Masunaga v. Stoltenberg (In Re Rex Montis Silver Co.)

PUBLISH

UNITED STATES COURT OF APPEALS
Filed 6/27/96
TENTH CIRCUIT

__________

In re: REX MONTIS SILVER COMPANY, )
)
Debtor, )
__________________________________________)
)
DR. HAROLD MASUNAGA; YUKIO )
AYABE; THE ESTATE OF MARIAN )
HARADA; RESOURCE CONCEPTS, )
INC.; TELEGRAPH GOLD )
CORPORATION, in its own capacity )
and as the Assignee of Claims of )
Dr. George Pingree; INTERPHASE )
CORPORATION; CASCADE ENERGY & )
METALS CORPORATION; SCOTT )
BROADHEAD; DELANO S. FINDLAY, )
)
and )
)
RICHARD N. BIGELOW, )
) No. 95-4017
Appellant, )
)
v. )
)
HERBERT W. STOLTENBERG, H. E. )
MOSES, EDWIN STOLTENBERG, )
CHRIS WAUGH, SAM HARMATZ, )
BERNARD HODOWSKI, PATRICIA )
STOLTENBERG, DELFORD R. ASHLEY, )
SAM HAMBARIAN, ALYCE )
HAMBARIAN, LIONEL ASCHER, A.C. )
NEJEDLY, GRACE V. DUNCAN, ELLIOT )
WEINBERG, ROSALIE DONAHEY, )
)
Appellees. )
)
__________________________________________)
 __________

Appeal from the United States District Court
for the District of Utah
(D.C. No. 94C-767J)
__________

Delano S. Findlay, Salt Lake City, Utah, for Appellant.

Gerald H. Suniville (Eric C. Olson with him on the brief) of Van Cott, Bagley, Cornwall &
McCarthy, Salt Lake City, Utah, for Appellees.

__________

Before SEYMOUR, Chief Judge, and BARRETT and LIVELY1, Circuit Judges.
__________

LIVELY, Circuit Judge.
__________

An attorney appeals from the district court's affirmance of the bankruptcy court's

imposition of sanctions on the appellant for violation of Bankruptcy Rule 9011. The

bankruptcy court found that attorney Bigelow violated Rule 9011 by proposing a nominee for

permanent trustee in a Chapter 7 bankruptcy proceeding and voting on behalf of his clients for

that person. The court found that Bigelow knew or reasonably should have known that his

clients were not eligible to participate in the selection of the trustee because they did not meet

the statutory requirements for voting.

I.

This case arose out of a long-running and bitterly-contested dispute involving W. David

Weston (and affiliated entities) and investors in a gold mine promoted by Weston. See

1
The Honorable Pierce Lively, United States Circuit Judge for the Sixth Circuit, sitting by designation.

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Cascade Energy and Metals Corp. v. Banks, 896 F.2d 1557 (10th Cir.), cert. denied, sub nom.

Weston v. Banks, 498 U.S. 849 (1990). The present bankruptcy proceedings involve a Weston

entity, Rex Montis Silver Company. Representing a group called "surety creditors" in the Rex

Montis proceedings, attorney Bigelow signed and filed a request at the first meeting of

creditors for election of Kevin R. Huntington as permanent trustee. (Bigelow first appeared in

the proceedings on behalf of Rex Montis and when the bankruptcy court disqualified him as

attorney for the bankrupt debtor on grounds of a conflict of interest, he then appeared as

attorney for the surety creditors). Also, on the day of the first meeting of creditors, attorney

Bigelow signed and filed a statement to accompany the proofs of claim of the "surety

creditors."

The bankruptcy court found that attorney Bigelow violated Rule 9011 by filing these

proofs of claim with the accompanying statement and filing pleadings in connection with the

election process. The court further found that these activities "were for improper purposes

such as recited in the rule to harass, cause unnecessary delay, or needless increase of costs of

litigation and administration of the case." Id. The court imposed a sanction of $10,000 on

attorney Bigelow in favor of the objecting creditors.

On appeal the district court held in an order entered on March 9, 1994 that the

bankruptcy court did not abuse its discretion in imposing sanctions. More specifically, the

district court found that the bankruptcy court had not "based its ruling on an erroneous view of

the law or on a clearly erroneous assessment of the evidence." Aplee. Supp. App. at 436

(quoting Cooter & Gell v. Hartmax Corp., 496 U.S. 384, 405 (1990)). The district court found,

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however, that the bankruptcy court had failed to consider expressly the factors delineated in

White v. General Motors Corp., Inc., 908 F.2d 675, 685 (10th Cir. 1990), cert. denied, 498 U.S.

1069 (1991), in determining the amount of the sanctions.

The White decision requires express consideration of a non-exclusive list of three

factors when determining the amount of sanctions to be imposed for violation of FED. R. CIV.

