In Re: JJE & MM Group LLC

16-1408-bk
In Re: JJE & MM Group LLC
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
Rulings by summary order do not have precedential effect. Citation to a summary order filed
on or after January 1, 2007, is permitted and is governed by Federal Rule of Appellate
Procedure 32.1 and this Court’s Local Rule 32.1.1. When citing a summary order in a
document filed with this Court, a party must cite either the Federal Appendix or an
electronic database (with the notation “summary order”). A party citing a summary order
must serve a copy of it on any party not represented by counsel.
At a stated term of the United States Court of Appeals for the Second Circuit, held at
the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York,
on the 5th day of June, two thousand seventeen.
PRESENT: JON O. NEWMAN,
JOSÉ A. CABRANES,
GERARD E. LYNCH,
Circuit Judges.
IN RE: JJE & MM GROUP LLC,
Debtor, 16-1408-bk
NOSON KOPEL,
Appellant.
FOR PLAINTIFF-APPELLANT: Noson A. Kopel, pro se, Brooklyn, NY.
Appeal from the May 3, 2016 and August 2, 2016 orders of the United States District Court
for the Eastern District of New York (Ann M. Donnelly, Judge; Carla E. Craig, Bankruptcy Judge).
UPON DUE CONSIDERATION WHEREOF, IT IS HEREBY ORDERED,
ADJUDGED, AND DECREED that the orders of the District Court be and hereby are
VACATED and REMANDED for further proceedings consistent with this order.
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Appellant Noson Kopel, an attorney proceeding pro se, represented JJE & MM Group LLC
(“JJE”) when it filed a second Chapter 11 petition after the Bankruptcy Court had dismissed its first
petition months earlier and barred JJE from filing a new petition for one year. The dismissal order
provided that it was “without prejudice to the Debtor’s right to seek modification of [that] order” in
the event of a change of circumstances enabling the Debtor to reorganize. Kopel did not seek leave
of court to file the second petition.
The Bankruptcy Court, sua sponte, ordered Kopel to show cause (1) why he should not be
held in contempt and sanctioned for violating the earlier dismissal order, and (2) why he should not
be sanctioned pursuant to Bankruptcy Rule 9011(c) for violating Bankruptcy Rule 9011(b) by filing
the second petition. In response, Kopel stated that he had filed the Chapter 11 petition on an
“emergency” basis, based on JJE’s representation that certain property (JJE’s sole assets) would be
sold at foreclosure that afternoon, but that JJE had a contract to sell the property at more than the
outstanding secured debt, resulting in a change of circumstances that would allow it to reorganize.
Kopel conceded that he had not carefully read the petition and attached affidavit, which was
prepared by JJE’s manager or her prior counsel, and stated only that JJE could file a new petition in
the case of changed circumstances. Kopel also stated that because he had not represented JJE during
the initial bankruptcy proceedings, he was not aware of the first dismissal order. After several
hearings, the Bankruptcy Court held Kopel in civil contempt and later imposed a compensatory
sanction requiring payment to the attorney for 1354 Realty Associates, LLC, a secured creditor, in
the amount of $9,786.67, which included the creditor’s legal fees and advertising expenses, for
violating the first dismissal order. The Bankruptcy Court made no determination with respect to the
portion of the show cause order concerning a sanction imposed pursuant to Bankruptcy Rule
9011(c).
The District Court entered judgment affirming the Bankruptcy Court’s orders finding
Kopel in civil contempt and imposing compensatory sanctions, and denied Kopel’s request for
reconsideration. Although the Bankruptcy Court had imposed sanctions as a remedy for a finding of
civil contempt, the District Court gave no consideration to the propriety of a civil contempt finding
and instead considered solely the appropriateness of sanctions pursuant to Bankruptcy Rule 9011(c)
for a violation of Bankruptcy Rule 9011(b). It reasoned that the Bankruptcy Court had acted within
its discretion when it imposed sanctions because Kopel’s actions were unreasonable and he had
violated Bankruptcy Rule 9011. Kopel now appeals.1 We assume the parties’ familiarity with the
underlying facts, the procedural history of the case, and the issues on appeal.
1
Specifically, Kopel appeals the District Court’s Corrected Memorandum Decision and Order of
May 3, 2016 affirming the Bankruptcy Court’s orders for contempt and sanctions, and the District
Court’s Memorandum and Order of August 2, 2016 denying his motion for reconsideration.
2
We undertake an “independent examination” of all factual findings and legal conclusions of
a bankruptcy court, including a decision whether to issue a contempt order; but we review a
bankruptcy court’s imposition of sanctions for abuse of discretion. In re Kalikow, 602 F.3d 82, 91 (2d
Cir. 2010). “[A] bankruptcy court would necessarily abuse its discretion if it based its ruling on an
erroneous view of the law or on a clearly erroneous assessment of the evidence.” In re Highgate
Equities, Ltd., 279 F.3d 148, 152 (2d Cir. 2002) (internal quotation marks and alterations omitted); see
also In re City of New York, 607 F.3d 923, 943 n.21 (2d Cir. 2010) (explaining that “abuse of
discretion” is a nonpejorative “term of art”).
