Richard E. Schwartz v. James Kujawa

United States Bankruptcy Appellate Panel
FOR THE EIGHTH CIRCUIT
00-6067 EM
00-6100 EM
In re: James Kujawa, individually and *
doing business as Restaurant Builders, *
*
Debtor. *
*
Richard E. Schwartz, *
* Appeal from the
Appellant, * United States Bankruptcy Court
* for the Eastern District of Missouri
v. *
*
James Kujawa, *
*
Debtor - Appellee *
Submitted: November 8, 2000
Filed: December 21, 2000
Before, KOGER, Chief Judge, KRESSEL and DREHER, Bankruptcy Judges
KOGER, Chief Judge
Attorney Richard E. Schwartz appeals from two Orders of the bankruptcy court,1entered June 2,
2000, and August 14, 2000, ordering him to pay certain attorney fees incurred in connection with the
involuntary bankruptcy petition filed against James Kujawa and an additional sanction in the amount of
$100,000. For the reasons that follow, we affirm the Orders of the bankruptcy court.
We have jurisdiction to hear this appeal pursuant to 28 U.S.C. § 158(c).
1
The Honorable David P. McDonald, United States Bankruptcy Judge for the Eastern District
of Missouri.
FACTUAL BACKGROUND
This case arises out of an involuntary Chapter 7 bankruptcy petition filed over ten years ago against
James Kujawa d/b/a Restaurant Builders, a building contracting company. (hereafter “Kujawa” or
“Debtor”). The factual background in this case has been recounted in two published decisions, reported
at In re Kujawa, 112 B.R. 968 (Bankr. E.D. Mo. 1990); and In re Kujawa, 224 B.R. 104 (E.D. Mo.
1998), as well as several unpublished decisions contained in the record on appeal, and we recite only those
facts pertinent to these appeals.
To summarize, in January 1989, Kujawa and Paul A. Ebeling, together with their jointly owned
entity, Billboard Café at Lucas Plaza, Inc., entered into an agreement to build, co-own and operate the
Billboard Café. Kujawa had also contracted to build offices for Tridon Corporation, in which he and
Ebeling were also co-shareholders along with Richard E. Schwartz, Esq. Schwartz had incorporated both
Billboard Café and Tridon Corporation and served as general counsel to both companies. In addition,
Richard Schwartz & Associates Ltd. served as Kujawa’s attorneys as early as 1988. Schwartz personally
represented Kujawa in at least five lawsuits in 1988 and 1989 and advised him on various other matters,
including advising against Kujawa’s suggestion in August 1989 that he was considering filing a voluntary
bankruptcy petition. Throughout their attorney-client relationship, Schwartz had access to Kujawa’s
business and personal financial information and the two of them even shared offices and had adjoining
desks. According to the Bankruptcy Court, the scope of the relationship between Schwartz and Kujawa
could only be described as “pervasive.” See In re Kujawa, 112 B.R. at 969-70.
Starting in May 1989, a dispute arose between Kujawa on the one hand and Ebeling and Schwartz
on the other concerning the construction on both the Billboard Café and Tridon projects. These disputes
culminated with the filing of an involuntary Chapter 7 petition against Kujawa in late 1989 and Kujawa’s
filing a mechanic’s lien against Billboard and Tridon in January 1990. Essentially, Ebeling and Schwartz
organized a group of Kujawa’s trade creditors and encouraged them to file the involuntary petition.
Schwartz referred the group to Sidney A. Gould, Esq., an attorney affiliated with Richard Schwartz &
Associates, Ltd., who filed the involuntary petition on its behalf. In the face of Kujawa’s request for
sanctions based on the circumstances surrounding the filing of the involuntary petition, Gould withdrew from
the case on January 12, 1990, and the petitioning creditors obtained other counsel.
2
Soon thereafter, two of the petitioning creditors filed a motion requesting the Bankruptcy Court to
abstain under § 305(a)(1)2 or to permit them to withdraw as petitioning creditors, suggesting that, under
the circumstances, it would be in the best interest of the creditors and of the Debtor to permit them to
proceed with their claims against the Debtor outside of bankruptcy. Although the Court denied this
motion, the Court ultimately approved a settlement agreement between them and the Debtor and permitted
them to withdraw on April 4, 1990. Another creditor was granted permission to intervene and join in the
involuntary petition on March 7, 1990.
On February 21, 1990, Richard Schwartz & Associates Ltd. filed its Entry of Appearance on
behalf of Billboard Café and Tridon Corporation and sought to intervene on their behalf as creditors.
Richard Schwartz & Associates also sought to intervene on its own behalf, asserting a claim in the amount
of $11,163.75 for unpaid legal services furnished to Kujawa prepetition.
On April 4, 1990, the Bankruptcy Court entered an Order and Memorandum Opinion denying the
motion by Billboard and Tridon to join or intervene in the involuntary case. See In re Kujawa, 112 B.R.
at 970-72. The Court also granted Kujawa’s motion to disqualify Richard Schwartz & Associates as
counsel from this case. Id. at 972-73. Schwartz was, therefore, permitted to participate in the case only
to the extent necessary to pursue his own claim for attorney fees. In addition, noting that Schwartz should
have been apprised of the unethical nature of his attempt to intervene on behalf of the other creditors
because he had been disqualified in two similar previous involuntary cases against his former clients, the
Bankruptcy Court directed Kujawa to file a schedule of costs and attorneys’ fees incurred in connection
with, but solely limited to, his motion to disqualify counsel. Schwartz was given five days thereafter to
object to the requested fees and was advised that if no such objection was filed by him, the Court would
approve the fees. Id. at 973. Kujawa submitted his schedule of fees and Schwartz objected thereto.
Schwartz also appealed the April 1990 Order to the District Court, who dismissed the appeals, without
prejudice, as being premature on July 15, 1991.
Meanwhile, while that appeal to the District Court was pending, the Bankruptcy Court held final
hearings on April 11, 12, and 13, 1990, on the involuntary petition and Kujawa’s motion to dismiss, to
2
Hereafter, unless otherwise noted, all statutory references are to the United States Bankruptcy
Code, 11 U.S.C. §§ 101- 1330 (1994).
3
require a bond, to award attorneys’ fees and costs, for actual and punitive damages, and for sanctions. See
In re Kujawa, 224 B.R. at 106. At these hearings, the Bankruptcy Court concluded that the petitioning
creditors had met their burden under § 303 as to the appropriate number of petitioning creditors and the
dollar amounts needed and further concluded that Kujawa was not generally paying his debts as they came
due. Id. However, the Bankruptcy Court did not make a final determination on these issues because at
that time, the appeal of the April 4 Order had not yet been decided by the District Court.
