2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 In re HILARIO D. GONZALES, No. ED CV 23-1102 PA 12 Debtor, OPINION ON APPEAL FROM

BANKRUPTCY COURT

13 HILARIO D. GONZALES, Bankruptcy Case No. 6:23-11424-SY 14 Appellant, 15 v.

VICTORVILLE LENDING, LLC,

16 Appellee. 17 18 19 Debtor and appellant Hilario D. Gonzales (“Debtor” or “Gonzales”) has filed a 20 Notice of Appeal challenging the Bankruptcy Court’s imposition of sanctions against him 21 and his counsel RoseAnn Frazee (“Frazee”) pursuant to Federal Rule of Bankruptcy 22 Procedure 9011. The Bankruptcy Court awarded sanctions after granting a Motion for 23 Sanctions filed by creditor and appellee Victorville Lendings, LLC (“Victorville Lending”). 24 The Bankruptcy Court assessed the sanctions against Gonzales and Frazee jointly and 25 severally. 26 The court has reviewed the briefing filed in connection with the appeal and deems the 27 matter suitable for decision on the papers. See Fed. R. Bankr. P. 8019(b); Fed. R. Civ. Pro. 2 Gonzales, through two different entities during different periods of time, owned a 29 3 acre parcel of undeveloped property in Victorville, California. The first of those entities, 4 Topaz Capital and Investments, Inc. (“Topaz”), filed two bankruptcy petitions under Chapter 5 11 in 2010 and 2013. The second entity controlled by Gonzales, Adaptive Identity Systems 6 LLC (“AIS”), filed a bankruptcy petition under Chapter 11 in 2022 and two Chapter 11 7 petitions in 2023. 8 Victorville Lending had originally loaned $4,920,000.00 to AIS secured by a deed of 9 trust on the property. Victorville Lending and AIS later amended the loan agreement and 10 increased the amount of the loan to $6,910,000.00. After AIS filed the fifth bankruptcy 11 petition, Victorville Lending filed a Motion for Relief from Stay so that it could initiate 12 foreclosure proceedings on the property. At the hearing on the Motion for Relief from Stay, 13 the Bankruptcy Court stated: “[T]he records are abundantly clear . . . that this Debtor has 14 over the many past years, filing five bankruptcy cases that are all going nowhere, is engaged 15 in a scheme to hinder delay and defraud creditors.” In granting the Motion for Relief from 16 Stay in the fifth bankruptcy proceeding, the Bankruptcy Court granted in rem relief with 17 respect to the property to Victorville Lending by specifying that the relief from the stay 18 “shall be binding in any other case under this title purporting to affect the Property filed not 19 later than 2 years after” April 7, 2023. The foreclosure sale for the property was rescheduled 20 for Monday, April 10, 2023. 21 On Sunday, April 9, 2023, Frazee filed a sixth bankruptcy petition on behalf of 22 Gonzales in his individual capacity instead of for one of the entities he controlled. After 23 filing the sixth bankruptcy petition, Frazee contacted the entity conducting the foreclosure 24 sale and said that the property “is covered by a bankruptcy stay” in an effort to stop the 25 foreclosure. Despite these efforts, the foreclosure sale occurred on April 10, 2023. Because 26 Frazee and Gonzales had not filed all of the required documents with the sixth petition, the 27 Bankruptcy Court issued deficiency notices warning that the sixth bankruptcy case would be 2 sanction both Frazee and Gonzales pursuant to Federal Rule of Bankruptcy Procedure 9011. 3 On April 18, 2023, the Bankruptcy Court dismissed the sixth bankruptcy case because 4 Frazee and Gonzales did not file the required documents to cure their deficient petition. 5 Gonzales filed an Opposition to the Motion for Sanctions on April 20, 2023, which was 6 supported by Declarations from Frazee and Gonzales. Victorville Lending filed a Reply on 7 April 27, 2023, and the Bankruptcy Court conducted a hearing on the Motion for Sanctions 8 on May 4, 2023, in which Frazee participated telephonically. 9 During the hearing, the Bankruptcy Court granted the Motion for Sanctions after 10 concluding that Gonzales and Frazee “didn’t even make an attempt to disguise the true 11 motive of why this bankruptcy case was filed. It’s very clear to me, based on what I’ve read 12 in your declaration, your client’s declaration, the argument you made today, that the sole 13 purpose of Mr. Gonzales filing for bankruptcy was to delay that foreclosure sale based on an 14 argument that somehow Mr. Gonzales filing for bankruptcy would extend the automatic stay 15 to the property owned by a separate corporate entity.” The Bankruptcy Court concluded that 16 Frazee and Gonzales were “jointly responsible” for the bad faith filing of the sixth 17 bankruptcy petition and assessed the sanction against both of them jointly and severally. 18 The Bankruptcy Court limited the amount of the sanction to the attorneys’ fees and 19 costs incurred by Victorville Lending in connection with the sixth bankruptcy case and 20 “$5,000 more to prevent a repetition of this conduct.” The Bankruptcy Court ordered 21 Victorville Lending’s counsel to submit time records to document the amount and 22 reasonableness of the fees, and provided Frazee and Gonzales seven days to contest the 23 evidence submitted by Victorville Lending in support of the fees and costs sought as a 24 sanction. 25 Victorville Lending’s counsel submitted a Declaration containing billing records in 26 support of the amount of attorneys’ fees incurred by Victorville Lending in the sixth 27 bankruptcy case. Frazee and Gonzales did not file an Opposition to the amount of the fees | || order granting the Motion for Sanctions and awarding Victorville Lending $45,783.95 in 2 || sanctions, which consisted of $40,115.16 in attorneys’ fees, $668.79 in costs, and $5,000.00 3 || to deter repetition of the bad faith behavior of Frazee and Gonzales. 4 Gonzales filed a Notice of Appeal on June 9, 2023. The Notice of Appeal lists only 5 || Gonzales as an appellant. Frazee is not listed as an appellant on the Notice of Appeal.

