U.S. Department of Justice, U.S. Trustee Program

The views expressed in this article are those of the

author and do not necessarily represent the views of, and

should not be attributed to, the Department of Justice or the

United States Trustee Program.

Civil and Criminal Contempt

in Bankruptcy Court

Clifford J. White III

Assistant United States Trustee - Greenbelt, Maryland

The number of bankruptcy filings has exploded in recent

years to reach more than 1.4 million in fiscal year 1998.

Although the number of chapter 11 cases has dipped, the volume

of consumer cases continues to grow and, with the increased

filings, so have problems associated with keeping order in the

court. In many jurisdictions, overworked bankruptcy judges

have to cope with thousands of diverse cases, ranging from

complex business reorganizations to small consumer cases that

involve pro se debtors or, worse yet, non-attorney petition

preparers whose knowledge of and respect for the rules are

often glaringly deficient. With so many matters to juggle,

the need has never been greater for bankruptcy courts to

insist upon prompt compliance with judicial orders that

protect the integrity of the system and the rights of all

parties to a bankruptcy case.

An important arrow in the quiver of bankruptcy courts to

uphold the rule of law is the power to hold parties in civil,

or even criminal, contempt of court. By holding recalcitrant

debtors, creditors, lawyers, and other parties in contempt of

court, bankruptcy judges may impose appropriate penalties to

vindicate the authority of the court, to compensate victims of

the contemnors’ acts of commission or omission, and to compel

compliance with lawful court orders.

A bankruptcy court’s authority to hold a party in

contempt derives from several sources, including the inherent

authority of any court to regulate the conduct of those

appearing before it, 11 U.S.C. §105 (the power to issue orders

necessary or appropriate to carry out the Bankruptcy Code), 28

U.S.C. § 157(b) (jurisdiction of bankruptcy courts to hear

“core” matters), and Fed. R. Bankr. P. 9020 (discussed infra).

For a concise overview of civil contempt in a bankruptcy

proceeding, see, e.g., In re Walters, 868 F.2d 665 (4th Cir.

1989).

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Civil Contempt

It is generally accepted that bankruptcy judges have the

power to enforce their orders by finding violators in civil

contempt of court.

The purpose of civil contempt may be

either coercive or remedial.

Civil contempt penalties are

not punishments, but rather are means by which to bring a

party into compliance with a court order or to force the

contemnor to compensate the victim of his acts that were

committed in disregard of a court order.

A court need consider only two factors in determining

whether to hold a party in civil contempt: whether the alleged

contemnor had notice of the court order and whether that

person complied with the order. Courts have held that the

contemnor’s intent or state of mind is irrelevant. Given the

seriousness of the civil contempt finding and the penalties

that may be imposed on the violator, the court should be

satisfied by “clear and convincing” evidence that a party has

committed civil contempt. Furthermore, the court may not

impose a civil contempt penalty if the contemnor can prove an

inability to comply (e.g., impecunious contemnor cannot pay a

fine) or if the underlying order is later found to be invalid.

The Federal Rules of Bankruptcy Procedure (Fed. R. Bankr.

P.) set out the procedures a court must follow in civil

contempt matters. Although contempt committed in the presence

of the judge may be summarily disposed of by the judge, other

instances of contempt require more deliberate steps. Under

Fed. R. Bankr. P. 9020(b), before finding a party in contempt,

the court must issue a written notice that provides specific

details about the alleged acts of contempt, states the time

Among the earlier cases holding that bankruptcy judges

may impose incarceration as a civil contempt penalty are In re

Duggan, 133 B.R. 671, 673 (Bankr. D. Mass. 1991), and In re

Maxair Aircraft Corporation, 148 B.R. 353, 359 (M.D. Ga.

1992).

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and place of the hearing on the charges, and allows a

reasonable response time. The judge is disqualified from

hearing a contempt charge involving disrespect or criticism of

that judge.

A bankruptcy court order of contempt does not become

effective for 10 days. The contemnor may object to the

finding by filing exceptions with the district court that will

consider the matter de novo. The district court may confine

itself to the record below or take additional evidence. If

objections are not filed, the bankruptcy court order “shall

have the same force and effect as an order of contempt entered

by the district court . . . .” Fed. R. Bankr. P. 9020(c).

Although civil in nature, penalties for civil contempt

may be severe. Civil contempt penalties have been imposed for

a wide variety of violations, including failure to attend

§ 341 meetings, failure to disgorge fees, and violation of

other court orders. Fines are commonly imposed. If, however,

the court finds that the contemnor is unable to pay a monetary

penalty, the court may be creative. For example, attorneys

who fail to disgorge fees have been enjoined from practicing

before the court that issued the disgorgement order until the

fees are refunded.

Insofar as the purpose of civil contempt is to coerce

compliance, the court may impose a regimen of escalating

penalties. For example, if the contemnor pays a fine but

still disregards a court order, the court may impose

additional fines. A contemnor who continues to violate a

court order may even be incarcerated. It is increasingly

agreed that bankruptcy judges may order the United States

Marshal to take contemnors into custody and even to

incarcerate them until they purge themselves of contempt. As

long as the civil contemnor possesses the “keys to the

jailhouse door,” he may remain in custody.

In addition to civil contempt, bankruptcy courts

sometimes avail themselves of other similar remedies. For

It is unsettled whether a bankruptcy court qualifies as

a “court of the United States” for purposes of imposing § 1927

sanctions.

