In re: Cindy Shannon Anderson ( 2015 )

FILED
1 NOT FOR PUBLICATION OCT 07 2015
2 SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5 In re: ) BAP No. WW-14-1262-JuKiF
)
6 CINDY SHANNON ANDERSON, ) Bk. No. 09-43049-PBS
)
7 Debtor. )
______________________________)
8 )
MARK G. OLSON, )
9 )
Appellant, )
10 )
v. ) M E M O R A N D U M*
11 )
CINDY SHANNON ANDERSON; DON )
12 THACKER, Chapter 7 Trustee, )
)
13 Appellees. )
______________________________)
14
Argued and Submitted on September 25, 2015
15 at Seattle, Washington
16 Filed - October 7, 2015
17 Appeal from the United States Bankruptcy Court
for the Western District of Washington
18
Honorable Paul B. Snyder, Bankruptcy Judge, Presiding
19 ________________________
20 Appearances: Chris Graver of Keller Rohrback LLP argued for
appellant Mark G. Olson; Thomas W. Stilley of
21 Sussman Shank LLP argued for appellee Don
Thacker, Chapter 7 Trustee.
22 ________________________
23 Before: JURY, KIRSCHER, and FARIS, Bankruptcy Judges.
24
25
26 *
This disposition is not appropriate for publication.
27 Although it may be cited for whatever persuasive value it may
have (see Fed. R. App. P. 32.1), it has no precedential value.
28 See 9th Cir. BAP Rule 8024-1.
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1 Appellee chapter 71 trustee, Don Thacker (Trustee),
2 employed appellant attorney, Mark G. Olson (Olson), to pursue a
3 personal injury claim (PI claim) held by debtor, Cindy S.
4 Anderson (Debtor). More than three years later, Olson settled
5 the PI claim for $41,000 without Trustee’s knowledge or consent.
6 Olson paid himself a portion of the settlement proceeds and
7 disbursed the rest to Debtor. These actions were in direct
8 contravention of the express terms of Olson’s employment
9 agreement with Trustee, which required Trustee’s approval of any
10 settlement, and the bankruptcy court’s employment order, which
11 required Olson to obtain court approval of his fees. Moreover,
12 Olson disbursed property of the bankruptcy estate to Debtor who
13 had not yet claimed an exemption in the PI Claim. Debtor spent
14 most of the money by the time Trustee learned about the
15 settlement.
16 Trustee asked Olson and Debtor to turn over the settlement
17 proceeds. Trustee settled with Debtor, but Olson refused the
18 request. Trustee filed a motion seeking turnover of the
19 settlement proceeds, followed by a separate motion for sanctions
20 against Olson under Rule 9011 and 28 U.S.C. § 1927. After a
21 hearing, the bankruptcy court entered an order granting
22 Trustee’s motions for turnover and for sanctions, but deferred
23 deciding the amount of the sanctions until Trustee’s attorneys
24
25
1
26 Unless otherwise indicated, all chapter and section
references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
27 “Rule” references are to the Federal Rules of Bankruptcy
Procedure and “Civil Rule” references are to the Federal Rules of
28 Civil Procedure.
-2-
1 filed their fee application.2 The order regarding the sanctions
2 became final when the court subsequently entered an order fixing
3 the amount of the sanctions as $13,696 in fees and $639.02 in
4 costs, which amounts represented fees and costs incurred by
5 Trustee’s counsel (Sanctions Order). Olson appeals from the
6 Sanctions Order. We AFFIRM.
7 I. FACTS3
8 The material facts are undisputed. Debtor filed a
9 chapter 7 bankruptcy petition on April 30, 2009. Debtor neither
10 disclosed nor exempted the PI Claim in her schedules. On
11 June 15, 2009, Debtor amended her Schedule B to include the
12 PI Claim as an asset but she did not assert an exemption in it.
13 In June 2009, Debtor hired Olson to represent her in
14 connection with the PI claim. Since her injuries were sustained
15 at a hotel and casino in Nevada, Olson associated with a Nevada
16 attorney, Justin Wilson.
