In re Frantz
- Summarized by David Treacy , U.S. Bankruptcy Court, Eastern District of Kentucky
- 1 year 1 week ago
- Case Type:
- Consumer
- Case Status:
- Reversed
- Citation:
- BAP No. CC‐23‐1112‐FLG (9th Circuit, Dec 29,2023) Published
- Tag(s):
-
- Ruling:
- The U.S. Bankruptcy Appellate Panel of the Ninth Circuit held a bankruptcy court abused its discretion in issuing monetary sanctions sua sponte to chapter 13 debtors' counsel due to counsel's representation that debtors had "completed all payments required by [their] confirmed plan" despite accruing a large post-petition direct-payment mortgage deficiency. The bankruptcy court erred as a matter of law as in the Ninth Circuit (1) there's no binding authority holding direct mortgage payments are "payments under the plan," and (2) FRBP 9011 sanctions require conduct "akin to contempt of court."
- Procedural context:
- The BAP identified the single issue on appeal as "[w]hether the bankruptcy court erred in sanctioning Ms. Doling for making knowingly false statements to the court" and reviewed the bankruptcy court's sanctions order and its order denying reconsideration for an abuse of discretion. Although Ms. Doling primarily argued the bankruptcy court erred in its factual findings about her intent, and did not "explicitly" argue the bankruptcy court erred as a matter of law, the BAP considered the bankruptcy court's application of the law as Ms. Doling "at least touched on the argument in the bankruptcy court and in her opening brief[.]" The BAP chose to publish its opinion "to highlight the standards for and limitations of Rule 9011 sanctions, particularly when the court initiates the sanctions process."
- Facts:
- The debtors filed a chapter 13 bankruptcy case in the U.S. Bankruptcy Court for the Central District of California through attorney Jenny L. Doling. At the end of the plan term, the chapter 13 trustee moved to dismiss the debtors' case because, after the trustee filed a notice of intent to file a final report, their mortgage company reported they had a post-petition mortgage deficiency of $52,439.58. Ms. Doling did not oppose the motion on the debtors' behalf. But, knowing of the deficiency, and knowing the trustee and the bankruptcy court perceived the debtors' failure to make direct mortgage payments constituted a failure to make payments required by their confirmed plan, Ms. Doling filed a local form document for each debtor indicating they had completed all payments required by their plan. Ms. Doling also filed a personal declaration indicating the debtors had completed their chapter 13 plan. The hearing on the motion to dismiss was continued twice because the debtors and the mortgage company were working on a loan modification, but the bankruptcy court dismissed the case at the third hearing as the modification paperwork was not complete, the plan term had ended six months prior, and the trustee had filed fourteen motions to dismiss during the pendency of the case. At the final dismissal hearing, the court asked Ms. Doling why she represented plan payments were complete despite knowing of the post-petition mortgage deficiency, explaining "that, 'under applicable law, those direct plan payments are plan payments,' so it was not true that the Debtors had completed their plan." Ms. Doling contended the debtors had made all required monthly payments to the trustee and, thus, had completed their plan. The bankruptcy court then issued an order instructing Ms. Doling to show cause why she should not be sanctioned under Fed. R. Bankr. P. 9011, the court's inherent authority, or a local rule for making a "knowingly false statement." Ms. Doling, among other contentions, responded “there is no binding Ninth Circuit authority that direct mortgage payments are payments under the plan” and offered "out-of-circuit cases for the proposition that direct mortgage payments are not 'payments under the plan.'” After a hearing, the bankruptcy court entered an order sanctioning Ms. Doling $5,000 as she continued to assert the debtors had completed their plan despite failing to make all mortgage payments and not opposing the motion to dismiss; the court explained Ms. Doling "was 'not free to simply . . . retroactively adopt a minority position and revise the history of this matter. Quite simply, the legal conclusion that direct payments are plan payments was uncontested in this case, and, therefore, the factual statement that Debtors had completed the plan was not true.'" The court found Ms. Doling exhibited "willful and subjective bad faith" and sanctions were warranted under Rule 9011(c) or the court's inherent sanction authority and the court's local rule. The court then denied Ms. Doling's motion for reconsideration of the sanctions order after a hearing. Ms. Doling timely appealed from the sanctions order and from the order denying her motion for reconsideration.
- Judge(s):
- FARIS, LAFFERTY, and GAN
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