Eric Daniel Arbucci

EDWARD J. EMMONS, CLERK S/ □□□□□ U.S. BANKRUPTCY COURT 5 □□ 2 NORTHERN DISTRICT OF CALIFORNIA □□ □□□ Qs aise 1 □□□□□□□□ 9 The following constitutes the Memorandum Decision of the Court. Signed: July 3, 2019 [3] 4 pol A VIB" 2 Roger Lé Efremsky Sey 6 U.S. Bankruptcy Judge [8] 9 UNITED STATES BANKRUPTCY COURT 10 NORTHERN DISTRICT OF CALIFORNIA 11 OAKLAND DIVISION [13] re: Case No. 18-41720 RLE 15 Chapter 7 16 ERIC DANIEL ARBUCCI, Date: February 6, 2019 Time: 2:00 p.m. 17 Debtor. Place: Courtroom 201 18 / [19] MEMORANDUM DECISION ON CREDITOR 20 SAMUEL GOODWIN’S MOTION FOR SANCTIONS 21 Before the court is creditor Samuel Goodwin’s (hereinafter 22 referred to as “Creditor”) Motion for Sanctions after finding of 23 || bad faith in Debtor Eric Daniel Arbucci’s (hereinafter referred 24} to as “Debtor”) chapter 13 bankruptcy. Creditor seeks sanctions 25 against both the Debtor and his counsel, Arasto Farsad 26 || (hereinafter referred to as “Debtor’s Counsel”). 27) / / / / / / / - 1 - 1 The court has jurisdiction over this core proceeding 2 pursuant to 28 U.S.C. §§ 157 (b)(2)(A), (B) and (L). The 3 following constitutes the court’s findings of fact and 4 conclusions of law.1 5 I. Factual Background 6 This matter arises from Debtor’s illegal conduct in 2015, 7 when Debtor, driving an unregistered and uninsured car at an 8 unsafe speed and without proper vision correction, failed to 9 yield to Creditor, a pedestrian in a crosswalk, and hit him, 10 causing Creditor serious bodily injury. 11 On June 4, 2018, after trial in Alameda County Superior 12 Court, judgment in the amount of $268,875.30 was entered in favor 13 of Creditor and against Debtor (hereinafter, the “Judgment”). 14 Creditor recorded an Abstract of Judgment on June 4, 2018, 15 thereby perfecting the Judgment as a lien against Debtor’s home. 16 Debtor appealed the Judgment but failed to post a supersedeas 17 bond.2 Creditor then filed an application to sell Debtor’s home 18 to satisfy the Judgment. Several days later, on July 27, 2018, 19 Debtor filed his chapter 13 bankruptcy, thereby staying 20 Creditor’s application to sell Debtor’s home. [22] 1Unless specified otherwise, all chapter and section 23 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532 , all “Rule” references are to the Federal Rules of Bankruptcy 24 Procedure, and all “Civil Rule” references are to the Federal Rules of Civil Procedure. [25] 26 2In his bankruptcy schedules, Debtor valued his home at $1.650 million. The only debt against the home was Creditor’s 27 Abstract of Judgment in the amount of $268,875.30 and Alameda County property taxes of approximately $10,000. See Proof of 28 Claim #2-1 and #4-1. -21 Following the bankruptcy filing, both the chapter 13 2 Standing Trustee and Creditor filed objections asserting that 3 Debtor’s case had been filed in bad faith and that the plan(s)3 4 were being proposed in bad faith. With regards to the plan(s) 5 being filed in bad faith, neither the chapter 13 Standing Trustee 6 nor the Creditor sent a “safe harbor” letter to Debtor and/or 7 Debtor’s Counsel as described under Rule 9011(c). 8 The chapter 13 Standing Trustee and the Creditor’s 9 objections to confirmation were heard by the court on December 7, 10 2018. After considering the papers and the parties’ arguments, 11 the court found that the case had been filed in bad faith and the 12 plan(s) had been proposed in bad faith, and sustained both 13 objections.4 The court then converted the case to chapter 7 14 pursuant to 11 U.S.C. § 1307 (c). 15 On January 9, 2019, Creditor filed the current Motion for 16 Sanctions. The matter came on for hearing on February 6, 2019. 17 After hearing, the court took the matter under submission. 18 II. Legal Standard 19 Federal Rule of Bankruptcy Procedure 9011 provides, in 20 relevant part, as follows: 21 (b) Representations to the Court. By presenting to the court (whether by signing, filing, submitting, or later 22 advocating) a petition, pleading, written motion, or other paper, an attorney or unrepresented party is 23 certifying that to the best of the person’s knowledge, information and belief, formed after an inquiry [25] 3At the time of the confirmation trial, Debtor had filed his 26 fifth amended plan. 27 4The court made detailed findings of fact and conclusions of law orally on the record. Those findings and conclusions are 28 incorporated herein by reference. -31 reasonable under the circumstances, – (1) it is not being presented for any improper purpose, 2 such as to harass or to cause unnecessary delay or needless increase in the cost of litigation; 3 (2) the claims, defenses, and other legal contentions therein are warranted by existing law or by a 4 nonfrivolous argument for the extension, modification, or reversal or existing law or the establishment of new 5 law; (3) the allegations and other factual contentions have 6 evidentiary support or, if specifically so identified, are likely to have evidentiary support after a 7 reasonable opportunity for further investigation or discovery; and 8 (4) the denials of factual contentions are warranted on the evidence or, if specifically so identified, are 9 reasonably based on lack of information or belief. 