Fraga v. The DuBoff Law Group, LLC et al

OCR transcription for search; preserved printed pages are authoritative

10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27

28

AUTHE
U.S. GO!

INFOR

; ar FILED

GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA

MAR 01 2007

NOT FOR PUBLICATION

HAROLD S. MARENU
BKCY. AP

CLERK
NE

U.S P. P. L
OF THE NINTH CIRCUIT

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: BAP No, NC-06-1257-KPaD
LARRY A. FRAGA, Bk. No. 00-44500
Debtor. Adv. No. 06-04005
RECE!Y
APR 11 2¢

KRISTINE M. KELLY,
Appellant,
Vv. MEMORANDUM

DUBOFF LAW GROUP, LLC,

Appellee.

Me ee et ee et ee ee ee ee ee ee ee ee ee ee 8

Argued and Submitted on February 21, 2007
at Sacramento, California

Filed - March 1, 2007

Appeal from the United States Bankruptcy Court
for the Northern District of California

Honorable Leslie Tchaikovsky, Bankruptcy Judge, Presiding

Before: KLEIN, PAPPAS and DUNN, Bankruptcy Judges.

‘This disposition is not appropriate for publication.
Although it may be cited for whatever persuasive value it may
have (see Fed. R. App. P. 32.1), it has no precedential value.
See 9th Cir. BAP Rule 8013-1.

ATION

ep 06-04005 Doc#74 Filed: 03/01/07 Entered: 04/13/07 14:54:13 Page 1 of
GPO 13

ED

BANKRUPTCY COURT
OAKLAND, CALIFORNIA

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

The debtor’s attorney, Kristine Kelly, appeals from an order
awarding sanctions in favor of appellee, Duboff Law Group, LLC,
under Federal Rule of Bankruptcy Procedure 9011 jointly and
severally against her and her client in connection with the
response to a lawsuit to collect professional fees that were not
a prepetition debt. We conclude that the court’ s decision was

not an abuse of discretion and AFFIRM.

FACTS

The debtor received a discharge on January 23, 2002, in an
involuntary chapter 7 case in the United States Bankruptcy Court
for the Northern District of California that was filed in August
2000 and in which an Order for Relief was entered in September
2000.

A few months prior to the filing of the involuntary
petition, the debtor and appellee entered into a written contract
for advisory legal services to be performed by appellee regarding
copyright matters.* Appellee performed legal services for the
debtor both before and after the Order for Relief was entered in
the bankruptcy case. The debtor did not inform appellee of the
bankruptcy case and did not schedule it as a creditor.

Appellee sent monthly invoices to the debtor for work
performed, and the debtor timely paid the invoices in full until
June 2001. Still unaware of the bankruptcy, appellee continued

performing legal services for the debtor at his request through

‘The debtor originally entered into an agreement with
appellees’ predecessor in interest DuBoff, Dorband, Cushing and
King.

2

Case: 06-04005 Doc#74 Filed: 03/01/07 Entered: 04/13/07 14:54:13 Page 2 of
13

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

October 2002. The debtor made partial payments to appellee in
June and September 2001, and made no payments thereafter.

In October 2002, appellee brought suit against the debtor in
Oregon state court for unpaid fees and costs attributable to a
period beginning in August 2001 (“Oregon Action”). The debtor
was duly served with notice, but did not respond, and the
debtor’s default was entered.

Appellee subsequently learned of the debtor’s bankruptcy
and, out of caution, moved to have its Oregon Action abated and
filed a proof of claim for $18,643.24 in the bankruptcy case.

The chapter 7 trustee objected to the claim on the grounds that
(1) it was a post-petition claim because the legal services at
issue were rendered to the debtor after the commencement of the
case; and, in the alternative, (2) it was filed after the claims
bar date. Appellee did not oppose, and the claim was disallowed,
rather than deemed to be tardy.

