FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
In the Matter of: SOUTHERN
CALIFORNIA SUNBELT DEVELOPERS,
INC.,
Debtor,
ORANGE BLOSSOM LIMITED
PARTNERSHIP; PEAR TREE LIMITED
PARTNERSHIP; BANYAN LIMITED
PARTNERSHIP; DON W. GRAMMER;
TRAILS END LIMITED PARTNERSHIP;
SHOWTHUNDER INC.; HAMPTON No. 08-56570
LIMITED PARTNERSHIP; DAVID
TEDDER; BIRCH INTERNATIONAL D.C. Nos.
8:06-cv-00269-DDP
LIMITED PARTNERSHIP; VAN DAN 8:06-cv-00270-DDP
LIMITED PARTNERSHIP; CTM
LIMITED PARTNERSHIP; DTG LIMITED
PARTNERSHIP; GALLERY I INC.; KEY
ENTERPRISES INC.; SLEVIN LIMITED
PARTNERSHIP,
Appellants,
v.
SOUTHERN CALIFORNIA SUNBELT
DEVELOPERS, INC.,
Appellee.
8415
8416 IN THE MATTER OF SOUTHERN CALIFORNIA SUNBELT
In Re: IBT INTERNATIONAL, INC.
DON GRAMMER; BANYAN LIMITED
PARTNERSHIP; PEAR TREE
PARTNERSHIP; ORANGE BLOSSOM
LIMITED PARTNERSHIP; DAVID
TEDDER; BIRCH INTERNATIONAL
LIMITED PARTNERSHIP; VAN DAN
LIMITED PARTNERSHIP; CTM No. 08-56576
LIMITED PARTNERSHIP; DTG LIMITED
PARTNERSHIP; GALLERY I INC.; D.C. No.
HAMPTON LIMITED PARTNERSHIP; 8:06-cv-00275-DDP
KEY ENTERPRISES, INC.; SLEVIN
LIMITED PARTNERSHIP;
SHOWTHUNDER INC.; TRAILS END
LIMITED PARTNERSHIP,
Plaintiffs-Appellants,
v.
IBT INTERNATIONAL, INC.,
Defendant-Appellee.
IN THE MATTER OF SOUTHERN CALIFORNIA SUNBELT 8417
In the Matter of: IBT
INTERNATIONAL, INC.,
Debtor,
DON GRAMMER; BANYAN LIMITED
PARTNERSHIP; PEAR TREE
PARTNERSHIP; ORANGE BLOSSOM
LIMITED PARTNERSHIP; DAVID
TEDDER; BIRCH INTERNATIONAL
LIMITED PARTNERSHIP; VAN DAN No. 08-56580
LIMITED PARTNERSHIP; CTM
LIMITED PARTNERSHIP; DTG LIMITED D.C. No.
PARTNERSHIP; GALLERY I INC.; 8:06-cv-00276-DDP
HAMPTON LIMITED PARTNERSHIP;
KEY ENTERPRISES, INC.; SLEVIN
LIMITED PARTNERSHIP;
SHOWTHUNDER INC.; TRAILS END
LIMITED PARTNERSHIP,
Appellants,
v.
IBT INTERNATIONAL, INC.,
Appellee.
8418 IN THE MATTER OF SOUTHERN CALIFORNIA SUNBELT
In the Matter of: SOUTHERN
CALIFORNIA SUNBELT DEVELOPERS,
INC.,
Debtor,
DON W. GRAMMER; BANYAN
LIMITED PARTNERSHIP; PEAR TREE
LIMITED PARTNERSHIP; ORANGE
BLOSSOM LIMITED PARTNERSHIP;
DAVID TEDDER; BIRCH
INTERNATIONAL LIMITED No. 08-56587
PARTNERSHIP; VAN DAN LIMITED
PARTNERSHIP; CTM LIMITED D.C. No.
8:06-cv-00270-DDP
PARTNERSHIP; DTG LIMITED
PARTNERSHIP; GALLERY I INC.; OPINION
HAMPTON LIMITED PARTNERSHIP;
KEY ENTERPRISES INC.; SLEVIN
LIMITED PARTNERSHIP;
SHOWTHUNDER INC.; TRAILS END
LIMITED PARTNERSHIP,
Appellants,
v.