17 On June 29, 2009, Trustee and Olson entered into an
18 Attorney-Client Fee Agreement (Fee Agreement), under which Olson
19 agreed to pursue the PI claim on behalf of the bankruptcy
20
21 2
The order also required Olson to turn over the amount he
22 had paid himself from the settlement proceeds and denied his
motion for attorneys’ fees for representing the estate. Pursuant
23 to an Order Defining Scope of Appeal filed on July 7, 2014, a
motions panel determined that the order was final as to the
24 turnover and attorney fee denial which Olson did not timely
appeal. However, the Sanction Order was not final since the
25 court had not yet determined the amount of sanctions. Therefore,
26 the scope of this appeal was limited to the sanction award as
reflected in the orders of February 14 and May 6, 2014.
27
3
We borrow heavily from the bankruptcy court’s recitation
28 of the facts in its February 14, 2014 ruling.
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1 estate. Under the agreement, Olson was entitled to a forty
2 percent contingency fee if the matter was settled prior to
3 trial, forty-five percent if the case went to trial, and fifty
4 percent if there was an appeal. The terms of the agreement
5 required Trustee’s approval prior to any settlement: “Neither
6 [Olson] nor [Trustee] shall settle or compromise any aspect of a
7 lawsuit without agreement between client and attorney.”
8 On August 28, 2009, Trustee filed an application to employ
9 Olson. Olson signed a Declaration of Disinterestedness, in
10 which he declared under penalty of perjury that he had read and
11 was familiar with Bankr. Local Rule 2016-1 regarding
12 compensation of professionals. On the same day, the bankruptcy
13 court entered an order approving Olson’s employment. The
14 employment order provided that any compensation to Olson was
15 subject to court approval.
16 On November 2, 2009, Debtor received her § 727 discharge,
17 but her case remained open.
18 On August 9, 2010, Olson, in connection with co-counsel
19 Justin Wilson, filed a personal injury lawsuit on behalf of
20 Debtor against the Nevada hotel and casino.
21 In December 2012, without Trustee’s knowledge or consent,
22 and without obtaining the bankruptcy court’s approval, Debtor
23 and Olson settled the lawsuit for $41,000. After receiving this
24 amount, Olson paid himself a forty percent contingency fee of
25 $16,4004 and expenses of $3,376.22, and distributed the
26
27
4
Olson asserts that he gave one-half of this amount, or
28 $8,200, to Wilson.
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1 remaining $21,223.78 to Debtor, again without communicating with
2 Trustee or obtaining the bankruptcy court’s approval.
3 In January 2013, Trustee sent an email to Olson inquiring
4 about the status of the PI Claim. Olson informed Trustee that
5 the claim had been settled and the proceeds used to pay his
6 attorneys’ fees with the remainder distributed to Debtor.
7 According to Trustee, he advised Olson that he had no authority
8 to settle the case or pay himself attorneys’ fees, and that he
9 should not have disbursed any proceeds to Debtor as she had
10 claimed no exemption in the PI Claim. Trustee demanded that
11 Olson and Debtor turn over the settlement proceeds, but both
12 failed and refused to do so.
13 On March 14, 2013, Debtor filed an amended Schedule C,
14 claiming for the first time that $20,200 of the settlement
15 proceeds were exempt. Trustee objected to Debtor’s claim of
16 exemption.
17 On May 16, 2013, Trustee filed a motion for turnover,
18 seeking to recover the $41,000 in settlement proceeds from
19 Debtor and Olson. Debtor and Olson objected to the motion. On
20 August 8, 2013, Olson filed a declaration that included the
21 following:
22 7. . . . Given that Ms. Anderson’s bankruptcy had
been completely discharged and there were no
23 outstanding bills or creditors, it is not clear what
Mr. Thacker’s intentions were regarding these funds.
24 As the funds were entirely distributed in accordance
with the fee agreements, there was nothing left from
25 the modest settlement to pass on to Mr. Thacker in any
event.
