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In re: Rimsat,
Limited, Debtor, Appeals of: Kauthar Sdn Bhd, et al. Nos. 99-1625 and
99-1636 UNITED STATES COURT OF
APPEALS FOR THE SEVENTH CIRCUIT 212 F.3d 1039; 2000
U.S. App. LEXIS 10953; 36 Bankr. Ct. Dec. 35 February 22, 2000,
Argued May 18, 2000, Decided PRIOR HISTORY: [*1] Appeals from the United States District Court for the
Northern District of Indiana, Fort Wayne Division. Nos. 1:98cv363 and
1:98cv370. William C. Lee, Chief Judge. COUNSEL:
For KAUTHAR SDN BHD, DANIEL J. VOELKER, WILLIAM HOWARD, Appellants
(99-1625): Brad S. Grayson, Joseph A. Baldi, SCHWARTZ & FREEMAN, Chicago,
IL USA. For ELLIOTT D. LEVIN, Trustee (99-1625): Mark A. Warsco, WARSCO
BROGAN, Fort Wayne, IN USA. For TONGASAT, Appellee (99-1625): Warren A. Fitch, SWIDLER BERLIN
SHEREFF FRIEDMAN, Washington, DC USA. James T. Young, WARSCO BROGAN, Fort
Wayne, IN USA. For WILLIAM J. FACTOR, Appellant (99-1636): Peter C. Woodford,
John P. Sieger, SEYFARTH, SHAW, FAIRWEATHER & GERALDSON, Chicago, IL USA. For TONGASAT, Appellee (99-1636): Warren A. Fitch, SWIDLER BERLIN
SHEREFF FRIEDMAN, Washington, DC USA. James T. Young, WARSCO BROGAN, Fort
Wayne, IN USA. JUDGES: Before Coffey, Easterbrook, and Williams, Circuit
Judges. OPINIONBY: Williams OPINION: Williams, Circuit Judge. Kauthar Sdn Bhd and three of
its former attorneys, Daniel Voelker, William Howard, and William Factor, seek
review of a bankruptcy court order sanctioning them for improper conduct during
a bankruptcy proceeding. For various reasons, the appellants contend that the
sanctions order must be reversed. Because the bankruptcy court committed no
reversible error in sanctioning the appellants, however, we affirm. I Kauthar Sdn Bhd is a Malaysian entity that invested a substantial
sum of money in Rimsat, Ltd., a firm that planned to provide satellite service
to the Pacific Rim using satellite rights allotted to the island nation of
Tonga and controlled by Tongasat, a Tongan company. However, Rimsat ran into
financial trouble and filed for bankruptcy. Tongasat and Rimsat attempted to
settle their claims against each other on two occasions, but Kauthar objected
to both of the proposed compromises contending [*2] that
Tongasat was being let off too easy, to the detriment of Kauthar’s
investment in Rimsat. In contesting the Tongasat/Rimsat compromises,
Kauthar’s attorneys pursued an aggressive litigation strategy to force
a more favorable settlement plan. Their strategy earned them at least one
warning from the bankruptcy judge about unnecessary and purely strategic
litigiousness before the events leading up to the bankruptcy judge’s
ultimate decision to sanction them. In challenging the second proposed Tongasat/Rimsat compromise,
Kauthar sought to depose a number of individuals associated with Tongasat,
including the Princess of Tonga, who chaired Tongasat’s Board of
Directors, and Edward Lau, Tongasat’s outside general counsel and its
deposition designee. Tongasat filed a motion for a protective order and the
bankruptcy court held a hearing on the matter. At the hearing, the bankruptcy
judge expressed concern that Kauthar’s discovery requests had gone
beyond the limited scope relevant to the compromise and ruled that Kauthar
could only depose one person from Tongasat. William Factor, who represented
Kauthar at the hearing, informed the court that Kauthar would choose to depose
the Princess. [*3] Tongasat objected on the ground that
the Princess lacked personal knowledge regarding the disputed issues. With the
understanding that the Princess would submit an affidavit attesting to her lack
of personal knowledge, the bankruptcy judge ruled that Kauthar would have to
depose someone else, and on Kauthar’s behalf, Factor selected Edward
Lau. Kauthar’s attorneys then filed a motion to compel the deposition
of the Princess asserting that the Princess had personal knowledge of disputed
issues. Meanwhile, Daniel Voelker and William Howard represented Kauthar
at Lau’s deposition. Voelker, who conducted the deposition, focused
his inquires on whether Lau believed he could disclose information he had
acquired from the Princess. Dissatisfied with Lau’s refusal to answer
yes or no in general to these inquires, Voelker began to argue with and ask
harassing questions of Lau. For instance, at one point, he asked Lau,
“In the conversation you had in August of 1995, what did the Princess
say to you, and what did you say to her? I want to know everything she said to
you, Mr. Lau, every single word she uttered?” Voelker then began to
