Sanctions Affirmed for Frivolous Bankruptcy

(CN) - A loan-servicing company and two law firms cannot appeal nearly $1 million in sanctions handed down for filing a "frivolous" bankruptcy action in Nevada, the 9th Circuit ruled Tuesday.

Chief U.S District Judge Robert Jones in Nevada ordered the sanctions in connection to a dispute over loan-servicing agreements with Asset Resolution, a company owned by Silar Advisors.

"In support of this holding, the District Court found that the Silar parties 'never had any intention or ability to reorganize' Asset Resolution, which was merely a 'shell entity' without any assets to reorganize," according to the 9th Circuit. "Further, the Nevada District Court found that debtors' bankruptcy filing in the Southern District of New York was solely an attempt to evade the district court's jurisdiction and, specifically, the allegedly adverse impact of its orders over the summer of 2009."

The parities "never had any intention or ability to reorganize" Asset Resolution, the summary continues.

Jones ordered the sanctions of $279,615 against several individuals, Silar Advisors and its attorneys with Klestadt & Winters LLP and Bryan Cave LLP. Each firm also had to pay a $300,000 retainer.

Silar and the law firms appealed, arguing that the bankruptcy filing was proper, that Asset Revolution did have assets and that Nevada was an improper venue at the time of the filing. They also claimed that the 9th Circuit could hear their appeal of the sanctions order "in light of the more flexible jurisdictional principles that apply in bankruptcy."

A three-judge panel in San Francisco disagreed, finding that the order of sanctions is not "immediately appealable," even under the "more flexible jurisdictional principles that apply in bankruptcy."

"The inherent authority of a district court to impose sanctions does not change when it is sitting in bankruptcy, given that a court draws its inherent power by nature of its status as a court of justice, rather than from the type of case it is hearing," Judge Sandra Ikuta wrote for the panel.

Attorney J. Stephen Peek with Holland & Hart in Las Vegas, who represented Bryan Cave in the case, told Courthouse News on Tuesday that he had yet to read the entire ruling and so could not comment.

Robert Millimet of Bickel & Brewer in Dallas, who argued the case for Asset Resolution's creditors, did not immediately return a request for comment.

Editor's Note: Bryan Cave acts as outside counsel for Courthouse News Service.

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