REVISED APRIL 23, 2008
IN THE UNITED STATES COURT OF APPEALS of Appeals
United States Court
FOR THE FIFTH CIRCUIT Fifth Circuit
FILED
April 8, 2008
No. 07-10457 Charles R. Fulbruge III
Clerk
IN THE MATTER OF: JACK E PRATT, JR
Debtor
-----------------------------------------
THE CADLE COMPANY
Appellant
v.
JACK E PRATT, JR
Appellee
Appeal from the United States District Court for the
Northern District of Texas
USDC No. 3:06-CV-00257
Before WIENER, BARKSDALE, and DENNIS, Circuit Judges.
WIENER, Circuit Judge.
Appellant The Cadle Company (“Cadle”) appeals the bankruptcy court’s
denial of its motion for sanctions against Richard B. Schiro (“Schiro”), counsel
for the debtor in the underlying Chapter 7 bankruptcy proceeding. Cadle also
appeals the bankruptcy court’s award of attorney’s fees to Schiro. As Cadle
failed to comply with the service requirement of Rule 9011, we affirm the denial
No. 07-10457
of sanctions. We do not have jurisdiction to review the award of attorney’s fees,
however, because, on appeal, the district court remanded that issue to the
bankruptcy court for significant further proceedings.
I. Facts and Proceedings
This motion for sanctions and subsequent award of attorney’s fees is the
result of a longstanding fight between Cadle and the Pratt family. The history
of this case is long and convoluted, but a short recitation of the facts will suffice
to resolve the current issues on appeal.
On August 16, 2000, Jack E. Pratt, Jr. (“Pratt Jr.”) filed a voluntary
petition for relief under Chapter 7 of the United States Bankruptcy Code. Schiro
represented Pratt Jr. in the bankruptcy proceeding. Several months later,
Cadle, one of Pratt Jr.’s creditors, filed an adversary action against him,
objecting to his bankruptcy discharge. Cadle argued that the discharge should
be denied because, among other things, Pratt Jr. never disclosed his right to
payments under his mother’s will. At trial, Schiro presented testimony that
Pratt Jr. was not entitled to any distributions from his mother’s estate because
he owed more for loans made to him by his mother during her lifetime than any
distributions to which he would have been entitled under the will. The
bankruptcy court determined that Cadle had failed to meet its burden of
showing, by a preponderance of the evidence, that Pratt Jr.’s debts should be
nondischargeable.1
After the bankruptcy court rendered a decision in the Pratt Jr. action,
Cadle learned that Pratt Jr. had received loans from his mother’s estate after
her death. Cadle filed a motion for Rule 9011 sanctions against Schiro in the
1
Cadle appealed the ruling, and the district court affirmed. See Cadle Co. v. Pratt, No.
3:03-CV-0932-L, 2004 WL 718977 (N.D. Tex. Mar. 31, 2004). Cadle again appealed, and we
affirmed. See In re Pratt, 411 F.3d 561 (5th Cir. 2005). Cadle’s Petition for Panel Rehearing
was denied on July 7, 2005.
2
No. 07-10457
bankruptcy court where the Pratt Jr. adversary proceeding was tried.2 The
bankruptcy court denied Cadle’s motion for sanctions for failure to serve Schiro
with a copy of the motion twenty-one days prior to filing with the court.
Alternatively, the bankruptcy court noted that Cadle was unable to establish a
Rule 9011 violation because the original testimony regarding Pratt Jr.’s
distributions from the will was both credible and persuasive. Pursuant to Rule
9011, the bankruptcy court awarded Schiro attorney’s fees for defending the
motion for sanctions.
On appeal, the district court affirmed the bankruptcy court’s denial of
sanctions based on Cadle’s failure to comply with the service requirement of
Rule 9011. Alternatively, the district court determined that Cadle’s motion for
sanctions was untimely, as it was filed after the conclusion of the case. In a
footnote to the opinion, the district court observed that Cadle had also failed to
prove a Rule 9011 violation. The district court held, however, that the
bankruptcy court had abused its discretion by awarding attorney’s fees and
expenses to Schiro without allowing Cadle the right to examine, question, or
provide argument against the claimed fees and expenses. The district court
remanded the award of attorney’s fees to the bankruptcy court for a
determination of “whether the award is warranted and, if so, whether the
amounts requested by Schiro for attorney’s fees and expenses are reasonable and
necessary.” Cadle appeals (1) the bankruptcy court’s denial of its motion for
Rule 9011 sanctions, and (2) the bankruptcy court’s award of attorney’s fees in
favor of Schiro.