SOUTHERN CALIFORNIA SUNBELT
DEVELOPERS, INC.,
Appellee.
Appeal from the United States District Court
for the Central District of California
Dean D. Pregerson, District Judge, Presiding
Argued and Submitted
February 2, 2010—Pasadena, California
Filed June 9, 2010
IN THE MATTER OF SOUTHERN CALIFORNIA SUNBELT 8419
Before: Mary M. Schroeder, Raymond C. Fisher and
N. Randy Smith, Circuit Judges.
Opinion by Judge Fisher
IN THE MATTER OF SOUTHERN CALIFORNIA SUNBELT 8421
COUNSEL
Thomas W. Dressler (argued), the Dressler Law Group, LLP,
Los Angeles, California, Stella A. Havkin, Litwak & Havkin,
Woodland Hills, California, for the appellants.
William Miles Burd, Burd & Naylor, Santa Ana, California,
C. Michael Chapman, Laguna Niguel, California, Todd Carl
Ringstad (argued), Ringstad & Sanders LLP, Irvine, Califor-
nia, for the appellees.
8422 IN THE MATTER OF SOUTHERN CALIFORNIA SUNBELT
OPINION
FISHER, Circuit Judge:
Thirteen entities filed involuntary bankruptcy petitions
against two alleged debtors. After the petitions were dis-
missed, the alleged debtors filed motions against the petition-
ing creditors for costs, attorney’s fees and punitive damages
under § 303(i) of the Bankruptcy Code, 11 U.S.C. § 303(i).
The United States Bankruptcy Court for the Central District
of California, Judge Robert W. Alberts presiding, awarded
$745,000 in costs and fees, including costs and fees incurred
by the alleged debtors in litigating the § 303(i) motions them-
selves (so-called “fees on fees”), and $130,000 in punitive
damages — $65,000 in each action. Relying on its inherent
power, the court also awarded sanctions against Donald
Grammer and David Tedder, two individuals who exercised
control over the petitioning creditors. The court held Gram-
mer and Tedder jointly and severally liable for the alleged
debtors’ costs and attorney’s fees, including the costs and fees
incurred by the alleged debtors in litigating the § 303(i)
motions. Appellants are Grammer, Tedder and the 13 petition-
ing creditors.
We affirm the judgments against the 13 petitioning credi-
tors. The bankruptcy court properly concluded that § 303(i)
permits an award of attorney’s fees for a § 303 action as a
whole, including fees incurred to litigate claims for fees and
damages under § 303(i)(1) and (2). The court also properly
concluded that § 303(i) permits an award of punitive damages
under § 303(i)(2)(B) in the absence of an award of actual
damages under § 303(i)(2)(A).
We affirm in part and reverse in part the judgments against
Grammer and Tedder. The bankruptcy court properly held
Grammer and Tedder jointly and severally liable for the costs
and attorney’s fees the debtors incurred in obtaining dismissal
of the involuntary petitions. The bankruptcy court erred, how-
IN THE MATTER OF SOUTHERN CALIFORNIA SUNBELT 8423
ever, by holding Grammer and Tedder liable for the debtors’
costs and fees incurred on the § 303(i) motions themselves.
I. Background
Thirteen entities filed involuntary bankruptcy petitions
against IBT International, Inc. (IBT) and Southern California
Sunbelt Developers, Inc. (SCSD) under Chapter 11 of the
Bankruptcy Code, 11 U.S.C. § 303. The petitioning creditors
are Banyon Limited Partnership, Birch International Limited
Partnership, Van Dan Limited Partnership, CTM Limited
Partnership, DTG Limited Partnership, Gallery I, Inc., Hamp-
ton Limited Partnership, Key Enterprises, Inc., Orange Blos-
som Limited Partnership, Pear Tree Limited Partnership,
Slevin Limited Partnership, Showthunder, Inc. and Trails End
Limited Partnership. They are controlled by two individuals,
Donald Grammer and David Tedder.
The bankruptcy court dismissed the involuntary petition
against SCSD after finding that petitioners’ claims were the
subject of a bona fide dispute. See 11 U.S.C. § 303(b). The
court subsequently dismissed the involuntary petition against
IBT on a motion by petitioning creditors. In its response to
that motion, IBT reserved its right to recover costs, attorney’s
fees and damages under § 303(i) in the event the motion was
granted.
