In Re Robert W. Beuchel
Filing
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ORDER AFFIRMING Sanctions Ordered By the Bankruptcy Court. The Court Affirms the sanctions ordered by the Bankruptcy Court. The Clerk of Court shall close the case. Signed by Judge Gonzalo P. Curiel on 6/23/2015. (srm)
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UNITED STATES DISTRICT COURT
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SOUTHERN DISTRICT OF CALIFORNIA
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IN RE ROBERT W. BUECHEL AND
CARI DONAHUE,
CASE NO. 14cv2179-GPC(NLS)
Appellants,
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v.
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Bankruptcy Case No. 14-4191-LT
ORDER AFFIRMING SANCTIONS
ORDERED BY THE
BANKRUPTCY COURT
THOMAS H. BILLINGSLEA, JR.,
CHAPTER 13 TRUSTEE,
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Appellee.
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This case comes before the Court on appeal from an order of the Bankruptcy
Court for the Southern District of California (“Bankruptcy Court”) in a Chapter 13
bankruptcy proceeding. On September 12, 2014, Appellants, Debtor Robert W.
Buechel and Attorney Cari Donahue, filed notice with the Court appealing the
Bankruptcy Court’s imposition of sanctions under its inherent power under 11 U.S.C.
§ 105(a). Based on the reasoning below, the Court AFFIRMS the sanctions ordered by
the Bankruptcy Court.
Background
This appeal arose from a voluntary Chapter 13 bankruptcy petition filed by
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1 Appellants on May 29, 2014. (See S.D. Cal. Bankr. Case No. 14-04191-LT13.1) It was
2 not Appellants’ first bankruptcy petition.
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On June 29, 2010, Appellant Debtor and his wife filed a voluntary Chapter 11
4 bankruptcy petition. (S.D. Cal. Bankr. Case No. 10-11371-LT7.) In response, Appellee
5 Anne Dierickx, one of the creditors involved, initiated an adversary proceeding on June
6 15, 2011, to determine the dischargeability of the debt owed by Appellant Debtor and
7 his wife to her. (S.D. Cal. Bankr. Case No. 11-90294-LT, Dkt. No. 1.) On February 13,
8 2012, the bankruptcy court granted Appellant Debtor’s motion to convert the Chapter
9 11 bankruptcy case into a Chapter 7 bankruptcy case. (S.D. Cal. Bankr. Case No. 1010 11371-LT7, Dkt. No. 230.) On November 27, 2012, the Bankruptcy Court closed the
11 Chapter 7 case and discharged the debtor, but the adversary proceeding continued. (See
12 S.D. Cal. Bankr. Case No. 10-11371-LT7, Dkt. No. 253.) Appellant Attorney
13 represented Appellant Debtor in the adversary proceeding.2
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On July 18, 2013, Appellant Debtor filed his first voluntary Chapter 13 petition.
15 (S.D. Cal. Bankr. Case No. 13-07298-LT13, Dkt. No. 1.) On October 10, 2013, the
16 Bankruptcy Court dismissed the case without prejudice. (S.D. Cal. Bankr. Case No. 1317 07298-LT13, Dkt. No. 25.) Appellant Attorney also represented Appellant Debtor in
18 that matter.
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On May 29, 2014, Appellant Debtor filed his second voluntary Chapter 13
20 bankruptcy petition, once again represented by Appellant Attorney. (Dkt. No. 13-1,
21 Appellants Record on Appeal (“ROA”), Ex. 1.) On June 4, 2014, Appellants filed notice
22 of the Chapter 13 petition in the adversary proceeding. (Dkt. No. 14-2, Appellee ROA
23 No. 13.) The notice asserted that the “filing of the [Chapter 13 petition] automatically
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All bankruptcy cases referred to in this order were held before the Honorable Laura S. Taylor
in the Bankruptcy Court for the Southern District of California.
