652 F. App'x 330
6th Cir.2016Background
- Royal Manor, Darlington, and Dani filed Chapter 11; the cases were jointly administered and controlled by the Schwartzes.
- Gertrude Gordon filed a pro se proof of claim on behalf of her children asserting a large unsecured claim based on a 2000 agreement; the Committee objected and the claim was disallowed.
- Dennis Grossman later appeared pro hac vice for the Gordons, pursued multiple amendments, appeals, and filings across bankruptcy, district court, the Sixth Circuit, and sought certiorari, all unsuccessful.
- The Liquidation Trustee incurred substantial fees responding to Grossman’s repetitive and shifting pleadings; the Trustee moved for sanctions under 28 U.S.C. § 1927 and the bankruptcy court’s inherent authority (§ 105).
- The bankruptcy court found Grossman’s conduct unreasonable and vexatious, awarded $207,004 in sanctions, and authorized post-judgment discovery and use of special counsel to collect; the BAP and Sixth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument (Trustee) | Defendant's Argument (Grossman) | Held |
|---|---|---|---|
| Authority to sanction under §1927 and §105 | Bankruptcy court may sanction counsel who unreasonably and vexatiously multiply proceedings and recoup excess costs | §1927 doesn’t apply because bankruptcy courts aren’t "courts of the United States"; §105 is limited | Court held bankruptcy court may impose §1927 sanctions (Sixth Circuit precedent persuasive) and may also rely on §105 inherent power |
| Basis for sanctions — frivolous claim vs. vexatious litigation | Sanctions appropriate because Grossman’s repetitive filings unreasonably delayed distributions and caused estate expense | Sanctions improper because claim/filings weren’t specifically identified as frivolous and some prior courts did not impose monetary sanctions | Court affirmed sanctions based on pattern of vexatious, repetitive filings; finding of frivolousness not required for §1927 or §105 sanctioning |
| Notice and procedural fairness | Trustee’s renewed motion and hearings provided adequate notice and opportunity to be heard | Deprivation of due process; Trustee’s renewed motion was one day late and should be denied | Court found Grossman had fair notice, participated in hearings, and the court permissibly extended the filing deadline |
| Mitigation / offset by Trustee’s or court’s conduct | Trustee acted reasonably in responding; delay and shifting claims by Grossman made piecemeal dispositive motions impractical | Trustee (and court) filed excessive or inconsistent orders and should have moved for early summary judgment; settlement by Gertrude Gordon should offset Grossman’s sanction | Court rejected mitigation/offset defenses; settlement with Gertrude did not reduce sanctions against counsel; trustee’s conduct did not excuse Grossman’s vexatious litigation |
| Recusal and post-judgment discovery | Recusal not warranted; post-judgment discovery (debtor’s exam) and use of special counsel appropriate to collect judgment | Bankruptcy judge should have recused; discovery and special counsel orders improper | Court found no abuse of discretion in denying recusal and in permitting post-judgment discovery and contingency special counsel for collection |
Key Cases Cited
- Jordan v. Cleveland, 464 F.3d 584 (6th Cir.) (standard of review for sanctions)
- In re Rembert, 141 F.3d 277 (6th Cir.) (factual-clear-error and de novo law review framework)
- Wilson–Simmons v. Lake County Sheriff’s Department, 207 F.3d 818 (6th Cir.) (§1927 sanctions when attorney falls short of bar obligations)
- Ridder v. City of Springfield, 109 F.3d 288 (6th Cir.) (§1927 fees recoverable from inception when vexatious conduct begins early)
- Gonter v. Hunt Valve Co., 510 F.3d 610 (6th Cir.) (limits on awarding fees for fee-litigation; lodestar-related principles)
- Chambers v. NASCO, Inc., 501 U.S. 32 (U.S.) (inherent authority to sanction bad-faith litigation conduct)
- Liteky v. United States, 510 U.S. 540 (U.S.) (standards for judicial recusal)
- In re Ruben, 825 F.2d 977 (6th Cir.) (sanctions generally improper where an early dispositive motion could have avoided expenses)