Church Joint Venture v. Martin Grusin
709 F. App'x 363
| 6th Cir. | 2018Background
- In 2008 Earl and Margaret Blasingame consulted Martin Grusin about trusts after garnishment; Grusin advised trusts might be unreachable by creditors and introduced them to bankruptcy lawyer Tommy Fullen, who filed the Chapter 7 petition on August 15, 2008.
- Creditors (including Church) and the Trustee later discovered undisclosed trusts and assets on the petition schedules and filed an adversary complaint objecting to discharge for fraudulent concealment; the bankruptcy court denied discharge on summary judgment.
- Debtors filed motions (including to alter/amend and for relief from judgment) supported by affidavits from Grusin and Fullen; Fullen accepted responsibility for preparing and filing the petition and schedules.
- Church moved for sanctions (Rule 9011 and 28 U.S.C. § 1927) against Grusin and Fullen; the bankruptcy court sanctioned Grusin (disgorgement, payments, CLE) and awarded additional monetary sanctions under § 1927.
- The Bankruptcy Appellate Panel vacated the sanctions, finding Church failed to satisfy Rule 9011 safe-harbor and that the record did not support § 1927 sanctions; the Sixth Circuit affirmed the BAP, reversing the bankruptcy court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Applicability of Rule 9011 despite safe-harbor noncompliance | Church: Rule 9011 sanctions apply to any actor who influenced filing; exception for "filing of a petition" covers Grusin even if he did not sign the petition | Grusin: He did not file the petition; Fullen filed and signed; Church failed to comply with the 21-day safe-harbor | Court: No evidence Grusin filed the petition; exception in Rule 9011(c)(1)(A) inapplicable; safe-harbor noncompliance fatal to Rule 9011 motion |
| Sanctions under 28 U.S.C. § 1927 for multiplying proceedings | Church: Grusin's advice and filings (motions/affidavits) caused unnecessary litigation and expenses warranting § 1927 sanctions | Grusin: His conduct was at most negligent or uninformed advice; no bad faith or conscious impropriety; motions were not frivolous | Court: § 1927 requires more than negligence; record lacks showing Grusin acted frivolously or knowingly multiplied proceedings; sanctions improper |
Key Cases Cited
- Cooter & Gell v. Hartmarx Corp., 496 U.S. 384 (1990) (standards for appellate review of trial findings and sanctions)
- Jones v. Continental Corp., 789 F.2d 1225 (6th Cir. 1986) (standard for § 1927: sanctions when attorney knows or reasonably should know claim is frivolous or will obstruct litigation)
- Red Carpet Studios Div. of Source Advantage, Ltd. v. Sater, 465 F.3d 642 (6th Cir. 2006) (§ 1927 requires more than negligence; abuse of process or knowing risk required)
- Penn, LLC v. Prosper Bus. Dev. Corp., 773 F.3d 764 (6th Cir. 2014) (failure to comply with Rule 11 safe-harbor requires denial of sanctions motion)
- Ridder v. City of Springfield, 109 F.3d 288 (6th Cir. 1997) (same principle regarding safe-harbor and sanctions)
- In re Lucas, 924 F.2d 597 (6th Cir. 1991) (spendthrift trust property may be excluded from bankruptcy estate)