Ettinger & Associates, LLC v. Miller (In Re Miller) , 730 F.3d 198 ( 2013 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
________________
Nos. 12-3151 & 12-3152
________________
In re: GREGORY JOSEPH MILLER;
TAMMY LYNN MILLER,
Debtors
ETTINGER AND ASSOCIATES, LLC
v.
GREGORY JOSEPH MILLER; TAMMY LYNN MILLER,
Appellants
________________
Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil Action Nos. 5-12-cv-00503 / 5-12-cv-00830)
District Judge: Honorable Legrome D. Davis
________________
Argued: June 10, 2013
Before: McKEE, Chief Judge,
AMBRO, and NYGAARD, Circuit Judges
(Opinion filed : September 16, 2013)
Susan J. Deely, Esquire (Argued)
125 B East Broad Street
Bethlehem, PA 18018
Thomas L. Lightner, Esquire
Lightner Law Offices
4652 Hamilton Boulevard
Allentown, PA 18103
Counsel for Appellants
Demetrios H. Tsarouhis, Esquire (Argued)
Suite 200
21 South 9th Street
Allentown, PA 18102
Counsel for Appellees
________________
OPINION OF THE COURT
________________
AMBRO, Circuit Judge
In the underlying bankruptcy action, Neil Ettinger and
Ettinger and Associates, LLC (jointly and severally,
“Ettinger”) filed an adversary complaint objecting to the
discharge of legal fees owed by Tammy and Gregory Miller
(the “Millers”), Ettinger’s former clients and the debtors in
bankruptcy. The Bankruptcy Court threw out the complaint,
which asserted that the Millers’ outstanding debt was
2
nondischargeable because it was obtained via fraud, and
imposed a $20,000 sanction against Ettinger jointly with his
bankruptcy counsel, Demetrios Tsarouhis. The District Court
vacated this ruling on the ground that the sanctions order
violated the procedural “safe harbor” requirements of Fed. R.
Bankr. P. 9011, but it refused to remand the case for further
consideration under Rule 9011 “[b]ecause it is too late to cure
the safe harbor violation.” Dist. Ct. Mem. Order at 22 (June
28, 2012). Moreover, because “the Bankruptcy Court based
its decision to sanction on Rule 9011,” the District Court
would “not opine in the first instance on whether sanctions
grounded in some other authority would have been
appropriate.” Id. Yet it also refused to remand to the
Bankruptcy Court for that consideration. We agree with the
District Court’s legal conclusion on Rule 9011, but remand
the case with instruction to permit the Bankruptcy Court to
consider alternative avenues to impose sanctions.
I. BACKGROUND
The Millers retained Ettinger in January 2008 to
represent them in a landlord/tenant dispute. Over a 23-month
period, Ettinger ran up a bill of approximately $43,000,
although the dispute was ultimately settled for $9,500.
During the course of this litigation, the Millers paid Ettinger
approximately $20,000 in legal fees. Even before the
landlord-tenant matter had been resolved, however, Ettinger
sought relief in Pennsylvania state court in an attempt to
accelerate the speed at which he was being paid the
outstanding amount owed—close to $23,000. He twice
petitioned the court to withdraw as a counsel, first based on
the Millers’ alleged failure to pay (in October 2009), and then
due to their professed “lack of cooperation” in the underlying
dispute (in December 2009).
3
Both petitions were rejected, though the Millers were
ordered to make “good faith” payments in exchange for
continued representation. 1 Despite their continued payments,
Ettinger sued the Millers in March 2010, asserting claims for
breach of contract and quantum meruit. The Millers filed for
Chapter 7 bankruptcy protection the following month, giving
rise to these proceedings.
A. Bankruptcy Court Proceedings
After the Millers filed for Chapter 7 bankruptcy,
Ettinger—acting through Tsarouhis—filed an adversary
proceeding in the Bankruptcy Court in August 2010 in an
attempt to prevent the discharge of the Millers’ remaining
legal debt to him. 2 In his adversary complaint, Ettinger raised
1
The Millers faced mounting financial difficulties during the
pendency of the landlord/tenant dispute, attributable in part to
their legal debt and exacerbated by personal circumstances
(e.g., both were out of work due to medical conditions).
Nonetheless, they complied with the court order and made
regular payments to Ettinger of $100 to $200 per month.
