In Re: In the Matter of Sandler Michaud, L.L.C.

Filing 36

ORDER AND REASONS: ORDERED that the United States Bankruptcy Court's April 25, 2022 Order (Bankruptcy ECF Doc. 79; Rec. Doc. 1-1) issuing sanctions against Sandler Michaud, LLC in a Chapter 13 bankruptcy proceeding is AFFIRMED. FURTHER ORDERED: Denying 33 Motion for Sanctions. Signed by Judge Jay C. Zainey on 3/24/2023. (mmm)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
IN RE: DENNIS MICHAEL SCACCIA
DEBTOR
______________________________
SANDLER MICHAUD, L.L.C.
APPELLANT
VERSUS
FLORIDA MOON, INC.
APPELLEE
______________________________

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CIVIL ACTION
NO: 22-1287 “A”
Bankruptcy Case 19-13024

ORDER AND REASONS
Before the Court is Appellant Sandler Michaud’s (“Michaud”) appeal from an April
25, 2022 order by the United States Bankruptcy Court issuing sanctions against Sandler
Michaud, LLC in a Chapter 13 bankruptcy proceeding (Rec. Doc. 24). Also before the
Court is Appellee Florida Moon, LLC’s (“Florida Moon”) Motion for Damages/Sanctions
asserting that Michaud filed a frivolous bankruptcy appeal. (Rec. Doc. 27-1). The Court
has considered the briefs filed by the parties, the record, and the applicable law. For the
reasons that follow, the Bankruptcy Court’s April 25, 2022 Order is AFFIRMED and
Appellee’s Motion for Damages/Sanctions is DENIED.
I.

Background

On April 25, 2022, United States Bankruptcy Judge Meredith S. Grabill issued a

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Memorandum Opinion and Order granting in part and denying in part Florida Moon's
Motion to Dismiss Chapter 13 Case with Prejudice and for Sanctions in Bankruptcy Case
No. 19-13024 (“the Order”). (Bankruptcy ECF Doc. 79; Rec. Doc. 1-1). Specifically, Judge
Grabill ordered that Debtor Michael Scaccia's Chapter 13 case be dismissed without
prejudice and that monetary sanctions be assessed against the law firm of Sandler
Michaud, LLC and in favor of Florida Moon, LLC, in the amount of $18,844.85. (Rec. Doc.
1-1 at p. 16). On May 9, 2022, Sandler Michaud filed a Notice of Appeal of the Bankruptcy
Court's Order #79. (Rec. Doc. 1). The appeal was docketed with this Court on May 11,
2022. (Id.).
On July 11, 2022, Appellee Florida Moon filed a Motion to Dismiss (Rec. Doc. 3),
requesting the Court to dismiss the appeal on the grounds that Appellant failed to timely
file its designation of items to be included in the record on appeal and a statement of
issues to be presented on appeal, as required by Federal Rule of Bankruptcy Procedure
8009. (Id. at p. 1). According to Appellee, Appellant's designation and statement were
due on or before May 23, 2022, 14 days after Appellant filed its Notice of Appeal, yet no
designation or statement had been filed. (Rec. Doc. 3-1 at pp. 4–5). In August 2022, the
Court denied Appellee’s Motion to Dismiss Appeal, noting that when an appellant fails to
take any step under the Federal Rules of Bankruptcy Procedure other than the timely
filing of a notice of appeal, the Court has the discretion to take whatever action it considers
appropriate. ((Rec. Doc. 11 at p. 4) (citing FED. R. BANKR. P. 8003(a)(2))). 1
On January 4, 2023, Michaud filed its Appellant Brief, which addressed the issues
The Court warned Appellant, however, that failure to comply with future deadlines set forth in the
August 31, 2022 order would constitute grounds for the Court to dismiss the appeal.

1

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of (1) the sanctions imposed by the bankruptcy court and (2) whether or not the Chapter
13 bankruptcy was a bad faith filing. (Rec. Doc. 24 at p. 1). Florida Moon subsequently
filed its Brief of Appellee and Motion for Damages/Sanctions. (Rec. Docs. 26, 27).
The Court considers the briefs and Appellee’s Motion below.
II.

Legal Standard

The district court has jurisdiction over bankruptcy appeals pursuant to 28 U.S.C. §
158(a). An appeal from a bankruptcy court to a district court “shall be taken in the same
manner as appeals in civil proceedings generally are taken to the courts of appeals from
the district courts . . . .” Id. § 158(c)(2). The district court reviews the bankruptcy court’s
conclusions of law and of mixed law and fact de novo, and reviews the bankruptcy court’s
findings of fact for clear error. ASARCO, Inc. v. Elliott Mgmt. (In re ASARCO, L.L.C.), 650
F.3d 593, 601 (5th Cir. 2011). A bankruptcy court’s findings of fact may only be reversed
“upon a definite and firm conviction that the bankruptcy court erred . . . .” Id. (quoting
Tummel & Carroll v. Quinlivan (In re Quinlivan), 434 F.3d 314, 318 (5th Cir. 2005)). The
imposition of sanctions is reviewed for an abuse of discretion. Carroll v. Abide (In re
Carroll), 850 F.3d 811, 814 (5th Cir. 2017) (per curiam). A bankruptcy court abuses its
discretion when “its ruling is based on an erroneous review of the law or on a clearly
erroneous assessment of the evidence.” Id. (quoting In re Yorkshire, LLC, 540 F.3d 328,
331 (5th Cir. 2008)).
III.

Discussion

Appellant’s brief contains two “assignments of errors for appeal.” 2 (Rec. Doc. 24,
The Court notes that Appellant’s brief does not comply with the content requirements prescribed by
Federal Rule of Bankruptcy Procedure 8014(a).

