Freddy Burton v. Infinity Capital Management

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
FREDDY JOE BURTON; JAN PAUL No. 12-15618
KOCH,
Plaintiffs-Appellees, D.C. No.
2:11-cv-01129-
v. RCJ-PAL
INFINITY CAPITAL MANAGEMENT;
ANNE PANTELAS; SALVATORE C. AMENDED
GUGINO, OPINION
Defendants-Appellants,
and
RONALD J. ISRAEL,
Defendant.
Appeal from the United States District Court
for the District of Nevada
Robert Clive Jones, Chief District Judge, Presiding
Argued and Submitted November 7, 2013
San Francisco, California
Filed June 4, 2014
Amended July 10, 2017
2 BURTON V. INFINITY CAPITAL MANAGEMENT
Before: Sidney R. Thomas, Chief Judge, Ronald Lee
Gilman*, and Johnnie B. Rawlinson, Circuit Judges.
Opinion by Chief Judge Thomas
SUMMARY**
Bankruptcy
The panel filed an amended opinion, affirming the district
court’s denial of a defendant’s motion for summary judgment
and holding that an attorney was not entitled to absolute
quasi-judicial immunity on a claim of violation of the
automatic stay provision of the Bankruptcy Code.
COUNSEL
Kenneth R. Lund (argued) and Brian K. Terry, Thorndal
Armstrong Delk Balkenbush & Eisinger, Las Vegas, Nevada,
for Defendant-Appellant Salvatore C. Gugino.
Daniel R. McNutt (argued), Carbajal & McNutt LLP, Las
Vegas, Nevada, for Defendants-Appellants Infinity Capital
Management and Anne Pantelas.
*
The Honorable Ronald Lee Gilman, Senior Circuit Judge for the U.S.
Court of Appeals for the Sixth Circuit, sitting by designation.
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
BURTON V. INFINITY CAPITAL MANAGEMENT 3
Jan Paul Koch (argued), Law Office of Jan Paul Koch, Las
Vegas, Nevada; Robert J. Kossack, Kossack Law Offices, Las
Vegas, Nevada, for Plaintiffs-Appellees Freddy Joe Burton
and Jan Paul Koch.
OPINION
THOMAS, Chief Judge:
This case requires us to decide whether an attorney sued
for violation of a bankruptcy automatic stay is entitled to
absolute quasi-judicial immunity. Under the circumstances
presented by this case, we hold that he is not. We affirm the
judgment of the district court, albeit on different grounds.
I
Freddy Joe Burton (“Burton”) was injured in a bicycle-
automobile collision. He incurred $271,101.87 in related
medical expenses and loans and retained Jan Paul Koch
(“Koch”) to file a lawsuit on his behalf. Burton granted
certain creditors, including Valley Hospital Medical Center,
liens on his personal injury claim. Valley Hospital then sold
its account receivable to Infinity Capital Management
(“Infinity”), the president of which is Anne Pantelas
(“Pantelas”). Koch settled Burton’s personal injury claim for
$185,000.
Koch placed the settlement funds in his client trust fund
account and paid himself his attorney fee and costs. Koch
then recommended that Burton declare bankruptcy and hire
bankruptcy attorney David Crosby. After paying a retainer
fee to Crosby and receiving his personal injury settlement
4 BURTON V. INFINITY CAPITAL MANAGEMENT
exemption, Burton had $104,088.10 left of his settlement in
the trust fund account.
That same month, Nancy Alf, who represented Infinity at
the time, told Koch that a state interpleader action would
resolve the interests of the lien holders more quickly than the
bankruptcy court. Infinity filed an interpleader lawsuit in
state court against all other similarly situated lien holders
making a claim upon Burton’s settlement. Neither Burton nor
Koch was named as a party in the state interpleader case. The
Honorable Ronald Israel was assigned to the case. Salvatore
Gugino was substituted for Alf as Infinity’s attorney of
record.
Crosby filed Burton’s bankruptcy petition in bankruptcy
court. Four days later, Judge Israel held a status hearing on
the state interpleader case, and Koch attended that hearing at
Judge Israel’s request. At the hearing, Gugino appeared for
Infinity, and Steven Baker appeared for one of the defendants
in the case. Judge Israel questioned Koch as to why he had
not interpled all of the funds that Burton had received for his
settlement to the court clerk as required by Michel v. Eighth
Judicial District Court ex rel. Cnty. of Clark, 17 P.3d 1003(Nev. 2001). Koch informed Judge Israel that Burton had
filed for bankruptcy and that Koch would be depositing the
remaining settlement funds with the bankruptcy clerk. Those
present at the hearing were confused about the proper course
to take given the bankruptcy proceeding and the fact that
Burton was neither a plaintiff nor a defendant in interpleader.
