In re Jacqueline C. Melcher

Filing 15

ORDER by Judge Ronald M Whyte granting 1 Motion to Withdraw, granting sanctions but deferring calculation of amount (rmwlc2, COURT STAFF) (Filed on 10/1/2014)

1
2
3
4
5
6
7
8

UNITED STATES DISTRICT COURT

9

NORTHERN DISTRICT OF CALIFORNIA

10
United States District Court
For the Northern District of California

SAN JOSE DIVISION
11
Case No. C-13-04930-RMW

12
13

In re Jacqueline C. Melcher

14
15

ORDER GRANTING MOTION TO
WITHDRAW REFERENCE;
GRANTING SANCTIONS BUT
DEFERRING CALCULATION OF
AMOUNT

16
17

[Re Docket No. 1]

18
John W. Richardson, Trustee in Bankruptcy (the “Trustee”) of the estate of Jacqueline

19
20

Melcher, filed a motion for an order withdrawing the reference to the Bankruptcy Court under 28

21

U.S.C. § 157(d) for consideration by the District Court of the Trustee’s motion under 28 U.S.C.

22

§ 1927 for sanctions against Ms. Melcher. Dkt. No. 1. For the reasons explained below, the court

23

grants the motion to withdraw the reference and grants the motion for sanctions.
I. Background 1

24
25

Ms. Melcher filed a Chapter 11 petition in June 2001, which was converted to a Chapter 7 2

26

case in September 2008. From September 15, 2008 through April 15, 2013, the bankruptcy docket

27
1

28

Unless otherwise noted, the court relies on the order of the Bankruptcy Appellate Panel describing the background of
the bankruptcy proceedings in this case. In re Jacqueline Melcher, B.A.P. No. NC-13-1168-DjuKi, 2014 WL 1410235
(April 11, 2014) (“BAP Order”) (also filed as Dkt. No. 13).
ORDER
Case No. C-13-04930-RMW
-1LM

1

contains more than 1,700 entries and “reflects the great difficultly Jacqueline had understanding the

2

role of the Trustee and her duties as a debtor in chapter 7. Jacqueline opposed most substantive

3

action of the Trustee to liquidate estate property.” BAP Order at 5.

4

These opposition tactics included actively interfering with the Trustee’s attempts to sell real

5

property in Massachusetts, objecting to the real estate broker the Trustee hired, and objecting to the

6

selling price proposed for the properties. The bankruptcy court rejected Ms. Melcher’s concerns,

7

and her appeals of the bankruptcy court’s decisions were dismissed for lack of prosecution. Id. at 7-

8

8 (Stonewall Property), 9-10 (Moshup Trail Property). Ms. Melcher also refused to remove personal

9

property in the homes the Trustee was attempting to sell. Id. at 8, 10-11. All of these actions caused

United States District Court
For the Northern District of California

10

the Trustee to incur unnecessary legal fees relating to his administration of the bankruptcy estate.

11

Ms. Melcher also filed numerous motions to compel, motions for reconsideration, and

12

appeals related to the Trustee’s administration of the estate, all of which were denied on the merits,

13

or dismissed as untimely in the case of the appeals. These are “but some of the examples of

14

Jacqueline’s litigation tenacity as reflected on the docket.” Id. at 13.

15

Before the bankruptcy court, the Trustee requested that Ms. Melcher be declared a vexatious

16

litigant or that some restrictions be placed on her filings. The Trustee filed his first “Notice and

17

Motion for Vexatious Litigant Order” on April 24, 2009. The bankruptcy court denied the motion

18

because Ms. Melcher’s filings were “not patently without merit” and it was not clear that the

19

excessive pleadings were taking funds from creditors in the case. Id. at 14. On September 15, 2010

20

the Trustee renewed his motion, and the bankruptcy court again denied the motion but determined

21

that Ms. Melcher was barred from filing pleadings in other courts. Id. at 16 (Ms. Melcher was

22

involved in various state court litigations). The Trustee then filed a Standing Motion, requesting the

23

bankruptcy court to determine that Ms. Melcher had no standing to interfere with the Trustee’s

24

administration of the estate, as the estate was insolvent and thus she had no pecuniary interest in it.