2
Cadle also filed a motion to vacate the bankruptcy court’s decision in the Pratt Jr.
adversary action. The bankruptcy court denied the motion to vacate because “Cadle failed to
connect such alleged false testimony [of Pratt Sr. and Ms. Johnston] to an officer of this court.”
Cadle appealed the bankruptcy court’s ruling, and the district court affirmed. We also affirmed
the ruling. In re Pratt, 242 F. App’x 248 (5th Cir. 2007) (unpublished). Cadle’s Petition for
Panel Rehearing was denied on October 11, 2007.
3
No. 07-10457
II. Analysis
A. Standard of Review
We apply the same standard of review to the bankruptcy court’s findings
of fact and conclusions of law as applied by the district court.3 The bankruptcy
court’s findings of fact are reviewed for clear error; its conclusions of law are
reviewed de novo.4 As “the imposition of sanctions is a matter of discretion for
the bankruptcy court,” we “review under an abuse of discretion standard.”5 If we
were to reach the bankruptcy court’s award of attorney’s fees, we would review
it for abuse of discretion.6
B. Analysis
1. Jurisdiction
We must first address the question of appellate jurisdiction. Although
neither party raised the issue on appeal, we are required “‘to examine the basis
for our jurisdiction, sua sponte, if necessary.’”7
Under 28 U.S.C. § 158(d), we have jurisdiction to hear appeals from all
“final decisions, judgments, orders, and decrees.” We have held that “[w]hen a
district court sitting as a court of appeals in bankruptcy remands a case to the
bankruptcy court for significant further proceedings, the remand order is not
3
In re Jay, 432 F.3d 323, 325 (5th Cir. 2005).
4
Carrieri v. Jobs.com Inc., 393 F.3d 508, 517 (5th Cir. 2004).
5
In re Sandkin, 36 F.3d 473, 475 (5th Cir. 1994).
6
In re Cahill, 428 F.3d 536, 539 (5th Cir. 2005).
7
In re Cortez, 457 F.3d 448, 453 (5th Cir. 2006) (quoting In re Chunn, 106 F.3d 1239,
1241 (5th Cir. 1997)).
4
No. 07-10457
‘final’ and therefore not appealable under § 158(d).”8 Here, the district court
remanded the issue of attorney’s fees to the bankruptcy court. We must
therefore determine whether such a remand requires “significant further
proceedings.”
To determine what constitutes significant further proceedings, we
distinguish between “those remands requiring the bankruptcy court to perform
‘judicial functions’ and those requiring mere ‘ministerial functions.’”9 If the
remand requires the bankruptcy court to perform judicial functions, such as
additional fact-finding, it is not a final order and therefore it is not appealable
to this court.10 Remands that involve only ministerial proceedings, “such as the
entry of an order by the bankruptcy court in accordance with the district court’s
decision,” are considered final.11 In some instances, a remand for the calculation
of attorney’s fees may be considered a ministerial function; however, “a remand
requiring such a calculation is not final if it necessitates further factual
development or other significant judicial activity involving the exercise of
considerable discretion, or is likely to generate a new appeal or affect the issue
that the disappointed party wants to raise on appeal from the order of remand.”12
In the instant case, the district court remanded the bankruptcy court’s
order to determine “whether the award [of attorney’s fees] is warranted and, if
so, whether the amounts requested by Schiro for attorney’s fees and expenses
are reasonable and necessary.” Such an order requires Schiro to submit
additional evidence regarding his fees and allows Cadle the right to examine,
8
Id. (internal quotation marks omitted).
9
Id.
10
Id.
11
Id. (internal quotation marks omitted).
12
In re Pro-Snax Distribs., Inc., 157 F.3d 414, 420 (5th Cir. 1998) (citation omitted).
5
No. 07-10457
question, or otherwise argue against the claimed fees and expenses. Cadle may
also choose to appeal the bankruptcy court’s decision on remand. As the remand
order requires the bankruptcy court to perform judicial functions, we do not have
jurisdiction to review the award of attorney’s fees.
Although we do not have jurisdiction to review the award of attorney’s
fees, the district court did not remand but affirmed the denial of sanctions,
which was the substantive issue on appeal. So, the question remains whether,
under § 158(d), the district court’s remand of the attorney’s fees issue prevents
finality of the principal issue, i.e. affirming the order denying sanctions.