26
8. . . . However, given that Mr. Thacker had agreed to
27 the contingency fee arrangement and that he had agreed
to at least the $16,000 personal exemption amount to
28 be awarded to Ms. Anderson in the personal injury
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1 matter, I do not believe that he had a legal right to
the $50,000 he is claiming in this proceeding.
2 Mr. Thacker’s position is unreasonable and being taken
in bad faith.
3
4 Trustee disputed those statements, contending that they were
5 without evidentiary support and not warranted by existing law in
6 violation of Rule 9011.
7 In September 2013, Trustee and Debtor settled Trustee’s
8 objection to her claim of exemption for $3,883.78. Trustee
9 later testified at the evidentiary hearing on the turnover
10 motion that his primary motivation for the settlement was that
11 Debtor already had spent most of the settlement proceeds and
12 remained insolvent. The bankruptcy court entered an order
13 approving the settlement on December 26, 2013.
14 On October 9, 2013, in a final effort to resolve the matter
15 and avoid further fees and costs, Trustee served Olson’s
16 attorneys with a letter dated October 9, 2013, and a Motion for
17 Sanctions, giving Olson twenty-one days to withdraw his
18 objection to the turnover motion and to agree to turn over the
19 settlement proceeds or face a motion for sanctions for his
20 continuing unjustifiable refusal to turn over the funds.5
21 Trustee received no response to that letter. Before the
22 turnover motion was heard, on November 5, 2014, Trustee filed a
23 motion for sanctions (Sanctions Motion).
24 On December 17, 2013, Olson sought approval of his fees in
25 the amount of $16,400 and costs of $3,376.22 by filing a fee
26
5
27 There is no dispute that the service of the motion
complied with the “safe-harbor” provisions under
28 Rule 9011(c)(1)(A).
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1 application.
2 On February 3, 2014, the bankruptcy court conducted an
3 evidentiary hearing on the turnover motion, the Sanctions
4 Motion, and Olson’s fee application.
5 On February 14, 2014, the bankruptcy court issued an oral
6 ruling. The bankruptcy court acknowledged that Trustee sought
7 turnover of the settlement proceeds under § 542(a). However, as
8 Olson had already paid himself his fees and costs from the
9 settlement, the court found that Trustee’s motion was in effect
10 a motion to disgorge fees.6 The bankruptcy court noted that it
11 had broad and inherent authority to deny or order disgorgement
12 of compensation when an attorney failed to meet the requirements
13 of §§ 327, 329, 330, or 331 under In re Alvarado, 496 B.R. 200,
14 213 (N.D. Cal. 2013) (citing Am. Law Ctr. PC v. Stanley
15 (In re Jastrem), 253 F.3d 438, 443 (9th Cir. 2001) (finding that
16 bankruptcy court had the authority under § 329 to order an
17 attorney to return fees that it determined were excess or
18 unreasonable)); In re New River Dry Dock, Inc., 451 B.R. 586,
19 592 (Bankr. S.D. Fla. 2011) (noting that “[d]isgorgement is the
20 expected remedy when a professional does not comply with the
21 Bankruptcy Code or its Rules”).
22 In deciding whether Olson was entitled to any fees, the
23 bankruptcy court considered whether Olson’s services had
24 benefitted the estate under § 330(a)(3). The court ultimately
25
26 6
Under Rule 7001(1) Trustee was required to bring a request
27 for turnover in an adversary proceeding. By characterizing the
motion as one for disgorgement, Trustee’s request was properly
28 before the court by motion.
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1 concluded that his services resulted in a loss, rather than a
2 benefit to the estate. In reaching this conclusion, the court
3 found that by settling the PI Claim without authority, Olson
4 denied Trustee and the court the opportunity to evaluate the
5 proposed settlement. Thus, it remained unknown whether the
6 $41,000 settlement was in the best interest of the estate. The
7 court further found that Olson’s disbursement of $21,223.78 in
8 settlement proceeds to Debtor caused prejudice to the estate by
9 at least that amount since by the time Trustee became aware of
10 the settlement and distribution, Debtor had spent most of the
11 money.