II. Standard of Review

7 Courts analyzing sanctions under Federal Rule of Bankruptcy Procedure 9011 8 || “commonly rely on cases interpreting [Federal Rule of Civil Procedure] 11.” In re DeVille, 9 | 361 F.3d 539, 550 n.5 (9th Cir. 2004); see also In re Grantham Bros., 922 F.2d 1438, 1441 10 || (9th Cir. 1991) (“The language of Rule 901 1(a) is virtually identical to that of [Rule 11], and 11 || therefore, courts considering sanctions under Rule 9011(a) rely on Rule 11 cases.”). 12 || Appellate review of Rule 9011 sanction orders is “conducted under the same standard 13 || applicable to an order of sanctions under Rule 11 ....” Taylor, 884 F.2d 478, 480 (9th 14 || Cir. 1989). According to the Ninth Circuit, “factual findings relied on by the court to 15 || establish a violation of the rule are reviewed under the clearly erroneous standard, the legal 16 || conclusion that the facts constitute a violation of the rule is reviewed de novo, and the 17 || appropriateness of the sanction imposed is reviewed for an abuse of discretion.” Id. 18 | I. Analysis 19 Federal Rule of Bankruptcy Procedure 9011, much like Federal Rule of Civil 20 || Procedure 11, provides: 21 (a) Signature 22 Every petition, pleading, written motion, and other paper, except a list, 23 schedule, or statement, or amendments thereto, shall be signed by at 24 least one attorney of record in the attorney’s individual name. . . . 25 26 The Ninth Circuit has, on other occasions, applied an abuse of discretion standard “in 27 || reviewing all aspects of a [bankruptcy court’s] imposition of Rule [9011] sanctions.” In re Grantham Bros., 922 F.2d at 1441; see also In re DeVille, 361 F.3d at 547 (“This court 28 || reviews an award of sanctions for an abuse of discretion.”). A.