Both Gugino and Baker voiced concern about the interpleader
case moving forward in light of the bankruptcy. Judge Israel
ordered the parties to appear approximately two months later
for a status hearing regarding the state of the bankruptcy
proceeding.
BURTON V. INFINITY CAPITAL MANAGEMENT 5
Three days before the status hearing, Gugino sent all
parties to the interpleader case and Koch a letter with a copy
of the minutes from the prior hearing and an update on the
bankruptcy case, including both an explanation of his initial
attempt to resolve the interpleader issue with the trustee and
confirmation that Koch had deposited the settlement funds
with the trustee.
Koch did not appear at the status hearing. At the hearing,
Gugino handed a copy of his letter to Judge Israel, and he
informed the court that Koch had deposited the settlement
funds with the bankruptcy trustee. Judge Israel responded, “I
ordered Mr. Koch to place all the funds in here. . . . I’m
going to issue an order to show cause. I want Mr. Koch to
appear and show – tell us why he didn’t deposit his attorney’s
fees into – pursuant to Michel. . . . I want him to personally
appear and tell why he hasn’t; otherwise, I’ll hold him in
contempt.” Neither Gugino nor Baker voiced any opposition
to Judge Israel in light of the bankruptcy. In response to the
court’s inquiry, Gugino volunteered to prepare an order for
Koch to show cause why he should not be held in contempt
for failure to comply with Michel as ordered by the state
court.
On the same day, Gugino prepared a proposed order to
show cause and sent it to all of the interpleader parties and
Koch. A cover letter stated that, unless Gugino heard from
them to the contrary, he would assume it met with their
approval and would submit it to the court for the judge’s
signature. The proposed order directed Koch to appear “to
explain to [the court] why he should not be held in contempt
for failure to comply with Michel . . . as directed by [the
court].” That same day, Koch replied by sending Gugino a
6 BURTON V. INFINITY CAPITAL MANAGEMENT
fax objecting to the order and stating, “You are violating the
automatic stay provisions of 11 U.S.C. § 362.”
Koch alleges that he telephoned Gugino to object to the
order to show cause and that Gugino asked if Koch were
ready to be held in contempt, “with Gugino making it clear to
Koch that unless the Burton personal injury settlement funds
were not interpled . . . in the state interpleader action, that he
(Gugino) would make all necessary efforts to have Koch held
in contempt of court.”
The following day, Koch sent Gugino a fax and a four-
page letter. The letter stated that the automatic stay prevented
proceedings directed toward the property of the bankruptcy
estate, threatened that he would file a complaint against
Gugino, Infinity, Pantelas, and Judge Israel if “at any time
[he] bec[a]me aware of further action in the Infinity litigation
(pursued by anyone),” and made personal attacks on
Gugino’s competency. The fax stated that the complaint was
“90% complete” and included a draft copy of the seven-page
complaint.
The order drafted by Gugino was never filed. Instead,
Judge Israel faxed the minute order from the June 6th status
check hearing to the parties of the interpleader case and
Koch. The minute order stated:
Mr. Gugino noted the letter provided to the
Court changes things. Mr. Gugino further
noted Mr. Koch took the remaining money
and gave it to the bankruptcy trustee.
Colloquy regarding Mr. Koch not present
today and issues regarding following the
Michel Case. Court directed Counsel to
BURTON V. INFINITY CAPITAL MANAGEMENT 7
prepare an order for a show cause hearing and
Court set hearing.
....
COURT ORDERS All parties to appear,
including Mr. Koch, to advise the Court of;
1. The bankruptcy.
2. Why the bankruptcy can effect [sic] and
stay these proceedings, since Mr. Burton is
not a party to this action.
3. Why Mr. Koch should interplead the entire
proceeds of the settlement per the Michel case
into this court immediately.
4. Status on lifting the stay.
COURT ORDERED Matter re-set from a
show cause hearing to a Status Check
regarding: bankruptcy / interpleader.