P. 11. Rulings under FED. R. CIV. P. 11 are authoritative in cases involving Bankruptcy Rule

9011. On remand, the bankruptcy court considered "the White factors" and again imposed

sanctions in the amount of $10,000. The district court affirmed in an order entered on

December 30, 1994, and Bigelow now appeals.

II.

The appellees have raised a jurisdictional issue that we must resolve before reaching the

merits of Bigelow's appeal. The appellees argue that Bigelow waived his right to appeal the

imposition of sanctions by failing to appeal from the district court's March 9, 1994

memorandum opinion and order affirming the bankruptcy court's imposition of sanctions. In

support of this claim, the appellees point to Bigelow's notice of appeal, in which he only

purports to appeal the district court's memorandum and order entered on December 30, 1994,

and the fact that no notice of appeal was filed regarding the prior decision of the district court

on the imposition of sanctions.

This court has considered the question of finality of district court orders when acting as

an appellate court in bankruptcy matters and adopted the traditional view of finality. In re

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Commercial Contractors, Inc., 771 F.2d 1373, 1375 (10th Cir. 1985). Under this view, "a

decision of the district court on appeal from a bankruptcy judge's final order is not itself final if

the decision remands the case to the bankruptcy judge for significant further proceedings . . . ."

Id. (quoting In re Riggsby, 745 F.2d 1153, 1156 (7th Cir. 1984)). Although one holding of the

court in Commercial Contractors was undercut by the Supreme Court in Connecticut Nat'l Bank

v. Germain, 503 U.S. 249 (1992), this court has held that Commercial Contractors "continues

to provide the test for the finality of district court decisions in bankruptcy proceedings." Temex

Energy, Inc. v. Underwood, Wilson, Berry, Stein & Johnson, 968 F.2d 1003, 1005 (10th Cir.

1992).

Thus, we must determine whether the district court's order of March 9 remanded to the

bankruptcy judge for "significant further proceedings." As the court noted in In re Bucyrus

Grain Co., Inc., 905 F.2d 1362 (10th Cir. 1990), there is no single test for determining the

nature of a remand. Nevertheless, the district court's order of remand is not final when it

requires the bankruptcy court to perform "more than a mere `ministerial' duty," or if it involves

the "exercise of considerable judicial discretion." Id. at 1366 (citations omitted). On the other

hand, if matters on remand are "`unlikely either to generate a new appeal or to affect the issue

that the disappointed party wants to raise on appeal from the order of remand,' the district

court's order is considered final." (citation omitted).

More recently, in In re Wiston XXIV Limited Partnership, 988 F.2d 1012 (10th Cir.

1993), this court summarized its holdings on finality as follows:

This court has held that a remand to the bankruptcy court for de novo
hearings constitutes significant further proceedings, see Commercial

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 Contractors, 771 F.2d at 1374-75, as does a remand for additional findings of
fact concerning the dispositive issue in a case, see Coats State Bank v. Grey (In
re Grey), 902 F.2d 1479, 1481 (10th Cir.1990), and a remand for a
determination of the amount of a claim, see State Bank of Spring Hill v.
Anderson (In re Bucyrus Grain Co.), 905 F.2d 1362, 1366 (10th Cir.1990).

However, if the purpose of the remand is to effectuate a ministerial task,
or conduct additional proceedings involving little judicial discretion, the district
court's order will be considered final. State Bank of Spring Hill v. Anderson (In
re Bucyrus Grain Co.), 905 F.2d 1362, 1366 (10th Cir.1990). If the remanded
matter is unlikely to spawn another appeal or affect the issue on appeal, a district
court's remand order may be considered final. Id.

Id. at 1013.

Applying these criteria, we conclude that the district court's order of March 9

remanding the case to the bankruptcy court for consideration of the White factors was not a

final order that was immediately appealable to this court. The remand was likely to, and did

lead to an evidentiary hearing before the bankruptcy court. As with all proceedings in this

case, the hearing on remand was lengthy, with the transcript running to almost 200 pages.

Furthermore, predictably, there was another appeal to the district court following the order on

remand.

This court has jurisdiction over the issue of the imposition of the sanctions as well as

the amount.

III.

A.

We now consider the merits of Bigelow's appeal. FED. R. BANKR. P. 9011, which is

derived from FED. R. CIV. P. 11, provides in pertinent part:

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 The signature of an attorney or a party constitutes a certificate that the attorney
or party has read the document; that to the best of the attorney's or party's
knowledge, information, and belief formed after reasonable inquiry it is well
grounded in fact and is warranted by existing law or a good faith argument for
the extension, modification, or reversal of existing law; and that it is not
interposed for any improper purpose, such as to harass or to cause unnecessary
delay or needless increase in the cost of litigation or administration of the case.
If a document is not signed, it shall be stricken unless it is signed promptly after
the omission is called to the attention of the person whose signature is required.
If a document is signed in violation of this rule, the court on motion or on its
own initiative shall impose on the person who signed it, the 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 incurred because of the
filing of the document, including a reasonable attorney's fee.

