In re McKenna
In re McKenna
Opinion of the Court
MEMORANDUM OF DECISION
This memorandum details the Court’s findings of fact and conclusions of law supporting the Court’s bench ruling and order entered after hearing held on April 5, 2017 (Doc. #40), denying creditor Ronald Blanchard’s Emergency Motion for Bankruptcy Court to Find that Rule 11 Sanctions are Exempt from the Stay under 11 U.S.C. § 362(b)(4)
State Court Proceedings
On March 6, 2015, the Rhode Island Superior Court (Providence County) (“State Court”) imposed a sanction of $19,267.06 against Mr. McKenna, payable to Mr. Blanchard, after proceedings in which it found that Mr. McKenna had violated the provisions of Rule 11 of the Rhode Island Superior Court Rules of Civil Procedure, a rule similar in content and purpose to Rule 11 of the Federal Rules of Civil Procedure and Rule 9011 of the Federal Rules of Bankruptcy Procedure.
Thereafter, a series of hearings followed as a result of Mr. McKenna’s failure to pay the sanction, during which hearings Mr. McKenna maintained that he did not have the financial ability to make the payments. Ultimately, on November 9, 2016, the State Court determined otherwise and ordered him to pay Mr. Blanchard the remaining balance of the monetary sanction of $17,267.06 (“Monetary Sanction”) in three monthly installments commencing December 1, 2016. Having failed to make the first installment payment, a show cause hearing was held on January 23, 2017, after which Mr. McKenna was afforded an amended payment schedule, and was ordered to pay the first installment by February 2, 2017. This time, however, the State Court admonished him that if he did not make the payments, he would face incarceration for further contempt of the payment order. This motivated Mr. McKenna to make this first payment, but he did not pay the second installment due March 1, 2017, and instead filed his petition under Chapter 13 of the Bankruptcy Code.
Bankruptcy Proceedings
Although this case has been pending only a short time, filings concerning the Monetary Sanction have been fast and furious. A few hours after filing his petition, Mr. McKenna filed an Emergency Motion to Declare Exclusive Bankruptcy Jurisdiction (“Declaratory Motion,” Doc. #13), asking for confirmation that this Court, not the State Court, had exclusive jurisdiction over the Monetary Sanction. This mo
Applicable Law
a. The Automatic Stay
Bankruptcy Code § 362(a) imposes an automatic stay upon the filing of a bankruptcy petition. “The automatic stay is one of the fundamental protections that the Bankruptcy Code affords to debtors.” In re Jamo, 283 F.3d 392, 398 (1st Cir. 2002) (citations omitted); see also Midlantic Nat. Bank v. New Jersey Dep’t of Envtl. Prot., 474 U.S. 494, 503, 106 S.Ct. 755, 88 L.Ed.2d 859 (1986). “[T]he automatic stay efficiently ensures that the assets remain within the exclusive jurisdiction of the bankruptcy court pending their orderly and equitable distribution among the creditors, better enabling the debtor’s ‘fresh start.’” In re McMullen, 386 F.3d 320, 324 (1st Cir. 2004) (citations omitted). There are, however, express statutory exceptions where the automatic stay does not arise upon the filing of a bankruptcy petition. One such exception is provided by § 362(b)(4), which states that the automatic stay does not operate against
the commencement or continuation of an action or proceeding by a governmental unit ... to enforce such governmental unit’s or organization’s police and regulatory power, including the enforcement of a judgment other than a money judgment, obtained in an action or proceeding by the governmental unit to enforce such governmental unit’s or organization’s police or regulatory power.
This section “specifically excludes actions [of governmental units] exercising their police or regulatory power under paragraphs (1), (2), (3) or (6) of subsection (a) of this section.” In re Montalvo, 537 B.R. 128, 142 (Bankr. D.P.R. 2015) (citing 11 U.S.C. § 362(b)(4)). The goal of this exception is to “discourage[ ] debtors from submitting bankruptcy petitions either primarily or solely for the purpose of evading impending governmental efforts to invoke the governmental police powers to enjoin or deter ongoing debtor conduct which would seriously threaten the public safety and welfare.” McMullen, 386 F.3d at 324-25 (citations omitted).
b. Rule 11 Sanctions
Rhode Island General Laws § 9-29-21 provides, in relevant part:
The signature of an attorney or party constitutes a certificate by him or her that he or she has read the pleading, motion, or other paper; that to the best of his or her knowledge, information, and belief formed after reasonable inquiry it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law, and that it is not interposed for any improper purpose, such as to harass or to cause*289 unnecessary delay or needless increase in the cost of litigation .... If a pleading, motion, or other paper is signed in violation of this rule the court, upon motion or upon its own initiative, may impose upon the person who signed it, a represented party, or both, an appropriate sanction, which may include an order to pay to the other party or parties the amount of the reasonable expenses incurred because of the filing of the pleading, motion, or other paper, including a reasonable attorney’s fee.
