William Needler v. Daniel Casamatta ( 2015 )

United States Bankruptcy Appellate Panel
For the Eighth Circuit
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No. 14-6047
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In re: Miller Automotive Group Inc., doing business as Miller Chrysler Dodge,
doing business as Miller Chrysler Dodge Jeep Inc.
lllllllllllllllllllllDebtor
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William L. Needler
lllllllllllllllllllllMovant - Appellant
v.
Daniel J. Casamatta
lllllllllllllllllllllU.S. Trustee - Appellee
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Appeal from United States Bankruptcy Court
for the Western District of Missouri - Jefferson City
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Submitted: July 22, 2015
Filed: August 12, 2015
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Before SCHERMER, SALADINO and SHODEEN, Bankruptcy Judges.
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SALADINO, Bankruptcy Judge.
William L. Needler and William L. Needler and Associates, Ltd. (collectively
“Needler”) appeal from an order of the bankruptcy court1 imposing sanctions against
Needler and a subsequent order denying Needler’s motion to reconsider. We have
jurisdiction over this appeal from entry of the bankruptcy court’s final order pursuant
to 28 U.S.C. § 158(b). For the reasons set forth below, we affirm.
FACTUAL BACKGROUND
On January 11, 2013, Needler electronically filed a voluntary petition for relief
under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for
the Western District of Missouri on behalf of “Miller Chrysler Dodge Inc.” Because
Needler is not admitted to practice in the Western District of Missouri, he also filed
a motion to appear pro hac vice and an application to be employed as debtor’s
attorney. Over the objection of the United States Trustee, the bankruptcy court
approved Needler’s application with the admonition that his fees and activities would
be closely scrutinized.
The United States Trustee soon discovered that the entity “Miller Chrysler
Dodge Inc.” did not legally exist and, when the error was not timely corrected, filed
a motion to dismiss the Chapter 11 case. The motion noted that a similarly named
entity, “Miller Chrysler Dodge Jeep, Inc.,” did exist at one time, but in 2011 was
merged into the entity “Miller Automotive Group, Inc.” On February 3, 2013, Needler
filed an amended voluntary petition under the proper name of the debtor – Miller
Automotive Group, Inc.
During the course of the Chapter 11 case, Needler received several orders from
the clerk of the court to show cause for failure to comply with local filing
1
The Honorable Dennis R. Dow, United States Bankruptcy Court for the
Western District of Missouri.
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requirements. Needler was unsuccessful in obtaining authority for the debtor to use
cash collateral and to retain a broker to attempt to sell the business. He was also
unsuccessful in his attempt to get the United States District Court for the Western
District of Missouri to withdraw the reference of the bankruptcy case from the
bankruptcy court. Relief from the automatic bankruptcy stay was sought and obtained
by the two primary creditors, Ally Financial, Inc., and Chrysler Group, LLC.
Ultimately, on April 24, 2013, the bankruptcy case was dismissed on the debtor’s
motion. The court closed the case file on May 29, 2013. During the pendency of the
Chapter 11 case, Needler never sought nor obtained approval of any attorney fees and
expenses.
Approximately six months later, the United States Trustee filed a motion to
reopen the Chapter 11 proceeding to accord relief to the debtor and for cause pursuant
to 11 U.S.C. § 350(b). Specifically, the United States Trustee asserted that she had
received a written complaint from the debtor and debtor’s principals concerning the
conduct of Needler and his co-counsel2 in the representation of the debtor. As part of
the motion to reopen, the United States Trustee also asserted that Needler failed to
communicate accurate information about the case to the debtor, that Needler made
potentially false and misleading representations to the debtor and its officers
concerning the case, and that Needler may have filed documents and taken actions in
the bankruptcy case which were not authorized and resulted in unnecessary litigation
and expense. The United States Trustee further noted that Needler had filed a state
court action against the debtor and the debtor’s principals for attorney fees in excess
of $49,000.00. After consideration, the bankruptcy court granted the motion to
reopen without a hearing. After the case was reopened, Needler attempted to object
2
A settlement was eventually reached between the United States Trustee, the
debtor, and Needler’s co-counsel which effectively removed the co-counsel from
these proceedings.
