[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FILED
FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS
________________________ ELEVENTH CIRCUIT
JULY 07, 2008
No. 07-14049 THOMAS K. KAHN
Non-Argument Calendar CLERK
________________________
D. C. Docket No. 07-80121-CV-ASG
BKCY No. 03-32158-BKC-PGH
IN RE:
JAMES F. WALKER,
Debtor.
__________________________________________
MARY ALICE GWYNN,
Plaintiff-Appellant
Cross-Appellee,
versus
JAMES F. WALKER,
Defendant-Appellee
Cross-Appellant.
________________________
Appeals from the United States District Court
for the Southern District of Florida
_________________________
(July 7, 2008)
Before DUBINA, BLACK and PRYOR, Circuit Judges.
PER CURIAM:
Mary Alice Gwynn, counsel for a creditor in a bankruptcy proceeding,
appeals pro se an award of sanctions against her, a denial of her motion for fees
under Bankruptcy Rule 9011, and a denial of her motion for recusal. James F.
Walker cross-appeals a separate order that vacated an award of sanctions against
Gwynn. We affirm.
I. BACKGROUND
Most of the issues on appeal involve two motions for sanctions. Gary
Rotella, counsel for Walker, filed both motions in response to motions filed by
Gwynn that alleged misconduct by Rotella. In each instance, Rotella was not
found to have engaged in misconduct.
Rotella filed the first motion after Gwynn filed a motion to disqualify
Rotella as counsel for Walker. Rotella responded to the motion and moved to
shorten the notice period for filing a motion for sanctions under Rule 9011.
Rotella notified Gwynn that he would seek sanctions under Rule 9011 if she did
not withdraw the motion to disqualify. After a hearing, the bankruptcy court
denied both the motion to disqualify and the motion to shorten the notice period.
Gwynn then filed a renewed motion to disqualify Rotella from representing
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Walker. That same day, Rotella filed a motion for sanctions against Gwynn under
Rule 9011. Ten days later, the bankruptcy court denied the renewed motion to
disqualify and granted the motion for sanctions.
Gwynn appealed the award of sanctions to the district court. The district
court vacated the award of sanctions because Gwynn had not been afforded
twenty-one days to withdraw her motion. Gwynn then filed a motion for
attorney’s fees and costs as the prevailing party under Rule 9011 and Bankruptcy
Local Rule 8014. The bankruptcy court granted in part and denied in part the
motion and taxed costs in the amount of $1,591.58 against Rotella, his law firm,
and Walker.
Rotella filed the second motion in response to another motion filed by
Gwynn. Gwynn had alleged that Rotella made false representations to the court,
committed fraud against the court, and planned to benefit personally at the
expense of the creditors. The bankruptcy court granted Rotella’s motion for
sanctions and ordered Gwynn to pay Rotella $14,000.
II. STANDARDS OF REVIEW
We review the imposition of sanctions for abuse of discretion. In re Mroz,
65 F.3d 1567, 1571-72 (11th Cir. 1995). Under this standard, we “must affirm
unless [we find] that the [lower] court has made a clear error of judgment, or has
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applied the wrong legal standard.” Amlong & Amlong, P.A. v. Denny’s Inc., 500
F.3d 1230, 1238 (11th Cir. 2007). We may affirm on any legal ground supported
by the record. Brown v. Johnson, 387 F.3d 1344, 1351 (11th Cir. 2004). We also
review a denial of a motion for recusal for abuse of discretion. Christo v. Padgett,
223 F.3d 1324, 1333 (11th Cir. 2000).
III. DISCUSSION
Our discussion is divided in four parts. First, we address Walker’s
argument that the district court should not have vacated the first sanction against
Gwynn. Second, we address Gwynn’s argument that the bankruptcy court abused
its discretion in denying her request for fees and costs related to Gwynn’s appeal
of the first sanction and the denial of some of the expenses for which Gwynn
sought reimbursement. Third, we address Gwynn’s argument that the bankruptcy
court abused its discretion in awarding a sanction of $14,000. Fourth, we address
Gwynn’s argument that the bankruptcy court erred when it denied Gwynn’s
motion for recusal.