2
Under Fed. R. Bankr. P. 4007(a), “any creditor may file a
complaint to obtain a determination of the dischargeability of
any debt.” Section 523 of the Bankruptcy Code lists various
types of debt that may be exempted from discharge, one of
which is for “services . . . to the extent obtained by . . . false
pretenses, a false representation, or actual fraud.” 11 U.S.C.
§ 523(a)(2)(A). Every objection to the discharge of a debt
alleged to have been obtained by false pretenses or fraud must
be brought as an “adversary proceeding,” see Fed. R. Bankr.
P. 7001(4), which litigation closely resembles a civil
proceeding before a federal district court judge. These
proceedings are governed by Part VII of the Federal Rules of
4
allegations of fraud and misrepresentation, though in previous
proceedings he had characterized the Millers’ alleged failure
to pay as a purely contractual claim. The Bankruptcy Court
held a trial on the adversary complaint in April 2011,
immediately after which it found in favor of the Millers on
the dischargeability of their debt. As outlined below, whether
(and when) Ettinger and Tsarouhis may have engaged in
sanctionable behavior during the litigation of the adversary
complaint was a recurring issue throughout the bankruptcy
proceedings.
1. Initial Motion for Sanctions
On January 31, 2011, the Millers filed and served on
Ettinger and Tsarouhis a Rule 9011 Motion for Sanctions
(“Initial Motion”). It asserted that Ettinger’s complaint was
“filed to harass and cause [them] to incur additional fees and
further delay” and “for absolutely no reason other than . . . to
retaliate against [them].” Millers’ Mot. for Rule 9011
Sanctions ¶ 13, Jan. 31, 2011. The following day, February 1,
2011, the Millers withdrew the Initial Motion without
explanation and served a copy of their withdrawal request on
Ettinger and Tsarouhis.
On February 23, 2011, the Millers re-filed and re-
served a motion substantively the same as their Initial
Motion. The Bankruptcy Court ruled shortly thereafter that
“the 9011 Motion is premature, shall be held in abeyance, and
shall not be heard until after the merits of this adversary
proceeding have been determined.” Scheduling Order at 2,
Feb. 25, 2011.
Bankruptcy Procedure, Fed. R. Bankr. P. 4007(e), as
supplemented by the Federal Rules of Civil Procedure.
5
2. Litigation of Adversary Complaint
Although not asserted in his complaint, Ettinger
apparently believed that, at some time during his
representation of the Millers, a bankruptcy attorney advised
them they could avoid paying Ettinger’s bill by filing for
bankruptcy. During discovery, the Millers admitted that they
had met previously with Pennsylvania bankruptcy attorney
James Kutkowski; however, they indicated that they had
consulted him regarding refinancing rather than bankruptcy.
Kutkowski was deposed on March 18, 2011. In his
deposition, Kutkowski first indicated that he “might” have
discussed bankruptcy at a meeting with Gregory Miller but
that he “really truthfully [did not] remember.” In response to
a follow-up question, Kutkowski testified that he was “fairly
confident that [he] did discuss briefly the option of
bankruptcy.” Kutkowski also testified at the trial on
Ettinger’s adversary complaint, held on April 19, 2011, at
which he indicated he did not remember whether he had
discussed bankruptcy at his meeting with Mr. Miller, but that
“it [was] reasonable that it may have come up.”
At the conclusion of the April 19 trial, the Bankruptcy
Court issued a bench ruling in favor of the Millers,
categorically rejecting Ettinger’s claim that the Millers’
prepetition debt for legal fees was nondischargeable. It
recounted the twelve reasons asserted by Ettinger for
nondischargeability, “none of which were accurate or correct
and some of which were offensive.” Following the issuance
of its dischargeability ruling, the Court told the Millers to file
a revised 9011 Motion.
6
3. Amended Rule 9011 Motion
In accord with the Bankruptcy Court’s order, the
Millers filed and served an amended motion for sanctions
against Ettinger and Tsarouhis. 3 They responded by arguing
in part that the Millers’ Amended Motion did not comply
with Rule 9011’s “safe harbor” provision. That provision
requires 21 days between serving and filing a sanctions
motion, during which period the challenged conduct may be
remedied.
The Bankruptcy Court granted the Amended Motion.
