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In re Melcher

United States District Court, N.D. California, San Jose Division

October 1, 2014

In re Jacqueline C. Melcher.


RONALD M. WHYTE, District Judge.

John W. Richardson, Trustee in Bankruptcy (the "Trustee") of the estate of Jacqueline Melcher, filed a motion for an order withdrawing the reference to the Bankruptcy Court under 28 U.S.C. § 157(d) for consideration by the District Court of the Trustee's motion under 28 U.S.C. § 1927 for sanctions against Ms. Melcher. Dkt. No. 1. For the reasons explained below, the court grants the motion to withdraw the reference and grants the motion for sanctions.

I. Background[1]

Ms. Melcher filed a Chapter 11 petition in June 2001, which was converted to a Chapter 7[2] case in September 2008. From September 15, 2008 through April 15, 2013, the bankruptcy docket contains more than 1, 700 entries and "reflects the great difficultly Jacqueline had understanding the role of the Trustee and her duties as a debtor in chapter 7. Jacqueline opposed most substantive action of the Trustee to liquidate estate property." BAP Order at 5.

These opposition tactics included actively interfering with the Trustee's attempts to sell real property in Massachusetts, objecting to the real estate broker the Trustee hired, and objecting to the selling price proposed for the properties. The bankruptcy court rejected Ms. Melcher's concerns, and her appeals of the bankruptcy court's decisions were dismissed for lack of prosecution. Id. at 7-8 (Stonewall Property), 9-10 (Moshup Trail Property). Ms. Melcher also refused to remove personal property in the homes the Trustee was attempting to sell. Id. at 8, 10-11. All of these actions caused the Trustee to incur unnecessary legal fees relating to his administration of the bankruptcy estate.

Ms. Melcher also filed numerous motions to compel, motions for reconsideration, and appeals related to the Trustee's administration of the estate, all of which were denied on the merits, or dismissed as untimely in the case of the appeals. These are "but some of the examples of Jacqueline's litigation tenacity as reflected on the docket." Id. at 13.

Before the bankruptcy court, the Trustee requested that Ms. Melcher be declared a vexatious litigant or that some restrictions be placed on her filings. The Trustee filed his first "Notice and Motion for Vexatious Litigant Order" on April 24, 2009. The bankruptcy court denied the motion because Ms. Melcher's filings were "not patently without merit" and it was not clear that the excessive pleadings were taking funds from creditors in the case. Id. at 14. On September 15, 2010 the Trustee renewed his motion, and the bankruptcy court again denied the motion but determined that Ms. Melcher was barred from filing pleadings in other courts. Id. at 16 (Ms. Melcher was involved in various state court litigations). The Trustee then filed a Standing Motion, requesting the bankruptcy court to determine that Ms. Melcher had no standing to interfere with the Trustee's administration of the estate, as the estate was insolvent and thus she had no pecuniary interest in it. Id. at 18-19.

The bankruptcy court denied the motion, and on appeal the Bankruptcy Appellate Panel vacated the decision, finding that "Jacqueline's multiple pleadings were frivolous and were brought with the intent to harass the parties." Id. at 25. Additionally, the Bankruptcy Appellate Panel concluded that "[t]here is no question from the record before us that the [primary creditor] has been impacted seriously by the diminution of the bankruptcy estate, as have the Trustee and his counsel in light of the fees and expenses they have incurred in attempting to meet their statutory duties to administer the bankruptcy estate." Id. at 26. The Bankruptcy Appellate Panel then vacated and remanded the Standing Motion to the bankruptcy court to "implement an appropriate prefiling order to address the outrageous conduct of Jacqueline evidenced by the docket and her voluminous filings." Id. at 28.

Before the Bankruptcy Appellate Panel issued its decision vacating the denial of the Standing Motion, the Trustee filed the current motion to withdraw the reference and motion for sanctions. After briefing was complete on the current motions, the BAP Order was issued.

In the current motion for sanctions, the Trustee estimates that Ms. Melcher's litigation behavior has "caused at least 1, 300 hours in unnecessary work at a cost of $688, 000 to the bankruptcy estate and its creditors." Dkt. No. 1 at 5. The Trustee's motion details further vexatious litigation conduct, including numerous objections, motions for reconsideration, and other unnecessary filings made by Ms. Melcher in the bankruptcy case.

II. Analysis

A. Permissive Withdrawal

Under 28 U.S.C. § 157(d), "the district court may withdraw, in whole or in part, any case or proceeding... on timely motion of any party, for cause shown." In making the "cause" determination, a district court should consider "the efficient use of judicial resources, the delay and costs to the parties, uniformity of bankruptcy administration, the prevention of forum shopping, and other related factors." Security Farms v. Int'l Brotherhood of Teamsters, Chauffers, Whearhousemen & Helpers, 124 F.3d 999, 1008 (9th Cir.1997).

Here, the Security Farms factors favor withdrawing the reference. First, it is questionable whether a bankruptcy court within in the Ninth Circuit has the authority to award sanctions under 28 U.S.C. § 1927. See In re Perroton, 958 F.2d 889 (9th Cir. 1992) (finding that bankruptcy courts are not "courts of the United States" under 28 U.S.C. § 451); In re Sandoval, 186 B.R. 490, 495-96 (9th Cir. B.A.P. 1995) (applying Perroton's reasoning and concluding that bankruptcy court's lack the authority to award sanctions under 28 U.S.C. § 1927); but see See In re Peoro, 793 F.2d 1048 (9th Cir.1986) (affirming bankruptcy and district courts' award of § 1927 sanctions without comment on authority to award sanctions). Because Perroton and Sandoval more directly address the question of a bankruptcy court's authority to award sanctions than Peoro, the court follows the analysis in Perroton, which leads to the conclusion that ...

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