Appeal from the United States Bankruptcy Court for the Northern District of California Honorable Leslie J. Tchaikovsky, Bankruptcy Judge, Presiding. Bk. No. 03-44829.
The opinion of the court was delivered by: Dunn, Bankruptcy Judge
Submitted Without Oral Argument on October 31, 2008
Before: DUNN, JURY and MARKELL, Bankruptcy Judges.
The appellant, David Smyth, previously appealed the bankruptcy court's orders imposing a monetary sanction and a six-month suspension from practice before the bankruptcy courts of the Northern District of California.*fn1 The Panel affirmed the bankruptcy court's orders in a published opinion, Smyth v. City of Oakland (In re Brooks-Hamilton), 329 B.R. 270 (9th Cir. BAP 2005). On further appeal, the Ninth Circuit affirmed in part, reversed in part and remanded to the bankruptcy court for further proceedings. Smyth v. City of Oakland (In re Brooks-Hamilton), 271 Fed. Appx. 654 (9th Cir. 2008).
On remand, the bankruptcy court reduced the monetary sanction, but reimposed the six-month suspension sanction, determining that the circumstances still warranted it.
Smyth comes before the Panel once more to appeal the bankruptcy court's order reimposing the six-month suspension sanction. Because the Panel's prior decisions, Price v. Lehtinen (In re Lehtinen), 332 B.R. 404 (9th Cir. BAP 2005), and Peugeot v. United States Trustee (In re Crayton), 192 B.R. 970 (9th Cir. BAP 1996), require consideration of the American Bar Association ("ABA") standards in determining the appropriate sanction, which the bankruptcy court did not address, we VACATE in part and REMAND, with a strong recommendation to the bankruptcy court that it refer the matter to the Standing Committee on Professional Conduct of the Northern District of California ("Standing Committee").
Smyth was the attorney for the debtor, Ralbert Rallington Brooks-Hamilton, in his bankruptcy case. On behalf of the debtor, Smyth filed a chapter 13 petition on August 21, 2003.*fn3
The schedules listed the City of Oakland ("Oakland") as a secured creditor with undisputed claims in the aggregate amount of $603,000.*fn4 The debtor's chapter 13 plan provided that Oakland's claims would be paid by April 1, 2004, through a sale or refinance of the debtor's real property.*fn5 Oakland did not object to the plan; the plan was confirmed.
Oakland subsequently filed a proof of claim, asserting a secured claim in the amount of $983,146.51. On behalf of the debtor, Smyth filed an objection to Oakland's claim, contending that it could not be paid, as the confirmed plan did not provide for payment of secured claims, and that it could not be paid as an unsecured claim, because Oakland had not filed an unsecured claim.
The bankruptcy court learned of the objection at a hearing on March 18, 2004, in a related adversary proceeding (adv. proc. no. 03-4837). After reviewing the plan and listening to Smyth's explanations regarding the plan and the objection, the bankruptcy court informed Smyth that it intended to enter an order to show cause why sanctions should not be imposed on him, as it considered the bankruptcy case to be an abusive filing and Smyth's conduct in the bankruptcy case to be "horrifying."*fn6
True to its word, the bankruptcy court issued an order to show cause why Smyth should not be sanctioned ("OSC"). The bankruptcy court advised Smyth that it was considering imposing sanctions against him, including permanent disbarment, though it did not state the legal bases for the possible sanctions. The bankruptcy court later specified, in an order continuing the hearing on the OSC, that it would impose sanctions under Rule 9011(b), § 105 or its inherent authority to sanction, should it deem sanctions appropriate ("Continuance Order"). Meanwhile, in the adversary proceeding, Oakland filed a motion to impose monetary sanctions under Rule 9011(b) against Smyth ("Rule 9011 Motion").*fn7
After the hearing on the OSC, the bankruptcy court issued a memorandum decision ("First Memorandum Decision"), holding that Smyth violated Rule 9011(b)(1) and (b)(2) by filing and presenting the objection.*fn8 The bankruptcy court found that the contentions made by Smyth in the objection were frivolous and implausible. The bankruptcy court determined that the plan did not need to refer to Oakland's claim as secured in order for it to be paid through the plan as secured. Oakland had a right to payment on its claim because it timely filed its proof of claim, and the plan provided for its payment. Moreover, the bankruptcy court found that Oakland did not need to file a proof of unsecured claim because it had filed a proof of claim, asserting that all of its claims were secured. As the bankruptcy court reasoned:
A creditor must be able to rely on a proof of claim asserting secured status to preserve its underlying monetary claim in the event its security interest is avoided. Otherwise, it would have to file multiple claims or plead in the alternative in every case on the chance that a debtor might challenge its lien.
First Memorandum Decision, 8:16-20. Because no reasonable attorney would make such baseless contentions, the bankruptcy court concluded, Smyth filed the objection for an improper purpose.
