UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
ASHLAND DIVISION
IN RE:
HNRC DISSOLUTION CO. CASE
NO. 02-14261
DEBTOR
GEOFFREY
L. BERMAN, solely in his
capacity
as the Liquidating Trustee
of the HNR Liquidating Trust PLAINTIFF
VS: ADV.
04-1057
BILL FIELDS TRUCKING DEFENDANT
MEMORANDUM
OPINION AND ORDER
This matter is before the court on
the Defendant’s Motion for Rule 9011 Sanctions. This Defendant is one of 38 similarly situated defendants who
filed the same motion. The actions
involving the 38 defendants were consolidated for purposes of conducting
discovery. The Defendant seeks the
imposition of costs, attorney fees, expenses, and any other relief deemed
proper against the law firm of Foley & Lardner, LLP, and certain of its
counsel (collectively “Foley”) as attorneys for the Plaintiff, “for the signing
and filing of a knowingly frivolous Complaint without obtaining any relevant
documents or conducting a reasonable investigation or due diligence to
determine the merits (or lack thereof) of the alleged causes of action.” This court has jurisdiction of this matter
pursuant to 28 U.S.C. § 1334(b); it is a core proceeding pursuant to 28
U.S.C. § 157(b)(2)(F).
1. Factual and procedural background
The Plaintiff here was appointed
Liquidating Trustee on October 1, 2004, less than 45 days before the running of
the statute of limitations for preference actions. He filed his Complaint to
Avoid and Recover Preferential Transfers on November 7, 2004, one of the
approximately 649 preference proceedings he filed. Summons service was executed on March 3, 2005, and the Defendant
filed its Answer on March 5, 2005. The
Plaintiff filed a Motion to Voluntarily Dismiss Adversary Proceedings on May
10, 2005. The Defendant filed a
Response to the Motion on May 16, 2005.
The Motion was heard by the court on May 19, 2005, at which time it was
sustained. An Agreed Order Granting
Plaintiff’s Motion to Voluntarily Dismiss Adversary Proceeding was entered on
June 3, 2005. This Order provided inter
alia that the action was dismissed with prejudice with each party to bear
its own costs, and that the Defendant had not and was not deemed to have waived
any alleged claim under Bankruptcy Rule 9011 by entry of the Order. The proceeding was closed on June 17,
2005. The Defendant filed its Motion
for Sanctions Pursuant to Bankruptcy Rule 9011 on August 3, 2005 and its
Amended Motion for Sanctions on August 30, 2005. The Plaintiff filed a Response to the Motion, and the court heard
the matter on August 30, 2005.
2. Discussion
a. The Rule 9011 standard
Bankruptcy Rule 9011 provides in
pertinent part:
(a) Signature. Every
petition, pleading, written motion, and other paper, . . ., shall be signed by
a least one attorney of record in the attorney’s individual name.
(b) Representations to the Court. By presenting to the court (whether by signing, filing, submitting,
or later advocating) a petition, pleading, written; motion, or other paper, an
attorney . . . is certifying that to the best of the person’s knowledge,
information, and belief formed after an inquiry reasonable under the
circumstances, --
(1) it is not being presented for any improper
purpose . . .;
(2) the claims, defenses, and other legal contentions
therein are warranted by existing law . . .;
(3)the allegations and other factual contentions have
evidentiary support, or, if specifically so identified, are likely to have
evidentiary support after a reasonable opportunity for further investigation or
discovery; and
(4)the denials of factual contentions are warranted on the
evidence or, if specifically so identified, are reasonably based on a lack of
information or belief.
(c) Sanctions. If,
after notice and a reasonable opportunity to respond, the court determines that
subdivision (b) has been violated, the court may, subject to the conditions
stated below, impose an appropriate sanction upon the attorneys, law firms, or
parties that have violated subdivision (b) or are responsible for the
violation.
(1) How initiated.
(A) By
Motion. A motion for sanctions under
this rule shall be made separately from other motions or requests and shall
describe the specific conduct alleged to violated subdivision (b). It shall be served as provided in Rule
7004. The motion for sanctions may not
be filed with or presented to the court unless, within 21 days after service of
the motion . . ., the challenged paper, claim, defense, contention, allegation,
or denial is not withdrawn or appropriately corrected . . .
The standard in the Sixth Circuit
for imposing sanctions is most recently found in In re Big Rapids Mall
Assocs., 98 F.3d 926 (6th Cir. 1996).