The Supreme Court has made clear that “a decision on the merits is a
‘final decision’ for purposes of § 1291 whether or not there remains for
adjudication a request for attorney’s fees attributable to the case.”13 The Court
has not addressed finality under § 158(d), but we have indicated that the same
rule applies equally to cases appealed under that section.14 Additionally, both
the First and Tenth Circuits have held that appellate jurisdiction is proper
under § 158(d), even though the collateral issue of attorney’s fees has been
remanded to the bankruptcy court.15
We are convinced that irrespective of the remand of the issue of attorney’s
fees, the district court’s order affirming the bankruptcy court’s denial of
sanctions is a final judgment on the merits appealable under § 158(d). The
remand order in this case concerns only the collateral issue of attorney’s fees; the
13
Budinich v. Becton Dickinson & Co., 486 U.S. 196, 202-03 (1988).
14
In re Aldus Mktg. Ass’n, 46 F.3d 67, 1995 WL 29344, at *2 (5th Cir. Jan. 20, 1995)
(unpublished) (“It is well settled that a decision on the merits is a ‘final decision’ for purposes
of appealability, whether or not there remains for adjudication a request for attorney’s fees.”).
15
See In re Johnson, 501 F.3d 1163, 1168 (10th Cir. 2007) (holding that the court had
appellate jurisdiction to review the merits of the case because only the collateral issue of
attorney’s fees remained to be decided on remand to the bankruptcy court); In re Rivera Torres,
432 F.3d 20, 22 (1st Cir. 2005) (“[A] federal district court’s decision is final and appealable even
if issues regarding attorneys’ fees and costs remain to be decided.”).
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No. 07-10457
bankruptcy court’s decision on remand will not affect the district court’s order
affirming the denial of sanctions. Such “[a] question remaining to be decided
after an order ending litigation on the merits does not prevent finality if its
resolution will not alter the order or moot or revise decisions embodied in the
order.”16
2. Merits
Having determined that the district court’s remand of the award of
attorney’s fees does not deprive us of jurisdiction to review the bankruptcy
court’s denial of sanctions, we turn now to the merits of that ruling. Rule
9011(c)(1)(A) of the Federal Rules of Bankruptcy Procedure states that a “motion
for sanctions may not be filed with or presented to the court unless, within 21
days after service of the motion . . . the challenged paper, claim, defense,
contention, allegation, or denial is not withdrawn or appropriately corrected.”17
“Rule 9011 is substantially identical to Federal Rule of Civil Procedure 11,"18
therefore, we may refer to Rule 11 jurisprudence when considering sanctions
under Rule 9011.19
It is undisputed that Cadle failed to serve Schiro with an advance copy of
the motion for sanctions prior to filing it with the bankruptcy court, as required
by Rule 9011. Nonetheless, Cadle contends that it complied with the mandatory
16
Budinich, 486 U.S. at 199.
17
(emphasis added).
18
In re Case, 937 F.2d 1014, 1022 (5th Cir. 1991).
19
See In re Highgate Equities, Ltd., 279 F.3d 148, 151 (2d Cir. 2002) (“Rule 9011
parallels Federal Rule of Civil Procedure 11 [(‘Rule 11')] . . . [a]ccordingly, our review of the
lower courts’ application of Rule 9011 is informed by Rule 11 jurisprudence.” (alterations in
original) (internal quotation marks omitted)); In re Weiss, 111 F.3d 1159, 1170 (4th Cir. 1997)
(“In deciding cases based on violations of Rule 9011, courts may look to cases that interpret
Federal Rule of Civil Procedure 11."); In re Mahendra, 131 F.3d 750, 759 (8th Cir. 1997)
(“[C]ases interpreting Rule 11 are applicable to Rule 9011 cases.”); In re Chisum, 847 F.2d 597,
599 (9th Cir. 1988) (“[C]ourts considering sanctions under Rule 9011 have relied extensively
on cases considering sanctions under FRCP 11.")
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No. 07-10457
notice requirement of the Rule when it sent warning letters to Schiro on April
19, 2005 and June 23, 2005. Cadle urges that such informal notice is sufficient
to meet the service requirement because it (1) notified Schiro of the possibility
that Cadle would seek sanctions and (2) allowed Schiro the opportunity to
change his pleadings prior to Cadle’s filing with the court. We disagree.