This statute is “the statutory embodiment of [the Superior] Court’s authority” to impose sanctions under Rule 11 of the Rhode Island Superior Court Rules of Civil Procedure which, in pertinent part, is substantially similar to the statute. See Pellegrino v. Rhode Island Ethics Comm’n, No. PC98-4579, 2004 WL 2813773, at *4 (R.I. Super. Sept. 22, 2004). It “was enacted in 1986, and its wording generally follows the 1983 amendment to Fed. R. Civ. P. 11.” D'Amario v. State, 686 A.2d 82, 83-84 (R.I. 1996) (citing 1995 Comm. Notes to Super, R. Civ. P. 11) (footnote omitted). “Under Rule 11, a trial justice has discretionary authority to formulate what he or she considers to be an appropriate sanction, but must do so in accordance with the articulated purpose of the rule: ‘to deter repetition of the harm, and to remedy the harm caused.’ ” Pleasant Mgmt., LLC v. Carrasco, 918 A.2d 213, 217 (R.I. 2007) (quoting Michalopoulos v. C & D Restaurant, Inc., 847 A.2d 294, 300 (R.I. 2004)).
Analysis
Mr. Blanchard argues that the Monetary Sanction imposed by the State Court under its applicable Rule 11 falls within the exception to the automatic stay set forth in Bankruptcy Code § 362(b)(4), relying on Alpern v. Lieb, 11 F.3d 689 (7th Cir. 1993), and Maritan v. Todd, 203 B.R. 740 (N.D. Okla. 1996). A close reading of these cases, however, does not support his contention for there is an important distinction between proceedings to determine the imposition of sanctions and the nature of such sanctions, and proceedings to enforce and collect monetary sanctions that-have already been imposed. The former is indeed exempted from the automatic stay, but the latter is not. The Al-pem court addressed the imposition of Rule 11 sanction proceedings but not the enforcement of a resulting monetary judgment. See Alpern, 11 F.3d at 690. The Maritan court went one step further, noting that as to “the ‘enforceability’ of any money judgment against [the debtor] .... enforcement of a money judgment by a governmental unit is subject to § 362(a)’s automatic stay.” Maritan, 203 B.R. at 744.
Here, the Monetary Sanction was imposed over two years ago and the recent State Court proceedings, leading up to Mr. McKenna’s bankruptcy , filing, had advanced to the stage of enforcement and collection of that sanction judgment.
Conclusion
Having determined that actions to enforce and collect a monetary judgment imposed under Rule 11 of the Superior Court Rules of Civil Procedure are indeed subject to the automatic stay under Bankruptcy Code § 362(a), the Court denied the Stay Exemption Motion.
. Unless otherwise indicated, the terms "Bankruptcy Code,” “Chapter,” "section” and "§” refer to Tide 11 of the United States Code, 11 U.S.C. §§ 101, ef seq., as amended by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub L. No. 109-8, 119 Stat. 37 ("BAPCPA”).
. This background is gleaned from the Motion, the Objection, and the Court's docket. See, In re Mailman Steam Carpet Cleaning Corp., 196 F.3d 1, 8 (1st Cir. 1999) ("The bankruptcy court appropriately took judicial notice of its own docket,”).
. Just to bring things full circle, Mr. McKen-na’s Chapter 13 Plan (Doc. #10) proposes to pay the Monetary Sanction in full through monthly payments of $410.00 over the course of 36 months.
. The State Court’s Order issued on November 9, 2016, resulted from continued hearings held on Mr. Blanchard’s motion entitled “Demand for Payment of Rule 11 Sanctions.” See Doc. #22, Ex. A.
Reference
- Full Case Name
- IN RE: Keven A. MCKENNA, Debtor
- Cited By
- 3 cases
- Status
- Published