SCSD and IBT thereafter filed motions for costs, attorney’s
fees and punitive damages against petitioning creditors under
§ 303(i). They also sought sanctions against Grammer and
Tedder under Bankruptcy Rule 9011 and the court’s inherent
power. Section 303(i) states:
If the court dismisses a petition under this section
other than on consent of all petitioners and the
debtor, and if the debtor does not waive the right to
judgment under this subsection, the court may grant
judgment —
8424 IN THE MATTER OF SOUTHERN CALIFORNIA SUNBELT
(1) against the petitioners and in favor of
the debtor for —
(A) costs; or
(B) a reasonable attorney’s fee; or
(2) against any petitioner that filed the peti-
tion in bad faith, for —
(A) any damages proximately caused by
such filing; or
(B) punitive damages.
11 U.S.C. § 303(i). SCSD and IBT did not seek damages
under § 303(i)(2)(A).
After a month-long evidentiary hearing on the motions, the
bankruptcy court entered judgment against Grammer, Tedder
and the petitioning creditors and in favor of SCSD and IBT
as follows:
1. Under § 303(i)(1), the court held the 13 petitioning
creditors jointly and severally liable for $745,318 in costs and
attorney’s fees incurred by SCSD and IBT, including costs
and fees they incurred during the post-dismissal proceedings
on the § 303(i) motions themselves.
2. Under § 303(i)(2)(B), the court found that the petition-
ing creditors filed the involuntary petitions in bad faith and
held them jointly and severally liable for $130,000 in punitive
damages — $5,000 per creditor per petition.
3. Finally, under its inherent power to impose sanctions,
the court held Grammer and Tedder jointly and severally lia-
ble for the costs and attorney’s fees awarded against the peti-
tioning creditors.
IN THE MATTER OF SOUTHERN CALIFORNIA SUNBELT 8425
Grammer, Tedder and the petitioning creditors appealed to
the district court, which affirmed the bankruptcy court’s judg-
ments. We have jurisdiction under 28 U.S.C. § 158(d). We
affirm in part and reverse in part.
II. Standard of Review
We review decisions of the bankruptcy court independently
without deference to the district court’s determinations. Hig-
gins v. Vortex Fishing Sys., Inc., 379 F.3d 701, 705 (9th Cir.
2004). The bankruptcy court’s conclusions of law, including
its interpretation of the Bankruptcy Code, are reviewed de
novo. See In re Salazar, 430 F.3d 992, 994 (9th Cir. 2005);
Higgins, 379 F.3d at 705. We will not disturb a bankruptcy
court’s award of attorney’s fees unless the court abused its
discretion or erroneously applied the law. Higgins, 379 F.3d
at 705.
III. Discussion
Appellants raise three issues: (1) whether the bankruptcy
court erred by awarding attorney’s fees incurred by SCSD and
IBT to litigate the § 303(i) motions; (2) whether the bank-
ruptcy court erred by awarding punitive damages under
§ 303(i)(2)(B) in the absence of an award of actual damages
under § 303(i)(2)(A); and (3) whether the bankruptcy court
erroneously held Grammer and Tedder liable for the attor-
ney’s fees incurred by SCSD and IBT to litigate the motions
for sanctions imposed under the court’s inherent power. We
affirm with respect to the first and second issues. On the third
issue, we agree with appellants.
A. Recovery of Attorney’s Fees Incurred Litigating the
§ 303(i) Motions
The first issue is whether § 303(i) authorizes a recovery of
attorney’s fees incurred litigating a § 303(i) motion. We hold
that it does. We begin by examining whether § 303(i)(1) is a
8426 IN THE MATTER OF SOUTHERN CALIFORNIA SUNBELT
fee-shifting provision or a sanctions statute. Then, having
determined that it is a fee-shifting provision, we explain that
§ 303(i)(1) authorizes an award of attorney’s fees incurred lit-
igating claims for attorney’s fees and damages under
§ 303(i)(1) and (2).
