Schaffner v. United States Trustee

Filing 17

MEMORANDUM OPINION & ORDER: 1) The orders of the bankruptcy court denying the extension of time to appeal (Bkty. Doc. 78) and denying Schaffner's motion for reconsideration (Bkty. Doc. 83) be, and are hereby, vacated, set aside, and held for naught; 2) This matter be, and it is hereby, remanded to the bankruptcy court with directions that the notice of appeal be filed, and the appeal be permitted to proceed in due course; and 3) Each party shall bear its own costs of this appeal. Signed by Judge William O. Bertelsman on 7/6/2012.(ECO)cc: COR, Bankruptcy Court, cc mailed this date to Charles H. Schaffner, pro se Appellant

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
NORTHERN DIVISION
AT COVINGTON
CIVIL ACTION NO. 2012-24 (WOB)
CHARLES SCHAFFNER
VS.

APPELLANT
MEMORANDUM OPINION
AND ORDER

UNITED STATES TRUSTEE

APPELLEE

Appellant Charles Schaffner appeals from the bankruptcy
court’s denial of his motion for an extension of time to file a
notice of appeal, as well as its denial of his motion to
reconsider.

The underlying order from which Schaffner seeks to

appeal is an order sanctioning him for unethical conduct in
several bankruptcy cases.

The bankruptcy court imposed

substantial sanctions of approximately $80,000 and disbarred
Schaffner from practice in the Bankruptcy Court in the Eastern
District of Kentucky.
The Court heard oral argument on this matter on July 2,
2012 and thereafter took it under submission.

(Doc. 15).

Having reviewed the matter further, the Court now issues the
following Memorandum Opinion and Order.

Factual and Procedural Background
A.

The Underlying Matter
In May 2011, after receiving several complaints regarding

Schaffner’s handling of bankruptcy cases, the United States
Trustee began investigating Schaffner’s conduct in those
bankruptcy cases in which he was counsel of record.

Ultimately,

in June 2011, the Trustee filed a motion for sanctions against
Schaffner in forty-two of his cases.

(Bkty. Doc. 67, at 127).

A show-cause evidentiary hearing was scheduled for September 29,
2011.

(Id. at 128).
At the September 29 hearing,1 Schaffner proceeded pro se.

After receiving all the evidence, the bankruptcy court issued
its ruling from the bench.

The court concluded that Schaffner

had violated several ethical rules, Bankruptcy Rule of Procedure
9011, and had failed to comply with several sections of the
Bankruptcy Code and the Administrative Procedure Manual for
CM/ECF.

The court imposed monetary sanctions, including

requiring Schaffner to repay client fees, and permanently
prohibited Schaffner from practicing before the Bankruptcy Court
in the Eastern District of Kentucky.

This Sanctions Order was

formally entered on September 30, 2011.

1

On September 26, only days before the hearing, Schaffner filed a motion to
reset the hearing. (Bkty. Doc. 56). The Bankruptcy Court denied this
motion. (Bkty. Doc. 59).
2

B.

The Motion for Extension of Time to File an Appeal
On October 28, Schaffner, through Attorney Robert Raper,

filed a notice of appeal from the Sanctions Order and, because
the notice was filed outside the fourteen-day appellate period,
he sought an extension of time to appeal pursuant to Rule
8002(c).

(Bkty. Doc. 68).

The motion for extension of time was

independently filed on November 3, 2011.

(Bkty. Doc. 71).

In support of this motion, Schaffner explained that, on
September 24, he sustained a laceration to his right leg.
71-1, Schaffner Aff. at ¶ 5).

(Doc.

By September 29, the day of the

evidentiary hearing on the motion for sanctions, his leg had
become seriously infected and required medical attention.
at ¶ 6).

(Id.

Schaffner alleged that this injury posed a “serious

health threat” in light of his other medical conditions,
specifically his diabetes.

(Id. at ¶ 7).

On September 30,

Schaffner visited the VA Hospital, where a doctor ordered he
remain on bed rest until the infection subsided.

(Id. at ¶ 9).

Per the doctor’s instructions, Schaffner went home and did
not return to work until October 20, 2011, at which time he
resumed working part-time.

(Id. at ¶ 13).

Schaffner averred

that, while on bed rest, his “ability to concentrate and to
think clearly was greatly handicapped by the infection and the
interaction of the prescribed antibiotic medications with his
extensive regimen for other serious, chronic health conditions.”
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(Id. at ¶ 12).

In light of his injury, Schaffner contends his

return to work was the first date on which he could reasonably
confer with appellate counsel.