A. The District Court Did Not Err When It Vacated
the First Sanction Against Gwynn.
A party who moves for sanctions under Bankruptcy Rule 9011 must follow
a two-step process. See Fed. R. Bankr. P. 9011(c)(1)(A). The party first must
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serve the motion on the opposing party and then, at least twenty-one days later,
file the motion with the court. Id. This process provides a “safe harbor” in
which the offending party can avoid sanctions by withdrawing or correcting the
challenged document or position after receiving notice of the alleged violation.
Although this Circuit has never addressed whether a motion for sanctions
under Rule 9011 may be filed after a court has ruled on the offending motion, the
Second, Fourth, and Sixth Circuits have concluded that a motion under Federal
Rule of Civil Procedure 11, which is “substantially identical” to Rule 9011, Mroz,
65 F.3d at 1572, cannot be filed “[i]f the court disposes of the offending
contention before the twenty-one day ‘safe harbor’ period expires.” Ridder v. City
of Springfield, 109 F.3d 288, 295 (6th Cir. 1997); see also Brickwood Contractors,
Inc. v. Datanet Eng’g, Inc., 369 F.3d 389-90 (4th Cir. 2004) (en banc); In re
Pennie & Edmonds LLP, 323 F.3d 86, 89 & nn.1-2 (2d Cir. 2003). As the Sixth
Circuit explained, “any other interpretation would defeat the rule’s explicit
requirements.” Ridder, 109 F.3d at 295. Under that interpretation of Rule 9011,
Walker’s argument on cross-appeal fails.
There is no doubt that Rotella’s motion for sanctions was filed after the
offending motion had been denied. Gwynn filed the offending motion to
disqualify Rotella on April 21, 2004. Rotella gave notice that he would seek
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sanctions on April 24, 2004, but the bankruptcy court denied the motion to
disqualify on April 28, 2004. On May 18, 2004, Gwynn filed a renewed motion to
disqualify Rotella’s law firm, and that same day Rotella filed a motion for
sanctions under Rule 9011. Rotella’s motion related to the first motion to
disqualify filed by Gwynn. Although Rotella’s motion for sanctions was filed
more than twenty-one days after he gave notice that he would seek sanctions, the
bankruptcy court had already denied Gwynn’s first motion to disqualify.
We agree with the Second, Fourth, and Sixth Circuits that the service and
filing of a motion for sanctions “must occur prior to final judgment or judicial
rejection of the offending” motion. Id. at 297. Any argument to the contrary
renders the safe harbor provision a mere formality. The provision cannot have any
effect if the court has already denied the motion; it is too late for the offending
party to withdraw the challenged contention. See id. The district court did not err
when it vacated the award of sanctions.
B. The Bankruptcy Court Did Not Abuse Its Discretion
in Its Denial of Fees, Costs, and Expenses for Gwynn.
Gwynn argues that the bankruptcy court abused its discretion when it did
not award her attorney’s fees and costs relating to her appeal of the award of
sanctions. Gwynn also argues that the bankruptcy court abused its discretion
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when it did not award all of her reasonable expenses under Bankruptcy Rule 8014.
We disagree.
Rotella’s motion for sanctions and Gwynn’s corresponding expenses could
have been avoided if Gwynn had not filed her frivolous motion to disqualify
Rotella in the first instance. One of the purposes of sanctions under Rule 9011 is
to deter baseless filings, and courts should reduce an award of sanctions based on
“the extent to which the nonviolating party’s expenses could have been avoided,
or mitigated.” Baker v. Alderman, 158 F.3d 516, 528 (11th Cir. 1998). Because
Gwynn’s initial frivolous filing prompted the dispute, the bankruptcy court did not
abuse its discretion when it denied attorney’s fees and costs under Rule
9011(c)(1)(a).