bicker with Lau and Lau’s counsel, implying that Lau intended [*4] to
be dishonest in answering and intended to improperly invoke attorney-client
privilege when he asked, “Are you going to answer [my question] fully
and completely and honestly, or are you going to selectively answer the
question and assert in your own mind, Mr. Lau, the attorney-client
privilege?” Unable to get the answers he wanted regarding
Lau’s ability to disclose information acquired from the Princess and
claiming that Lau was not a proper deposition designee, Voelker terminated the
deposition without asking a single question regarding the proposed
Tongasat/Rimsat compromise. Afterwards, Tongasat filed a motion for sanctions based on the
deposition. The motion alleged that Kauthar’s attorneys never had any
intention to depose Lau and intentionally sabotaged the Lau deposition. The
motion sought attorneys’ fees and other costs associated with the
deposition. When the parties next came before the bankruptcy judge, the judge
informed “Kauthar’s counsel” that he was disturbed
by the deposition and, in light of their previous conduct in the litigation, he
was seriously considering not only imposing a monetary sanction but also revoking
their pro hac vice status. n1 Kauthar’s [*5]
counsel filed a response to Tongasat’s sanctions motion contending
that their conduct was entirely reasonable. Tongasat then filed a reply
disputing the contentions of Kauthar’s counsel and requesting, among
other additional sanctions, that the pro hac vice status granted
Kauthar’s counsel be revoked. - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - -
- n1 Pro hac vice status allows an attorney who has not
been admitted to practice before a court to practice before that court in a
particular case. See Black’s Law Dictionary 1227-28 (7th ed. 1999). - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - Approximately eleven months after receiving Tongasat’s
reply, and thirteen months after approving the proposed Tongasat/Rimsat
compromise, the bankruptcy court ruled on the sanctions motion. It concluded
that in light of the conduct of Kauthar’s counsel throughout the
litigation and the behavior of their counsel at the Lau deposition, there could
be no doubt that Kauthar’s counsel never had any intention of seeking
relevant information from Lau, but rather sought only to increase the cost and
inconvenience of the litigation [*6] and delay the
then-imminent hearing regarding the Tongasat/Rimsat compromise. Pursuant to its
authority to impose sanctions under 11 U.S.C. sec. 105(a) and the inherent
powers doctrine, the bankruptcy court ordered Kauthar and its attorneys to pay
$ 10,890.81 in costs associated with the Lau deposition and revoked
Voelker’s, Howard’s, and Factor’s pro hac vice
status. Kauthar and its attorneys appealed to the district court, but the
district court affirmed the sanctions order. Now Kauthar and its attorneys
appeal to this court, n2 contending that they were denied due process when the
bankruptcy court sanctioned them, that the bankruptcy court abused its
discretion in sanctioning them, and that the sanctions order against them must
be vacated because the bankruptcy court waited too long to issue it. n3 - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - -
- n2 After it appealed, Kauthar reached a settlement with the other
parties to the bankruptcy proceeding, including Tongasat, releasing each party
from any claim relating to the proceeding that might be asserted by any of the
other parties. Thus, Kauthar’s challenge to the bankruptcy
court’s sanctions order is moot and Kauthar is dismissed as a party to
this appeal. See U.S. Bancorp Mortgage Co. v. Bonner Mall Partnership, 513 U.S. 18, 130 L. Ed. 2d
233, 115 S. Ct. 386 (1993). However, because Voelker, Howard, and Factor are
not parties to the settlement agreement and a release would not address the
revocation of their pro hac vice status, their challenges to the bankruptcy
court’s sanctions order are not moot. [*7] n3 Appellants Kauthar, Voelker, and Howard also request that we
expunge certain portions of the bankruptcy court’s order that they
contend are without factual support. While we certainly may reverse or vacate
the bankruptcy court’s decision to impose sanctions, we seriously
doubt whether we can expunge portions of the court’s order. The authority
we have discovered, although not directly on point, suggests that such relief
is not available by way of appeal. See Clark Equip. Co. v. Lift Parts Mfg.
