Opinion
Case No. 00-02226.
April 2, 2003
MEMORANDUM OF DECISION
I. INTRODUCTION
The United States' Equal Employment Opportunity Commission ("EEOC") filed a Motion for Sanctions, Doc. No. 71 (the "Motion"), against Keith Oldemeyer ("Oldemeyer") and attorney Jed W. Manwaring ("Manwaring"). The Motion seeks to recover the EEOC's costs and attorneys' fees. The EEOC argues that such sanctions are proper based on 11 U.S.C. § 105(a) and this Court's inherent powers.
This dispute has occupied the attentions of the parties for an extended period. Matters on or related to the Motion have come before the Court several times for hearing, culminating with a one and one half day evidentiary hearing on January 16 and 17, 2003.
Upon the filing of the last post-hearing submissions on February 14, 2002, the matter was taken under advisement. These are the Court's findings and conclusions. Fed.R.Bankr.P. 9014, 7052.
Before addressing the specifics of this matter, this Court notes its general view of fee-shifting disputes:
The costs of litigation in bankruptcy are generally borne by litigants, without reimbursement by their adversaries.
. . .
[O]verarching the specific issues presented . . . is the question of whether the Court should provide a further catalyst to contentiousness by entering rulings shifting the responsibility for fees as between these two highly litigious adversaries.
Parties' decisions, strategic and otherwise, are subject to and presumptively made with recognition of the principle that litigants in bankruptcy cases are generally responsible for their own legal costs and their opponents generally aren't. The Court is loath to upset this reasoned system, and award fees where the statute is silent or case law less than compelling. I conclude that fee shifting should occur only if the authority is clear and unambiguous.
In re Lake Country Invs. Ltd. Liab. Co., 1999 WL 33490220, *2-3, 99.4 I.B.C.R. 132, 133 (Bankr. D. Idaho 1999).
II. BACKGROUND AND FACTS
The EEOC's Motion complains of several aspects of Manwaring's and Oldemeyer's conduct. Resolution of the issues therefore requires a rather extended discussion of the facts and procedural history. The following appears from the testimony and documentary evidence presented at hearing in January and from the Court's record, including admissions in the pleadings. Fed.R.Evid. 201, 801(d)(2).
While extensive, the Court has tried to limit its factual findings to the sanctions issues presented by the Motion. One reason for doing so is the fact that other litigation involving these events is pending. Couch-Russell filed a chapter 7 case, No. 02-03719, on November 8, 2002, and Oldemeyer filed an adversary proceeding, No. 03-6007, objecting to her discharge.
Mona Shae Couch-Russell ("Couch-Russell") believed that she had been subjected to sexual harassment in the workplace in September and October 1999. She was working at a car dealership (hereafter "Employer"). She filed a claim with the Idaho Human Rights Commission in November 1999, and a charge of discrimination with the EEOC soon thereafter. In May, 2000, the EEOC issued a cause finding and asked the Employer to conciliate the charge. This communication included a proposal that the Employer pay $100,000.00 in compensatory and punitive damages to Couch-Russell in addition to back pay. Couch-Russell was aware of the terms of this demand. The proposal was rejected, and conciliation failed in June, 2000.
There are references in the record to several entities, including the one which executed a consent decree with the EEOC. Precise identification is not critical to the instant decision.
On September 5, 2000, Couch-Russell filed a voluntary chapter 13 petition, commencing Case No. 00-02226. She did not disclose the claim or cause of action against her Employer in her schedules or statement of financial affairs. Her chapter 13 plan was confirmed in December, 2000.
In June 2001, while Couch-Russell's chapter 13 case was pending, the EEOC filed a lawsuit in the U.S. District Court of this District. Equal Employment Opportunity Commission v. Larry II. Miller Corp., CV-01-301-S-EJL. Though not named as a party plaintiff, Couch-Russell was seasonably advised by the EEOC of the commencement of the suit. She was aware of the monetary relief sought by the EEOC on her behalf, and she was aware of the injunctive relief the FFOC sought against the Employer. She did not amend her schedules to disclose the existence of the EEOC's lawsuit, which was asserted at least partially for her benefit.
