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Dahiya v. Debra Kramer As Trutee of The Estate of Shahara Khan

United States District Court, E.D. New York

March 27, 2014

KARAMVIR DAHIYA and DAHIYA LAW OFFICES LLC, Appellants,
v.
DEBRA KRAMER AS TRUTEE OF THE ESTATE OF SHAHARA KHAN, Appellee.

MEMORANDUM AND ORDER

DORA L. IRIZARRY, District Judge.

Karamvir Dahiya and Dahiya Law Offices LLC (collectively, "Dahiya, " or "Appellant") appeal from the March 11, 2013 Order and accompanying memorandum decision of the Honorable Elizabeth S. Stong, United States Bankruptcy Judge for the Eastern District of New York, in In re Kahn, Docket No. 11-AP-1520 (ESS), an adversary proceeding pending in the Bankruptcy Court.[1] Judge Stong's Order granted a motion for sanctions brought by Debra Kramer (the "Trustee") against Dahiya. In re Khan, 488 B.R. 515 (Bankr. E.D.N.Y. 2013). For the reasons set forth below, Dahiya's appeal is denied.[2]

BACKGROUND

Familiarity with the background of this case, as summarized in this Court's memorandum and order on Dahiya's motion to withdraw the reference to the Bankruptcy Court of the sanctions motion, is assumed. See Kramer v. Mahia, 2013 WL 1629254, at *1-2 (E.D.N.Y. Apr. 15, 2013). Thus, the Court relates only the facts relevant to the present appeal.

On December 3, 2011, Debra Kramer, in her role as trustee of the bankruptcy estate of Shahara Khan (the "Debtor"), filed an adversary proceeding in Bankruptcy Court to recover alleged fraudulent conveyances from Tozammel H. Mahia ("Mahia" or "Defendant"), the Debtor's son. (Compl., Docket No. 11-AP-1520, [3] Doc. Entry No. 1.) The Trustee alleged that Defendant received all of the net proceeds of the sale of real property jointly owned by Defendant, the Debtor, and a third party. ( Id. ) After missing the deadline to answer the Trustee's complaint, Defendant retained Dahiya to represent him in the adversary proceeding. (Scheduling Ord., Docket No. 11-AP-1520, Doc. Entry No. 5.) The Bankruptcy Court then granted Defendant an extension of time, nunc pro tunc, to January 31, 2012, to file an answer. ( Id. )

On February 7, 2013, one week after the extended deadline to answer the complaint had passed, Dahiya filed an answer on behalf of Defendant, which brought two counterclaims against the Trustee and demanded a jury trial. (Ans., Docket No. 11-AP-1520, Doc. Entry No. 8.) The Defendant's counterclaims alleged abuse of process and "constitutional torts" (the "Counterclaims"). ( Id. at 4-6.) Specifically, Defendant claimed that the Trustee failed to investigate properly before bringing the adversary proceeding, and acted "deliberately, maliciously, and oppressively" to intimidate and injure the Debtor's family. ( Id. ) Defendant requested: 1) an injunction barring the Trustee from bringing actions against a debtor's family unless she first demonstrates probable cause; 2) that the requirement to show probable cause be incorporated into the Local Bankruptcy Rules for this District; and 3) that the United States Trustee Office investigate whether lawsuits by panel trustees are abusive. ( Id. at 6.)

On March 24, 2012, the Trustee responded to the Counterclaims by moving for sanctions against Dahiya pursuant to 28 U.S.C. § 1927 and 11 U.S.C. § 105 (the "Sanctions Motion"). (Sanctions Motion, Docket No. 11-AP-1520, Doc. Entry No. 15.) The Trustee asserted that the Counterclaims were baseless, made in bad faith, protracted the adversary proceeding, and caused her to incur additional legal fees and increased malpractice and liability insurance premiums. ( Id. ) Between April 2012 and November 2012, the Bankruptcy Court granted Dahiya numerous requests for adjournments of the evidentiary hearing on the Sanctions Motion and encouraged Dahiya to obtain counsel. Dahiya missed several deadlines to file prehearing statements on the Sanctions Motion, hired and fired counsel, and reneged on a tentative settlement that the parties had placed on the record. When Dahiya advised the Bankruptcy Court that he was having personal issues and was unable to defend himself, the Bankruptcy Court emphasized the serious nature of the sanctions motion and implored him to seek help from a bar associations' lawyer's assistance program and retain counsel. ( See Transcript of June 13, 2012 Bankruptcy Court Hearing ("6/13/12 Tr.") at 23:25-24:9, 26:18-24, 38:19-25, Docket No. 12-MC-794, [4] Doc. Entry No. 9; Docket No. 12-MC-832, [5] Doc. Entry No. 9.) Nowhere in the record does it appear that Dahiya pursued the Bankruptcy Court's suggestions.

