In re: John Dahlgren v. , 494 F. App'x 201 ( 2012 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 11-2794
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In re: JOHN DAHLGREN,
Debtor
Broege, Neumann, Fischer & Shaver and
David E. Shaver,
Appellants
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On Appeal from the United States District Court
for the District of New Jersey
District Court No. 3-10-cv-01988
District Judge: The Honorable Freda L. Wolfson
Submitted Pursuant to Third Circuit L.A.R. 34.1(a)
June 29, 2012
Before: SMITH and FISHER, Circuit Judges
RAKOFF, District Judge∗
(Filed: August 23, 2012)
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OPINION
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SMITH, Circuit Judge.
∗
The Honorable Jed S. Rakoff, Senior District Judge for the United States District
Court for the Southern District of New York, sitting by designation.
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Appellant David E. Shaver and his law firm, Broege, Neumann, Fischer &
Shaver, (collectively “Shaver”), seek reversal of an award of sanctions under
Bankruptcy Rule 9011. The Bankruptcy Court imposed sanctions on Shaver for a
reorganization plan that he proposed. The District Court affirmed. In re Dahlgren,
No. 10-1988, 2010 WL 5287411, at *8 (D.N.J. Dec. 17, 2010), reconsideration
denied, 2011 WL 2160884 (D.N.J. June 1, 2011). We will likewise affirm. 1
In August 2001, paramours John Dahlgren and Regina Palone purchased a
farm in Howell, New Jersey. After Dahlgren and Palone ended their relationship
in late 2004, Palone moved out and attempted to convince Dahlgren to sell the
property, but he refused. Later, as a result of missed mortgage payments, the
property’s first mortgagee filed a foreclosure action. On February 26, 2008,
Palone instituted a partition action in the Superior Court of New Jersey, Chancery
Division, Monmouth County. Dahlgren failed to appear at the hearing and his
attorney 2 filed an untimely answer, so the court entered a default against him. On
October 14, 2008, the court ordered that the property be listed for sale. The court
1
The Bankruptcy Court had jurisdiction under 28 U.S.C. § 1334, 28 U.S.C. § 157,
and the Standing Order of Reference by the United States District Court for the
District of New Jersey dated July 23, 1984, referring Title 11 cases to the
Bankruptcy Court. The District Court had jurisdiction over an appeal from the
Bankruptcy Court under 28 U.S.C. § 158(a). We have jurisdiction over an appeal
from the District Court under 28 U.S.C. § 158(d).
2
Shaver did not represent Dahlgren at this point.
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scheduled a hearing for April 9, 2009 to allocate the proceeds from the eventual
sale.
On the day of the scheduled hearing, Dahlgren, now represented by Shaver,
filed for bankruptcy under Chapter 13 of the Bankruptcy Code. This filing
automatically stayed the state proceedings. See 11 U.S.C. § 362. Shaver proposed
a reorganization plan that would divest Palone of her interest in the Property,
treating her instead as a creditor. On May 6, Palone’s counsel sent Dahlgren a
safe-harbor letter, see Fed. R. Bankr. P. 9011(c)(1)(A), informing Shaver that he
believed that the proposed plan violated Bankruptcy Rule 9011(b). See Fed. R.
Bankr. P. 9011(b). On June 25, 2009, Palone filed for sanctions. Palone also filed
a motion to dismiss the plan.
The Bankruptcy Court did not approve the original plan, but denied Palone’s
motion to dismiss. The Bankruptcy Court held that – although the timing of the
plan’s filing was suspicious – the plan was not filed or prosecuted in bad faith. See
In re Dahlgren, 418 B.R. 852, 857 (Bankr. D.N.J. 2009). The Bankruptcy Court
ruled, however, that the plan was “patently unconfirmable based on [Dahlgren’s]
proposed treatment of [Palone’s] interest in the farm.” Id. at 858. Moreover, the
Bankruptcy Court did not believe it could “abrogate[]” the state-court sale order.
Id. at 860. The Bankruptcy Court accordingly rejected the plan as written and
invited Dahlgren to file an alternative plan. See id. at 861. Soon after the
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Bankruptcy Court issued its decision, Shaver wrote to Palone’s counsel asking for
withdrawal of the notice of intent to seek sanctions based on the Bankruptcy
Court’s failure to find bad faith. Palone’s counsel declined to withdraw the notice,
citing the significant flaws that the Bankruptcy Court had identified in the plan.
Dahlgren soon submitted an amended plan. The only changes were to
authorize the sale of the property to a third party if Dahlgren defaulted and to set a
monetary figure for Palone’s interest in the property. As a result, the Bankruptcy
Court granted Palone’s motion for sanctions, imposing $400 in costs and $12,500
in fees, representing half of Palone’s attorneys’ fees. The Bankruptcy Court
ordered the sanctions in open court; it did not memorialize its reasoning in a
written opinion.
The District Court affirmed the Bankruptcy Court. In addition to concluding
that both plans violated the Rooker-Feldman doctrine, the District Court found that
the Bankruptcy Court imposed sanctions because of Shaver’s resubmission of a
similar plan after the Bankruptcy Court declined to approve the first plan.
“Because the district court sat as an appellate court in reviewing this matter,
our own review of that court’s factual and legal determinations is plenary.”
Fellheimer, Eichen & Braverman, P.C. v. Charter Techs., Inc., 57 F.3d 1215, 1223
(3d Cir. 1995). In reviewing the Bankruptcy Court’s determinations, we exercise
an abuse-of-discretion standard, see Cooter & Gell v. Hartmarx Corp., 496 U.S.