1. Section 303(i)(1) Is a Fee-Shifting Provision
[1] The Supreme Court drew a distinction between fee-
shifting provisions and sanctions statutes in Business Guides,
Inc. v. Chromatic Communications Enterprises, Inc., 498 U.S.
533, 553 (1991). In determining that Federal Rule of Civil
Procedure 11 was a sanctions statute, the Court emphasized
two considerations. First, Rule 11 sanctions were not “tied to
the outcome of [the] litigation.” Id. Instead, the availability of
sanctions turned on whether a “specific filing” was well
founded. Id. Second, Rule 11 sanctions shifted the costs of
only a “discrete” portion of the litigation, rather than the cost
of the litigation as a whole. Id. The Court also distinguished
Rule 11 from fee-shifting statutes in Cooter & Gell v. Hart-
marx Corp., 496 U.S. 384, 409 (1990).
[2] Applying these and other relevant considerations here,
we hold that § 303(i)(1) is a fee-shifting provision rather than
a sanctions statute. Like other fee-shifting provisions and in
contrast to Rule 11, eligibility for fees turns on the merits of
the litigation as a whole, rather than on whether a “specific
filing” is well founded. In deciding whether to award fees, a
court considers the “totality of the circumstances,” including
“1) ‘the merits of the involuntary petition,’ 2) ‘the role of any
improper conduct on the part of the alleged debtor,’ 3) ‘the
reasonableness of the actions taken by the petitioning credi-
tors,’ and 4) ‘the motivation and objectives behind filing the
petition.’ ” Higgins, 379 F.3d at 707 (quoting In re Scrap
Metal Buyers of Tampa, Inc., 233 B.R. 162, 166 (Bankr. M.D.
Fla. 1999)). Fees may not be awarded unless “the court dis-
misses a petition.” 11 U.S.C. § 303(i). That is, only a debtor
who has prevailed on the central issue in the proceedings is
IN THE MATTER OF SOUTHERN CALIFORNIA SUNBELT 8427
eligible for an award of fees. Fee eligibility is therefore inex-
tricably linked to the proceedings’ dispositive adjudication.
Also, unlike Rule 11, § 303(i) shifts costs for the litigation as
a whole rather than a discrete portion. When a petition is dis-
missed, a court may grant a debtor “a reasonable attorney’s
fee” — a single fee award presumably covering the entire
action. Id.
[3] Two other considerations support treating § 303(i) as a
fee-shifting provision. First, § 303(i)(1) creates a presumption
in favor of an award of attorney’s fees. “When an involuntary
bankruptcy petition is dismissed, the debtor is presumed to be
entitled to reasonable fees and costs.” In re Maple-Whitworth,
Inc., 556 F.3d 742, 746 (9th Cir. 2009); see Higgins, 379 F.3d
at 707 (explaining that “ ‘any petitioning creditor in an invol-
untary case . . . should expect to pay the debtor’s attorney’s
fees and costs if the petition is dismissed’ ” and that “an
involuntary debtor’s motion for attorney’s fees and costs
under § 303(i)(1) raises a rebuttable presumption that reason-
able fees and costs are authorized” (quoting In re Kidwell,
158 B.R. 203, 217 (Bankr. E.D. Cal. 1993))). Such a pre-
sumption is consistent with a fee shifting provision.1 Second,
and tellingly, § 303(i)(1) does not require a showing of bad
faith. “[B]ad faith is not a prerequisite to awarding attorney’s
fees and costs under § 303(i)(1).” Higgins, 379 F.3d at 706.
2. Section 303(i)(1) Permits an Award of Fees on Fees
Given that § 303(i)(1) is a fee-shifting provision, the bank-
ruptcy court did not err by awarding attorney’s fees incurred
by the alleged debtors in pursuing their claims for attorney’s
fees and damages under § 303(i)(1) and (2) respectively.
1
We do not suggest that a presumption is a necessary characteristic of
fee-shifting provisions. See Martin v. Franklin Capital Corp., 546 U.S.
132, 137-39 (2005) (holding that the fee-shifting provision in the federal
removal statute, 28 U.S.C. § 1447(c), does not create a presumption of an
award of fees).
