Brooks-Hamilton v. City of Oakland

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	No. 03-44829 TT
Chapter 7
RALBERT RALLINGTON
BROOKS-HAMILTON,
Debtor.
____________________________/
RALBERT RALLINGTON 	A.P. No. 03-4837 AT
BROOKS-HAMILTON,
Plaintiff,
vs.
CITY OF OAKLAND,
Defendant.
______________________________/
MEMORANDUM OF DECISION ON REMAND RE SANCTIONS
On September 1, 2004, an order was entered granting in part and
denying 	in 	part 	the 	motion 	filed 	by 	defendant 	(the 	“City”) 	for
sanctions pursuant to Rule 9011(b) of the Federal Rules of Bankruptcy
Procedure. 	In 	the 	order, 	the 	Court 	imposed 	sanctions 	against 	the
debtor’s 	counsel, 	David 	A. 	Smyth 	(“Smyth”), 	for 	filing 	claims 	that
Signed: August 29, 2008
________________________________________
LESLIE TCHAIKOVSKY
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
September 02, 2008
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 03-04837 Doc# 49 Filed: 08/29/08 Entered: 09/02/08 17:23:31 Page 1 of 6

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were both frivolous and asserted for an improper purpose. 	The Court
awarded the City monetary sanctions in the amount of $10,671.
The 	order 	was 	affirmed 	by 	the 	Bankruptcy 	Appellate 	Panel. 	On
further 	appeal, 	the 	Ninth 	Circuit 	Court 	of 	Appeals 	reversed 	the
Court’s 	order 	in 	part, 	finding 	that 	only 	one 	of 	the 	three 	legal
claims 	was 	frivolous. 	It 	remanded, 	directing 	the 	Court 	to
reconsider, given this ruling, the amount of the monetary sanction as
well as whether the Court still believed the one frivolous claim had
been asserted for an improper purpose. 	For the reasons stated below,
the Court concludes that the one frivolous claim was asserted for an
improper purpose but that the monetary sanction should be reduced to
$2,134.20. 	The reasons for the Court’s ruling on remand is set forth
below.
As noted above, the Court’s award of sanctions was based on its
conclusion that three of the claims asserted by Smyth in the above-
captioned adversary proceeding were frivolous. 	The three claims and
the rulings made concerning them are summarized below.
1. 	First, 	Smyth 	contended 	that 	the 	liens 	asserted 	on 	the
debtor’s 	property 	were 	illegal 	because 	they 	violated 	federal
Department 	of 	Housing 	and 	Urban 	Development 	(“HUD”) 	rules 	(the
“Statutory 	Claim”). 	The 	Court 	concluded 	that 	Smyth’s 	assertion 	of
this claim was frivolous because the relitigation of this claim was
barred by issue preclusion. 	A federal district court had dismissed
this 	claim 	in 	an 	earlier 	action 	for 	lack 	of 	subject 	matter
jurisdiction, 	finding 	that 	there 	was 	no 	private 	right 	of 	action
created by a violation of HUD rules.
Case: 03-04837 Doc# 49 Filed: 08/29/08 Entered: 09/02/08 17:23:31 Page 2 of 6