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384, 405 (1990), “the same standard of review as the district court[.]” Fellheimer,
57 F.3d at 1223.
Shaver objects to the District Court’s conclusion that the Bankruptcy Court
relied on the Rooker-Feldman doctrine in rejecting the plan and ultimately
imposing sanctions. But it is clear that the Bankruptcy Court relied in part on
Rooker-Feldman in rejecting the initial plan. See Dahlgren, 418 B.R. at 860
(“[T]he problem here is that the Debtor had the opportunity to request [a remedy in
which the farm is sold to him] in the pending state court action, but failed to do so.
Bankruptcy does not afford [Dahlgren] a second chance to seek novel relief that he
missed in state court. . . . [S]ale of the property has been ordered by the state court.
This court would not be justified in confirming a plan that abrogates that order.”
(internal citation omitted)). It did the same in levying sanctions. Shaver also
objects to the District Court’s application of the Rooker-Feldman doctrine. But
Rooker-Feldman precludes federal courts “from entertaining an action . . . if the
relief requested effectively would reverse a state court decision or void its ruling.”
Taliaferro v. Darby Twp. Zoning Bd., 458 F.3d 181, 192 (3d Cir. 2006).
Dahlgren’s plan, as submitted by Shaver, would have voided the state court’s sale
order.
But extensive analysis of Rooker-Feldman is not required here. The
Bankruptcy Court issued an opinion that clearly foreclosed a forced sale from
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Palone to Dahlgren. See Dahlgren, 418 B.R. at 858 (holding the plan “patently
unconfirmable based on [Dahlgren’s] proposed treatment of [Palone’s] interest in
the farm”). Shaver makes no attempt to dispute what appears clear from the face
of the opinion – that a plan including a forced sale to Dahlgren cannot be
approved. And yet Shaver submitted a revised plan that once again contemplated a
forced sale from Palone to Dahlgren. Reviewing the transcript, it is clear that the
Bankruptcy Court was concerned about the continued conflict between the second
plan and its opinion, and that this was one of a number of reasons for levying
sanctions. While our standard of review here does not mandate deference to the
District Court, it is worth noting that this reading accords with the District Court’s
view of the case. See Dahlgren, No. 10-1988, 2010 WL 5287411, at *4
(“Dahlgr[e]n's counsel's decision to resubmit the same reorganization plan to the
Bankruptcy Court a second time was the basis of the Bankruptcy Court’s sanctions
ruling.”); id. at *5 (“Debtor’s Counsel’s decision to resubmit the same plan a
second time was sufficiently egregious to justify the imposition of sanctions by the
Bankruptcy Court.”).
These actions amount to sanctionable conduct. While the initial submission
of the plan could be “warranted by existing law or by a nonfrivolous argument for
the extension, modification, or reversal of existing law,” Fed. R. Bankr. P.
9011(b)(2), pursuing a revised plan that included the sale-to-Debtor provision was
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frivolous in light of the Bankruptcy Court’s initial opinion declaring such a
provision “patently unconfirmable.” If Dahlgren and his counsel Shaver disagreed
with the Bankruptcy Court’s ruling, they were free to ask the Bankruptcy Court to
reconsider that ruling or to seek review by the District Court. They did neither.
Instead, they resubmitted a plan that the Bankruptcy Court had unambiguously
rejected. We believe that this was not “reasonable[] under the circumstances[.]”
Ford Motor Co. v. Summit Motor Prods., Inc., 930 F.2d 277, 289 (3d Cir. 1991)
(citing Bus. Guides, Inc. v. Chromatic Commc’ns Enters., Inc., 498 U.S. 533
(1991)). Following the Bankruptcy Court’s opinion, Shaver could not have had an
“‘objective knowledge or belief . . .’ that the claim was well-grounded in law and
fact.” Id. (quoting Jones v. Pittsburgh Nat’l Corp., 899 F.2d 1350, 1359 (3d Cir.
1990)).
While the District Court’s analysis of Rooker-Feldman is persuasive in
concluding that the doctrine barred confirmation of the plan here, whether Rooker-
Feldman actually applied is beside the point. From the Bankruptcy Court’s
perspective, Dahlgren and his counsel Shaver took the following actions: First,
Dahlgren sought refuge from an unfavorable decision in state court by making a
suspiciously-timed bankruptcy filing. Then Dahlgren, through Shaver, filed a plan
that is at best legally questionable. After the Bankruptcy Court rejected that plan
in an opinion making clear that no plan with a sell-to-Debtor provision was
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confirmable, Dahlgren, through Shaver, filed another plan containing just such a
provision. As a result, the Bankruptcy Court imposed sanctions. On these facts,
we can find no abuse of discretion.
Shaver also argues that the amount of sanctions was excessive. But he does
not argue that the Bankruptcy Court incorrectly calculated the sanctions. And the
Bankruptcy Court did not even impose full attorneys’ fees as a sanction. Rather, it
very reasonably imposed a sanction of only half of Palone’s attorneys’ fees. We
likewise cannot conclude that this was an abuse of discretion.
For the foregoing reasons, we will affirm both the imposition of sanctions
and their amount.3
3
The Appellee, Regina Palone, has also filed two motions, the first requesting
summary affirmance and the second requesting sanctions under Federal Rule of
Appellate Procedure 38 for the filing of a frivolous appeal. The request for
summary affirmance is mooted by the issuance of this opinion, and is therefore
denied. Regarding the Rule 38 motion, while we cannot conclude that the
Bankruptcy Court abused its discretion in sanctioning Appellants for their actions,
we likewise cannot conclude that this appeal was entirely frivolous. The request
for appellate sanctions is therefore denied.
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