FILED
APR 11 2014
1 NO FO PUBL A IO
T R IC T N
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. NC-13-1168-DJuKi
)
6 JACQUELINE C. MELCHER, aka ) Bk. No. 01-53251-ASW
Jacqueline Carlin, )
7 )
Debtor. )
8 ______________________________)
)
9 JOHN W. RICHARDSON, Chapter )
7 Trustee, )
10 )
Appellant, )
11 )
v. ) M E M O R A N D U M1
12 )
JACQUELINE C. MELCHER, )
13 )
Appellee. )
14 ______________________________)
15 Argued and Submitted on February 20, 2014
at San Francisco, California
16
Filed - April 11, 2014
17
Appeal from the United States Bankruptcy Court
18 for the Northern District of California
19 Honorable Arthur S. Weissbrodt, Bankruptcy Judge, Presiding
20
Appearances: Charles Patrick Maher, Esq. of McKenna Long &
21 Aldridge LLP argued for Appellant, John W.
Richardson, Chapter 7 Trustee; Jacqueline C.
22 Melcher, Appellee, argued in pro per.
23
Before: DUNN, JURY, and KIRSCHER, Bankruptcy Judges.
24
25
26 1
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 8013-1.
1 Having twice failed to secure a finding that a chapter 72
2 debtor was a “vexatious litigant,” and apparently convinced that
3 the bankruptcy court never would make such a finding, the
4 chapter 7 trustee (“Trustee”) filed a motion for a determination
5 that a chapter 7 debtor has no standing in a case with an
6 insolvent estate to oppose any action of the Trustee not
7 specifically directed to the debtor. When the bankruptcy court
8 refused to impose a general prefiling review requirement on the
9 debtor, the Trustee appealed. Based on the extreme nature of the
10 debtor’s conduct in the chapter 7 case, we VACATE the order
11 denying the Trustee’s motion and REMAND the matter to the
12 bankruptcy court for further proceedings necessary to enter an
13 appropriate order to restrain debtor’s further abuses.
14 I. FACTUAL BACKGROUND
15 A. Background
16 Jacqueline C. Melcher ("Jacqueline") filed a chapter 11
17 petition on June 28, 2001, twelve hours before escrow was to
18 close on the sale of real property on Martha's Vineyard in
19 Massachusetts, referred to as “Stonewall,” pursuant to an order
20 of the Superior Court of California, Monterey County. In an
21 unpublished decision (“Melcher I”) issued on May 31, 2006, the
22 Panel reversed the bankruptcy court's order confirming
23 Jacqueline's chapter 11 plan, on the basis, inter alia, that the
24
25
2
Unless otherwise indicated, all chapter and section
26 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
27 all “Rule” references are to the Federal Rules of Bankruptcy
Procedure, Rules 1001-9037. The Federal Rules of Civil Procedure
28 are referred to as “Civil Rules.”
-2-
1 bankruptcy court's finding that the plan had been proposed in
2 good faith was clearly erroneous. In Melcher I, the Panel
3 repeatedly quoted a statement made by the bankruptcy court during
4 the course of proceedings before it regarding Jacqueline's
5 motivations: "She will only sell Stonewall if she absolutely has
6 to at the end of her life, you know that." The Panel in
7 Melcher I characterized the post-appeal dispute as a "two-party
8 marital property dispute between Jacqueline and [the estate of
9 her deceased former spouse, Terrence Melcher ("Probate Estate")].
10 That is a matter peculiarly within the competence of
11 nonbankruptcy courts to resolve."
12 Melcher I was affirmed by the Ninth Circuit on April 30,
13 2008, with the admonition that it was time to bring Jacqueline's
14 abuse of the bankruptcy process to an end:
15 On appeal, the Bankruptcy Appellate Panel has found
that Jacqueline did not file the Plan in good faith but
16 to keep Stonewall from being sold.
17 It is time to bring this abuse of the bankruptcy
process to an end. We affirm the judgment of the BAP.
18
19 Melcher v. Estate of Terrence P. Melcher (In re Melcher), Slip
20 Op. Case. No. 06-16412 (9th Cir. April 30, 2008) at 3:8-11.
21 Two days after the Ninth Circuit affirmed Melcher I, the
22 Probate Estate filed a motion to convert Jacqueline’s case to
23 chapter 7 rather than to dismiss it, for the reason that "[a]
24 chapter 7 trustee will be able to expeditiously sell
25 [Stonewall]." Although the bankruptcy court entered an order
26 (“Conversion Order”) on June 19, 2008, converting the case to
27 chapter 7, the Conversion Order was not to be effective until
28 July 28, 2008, to allow Jacqueline to file a motion to dismiss
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1 the case, which the Conversion Order dictated "shall be set for a
2 hearing prior to July 28, 2008."3
3 On July 23, 2008, Jacqueline filed an emergency motion
4 (“Emergency Motion”), which requested that the bankruptcy court
5 either vacate the Conversion Order or postpone the conversion of
6 the case. The Emergency Motion also requested that the
7 bankruptcy court approve a loan that was represented to be in an
8 amount sufficient to pay off all administrative claims and then
9 dismiss the case after the administrative claims had been paid.4
10 The Probate Estate opposed the Emergency Motion on the basis
11 that, because Jacqueline’s proposed loan was to be
12 cross-collateralized against Stonewall, it would "eat[] up any
13 equity" Jacqueline might have in Stonewall, thereby greatly
14 impairing the Probate Estate's interest in Stonewall. The
15 Probate Estate further asserted that the proposed loan would not
16 serve its stated purpose of paying all administrative creditors.