Bankruptcy courts are vested with inherent sua sponte contempt power and may issue a
contempt order after notice and hearing. 11 U.S.C. § 105(a); Fed. R. Bankr. P. 9020. A party may be
held in contempt if (1) there is a “specific and definite” court order which that party has violated,
and (2) the party had actual knowledge of the order. See Fidelity Mortg. Investors v. Camelia Builders, Inc.,
550 F.2d 47, 51 (2d Cir. 1976). While bankruptcy courts can impose compensatory sanctions for
civil contempt, see In re Chateaugay Corp., 920 F.2d 183, 187 (2d Cir. 1990), a bad faith finding is
required “when a court imposes attorney’s fees as a sanction, or when the court sanctions an
attorney for conduct that is integrally related to the attorney’s role as an advocate for his or her
client.” United States v. Seltzer, 227 F.3d 36, 40 (2d Cir. 2000) (collecting cases); Sakon v. Andreo, 119
F.3d 109, 114 (2d Cir. 1997) (holding that attorney’s fees award was not justified because the court
found only that the sanctioned party acted with “excusable neglect”).
Sanctions may also be imposed for a violation of Bankruptcy Rule 9011. Fed. R. Bankr. P.
9011(c). Rule 9011 parallels Rule 11 of the Federal Rules of Civil Procedure, which governs attorney
sanctions; accordingly, Rule 11 case law informs the interpretation of Rule 9011. In re Highgate
Equities, Ltd., 279 F.3d at 151. A finding of subjective bad faith on the part of the attorney is
required to impose Rule 11 sanctions sua sponte. Muhammad v. Walmart Stores E., L.P., 732 F.3d 104,
108–09 (2d Cir. 2013).
On appeal, Kopel faults the District Court for affirming the civil contempt finding while
considering only the standards applicable to a violation of Bankruptcy Rule 9011(b). For example, he
contends that had the District Court applied civil contempt standards, it would have had to
recognize that, as a non-party in the bankruptcy proceedings, he could be in contempt only as an
aider or abettor of a contempt, see Levin v. Tibur Holding Corp., 277 F.3d 243, 250 (2d Cir. 2002), and
there has been no finding that the debtor, for whom the second petition was filed, has been held in
contempt. He also contends that he could not be held in civil contempt for violating the order
barring JJE from filing a bankruptcy petition for one year because he lacked knowledge of that
order.
Upon review of the record, we conclude that the Bankruptcy Court erred by holding Kopel
in civil contempt sua sponte and imposing sanctions because it made no finding of bad faith. The
Bankruptcy Court stated that “I don’t think I have to conclude that there was . . . intent in order to
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conclude that sanctions are appropriate.” A33. Similarly, the District Court upheld the sanctions
because of Kopel’s “wholly unreasonable behavior in filing for bankruptcy . . . in the face of an
order prohibiting his client from making such a filing. It does not matter whether he did so
purposefully, or whether, as he claims, he blindly filed documents without bothering to read them.”
A51–52. Both the Bankruptcy Court and the District Court thus expressly avoided making any
finding of bad faith. Absent such a finding, Kopel’s carelessness alone cannot support the
Bankruptcy Court’s sua sponte sanctions under its contempt power.
The infirmity of the civil contempt finding, however, does not necessarily mean that
compensatory sanctions could not have been imposed pursuant to Bankruptcy Rule 9011(c). The
Bankruptcy Court’s show cause order alerted Kopel to the fact that he faced such sanctions.
However, the Bankruptcy Court made no determination of a Bankruptcy Rule 9011(b) violation.
Under these circumstances, we vacate the finding of civil contempt and remand to the District
Court with directions to remand to the Bankruptcy Court for consideration of the imposition of
compensatory sanctions pursuant to Bankruptcy Rule 9011. If the Bankruptcy Court on remand acts
to impose such sanctions sua sponte, a bad faith finding will be necessary. See Muhammad, 732 F.3d at
108–09. If the Bankruptcy Court considers sanctions sought by 1354 Realty or its attorney, the
relevant Rule 11 standards should be applied.
Kopel additionally argues that he was improperly denied oral argument in the District Court.
Given our disposition of this matter, we need not reach this argument.
CONCLUSION
For the foregoing reasons, we VACATE the May 3, 2016 and August 2, 2016 orders of the
District Court, and REMAND for further proceedings consistent with this order.
FOR THE COURT:
Catherine O’Hagan Wolfe, Clerk
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