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9th Circuit Case determines discovery sanctions enforcement not
Jason:
Just to clarify, the 25% is a maximum of all garnishments and withholding orders (a family law garnishment) which may be reduced based on need.
If you have any questions or concerns, please contact me.
Pat
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David,
All good points. My practice has often gone into the enforcement of (and resistance to) judgments. Don't forget that even the 25% rule on garnishments is subject to a necessity based exemption procedure. Lots of unknowns (including nondischargeability of garden variety sanctions and effect of permanent injunction). And probably more Chapter 7's.
Jason
JASON WALLACH
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This may render various plans infeasible.
The only good news is that we will all soon have to become experts in garnishment and execution rules since our plans will have to take those into consideration. We will need appellate guidance on the relative priority of a Debtor's obligations. Under execution law (as I remember it - I'm sure someone else will chime in), only one garnishment gets paid at a time - limited to 25% of net income. So an earlier one can "crowd out" a later one - force a delay in collection. Where does an Order confirming a Plan stand in this priority list? Does it depend on when the garnishment Orders are entered? When they "hit" the employer? These are all unknowns.
David A. Tilem
Certified Bankruptcy Specialist Since 1997
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David, it is sort of stunning that the breadth of the Section 362(b)(4) exception (no stay) includes enforcement of process against property of the estate. As such, collection of sanctions via wage garnishments against postpetition earnings in both Chapter 11 (12 probably) and 13 seem to be clearly encompassed within this Court of Appeals level ruling.
Yikes.
Jason
JASON WALLACH
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Gipson Hoffman & Pancione, APC
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I'm trying to figure out how this case affects property of the estate. Does this mean that the sanctions creditor can enforce a wage garnishment? How would that interfere with a Chapter 13 plan payment? Does this run afoul of (law school reference alert) Snaidach and it's progeny?
The line of demarcation used to be relatively bright: criminal contempt and sanctions were not affected by the stay while civil were stayed. Now we have to try to figure out when a CIVIL sanction is, or is not a violation of the stay. I don't know about the rest of you, but I'm going to advise my clients to seek a comfort relief from stay Order before acting.
David A. Tilem
Certified Bankruptcy Specialist Since 1997
Law Offices of David A. Tilem
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Dingley v. Yellow (In re Dingley) http://sos.metnews.com/sos.cgi?0417//14-60055 (9th Cir April 3, 2017)
Nevada state court imposed discovery sanctions of $4000 on Dingley, who then filed Chapter 7. State judge ordered briefing on the applicability of the automatic stay. Creditor filed a brief in response to the state judge's order. Dingley then started a contempt proceeding in the Chapter 7 and bankruptcy judge awarded sanctions.
BAP reversed (Judge Jury concurring) and 9th Circuit affirmed the BAP in this opinion.
Holding is that such sanctions are governmental action (i.e. by a court) to enforce a police and regulatory power, i.e. to deter unprofessional litigation conduct. Therefore, the exception to the automatic stay in Section 362(b)(4) applies, and there is no stay of enforcement.
Although it seems odd that garden variety discovery sanctions should be an exception to the automatic stay, (i.e. those $4000 are collectible although an award of attorneys fees, or damages in the same action are stayed) there seems sufficient precedent, mainly In re Berg, 230 F.3d 1165 (9th Cir 2000) [sanctions for frivolous nonbankruptcy appeal].
This case is an interesting corollary to the cases about whether the sanctions are nondischargeable. Look 'em up yourself if you are interested!
Jason
JASON WALLACH
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Gipson Hoffman & Pancione, APC
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