In October, 2001, Couch-Russell sought and received Bankruptcy Court approval for sale of her residence (including avoidance of Oldemeyer's lien under § 522(f) of the Code) and "prepayment" of her confirmed chapter 13 plan. Her schedules and other disclosures remained silent as to the claim against the Employer and the EEOC's lawsuit before the U.S. District Court.
By at least early December, 2001, the EEOC was aware of the bankruptcy case. Couch-Russell provided information for use in discovery that mentioned both the bankruptcy case and litigation with Oldemeyer. In addition, in a letter dated December 12, 2001, Manwaring advised the EEOC of the chapter 13 case. He informed the EEOC that Couch-Russell had not disclosed the claim against the employer and that the bankruptcy case remained open. Manwaring also provided copies of Couch-Russell's bankruptcy schedule B, the October plan payoff order, and a November notice to creditors advising of a December 20 bar date for objections to discharge.
Couch-Russell indicated to the EEOC, and the EEOC through counsel stated in discovery responses in Case No. CV-01-301-S-EJL, that the bankruptcy was "resolved" on October 21, 2001. This was an apparent reference by Couch-Russell to the Court's approval of the sale of her residence and prepayment of the plan. The case, however, was not concluded on that date.
In his letter, Manwaring offered to settle Couch-Russell's claim and the EEOC's lawsuit against his client, the Employer, for a "nominal" $4,000.00. Such settlement would include a mutual confidentiality agreement. If not settled on these terms, Manwaring indicated he would "notify creditors and the Trustee" of the undisclosed claim in order for them to object to Couch-Russell's discharge.
On December 19, 2001, the EEOC rejected the offer. In doing so, the EEOC asserted that it did not represent Couch-Russell other than in Case No. CV-01-301-S-EJL, that it had been in contact with Couch-Russell's bankruptcy attorney, Grant King ("King"), and that it believed amendment or other action would be taken in the bankruptcy case to disclose the asset.
Also on December 19, 2001 — the day before the deadline for discharge objections — Couch-Russell filed an amendment to schedule B stating under item 33 (other personal property not otherwise listed):
The Equal Employment Opportunity Commission is the plaintiff in claim against debtor's former employer for sexual harassment. At the time of filing there was no value.
This disclosure asserted the "current market value" of that claim as "Unknown." Doc. No. 36.
Manwaring contacted Oldemeyer and the chapter 13 trustee and invited them to a December 20 meeting at Manwaring's office. Both attended the meeting, and Manwaring provided information regarding the claims of the EEOC and Couch-Russell against his client, the Employer. Manwaring had drafted a complaint objecting to Couch-Russell's discharge on the basis of fraud, and offered it to the trustee and Oldemeyer for their use. Oldemeyer accepted, and Manwaring's office inserted Oldemeyer's name on the pleading as a "pro se" plaintiff. Oldemeyer then filed the "Complaint In Objection to Discharge" (the "Complaint") against Couch-Russell and commenced Adversary No. 01-6324.
Couch-Russell, the only named defendant, answered the Complaint through King. A "declaration" from an EEOC attorney was attached to the answer. The declaration set forth the EEOC's positions and arguments concerning its role. See Exhibit K. It averred that the EEOC did not represent Couch-Russell in her bankruptcy ( Id. at ¶ 4), nor during the effort at conciliation (¶ 8), but that upon filing suit in June 2001, it "began representing the interests of Ms. Russell as her advocate and counsel" (¶ 10). Case No. 01-6324, Doc. No. 3.
In February, 2002, Manwaring was replaced as counsel for the Employer in the EEOC action. He almost simultaneously appeared as counsel for Oldemeyer in the bankruptcy case and in the adversary proceeding, No. 01-6324.
On March 19, 2002, a mediation was held and the EEOC action settled. In settlement, Couch-Russell received $30,000.00, and the EFOC obtained a consent decree against the Employer. The sole precondition to Couch-Russell's receipt of the money was negotiation of a release between her and the Employer. The EFOC knew this and was provided a draft copy of the release, but it did not participate in the drafting or negotiation of the release.
The release was finalized by Couch-Russell and the Employer, and it was signed by Couch-Russell on March 22, 2002. Couch-Russell received the funds by way of a check drawn on March 28, which she negotiated for cash on April 2. She expended the funds. Her bankruptcy trustee did not receive any of the funds, nor any accounting of their disposition.
