$1.4 million bankruptcy sanction upheld by Ninth Circuit

Last week the Ninth Circuit Court of Appeals upheld a $1.4 million bankruptcy sanction based on a party's failure to comply with a court order.

Read the full opinion: In re Kenny G Enterprises, LLC.

The Kenny G case concerned a 2013 court order to turn over certain property to a trustee. After a hearing, the Court determined that a party had knowledge of the order, then failed to comply. As a result, the court issued sanctions including a $1,420,043 fine, jail time, and a $1,000 daily penalty until the order was complied with.

The Kenny G opinion upheld the sanctions as within the power of a bankruptcy court under Section 105 of the Bankruptcy Code. The opinion reasoned that "As long as the sanctions are coercive in nature and not punitive, § 105(a) articulates no specific monetary limit on the scope of contempt sanctions available to the court." Because the per diem fine could have been avoided by compliance, the bankruptcy court was within its authority to impose such a sanction.

In a 2003 opinion called In re Dyer, the Ninth Circuit had held that bankruptcy courts may only issue "relatively mild" non-compensatory fines for violations of court orders. However, In re Dyer concerned punitive sanctions. The Kenny G opinion makes clear that no monetary limits apply to coercive sanctions, which can be avoided through future compliance.

For more inforamtion about bankruptcy sanctions, email me at michael@underdoglawyer.com