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Sino Century Development Limited et al v. David L. Farley et al

December 3, 2012

SINO CENTURY DEVELOPMENT LIMITED ET AL., PLAINTIFFS AND RESPONDENTS,
v.
DAVID L. FARLEY ET AL., DEFENDANTS AND APPELLANTS.



APPEAL from an order of the Superior Court of Los Angeles County, Mel Red Recana, Judge. (Los Angeles County Super. Ct. No. BC396199)

The opinion of the court was delivered by: Aldrich, J.

CERTIFIED FOR PUBLICATION

Reversed in part, affirmed in part.

In this case, we must determine whether California Rules of Court, rule 2.30*fn1 permits a trial court to award attorney fees as sanctions for a rules violation. Rule 2.30(b) authorizes the court to impose reasonable monetary sanctions for violating a rule of court. Rule 2.30(d) also provides in "addition to the sanctions awardable under (b), the court may order the person who has violated the applicable rule to pay to the party aggrieved by the violation that party's reasonable expenses, including reasonable attorney's fees and costs, incurred in connection with the motion for sanctions or the order to show cause."*fn2 The court imposed $81,461.13 in sanctions on appellants David L. Farley and his counsel, Menke & Menke, LLP (Menke) and declared a mistrial because appellants violated a rule of court that required notification of the automatic stay imposed by a filing in the bankruptcy court.*fn3 These monetary sanctions included attorney fees incurred by the aggrieved party as a result of the rules violation.

We conclude that rule 2.30 does not authorize full compensation of all attorney fees incurred as a result of a rules violation, but only authorizes the court to award reasonable attorney fees incurred in connection with the proceedings in which the aggrieved party seeks sanctions. We therefore reverse the trial court's order awarding attorney fees and remand to the trial court to reconsider the reasonable attorney fees incurred in connection with the motion for sanctions and the order to show cause. In all other respects, we affirm.

FACTUAL AND PROCEDURAL BACKGROUND

1. Events Leading to Motion for Sanctions and Order to Show Cause

Sino Century Development Limited and Sinomax Polyurethanes (Shanghai) Co, Ltd. (collectively, Sinomax) sold urethane foam for bed mattresses to Anatomic Global Inc. (Anatomic Global). Sinomax sued Anatomic Global and Farley to collect almost $3 million in unpaid invoices.

In January 2011, before Farley was dismissed as a defendant in this action, he filed for bankruptcy, which triggered a stay of judicial proceedings against him (11 U.S.C. § 362(a)). Farley, however, did not notify Sinomax or the trial court that he had filed for bankruptcy protection as required under rule 3.650.

During the bankruptcy proceedings, one of Farley's creditors filed an adversary complaint against him and Anatomic Global. As part of the settlement of the adversary proceeding in the bankruptcy court, the creditor obtained Anatomic Global's assets.

In late April 2011, months after Farley had declared bankruptcy, Sinomax and Menke discussed dismissing Farley from this action. Despite entering into these discussions and negotiating the dismissal, Menke later told the court that it mistakenly believed Farley had been dismissed one year before the bankruptcy filing. Upon learning that Farley had not been dismissed from this action, Menke failed to inform the court of the automatic bankruptcy stay. While the stay was in effect, the trial court entered Farley's dismissal.

On June 28, 2011, the day before trial, Menke informed Sinomax that Farley had filed for bankruptcy. Menke proposed that the parties avoid a costly trial because Anatomic Global had no assets.

The parties did not reach a settlement, and the jury trial commenced. Meanwhile, Sinomax attempted to ...


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