The Supreme Court prescribed the standard to be applied by an appellate court in

reviewing a lower court's imposition of Rule 11 sanctions in Cooter & Gell v. Hartmax Corp.,

496 U.S. 384 (1990). The appellate court must apply an abuse-of-discretion standard in

reviewing "all aspects" of a Rule 11 determination. Id. at 405. The Court specifically rejected

the view that a reviewing court follows a three-tiered approach, one standard (clearly

erroneous) for factual questions, another standard (de novo) for the question of whether the

facts constituted a Rule 11 violation, and a third standard (abuse of discretion) for the choice of

sanction to be imposed. Id. This court anticipated the Supreme Court's ruling on the question.

In Adamson v. Bowen, 855 F.2d 668, 673 (10th Cir. 1988), we adopted an abuse-of-discretion

standard "across the board to all Rule 11 issues."

B.

Turning to the facts disclosed by the record, the surety creditors did have claims against

Rex Montis. It is clear, however, that these claims did not entitle them to vote in the selection

of a trustee. The surety creditors' claims did not satisfy the criteria of 11 U.S.C. § 702(a),

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which states:

A creditor may vote for a candidate for trustee only if such creditor--
(1) holds an allowable, undisputed, fixed, liquidated, unsecured claim
of a kind entitled to distribution under section 726(a)(2),
726(a)(3), 726(a)(4), 752(a), 766(h), or 766(i) of this title;

(2) does not have an interest materially adverse, other than an equity
interest that is not substantial in relation to such creditor's interest
as a creditor, to the interest of creditors entitled to such
distribution; and
(3) is not an insider.

As the district court found, "the `Surety Creditors' at that time were clearly not

unsecured creditors of Rex Montis." D.C. Opinion, March 9, 1994, at p. 13. Further, it is

undisputed that at least one of the surety creditors represented by Bigelow was an insider as

defined in 11 U.S.C. § 101(31)(B).

The bankruptcy court also determined that Bigelow was "not fully acquainted with the

facts of the bankruptcy case . . . and has relied on others without any independent investigation

or research." Aplee. Supp. App. at 431. The court concluded, based on its factual findings,

that Bigelow knew or should have known that the surety creditors did not hold the § 702(a)

claims necessary to participate in the election of the trustee. In addition, the court found the

filings were made for an improper purpose: "to thwart and delay the enforcement of . . . the

legitimate interests of creditors." Aplt. App. at 620. The record fully supports these

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conclusions.

The bankruptcy court did not abuse its discretion in sanctioning attorney Bigelow for

violating Rule 9011.

C.

The Tenth Circuit has prescribed three factors that a court must consider in determining

the amount of Bankruptcy Rule 9011 sanctions: (1) the opposing party's reasonable expenses

incurred as a result of the violation, including reasonable attorney fees; (2) the minimum

amount necessary adequately to deter future misconduct; and (3) the offender's ability to pay.

White v. General Motors Corp., Inc., 908 F.2d 675, 684-85 (10th Cir. 1990), cert. denied, 498

U.S. 1069 (1991). In addition, a court "may consider factors such as the offending party's

history, experience, and ability, the severity of the violation, the degree to which malice or bad

faith contributed to the violation, the risk of chilling the type of litigation involved, and other

factors as deemed appropriate in individual circumstances." White, 908 F.2d at 685.

On remand from the district court, the bankruptcy court held a hearing on the amount of

sanctions imposed at which the parties presented evidence and argued their positions. The

court expressly considered the White factors and found a $10,000 sanction to be reasonable

under all the circumstances. The court also expressly indicated it believed the $10,000

sanction was sufficient to deter further misconduct, and noted that Bigelow was able to pay the

fine from the proceeds of a bond previously posted with the court. On appeal to the district

court, Bigelow did not set forth any specific grounds for finding that the bankruptcy court

abused its discretion in setting the sanction at $10,000. He only made "shocks the conscience"

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and "harsh and unreasonable" arguments. The district court found this line of argument

unpersuasive, and affirmed the bankruptcy court's $10,000 sanction.

On appeal from the district court, Bigelow offers the same "shocks the conscience" and

"harsh and unreasonable" arguments he made before the district court. We find these

arguments unpersuasive. There is simply no basis for this court to find an abuse of discretion.

The sanction was less than the total cost to the appellees of the resulting litigation.

Furthermore, it seems a reasonable sum to deter similar misconduct in the future, and is not

overly burdensome to Bigelow, given his financial situation. The bankruptcy court did not

abuse its discretion in its application of the White factors. Accordingly, the judgment of the

district court is AFFIRMED.

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