Scott v. Anderson (In re Scott), 20-6024

627 B.R. 134

IN RE: Donald Henderson SCOTT; Carolyn Yvonne Scott Debtors

Donald Henderson Scott; Carolyn Yvonne Scott Debtors - Appellants

v.Julie Anderson, counsel for Mila Homes, LLC Creditor - Appellee

No. 20-6024

United States Bankruptcy Appellate Panel of the Eighth Circuit.

Submitted: March 15, 2021

Filed: April 16, 2021

Rehearing Denied May 10, 2021

The appellants, Donald and Carolyn Scott of Kansas City, Missouri, were not represented by counsel.

Counsel who represented the appellee was Julie Anderson of Kansas City, Missouri.

Before NAIL, Chief Judge, SCHERMER and SALADINO, Bankruptcy Judges.

SCHERMER, Bankruptcy Judge

Donald Henderson Scott and Carolyn Yvonne Scott (Debtors) appeal the bankruptcy court's¹ orders denying the Debtors' motions: (1) for sanctions against Julie Anderson; (2) to alter or amend the order denying the request for sanctions and for additional findings of fact and conclusions of law; and (3) seeking to disqualify the bankruptcy judge. We have jurisdiction over this appeal from the final orders of the bankruptcy court. See 28 U.S.C. § 158(b).² For the reasons stated, we affirm.

We also consider three motions filed in this appeal, Debtors' two motions asking us to take judicial notice and Ms. Anderson's motion for appellate sanctions. We deny the Debtors' requests for judicial notice and award Ms. Anderson $3,000 in sanctions from the Debtors.

ISSUES

The Debtors filed briefs on appeal listing seventeen items they designate as issues. Before filing their opening brief, the Debtors filed a separate statement listing twenty items they designate as issues on appeal. The multitude of issues listed by the Debtors can be distilled to three. The first two are whether the bankruptcy court erred when it failed to impose sanctions against Ms. Anderson under Federal Rule of Bankruptcy Procedure 9011 and denied the Debtors' requests for additional findings of fact and conclusions of law and to alter or amend that ruling. The third issue is whether the bankruptcy judge improperly refused to disqualify himself. We see no error in the bankruptcy court's decisions.

BACKGROUND

The Debtors complain of matters stemming from the 2018 foreclosure sale of their home. Mila Homes, LLC (Mila), represented by its counsel, Ms. Anderson, purchased the property at the foreclosure sale.³

Mila filed an unlawful detainer action in Missouri state court in which it named John Doe and Jane Doe as defendants. The Debtors filed a motion to intervene in the unlawful detainer action, but they failed to appear at a hearing on their motion. The court entered a final unlawful detainer judgment against John Doe and Jane Doe, awarding possession of the home to Mila. Once the unlawful detainer judgment became final, Mila obtained a writ of restitution of the premises. Although the Debtors filed an appeal, there was no stay of execution for restitution. The Sheriff served the writ of restitution and a notice of eviction by leaving a copy with Mr. Scott. Service of the writ gave the Debtors notice that if they did not vacate the home within five days, the Sheriff's department would give possession of the home to Mila.

On October 16, 2018, the sixth day after the Sheriff served the writ, the Debtors filed their Chapter 13 bankruptcy petition. Hours after the bankruptcy filing, the Sheriff executed on the writ and changed the locks to the Debtors' home. Mila promptly filed a motion asking the bankruptcy court to confirm the absence of the automatic stay and for relief from the automatic stay (Mila's Stay Motion). The Debtors filed an emergency motion for violation of the automatic stay, asking the court to determine damages for a willful stay violation and restore possession of the premises to them.

After conducting hearings, the bankruptcy court denied the Debtors' emergency motion. The Debtors did not have a legal, equitable, or possessory interest in the home on the bankruptcy petition date.⁴ Although it appeared the automatic stay did not apply, the court granted Mila relief from any stay to the extent necessary to allow Mila to possess the premises. The court also granted Mila relief from the stay to remove the Debtors' personal property. The district court affirmed. The Eighth Circuit Court of Appeals dismissed the Debtors' appeal for failure to prosecute.

In June 2020, the Missouri Court of Appeals entered its decision in the Debtors' appeal of the unlawful detainer judgment. In fall 2020, two years after the filing of the Mila Stay Motion, the Debtors filed their Federal Rule of Bankruptcy Procedure 9011 motion (Bankruptcy Sanctions Motion) against Julie Anderson alleging statements made in the Mila Stay Motion were sanctionable. Ms. Anderson filed a document in response. Over the Debtors' objection, the bankruptcy court treated Ms. Anderson's filing as a response to the Bankruptcy Sanctions Motion and denied the relief requested in the Bankruptcy Sanctions Motion (Bankruptcy Sanctions Order).