Appellee thereafter returned to the Oregon court and
reinstated the Oregon Action. The Oregon court entered a default
judgment against the debtor in March 2005 in the amount of
$35,001.72, plus post-judgment interest.’

Appellee obtained a sister state judgment in California in
August 2005 and scheduled a debtor's examination under California
judgment enforcement procedure. The debtor did not appear at the
debtor’s examination, and the California Superior Court for the

County of Fresno issued a bench warrant for the debtor’s arrest.

2The total amount represents: $18,643.24 (principal) +
$6,372.38 (pre-judgment interest) + $9,430 (attorney's fees) +
$556.10 (costs).

Case: 06-04005 Doc#74 Filed: 03/01/07 Entered: 04/13/07 14:54:13 Page 3 of
13

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

In response to the bench warrant, the debtor contacted and
retained appellant as his attorney. Appellant, acting on behalf
of the debtor, filed a motion in California state court to stay
enforcement of appellee’s judgment and to recall the bench
warrant. The debtor argued that the bankruptcy discharge barred
enforcement of the judgment. The California court denied the
debtor’s motion concluding that, because the underlying debt was
incurred post-petition and because the Oregon Action was
commenced following the debtor's discharge, the bankruptcy
injunction did not bar enforcement of the Oregon judgment. The
California court awarded appellee its attorney’s fees associated
with defending the motion by way of tentative ruling that
appellant concedes was allowed to become final pursuant to
California Rule of Court 3.1312(a) (formerly Rule 391(a)) and
California Civil Procedure Code § 1019.5(a).

On January 4, 2006, the day after the California court
announced its tentative ruling, appellant, as attorney for the
debtor, filed an adversary proceeding against appellee in the
bankruptcy court alleging that appellee had violated the
discharge injunction under 11 U.S.C. § 524(a) (2) by continuing to
prosecute the Oregon Action and attempting to enforce the
judgment in California.

The complaint alleged that the judgment was based on a debt
for legal services performed prepetition, and the only post-
petition services were for tracking the debtor’s bankruptcy and
attempting to collect unpaid fees and costs. The complaint did
not disclose that the California court had denied the debtor's

motion to stay enforcement of the judgment or that the court had
4

Case: 06-04005 Doc#74 Filed: 03/01/07 Entered: 04/13/07 14:54:13 Page 4 of
13

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

ruled that the underlying debt was a post-petition debt that was
not discharged.

Pursuant to the “safe harbor” procedure of Federal Rule of
Bankruptcy Procedure 9011(c) (1) (A), in January 2006, appellee

sent appellant a letter informing her of its intent to file a

Motion for Rule 9011 Sanctions if she did not voluntarily dismiss

her adversary complaint by January 20, 2006. Despite the
warning, appellant did not voluntarily dismiss her complaint.

On March 9, 2006, appellee filed a Motion for Summary
Judgment ("MSI") and a motion for Rule 9011 Sanctions (“Rule 9011
Motion”)?. In its Rule 9011 Motion, appellee requested
attorney’s fees and costs in connection with the adversary
proceeding as sanctions.

A hearing was held on April 6, 2006. The bankruptcy court
granted the summary judgment motion from the bench and took the
Rule 9011 Motion under submission. On April 18, 2006, the court
issued a Memorandum Decision granting the Rule 9011 Motion. The
court approved appellee’s request for attorney’s fees (not yet
quantified) and costs in connection with defending itself in the
adversary proceeding, and announced that the award would be made
jointly and severally against both the debtor and appellant .*

On May 19, 2006, the bankruptcy court issued a Final

Memorandum Regarding Rule 9011 Sanctions awarding appellee

Appellee actually filed a Motion for Sanctions pursuant to
Federal Rule of Civil Procedure 11. Federal Rule of Bankruptcy
Procedure 9011 mirrors Rule 11 and is the sanctions provision
that is applicable in bankruptcy proceedings. Unless otherwise
indicated, all sanctions rule references are to the Federal Rules
of Bankruptcy Procedure.

