Haines & Krieger, L.L.C. v. National Capital Management LLC (In re Hernandez)

Summarized by Margreta Morgulas , Okin Hollander LLC
12 years 11 months ago

Citation:

BAP No. NV-12-1375-JuKid (BAP 9th Cir. March 4, 2013)

Tag(s):

Ruling:

The 9th Circuit Bankruptcy Appellate Panel ("BAP 9th Cir") vacated an order of the United States Bankruptcy Court for the District of Nevada ("Bankruptcy Court") and remanded the matter back to the Bankruptcy Court for further consideration and findings. The order at issue awarded sanctions against a law firm representing chapter 13 debtors Jowell and Anna Lee Hernandez and in connection with a claim objection that the Bankruptcy Court determined was "meritless" and was part of a "persistent patterm" by the firm of filing frivolous claims objections. The BAP 9th Cir vacated the sanctions order and remanded the matter because of the failure of the Bankruptcy Court to sufficiently develop the record supporting its grant of sanctions as well as its apparent failure to have considered whether the "safe harbor requirements" of Rule 9011 were met by the party seeking sanctions.

Procedural context:

Appeal of Bankruptcy Court order granting sanctions against a law firm under Rule 9011 on the basis that the objection was "meritless" and part of a "persistent pattern" of filing similarly meritless claims objections in other chapter 13 cases in the Bankruptcy Court.

Facts:

The chapter 13 debtors filed petitions and identified in Schedule F (without designating it as contingent, unliquidated or disputed) a credit card debt in a liquidated amount owing to the Appellees's predecessor. The Appellee, which held the claim as of the petition date (National Capital Management LLC), filed a claim in the debtors' cases in an amount slightly higher than scheduled and solely in its name (without identifying its predecessor bank that originally issued the credit card) and with different account identification information. The debtors objected to the claim on the basis that the Appellee failed to provide appropriate documentation as required by Rule 3001(c) and on the basis that the claim was not supported by evidence of an enforceable agreement or contract between the debtors and the Appellee. After succeeding on the claim objection, the Appellee filed a motion requesting sanctions under Rule 9011, contending that the objection contained "patently false" information regarding the information in the debtors' Schedule F, and that there was no legitimate legal basis for the objection. The Appellee contended that debtors' counsel filed a "form" objection that it had utilized several times in the debtors' cases and frequently filed in numerous cases pending in the Bankruptcy Court. The law firm opposed the request for sanctions on the grounds that there was a legitimate basis for the objection because the claim failed to provide sufficient information to demonstrate Appellee's ownership of the claim. Further, the law firm further opposed the motion because it was filed after the claim objection was decided by the Bankruptcy Court and thus deprived the law firm of the 21-day safe harbor in which the law firm would have the ability to withdraw the objection and avoid sanctions. Without making any specific findings regarding whether the safe harbor provisions of Rule 9011 had been afforded to the Appellant law firm, and without detailing the basis for its findings that the claim objection was "meritless" and that the firm had a "persistent pattern" of filing the same or similarly-flawed claim objections, the Bankruptcy Court granted the Appellee's motion for sanctions in the amount of $3,000 -- representing the costs incurred by the Appellee in the present case and other identified cases in defending the same or similar objections by the Appellant law firm. The BAP 9th Cir found that the claim objection was not frivolous but held that it could not find the imposition of sanctions to be wholly improper because the Bankruptcy Court record did not contain sufficient information with respect to the issue of whether the claim objection had been filed for an improper purpose under Rule 9011(b)(1) and, therefore, was otherwise sanctionable. Further, the BAP 9th Cir. held that prior to awarding sanctions under Rule 9011, a court must determine whether the party seeking sanctions complied with the safe harbor provisions in Rule 9011(c)(1)(A). The BAP 9th Cir held that the Bankruptcy Court's failure to make express findings in that regard or to otherwise demonstrate its adherence to applicable precedent with respect to the application of such safe harbor provisions required that the order be vacated and remanded for further consideration and findings.

Judge(s):

Judges Jury, Kirscher and Dunn

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