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Appellant Attorney did not represent Appellant Debtor from the outset of the adversary
proceeding. Appellant Attorney first appeared on the case docket as Appellant Debtor’s attorney on
July 9, 2013. (See S.D. Cal. Bankr. Case No. 11-90294-LT, Dkt. No. 43.)
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1 stays collection and actions against the debtors, the debtors’ property, and certain
2 codebtors pursuant to Bankruptcy Code § 362(a).” (Id.)
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On June 5, 2014, the Bankruptcy Court issued an Order to Show Cause Re
4 Dismissal of Chapter 13 Case and Sanctions (“OSC”). (Dkt. No. 13-4, Appellants ROA,
5 Ex. 4.) The OSC directed Appellants to appear before the Bankruptcy Court and show
6 cause as to why the Chapter 13 case should not be dismissed as a bad faith filing, and
7 why Appellants should not be sanctioned under 11 U.S.C. § 105(a) and the Bankruptcy
8 Court’s inherent authority. (Id.) The Bankruptcy Court explicitly “directed [Appellants]
9 to appear” before the Bankruptcy Court on June 13, 2014, and set June 11, 2014, as the
10 deadline for filing documents in support of or in opposition to the OSC. (Id.)
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Appellants did not submit any documents in opposition to the OSC, nor did they
12 appear at the hearing. (See Dkt. No. 13-5, Appellants ROA, Ex. 5.) Instead, on June 12,
13 2014, during a telephonic conference in the adversary proceeding, attorney Laurence
14 Haines appeared on behalf of Appellant Debtor and requested a continuance of the OSC
15 hearing. (Id.) The Bankruptcy Court continued the OSC hearing to July 18, 2014. (Id.)
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On July 16, 2014, two day before the continued OSC hearing, Appellants
17 submitted a request for dismissal of the Chapter 13 bankruptcy case. (Dkt. No. 13-6,
18 Appellants ROA, Ex. 6.)
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On July 18, 2014, Appellants did not appear at the continued OSC hearing before
20 the Bankruptcy Court. Instead, Vanessa Kajy appeared as the attorney for Appellant
21 Debtor. (Dkt. No. 14-2, Appellee ROA No. 17.) The Bankruptcy Court dismissed the
22 Chapter 13 case, but specifically retained jurisdiction to assess sanctions against
23 Appellants regarding the OSC. (Id.) The Bankruptcy Court continued the OSC hearing
24 to August 27, 2014. (Dkt. No. 13-7, Appellants ROA, Ex. 7.) The Bankruptcy Court
25 informed Appellants that Appellant Debtor had waived his right to file a written
26 response, but noted that Appellants “must appear at the continued hearing.” (Id.)
27 Additionally, the Bankruptcy Court put Appellants on notice that it would “further
28 consider sanctions.” (Id.)
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On August 27, 2014, the Bankruptcy Court held the final OSC hearing.
2 Appellants did not appear personally. (See S.D. Cal. Bankr. Case No. 14-04191-LT13,
3 Dkt. No. 69.) Laurence Haines appeared as the attorney for Appellant Debtor. (Id.) In
4 the Order on Order to Show Cause Re Dismissal of Chapter 13 Case and Sanctions
5 (“Order on OSC”), the Bankruptcy Court concluded that Appellants “acted in bad faith
6 and engaged in willful misconduct,” and therefore found sanctions appropriate. (Dkt.
7 No. 13-8, Appellants ROA, Ex. 8.) The Bankruptcy Court sanctioned Appellants under
8 its inherent authority pursuant to 11 U.S.C. § 105(a). (Id.) The Bankruptcy Court
9 ordered compensatory sanctions in the amount of $2,133.00 against Appellants, jointly
10 and severally, payable to Appellee Dierickx. (Id.) The Bankruptcy Court also stated that,
11 as a sanction against Appellant Attorney, it would “report the facts related to this OSC
12 to the California State Bar and to the Standing Committee on Attorney Discipline of the
13 United States District Court for the Southern District of California[.]” (Id.)
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On September 12, 2014, Appellants filed notice of appeal. (Dkt. No. 1.) On
15 January 30, 2015, Appellants submitted an opening brief. (Dkt. No. 12.) On February
16 3, 2015, Appellants submitted a designation of record on appeal and exhibits in support
17 of their opening brief. (Dkt. No. 13.) On February 26, 2015, Appellee Thomas H.
