Debilio v. Golden (In re Debilio)

In re: JOSEPH DEBILIO, Debtor.

JOSEPH DEBILIO; JOHN STEWART, Appellants, v. JEFFREY IAN GOLDEN, Chapter 7 Trustee; VIBIANA DEBILIO, Appellees.

BAP No. CC-14-1226-KuDKi

BAP No. CC-14-1299-KuDKi (related appeals)

UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT

Argued and Submitted: February 19, 2015

February 27, 2015

NOT FOR PUBLICATION

Bk. No. 09-23812

MEMORANDUM^*

Argued and Submitted on February 19, 2015 at Los Angeles, California

Appeal from the United States Bankruptcy Court for the Central District of California

Honorable Erithe A. Smith, Bankruptcy Judge, Presiding

Appearances: David Bruce Dimitruk argued for appellants Joseph DeBilio and John Stewart; David Edward Hays of Marshack Hays LLP argued for appellee Vibiana DeBilio^**

Before: KURTZ, DUNN and KIRSCHER, Bankruptcy Judges.

INTRODUCTION

In debtor Joseph DeBilio's bankruptcy case, the chapter 7¹ trustee Jeffrey Golden filed a motion seeking approval of a settlement and sale between the bankruptcy estate and Vibiana DeBilio, Joseph's former spouse.² The bankruptcy court granted the motion, and Joseph appealed.

While Joseph's appeal from the sale/settlement order was pending, Joseph recorded notices of pending actions - or lis pendens - based on the DeBilios' state court marital dissolution proceedings. By recording the lis pendens, Joseph asserted a continuing interest in a number of parcels of real property even though the chapter 7 trustee had sold the estate's interest in those parcels in accordance with the sale/settlement order.

In response to the lis pendens, Vibiana commenced civil contempt proceedings in the bankruptcy court against Joseph and his counsel John Stewart. Ultimately, the court found Joseph and Stewart in contempt of court, awarded civil contempt sanctions and attorney fees, and expunged the lis pendens. Joseph and Stewart filed two new appeals which collectively challenged all of these rulings.

In September 2014, the Panel issued a decision disposing of the first appeal - the appeal from the sale/settlement order. The panel vacated that order. Because the bankruptcy court'scontempt finding, its sanctions award, its fee award and its expungement of the lis pendens all were founded on the vacated sale/settlement order, we must REVERSE all of those rulings.

FACTS

Joseph and Vibiana were engaged in lengthy and contentious marital dissolution proceedings in the Orange County Superior Court (Case No. 04D009547). The state court entered an order of dissolution several years ago and entered a final support order in October 2012. Joseph appealed the state court's final support order to the California Court of Appeal, which appeal is still pending (Appeal No. G048015). When Joseph filed his bankruptcy case, the parties' dispute spilled over into the bankruptcy court.

In relevant part, Joseph opposed the chapter 7 trustee's motion for approval of a settlement and sale of estate assets between the chapter 7 trustee and Vibiana, pursuant to which the trustee agreed to sell to Vibiana virtually all of the estate's assets. The facts and proceedings leading up to the bankruptcy court's order granting the sale/settlement motion already have been described in the Panel's September 11, 2014 memorandum decision vacating the sale/settlement order (BAP No. CC-13-1441-TaPaKi). Therefore, we will limit our factual recitals in this decision to the circumstances leading up to the court's contempt, sanctions, fee and expungement rulings.

In December 2013, after the bankruptcy court's entry of the sale/settlement order, Stewart recorded the lis pendens on behalf of his client Joseph in the official records of both Orange County and San Bernardino County. Stewart then emailed Vibiana'scounsel to advise him of the lis pendens and to raise the topic of whether it might be time to discuss a global settlement. Upon learning of the lis pendens, Vibiana's counsel advised Stewart that the recordation contravened the bankruptcy court's sale/settlement order and that, unless Joseph voluntarily withdrew the lis pendens, Vibiana would seek expungement of the lis pendens as well as contempt sanctions against both Joseph and Stewart.

In February 2014, Vibiana filed her motion for expungement of the lis pendens and for entry of an order to show cause why Joseph and Stewart should not be held in contempt. The motion was served on both Joseph and Stewart by overnight mail. Neither Joseph nor Stewart have raised any issue regarding the manner in which the motion was served. After reviewing the motion, the bankruptcy court set a hearing date of April 2, 2014, and issued an order directing Joseph and Stewart to show cause: (1) why they should not be held in contempt; and (2) why the lis pendens should not be ordered expunged.

Vibiana's proofs of service indicate that Vibiana hired a process server to serve the order to show cause personally on both Joseph and Stewart. In turn, the process server left a service copy of the order to show cause with a receptionist at Stewart's place of business and did the same at Joseph's place of business.

