567 B.R. 813
Bankr. W.D. Wis.2017Background
- Debtor Sondra K. Lisse filed a Chapter 13 petition on July 23, 2016; she moved for sanctions (Dec. 30, 2016) against creditor counsel Kenneth W. Bach under Fed. R. Bankr. P. 9011 and 28 U.S.C. § 1927.
- Lisse alleged Bach misidentified the real party in interest (naming HSBC instead of Select Portfolio Servicing, Inc. (SPS)) and thus filed abusive or frivolous pleadings: an objection to confirmation, a motion to dismiss, and a motion for relief from stay.
- The bankruptcy court had already granted HSBC relief from the automatic stay; HSBC previously obtained summary judgment in state foreclosure proceedings against the Lisses.
- HSBC was found by the Wisconsin Court of Appeals to have physical possession of the original note, supporting its enforcement rights under state law.
- Debtor served the sanctions motion more than 21 days before filing, meeting Rule 9011(c)(1)(A) procedural requirements (safe harbor).
- The court reviewed whether Bach’s filings were made for improper purpose or were frivolous and whether § 1927 sanctions were warranted for multiplying proceedings unreasonably and vexatiously.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether sanctions under Rule 9011 should be imposed | Lisse: Bach knowingly misidentified real party and brought pleadings without factual/legal support, warranting sanctions | Bach/HSBC: Pleadings asserted creditor rights based on state-court judgment and were not frivolous or abusive | Denied — Rule 9011 sanctions not warranted |
| Whether Rule 9011 safe-harbor/separateness requirements were satisfied | Lisse: served motion timely and described conduct | HSBC: argued motion combined with other relief but combining with §1927 claim allowed | Met — procedural requirements satisfied |
| Whether HSBC’s pleadings were frivolous (b(2)-(4)) | Lisse: claims lacked evidentiary/legal basis about party in interest | HSBC: state appellate decision showed possession of note and enforceable rights; objections were colorable | Denied — pleadings had factual and legal support |
| Whether sanctions under 28 U.S.C. § 1927 are warranted | Lisse: Bach multiplied proceedings unreasonably and vexatiously | HSBC: motions were legitimate efforts to enforce a judgment, not bad-faith multiplication | Denied — no bad faith or intentional misconduct shown |
Key Cases Cited
- In re Ryan, 411 B.R. 609 (Bankr. N.D. Ill. 2009) (Rule 9011 safe-harbor and sanction standards)
- Corley v. Rosewood Care Ctr., Inc., 388 F.3d 990 (7th Cir. 2004) (Rule 11/9011 deterrent purpose and sparing use)
- Ridder v. City of Springfield, 109 F.3d 288 (6th Cir. 1997) (separateness requirement does not bar combining Rule 11 with § 1927 claims)
- In re Schaitz, 913 F.2d 452 (7th Cir. 1990) (good-faith filing requirement in Chapter 13 plans)
- Aetna Life Ins. Co. v. Alla Med. Servs., Inc., 855 F.2d 1470 (9th Cir. 1988) (definition of persistent abusive litigation)
- HSBC Bank USA ex rel. Ace Secs. Corp. v. Lisse, 367 Wis.2d 749 (Wis. Ct. App.) (state appellate decision confirming HSBC’s possession of the original note)