On February 23, 2009, Appellant James W. Hawkins ("Hawkins"), the debtor in the instant matter, filed with this Court a Notice of Appeal from an Order of the United States Bankruptcy Court for the Northern District of New York (Hon. Stephen D. Gerling, B.J.), entered on January 16, 2009, granting the motion for sanctions by Appellee Paul A. Levine ("Levine"), the Chapter 11 Trustee, pursuant to Federal Rule of Bankruptcy Procedure 9011. Appellant now contends that the Bankruptcy Court erred by imposing sanctions, arguing that there was no factual or legal basis to justify the imposition of sanctions. For the reasons which follow, the January 19, 2009 Decision of the Bankruptcy Court is affirmed.
Appellant Hawkins is at the center of the eight separate entities and individuals ("Debtors") who filed Chapter 11 petitions on January 7, 2003. Reserve Capital Corporation is a corporation that was engaged in the business of construction and installment contract financing of mobile homes. Hawkins Development, LLC was engaged in real estate development. Hawkins Family, LLC acted as a real estate holding company. Hawkins Manufactured Housing, Inc. was engaged in the selling and financing of mobile homes. Wooded Estates, LLC and Forest View, Inc., owned and operated mobile home communities. Tioga Park, LLC owned a horse racing track. The Bankruptcy Court subsequently granted Debtors' motion to jointly administer the estates. In March 2004, the Debtors, their post-petition lender Southern Tier Acquisitions, LLC, and creditor Asolare II, LLC, reached an agreement whereby these plan proponents would present a joint plan of reorganization for Tioga Park, and separately, liquidating plans for the remaining Debtors. On May 17, 2004, the reorganization plan was amended by the Bankruptcy Court's Amending Order.
Subsequently, in June 2004, the Bankruptcy Court affirmed the joint Chapter 11 plan of Tioga Park. The joint plan provided, in part, that the estate of James Hawkins was to receive: (1) 55% of the $100,000 consulting fee due to him under a five year consulting agreement previously negotiated by the parties; and (2) a 2% equity interest in the post confirmation transferee of the assets of Tioga Park, LLC. In a Memorandum Agreement attached to the plan, it was further provided that the personal residence of James and Lori Hawkins in Colesville, NY would be conveyed to Asolare II in partial satisfaction of its secured claim. Asolare II was to then sell the property back to James and Lori Hawkins for $100,000. Southern Tier Acquisitions and Jeffrey Gural, per the Agreement, were to provide funding to James Hawkins to facilitate the purchase of his home and to satisfy certain priority tax claims.
On August 12, 2004, the United States Trustee moved to covert the pending cases to Chapter 7 or, in the alternative, appoint a Trustee pursuant to 11 U.S.C. § 1104. By Order dated September 16, 2004, the Bankruptcy Court appointed Appellee Paul Levine, Esq. as the Chapter 11 Trustee. Reserve Capital Corp. v. Levine, No. 6:05-CV-00743, 2007 WL 329179 at * 2 (N.D.N.Y. 2007). In November 2004, the Trustee filed a motion pursuant to Federal Rule of Bankruptcy Procedure 9019 to compromise certain terms of the Reserve Capital Chapter 11 settlement. In the motion, the Trustee sought to liquidate three sources of money to help fund the bankruptcy estates: (1) a present value lump sum payment of the estate's share of the consulting fee; (2) a payment in exchange for the estate's conveyance of their 2% equity interest in Tioga Downs, LLC; and (3) a payment on account of the agreement to fund money into the bankruptcy estates in recognition of priority tax claims.
On March 7, 2005 the Bankruptcy Court issued a Decision and Order, holding that the Trustee's compromise was fair and reasonable. It allowed the Trustee to enter into the settlements that he had proposed. Thereafter, an Order of the Bankruptcy Court, dated June 7, 2006, authorized the Trustee to appoint a real estate broker to sell the Hawkins' residence. As the Bankruptcy Court had determined that any rights Hawkins believed he had under the Memorandum Agreement predating the appointment of the Chapter 11 Trustee and approved Compromise should be addressed as a contract matter in state court, an eviction proceeding for the residence occupied by Hawkins was commenced before Hon. Jeffrey A. Tait, Justice of the New York State Supreme Court, Broome County; ultimately, in February 2008, summary judgment was granted in favor of the Trustee based upon findings that the Hawkins Family, LLC was the undisputed owner of the property, the Hawkins were tenants and that the terms of the Memorandum Agreement had never been performed.