12 When considering the Sanctions Motion, the bankruptcy court
13 concluded that ¶¶ 7 and 8 of Olson’s declaration filed in
14 opposition to Trustee’s request for turnover ignored the
15 uncontested facts in the case and were in direct conflict with
16 bankruptcy law, including § 330 and Rule 9019. For these
17 reasons, the bankruptcy court found that Olson’s resistance to
18 turning over estate property was without a factual or legal
19 basis in violation of Rule 9011.
20 The court also agreed with Trustee that Olson violated
21 28 U.S.C. § 1927 by unreasonably multiplying the proceedings in
22 this case when he failed to immediately turn over the settlement
23 proceeds upon Trustee’s demand. In the end, the bankruptcy
24 court decided that the estate was entitled to recover the
25 attorneys’ fees and costs it incurred in pursuing turnover of
26 the settlement proceeds from Olson, but it required Trustee’s
27 counsel to file a separate motion to quantify the reasonable
28 fees.
-8-
1 On February 14, 2014, the bankruptcy court entered an order
2 (1) requiring Olson to turn over (disgorge) $19,776.22 ($16,400
3 in fees and $3,376.22 in costs) that he paid himself from the
4 settlement proceeds, (2) denying Olson’s fee application in its
5 entirety, and (3) awarding sanctions against Olson in an amount
6 yet to be determined.
7 Olson did not appeal the turnover order until May 20, 2014.
8 The Panel dismissed that appeal, which included the turnover
9 order and the order denying Olson’s fees, as untimely. That
10 dismissal was not further appealed.
11 On April 8, 2014, Trustee’s counsel filed their fee
12 application seeking $18,696 in fees and $639.02 in costs to be
13 paid directly by Olson. These fees and costs were incurred in
14 connection with the turnover motion, the denial of Olson’s
15 attorneys’ fees, and the Sanctions Motion. Counsel noted that
16 if these amounts were paid by Olson, the distribution to
17 creditors of approximately forty-eight percent would not be
18 diminished. Attached to the declaration accompanying the motion
19 were the relevant time records.
20 Olson responded to the motion, contending that he had
21 already been penalized by the court when it denied his fee
22 application in its entirety. Olson also maintained that
23 counsel’s fees were unreasonable and excessive for several
24 reasons. First, the hourly rate of $430-$450 was unreasonable
25 and higher than the usual and customary rate for this type of
26 matter. Second, the number of hours billed was unreasonable
27 especially as related to the 14.1 hours spent preparing for the
28 evidentiary hearing. Olson contended this was far more than
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1 necessary for a less than two hour hearing. Finally, Olson
2 objected to the allocation of work among available personnel, as
3 all but 1.9 hours of the 43.4 hours requested were billed by
4 Mr. Stilley at the highest possible rate.
5 On May 6, 2014, the bankruptcy court held a hearing on
6 Trustee’s attorneys’ fee application. The court found Olson’s
7 double penalty argument without merit.
8 THE COURT: Let me ask you: Is this really a double
penalty? As I understand it, the first issue is
9 whether he should be entitled to any fees because
there was no approval. Mr. Thacker did not have an
10 opportunity to even review the settlement; and there
was very little money, as a consequence, that came
11 into the estate. That’s one issue.
12 Then the second issue is, given that, whether he
should have been so resistant to the turnover that it
13 caused the trustee to have to, not only file an action
against him, but take it all the way to an evidentiary
14 hearing in a case where the law -- when I looked at
it, it seemed fairly clear to me what the end result
15 would be.
16 In the end, the court concluded that the double penalty
17 argument was, in essence, a motion for reconsideration of the
18 court’s earlier order which denied Mr. Olson his fees and
19 concurrently granted sanctions against him. Since Olson did not
20 seek reconsideration of or appeal that order, the court found
21 that the order was final and not subject to collateral attack.
