* Quality Loan Service Corp. Respondent V. Ngoc Van Hoang Nguyen, Appellant

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IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
NGOC VAN HOANG NGUYEN,
Appellant,
v.
QUALITY LOAN SERVICE CORP,
Respondent,
FAY SERVICING,
Defendant.
No. 86424-6-I
DIVISION ONE
PUBLISHED OPINION
BOWMAN, J. — Ngoc Van Hoang Nguyen sued Quality Loan Service
Corporation of Washington, alleging misconduct in its management of nonjudicial
foreclosure proceedings. Two days later, Nguyen petitioned for bankruptcy,
resulting in an automatic stay of any legal proceedings against her. During the
stay, the trial court dismissed Nguyen’s lawsuit as frivolous and sanctioned her
under CR 11. Nguyen appeals the sanction, arguing the court abused its
discretion by acting against her in violation of the bankruptcy stay. Because the
trial court’s CR 11 sanction amounts to a governmental regulatory action exempt
from an automatic bankruptcy stay under 11 U.S.C. § 362(b)(4), we affirm.
FACTS
In July 2022, Nguyen’s mortgage provider Fay Servicing initiated
nonjudicial foreclosure proceedings after Nguyen defaulted on her mortgage.
Quality served as the trustee processing the foreclosure. On February 15, 2023,
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Nguyen sued Fay and Quality.1 She sought declaratory relief and alleged
slander of title, slander of credit, violations of the Consumer Protection Act,
chapter 19.86 RCW, and intentional infliction of emotional distress.
Two days later on February 17, Nguyen petitioned for bankruptcy under
11 U.S.C. Chapter 13 in the Western District of Washington. The petition
operated as an automatic stay of all legal proceedings against her.2
In November 2023, Quality moved to dismiss Nguyen’s lawsuit under CR
12(b)(6) for failure to state a claim on which the trial court could grant relief.
Quality explained that Nguyen filed the “same” lawsuit against Quality in 2018,
which the trial court dismissed with prejudice.3 In its motion, Quality also told the
court that it “warned [Nguyen] on August 3, 2023” that if she did not “promptly”
dismiss her lawsuit, it would “seek an award of sanctions for filing frivolous
claims” under CR 11. In December 2023, the trial court granted Quality’s motion
to dismiss Nguyen’s 2023 complaint with prejudice.
In January 2024, Quality moved for attorney fees and costs as a CR 11
sanction against Nguyen.4 Quality explained that it told Nguyen several times
that her lawsuit was frivolous and that it would seek sanctions under CR 11
unless she voluntarily dismissed her complaint. It argued that sanctions were
necessary to ensure she would not bring the same lawsuit a third time. In her
1 Fay is not a party to this appeal.
2 11 U.S.C. § 362(a)(1).
3 The 2018 complaint and subsequent dismissal order are not in the record on
appeal.
4 Quality also moved for attorney fees under RCW 4.84.185, which allows the
trial court to award the prevailing party its expenses for opposing a frivolous action or
defense.
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No. 86424-6-I/3
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response, Nguyen argued that her bankruptcy petition stayed any legal action
against her. So, according to Nguyen, the court could not sanction her.
On February 7, 2024, the trial court entered an order and judgment,
awarding Quality attorney fees and costs under CR 11. It determined that
Nguyen’s lawsuit “was frivolous and advanced without reasonable cause” and
sanctioned her in the amount of $12,694.96.
Nguyen appeals.
ANALYSIS
Nguyen argues that the trial court abused its discretion by issuing a CR 11
sanction against her in violation of the bankruptcy court’s automatic stay.5 We
disagree.
We review a trial court’s issuance of CR 11 sanctions for abuse of
discretion. State ex rel. Quick-Ruben v. Verharen, 136 Wn.2d 888, 903, 969
P.2d 64 (1998). A trial court abuses its discretion by issuing manifestly
unreasonable rulings or rulings based on untenable grounds. Wash. State
Physicians Ins. Exch. & Ass’n v. Fission’s Corp., 122 Wn.2d 299, 339, 858 P.2d
1054 (1993). If the trial court bases its ruling on an erroneous view of the law or
applies an incorrect legal standard, it necessarily abuses its discretion. Hanna v.
Margitan, 193 Wn. App. 596, 612, 373 P.3d 300 (2016).
Under 11 U.S.C. § 362(a)(1), a bankruptcy petition generally operates as
a stay of legal proceedings against the debtor. After petitioning for bankruptcy,
5 The court also awarded Quality its fees and costs under RCW 4.84.185.
Because Nguyen and Quality do not address that statute, our analysis focuses on only
CR 11.
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No. 86424-6-I/4
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the petitioner’s property interests become the property of the bankruptcy estate.