The bankruptcy court also did not abuse its discretion in its award of
reasonable expenses under Rule 8014. The denial of fees for a consulting attorney
and expert witness, expediting costs, and certain transcript costs was within the
discretion of the court under Rule 8014. The bankruptcy court provided detailed
reasons for excluding certain expenses, and Gwynn does not provide any legal
support for a contrary decision.
C. The Bankruptcy Court Did Not Abuse Its Discretion
When It Imposed a Sanction of $14,000 against Gwynn.
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Gwynn argues that the bankruptcy court abused its discretion in the
imposition of sanctions in the amount of $14,000. The bankruptcy court found
that sanctions were appropriate under two statutes, 28 U.S.C. §§ 105, 1927, and its
inherent authority to manage its affairs. We need not decide whether the
bankruptcy court had the authority to impose sanctions under either section 1927
or section 105 because the court did not abuse its discretion when it awarded
sanctions under its inherent powers.
Federal courts, including bankruptcy courts, have the inherent power to
impose sanctions on parties and lawyers. Byrne v. Nezhat, 261 F.3d 1075, 1121
(11th Cir. 2001); see also Mroz, 65 F.3d at 1572. To impose sanctions under these
inherent powers, the court first must find bad faith. Mroz, 65 F.3d at 1575. “A
finding of bad faith is warranted where an attorney knowingly or recklessly raises
a frivolous argument, or argues a meritorious claim for the purpose of harassing
an opponent. A party also demonstrates bad faith by delaying or disrupting the
litigation or hampering enforcement of a court order.” Byrne, 261 F.3d at 1121
(citations omitted). Sanctions are “especially appropriate where counsel takes
frivolous legal positions supported by scandalous accusations.” Amlong &
Amlong, P.A., 500 F.3d at 1238. The court must afford the sanctioned party due
process both in determining that the requisite bad faith exists and in assessing fees.
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Chambers v. NASCO, Inc., 501 U.S. 32, 49, 111 S. Ct. 2123, 2135 (1991).
Gwynn does not contend that she did not receive due process in the
imposition of sanctions; she instead argues that the filing of the motion did not
amount to bad faith. She also contends that a single motion cannot demonstrate
bad faith, but requires multiple instances of misconduct. We disagree.
The bankruptcy court did not abuse its discretion when it imposed a
sanction for Gwynn’s filing of a motion in bad faith. Gwynn’s motion alleged that
Rotella had made false representations to the court, committed fraud against the
court, and planned to benefit personally at the expense of the creditors. Gwenn’s
accusations required multiple hearings and led to a counter-motion for sanctions.
The seriousness of the allegations combined with the lack of any evidentiary
support or minimal investigation support a finding of bad faith.
Gwynn also argues that the record does not support the amount of the
sanction. Gwynn argues that the court should not have considered the expenses
incurred after she withdrew her motion, and she contends that the estimates made
by the court were arbitrary. We disagree.
The court had an ample evidentiary basis for determining the amount of
sanctions. Rotella submitted a detailed log of time spent in response to the
motion, and the court examined the log, noted entries that were unnecessary or
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unwarranted, and found the hourly rate to be reasonable. The court also found that
Rotella’s response to the motion was disproportionate and estimated the amount of
time required for a proportional response.
The court did not clearly err when it included Rotella’s time spent after
Gwynn withdrew her motion for sanctions. See In re Optical Tech., Inc., 425 F.3d
1294, 1300 (11th Cir. 2005). It was reasonable for Rotella to file the motion for
sanctions because Gwynn’s motion contained serious and unfounded allegations
of misconduct. The court, in response, had to investigate the foundations of
Gwynn’s motion.
