A weekly news service that publishes case summaries of the most recent important bankruptcy-law decisions, tracks major commercial bankruptcies, and reports on developments in bankruptcy reform in...
By Diane Davis
Jan. 13 — A bankruptcy court didn't abuse its discretion in failing to award prejudgment interest or sanctions beyond the post-judgment interest awarded to the debtor even though its creditors allegedly “played a shell game” with the money due to the debtor, a district court in Texas held Jan. 7.
Affirming the bankruptcy court's judgment, Judge Lee Yeakel of the U.S. District Court for the Western District of Texas concluded that the bankruptcy court is in a better position to determine the “propriety of sanctions and prejudgment interest.”
The bankruptcy court carefully considered all of the evidence and arguments and awarded the “least restrictive sanction necessary to deter the inappropriate behavior,” according to its discretion, the court said.
Debtor 804 Congress, LLC's property was sold at a foreclosure sale. The proceeds of the sale were divided among creditors, including mortgagee Wells Fargo Bank, N.A., which received $3.2 million from the sale, including $83,327 in attorneys' fees.
The debtor objected to Wells Fargo's claim for attorneys' fees. The bankruptcy court entered an order in the debtor's favor and it became final and unappealable.
Subsequently, the debtor asked the bankruptcy court to compel the creditors, including substitute trustee Greta Goldsby, Wells Fargo's attorney James Ruiz, and Ruiz's employer Winstead, P.C., to turn over the $83,327 in attorneys' fees plus interest from Sept. 10, 2010, until the date the amount is tendered to the debtor, a civil contempt fine of $500 per day from April 8, 2015, until the date the amount is tendered, costs and attorneys' fees, and sanctions.
Wells Fargo turned over $83,327 to the debtor. The bankruptcy court ordered Wells Fargo to pay the debtor interest on the $83,327 at the federal judgment rate from March 27, 2015, to June 18, 2015.
The debtor argued that the bankruptcy court failed to award prejudgment interest and more severe sanctions on the creditors' alleged refusal to turn over the attorneys' fees in an “expeditious and cooperative manner.”
According to the debtor, the parties allegedly lied to the court and multiplied proceedings.
The bankruptcy court found that Ruiz “prevaricated,” “played a shell game” with the money due to 804 Congress, and “needlessly and vexatiously increased the expense of litigation.”
The debtor also contended that the appellees' failure to pay the debtor the $83,327 was not only a violation of the order that became final March 27, 2015, but also of the distribution and plan confirmation order dated March 9, 2011.
According to the court, an award of prejudgment interest is generally discretionary with the trial court and isn't recovered according to a rigid theory of compensation for money withheld, but is “given in response to considerations of fairness.”
Further, the court noted that the bankruptcy court has broad authority under Bankruptcy Code Section 105 to “discipline attorneys and to award or disgorge fees paid in connection with bankruptcy proceedings.” When a bankruptcy court imposes a disciplinary sanction, it “must use the least restrictive sanction necessary to deter the inappropriate behavior,” the court said.
The bankruptcy court imposed sanctions that amounted to approximately $46 in interest on the $83,327 from March 27, 2015, until June 18, 2015, the court said.
The bankruptcy court is in the best position to determine the propriety of sanctions and prejudgment interest, the court said, and the court considered all of the evidence and arguments in the case.
Barbara M. Barron, and Stephen Wayne Sather, Barron Newburger Sinsley & Wier, PLLC, Austin, Texas, represented appellant 804 Congress, LLC; James G. Ruiz, Winstead PC, Austin, Texas, and Phillip L. Lamberson, Winstead PC, Dallas, represented appellee James Ruiz; James G. Ruiz, and Alexander S. Valdes, Winstead PC, Austin, Texas, Phillip L. Lamberson, and Weiting Hsu, Winstead PC, Dallas, represented appellee Greta Goldsby; James G. Ruiz, Winstead PC, Austin, Texas, Phillip L. Lamberson, and Weiting Hsu, Winstead PC, Dallas, represented appellee Winstead, P.C.; James G. Ruiz, Alexander S. Valdes, and Zeena T. Angadicheril, Winstead PC, Austin, Texas, Phillip L. Lamberson, and Weiting Hsu, Winstead PC, Dallas, represented appellee Wells Fargo Bank, N.A.
To contact the reporter on this story: Diane Davis in Washington at email@example.com
To contact the editor responsible for this story: Jay Horowitz at firstname.lastname@example.org
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)