Subsequently, very little occurred in the case until 19973 when, at the behest of the state court judge
who had stayed Kujawa’s mechanic’s lien proceedings against Billboard and Tridon until the bankruptcy
proceedings could be resolved, the Bankruptcy Court entered a final Order dated October 13, 1997,
abstaining and dismissing the involuntary petition pursuant to § 305(a)(1) and (c) and directing the parties
to proceed with the mechanic’s lien suit in state court. Id. at 106-07. In that Order, the Bankruptcy Court
retained limited jurisdiction to resolve any request for the award of costs, attorneys’ fees, actual and
punitive damages and for sanctions. On appeal, the District Court affirmed the Bankruptcy Court’s Order
abstaining and dismissing the case, and specifically concluded that the Bankruptcy Court did not err in
retaining limited jurisdiction to resolve the fees, damages, and sanction issues. Id. at 108. The District
Court held:
Regardless of whether a dismissal pursuant to Section 305(a) strips the bankruptcy court
of its authority to impose the remedies set forth in 11 U.S.C. § 303(i), . . . the bankruptcy
court always has the inherent power to impose civil sanctions on the parties who appear
before it. . . . . The bankruptcy court, therefore, is free to impose monetary sanctions in
the form of costs, attorneys’ fees or actual or punitive damages for abuse of its procedures.
Id. (citations and footnote omitted) In addition, although the District Court declined the Debtor’s request
to impose sanctions itself,4 the District Court specifically remanded the matter back to the Bankruptcy
Court for a determination as to an appropriate award of sanctions, notably commenting:
This Court is shocked by the conduct or, rather, misconduct of attorney Richard E.
Schwartz. Without a doubt this unethical and unprofessional behavior warrants the
imposition of monetary sanctions. As the bankruptcy court is in the best position to
3
Although little activity occurred in the actual bankruptcy case during this period, the Missouri
Supreme Court publicly reprimanded Schwartz in 1995 for his unethical conduct in filing involuntary
bankruptcy cases against his former clients, including Kujawa.
4
The District Court’s denial of the request for attorneys’ fees was made without prejudice.
4
[assess] what manner of sanctions is most appropriate, this Court believes that it should
make that determination.
Id.Following this directive by the District Court, the Bankruptcy Court issued an Order setting a
hearing regarding the appropriate sanctions to be assessed against Schwartz. At that time, the Debtor
sought an award of attorney fees and costs in the amount of $66,601.99 against Schwartz, the petitioning
creditors, and James E. Parrot, Esq. (Schwartz’s associate who represented Schwartz in attempting to
intervene in the involuntary bankruptcy case); actual damages in the amount of $250,000 against Schwartz
and Parrot; and $1 million in punitive damages against Schwartz and Parrot. Hearing on the issue of the
damages was set for February 8, 2000. Meanwhile, the parties commenced discovery.
At a pre-trial hearing held on February 2, 2000, counsel for the Debtor advised the Court that
Schwartz was refusing to provide him with a financial statement or answer any questions regarding his net
worth in relation to the Debtor’s punitive damage request and he requested that the Court compel Schwartz
to answer questions regarding his net worth. Following some discussion as to this request and the serious
concern expressed by Schwartz’s attorney that the information would somehow be made public, the
Bankruptcy Court ordered Schwartz to submit to the Court, in a sealed envelope, a financial statement
similar to one used by banks in loan application situations and which itemized assets and liabilities and
indicated a net worth. The Court said it would not open the envelope unless it decided to award punitive
damages.
Also at the February 2 pre-trial hearing, Schwartz’s attorney indicated that the Debtor had not
responded to certain discovery requests, either. Particularly, Schwartz’s attorney advised the Court that
he was seeking certain financial information from the Debtor so that he could defend against the Debtor’s
actual damage claims for lost profits and pain and suffering, which were described as damaged credit
ratings and humiliation based on the Debtor’s financial situation. At this hearing, although counsel for the
Debtor indicated that the Debtor was abandoning the claim for lost profits, the Court nevertheless directed
the Debtor to comply with Schwartz’s discovery requests because the claims for pain and suffering were
based on his financial situation. Specifically, the Debtor was ordered to provide signed releases so that
Schwartz could obtain the Debtor’s income tax and social security information from the appropriate
government authorities.
5
At the hearing conducted February 8, 2000, counsel for the Debtor announced that the Court’s
order directing the Debtor to comply with Schwartz’s discovery requests had been emotionally troubling
to the Debtor and that he was now withdrawing all of his actual damage claims, thus seeking only attorney
fees, costs, and punitive damages. He requested that the Court reconsider the order requiring the Debtor
to sign the releases as they were not relevant to the remaining claims. The Bankruptcy Court granted the
Debtor’s request over Schwartz’s objection and the hearing on Schwartz’s liability for attorney fees and
punitive damages based on the bad faith filing proceeded as scheduled.
Also at that hearing, Schwartz turned over a sealed envelope containing a financial statement as
directed by the Court at the February 2nd hearing. Again the Court indicated it would not look at the
document unless it determined that it needed to, as previously agreed.
On June 2, 2000, the Bankruptcy Court entered its Order and Memorandum Opinion in which,
among other things, the Court denied the sanction requests against attorneys Parrot and Carter and ordered
minimal sanctions against two of the petitioning creditors. No one has appealed those portions of the June
2nd Order.
As to Schwartz, the Bankruptcy Court held that it could not award punitive damages against
Schwartz under § 303(i) because the Court had abstained under § 305. However, the Bankruptcy Court
concluded, based on the language contained in the District Court’s decision in the previous appeal which
remanded for assessment of sanctions, that it had the authority to award a sanction under its “inherent
power to impose civil sanctions on the parties who appear before it,” In re Kujawa, 224 B.R. at 108, and
under Federal Rule of Bankruptcy Procedure 9011. On those bases, the Bankruptcy Court ordered
Schwartz to pay nearly all of the Debtor’s requested attorneys’ fees, totaling $78,409.83, disallowing only
a small portion of the fees because they had been incurred in filing the mechanic’s lien rather than dealing
with the bankruptcy itself.