25

Id. at 18-19.

26
27
2

28

In the context of the Chapter 11 proceedings, Ms. Melcher brought an appeal to the Ninth Circuit, which determined
that she was “abusing the bankruptcy process.” BAP Order at 3, citing Melcher v. Estate of Terrence P. Melcher (In re
Melcher), Slip Op. Case No. 06-16412 (9th Cir. April 30, 2008) at 3.
ORDER
Case No. C-13-04930-RMW
-2LM

1

The bankruptcy court denied the motion, and on appeal the Bankruptcy Appellate Panel

2

vacated the decision, finding that “Jacqueline’s multiple pleadings were frivolous and were brought

3

with the intent to harass the parties.” Id. at 25. Additionally, the Bankruptcy Appellate Panel

4

concluded that “[t]here is no question from the record before us that the [primary creditor] has been

5

impacted seriously by the diminution of the bankruptcy estate, as have the Trustee and his counsel

6

in light of the fees and expenses they have incurred in attempting to meet their statutory duties to

7

administer the bankruptcy estate.” Id. at 26. The Bankruptcy Appellate Panel then vacated and

8

remanded the Standing Motion to the bankruptcy court to “implement an appropriate prefiling order

9

to address the outrageous conduct of Jacqueline evidenced by the docket and her voluminous

United States District Court
For the Northern District of California

10
11

filings.” Id. at 28.
Before the Bankruptcy Appellate Panel issued its decision vacating the denial of the

12

Standing Motion, the Trustee filed the current motion to withdraw the reference and motion for

13

sanctions. After briefing was complete on the current motions, the BAP Order was issued.

14

In the current motion for sanctions, the Trustee estimates that Ms. Melcher’s litigation

15

behavior has “caused at least 1,300 hours in unnecessary work at a cost of $688,000 to the

16

bankruptcy estate and its creditors.” Dkt. No. 1 at 5. The Trustee’s motion details further vexatious

17

litigation conduct, including numerous objections, motions for reconsideration, and other

18

unnecessary filings made by Ms. Melcher in the bankruptcy case.

19

II. Analysis

20

A. Permissive Withdrawal

21

Under 28 U.S.C. § 157(d), “the district court may withdraw, in whole or in part, any case or

22

proceeding . . . on timely motion of any party, for cause shown.” In making the “cause”

23

determination, a district court should consider “the efficient use of judicial resources, the delay and

24

costs to the parties, uniformity of bankruptcy administration, the prevention of forum shopping, and

25

other related factors.” Security Farms v. Int’l Brotherhood of Teamsters, Chauffers,

26

Whearhousemen & Helpers, 124 F.3d 999, 1008 (9th Cir.1997).

27
28

Here, the Security Farms factors favor withdrawing the reference. First, it is questionable
whether a bankruptcy court within in the Ninth Circuit has the authority to award sanctions under 28
ORDER
Case No. C-13-04930-RMW
LM

-3-

1

U.S.C. § 1927. See In re Perroton, 958 F.2d 889 (9th Cir. 1992) (finding that bankruptcy courts are

2

not “courts of the United States” under 28 U.S.C. § 451); In re Sandoval, 186 B.R. 490, 495-96 (9th

3

Cir. B.A.P. 1995) (applying Perroton’s reasoning and concluding that bankruptcy court’s lack the

4

authority to award sanctions under 28 U.S.C. § 1927); but see See In re Peoro, 793 F.2d 1048 (9th

5

Cir.1986) (affirming bankruptcy and district courts’ award of § 1927 sanctions without comment on

6

authority to award sanctions). Because Perroton and Sandoval more directly address the question of

7

a bankruptcy court’s authority to award sanctions than Peoro, the court follows the analysis in

8

Perroton, which leads to the conclusion that a bankruptcy court lacks authority to impose sanctions

9

under § 1927. See also In re Courtesy Inns, Ltd., Inc., 40 F.3d 1084 (10th Cir. 1994) (relying on

United States District Court
For the Northern District of California

10

Perroton to conclude that bankruptcy courts could not award § 1927 sanctions).

