IN RE: COEPTIS EQUITY FUND LLC (2025)

ORDER GRANTING MOTION FOR WITHDRAWAL OF THE REFERENCE TO THE BANKRUPTCY COURT AND MOTION FOR SANCTIONS UNDER 28 U.S.C. § 1927

On August 20, 2024, the Chapter 7 Trustee moved the district court to withdraw the reference of this Chapter 7 bankruptcy proceeding to bankruptcy court for the purpose of considering a motion for sanctions under 28 U.S.C. § 1927. (Dkt. No. 1.) Mr. Barbee did not file a response to the motion, and the Court granted withdrawal of the reference and the corresponding motion for sanctions. (Dkt. No. 3.) On December 15, 2024, Mr. Barbee filed a motion for reconsideration, requesting that he have the opportunity to respond on the merits. (Dkt. No. 5.) The Court vacated the judgment and allowed Mr. Barbee to file a response to the motion. (Dkt. No. 9.) Having considered Mr. Barbee's response, the Court still finds it appropriate to GRANT the motion to withdraw the reference for the limited purpose of determining sanctions. The corresponding motion for sanctions is similarly GRANTED. The Court adopts the same findings of fact and conclusions of law, as described in its previous order. (Dkt. No. 3.) None of Mr. Barbee's arguments alters the Court's previously stated conclusions.

Mr. Barbee argues that the Court lacks jurisdiction to issue sanctions based on conduct in the appeals from the bankruptcy proceedings because a court “cannot issue section 1927 sanctions for conduct in another court.” (Dkt. No. 10 at 7 (citing Lundstrom v. Young, 18-cv-02856, 2022 WL 15524619 (S.D. Cal. Oct. 27, 2022)).) The text of § 1927 provides for sanctions against “[a]ny attorney ․ admitted to conduct cases in any court of the United States ․ who so multiplies the proceedings in any case unreasonably and vexatiously.” Thus, for example, a district court could not sanction counsel for conduct taking place in an “entirely separate action” in the state courts, because the state court case in which the proceedings were multiplied is not pending before the district court. GRiD Systems Corp. v. John Fluke Mfg. Co., 41 F.3d 1318, 1319 (9th Cir. 1994).

However, as the text of § 1927 reflects, the district court may sanction conduct that multiplied proceedings in the case before it. Here, the conduct occurred in the same bankruptcy case whose reference has been withdrawn in this order and is now pending before this court. “[B]ankruptcy courts are not separate courts from the district court but are part of it.” Id. (citing 28 U.S.C. § 151 (designating the bankruptcy court as a “unit of the district court”)). Counsel's conduct in these bankruptcy proceedings—including its associated appeals—has “multiplied the proceedings” in the case before the court. 28 U.S.C. § 1927. As such, this court has both the duty and the authority to address that conduct through sanctions. See, e.g., In re Peoro, 793 F.2d 1048, 1051 (9th Cir. 1986) (affirming the imposition of sanctions by a district court for an attorney's conduct in bankruptcy court).

Additionally, Mr. Barbee's argument about Rule 11 sanctions is inapplicable. The sanctions sought under § 1927 concern the appeals Mr. Barbee took—which vexatiously multiplied the litigation—not Mr. Barbee's choice to bring the initial motion. Thus, for the reasons stated in the previous order, sanctions under § 1927 may be awarded.

The Court recognizes the impact that this sanctions award may have on Mr. Barbee, and it is not a decision undertaken lightly. However, based on the findings of fact and conclusions of law detailed in the prior order, sanctions are appropriate under the law. Mr. Barbee is ordered to pay $28,550 to the bankruptcy estate. The matter is otherwise returned to the bankruptcy court.

IT IS SO ORDERED.

RITA F. LIN United States District Judge