In addition, in the June 2nd Order, the Bankruptcy Court specifically stated that it was retaining
jurisdiction for the sole purpose of assessing a further sanction against Schwartz in an amount necessary
to deter him from filing future bad faith involuntary petitions such as this one. The Court found that
Schwartz’s financial status may be a factor in determining the appropriate amount of additional sanctions
the Court would assess and indicated it had therefore reviewed the financial statement that had been filed
6
under seal. The Court found, however, that the financial statement Schwartz had provided under seal was
inadequate and inconsistent. In part, the Bankruptcy Court described the inadequate financial statement
as follows:
Notably, the financial statement is overwhelmingly left blank. For example, the spaces
provided for such items as joint debts, joint assets, annual income, annual expenditures,
contingent liabilities, U.S. Government & marketable securities, non-marketable securities,
investments in real estate, life insurance carried, vested interest in deferred
compensation/profit-sharing plans and loans owing banks, brokers, finance companies, and
others, are all blank.
Because the Court determined the financial statement to be “woefully inadequate” and of little use in
determining net worth, earning capacity, and the amount of monetary sanction that would deter Schwartz
from engaging in future misconduct, the Court ordered Schwartz to produce his personal tax records and
other detailed personal financial information, also under seal to be protected by the Court, for purposes
of assessing an appropriate sanction. Schwartz appealed this Order (“the June 2nd Order”).
On July 5, 2000, Schwartz filed a motion in the Bankruptcy Court requesting that the Court return
the original financial statement. Among other things, Schwartz asserted that the Bankruptcy Court had no
need for his personal financial information since Schwartz had never raised inability to pay sanctions as an
affirmative defense and, citing case law authority, suggested such a defense had therefore been waived.
He also filed a motion for stay pending appeal before us, which we denied on July 14, 2000, because he
had not first applied for a stay from the Bankruptcy Court. On July 17, 2000, Schwartz filed a motion in
the Bankruptcy Court to stay the June 2nd Order until after we ruled on his appeal, arguing particularly that
he was likely to prevail on the portion of the Order requiring him to produce the detailed financial
information.
On August 14, 2000, while the appeal from the June 2nd Order was pending and the parties were
in the process of briefing their respective arguments in that appeal, instead of granting Schwartz’s request
for a stay pending appeal, the Bankruptcy Court entered an Order and Memorandum Opinion (“the August
14th Order”) in which the Court withdrew the part of the June 2nd Order that required Schwartz to produce
the detailed tax and financial information, and instead ordered Schwartz to pay $100,000 as an additional
sanction under Rule 9011 so as to “deter him from future transgressions of the kind described in the Court’s
June 2, 2000 Memorandum Opinion.” The Court also denied Schwartz’s request for return of the original
7
financial statement, stating that it would reseal the document and preserve it in case it was needed as part
of the record on appeal. Schwartz appealed the August 14th Order and the two appeals have been
consolidated.
DISCUSSION
On appeal, Schwartz asserts that the Bankruptcy Court erred in both its award of attorneys’ fees
(in the June 2nd Order) and the additional $100,000 sanction (in the August 14th Order). He also asserts
that the Bankruptcy Court should be required to return to him the financial document that he had filed under
seal.
Standard of Review
We review the Bankruptcy Court’s award of sanctions for abuse of discretion. See Cooter & Gell
v. Hartmarx Corp., 496 U.S. 384, 110 S. Ct. 2447, 110 L.Ed.2d 359 (1990); Grunewaldt v. Mut. Life
Ins. Co. (In re Coones Ranch, Inc.), 7 F.3d 740, 743 (8th Cir. 1993); Ebersold v. DeLaughter (In re
DeLaughter), 213 B.R. 839, 841 (B.A.P. 8th Cir. 1997). “Thus, we should reverse the award only if we
conclude that it was based on ‘an erroneous view of the law or on a clearly erroneous assessment of the
evidence.’” In re DeLaughter, 213 B.R. at 841 (quoting Cooter & Gell, 496 U.S. at 405, 110 S.Ct. at
2461). “A finding is ‘clearly erroneous’ when although there is evidence to support it, the reviewing court
on the entire evidence is left with a definite and firm conviction that a mistake has been committed.”
Anderson v. Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518 (1985) (quoting
United States v. U.S. Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed.746 (1948); accord
In re Waugh, 95 F.3d 706, 711 (8th Cir. 1996); Chamberlain v. Kula (In re Kula), 213 B.R. 729, 735
(B.A.P. 8th Cir. 1997). “If the bankruptcy court’s account of the evidence is plausible in light of the entire
record viewed, it must be upheld even though we may have weighed the evidence differently had we been
sitting as the trier of fact.” Forbes v. Forbes (In re Forbes), 215 B.R. 183, 187 (B.A.P. 8th Cir. 1997)
(citing Anderson, 470 U.S. at 573-74, 105 S.Ct. at 1511). When there are two permissible views of the
evidence, the BAP may not hold that the choice made by the trier of fact was clearly erroneous. In re
Lemaire, 898 F.2d 1346, 1349 (8th Cir. 1990).
8
The Award of Attorneys’ Fees
Schwartz raises several arguments asserting that the award of attorneys’ fees in the June 2nd Order
was improper and excessive.5 We first address Schwartz’s assertion that the Debtor’s unclean hands
should have precluded what Schwartz refers to as a “windfall monetary award” to the Debtor in the form
of the award of attorneys’ fees. Schwartz points to three items as evidence of the Debtor’s unclean hands:
(1) the Debtor’s protracted defense to the involuntary bankruptcy case filed against him, for which all the
Code elements were present; (2) the fact that the Debtor ultimately dropped all of his actual damage claims
against Schwartz; and (3) alleged misrepresentations by the Debtor to his own attorneys regarding his
ability to pay his attorneys’ fees. We find each of these suggestions to be without merit.
First, despite the presence of the technical elements for filing an involuntary bankruptcy proceeding
against the Debtor (i.e., that the Debtor had no bona fide dispute to the petitioning creditors’ claims and
that there were a sufficient number of petitioning creditors with claims in an appropriate dollar amount, see
11 U.S.C. § 303(b)(1)), both the Bankruptcy Court and the District Court have clearly found that the
involuntary bankruptcy petition filed against the Debtor in this case was improper from its inception and
undoubtedly constituted unethical conduct on Schwartz’s part. We wholeheartedly disagree with
Schwartz’s characterization of the Debtor’s attempts to defend against the improper involuntary petition
as inappropriate or even questionable under the circumstances of this case, particularly since the evidence
supports the inference that Schwartz and Ebeling put the Debtor into a position where he technically fit the
Code requirements for an involuntary petition in the first place by failing to pay him on the Billboard Café
and Tridon projects.
