VS. ADV. NO. 92-7011








This matter is before the Court on the Motion of defendants Citizens Bank & Trust Company of Jackson, Kentucky and Harlan McIntosh for Costs and Sanctions Under Bankruptcy Rule 9011 filed herein on December 23, 1992. The Motion asks for costs and sanctions against the debtors and their attorney. The matter has been fully briefed and stands submitted for decision.

The plaintiffs filed their Adversarial Complaint for Contempt, Sanctions and Damages for Violations of the Automatic Stay on July 6, 1992. The defendants filed a Motion for Summary Judgment on October 21, 1992, asking for dismissal of the Complaint. On November 16, 1992, this Court entered Summary Judgment for the defendants. Their Motion for Costs and Sanctions Under Bankruptcy Rule 9011 alleges that the filing of the within action against the defendants was baseless.

The Complaint had alleged violations of the automatic stay consisting of the Bank's obtaining an arrest warrant for debtor Donald Begley on June 24, and his subsequent arrest on June 26, 1992. This Court agreed with the defendants that the state's right to proceed under the relevant criminal statute, KRS 514.070, was not stayed unless the debtor could prove that the sole purpose of the criminal proceeding was to collect a civil debt or to use criminal law enforcement as a collection agency.

The debtor could not prove either of these elements.

The defendants contend that the debtors and their attorney cannot show that the Complaint was well grounded in fact and warranted by existing law, and that it was not filed for any improper purpose, as required by FRBP 9011. They point out that FRCP 11 case law applies to FRBP 9011. Counsel's conduct is measured by an objective standard of reasonableness under the circumstances. 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.

This Court's task, then, is to determine if the debtors' attorney has failed to meet these requirements. This Court tends to agree with the defendants that counsel did not conduct a reasonable inquiry to determine whether the defendants' conduct constituted a violation of the automatic stay. The language of the Complaint indicates that counsel had decided that he could prove that the issuance of the warrant for Donald Begley's arrest and his subsequent arrest were intended as a collection tool. This conclusion was not altogether justified. The criminal proceeding did nothing to enhance the defendant Bank's position in the bankruptcy case.

Counsel's reliance on Pennsylvania Dept. of Public Welfare v. Davenport, 110 S.Ct. 2126 (1990), as support for his position was, as well, not altogether justified. This case involves debtors already convicted of a crime, and stands for the proposition that a criminal restitution obligation is a dischargeable debt in a Chapter 13 case. While the decision may have had the side effect of "staying" a governmental entity's (in this instance, the county probation department) efforts to collect the restitution obligation, it does not directly speak to the issue in this case, i.e., whether a creditor of the debtor violated the automatic stay by commencing a criminal proceeding against the debtor.

The third factor to be determined is whether counsel filed the Complaint for an improper purpose. While counsel for defendants makes much of debtors' counsel "threatening" a lawsuit if the criminal charges were not dropped, it does not appear to this Court that debtors' counsel had it in mind to harass the defendants or to use the filing of the Complaint as a club against them. Counsel did not approach the court in any improper way. His conduct was certainly not on a par with that of the plaintiff/appellant in Danvers v. Danvers, 959 F.2d 601 (6th Cir. 1992).

There the court upheld the imposition of sanctions against a husband who had filed a completely baseless civil rights claim against his wife, alleging a conspiracy between her and the domestic relations court. His purpose was harassment of his wife and the pressuring of the domestic relations judge. One of his tactics was to send a letter to the domestic relations judge and threaten him and his staff with exhaustive discovery. Id, at 604. While debtors' counsel may not have used the best judgment in filing the Complaint in the within matter, this Court cannot say that he demonstrated any improper purpose.

Taken altogether, counsel's actions do not merit sanctions as they cannot be said to be unreasonable under the circumstances. This conclusion is bolstered by the fact that there is no objective way to determine whether any representative of the Bank made statements to debtors' counsel that would have led him to believe that the Bank was using the criminal prosecution as a weapon. As debtors' counsel points out, the affidavits which have flown back and forth in this matter have amounted to little more than a "swearing contest".

In consideration of all the foregoing, it is therefore the opinion of this Court that the defendants' Motion for Costs and Sanctions Under Bankruptcy Rule 9011 should be overruled. An order in conformity with this opinion will be entered separately.


By the Court -







Copies to:


W. Thomas Bunch, Esq.

John R. Hansen, Esq.

Paul D. Deaton, Esq.