11

Because the bankruptcy court cannot impose § 1927 sanctions, efficiency of judicial

12

resources is best served by this court deciding the motion for sanctions in the first instance. Any

13

order by the bankruptcy court would almost certainly be appealed here, either by the Trustee or by

14

Ms. Melcher. In addition, the court is already familiar with Ms. Melcher and the lengthy history of

15

her bankruptcy proceedings. See Dkt. No. 1 at 3 (noting that this court has considered 11 appeals

16

from Ms. Melcher’s chapter 7 case in the last four years). Although the court does have some

17

concern regarding forum shopping, as the bankruptcy court twice denied the Trustee’s vexatious

18

litigant motions, the intervening decision of the Bankruptcy Appellate Panel effectively overruling

19

the vexatious litigant determination mitigates those concerns.
Ms. Melcher’s oppositions 3 to the motion to withdraw, Dkt. Nos. 10 and 11, do not

20
21

substantively contest withdrawing the reference, but instead address the merits of the sanctions

22

motion. Accordingly, because the Security Farms factors favor withdrawal of the reference, the

23

court grants the motion to withdraw.

24

B. Sanctions under 28 U.S.C. § 1927
Any attorney or other person admitted to conduct cases in any court of the
United States or any Territory thereof who so multiplies the proceedings
in any case unreasonably and vexatiously may be required by the court to

25
26
27
3

28

The court granted Ms. Melcher three extensions of time to file an opposition, with the final extension of time requiring
an opposition by February 14, 2014. Dkt. No. 7. Ms. Melcher filed an opposition on February 14, 2014, Dkt. No. 10,
and then filed a “correction to opposition” on February 18, 2014, Dkt. No. 11.
ORDER
Case No. C-13-04930-RMW
-4LM

satisfy personally the excess costs, expenses, and attorneys’ fees
reasonably incurred because of such conduct.

1
2
3
4

28 U.S.C. § 1927. In the Ninth Circuit, sanctions under § 1927 may be awarded against pro se
litigants. See Wages v. I.R.S., 915 F.2d 1230, 1235-36 (9th Cir. 1990); but see Sassower v. Field,
973 F.2d 75, 80 (2d Cir. 1992) (§ 1927 sanctions could not be applied against pro se litigant).

5
6
7
8
9

United States District Court
For the Northern District of California

10
11
12
13
14
15

The Bankruptcy Appellate Panel found Ms. Melcher’s conduct clearly unreasonable and
vexatious. BAP Order at 25. Reviewing the record presented here, this court reaches the same
conclusion. Ms. Melcher has filed hundreds of pleadings in the Chapter 7 case, requiring the Trustee
to respond with his own filings. Dkt. No. 1-7, 8 (Exs. E, F). Ms. Melcher continues to improperly
raise issues that have been finally decided through appeals either to this court or the Ninth Circuit.
See Dkt. No. 12 (Reply). The repeated filings and unrelenting interference with the Trustee have
been both reckless and frivolous, justifying an award of sanctions under § 1927. See In re Keegan
Mgmt. Co., Sec. Litig., 78 F.3d 431, 436 (9th Cir. 1996) (“For sanctions to apply [under § 1927], if a
filing is submitted recklessly, it must be frivolous, while if it is not frivolous, it must be intended to
harass. Thus, while it is true that reckless filings may be sanctioned, and nonfrivolous filings may
also be sanctioned, reckless nonfrivolous filings, without more, may not be sanctioned.”).