On November 19, 2012, Dahiya moved this Court to withdraw the reference to the Bankruptcy Court of the Sanctions Motion. (Docket No. 12-MC-794, Doc. Entry No. 1.) On November 30, 2012, the Bankruptcy Court held an evidentiary hearing on the Sanctions Motion, at which Dahiya appeared but refused to participate. (Transcript of November 30, 2012 Bankruptcy Court Hearing ("11/30/12 Tr."), Docket No. 11-AP-1520, Doc. Entry No. 68.) On December 5, 2012, Dahiya filed a separate motion to withdraw the reference to the Bankruptcy Court of the adversary proceeding itself. (Docket No. 12-MC-832, Doc. Entry No. 1.)

On March 11, 2013, the Bankruptcy Court granted the Sanctions Motion (the "Sanctions Order"). See In re Khan, 488 B.R. 515. The Bankruptcy Court found that Dahiya had acted in bad faith by bringing Counterclaims against the Trustee that lacked a colorable basis and imposed sanctions against Dahiya, including a fine in the amount of $15, 000. ( Id. ) The sanctions were to be paid to the Trustee in three installments of $5, 000, to be received by April 15, 2013, May 15, 2013, and June 17, 2013. ( Id. )

On the evening of April 10, 2013 - two business days before the first sanctions payment was due and thirty days after the issuance of the Sanctions Order - Dahiya filed an Order to Show Cause in this Court seeking to enjoin the Sanctions Order pending resolution of the withdrawal of reference motions. (Docket No. 12-MC-794, Doc. Entry No. 11.) On April 15, 2013, this Court denied the motion to withdraw the reference of the Sanctions Motion, the motion to withdraw the reference of the adversary proceeding, and the motion to enjoin the Sanctions Order. (Docket No. 12-MC-794, Doc. Entry No. 14; Docket No. 12-MC-832, Doc. Entry No. 10.)

On May 24, 2013, Dahiya filed this appeal of the Sanctions Order. Appellant claims that the Bankruptcy Court lacked jurisdiction over the Sanctions Motion and that, even if the Bankruptcy Court had jurisdiction, the imposition of sanctions against Dahiya was unwarranted.

DISCUSSION

I. Standard of Review

A district court reviews a bankruptcy court's findings of fact for clear error and reviews its legal conclusions de novo. Overbaugh v. Household Bank N.A. ( In re Overbaugh ), 559 F.3d 125, 129 (2d Cir. 2009); Fed.R.Bankr.P. 8013. "A bankruptcy court's award of sanctions will not be set aside by [the reviewing court] in the absence of an abuse of discretion." In re Kalikow, 602 F.3d 82, 91 (2d Cir. 2010). A bankruptcy court abuses its discretion where "its decision (1) rests on an error of law (such as application of the wrong legal principle) or a clearly erroneous factual finding, or (2) cannot be located within the range of permissible decisions, even if it is not necessarily the product of a legal error or a clearly erroneous factual finding." Schwartz v. Geltzer ( In re Smith ), 507 F.3d 64, 73 (2d Cir. 2007) (quoting Schwartz v. Aquatic Dev. Grp., Inc. ( In re Aquatic Dev. Grp., Inc. ), 352 F.3d 671, 678 (2d Cir. 2003) (internal quotation marks and brackets omitted)).

II. Application

A. Authority to Issue Sanctions

The Bankruptcy Court found that it could impose sanctions under both its inherent authority and 28 U.S.C. § 1927 ("Section 1927"). In re Khan, 488 B.R. 515, 528 (Bankr. E.D.N.Y. 2013). Dahiya claims that: 1) the Bankruptcy Court does not possess "inherent authority" to issue sanctions because it is not an Article III court and 2) it is not authorized to impose sanctions under Section 1927 because it is not a "court of the United States." Since the Bankruptcy Court's ...


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