Peplinski v. Whitaker et al

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re: ROBERT WHITAKER and
ELAYNE G. MEDINA-WHITAKER Case No. 13-11395
Debtor.
STANLEY Z. PEPLINKSKI.
Plaintiff,
v. Adv. No. 13-01068
ROBERT WHITAKER and
ELAYNE G. MEDINA-WHITAKER
Defendants.
MEMORANDUM OPINION AND ORDER
SANCTIONING DEFENDANTS
By an order entered May 27, 2015, the Court directed both Defendants, Robert Whitaker
and Elayne Medina-Whitaker, to show cause why they should not be sanctioned for bad faith
conduct in connection with settlement negotiations (the “Order to Show Cause”). See Docket
No. 73. After considering the evidence and arguments presented at the various show-cause
hearings, the Court will issue a sanction against Defendants in the amount of $1,500.
FINDINGS OF FACT
About two years ago, Plaintiff filed an adversary complaint objecting to Defendants’
discharge. The parties voluntarily agreed to the mediation of their dispute. By an order entered
November 10, 2014, the Court directed the parties to appear for mediation on December 3, 2014
and to participate in the mediation process in good faith. The parties appeared as directed and
reached a settlement on or about December 17, 2014. Under the settlement, Defendants agreed
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to pay Plaintiff $9,000, contingent on Mr. Whitaker’s ability to borrow that amount from his
retirement account with the Public Employees Retirement Association of New Mexico
(“PERA”). Defendants agreed to pay the funds to Plaintiff within seven days of obtaining such
loan. Counsel for Defendants (“Counsel”) was to prepare the settlement documents.
Defendants represented to Plaintiff and to their Counsel that they expected to receive an
answer from PERA by January 5, 2015 as to whether they could obtain a loan from Mr.
Whitaker’s retirement account. That day, Plaintiff sent an email to Counsel requesting the
settlement documents and the funds Defendants agreed to pay. Plaintiff was eager to receive the
funds because he was facing imminent foreclosure. Counsel responded via email on January 6,
2015, stating “Mr. Whitaker expects to get the answer on his loan this week. Once I get it I will
let you know. All we really need to do is file an order of dismissal. I will keep you advised.”
After that point, Defendants were essentially unreachable. Counsel called Defendants
numerous times in the first two weeks of January 2015 to follow up on the status of the PERA
loan, but they did not answer. Mrs. Medina-Whitaker returned one such phone call, but Counsel
was out of the office and she did not call again. Counsel also sent Defendants two letters dated
January 26, 2015 and February 3, 2015, to which they did not respond. Based on this failure to
communicate, Counsel filed a motion to withdraw from representing Defendants on February 12,
2015. By an order entered May 15, 2015, the Court approved Counsel’s request to withdraw.
Around the same time, Plaintiff filed a motion to enforce the settlement agreement. The
Court held a hearing on that motion on May 27, 2015. At the hearing, Mrs. Medina-Whitaker
testified that she and/or her husband made several efforts to obtain a loan from Mr. Whitaker’s
PERA account. She testified further that when she and/or her husband called PERA to apply for
the loan, PERA informed them that early withdraws or loans are only permitted for certain
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purposes such as to pay medical bills. After reviewing, with the parties’ consent, the PERA
website and handbook, it was readily apparent that it is not possible to obtain early withdrawals
or loans from PERA before retirement or termination of employment, regardless of why the
funds are needed. After being so advised, Mrs. Medina-Whitaker revised her testimony to state
that her husband may have contacted his human resources department rather than PERA, and
that he may have obtained information about a traditional 401K retirement account. Mr.
Whitaker was not present at the May 27, 2015 hearing.
Based on the contradictions between the PERA website and handbook and Mrs. Medina-
Whitaker’s representations, the Court issued an order directing both Defendants to appear at a
hearing on June 10, 2015 at 9:30 a.m. to show cause why they should not be sanctioned for bad
faith conduct in connection with the settlement. Mrs. Medina-Whitaker and her former Counsel
appeared at the June 10, 2015 hearing, but Mr. Whitaker did not appear. Mrs. Medina-Whitaker
testified that she did not receive the Order to Show Cause or Counsel’s letters because she had
trouble receiving mail at her current address. She further testified that she often had to pick up
mail that was being held at a post office in the northwestern quadrant of the city addressed to
where she lived in the southwestern quadrant. This testimony was not credible. A letter from a
United States Postal Service supervisor, admitted in evidence at the July 30, 2015 hearing,
confirms that mail directed to Defendants’ current address could not legally be held at a post
office across town. The letter further states Defendants never reported any issues receiving mail
at their current address. In addition to asserting she could not receive mail, Mrs. Medina-
Whitaker testified that she called Counsel about ten times between January 2015 and May 2015.