(Id. at ¶ 13).

The bankruptcy court denied this motion after oral
argument.
C.

(Bkty. Doc. 93, Hrg. Transcript).

The Motion to Reconsider
On November 27, Attorney Raper filed a motion to reconsider

the denial of the requested extension of time to appeal the
Sanctions Order.

In support of this motion, Schaffner filed a

supplemental affidavit and medical records under seal with the
Court.

(Bkty Doc. 80).

The supplemental affidavit essentially

mirrors the initial affidavit, although it provides more
detailed information as to the injury, the treatment regimen,
and the injury’s effect on Schaffner.
After considering this evidence, the Bankruptcy Court
denied the motion, concluding that none of the grounds for
reconsideration under Civil Rules 59 or 60 were present.
Bkty. Doc. 83, at 2).

(See

The court noted that it had already ruled

that Schaffner had failed to demonstrate excusable neglect, and
the supplemental evidence provided in support of the motion to
reconsider did not alter this conclusion, as the evidence was
not newly discovered.

(Id.).

Schaffner appealed the bankruptcy court’s orders denying
his motion for an extension of time and his motion for
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reconsideration on December 8, 2011.

(Bkty. Doc. 84); (Doc. 1).

He also filed a Notice of Election, choosing to have his appeal
heard by the United States District Court rather than the
Bankruptcy Appellate Panel.

(Bkty. Doc. 85); (Doc. 4).
Analysis

A.

Jurisdiction
This Court has jurisdiction of this appeal pursuant to 28

U.S.C. § 158(a)(1), as an order denying a motion for an
extension of time to file a notice of appeal is a final
appealable order.

See Belfance v. Black River Petroleum, Inc.

(In re Hess), 209 B.R. 79, 80 (6th Cir. BAP 1997).
Furthermore, the appeal is timely, as required for
jurisdiction.

Rule 8002(a) provides that notice of appeal must

be filed within fourteen days of the final order.

A motion for

reconsideration suspends the order’s finality, so the fourteenday period does not begin until the motion is resolved.
Fed. R. Bankr. P. 8002(b).

See

The motion to reconsider was denied

on November 30, and the appeal was filed on December 8.
Therefore, the appeal is timely, and the Court has jurisdiction.
B.

Standard of Review
The standard of review for the denial of a motion for an

extension of time to file a notice of appeal is abuse of
discretion.

See In re Hess, 209 B.R. at 80.

However, the

meaning of “excusable neglect” is a question of law, which is
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reviewed de novo.

See Allied Domecq Retailing USA v. Schultz

(In re Schultz), 254 B.R. 149, 151 (6th Cir. BAP 2000).
C.

Excusable Neglect
In analyzing this matter, it is important to keep in mind

the following sequence of events:


June, 2011: Trustee files the motion for sanctions.



September 24, 2011: Schaffner sustains a serious injury to
his leg, which is complicated by pre-existing diabetes.



September 29, 2011: Evidentiary hearing on the motion for
sanctions is held by the bankruptcy court.

Schaffner

attends and represents himself in spite of the fact that he
is in great pain from his injury.

The bankruptcy court

rules from the bench, imposing sanctions in the approximate
amount of $80,000 and disbarring Schaffner from practicing
before the United States Bankruptcy Court for the Eastern
District of Kentucky.


September 30, 2011:

Schaffner seeks medical attention at

the VA hospital and is ordered to bed rest by his
physician.


September 30, 2011:
formally entered.
begins to run.

The Order imposing sanctions is

The time to file a notice of appeal

Under Rule 8002(a), Schaffner has 14 days

to file the notice of appeal.

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

October 14, 2011:

The time to file a notice of appeal

expires.


October 20, 2011:

Schaffner returns to work part-time.



October 28, 2011:

Schaffner tenders a notice of appeal

with a motion for extension of time.

Pursuant to Rule

8002(c)(2), Schaffner had until November 4, 2011, to file
this motion.


November 18, 2011:

The bankruptcy court denies the motion

for extension of time, holding that the late filing was not
due to excusable neglect.


November 27, 2011:

Schaffner files a motion to reconsider,

to which he attaches a supplemental affidavit and medical
records.


November 30, 2011:

The bankruptcy court denies the motion

to reconsider.


December 8, 2011:

Schaffner appeals to the United States

District Court.
Rule 8002(c)(2) provides that a retroactive extension of
time to appeal may be granted after the deadline to file a
notice of appeal has passed, upon a showing of “excusable
neglect” by the appellant.

