Grossman v. Wehrle (In Re Royal Manor Management, Inc.)Grossman v. Wehrle (In Re Royal Manor Management, Inc.)
HELENE N. WHITE, Circuit Judge. Dennis Grossman, an attorney who represented claimants pursuing a non-priority unsecured proof of claim in jointly administered Chapter 11 bankruptcy cases, appeals the Bankruptcy Appellate Panel‘s affirmance of the bankruptcy-court orders imposing $ 207,004 in sanctions against him and ordering post-judgment discovery. We AFFIRM the bankruptcy court‘s sanctions and post-judgment discovery orders.
I.
Debtor Royal Manor Management filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in February 2008. Darlington Nursing & Rehabilitation Center, Ltd. (Darlington), and Dani Family, Ltd. (Dani), filed voluntary petitions for relief under Chapter 11 soon after. The cases were jointly administered. Darlington operated a nursing home located on
The U.S. Trustee, David Wehrle, appointed an Official Committee of Unsecured Creditors (Committee), which retained Brouse & McDowell as its counsel. The bankruptcy court set a July 1, 2008 deadline for the filing of general unsecured claims.
On June 26, 2008, Gertrude Gordon, Sally Schwartz‘s sister, filed a proof of claim pro se, asserting a non-priority unsecured claim against Darlington in the amount of $2,142,200 on behalf of her adult children, Alison and David Gordon, through a power of attorney. Gertrude Gordon submitted a redacted copy of an agreement dated July 27, 2000, on which the Gordon claim was based.
The Committee objected to the claim and the bankruptcy court set an October 7, 2008 hearing date. When no response to the Committee‘s objection was filed, the bankruptcy court sustained the objection on October 29, without a hearing, and disallowed the Gordon claim. Soon after, Grossman sought pro hаc vice admission to represent the Gordons and moved to vacate the order disallowing the Gordon claim. The bankruptcy court granted him admission.
Various orders of the bankruptcy court and the BAP opinion set forth in detail the protracted proceedings that followed; such detail is not necessary here. See In re Royal Manor Mgmt., Inc., 2013 WL 1310881 (Bankr. N.D. Ohio Mar. 28, 2013), supplemented by 2013 WL 6229151 (Bankr. N.D. Ohio Dec. 2, 2013); affirmed by In re Royal Manor Mgmt., Inc., 525 B.R. 338 (B.A.P. 6th Cir. 2015). The bankruptcy court denied the Gordon claim on the merits following an evidentiary hearing. Grossman‘s clients unsuccessfully appealed to the district court, which agreed with the bankruptcy court that the July 27, 2000 agreement on which the Gordon claim was based was a personal obligation of the Schwartzеs, and that the Gordons had
In response to Grossman‘s motion for pro hac vice admission to represent the Gordons in their appeal to the district court, the Trustee asserted that Grossman did not meet the standards of conduct expected of attorneys practicing in the Northern District of Ohio and should be denied admission; the Trustee also moved for sanctions against Grossman. The district court denied Grossman pro hac vice admission2 and left the issue of monetary sanctions to the bankruptcy court. Gordon v. Wehrle, Nos. 5:09 CV 2687, 5:09 CV 1506 (N.D. Ohio Dec. 17, 2009) (emphasis added). Grossman filed a motion for reconsideration of the order denying pro hac viсe admission, which the district court denied. Gordon v. Wehrle, No. 5:09 CV 2687, 2010 WL 234807 at *2–3 (N.D. Ohio Jan. 14, 2010).
Trustee‘s Motion for Sanctions and Order to Show Cause why Sanctions Should not Enter
In the meantime, on October 21, 2009, the Trustee filed a motion for sanctions in the bankruptcy court, under
On January 29, 2010, the bankruptcy court sua sponte issued a show cause order requiring Grossman to explain why the bankruptcy court should not adopt the Trustee‘s statement of facts and issue sanctions against Grossman under
Grossman appealed from the district court‘s affirmance of the bankruptcy-court order denying the original claim and a separate order denying Grossman‘s motion to file a new claim. This court consolidated the cases and affirmed. In re Royal Manor Mgmt., Inc., 480 F. App‘x 362, 363–65 (6th Cir. 2012). We denied the Gordons’ petition for rehearing en banc, but stayed the mandate to allow them to seek certiorari. The Supreme Court denied certiorari without comment on September 26, 2012. Gordon v. Wehrle, 133 S. Ct. 653 (2012).