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at p. 8, 11). Appellant first argues that, “when considering dismissal of a bankruptcy case
and whether sanctions should be imposed, lack of good faith, pursuant to Section 1307
of the Bankruptcy Code must be considered.” (Id. at p. 8). Appellant next argues that
“Sanctions should not be awarded when there is no showing of actual bad faith, and
Florida Moon should not be granted additional sanctions for choosing to pursue this
matter for months after it completed foreclosure.” (Id. at p. 11).
Regarding the first issue, the Court finds that the bankruptcy court did not commit
clear error when it determined that the Chapter 13 Petition was filed in the absence of
good faith and that dismissal under 11 U.S.C. § 1307(c) was both appropriate and in the
best interests of creditors and the estate. Section 1307(c) permits a bankruptcy court to
dismiss a case for cause when certain nonexclusive circumstances exist. The bankruptcy
court cited three provisions listed in Section 1307(c) which are directly applicable to the
facts of the instant case. 3 In addition to the provisions contained within Section 1307(c),
the court emphasized that “lack of good faith can also constitute ‘cause’ to dismiss or
convert a Chapter 13 petition,” and the court considered various factors relevant to
“whether a debtor lacks the requisite good faith in filing a petition for bankruptcy relief.” 4

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(See Rec. Doc. 1-1, at p. 8-9) (listing the relevant provisions from 11 U.S.C. § 1307(c)).
Although the Bankruptcy Code does not define “cause,” [Section 1307(c)] defines “cause”
to include the following:
(1) unreasonable delay by the debtor that is prejudicial to creditors; . . .
(3) failure to file a plan timely under section 1321 of this title; [and]
(4) failure to commence making timely payments under section 1326 of this title .
...

(Rec. Doc. 1-1, at p. 9) (citing In re Parson, 632 B.R. 613, 626 (Bankr. N.D. Tex. 2021) (quoting Leavitt
v. Soto (In re Leavitt), 171 F.3d 1219, 1224 (9th Cir. 1999))).

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(1) whether the debtor misrepresented facts in her petition or plan, unfairly manipulated

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In support of its finding that Appellant filed the petition in the absence of good faith,
the bankruptcy court emphasized that (1) Appellant “includ[ed] the name of the corporate
owner of the Debtor’s House in the listing of the Debtor’s address” knowing that the debtor
did not own the house and that it would stop the foreclosure sale of the house; and (2)
“as soon as she filed the Petition, [Appellant] called and sent an e-mail to the parish
sheriff’s office, attaching the Notice of Bankruptcy Case Filing, to stop the foreclosure sale
of the House scheduled for that day.” (Rec. Doc. 1-1 at p. 10). Acknowledging that a
bankruptcy court’s findings of fact may only be reversed “upon a definite and firm
conviction that the bankruptcy court erred,” the Court finds that the bankruptcy court did
not commit clear error when it determined that the Chapter 13 Petition was filed in the
absence of good faith. In re Quinlivan, 434 F.3d at 318.
Regarding the second issue – whether the bankruptcy court abused its discretion
in imposing sanctions – the Court recognizes that “the threshold for the use of inherent
power sanctions is high.” Chaves v. M/V Medina Star, 47 F.3d 153, 156 (5th Cir. 1995);
see also Chambers v. NASCO, Inc., 501 U.S. 32, 44 (1991) (“Because of their very
potency, inherent powers must be exercised with restraint and discretion.”). To support
an award of sanctions under the inherent power of a bankruptcy court, there must be a
specific finding that the sanctioned party acted in bad faith. In re ProEducation Int'l, Inc.,
587 F.3d 296, 304 (5th Cir. 2009). In Chambers v. NASCO, Inc., the Supreme Court noted

the Bankruptcy Code, or otherwise filed the Chapter 13 petition or plan in an inequitable
manner; (2) the debtor's history of filings and dismissals; (3) whether the debtor only
intended to defeat state court litigation; and (4) whether other egregious behavior is
present.

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that sanctions may be assessed where a party “shows bad faith by delaying or disrupting
the litigation or by hampering enforcement of a court order.” 501 U.S. at 46 (footnote
omitted) (quoting Hutto v. Finney, 437 U.S. 678, 689 n.14 (1978)).
In the instant case, the bankruptcy court “specifically found that the Debtor and his
counsel . . . misrepresented facts in the Petition and unfairly manipulated the Bankruptcy
Code to unreasonably delay Florida Moon in the exercise of its state law rights to enforce
the obligation owed to it by Scaccia Enterprises.” (Rec. Doc. 1-1 at p. 13). The Court
agrees and notes that, in its brief, Appellant admitted that it “erred in listing the LLC,”
subsequently framed the action as a “calculated risk,” and ultimately justified it as
“advocacy.” (Rec. Doc. 24 at p. 4, 10). Taking the high threshold for the use of inherent
power sanctions into account, the Court finds that the bankruptcy court did not abuse its
discretion in imposing sanctions against Michaud.
Finally, the Court has reviewed Appellee’s February 23, 2023 Motion for
Damages/Sanctions. Having considered the applicable law, the Court declines to impose
additional sanctions on Appellant.

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Accordingly, and for the foregoing reasons;
IT IS ORDERED that the United States Bankruptcy Court’s April 25, 2022 Order
(Bankruptcy ECF Doc. 79; Rec. Doc. 1-1) issuing sanctions against Sandler Michaud,
LLC in a Chapter 13 bankruptcy proceeding is AFFIRMED.
IT IS FURTHER ORDERED that Appellee’s February 23, 2023 Motion for
Damages/Sanctions is DENIED.

March 24, 2023
_______________________________
JAY C. ZAINEY
UNITED STATES DISTRICT JUDGE

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