(Originally posted to http://volo.abi.org/circuits/10th by Dan Glasser)
Stay violation sanctions, authorized under 11 U.S.C. 105, may include monetary and non-monetary relief. To the extent that monetary sanctions are at issue, such relief is available under Bankruptcy Rule 9014 and no adversary proceeding is required under Bankruptcy Rule 7001. For purposes of civil contempt, constitutional due process merely requires notice and an opportunity to be heard. Thus, the court may impose sanctions without a hearing.
Procedural Context:
Creditors appealed from Bankruptcy Appellate Panel decision affirming contempt order entered by the bankruptcy court.
Facts:
The Debtor operated a coal mine and owed substantial pre-petition obligations to (a) the owner of the mine, (b) a power company to whom Debtor supplied coal, and (c) a broker that was hired to sell the Debtor’s products. The power company filed an involuntary petition against the Debtor. Five months later, the power company brought a civil contempt motion against the mine owner and the broker — alleging that they had violated the automatic stay by attempting to terminate the mine operating agreement and by suing a customer of the Debtor for unpaid broker fees. Counsel for the mine owner and for the broker received notice of the civil contempt motion. But they elected not to respond. Rather, prior to the response deadline, the broker filed a motion to dismiss the involuntary petition. Both creditors then moved to extend their deadline to respond to the civil contempt motion, arguing that it would be moot if the court dismissed the involuntary petition. After the response deadline passed, the bankruptcy court entered an order granting the civil contempt motion. That order voided all actions taken in violation of the automatic stay and required the mine owner and the broker to return to the estate all money, property and assets obtained from the Debtor after the case was filed. In addition, the court dismissed a lawsuit against the Debtor’s customer, voided the mine owner’s efforts to terminate the operating agreement and awarded attorney’s fees and costs to the power company. On appeal, the mine owner and the broker challenged the bankruptcy court’s authority to impose non-monetary sanctions — citing an earlier Tenth Circuit case which held 11 U.S.C. 105 permits “monetary” sanctions. The court rejected that argument, holding bankruptcy courts are not limited to awarding monetary damages for civil contempt. Thus, the court affirmed both the monetary and non-monetary sanctions imposed by the bankruptcy court. The court also rejected the argument that contempt motions must be brought by adversary proceeding under Rule 7001. Indeed, the plain language of the bankruptcy rules provides that “Rule 9014 governs a motion for an order of contempt. . . .” Bankr. R. Civ. P. 9020. Similarly, the court rejected the creditors’ due process argument. Citing a string of Supreme Court decisions, the Tenth Circuit concluded that due process in this context simply requires notice and an opportunity to be heard. Because the mine owner and the broker had notice of the motion for contempt — and could have responded to that motion — the bankruptcy court’s failure to conduct a hearing did not violate their right to due process.