- Case Type:
- Case Status:
- NV-20-1081-TaBG (9th Circuit, Sep 30,2020) Not Published
- The bankruptcy court did not abuse its discretion awarding the Bank of New York Melon (BNY) the attorneys’ fees and costs incurred in litigating and defeating the bad faith chapter 13 filing of Dennis Baham (Baham). Banham’s record of distortions and omissions justified such “compensatory” sanctions per the court’s inherent powers. Meanwhile, Baham’s filing of a skeletal deceitful petition and a facially unconfirmable plan on the eve of foreclosure after a decade of dilatory litigation satisfied Rule 9011. Having failed to do so below, Baham lacked the right to challenge BNY's secured claim.
- Procedural context:
- On August 6, 2019, on the eve of a scheduled foreclosure sale of his principal residence (Property), Baham commenced a chapter 13 case by filing a petition for relief in the United States Bankruptcy Court for the District of Nevada (bankruptcy court). Based on the debtor’s various misrepresentations and questionable intent, the bankruptcy court found this case to be a bad faith filing and ordered its dismissal (Dismissal Order), the relief specifically sought by the debtor’s largest creditor, BNY, in its capacity as the Trustee for the Certificate-holders of CWALT, Inc., Alternative Loan Trust 2005-35CB, Mortgage Pass-Through Certificates, Series 2005-35CB (BNY). On March 18, 2020, this same tribunal awarded BNY all the attorneys’ fees and costs incurred by BNY throughout the debtor’s case—$20,099—as a compensatory sanctions under Bankruptcy Rule 9011 and its inherent authority (Sanctions Order). The debtor did not appeal the Dismissal Order; instead, he appealed this narrower edict. In his opening and reply briefs, however, Baham not only attacked the attorneys’ fees as punitive, but also asserted that the bankruptcy court had erred by both overlooking BNY’s defective claim and determining that he filed his petition in bad faith. Despite the narrow issue on appeal, the BAP nonetheless dismissed each of these three asserted errors. First, it saw no merit in Baham’s contention that BNY held no secured claim for one simple reason: the debtor’s neglect to raise the issue, whether himself or via his attorney, before the bankruptcy court prevented its consideration on appeal as a matter of well-settled circuit jurisprudence. Exceptions, of course, exist, but Baham had not persuasively articulated even one. The BAP highlighted other defects in this argument. Substantively, the debtor had himself listed BNY’s claim at an undisputed amount of $944,000 in his schedules, and he had never objected to BNY’s proof of claim. Procedurally, even apart from his fatal oversight, he had not specifically advanced any such argument in his opening appellate brief and had predicated it upon documents never filed with the bankruptcy court, both violations of clear-cut precedent. Next, the BAP found the bankruptcy court’s sanctions to be truly “compensatory,” and thus imposed as a proper exercise of that trial court’s inherent authority, based on the debtor’s “lengthy record of protracted litigation, misrepresentation and concealment in filings, and a facially unconformable plan.” The recitation of this history by Bankruptcy Court in the Sanctions Order, the BAP maintained, was more than enough to justify the Sanctions Order. Two additional reasons, however, merited mention. First, and “perhaps more importantly,” the debtor had failed to appeal the bad-faith findings in the Dismissal Order, and the Sanctions Order had expressly incorporated these earlier determinations. As such, the law of the case doctrine, which treats an issue previously decided in one stage of a proceeding as settled for its entirety, left the debtor without the power to question the factual basis of the Sanctions Order. After all, the latter had borrowed it wholesale from the very order that the debtor opted not to appeal. Lastly, the BAP did not see the Sanctions Order as improperly punitive simply because the debtor had lost his home. Foreclosure, as the bankruptcy court had noted, is a remedy for his mortgage default. It does not constitute a penalty for abuse of the judicial system, like attorneys’ fees and costs. Finally, in the BAP’s view, the record strongly supported the bankruptcy court’s two essential conclusions: that Baham filed bankruptcy for the sole purpose of delaying a foreclosure sale and that his bankruptcy filing was frivolous. The former is expressly prohibited by Bankruptcy Rule 9011(b)(1), and the latter is an additional requirement for meting out the compensatory sanctions authorized by Rule 9011(c) that federal courts have limned and engrafted. Accordingly, the debtor’s baleful aim and frivolity justified the bankruptcy court’s award of attorneys’ fees to BNY under Bankruptcy Rule 9011.
