Tuesday, October 10, 2006

Eleventh Circuit Upholds Bankruptcy Court's Use of Inherent Powers to Assess Sanctions Upon a Finding of Bad Faith

Per In re Sunshine Jr. Stores, Inc., 456 F.3d 1291 (11th Cir. July 18, 2006):

Federal courts have the inherent power to impose sanctions on parties, lawyers, or both. Byrne v. Nezhat, 261 F.3d 1075, 1121 (11th Cir.2001). "This power is derived from the court's need 'to manage [its] own affairs so as to achieve the orderly and expeditious disposition of cases.' " Byrne, 261 F.3d at 1106 [internal citations omitted]. As we have stated elsewhere, " '[t]he key to unlocking a court's inherent power is a finding of bad faith.'" Byrne, 261 F.3d at 1106. We . . . find that the bankruptcy court did not abuse its discretion in applying its inherent powers. Under appropriate circumstances, it is within a court's discretion to assess attorney's fees on a party, or even to dismiss its lawsuit, for actions taken in bad faith. Chambers v. NASCO, Inc., 501 U.S. 32, 45(1991). In this case, the bankruptcy court sanctioned BONY for what reduces to two classes of conduct. First, BONY failed to obey or otherwise respond to the court's orders over an extended period of time. Second, BONY refused to comply with the court's January 29 Order, which directed BONY to provide the Debtor with information on the interest BONY had earned on the Prepayment Funds between April 1996 and October 2001.


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