Leonard v. Piccirilli (In re Mega-C Power Corp)

BAP Nos. NV-13-1330-JuHlPa and NV-13-1338-JuHlPa (October 30, 2014; Not for Publication)
Bankruptcy courts have inherent authority to enter sanctions; however, the bankruptcy court must make a finding of bad faith or willful misconduct. The Ninth Circuit Bankruptcy Appellate Panel affirmed the bankruptcy court’s decision that the Shareholder Trustee did not comply with the bankruptcy court’s prior orders to turn over the shares; the Shareholder Trustee was unable to evidence that they substantially complied with the prior bankruptcy court orders; and the Shareholder Trustee’s prior disregard of the bankruptcy court’s orders evidenced that lack of good faith. The Ninth Circuit Bankruptcy Appellate Panel further affirmed the bankruptcy court’s decision of the amount of sanctions awarded in favor of the Liquidating Trustee. The bankruptcy court has wide discretion to determine appropriate sanctions, but it is determined on a case-by-case basis. There was no basis to second guess the bankruptcy court’s determination of the appropriate sanction to be awarded.
Procedural context:
The Liquidating Trustee appealed the bankruptcy court’s decision that Liquidating Trustee was entitled $9,439 in attorney fees relating to the sanctions entered against the Shareholder Trustee. The Shareholder Trustee cross-appealed the bankruptcy court’s decision holding him in contempt and the award of attorney fees.
This Chapter 11 bankruptcy was commenced by an involuntary petition filed by Axion Power International, Inc. (“Axion”) and 2 other creditors. The Debtor consented to the entry of an order for relief. Prior to the commencement of the involuntary petition, Axion created a shareholder’s trust for the benefit of the creditors and shareholders of the Debtor. Within a few months a Chapter 11 trustee was appointed. A settlement agreement was approved by the bankruptcy court that provided certain procedures for the liquidation of shares of stock of the Debtor to pay for the Chapter 11 administrative fees and expenses. The Liquidating Trustee requested the Shareholder Trustee to liquidate more stock for purposes of remitting payment of administrative fees and costs. The bankruptcy court entered an order requiring the Shareholder Trustee to turnover shares to the Liquidating Trustee; however, the Shareholder Trustee did not comply. The parties represented that they had worked out an agreement regarding how to facilitate the transfer of shares; however, nothing was filed with the bankruptcy court evidencing the terms. The Shareholder Trustee did not transfer the shares as agreed upon; therefore, the Liquidating Trustee sought turnover of the shares. After the shares had been liquidating, the Liquidating Trustee pursued sanctions on the request for turnover based on the decreased in value of the shares from the original demand to the date in which the shares were actually liquidated.
JURY, HOULE,and PAPPAS, Bankruptcy Judges

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