The term “excusable neglect” appears

in several of the Federal Rules of Civil and Appellate
Procedure.

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In ruling on such motions, judges must bear in mind that
the rules contemplate that some neglect exists.

The issue is

whether it is “excusable.”
Despite the myriad of cases applying this term, none has
been cited, or found by this Court, that is on point factually
with the instant case.
However, all parties agree, as does this Court, that this
case is governed by the principles set forth in Pioneer
Investment Services Co. v. Brunswick Associates Limited
Partnership, 507 U.S. 380 (1993).
As applicable here, these principles are:
1. Courts are permitted to accept late filings “caused by
inadvertence, mistake, or carelessness, as well as by
intervening circumstances beyond the party’s control.”
Pioneer, 507 U.S. at 388 (emphasis added).
2. “Excusable neglect” is a “somewhat ‘elastic concept’
and is not limited strictly to omissions caused by
circumstances beyond the control of the movant.”

Id.

at 392 (internal quotation and citation omitted).
3. An extension may be granted even when “the failure to
comply with a filing deadline is attributable to
negligence.”

Id. at 394.

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4. The determination whether neglect is “excusable” is
“an equitable one, taking account of all relevant
circumstances . . . .”

Id. at 395.

5. One such circumstance is “danger of prejudice” to the
non-movant.

Id.

6. Another is “the length of the delay.”

Id.

7. Still another is “the reason for the delay including
whether it was in the reasonable control of the
movant.”

Id.

8. Also relevant is “whether the movant acted in good
faith.”

Id.

Applying these principles to the case at bar, this Court
concludes that – whether the review is de novo or for abuse of
discretion – the bankruptcy court erred in denying Schaffner’s
motion for extension of time to file the appeal and the motion
for reconsideration.
The Supreme Court held that the inquiry in a case like this
is an equitable one.

The hallmark of equity is an approach

based on doing substantial justice rather than one which is
merely technical.

See Henry L. McClintock, Handbook of the

Principles of Equity § 144 (2d ed. 1948); William Q. de Funiak,
Handbook of Modern Equity §§ 1-2 (2d ed. 1956).
It is undisputed that Schaffner was ill even at the date of
the hearing and oral decision of the bankruptcy court.
9

He had

moved for a continuance of the hearing, but the motion was
denied.

He was confined to bed rest the next day.

His medical

records show that he had been and was taking a potpourri of
prescribed medications.

Undoubtedly, he was in a state of shock

when he heard the bankruptcy court’s ruling that, in effect,
would end his career and subject him to a penalty of
approximately $80,000.
Certainly, Schaffner was negligent, but he filed the motion
for extension of time before the deadline to file it.
Applying equitable principles involves a process known as
“balancing the hardships.”

McClintock, supra, at § 144.

Application of this principle is implied by the Pioneer case’s
factor addressing the danger of prejudice.

Granting the motion

would have involved virtually no delay in the proceeding.
Indeed, had the appeal been allowed to proceed, it would
probably have already been decided by this Court.

Schaffner

was, however, severely prejudiced by being denied his right to
appeal.

If disbarred in the bankruptcy court, under the rules

of reciprocity, he will also be disbarred in all United States
District Courts and the United States Courts of Appeals and,
perhaps, in the state courts.

The Court considers this to be

the most important factor.
Considering the fact that this was his own case, it is
apparent that Schaffner did not act in bad faith.
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It is

doubtful that the delay was totally in his control, considering
his medical condition.

The fact that he missed the deadline in

his own case indicates that he was indeed impaired by illness.
Therefore, applying equitable principles and considering
all relevant circumstances, this Court concludes that the
bankruptcy judge abused her discretion in denying the motion for
extension of time to file the appeal and the motion for
reconsideration.

Further, applying the de novo standard, this

Court holds as a matter of law that excusable neglect existed in
the circumstances described.

This holding in no way indicates

the view of the Court on the merits of the appeal.

Therefore,

the Court being advised,
IT IS ORDERED as follows:
1. The orders of the bankruptcy court denying the extension
of time to appeal (Bkty. Doc. 78) and denying Schaffner’s motion
for reconsideration (Bkty. Doc. 83) be, and are hereby, vacated,
set aside, and held for naught;
2. This matter be, and it is hereby, remanded to the
bankruptcy court with directions that the notice of appeal be
filed, and the appeal be permitted to proceed in due course; and
3. Each party shall bear its own costs of this appeal.

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This 6th day of July, 2012.

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