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to the motion to reopen, which objection was denied as moot since the court had
already granted the motion.
Thereafter, the United States Trustee filed a motion to compel Needler to
disgorge all fees previously paid and to determine the reasonableness of any fees
Needler asserted against the debtor. Subsequently, at a preliminary hearing on the
United States Trustee’s motion, Needler was ordered to file a final fee application. He
did so, seeking more than $63,000.00 in fees and $3,600.00 in expenses. The United
States Trustee objected to the fee application, as did David and Gloria Miller, the
principals of the debtor. On May 13, 2014, the United States Trustee then filed the
amended motion that is the subject of this appeal. In the amended motion, the United
States Trustee requested the disgorgement of all fees paid to Needler, along with the
imposition of additional sanctions “pursuant to [the] Court’s inherent authority, 11
U.S.C. § 105(a) and Fed. R. Bankr. P. 9011.” Sanctions were requested because:
Mr. Needler committed numerous serious acts of misconduct which
violated the Federal Rules of Bankruptcy Procedure and the local rules
of practice before this Court, and Mr. Needler’s conduct evidences a
pattern of such misconduct in cases filed in this court as pro hac vice
counsel to Chapter 11 debtors.
In addition to disgorgement, the amended motion requested a declaration that
Needler is entitled to no compensation for services rendered in the Chapter 11 case,
denial of permission to appear pro hac vice before the Western District of Missouri
in the future, and directing the clerk of the court to revoke Needler’s electronic filing
access. Needler objected to the amended motion and the parties engaged in discovery.
On July 22, 2014, an evidentiary hearing was held in the bankruptcy court,
which was more than eight months after the case was reopened for cause, five months
after the initial motion to disgorge fees and deny compensation, and two months after
the amended motion requesting disgorgement and additional sanctions. At each step
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along the way, Needler was afforded the opportunity to file objections, responses and
briefs, and to otherwise participate in the proceedings. After the July 22, 2014,
evidentiary hearing, Needler was given the further opportunity to file a post-hearing
brief with his closing argument.
On October 24, 2014, the bankruptcy court issued its detailed memorandum
opinion regarding the matters before the court – Needler’s final fee application and
the amended motion for denial of compensation, disgorgement of fees and imposition
of sanctions filed by the United States Trustee. The court denied Needler’s fee
application and granted the United States Trustee’s motion for disgorgement and
other sanctions. Needler then sought reconsideration, which was denied in a detailed
order dated December 19, 2014. Needler then timely filed his notice of appeal.
STANDARD OF REVIEW
A bankruptcy court’s findings of fact are reviewed for clear error, and
conclusions of law are reviewed de novo. Briggs v. LaBarge (In re Phillips), 433 F.3d
1068, 1071 (8th Cir. 2006) (citation omitted). “A bankruptcy court’s decision to
impose sanctions is reviewed for an abuse of discretion.” Id. (citing Schwartz v.
Kujawa (In re Kujawa), 270 F.3d 578, 581 (8th Cir. 2001); Grunewaldt v. Mut. Life
Ins. Co. of N.Y. (In re Coones Ranch, Inc.), 7 F.3d 740, 743 (8th Cir. 1993) (“We
apply an abuse-of-discretion standard of review in all aspects of Rule 11 (and by
analogy, Rule 9011) cases.”) (citing Cooter & Gell v. Hartmarx Corp., 496 U.S. 384,
405 (1990)). “When an appellate court reviews a district court’s factual findings, the
abuse-of-discretion and clearly erroneous standards are indistinguishable. A court of
appeals would be justified in concluding that a district court had abused its discretion
in making a factual finding only if the finding were clearly erroneous.” Hartmarx,
496 U.S. at 401. A finding is clearly erroneous if, after examining the entire record,
we are left with a definite and firm conviction that the bankruptcy court has made a
mistake. Anderson v. City of Bessemer City, 470 U.S. 564, 573 (1985) (quoting
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United States v. United States Gypsum Co., 333 U.S. 364, 395 (1948)). Where there
are two permissible views of the evidence, the fact finder’s choice between them
cannot be clearly erroneous. Id. at 574.