22 The court next considered the reasonableness of the fees
23 requested. It found that the hourly rate of $430-$450 per hour
24 was reasonable. Upon questioning Trustee’s counsel, the court
25 concluded that the amount of time preparing for the evidentiary
26 hearing was unreasonable and thus reduced the fees requested by
27 $5,000. The court also found unpersuasive Olson’s argument that
28 Trustee’s attorney should have allocated some of the legal work
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1 to associates with a lower billable hourly rate. Finally, the
2 court dispensed with Olson’s contention that Trustee’s attorney
3 should not be awarded fees for opposing his fee application
4 because it was unlikely that Trustee would have objected to
5 Olson’s fees if Olson had turned over the settlement proceeds.
6 The bankruptcy court entered an order awarding Trustee’s
7 counsel $13,696 in fees and $639.02 in costs to be paid by
8 Olson. Olson timely appealed the Sanctions Order on May 20,
9 2014.
10 II. JURISDICTION
11 The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
12 §§ 1334 and 157(b)(2)(A) and (E). We have jurisdiction under
13 28 U.S.C. § 158.
14 III. ISSUES
15 Did the bankruptcy court abuse its discretion by imposing
16 sanctions against Olson under 28 U.S.C. § 1927?
17 Did the bankruptcy court abuse its discretion by finding
18 sanctions were warranted against Olson under Rule 9011 and in
19 determining that $13,696 in fees and $639.02 in costs was an
20 appropriate sanction?
21 IV. STANDARDS OF REVIEW
22 We review all aspects of a bankruptcy court’s decision to
23 impose Rule 9011 sanctions for abuse of discretion. Valley
24 Nat’l Bank v. Needler (In re Grantham Bros.), 922 F.2d 1438,
25 1441 (9th Cir. 1991). We apply a two-part test to determine
26 whether the bankruptcy court abused its discretion. United
27 States v. Hinkson, 585 F.3d 1247, 1261–62 (9th Cir. 2009) (en
28 banc). First, we consider de novo whether the bankruptcy court
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1 applied the correct legal standard to the relief requested. Id.
2 Then, we review the bankruptcy court's fact findings for clear
3 error. Id. at 1262 & n. 20. We must affirm the bankruptcy
4 court’s fact findings unless we conclude that they are
5 “(1) ‘illogical,’ (2) ‘implausible,’ or (3) without ‘support in
6 inferences that may be drawn from the facts in the record.’”
7 Id. at 1262.
8 The bankruptcy court has “broad fact-finding powers with
9 respect to sanctions, and its findings warrant great
10 deference. . . .” Primus Auto. Fin. Serv., Inc. v. Batarse,
11 115 F.3d 644, 649 (9th Cir. 1997) (quoting Townsend v. Holman
12 Consulting Corp., 929 F.2d 1358, 1366 (9th Cir. 1990)(en banc)).
13 We do not reverse for errors not affecting substantial
14 rights of the parties and may affirm for any reason supported by
15 the record. COM-1 Info, Inc. v. Wolkowitz (In re Maximus
16 Computers, Inc.), 278 B.R. 189, 194 (9th Cir. BAP 2002).
17 V. DISCUSSION
18 A. 28 U.S.C. § 1927
19 28 U.S.C. § 1927 provides that “[a]ny attorney or other
20 person admitted to conduct cases in any court of the United
21 States . . . who so multiplies the proceedings in any case
22 unreasonably and vexatiously may be required by the court to
23 satisfy personally the excess costs, expenses, and attorneys’
24 fees reasonably incurred because of such conduct.” Therefore,
25 to be sanctionable under 28 U.S.C. § 1927, counsel’s conduct
26 must multiply the proceedings in both an unreasonable and
27 vexatious manner. B.K.B. v. Maui Police Dep’t, 276 F.3d 1091,
28
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1 1107 (9th Cir. 2002). A finding that the attorney recklessly7
2 raised a frivolous argument which resulted in the multiplication
3 of the proceedings is sufficient to impose sanctions under
4 28 U.S.C. § 1927. Id.
5 Olson complains on appeal that the bankruptcy court’s
6 findings fell short of these standards and thus imposition of
7 the sanctions based on 28 U.S.C. § 1927 was in error. We need
8 not address these arguments because the Ninth Circuit does not
9 consider a bankruptcy court as a “court of the United States.”
