Frivolity in the Appellate Court
Bankruptcy Rule 8020
In December 1997, the Federal Rules of Bankruptcy Procedure were amended to include Rule 8020, which is captioned "Damages and Costs for Frivolous Appeals." Bankruptcy Rule 8020 provides that "[i]f a district court or bankruptcy appellate panel [BAP] determines that an appeal from an order, judgment or decree of a bankruptcy judge is frivolous, it may, after a separately filed motion or notice from the district court or BAP and a reasonable opportunity to respond, award just damages and single or double costs to the appellee."1 Bankruptcy Rule 8020 is modeled after Rule 38 of the Federal Rules of Appellate Procedure and was added to the Bankruptcy Rules to "clarify that a district court hearing an appeal, or a bankruptcy appellate panel, has the authority to award damages and costs to an appellee if it finds that the appeal is frivolous."2 Prior to the enactment of Bankruptcy Rule 8020, there had existed a split in authority as to whether district courts acting as appellate courts in bankruptcy cases could award fees under Appellate Rule 38.3
Now it is clear that a frivolous appeal from an order of a bankruptcy court may result in damages or costs being awarded by a district court or BAP. This raises the interesting and critical question as to when an appeal is frivolous. While no cases have been decided under the new Bankruptcy Rule 8020, a large body of federal case law has developed under Appellate Rule 38 defining when an appeal would be considered frivolous. As the language of Bankruptcy Rule 8020 mirrors that of Appellate Rule 38, practitioners should be able to look at the standards developed under Appellate Rule 38 to determine when an appellate court will find that an appeal is frivolous and when the imposition of damages and costs is appropriate.
Defining Frivolous Appeals
While courts have recognized that "injudicious awards of Appellate Rule 38 damages may have the potential to chill the zeal for pursuing novel questions and difficult appeals," sanctions will be imposed when there is "no possibility of success, and it is patently unfair to allow appellees who have been damaged financially by a frivolous appeal to go uncompensated."4 In ruling on the issue, many courts have stated that "an appeal is frivolous when the result is obvious, or the arguments are ‘wholly without merit.’"5 That "test," however, does not provide attorneys with a great deal of guidance when evaluating whether it is appropriate to appeal a bankruptcy court decision. Therefore, it is necessary to look more closely at the cases decided under Appellate Rule 38 to determine when a court will deem an appeal frivolous.
A necessary step that courts take in evaluating the validity of an appeal is a review of the arguments advanced by the appellant. Advancing novel arguments or attempting to change or extend the current state of the law should not result in the imposition of sanctions.6 However, assertions that controlling authority was incorrectly decided or should be overruled may result in sanctions if such assertions are wholly unsupported in the brief.7 Similarly, failure to address or distinguish controlling authority may be sanctionable.8
Courts also have clearly established that appeals from determinations of credibility, either by a judge or a jury, will be viewed with a great deal of skepticism. Courts have stated that an appeal is frivolous when "the result is foreordained by the lack of substance to the appellant’s arguments."9 An appellant who simply reasserts his own version of facts that have already been decided by a lower court, arguing that the appellate court should believe him and not his opponent, stands a good chance of having his appeal deemed frivolous and sanctionable.10
Another danger area relates to appeals from decisions by a trial court in which the standard of review is either abuse of discretion or clearly erroneous. These are very hard standards to overcome and appeals courts have been critical of appeals in which appellants assert no basis to justify overturning a decision under such a standard.11 Not surprisingly, this issue has arisen a number of times in appeals of the imposition of Rule 11 sanctions by a trial court. "Courts of appeals have ample authority to protect the beneficiaries of Rule 11 sanctions by awarding damages and single or double costs under Appellate Rule 38—which they may do...when the appellant had no reasonable prospect of meeting the difficult standard of abuse of discretion."12
Caution also must be exercised when bringing an appeal from an interlocutory order. As a general rule, an order is not appealable unless it is a final order. Many courts have held that attempts to bring appeals of interlocutory orders will be considered frivolous. However, these cases do not suggest that no attempt should be made to appeal from an order if, as is often the case in bankruptcy, confusion exists regarding whether the order is final. Instead, the criticism most often leveled at appeals of interlocutory orders is the appellant’s failure to address the issue of jurisdiction. If a colorable claim exists (and is articulated) that the exercise of appellate jurisdiction is appropriate, sanctions should not be imposed.13 In bankruptcy cases, issues regarding finality and applicability often arise and their resolution can be critical to a client’s interest. Counsel bringing an appeal of an order that may not be final should directly address that issue and assert an argument as to why it is appropriate for the court to consider the appeal.