DISCUSSION
Notice and opportunity to be heard must be afforded to the party to be
sanctioned prior to the imposition of sanctions. Walton v. LaBarge (In re Clark), 223
F.3d 859, 864 (8th Cir. 2000) (citing Chambers v. NASCO, Inc., 501 U.S. 32, 56-57
(1991)); Fed. R. Bankr. P. 9011(c). “[N]otice must be given that the court is
considering imposing sanctions.” Id. at 864-65. The United States Trustee’s motion
to reopen, which was filed in November 2013, put Needler on notice as to most of the
allegations against him. Thereafter, Needler filed objections and at least two
preliminary hearings were held. In May 2014, a detailed amended motion for
sanctions was filed clearly describing the sanctions being sought (those that were
ultimately imposed) and the factual basis for seeking the sanctions. Needler filed an
objection and an amended objection to that motion and appeared at the evidentiary
hearing on July 22, 2014. At that hearing, he cross-examined witnesses, but
apparently chose not to testify himself. We see no problem with the notice and
opportunity to respond provided to Needler – and, importantly, Needler does not raise
any.3
Federal Rule of Bankruptcy Procedure 8014(a)(5) requires the appellant’s brief
to contain a statement of the issues presented on appeal. Needler’s brief identified
eleven such issues. However, the first ten issues on appeal listed in Needler’s brief
are really the same issue. That is, did the bankruptcy court act fairly, reasonably, and
without bias in denying any fees and granting the United States Trustee’s motion for
3
“Claims not raised in an opening brief are deemed waived.” Jenkins v. Winter,
540 F.3d 742, 751 (8th Cir. 2008).
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disgorgement of fees and for sanctions. The eleventh issue listed by Needler appears
to question whether the bankruptcy court followed proper procedure in reopening the
case under § 350(b) and whether it had jurisdiction to do so when the underlying case
was dismissed prior to being fully administered.
A. Was Proper Procedure Followed in Reopening the
Bankruptcy Case?
Needler appears to challenge the bankruptcy court’s “jurisdiction” to enter the
appealed orders because, according to Needler, the bankruptcy case should not have
been reopened. In support of this proposition, Needler asserts that proper procedure
was not followed in connection with the motion to reopen, and that a closed case
which was dismissed prior to being fully administered cannot be reopened.
Needler argues that “Section 350(b) of the Bankruptcy Code as to [Re]Opening
requires Notice and Hearing which was denied to the Appellants here . . . .” As to this
proposition, Needler is simply incorrect. Nothing in § 350, or in its implementing
Rule 5010, requires “notice and hearing” prior to the motion being granted. Bowman
v. Casamatta (In re Bowman), 526 B.R. 802, 804-05 (B.A.P. 8th Cir. 2015) (stating
“Debtors’ principal complaint is the bankruptcy court did not hold a hearing before
denying their motion to reopen their case. The bankruptcy court was under no
obligation to do so . . . .”) (quoting Dworsky v. Canal Street Ltd. P’ship (In re Canal
Street Ltd. P’ship ), 269 B.R. 375, 380 (B.A.P. 8th Cir. 2001)).4
Needler further argues that Local Rule 1017-1(E) promulgated by the
Bankruptcy Court for the Western District of Missouri specifically requires notice
and hearing in connection with a motion to reopen a dismissed case. Needler is
4
We note that Needler was also the attorney for the debtors in Bowman and had
actual knowledge of its clear and unequivocal ruling. Remarkably, Needler was not
deterred from again raising the identical issue in this appeal.