17 Over the objection of the Probate Estate, the bankruptcy
18 court extended the conversion date to August 25, 2008, and
19 required Jacqueline to file a full status report regarding the
20 impact of the financing on Stonewall. The conversion date was
21
22
3
The bankruptcy case docket reflects that dismissal of
23 the case was opposed not only by the Probate Estate, but also by
24 the lender on Stonewall and by at least one of the chapter 11
professionals whose fees in excess of $550,000 remained unpaid.
25
4
Notwithstanding Jacqueline’s desire to be done with the
26 bankruptcy case, the Emergency Motion requested that the
27 bankruptcy court retain jurisdiction after dismissal of the case
to allow her to litigate alleged violations of the automatic
28 stay.
-4-
1 further extended to September 15, 2008, to give Jacqueline an
2 opportunity to seek financing to prevent conversion of the case
3 to chapter 7.
4 Ultimately, Jacqueline's bankruptcy case was converted to
5 chapter 7 on September 15, 2008, and John Richardson was
6 appointed as Trustee in the case.5
7 Several times during his tenure in the case, the Trustee
8 requested that Jacqueline be adjudicated a “vexatious litigant”
9 and/or that limitations be imposed upon her seemingly endless
10 filings. In the appeal now pending before this Panel, the
11 Trustee included in his excerpts of record a copy of the docket
12 from the date of his appointment to April 15, 2013. This portion
13 of the docket is 108 pages long, contains more than 1700 entries,
14 and reflects the great difficulty Jacqueline had understanding
15 the role of the Trustee and her duties as a debtor in chapter 7.
16 Jacqueline opposed most substantive actions of the Trustee to
17 liquidate estate property.
18 We are asked to review the bankruptcy court's exercise of
19 its discretion in allowing Jacqueline's abusive use of the
20 bankruptcy process to further her continued efforts to stop the
21 sale of Stonewall by opposing any attempt by the Trustee to
22
23 5
When it became apparent that Jacqueline would be unable
to meet the court's condition to avoid conversion of the case to
24
chapter 7, on September 12, 2008, Jacqueline's son, Ryan Melcher,
25 filed a Notice of Appeal from the Conversion Order, through which
he requested a stay of the conversion. On September 23, 2008,
26 this Panel issue a Notice of Deficient Appeal and Impending
27 Dismissal (“NOD”), because Ryan’s appeal (BAP No. NC-08-1235)
appeared untimely. After Ryan failed to respond to the NOD, the
28 appeal was dismissed on November 24, 2008.
-5-
1 administer the bankruptcy estate.
2 B. The Trustee Attempts to Sell the Estate’s Martha’s Vineyard
Properties
3
4 1. The Rooney Application
5 October 10, 2008, the Trustee applied (“Rooney Application”)
6 for an order authorizing him to employ Richard Rooney and Rooney
7 & Company of Martha's Vineyard, Inc. as the real estate broker he
8 intended to use to sell Stonewall, an act he deemed necessary.
9 The Rooney Application also sought conditional approval to employ
10 Mr. Rooney to market and sell another Martha’s Vineyard property
11 “Moshup Trail,” also with a 5% commission, in the event the
12 Trustee concluded a sale of Moshup Trail was necessary.
13 The Rooney Application reflected that Mr. Rooney previously
14 had undertaken extensive efforts to market Stonewall during the
15 pendency of the chapter 11 case until Jacqueline "became
16 disenchanted" with Mr. Rooney and his firm in early 2008. The
17 Trustee inspected Stonewall, met with Mr. Rooney, and toured
18 comparable properties, after which he concluded Jacqueline's
19 concerns about Mr. Rooney were not well founded. The Trustee
20 asserted that the listing agreement Jacqueline, as debtor-in-
21 possession, had negotiated with Rooney & Company contained a
22 provision that allowed Rooney & Company a 2% commission even if
23 Stonewall were sold by another broker. In part to resolve this
24 potential liability of the estate, the Trustee proposed a 5%
25 commission for Mr. Rooney, subject to division with any buyer's
26 broker.
27 Jacqueline vigorously opposed the Rooney Application.
28 Her objection filed on October 22, 2008, was supported by two
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1 declarations by her former chapter 11 counsel. After the Trustee
2 filed a responsive declaration from Mr. Rooney, Jacqueline filed
3 a further declaration to respond to what she characterized as
4 Mr. Rooney's "false statements."
5 The dispute over the employment of Mr. Rooney was the
6 subject of numerous additional declarations, objections, and
7 hearings. It appears that the bankruptcy court, with the
8 agreement of the Trustee, allowed Jacqueline a limited
9 opportunity to "market" Stonewall by advertising in a high-end
10 magazine. When the time period allowed was over and the
11 continued hearing on the Rooney Application was held, it became
12 evident to the bankruptcy court that Jacqueline had done nothing
13 even to investigate how to place an advertisement in the
14 magazine. In an apparent attempt to circumvent further needless
15 objections regarding who ultimately was hired to market
16 Stonewall, the bankruptcy court precluded the Trustee from
17 employing Mr. Rooney. Instead, the Trustee was directed to
18 propose three alternative brokers, with Jacqueline to have the
19 final say as to which broker was to be employed. An order
20 authorizing the employment of Martha's Vineyard Seacoast
21 Properties to market Stonewall was entered on March 19, 2009.
22 Notwithstanding Jacqueline's objection to Mr. Rooney
23 generally, the bankruptcy court authorized his employment to
24 market the Moshup Trail property. The order authorizing
25 Mr. Rooney’s employment to market Moshup Trail was entered on
26 March 16, 2009.
27 Jacqueline immediately filed a motion seeking
28 “clarification” and a restraining order or stay of the
-7-
1 implementation of both employment orders. By its order entered
2 March 24, 2009, the bankruptcy court construed this motion as a
3 motion to reconsider the employment orders and denied the
4 request. On April 10, 2009, Jacqueline filed a further request
5 for a restraining order to prevent Mr. Rooney from listing Moshup
6 Trail "and randomly picking a selling price about which he has no
7 knowledge." The bankruptcy court held a further hearing
8 April 24, 2009, on Jacqueline's continuing objections to the
9 employment orders and entered yet another order denying
10 reconsideration on May 8, 2009.6
11 Jacqueline filed a timely appeal from the May 8, 2009 order.
12 However, on March 12, 2010, the District Court for the Northern
13 District of California (“District Court”)7 dismissed the appeal
14 for lack of prosecution after due notice, because Jacqueline
15 neither took any action in the appeal nor responded to the
16 District Court’s show cause order. Thereafter, on April 30,
17 2010, the District Court denied a request from Jacqueline seeking
18 relief from the dismissal of the appeal.
