Hoover v. Jones (In re Jones), 546 B.R. 12

Plaintiffs Ryan and Jennifer Harger (represented by attorney Dean S. Hoover) sued Jonathan B. Jones in state court alleging conspiracy, intentional infliction of emotional distress, and malicious prosecution after a criminal charge against Ryan Harger was dropped. Jones filed chapter 7 bankruptcy, triggering the automatic stay.
Hoover filed a motion to modify the automatic stay to pursue the state-court action and, after filing that motion, also filed an adversary complaint in bankruptcy seeking non-dischargeability and denial of discharge. The Hargers later withdrew the stay motion and moved to dismiss the adversary complaint.
The bankruptcy court dismissed the adversary complaint and, sua sponte, issued an order to show cause under Fed. R. Bankr. P. 9011 why Hoover and the Hargers should not be sanctioned for filing and prosecuting the pleadings.
After hearings and competing affidavits (including from state-court counsel and the prosecutor), the bankruptcy court found Hoover repeatedly violated Rule 9011, awarded over $26,000 in attorneys’ fees to Jones’ counsel, revoked Hoover’s CM/ECF privileges, and referred the matter for possible criminal prosecution.
On appeal, the Bankruptcy Appellate Panel (Sixth Circuit BAP) reviewed whether (1) awarding fees under Rule 9011 was lawful when sanctions were initiated sua sponte, and (2) the bankruptcy court’s factual findings supporting sanctions were clearly erroneous.

Issue	Plaintiff's Argument (Hoover)	Defendant's Argument (Jones)	Held
Whether Rule 9011(c)(2) permits awarding opposing counsel's attorneys’ fees when the court initiates sanctions sua sponte	Rule 9011(c)(2) permits fee awards only "if imposed on motion" by the opposing party; a sua sponte order cannot authorize fee-shifting under that subsection	Court-initiated Rule 9011 process justified sanctions including fees	Held: Bankruptcy court erred as a matter of law — Rule 9011(c)(2) does not authorize fee awards on the court's own initiative (fees vacated)
Whether the bankruptcy court abused its discretion by imposing sanctions based on factual findings that were clearly erroneous	Many of the court’s factual findings (status of state discovery, mediation, CPO involvement, alleged misrepresentations about witness Grad and prosecutor’s motives, lack of police reports/video) were incorrect or overstated; thus sanctions were unwarranted	The record supported the court's concerns about Hoover's pleadings and affidavits and credibility problems	Held: Many of the bankruptcy court’s factual findings were clearly erroneous or unsupported; the court abused its discretion in imposing sanctions, so sanctions were vacated

Midland Asphalt Corp. v. United States, 489 U.S. 794 (describing finality for appeal purposes)
Cooter & Gell v. Hartmarx Corp., 496 U.S. 384 (1990) (sanctions based on erroneous law or evidence is abuse of discretion)
First Bank of Marietta v. Hartford Underwriters Ins. Co., 307 F.3d 501 (6th Cir. 2002) (courts may use inherent authority to award fees for bad-faith litigation; caution and notice required)
In re Fordu (Corzin v. Fordu), 201 F.3d 693 (6th Cir. 1999) (abuse-of-discretion standard for sanctions)
In re Wingerter (B-Line, LLC. v. Wingerter), 594 F.3d 931 (6th Cir. 2010) (Rule 9011 sanctions final upon assessment of fees and expenses)
Sonnax Indus. v. Tri Component Prods. (In re Sonnax Indus., Inc.), 907 F.2d 1280 (2d Cir. 1990) (factors relevant to stay-modification and trial readiness)
Hunter v. Earthgrains Co. Bakery, 281 F.3d 144 (4th Cir. 2002) (Rule 11/9011 should not punish creative advocacy; frivolous filings discouraged)