10 (c) Sanctions. If, after notice and a reasonable opportunity to respond, the court determines that 11 subdivision (b) has been violated, the court may, subject to the conditions stated below, impose an 12 appropriate sanction upon the attorneys, law firms, or parties that have violated subdivision (b) or are 13 responsible for the violation. (1) How Initiated. 14 (A) By Motion. A motion for sanctions under this rule shall be made separately from other motions 15 or requests and shall describe the specific conduct alleged to violate subdivision (b). It 16 shall be served as provided in Rule 7004. The motion for sanctions may not be filed with or 17 presented to the court unless, within 21 days after service of the motion (or such other period 18 as the court may prescribe) the challenged paper, claim, defense, contention, allegation, or denial 19 is not withdrawn or appropriately corrected, except that this limitation shall not apply if the 20 conduct alleged is the filing of a petition in violation of subdivision (b). If warranted, the 21 court may award to the party prevailing on the motion the reasonable expenses and attorney’s fees 22 incurred in presenting or opposing the motion. Absent exceptional circumstances, a law firm shall 23 be held jointly responsible for the violations committed by its partners, associates, and 24 employees. 25 FRBP 9011(b) and (c)(1)(A). 26 With regards to Creditor’s request for sanctions for 27 Debtor’s proposing plans in bad faith, the court is unable and 28 unwilling to issues sanctions as a result of Creditor’s failure -41 to comply with FRBP 9011(c)(1)(A). The court, however, finds 2 that sanctions are appropriate for Debtor’s bad faith filing of 3 the petition itself, as the “safe harbor” provision of Rule 9011 4 requiring 21-days notice prior to seeking sanctions, is not 5 applicable to a claim that the chapter 13 petition was filed in 6 bad faith. See FRBP 9011(c)(1)(A) exception. 7 The court’s finding that the petition was filed in bad faith 8 was supported by the facts that: (1) Debtor owned his home 9 (valued at $1.650 million in his Schedule A) outright, encumbered 10 only by Creditor’s Abstract of Judgment in the approximate amount 11 of $268,000, and a tax lien in the approximate amount of $10,000; 12 and (2) Debtor listed minimal other debt in his schedules, none 13 of which was actively being collected and none of which appeared 14 to be or were the stated impetus for the bankruptcy filing. In 15 addition, Debtor’s Statement of Financial Affairs indicated that 16 he operated no business as he disclosed that he had no income 17 from employment or from operation of a business during the year 18 he filed or the two previous calendar years. Despite these 19 representations in the Statement of Financial Affairs, the court 20 acknowledges that Debtor did represent that he derived some 21 income from renting a room(s) at his home. 22 It was clear to the court that Debtor filed this bankruptcy 23 solely to delay collection of Creditor’s Judgment and to avoid 24 posting a supersedeas bond. The record supported the fact that 25 Debtor had the financial means to pay the Judgment. See In re 26 Dental Profile, Inc., 446 B.R. 885, 900 (Bankr. N.D. Ill. 2011) 27 (citations omitted) (because direct evidence of motive or intent 28 is rarely available, court must look to objectively ascertainable -51 || circumstances that support inference of improper purpose in 5 || deciding whether to award sanctions under the “improper purpose” 3 clause of Rule 9011); In re Dickson, 2017 WL 5634598 , *5 (Bankr. Ky. November 22, 2017) (citing In re Dental Profile, Inc., 5 || 446 B.R. at 900 ) (the focus of a claim under the “improper 6 || Purpose” clause is on why the nonmovant filed the legal pleading 7 ij at issue). Moreover, because Debtor was not involved ina g || business venture, the Judgment did not pose any danger of g || disrupting business interests. See Marsch v. Marsch (In re 19 || Marsch), 36 F.3d 825 (9th Cir. 1994). 11 The court’s finding was further supported by the fact that 12 January 7, 2019, one month after the court sustained the 13 chapter 13 Standing Trustee and Creditor’s objections and 14 converted the case to chapter 7, Debtor and the chapter 7 Trustee 15 || entered into an agreement to allow Debtor to refinance his home 16 |) and pay all of his administrative and creditor claims in full. 17 || The agreement was approved by the court and was consummated. See 1g |} Docket ##101-104; 121 and 147. 