Shalaby v. Mansdorf (In re Nakhuda)

Summarized by David Hercher , U.S. Bankruptcy Court, District of Oregon
10 years 2 weeks ago

Citation:

In re Nakhuda, No. NC-15-1149-JuKuW (9th Cir. B.A.P. Feb. 4, 2016).

Tag(s):

Ruling:

A bankruptcy court may not impose sua sponte sanctions on a lawyer without finding that the lawyer’s acts were akin to contempt. Published.

Procedural context:

Shalaby, a lawyer, filed a skeletal chapter 7 for an individual debtor. The bankruptcy court sua sponte ordered Shalaby to show cause why he should not sanctioned for violations of FRBP 9011. On appeal, the BAP reversed the finding of Rule 9011 violations.

Facts:

In the case of party-initiated FRBP 9011 sanctions (as to which the targeted lawyer has a safe-harbor opportunity to cure a violation), the court may impose sanctions if a competent attorney admitted to practice before the involved court could not believe in like circumstances that his actions were legally and factually justified. By contrast, when assessing sanctions sua sponte under FRBP 9011(c)(1)(B), the court must issue an order to show cause to provide notice and an opportunity to be heard, and it must apply a standard “akin to contempt.” Here, the bankruptcy court did not find that Shalaby acted with more than ignorance or negligence. Thus, the court abused its discretion in issuing sanctions under Rule 9011.

Judge(s):

Meredith A. Jury and Frank L. Kurtz, Bankruptcy Appellate Panel Judges, and Madeleine C. Wanslee, United States Bankruptcy Jude for the District of Arizona, sitting by designation.

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