The bankruptcy court decided to suspend Smyth from practice before the bankruptcy courts of the Northern District of California for six months, though he could continue to appear in cases in which he already was attorney of record. Although it initially warned Smyth in the OSC that it was considering disbarment as a sanction, the bankruptcy court ultimately decided to suspend Smyth as a less severe sanction.
Concurrently with its First Memorandum Decision, the bankruptcy court issued an order suspending Smyth from practice ("First Suspension Order"). At the same time, pursuant to Oakland's Rule 9011 Motion, the bankruptcy court imposed a $10,671 monetary sanction against Smyth ("Monetary Sanction Order") on the grounds that he asserted frivolous claims in the adversary proceeding complaint and filed the adversary proceeding complaint for an improper purpose.
Smyth appealed the First Suspension Order and the Monetary Sanction Order, both of which the Panel affirmed in Smyth I.
On further appeal, the Ninth Circuit reversed in part the Monetary Sanction Order, determining that two of the three claims in the adversary proceeding complaint were not frivolous. Smyth, 271 Fed. Appx. at 657-60. The Ninth Circuit remanded the Monetary Sanction Order to the bankruptcy court for a redetermination as to whether Smyth filed the one frivolous claim for an improper purpose and for a redetermination of the amount of the monetary sanction, given that only one claim in the adversary proceeding complaint was frivolous. Id. at 660.
As to the First Suspension Order, the Ninth Circuit held that the bankruptcy court neither abused its discretion in determining that Smyth's assertions in the objection were frivolous nor in deciding to impose the sanction against him.*fn9 Id. at 660-61. The Ninth Circuit vacated and remanded the First Suspension Order, however, as it had been based, in part, on the imposition of the Monetary Sanction Order. Id. at 660.
On remand, without holding a hearing or seeking further briefing or additional evidence from Smyth, the bankruptcy court reduced the amount of the monetary sanction, but reimposed the six-month suspension sanction. Memorandum of Decision re: Sanctions on Remand ("Second Memorandum Decision"), 4:5-10. Reconsidering the issues presented in the case, and taking into account the reduced monetary sanction, the bankruptcy court stated in the Second Memorandum Decision that it remained convinced that the six-month suspension sanction was appropriate under the circumstances. Second Memorandum Decision, 4:7-15.
On September 2, 2008, the bankruptcy court entered its order suspending Smyth from practice before the bankruptcy courts of the Northern District of California for six months, but allowing him to continue to appear in cases in which he already was attorney of record ("Second Suspension Order"). Second Memorandum Decision, 4:19-21; Second Suspension Order, 1:18-20.
Before we can address the merits of this appeal, the Panel must determine whether the bankruptcy court had jurisdiction to adjudicate the suspension sanction and to issue the Second Suspension Order and whether we, in turn, have jurisdiction to review the Second Suspension Order on appeal.
Relying on Sheridan v. Michels (In re Sheridan), 362 F.3d 96 (1st Cir. 2004), Smyth argues that the bankruptcy court lacked jurisdiction to adjudicate the suspension sanction because such a determination is not a core proceeding. Accordingly, Smyth claims the bankruptcy court had no authority to issue the Second Suspension Order.
Contrary to Smyth's contentions, the bankruptcy court did have jurisdiction to adjudicate the suspension sanction. Because Smyth's objection to Oakland's claim constituted a core proceeding under 28 U.S.C. § 157(b)(2)(A), the OSC itself, which was set to address Smyth's frivolous assertions in the objection, constituted a core proceeding. See Lehtinen, 332 B.R. at 410-11 (stating, in dictum, that, as acts on which attorney's suspension were based occurred in the course of his representing the debtor in matters central to administration of debtor's case, disciplinary proceeding fell within ambit of 28 U.S.C. § 157(b)(2)(A)).*fn11 See also Polo Bldg. Group, Inc. v. Rakita (In re Shubov), 253 B.R. 540, 543 (9th Cir. BAP 2000). Accord Chicago Bank of Commerce v. Amalgamated Trust & Savings Bank (In re Memorial Estates, Inc.), 116 B.R. 108, 111 (N.D. Ill. 1990); Fed. Sav. & Loan Ins. Corp. v. Sutherlin, 109 B.R. 700, 703 (E.D. La. 1989); In re Emergency Beacon Corp., 52 B.R. 979, 987 (S.D.N.Y. 1985).
Moreover, as we discuss below, the bankruptcy court had authority to impose the suspension sanction under Rule 9011, § 105(a) and its inherent authority.
Because the bankruptcy court had jurisdiction to adjudicate the suspension sanction under 28 U.S.C. § 157(b)(1) and (b)(2)(A), we have jurisdiction to review the appeal under 28 U.S.C. § 158.
(1) Whether the bankruptcy court had authority to suspend Smyth from practice before the ...