18 Billingslea, Chapter 13 Trustee (“Appellee Trustee”) submitted a responsive brief,
19 designation of record on appeal, and record on appeal in support of that brief. (Dkt. No.
20 14.) On February 27, 2015, Appellee Dierickx submitted a joinder to Appellee Trustee’s
21 responsive brief and related papers. (Dkt. No. 15.) On April 27, 2015, Appellants
22 submitted a reply brief. (Dkt. No. 18.)
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Discussion
On appeal, Appellants challenge the compensatory and coercive3 sanctions
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While the Bankruptcy Court used the term “coercive sanction” to refer to reporting Appellant
Attorney to the California State Bar and to the Committee on Attorney Discipline of the United States
District Court for the Southern District of California, the sanction acts more as a disciplinary sanction.
(See Dkt. No. 13-8, Appellants ROA, Ex. 8 at 5.) A coercive sanction is, “by [its] very nature[,]
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1 imposed by the Bankruptcy Court.4 (Dkt. No. 12.)
2 A.
Jurisdiction and Standard of Review
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The Court has jurisdiction to review appeals from the Bankruptcy Court under 28
4 U.S.C. § 158(a). The Court reviews the Bankruptcy Court’s award of sanctions for an
5 abuse of discretion. Hale v. U.S. Trustee, 509 F.3d 1139, 1146 (9th Cir. 2007). Under
6 the abuse of discretion standard, the court will not reverse unless it is “definitely and
7 firmly convinced that the bankruptcy court committed a clear error of judgment.” In re
8 Tennant, 318 B.R. 860, 866 (B.A.P. 9th Cir. 2004) (citation omitted). Due process is a
9 question of law that is reviewed de novo. Miller v. Cardinale (In re DeVille), 280 B.R.
10 483, 492 (B.A.P. 9th Cir. 2002), aff’d, 361 F.3d 539 (9th Cir. 2004).
11 B.
Bankruptcy Court’s Inherent Power Pursuant to 11 U.S.C. § 105(a)
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Appellants argue that the Bankruptcy Court’s Order on OSC imposing sanctions
13 did not comport with due process, and request that the Order on OSC be vacated. (Dkt.
14 No. 12 at 15, 18.) Appellee contends that this appeal should be dismissed and is without
15 merit because the Bankruptcy Court correctly used its inherent powers to sanction
16 Appellants after they failed to respond to the OSC. (Dkt. No. 14 at 13.)
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Under 11 U.S.C. § 105(a), the Bankruptcy Court may “sua sponte, tak[e] any
18 action or mak[e] any determination necessary or appropriate to enforce or implement
19 court orders . . . or to prevent an abuse of process.” A court may impose sanctions in the
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conditional,” and thus a sanction that “operates whether or not a party remains in violation of the court
order” is not coercive. Whittaker Corp. v. Execuiar Corp., 953 F.2d 510, 517 (9th Cir. 1992) (internal
quotation marks and citations omitted). Because this sanction as to Appellant Attorney was not
conditional, the Court will refer to it as a disciplinary sanction.
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Appellants also raise the issue of “[w]hether the Bankruptcy Court erred by considering late
responses to the OSC filed by [Appellee Dierickx]. . . after the cutoff time of 4:00 PM on June 11,
2014 pursuant to the [OSC.]” (Dkt. No. 12 at 6.) The Court notes that Appellee Dierickx submitted
a response to the OSC at 4:00:08 PM on June 11, 2014. (Dkt. No. 14-2, Appellee ROA No. 14.) The
Court feels that an eight second delay is not substantial enough to have prejudiced Appellants.