Later that day, Gugino faxed a letter to Koch that included the
minute order. The letter stated in part:
First, let me make it clear that you did not
attend the June 6, 2011 status check before
Judge Israel, even though you were aware of
the hearing date. Had you been present, all of
this might have been avoided. At the hearing,
I presented the Court with my June 3, 2011
letter and attachments, which had been
8 BURTON V. INFINITY CAPITAL MANAGEMENT
previously sent to you and the attorneys
involved in this litigation. It was my
expectation that we would be going forward
in the Bankruptcy Court under some sort of
stipulation and order. However, at the
hearing, Judge Israel ordered that an Order To
Show Cause be issued against you, and he
then directed me to prepare the Order. This
was not my idea, nor did I recommend it to
the Court. After preparing a draft of the
proposed Order, I sent it to your attention for
your review. Had you called me upon receipt,
you could have avoided incurring the hours
you claim to have spent preparing a class
action complaint against my client, her
company, myself and Judge[] Israel . . . .
Later that same day, Koch faxed a response to Gugino
stating, “In response to your 6-9-11 letter . . . . Attached
hereto please find the rough draft of the Federal Lawsuit that
I am filing.”
The following day, Koch sent Gugino a copy of a
Memorandum in Support of Jurisdiction by fax and stated in
part, “Why don’t you dismiss the interpleader, and get your
funds from the bankruptcy trustee? Otherwise, what do you
suggest? I’ll hold up and won’t send copies to Judge Israel,
pending your reply.”
Nearly a month later, Koch sent Gugino a fax stating,
“Don’t know why you never responded to my last entreaty.
Guess it matters not. It’s been filed. Here’s a copy. See ya
in Court.”
BURTON V. INFINITY CAPITAL MANAGEMENT 9
Koch then filed a complaint in federal district court, on
behalf of himself and Burton, alleging that all defendants
violated the automatic-stay provision of 11 U.S.C. § 362(a).
He claimed actual damages of $1,000, plus attorney fees, and
sought “damages in excess of $10,000.” He alleged that the
state judge’s actions in setting hearings, making comments in
court, and directing that an order be prepared violated the
automatic stay. He alleged that Gugino violated the stay by
advocating that the funds that formed part of the property of
the bankruptcy estate be ordered interpled in state court,
urging that Koch should show cause why he should not be
held in contempt for not interpleading the funds, circulating
the draft order to show cause, telephoning Koch and
threatening him that he would “make all necessary efforts to
have Koch held in contempt of court,” and taking other
actions to collect the property.
Judge Israel filed a motion to dismiss the complaint,
arguing that Koch’s claims were barred as a matter of law by
the doctrine of absolute judicial immunity. Gugino filed a
separate motion to dismiss, arguing that because his acts were
taken under the direction of Judge Israel, Koch’s claims were
barred by the doctrine of absolute quasi-judicial immunity.
The district court converted both motions to dismiss into
motions for summary judgment because the parties attached
various exhibits outside of the pleadings. The court held that
Judge Israel was entitled to absolute judicial immunity, but
that Gugino was not, and denied Gugino’s motion for
summary judgment. The district court noted that Gugino had
volunteered to draft the order and had violated his affirmative
duty to alert the court as to the conflict between the proposed
10 BURTON V. INFINITY CAPITAL MANAGEMENT
order and the automatic stay.1 This interlocutory appeal
followed. See Mitchell v. Forsyth, 472 U.S. 511, 525 (1985)
(holding that denial of a substantial claim of absolute
immunity is an order appealable before judgment).
We review a district court’s order denying a converted
motion for summary judgment de novo. Lewis v. United
States, 641 F.3d 1174, 1176 (9th Cir. 2011). We must view
the evidence in the light most favorable to the nonmoving
party. County of Tuolumne v. Sonora Cmty. Hosp., 236 F.3d
1148, 1154 (9th Cir. 2001). The proponent of a claim for
absolute immunity “bears the burden of establishing that such
immunity is justified.” Curry v. Castillo (In re Castillo), 297
F.3d 940, 947 (9th Cir. 2002).
II
A
The filing of a bankruptcy petition creates a bankruptcy
estate, which is protected by an automatic stay of actions by
all entities to collect or recover on claims. 11 U.S.C § 362(a).
“The automatic stay is self-executing, effective upon the
filing of the bankruptcy petition.” Gruntz v. County of Los
Angeles (In re Gruntz), 202 F.3d 1074, 1081 (9th Cir. 2000)
(en banc).
As we have noted, “[t]he scope of the stay is quite broad.”