Because Mr. Whitaker was unavailable to testify at the June 10, 2015 hearing, and
because Plaintiff requested Mrs. Medina-Whitaker’s phone records to impeach her testimony, the
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Court continued the show cause hearing until July 15, 2015 at 1:00 p.m. The Court directed Mrs.
Medina-Whitaker to either provide copies of the billing statements for her cell phone to
chambers staff or file a statement of record explaining why she could not obtain them by June
26, 2015. Mrs. Medina-Whitaker did not provide the statements or file an explanation of record.
She sent an email to chambers staff on June 29, 2015 stating she was waiting on phone records,
which was not sufficient to comply with the Court’s directive. When chambers staff followed up
with Mrs. Medina-Whitaker to obtain the name of her cell phone carrier so that Mr. Peplinski
could instead subpoena the records, she never responded.
Defendants inadvertently appeared for the continued show cause hearing one day early.
The Court once again continued the show cause hearing until July 30, 2015 because Mr.
Whitaker could not arrange to miss work the next day. Defendants did not appear at the July 30,
2015 show cause hearing.
Based on the foregoing, the Court finds that Defendants engaged in bad faith conduct in
connection with the settlement agreement. Defendants may have initially believed Mr. Whitaker
could obtain a loan from his PERA account to pay the settlement amount. However, they either
discovered such contingency could not be met shortly after December 17, 2014, or they never
researched it. Defendants nevertheless created the impression that they were working towards
obtaining PERA funding, informing Counsel and Plaintiff that they expected an answer from
PERA during the week of January 5, 2015. Defendants then refused to communicate with
Plaintiff or Counsel until almost six months later when Plaintiff filed the motion to enforce the
settlement agreement.
Plaintiff did not incur any legal fees as a result of Defendants’ bad faith conduct, but he
was harmed in other ways. He was counting on the settlement funds to save his home from
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foreclosure. The foreclosure proceeding took place in February 2015. Because Defendants did
not execute any sort of promissory note resulting from the settlement, Plaintiff was unable to
obtain a loan against the settlement funds. Plaintiff missed work on multiple occasions to attend
hearings, and to gather evidence to impeach Mrs. Medina-Whitaker’s statements about her mail
issues. Finally, Plaintiff experienced stress and anxiety from attending multiple hearings and
wondering whether he would receive the settlement funds.
DISCUSSION
Plaintiff seeks sanctions in the amount of $3,000 and incarceration of Defendants for 30
days based on their conduct in connection with the settlement agreement. Bankruptcy courts
have “inherent power ... to sanction abusive litigation practices.” Law v. Siegel, 134 S.Ct. 1188,
1194 (2014) (quoting Marrama v. Citizens Bank of Mass., 549 U.S. 365, 375-376 (2007)). The
Tenth Circuit has pointed to 11 U.S.C. § 105(a) as the basis for such power, which provides that
the bankruptcy court may “tak[e] any action or mak[e] any determination necessary or
appropriate ... to prevent an abuse of process.” See In re Courtesy Inns, Ltd. Inc., 40 F.3d 1084,
1090 (10th Cir. 1994) (“We believe, and hold, that § 105 intended to imbue the bankruptcy courts
with the inherent power” to issue sanctions); In re Thomas, 2009 WL 3241288, *3 (10th Cir.
2009) (affirming the Bankruptcy Appellate Panel’s conclusion that a “bankruptcy court had
inherent, discretionary authority under 11 U.S.C. § 105(a) to impose sanctions for [appellant’s]
pattern of bad faith and abusive conduct in the adversary proceeding”).
Certain rules, such as Fed.R.Bankr.P. 9011,1 provide a further basis for sanctions. “When
there is bad-faith conduct in the course of litigation that could be adequately sanctioned under
the [Bankruptcy] Rules, the court ordinarily should rely on the Rules rather than the inherent
power.” Courtesy Inns, Ltd. Inc., 40 F.3d at 1090 (quoting Chambers v. NASCO, Inc., 501 U.S.
1 That rule allows bankruptcy courts to sanction litigants who file baseless or false pleadings.
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32, 50 (1991)). Otherwise, the Court may rely on its inherent authority and/or its authority under
§ 105(a). Id.
Courts have considerable discretion in fashioning an appropriate sanction. See LaFleur v.
