Opinion
In Bankruptcy Case No. 01-73770.
January 19, 2005
OPINION
This matter has come before the Court on the Motion of Family Resorts and Travel, Inc. ("Family Resorts") to Enforce Sale Order, Enjoin Litigation, and for Immediate Sanctions. After a hearing, the Court, on September 22, 2004, entered an Order on the Motion. The Court found, inter alia, that the Respondents, Stephen Mundwiller, et al., and their attorney, Kenneth H. Gibert, were in direct and willful contempt of an order of this Court. The issue of sanctions was reserved, and that issue is now before the Court for adjudication.
The factual history of the matter is well-documented and is set forth more fully in the Court's September 22, 2004, Order. On September 27, 2001, the Debtors filed their voluntary chapter 11 petition in bankruptcy. On July 11, 2002, Stephen A. Tagge ("Trustee") was appointed Chapter 11 Trustee for the Debtors' estates. On December 12, 2002, the Trustee filed Chapter 11 Trustee's Motion for Authority to: (1) Sell Debtors' Operating Assets Free and Clear of Liens, Claims and Interests; (2) Assume and Assign Related Member Agreements and Other Executory Contracts and Unexpired Leases; (3) Reject Other Executory Contracts, and (4) Limit Notice to Creditors and Other Parties in Interest With Respect Thereto (the "Sale Motion"), seeking authority to sell the operating assets of the Debtors' estates to Textron Financial Corporation ("Textron") or its nominee.
On February 5, 2003, this Court held a hearing on the Trustee's Sale Motion. Respondents' legal counsel, Kenneth H. Gibert, actively participated in the hearing.
On February 6, 2003, the Court granted the Sale Motion and entered its Order (the "Sale Order"), authorizing the sale of the Debtors' operating assets to Textron or its nominee. Thereafter, Textron directed that the assets be transferred to its wholly-owned subsidiary, Family Resorts. Among other things, the Sale Order permanently stayed, restrained and enjoyed any form of demand or claim, or bring or initiating of any suit to obtain or recover any monetary or affirmative relief from or against Textron or its assigns.
On June 15, 2004, the Respondents, by their counsel Mr. Gibert, filed a Complaint in the St. Louis County Circuit Court for the State of Missouri alleging violations of the Fair Debt Collection Practices Act, the Merchandising Practices Act, and fraud, and seeking a declaratory judgment against Family Resorts and Textron. The case was removed to the U.S. District Court for the Eastern District of Missouri.
In its September 22, 2004, Order, this Court found that the Respondents had alleged affirmative rights to recover monetary damages and other relief from Family Resorts and Textron for various alleged wrongs previously committed against Respondents. The Court also found that the filing of the Complaint was in direct violation of the express terms of this Court's Sale Order, and that Respondents and their attorney were in direct and willful contempt of the Court's Sale Order.
The Court further ordered Mr. Gibert to amend the Complaint and that apparently has been done.
On October 19, 2004, Thomas J. Magill, counsel for Textron and Family Resorts, filed his affidavit of attorneys fees. Mr. Magill seeks attorneys fees in the amount of $19,520.50 and costs in the amount of $231.48.
The contempt power is inherent in all courts. The ability to enforce orders and judgments through the contempt power is essential to the orderly administration of justice. See Shillitani v. U.S., 384 U.S. 364, 370, 86 S.Ct. 1531, 1536 (1966); U.S. v. Barnett, 376 U.S. 681, 696-97, 84 S.Ct. 984, 992-93 (1964).
Section 105 of the Bankruptcy Code codifies the contempt power of bankruptcy courts and provides as follows:
The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action o making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.
11 U.S.C. § 105(a). Section 105 grants broad powers to bankruptcy courts to implement the provisions of Title 11 and to prevent an abuse of the bankruptcy process. In re Volpert, 110 F.3d 494, 500 (7th Cir. 1997). Sanctions are sometimes necessary in order to protect the integrity of the Bankruptcy Code as well as the judicial process. In re Arkansas Communities, Inc., 827 F.2d 1219, 1221-22 (8th Cir. 1987) citing In re Silver, 46 B.R. 772, 774 (D. Colo. 1985). Attorney fees are an appropriate component of a civil contempt award. In re Dyer, 322 F.3d 1178, 1195 (9th Cir. 2003).