Co., 972 F.2d 817, 820 (7th Cir. 1992) (refusing to vacate opinion
criticizing attorney, but mentioning that the attorney might seek mandamus); Bolte
v. Home Ins. Co., 744 F.2d 572 (7th Cir. 1984) (concluding challenge to
opinion criticizing, but not sanctioning, attorney is not appealable). And, the
appellants have not cited any authority to the contrary. Accordingly, we deny
the request to expunge portions of the bankruptcy court’s opinion. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - II Before we consider the appellants’ challenges to the
bankruptcy court’s sanctions order, we must determine whether we have
jurisdiction [*8] over the present appeal. The general
rule is that a court of appeals has jurisdiction over a bankruptcy appeal only
if the bankruptcy court’s original order and the district
court’s order reviewing the bankruptcy court’s original order
are both final. 28 U.S.C. sec. 158(d); In re Devlieg, Inc., 56 F.3d
32, 33 (7th Cir. 1995) (per curiam); In re Morse Elec. Co., 805 F.2d
262, 264 (7th Cir. 1986); 16 Charles Alan Wright, Arthur R. Miller, &
Edward H. Cooper, Federal Practice and Procedure sec. 3926.2, at 273 (2d ed.
1996). In the bankruptcy context, however, finality does not require a final
order concluding the entire bankruptcy proceeding; certain orders entered prior
to the conclusion of the bankruptcy proceeding will be deemed final. In re
Forty-Eight Insulations, Inc., 115 F.3d 1294, 1298-99 (7th Cir. 1997); In
re Official Committee of Unsecured Creditors of White Farm Equip. Co., 943 F.2d
752, 754-55 (7th Cir. 1991). Where an order terminates a discrete dispute that,
but for the bankruptcy, would be a stand-alone suit by or against the trustee,
the order will be considered final and appealable. In re Szekely, 936 F.2d
897, 899-900 (7th Cir. 1991); [*9] Wright, Miller,
& Cooper, supra, sec. 3926.2, at 272-73. Dicta in In re Wade, 991 F.2d 402, 406 (7th Cir. 1993), suggests
that sanctions orders fall into this category, but it is unclear whether such a
position can be maintained in the wake of Cunningham v. Hamilton County, Ohio, 527 U.S. 198, 119 S. Ct.