5
We agree with the Debtor that, based on the District Court’s opinion remanding for assessment
of sanctions, Schwartz is prohibited under the law of the case doctrine from now contesting the Bankruptcy
Court’s ability to impose sanctions as such. See South Center Enters., Inc. v. Farrington, 829 F.2d 651,
655 (8th Cir. 1987) (the law of the case doctrine requires that a decision on a former appeal be followed
in any subsequent proceedings in that court or a lower court unless evidence subsequently introduced is
substantially different). In other words, we agree that Schwartz cannot now argue that he is not liable for
some form of sanctions. However, the District Court did not decide the form or amount of the appropriate
sanctions to be imposed. As a result, to the extent Schwartz contends that his conduct was not
sanctionable or that the District Court did not decide that issue, we find those arguments to be without
merit. We decide only the appropriateness of the manner and amount of sanctions actually imposed.
9
Second, we reject Schwartz’s assertion that the Debtor has unclean hands because he ultimately
dropped all of his actual damage claims or that he is not entitled to the fees generated in his attempts to
pursue actual damages. The Bankruptcy Court specifically found that the Debtor’s abandoning his actual
damage claims in the face of further litigation did not mean that the claims were without merit or that the
work was unnecessary and the record supports this determination. The Bankruptcy Court’s conclusion
on this point is supported by the record and was not clearly erroneous.
Third, the record does not support Schwartz’s allegation that the Debtor made misrepresentations
to his own attorneys regarding his ability to pay his attorneys’ fees. Even assuming the Debtor made an
annual salary of $60,000 to $70,000 in some of the years after the involuntary petition was filed and that
he received a $52,000 severance package from another company during the last ten years, this does not
compel the conclusion that he was able to pay his attorneys’ fees or that he made misrepresentations to his
attorneys regarding his ability to pay them. Furthermore, and more importantly, the Debtor’s ability or
inability to pay his attorneys’ fees, as well as his attorneys’ expectation as to how they would be paid, is
irrelevant in considering Schwartz’s liability as a sanction therefor. See In re Stine, 254 B.R. 244, 252
(B.A.P. 9th Cir. 2000) (holding that the mere fact that the debtor had obtained pro bono representation and
would not have to pay for her attorney’s services did not make an award of attorney fees unjust in § 523(d)
context).
In sum, we reject outright Schwartz’s arguments that the Bankruptcy Court erred in its award of
attorneys’ fees because of any allegations of unclean hands on the part of the Debtor.
Schwartz next argues that the fee award was unjustified and unreasonable under Rule 9011. As
Schwartz suggests, the United States Supreme Court has said that Rule 116 is not intended to be a fee
shifting statute; that the purpose of Rule 9011 sanctions is to deter rather than to compensate; and that the
sanction should not be more severe than reasonably necessary to deter repetition of the conduct by the
offending person or comparable conduct by similarly situated persons. See Cooter & Gell v. Hartmarx,
496 U.S. at 409, 110 S. Ct. at 2462, Advisory Committee Notes to Fed. R. Civ. P. 11; Divane v. Krull
6
Cases interpreting Fed. R. Civ. P. 11 apply to Fed. R. Bankr. P. 9011 determinations. See In
re Coones Ranch, 7 F.3d 740. For purposes of simplicity, we sometimes refer to these two rules
interchangeably.
10
Elec. Co., 200 F.3d 1020, 1030 (7th Cir. 1999). Schwartz also correctly asserts that a fee award under
Rule 9011 must be reasonable and that generally attorney fees incurred in pursuing an appeal are not
recoverable under Rule 9011 unless the appellate court determines that the appeal was frivolous. See
Cooter & Gell v. Hartmarx, 496 U.S. at 406-07, 110 S. Ct. at 2461-62.
We disagree, however, that these principles mandate a reversal of the June 2nd Order in this case.
For the reasons set forth below, we believe the award of attorneys’ fees was proper under Rule 9011.
Nevertheless, a detailed discussion of the issue of whether the attorney fee award was appropriate under
Rule 9011 is not necessary here because the award can be affirmed under the Bankruptcy Court’s alternate
basis for awarding the fees, namely, the Court’s inherent authority to make the award.
In its June 2nd Order, after discussing the various theories under which bankruptcy courts can
award sanctions, the Bankruptcy Court found that it could order sanctions in this case either under Rule
9011 or under its inherent power to do so. However, the Bankruptcy Court did not specify under which
of these two theories it was making the June 2nd award of attorneys’ fees. In any event, considering that
the Bankruptcy Court was sanctioning Schwartz for conduct beyond the signing of pleadings in violation
of Rule 9011(b), and considering that the Bankruptcy Court’s analysis for attorney fee sanctions began with
the District Court’s remand for an award of sanctions expressly based on the Bankruptcy Court’s inherent
authority, and further considering the exceptional facts and circumstances of this case, we find the inherent
power to sanction to be particularly applicable here.
In Chambers v. NASCO, Inc., 501 U.S. 32, 111 S. Ct. 2123, 115 L.Ed.2d 27 (1991), the
Supreme Court endorsed the federal courts’ inherent authority to impose sanctions, including awards of
attorneys’ fees, against the attorneys who appear before them. Id. 501 U.S. at 45, 111 S. Ct. at 2133;
see also Greiner v. City of Champlin, 152 F.3d 787, 789-90 (8th Cir. 1998) (recognizing the court’s
inherent power to assess attorneys’ fees as a sanction). This ability extends to the bankruptcy courts as
well. See Glatter v. Mroz (In re Mroz), 65 F.3d 1567 (11th Cir. 1995); In re Clark, 223 F.3d 859, 864
(8th Cir. 2000) (bankruptcy court has inherent authority to impose civil sanctions for abuses of the
bankruptcy process; section 105 gives bankruptcy courts the broad power to implement the provisions of
the bankruptcy code and to prevent an abuse of the bankruptcy process, which includes the power to
sanction counsel); Franchise Tax Board v. Lapin (In re Lapin), 226 B.R. 637, 641 (B.A.P. 9th Cir. 1998)
(bankruptcy court has inherent power to impose sanctions, even against non-parties). Although the
11
Supreme Court warned that “[b]ecause of their very potency, inherent powers must be exercised with
restraint and discretion,” the Supreme Court unambiguously held that “a court may assess attorney’s fees
when a party has ‘acted in bad faith, vexatiously, wantonly, or for oppressive reasons.’” Chambers, 501
U.S. at 44-46, 111 S. Ct. at 2132-33 (citations omitted).