After the bankruptcy court entered the Bankruptcy Sanctions Order, the Debtors filed two motions, one for additional findings of fact and conclusions of law and one to alter or amend the judgment (Post-Decision Motions). The Debtors also filed their fifth motion seeking the bankruptcy judge's disqualification (Disqualification Motion). The bankruptcy court denied the Post-Decision Motions in one order (Post-Decision Order) and the Disqualification Motion in a separate order (Disqualification Order). The Debtors appeal the Bankruptcy Sanctions Order, Post-Decision Order and Disqualification Order.

Lastly, the Debtors filed two motions in this appeal asking us to take judicial notice. Ms. Anderson filed a motion seeking appellate sanctions against the Debtors, to which the Debtors filed a response. We entered orders that all three motions would be taken with this case for consideration by us with the merits.

STANDARD OF REVIEW

"We review the bankruptcy court's factual findings for clear error and its conclusions of law de novo." Young v. Young (In re Young), 789 F.3d 872, 879 (8th Cir. 2015). The decision whether to impose Federal Rule of Bankruptcy Procedure 9011 sanctions is reviewed for an abuse of discretion. Id. "We review the bankruptcy court's decision denying relief under Rule 52, 59 or Rule 60, for an abuse of discretion." Lee v. Edwards (In re Lee), 561 B.R. 93, 96 (B.A.P. 8th Cir. 2016), aff'd, 698 Fed. Appx. 311 (8th Cir. 2017). "We review the lower courts' decisions on recusal for abuse of discretion." Walton v. Steward (In re Steward), 828 F.3d 672, 681 (8th Cir. 2016).

DISCUSSION

We address separately each of the bankruptcy court's orders. We then rule on the three motions filed in this appeal.

Appeal of bankruptcy court's rulings

Bankruptcy Sanctions Order

The Debtors based their Bankruptcy Sanctions Motion on statements made by Ms. Anderson on behalf of Mila in the Mila Stay Motion. Pursuant to Federal Rule of Bankruptcy Procedure 9011(b), an attorney presenting a paper to the court makes certifications. The attorney:

(b) ... is certifying that to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances, -

(1) it is not being presented for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation;

(2) the claims, defenses, and other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law;

(3) the allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery; and (4) the denials of factual contentions are warranted on the evidence or, if specifically so identified, are reasonably based on a lack of information or belief.

FED. R. BANKR. P. 9011(b)(1)-(4). If after notice and a reasonable opportunity to respond, the court determines that section (b) was violated, the court "may," subject to conditions in Rule 9011, impose a sanction. FED. R. BANKR. P. 9011(c). An objective standard of reasonableness under the circumstances is used to determine a Rule 9011 violation. Williams v. Living Hope S.E., LLC (In re Living Hope S.W. Med. Servs., LLC), 525 B.R. 95, 104 (B.A.P. 8th Cir. 2015). "The focus in the Rule 11 context should be on the plausibility of the allegations and argument at the pleading stage." Id. ; Briggs v. LaBarge (In re Phillips), 317 B.R. 518, 522 (B.A.P. 8th Cir. 2004), aff'd in part, 433 F.3d 1068 ("The proper standard for determining sanctions pursuant to Rule 9011 is whether the actions were objectively reasonable at the time they were taken.").

We see no error by the bankruptcy court when it denied the Debtors' sanctions request. The court provided the Debtors with a hearing, listened patiently to their arguments, read methodically through the Bankruptcy Sanctions Motion, and addressed in detail why nothing in the Mila Stay Motion violated Rule 9011.

The Debtors asked the bankruptcy court to take judicial notice of excerpts from the 2020 Missouri Court of Appeals decision so that the bankruptcy court could tailor its sanctions ruling to the Debtors' interpretation of that decision. They believe the bankruptcy court was required to take judicial notice and its refusal to do so was improper. We see no error in the bankruptcy court's refusal to take judicial notice on the basis that the Debtors did not provide a complete copy of the decision to the court and failed to otherwise provide "necessary information" to give meaning to the excerpts they cited. FED. R. EVID. 201(c)(2) ("[T]he court... must take judicial notice if a party requests it and the court is supplied with the necessary information.").

According to the Debtors, the 2020 Missouri Court of Appeals decision contains language rendering the unlawful detainer judgment a nullity and...