In Re: JJE & MM Group LLC
692 F. App'x 43
2d Cir.2017Background
- Debtor JJE & MM Group LLC filed a second Chapter 11 petition after an earlier bankruptcy was dismissed and the court barred JJE from filing a new petition for one year; the dismissal order allowed a motion to modify if circumstances changed.
- Attorney Noson Kopel (pro se) filed the second petition without seeking leave; he said it was an "emergency" because JJE's sole property faced foreclosure that day and a sale contract might allow reorganization.
- The Bankruptcy Court, acting sua sponte, issued a show-cause order seeking contempt and Rule 9011 sanctions against Kopel for filing in violation of the prior dismissal order.
- After hearings, the Bankruptcy Court found Kopel in civil contempt and imposed compensatory sanctions to reimburse a secured creditor for fees and costs; it did not decide Rule 9011 sanctions.
- The District Court affirmed the contempt finding and sanctions but analyzed only Rule 9011 standards (finding Kopel's conduct unreasonable) rather than civil contempt standards.
- On appeal, the Second Circuit vacated and remanded, concluding the Bankruptcy Court erred by imposing sua sponte contempt sanctions without a required bad-faith finding, and directed reconsideration under appropriate Rule 9011 standards if applicable.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Kopel could be held in civil contempt for filing the second petition in violation of the dismissal order | Kopel argued he lacked knowledge of the earlier dismissal order and, as a non-party, could only be contemned as an aider/abettor — no finding that debtor was in contempt | Court and creditor argued filing violated a specific order and warranted contempt sanctions | Vacated contempt finding: court erred to impose contempt sua sponte without finding bad faith; remanded for further proceedings |
| Whether sua sponte sanctions could be imposed under Bankruptcy Rule 9011 | Kopel asserted Rule 9011 standards (including subjective bad faith for sua sponte sanctions) were not met | Court below treated conduct as unreasonable and affirmed sanctions under Rule 9011 standards | Remanded: Bankruptcy Court may consider Rule 9011 sanctions; if imposed sua sponte, must find subjective bad faith; if imposed on creditor's motion, apply Rule 11/9011 standards |
| Whether the District Court properly evaluated the Bankruptcy Court's sanctions decision | Kopel argued District Court misapplied standards by focusing on Rule 9011 rather than civil contempt criteria | District Court relied on Kopel's unreasonable conduct to affirm sanctions | Vacated District Court orders and remanded for proceedings consistent with proper legal standards |
| Whether denial of oral argument in District Court was erroneous | Kopel claimed denial was improper | District Court denied oral argument | Court did not reach this claim given disposition |
Key Cases Cited
- In re Kalikow, 602 F.3d 82 (2d Cir. 2010) (standard of review for bankruptcy factual and legal findings)
- In re Highgate Equities, Ltd., 279 F.3d 148 (2d Cir. 2002) (abuse-of-discretion review and Rule 9011 guidance)
- In re City of New York, 607 F.3d 923 (2d Cir. 2010) (definition of abuse of discretion)
- Fidelity Mortg. Investors v. Camelia Builders, Inc., 550 F.2d 47 (2d Cir. 1976) (civil contempt requires specific order and knowledge)
- In re Chateaugay Corp., 920 F.2d 183 (2d Cir. 1990) (bankruptcy courts may impose compensatory sanctions for civil contempt)
- United States v. Seltzer, 227 F.3d 36 (2d Cir. 2000) (bad-faith requirement when awarding attorney's fees as sanction)
- Sakon v. Andreo, 119 F.3d 109 (2d Cir. 1997) (attorney-fee sanctions require more than excusable neglect)
- Muhammad v. Walmart Stores E., L.P., 732 F.3d 104 (2d Cir. 2013) (subjective bad faith required for sua sponte Rule 11 sanctions)
- Levin v. Tibur Holding Corp., 277 F.3d 243 (2d Cir. 2002) (non-party contempt limited to aider/abettor theory)