Furthermore, the Supreme Court held that the inherent power can be invoked despite the existence
of procedural rules which sanction the same conduct and that such rules, such as Rule 11, are not
substitutes for the inherent power. Id. 501 U.S. at 46, 49, 111 S. Ct. at 2133, 2135; accord In re Mroz,
65 F.3d at 1575. As the Eleventh Circuit interpreted Chambers in the bankruptcy context:
The inherent power to sanction is both broader and narrower than these other means of
imposing sanctions: “[W]hereas each of the other mechanisms reaches only certain
individuals or conduct, the inherent power extends to a full range of litigation abuses.”
[Chambers, 501 U.S. at 46, 111 S. Ct. at 2133.] Therefore, although certain conduct
may or may not be violative of Rule 11 or Bankruptcy Rule 9011, it does not necessarily
mean that a party will escape sanctions under the court’s inherent power.
In re Mroz, 65 F.3d at 1575 (additional citations omitted).
Consequently, although Schwartz raises several arguments as to why the Court’s award of
attorneys’ fees was erroneous under Rule 9011, we need not decide those issues here because the
Bankruptcy Court in this case had the inherent authority to sanction Schwartz for his improper conduct in
connection with the bankruptcy proceedings filed against Kujawa.
[W]hen there is bad-faith conduct in the course of litigation that could be adequately
sanctioned under the Rules, the court ordinarily should rely on the Rules rather than the
inherent power. But if in the informed discretion of the court, neither the statute nor the
Rules are up to the task, the court may safely rely on its inherent power.
Chambers, 501 U.S. at 50, 111 S. Ct. at 2136. Thus, regardless of whether Schwartz is correct that the
attorneys’ fees could not have been properly awarded under Rule 9011, the Bankruptcy Court could,
according to the Supreme Court, safely rely on its inherent power to award the attorneys’ fees under the
circumstances of this case.
12
That being the case, the invocation of the Bankruptcy Court’s inherent power required a finding
that by instigating and pursuing the involuntary bankruptcy petition against Kujawa, Schwartz “acted in bad
faith, vexatiously, wantonly, or for oppressive reasons.” Chambers, 501 U.S. at 44-46, 111 S. Ct. at
2132-33; accord In re Mroz, 65 F.3d at 1575; but see Harlan v. Lewis, 982 F.2d 1255, 1260 (8th Cir.
1993) (finding that the Supreme Court did not intend the “bad faith” requirement to limit the application of
monetary sanctions under the inherent power; the district court had inherent power to impose sanctions
without explicit finding of bad faith).
In any event, both the Bankruptcy Court and the District Court have made the required finding that
Schwartz acted in bad faith, vexatiously, wantonly or for oppressive reasons. The language used by the
District Court in its remand for sanctions leaves no doubt that the issue of bad faith, as well as the issue of
sanctionability pursuant to the Court’s inherent power, has already been decided, see In re Kujawa, 224
B.R. at 108, and is therefore the law of the case.7
Furthermore, “[a] court must, of course, exercise caution in invoking its inherent power, and it must
comply with the mandates of due process, both in determining the requisite bad faith exists and in assessing
fees.” Id. 501 U.S. at 50, 111 S. Ct. at 2136 (citation omitted).
Due process requires that the attorney (or party) be given fair notice that his conduct may
warrant sanctions and the reasons why. Donaldson v. Clark, 819 F.2d 1551, 1559-60
(11th Cir. 1987) (discussing Rule 11 sanctions). Notice can come from the party seeking
sanctions, from the court, or both. Id. at 1560. In addition, the accused must be given an
opportunity to respond, orally or in writing, to the invocation of such sanctions and to
justify his actions.
In re Mroz, 65 F.3d at 1575-76. As to the issue of Schwartz’s bad faith in pursuing this case, besides the
fact that this issue has been decided by the District Court and Schwartz did not appeal that decision on due
process or any other ground, we conclude that he received due process on that issue in any event. As the
Bankruptcy Court found, Schwartz had been disqualified in other previous similar cases before the
Bankruptcy Court for the Eastern District of Missouri and so he should have been fully apprised of the
7
Even if the issues of bad faith and sanctionability were not barred by the law of the case doctrine
under the District Court’s ruling, we note for what it is worth that the record amply supports a finding that
Schwartz acted in bad faith in pursuing this case.
13
ethical standards governing the practice of law before the Bankruptcy Court. See In re Kujawa, 112 B.R.
at 973. But even if he was somehow unaware of the inappropriateness of his actions before he
orchestrated the filing of the bankruptcy petition against Kujawa, he was certainly notified through
Kujawa’s answer thereto and Kujawa’s repeated motions for sanctions. Consequently, there can be no
question that Schwartz had fair notice that his actions in pursuing this case could warrant sanctions and he
had ample opportunity to respond or otherwise change the course of action so as to prevent sanctions being
imposed against him.
Furthermore, as to the actual sanctions imposed, not only did the motions filed by the Debtor
specifically request attorneys’ fees and punitive damages, thereby providing Schwartz with notice, the
District Court expressly remanded for an award of monetary sanctions, specifically and notably suggesting
that attorneys’ fees and punitive damages may be warranted. The parties then engaged in extensive
discovery pertaining to the request for attorneys’s fees and punitive damages and the Bankruptcy Court
conducted a full evidentiary hearing solely on the issue of sanctions. Thus, by the time the Court made its
actual sanction award on June 2nd, not only had Schwartz been given repeated notice as to the possibility
(or, rather, likelihood) of the imposition sanctions, he was given ample opportunity to respond to the
invocation of the sanctions and he in fact did respond, both orally and in writing. Plainly, Schwartz received
due process in the imposition of the attorneys’ fees sanction under the standard expressed in Chambers.
The cases cited by Schwartz for the proposition that he did not receive due process are all distinguishable
on the facts.
In sum, as the Chambers Court reasoned:
The imposition of sanctions in this instance transcends a court’s equitable power
concerning relations between the parties and reaches a court’s inherent power to police
itself, thus serving the dual purpose of “vindicat[ing] judicial authority without resort to the
more drastic sanctions available for contempt of court and mak[ing] the prevailing party
whole for expenses caused by his opponent’s obstinacy.”
Id. 501 U.S. at 46, 111 S. Ct. at 2133 (citations omitted). We believe this is precisely what the
Bankruptcy Court’s award of attorneys’ fees achieved in this case: it vindicated the Bankruptcy Court’s
authority without resort to the more drastic contempt finding and it made the Debtor whole by awarding
him his legal expenses incurred due to Schwartz’s misconduct.