- An early footnote hinted at the factual flood to come. In the very beginning of its factual recitation, the BAP announced its decision to take judicial notice of documents electronically filed in the underlying chapter 13 case, as embodied in the factual findings within the Dismissal Order. As the BAP’s opinion noted, these determinations had themselves come from the evidence presented in BNY's unopposed motion to dismiss—and state court documents already judicially noticed by the bankruptcy court. The BAP thereupon unfolded a tale of multiyear mediations, state court litigation, and two bankruptcies. It began innocently enough. In December 2004, Baham purchased the Property with a $616,020 loan secured by a purchase money deed of trust (DOT). Baham defaulted on the loan and filed a chapter 7 bankruptcy in 2007. During this first bankruptcy case, the trustee abandoned the Property, and Baham received a chapter 7 discharge. Problems began in the wake of this first successful filing. Roughly four years later, Baham entered into a loan modification agreement with BNY’s predecessor; unfortunately, for the next nine years, Baham failed to make a single payment. Rather, he avoided foreclosure by participating in Nevada’s foreclosure mediation program for three years and appealing the mediator’s certificate terminating the mediation process after a fourth session’s unfruitful end (and foreseeable collapse). In the midst of these proceedings, BNY became the DOT’s beneficiary, and relied on Bayview Loan Servicing LLC (Bayview) to service the loan on its behalf. Once Banham’s appeal failed, BNY recorded the certificate against the Property. Baham responded by filing two state court cases, one against Bayview and another against both Bayview and BNY. Though he won a TRO, Baham lost every successive argument. His luck finally ran out on August 6, 2019, the day before BNY had scheduled a foreclosure sale, when a Nevada state court formally and definitively denied his latest dilatory feint. Henceforth, the Nevada’s court system, like its mediation system, was beyond Baham’s access. With his state court options exhausted, Baham turned to the Bankruptcy Code. On the evening of August 6, 2019, Baham perfunctorily filed a “skeletal” chapter 13 petition, thereby commencing the relevant case. At the subsequent meeting of the creditors, Baham unambiguously admitted that his singular motive had been to stop the same end—foreclosure—that had animated his unsuccessful state mediation and judicial efforts. Two weeks later, Baham docketed his SOFA, schedules, and plan, all of which contained numerous material misrepresentations and concealments. Among the biggest, three subsequently cast the largest shadow: Baham’s (1) classification of Bayview, not BNY, as holding an undisputed secured claim; (2) misrepresentation of the Property as not his principal residence; and (3) failure to reveal the existence of any one of his sundry pending lawsuits. After Baham filed a proof of claim for BNY, BNY moved to dismiss his case as a bad faith filing under section 1307. Strangely, but incontrovertibly, Baham did not file a written opposition to this dispositive motion. Moreover, although his counsel appeared at the hearing on this very paper, neither he nor his attorney questioned the status or nature of BNY’s secured claim. At the hearing, the bankruptcy court concluded that Baham had (1) misrepresented and concealed key facts, and (2) filed his chapter 13 case with the sole intent of stopping a foreclosure after eight years of “utiliz[ing] essentially every non-bankruptcy judicial forum available to him to hinder, delay, and avoid foreclosure.” It hence granted BNY’s motion, immediately dismissing Baham’s chapter 13 case, and further barred Baham from filing any petition in Nevada for 180 days. Baham did not appeal the Dismissal Order. Months later, BNY moved for compensatory sanctions against Baham in the amount of $20,099, the attorneys’ fees and costs expended in responding to his chapter 13 case. Baham opposed this request.
- Laura S. Taylor; Julia W. Brand; and Scott H. Gan
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