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In re Lane

United States Bankruptcy Appellate Panel of the Tenth Circuit

March 7, 2016

IN RE ROBERT M. LANE, also known as Bob Lane, Debtor. ROBERT M. LANE, Appellant,
v.
GARY A. BARNEY, Chapter 7 Trustee, Appellee

Page 446

          Appeal from the United States Bankruptcy Court for the District of Wyoming. Bankr. No. 11-20398, Chapter 7.

         Robert M. Lane, Pro se Appellant.

         John C. Smiley, (Theodore J. Hartl with him on the brief) of Lindquist & Vennum LLP, Denver, Colorado, for Appellee.

         Before KARLIN, Chief Judge, CORNISH, and MICHAEL, Bankruptcy Judges.

          OPINION

Page 447

          KARLIN, Chief Judge.

         Robert Lane appeals an order of the bankruptcy court imposing monetary sanctions against him for interfering with the sale of estate assets. The order required that the sanctions be deducted from the money that would otherwise be available to distribute to Lane after payment of all claims and completion of final administration of his bankruptcy estate. The issue is whether the bankruptcy court abused its discretion in imposing sanctions, notwithstanding Lane's main argument that he does not have the present ability to pay those sanctions.

         I. Background

         When Robert Lane filed his Chapter 7 bankruptcy petition in April 2011, his statements and schedules disclosed no nonexempt assets for the Trustee to administer. Over the next (almost) five years, following a tip received from Lane's former wife detailing significant undisclosed assets, the Trustee uncovered millions of dollars of assets including numerous pieces of art, valuable coins, and two multi-million dollar homes located in California and Wyoming. Lane now admits it is a " 40 million bankruptcy estate." [1]

         The Trustee filed multiple adversary proceedings against Lane, his family members, and family-controlled entities, seeking to revoke Lane's discharge and to recover assets for the benefit of the estate. In April 2013, the Trustee reached two settlements (collectively, the " Settlement Agreements" ). One was with Lane and the other with several close family members. The Settlement Agreements allowed Lane to retain significant assets, including retirement accounts in an amount up to $2.5 million; continued use of both homes until the Trustee could sell them; and retention of some artwork, valuable coins, furnishings, and three automobiles.

         One term of the Settlement Agreement with Lane that was especially valuable to the Trustee was a requirement that Lane stand down and stop interfering with the further administration of the estate. The purpose of this provision was to allow the Trustee to more expeditiously liquidate significant assets and pay creditors without further litigation and interference from Lane.[2] That " no interference" promise came in the form of a paragraph where Lane expressly waived standing in his bankruptcy and further agreed to " not take any action, directly or indirectly, to

Page 448

obtain standing . . . ." [3] Lane also agreed that he would

not have any standing to object, join, or otherwise be heard on any matter or proceeding in any pending or future matter in connection with administering Debtor's Bankruptcy Case; this shall include, but not be limited to, approval of settlements, sale of assets, allowance or payment of administrative expenses, and allowance or payment of claims.[4]

         But Lane did not stand down. Instead, Lane filed numerous pro se pleadings (to which the Trustee had an obligation to respond), including a pleading essentially objecting to the Trustee's compromise of a creditor's claim, objecting to the sale of estate property, objecting to the Trustee's fees, objecting to the sale of art, and objecting to relief regarding the sale of assets located in California.[5] In addition, Lane proceeded to file seventeen appeals from orders of the bankruptcy court, and then nine appeals to the Tenth Circuit Court of Appeals--all of which the Trustee was required to defend.[6] This is one of those appeals, and it centers around just two of his efforts to interfere with the smooth administration of his estate.

         To give context to this dispute, it is important to note that on April 4, 2014, the Trustee, understandably fatigued with Lane's attempts to interfere with the estate's administration, filed his first motion for contempt (the " First Contempt Motion" ). He alleged that the estate had suffered $16,897 in fees and costs as a result of the breach of Lane's promise, contained in the Settlement Agreement.[7] The Trustee requested the bankruptcy court award $12,000 as an " appropriate sanction[ ]." [8] Lane defended by saying he did not have $12,000.

