Business Law

Baham v. Bank of New York (In re Baham) (9th Cir. BAP)

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The following is a case update written by Adam A. Lewis, Senior Counsel, Morrison & Foerster LLC, analyzing a recent decision of interest:


In Baham v. Bank of New York (In re Baham), ___ B.R. ___, 2020 WL 5186747, (BAP 9th Cir. September 30, 2020) (“Baham”), in an opinion not for publication, the United States Ninth Circuit Bankruptcy Appellate Panel (the “BAP”) affirmed the bankruptcy court’s decision awarding a bank the attorneys’ fees and costs it incurred in getting the debtor’s Chapter 13 dismissed as a bad faith filing at the end of a 12-year saga of unsuccessful litigation pursued by the debtor to forestall a foreclosure.

Baham can be found here.


In 2004, the debtor used a mortgage to buy his home. The original lender later sold the mortgage to the appellee bank. By 2007, the debtor had defaulted and filed a Chapter 7 bankruptcy. The trustee abandoned the property and the debtor received his discharge. He thereupon initiated a strategy of delaying a foreclosure by various devices: mediation under a state program, appeal of the mediator’s decision terminating the mediation, and two state court lawsuits (one against the bank and one against the bank and its servicer) and related appeals. All of these gambits failed. On August 6, 2019, the day before the scheduled foreclosure, the state court ended his last proceeding; that very evening, the debtor filed a Chapter 13 bankruptcy with “skeletal” papers, subjecting the foreclosure to the bankruptcy automatic stay. Two weeks later he filed his schedules and statement of financial affairs. He listed the servicer as a having liquidated, undisputed and noncontingent secured claim of $944,000 against a property he valued at but $770,000. The papers “otherwise contained numerous material misrepresentations and concealments.” Among these was that the property was not his principal residence (thereby allowing him to try to modify the mortgage under a proposed Chapter 13 plan). At his first meeting of creditors, the debtor admitted he filed the bankruptcy solely to stop the foreclosure. The servicer filed a secured proof of claim for $941,000 that included $301,000 in arrearages. Given the debtor’s assets and income, it was clear he could not address the arrearages, let alone pay off the loan or pay other creditors.

The bank filed a motion to dismiss the case as a bad faith filing. The debtor failed to file any opposition, and he did not challenge the bank’s claim as filed by the servicer (and listed by him). His counsel appeared at the hearing, however. Finding the facts as described above and adding that the debtor’s filings were “‘patently false and . . . seriously misleading,’” the bankruptcy court concluded that the debtor had filed the case in bad faith simply to further delay the foreclosure, without any hope of confirming a plan. It therefore granted the motion to dismiss the case. The debtor did not appeal this order. the bankruptcy court also granted the bank’s subsequent motion under Bankruptcy Rule 9011, and its own inherent power, to tax the debtor the fees and costs it had incurred in prosecuting the motion to dismiss, again relying on its findings that the debtor’s filing of the petition was in bad faith without any intent of or prospect for confirming a plan to pay his creditors. The debtor appealed only the sanctions order. The BAP affirmed.


In affirming, the BAP applied an abuse of discretion standard. It rejected all three of the debtor’s contentions: (1) that the bank did not hold a secured claim; (2) that the bankruptcy court’s finding of bad faith on his part was error; and (3) that awarding fees and costs as a sanction was inappropriate.

Bank’s Secured Claim. The BAP noted both that the debtor not only himself scheduled the claim, but never objected to the filed claim and neglected to raise the issue in its opening brief on the appeal. It saw no reason to apply the narrow discretionary exceptions to the general rules that matters not raised below and matters not raised in the opening appellate brief are waived.

Bad Faith. The BAP reaffirmed a bankruptcy court’s inherent authority to impose sanctions for bad faith. Sanctions are appropriate when there has been “either bad faith, conduct tantamount to bad faith, or recklessness” with an “additional factor such as frivolousness, harassment, or an improper purpose. [Citation omitted.] “ Based on the record below, including the findings in the dismissal order that the bankruptcy court imported into the sanctions order, the BAP easily found that the bankruptcy court properly awarded sanctions. Tying up the bundle neatly, the BAP wrote that the debtor had the opportunity to fully and fairly litigate the bad faith issue.

Fees and Costs. The debtor contended he had been adequately punished by the loss of his home to foreclosure. But the BAP observed that foreclosure was not punishment, but simply the vindication of the bank’s legal rights. And the fees imposed were only those occasioned in the bankruptcy by the debtor’s bad faith, fees that the bank otherwise never would have sustained.

Rule 9011 Sanctions. The BAP also confirmed the propriety of the bankruptcy court’s finding of a violation of Rule 9011 and its imposition of sanctions for that transgression, too. According to the BAP, Rule 9011 sanctions must serve a deterrent purpose. Here that test was satisfied because the sanction of fees and costs was directly tied to the conduct that caused them. The BAP added that in awarding such sanctions under Rule 9011, courts must apply a “sliding scale” of two factors: “frivilousness” and “improper purpose,” with the presence of more of one reducing how much of the other is needed. In this case, the BAP concluded, there was plenty of both criteria to support the bankruptcy court’s application of Rule 9011.


There can be no quarrel with the bankruptcy court or the BAP in Baham. Indeed, the case is a poster boy for bad faith. There is ample egregious abuse of the privilege of bankruptcy following a lengthy like abuse of other judicial and quasi-judicial proceedings (while the non-bankruptcy proceedings are not as such bad faith in the bankruptcy case, they eloquently inform the nature of the debtor’s bankruptcy conduct). Evidently yet unfazed, the debtor has appealed the BAP’s decision to the Ninth Circuit Court of Appeals. The determined effort of both the bankruptcy court and the BAP to punish the debtor is a reminder that filing a petition in bad faith is a species of Rule 9011 violation that is considered sufficiently culpable conduct that it is implicitly excluded from Rule 9011’s opportunity for the party to purge an offending filing by withdrawing (or correcting) it within 21 days of the filing of the Rule 9011 motion..

Moving on from wonder at the incredible record of the debtor’s stalling foreclosure for around 15 years, including at least nine years during which he lived in the house for free, it is worth again noting that, as has been the case in a number of recent reported decisions on a variety of issues (e.g., use of a state court decision for issue preclusion in a bankruptcy nondischargeability action), the vital importance of counsel’s making sure that he creates a complete factual record that is incorporated into a court’s findings if he hopes to use the particulars of a case to drive an appeal or to underwrite fact preclusion in a related proceeding.

These materials were authored by Adam A. Lewis, Senior Counsel, Morrison & Foerster LLC, a member of the ad hoc group, with editorial assistance by Meredith Jury, (bankruptcy judge, C.D. Cal. (Ret.)), a member of the ad hoc group. Thomson Reuters holds the copyright to these materials and has permitted the Insolvency Law Committee to reprint them. This material may not be further transmitted without the consent of Thomson Reuters.

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