‘The court gave appellee thirty days to file a statement of
fees and expenses associated with the adversary proceeding.

5
Case: 06-04005 Doc#74 Filed: 03/01/07 Entered: 04/13/07 14:54:13 Page 5 of
13

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

$17,421 in fees and $331.81 in costs jointly and severally
against the debtor and appellant.

A final order was entered on June 6, 2006, and a timely

appeal ensued.°®

JURISDICTION
The bankruptcy court had jurisdiction via 28 U.S.C. § 1334.

We have jurisdiction under 28 U.S.C. § 158(a) (1).

ISSUE
Whether the bankruptcy court erred when it imposed monetary

Sanctions under Rule 9011.

STANDARD OF REVIEW
The bankruptcy court’s decision to award sanctions under

Rule 9011 is reviewed for an abuse of discretion. Smyth v. City

of Oakland (In re Brooks-Hamilton), 329 B.R. 270, 277 (9th Cir.

BAP 2005).

DISCUSSION
Rule 9011 imposes an obligation upon an attorney to ensure
that all bankruptcy court submissions are “truthful and for

proper litigation purposes.” Brooks-Hamilton, 329 B.R. at 277.

“The debtor and the appellant filed one notice of appeal.
Appellant subsequently moved to withdraw as debtor’s attorney and
to bifurcate her appeal. The BAP granted appellant’s motion and
opened the current appeal (06-1257). Both appeals continued
separately until November 9, 2006, when the debtor’s appeal was
dismissed for lack of prosecution.

6

Case: 06-04005 Doc#74 Filed: 03/01/07 Entered: 04/13/07 14:54:13 Page 6 of
13

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

The Rule imposes an affirmative duty to conduct a reasonable
investigation into the law and facts before submitting a

pleading, motion, or other paper to the court. Bus. Guides, Inc.

v. Chromatic Comm. Enters., Inc., 498 U.S. 533, 551 (1991).

The applicable standard against which an attorney’s conduct
is measured is one of objective reasonableness under the
circumstances. Id. In other words, would a competent attorney
admitted to practice before the bankruptcy court have signed and
submitted the subject pleading, motion, or other paper to the

court? See Brooks-Hamilton, 329 B.R. at 277. If the answer is

no, then Rule 9011 sanctions may be warranted.
Rule 9011 provides, in pertinent part:

(b) REPRESENTATIONS TO THE COURT. By presenting to the
court . . . a petition, pleading, written motion, or
other paper, 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, -

(1) it is not being presented for any improper
purpose, such as to harass or to cause the unnecessary
delay or needless increase in the cost of litigation;

(2) the claims, defenses, and other legal
contentions therein are warranted by existing law or by
a nonfrivolous argument for the extension,
modification, or reversal of existing law or the
establishment of new law;

(3) the allegations and other factual contentions
have evidentiary support or, if specifically so
identified, are likely to have evidentiary support
after a reasonable opportunity for further
investigation or discovery[.]

Fed. R. Bankr. P. 9011(b).
In its Rule 9011 Motion, appellee alleged that the claims

contained in the complaint and signed and submitted to the court

by appellant were contrary to controlling Ninth Circuit
7

Case: 06-04005 Doc#74 Filed: 03/01/07 Entered: 04/13/07 14:54:13 Page 7 of
13

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

authority, and that it contained gross misstatements of
underlying fact.

Appellee specifically argued that it is well established in
the Ninth Circuit that post-petition legal services provided to a

chapter 7 debtor, even when provided pursuant to a pre-petition

contract, constitute post-petition debt. See Gordon v. Hines (In
re Hines), 147 F.3d 1185, 1190-91 (9th Cir. 1998); Knutson v.

Tredinnick (In re Tredinnick), 264 B.R. 573, 577 (9th Cir. BAP

2001). Because it is a post-petition debt that is not

dischargeable in bankruptcy, it may be collected without

violating the automatic stay. See Sanchez v. Gordon (In re
Sanchez), 241 F.3d 1148, 1150-51 (9th Cir. 2001).

