Orton v. Hoffman (In Re Kayne)
453 B.R. 372
| 9th Cir. BAP | 2011Background
- Van Kayne filed a Chapter 7 petition Aug 3, 2009, signed by Orton who certified no knowledge of incorrect schedules after inquiry.
- SOFA disclosed a pending state court action and a promissory note but did not list assets or income from the note; Orton approved filing based on incomplete information.
- At the 341 meeting, Trustee questioned the Note; Orton interjected that it was essentially uncollectible, and schedules were not amended to include the Note or payments.
- After case closure, Trustee learned the payoff was $61,250; case was reopened; turnover of Note and post-petition payments was ordered.
- Rule 2004 examination revealed debtor admitted monthly payments on the Note and that Orton had seen the settlement agreement; Orton left the examination mid-session.
- Trustee moved for sanctions under § 707(b)(4)(C)/(D) and Rule 9011; bankruptcy court found egregious violation and imposed $20,000 sanctions against Orton.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether sanctions for Rule 9011 and § 707(b)(4)(D) were proper | Orton violated 9011 and 707(b)(4)(D) by filing false schedules knowingly. | No deliberate concealment; Atkinson supports minimal disclosure sufficient for trustee inquiries. | Yes; sanctions proper; egregious misconduct found. |
| Whether $20,000 is an appropriate sanction | Sanctions should deter and compensate; expenses were substantial due to reopening and revocation actions. | Financial ability to pay should be considered; not mandated to reduce amount. | Yes; $20,000 affirmed; amount reasonable and deterrent. |
Key Cases Cited
- In re Lehtinen, 332 B.R. 404 (9th Cir. BAP 2005) (sanctions standards; abuse of discretion framework)
- In re Nguyen, 447 B.R. 268 (9th Cir. BAP 2011) (sanctions standard and review on abuse of discretion)
- In re Withrow, 405 B.R. 505 (1st Cir. BAP 2009) (reasonableness of investigation under § 707(b)(4)(C)/(D) and Rule 9011)
- In re Pace, 146 B.R. 562 (9th Cir. BAP 1992) (abandonment and scheduling concepts under § 554(c))
- In re Fossey, 119 B.R. 268 (D. Utah 1990) (interpretation of scheduling under 554(c))
- Christian v. Mattel, Inc., 286 F.3d 1118 (9th Cir. 2002) (consideration of debtor's financial wherewithal in sanctions)