2 By presenting to the court (whether by signing, filing, submitting, or 3 later advocating) a petition, pleading, written motion, or other paper, an 4 attorney or unrepresented party is certifying that to the best of the 5 person’s knowledge, information, and belief, formed after an inquiry 6 reasonable under the circumstances, 7 (1) it is not being presented for any improper purpose, such as to 8 harass or to cause unnecessary delay or needless increase in the 9 cost of litigation; 10 (2) the claims, defenses, and other legal contentions therein are 11 warranted by existing law or by a nonfrivolous argument for the 12 extension, modification, or reversal of existing law or the 13 establishment of new law; 14 (3) the allegations and other factual contentions have evidentiary 15 support or, if specifically so identified, are likely to have 16 evidentiary support after a reasonable opportunity for further 17 investigation or discovery; and 18 (4) the denials of factual contentions are warranted on the evidence 19 or, if specifically so identified, are reasonably based on a lack of 20 information or belief. 21 (c) Sanctions 22 . . . 23 (2) Nature of sanction; limitations 24 A sanction imposed for violation of this rule shall be limited to 25 what is sufficient to deter repetition of such conduct or 26 comparable conduct by others similarly situated. Subject to the 27 limitations in subparagraphs (A) and (B), the sanction may 2 warranted for effective deterrence, an order directing payment to 3 the movant of some or all of the reasonable attorneys’ fees and 4 other expenses incurred as a direct result of the violation. 5 . . . 6 (3) Order 7 When imposing sanctions, the court shall describe the conduct 8 determined to constitute a violation of this rule and explain the 9 basis for the sanction imposed. 10 Fed. R. Bankr. Pro. 9011. 11 As an initial matter, this Court concludes that it lacks jurisdiction to consider 12 arguments on behalf of Frazee challenging the sanctions against her because the Notice of 13 Appeal names only Gonzales and does not evince an intent to appeal on behalf of Frazee. 14 See Fed. R. App. Pro. 3(c)(7) (“An appeal must not be dismissed for informality of form or 15 title of the notice of appeal, for failure to name a party whose intent to appeal is otherwise 16 clear from the notice, or for failure to properly designate the judgment if the notice of appeal 17 was filed after entry of the judgment and designates an order that merged into that 18 judgment.”). It is not clear from the Notice of Appeal, which lists only Gonzales as an 19 appellant, that Frazee sought to become an appellant. Additionally, because the sanctions 20 were issued against both Frazee and Gonzales jointly and severally, this is not a situation in 21 which the Notice of Appeal filed by a client, for sanctions imposed only against the client’s 22 attorney, evinces an intent to appeal on behalf of the attorney. See Retail Flooring Dealers 23 of Am., Inc. v. Beaulieu of Am., LLC, 339 F.3d 1146, 1149 (9th Cir. 2003) (“Counsel’s 24 intent to appeal is clear from the face of the notice of appeal. The notice of appeal directly 25 challenges only the sanctions against Retail Flooring’s counsel. Counsel was aware that the 26 notice of appeal challenged only the sanction against him: his name appears on the notice as 27 the attorney for Retail Flooring and he signed and filed the notice of appeal. In addition, 2 appeal the sanctions order, under these circumstances, is manifest.”); see also Methven & 3 Assocs. Prof’l Corp. v. Kelley, 669 F. App’x 923, 924 n.1 (9th Cir. 2016) (“While Robinson 4 contends that Scarlett Paradies–Stroud, Andy Stroud, Inc., and Stroud Productions and 5 Enterprises, Inc. (together, the ‘Stroud Parties’) are additionally appellants, the Stroud 6 Parties were not named as appellants in the caption or body of the operative notice of appeal, 7 nor was their intent to appeal apparent on the face of that notice. Fed. R. App. P. 3(c). They 8 are therefore not parties to the appeal.”); In re Nijjar, Case No. 1:18-cv-1961 DAD, 2020 9 WL 916942, at *2 (E.D. Cal. Feb. 26, 2020) (finding that a Notice of Appeal filed by the 10 clients who were jointly and severally liable for sanctions with their counsel did not create 11 appellate jurisdiction for the appeal by the attorneys who were not listed as appellants on the 12 Notice of Appeal). 