14
Having found that the June 2nd award of attorneys’ fees can be affirmed under the Court’s inherent
authority to impose sanctions, the holdings in Cooter & Gell v. Hartmarx, 496 U.S. at 406-07, 110 S. Ct.
at 2461-62, limiting Rule 9011 awards do not apply here. That being the case, we conclude it was not
error for the Bankruptcy Court to interpret the District Court’s remand for imposition of monetary sanctions
to include all the fees stemming from the improper bankruptcy filing, including those incurred in connection
with the appeal to the District Court. Kujawa could not have been made whole without an award of the
fees incurred on that appeal.
Finally, the Bankruptcy Court addressed the particular issues regarding the reasonableness of the
attorneys’ fees, including the alleged double billing for inter-office conferences, claims of overlawyering,
and the like, in the June 2nd Order and we conclude that the Bankruptcy Court’s findings on those issues
were within its discretion. The June 2nd Order awarding attorneys’ fees is therefore affirmed.
The Additional Sanction in the Amount of $100,000
As mentioned above, in its August 14th Order, the Bankruptcy Court withdrew the portion of the
June 2nd Order requiring Schwartz to produce detailed tax and financial information for purposes of
assessing an additional sanction and instead assessed the additional sanction in the amount of $100,000
against Schwartz under Rule 9011 “sufficient to deter him from future transgressions of the kind described
in the Court’s June 2, 2000 Memorandum Opinion.”
Although the Bankruptcy Court specifically made the additional sanction award under Rule 9011,
we conclude that for the reasons discussed above pertaining to the attorneys’ fees, the additional sanction
can be affirmed under the under the Court’s inherent authority to sanction the parties who appear before
it. “[T]he rule is settled ‘that if the decision below is correct, it must be affirmed, although the lower court
relied upon a wrong ground or gave a wrong reason.’” In re Mroz, 65 F.3d at 1574 (quoting Brown v.
Allen, 344 U.S. 443, 459, 73 S. Ct. 397, 408, 97 L.Ed. 469, 490 (1953)) (other citations omitted);
accord Hobbs v. Evans, 924 F.2d 774, 777 (8th Cir. 1991) ("in the review of judicial proceedings the rule
is settled that if the decision below is correct, it must be affirmed, although the lower court relied upon a
wrong ground or gave a wrong reason”) (citations omitted). While we do not believe Rule 9011 was a
“wrong ground” on which to award the sanction, discussed below, we conclude that the inherent power
to sanction was an equally applicable basis on which to order the sanction.
15
Again, the finding that Schwartz acted in bad faith, vexatiously, wantonly, or for oppressive reasons
and that his conduct was sanctionable has already been made by both the Bankruptcy Court and the
District Court and is therefore the law of the case. The District Court explicitly directed the Bankruptcy
Court to enter monetary sanctions against Schwartz pursuant to its inherent authority to do so. And again,
“although certain conduct may or may not be violative of Rule 11 or Bankruptcy Rule 9011, it does not
necessarily mean that a party will escape sanctions under the court’s inherent power.” In re Mroz, 65 F.3d
at 1575. Furthermore, Schwartz engaged in misconduct that went beyond the mere signing of pleadings,
thereby making the inherent authority to sanction particularly appropriate. Consequently, as with the award
of attorneys’ fees, the additional sanction falls within the Court’s inherent ability to sanction, regardless of
whether it was permissible under Rule 9011.
In the alternative, we believe the additional sanction award can be affirmed under Rule 9011 in any
event.
Relying on the current version of Rule 9011, Schwartz asserts that the Bankruptcy Court erred in
failing to conduct a show cause hearing prior to imposing the additional sanction under Rule 9011. Rule
9011(c)(2)(B), as currently amended, provides that “[m]onetary sanctions may not be awarded on the
court’s initiative unless the court issues its order to show cause before a voluntary dismissal or settlement
of the claims made by or against the party which is, or whose attorneys are, to be sanctioned.” Fed. R.
Bankr. P. 9011(c)(2)(B) (1997). Initially, we note that Schwartz incorrectly asserts that the sanctions were
made on the court’s own initiative; the sanctions were awarded pursuant to the Debtors requests for
sanctions.
Moreover, the version of Rule 9011 relied upon by Schwartz does not apply in this case. Rule
9011 was amended effective December 1, 1997, to track the 1993 amendment to Rule 11 of the Federal
Rules of Civil Procedure. See Runfola & Assocs., Inc. v. Spectrum Reporting II, Inc., 88 F.3d 368, 373
(6th Cir. 1996). At that time, significant changes were made to the rule, including the addition of the show
cause requirement in Rule 9011(c)(2)(B). As relevant here, the prior version of Rule 9011 merely provides
that the presence of an attorney’s signature on a pleading or motion is a certificate that:
the attorney or party has read the document; that to the best of the attorney’s or party’s
knowledge, information, and belief formed after reasonable inquiry it is well-grounded in
fact and is warranted by existing law or a good faith argument for the extension,
16
modification, or reversal of existing law; and that it is not interposed for any improper
purpose, such as to harass, to cause delay, or to increase in the cost of litigation. . . . If a
document is signed in violation of this rule, the court on motion or on its own initiative, shall
impose on the person who signed it, the represented party, or both, an appropriate
sanction, which may include an order to pay to the other party or parties the amount of the
reasonable expenses incurred because of the filing of the document, including a reasonable
attorney’s fee.
Fed. R. Bankr. P. 9011(a) (1987).8 The prior version contained no requirement that the court issue an
order to show cause before it could enter a monetary sanction award.
Contrary to Schwartz’s contention at oral argument that we are to look at the rule in effect when
the Bankruptcy Court entered the sanction order on August 14, 2000, Schwartz’s conduct is to be
reviewed under the standards applicable when his conduct took place. See Retired Chicago Police Assoc.
v. Firemen’s Annuity and Benefit Fund of Chicago, 145 F.3d 929, 933 (7th Cir. 1998) (“[a]lthough Rule
11 was amended in 1993, we review [the attorney’s] conduct under the standards applicable when his
conduct took place”); see also Runfola & Assocs v. Spectrum Reporting II, 88 F.3d at 373 (it was within
the district court’s discretion as to which version of Rule 11 applied where rule was amended in the period
between the improper conduct and the issuance of sanction order). In this case, the vast majority of the
conduct considered by the Bankruptcy Court in making the Rule 9011 award occurred prior to the 1997
amendments to the Rule. Thus, the earlier version of the rule applies in this case and as a result, the Court
was not required to conduct a show cause hearing prior to issuing sanctions.
