Scott v. Kruse (In Re Fisher Financial & Investment LLC) , 435 F. App'x 590 ( 2011 )

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS FILED
FOR THE NINTH CIRCUIT MAY 19 2011
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
In re: FISHER FINANCIAL & No. 09-60035
INVESTMENT LLC,
BAP No. 09-1099-RmoPa
Debtor,
MEMORANDUM*
ROBERT E. SCOTT,
Appellant,
v.
SUE KRUSE; NATIONAL INSURANCE
& PROTECTION, INC.,
Appellees,
__________________________________
_,
MICHAEL FISHER; R.D. FINANCIAL
SERVICES.
Appeal from the Ninth Circuit
Bankruptcy Appellate Panel
Pappas, Riegle, and Montali, Bankruptcy Judges, Presiding
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
Argued and Submitted May 5, 2011
Pasadena, California
Before: PREGERSON, FISHER, and BERZON, Circuit Judges.
Attorney Robert Scott appeals sanctions imposed against him by the
bankruptcy court. The Ninth Circuit Bankruptcy Appellate Panel (“BAP”) upheld
the sanctions as an appropriate exercise of the court’s inherent power. We affirm.
1. A bankruptcy court may only impose sanctions pursuant to its inherent
power upon a finding of “bad faith,” or conduct tantamount to bad faith. In re
Lehtinen, 564 F.3d 1052, 1061 (9th Cir. 2009). “Bad faith” encompasses a wide
range of willful conduct, including “recklessness when combined with an
additional factor such as frivolousness, harassment, or an improper purpose.” Fink
v. Gomez, 239 F.3d 989, 994 (9th Cir. 2001).
We agree with the BAP that the bankruptcy court necessarily found Scott’s
conduct was tantamount to bad faith, and that the record supports that bad faith
finding. See In re Lehtinen, 564 F.3d at 1061 (acknowledging an implied finding
of bad faith where bankruptcy court described conduct as “outrageously improper,
unprofessional and unethical”).
The bankruptcy court found that Scott acted for an improper purpose, based,
in part, on the “highly suspect” timing of the removal: It was filed “days before
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the hearing on a sanctions motion against the removing parties for which the
removing parties had filed no opposition papers,” forcing the state court
proceedings off calendar and strongly suggesting Scott acted to delay the state
court proceedings. Moreover, Scott failed to attach the required state court papers
with the notice of removal, providing the court a misleading picture of the nature
of the state court action.
The bankruptcy court’s statements at the sanctions hearing confirm it found
Scott’s conduct was tantamount to bad faith: It stated the notice of removal was
intended to “delay the sanction hearing, without any basis whatsoever,” and
described Scott’s actions as “outrageous,” and done “for a totally improper
motive.” See In re Lehtinen, 564 F.3d at 1061 (evaluating evidence adduced at a
sanctions hearing as support for a bankruptcy court’s implied finding of bad faith).
We also agree with the BAP that the notice of removal was frivolous. The
debtor represented in its bankruptcy schedules that it had no assets, the state court
proceedings were stayed against the debtor, and the trustee of the debtor’s estate
gave no indication that the state court action might otherwise affect the estate.
Scott never articulated a plausible argument why the bankruptcy court could have
had jurisdiction over the state proceedings in spite of those circumstances.
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It was therefore not an abuse of discretion for the bankruptcy court to find
Scott’s notice of removal frivolous and filed in bad faith to delay the state court
proceedings, thereby warranting the imposition of sanctions. See Lahiri v.
Universal Music & Video Distrib., 606 F.3d 1216, 1221–22 (9th Cir. 2010)
(holding that an attorney’s misrepresentations and manipulative tactics,
unnecessarily protracting the proceedings, warranted the imposition of sanctions
under the court’s inherent power); In re Silberkraus, 336 F.3d 864, 871 (9th Cir.
2003) (holding that filing a bankruptcy petition days before an important state
court deadline amounted to “bad faith,” and upholding sanctions under Rule 9011);
In re Rainbow Magazine, Inc., 77 F.3d 278, 285 (9th Cir. 1996) (approving
sanctions imposed pursuant to a bankruptcy court’s inherent powers where a party,
in bad faith, signed a misleading document later submitted to the court).
2. We also agree with the BAP that Scott’s due process rights were not
violated. He received “advance notice of exactly which conduct was alleged to be
sanctionable, and [was] furthermore aware that [he] stood accused of having acted
in bad faith.” In re Lehtinen, 564 F.3d at 1060 (quotation omitted).
Months before the sanctions hearing, counsel for National Insurance & Asset
Protection, Inc. (“NIAP”) advised Scott in writing that sanctions would be sought
on the basis of the “defective notice of removal.” A few days later, when serving
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its proposed motion for sanctions, NIAP informed Scott it planned to contend that
the notice of removal was filed for an improper purpose, as it was calculated to
delay the state court proceedings. Moreover, in its reply to Scott’s opposition to
the sanctions motion, NIAP urged the bankruptcy court to impose sanctions under
either Bankruptcy Rule 9011 “or under its inherent power.”
Scott was provided additional notice at the hearing on the motion to remand,
held nearly two months prior to the hearing on the sanctions motion. The
bankruptcy court expressed its serious suspicions of Scott’s conduct, noting that
the “timing of [the notice of removal] is very difficult to ignore;” the circumstances
of the removal caused “red lights” to go on; and the court got the “impression . . .
there’s something else going on and it’s not something that’s a good thing.”
NIAP’s filings and the court’s comments provided Scott adequate notice that
his notice of removal was alleged to be sanctionable and his actions alleged to be
conducted in bad faith. See In re Deville, 361 F.3d 539, 549–50 (9th Cir. 2004)
(holding that adequate notice was given where the court expressed its suspicions of
the disputed conduct prior to imposing sanctions, even though the court failed to
specify in advance that its inherent power would be the basis for the sanctions).
Moreover, Scott had ample opportunity to refute the allegations at the sanctions
hearing. See F.J. Hanshaw Enters. v. Emerald River Dev., Inc., 244 F.3d 1128,
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1143–44 (9th Cir. 2001) (acknowledging no due process violation occurred where
the sanctioned party was put on notice of the possibility of sanctions and had an
opportunity to be heard at a sanctions hearing). The bankruptcy court, therefore,
did not violate Scott’s due process rights.
AFFIRMED.
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