Rejecting Ettinger and Tsarouhis’ procedural argument that
Rule 9011’s safe harbor was violated, the Court found that the
21-day notice requirement was satisfied by the first filing (on
January 31) and re-filing (on February 23) of the Millers’
Initial Motion, during which period Ettinger and Tsarouhis
could have taken—yet elected not to take—corrective action
with respect to their sanctionable conduct.
On the merits, the Bankruptcy Court concluded that all
actions taken by Ettinger and Tsarouhis after Kutkowski’s
March 18 deposition were sanctionable. That deposition
testimony, the Court concluded, established that the Millers
had not attempted to discharge fraudulently their legal fees by
filing for bankruptcy protection. It described Kutkowski’s
deposition as the “linchpin” on which its decision turned.
Because this left the complaint without factual support, the
Court found that the continued prosecution by Ettinger and
Tsarouhis warranted sanctions. Subsequently, it ordered them
to pay an aggregate sanction of $20,000. That sum was to be
3
The Millers filed a second amended motion days later,
which was essentially identical to the first. We refer to these
motions jointly as an “Amended Motion.”
7
held in escrow pending approval of the Millers’ attorneys’
fees application, then be distributed between the Millers and
their counsel in accord with a stipulated agreement submitted
to and approved by the Court.
B. District Court Decision
The parties filed cross-appeals, and in June 2012 the
District Court reversed the Bankruptcy Court’s sanction
decision on procedural grounds. The District Court
concluded that the sanction could not stand because the
Millers had failed to comply with the notice requirements of
Rule 9011. Specifically, it found that the Millers’ withdrawal
and re-filing of their Initial Motion did not provide Ettinger
and Tsarouhis with fair notice of the conduct claimed to
violate Rule 9011, and that, even if this motion had triggered
the safe harbor period, the Millers failed to wait the required
number of days after service before re-filing (because service
by mail added three days to the period). It also criticized the
Bankruptcy Court’s reliance on conduct that was raised for
the first time in the Amended Motion, which was filed after
trial and thus too late for Ettinger and Tsarouhis to cure the
offensive conduct.
Because curing the safe harbor violation was no longer
possible (i.e., it was impossible to provide Ettinger and
Tsarouhis 21 days during which they might correct the
sanctionable conduct), the District Court refused to remand
the issue to the Bankruptcy Court for further proceedings.
While it noted there were several other mechanisms by which
the Bankruptcy Court could have sanctioned Ettinger and
Tsarouhis, the District Court refused to consider the
appropriateness of sanctions under any of those alternative
options in light of the Bankruptcy Court’s sole reliance on
Rule 9011. Apparently for that reason, a remand to consider
those options was refused.
8
II. JURISDICTION & STANDARD OF REVIEW
The Bankruptcy Court had jurisdiction over the initial
proceedings under 28 U.S.C. § 1334. The District Court
exercised jurisdiction to review the bankruptcy appeal
pursuant to 28 U.S.C. § 158(a). We have appellate
jurisdiction to review the District Court’s ruling under 28
U.S.C. §§ 158(d) and 1291.
“We exercise plenary review over the District Court’s
appellate review of the Bankruptcy Court’s decision and
exercise the same standard of review as the District Court in
reviewing the Bankruptcy Court’s determinations.” Schubert
v. Lucent Techs. Inc. (In re Winstar Commc’ns, Inc.), 554
F.3d 382, 389 n.3 (3d Cir. 2009) (citing Fellheimer, Eichen &
Braverman, P.C. v. Charter Techs., Inc., 57 F.3d 1215, 1223
(3d Cir. 1995) [hereinafter “FE&B”]). “[W]e review a
bankruptcy court’s ‘legal determinations de novo, its factual
findings for clear error, and its exercises of discretion for
abuse thereof.’” In re Michael, 699 F.3d 305, 308 n.2 (3d
Cir. 2012) (quoting In re Goody’s Family Clothing Inc., 610
F.3d 812, 816 (3d Cir. 2010)).
The imposition or denial of sanctions is subject to
abuse-of-discretion review. Teamsters Local Union No. 430
v. Cement Express, Inc., 841 F.2d 66, 68 (3d Cir. 1988)
(citing Gaiardo v. Ethyl Corp., 835 F.2d 479, 485 (3d Cir.
