1995 #10, Broken Bow Ranch, Inc., 4-12-95

In re: BROKEN BOW RANCH, INC., Chapter 12; Bankr. No. 87-30137

The matter before the Court is the Motion for Attorney Fees and Costs filed by Debtor and the response thereto filed by the Farmers Home Administration ("FmHA;" now the Rural Economic and Community Development Agency). This is a core proceeding under 28 U.S.C. § 157(b)(2). This letter decision and accompanying order shall constitute findings and conclusions under F.R.Bankr.P. 7052. As set forth more fully below, the Court concludes that no monetary sanction against FmHA for a delay in the disposable income evidentiary hearing scheduled for December 17, 1992 is warranted.

I.

Debtor filed its final report and account on March 30, 1992. Several objections to Debtor's discharge were filed. After some delay, an evidentiary hearing finally was held November 18-20, 1992. At the conclusion of the hearing, the Court advised the parties that the hearing would be continued to December 17 and 18, 1992 and that any new exhibits were to be exchanged by December 7. Any additional discovery also was to be completed by December 7, 1992. A formal order setting forth those deadlines was entered November 23, 1992.

Debtor filed a supplemental list of exhibits on Monday, December 7, 1992. FmHA filed a supplemental list of exhibits and witnesses on Friday, December 11, 1992, and served it on Debtor's counsel. FmHA's supplemental list was apparently received by Debtor's counsel on Monday, December 14, 1992. Debtor's counsel did not then request a continuance to allow her time to respond to the new exhibits.

At the hearing on December 17, 1992, Debtor's counsel, two accountants for Debtor (one apparently was scheduled to be a witness), counsel for FmHA, and FmHA's witnesses appeared. After a discussion with counsel, the Court rescheduled the hearing to January 6, 1993 and ordered a final exchange of exhibits by December 28, 1992. The Court also directed Attorney Howey-Fox to submit an itemization of costs for the Court's consideration.

Both parties met the December 28, 1992 deadline. The evidentiary hearing on disposable income was completed on January 8, 1993 and a decision from the bench was rendered.

Debtor filed a Motion for Attorney Fees and Costs arising from the aborted December 17, 1992 hearing on January 20, 1993 and requested costs of $3,922.67. FmHA filed a response on January 24, 1993 and stated the items on its supplemental list were either rebuttal material or were not new information. At the request of Debtor's counsel, a hearing on the Motion was delayed until after a resolution on appeal of the disposable income question.

The final decision on appeal was entered August 30, 1994. Debtor's discharge was entered March 10, 1995. A hearing on Debtor's Motion for Attorney Fees and Costs was held April 6, 1995. Each party reiterated the arguments set forth in their pleadings.

II.

The imposition of sanctions is a serious matter that this Court must approach with circumspection. Lupo v. R. Rowland & Co., 857 F.2d 482, 485 (8th. Cir. 1988); O'Connell v. Champion International Corp., 812 F.2d 393, 395 (8th Cir. 1987). While this Motion is not a typical request for sanctions under F.R.Bankr.P. 9011(a), Rule 9011(a) and related case law provide general guidance.

Whether a sanctionable act has occurred is determined within the court's discretion. Happy Chef Systems, Inc. v. John Hancock Mutual Life Insurance Co., 933 F.2d 1433, 1438 (8th Cir. 1991); O'Connell, 812 F.2d at 395. The standard to be applied is objective reasonableness under the circumstances. Business Guides, Inc. v. Chromatic Communications Enterprises, Inc., 111 S.Ct. 922, 932-33 (1991). Subjective "good faith" cannot excuse the signer's action. Kurkowski v. Volcker, 819 F.2d 201, 204 (8th Cir. 1987).

When sanctionable conduct is found, the court must in its discretion fashion an appropriate sanction. Cooter & Gell v. Hartmarx Corp., 110 S.Ct. 2447, 2457 (1990).

III.

Based on the facts presented and the case law cited above, the Court concludes that an imposition of costs and attorney's fees against FmHA and its counsel is not warranted in this case. Several factors lead to this result.

First, some of the exhibits set forth on FmHA's late-filed supplementary witness and exhibit list were intended only as rebuttal material. Other exhibits were simply "finer-tuned" versions of earlier exhibits.

Second, Debtor's counsel could have mitigated the costs incurred by requesting that the hearing be rescheduled as soon as she received the list late. While she may have thought that a request would be futile, there is nothing in the record to suggest that the Court would not have considered such a request.

Finally, assuming a sanction were warranted, an imposition of all costs incurred by Debtor's counsel and witnesses would be too harsh. FmHA and their counsel generally have complied with all pre-hearing orders in this and other cases. There is no evidence that they will not comply timely with orders in the future. Further, the very nature of a disposable income hearing renders it difficult for both sides to prepare and present "final" exhibits. As the case develops, the issues change. Numbers fluctuate until all the evidence is in. Therefore, FmHA's last-minute preparation of exhibits can be explained. While these facts should not become excuses for failing to complete and timely exchange exhibits in a disposable income case, they do explain why an unfortunate delay occurred in this case.

The costs associated with the December 17, 1992 hearing must be borne by Debtor personally. See In re Brandenburger, 145 B.R. 624 (Bankr. D.S.D. 1992). However, the Court wants to insure that the hours set forth by Debtor's accountants are accurate. If the accountants' only activity was to travel to Pierre, attend the short hearing, and then travel home, the 17 hours charged by each is much too high. If they came the day before the hearing or stayed after the hearing to work with Debtor's counsel, then the 17 hours may be appropriate. A better itemization of the services rendered should be given to Debtors and its counsel. Finally, interest on the unpaid accountants' fees is appropriate only if Debtor's employment agreement with the accountants included such a provision.

An order will be entered denying Debtor's Motion for Attorney Fees and Costs.