Renewed Motion For Sanctions – December 2012
On December 11, 2012, the Trustee filed a renewed motion for sanctions against Gertrude Gordon and Grossman under
However, before the hearing on the Trustee‘s renewed motion for sanctions, Gertrude Gordon entered into a compromise settlement with the Trustee. Grossman objected to this settlement, which resulted in a hearing. See R. 971 (response to Trustee‘s Mot. to Compromise);
Hearings on Trustee‘s Motions for Sanctions
Following extensive briefing, a hearing was held on the Trustee‘s motions for sanctions on January 15, 2013, at which Grossman and Trustee‘s counsel, Louise Mazur, testified. The Trustee reduced the amount of sanctions sought against Grossman to $159,335.23, representing fees and costs the Trustee incurred at the bankruptcy-court level only, and only after Grossman entered his appearance.
The bankruptcy court opinion and order entered March 28, 2013 noted, “[a]s confirmed by the Sixth Circuit, the characterization of the Gordon Claim as not a claim against the bankruptcy estate was a straight forward matter,” and explained its sanctions award:
7. For more than four years and continuing to the present Grossman seemed to find any and every occasion to multiply the ongoing proceedings. Attached to this opinion as Appendix A and incorporated herein is a summary of the pleadings that Grossman had filed in this Court and the arguments contained therein between November 2008 and the date of the hearing of this motion; it does not include the pleadings in the three appeals that he has pursued, variously in the District Court, the Court of Appeals and in the Supreme Court, where certiorari was denied. The summary shows at a glance not only [the] number of documents filed by Grossman, but also the repetitive and vexatious nature of the filings. Since the January 15, 2013
hearing, he has filed an additional seven pleadings in this Court. (Dkt. 971, 976, 984, 986, 991, 994 and 998). 8. [T]he Liquidation Trustee‘s initial distribution to holders of allowed Class 5 claims was reduced as a result of the reserve he was required to maintain, should the Gordon Claim be found meritorious on appeal. In fact, Grossman argued that no distribution should be made to Class 5 claims holders until the Gordons’ appeals had concluded. [Dkt. 820 and 826.] Those holders of allowed claims waited another 29 months for a second distribution that had been eroded by the activity occasioned by Grossman‘s multitudinous filings. The Liquidation Trustee made an intеrim distribution on allowed Class 5 claims, reserving for the possibility of reversal on appeal.
9. In short, Grossman well understood that his effort to convert the Gordon[] claim against their aunt and uncle into a claim against the bankruptcy estate was delaying the distribution of approximately $750,000 to holders of allowed claims, while also causing the erosion of funds available for distribution due to the fees that the Liquidation Trust was incurring when . . . counsel responded to Grossman‘s ever swelling and often frivolous filings. He compounded his absence of compelling arguments with needless multiplication and repetition of specious arguments . . . .
11. On numerous occasions both the Liquidation Trustee‘s counsel and this Court reminded Grossman that his actions in delaying the final administration of the funds available to holders of allowed claims exposed him to sanctions . . . .
Following are this Court‘s conclusions of law:
5. Litigation tactics that hinder a final resolution of controversies are always unwelcome. In the context of the collective creditor remedy that bankruptcy provides, tactics that delay and reduce the percentage dividend to holders of allowed claims warrant special scrutiny. When repeated reminders to a counsel of his obligations under
28 U.S.C. § 1927 prove unavailing, a trustee‘s pursuit of sanctions is a most appropriate exercise of his business judgment. See In re Tenn–Fla Partners, 226 F.3d 746, 748–751 (6th Cir. 2000) (awarding attorney‘s fees for debtor‘s fraudulent conduct for providing “misleading and incomplete disclosures,” in securing confirmation of its Chapter 11 reorganization plan); In re Downs, 103 F.3d 472, 478–79 (6th Cir. 1996) (affirming a bankruptcy judge‘s sanctions and denying all fees to a bankruptcy attorney who failed to disclose his compensation arrangement with the debtor as required by11 U.S.C. § 329 ); Trulis v. Barton, 107 F.3d [685] (9th Cir. 1995) (continuing to pursue action against chapter 11 debtor‘s principals after entry of bankruptcy court order confirming plan that explicitly barred such claims found to be unreasonable and vexatious multiplications of procеedings as a matter of law).