Compliance with the service requirement is a mandatory prerequisite to
an award of sanctions under Rule 11.20 “[S]uch service [is required] to give the
parties at whom the motion is directed an opportunity to withdraw or correct the
offending contention.”21 Although we have not directly addressed whether
informal notice is sufficient, several other circuits have addressed the issue in
the context of Rule 11 and determined that it is insufficient to comply with the
text and spirit of the Rule.
In Roth v. Green, the Tenth Circuit held that warning letters sent to the
respondent in advance of filing were insufficient to comply with the service
requirement.22 After analyzing the language of Rule 11 and the Advisory
Committee Notes, the court concluded that “warning letters, such as those sent
by defendants to [counsel], are supplemental to, and cannot be deemed an
adequate substitute for, the service of the motion itself.”23 The court went on to
state:
The reason for requiring a copy of the motion itself, rather
than simply a warning letter, to be served on the allegedly offending
party is clear. The safe harbor provisions were intended to “protect[
20
See Elliott v. Tilton, 64 F.3d 213, 216 (5th Cir. 1995); see also Tompkins v. Cyr, 202
F.3d 770, 788 (5th Cir. 2000) (affirming denial of sanctions because (1) the defendant failed to
serve a copy of the motion on the respondents twenty-one days prior to filing with the court,
and (2) the defendant did not file motion until after the trial had concluded).
21
Elliott, 64 F.3d at 216.
22
466 F.3d 1179, 1192-93 (10th Cir. 2006).
23
Id. at 1192.
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No. 07-10457
] litigants from sanctions whenever possible in order to mitigate
Rule 11's chilling effects, formaliz[e] procedural due process
considerations such as notice for the protection of the party accused
of sanctionable behavior, and encourag[e] the withdrawal of papers
that violate the rule without involving the district court.” Thus, “a
failure to comply with them [should] result in the rejection of the
motion for sanctions.”24
The Fourth, Eighth, and Ninth Circuits have all taken a similar approach to
interpreting the service requirement of Rule 11.25
Cadle cites only one published circuit court decision to support its
argument that informal service is sufficient to comply with Rule 9011.26 In
24
Id. (alterations in original) (quoting 5A Charles Alan Wright & Arthur R. Miller,
Federal Practice and Procedure § 1337.2, at 722-23 (3d ed. 2004)).
25
Brickwood Contractors, Inc. v. Datanet Eng’g, Inc., 369 F.3d 385, 389 (4th Cir. 2004)
(“It is clear from the language of the rule that it imposes mandatory obligations upon the party
seeking sanctions, so that failure to comply with the procedural requirements precludes the
imposition of the requested sanctions.”); Radcliffe v. Rainbow Constr. Co., 254 F.3d 772, 789
(9th Cir. 2001) (“[T]he fact that the plaintiffs had advance warning that Rainbow objected to
their conspiracy allegation did not cure Rainbow’s failure to comply with the strict procedural
requirement of Rule 11(c)(1)(A).”); see also Gordon v. Unifund CCR Partners, 345 F.3d 1028,
1030 (8th Cir. 2003) (denying Rule 11 sanctions because the defendant sent informal letters
to the plaintiff instead of a copy of the motion for sanctions).