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On appeal, the Ninth Circuit held that this was error. 	It ruled
that 	the 	Statutory 	Claim 	was 	not 	barred 	based 	on 	issue 	preclusion
because, 	in 	dismissing 	the 	claim, 	the 	district 	court 	never 	reached
the question of whether a violation of HUD rules could be asserted as
an affirmative defense to enforcement of the City’s liens.
2. Smyth also contended that the City had breached its contract
with the debtor by failing to disburse all the loan money promised.
The 	Court 	concluded 	that 	Smyth’s 	assertion 	of 	this 	claim 	was
frivolous because the relitigation of the claim was barred by claim
preclusion. 	A state court had sustained a demurrer without leave to
amend 	to 	a 	Second 	Amended 	Cross-Complaint 	to 	the 	City’s 	complaint,
asserting the same claim for relief.
On 	appeal, 	the 	Ninth 	Circuit 	held 	that 	this 	ruling 	was 	also
erroneous. 	It 	noted 	that, 	in 	the 	state 	court 	action, 	the 	City 	had
demurred on two grounds: (1) statute of limitations and (2) failure
to state a claim. 	While the order granting the demurrer stated that
it 	was 	based 	on 	failure 	to 	state 	a 	claim, 	under 	California 	law, 	a
general 	demurrer 	for 	failure 	to 	state 	a 	claim 	may 	also 	be 	based 	on
the 	claim 	being 	barred 	by 	statute 	of 	limitations 	grounds. 	Under
California law, a dismissal on limitations grounds does not give rise
to claim preclusion. 	The Ninth Circuit held that it was impossible
to 	determine 	from 	the 	state 	court’s 	order 	whether 	the 	demurrer 	was
based on the lack of substance of the allegations or the limitations
grounds.
3. 	Finally, Smyth contended that the City had violated the one
action 	rule, 	thereby 	waiving 	its 	liens, 	by 	obtaining 	a 	writ 	of
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possession with regard to its personal property collateral. 	See Cal.
Civ. 	Proc. 	Code 	§ 	726(a). 	The 	Court 	concluded 	that 	this 	claim 	was
frivolous 	for 	two 	reasons. 	First, 	the 	law 	is 	clear 	that 	a 	secured
creditor does not violate the one action rule by enforcing a writ of
possession enabling it to take possession of its collateral. 	Second,
even if the writ obtained by the City had been a writ of attachment,
based on its underlying unsecured claim, a secured creditor does not
violate 	the 	one 	action 	rule 	by 	simply 	obtaining 	such 	a 	writ. 	The
rule 	is 	only 	violated 	by 	enforcing 	the 	writ. 	The 	Ninth 	Circuit
affirmed this ruling, agreeing with the Court that Smyth’s assertion
of this claim was frivolous.
On 	remand, 	the 	Court 	concludes 	once 	again 	that, 	based 	on 	an
objective 	standard, 	the 	assertion 	of 	the 	one 	action 	claim 	based 	on
the undisputed facts underlying this proceeding was for an improper
purpose. 	As 	the 	Ninth 	Circuit 	pointed 	out, 	as 	early 	as 	1900, 	the
Supreme Court of California rejected Smyth’s argument that a secured
creditor violated the one action rule by seeking a writ of possession
of 	its 	personal 	property 	collateral. 	Moreover, 	Smyth 	did 	not 	even
allege that the City had ever attempted to enforce the writ.
However, given the more limited basis for the Court’s sanction
ruling, 	the 	amount 	of 	the 	monetary 	sanction 	should 	clearly 	be
reduced. 	In 	attempting 	to 	determine 	the 	appropriate 	amount 	of 	the
reduction, 	the 	Court 	has 	reviewed 	the 	City’s 	motion 	to 	dismiss 	and
its 	reply 	brief, 	including 	the 	time 	entries 	made 	in 	support 	of 	the
monetary sanction request. 	The Court is unable to determine from the
time 	entries 	how 	much 	time 	was 	spent 	on 	the 	one 	action 	claim 	as
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opposed 	to 	the 	two 	claims 	the 	assertion 	of 	which 	the 	Ninth 	Circuit
has determined was not frivolous. 	Instead, the Court bases its award
on the portion of the legal argument devoted to the one action claim:
i.e., 	approximately 	twenty 	percent 	of 	the 	total. 	As 	a 	result, 	the
monetary sanction will be reduced to twenty percent of the original
award: 	i.e., 	to 	$2,134.20. 	The 	order 	directing 	payment 	of 	this
monetary sanction will be effective as soon as it is final.
CONCLUSION
For 	the 	reasons 	stated 	above, 	the 	Court 	holds 	that 	the 	one
action claim was a frivolous claim which was also asserted by Smyth
for 	an 	improper 	purpose. 	For 	that 	reason, 	the 	City’s 	motion 	for
monetary 	sanctions 	should 	be 	granted. 	However, 	the 	amount 	of 	the
award should be reduced to $2,134.20, representing the portion of the
fees 	incurred 	by 	the 	City 	attributable 	to 	the 	frivolous 	claim.
Counsel 	for 	the 	City 	is 	directed 	to 	submit 	a 	form 	of 	order 	in
accordance with this decision.
END OF DOCUMENT
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COURT SERVICE LIST
David Ashley Smyth
Smyth Law Offices
1990 N California Blvd. #830
Walnut Creek, CA 94596
Chris Kuhner
Kornfield, Paul & Nyberg
1999 Harrison St., #2675
Oakland, CA 94612
Case: 03-04837 Doc# 49 Filed: 08/29/08 Entered: 09/02/08 17:23:31 Page 6 of 6