United States District Court, D. New Hampshire
STEVEN J. McAULIFFE, District Judge.
The debtor in this Chapter 13 bankruptcy proceeding, Kevin Charbono, appeals an order of the bankruptcy court imposing a fine of $100.00 against him as a sanction for failing to deliver a copy of his tax return to the Trustee within the time allowed under the terms of his confirmed plan. Charbono raises a number of objections. First, he says the fine was, in substance, a criminal contempt sanction, which the bankruptcy court lacked authority to impose. Next, he claims the sanction was imposed without first affording him the due process required. And, finally, he asserts that the bankruptcy court's apparent policy of routinely imposing such sanctions is unsustainable. The Trustee counters that the bankruptcy court is plainly authorized to impose reasonable ad hoc penalties to enforce its own orders, the imposed sanction was reasonable under the circumstances, and it ought to be affirmed.
Standard of Review
District courts have jurisdiction to hear appeals from final judgments, orders, and decrees issued by the bankruptcy court. 28 U.S.C. § 158(a)(1). The bankruptcy court's legal rulings are reviewed de novo, but its factual findings are entitled to deference and will not be overturned unless clearly erroneous. In re SW Boston Hotel Venture, LLC , 748 F.3d 393, 402 (1st Cir. 2014). Interpretations of governing statutes are legal rulings, but the bankruptcy court's application of a legal ruling to the facts "presents a mixed question of law and fact that [is] review[ed] for clear error unless its analysis was infected by legal error." Id . (internal quotation marks omitted).
Kevin Charbono filed a voluntary bankruptcy petition on June 13, 2012. Under the local rules of the bankruptcy court, Charbono was required to file his Chapter 13 plan on Local Bankruptcy Form ("LBF") 3015-1A. See LBR 2015-1. That form includes the following provision: "Duty to Provide Tax Returns: The Debtor has an ongoing obligation to provide a copy of each federal income tax return (or any request for extension) directly to the Trustee within seven days of the filing of the return (or any request for extension with the taxing authority.)" LBF 3015-1A, II, A.
Charbono's Chapter 13 plan was confirmed on August 21, 2012, making it an order of the court. Beginning in April of 2013, then, Charbono was obligated by court order to provide the Trustee with a copy of his tax return, or any request for a deadline extension, within seven days of its filing. In January of 2013, the Trustee sent a letter to Charbono specifically requesting a copy of his 2013 tax return when it was filed. In April, Charbono's wife, on his behalf, filed a request with the Internal Revenue Service for an extension of time to file his federal tax return, but a copy was not provided to the Trustee within seven days, as required by the confirmed plan.
On June 13, 2013, the Trustee moved the court to dismiss Charbono's bankruptcy case and to sanction him by imposing a fine of $200.00 for failing to comply with a material requirement of the confirmed plan. Charbono objected to the motion. A hearing was held before the bankruptcy judge on September 20, 2013. Prior to the hearing, Charbono finally provided the Trustee with a copy of his request for an extension which, at that point, the IRS had granted. The tax return filing deadline had been extended to October 15, 2013, well after the hearing date.
Counsel for Charbono argued that dismissal or imposition of a sanction would be inappropriate, because Charbono did comply with the requirement by providing the Trustee with a copy of his request for an extension, albeit late. A sanction imposed following compliance, counsel argued, would necessarily amount to punishment, and not coercion, so would constitute a criminal contempt sanction, rather than a civil contempt sanction. The Trustee countered that a sanction should be imposed, because failure to comply with the tax return requirement within the time allowed is "sanctionable behavior." (The Trustee also expressed collateral concerns arising from the fact that the same sanction had routinely been imposed in "hundreds" of other late-filing cases with identical facts; he feared having to refund those fines if a different decision were made in Charbono's case.)
The bankruptcy judge noted that the term requiring debtors to provide tax return information to the Trustee was based on In re Michaud , 399 B.R. 365 (Bkrtcy. D.N.H. 2008). The bankruptcy judge further explained that the "policy" of imposing fines for failure to comply with the tax return filing requirement was intended as a less serious alternative to dismissing Chapter 13 cases under the provisions of 11 U.S.C. § 1307(c). The judge noted that in other districts Chapter 13 cases were routinely dismissed for failure to comply with the terms of a confirmed plan - a practice that burdened debtors, trustees, and the court in that in such cases trustees must seek compliance, debtors must first comply with the filing requirement and then move the court to vacate the order of dismissal and reinstate the case, and the court must then devote time and attention to routine matters that should not have arisen in the first place. The bankruptcy judge characterized the alternative lesser sanction as an effort "to get people's attention, " and obtain compliance, thereby avoiding a waste of resources and facilitating the efficient management of bankruptcy proceedings.
The bankruptcy court issued its order on September 24, 2013. The court denied the Trustee's motion to dismiss the case, but subject to certain terms. Charbono was required to deliver a copy of his filed tax return, and any excess tax refund he received, to the Trustee on or before November 15, 2013. He was also sanctioned for having failed to timely comply with the tax return production requirement. The court imposed a $100.00 fine, to be paid to the Trustee on or before January 15, 2014. The order provided that if Charbono failed to comply with its provisions and the Trustee filed an affidavit asserting that failure, the case would then be dismissed as allowed under the Bankruptcy Code. Charbono appealed on October 25, 2013.
On appeal, Charbono challenges the imposed sanction on grounds that: 1) it amounts to a fine in the nature of a criminal contempt sanction, which the bankruptcy court lacked jurisdiction to impose; 2) the sanction was imposed without affording the process required by Federal Rule of Criminal Procedure 42(a) related to criminal contempt; and 3) the bankruptcy court's sanction "policy" was adopted in the absence of any rule-making processes. The Trustee reiterates that Charbono was required by the confirmed plan to provide information about his tax return, which he failed to do within the time allowed by the plan. And, says the Trustee, because the Bankruptcy Court could dismiss a case for a material default by a debtor with respect to a term of the confirmed plan, under ...