10 Miller v. Cardinale (In re Deville), 361 F.3d 539, 546 (9th Cir.
11 2004). Therefore, a bankruptcy court has no power to impose
12 sanctions under 28 U.S.C. § 1927. Because this was an
13 alternative ground for imposing sanctions against Olson, the
14 bankruptcy court’s reliance on 28 U.S.C. § 1927 was harmless
15 error. See Rule 9005 (incorporating Fed. R. Civ. Proc. 61 which
16 provides in part: “The court at every stage of the proceeding
17 must disregard any error or defect in the proceeding which does
18 not affect the substantial rights of the parties.”).
19 B. The bankruptcy court did not abuse its discretion by
imposing sanctions against Olson under Rule 9011.
20
21 Rule 9011(b) “Representations to the court” states:
22 By presenting to the court (whether by signing,
filing, submitting, or later advocating) a petition,
23 pleading, written motion, or other paper, an attorney
or unrepresented party is certifying that to the best
24 of the person's knowledge, information, and belief,
formed after an inquiry reasonable under the
25 circumstances, --
26
27
7
At one point in his opening brief Olson concedes that
28 perhaps he acted recklessly.
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1 (1) it is not being presented for any
improper purpose, such as to harass or to
2 cause unnecessary delay or needless increase
in the cost of litigation;
3
(2) the claims, defenses, and other legal
4 contentions therein are warranted by
existing law or by a nonfrivolous argument
5 for the extension, modification, or reversal
of existing law or the establishment of new
6 law;
7 (3) the allegations and other factual
contentions have evidentiary support or, if
8 specifically so identified, are likely to
have evidentiary support after a reasonable
9 opportunity for further investigation or
discovery; and
10
(4) the denials of factual contentions are
11 warranted on the evidence or, if
specifically so identified, are reasonably
12 based on a lack of information or belief.
13 The language of Rule 9011 parallels that of Civil Rule 11.
14 Therefore, courts analyzing sanctions under Rule 9011 may
15 appropriately rely on cases interpreting Civil Rule 11. See
16 Marsch v. Marsch (In re Marsch), 36 F.3d 825, 829 (9th Cir.
17 1994).
18 An attorney has a duty to conduct a reasonable factual
19 investigation as well as to perform adequate legal research that
20 confirms that his position is warranted by existing law (or by a
21 good faith argument for a modification or extension of existing
22 law). Christian v. Mattel, Inc., 286 F.3d 1118, 1127 (9th Cir.
23 2002). The bankruptcy court must measure the attorney’s conduct
24 “objectively against a reasonableness standard, which consists
25 of a competent attorney admitted to practice before the involved
26 court.” In re Grantham Bros., 922 F.2d at 1441.
27 In its oral decision, the bankruptcy court set forth
28 detailed findings of fact explaining why Olson’s opposition to
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1 Trustee’s turnover motion violated Rule 9011. Olson does not
2 point to any specific error in the court’s factual findings,
3 instead making various arguments as to why sanctions were not
4 warranted based on his interpretation of the facts and his
5 subjective belief that he did not act unreasonably.
6 Olson contends that while his conduct might have been
7 deficient, it was based on a misunderstanding of the law which
8 was not unreasonable since he is not a bankruptcy specialist.
9 He further maintains that he had no prior offenses, demonstrated
10 proficiency in representing the client, and fully disclosed
11 information about the settlement to Trustee. Olson also asserts
12 that there was no evidence that a better result was obtainable
13 or that Debtor could have received a significantly larger jury
14 verdict. At bottom, this appears to be a “no harm, no foul”
15 argument.
16 Next, although the bankruptcy court did not expressly
17 address the ABA Standards, Olson argues that none of those
18 standards are met here:8 (1) whether the duty violated was to a
19 client, the public, the legal system, or the profession;
20 (2) whether the attorney acted intentionally, knowingly or
21 negligently; (3) the seriousness of the actual or potential
22 injury caused by the attorney’s misconduct; and (4) the
23 existence of aggravating and mitigating factors. In re Nguyen,
24 447 B.R. at 277. According to Olson, he violated no duty to his
25
26 8
Olson acknowledges that it was not mandatory for the
27 bankruptcy court to make specific findings regarding the
applicability of the ABA standards under In re Nguyen, 447 B.R.