The leading cases on each side of this controversy are In

re Ragar, 3 F.3d 1174 (8th Cir. 1993)(held attorney who

represented a chapter 13 debtor after disqualification to be

in criminal contempt) and In re Hipp, Inc., 895 F.2d 1503 (5th

Cir. 1990)(held that bankruptcy court lacked jurisdiction to

hold creditor in criminal contempt for violating injunction

against filing motions).

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example: Fed. R. Bankr. P. 9011, which is nearly identical to

Fed. R. Civ. P. 11, provides for sanctions against parties who

sign and file court papers; 11 U.S.C. § 349 has been used by

some courts to penalize debtors whose cases are dismissed

(such as by enjoining refiling for a period of time or by

denying the discharge of debts in any future cases); and 28

U.S.C. § 1927 allows federal courts

to sanction attorneys who

“vexatiously” protract litigation.

Criminal Contempt

The power of a bankruptcy court to find a party in

criminal contempt of court remains unsettled.

Case law

appears to be evolving, however, to permit bankruptcy courts

to impose sanctions that may be characterized as criminal in

nature.

Criminal contempt differs from civil contempt in numerous

material respects. The key distinction between civil and

criminal contempt is that contemnors are punished by criminal

contempt sanctions. Once criminal contempt has been

committed, the defendant cannot terminate the sanction by

purging herself of the contempt.

Contempt of court is a crime under 18 U.S.C. § 401. Case

law establishes at least three elements of the crime: the

court must have issued a reasonably specific order; the

contemnor must have violated the order; and the contemnor must

have acted willfully. Unlike in civil contempt, a criminal

contempt conviction will be upheld even if the underlying

order is later invalidated. The rationale for this principle

is that criminal contempt vindicates the authority of the

court.

167 B.R. 820 (E.D. Va. 1994).

In re Darenda Downing, 195 B.R. 870 (Bankr. D. Md.

1996)(after conviction and sentencing, and while the case was

on appeal, the defendant was indicted for criminal contempt

and for other crimes).

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A final key difference between civil and criminal

contempt is that criminal contempt requires the same “beyond a

reasonable doubt” standard of proof that is required for any

other criminal conviction.

Although some courts and commentators have cast doubt on

the power of a bankruptcy court to venture into the arena of

criminal contempt, the Bankruptcy Rules clearly contemplate

that bankruptcy judges will exercise criminal contempt powers.

The notice requirement in Fed. R. Bankr. P. 9020(b) expressly

requires that the alleged contemnor be informed in writing of

whether the contempt charged is criminal or civil.

Those convicted of criminal contempt are sentenced under

Sentencing Guideline § 2J1.1. Under that Guideline, the court

is directed to apply whichever Guideline applies to an

analogous crime. This means, for example, that a judge may

look to Sentencing Guidelines covering such matters as

obstruction of justice or fraud depending upon the nature of

the acts committed.

No authority supports the power of a bankruptcy judge to

impose a criminal sentence of incarceration. In the case of

In re Finney,

the bankruptcy court conducted the criminal

contempt trial, found the defendant to be in criminal

contempt, and then referred the matter to the district court

for sentencing. Under Fed. R. Bankr. P. 9020(c), the

defendant also had 10 days within which to file exceptions

before the bankruptcy court judgment was final. This

procedure has been followed in at least one other case.

Many special issues are presented by criminal contempt

proceedings. The defendant may be entitled to a jury trial,

which can only be held in district court. It is generally

accepted that a defendant has a right to a jury trial before a

conviction for any crime other than a petty offense (i.e., a

crime carrying a penalty of six months or less). In addition,

the defendant may be entitled to court-appointed counsel.

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Moreover, because a defendant is protected against double

jeopardy, the courts and prosecutors should narrowly tailor

the contempt charge so that it is not used to defeat a later

indictment on other related charges. The double jeopardy

problem might be more likely to arise for the unwary who

convince a judge to impose a civil sanction that is later

found to be a punishment. In In re Power Recovery Systems,

Inc., the United States Court of Appeals for the First Circuit

stated expressly that a higher court is not bound by a

bankruptcy court’s label on its own judgment. 950 F.2d 798,

802 (1st Cir. 1991).

There are effective alternatives to seeking criminal

contempt sanctions in bankruptcy court. For example, the

government could ask the bankruptcy court to conduct an

evidentiary hearing and to certify its findings to the

district court for de novo consideration. In addition, the

wrongdoer can be separately indicted for his contumacious

acts.

United States Trustee (UST) attorneys are instructed to

consult with the United States Attorney’s office before

initiating or even participating in any criminal contempt

proceedings. Furthermore, in light of the minefield of

special issues that attach to any contempt action, UST

attorneys are well advised to consult with their United States

Attorney counterparts about civil contempt actions and

potential sanctions as well.

Conclusion

Debtors ranging from large financial services companies

to consumers who have reached the end of their financial ropes

walk through the doors of bankruptcy courts each day. With a

full plate of issues before them on matters as diverse as tax

liability and curing arrearages on home mortgages, bankruptcy

judges play a crucial role in both the commercial and consumer

realms of our economy. Given these broad responsibilities,

bankruptcy courts should fully exercise their powers as

federal courts.

United States Attorneys, United States Trustees, and

other prominent litigants in the federal bankruptcy system

should ask bankruptcy courts in appropriate instances to

utilize the power of contempt to effect the purposes of the

Bankruptcy Code and to do justice. Federal government

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lawyers, in particular, have a responsibility to assist the

court in bringing and prosecuting contempt actions. As just

described, the use of the contempt powers can inure to the

benefit of the courts, as well as of the vast majority of

diligent and honest litigants who rely upon the bankruptcy

court to provide a “fresh start” for debtors and an efficient

means for repaying creditors.