6th Cir.: Bankruptcy Courts Can Sanction as ‘U.S. Court'

A weekly news service that publishes case summaries of the most recent important bankruptcy-law decisions, tracks major commercial bankruptcies, and reports on developments in bankruptcy reform in...

By Daniel Gill

June 17 — Bankruptcy courts are “courts of the United States” for the purpose of issuing a sanctions order under 28 U.S.C. §1927, the Sixth Circuit ruled on June 15 ( Grossman v. Wehrle (In re Royal Manor Mgmt., Inc.), 2016 BL 190220, 6th Cir., No. 15-3146, unpublished decision 6/15/16 ).

In a decision marked “not recommended for publication,” the U.S. Court of Appeals for the Sixth Circuit acknowledged a split in the circuits and affirmed that a bankruptcy court can issue punitive sanctions under the section, joining the Second, Third and Seventh Circuits. The court said that the Ninth and Tenth circuits have held that for purposes of 28 U.S.C. §1927 bankruptcy courts were not “courts of the United States.”

Vexatious Litigant

Dennis Grossman was an attorney who applied pro hac vice to appear in a number of bankruptcy cases pending in the U.S. Bankruptcy Court for the Northern District of Ohio (meaning he was not already admitted to practice in that court). The cases were related and were administered jointly under one case number.

After several years of litigating claims of Grossman’s client, the bankruptcy court eventually granted a motion brought by the liquidating trustee overseeing the administration of the bankruptcy case for an award of monetary sanctions against Grossman (and his client).

According to the bankruptcy court, “The actions of Grossman throughout the pendency of this case rise to the level of vexatious conduct designed to delay, multiply and increase the cost of the proceedings in this case.”

The liquidating trustee settled with the client, and the court entered an order awarding sanctions of $207,000 against attorney Grossman. The U.S. Bankruptcy Appellate Panel for the Sixth Circuit affirmed, and Grossman appealed again to the Sixth Circuit.

Split Authority

The bankruptcy court granted the award of sanctions under the authorities of 28 U.S.C. §1927 and Section 105(a) of the Bankruptcy Code (11 U.S.C. §105(a)).

Section 1927 provides that any attorney “admitted to conduct cases in any court of the United States . . . who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct.” Grossman argued that the bankruptcy courts are not courts of the United States for the purposes of the statute.

The court noted that there are circuit courts that agree with him. Both the Ninth and Tenth Circuits have held that Section 1927 does not apply to bankruptcy courts. However, the court agreed with the Second, Third and Seventh Circuits which held to the contrary.

But other than cite to these circuit opinions and a couple cases in their own circuit, the court did not include an analysis of the legal question in its opinion.

Nor did it discuss the applicability of 28 U.S.C. §451, which provides a definition of the operative phrase: “The term ‘court of the United States' includes the Supreme Court of the United States, courts of appeals, district courts constituted by chapter 5 of this title . . . and any court created by Act of Congress the judges of which are entitled to hold office during good behavior.”

Judge Helene N. White wrote the opinion, in which Judges Norris and McKeague joined.

Dennis Grossman, Great Neck, N.Y., represented himself in the matter. The liquidating trustee was represented by Lousie M. Mazur, Akron, Ohio.

To contact the reporter on this story: Daniel Gill in Washington at dgill@bna.com

To contact the editor responsible for this story: Jay Horowitz at jhorowitz@bna.com

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.