At the time of the mediation and settlement on March 19, Couch-Russell's chapter 13 case remained open and the adversary case pending. The Bankruptcy Court was never asked to approve the settlement. Cf. Fed.R.Bankr.P. 9019(a), 2002(a)(3). No further amendments to schedules were filed, nor was any disclosure made regarding the settlement of the claim.
On March 19, a deputy clerk of this Court entered an order of discharge and, the following day, entered an order closing the case. While the Clerk's office is given certain authority in regard to such acts by virtue of General Order, both of these orders were in error given the state of the record. They were later set aside. Couch-Russell and her counsel would have been unaware of these confusing orders at the time of the mediation and settlement since notice of their entry had not been issued at that time.
On March 21, 2002, Couch-Russell moved to dismiss her case under § 1307(b). The deputy clerk administering the paperwork in the case entered an order, by virtue of General Order authority, granting the motion on April 3.
On April 4, Manwaring became aware of the settlement and had a heated telephone conversation with one of the EEOC's attorneys.
On April 19, Oldemeyer, through Manwaring, moved to set aside the April 3 dismissal, and alternatively sought relief from the sale and § 522(f) orders. On the same day, he filed a "Motion for Sanctions Against Debtor and Her Attorneys" (the "Sanction Motion"). The Sanction Motion was premised on Fed.R.Bankr.P. 9011, sought $30,000.00, and was directed to Couch-Russell, the EEOC, and King. Oldemeyer scheduled the Sanction Motion for a May 1 hearing.
On April 25, Couch-Russell appeared through another lawyer (Blair Clark) and responded to Oldemeyer's April 19 pleadings. Her response included a "cross-motion" for sanctions against Olderneyer and Manwaring. The EEOC also appeared. All parties agreed to postpone the hearing until Tuesday, June 4.
Paperwork was filed through the balance of May on the various contentions and cross-contentions. On Friday, May 31, Manwaring advised the EEOC that the Sanction Motion would be withdrawn against King with prejudice and withdrawn without prejudice against the EEOC and Couch-Russell. A pleading reflecting the same was signed by Manwaring and served by facsimile on the EEOC that day. This withdrawal of the Sanction Motion was filed with the Court the following Monday, June 3. No one appeared at the June 4 hearing, and the same was vacated.
King, now represented by counsel as well, paid certain sums in settlement of the Sanction Motion.
On June 27, the EEOC filed its Motion for Sanctions, Doc. No. 71. This was the matter ultimately heard on January 16 and 17, 2003.
III. DISCUSSION AND DISPOSITION
The EEOC asserts that the events described above support entry of an order by this Court awarding monetary sanctions in the form of recovery of the EEOC's costs and attorneys' fees, payable jointly and severally by Olderneyer and Manwaring. The EEOC requests costs of $2,144.58 and attorneys' fees of $19,270.00. See Doc. Nos. 94, 95. The EEOC premises its request on § 105(a) and this Court's "inherent" power to sanction.
A. Applicable legal authority
It is well established that federal courts have the inherent power to impose sanctions on counsel, or parties, for bad-faith conduct that abuses the judicial process. See Chambers v. NASCO, Inc., 501 U.S. 32, 45-46 (1991). This power includes the ability to assess sanctions in the form of attorneys' fees and costs "when a party has `acted in bad faith, vexatiously, wantonly, or for oppressive reasons.'" Id. (quoting Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240, 258-59 (1975)). It is, however, a power that must be exercised with "restraint and discretion." Id. at 44.
The Ninth Circuit has recognized that bankruptcy courts have such inherent authority. Caldwell v. Unified Capital Corp. (In re Rainbow Magazine, Inc.), 77 F.3d 278, 284 (9th Cir. 1996) (finding that in enacting the "to prevent an abuse of process" language of § 105(a), "Congress impliedly recognized that bankruptcy courts have the inherent power to sanction that Chambers recognized exists within Article III courts."); see also Miller v. Cardinale (In re DeVille), 280 B.R. 483, 494-96 (9th Cir. BAP 2002); Enrose Farms, Inc. v. S.S. Steiner, Inc. (In re Enrose Farms), Inc., 1999 Wl. 33486711 at *6, 99.1 I.B.C.R. 22, 25 (Bankr. D. Idaho 1999).