Not long after Grossman began his representation, he received the unredacted document on which Gertrude Gordon had “relied,” after certain artful copying, in
from an objective standpoint, [fell] short of the obligations owed by a member of the bаr to the court and . . . cause[d] additional expense to the opposing party. . . . . Accordingly . . . when an attorney knows or reasonably should know that . . . his or her litigation tactics will needlessly obstruct the litigation of nonfrivolous claims, a trial court does not err by assessing fees attributable to such actions against the attorney. Bad faith is not required to support a sanction under
§ 1927 .
Wilson-Simmons v. Lake County Sherriff‘s Department, 207 F.3d 818, 824 (6th Cir. 2000).
7. In awarding sanctions under
§ 1927 , some courts have considered the respondent‘s ability to pay. Kapco Mfg. Co., Inc. v. C & O Enterprises, 886 F.2d 1485 (7th Cir. 1989). Grossman did not raise the issue of ability to pay in his pleadings, and he certainly did not present any competent evidence of inability to pay despite having been afforded a full day hearing.8. In discharging his fiduciary duties, the Liquidation Trustee needed to defend against Grossman‘s pleadings. The fees incurred by the Liquidation Trustee at the bankruptcy court level were proportionate to controversies that Grossman chose to frame.
In re Royal Manor Mgmt., Inc., Nos. 08-50421, 08-50657, 08-50722, 2013 WL 1310881, at *4–7 (Bankr. N.D. Ohio Mar. 28, 2013). After noting that the Liquidation Trustee incurred “approximately $150,000.00 in fees prior to the hearing of this motion,” the bankruptcy court allowed the Trustee five days to notify the court whether he would seek an additional hearing to address fees incurred as a result of the hearing on the motion and the additional pleadings that Grossman filed after the hearing.
The Trustee sоught additional fees relating to the additional filings by Grossman after the January 15 hearing. Grossman objected to the Trustee‘s request for additional fees, and the Trustee responded to Grossman‘s objection. The court held a hearing on August 27, 2013, at
The Sixth Circuit has held that when an attorney‘s unreasonable and vexatious conduct begins at the outset of his/her representation and persists through the pendency of the case, the attorney is рroperly liable under
§ 1927 to pay attorney fees that began to accrue at the commencement of the case. Ridder v. City of Springfield, 109 F.3d 288, 299 (6th Cir. 1997) [(affirming§ 1927 award of attorney fees from filing of the complaint where counsel‘s “unreasonable and vexatious behavior began with the filing of the complaint and persisted throughout the pendency of the case.“)]; accord Garner v. Cuyahoga County Juvenile Court, 554 F.3d 624, 645–46 (6th Cir. 2009) [(same)]. In this case, one appropriate measure of the sanctions to be imposed upon Grossman under§ 1927 consists of the attorney fees incurred by the Liquidation Trustee from the point in time when Grossman‘s conduct became frivolous, unreasonable and/or vexаtious. As the Court noted in its Opinion, Grossman‘s conduct became unreasonable very early on in the course of the litigation over the claim asserted by Gertrude Gordon on behalf of David and Alison Gordon. The fees incurred by the Liquidation Trustee in the course of having to respond to the vexatious and unreasonable filings of Grossman leading up to and even after the Court conducted the January 15, 2013 hearing on sanctions are properly included as a part of the appropriate sanctions in this case.Citing Gonter v. Hunt Valve Co., 510 F.3d 610, 620 (6th Cir. 2007)[,] . . . Grossman . . . argues that a fee award is limited to a certain percentage of the lodestar calculation of reasonable and necessary fees. However . . . [t]he Liquidation Trustee is seeking an award of an appropriate amount of sanctions for Grossman‘s conduct; he is not seeking to recover fees for preparing a fee application or request for fees based on the outcome of substantive litigation. Furthermore, the general rule relied upon by Grossman regarding the limitation of awarding fees for preparing and litigating an attorney fee case is just that—a general rule, which applies only in the absence of unusual circumstances. Coulter [v. Tenn.], 805 F.2d 146, 151 (6th Cir. 1986) [(affirming district court‘s reducing fee requested for preparing and litigating attorney fee matter to 3% of the hours allowed in main case, noting that “[t]he attorney fee case is not the case Congress expressed its intent to encourage; and in order to be included, it must ride piggyback on the civil rights case.“)], see also Gonter v. Hunt Valve Co., 510 F.3d at 620 [(applying 3% rule of Coulter)]. Even assuming that the holding in Coulter is applicable to this case, the facts of this case warrant departure from the general rule to allow the appropriate amount of sanctions to be meted out. . . . [T]he amount of fees incurred by the Liquidation Trust has a direct impact on the sum available for distribution to creditors in this case. It would be inequitable to deny those creditors the ability to recover the fees incurred by the Liquidation
Trustee as the result of the repetitive, frivolous, and vexatious conduct of Grossman.