Neither Joseph nor Stewart filed a written response to the order to show cause. At the hearing on the order to show cause, no one appeared on behalf of Joseph, but an attorney by the name of David Dimitruk specially appeared on behalf of Stewart andargued that the order to show cause had not been properly served and, consequently, the bankruptcy court lacked personal jurisdiction over Stewart.

The court rejected this jurisdictional argument and further found that both Joseph and Stewart were in contempt of the court's sale/settlement order by virtue of the lis pendens they recorded. However, the court did not immediately award any contempt sanctions against Joseph and Stewart. Instead, the court set a continued hearing for the purpose of ascertaining the status of the contempt in roughly thirty days. The court further gave Joseph and Stewart until April 9, 2014 (seven days from the date of the first contempt hearing) to purge their contempt by withdrawing the lis pendens, and provided that they would be sanctioned $1,000 per day for every day after April 9 the lis pendens remained in effect. The court reserved the issues concerning Vibiana's requests for attorney fees and for expungement of the lis pendens. The court entered its order finding Joseph and Stewart in contempt of court on April 18, 2014, and Joseph and Stewart timely appealed that order.

Joseph and Stewart did not purge their contempt. At the continued contempt hearing held on May 13, 2014, Dimitruk once again appeared, this time for both Joseph and Stewart. First, the bankruptcy court rejected Joseph and Stewart's oral request that the court defer a further ruling in the contempt proceedings until the Panel resolved their motion for a stay pending the disposition of their appeal from the sale/settlement order. Then, the court granted Vibiana's request for an award of $3,500 in attorney fees she incurred in the contempt proceedings.Relying on Cal. Civil Procedure Code ("C.C.P.") §§ 405.30, et seq., the court also granted Vibiana's request for expungement of the lis pendens. In addition, the court followed through with its imposition of sanctions of $1,000 per day, payable to the court, for a period of 24 days (from April 10, 2014 to May 13, 2014).

On May 27, 2014, the court entered its order memorializing its rulings on expungement, sanctions and fees. Joseph and Stewart also timely appealed that order.

JURISDICTION

We discuss the bankruptcy court's jurisdiction below. We have jurisdiction under 28 U.S.C. § 158.

ISSUES

1. Did the bankruptcy court have personal jurisdiction over Joseph and Stewart?

2. Did the bankruptcy court have subject matter jurisdiction over Vibiana's motion?

3. Must we set aside the bankruptcy court's contempt, sanctions, fee and expungement rulings in light of the Panel's prior decision vacating the sale/settlement order?

STANDARDS OF REVIEW

When, as here, the facts relevant to the bankruptcy court's exercise of jurisdiction are undisputed, we review de novo questions regarding personal jurisdiction and subject matter jurisdiction. Sherrie Keys v. 701 Mariposa Project, LLC (In re 701 Mariposa Project, LLC), 514 B.R. 10, 14 (9th Cir. BAP 2014); Wilshire Courtyard v. Cal. Franchise Tax Bd. (In re Wilshire Courtyard), 729 F.3d 1279, 1284 (9th Cir. 2013).

We review for an abuse of discretion the bankruptcy court's contempt, sanctions and fee rulings. See Nash v. Clark Cnty. Dist. Atty's Office (In re Nash), 464 B.R. 874, 878 (9th Cir. BAP 2012). We also review for an abuse of discretion the bankruptcy court's expungement order. Gonzalez v. Aurora Loan Servs. LLC (In re Gonzalez), 2012 WL 603747, *5 (9th Cir. BAP Feb. 2, 2012) (Mem. Dec.); Weston v. Rodriguez, 110 B.R. 452, 460 (E.D. Cal. 1989), aff'd, 967 F.2d 596 (9th Cir. 1992) (table).

The bankruptcy court abuses its discretion if its decision was based on an incorrect legal rule or its factual findings were illogical, implausible, or without support in the record. United States v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc).

DISCUSSION

We will first address Joseph and Stewart's jurisdictional arguments. Joseph and Stewart contend that the bankruptcy court lacked personal jurisdiction over them. Joseph and Stewart point out that Central District of California Local Bankruptcy Rule 9020-1(e)(2) requires personal service of orders to show cause regarding contempt "on any entity not previously subject to the personal jurisdiction of the court." According to Joseph and Stewart, Vibiana's attempt to personally serve the order to show cause on both of them was defective because, under Rules 7004(a), 9014(b) and 9020 (making Civil Rule 4(e) applicable in contempt proceedings), personal service sufficient to confer personal jurisdiction over them could not be accomplished by merely leaving a copy of the order to show cause with their receptionists.

However, Joseph and Stewart's personal jurisdiction argument...