28 268, 277 (9th Cir. BAP 2011)(en banc).
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1 client, he misunderstood the effect of Debtor’s discharge, the
2 injury was only monetary injury to the estate, and there were
3 mitigating factors such as added monetary value to the estate
4 which the bankruptcy court failed to consider.
5 Olson never argued any of these issues in the bankruptcy
6 court nor did he mention the ABA standards. Generally, we do
7 not consider issues raised for the first time on appeal.
8 O’Rourke v. Seaboard Sur. Co. (In re E.R. Fegert, Inc.),
9 887 F.2d 955, 957 (9th Cir. 1989). Further, we review claims of
10 judicial error and do not address fact-bound issues such as
11 analyzing whether Olson’s conduct violated ABA factors that the
12 bankruptcy court never examined. In addition, Olson’s mistaken
13 belief about the effect of Debtor’s discharge does not warrant
14 reversal of the bankruptcy court’s decision to award sanctions.
15 Rather, the facts in this case support the bankruptcy court’s
16 exercise of discretion to impose sanctions for Olson’s violation
17 of Rule 9011.
18 The record shows that Olson’s conduct met the standards for
19 imposition of sanctions under Rule 9011(b)(2) and (3). Olson’s
20 refusal to turn over property of the estate was squarely
21 foreclosed by the case law and the Bankruptcy Code and Rules
22 cited by the bankruptcy court. Further, as the bankruptcy court
23 properly found, the facts set forth in Olson’s declaration at
24 ¶¶ 7 and 8 were without evidentiary support given that he had
25 been employed by the bankruptcy estate and “was aware of the
26 rules regarding compensation of professionals employed in a
27 bankruptcy case.” In addition, although not mentioned by the
28 bankruptcy court, by its express terms, § 542(a) is
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1 self-executing and does not require that the trustee take any
2 action or commence a proceeding or obtain a court order to
3 compel the turnover. See Mwangi v. Wells Fargo Bank, N.A.
4 (In re Mwangi), 432 B.R. 812, 823 (9th Cir. BAP 2010). Simply
5 put, Olson’s position was entirely without legal foundation and
6 the facts alleged in his declaration had no evidentiary support.
7 Accordingly, we hold the bankruptcy court did not abuse its
8 discretion in imposing sanctions.
9 C. The bankruptcy court did not abuse its discretion in
determining that an award of attorneys’ fees and costs was
10 an appropriate sanction.
11 Olson also argues that the bankruptcy court abused its
12 discretion in awarding sanctions in the amount of $13,696 in
13 fees and $639.02 in costs by failing to (1) consider whether the
14 sanction imposed was proportional to the violation committed,
15 (2) make findings why imposing fees of over $15,000 was
16 necessary as an effective deterrent, and (3) consider
17 alternatives to a monetary sanction. Olson further asserts that
18 the imposition of sanctions together with the denial of his fees
19 amounts to an impermissible double penalty. This last argument
20 is the only one he made before the bankruptcy court.9
21 Once the bankruptcy court decides sanctions are warranted,
22 the court has wide discretion to determine the appropriate
23 sanction under Rule 9011. Hudson v. Moore Bus. Forms, Inc.,
24 836 F.2d 1156, 1163 (9th Cir. 1987). Rule 9011(c)(2) provides
25
26 9
Olson did not raise the proportionality or penalty issues
27 before the bankruptcy court. Therefore, we need not consider
these issues raised for the first time on appeal. In re E.R.
28 Fegert, Inc., 887 F.2d at 957.
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1 that in determining the appropriate sanction, a court may, “if
2 imposed on motion and warranted for effective deterrence,
3 [issue] an order directing payment to the movant of some or all
4 of the reasonable attorneys’ fees and other expenses incurred as
5 a direct result of the violation.” Under Civil Rule 11,
6 “[r]ecovery should never exceed those expenses and fees that
7 were reasonably necessary to resist the offending action.”
