JL AM Plus, LLC v. MBN Real Estate Investments, LLC (In re Javedanfar) (Bankr. C.D. Cal.)
The following is a case update written by the Hon. Meredith Jury (U.S. Bankruptcy Judge, C.D. CA., ret.), analyzing a recent decision of interest:
A Bankruptcy Court in the Central District of California (the “Court”) recently denied a plaintiff’s Application for Issuance of an Order to Show Cause re Contempt against a defendant which had been ordered to pay attorney’s fees and costs (“the Fee Order”) arising from the plaintiff defending against an appeal which had been voluntarily dismissed; the defendant had failed to pay the award. The Court ruled the Fee Order was an ordinary money judgment, not a sanction, enforceable only by regular execution means. JL AM Plus, LLC, successor-in-interest to Yoo, Chapter 7 trustee v. MBN Real Estate Investments, LLC (In re Javedanfar), 2021 WL 4739191 (Bankr. C.D. Cal. October 12, 2021).
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Chapter 7 trustee Timothy J. Yoo (the original plaintiff) obtained a judgment against defendant MBN Real Estate Investments, LLC (“defendant”) in October 2019 for more than $1.8 million, which included costs and attorney’s fees based on prevailing party fee shifting provisions. The defendant appealed to the Ninth Circuit BAP, which affirmed, then filed a further appeal to the Ninth Circuit. The defendant eventually voluntarily dismissed the circuit court appeal but the plaintiff obtained the Fee Order for defending against that appeal. The Fee Order stated the fees were to be paid within forty-five days of the Order. When the defendant did not pay the fees timely, the successor plaintiff filed a motion, asking the court to issue an OSC re Contempt to enforce the Fee Order.
After first noting that the successor plaintiff did not follow the Court’s local rules for issuance of an OSC re Contempt, the Court then denied such issuance on the merits of the application because the Fee Order was an ordinary money judgment, not a sanction.
Plaintiff contended that defendant should be held in contempt for not paying the Fee Order, citing as authority two Ninth Circuit BAP decisions which had approved of contempt as an enforcement mechanism for not paying awarded fees, Rosales v Wallace (In re Wallace), 490 B.R. 898, 906-07 (9th Cir. BAP 2013) and In re Hernandez, 2014 WL 1345940, at *5 (9th Cir. BAP 2014). The court distinguished those opinions because the awarded fees in those cases were a sanction for the responsive parties’ misconduct.
Citing to Wallace, the Court noted that the use of the contempt power to enforce a fee award is appropriate only if the fee award in question was imposed as a sanction for misconduct. Wallace, 490 B.R. at 907. The Wallace decision agreed with the use of contempt in that case because the fees were based on the party’s misconduct, a violation of the discharge injunction. Similarly, the fees awarded in Hernandez were intended to remediate misconduct, a violation of the automatic stay. Here, the attorney’s fees were granted as part of the prevailing party, fee shifting provisions applicable to the original judgment. No misconduct was involved and the award was not a sanction.
Because no sanctions were involved, the successor plaintiff was only entitled to enforce the award like any other ordinary money judgment, by issuance of a writ of execution.
I write on this case because I was a member of the Wallace panel and at the time of that opinion, as a sitting bankruptcy judge, I was delighted to add it to the lexicon on contempt proceedings. Prior to that case, without citing any particular authority, I had declined to allow trustees to use contempt to enforce turnover orders for funds which had been in bank accounts on the petition date or fee awards based on fee-shifting provisions. To me, as noted by the Court here, contempt powers of courts are reserved for remedying serious misbehavior, not just failing to pay funds. I would tell them to obtain a writ of execution and enforce their orders, just as they would enforce a judgment. The Wallace decision cited authority which reinforced that my decisions were the correct ones. The bankruptcy court here properly applied the BAP’s reasoning.
The practice tip here is a simple one. If a practitioner has been successful in requesting a bankruptcy court to issue a fee award for misconduct, she should ask the court to make clear, either in an oral ruling, in written findings, or even specifically in the order, that the award is a sanction. Then contempt will be a remedy for failure to comply with the order.
This review was written by the Hon. Meredith Jury (U.S. Bankruptcy Judge, C.D. CA., 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.