The estimate by the court as to the time necessary to prepare for and attend
the hearing on Gwynn’s motion, prepare Rotella’s own motion, and prepare for
and attend the hearing for Rotella’s motion was not arbitrary. Based on Rotella’s
time entries, the experience of the bankruptcy court with fee applications, and its
knowledge of Rotella’s experience as an attorney, it was not clearly erroneous for
the court to determine that forty hours was a reasonable amount of time to respond
to the motion for sanctions. The court exercised restraint in its determination of
the appropriate amount when it considered Rotella’s disproportionate response
and considered only a reasonable amount of time to respond to the unfounded
motion. The bankruptcy court did not abuse its discretion when it awarded
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$14,000 in sanctions against Gwynn under its inherent powers.
D. The Bankruptcy Court Did Not Abuse Its Discretion
When It Denied Gwynn’s Motion for Recusal.
A judge shall recuse himself if he is personally biased or prejudiced against
a party or in favor of an adverse party, or whenever the judge’s “impartiality might
reasonably be questioned.” 28 U.S.C. §§ 144, 455(a). The standard is “whether
an objective, fully informed lay observer would entertain significant doubt about
the judge’s impartiality.” Christo, 223 F.3d at 1333. “The general rule is that bias
sufficient to disqualify a judge must stem from extrajudicial sources.” Thomas v.
Tenneco Packaging Co., 293 F.3d 1306, 1329 (11th Cir. 2002). “The exception to
this rule is ‘when a judge’s remarks in a judicial context demonstrate such
pervasive bias and prejudice that it constitutes bias against a party.’ Mere ‘friction
between the court and counsel,’ however, is not enough to demonstrate ‘pervasive
bias.’” Id. (citation omitted) (quoting Hamm v. Bd. of Regents, 708 F.2d 647, 651
(11th Cir. 1983)).
Gwynn contends that she established pervasive bias throughout the court
proceeding by the bankruptcy judge, but the grounds cited by Gwynn do not
include any extrajudicial sources. Gwynn relies on seven orders, all prepared by
Rotella, as evidence of bias, and Gwynn contends that she was not able to respond
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in time to those orders. Gwynn also relies on adverse rulings and her referral to the
Florida Bar by the bankruptcy judge.
Although we have “repeatedly condemned the ghostwriting of judicial
orders by litigants,” In re Colony Square Co., 819 F.2d 272, 274, 277 (11th Cir.
1987), “such orders will be vacated only if a party can demonstrate that the
process by which the judge arrived at them was fundamentally unfair,” id. at 276.
Whether the opposing party had “ample opportunity to present its arguments,”
whether the ruling was “correct as a matter of law,” and the frequency of the use
of orders prepared by a party are relevant factors to consider. See id. at 276-77;
Chudasama v. Mazda Motor Corp., 123 F.3d 1353, 1373 n.46 & 1374 (11th Cir.
1997).
In the light of the extensive history of this litigation, the seven isolated
orders, prepared by Rotella, in a bankruptcy proceeding involving almost 2,000
filings do not evince pervasive bias and prejudice. Gwynn had ample opportunity
to be heard. She filed responses, motions to strike, notices of hearings, and
motions for reconsideration. Although one order was incorrect as a matter of law,
it was reversed by the district court, and the bankruptcy judge admitted his
mistaken reliance on a prepared order. None of the other orders was incorrect as a
matter of law.
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Adverse rulings are grounds for appeal, but rarely are grounds for recusal,
see Liteky v. United States, 510 U.S. 540, 554, 114 S. Ct. 1147, 1157 (1994), and
referral to a state bar disciplinary board for investigation is not considered a
sanction or disciplinary measure, see United States v. McCorkle, 321 F.3d 1292,
1298 (11th Cir. 2003). Because a fully informed and objective observer would not
entertain significant doubt about the bankruptcy judge’s impartiality in the
proceedings, see Christo, 223 F.3d at 1333, we conclude that the bankruptcy judge
did not abuse his discretion in denying the motion for recusal.
III. CONCLUSION
The district court did not err when it vacated the first sanction against
Gwynn, and the bankruptcy court did not abuse its discretion in its denial of
Gwenn’s motion for fees, costs and expenses, its sanction of $14,000 against
Gwynn, and its denial of Gwynn’s motion for recusal.
AFFIRMED.
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