8428 IN THE MATTER OF SOUTHERN CALIFORNIA SUNBELT
[4] First, with respect to fees incurred litigating claims for
attorney’s fees under § 303(i)(1), fees are plainly recoverable.
“In statutory fee cases, federal courts, including our own,
have uniformly held that time spent in establishing the entitle-
ment to and amount of the fee is compensable.” In re Nucorp
Energy, Inc., 764 F.2d 655, 659-60 (9th Cir. 1985). “This is
so because it would be inconsistent to dilute a fees award by
refusing to compensate attorneys for the time they reasonably
spent in establishing their rightful claim to the fee.” Camacho
v. Bridgeport Fin., Inc., 523 F.3d 973, 981 (9th Cir. 2008)
(citing Nucorp, 764 F.2d at 660, and Kinney v. Int’l Bhd. of
Elec. Workers, 939 F.2d 690, 695 (9th Cir. 1991)). The bank-
ruptcy court therefore properly permitted SCSD and IBT to
recover attorney’s fees incurred litigating their entitlement to
fees under § 303(i)(1). See 2 Collier on Bankruptcy
¶ 303.33[4][b] (Alan N. Resnick & Henry J. Sommer eds.,
16th ed. 2009) (explaining that it would be “inconsistent with
the apparent policy of section 303(i)” to preclude a recovery
of “attorney’s fees for collecting an award of costs and fees
under section 303(i)”).2
[5] Second, the bankruptcy court also properly permitted
SCSD and IBT to recover fees incurred litigating claims for
damages under § 303(i)(2). In Commissioner v. Jean, 496
U.S. 154 (1990), the Supreme Court addressed eligibility for
attorney’s fees under the Equal Access for Justice Act
(EAJA), 28 U.S.C. § 2412(d). The Court explained that, with
respect to fee-shifting statutes, a court should “treat[ ] a case
as an inclusive whole, rather than as atomized line-items.”
2
In so holding, we reject appellants’ contention that permitting recovery
of fees on fees fosters a “lottery mentality” and invites debtors to engage
in excessive fee litigation. See Commissioner v. Jean, 496 U.S. 154, 163
(1990) (Equal Access to Justice Act) (“Exorbitant, unfounded, or proce-
durally defective fee applications . . . are matters that the district court can
recognize and discount.”); Kinney, 939 F.2d at 695 (Labor-Management
Reporting and Disclosure Act) (“The concern that awarding fees for fee
litigation will lead to abuse is . . . groundless. Exorbitant claims can and
will be rejected in the exercise of the court’s broad discretion.”).
IN THE MATTER OF SOUTHERN CALIFORNIA SUNBELT 8429
Jean, 496 U.S. at 161-62. “[O]nly one threshold determina-
tion [of fee eligibility] for the entire civil action is to be
made.” Id. at 159. “Thus, absent unreasonably dilatory con-
duct by the prevailing party in ‘any portion’ of the litigation,
which would justify denying fees for that portion, a fee award
presumptively encompasses all aspects of the civil action.” Id.
at 161 (emphasis added) (quoting 28 U.S.C. § 2412(d)(2)(D)).
Applying this principle here, a bankruptcy court should
make a single determination of fee eligibility under
§ 303(i)(1)(B). If the court finds that the debtor is eligible for
an award of fees, then under Jean the fee award presump-
tively encompasses all aspects of the § 303 action, including
proceedings on claims under § 303(i)(2).3 See In re Glannon,
245 B.R. 882, 894 (D. Kan. 2000) (holding that § 303(i)(1)
“applies to all phases of a § 303 proceeding in which the
bankruptcy petition was dismissed”); In re Landmark Dis-
tribs., Inc., 195 B.R. 837, 845 (Bankr. D. N.J. 1996) (“[U]pon
dismissal of an involuntary petition pursuant to section 303(i),
the court may grant judgment against petitioning creditors and
in favor of the alleged debtor for costs and reasonable attor-
neys’ fees whether related to the alleged debtor’s efforts to
dismiss the petition pursuant to § 303(i)(1), or to prove bad
faith or establish damages pursuant to § 303(i)(2).”); In re
Advance Press & Litho, Inc., 46 B.R. 700, 703 (Bankr. D.
