604 B.R. 23
6th Cir. BAP2019Background
- In 2014 Linda Lane sold her home to Kevin and Sarah Dean; an arbitration and Bullitt County judgment awarded the Deans significant money and a lien against Lane's residence.
- Lane filed Chapter 13 in July 2017; the Deans were listed as secured creditors and their claim is being paid in full under the confirmed plan.
- The Deans filed two adversary proceedings and repeatedly litigated issues related to the sale and confirmation; one adversary was dismissed and not appealed.
- In March 2018 Lane sent a settlement offer letter to the Deans (marked under FRE 408). The Deans filed that letter on the bankruptcy docket and included it in an appellate record.
- Lane moved for Rule 9011 sanctions and to strike the settlement letter; the Bankruptcy Court sanctioned the Deans $5,000 and awarded fees (First Sanctions). The Deans later filed a second frivolous adversary; the court sanctioned them $2,641 for that filing (Second Sanctions).
- The Deans appealed both sanctions orders to the BAP, arguing procedural defects, lack of improper purpose, and inability to pay; the BAP affirmed both orders.
Issues
| Issue | Plaintiff's Argument (Deans) | Defendant's Argument (Lane) | Held |
|---|---|---|---|
| Whether Rule 9011 safe-harbor was satisfied before filing sanctions motion | Safe-harbor letter was not properly served, so Rule 9011 procedure failed | Lane produced proof of mailing; service by mail is complete on mailing under the rules | BAP: Safe-harbor satisfied; mailing with proof and Deans' receipt sufficient |
| Whether filing settlement letter violated Rule 9011 / signature requirement | Deans did not sign the settlement letter; thus cannot be sanctioned for it | Filing or submitting a paper (even unsigned) certifies it isn’t for an improper purpose under Rule 9011(b) | BAP: Filing the letter made Deans subject to Rule 9011; sanctionable despite lack of signature |
| Whether settlement letter was improper under FRE 408 and filed for improper purpose | Deans claimed admissible uses (e.g., to show acknowledgment) or an exception to Rule 408 | Lane: FRE 408 bars using compromise offers to prove claims; Deans filed it with no context and designated it on appeal to use it against Lane | BAP: Filing was for an improper purpose (harassment/appeal support); Rule 9011 sanction appropriate |
| Whether sanctions for frivolous second adversary and award amount were proper (including ability to pay / reconsideration) | Sanctions were premature, excessive, and court failed to consider Deans’ inability to pay or grant reconsideration | Court limited award to reasonable fees, asked for proof of ability to pay (Deans offered none); reconsideration standards not met | BAP: Sanctions and amount were within discretion; Deans failed to show inability to pay or grounds for reconsideration |
Key Cases Cited
- Cooter & Gell v. Hartmarx Corp., 496 U.S. 384 (U.S. 1990) (sanctions based on erroneous view of law or evidence constitute abuse of discretion)
- Hagner v. United States, 285 U.S. 427 (U.S. 1932) (presumption of delivery upon proper mailing)
- Ridder v. City of Springfield, 109 F.3d 288 (6th Cir. 1997) (Rule 11 separate motion requirement protects against buried sanctions requests)
- Jackson v. The Law Firm of O'Hara, Ruberg, Osborne & Taylor, 875 F.2d 1224 (6th Cir. 1989) (goals of sanctions: deterrence and compensation; court discretion in sanctions amount)
- Orlett v. Cincinnati Microwave, Inc., 954 F.2d 414 (6th Cir. 1992) (court should impose the least severe sanction likely to deter)
- In re Ruben, 825 F.2d 977 (6th Cir. 1987) (discusses limits on sanctions where attorney did not sign pleadings)