Teen Help, 342 F.3d 1145, 1149 (10th Cir. 2003) (reviewing for abuse of discretion district
court’s imposition of sanctions under its inherent powers); Eisenberg v. University of New
Mexico, 936 F.2d 1131, 1136 (10th Cir. 1991) (acknowledging the need to give trial courts
“broad latitude in fashioning sanctions”). Although the Tenth Circuit has not specifically
addressed the current fact situation, it has set forth various factors governing the imposition of
sanctions in situations involving discovery abuses, Rule 11 violations, and fee awards. Factors
governing those situations, and which are also relevant here, include: (1) the degree of prejudice
to the opposing party; (2) the amount of interference with the judicial process; (3) the degree of
bad faith and/or the culpability of the offending party; (4) ability to pay; and (5) the minimum
amount necessary to deter future abuses. Farmer v. Banco Popular of North America, --- F.3d --
--, 2015 WL 3956172, *9 (10th Cir. 2015) (identifying factors to consider when issuing a fee
award for abusive litigation practices); Quarrie v. New Mexico Inst. of Min. & Tech., ---
Fed.Appx. ----, 2015 WL 4478205, *2 (10th Cir. 2015) (identifying factors relevant to imposing
the sanction of dismissal under Fed.R.Civ.P. 41(b)); White v. General Motors Corp., 908 F.2d
675, 684–85 (10th Cir.1990) (identifying factors relevant to imposing sanctions under Rule 11).
In this case, Defendants acted in bad faith by creating the impression they were working
on determining whether they could obtain a loan from Mr. Whitaker’s PERA account when in
reality, they either knew it was impossible or they never researched it. Such bad faith caused
Plaintiff considerable prejudice. Plaintiff was counting on the settlement funds to save his house
from foreclosure. Although it appears that Plaintiff could not have avoided foreclosure if he
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knew about Defendants’ inability to meet the funding contingency sooner, he would have
avoided a considerable amount of stress stemming from the uncertainty and time consuming
efforts to enforce the settlement. Plaintiff was required to miss work on numerous occasions to
gather evidence and attend various show cause hearings. Further, Defendants’ conduct
undermined the settlement process and delayed resolution of the adversary proceeding by at least
six months. Defendants’ false assurances that they expected to hear back from PERA regarding
funding during the week of January 5, 2015, and their subsequent failure to communicate with
Counsel, demonstrates a fair degree of culpability.
The Court is troubled by Defendants’ behavior. However, incarceration is not
appropriate under the circumstances,2 and the Court is not convinced Defendants are able pay a
$3,000 sanction. Defendants’ schedules show negative monthly income of $789.00, they are
living with family members, and Ms. Medina-Whitaker is not currently working. The Court
concludes a more appropriate sanction for Defendants’ bad faith conduct in connection with
settlement is $1,500, payable in three monthly installments of $500.
WHEREFORE, IT IS HEREBY ORDERED:
1. Defendants must pay to Plaintiff $1,500 as a sanction for Defendants’ bad faith
conduct in connection with settlement (the “Sanction Award”) as follows:
First payment of $500 due on or before September 14, 2015.
Second payment of $500 due on or before October 14, 2015.
Third payment of $500 due on or before November 16, 2015.
2 Bankruptcy courts can order incarceration to coerce a bad actor into complying with a court order, but
they cannot order incarceration as a punishment for previous bad acts. See In re Tate, 521 B.R. 427, 440-
441 (Bankr. S.D. Ga. 2014) (providing an in-depth analysis of the circumstances under which bankruptcy
courts can order incarceration). In this case, the sanction is not coercive.
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2. If Defendants miss any such payment(s), the entire balance of the Sanction Award
will become immediately due and the Court will, at Plaintiff’s request, issue a judgment against
Defendants for the unpaid balance of the Sanction Award.
3. Any amounts Defendants pay in connection with the Sanction Award will be
credited towards Plaintiff’s recovery in the adversary proceeding, should he end up recovering a
judgment on his amended complaint.
4. The Court will conduct a scheduling conference with respect to Plaintiff’s
amended complaint (Docket No. 51) on September 2, 2015 at 1:30 p.m. in the Sandia
Courtroom, Thirteenth Floor, Dennis Chavez Federal Building and United States Courthouse,
500 Gold Ave. SW, Albuquerque, NM. Parties may appear at the scheduling conference by
telephone by contacting chambers staff with such a request at least one business day in advance.
_________________________________
ROBERT H. JACOBVITZ
United States Bankruptcy Judge
Date entered on docket: August 14, 2015
Copy to:
Stanley Peplinski
11220 Country Club Dr. NE
Albuquerque, NM 87111
Elayne Medina Whitaker
Robert Whitaker
6225 Dennison Rd. SW
Albuquerque, NM 87121
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