FOR THE NORTHERN DISTRICT OF CALIFORNIA
THE FITCH MOUNTAIN TRUST, No. 93-11250
Memorandum of Decision
On the eve of foreclosure, attorney Mark Swendsen and his wife transferred title to their real
property to the Fitch Mountain Trust and filed a Chapter 11 petition for the trust in order to
thwart the foreclosure. Swendsen was a trustee and beneficiary under the trust.
On motion of the U.S. Trustee, the court dismissed the petition as having been filed in bad
faith. See In re Thirtieth Place, Inc.
, 30 B.R. 503 (9th Cir.BAP 1983). The court reserved the
issue of any sanctions to be assessed against Swendsen.
The foreclosing deed of trust holder, Anne M. Vercelli, now seeks sanctions in the amount
of $7,555.00, representing her attorneys' fees incurred in obtaining relief from the automatic
stay. Swendsen raises the novel defense that state anitideficiency law bars the imposition of
sanctions against him because she nonjudicially foreclosed. The court rejects this argument and
The flaw in Swendsen's argument is that a request for sanctions is not an action on a debt.
While the court may take the moving party's expenses into account in fixing an appropriate
amount of sanctions, it is only one element in size of the award and not the basis for it. The
primary purpose of sanctions is to deter conduct. When bad faith is found, FRBP 9011
sanctions, irrespective of any debt which may or may not be owing; compensation
for expenses is permissive, not an essential element of sanctions. See In re Eighty South Lake,
, 81 B.R. 580, 582 (9th Cir.BAP 1987).
It is no secret in this circuit that transferring real estate to a fictitious entity on the eve of
foreclosure and then filing a bankruptcy petition for the entity in order to obtain the benefits
of the automatic stay amounts to bad faith, and renders both the debtor and its attorney subject
to sanctions. See In re Thirtieth Place
and In re Eighty South Lake, Inc.
, supra; In re Villa
, 110 B.R. 919 (9th Cir.BAP 1990). Sanctions are even more appropriate where the
attorney is also the transferor and a principal of the fictitious entity.
As noted above, the purpose of sanctions is to deter bad faith conduct. While the court
makes note of the $7,555.00 in attorneys' fees incurred by Vercelli, it declines to fix sanctions
in this amount for numerous reasons, including the fact that these fees are somewhat excessive
in relation to the value of the property, that she could have easily obtained relief from the
automatic stay for much less than this amount, and that deterrent does not compel such a large
sum. The court feels that sanctions in the amount of $5,000.00 are appropriate and accordingly
awards this sum against the debtor and Swendsen.
Counsel for Vercelli shall submit an appropriate form of order forthwith.
Dated: September 27, 1993 _______________________