In evaluating the appropriateness of an appeal, in addition to reviewing the validity of the arguments advanced, courts often consider the appellant’s overall behavior in a case. A pattern of delay or harassing behavior on the part of the appellant increases the likelihood that sanctions will be imposed. While improper motives alone should not result in a determination that an appeal is without merit, a history of bad behavior generally will result in a court being more critical of arguments advanced by an appellant. A classic example of the effect of prior improper behavior arose in In re Continental Investments Corp., a First Circuit appeal of a bankruptcy court decision.14 In that case, the majority shareholders of a corporation appealed a bankruptcy court order approving a compromise of creditors’ claims against the bankrupt corporation. Prior to bringing the appeal in question, the same shareholders had brought three prior appeals of decisions of the district court in the case. In finding that the appeal of the approval of the stipulation was frivolous, the appellate court focused on the shareholders’ history of appeals. While the appellate court based its decision to impose sanctions on a determination that the arguments made in the fourth appeal were "devoid of merit," the appellate court gave credence to the appellees’ assertion that the instant appeal was just the most recent in a long line of delaying tactics engaged in by the appellants. The court noted that in the prior appeals it had expressed doubts as to the appellants’ theories and the merits of the appellants’ claims and that "[i]n each of their last three appeals the sole end appellants stood to achieve [was] delay and further litigation."15
The bringing of a frivolous appeal also exposes an attorney to sanctions personally. While neither Bankruptcy Rule 8020 nor Appellate Rule 38 explicitly states who is liable for damages imposed under those rules, courts have repeatedly imposed sanctions on appellant’s counsel directly when deemed appropriate.16 Failure to exercise professional judgment has been routinely condemned by appellate courts and appears to be the behavior most likely to result in counsel being sanctioned directly. When an appeal is deemed frivolous due to counsel’s professional error, either in failing to properly investigate the law or facts underpinning the appeal or failing to diligently prosecute the appeal, sanctions may be imposed against counsel directly.
[A]ttorneys have an affirmative obligation to research the law and to determine if a claim on appeal is utterly without merit and may be deemed frivolous. We conclude that if counsel ignore or fail in this obligation to their clients, they do so at their peril and may become personally liable to satisfy an Appellate Rule 38 award. The test is whether, following a thorough analysis of the record and careful research of the law, a reasonable attorney would conclude that the appeal is frivolous.17
While no clear criteria exists to determine when bringing an appeal is sanctionable, the importance of careful evaluation before rushing to the court house cannot be overstated. While it may be difficult to explain to a client why filing an appeal may be inappropriate, it is incumbent upon an attorney to step back from the fray in order to fully analyze the validity of prosecuting an appeal.
3Compare In re Grosse, 96 B.R. 29 (E.D. Pa. 1989), aff’d, 879 F.2d 857 (3d Cir.), cert. denied, 492 U.S. 976 (1989) (only circuit courts have authority to impose Rule 38 sanctions) with In re Vasseli, 5 F.3d 351, 353 (9th Cir. 1993) (BAP has the authority under Fed. R. App. P. 38 to award damages and single or double costs to an appellee for a frivolous appeal.). Return to Text
13 Compare Edwards v. Cass County, Texas, 919 F.2d 273 (5th Cir. 1990) (sanctions inappropriate notwithstanding lack of appellate jurisdiction where argument based on colorable reading of precedent) with Hilmon Co. v. Hyatt Intern., 899 F.2d 250, 252 (3rd Cir.), rehearing denied (1990) (sanctions appropriate when appellant made no attempts to respond to challenge to appealabilty of interlocutory order). Return to Text
16 See, e.g., Bartel Dental Books Co. Inc. v. Schultz, 786 F.2d 486, 491 (2d Cir.1986) ("Attorneys can be held jointly and severally liable with their clients under Rule 38 for bringing frivolous appeals."), cert. denied, 478 U.S. 1006 (1987); Amodeo v. Dept. of Transp., F.A.A., 788 F.2d 1549 (Fed.Cir.) (Rule 38 damages imposed solely on appellant’s counsel because he was responsible for what took place), cert. denied, 479 U.S. 849 (1986). Return to Text