Post-Judgment Discovery and Collection Issues
After the bankruptcy court entered the sanctions judgment, the Liquidation Trustee served Grossman with interrogatories and document requests. While the sanctions judgment was on appeal to the BAP, the Trustee filed, and the bankruptcy court held a hearing and granted, a motion to compel Grossman to respond to written discovery and appear for a debtor‘s examination, and a motion to employ two law firms as special counsel (one in New York and one in Florida) to attempt to collect the sanctions judgment against Grossman on a contingent-fee arrangement. Grossman appealed the bankruptcy court orders granting the Trustee‘s two motions, as well as the denial of his renewed motions to recuse. The BAP affirmed the bankruptcy court orders in a sixty-page opinion.
The Instant Appeal
Grossman appeals the final judgment of the BAP affirming the bankruptcy court orders imposing $ 207,004 in sanctions and ordering post-judgment discovery against him. Our review is of the underlying decisions of the bankruptcy court, rather than the BAP or district court. We review the court‘s sanctions award for an abuse of discretion, Jordan v. Cleveland, 464 F.3d 584, 600 (6th Cir. 2006), its factual findings for clear error, and its conclusions of law de novo, In re Rembert, 141 F.3d 277, 280 (6th Cir. 1998).
II.
The bankruptcy court imposed sanctions under
Section 105(a) of the Bankruptcy Code provides that a bankruptcy court may issue “any order, process, or judgment that is necessary or appropriate,” and “[n]o provision of this title . . . shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.”
A.
We reject Grossman‘s assertion that the bankruptcy court erred in imposing sanctions for an allegedly frivolous claim. Although the bankruptcy court used the term “frivolous filing,” it sanctioned Grossman for multiplying the proceedings unreasonably and vexatiously after finding that Grossman knew that his “multitudinous” and repetitive filings would needlessly delay distribution to legitimate claim holders and erode funds available for distribution. Thus, it is not clear that the bankruptcy court sanctioned Grossman for pursuing a “frivolous claim.”3 In any event, neither authority for imposing sanctions—
B.
Grossman‘s sub-argument that the district court and this court saw no need for sanctions is unfounded. One of the district court‘s opinions stated that the Gordons’ first appeal did not rise to the level of “being truly frivolous,” and left the issue of monetary sanctions against Grossman to the bankruptcy court, noting that its denial of pro hac vice admission was a sufficient sanction for Grossman‘s misconduct before the district court. See Gordon v. Wehrle, No. 5:09 CV 2687, 2010 WL 234807, at *1 (N.D. Ohio Dec. 17, 2009). A subsequent district-court order that Grossman appealed to this court did not involve the issue of sanctions, Gordon v. Wehrle, Nos. 5:09 CV 2687, 5:10 CV 1431, 2010 WL 3835223 (N.D. Ohio Sep. 29, 2010), nor did this court‘s decision, Gordon v. Wehrle (In re Royal Mgmt., Inc.), 480 F. App‘x 362 (2012).
III.
Also meritless is Grossman‘s argument that the bankruptcy court abused its discretion by declining to limit the sanctions award on the basis that the Trustee failed to move for summary judgment early in the proceedings. See Ruben v. Warren City Schs. (In re Ruben), 825 F.2d 977, 988 (6th Cir. 1987) (sanctions are “generally improper where a successful motion could have avoided any additional legal expenses by defendants.“). The Gordon claim went through several permutations (original claim for money loaned based solely on the July 2000 Agreement between the Gordons and Schwartzes; amended claim for money loaned based on parole evidence; amended claim for unpaid dividends; new claims of rescission and unjust enrichment based on alleged forgery of Gordon signatures on different agreements; and new claim of priority
IV.