In contrast, 28 U.S.C. § 1927 (providing that an attorney "who so multiplies the proceedings in any case unreasonably and vexatiously" may be required to pay personally the fees and costs attributable to such conduct) is not available to bankruptcy courts but only to courts as defined in 28 U.S.C. § 451. See DeVille, 280 B.R. at 494 (citing Perroton v. Gray (In re Perroton), 958 F.2d 889, 896 (9th Cir. 1992); Determan v. Sandoval (In re Sandoval), 186 B.R. 490, 495-96 (9th Cir. BAP 1996)). See also Enrose Farms, 1999 WL 33486711 at *5, 99.1 I.B.C.R. at 25.
Thus, the Court has the power to impose sanctions to deal with practices or conduct of a party or counsel who "willfully abuses the judicial process." Enrose Farms, 1999 WL 33486711 at *6, 99.1 I.B.C.R. at 25 (citing Mortgage Mart, Inc. v. Rechnitzer (In re Chisum), 68 B.R. 471, 473 (9th Cir. BAP 1986)). However, "[a] specific finding of bad faith . . . must `precede any sanction under the court's inherent powers.'" Id. (quoting United States v. Stoneberger, 805 F.2d 1391, 1393 (9th Cir. 1986). The Panel in DeVille states:
Sanctions under a court's inherent power are justified against a party who willfully disobeys a court order or acts in bad faith "which includes a broad range of willful improper conduct." Fink v. Gomez, 239 F.3d 989, 991-92 (9th Cir. 2001). To impose inherent power sanctions, a court must find that a party acted "in bad faith, vexatiously, wantonly, or for oppressive reasons." Chambers, 501 U.S. at 44, 111 S.Ct. 2123.
Since this matter was submitted for decision, the Ninth Circuit has again addressed a bankruptcy court's inherent powers. Knupfer v. Lindblade (In re Dyer), No. 01-56319, 2003 WL 1090176 (9th Cir. Mar. 13, 2003). Dyer affirms the existence of the bankruptcy court's inherent sanction authority under Chambers and Rainbow Magazine. Id. at *14. Dyer notes that the "inherent authority derives not from statutory grants but rather from the very creation of the court" and it is thus not identical to or interchangeable with civil contempt powers existing under § 105(a). Id. It stated:
In discussing contempt authority under § 105(a), Dyer notes that the bankruptcy court is authorized to impose "civil" contempt sanctions only, and not noncompensatory punitive sanctions which implicate a "criminal" contempt power. 2003 WL 1090176 at *11.
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. 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 respect as well. Before imposing sanctions under its inherent sanctioning authority, a court must make an explicit finding of bad faith or willful misconduct. Id. In this context, "willful misconduct" carries a different meaning than the meaning employed in the context of determining whether an individual is entitled to damages under § 362(h) or a contempt judgment under § 105(a) for an automatic stay violation. 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. Although "specific intent to violate the automatic stay" may not be required in the contempt context, Pace, 67 F.3d at 191, such specific intent or other conduct in "bad faith or conduct tantamount to bad faith," Fink, 239 F.3d at 994, is necessary to impose sanctions under the bankruptcy court's inherent power.
Id. DeVille also recognized that the inherent power is a "separate and distinct source of authority, which is not displaced by the federal statutes and rules." 280 B.R. at 495 (citing Chambers, 501 U.S. at 46). DeVille explains that this genesis reflects another important aspect of the power: It can be used where, "in the informed discretion of the court, neither the statute nor the Rules are up to the task." Id. at 494 (quoting Chambers, 501 U.S. at 50). Conversely, if the Rules are "up to the task," and provide "a straightforward, comprehensive remedy," recourse to the inherent power would not be necessary. Id. at 494, 495; accord, Eskanos Adler, P.C. v. Roman (In re Roman), 283 B.R. 1, 14-15 (9th Cir. BAP 2002) (where § 362(h) provided a remedy, "it was both unnecessary and improper for the court to resort to its inherent authority for the imposition of attorneys' fees as a sanction for same conduct.")
Dyer also found that the "same reasons underlying our holding that the bankruptcy court lacks the authority to impose serious punitive sanctions under its contempt authority indicate the answer to the parallel question concerning the inherent sanction authority." 2003 WL 1090176 at *15. Dyer thus is in agreement with DeVille, 280 B.R. at 494-98.