1987)). A court considering and imposing sanctions must
“articulate sufficient reasons for its determination of what is
the appropriate sanction to apply,” and “provide a sufficient
basis for reviewing its exercise of discretion.” Stuebben v.
Gioioso (In re Gioioso), 979 F.2d 956, 961 (3d Cir. 1992)).
Absent record support for imposing sanctions, remand to the
bankruptcy court is appropriate. See, e.g., DeLauro v. Porto
(In re Porto), 645 F.3d 1294, 1306 (11th Cir. 2011) (“[W]e
must remand this case to the bankruptcy court so that it can
9
either flesh out its reasons for sanctioning [the party] or
decide that he is not to be sanctioned.”); see also In re
Gioioso, 979 F.2d at 961 (citing cases).
III. ANALYSIS
On appeal, the Millers challenge the District Court’s
procedural dismissal on the ground that they “substantially
complied” with Rule 9011’s safe harbor requirements.
Specifically, they argue that the Initial Motion was sufficient
to put Ettinger and Tsarouhis on notice of the allegedly
sanctionable conduct, and that the District Court erroneously
included three additional days, based on service by mail,
when computing the safe harbor period. The Millers also
assert that the District Court erred in concluding they could
not recover for behavior occurring after filing their Initial
Motion. In the alternative, the Millers assert that, even
assuming Rule 9011’s procedural prerequisites were not met,
the District Court should have remanded because there are
other means by which the Bankruptcy Court could properly
impose sanctions.
A. Rule 9011 Overview
Rule 9011 requires, inter alia, that attorneys’
submissions to the court not be “presented for any improper
purpose, such as to harass or to cause unnecessary delay or
needless increase in the cost of litigation,” that legal
assertions be “warranted by existing law,” and that “factual
contentions have evidentiary support.” Fed. R. Bankr. P.
9011(b). If any of these requirements is violated, a court has
the discretion—“after notice and a reasonable opportunity to
respond”—to impose sanctions, which may be initiated by
motion or sua sponte by the court. Id. 9011(c).
10
Rule 9011’s safe harbor provides that, if a party is
moving for sanctions, the “motion for sanctions may not be
filed with or presented to the court unless, within 21 days
after service of the motion (or such other period as the court
may prescribe), the challenged paper, claim, defense,
contention, allegation, or denial is not withdrawn or
appropriately corrected.” Id. 9011(c)(1)(A). Only after this
21-day “safe harbor” period may the moving party file its
motion with the court. Id.
“The purpose of the safe harbor is to give parties the
opportunity to correct their errors, with the practical effect
being that ‘a party cannot delay serving its Rule [90]11
motion . . . until conclusion of the case (or judicial rejection
of the offending contention).’” In re Schaefer Salt Recovery,
Inc., 542 F.3d 90, 99 (3d Cir. 2008) (quoting Fed. R. Civ. P.
11 advisory committee’s notes (1993 amendments)
[hereinafter “Rule 11 Advisory Notes”]). 4 As the Tenth
Circuit Court explained:
The safe harbor provisions were intended to
“protect litigants from sanctions whenever
possible in order to mitigate Rule [90]11’s
chilling effects, formalize procedural due
process considerations such as notice for the
protection of the party accused of sanctionable
behavior, and encourage the withdrawal of
papers that violate the rule without involving
the . . . court.”
4
“Bankruptcy Rule 9011 is the equivalent sanctions rule” to
Rule 11 of the Federal Rules of Civil Procedure, Landon v.
Hunt, 977 F.2d 829, 833 n.3 (3d Cir. 1992), and “cases
decided pursuant to [Rule 11 also] apply to Rule 9011,’” In re
Gioioso, 979 F.2d at 960.
11
Roth v. Green, 466 F.3d 1179, 1192 (10th Cir. 2006) (quoting
5A Charles Alan Wright & Arthur R. Miller, Federal
Practice and Procedure § 1337.2 (3d ed. 2004)).
B. Compliance with Safe Harbor Requirements
As an initial matter, we address the technical
prerequisites for satisfaction of Rule 9011’s procedural safe
harbor provision. The District Court concluded correctly that
strict compliance with the safe harbor rule is required. As we
explained in Schaefer Salt, “[i]f the twenty-one day period is
not provided, the motion must be denied.” 542 F.3d at 99. 5
Rule 9011 “imposes mandatory obligations upon the party
seeking sanctions, so that failure to comply with the
procedural requirements precludes the imposition of the
requested sanctions.” Brickwood Contractors, Inc. v. Datanet
Eng’g, Inc., 369 F.3d 385, 389 (4th Cir. 2004) (en banc).