16
17
18
19
20
21
22
23
24
25
26

The Trustee requests $688,000 as costs incurred as a result of Ms. Melcher’s vexatious
conduct. Dkt. No. 1 at 28; Dkt. No. 1-5 (Maher Decl.). The Trustee states that $498,000 “has been
approved by the Bankruptcy Court on an interim basis.” Id. It is unclear whether the $498,000 in
approved fees is all fees approved as of May 31, 2011 or only fees related to responding to Ms.
Melcher’s frivolous conduct. See, e.g., Dkt. No. 1-5 (Maher Decl.) at ¶ 45 (stating that attorney for
Trustee incurred $178,263 in costs to the estate, but not all was approved); ¶ 65 (“A substantial
amount of the fees described in this declaration have been approved by the Bankruptcy Court”). The
Trustee acknowledges that “[t]he excess cost of approximately $688,000 is a large amount of money
and is no doubt beyond the Debtor’s means to pay.” Id. Ms. Melcher’s oppositions do not
specifically contest the reasonableness of the Trustee’s fees, only the substance of the Trustee’s
positions in the Chapter 7 case. 4

27
28

4

Ms. Melcher does state “the trustee and his attorney have . . . created needless delay and unnecessary legal fees”
but does not point to any specific actions that were unnecessary. Dkt. No. 10 at 13-14.

ORDER
Case No. C-13-04930-RMW
LM

-5-

1

In this case, the attorney’s fees incurred by the Trustee may be paid by the bankruptcy estate,

2

to the expense of creditors. This suggests that sanctions should be awarded to compensate the

3

victims of Ms. Melcher’s litigation abuses. See Hamilton v. Boise Cascade Express, 519 F.3d 1197,

4

1205 (10th Cir. 2008) (“[T]he text of § 1927 . . . indicates a purpose to compensate victims of

5

abusive litigation practices, not to deter and punish offenders.”). Additionally, if sanctions are

6

awarded, they may be an asset that can be assigned to a creditor as partial satisfaction of the money

7

owed. An award of sanctions will also, hopefully, deter future litigation misconduct by Ms.

8

Melcher, knowing that she will be personally liable for the fees incurred as a result of any future

9

frivolous, harassing filings. See Haynes v. City & Cnty. of San Francisco, 688 F.3d 984, 987-88 (9th

United States District Court
For the Northern District of California

10

Cir. 2012) (identifying purpose of § 1927 sanctions as both to compensate and deter). The

11

Bankruptcy Appellate Panel has ordered the bankruptcy court to impose an appropriate pre-filing

12

restriction on Ms. Melcher, which should also serve to stop her behavior in the future. BAP Order at

13

28. Therefore, sanctions under § 1927 are justified in this case.

14

At this point, the court will not award a specific amount of sanctions because the litigation is

15

ongoing and more unnecessary fees may be incurred in the future. Salstrom v. Citicorp Credit

16

Servs., Inc., 74 F.3d 183, 185 (9th Cir. 1996) (approving deferring award of specific amount of

17

sanctions until conclusion of the case). The court also notes that the bankruptcy court does have the

18

power to award sanctions under its own inherent authority. See Caldwell v. Unified Capital Corp.

19

(In re Rainbow Magazine, Inc.), 77 F.3d 278, 284 (9th Cir. 1996); In re Lehtinen, 564 F.3d 1052,

20

1058 (9th Cir. 2009). The Trustee may file a motion for determination of the amount sanctions in

21

this proceeding at the conclusion of the bankruptcy case.

22

III. Order

23

For the reasons explained above, the court grants the Trustee’s motion to withdraw reference

24

and grants the motion for sanctions. The Trustee shall file a motion for determination of the final

25

amount of sanctions at the conclusion of the bankruptcy case.

26
27

Dated: October 1, 2014

_________________________________
Ronald M. Whyte
United States District Judge

28
ORDER
Case No. C-13-04930-RMW
LM

-6-