B. Claims asserted
The EEOC contends that both Oldemeyer and Manwaring are subject to sanctions for the following acts:
(1) Manwaring "ghostwrote" the Complaint and Oldemeyer falsely certified he was acting pro se;
(2) Manwaring and Oldemeyer in the Complaint falsely accused the EEOC of fraudulent concealment of the harassment claim;
(3) Manwaring and Oldemeyer failed to conduct and adequate investigation before filing the Complaint and subsequently failed to remedy the situation;
(4) The Sanction Motion was frivolous and falsely accused the EEOC of failing to disclose the harassment claim in the bankruptcy;
(5) The Sanction Motion raised only frivolous legal claims;
(6) The Sanction Motion was filed for an improper purpose, and to embarrass, harass or burden the EEOC; and
(7) Manwaring improperly attempted to coerce a "low-ball" settlement of the EEOC suit under threat of disclosure of Couch-Russell's omission of the claim.
See EEOC's Closing Arguments on EEOC's Motion for Sanctions, Doc. No. 93, at 2. In addition, the EEOC has complained of Manwaring's "untimely" vacation of the hearing on the Sanction Motion, and the consequent costs and fees incurred.
C. Application of authorities to claims regarding the Complaint
The EEOC's several claims in regard to the Complaint which commenced Adversary No. 01-6324 include Manwaring's ghostwriting, Oldemeyer's certification that he acted pro se, a failure of both to conduct required prefiling investigation, and a failure of both to retract or otherwise remedy the accusation leveled in the Complaint regarding the EEOC's complicity in the fraudulent concealment of the claim. 1. Standing and lack of injury
The first and most significant problem with these charges is the fact that the EEOC was not named as a defendant in the Complaint and was not a party to the adversary proceeding, No. 01-6324. The Complaint contested only Couch-Russell's discharge. It did not seek recovery from or pray for relief against the EEOC. Thus the EEOC's standing to raise contentions regarding Manwaring's or Oldemeyer's conduct in relation to the Complaint is suspect.
That the EEOC prepared a "declaration" to add to Couch-Russell's Answer was gratuitous. Not only was the EEOC not a party, the EEOC took the position that it was up to Couch-Russell and King to make disclosures in the bankruptcy. Thus it would be consistent for the EEOC to leave to King and Couch-Russell the question of defense of their conduct.
In addition, the EEOC has not established it suffered any injury from the filing of the Complaint. It is clear that the EEOC was insulted and offended by the implication, if not outright allegation, that it conspired with Couch-Russell to fraudulently conceal the harassment claim from the bankruptcy court and creditors. Even so, the EEOC has failed to establish that such allegations are actionable in the manner suggested here. It has further failed to show that such allegations were made in bad faith, vexatiously or for an improper purpose, which is requisite for inherent authority sanctions.
Manwaring advanced the argument that the Complaint did not cast aspersions on the EEOC so much as it indicated that the EEOC was "being used" by the sole named-defendant, Couch-Russell. He contends that the allegation "Debtor, in conjunction with the EEOC, defrauded and [. . .]" was meant only to convey the means of Couch-Russell's fraud and not to allude to the EEOC as a knowing ally. This particular argument is not convincing. That Manwaring had such a benign view of the EEOC is belied by the Complaint read as a whole, and it is wholly inconsistent with his rather strongly advanced belief that the EEOC was both aware of and obligated to act to stop Couch-Russell's conduct.
The EEOC has not shown how the statements caused cognizable injury nor provided other compelling reason for the Court to award compensatory sanctions.
2. Rule 9011
Second, the EEOC's contentions that Manwaring and Oldemeyer's allegations were inadequately supported and that they failed to conduct a proper prefiling investigation implicate the requirements of Fed.R.Bankr.P. 9011(b). However, in addition to the fact that the EEOC was not a party to the lawsuit in which this allegedly sanctionable conduct occurred, Rule 9011 itself creates impediments to recovery.