Colo. 1984) (“Preparation for and attendance at the hearing on
attorney’s fees, costs and damages are also part of the matters
which are occasioned as a result of an Involuntary Petition.
As such, they are compensable under § 303(i).”); 2 Collier on
3
This does not mean that a debtor will necessarily recover fees incurred
litigating a § 303(i)(2) claim for damages. The eligibility determination
“brings the plaintiff only across the statutory threshold. It remains for the
. . . court to determine what fee is ‘reasonable.’ ” Jean, 496 U.S. at 160-
61 (quoting Hensley v. Eckerhart, 461 U.S. 424, 433 (1983)). The court
retains broad discretion to fashion a fee award under § 303(i). In re Maple-
Whitworth, 556 F.3d at 746. For example, fees “should be excluded to the
extent that the applicant ultimately fails to prevail in such litigation.” Jean,
496 U.S. at 163 n.10.
8430 IN THE MATTER OF SOUTHERN CALIFORNIA SUNBELT
Bankruptcy, supra, ¶ 303.33[4][b] (“[A] court has consider-
able discretion in determining fees under section 303(i), and
that discretion is sufficient to enable the court to award attor-
ney’s fees in the right situation for services rendered in con-
junction with section 303(i)(2).”).4
Our conclusion is consistent with our recent opinion in
Sternberg v. Johnston, 595 F.3d 937 (9th Cir. 2010), which
held that a debtor was not entitled to attorney’s fees incurred
in pursuing damages from a violation of the automatic stay
under 11 U.S.C. § 362(k)(1), because those damages were
“akin to an ordinary damages action, for which attorney fees
are not available under the American Rule.” Id. at 948. Stern-
berg is inapplicable here because § 303(i)(1) is a fee-shifting
provision, not a damages provision. The distinction here is
between those statutes which permit recovery of attorney’s
fees “as damages,” id. at 946, and which are therefore “con-
sistent with the American Rule,” id., and those which permit
the recovery of attorney’s fees qua attorney’s fees and there-
fore create an exception to the American Rule. Section
303(i)(1) falls into the second category because, rather than
providing for an award of attorney’s fees as damages to com-
pensate an individual injured by a wrongful act, its very func-
tion is to reallocate the costs of litigation to the prevailing
debtor and to thus supersede the American Rule. Unlike
§ 362(k)(1), which provides for recovery of “actual damages,
including . . . attorneys’ fees,” § 303(i) provides for an award
of “a reasonable attorney’s fee” or, if the petition was filed in
bad faith, “any damages proximately caused by such filing.”
Were § 303(i)(1) within the former category, it would be
“akin to an ordinary damages action,” and therefore subject to
the American Rule. Id. at 948. Because it is a fee-shifting pro-
vision, however, it is subject to the general rule that “[i]n stat-
4
Having held that § 303(i) is a fee-shifting provision rather than a sanc-
tions statute, we reject appellants’ contention that this case is controlled
by Cooter & Gell, 496 U.S. at 406-07, and Lockary v. Kayfetz, 974 F.2d
1166, 1178 (9th Cir. 1992), decisions addressing sanctions.
IN THE MATTER OF SOUTHERN CALIFORNIA SUNBELT 8431
utory fee cases, . . . time spent in establishing the entitlement
to and amount of the fee is compensable.” In re Nucorp
Energy, Inc., 764 F.2d at 659-60.
Appellants do not challenge the fee awards on any other
bases. They do not contend that they successfully rebutted the
presumption in favor of fees or challenge the amount of the
fee awards. We therefore affirm the bankruptcy court’s
awards of attorney’s fees.
B. Punitive Damages
Appellants challenge the bankruptcy court’s award of puni-
tive damages on two bases. First, they contend that federal
common law precludes an award of punitive damages in the
absence of an award of actual damages. Second, they argue
that, “in the absence of a compensatory damage award, the
ratio between punitive and compensatory damages is infinite,
and per se violative of the constitutional proportionality
requirement.” We reject appellants’ arguments and uphold the
bankruptcy court’s punitive damages awards.
