Church Joint Venture, L.P. v. Blasingame (In re Blasingame), 559 B.R. 676

Debtors filed a Chapter 7 petition in 2008; their schedules and statement of financial affairs omitted trusts and an assignment to attorney Martin Grusin’s client. Local counsel Tommy Fullen signed and filed the petition.
Trustee and creditors Church Joint Venture (CJV) and Farmers & Merchants Bank (FMB) brought an adversary proceeding challenging nondisclosures and sought denial of Debtors’ discharges.
Grusin, not counsel of record for Debtors, advised them, co-signed filings on behalf of non-debtor entities, and filed an affidavit asserting he advised Debtors that the trusts were not estate assets.
CJV/FMB moved for sanctions against Fullen and Grusin under Fed. R. Bankr. P. 9011 and 28 U.S.C. § 1927, alleging shadow representation, failure to disclose, and that filings vexatiously multiplied litigation.
The bankruptcy court awarded sanctions against both attorneys under Rule 9011 and against Grusin under § 1927 (but not Fullen); Grusin appealed.
The BAP vacated the sanctions against Grusin, holding Rule 9011’s safe-harbor exception is limited to the act of filing a petition and that § 1927 sanctions were unsupported by the record as to vexatious multiplication.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Rule 9011 sanctions could be imposed on Grusin despite movant failing to comply with the 21-day safe-harbor	CJV: exception to safe harbor applies because Grusin effectively caused omissions in the petition and later advocated them, so safe-harbor is inapplicable	Grusin: he did not sign or file the petition; safe-harbor exception applies only to the act of filing, so Rule 9011 sanctions are improper	Vacated as to Grusin — safe-harbor exception is limited to filing the petition; Grusin neither signed nor filed the petition, so Rule 9011 sanctions based on his later advocacy were erroneous
Whether § 1927 sanctions were warranted because Grusin vexatiously multiplied the proceedings	CJV: Grusin’s shadow representation and filings (Response to PSJ Motion and Motion to Alter/Amend) unreasonably multiplied litigation and caused extra fees	Grusin: his actions were zealous advocacy (not bad faith); filings were common litigation responses and not frivolous or objectively unreasonable	Vacated as to Grusin — record does not support objective finding that Grusin knowingly or objectively acted in bad faith or unreasonably/vexatiously multiplied proceedings; filings were not frivolous and § 1927 requires more than mere incompetence or zealous but misguided advocacy

Corzin v. Fordu (In re Fordu), 201 F.3d 693 (6th Cir.) (abuse-of-discretion standard for sanctions review)
Dixon v. Clem, 492 F.3d 665 (6th Cir.) (§ 1927 sanctions reviewed for abuse of discretion)
Cooter & Gell v. Hartmarx Corp., 496 U.S. 384 (U.S.) (Rule 11/9011 sanctions framework; certification by signature)
Ridder v. City of Springfield, 109 F.3d 288 (6th Cir.) (§ 1927: objective standard; sanctions when counsel knows or should know claim is frivolous)
Jones v. Continental Corp., 789 F.2d 1225 (6th Cir.) (zealous advocacy does not permit frivolous or multiplicative tactics; supports § 1927 standard)
In re Mitan, 573 F.3d 237 (6th Cir.) (plain-meaning rule for interpreting procedural provisions)
In re Schaefer Salt Recovery, Inc., 542 F.3d 90 (3d Cir.) (Rule 9011 safe-harbor exception applies to filing petitions)
In re Silberkraus, 336 F.3d 864 (9th Cir.) (recognizing safe-harbor exception for petitions)
In re Royal Manor Mgmt., Inc., 525 B.R. 338 (6th Cir. BAP) (discussion of § 1927 purpose and standards)