Rule 9011(b) provides that, by presenting a pleading, "an attorney or unrepresented party is certifying that to the best of the person's knowledge, information and belief, formed after an inquiry reasonable under the circumstances," the pleading is not presented for an improper purpose, the legal arguments are warranted under existing law or by a nonfrivolous argument for change of such law, and the factual allegations have sufficient evidentiary support. Rule 9011(b)(1)-(3).
The first impediment is that Rule 9011 has preconditions that must be met before sanctions can be sought, including the requirements of a separate motion and a 21-day "safe-harbor" within which the challenged party may remedy the situation. See Rule 9011(c)(1); see also DeVille, 280 B.R. at 492-94 (discussing prerequisites for Rule 9011 relief). The second impediment is DeVille's recognition that the Court's inherent power is available only where other rules are not "up to the task." Here, Rule 9011 was readily available to address questions of adequacy of prefiling investigation (at least for the parties to that litigation). The EEOC's attempt to raise such Rule 9011-type contentions under either § 105(a) or the inherent power is unavailing.
3. Ghostwriting
It is true that Manwaring ghostwrote the Complaint within the general sense and meaning of that term as previously used by this Court. In re Castorena, 270 B.R. 504, 514 n. 14 (Bankr. D. Idaho 2001). Manwaring prepared a pleading for filing by a putatively pro se litigant and, by not disclosing that fact, kept parties and the Court from an accurate knowledge of what truly occurred. However, in doing so, Manwaring visited no injury on the EEOC because the EEOC was never named in that action.
Castorena clearly reflects judicial displeasure with ghostwriting. It, however, addressed and applied a remedy specific to that case. See 270 B.R. at 514-15 (relying on § 329(b), and declining to address Rule 9011 due to lack of compliance with the requirements of Rule 9011(c)). Castorena's analysis does not excuse the EEOC from identifying a proper legal basis for its claim that it is entitled to recover compensatory sanctions by reason of Manwaring's ghostwriting this particular pleading. The Court cannot conclude that by preparing the Complaint Manwaring did something to the EEOC that requires recompense. Nor did Oldemeyer by filing it.
Manwaring solicited a party to file a lawsuit, and to advance a position that Manwaring had earlier determined should be asserted. He presented the complaint to Oldemeyer, a party Manwaring knew would have a motive to file but essentially no opportunity to evaluate the accuracy of the representations Manwaring was making or the allegations in the pleading itself. That the Complaint would be filed precisely as Manwaring had prepared it, in reliance on only Manwaring's representations, was a virtual fait accompli. The conduct raises several concerns, but the question presented is whether it supports fee-shifting relief in favor of the EEOC. It does not.
The Rule 9011-type allegations against Olderneyer have been previously addressed. Further, ghostwritten or not, Oldemeyer did sign and file the Complaint and he did proceed pro se until Manwaring later appeared for him. The EEOC's contention that Oldemeyer "falsely" purported to appear pro se is not well taken.
In deciding that this aspect of the EEOC's Motion is not well taken, the Court does not mean to approve Manwaring's conduct. It only determines that such conduct does not support the precise relief the EEOC seeks by way of the Motion.
The Court also observes that Manwaring advanced a "necessity" defense to ghostwriting — arguing that his preparation and solicited third-party filing of the complaint was compelled by the need to have it of record by December 20 in order to prevent Couch-Russell from receiving her discharge and accomplishing the perceived fraud. This attempted justification is not persuasive. First, Manwaring had knowledge of the non-disclosure of the claim and the impending rulings or deadlines in the bankruptcy sufficiently in advance of December 20 so that his contention that the Complaint had to be filed "immediately" is not accurate. Second, Manwaring did not need to find and solicit a creditor to act. Once he had the Employer's consent to disclose the harassment claim (assuming such consent was needed), he had only to advise the chapter 13 trustee or United States Trustee of the pendency of that claim. Fither or both of those parties could have easily and promptly brought it to the attention of the Court in some fashion. Third, a discharge complaint was not required. Trustees and creditors routinely request extensions of such bar dates in order to preserve the ability to advance claims that require additional investigation or development.