Instead, under the prior version of Rule 9011, Schwartz was entitled to notice and an opportunity
to be heard. As discussed above, there is no question following the District Court’s remand and the
Bankruptcy Court’s notice, which expressly identified the hearing as “a hearing on the appropriate sanctions
to be entered against Richard Schwartz” pursuant to the District Court’s remand, that he received adequate
due process on the issue of sanctions. See Snyder v. Dewoskin (In re Mahendra), 131 F.3d 750, 758 (8th
Cir. 1997) (notice and opportunity to defend against potential sanctions charge satisfies due process under
Rule 9011); In re Clark, 223 F.3d at 864-65 (an individual must receive notice and an opportunity to be
8
Rule 9011 was amended in 1991 to clarify that it also applies to pleadings which cause
unnecessary delay or needless increase in the cost of the administration of the estate; however, as pertinent
here, the 1991 version of the rule was substantively the same as the 1987 version. See Fed. R. Bankr. P.
Advisory Committee Note (1991 Amendment).
17
heard before sanctions may be imposed; notice is sufficient if it informs the parties that the court is
considering imposing sanctions).
Schwartz next asserts that the Bankruptcy Court erred in imposing the $100,000 sanction in
addition to the fee award already assessed, pointing out that Rule 9011(c)(2) identifies the possible types
of sanctions under that rule in the disjunctive.9 However, as with the show cause requirement discussed
immediately above, the language relied upon by Schwartz was added to the rule by the 1997 amendments:
the prior version did not contain the disjunctive language cited by Schwartz. Instead, the prior version of
Rule 9011(a) merely provided that if a document was signed in violation of the rule, the court on motion
or on its own initiative shall impose “an appropriate sanction, which may include an order to pay to the
other party or parties the amount of the reasonable expenses incurred because of the filing of the document,
including a reasonable attorney’s fee.” We find no restriction in this prior version of the rule limiting the
sanctions in the manner suggested by Schwartz. The only limitation contained therein is that the sanction
be “appropriate.” Accord Kirk Capital Corp. v. Bailey, 16 F.3d 1485, 1490 (8th Cir. 1994) (discussing
the differences between the old version and the new version of Rule 11 and concluding that the old rule
simply requires an “appropriate sanction” and does not mandate that the sanctioning court go through
9
Rule 9011(c)(2), as currently amended, provides:
A sanction imposed for violation of this rule shall be limited to what is sufficient to deter
repetition of such conduct or comparable conduct by others similarly situated. Subject to
the limitations in subparagraphs (A) and (B), the sanction may consist of, or include,
directives of a nonmonetary nature, an order to pay a penalty into the court, or, if imposed
on motion and warranted for effective deterrence, an order directing payment to the
movant of some or all of the reasonable attorneys’ fees and other expenses incurred as a
direct result of the violation.
Fed. R. Bankr. P. 9011(c)(2) (1997).
18
analyzing which sanction constitutes the least severe sanction that will adequately deter the undesirable
conduct; the district court had discretion to impose nonmonetary sanctions but was not required to do so).10
Having determined that the prior version applies, sanctions under either version of Rule 9011 are
tied to an attorney’s signature on a pleading or document filed with the court. See In re Mroz, 65 F.3d at
1572. Sanctions are warranted when (1) the document is frivolous, legally unreasonable, or without factual
foundation, or (2) the pleading is filed in bad faith or for an improper purpose. Id.Here, even assuming Schwartz cannot be held accountable under Rule 9011 for filing the
bankruptcy petition itself because he did not actually sign it, he filed several pleadings upon which the
Bankruptcy Court could have appropriately based a Rule 9011 sanction, beginning with the motion to
intervene on behalf of Tridon Corporation and Billboard Café in February 1990. The Bankruptcy Court
had determined to be sanctionable already in its April 1990 decision on the ground that Schwartz had
previously been advised that such conduct was inappropriate. In re Kujawa, 112 B.R. 968. Over the next
ten years, Schwartz signed and filed several additional documents, all of which stemmed from his improper
purpose in orchestrating the bankruptcy petition in the first place and refusing to stop the proceedings. As
a result, the record contains sufficient bases for the Bankruptcy Court’s finding that Schwartz violated Rule
9011 through his various filings in this case and we conclude that this finding was not erroneous. Since the
Court properly found Schwartz violated Rule 9011, sanctions were mandatory. See In re Chisum, 847
F.2d 597 (9th Cir. 1988) (imposition of sanctions when there is a violation of Rule 9011 is mandatory and
not discretionary); Ebersold v. DeLaughter (In re DeLaughter), 213 B.R. 839, 841 (B.A.P. 8th Cir. 1997)
10
Because we have determined that the prior version of Rule 9011 applies, Schwartz’s reliance
on cases such as Hutchinson v. Pfeil, 208 F.3d 1180 (10th Cir. 2000), for both the proposition that he was
entitled to a show cause hearing and the proposition that the Court could not award the two different types
of sanctions, is misplaced. Not only is that case distinguishable on the facts, it is distinguishable because
the Tenth Circuit relied on the current version of Rule 11 which is not applicable here. Moreover, we note
that the Tenth Circuit mentioned the possibility that under certain exceptional circumstances, “actual notice
and a real opportunity to be heard could substitute for the formal procedures specified in Fed. R. Civ. P.
11(c).” Id. at 1185. Considering the District Court’s remand and the amount of due process afforded
here, this case may very well qualify as such exceptional circumstances.
Additionally, even had the current version of Rule 9011 applied, Schwartz is incorrect that the word
“or” in that rule must be applied in the disjunctive. See 11 U.S.C. § 102(5); Fed. R. Bankr. P. 9001.
19
(“[v]iolations of [Rule 9011] mandate sanctions thereunder, and discretion, in this respect, is entirely
removed from the court”).
Having concluded that the Bankruptcy Court had the authority to award the sanction against
Schwartz under either Rule 9011 or its inherent authority, we address his argument that the award itself was
arbitrary, excessive, and unsupported by the evidence. In the August 14th Order, having nothing else to
base its decision on, the Bankruptcy Court said:
In assessing this sanction, the Court has considered that the legal profession is usually a
financially rewarding profession and that Mr. Schwartz is a lawyer with considerable
experience who continues to practice law. With no other financial information on which
to base its decision, the Court has determined that $100,000.00 is an amount necessary
to deter Schwartz from filing future involuntary petitions in bad faith without being
excessive.