Appellee argued that had appellant conducted even a cursory
search of the law, she would have discovered that the position
she advocated on behalf of her client was legaily unsupportable.
Appellee also alleged that appellant made multiple
misrepresentations of fact to the bankruptcy court.

The bankruptcy court agreed with appellee and found that
appellant “may have failed to conduct adequate research before
filing the complaint so as to determine the relevant law.” The
court also found that appellant’s “selected omission” of a
substantial portion of an exhibit that described the legal
services provided to the debtor post-petition that was filed by
appellee in the Oregon Action was not “accidental” and “goes
beyond incompetence or frivolousness and constitutes an attempted
fraud on the court.”

Pursuant to Rule 9011(c), the court awarded appellee its

requested attorney’s fees and costs associated with bringing the

8

Case: 06-04005 Doc#74 Filed: 03/01/07 Entered: 04/13/07 14:54:13 Page 8 of
13

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

adversary proceeding on both the debtor and appellant jointly and
severally. .

On appeal, appellant argues that the court’s award of
Sanctions was an abuse of discretion because the complaint she
filed on behalf of the debtor was “with merit” and “was presented
appropriately and amply supported by the facts available at the
time.”°®

Appellant asserts that her “professional opinion” was based
on facts presented to her by the debtor, which included the
relation of a statement made to him by his former attorney that
appellee was violating the automatic stay by pursuing debt
collection in state court.

Appellant asserts further that she “reasonably relied” on
her client's representations when making the decision to assert
the claims contained in the complaint and that her “reasonable
reliance” may be justified “even though the client’s
representations proved to be untrue.”

As noted, reasonableness is judged by an objective standard.
A competent attorney would not have relied on second-hand legal

advice from her client that was supposedly given to that client

6On 11/24/06, we received a letter from appellee stating
that it is waiving its right to appear and defend against
appellant’s appeal and respond to her opening brief. The
bankruptcy court’s sanctions order was imposed jointly and
severally on both the debtor and appellant. The debtor, who is
not a party to this appeal, paid to appellee the entire amount of
the sanctions award. Thus, appellee contends it no longer has an
interest in this appeal due to the fact that is has collected all
the funds to which it is entitled under the sanctions order.

The appeal is not moot, however, because appellant could be
asked by her former client to pay and because the sanction is the
subject of mandatory reporting by the State Bar of California.
Cal. Bus. & Prof. Code § 6068(o0) (3).

9

Case: 06-04005 Doc#74 Filed: 03/01/07 Entered: 04/13/07 14:54:13 Page 9 of
13

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

a7

28

by his former attorney. A competent attorney, before signing and
filing a complaint with the bankruptcy court, would have done, at
least, a cursory search to ensure that the debtor’s position was
supported by existing law or by a nonfrivolous argument for the
extension, modification, or reversal of existing law or the
establishment of new law. A competent attorney would have
voluntarily dismissed the complaint when opposing counsel
informed her of controlling Ninth Circuit authority that directly
contradicts the legal positions advanced in the complaint.

Prior to filing its Rule 9011 Motion, appellee warned
appellant that the factual contentions contained in the complaint
were without evidentiary support and the legal arguments were not
warranted by existing law. Appellant chose to continue with the
adversary proceeding despite being warned by appellee of its
intent to file a Rule 9011 Motion for Sanctions unless she
dismissed the complaint.

Appellant’s actions were not objectively reasonable under
the circumstances. An objectively reasonable attorney would not
have filed the subject complaint, and, when faced with a motion
for Rule 9011 sanctions, would have voluntarily dismissed the
complaint. “Rule 9011 prohibits an attorney from signing and
filing pleadings that are without legal support.” Brooks~-
Hamilton, 329 B.R. at 278. Hence, there was no error in
determining that Rule 9011 was violated.