19 2. Trustee's Proposed Abandonment of Personal Property at
Stonewall
20
21 On May 5, 2009, the Trustee noticed his intent to abandon to
22 Jacqueline the furnishings at Stonewall. His decision to abandon
23
24 6
It appears that Jacqueline also had filed an
25 "objection" to the form of the proposed employment orders on
May 4, 2009, by filing a copy of the proposed order with
26 interlineations.
27 7
The Trustee opted out of the Panel’s jurisdiction for
28 Jacqueline’s appeal from the employment orders.
-8-
1 the furnishings was based primarily on the broker's
2 recommendation that Stonewall would show better if it were empty.
3 The Trustee estimated the value of the furnishings at not more
4 than $5,000. In light of issues that Jacqueline might raise
5 relating to claims of exemption in the furnishings, the Trustee
6 determined that the furnishings were of inconsequential value to
7 the estate. Jacqueline opposed the abandonment. First, she
8 disagreed that the house would show better without the
9 furnishings. Second, she complained of the expense she would
10 incur to move and store the furnishings. A hearing was held on
11 the dispute on July 1, 2009. On August 20, 2009, the bankruptcy
12 court entered an order confirming the abandonment and providing
13 that Jacqueline had five days to inform the Trustee how she
14 wanted removal of the furniture handled. On the proposed order
15 submitted by the Trustee, the bankruptcy court interlineated that
16 he had reviewed Jacqueline's objections to the form of the order,
17 but that its terms were consistent with what the bankruptcy court
18 had decided at the July 1, 2009 hearing.
19 3. Trustee's Proposed Sale of Moshup Trail
20 On May 22, 2009, the Trustee proposed to sell Moshup Trail
21 for $3.6 million cash. The prospective buyer insisted on closing
22 the sale by July 15, 2009. The notice of the proposed sale
23 called for overbids in the minimum amount of $100,000 and
24 provided a "break up fee" to the prospective buyer in the amount
25 of $20,000 in the event the Trustee accepted a higher offer.
26 Jacqueline objected to the proposed sale on numerous grounds.
27 She challenged the efforts of the Trustee and Mr. Rooney to
28 market Moshup Trail as minimal, asserted that the value was too
-9-
1 low, and emphasized (through her final paragraph typed in all
2 capital letters) that the only reason the trustee was selling
3 Moshup Trail was based on his incorrect belief that the Probate
4 Estate was owed millions. The Trustee responded and provided a
5 declaration from the prospective buyer. Following a hearing at
6 which evidence was taken, the bankruptcy court approved the sale.
7 In the order approving the sale, the bankruptcy court
8 interlineated that it had considered and rejected Jacqueline's
9 objections to the proposed form of the order. The order also
10 stated that the bankruptcy court did not review or consider the
11 untimely objection to the proposed sale that Jacqueline’s son,
12 Ryan, had filed. Jacqueline filed a Notice of Appeal and a
13 motion for stay pending appeal. When the bankruptcy court denied
14 the stay pending appeal, Jacqueline appealed that order as well.
15 The Trustee also elected to have these appeals heard by the
16 District Court. Both appeals were dismissed on March 12, 2010,
17 for lack of prosecution.
18 4. Trustee's Proposed Abandonment of Personal Property at
Moshup Trail
19
20 A requirement of the Moshup Trail sale was that the Trustee
21 was to remove all personal property from Moshup Trail and leave
22 the real property "broom clean." The Trustee therefore moved the
23 property, which was property of the estate in which Jacqueline
24 claimed "questionable" exemptions, to storage, which the Trustee
25 prepaid through September 30, 2009.
26 On July 14, 2009, the day before the closing date for the
27 sale of Moshup Trail, Jacqueline filed a request for an emergency
28 hearing on the removal of “her possessions” from Moshup Trail.
-10-
1 In her emergency motion Jacqueline stated that a neighbor had
2 called her, “shocked” that Jacqueline’s things were being moved
3 out. Jacqueline contested the Trustee's right to have moved the
4 property. Jacqueline asserted that because she had no clue why
5 anyone was touching “her” things, she had called the police.
6 After escrow on the Moshup Trail sale closed, the Trustee,
7 on July 22, 2009, served notice of his intent to abandon the
8 personal property removed from Moshup Trail because it was of
9 inconsequential value to the estate. Jacqueline opposed this as
10 well, complaining that she should have been allowed to remove the
11 personal property herself, because she could have done so at less
12 expense than the Trustee incurred in packing and removing the
13 personal property, an expense which the Trustee was seeking to
14 recover from Jacqueline.
15 A hearing on Jacqueline's objections to the proposed
16 abandonment was held on August 31, 2009, and on September 18,
17 2009, the bankruptcy court entered an order overruling those
18 objections. The order confirmed the abandonment and authorized
19 the Trustee to pay an additional month's storage from funds of
20 the bankruptcy estate.