1915, 144 L. Ed. 2d 184 (1999), which holds that sanctions orders are not
automatically appealable prior to final judgment, at least in the
non-bankruptcy context. Even if it was not final at the time it was issued, we
are persuaded that the bankruptcy court’s sanctions order has since
become final. Kauthar’s claims against the bankruptcy estate have been
valued and accepted, and the final distribution of the bankruptcy
estate’s claims has been approved. Because Kauthar’s dispute
with the bankruptcy estate has been resolved, orders relating to
Kauthar’s participation in the bankruptcy proceeding are now final. White
Farm Equip., 943 F.2d at 755; Szekely, 936 F.2d at 899-900;
see also Forty-Eight Insulations, 115 F.3d at 1298-99. That this finality arose
after the present appeals were filed is no barrier to jurisdiction, [*10] as
the doctrine of cumulative finality allows an appeal from a non-final order to
be “saved” by subsequent events that establish finality. See
In re Emerson Radio Corp., 52 F.3d 50, 52 (3d Cir. 1995); In re Interwest
Bus. Equip., Inc., 23 F.3d 311, 314-15 (10th Cir. 1994); Wright,
Miller, & Cooper, supra, sec. 3926.2, at 290. Therefore, and since there is
no reason to doubt the finality of the district court’s order simply
affirming the bankruptcy court’s order, our jurisdiction over this
appeal is secure. We now turn to the challenges the appellants raise to the
bankruptcy court’s sanctions order. III A. Due Process The appellants first challenge the bankruptcy court’s
sanctions order on constitutional grounds. They contend that the bankruptcy
court failed to afford them the fair notice and opportunity to be heard that
the Fifth Amendment’s due process clause requires a court to provide
before imposing sanctions. See In re Hancock, 192 F.3d 1083, 1086
(7th Cir. 1999); Larsen v. City of Beloit, 130 F.3d 1278,
1286-87 (7th Cir. 1997). As the appellants’ due process challenge
raises issues of law, our review is plenary. [*11]
Martin v. Brown, 63 F.3d 1252, 1262 (3d Cir. 1995); Kirkland v. National
Mortgage Network, Inc., 884 F.2d 1367, 1370 (11th Cir. 1989). Cf.
United States v. Kirschenbaum, 156 F.3d 784, 792 (7th Cir. 1998) (noting
that, in general, due process claims are reviewed de novo). The appellants
first complain that they received inadequate notice that they were possible
subjects of sanctions. The bankruptcy court’s practice of referring to
them collectively as “Kauthar’s counsel,” they
contend, did not sufficiently put them on notice. Fair notice can come from the
court or an opposing litigant, Hancock, 192 F.3d at 1086
(notice from the court); Schlaifer Nance & Co. v. Estate of Warhol, 194 F.3d
323, 334 (2d Cir. 1999) (notice from opposing party); Martin, 63 F.3d
at 1263 (notice from opposing party), but it must, among other things, inform
the person that he or she is in jeopardy of being sanctioned by the court.
Hancock, 192 F.3d at 1086; Larsen, 130 F.3d at 1286-87. Voelker and Howard have no grounds for contending that they did
not receive adequate notice. They are specifically mentioned [*12] in
Kauthar’s motion for sanctions, and they were the ones who conducted
the Lau deposition. That their conduct at the Lau deposition might be the basis
for sanctions could hardly have been more plain. Consequently, we conclude that
they received adequate notice that they might be sanctioned. Factor tries to distinguish himself from Voelker and Howard by
pointing out that he was not present at the Lau deposition and the bankruptcy
court’s reference to “Kauthar’s counsel”
did not put him on notice that he might be sanctioned based on the deposition.