We note, as did the District Court, that there is a split
of authority regarding whether re-filing an initially
5
The Millers argue our more recent decisions indicate that
“substantial compliance” with the safe harbor is sufficient,
citing In re Mondelli, 508 F. App’x 131 (3d Cir. 2012). Not
only is this a not precedential opinion on which reliance for
legal rulings is unavailing, Mondelli is distinguishable, as it
involved not the period of the safe harbor but rather the form
of notice—i.e., a “notification letter” sent in lieu of formal
service of the Rule 9011 motion. Id. at 135. Moreover,
several courts of appeals have disagreed with the proposition
that such notification letters may satisfy the safe harbor’s
procedural requirements. See, e.g., Roth, 466 F.3d at 1192;
Barber v. Miller, 146 F.3d 707, 710 (9th Cir. 1998); Ridder v.
City of Springfield, 109 F.3d 288, 296 (6th Cir. 1997).
12
noncompliant Rule 9011 motion after 21 days provides fair
notice for such sanctions. Compare Tahfs v. Proctor, 316
F.3d 584, 589 (6th Cir. 2003) (suggesting re-filing may cure
previous safe harbor noncompliance), Jefferson v. Mass. Mut.
Life Ins. Co., No. 3:07-0715, 2008 WL 4724326, at *6 (M.D.
Tenn. Oct. 24, 2008) (same), and Muhammad v. Louisiana,
Nos. 99-3742/2694, 2000 WL 1876350, at *2–3 (E.D. La.
Dec. 21, 2000) (same), with In re New River Dry Dock, Inc.,
461 B.R. 642, 646 (Bankr. S.D. Fla. 2011) (rejecting reliance
on premature filing to satisfy safe harbor), and Xiangyuan
Zhu v. Fed. Hous. Fin. Bd., No. 04-2539-KHV, 2007 WL
675646, at *4 (D. Kan. Mar. 1, 2007) (same). The District
Court sided with the courts that have found this type of
withdrawal-and-refiling fails to satisfy Rule 9011’s safe
harbor. We need not resolve this issue, however, because
even if the Millers’ Initial Motion started the safe harbor
clock, they nonetheless failed to wait the requisite period
before re-filing.
Here, the Millers filed and served the Initial Motion on
January 31, 2011, making 21 days from service February 21,
2011. However, because February 21 was a federal holiday,
the safe harbor was extended until the following day
(February 22), see Fed. R. Bankr. P. 9006(a)(1)(C), (a)(6)(A).
The Millers served their motion for sanctions by mail in
accord with the Bankruptcy Court’s rules of procedure. See
id. 9011(c)(1)(A) (indicating sanctions motions must comply
with Fed. R. Bankr. P. 7004’s service requirements); id.
7004(b) (requiring service by mail). When computing time
for service by mail, three additional days are added after the
prescribed period would otherwise expire. Id. 9006(f).
Adding three days extended the safe harbor period to
February 25, meaning the earliest the Millers could have re-
filed in compliance with Rule 9011’s notice requirements was
February 26, 2011. Because they re-filed on February 23—
days before the safe harbor period had expired—their Initial
13
Motion was procedurally defective, and any sanction based
thereon was invalid. 6
The Millers argue the additional three days for mail
service should not be added to the 21-day period because they
served Ettinger and Tsarouhis electronically as well as by
mail. They rely solely on the Eastern District of
Pennsylvania’s local rules, however, and do not cite any
authority indicating these rules trump the Bankruptcy Court’s
rules of procedure. Absent such support, we agree with the
computation of time made by the District Court (which is
surely familiar with its local rules) of the safe harbor period.
C. Sanctioning Post-Motion Conduct
The District Court also found another procedural
problem with the sanctions imposed, this time regarding due
process notice requirements. In particular, the Court
expressed concern because the sanctions were based on facts
additional to and different from those in the Initial Motion,
yet the Millers’ Amended Motion, standing alone,
undisputedly did not comply with the safe harbor provision.