21 C. Jacqueline Attempts to Wrest Control of the Case From the
Trustee
22
23 Unhappy with the Trustee’s initiation of efforts to sell the
24 Martha’s Vineyard properties, including Stonewall, Jacqueline did
25 not limit herself to opposing the Trustee’s pleadings. In the
26 spirit of making a good defense against the Trustee, Jacqueline
27 undertook a strong offense.
28 On December 12, 2008, while the Rooney Application was
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1 pending, Jacqueline filed a motion to compel (“Motion to Compel”)
2 the Trustee to rent the Martha’s Vineyard properties. The Motion
3 to Compel elicited from the Trustee not only an objection, but
4 also a motion to surcharge Jacqueline’s homestead exemption and a
5 motion to compel her compliance with her duties as a debtor,
6 inter alia, to cooperate with the Trustee.8
7 Jacqueline responded with two motions to remove or to
8 replace the Trustee (“Trustee Removal Motions”). The Trustee
9 then filed a notice of intent to request an order requiring that
10 Jacqueline satisfy excess expenses, attorneys fees, and costs the
11 estate was incurring as a result of the volume of her pleadings,
12 which were interfering with the Trustee’s administration of the
13 estate.
14 The bankruptcy court held a hearing on January 27, 2009, at
15
16
17
8
The Trustee sought compliance with §§ 521(a)(3) and
18 (4), which provide:
19
(a) The debtor shall:
20
. . .
21
22 (3) if a trustee is serving in the case . . .,
cooperate with the trustee as necessary to enable the
23 trustee to perform the trustee’s duties under this
title;
24
25 (4) if a trustee is serving in the case . . .,
surrender to the trustee all property of the estate and
26 any recorded information, including books, documents,
27 records, and papers, relating to property of the
estate, whether or not immunity is granted under
28 section 344 of this title. . . .
-12-
1 which time the Motion to Compel was denied.9 Not satisfied with
2 the result, Jacqueline filed a motion for reconsideration on
3 February 17, 2009, which the Trustee opposed. On March 16, 2009,
4 the bankruptcy court denied the motion for reconsideration.10
5 Jacqueline filed a notice of appeal on April 10, 2009. The
6 District Court11 dismissed the appeal as untimely.
7 Also at the January 27, 2009 hearing, the bankruptcy court
8 denied both Trustee Removal Motions. The bankruptcy court's
9 order denying the Trustee Removal Motions was entered on
10 February 6, 2009. This order also was the subject of a motion
11 for reconsideration, which in turn, was the subject of an appeal.
12 D. Requests to Declare Jacqueline a Vexatious Litigant
13 The above are but some of the examples of Jacqueline’s
14 litigation tenacity as reflected on the docket. The Trustee was
15 unsuccessful in obtaining Jacqueline’s cooperation,
16 notwithstanding the suggestions made through his pleadings that
17 her interference with the administration of the estate was
18 resulting in escalating costs to the estate, and that he would
19 seek to recover from her sanctions in the form of payment for
20 those increased costs. Ultimately, the Trustee attempted to get
21 the assistance of the bankruptcy court in dealing with the
22
23 9
The bankruptcy court’s order denying the Motion to
24 Compel was entered on February 6, 2009.
10
25 The bankruptcy court’s order denying the motion for
reconsideration was entered March 30, 2009.
26
11
27 The Trustee opted out of the jurisdiction of this
Panel. Jacqueline also objected to the Trustee's election to
28 have the appeal heard by the District Court.
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1 overwhelming litigiousness he confronted in response to every
2 action he proposed in the case.
3 On April 24, 2009, the Trustee file his first “Notice and
4 Motion for Vexatious Litigant Order” (“First Vexatious Litigant
5 Motion”). In it, he asserted that as of the date of the motion,
6 he had not proposed a “single sale or compromise for Court
7 approval” since his appointment. Yet in a four-month period,
8 Jacqueline had filed “33 requests, motions, and oppositions to
9 administrative and other acts deliberately interfering with the
10 Trustee’s administration of the case.” The bankruptcy court
11 heard the motion, and on July 16, 2009, made detailed findings on
12 the record. Acknowledging that the debtor’s filings demonstrated
13 litigiousness, the bankruptcy court ruled that the filings “are
14 not patently without merit such that this Court should determine
15 [Jacqueline] to be a vexatious litigant.” The bankruptcy court
16 found that those of Jacqueline’s filings that “arguably lacked
17 merit” had decreased since the Trustee filed this motion. The
18 bankruptcy court also determined that it had not been
19 demonstrated that the bankruptcy estate was insolvent, so that it
20 appeared that Jacqueline’s excessive pleadings were not taking
21 funds from the creditors in the case.
22 On September 15, 2010, the Trustee “renewed” his motion
23 seeking a declaration that Jacqueline was a vexatious litigant
24 (“Second Vexatious Litigant Motion”), asserting that her
25 pleadings were increasingly frivolous and untruthful and were
26 designed to damage the estate. The Trustee asserted that since
27 the First Vexatious Litigant Motion was filed, Jacqueline had
28 filed at least 36 vexatious pleadings. The hearing on the Second
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1 Vexatious Litigant Motion originally was scheduled for
2 October 26, 2010, but was rescheduled to December 3, 2010. The
3 docket contains no other references to the Second Vexatious
4 Litigant Motion until March 15, 2011, when Jacqueline filed an
5 objection to it. However, on April 22, 2011, the bankruptcy
6 court entered an order which recites that at the March 2, 2011
7 hearing on Jacqueline’s objection to the Trustee’s proposed
8 settlement with the Probate Estate, the Second Vexatious Litigant
9 Motion was discussed and tentatively scheduled to be heard on
10 April 27, 2011. That order further states:
11 . . . the Court requires Trustee and the Probate Estate
to calculate for the Court – assuming that the net
12 proceeds were distributed prior to the tax liability
being paid out of the net sale proceeds – the amount
13 that Terrence Melcher would have actually received from
a sale of [Stonewall] as of December 4, 2001, less any
14 capital gains taxes that would have needed to be paid.