26
Cadle cites an unpublished circuit court decision and several district court decisions,
none of which are persuasive. Compare Barker v. Bank One, 156 F.3d 1228, 1998 WL 466437,
at *2 (6th Cir. 1998) (unpublished) (technical noncompliance allowed because defendants did
serve plaintiff motion for sanctions twenty-one days prior to filing with the court and sent the
plaintiff warning letters prior to the final judgment in the case) with Ridder v. City of
Springfield, 109 F.3d 288, 297 (6th Cir. 1997) (holding that “sanctions under Rule 11 are
unavailable unless the motion for sanctions is served on the opposing party for the full twenty-
one day ‘safe harbor’ period before it is filed with or presented to the court”). Compare Cardillo
v. Cardillo, 360 F. Supp.2d 402, 419 (D.R.I. 2005) (technical noncompliance did not bar
sanctions under Rule 11 because motion to remand contained language regarding request for
sanctions) with Carruthers v. Flaum, 450 F. Supp. 2d 288, 306 (S.D.N.Y. 2006) (“The law in
this Circuit is clear: the only way to start the 21 day clock running is for a party seeking
sanctions to serve a fully supported motion.”) and Gal v. Viacom Int’l, Inc., 403 F. Supp. 2d
294, 309 (S.D.N.Y. 2005) (“[T]he plain language of the rule states explicitly that service of the
motion itself is required to begin the safe harbor clock—the rule says nothing about the use
of letters.”). Compare United States ex rel. Eitel v. Reagan, 35 F. Supp. 2d 1151, 1160 n.7, 1162
(D. Ariz. 1998) (stating that informal letters provided sufficient notice under Rule 11, but
denying sanctions on other grounds), aff’d Eitel v. United States, 242 F.3d 381 (9th Cir. 2000)
9
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Nisenbaum v. Milwaukee County, the Seventh Circuit awarded sanctions under
Rule 11 even though the defendant had sent the respondent only a “letter” or
“demand” and not a copy of the motion for sanctions.27 In reaching its conclusion,
the Seventh Circuit did not address the language of Rule 11, the Advisory
Committee Notes to the Rule, or any other Rule 11 jurisprudence. The court
simply stated that the “[d]efendants have complied substantially with Rule
11(c)(1)(A) and are entitled to a decision on the merits of their request for
sanctions under Rule 11.”28 Because the Seventh Circuit provided little analysis
and cited no authority for its holding, the propriety of its holding has been called
into doubt on more than one occasion.29
We are not persuaded that informal service is sufficient to satisfy the
service requirement of Rule 9011. Contrary to the holding in Nisenbaum, the
plain language of Rule 9011 mandates that the movant serve the respondent
with a copy of the motion before filing it with the court. There is no indication
in Rule 9011 (or Rule 11) or in the advisory notes to support Cadle’s contention
that a motion for sanctions may be filed with the court without serving the
respondent with a copy at least twenty-one days in advance. Moreover, we have
(unpublished) (no reference to Rule 11 sanctions) with Radcliffe, 254 F.3d at 789 (“[A]lthough
a defendant had given informal warnings to the plaintiffs threatening to seek Rule 11
sanctions, these warnings did not satisfy the strict requirement that a motion be served on the
opposing party twenty-one days prior to filing.”) and Barber v. Miller, 146 F.3d 707, 710 (9th
Cir. 1998) (“It would therefore wrench both the language and purpose of the amendment to the
Rule to permit an informal warning to substitute for service of a motion.”).
27
333 F.3d 804, 808 (7th Cir. 2003).
28
Id.
29
See Roth, 466 F.3d at 1193 (“We find [Nisenbaum] unpersuasive, however, because
it contains no analysis of the language of Rule 11(c)(1)(A) or the Advisory Committee Notes,
cites to no authority for its holding, and indeed is the only published circuit decision reaching
such a conclusion.”); Henderson v. Jupiter Aluminum Corp., No. 2:05CV081, 2006 WL 361063,
at *6 (N.D. Ind. Feb. 15, 2006) (“Although the plain language of Rule 11(c)(1)(A) appears to
require the moving party to serve the motion itself at least twenty-one days before filing it, the
Court is bound by Nisenbaum.”)
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No. 07-10457
continually held that strict compliance with Rule 11 is mandatory.30 We may not
disregard the plain language of the statute and our prior precedent without
evidence of congressional intent to allow “substantial compliance” through
informal service.
III. Conclusion
We hold that the bankruptcy court did not abuse its discretion by denying
Cadle’s motion for Rule 9011 sanctions because Cadle failed to serve Schiro with
a copy of the motion at least twenty-one days prior to filing it with the court. We
do not have subject matter jurisdiction to review the bankruptcy court’s award
of attorney’s fees, as that issue was remanded for significant further
proceedings. We therefore affirm the denial of sanctions but dismiss the appeal
of the issue of attorney’s fees for lack of appellate jurisdiction.
AFFIRMED in part; DISMISSED in part.
30
See Elliott v. Tilton, 64 F.3d 213, 216 (5th Cir. 1995); In re Pratt, No. 06-10468 (5th
Cir. Sept. 13, 2007) (unpublished) (affirming the district court’s denial of sanctions when
movant failed to serve respondent with a copy of the motion prior to filing it with the court);
Tompkins v. Cyr, 202 F.3d 770, 788 (5th Cir. 2000) (affirming denial of sanctions because (1)
the defendant failed to serve a copy of the motion on the respondents twenty-one days prior to
filing with the court, and (2) the defendant did not file motion until after the trial had
concluded).
11