At first blush, and without knowledge of the framework of this case, Schwartz’s contention that this finding
was arbitrary appears to have some merit, considering the large amount of the sanction and the fact that
it was made without benefit of Schwartz’s personal financial information.
On the other hand, we must reject that argument because Schwartz refused to provide evidence
on which the Court could more solidly base its award and he continues to oppose orders that he do so.
“[I]n certain circumstances, a negative inference arises from a defendant's failure to produce documents
shown to have been in his possession. The inference is that the documents would have been damaging to
the defendant.” Evans v. Robbins, 897 F.2d 966, 970 (8th Cir. 1990) (citations omitted).
This adverse inference rule is applicable when the following factors are present: (1) it
appears that the documentary evidence exists or existed; (2) the suppressing party has
possession or control of the evidence; (3) the evidence is available to the suppressing
party, but not to the party seeking production; (4) it appears that there has been actual
suppression or withholding of evidence. 31A C.J.S. Evidence, § 156(2) (1964). The
unfavorable inference resulting from refusal to produce documents is applicable when the
withholding party has been called on in the interest of the truth to produce the documents.
Id. In addition, Schwartz states he has never raised ability to pay a sanction as an issue and in fact
affirmatively declared that ability to pay was not an issue before the Bankruptcy Court. In light of
Schwartz’s blatant and continuing refusal to provide the Court with the evidence necessary to fashion the
sanction award, as well as his continuing assertion that ability to pay a sanction is not an issue, we find
Schwartz’s argument that the award was excessive and arbitrary to be incongruous.
20
Additionally, we recognize that this was a relatively large sanction to be imposed against an attorney
and that, as Schwartz asserts, some courts have criticized such large awards as an abuse of discretion. See
e.g., Magnus Elecs., Inc. v. Masco Corp. of Indiana, 871 F.2d 626, 634 (7th Cir. 1989), cert. denied, 493
U.S. 891, and Blue v. U.S. Dept. of Army, 914 F.2d 525, 548 (4th Cir. 1990), cert. denied sub nom, 499
U.S. 959. Nevertheless, because the Court had nothing on which to base a lesser award, we find that in
light of the particular facts of this case which need not be repeated again, the award was neither arbitrary
nor excessive and therefore, the Bankruptcy Court’s conclusion was not clearly erroneous.
Schwartz correctly asserts that Rule 9011 sanctions are intended to deter future conduct rather than
to punish. See Cooter & Gell v. Hartmarx, 496 U.S. at 393, 110 S. Ct. at 3454. However, although the
Bankruptcy Court primarily based this award on the goal of deterrence, it also likened the sanction to
punitive damages. Since the award could also be affirmed under the Court’s inherent authority, such a
purpose is not forbidden. See Universal Coops., Inc. v. Tribal Co-operative Mktg. Dev. Fed’n of India,
Ltd., 45 F.3d 1194, 1196 (8th Cir. 1995) (finding that while sanctions should not be lightly imposed, it is
clear that sanctions are on occasion necessary not merely to penalize those whose conduct may be deemed
to warrant such a sanction, but also to deter those who might be tempted to such conduct in the absence
of such a deterrent).
Even assuming that the purpose of the award must be limited to deterrence, we are not persuaded
by Schwartz’s statements that he has been sufficiently deterred from filing such involuntary bankruptcy
petitions and that the sanction was not necessary to do that. In arguing that the award was unnecessary
to deter him from similar future conduct, Schwartz points out that he has not filed any involuntary petitions
since 1989. However, this alone does not convince us that Schwartz has fully comprehended the nature
of his conduct. We are particularly concerned that Schwartz still maintains, even here, that he should not
have been sanctioned because the technical Code requirements for filing the involuntary petition against
Kujawa were present. He also contends here that Kujawa had unclean hands because he defended against
the improper petition. Based on this, we conclude that the record does not support Schwartz’s argument
that he has been sufficiently deterred from similar future conduct.
Although we have determined that the Bankruptcy Court had the authority to award the additional
sanction and that it did not abuse its discretion to do so, we note that the Court did not specify to whom
the sanction was payable. Since we have determined that this sanction was permissible under the Court’s
21
inherent authority to sanction the attorneys who appear before it and was intended to deter Schwartz from
future conduct as well as being “akin to punitive damages,” this detail makes no difference to the conclusion
that the sanction was within the Court’s discretion. If necessary, the parties may seek clarification on that
question from the Bankruptcy Court.
Finally, we note that although we have concluded that the sanctions imposed here were permissible
under the Court’s inherent authority, we wish to emphasize that the inherent power to impose sanctions
should not be invoked lightly; however, as the District Court expressed its shock at what occurred in this
case, we too find this case to present extraordinary circumstances making the inherent authority particularly
applicable here.
The Request for Return of the Financial Documents Filed Under Seal
Schwartz asks us to require the Bankruptcy Court to return to him the financial statement he filed
under seal and which the Bankruptcy Court found to be defective. We recognize that personal tax and
financial information is generally not discoverable except under certain circumstances. However, the
Bankruptcy Court’s request for the information to assist it in determining sanctions sufficient to deter
Schwartz from engaging in similar conduct in the future was appropriate. We see no abuse of discretion
in the Court’s viewing the document for that limited purpose. As the financial statement was pertinent to
the issue of appropriate sanctions, it became part of the record and must remain so, in its sealed form, until
the appeal process is finished. We reject outright Schwartz’s suggestion that allowing the Bankruptcy
Court to retain the financial statement “runs the danger of additional breaches of confidentiality.” We have
no doubt that the Bankruptcy Court will retain the financial statement under seal and respect the
confidentiality of the document until the appeal process is finished. We are also certain that at that time,
the Bankruptcy Court will exercise its duty to return the document to Schwartz, as the Court indicated it
would, in a confidential manner. Until then, the statement must remain part of the record, under seal.
Schwartz’s request that we require the Bankruptcy Court to return the financial statement is, therefore,
denied.
22
CONCLUSION
For the foregoing reasons, the Orders entered by the Bankruptcy Court on June 2, 2000, and
August 14, 2000, are affirmed. Schwartz’s request for return of the document filed under seal is denied
until the appeals process is finished.
A true copy.
Attest:
CLERK, U.S. BANKRUPTCY APPELLATE PANEL,
EIGHTH CIRCUIT.
23