See Dist. Ct. Mem. Order at 18 (noting “the Bankruptcy Court
sanctioned Ettinger and Tsarouhis for conduct that had not
even occurred at the time the Millers filed and served their
initial Rule 9011 motions, but allowed the Millers to rely on
these motions to satisfy the safe harbor [notice]
requirement”). And by the time the Millers filed their
Amended Motion, Ettinger and Tsarouhis had already lost at
trial on their adversary proceeding, and thus lost as well the
chance to rectify their offending conduct.
6
See also Dist. Ct. Mem. Order at 15–17 (finding the Millers’
premature re-filing an “additional and independent reason”
for vacating the sanctions order).
14
Permitting a court to sanction a party for conduct
occurring after the service and filing of a Rule 9011 motion is
contrary to our recognition that “[d]ue process in the
imposition of Rule 9011 sanctions requires ‘particularized
notice.’” In re Taylor, 655 F.3d 274, 286 (3d Cir. 2011)
(quoting Jones v. Pittsburgh Nat’l Corp., 899 F.2d 1350,
1357 (3d Cir.1990)). “Particularized notice” sufficient to
comport with due process is provided where “a party is on
notice as to the particular factors that he must address if he is
to avoid sanctions.” Jones, 899 F.2d at 1357; see also
Simmerman v. Corino, 27 F.3d 58, 64 (3d Cir. 1994)
(identifying three prerequisites of adequate notice as “1) the
fact that Rule [90]11 sanctions are under consideration, 2) the
reasons why sanctions are under consideration, and 3) the
form of sanctions under consideration” (citation omitted)).
In addition, the purpose of Rule 9011 would not be
advanced if a party could be sanctioned without ever having
the opportunity to correct the offending behavior. See, e.g.,
Schaefer Salt, 542 F.3d at 99. Thus, “‘a party cannot delay
serving its Rule [90]11 motion . . . until conclusion of the
case (or judicial rejection of the offending contention),’” id.(quoting Rule 11 Advisory Committee Notes), as it would
effectively be too late to withdraw or correct the offending
act(s). To conclude otherwise would allow a party seeking
sanctions to deprive the target of the opportunity to escape
them by withdrawal or correction, a crucial component of
Rule 9011.
15
D. Other Available Sanctioning Tools
Aside from Rule 9011, however, there are various
sources of authority by which bankruptcy courts may impose
sanctions. The District Court identified some of these
sanctioning tools, including “(1) on the Court’s own initiative
pursuant to Rule 9011(c)(1)(B); (2) using the Court’s inherent
power to sanction; or (3) under 11 U.S.C. § 105.” Dist. Ct.
Mem. Order at 20; see also 28 U.S.C. § 1927 (permitting
courts to award costs against attorneys who “unreasonably
and vexatiously” multiply proceedings). Notwithstanding its
recognition of other avenues by which sanctions could have
been imposed in this case—none of which contains a safe
harbor timing provision, see, e.g., Brickwood Contractors,
Inc., 369 F.3d at 389 n.2—the District Court refused to decide
“in the first instance . . . whether sanctions grounded in some
other authority would have been appropriate.” Dist. Ct. Mem.
Order at 22. It did so apparently because “the Bankruptcy
Court based its decision to sanction on Rule 9011” solely. Id.Not taking the next step—to remand for “first
instance” review—is where the District Court came up short.
Because the aforementioned grounds for sanctions do not
require compliance with any safe harbor provision, we
conclude it erred by refusing to remand to allow the
Bankruptcy Court to consider imposing sanctions a different
way. Sanctions may be upheld, notwithstanding a safe harbor
violation, if they are “clearly valid” under a different
sanctioning mechanism. See Ginsberg v. Evergreen Sec., Ltd.
(In re Evergreen Sec., Ltd.), 570 F.3d 1257, 1273 (11th Cir.
2009). Remand is necessary, however, to satisfy the due
16
process requirements of adequate notice and an opportunity to
respond before considering these alternate approaches. 7
IV. CONCLUSION
We agree with the District Court that the sanctions
order issued by the Bankruptcy Court pursuant to Rule
9011(c)(1)(A) was procedurally defective, and therefore must
be vacated. The Millers failed to wait the required days
between serving and filing their Initial Motion, and they
provided no advance notice with respect to the additional
claims within their Amended Motion. Further, Rule 9011
was an improper provision to penalize conduct that occurred
well after the Millers initially moved for sanctions against
Ettinger and Tsarouhis.