Regardless, Appellants present no legal support, nor do Appellants address the filing time in the
substantive portion of their brief; therefore the Court will not address this issue.
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1 form of attorney’s fees or disciplining attorneys. See Chambers v. Nasco, Inc., 501 U.S.
2 32, 43, 45-46 (1991). The Ninth Circuit Court of Appeals has held that, through 11
3 U.S.C. § 105(a), the Bankruptcy Court has the same inherent power to sanction that
4 Chambers acknowledged for Article III courts. Caldwell v. Unified Capital Corp. (In re
5 Rainbow Magazine, Inc.), 77 F.3d 278, 284 (9th Cir. 1996). When a bankruptcy court
6 invokes its inherent power to sanction, due process requires that the parties be given
7 “sufficient, advance notice” that they stand accused of bad faith and of the alleged
8 sanctionable conduct. In re DeVille, 361 F.3d 539, 549 (9th Cir. 2004).
9 C.
Due Process
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i.
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Imposing sanctions under the Bankruptcy Court’s inherent power “requires a
Bad Faith
12 finding of bad faith.” In re DeVille, 361 F.3d at 548 (citing Chambers, 501 U.S. at 49.).
13 This finding must be “explicit.” Knupfer v. Lindblade (In re Dyer), 322 F.3d 1178, 1196
14 (9th Cir. 2003).
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Appellants assert that the Bankruptcy Court did not make an explicit finding of
16 bad faith before imposing sanctions against Appellants. (See Dkt. No. 12 at 6, 15-17.)
17 Appellants instead conclude that the Bankruptcy Court made an “improper [bad faith]
18 purpose inference[.]” (Id. at 17.) Appellee argues that the Bankruptcy Court explicitly
19 found that Appellants acted in bad faith. (Dkt. No. 14 at 12.)
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In the Order on OSC, the Bankruptcy Court made an explicit finding of bad faith.
21 (Dkt. No. 13-8, Appellants ROA, Ex. 8.) The Bankruptcy Court found that Appellants
22 filed the Chapter 13 case in bad faith in order to improperly delay the adversary
23 proceeding. (Id.) In particular, Appellants’ timing in providing Appellee with notice of
24 the Chapter 13 case and stay the day before a default prove up hearing in the adversary
25 proceeding, coupled with Appellants’ subsequent request for a voluntary dismissal, gave
26 the Bankruptcy Court cause for concern. (Id. at 3.) When Appellants “provided no
27 defense or explanation,” the Bankruptcy Court concluded that Appellants “acted in bad
28 faith and engaged in willful misconduct.” (Id.)
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Therefore, contrary to Appellants’ argument, the Bankruptcy Court, as the fact
2 finder, made an explicit finding of bad faith before sanctioning Appellants. (See id.)
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ii.
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The Supreme Court has cautioned that sanctions “should not be assessed lightly
Notice and Opportunity for a Hearing
5 or without fair notice and an opportunity for a hearing[.]” Roadway Express, Inc. v.
6 Piper, 447 U.S. 752, 767 (1980). The Ninth Circuit Court of Appeals has held that due
7 process “guarantees the attorney a ‘hearing, if requested,’ before sanctions may be
8 imposed” on that attorney. Kirshner v. Uniden Corp. of Am., 842 F.2d 1074, 1082 (9th
9 Cir. 1988) (quoting Miranda v. S. Pac. Transp. Co., 710 F.2d 516, 523 (9th Cir. 1983))
10 (emphasis added).