19 In In re Marsch, the Ninth Circuit established a two-pronged 209 | test for determining whether sanctions are warranted under FRBP 91 | 9011 for the bad faith filing of a bankruptcy petition. 92 || Specifically, the bankruptcy court must consider both the 23 frivolousness and the improper purpose on a sliding scale, where 94 |) the more compelling the showing as to one element, the less 25 decisive need be the showing as to the other. In re Marsch, 363 26] F.3d at 829-31. 27 The court’s findings at the confirmation hearing that the 2g |) petition was filed in bad faith support a current finding that -~6- 1 the petition was both frivolous and filed for an improper 2 purpose. The petition was filed solely to delay collection of 3 Creditor’s Judgment and to avoid posting a supersedeas bond, even 4 though Debtor had the ability to satisfy the Judgment with non5 business assets.5 Debtor’s actions were a transparent attempt to 6 use a chapter 13 petition and the resulting automatic stay as an 7 inexpensive substitute for the supersedeas bond required to 8 pursue an appeal under state law. 9 Having determined sanctions are warranted, the court must 10 next determine: (1) the amount of the sanctions to be awarded 11 against Debtor; and (2) whether Debtor’s Counsel should also be 12 sanctioned. 13 Rule 9011 provides that sanctions for violation of the Rule 14 “shall be limited to what is sufficient to deter repetition of 15 such conduct or comparable conduct by others similarly situated.” 16 FRBP 9011(c)(2) (emphasis added). The court may order a violator 17 to pay the injured party “the reasonable attorneys’ fees and 18 other expenses incurred as a direct result of the violation.” [19] Id. 20 Creditor seeks an order awarding sanctions of $47,812.50 21 against Debtor and Debtor’s Counsel to reimburse Creditor for 22 attorney fees incurred in responding to the petition and opposing 23 confirmation. To grant the relief sought in full, the court must 24 find: (a) that the fees sought are reasonable; and [25] 26 5There was no evidence or argument at the hearing regarding the cost of obtaining a supersedeas bond. Regardless, the court 27 presumes that the same equity in Debtor’s home that he used to pay all of his debts in the chapter 7 would have been more than 28 sufficient to obtain a supersedeas bond. -71 (b) that the amount of the award is necessary for deterrence. 2 Creditor’s request fails this test in part. In re Studio 2000 3 USA, Inc., 2003 WL 1956241 , *7 (Bankr. N.D. Cal. April 11, 2003) 4 First, the fees sought were not all reasonably necessary to 5 contest the petition. After careful consideration of the papers 6 filed by Creditor, the time records submitted by Creditor’s 7 counsel, and the nature and duration of the hearings before the 8 court, the court determines that the fees reasonably incurred in 9 contesting the petition do not exceed $30,750.00. This figure 10 was based on the court’s determination that rather than the $700 11 and $525 that the attorneys used in their request for fees, 12 $500/hour was a reasonable rate for Creditor’s counsel. The 13 court deducted 6.0 hours for duplicative appearances and 5.3 14 hours for excessive time spent on research and writing briefs. 15 Second, as adjusted, the fees awarded do not exceed the 16 amount necessary for deterrence. This was one of the most 17 egregious filings by a debtor in this court’s experience. The 18 court therefore determines that a sanction of $30,750 is 19 necessary and sufficient to deter future conduct of this type. 20 Here, neither Debtor nor Debtor’s Counsel set forth any 21 meritorious reasons why Debtor’s Counsel Arasto Farsad, who 22 signed the petition along with the Debtor, should not be jointly 23 liable for any sanctions with Debtor. See In re Coquico, Inc., [24] 508 B.R. 929, 937-38 (Bankr. E.D. Pa. 2014) (all signatories to a 25 bankruptcy petition, including bankruptcy counsel and a debtor’s 26 officer or representative, subject themselves to Rule 9011). As 27 such, the court finds Arasto Farsad to be jointly liable for the 28 $30,750 sanction with Debtor. To the extent that there are -81 insufficient funds held by the chapter 7 Trustee to pay the 2 sanctions in full, Creditor may seek to recover these sanctions 3 from Arasto Farsad and/or his law firm. Finally, because the fee 4 award is fully sufficient for deterrence purposes, the court 5 determines that it is not necessary to impose any further 6 sanctions. 7 III. Conclusion 8 For all of the above reasons, the court awards sanctions in 9 the amount of $30,750 in favor of Creditor and jointly against 10 Debtor and Debtor’s Counsel Arasto Farsad, for Debtor’s bad faith 11 filing of his bankruptcy petition. A separate order shall issue. 12 * * * End of Memorandum Decision * * * [28] -91 Court Service List 2 No Court Service Required [28] -10-