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correct that motions falling under that local rule do require recipients to receive 21
days to object. However, Needler fails to recognize that the local rule applies only to
a motion to reopen filed “by the debtor.” There is no similar requirement in the local
rules for a motion to reopen filed by a party other than the debtor. Here, the motion
to reopen was filed by the United States Trustee. Similarly, Needler also points to
Local Rule 9060-1(J), which allows the bankruptcy court to rule on certain motions
sua sponte. He argues that a motion to reopen is not set forth in the list of exemplary
motions set forth in the rule. However, the list of motions set forth in the rule are
clearly examples, and are not exclusive. Needler’s arguments regarding local rules
and procedure in connection with a motion to reopen are without merit.
Needler also takes the position that the case should not have been reopened
because the case was dismissed and not fully administered at the time it was closed.
In support of this proposition, Needler latches onto the following paragraph from our
recent decision in Bowman:
In this case, the bankruptcy court held “section 350 should not be
used to reopen a case that was dismissed for cause before it was fully
administered.” We agree: “[A] dismissed case cannot be reopened under
§ 350(b)[.]” Finch v. Coop (In re Finch ), 378 B.R. 241, 246 (B.A.P. 8th
Cir. 2007) (citation therein), aff’d, 285 F. App’x 326 (8th Cir. 2008).
For that reason alone, we cannot say the bankruptcy court’s decision not
to reopen Debtors’ dismissed case was an abuse of discretion.
Bowman, 526 B.R. at 804 (footnote omitted).
Needler’s reliance on Bowman and Finch is misplaced. Unlike the present case,
both Bowman and Finch involved motions filed by debtors who were, effectively,
seeking to set aside a dismissal for cause. As the Finch court adequately explained:
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In essence, the Debtors assert that the case should be reopened to accord
them relief (i.e., allowing them to proceed with their Chapter 13 case,
regain possession of the trucks, and obtain their discharge) and for other
cause (i.e., to remedy the alleged wrongs done to them by their creditors
and award them damages for such wrongs).
The Debtors misunderstand the nature and effect of reopening a
closed case.
Reopening is supposed to be little more than an
administrative function which is designed to resurrect
closed files from the court’s archives so that some type of
request for relief can be received and acted upon. This is
usually done in order to take care of some detail that was
overlooked or left unfinished at the time the case was
closed. It was not designed as an opportunity to create, and
then enforce, rights that did not exist at the time the case
was originally closed.
Rather than wanting to take care of some overlooked or unfinished
detail, what the Debtors really seek is to have the dismissal of their case
set aside and their trucks returned to them.
However, a dismissed case cannot be reopened under § 350(b);
rather a dismissal can be undone only through an appeal or a motion
under Federal Rule of Bankruptcy Procedure 9023 or 9024.
Finch, 378 B.R. at 246 (footnotes and citations omitted).
Thus, contrary to Needler’s assertion, Bowman and Finch do not stand for the
proposition that a case which was dismissed for cause prior to being fully
administered cannot ever be reopened under § 350(b). Needer also mixes in here a
“jurisdiction” argument that is difficult to comprehend. He seems to believe that if
a dismissal order doesn’t expressly retain jurisdiction in the bankruptcy court, the
case cannot ever be re-opened. Besides the fact that this argument again conflates
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concepts of dismissal versus case closing–two very different things as discussed
above--the proposition that a bankruptcy court must expressly retain jurisdiction
when dismissing a case in order to reopen it at a later time simply isn’t the law.
Section 350 clearly provides statutory authority to reopen a closed case. Again, this
assignment of error is without merit.
B. Did the Bankruptcy Court Act Fairly, Reasonably,
and Without Bias?
Needler’s primary issue on appeal, stated ten different ways, is whether the
bankruptcy court acted fairly, reasonably, and without bias in denying compensation,
ordering disgorgement and imposing other sanctions. In order to prevail, Needler
must show that in imposing sanctions, the bankruptcy court abused its discretion.