Trustee and the Probate Estate shall provide the
15 requested information in writing to the Court on or
before May 4, 2011. If the requested information is
16 provided by May 4, 2011, then a continued hearing on
the Compromise Motion and the [Second] Vexatious
17 Litigant Motion will be held on May 11, 2011 at 2:30
p.m.
18
19 Although in a pleading filed March 29, 2011, the Trustee did
20 provide an analysis of the “adequate protection”12 payment that
21 was in dispute and formed part of a proposed compromise with the
22 Probate Estate, the analysis did not specifically address the
23 capital gains taxes that would have needed to be paid other than
24
25
12
The Probate Estate’s right to an “adequate protection”
26 payment was included in the bankruptcy court’s order entered
27 early in the chapter 11 case that denied the Probate Estate’s
request for relief from the automatic stay to enforce its rights
28 in Stonewall.
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1 to state: “In the context of a relief from stay motion I am not
2 aware of a court distinguishing between principal and interest
3 accruals or penalties because the latter are theoretically
4 taxable, and then reducing the amount of adequate protection to
5 account for theoretical tax.” The Probate Estate filed a
6 declaration relating to the potential capital gains treatment of
7 a 2001 sale of Stonewall on May 4, 2011.
8 At the May 11, 2011, hearing, the bankruptcy court again
9 declined to find that Jacqueline was a vexatious litigant with
10 respect to filings made in the bankruptcy case, because,
11 notwithstanding the excessive pleadings, some had been partially
12 responsible for increasing settlements to the estate. Further,
13 the bankruptcy court was not able to determine until Stonewall
14 sold whether the estate would in fact be insolvent.
15 The bankruptcy court did, however, determine that Jacqueline
16 was barred from filing pleadings in other courts.13 The
17 bankruptcy court clarified on the record that after the case was
18 converted to chapter 7, Jacqueline had no authority to act in any
19 pending case. The bankruptcy court’s order on the Second
20 Vexatious Litigant Motion incorporating this limited prohibition
21 on Jacqueline was entered May 23, 2011. Jacqueline thereafter
22 filed a motion for reconsideration on June 2, 2011, which was
23
13
More than two years after the Trustee’s appointment
24
Jacqueline still was filing pleadings in litigation she had
25 initiated. This included litigation in Massachusetts against
neighboring property owners in which she alleged that their
26 construction had impaired the value of Stonewall. The Trustee
27 Removal Motions reflect that Jacqueline believed that the Trustee
was conspiring with the neighboring property owners and the
28 Probate Estate to deprive her of her interest in Stonewall.
-16-
1 initially set to be heard June 23, 2011, but was reset first to
2 July 14, 2011, then to September 13, 2011, and yet again to
3 October 21, 2011,14 when the hearing finally was held and the
4 bankruptcy court denied the motion. The order denying the motion
5 for reconsideration was entered October 31, 2011.
6 Between the filing of the First Vexatious Litigant Motion
7 and the order denying Jacqueline’s motion for reconsideration of
8 the order partially granting the Second Vexatious Litigant
9 Motion, Jacqueline’s pleadings increased dramatically. Not
10 coincidentally, during that period, the Trustee had undertaken to
11 resolve the dispute with the Probate Estate and was actively
12 attempting to sell Stonewall.
13 On October 11, 2011, days before the ultimate hearing on the
14 Second Vexatious Litigant Motion, Jacqueline filed a motion for
15 an order to show cause why the Trustee should not be held in
16 contempt for failing to turn over documents to her relating to
17 her ongoing objections to many matters decided previously. In
18 its Memorandum Decision of February 6, 2012, the bankruptcy court
19 denied this motion. Jacqueline’s (inevitable) motion for
20 reconsideration was denied March 12, 2012. Additionally, two
21 days after the entry of the February 6 Memorandum Decision,
22 Jacqueline filed a request that the Department of Justice
23 investigate the administration of the estate. She also filed a
24 new motion asserting claims against the Trustee on February 7,
25 2012.
26
27 14
Jacqueline filed a new motion for reconsideration on
28 September 30, 2011.
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1 On November 16, 2012, the Trustee served notice of his
2 intent to conduct an auction for the sale of Stonewall by sealed
3 bid, with the minimum bid amount to be $6 million. This
4 triggered yet another flurry of renewed motions from Jacqueline
5 directed against the Trustee. Jacqueline filed another motion to
6 remove the Trustee and his attorney on November 21, 2012. The
7 bankruptcy court attempted to preempt further action on this
8 motion. The bankruptcy court reviewed the motion and its
9 supporting exhibits, determined that oral argument was not
10 necessary, and denied the motion, albeit without prejudice,
11 giving Jacqueline direction as to the specificity and evidence
12 required in the event the motion was refiled. Jacqueline
13 thereafter, on December 12, 2012, filed an amended motion to
14 remove the Trustee without adhering to the instructions of the
15 bankruptcy court. She filed subsequent (redundant) motions to
16 remove the Trustee on January 11, 2013, and on January 17, 2013.
17 When the bankruptcy court denied the first of these three motions
18 on February 6, 2013, Jacqueline promptly filed a motion for
19 reconsideration on February 19, 2013, which was denied by order
20 entered March 13, 2013.
