Fed. R. Bankr. P. 8020. The district court
denied Porto’s motions, concluding that DeLauro’s appeals to it were colorable.
We review a court’s decision about whether to impose sanctions only for an
abuse of discretion. In re Mroz, 65 F.3d at 1571. The Advisory Committee Note
to Rule 8020 references Federal Rule of Appellate Procedure 38 and states that the
authority to impose sanctions is the same for district courts sitting as appellate
courts, bankruptcy appellate panels, and courts of appeals. Fed. R. Bankr. P. 8020
advisory committee’s note. The Supreme Court has stated that “Rules 11 and 38
are better read together as allowing expenses incurred on appeal to be shifted onto
appellants only when those expenses are caused by a frivolous appeal, and not
merely because a Rule 11 sanction upheld on appeal can ultimately be traced to a
baseless filing in district court.” Cooter & Gell v. Hartmarx Corp., 496 U.S. 384,
407, 110 S.Ct. 2447, 2462 (1990). DeLauro’s appeal to the district court of the
order awarding sanctions against him was not frivolous, as our decision vindicating
that appeal establishes.
As for DeLauro’s appeal to the district court of the denial of his objections
24
to the discharge, we lack the jurisdiction to decide the merits of that appeal, but we
can and do decide that the appeal was colorable (non-frivolous enough) to prevent
the district court’s denial of sanctions against DeLauro from being an abuse of
discretion. We cannot say that in denying sanctions for that appeal of the merits,
the district court “made a clear error of judgment, or . . . applied the wrong legal
standard.” Frazier, 387 F.3d at 1259.
V.
DeLauro’s appeal from the district court’s judgment affirming the
bankruptcy court’s judgment on the merits is DISMISSED for lack of jurisdiction.
The judgment of the district court on the issue of attorney’s fees is VACATED and
the case is REMANDED for proceedings consistent with this opinion. The district
court’s judgment denying sanctions for the appeal to it is AFFIRMED.
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