The Court concludes that ghostwriting forms no basis for a compensatory sanction benefitting the EEOC. The EEOC does not purport to seek some other sort of sanction. It is important to recognize that, even if Manwaring's conduct were to offend this Court, a punitive sanction cannot be imposed on the present record. Both DeVille and Dyer hold that the bankruptcy court may use its inherent power to impose compensatory sanctions (assuming a predicate finding of bad faith or willful misconduct of sufficient nature and degree); neither supports sua sponte imposition of "punitive" sanctions. Dyer, 2003 WL 1090176 at *15-16; DeVille, 280 B.R. at 497-98. There has been no appropriate process commenced, under Rule 9011(c) or otherwise, or other basis upon which a punitive, noncompensatory sanction against Manwaring might be based without contravening the limitations of Dyer and DeVille. D. Application of authorities to claims related to the Sanction Motion
Unlike the situation with the Complaint, the EEOC was (along with King and Couch-Russell) an identified target in the Sanction Motion. It contends that the Sanction Motion was "frivolous," that Manwaring and Oldemeyer did not adequately investigate or evaluate the factual and legal contentions before the Sanction Motion was filed, that it "falsely accused" the EEOC of wrongful conduct, and that it was filed for improper purposes such as to harass, annoy and burden the EEOC. See EEOC's Closing Arguments on EEOC's Motion for Sanctions, Doc. No. 93, at 2.
Manwaring and Oldemeyer attempt to defend the EEOC's claim of "false accusation" by proving that the EEOC was properly and justly named. The EEOC, predictably, disagrees. A good deal of evidence and argument was presented on the point. However, the Court need not resolve that question nor try the (now withdrawn) Sanction Motion. The answer lies instead in determining whether, assuming a colorable argument of false accusation is made, the EEOC is otherwise barred from receiving compensatory sanctions.
Even assuming for the sake of argument that there is some merit to the EEOC's characterization of the insufficiency of the prefiling investigation, or the intent behind the Sanction Motion, the EEOC's contentions still reflect alleged violations of Rule 9011. As discussed earlier, this Rule is "up to the task" of addressing such concerns, and recourse, to the Court's inherent powers is neither requireid nor proper. The EEOC has not complied with Rule 9011, and as with similar Rule 9011-type claims, discussed supra, the request for sanctions under the Court's inherent powers for these particular "offenses" will be denied.
The EEOC also complains that Oldemeyer, through Manwaring, withdrew the Sanction Motion in an unreasonable fashion, immediately before the scheduled hearing date, and the timing and manner of withdrawal exposed the EEOC to unnecessary and unreasonable expense. It points to the fact that the hearing was set for Tuesday, June 4, 2002 and that Manwaring advised the EEOC by telephone and facsimile the preceding Friday, May 31, that the Sanction Motion was being withdrawn. The EEOC argues that this was unseasonable and untimely notice, because it had at that point already expended significant time in preparing for the hearing and purchased nonrefundable airline tickets.
No Bankruptcy Rule or Local Bankruptcy Rule makes the vacation of this hearing or the withdrawal of the Sanction Motion clearly sanctionable by the Court to the benefit of the adverse party. At best, the adverse party has an argument, directed to the Court's discretion and its inherent power, that under all the circumstances, the withdrawal of the motion and/or vacation of the hearing was purposefully and unreasonably delayed and that compensation is warranted.
LBR 2002.2 discusses processes of setting and vacating hearings. LBR 2002.2(f) provides that a hearing may be vacated on a judge's discretion, on agreement of the parties, or on request of a party filed and served at least three days prior to the hearing, unless a judge for cause shown waives those requirements. The Local Rule does not purport to address consequences (sanctions) for violation, and that question appears, appropriately enough, to be left to the Court's discretion.
As noted earlier, the Court must find "bad faith" or "willful misconduct . . . more egregious than mere negligence or recklessness" in order to use this authority. Dyer, 2003 WL 1090176 at *14. The argument must be that the untimely withdrawal of the Sanction Motion reflected an abusive litigation strategy, i.e., a calculated decision to delay vacating the hearing until maximum economic costs were visited on the opponent, or a cavalier and unthinking approach to the question of timely notice such that the Court's inherent powers may properly be invoked.
This Court has not been presented with evidence of such had faith or other compelling reason sufficient to invoke the Court's inherent power to impose compensatory sanctions in favor of the FFOC for the vacation of the hearing. This aspect of the EEOC's Motion will also be denied.