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Appellants do not challenge the issue regarding fair notice, but question whether
12 the Bankruptcy Court “erred in not conducting an evidentiary hearing prior to imposing
13 sanctions[.]5” (Dkt. No. 12 at 6.) Appellee argues that Appellants did not provide any
14 excuses to the Bankruptcy Court for why they did not appear at the OSC hearings and
15 did not provide any legal support for why the Court should consider the excuses on
16 appeal for the first time. (Dkt. 14 at 13.)
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Here, Appellants not only had three opportunities to appear at the OSC hearing
18 to present evidence as to why sanctions were not warranted, but were also directed to
19 appear at the OSC hearing by the Bankruptcy Court. (See, e.g., Dkt. No. 13-4,
20 Appellants ROA, Ex. 4.) Yet Appellants submitted no written response to the OSC, and
21 did not appear personally at any of the OSC hearings. (See Dkt. Nos. 14-5, 14-7, 14-8,
22 Appellants ROA, Exs. 5, 7, 8.) Moreover, Appellants never requested a hearing after
23 receiving notice that the Bankruptcy Court was considering sanctions. Therefore, the
24 Court concludes that Appellants were given multiple opportunities to be heard by the
25 Bankruptcy Court, and thus were accorded due process.
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Although Appellants present the issue of whether an evidentiary hearing should have been
held for the purpose of hearing mitigating and aggravating factors, Appellants present no legal support,
nor do Appellants address this issue in the substantive portion of the brief. (See Dkt. No. 12.)
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1 D.
Sanctions
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i.
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Appellants argue that the Bankruptcy Court erred by imposing compensatory
Compensatory Sanctions
4 damages as to Appellant Attorney based on her sending special appearance counsel to
5 request a continuance of the OSC hearing on August 27, 2014.6 (Dkt. No. 12 at 6.)
6 Appellants further argue that Appellant Attorney’s reason for not attending the OSC
7 hearing on August 27, 2014, attending to a criminal matter in Los Angeles for another
8 client, “was a selfless act worthy of great weight as a mitigating factor” because
9 Appellant Attorney chose her criminal client’s best interest over her own.7 (Id. at 6, 17.)
10 Appellee contends that the Bankruptcy Court was correct in issuing limited monetary
11 sanctions, and argues that the Court should not consider the excuse for Appellant
12 Attorney’s absence from the OSC hearing on August 27, 2014, because Appellants did
13 not provide the excuse to the Bankruptcy Court and did not provide any legal support
14 for why the Court should consider the excuse now. (Dkt. Nos. 14 at 13, 15 at 2.)
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The Bankruptcy Court awarded a compensatory sanction of $2,133 against
16 Appellants, jointly and severally, to be paid to Appellee Dierickx. (Dkt. No. 13-8,
17 Appellants ROA, Ex. 8.) The Bankruptcy Court took into consideration a response to
18 the OSC submitted by Appellee Dierickx. (See Dkt. No. 14-2, Appellee ROA No. 14.)
19 Appellee Dierickx requested sanctions in the amount of $3,333 to compensate for
20 attorney’s fees incurred due to the filing of the Chapter 13 petition and the delay of the
21 adversary proceeding. (Id. At 12-14.) The Bankruptcy Court found that the OSC only
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On appeal, Appellants do not challenge the compensatory sanctions as to Appellant Debtor.
23 (See Dkt. No. 12.)
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Appellant Attorney fails to acknowledge that by choosing not to attend the OSC hearing on
25 August 27, 2014, she not only risked her own “potential sanction exposure,” but also that of Appellant
Debtor, who was her client just as much as the client in the criminal proceeding. (Dkt. No. 12 at 17.)
26 Appellant Attorney alleges that she notified the Bankruptcy Court of the conflict in advance of the
27 OSC hearing on August 27, 2014, but the record and the docket reflect no such notice. (Dkt. No. 12-1
at ¶ 3.) Appellant Attorney should have filed a request to continue the OSC hearing on August 27,
28 2014, based on the conflict with a court date.