The problem with this argument is that Tongasat’s motion for sanctions
specifically asks the bankruptcy court to impose sanctions against
Kauthar’s attorneys based upon “the notice of, argument for,
and conduct of the deposition of Edward Lau.” Since Factor signed the
notice of deposition, Tongasat’s motion put him on notice that his
conduct might be the basis for sanctions. Moreover, in detailing the evidence
of Kauthar’s counsels’ intent to harass individuals associated
with Tongasat, Tongasat’s motion for sanctions specifically refers to
an argument Factor made regarding the possibility of deposing the Princess. In
light of these facts, [*13] the practice of the bankruptcy
court and Tongasat to refer to Kauthar’s attorneys collectively,
rather than individually, should have put Factor on notice that he was in
jeopardy of being sanctioned. Thus, Factor received adequate notice that he
might be sanctioned. The appellants next complain that they received inadequate notice
of precisely what conduct might warrant sanctions. They contend that, although
the bankruptcy court based its sanctions decision on the entire course of
Kauthar’s counsels’ conduct with respect to the
Tongasat/Rimsat compromise, neither the bankruptcy court nor Tongasat ever
specifically identified particular instances of misconduct, other than the
events surrounding the Lau deposition. And, a court may not, consistent with
due process, impose sanctions based on particular conduct unless the parties
being sanctioned have received notice (from the court or an opposing party)
that that conduct may be the basis for sanctions. Schlaifer Nance, 194 F.3d
at 334; Bonilla v. Volvo Car Corp., 150 F.3d 88, 93
(1st Cir. 1998); Martin, 63 F.3d at 1263. In this case, however, we do not read the bankruptcy
court’s sanctions order [*14] as
relying on conduct, other than that related to the Lau deposition, in a manner
that gives rise to an obligation to provide the kind of particularized notice
the appellants believe they were due. The bankruptcy court merely referred to
Kauthar’s general litigation strategy as evidence to support the
court’s finding that the appellants intentionally sabotaged the Lau
deposition in an effort to further delay the proceedings and inconvenience
Tongasat and to explain why monetary sanctions alone would be insufficient to
deter similar future conduct. Moreover, the court never referred to particular
instances of conduct outside the events surrounding the Lau deposition; it
referenced only Kauthar’s general litigation strategy. As particular
conduct, other than that related to the Lau deposition, did not actually form
the basis for the sanctions imposed, there is no reason to think that Kauthar’s
attorneys were entitled to the sort of particularized notice they believe they
were due. When a court imposing sanctions simply cites attorney conduct for the
limited purpose of providing context and background, particularized notice is
not required. In fact, demanding particularized notice in [*15] such
situations would only discourage sanctioning courts from writing the sort of
comprehensive sanctions orders, containing all of the relevant background
material, that are most helpful to reviewing courts. To the extent that the appellants were entitled to notice
informing them that Kauthar’s general litigation strategy might
provide a background against which Tongastat’s motion would be
evaluated, statements by the bankruptcy court and in Tongasat’s
sanctions motion referencing Kauthar’s general litigation strategy
with respect to the Tongasat/Rimsat compromise provided adequate notice. For
instance, before taking Tongasat’s motion for sanctions under
advisement, the bankruptcy judge spoke of the context in which
Tongasat’s motion would be evaluated, “For a year
[Kauthar’s counsel has] apparently embarked upon what appears to be a
conscious effort to maximize litigation and, in doing so, make certain that the
litigation is as time-consuming, difficult, unpleasant, and expensive as
humanly possible.” The bankruptcy court did not deny the appellants
due process by failing to ensure that they received adequate notice of what
conduct might subject them to sanctions. Finally, [*16] the appellants complain that the
bankruptcy court deprived them of their due process right to have an adequate
opportunity to be heard by not holding a hearing before imposing sanctions.
Providing an opportunity to be heard includes giving an attorney against whom a
court is considering imposing sanctions the chance to present his or her case
at a meaningful time in a meaningful manner, but a hearing is not invariably
required before sanctions may be imposed. Hancock, 192 F.3d
at 1086; Kapco Mfg. Co. v. C & O Enters., Inc., 886 F.2d
1485, 1494-95 (7th Cir. 1989); Schlaifer Nance, 194 F.3d at 335; Cook
v. American S.S. Co., 134 F.3d 771, 774-76 (6th Cir. 1998). Putting
to one side the possibility that the appellants were not entitled to a hearing
in the first place, the problem with the appellants’ argument that the
bankruptcy court should have held a hearing before imposing sanctions is that
the appellants never requested a hearing. Since a court is not invariably
required to provide a hearing before imposing sanctions, the
appellants’ failure to request a hearing waives any right they might
have had to one. See Kapco, 886 F.2d at 1495 [*17]
(suggesting that request for hearing after sanctions were imposed was too
late). Accordingly, the bankruptcy court did not err by imposing sanctions
without holding a hearing. n4 - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - -
- n4 The appellants also mention in passing an allegation that they
had inadequate notice of the source of the authority the bankruptcy court would
invoke. Beside the fact that the appellants never develop an argument on this
ground, such an argument would be a difficult one to make because Tongasat
specifically referred to 11 U.S.C. sec. 105(a) in its sanctions motion and a
bankruptcy court’s authority to act under that statutory provision is
often tied to the inherent powers doctrine. See In re Volpert, 110 F.3d
494, 501 (7th Cir. 1997) (discussing without deciding the issue). - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - B. Abuse of Discretion The appellants next challenge the merits of the bankruptcy
court’s decision to sanction them. We review a decision to impose
sanctions for an abuse of discretion. Hancock, 192 F.3d at 1085.