Even if such relief were warranted, it would not carry the economic heft that the EEOC seeks. An untimely vacation of a hearing, designed solely or primarily to increase the financial burden on an opponent or that otherwise manifests a sufficient degree of bad faith, would support compensatory sanctions for the increased costs suffered by the opponent as a result of that delay. That would likely be only a few days of attorney labor and any direct costs. Here, the EEOC claims fees and costs for the entire preparation of its defense to the Sanctions Motion, and also for the preparation and hearing on its Motion.
E. Application of authorities to claims based on other conduct
Finally, the EEOC has argued that Manwaring should be sanctioned for his attempt to obtain, for the Employer, a settlement from Couch-Russell and the EEOC at a "de minimis" or "low-ball" amount of $4,000.00 by threatening to disclose the harassment claim to the Trustee or bankruptcy creditors, but promising (at least implicitly) to remain silent if the compromise was accepted. Still, the EEOC has not shown that it was damaged, or that compensatory sanctions are required or appropriate. The EEOC promptly rejected the offer. It suffered no injury. To the extent the EEOC is acting as an unappointed ombudsman and urges protection of the Court's interests (or the Bar's) in policing conduct of attorneys generally, no right to compensatory relief is shown. Even if worthy of approbation, Manwaring's conduct cannot be sanctioned in a punitive fashion on the present record. Dyer, 2003 WL 1090176 at *15. IV. CONCLUSION
Manwaring says that his offer's condition of "confidentiality" was not directed to the bankruptcy disclosure issue, and that his silence was not a quid pro quo for an agreement to settle at the $4,000.00 figure. It's hard to read the offer in such a sanguine way. That confidentiality of settlement excluded any necessary bankruptcy disclosures is not clear. Additionally, Manwaring had clearly reached a conclusion that Couch-Russell, King and the EEOC had failed to properly disclose the claim and he well knew the bankruptcy issues which were implicated. He also did not condition the proposed settlement upon Bankruptcy Court approval, which he also certainly realized would be required. The EEOC's distaste for the "purchased silence" proposal is not unreasonable.
The Court clearly sees problems with attorney conduct in this case. As should be apparent from the discussion above, Manwaring's conduct was not exemplary even if that conduct was insufficient to support compensatory sanctions to the EEOC. However, the EEOC also bears some blame for what occurred. It turned a blind eye to Couch-Russell's nondisclosure of the harassment claim in her bankruptcy case and attempted to draw a narrow compass around those aspects of her affairs for which it should or should provide advice or bear responsibility. Many of the problems could have been avoided by a different approach, on behalf of both, to their duties.
But if there is a theme to this litigation over sanctions, it might be the ultra-sensitivity of all counsel to the real or imagined slights of others. Many, if not most, of the positions taken by the attorneys have been viewed by their opponents as demeaning and insulting, or worse. But instead of merely arguing that opposing counsel was wrong on the facts or law, or even that they were uncivil or unprofessional, the responses have regularly been that the opponent should be sanctioned by the Court. Indeed, only a portion of the many claims for sanction have been addressed in this Decision; the Sanction Motion itself was settled (as to King) and withdrawn as to the EEOC and Couch-Russell, and Couch-Russell's counter-motion for sanctions was never heard.
Not only has each party accused the other of conduct which it believes requires this Court's disapprobation, each wants money to prove it. And each party has then in turn attempted to defend its own conduct, or at least deflect attention, by pointing to its accuser's "sanctionable" conduct.
Neither side has risen above the fray. That has cost them both. The comments of the Panel in Roman are apropos:
Antagonism between the attorneys in this case then fueled unnecessary litigation . . . which could have been avoided altogether through professional courtesy and civility.
This litigation could have been curtailed, and probably avoided, if [the attorneys] had extended professional courtesies to one another, and simply made some phone calls and divulged material information in a sincere effort to resolve what began as a minor problem. Instead, they each allowed the "bad blood" between them to complicate their strategies and escalate meaningless litigation. Therefore, we find it appropriate to strongly admonish both parties for putting their respective desire to take each other to task before the interests of their clients.
For the reasons set forth in this Decision, the Court concludes that the EEOC's Motion for Sanctions should be denied in its entirety. To the extent Manwaring or Oldemeyer seek fees or costs in responding to the Motion, their requests are likewise denied. An order will be entered accordingly.