1. Federal Common Law
[6] Under the federal common law, punitive damages are
recoverable in the absence of actual damages where autho-
rized by statute. See Siddiqui v. United States, 359 F.3d 1200,
1203 (9th Cir. 2004) (explaining that punitive damages are
available where “Congress has expressly authorized an award
of punitive damages in the absence of proof of actual dam-
ages”); Anderson v. United Fin. Co., 666 F.2d 1274, 1278
(9th Cir. 1982) (holding that “punitive damages may be
awarded even absent a showing of actual damages” under the
Equal Credit Opportunity Act, 15 U.S.C. § 1691e(b)); see
also Van Alstyne v. Elec. Scriptorium, Ltd., 560 F.3d 199, 209
(4th Cir. 2009) (holding that the Stored Communications Act,
18 U.S.C. § 2707, authorizes an award of punitive damages
absent a showing of actual damages).
8432 IN THE MATTER OF SOUTHERN CALIFORNIA SUNBELT
[7] These authorities control here. Section 303(i)(2)
expressly authorizes a stand alone award of punitive damages.
Under § 303(i)(2), a court may award actual or punitive dam-
ages, without limitation; the sole precondition is a showing of
bad faith. 11 U.S.C. § 303(i)(2). As our Bankruptcy Appellate
Panel has explained, “[t]he Bankruptcy Code specifically
authorizes punitive damages ‘even in the absence of or in
addition to actual damages.’ ” In re Wavelength, Inc., 61 B.R.
614, 621 (B.A.P. 9th Cir. 1986) (quoting In Re Advance
Press, 46 B.R. at 706); see In re Macke Int’l Trade, Inc., 370
B.R. 236, 256 (B.A.P. 9th Cir. 2007) (“[T]he bankruptcy
court can allow punitive damages without having to award
compensatory or actual damages, or in addition to those dam-
ages.”); 2 Collier on Bankruptcy, supra, ¶ 303.33[3] (“A
debtor can recover punitive damages under section
303(i)(2)(B) even if there is no finding of actual damages
under section 303(i)(2)(A).”); H.R. Rep. No. 95-595, at 324
(1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6280 (“The
court may grant any or all of the damages provided for under
the provision.”); S. Rep. No. 95-989, at 34 (1978), reprinted
in 1978 U.S.C.C.A.N. 5787, 5820 (same).
[8] We therefore hold that punitive damages may be
awarded under § 303(i)(2)(B) even absent an award of actual
damages under § 303(i)(2)(A).
2. Due Process
Appellants also contend that an award of punitive damages
in the absence of an award of actual damages constitutes a
“per se” violation of due process because the ratio of punitive
to actual damages is infinite. We disagree.
In Mendez v. County of San Bernardino, 540 F.3d 1109,
1120-22 (9th Cir. 2008), we rejected a due process challenge
to $5,000 in punitive damages awarded despite only $1 in
nominal damages. We see no constitutionally significant dis-
IN THE MATTER OF SOUTHERN CALIFORNIA SUNBELT 8433
tinction between the award in that case and the awards here
of $5,000 per petitioner as against $0 in actual damages.5
[9] Furthermore, we do not accept appellants’ premise that
the relevant ratio in this case is infinite. The due process
inquiry compares the punitive damages awarded to the harm
caused by the wrongful act, not merely to the actual damages
awarded. See Mendez, 540 F.3d at 1121 (“[W]e look to the
ratio between the punitive damages and the actual harm
inflicted on the plaintiff.”). In this case, the petitioners’ bad
faith filings caused SCSD and IBT to defend two involuntary
petitions. The costs of defense, which exceeded $170,000 and
which SCSD and IBT recovered as part of their fee award,
constitute tangible harm caused by the petitioners’ bad faith
filings. When we take those costs into account, the ratio of
punitive damages to the actual harm — $130,000 to $170,000
— is less than 1:1 and plainly falls within constitutional
bounds. We therefore reject appellants’ contention that the
award of punitive damages in this case is a per se violation of
due process based on the ratio of punitive to actual damages
awarded.
Appellants do not challenge the bankruptcy court’s punitive
damages awards on any other bases. They do not dispute the
court’s findings of bad faith or contend that the awards are
unconstitutional under the remaining guideposts discussed in
State Farm Mutual Automobile Insurance Co. v. Campbell,
538 U.S. 408, 418 (2003). Accordingly, we affirm the bank-
ruptcy court’s awards of punitive damages.