[*18] Unless the sanctioning court has acted contrary to
the law or reached an unreasonable result, we will affirm the sanctions
decision. See generally Hernandez v. Joliet Police Dept., 197 F.3d
256, 264 (7th Cir. 1999); Johnson v. Kakvand, 192 F.3d 656, 661
(7th Cir. 1999). The appellants first argue that the sanctions imposed against them
must be reversed because the bankruptcy court failed to make an explicit
finding of bad faith. The parties agree that the bankruptcy court could only exercise
its authority under 11 U.S.C. sec. 105(a) and the inherent powers doctrine to
impose sanctions if the appellants acted in bad faith. n5 It is also agreed
that the bankruptcy court did not explicitly say that the appellants acted in
bad faith. Still, it is impossible to read the bankruptcy court’s
opinion without concluding that the bankruptcy court did in fact determine that
the appellants acted in bad faith. For example, the bankruptcy court found that
Kauthar’s attorneys, acting in concert, had decided in advance to
sabotage the Lau deposition and that they did so intentionally and for the
purposes of imposing costs on Tongasat and delaying the [*19]
upcoming hearing on the Tongasat/Rimsat compromise. Such conduct certainly
qualifies as bad faith conduct, even if the bankruptcy court never said so in
so many words. Nevertheless, the appellants contend that the bankruptcy
court’s failure to use the words “bad faith”
requires that we reverse the bankruptcy court’s sanctions order. n6 - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - -
- n5 The parties’ agreement subsumes at least two
unresolved issues, whether a bankruptcy court can act pursuant to the inherent
powers doctrine, and whether bad faith is required for a bankruptcy court to
exercise its authority under 11 U.S.C. sec. 105(a). We offer no opinion on
these issues. n6 The appellants cite cases involving sanctions imposed pursuant
to the inherent powers doctrine in which the reviewing court has required a
specific finding of bad faith. See, e.g., Roadway Express, Inc. v. Piper, 447 U.S. 752, 767, 65 L. Ed.
2d 488, 100 S. Ct. 2455 (1980); Elliott v. Tilton, 64 F.3d
213, 217 (5th Cir. 1995). However, it is impossible to tell from these cases
whether a sanctioning court would have to use the words “bad
faith” or whether explicit findings demonstrating unequivocally that
the sanctioned party had acted in bad faith would be sufficient. Accordingly,
the cases the appellants cite are not particularly helpful in reviewing the
sanctions order in this case. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
[*20] We disagree. Reversing an order imposing sanctions in the face of
findings like those made by the bankruptcy court in this case simply because
the sanctioning court did not use the words “bad faith” would
needlessly elevate form over substance. Where it is clear that a court has
found that a litigant intentionally abused the judicial process in an
unreasonable and vexatious manner, we will not reverse an order imposing
sanctions merely because the sanctioning court did not make an explicit finding
of “bad faith.” Cf. In re Volpert, 110 F.3d
494, 500-01 (7th Cir. 1997) (affirming sanctions order under 11 U.S.C. sec.