13 Even if Frazee had filed a sufficient Notice of Appeal on her own behalf, and for 14 purposes of Gonzales’ appeal of the sanctions imposed against him, this Court concludes 15 that the Bankruptcy Court acted within its discretion in granting Victorville Lending’s 16 Motion for Sanctions and finding that Frazee and Gonzales acted with an intent to “harass or 17 to cause unnecessary delay or needless increase in the cost of litigation” by filing the sixth 18 bankruptcy proceeding and contacting the entity conducting the foreclosure sale in an effort 19 to delay that sale. Fed. R. Bankr. Pro. 9011(b)(1). As a result, the Bankruptcy Court did not 20 clearly error when it imposed sanctions against Frazee and Gonzales, jointly and severally, 21 under Federal Rule of Bankruptcy Procedure 9011. Nor did the Bankruptcy Court abuse its 22 discretion in adopting the $40,115.16 in attorneys’ fees and $668.79 in costs as the amount 23 of sanctions to compensate Victorville Lending. See Fed. R. Bankr. Pro. 9011(c)(2). 24 The Bankruptcy Court, however, erroneously made the additional $5,000.00 in 25 sanctions “to deter repetition of such conduct” payable to Victorville Lending rather than 26 payable to the Bankruptcy Court. If the additional $5,000.00 in deterrence sanctions had 27 been made payable to the Bankruptcy Court, a sanction in that amount would have been 2 Deville, 361 F.3d at 547 (affirming the Bankruptcy Appellate Panel’s affirmance of a Rule 3 9011 sanction and the Bankruptcy Appellate Panel’s description that the “‘the penalty was 4 authorized and was appropriate in amount. But for one blemish, the ‘penalty’ would be 5 eligible to be affirmed. The blemish is that the Rule 9011(c)(2) ‘penalty’ must be paid ‘into 6 court.’ Here the penalty was ordered paid to Cardinale and thus cannot stand as a Rule 7 9011(c)(2) penalty.’”) (quoting In re DeVille, 280 B.R. 483, 498 (B.A.P. 9th Cir. 2002)). 8 In arguing that the sanctions awarded by the Bankruptcy Court amounted to cruel and 9 unusual punishment in violation of the Eighth Amendment, violated the Fourteenth 10 Amendment’s Due Process, amounted to criminal contempt, or resulted from judicial bias, 11 as Gonzales and Frazee do in their Opening Brief, Frazee and Gonzales have fundamentally 12 misunderstood the nature of the Motion for Sanctions filed by Victorville Lending and the 13 basis for the Bankruptcy Court’s sanctioning authority under Rule 9011. None of the 14 arguments presented in the briefing by Gonzales and Frazee have any merit. See In re 15 Deville, 361 F.3d at 553 (explaining that it “is clear that the rulemakers did not have in mind 16 the criminal contempt process” when adopting the sanctioning authority of Federal Rule of 17 Civil Procedure 11 and Federal Rule of Bankruptcy Procedure 9011). 18 For all of the foregoing reasons, the Court conclude that it lacks jurisdiction to 19 consider arguments on behalf of Frazee challenging the sanctions issued against her jointly 20 and severally with Gonzales because she did not file a Notice of Appeal on her own behalf. 21 The Court affirms $40,783.95 in sanctions (consisting of $40,115.16 in attorneys’ fees and 22 $668.79 in costs) as the amount of sanctions against Gonzales to compensate Victorville 23 Lending under Federal Rule of Bankruptcy Procedure 9011. The Court reverses the 24 $5,000.00 in additional sanctions imposed against Gonzales only because it was made 25 payable to Victorville Lending instead of to the Bankruptcy Court, and remands that portion 26 of the sanctions order to the Bankruptcy Court to allow the Bankruptcy Court to decide if it 27 // 1 || will Continue to assess the additional $5,000.00 as a deterrence sanction made payable to the 2 || Bankruptcy Court as allowed by Federal Rule of Bankruptcy Procedure 901 1(c)(2). 3 4 IT IS SO ORDERED. 5 6 DATED: October 23, 2023 SB ) Cattliz me 7 — tien 8 UNITED STATES DISTRICT JUDGE 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28