5
The bankruptcy court awarded $65,000 in punitive damages to SCSD
and $65,000 to IBT. Given that there are 13 petitioning creditors, the
award is equivalent to an award of $5,000 against each petitioner for each
involuntary petition.
8434 IN THE MATTER OF SOUTHERN CALIFORNIA SUNBELT
C. Sanctions Imposed under the Court’s
Inherent Power
Finally, appellants Grammer and Tedder contend that the
bankruptcy court improperly included the costs of litigating
the motions for sanctions in the costs and fees the court
ordered them to pay under its inherent power to impose sanc-
tions. We agree.
[10] In Cooter & Gell v. Hartmarx Corp., 496 U.S. 384,
406-07 (1990), the Supreme Court held that Federal Rule of
Civil Procedure 11 did not authorize recovery of attorney’s
fees incurred to defend an award of Rule 11 sanctions on
appeal. Relying on language in the version of Rule 11 in
effect at that time, the Court reasoned that Rule 11 sanctions
were limited to “those expenses directly caused” by the
improper filing, which did not include costs of appeal. Id. We
extended that principle in Lockary v. Kayfetz, 974 F.2d 1166
(9th Cir. 1992). In Lockary, the district court imposed sanc-
tions against the plaintiffs’ law firm under its inherent power
rather than Rule 11. Id. at 1170. The sanctions included not
only the costs incurred by the defendants to oppose the plain-
tiffs’ improper filings, but also “the defendants’ cost of pre-
paring and supporting their motion for sanctions.” Id. at 1177.
The law firm appealed and, relying on Cooter & Gell, we
reversed:
Cooter & Gell suggests that the trial court should
limit sanctions to the opposing party’s more “direct”
costs, that is, the costs of opposing the offending
pleading or motion. We thus find that the district
court erred in including the defendants’ attorneys’
fees for preparing their motion for sanctions in the
sanctions it imposed.
Id. at 1178.6
6
We reject appellees’ contention that Lockary has been overruled by
Margolis v. Ryan, 140 F.3d 850 (9th Cir. 1998), with respect to sanctions
IN THE MATTER OF SOUTHERN CALIFORNIA SUNBELT 8435
[11] As applied here, the bankruptcy court properly held
Grammer and Tedder jointly and severally liable for the costs
and attorney’s fees incurred by SCSD and IBT to secure dis-
missal of the involuntary petitions. The bankruptcy court
erred, however, by holding Grammer and Tedder liable for
the costs and fees incurred by SCSD and IBT on the post-
dismissal motions themselves. We therefore affirm in part and
reverse in part the judgments against Grammer and Tedder.
IV. Conclusion
The bankruptcy court properly awarded costs, attorney’s
fees and punitive damages against the 13 petitioning creditors.
The bankruptcy court properly held Grammer and Tedder
jointly and severally liable for the fees and costs SCSD and
IBT incurred to obtain dismissal of the involuntary petitions,
but erroneously held Grammer and Tedder jointly and sever-
ally liable for the fees and costs SCSD and IBT incurred to
litigate the post-dismissal motions. We therefore affirm in
part and vacate in part the order of the district court affirming
the opinion of the bankruptcy court. We remand to the district
court with instructions to remand to the bankruptcy court to
amend the judgments against Grammer and Tedder accord-
ingly.
Appellants’ request for judicial notice is DENIED. Appel-
lees’ motion to strike is DENIED.
Costs of appeal are awarded to appellees.
imposed under the court’s inherent power. In Margolis, the court inter-
preted Lockary as imposing a restriction on sanctions imposed under Rule
11. See Margolis, 140 F.3d at 854-55 (“Under Lockary, the attorneys’ fees
and costs associated with bringing a motion for sanctions under Fed. R.
Civ. P. 11 should not be included in the award because they are not direct
costs of opposing an offending pleading.”). Therefore, although Margolis
is binding circuit precedent, its conclusion that “[t]he rule in Lockary . . .
is no longer good law” has no effect here because this is not a Rule 11
case.
8436 IN THE MATTER OF SOUTHERN CALIFORNIA SUNBELT
AFFIRMED IN PART, VACATED IN PART, and
REMANDED.