105(a) without mentioning any explicit finding of bad faith by the sanctioning
court). In this case, the bankruptcy court’s failure to make an
explicit finding of “bad faith” does not require us to
reverse the sanctions it imposed against the appellants. The appellants next argue that their conduct did not warrant
sanctions in any event. With respect to Voelker and Howard this argument is impossible to
accept. They were the ones who conducted the Lau deposition in an unproductive
and harassing manner, and such behavior is undoubtedly [*21]
sanctionable. See generally Carroll v. Jaques Admiralty Law Firm, P.C., 110 F.3d
290 (5th Cir. 1997) (sanctions imposed based on abusive conduct during
deposition); Sassower v. Field, 973 F.2d 75, 78 (2d Cir. 1992)
(sanctions imposed based on a pattern of vexatious conduct including
“incredibly harassing depositions”); Heinrichs v. Marshall
& Stevens Inc., 921 F.2d 418 (2d Cir. 1990) (sanctions imposed
based on improper conduct at depositions). Voelker and Howard, nevertheless,
attempt to explain their conduct at the deposition as a reasonable response to
Lau’s intransigence. But, even if their conduct could be given the
innocent explanation they urge, the bankruptcy court did not abuse its
discretion in interpreting the events differently. With respect to Factor, the
question is a closer one, as there is no direct evidence of his participation
in the scheme to sabotage the Lau deposition. Still, there is sufficient
circumstantial evidence that Factor acted in concert with Voelker and Howard
and that Factor shares responsibility for the scheme. To begin with, Factor was
the attorney for Kauthar who noticed the Lau deposition. Likewise, he signed
[*22] the motion to compel the Princess’s
deposition, a deposition the bankruptcy court considered to be a part of the
plan to delay the proceedings and otherwise inconvenience Tongasat and those
associated with Tongasat. Moreover, he, Voelker, and Howard were all members of
the same law firm and jointly represented Kauthar in the bankruptcy
proceedings. In fact, it was Factor who argued against Tongasat’s
objection to Kauthar’s request to depose the Princess and who chose to
go ahead and depose Lau. Perhaps most significantly, however, the bankruptcy
judge, who was undoubtedly familiar with the roles played by the various
counsel who appeared before him, found that Factor acted in concert with
Voelker and Howard to sabotage the Lau deposition. For all these reasons, it is
impossible to conclude that the bankruptcy court abused its discretion in
sanctioning Factor. The appellants next argue that, even if sanctions are appropriate,
the sanctions the bankruptcy court imposed are excessive and unwarranted.
However, the appellants did not make these arguments to the bankruptcy court in
their response to Tongasat’s motion for sanctions. And, such arguments
must be made to the sanctioning court [*23] if
they are to be considered by a reviewing court, as the failure to make an
argument constitutes waiver of that argument. In re Kroner, 953 F.2d
317, 319 (7th Cir. 1992); Magicsilk Corp. of N.J. v. Vinson, 924 F.2d
123, 125 (7th Cir. 1991) (per curiam). Since the appellants did not argue (at
least in a timely fashion n7) that any of the sanctions proposed by or to the
bankruptcy court would have been excessive or unwarranted if in fact sanctions
were appropriate, we will not consider their arguments on appeal. - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - -
- n7 In a motion to reconsider, Factor did argue that revoking his
pro hac vice status was an excessive sanction, but arguments raised for the
first time in a motion to reconsider are not preserved for appeal. Green v.