8 Fleisher v. Weinberg (In re Yagman), 796 F.2d 1165, 1185 (9th
9 Cir. 1986). “The measure of sanctions under this language is
10 not the actual fees and expenses incurred, but those that the
11 court determines to be reasonable.” Id. The bankruptcy court
12 here chose to measure the sum necessary to deter future
13 unwarranted resistance to a legally-mandated turnover of estate
14 property as the reasonable fees expended in compelling the
15 turnover and objecting to the unearned fees.
16 Under these standards, the record supports the bankruptcy
17 court’s imposition of sanctions in the amount of $13,696 in fees
18 and $639.02 in costs. The bankruptcy court properly conducted
19 an inquiry into the reasonableness of the fees and costs before
20 awarding sanctions. The court scrutinized the itemized time
21 records, questioned Trustee’s counsel about various expenses and
22 hours charged, and ultimately reduced the amount requested based
23 on its reasonableness determination. Since the sanctions
24 awarded by the bankruptcy court were properly calculated to
25 reimburse Trustee’s counsel for unnecessary litigation expenses,
26 the amount of the sanctions awarded did not constitute an abuse
27 of discretion.
28 Olson insists that the bankruptcy court erred by awarding
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1 Trustees’ attorneys’ fees and costs as sanctions without
2 considering that it had denied his fees, claiming that he was
3 penalized twice for the same conduct. According to Olson, the
4 double penalty adds up to $34,111.24: denial of $16,400 in fees
5 and $3,376.22 in costs and sanctions for $13,696 in fees and
6 $639.02 in costs. The $34,111.24 amount, Olson contends, is
7 disproportionate to the size of the bankruptcy case and his
8 conduct. Olson also argues that the sanctions on top of the
9 denial of his fees transforms the sanctions into punitive
10 damages or a “penalty” which is not authorized under the
11 holdings in Price v. Lehtinen (In re Lehiten), 564 F.3d 1052,
12 1059 (9th Cir. 2009) (holding that the bankruptcy court’s
13 inherent sanction authority does not authorize significant
14 punitive damages), and In re DeVille, 280 B.R. 483, 494 (9th
15 Cir. BAP 2002) (finding that Rule 9011(c)(2) limits any monetary
16 sanction that is imposed pursuant to a sua sponte order to a
17 penalty payable to the court).
18 The bankruptcy court properly rejected Olson’s double
19 penalty theory. While the bankruptcy court’s decision to deny
20 his fees and impose sanctions involved some of the same conduct,
21 the denial of Olson’s fees was based on his breach of the Fee
22 Agreement and employment order and violation of § 330 and
23 Rule 9019, whereas the sanctions were imposed for his violation
24 of Rule 9011. In applying § 330 standards to Olson’s request
25 for fees, the bankruptcy court did not need to consider whether
26 the denial of his fees was a sufficient deterrent for purposes
27 of Rule 9011. The denial of fees was not a deterrent, but
28 rather was compelled by application of the § 330 standards to
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1 the Fee Agreement and Olson’s performance under that Agreement.
2 In contrast, the award of Rule 9011 sanctions was based
3 solely on the pleadings signed and filed by Olson in opposition
4 to Trustee’s motion for turnover. Olson’s position in
5 opposition to turnover, which was not supported by law or fact,
6 left Trustee with no alternative but to incur the added expense
7 of pursuing recovery. Therefore, after finding Olson violated
8 Rule 9011, the bankruptcy court had to determine what sanction
9 would accomplish the purpose of deterrence. See Rule 9011(c)
10 (sanction imposed by a court should “be limited to what is
11 sufficient to deter repetition of such conduct or comparable
12 conduct by others similarly situated”). The imposition of
13 sanctions in the form of attorneys’ fees and costs is
14 specifically authorized under Rule 9011(c) for violations of
15 Rule 9011(b). By awarding Trustee’s counsel their reasonable
16 fees, the bankruptcy court implicitly determined that a lesser
17 sanction would not effectively deter Olson or others in his
18 position. We will not disturb this discretionary determination
19 on appeal.
20 VI. CONCLUSION
21 Having found no error, we AFFIRM.
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