Bloomberg Law’s® Bankruptcy Law News publishes case summaries of the most recent important bankruptcy law decisions, tracks major commercial bankruptcies, and reports on developments in bankruptcy...
By Diane Davis
[UPDATE: On June 5, 2017, more than a year after the district court's opinion covered below, the U.S. Court of Appeals for the Second Circuit issued a summary order vacating the district court's finding of civil contempt and remanding the case. The appeals court held that the bankruptcy court erred by holding Kopel in civil contempt sua sponte and imposing sanctions because it made no finding of bad faith.]
April 5 — A debtor's attorney was properly sanctioned by a bankruptcy court because of his “wholly unreasonable behavior” in filing bankruptcy for a second time despite a court order prohibiting such a filing, a district court in New York held March 31.
Judge Ann M. Donnelly of the U.S. District Court for the Eastern District of New York affirmed the bankruptcy court's order imposing $9,786 in sanctions on the debtor's second attorney, including legal fees and expenses that the secured creditor incurred in connection with the aborted foreclosure sale.
“Few principles should be more obvious to practicing lawyers than this: that they have a professional and ethical obligation to familiarize themselves with the basic facts of the cases that they take on, and that they read documents before filing them in courts of law,” the court said.
Fed. R. Bankr. P. 9011 imposes a duty on attorneys to certify that any “petition, pleading, written motion or other paper” filed with the court isn't being presented for any improper purpose and is “warranted by existing law and evidentiary support,” the court said. Attorneys must conduct “an inquiry reasonable under the circumstances” before presenting a petition to the court, the court said. Under Rule 9011(c), courts have discretion to impose sanctions against attorneys who have violated the affirmative duty not to file, submit, or advocate a position in a written document for an improper purpose or a position without legal or evidentiary support.
According to the court, the bankruptcy court's decision to sanction the debtor's second attorney was “eminently reasonable” in light of his conduct and his “absurd efforts to explain away that conduct.”
Debtor JJE & MM Group LLC owned two properties and they were scheduled to be sold at a foreclosure sale. On the same day, the debtor filed for Chapter 11 protection, which is for businesses or individuals whose debts exceed the statutory thresholds for Chapter 13.
The sole creditor, 1354 Realty, moved to dismiss the bankruptcy action on the ground that the debtor acted in bad faith in filing for bankruptcy on the day of the foreclosure sale.
Judge Carla E. Craig of the U.S. Bankruptcy Court for the Eastern District of New York determined that the petition was filed in bad faith and dismissed the case. Craig's dismissal order also barred the debtor from filing another case under Chapter 11 for a one year period from the date of the order.
The creditor obtained a judgment of foreclosure and, on the afternoon of the sale, debtor, through new counsel, filed a second bankruptcy petition in direct violation of Judge Craig's order.
At a show cause hearing before Judge Craig, the debtor's new attorney, appellant Noson A. Kopel, told the court that the case was brought to him on an emergency basis an hour and a half before a scheduled sale and that he hadn't read an affidavit the debtor handed him.
Craig found Kopel in contempt for violating the previous order, and issued sanctions against Kopel, but not the debtor because he represented at the hearing that his client didn't understand the court's order. Craig found that he “nobly absolved his client of responsibility.”
The district court found Craig's decision to impose sanctions was reasonable in view of Kopel's conduct. His insistence that he wasn't a party to the initial action in which his client filed for bankruptcy on the same date as the foreclosure sale “misses the point entirely,” the court said. He wasn't sanctioned for the underlying first bankruptcy filing in bad faith, but for his behavior in filing for bankruptcy a second time on the day of the foreclosure sale in the face of an order prohibiting such a filing, the court said.
It was also appropriate for the bankruptcy court to sanction only the attorney, not the debtor, the court said. Rule 9011 also explicitly contemplates attorneys' fees incurred in presenting or opposing a motion as an appropriate sanction, the court said.
Pincus David Carlebach, Law Offices of David Carlebach, Esq., New York, N.Y., represented debtor JJE & MM Group, LLC; and Noson Aharon Kopel, Attorney-At-Law, Brooklyn, N.Y., represented himself as appellant.
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