Ettinger and Associates, LLC v. Miller (In re Miller)

Ettinger and Associates, LLC v. Miller (In re Miller), Case No. 12-3151 and 12-3152
In this precedential opinion, the Third Circuit affirmed the District Court's order reversing a Bankruptcy Court's award of sanctions under Rule 9011 for failure to comply with the Rule's "safe harbor" provisions, and reversed and ordered remand to the Bankruptcy Court for determination whether sanctions are appropriate on other grounds. In a concurring opinion, C.J. McKee agreed the safe harbor provisions of Rule 9011 had not been complied with, but found plaintiff's conduct so egregious to merit remand for consideration of sanctions. Judge Nygaard dissented in part, stating that he would not remand for consideration of sanctions since the Bankruptcy Court had considered, and apparently rejected, an award of sanctions on alternative grounds.
Procedural context:
Appeal from the U.S. District Court for the Eastern District of Pennsylvania, reversing the Bankruptcy Court's order imposing sanctions under Bankruptcy Rule 9011 and refusing to remand to Bankruptcy Court for determination whether sanctions were justified on other grounds.
An attorney and his law firm filed an adversary complaint against former clients, objecting to the discharge of legal fees owed to the firm on the basis of fraud. After trial, the bankruptcy court dismissed the complaint and awarded $20,000 in sanctions against the firm and its bankruptcy counsel. Months before trial, the debtors filed a motion for sanctions under Rule 9011, which they withdrew the next day. The debtors re-filed the Rule 9011 motion after 23 days. After trial, the bankruptcy court determined that there was no factual basis to allege fraud on this contract dispute, and the re-filed sanction motion was granted. On appeal, the District Court found that the re-filed Rule 9011 motion was premature because debtors failed to include 3 days for mail service of the initial motion, as required by Rule 9006(f), before re-filing the sanctions motion. The District Court rejected the debtors' argument that the 3-day rule for mail service did not apply because the original motion had also been served electronically. In addition, the Bankruptcy Court had sanctioned conduct that occurred after the sanctions motion had been re-filed. Thus, counsel did not receive proper notice of the sanctionable conduct and an opportunity to correct the acts. Because the safe harbor violation could not be cured, the District Court refused to remand the case. The District Court noted that the Bankruptcy Court could have imposed sanctions on other grounds (e.g., Section 105(a), sua sponte under Rule 9011) which do not provide a safe harbor, but because the Bankruptcy Court had relied solely on Rule 9011 when imposing sanctions, remand to consider alternative grounds for sanctions was refused.
McKee, Ambro and Nygaard [Opinion by Ambro]

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