Hillis Motors, Inc. v. Haw. Auto. Dealers’ Ass’n, 997 F.2d
1The district court properly held that the attorney did not violate the stay
by seeking a status check or attempting to resolve the conflicts between
the interpleader and the bankruptcy, actions which occurred prior to the
status hearing.
BURTON V. INFINITY CAPITAL MANAGEMENT 11
581, 585 (9th Cir. 1993). It is designed to provide breathing
space to the debtor, prevent harassment of the debtor, assure
that all claims against the debtor will be brought in the sole
forum of the bankruptcy court, and protect creditors as a class
from the possibility that one or more creditors will obtain
payment to the detriment of others. Id. at 585–86. The stay
“prevents any collection activity against property of the
estate.” Temecula v. LPM Corp. (In re LPM Corp.), 300 F.3d
1134, 1136 (9th Cir. 2002). It applies to “almost any type of
formal or informal action against the debtor or property of the
estate.” Stringer v. Huet (In re Stringer), 847 F.2d 549, 552
n.4 (9th Cir. 1988). The automatic stay “imposes an
affirmative duty to discontinue post-petition collection
actions.” Eskanos & Adler, P.C. v. Leetien, 309 F.3d 1210,
1215 (9th Cir. 2002). Any continuation of a collection action
against the debtor or property of the estate after a bankruptcy
filing constitutes a violation of the stay. Id. at 1214. Indeed,
the Bankruptcy Code requires parties to “automatically
dismiss or stay such proceeding.” Id. And, as the district
court noted, “the automatic stay imposes on non-debtor
parties an affirmative duty of compliance,” which includes
alerting the court of potential conflicts between an order and
the automatic stay. Sternberg v. Johnson, 595 F.3d 937, 943
(9th Cir. 2010), overruled on other grounds by Am. Servicing
Co. v. Schwartz-Tallard (In re Schwartz-Tallard), 803 F.3d
1095, 1100 (9th Cir. 2015) (en banc).
Actions taken in violation of the automatic stay are void.
Schwartz v. United States (In re Schwartz), 954 F.2d 569, 571
(9th Cir. 1992). This rule applies to judicial proceedings.
Gruntz, 202 F.3d at 1082; Phoenix Bond & Indemnity Co. v.
Shamblin (In re Shamblin), 890 F.2d 123, 125 (9th Cir. 1989).
“Any state court modification of the automatic stay would
constitute an unauthorized infringement upon the bankruptcy
12 BURTON V. INFINITY CAPITAL MANAGEMENT
court’s jurisdiction to enforce the stay.” Gruntz, 202 F.3d at
1082.
B
The complaint filed in this case asserted, among other
theories, that attorney Gugino committed a number of acts in
violation of the automatic stay. Gugino moved to dismiss on
the basis of quasi-judicial immunity, arguing that his actions
were taken at the direction of the judge.
Absolute judicial immunity “insulates judges from
charges of erroneous acts or irregular action.” Castillo,
297 F.3d at 947 (citing Forrester v. White, 484 U.S. 219,
227–28 (1988)). Absolute immunity “is not reserved solely
for judges, but extends to nonjudicial officers for ‘all claims
relating to the exercise of judicial functions.’” Id. (quoting
Burns v. Reed, 500 U.S. 478, 499 (1991) (Scalia, J.,
concurring in part and dissenting in part)). “The Supreme
Court has been quite sparing in its recognition of absolute
immunity, and has refused to extend it any further than its
justification would warrant.” Id. (internal quotation marks
and alterations omitted). The justification for absolute
immunity is the protection of the judicial process. It shields
independent and impartial adjudication and prevents the
“deflection of [an officer’s] energies from his public duties.”
Burns, 500 U.S. at 485. The touchstone for its applicability
is “performance of the function of resolving disputes between
parties, or of authoritatively adjudicating private rights.”
Antoine v. Byers & Anderson, Inc., 508 U.S. 429, 435–36
(1993) (quoting Burns, 500 U.S. at 500 (Scalia, J., concurring
in part and dissenting in part)). The Supreme Court has
“made it clear that it is the interest in protecting the proper
functioning of the office, rather than the interest in protecting
BURTON V. INFINITY CAPITAL MANAGEMENT 13
its occupant, that is of primary importance.” Kalina v.
Fletcher, 522 U.S. 118, 125 (1997).
Thus, we take a functional approach to determining
whether a nonjudicial officer is entitled to absolute quasi-
judicial immunity by looking to “the nature of the function
performed and not to the identity of the actor performing it.”