Whiteco Indus., Inc., 17 F.3d 199, 201 n.4 (7th Cir. 1994). - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - Finally, Factor, alone, argues that because ordinary procedural
rules would have been adequate to address the misconduct on his part, the
bankruptcy court abused its discretion by resorting [*24] to
11 U.S.C. sec. 105(a) n8 and its inherent powers. Specifically, Factor suggests
that Bankruptcy Rules 9011 n9 and 7026 n10 (which largely track Rules 11 and 26
of the Federal Rules of Civil Procedure) would have been adequate to sanction
his misconduct. The bankruptcy court opted instead to rely on its authority
under 11 U.S.C. sec. 105(a) and the inherent powers doctrine because Rules 9011
and 7026 would only allow the court to sanction Factor, as he was the only one
who signed the Lau notice of deposition. - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - -
- n8 In relevant part, 11 U.S.C. sec. 105(a) provides, “The
court may issue any order, process, or judgment that is necessary or
appropriate to carry out the provisions of this title.” n9 The version of Rule 9011 in effect when Factor’s
misconduct took place allowed a bankruptcy court to sanction an attorney who
signed a pleading or other paper that was frivolous or vexatious. n10 Rule 7026 simply incorporates by reference Federal Rule of
Civil Procedure 26, which allows a court to sanction an attorney who signs a
discovery request, response, or objection that is frivolous or vexatious. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - -
- [*25] A sanctioning court should ordinarily rely on available authority
conferred by statutes and procedural rules, rather than its inherent power, if
the available sources of authority would be adequate to serve the
court’s purposes. Chambers v. NASCO, Inc., 501
U.S. 32, 50, 115 L. Ed. 2d 27, 111 S. Ct. 2123 (1991); Corley
v. Rosewood Care Ctr., Inc. of Peoria, 142 F.3d 1041,
1058-59 (7th Cir. 1998). But, this rule does not require the sanction imposed
on Factor to be reversed. To begin with, the bankruptcy court acted pursuant to
its statutory authority under 11 U.S.C. sec. 105(a) as well as its inherent
powers. Thus, it is unlikely that the rule to which Factor appeals even applies
to his situation. Moreover, a sanctioning court is not required to apply
available statutes and procedural rules in a piecemeal fashion where only a
broader source of authority is adequate to justify all the necessary sanctions.
Chambers, 501 U.S. at 50-51. The bankruptcy court was justified in
resorting to 11 U.S.C. sec. 105(a) and its inherent powers in order to ensure
that all the culpable parties received an appropriate [*26]
sanction and did not abuse its discretion in declining to sanction Factor under
Bankruptcy Rule 9011 or 7026. C. Timeliness of Sanctions The appellants contend that the 13-month delay between the
bankruptcy court’s acceptance of the proposed compromise of the Tongasat
claims and the final issuance of its sanctions order requires that the
sanctions order be reversed. The appellants cite Prosser v. Prosser, 186 F.3d
403 (3d Cir. 1999), in which the Third Circuit, pursuant to a rule announced
under its supervisory power, reversed a sua sponte sanctions order that was
entered after final judgment. In an effort to prevent piecemeal appeals and
ensure that the deterrent effect of a sanction is not dissipated through delay,
the Third Circuit held that such orders must be entered prior to final judgment
if they are based on conduct occurring prior to that time. Id. at
405-06. Even if we were persuaded to adopt the same rule the Third Circuit
has, but Cf. Divane v. Krull Elec. Co., 200 F.3d 1020, 1025
(7th Cir. 1999) (rejecting proposal to require Rule 11 motions to be filed
before final judgment), the present case would not call for the application
[*27] of the rule. To begin with, while the
Tongasat/Rimsat compromise had been approved, the bankruptcy action itself
remained open and Kauthar remained an active litigant. Thus, the approval of
the Tongasat/Rimsat compromise (even if it were considered an appealable final
decision) does not create the same sort of finality as an ordinary final
judgment and therefore does not justify the same requirement that sanctions
orders be issued before a court enters a final judgment. Moreover, the Third
Circuit’s rule appears to apply only to sua sponte sanctions
orders. Here the sanctions order was the product of a sanctions motion filed by
Tongasat. In sum, while lengthy delays in the imposition of sanctions are not
preferable, we do not believe the delay that occurred in this case warrants
reversing the bankruptcy court’s sanctions order. IV In sanctioning the appellants the bankruptcy court did not deprive
the appellants of due process, abuse its discretion to impose sanctions, or
otherwise commit reversible error. Accordingly, we AFFIRM the bankruptcy
court’s order imposing sanctions against the appellants. |