Briggs v. LaBarge (In re Phillips), 433 F.3d 1068, 1071 (8th Cir. 2006).
The bankruptcy court denied compensation, ordered disgorgement and imposed
other sanctions pursuant to Federal Rule of Bankruptcy Procedure 9011, § 105 of the
Bankruptcy Code, and the inherent authority of the bankruptcy court to discipline
attorneys who appear before it.
Pursuant to Federal Rule of Bankruptcy Procedure 9011(c)(1)(B),
a bankruptcy court may impose sanctions on its own initiative. Fed. R.
Bankr. P. 9011(c)(1)(B). In addition, Bankruptcy Code § 105(a)
provides a bankruptcy court with authority to “issue any order, process,
or judgment that is necessary or appropriate to carry out the provisions
of” the Bankruptcy Code, and allows the court to “tak[e] action or
mak[e] any determination necessary or appropriate to . . . prevent an
abuse of process.” 11 U.S.C. § 105(a). And, a bankruptcy court “may
also possess ‘inherent power . . . to sanction “abusive litigation
practices.” ’ ” Law v. Siegel, ___ U.S.___, ___, 134 S. Ct. 1188, 188 L.
Ed. 2d 146, 2014 WL 813702, at *5 (2014) (citing Marrama v. Citizens
Bank of Mass., 549 U.S. 365, 375-76 (2007)) (quotation marks omitted).
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Young v. Young (In re Young), 507 B.R. 286, 291-92 (B.A.P. 8th Cir. 2014).
Here, the bankruptcy court effectively issued two sanctions. First, the court
denied Needler’s application for fees and ordered disgorgement of all fees Needler
collected as part of his retainer. Second, the court suspended Needler indefinitely
from the privilege of practicing before the United States Bankruptcy Court for the
Western District of Missouri and revoked his electronic filing privileges.
The bankruptcy court provided a detailed explanation of its decision to deny
Needler’s fee application and order disgorgement of his retainer. The court
specifically found that “[t]he record indicates that Needler not only failed to provide
a benefit, but took actions that were detrimental to the Debtor and the estate.” It
further found: “From the very beginning, Needler caused the Debtor to incur
unnecessary legal fees.” In support, the bankruptcy court noted the following:
– Needler filed the initial petition naming a debtor that did not legally
exist. Then, he failed to take action to correct the debtor’s name after the United
States Trustee brought it to his attention, requiring the United States Trustee to file
a motion to dismiss.
– He failed to obtain a final order authorizing the debtor to use cash
collateral due to inadequate evidence to support the motion. One of the owners of the
debtor testified that Needler never advised her as to what evidence was needed to
obtain use of cash collateral and never reviewed her projections for feasibility or
accuracy.
– Dissatisfied with the bankruptcy court’s detailed instructions on how to
obtain use of cash collateral, Needler filed a baseless motion with the United States
District Court to withdraw the reference of the bankruptcy case. The motion was
quickly denied by the district court as a classic case of forum shopping.
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– He failed to file a plan that could be considered by the court since the
one he filed was not accompanied by a disclosure statement as required in Chapter
11.
– There was no evidence that Needler made any attempt to secure floor
plan financing for the debtor to continue in business.
– Needler filed an application to employ a broker to sell the business, but
failed to disclose in the application the significant business relationship between
Needler and the broker. When the United States Trustee objected, Needler withdrew
the motion and failed to file a new broker application.
– Needler failed to adequately disclose the true source of his retainer and
had been admonished by a bankruptcy court in another case for the same infraction.
– The two largest secured creditors of the debtor sought relief from stay
and the debtor’s principals instructed Needler to file a motion to dismiss the case,
explaining:
Our rationale was because he [Needler] failed to obtain the objective to
which he said that he was going to do. We felt we couldn’t trust him. We
saw how he operated and he was very unorganized. Just in my opinion,
he was incompetent, completely incompetent. . . . We had no faith in that
he even knew what he was doing.