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1 provided appropriate notice that sanctions “would be sought . . . in connection with the
2 delay of the adversary proceeding,” and thus limited the sanction to the amount of
3 $2,133 in attorney’s fees. (Dkt. No. 13-8, Appellants ROA, Ex. 8.) The Court finds the
4 compensatory sanctions were reasonable for the same considerations.
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ii.
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The Ninth Circuit Court of Appeals has held that the Bankruptcy Court has the
Disciplinary Sanctions
7 inherent authority to sanction attorney misconduct. In re Brooks Hamilton, 400 B.R.
8 238, 247 (B.A.P. 9th Cir. 2009) (citing Hale, 509 F.3d at 1148). Such disciplinary
9 sanctions can extend as far as suspending the attorney. See In re Lehtinen, 564 F.3d
10 1052, 1062 (9th Cir. 2009). In In re Lehtinen, the bankruptcy court suspended the
11 attorney from practicing before the bankruptcy court of the Northern District of
12 California for three months because he failed to attend meetings and hearings pertaining
13 to the bankruptcy case, failed to inform the debtor of the confirmation hearing, and
14 committed other bad faith acts. Id. at 1056-57. The Ninth Circuit Court of Appeals
15 affirmed the disciplinary sanction because it fell within the bankruptcy court’s inherent
16 power. Id. at 1062.
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Here, the Bankruptcy Court decided to refer Appellant Attorney to the California
18 State Bar and the Local Disciplinary Committee because of its finding that she acted in
19 bad faith by filing the Chapter 13 petition to improperly delay the adversary proceeding,
20 and her “willful failure to comply with the [Bankruptcy] Court’s directives in the OSC
21 itself.” (See Dkt. No. 13-8, Appellants ROA, Ex. 8.) Therefore, the disciplinary
22 sanctions on appeal before the Court fall within the Bankruptcy Court’s inherent power.
23 See In re Lehtinen, 564 F.3d at 1062.
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When reviewing disciplinary sanctions against attorneys, the Court determines
25 “whether (1) the disciplinary proceeding is fair, (2) the evidence supports the findings,
26 and (3) the penalty imposed was reasonable.” In re Nguyen, 447 B.R. 268, 276 (B.A.P.
27 9th Cir. 2011) (en banc). The Bankruptcy Court considered these three factors in the
28 Order on OSC. (See Dkt. No. 13-8, Appellants ROA, Ex. 8 at 3-4.) It concluded that the
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1 proceeding was fair, the Bankruptcy Court “personally observed problematic conduct”
2 that led to its decision, and the sanction was reasonable. (Id.) The Court agrees with the
3 Bankruptcy Court’s reasoning and conclusion regarding the factors from In re Nguyen.
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Additionally, the Bankruptcy Court looked to certain ABA guidelines in assessing
5 the reasonableness of the disciplinary sanction against Appellant Attorney. (See Dkt.
6 No. 13-8, Appellants ROA, Ex. 8 at 3-4.) The Bankruptcy Court found state bar referral
7 and referral to the Local Disciplinary Committee reasonable because Appellant
8 Attorney’s improper conduct “violated a duty to the legal system and profession[.]” (Id.)
9 Furthermore, Appellant Attorney’s two failures to appear at OSC hearings, despite the
10 explicit direction of the Bankruptcy Court, served as an aggravating factor that
11 supported this disciplinary sanction. (Id.)
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The Court is not “definitely and firmly convinced that the bankruptcy court
13 committed a clear error of judgment.” See In re Tennant, 318 B.R. at 866. Therefore, the
14 Court finds that the Bankruptcy Court did not abuse its discretion when imposing
15 compensatory and disciplinary sanctions on Appellants.
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Conclusion
Based on the above, the Court AFFIRMS the sanctions ordered by the Bankruptcy
18 Court. The Clerk of Court shall close the case.
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IT IS SO ORDERED.
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21 DATED: June 23, 2015
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HON. GONZALO P. CURIEL
United States District Judge
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