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Grossman v. Wehrle (In re Royal Manor Management, Inc.)

File Name 16a0324n.06; Docket No. 15-3146
In an unpublished opinion, the Sixth Circuit Court of Appeals affirms the ruling of the Bankruptcy Appellate Panel in In re Royal Manor Management, Inc., 525 B.R. 338 (B.A.P. 6th Cir. 2015), imposing sanctions of $207,400 against Dennis Grossman, counsel for an unsecured creditor, and also ordering post-judgment discovery. Noting a circuit split on the issue, the Court of Appeals upheld the bankruptcy court's use of 28 U.S.C. 1927 (as well as 11 U.S.C. 105) as authority for the sanctions.
Procedural context:
The Bankruptcy Court for the Northern District of Ohio entered orders awarding sanctions and ordering post-judgment discovery. Sanctioned counsel appealed to the Bankruptcy Appellate Panel, which affirmed in a lengthy opinion found at 525 B.R. 338. Counsel appealed further to the Sixth Circuit Court of Appeals.
Dennis Grossman represented the Gordons, who filed a unsecured claim for $2,142,000 against Darlington Nursing and Rehabilitation Center, Ltd., one of the jointly administered Chapter 11 debtors. The Committee objected on the grounds that the claim was a personal loan to the owner of Darlington, and that it was an equity investment. The objection was sustained and the claim disallowed when no one responded. Soon thereafter, Grossman filed a motion to vacate the order disallowing the claim, alleging a failure to comply with Bankruptcy Rule 3007 and excusable neglect. Thereafter, Grossman employed a variety of methods seeking to have the claim allowed over a period of years. These are set out at length in the BAP's 60 page opinion. Critically, payments from the Gordons were payable to individuals (not Darlington), and they received K-1 forms, indicating the funds were an investment rather than a loan. Grossman prosecuted an appeal to the district court, which affirmed, as did the Sixth Circuit. The Supreme Court denied certiorari. In October, 2009, the Liquidating Trustee sought sanctions in the Bankruptcy Court, which led to the rulings resolved by this appeal.
Norris, McKeague and White; opinion by White

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