However, because there are various sanctioning tools
available that are unaffected by this procedural problem, we
conclude remand is the proper course to allow the Bankruptcy
Court to consider those options. Thus we vacate the District
Court’s order, and remand the case with instruction to remand
to the Bankruptcy Court for proceedings consistent with this
opinion.
7
While our dissenting colleague believes that remand is
inappropriate because the Bankruptcy Court considered yet
chose not to use other sanctioning tools, we find no indication
in the record that those other avenues were considered
meaningfully. And because our reading of the record as a
whole makes clear that the Court believed sanctions were
warranted in this case, we conclude remand is the proper
course.
17
McKEE, Chief Judge, concurring.
I agree that the sanctions order issued by the
Bankruptcy Court pursuant to Rule 9011(c)(1)(A) was
procedurally defective and therefore must be vacated. I also
agree that a remand is appropriate to allow the Millers to
pursue alternative avenues of securing sanctions against
Ettinger. In joining Judge Ambro’s opinion, I do not suggest
that a party should always be afforded the luxury of a “second
bite of the apple” when failure to adhere to the procedural
requirements of Rule 9011(c)(1)(A) negates the subsequent
imposition of sanctions. However, I believe that a remand is
required here because of Ettinger’s egregious conduct toward
these clients.
The Millers paid Ettinger almost $20,000 towards his
$43,000 bill and they were continuing to make good faith
payments to him of $100 to $200 per month pursuant to a
state court order. However, the Millers had fallen upon hard
times and were struggling to keep their heads above water.
Despite the financial hardship the Millers were facing, and
despite the monthly payments they were making, Ettinger
thought it appropriate to file an adversarial complaint against
his clients in their bankruptcy preceding. He thus thought it
appropriate to attempt to ensure that his clients’ debt to him
would survive the “fresh start” that is the underlying purpose
of bankruptcy. Not surprisingly, the Bankruptcy Court
concluded that Ettinger’s conduct required the sanctions that
the court imposed.
I see no reason in law or equity to allow such conduct
to escape sanction merely because of a counting error that
arose from the fortuitous interposition of a three day
weekend. Accordingly, I agree that Ettinger’s conduct
justifies a remand so that the Bankruptcy court can decide
whether to adopt an alternative mechanism for imposing
sanctions.
1
NYGAARD, Circuit Judge, dissenting in part.
I agree with most of the majority opinion, but come to
a different conclusion on remanding. I would not order the
District Court to send this cause back to the Bankruptcy Court
and, therefore, dissent in part.
In ordering the remand, with instructions that the
bankruptcy judge consider other available sanctions, the
majority disregards the fact that the judge did consider such
avenues and rejected them. Put another way, despite a
panoply of options available to him, the bankruptcy judge
chose to limit his choice to Rule 9011. I would hold him to
that decision. Note the record: after citing the “critical
language” of Rule 9011(c) (limiting sanctions “to what is
sufficient to deter repetition of such conduct or comparable
conduct by others similarly situated”) the judge explained that
the sanctions he imposed were not a question of fee shifting
or repaying the debtors, but instead satisfied his “primary
goal” of deterring other practitioners from undertaking the
conduct he found so objectionable in the Appellees.
Appendix at 160-161. When asked by Appellant’s counsel
whether there were any additional sanctions to be had besides
the $20,000.00 awarded under Rule 9011, the bankruptcy
judge’s response was clear: “No. So, it’s $20,000.00. That’s
the sanction. That’s it.” Appendix at 161. The bankruptcy
judge rejected other avenues for sanctions available to him
and, indeed, his citation to 11 U.S.C. § 105(a) in his
subsequent order evinces knowledge of other vehicles for
imposing sanctions. I also note that the Appellants
themselves failed to explore or request sanctions through
other means.
1
Contrary to this, however, my colleagues order the
remand and come perilously close to expressing a position
that sanctions should be awarded under different statutes,
when, to my reading, the bankruptcy judge already rejected
those avenues. I can make no other assumption than that my
colleagues believe some other type of sanctions are required
here. That however, is not our call nor is that issue before us.
I would affirm the District Court in all aspects.
2