         The bankruptcy court nevertheless, after a hearing, entered its First Contempt

Page 449

Decision listing six separate acts that justified the finding of contempt and the finding that the Trustee had been harmed as a result of Lane's violation of the Settlement Order. The bankruptcy court noted that the Trustee and his counsel had been required to address Lane's " numerous pleadings rather than pursue assets of the estate" and that the estate had, as a result, incurred unnecessary expenses.[9] The bankruptcy court awarded a $12,000 money judgment against Lane. " Taking [Lane's] financial condition into consideration," [10] the bankruptcy court further ordered the sanctions be deducted from any surplus distribution that might be payable to Lane at the conclusion of estate administration or from further undisclosed assets the Trustee might find, rather than ordering Lane to immediately pay.

         The bankruptcy court found " incredulous" Lane's testimony that he was not intentionally being obstructive and was only trying to " help." [11] The bankruptcy court then ordered filing restrictions be placed on Lane similar to those that had been placed on him by the United States District Court for the District of Wyoming[12] (in an order dismissing one of his numerous appeals). Lane did not appeal the First Contempt Decision.

         Although the Trustee had filed his First Contempt Motion in early April, 2014, thus officially putting Lane on notice that similar actions in violation of the Settlement Agreement could result in sanctions against him, this did not stop Lane. On April 11, 2014, following an evidentiary hearing, the bankruptcy court entered an order (the " Art Sale Order" ) authorizing the sale of artwork (" the Estate Art" ) that had not been set over to Lane in the Settlement Agreements. The Art Sale Order specifically noted the Estate Art would be sold free and clear of liens, and the court had previously authorized the employment of Heather James Fine Art (" Heather James" ) to effectuate the sale.[13] As Heather James was attempting to market the Estate Art, in May 2015, Lane emailed Heather James stating, " If you cho[o]se to sell any of this art between now and the Court's ruling (for which a has not yet been determined), you may be required to purchase it back . . . . I do not think this would be advisable." [14]

         After receiving this email, representatives of Heather James contacted the Trustee and expressed concern about the legal ramifications if they continued to market and sell the Estate Art. After consulting with the Trustee and confirming that the bankruptcy court had, in fact, approved the sale of the Estate Art, Heather James continued its work. Lane then sent Heather James a second email. This time he indicated that the Estate Art was subject to numerous liens and falsely stated that the Art Sale Order did not permit the sale free and clear of liens. He

Page 450

also suggested that the sale would create " unnecessary liability for your firm or yourself personally." [15]

         Lane's interference with the Trustee's attempts to sell estate assets did not end there. In July 2014, the bankruptcy court entered its order authorizing the sale of the California property for $6.9 million. Before the sale closed, Lane filed a notice of lis pendens in the California real estate records. As a result of the notice, the purchaser refused to close. Ultimately, following further negotiations and a loss of several months, the purchaser closed on the sale but at a purchase price of $6.5 million, or $400,000 less than the original purchase price.

         Immediately upon learning of the second of the two emails in late May 2014, the Trustee filed his second motion for contempt seeking monetary sanctions in an amount to be determined after the Trustee provided an accounting of fees and costs incurred. After hearing evidence, the bankruptcy court found that Lane had interfered both with the sale of the Estate Art by sending the May 2015 email to Heather James and with the sale of the California property by recording the lis pendens.

         As a result of its findings that Lane had violated the Lane Settlement Agreement, the Art Sale Order, and his duties as a debtor under 11 U.S.C. § 521, the bankruptcy court held that monetary sanctions were necessary (the " Second Contempt Decision" ). The bankruptcy court stated that Lane " displays a complete disregard for the Bankruptcy Code and procedures. The court finds his actions to be in bad faith, reckless, abusive and grossly disobedient." [16] It also noted that Lane's email to Heather James reflected " a pattern of intimidation." [17] The bankruptcy court directed the Trustee to submit a Bill of Costs.

         The Trustee's Bill of Costs requested $455,125 in attorneys' fees plus $400,000 in additional damages (the " Sale Reduction Damages" ) based on the alleged diminution in value of the California property that resulted after Lane filed the lis pendens notice. After Lane objected to the Bill of Costs, the bankruptcy court conducted another evidentiary hearing (the " Sanctions Hearing" ) to determine the appropriate amount of sanctions.[18]

         During the trial, the court inquired whether the attorneys' fees sought as a sanction would ultimately become part of the administrative claims, thus possibly reducing the recovery of Lane's prepetition unsecured creditors, or whether the Trustee was ...


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