21 During this series of proceedings, the Trustee filed the
22 motion ("Standing Motion") that is the subject of this appeal,
23 which requested that the bankruptcy court determine that
24 Jacqueline had no standing. The First and Second Vexatious
25 Litigant Motions had been denied primarily because the Trustee
26 did not establish that the bankruptcy estate was insolvent, but
27 also because the bankruptcy court found that Jacqueline’s
28 pleadings were neither frivolous nor filed to harass the Trustee
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1 (First Vexatious Litigant Motion) or were not patently without
2 merit (Second Vexatious Litigant Motion). The Standing Motion
3 did not seek a determination that Jacqueline was a vexatious
4 litigant. Instead, it asserted as grounds to bar Jacqueline’s
5 subsequent filings in the case "the insolvency of the bankruptcy
6 estate at the Chapter 11 level and the impossibility of a surplus
7 even if the Court were to order that the Trustee and his counsel
8 return all fees and expenses paid to them since the beginning of
9 the Chapter 7 case."15 The Trustee’s exasperation with both
10 Jacqueline and the bankruptcy court is fully expressed in the
11 Standing Motion.
12 From the date on which [Jacqueline] filed her
Chapter 11 petition through the date of the present
13 motion, [she] has steadily depleted her bankruptcy
estate by (1) incurring during the Chapter 11 case
14 $3.5 million in professional expenses, borrowing
approximately the same sum secured by equity in real
15 estate, and selling [a rental property], and (2) filing
possibly 1,000 pleadings or more during the Chapter 7
16 case, challenging the Trustee in almost every aspect of
his administration of the bankruptcy estate.
17
The enormous financial obligations [Jacqueline]
18 incurred before conversion of the Chapter 11 case could
not have been prevented by the Trustee. However, it
19 fell to the Trustee to pay approximately $800,000 in
Chapter 11 professional fees and to resolve 11 pending
20 pieces of litigation.
21 The Trustee intended, and has consistently
attempted, to administer the estate in a manner that
22 was consistent with the requirements of the Bankruptcy
Code with the goal of producing a surplus for
23
24 15
There are suggestions in the record that the bankruptcy
25 court was displeased by the level of fees generated by the
Trustee and his professionals and that denial of further fees and
26 even disgorgement of previously awarded fees had been raised, at
27 least in one instance, when the bankruptcy court expressed
frustration that Jacqueline could go from a multi-millionaire to
28 homeless by the end of the case.
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1 [Jacqueline]. However, [Jacqueline] disrupted that
plan from the outset of the Chapter 7 case by
2 interfering with the Trustee at every step and
requiring the Trustee to devote substantial attorney
3 time and effort to protecting the bankruptcy estate
from her. The Court gave [Jacqueline’s] views such
4 deference that it appeared that she had standing equal,
and in some instances superior, to the Trustee. This
5 made the situation much worse. In this Chapter 7 case,
[Jacqueline] somehow has been able to get an
6 “emergency” hearing the same day with no supporting
pleadings and no notice to the Trustee (e.g.
7 February 25, 2009, March 25, 2011).
8 The Trustee warned [Jacqueline] in writing one day
after the case converted not to create unnecessary
9 expense. The Trustee made the same warning public in
pleadings filed in the first months of the Chapter 7
10 case and continually throughout the case. No one
heeded the warning and now [Jacqueline] and the Court
11 are complaining that [Jacqueline] will not be able to
retain “her” house. The Trustee and his counsel (who
12 together have 50 years of experience in bankruptcy
liquidations) should have been permitted to run the
13 case without interference from a debtor whose entire
Chapter 11 case was a failure and whose stewardship of
14 the estate produced $3.6 million in Chapter 11
professional fees.
15
16 Standing Motion at 4:12-5:10. The bankruptcy court heard the
17 Standing Motion on March 19, 2013.
18 The bankruptcy court denied the Standing Motion because the
19 Trustee had cited no authority to support a blanket ban on filing
20 pleadings in the absence of a finding that a person is a
21 vexatious litigant. The bankruptcy court did provide that the
22 Trustee could raise the standing issue against any individual
23 pleading Jacqueline might file. The bankruptcy court bolstered
24 its decision on its failure to find any case that said a debtor
25 had no standing in the debtor’s underlying bankruptcy case when
26 the estate is insolvent.
27 The Trustee filed a timely notice of appeal from the order
28 denying the Standing Motion, asserting that the Bankruptcy Court
-20-
1 clearly erred when it refused to determine that where there was
2 no possibility of a surplus and Jacqueline had no possible
3 pecuniary interest, she had no standing to assert any objection
4 except in response to a motion specifically filed against her or
5 a complaint which named her as a defendant.
6 II. JURISDICTION
7 The bankruptcy court had jurisdiction under 28 U.S.C.
8 §§ 1334 and 157(b)(2)(A) and (O). We have jurisdiction under
9 28 U.S.C. § 158
10 III. ISSUE
11 Whether the bankruptcy court abused its discretion when it
12 denied the Standing Motion.
13 IV. STANDARDS OF REVIEW
14 In seeking a bar to filing against Jacqueline, the Trustee
15 in effect was seeking sanctions against her. We review for an
16 abuse of discretion a bankruptcy court’s decision regarding
17 requested sanctions. See, e.g., In re Brooks-Hamilton, 400 B.R.
18 238, 245 (9th Cir. BAP 2009)(decision to impose Rule 9011
19 sanctions). A bankruptcy court abuses its discretion if it
20 applied the wrong legal standard or its findings are illogical,
21 implausible or without support in the record. TrafficSchool.com,
22 Inc. v. Edriver Inc.,
653 F.3d 820, 832 (9th Cir. 2011). In the
23 absence of complete findings, we may vacate a judgment and remand
24 to the bankruptcy court to make the required findings. See
25 United States v. Ameline,
409 F.3d 1073, 1078-81 (9th Cir. 2005).
26 V. DISCUSSION
27 28 U.S.C. § 1651(a), commonly known as the “All Writs Act,”
28 authorizes federal courts to “issue all writs necessary or
-21-
1 appropriate in aid of their respective jurisdictions and
2 agreeable to the usages and principles of law.” By its terms,
3 the All Writs Act applies to Article I courts, i.e. “Courts
4 established by Act of Congress.” Therefore, the All Writs Act is
5 available as an aid to bankruptcy courts in the exercise of their
6 jurisdiction.