The distinction between a bankruptcy court's inherent sanction power and its civil contempt powers under Section 105(a) is a distinction worthy of note at this juncture. Civil contempt authority allows a court to remedy a violation of a specific order (including "automatic" orders, such as the automatic stay or discharge injunction). The inherent sanction authority allows a bankruptcy court to deter and provide compensation for a broad range of improper litigation tactics. Dyer, supra, 322 F.3d at 1196, citing Fink v. Gomez, 239 F.3d 989, 992-93 (9th Cir. 2001).
The inherent sanction authority differs from the civil contempt authority in an additional important respect. Before imposing sanctions under its inherent sanctioning authority, a court must make an explicit finding of bad faith or willful misconduct. Id. With regard to the inherent sanction authority, bad faith or willful misconduct consists of something more egregious than mere negligence or recklessness. Id. at 993-94. While a specific intent to violate the automatic stay or other conduct in "bad faith or conduct tantamount to bad faith", In re Fink, 239 F.3d 994, is necessary to impose sanctions under the bankruptcy court's inherent power, such specific intent or bad faith may not be required in the contempt context. In re Pace, 67 F.3d 187, 191 (9th Cir. 1995). Civil contempt sanctions may be imposed even in the absence of willfulness. In re Shafer, 63 B.R. 194, 198 (Bankr. D. Kan. 1986). Accidental, inadvertent or negligent conduct can be grounds for imposing civil contempt sanctions, and those sanctions may include attorney fees.Id., citing Perry v. O'Donnell, 759 F.2d 702 (9th Cir. 1985); TWM Mfg. Co., Inc. v. Dura Corp., 722 F.2d 1261 (6th Cir. 1983); Commodity Futures Trading Com'n. v. Premex, Inc., 655 F.2d 779 (7th Cir. 1981);Vuitton et Fils, S.A. v. Carousel Handbags, 592 F.2d 126 (2nd Cir. 1979); In re Burrow, 36 B.R. 960 (Bankr. D. Utah 1984); In re Petro, 18 B.R. 566 (Bankr. E.D. Pa. 1982); In re Sandmar Corp., 12 B.R. 910 (Bankr. D.N.M. 1981).
The Court has previously found that the Respondents have willfully violated the Court's Sale Order, and the Court stands by that finding. However, even if the offensive conduct on the part of the Respondents could be deemed not willful, the Court nonetheless can and does find them in contempt for violating the Court's Sale Order.
Having found that the circumstances warrant imposition of civil contempt sanctions to compensate Family Resorts and to induce future compliance, the Court now turns to the amount of the sanction. As indicated above, Family Resorts, through its counsel Mr. Magill, seeks attorneys fees in the amount of $19,520.50 and costs in the amount of $231.48. That request is excessive. A number of the entries on the itemization are vague; it is thus impossible to discern precisely to what extent said entries are and are not compensable. Other entries appear to be duplicative and/or inflated. Some of the services rendered were either unnecessary or not directly related to the conduct giving rise to the contempt. Additionally, it appears generally that this matter has been somewhat "overworked". Taking all of this into consideration and after some deliberation, the Court has concluded that the appropriate sanction in this case is in the amount of $5,000 attorney fees and $231.48 costs.
At all relevant times, Mr. Gibert has been a licensed attorney and a fully-engaged player in this bankruptcy case. Although his clients may plausibly plead ignorance of the law, there is no fathomable excuse for Mr. Gibert's conduct which gave rise to the contempt motion. Inasmuch as it was he, and not his clients, who bears complete responsibility for this unfortunate plight, the Court finds that the sanctions can and should be assessed against Mr. Gibert personally and not against his clients.
This Opinion is to serve as Findings of Fact and Conclusions of Law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure.
See written Order.