Determining what sanctions to impose for filing a complaint
in violation of Rule 9011 is a matter of wide discretion for the
bankruptcy court. Id. at 285. The bankruptcy court initially

awarded appellee its requested, yet unquantified, attorney’s fees

10

Case: 06-04005 Doc#74 Filed: 03/01/07. Entered: 04/13/07 14:54:13 Page 10 of
13

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

and costs associated with the adversary proceeding. The court
allowed appellee time to file a statement of fees and expenses,
and also allowed appellant time to file an opposition.

Within the allowed time period, appellee filed a statement
requesting $16,996 in attorney’s fees and $331.81 in costs.
Appellant objected to the fees as excessive. Appellee filed a
response arguing that it had incurred an additional $2,700 in
attorney’s fees since filing its initial statement.

The court examined all the filings and awarded appellee
$17,421 in attorney’s fees and $331.81 in costs and stated that
the “court is satisfied that this award is sufficient to deter
future misconduct.”

We cannot say that the bankruptcy court’s decision is based
on an erroneous view of the law or clearly erroneous factual

findings. We conclude that the bankruptcy court did not abuse

its discretion when it awarded sanctions in favor of appellee.’

CONCLUSION
The bankruptcy court did not err when it awarded sanctions
in favor of appellee pursuant to Rule 9011. Appellant’s actions
were not objectively reasonable, and she did not meet her burden
to prove to us that the bankruptcy court abused its discretion.

AFFIRMED.

"Appellant’s brief also challenges the bankruptcy court’s
order granting summary judgment in favor of appellee. In her
reply brief, appellant concedes that she lacks standing to
challenge that order because she has no personal interest in the
order due to the fact she was not a party to the adversary
action. Therefore, we need not address her arguments that relate
to the summary judgment order.

11

Case: 06-04005 Doc#74 Filed: 03/01/07 Entered: 04/13/07 14:54:13 Page 11 of
13

U.S. Bankruptcy Appellate Panel
of the Ninth Circuit
125 South Grand Avenue, Pasadena, California 91105
Appeals from Central California (626) 229-7220
Appeals from all other Districts (626) 229-7225

NOTICE OF ENTRY OF JUDGMENT

BAP No. NC-06-1257-KPaD

RE: LARRY A. FRAGA

A separate Judgment was entered in this case on 3/1/07

BILL OF COSTS:

Bankruptcy Rule 8014 provides that costs on appeal shall be taxed by the
Clerk of the Bankruptcy Court. Cost bills should be filed with the Clerk
of the Bankruptcy Court from which the appeal was taken.

9th Cir. BAP Rule 8014-1

ISSUANCE OF THE MANDATE:

The mandate, a certified copy of the judgment sent to the Clerk of
the Bankruptcy Court from which the appeal was taken, will be issued
7 days after the expiration of the time for filing a petition for
rehearing unless such a petition is filed or the time is shortened or
enlarged by order. See Federal Rule of Appellate Procedure 41.

APPEAL TO COURT OF APPEALS:

An appeal to the Ninth Circuit Court of Appeals is initiated by
filing a notice of appeal with the Clerk of this Panel. The Notice
of Appeal should be accompanied by payment of the $455 filing fee

and a copy of the order or decision on appeal. Checks may be made
payable to the U.S. Court of Appeals for the Ninth Circuit. See
Federal Rules of Appellate Procedure 6 and the corresponding Rules of
the United States Court of Appeals for the Ninth Circuit for specific
time requirements.

Case: 06-04005 Doc#74 Filed: 03/01/07 Entered: 04/13/07 14:54:13 Page 12 of
13

CERTIFICATE OF MAILING

The undersigned, deputy clerk of the U.S. Bankruptcy
Appellate Panel of the Ninth Circuit, hereby certifies that a copy

of the document on which this certificate appears was mailed this date
to all parties of record to this appeal.

By: Edwina Clay

Deputy Clerk: March 1, 2007

Case: 06-04005 Doc#74 Filed: 03/01/07 Entered: 04/13/07 14:54:13 Page 13 of
13