– Needler did not enter into a written fee agreement with the debtor and
engaged in bad faith by seeking fees far in excess of the amount he quoted.
– He should have recognized from the beginning that there was no
reasonable likelihood of a successful reorganization for the debtor due to its
operational struggles, low inventory, and inability to obtain financing.
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– The bankruptcy court concluded:
In short, the Court finds that Needler not only failed to provide
any actual value to the Debtor’s estate, but that his services were not
reasonably likely to do so. It is apparent that his only success was
stringing along a case that should never have been filed in the first
place.
The evidence overwhelmingly supports the bankruptcy court’s findings and
Needler has not raised anything on appeal that would convince us that the bankruptcy
court abused its discretion by making clearly erroneous factual findings in denying
compensation and ordering disgorgement. His primary argument is that the debtor had
value on the date of filing–the dealership franchises, inventory and other assets. He
asserts that he “protected” that value during the four and half months of the case. In
essence, he is saying that by filing the case and obtaining the benefit of the automatic
stay for a period of time, he provided some compensable benefit to his client.
It is true that the automatic stay was in force for a few months, although it is
not entirely clear that the debtor needed it. In any event, Needler fails to identify any
other value that the debtor received from his services. In light of the overwhelming
evidence of Needler’s actions, failure to act and infractions delineated by the
bankruptcy court, the bankruptcy court’s findings easily survive the abuse of
discretion test. “A court may conclude that an attorney who should have known a
reorganization was futile before filing the petition has rendered no service to the
estate and should therefore not be compensated for such service.” In re Coones
Ranch, Inc., 7 F.3d 740, 744 (8th Cir. 1993)(citing In re King, 96 B.R. 206, 208
(W.D.Mo.1989); In re Lederman Enter., Inc., 997 F.2d 1321, 1324 (10th Cir. 1993)).
In support of its decision to indefinitely suspend Needler from appearing pro
hac vice in the Western District of Missouri and revocation of electronic filing
privileges, the bankruptcy court remarked that the record in the case was “replete with
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examples of Needler’s violations of not only the Bankruptcy Code, Bankruptcy Rules,
and Local Rules, but basic tenets of legal representation as well.” Specifically, the
bankruptcy court referenced:
– Needler failed to inform his client about the pleadings he filed and the
responses thereto, including his application to employ the broker with which he had
a pre-existing business relationship.
– His failure to obtain his client’s input and authorization before filing
motions and pleadings.
– His failure to perform reasonable investigation into the facts contained
in the petition and made other filings without conducting due diligence.
– Needler failed to enter into a written fee agreement with his client and
misled the client’s principals as to the total amount they would have to pay.
– He intentionally obscured the true source of his retainer.
– He failed to comply with local rules pertaining to electronic filing,
including the failure to obtain and retain original signatures of the debtor’s
representative on filings in the case.
– Needer’s interactions with the debtor’s representatives were found to be
“deplorable” and he was described as acting like a “bully.”
– The bankruptcy court’s search of published opinions revealed numerous
other cases (the court listed eight such cases) that “revealed a pattern of professional
misconduct, procedural non-compliance, and ethical violations” by Needler.
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The evidence again overwhelmingly supports the bankruptcy court’s findings
and the imposition of sanctions under Bankruptcy Rule 9011 and the inherent
authority of the bankruptcy court. The bankruptcy court was not unfair, unreasonable,
or biased as suggested by Needler. The bankruptcy court acted within its discretion
in imposing the sanction of indefinite suspension from the practice of law and
revocation of electronic filing privileges in the Western District of Missouri. Since
Needler was a repeat offender, not only in the Western District of Missouri but in
many other jurisdictions as well, the indefinite nature of his suspension was
reasonably suited to the violations found by the bankruptcy court.
CONCLUSION
For the foregoing reasons, we affirm.
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