Castillo, 297 F.3d at 948. To qualify for absolute immunity,
the function performed must be a judicial act with “a
sufficiently close nexus to the adjudicative process.” Id.However, “it is only when the judgment of an official other
than a judge involves the exercise of discretionary judgment
that judicial immunity may be extended to that nonjudicial
officer.” Id. at 949. The Supreme Court established the
requirement for discretionary judgment in Antoine, where it
declined to extend the immunity to court reporters because
transcribing verbatim transcripts does not involve the level of
authoritative or “discretionary decisionmaking that the
doctrine of judicial immunity is designed to protect.”
508 U.S. at 435. To be protected, the function performed
must “involve the exercise of discretion in resolving
disputes.” Castillo, 297 F.3d at 948 (citing Antoine, 508 U.S.
at 435).
Before turning to the functional approach, we first inquire
into the immunity historically accorded attorneys. Id. We
have afforded quasi-judicial immunity to bankruptcy trustees
because they were exercising judgments while performing
acts closely related to the judicial process. Id. at 946–47; see
also Lonneker Farms, Inc. v. Klobucher, 804 F.2d 1096, 1097
(9th Cir. 1986) (holding that “a trustee in bankruptcy . . . is
entitled to derived judicial immunity because he is
performing an integral part of the judicial process”). For
similar reasons, we afforded United States Trustees quasi-
14 BURTON V. INFINITY CAPITAL MANAGEMENT
judicial immunity. Balser v. Dep’t of Justice, 327 F.3d 903,
910 (9th Cir. 2003). Absolute immunity has been extended
to attorneys for performing the duties of a prosecutor. Butz
v. Economou, 438 U.S. 478, 517 (1978); Imbler v. Pachtman,
424 U.S. 409, 431 (1976); Stapley v. Pestalozzi, 733 F.3d
804, 811–12 (9th Cir. 2013). Prosecutors enjoy immunity
when they take “action that only a legal representative of the
government could take.” Stapley, 733 F.3d at 812. However,
the Supreme Court has not extended the immunity beyond the
prosecutorial function. Id. at 811–12. Even court-appointed
defense attorneys do not enjoy immunity because, despite
being “officers” of the court, “attorneys [are not] in the same
category as marshals, bailiffs, court clerks or judges.” Ferri
v. Ackerman, 444 U.S. 193, 202 n.19 (1979). In Ferri, the
Supreme Court declined to extend immunity to defense
attorneys because “the primary office performed by appointed
counsel parallels the office of privately retained counsel”
where an attorney owes a duty to his client, not the public.
Id. at 204. This implied disinclination to grant immunity to
private counsel was solidified after the Supreme Court
concluded that “private actors are not entitled to the absolute
immunity granted to some government officials, such as
prosecutors and judges.” Kimes v. Stone, 84 F.3d 1121, 1128
(9th Cir. 1996) (citing Wyatt v. Cole, 504 U.S. 158, 164–65
(1992)).
Not only does this precedent caution against extending
absolute quasi-judicial immunity to Gugino, but the
functional approach, which requires us to look past his
identity as an attorney and focus only on the function that he
performed, also precludes the extension of immunity. The
parties focus on the attorney’s actions in drafting the order at
the behest of the judge, or volunteering to draft it. However,
the order was never filed nor formalized, so it is not relevant
BURTON V. INFINITY CAPITAL MANAGEMENT 15
to the question of extending quasi-judicial immunity to
Gugino. Rather, we need only decide whether, under the
circumstances presented by this case, Gugino is entitled to
quasi-judicial immunity for acts other than drafting the order.
Applying our precedent, we cannot extend quasi-judicial
immunity to include those acts. Thus, any actions that he
took independently of drafting the order to attempt to collect
the debt were not adjudicatory acts “involv[ing] the exercise
of discretion in resolving disputes,” Castillo, 297 F.3d at 948,
or acts “authoritatively adjudicating private rights,” Antoine,
508 U.S. at 435–36. In short, quasi-judicial immunity does
not extend to acts of private advocacy or attempted debt
collection because such acts are distinct from the judicial
function.
IV
On the narrow question presented by this interlocutory
appeal, we conclude that Gugino is not entitled to quasi-
judicial immunity for acts other than drafting the order at the
judge’s request—an issue we need not reach because the
order was never filed. And we need not, and do not, reach
any other issue urged by the parties.
AFFIRMED.