There the court stated: “In this circuit, the test for imposition of
Rule 11 sanctions is whether the individual attorney’s conduct was reasonable
under the circumstances.” Id. at
930. See also Albright v.
Upjohn Co., 788 F.2d 1217, 1221 (6th Cir. 1986). The court in Jackson v. Law Firm, 875 F.2d 1224 (6th Cir.
1989), enunciated the obligations of the attorney in light of the requirements
of Rule 11. The attorney must make a
reasonable inquiry concerning the facts and the law, and he must not file the
document in question for any improper purpose.
Id. at 1229.
Various factors are applied to the
determination of whether conduct is reasonable, including “the time available
to the signor for investigation; whether the signor had to rely on a client for
information as to the facts underlying the pleading, motion or other paper;
whether the pleading, motion. or other paper was based on a plausible view of
the law; or whether the signor depended on forwarding counsel or another member
of the bar.” Davis v. Crush, 862
F.2d 84, 88 (6th Cir. 1988), quoting Century Prods., Inc. v. Sutter, 837
F.2d 247, 250 (6th Cir. 1988) (citations omitted).
In this matter, Foley was operating
in a restricted time frame in its efforts to investigate and timely file
preference actions. In addition, Foley
could not be charged with knowledge of the viability of each matter at its
inception. It was in no better position
to make such a determination without an opportunity to investigate than any law
firm would have been.
A motion for sanctions cannot be
filed with or presented to the court without satisfying the requisite 21-day
“safe harbor” provision. In Ridder
v. City of Springfield, 109 F.3d 288 (6th Cir. 1997), the court held that
this provision, one of the 1993 amendments to the Rule,
allow[s] for a twenty-one day period of ‘safe harbor,’
whereby the offending party can avoid sanctions altogether by withdrawing or
correcting the challenged document or position after receiving notice of the
allegedly violative conduct. In that
way, the ‘safe harbor’ provision works in conjunction with the duty of candor,
giving the proponent of a questionable claim an opportunity to assess the
claim’s validity without immediate repercussion.
Id. at 294. As to the timing of the
motion,
a party cannot wait to seek sanctions until after the
contention has been judicially disposed.
A party must now serve a Rule 11 motion on the allegedly offending party
at least twenty-one days prior to conclusion of the case or judicial rejection
of the offending contention. If the
court disposes of the offending contention before the twenty-one day ‘safe
harbor’ period expires, a motion for sanctions cannot be filed with or
presented to the court. Any other
interpretation would defeat the rule’s explicit requirements.
Id. at 295. Ridder has not
been overruled, and it remains the law in the Sixth Circuit. As may be seen from the dates set out above,
the Complaint herein had been dismissed by the time the Rule 9011 motion was
filed. No 21-day safe harbor notice was
given, but it appears that, even if it had been, no sanctions would have been
imposed as the offending pleading had already been dismissed.
The Defendant contends that Powell
v. Squire, Sanders & Dempsey, Nos. 98-3668, 98-3670, 1999 WL 519816
(6th Cir. July 16, 1999), an unpublished opinion, “clarifies” the Ridder
court’s determination that a motion for sanctions must be filed prior to the
adjudication of the case, and rejects it as dicta. In Powell the movant satisfied the safe harbor provision
by serving his motion more than 21 days before the case was dismissed, even
though he filed the motion after the dismissal. Id. at *3. The Powell
court’s characterization of the determination in Ridder that the motion
for sanctions must be filed with the court prior to the adjudication of the
case as “unnecessary” has more to do with the fact that the movant in Ridder
did not serve the motion for the safe harbor period than that the motion was
served after dismissal.
The Defendant has made reference to
another unpublished Sixth Circuit case, Barker v. Bank One, No. 97-5787,
1998 WL 466437 (6th Cir. July 30, 1998).
In this case, counsel for the Rule 9011 movants had notified the
plaintiff by letter that they intended to seek sanctions before they served
their motion for sanctions. The
complaint was not withdrawn, and motions to dismiss were eventually
granted. The defendants then served
their motion for sanctions 21 days before filing it with the court. Id. at *2. The obvious difference between this matter and the Barker
case is that the offending pleading was withdrawn here before any motion was
ever served. Barker is not
instructive in this instance.
In consideration of all the foregoing, it is the opinion of
this court that the Defendant has not satisfied the requirements of Bankruptcy
Rule 9011 for service of a motion for sanctions, and that its Motion for Rule
9011 Sanctions should be and hereby is overruled. COPIES TO:
Amy P.
Purcell, Esq.
Carole
Friend, Esq.