11 U.S.C. § 541(a). The automatic stay remains in effect until the property no
longer belongs to the bankruptcy estate. 11 U.S.C. § 362(c)(1).6 But 11 U.S.C §
362(b) provides several exceptions to a § 362(a) automatic stay. One exception
is “the commencement or continuation of an action or proceeding by a
governmental unit . . . to enforce such governmental unit’s police and regulatory
power.” 11 U.S.C. § 362(b)(4).
No Washington court has determined whether a CR 11 sanction falls
under the governmental regulatory power exception to a bankruptcy stay of
proceedings. But federal courts addressing the issue have concluded that
sanctions under the federal civil rules are exempt from a stay. See, e.g., Alpern
v. Lieb, 11 F.3d 689, 690 (7th Cir. 1993); see also O’Brien v. Fischel, 74 B.R.
546, 551 (D. Haw. 1987); In re Betts, 165 B.R. 233, 241 (Bkrtcy.N.D. Ill. 1994).
In Alpern, the trial court dismissed the plaintiff’s lawsuit as frivolous. 11
F.3d at 689. The defendant moved for sanctions under Federal Rule of Civil
Procedure (Rule) 11. Id. The court granted the motion and ordered the plaintiff
to pay attorney fees as a sanction for filing the frivolous suit. Id. The plaintiff
appealed. Id. While the appeal was pending, the plaintiff petitioned for
bankruptcy under 11 U.S.C. Chapter 7, which operated as an automatic stay of
all lawsuits against the plaintiff. Id.
The plaintiff then moved to stay the sanction order. Alpern, 11 F.3d at
689. The Seventh Circuit refused. Id. at 690. It held that the imposition of
6 Or the bankruptcy court can grant relief from the stay by request of a party of
interest after notice and a hearing. 11 U.S.C. § 362(d). That did not happen here.
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No. 86424-6-I/5
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sanctions under Rule 11 is exempt from an automatic bankruptcy stay under 11
U.S.C. § 362(b)(4). Id. The court reasoned that Rule 11 “directs the imposition
of sanctions for unprofessional conduct in the litigation” and is “meted out by a
governmental unit, the court.” Id. And because a governmental unit that orders
Rule 11 sanctions is enforcing its regulatory power, the sanctions fall within the
11 U.S.C. § 362(b)(4) exception. Id.
We recognize that federal court decisions are guiding, not binding,
authority. Panag v. Farmers Ins. Co. of Wash., 166 Wn.2d 27, 47, 204 P.3d 885
(2009). Still, we find the reasoning in Alpern sound and reach the same
conclusion here.
The trial court ordered Nguyen to pay a sanction under CR 11.7 That rule
requires a party or attorney to certify “to the best of the party’s or attorney’s
knowledge, information and belief, formed after an inquiry reasonable under the
circumstances,” that a pleading, motion, or legal memorandum is “warranted by
existing law” and not brought for any improper purpose, “such as to harass or to
cause unnecessary delay or needless increase in the cost of litigation.” CR
11(a)(2), (3).
If a pleading, motion, or legal memorandum is signed in violation of
this rule, the court, upon motion or upon its own initiative, may
impose upon the person who signed it, a represented party, or
both, an appropriate sanction, which may include an order to pay to
the other party or parties the amount of the reasonable expenses
7 Our legislature modeled CR 11 after Rule 11. Bryant v. Joseph Tree, Inc., 119
Wn.2d 210, 218, 829 P.2d 1099 (1992). Under Rule 11(c)(1):
If, after notice and a reasonable opportunity to respond, the court
determines that Rule 11(b) has been violated, the court may impose an
appropriate sanction on any attorney, law firm, or party that violated the
rule or is responsible for the violation.
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No. 86424-6-I/6
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incurred because of the filing of the pleading, motion, or legal
memorandum, including a reasonable attorney fee.
CR 11(a)(4). Like it’s federal counterpart, CR 11 regulates the conduct of parties
by permitting sanctions for unprofessional conduct during litigation. And the
sanctions are meted out by a governmental unit—the court. As a result, court-
ordered CR 11 sanctions fall under the 11 U.S.C. § 362(b)(4) exception to an
automatic bankruptcy stay.8
Because the trial court’s CR 11 sanction is exempt from the bankruptcy
automatic stay of proceedings, it did not abuse its discretion by imposing the
sanction against Nguyen. We affirm.
WE CONCUR:
8 Several state appellate courts addressing this issue have reached the same
conclusion. See Papadakis v. Zelis, 230 Cal. App. 3d 1385, 1389, 282 Cal. Rptr. 18
(1991) (holding that the court’s imposition of sanctions on an attorney falls under the 11
U.S.C. § 362(b)(4) exception and not subject to the bankruptcy stay); Janis v. Janis, 179
Misc. 2d 199, 208, 684 N.Y.S.2d 426 (1998) (holding that the trial court’s sanction on the
plaintiff was exempt from the automatic stay).
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