A court must give notice and an opportunity to be heard before imposing sanctions against an attorney, Cook v. Am. S.S. Co., 134 F.3d 771 (6th Cir. 1998). However, contrary to Grossman‘s characterization of the record, he had fair notice of the allegations against him and was not denied due process. The Trustee‘s motion asserted that sanctions should bе awarded against Gertrude Gordon and Grossman because they acted vexatiously and in bad faith throughout the proceedings and abused the bankruptcy process. The Trustee‘s renewed motion sought as sanctions all attorney fees incurred in defending against the Gordon claim, attached billing statements related to the Gordon claim showing fees and expenses, and sought recovery of the amounts expended by the Committee and Trustee only at the bankruptcy-court level. Grossman responded to the Trustee‘s motions and participated in hearings. Grossman‘s claim of deprivation of due process thus fails.
V.
Grossman аsserts that the bankruptcy court erred by failing to specify which of his filings it found frivolous or vexatious and, instead, grouping them together “in one amorphous undifferentiated mass.” Grossman is correct in the sense that two appendices to the bankruptcy court‘s second opinion awarding sanctions summarize Grossman‘s many filings and arguments therein, R. 999 at 13-50 (op. 3/28/13). But the bankruptcy court‘s reasoning in sanctioning Grossman is crystal clear—that throughout the proceedings his actions rose “to the level of
VI.
Also without merit is Grossman‘s assertion that the bankruptcy court should have denied the Trustee‘s sanctions motion for being a day late. The bankruptcy court acted within its broad discretion when it expanded its deadline for filing the renewed motion for sanctions by one day. See Link v. Wabash R.R. Co., 370 U.S. 626, 630–31 (1962) (federal courts have inherent power to “managе their own affairs so as to achieve the orderly and expeditious disposition of cases.“); ACLU of Ky. v. McCreary Cnty., 607 F.3d 439, 451 (6th Cir. 2010) (“a district court has broad discretion to manage its docket“). The cases Grossman cites in support of his argument that this circuit and the Supreme Court “consistently require denial of one-day-late filings to ensure deadline integrity” (Appellant Br. 66) involve deadlines over which courts have no authority, including notice-of-appeal and statute-of-limitations deadlines. See Carlisle v. United States, 517 U.S. 416, 430 (1996) (district court lacked authority to consider motion for judgment of acquittal filed outside time limit set by
Grossman relatedly argues that sanctions proceedings under
VII.
Grossman next asserts that the bankruptcy court erred by failing to address the Trustee‘s purportedly excessive and frivolous filings as a defense or offset to sanctions against him, and by failing to address the bankruptcy court‘s own delays caused by its inconsistent orders directing the parties to switch back and forth between different issues. Grossman advanced the first two
Grossman‘s third and final “defense“—that the bankruptcy court erred by denying credit in thе amount Gertrude Gordon paid the Trustee to settle the sanctions motion against her is also meritless. The bankruptcy court did not abuse its discretion in concluding that Gertrude Gordon‘s separate actions “supported an independent sanction against her pursuant to
VIII.
Next, Grossman contends that neither
As for the bankruptcy court‘s inherent authority under
IX.
Grossman also challenges the bankruptcy court‘s refusal to recuse itself. We review the bankruptcy court‘s denials of Grossman‘s motions for disqualification for abuse of discretion. Schilling v. Heavrin (In re Triple S. Rests., Inc.), 422 F.3d 405, 417 (6th Cir. 2005). As pertinent here, recusal is required where a judge‘s impartiality might reasonably be questioned, or where a judge has a personal bias or prejudice concerning a party.
X.
Finally, regarding the order for post-judgment discovery, we agree with the BAP that “the bankruptcy court was within its discretion to determine that special counsel was needed to collect a judgment that the Trustee believed Grossman was not going to willingly pay.” Id., 525 B.R. at 387. We further agree with the BAP‘s affirmance of the bankruptcy court‘s order compelling Grossman to appear at a debtor‘s examination, i.e., that “this type of examination is an entitlement of a judgment creditor pursuant to
HELENE N. WHITE
UNITED STATES CIRCUIT JUDGE