7 The Ninth Circuit long has recognized the ability of trial
8 courts to utilize the All Writs Act to regulate the activities of
9 abusive litigants.16 See Clinton v. U.S.,
297 F.2d 899 (9th
10 Cir.), cert. denied,
369 U.S. 856 (1961); DeLong v. Hennessey,
11
912 F.2d 1144, 1146 (9th Cir. 1990). This regulation typically
12 takes the form of a “prefiling order.” Weissman v. Quail Lodge,
13 Inc.,
179 F.3d 1194, 1197 (9th Cir. 1999).
14 We recognize that a prefiling order is an extreme remedy to
15 be imposed only under extreme circumstances.
DeLong, 912 F.2d at
16 1147. The test to determine whether the imposition of a
17 prefiling order is appropriate against a particular litigant is
18 well-defined. First, the litigant must be provided notice and an
19 opportunity for hearing; second, an adequate record must be made
20 listing the abusive activities undertaken by the litigant; third,
21 the claims brought were frivolous or were brought with the intent
22 to harass the parties; fourth, any order imposed must be tailored
23 narrowly to deter the specific behavior in which the litigant has
24
25
16
At least one court has recognized that a court has a
26 “clear duty to take the necessary actions to regulate [an abusive
27 litigant’s] access to the court for the good of the parties and
court alike.” Armstrong v. Rushton (In re Armstrong),
309 B.R.
28 799, 805 (10th Cir. BAP 2004).
-22-
1 engaged.
Id., 912 F.2d at 1147-48.
2 In its evaluation of the third and fourth elements of this
3 test, the Ninth Circuit directs the trial court to consider five
4 factors, referred to as the Safir factors, adopted from the
5 Second Circuit’s decision in Safir v. U.S. Lines, Inc.,
792 F.2d
6 19 (2d Cir. 1986). See Molski v. Evergreen Dynasty Corp.,
7
500 F.3d 1047, 1058 (9th Cir. 2007).
8 The Safir factors are:
9 (1) the litigant’s history of litigation and in
particular whether it entailed vexatious, harassing or
10 duplicative lawsuits; (2) the litigant’s motive in
pursuing the litigation, e.g. does the litigant have an
11 objective good faith expectation of prevailing?;
(3) whether the litigant is represented by counsel;
12 (4) whether the litigant has caused needless expense to
other parties or has posed an unnecessary burden on the
13 courts and their personnel; and (5) whether other
sanctions would be adequate to protect the courts and
14 other parties.
15
Safir, 792 F.2d at 24.
16 The Trustee twice sought prefiling restrictions against
17 Jacqueline through his motions to have her determined to be a
18 vexatious litigant. In filing the Standing Motion, the Trustee
19 believed it would be useless to request the bankruptcy court to
20 declare Jacqueline a vexatious litigant, where the bankruptcy
21 court twice had recognized the “litigiousness” of Jacqueline’s
22 pleadings but would not ascribe an improper motive to their
23 filing. The bankruptcy court had found Jacqueline’s voluminous
24 filings were merely “heartfelt.”17 Because motive is to be
25
26 17
It also is clear that whatever motion the Trustee filed
27 to obtain the bankruptcy court’s assistance in curtailing
Jacqueline’s filings, resolution of the motion could take months.
28 continue...
-23-
1 evaluated on an objective basis, this finding was clearly
2 erroneous.
3 In the light of this record, we read the Standing Motion to
4 include two distinct requests for relief. The first was a
5 declaration that Jacqueline had no standing to be heard on
6 matters of administration in the chapter 7 case that were not
7 directed to her personally because the bankruptcy estate was
8 insolvent. The second was that the bankruptcy court impose a
9 prefiling ban on Jacqueline to prevent further erosion of the
10 estate from her litigiousness.
11 The bankruptcy court denied the Standing Motion, stating
12 “The problem is, the Trustee has not cited any authority, not one
13 single case, and the Court is not aware of any for a blanket ban
14 on filing pleadings in the absence of a finding that a person is
15 a vexatious litigant.” Although the Standing Motion raised the
16 issue of the litigiousness of Jacqueline as a basis for seeking a
17 prefiling ban, thereby implicitly invoking the All Writs Act, the
18 bankruptcy court made no findings to support a denial of that
19 relief.
20 This appeal turns on the issue of whether the bankruptcy
21 court abused its discretion in refusing to impose prefiling
22 restrictions on Jacqueline.
23 The hearing on the Standing Motion satisfies the first
24 element of the DeLong test, i.e., that Jacqueline be provided
25 notice and an opportunity for hearing on the issue that a
26
17
27 ...continue
We cannot fault the Trustee for attempting to obtain a prefiling
28 order against Jacqueline through his standing argument.
-24-
1 prefiling bar might be imposed against her. The Standing Motion
2 and Mr. Maher’s declaration in support of it satisfy the second
3 element of the DeLong test, providing a more than adequate record
4 of the abusive activities Jacqueline had undertaken over a
5 lengthy period of time.
6 The third element of the DeLong test is at the heart of this
7 appeal, as well as of the Trustee’s frustration. Jacqueline’s
8 multiple pleadings were frivolous and were brought with the
9 intent to harass the parties. The bankruptcy court never made
10 this finding in any of the three motions filed by the Trustee,
11 and in light of the bankruptcy court’s comments that Jacqueline’s
12 litigation tactics were merely “heartfelt,” we doubt the
13 bankruptcy court ever would. However, in applying the third
14 element in DeLong, the bankruptcy court failed to follow the
15 Ninth Circuit’s directive to consider the Safir factors. In this
16 matter, two cry out to be highlighted: (1) Jacqueline’s history
17 of litigation and in particular whether it entailed vexatious,
18 harassing or duplicative lawsuits, and (2) Jacqueline’s motive in
19 pursuing the litigation.
