In re: Rubye E. Taylor
CC-16-1376-KuLTa
| 9th Cir. BAP | Aug 9, 2017Background
- Debtor Rubye E. Taylor and her son Andre Freeman sued James B. Nutter & Co., James B. Nutter, and Fannie Mae alleging fraud/forgery to invalidate a post-mortem reverse-mortgage foreclosure sale; Matthew Resnik was plaintiffs’ counsel.
- Defendants produced voluminous loan/escrow documentation for plaintiffs’ counsel to review on July 1, 2015; defendants repeatedly asked plaintiffs to dismiss if satisfied the loan was bona fide.
- Defendants filed a Rule 12(b)(6) motion to dismiss plus a request for sanctions on August 14, 2015; plaintiffs filed a notice of voluntary dismissal on September 1, 2015 (after two weeks) and opposed sanctions.
- The bankruptcy court concluded plaintiffs and Resnik knew by late July 2015 the case was unlikely to succeed but delayed dismissal until August 31, 2015, and later found plaintiffs’ subsequent defense of the sanctions motion also sanctionable.
- The bankruptcy court awarded roughly $150,000 in inherent-power attorney-fee sanctions against plaintiffs and Resnik; the panel reversed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a short delay (several weeks) in moving to voluntarily dismiss an adversary proceeding can be sanctioned under the court’s inherent power | Delay alone is not an actionable ‘‘act’’; absent a rule, order, or duty to act sooner, passive delay cannot support inherent-power sanctions | Delay after receiving documents demonstrating the loan’s bona fides was tactical and designed to increase defendants’ costs; therefore sanctions are warranted | Reversed: isolated delay, without a specific duty to act more promptly, is not sanctionable under the court’s inherent power; inherent-power sanctions must be used with caution and typically require affirmative misconduct or failure to comply with a specific duty |
| Whether plaintiffs’ and counsel’s defense of the sanctions motion (including repeated arguments) could independently be sanctioned under the court’s inherent power | Defending against a sanctions request—filing declarations and briefs pursuant to the court’s schedule and directions—was a permissible response; poor quality or repetitive advocacy alone does not establish bad faith | Plaintiffs’ defenses (particularly post–May 3, 2016 filings) were repetitive and orchestrated to force defendants to incur additional fees and thus sanctionable | Reversed: the bankruptcy court erred in treating the entire sanctions defense as inherently sanctionable; subpar or repetitive advocacy does not, by itself, meet the heightened bad-faith standard required for inherent-power fee awards |
Key Cases Cited
- Chambers v. NASCO, Inc., 501 U.S. 32 (court’s inherent power permits fee awards for bad-faith litigation conduct)
- Fink v. Gomez, 239 F.3d 989 (9th Cir. 2001) (inherent-power sanctions require explicit finding of bad faith or conduct tantamount to bad faith)
- Knupfer v. Lindblade (In re Dyer), 332 F.3d 1178 (9th Cir. 2003) (bankruptcy courts’ inherent sanction power scope)
- Goodyear Tire & Rubber Co. v. Haeger, 137 S. Ct. 1178 (Supreme Court) (attorney-fee awards as a remedy under inherent power)
- In re Snowden, 769 F.3d 651 (9th Cir. 2014) (exercise inherent power with caution and restraint)
- Mendez v. County of San Bernardino, 540 F.3d 1109 (9th Cir. 2008) (reversing inherent-power sanctions for isolated inaction absent notice of a duty)
- In re Itel Sec. Litig., 791 F.2d 672 (9th Cir. 1986) (examples of sanctionable litigation misconduct)
- Primus Auto. Fin. Servs. v. Batarse, 115 F.3d 644 (9th Cir. 1997) (bad-faith litigation purpose supports inherent sanctions)
- Rodriguez v. United States, 542 F.3d 704 (9th Cir. 2008) (more than negligence or poor advocacy required for inherent-power sanctions)
- Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240 (Supreme Court) (discussion of the American Rule and narrow exceptions for fee-shifting)