The Debtors appealed the March 7, 2005 Decision and Order holding that the compromise was fair and reasonable. On January 30, 2007, this Court issued a Decision and Order, Reserve Capital Corp. v. Levine, No. 6:05-CV-00743, 2007 WL 329179 (N.D.N.Y. 2007), affirming in part and remanding to the Bankruptcy Court one specific issue for resolution: whether the March 7, 2005 Decision and Order was an impermissible post-confirmation modification. On July 6, 2007, on remand, the Bankruptcy Court held that the March 2005 Decision did not constitute a post-confirmation modification of the Amended Tioga Park Plan. This Court affirmed that ruling on March 13, 2009 and dismissed Hawkins' appeal. In that decision, the Court explained that the Appellant's appeal on the single modification issue did not present an opportunity to re-litigate settled aspects of his matter; particularly, where the "Court had already determined in its prior decision that the Debtors failed to raise any issue regarding the perfection of Asolare II's security interest, that there was no fraud on the part of Asolare II, that the Bankruptcy Court's refusal to remove the Trustee was proper, and that the Bankruptcy Court did not err in refusing to compel compliance with the consulting agreement." Decision and Order of March 13, 2009 at 6.
On January 13, 2009, this Court reviewed and dismissed Hawkins' additional appeals of the Bankruptcy Court's April 29, 2008 Order denying Appellant's motion to hold the Trustee in contempt of the Bankruptcy Court's order of confirmation of the plan of reorganization and July 8, 2008 Order approving the Trustee's application for an order approving the sale of the Colesville residence and granting a compromise to give the proceeds of the sale to Asolare II, LLC. The Court found that the sale was moot and that the Trustee's actions were taken with the approval of the Bankruptcy Court and only after he disclosed the nature of the underlying transactions, including the payment of attorneys' fees.
Atop this lengthy procedural background, the latest appeal by Hawkins comes before the Court because of the Bankruptcy Court's allocation of sanctions against both Hawkins, proceeding pro se in this appeal, and Craig Fritzsch, his attorney during all of the previous litigation, under Rule 9011. The basis of the sanctions, following an April 23, 2008 motion by the Trustee, was Hawkins' March 20, 2008 motion seeking to hold the Trustee in contempt of a pre-existing Order of the Bankruptcy Court. That contempt motion was heard and denied on April 22, 2008, and, as referenced above, this Court dismissed Hawkins' appeal of the Decision as without merit. It was the maintenance of this contempt motion by Hawkins and his attorney, despite a warning by Trustee to withdraw the motion, that, in the judgment of the Bankruptcy Court, warranted a sanction in an amount equal to the attorney's fees expended in connection with services rendered in defending the Contempt Motion. The sum came to $5742.50, of which two thirds were charged to the lawyer, Fritzsch, and one third to Hawkins.
In reviewing the rulings of a bankruptcy court, a district court applies the clearly erroneous standard to a bankruptcy court's conclusions of fact, and reviews de novo conclusions of law. Yarinsky v. Saratoga Springs Plastic Surgery, 310 B.R. 493, 498 (N.D.N.Y. 2004) (Hurd, J.) (citing In re Manville Forest Prods. Corp., 209 F.3d 125, 128 (2d Cir. 2000)); In re Petition of Bd. of Dirs. of Hopewell Int'l Inst. Ltd., 275 B.R. 699, 703 (Bankr. S.D.N.Y. 2002); FED. R. BANKR. P. 8013. Mixed questions of law and fact are reviewed de novo. Ernst & Young v. Bankr. Servs. (In re CBI Holding Co.), 311 B.R. 350, 360 (S.D.N.Y. 2004) (citing to In re Vebeliunas, 332 F.3d 85, 90 (2d Cir. 2003); In re AroChem Corp., 176 F.3d 610, 620 (2d Cir. 1999)). "A bankruptcy court's decision regarding an award of fees and sanctions is subject to review for an abuse of discretion." Yarinsky, 310 B.R. at 498; Cooter & Gell v. Artmarx Corp., 496 U.S. 384, 405 (1990) (Rule 11 sanctions are subject to review for abuse of discretion.). Legal errors, of course, constitute an abuse of discretion. Mareno v. Rowe, 910 F.2d 1043, 1047 (2d Cir. 1990)
The question before the Court is whether the Bankruptcy Court's decision that sanctions should issue against Hawkins and his lawyer, as well as its determination of the amount and allocation of those sanctions, was a proper exercise of its discretion. Rule 9011 allows and directs a bankruptcy court to impose sanctions upon an attorney or party who signs and submits a pleading or other motion, with limited exceptions, that he or she should know, after reasonable inquiry, contains misstatements, baseless contentions or frivolous arguments or is done with an improper purpose. In relevant part, it provides:
b) Representations to the court. By presenting to the court (whether by signing, filing, submitting, or later advocating) a petition, pleading, written motion, or other paper, an attorney or unrepresented party is certifying that to the best of the person's knowledge, information, ...