20 In the context of the Trustee’s quest for a prefiling bar
21 against Jacqueline, these factors were no longer subject to any
22 dispute. In Melcher I, this Panel was so struck by inconsistency
23 between the bankruptcy court’s determination that Jacqueline’s
24 plan as it addressed the treatment of the Probate Estate was
25 proposed in good faith and the bankruptcy court’s statement, "She
26 will only sell Stonewall if she absolutely has to at the end of
27 her life, you know that," that it repeated the statement multiple
28 times. The Ninth Circuit named Jacqueline’s motivation in the
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1 bankruptcy case for what it was - an abusive use of the
2 bankruptcy process.18
3 Two other Safir factors merit discussion here as well.
4 First, the record establishes beyond any question that estate
5 assets have been all but used up as a result of Jacqueline’s
6 continued meritless litigation. The twelve appeals she filed but
7 did not prosecute are but a small example in the context of this
8 case. There is no question from the record before us that the
9 Probate Estate has been impacted seriously by the diminution of
10 the bankruptcy estate, as have the Trustee and his counsel in
11 light of the fees and expenses they have incurred in attempting
12 to meet their statutory duties to administer the bankruptcy
13 estate. The bankruptcy court itself expressed concern that as a
14 consequence of the protracted proceedings, Jacqueline was likely
15
16 18
In Melcher I, we previously rejected the bankruptcy
17 court’s generous characterization of Jacqueline’s litigation
tactics:
18
19 The [bankruptcy] court grounded its reason . . . on the
proposition that Jacqueline “merely seeks to complete
20 the California State Court litigation and receive a
determination of the parties’ respective legal rights.”
21 329 B.R. at 876. The seemingly innocuous nature of the
22 debtor’s purpose implied by that statement is belied by
her litigation history from 1997 through the time of
23 confirmation and continues to be belied by her
litigation activity, especially her initiation of the
24
Los Angeles County Superior Court action, following
25 confirmation.
26 Melcher I at 14:21-15:1. “Jacqueline’s litigation history
27 warrants a prediction that any motion for relief from stay would
be litigated to the maximum extent possible and that all possible
28 appeals would be pursued. . . .”
Id. at 16:14-17.
-26-
1 to be transformed from a financially independent woman with
2 millions of dollars in assets to an individual rendered homeless
3 through the bankruptcy process, a result all concede is
4 untenable, but now increasingly likely.
5 Second, it is evident that no sanction short of a prefiling
6 bar will curtail Jacqueline’s actions. Consider the series of
7 pleadings that led directly to the filing of the Standing Motion.
8 When Jacqueline filed one of her motions to remove the Trustee
9 and his attorney on November 21, 2012, the bankruptcy court
10 reviewed the motion and its supporting exhibits, determined that
11 oral argument was not necessary, and denied the motion, giving
12 Jacqueline explicit directions as to the specificity and evidence
13 required in the event she elected to refile the motion.
14 Jacqueline ignored the instructions of the bankruptcy court and
15 filed not one, but three additional redundant motions without
16 compliance, as well as a further motion for reconsideration on
17 their denial.
18 The fifth Safir factor also is important in this case in
19 light of the Supreme Court’s recent determination that a
20 chapter 7 debtor’s exemptions are fully protected from surcharge.
21 Law v. Siegel,
134 S. Ct. 1188 (2014). Jacqueline ignored with
22 impunity the Trustee’s continuous pleas that she scale back her
23 litigation assaults or face the possible consequence of a
24 surcharge to her homestead exemption and/or an award of sanctions
25 against her. Years down the road, no monetary remedy is likely
26 where the Trustee cannot surcharge Jacqueline’s exemptions and
27 where Jacqueline likely has been rendered destitute.
28 Without the intervention of the bankruptcy court, disaster
-27-
1 was, and is, imminent. It is unfortunate that the Trustee did
2 not appeal sooner, either from the denial of the First Vexatious
3 Litigant Motion or the denial of the Second Vexatious Litigant
4 Motion, particularly in light of the Ninth Circuit’s
5 determination that Jacqueline’s litigation of her dispute with
6 the Probate Estate constituted an abuse of the bankruptcy
7 process.
8 On the record before us, the bankruptcy court abused its
9 discretion and clearly erred when it denied the Trustee’s
10 request, contained in the Standing Motion, for the imposition of
11 a prefiling bar against Jacqueline.
12 VI. CONCLUSION
13 In 2008, the Ninth Circuit determined that Jacqueline was
14 abusing the bankruptcy process. Inexplicably, she has been
15 shielded by the bankruptcy court and allowed to interfere with
16 the Trustee’s administration of the estate without restraint for
17 more than five years since then. Despite the Trustee’s multiple,
18 desperate attempts to obtain the assistance of the bankruptcy
19 court in curtailing Jacqueline’s abusive behavior, she remains
20 unchecked. The bankruptcy court’s denial of the Trustee’s most
21 recent attempt, made through the Standing Motion, was an abuse of
22 discretion. We VACATE the order on appeal and REMAND to the
23 bankruptcy court for further proceedings on the Standing Motion.
24 In particular, the bankruptcy court is instructed to make
25 appropriate findings under DeLong and Safir in light of our
26 analysis above and to implement an appropriate prefiling order to
27 address the outrageous conduct of Jacqueline evidenced by the
28 docket and her voluminous filings, that apparently will be
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1 interminable unless she is restrained.
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