In re: Mary A. Gordon
16-8014
| 6th Cir. | May 18, 2017Background
- Mary A. Gordon filed Chapter 7 on October 19, 2012; T. Larry Edmondson was appointed Chapter 7 Trustee.
- Trustee sued Virgil Gordon II (son and trustee of an irrevocable trust) in an adversary proceeding to avoid transfers of two San Diego parcels as fraudulent and to bring trust assets into the bankruptcy estate.
- Bankruptcy court granted trustee’s expedited motion for summary judgment after a May 26, 2015 hearing; the May 28, 2015 Summary Judgment Order avoided transfers and directed turnover of trust property to the trustee.
- One parcel was sold by the trustee; Virgil sold the other (the "Auto Zone" property) on or about December 2, 2015 without trustee approval, producing substantial sale proceeds placed outside the estate.
- The bankruptcy court entered a Turnover Order and a Contempt Show Cause Order (March 25, 2016). After an April 11, 2016 hearing (where the May 26 transcript was played), the court found Virgil in civil contempt, directed turnover of $173,614.39, and awarded $26,602.50 in attorney’s fees as sanctions.
- On appeal the BAP affirmed the contempt finding and turnover requirement but reversed the attorney-fee sanction and remanded for further process because Virgil lacked adequate notice and an opportunity to contest the amount of fees awarded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1. Timeliness/notice of Summary Judgment Order | Trustee: summary judgment was entered after a hearing at which Virgil was present; he had notice and cannot belatedly challenge it | Virgil: he did not receive adequate legal notice of the Summary Judgment Order | BAP: Appeal of summary judgment untimely; Virgil was present at hearing and had notice, so issue is not preserved |
| 2. Civil contempt for selling property | Trustee: Virgil knew of the order and violated it by selling property and retaining proceeds | Virgil: he should not have been subject to contempt due to alleged lack of notice and partial compliance by forwarding escrow funds | BAP: Contempt finding affirmed — elements (notice, violation, definite order) satisfied |
| 3. Award of attorney’s fees as sanctions | Trustee: fees are compensable and tied to contempt enforcement | Virgil: fees excessive and he lacked opportunity to contest amount; lacked financial ability | BAP: Reversed fee award — court abused discretion by failing to give notice that monetary sanctions might be imposed at hearing and by accepting counsel’s affidavit after the hearing without giving Virgil the opportunity to contest the amount; remanded for itemization and opportunity to respond |
| 4. Alleged judicial bias and inability to pay | Trustee: not argued as dispositive | Virgil: asserted bias and inability to pay would make enforcement inequitable | BAP: Bias not raised below so not considered; financial condition does not negate entitlement to fees but is relevant to enforcement; remand limited to procedural fairness on fees |
Key Cases Cited
- Elec. Workers Pension Trust Fund v. Gary’s Elec. Serv. Co., 340 F.3d 373 (6th Cir.) (standard: contempt reviewed for abuse of discretion)
- Peppers v. Barry, 873 F.2d 967 (6th Cir. 1989) (contempt review principles)
- Behlke v. Eisen, 358 F.3d 429 (6th Cir.) (contested factual findings reviewed for clear error)
- Cooter & Gell v. Hartmax Corp., 496 U.S. 384 (U.S. 1990) (sanctions premised on erroneous law/evidence are abuse of discretion)
- Chambers v. NASCO, Inc., 501 U.S. 32 (U.S. 1991) (court’s discretion in awarding fees and sanctions)
- Rolex Watch U.S.A., Inc. v. Crowley, 74 F.3d 716 (6th Cir.) (civil contempt is coercive and compensatory; willfulness not required)