Opinion
Case No. 99-34808-DOT.
November 20, 2001
MEMORANDUM OPINION
Hearing was held on October 3, 2001, on plaintiff Thelma J. Maguire's motion for sanctions against debtor defendant, Valerot W. Whitlow, and Kahlil A. Latif, counsel for debtor, for violating Federal Rules of Bankruptcy Procedure 9011(b)(1), (2) and (3). At the conclusion of the hearing, the court took the motion under advisement. For reasons stated below, the court will deny Maguire's motion.
Findings of Fact and Procedural History.
Debtor filed her chapter 13 case on July 14, 1999. Maguire filed her motion for sanctions on August 29, 2001.
Maguire is the owner of JAMAC LLC (JAMAC), a company that held a deed of trust note on debtor's previous residence located at 509 Northside Avenue in Richmond, Virginia. On December 8, 2000, JAMAC filed a motion for relief from automatic stay to allow it to foreclose on the property.
At preliminary hearing held January 10, 2001, debtor asserted that she had made the October, November, and December 2000 payments and requested the matter be set for final hearing so that she could provide proof of such payments. The court set the matter for final hearing on January 31, 2001, and allowed debtor seven days, or until January 17, 2001 to file an answer. Debtor never filed an answer. At final hearing on JAMAC's motion for relief from stay debtor failed to produce any proof of payments. The court granted JAMAC's motion for relief by order entered on the same day.
On March 28, 2001, JAMAC foreclosed on the property. Maguire purchased the property at the foreclosure sale and received title by trustee's deed dated that same day. On April 2, 2001, Maguire notified debtor that she had purchased the property and that debtor had five days to vacate. Debtor failed to vacate property.
On April 17, 2001, Maguire filed a summons for unlawful detainer against debtor in the general district court for the city of Richmond. At hearing held June 6, debtor's prior counsel, James C. DeWees, advised the General District Court that he was no longer able to represent debtor, and the trial was rescheduled for June 14, 2001. On the day of the rescheduled trial, the general district court granted judgment in favor of Maguire for possession of the property. Debtor did not properly perfect an appeal of this judgment, and it became final on June 25, 2001. Maguire obtained possession of the property on August 12, 2001.
Case No. 019232 APR1701 (GV 01019232).
By letter dated June 5, 2001, James C. DeWees advised debtor that he was unable to continue in the practice of law due to his physical and mental condition, diagnosed depression and physical injuries from a 1997 automobile accident, from which he had not recovered.
On June 28, 2001 debtor's present counsel, Khalil A. Latif, filed a notice of removal to this court pursuant to Federal Rule of Bankruptcy Procedure 9027. On July 5, 2001 an order was entered by Judge Barbara Goode removing the case from the general district court of the city of Richmond to this court. On July 9, 2001 Maguire filed a motion requesting that the court abstain or remand.
Adversary Proceeding number 01-3118.
Hearing was held on Maguire's motion to abstain or remand on July 24, 2001. The court took the matter under advisement and made a ruling based on the record. By order entered on August 12, 2001, the court abstained from hearing the unlawful detainer case and remanded the case back to the general district court. The court found that while the matter was a core proceeding, notice of removal was not timely filed as required by Federal Rule of Bankruptcy Procedure 9027(a)(3); judgment of the general district court had become final, and no appeal had been properly perfected. Thus, there was no controversy to be removed. On August 29, 2001 Maguire filed her motion for sanctions against debtor and debtor's counsel pursuant to Federal Rule of Bankruptcy Procedure 9011(c).
Counsel for debtor did not appear at the hearing on motion to abstain or remand. Debtor appeared pro se and attempted to seek a continuance by oral motion.
Rule 9027(a)(3) of the Federal Rules of Bankruptcy Procedure states that "[i]f a case under the Code is pending when a claim or cause of action is asserted in another court, a notice of removal may be filed with the clerk only within the shorter of (A) 30 days after receipt, through service or otherwise, of a copy of the initial pleading setting forth the claim or cause of action sought to be removed or (B) 30 days after receipt of the summons if the initial pleading has been filed with the court but not served with the summons."
Rule 9011(c) states that "if, after notice and a reasonable opportunity to respond, the court determines that subdivision (b) has been violated, the court may . . . impose an appropriate sanction upon the attorneys, law firms, or parties that have violated subdivision (b) or are responsible for the violation."
Current Proceeding.
In support of her motion for sanctions filed on August 29, 2001, Maguire asserts that: 1) debtor's notice of removal was not timely filed as required by Federal Rule of Bankruptcy Procedure 9027(a)(3); 2) the issues debtor attempted to raise in the removal action have been twice decided or waived in two separate tribunals, and debtor is barred from relitigating these issues based on principles of collateral estoppel and res judicata; 3) this court lacks jurisdiction to hear the removed matter as it is not a core proceeding; 4) the removal action was solely to cause unnecessary delay and to increase the cost of litigation; 5) the removal was not warranted by existing law or by a non-frivolous argument for the extension, modification, or reversal of existing law or the establishment of new laws; and 6) the allegations made by debtor have no evidentiary support. Maguire asks this court to impose sanctions in the amount of $2,450.00, comprised of attorney's fees in the amount of $750.00 and rental reimbursement of $1,700.00.
Maguire is referring to the motion for relief from stay heard before this court on January 31 and the unlawful detainer hearing held June 14 before the general district court.
At trial held October 3, Maguire testified that she currently has a signed lease on the property beginning November 1 in the amount of $850 per month. She seeks two months' rental reimbursement based on debtor's unlawful detainer of the property from June 28 to August 12.
In debtor's response to the sanctions motion she defends her removal action asserting: 1) the removal to this court was to alert the court that the foreclosure was fraudulently acquired; 2) Maguire's counsel set the hearing on removal without any contact with debtor's new counsel and on a date that was impossible for debtor's counsel to attend; 3) debtor's request for a continuance of the unlawful detainer hearing was denied; 4) the removal action is a core proceeding as "the transfer of property of the estate by foreclosure is most certainly central to the proceedings of this bankruptcy case and is obviously related to this bankruptcy" and the foreclosure was achieved through fraud, see Mem. of Law and Facts in Support of Debtor's Mot. For Sanctions at 2; and 5) debtor has a right "just as does the trustee to attempt to recover fraudulent conveyances of property of the estate." See id. at 3.
Discussion and Conclusions of Law.
Upon the filing of papers in United States Bankruptcy Court, an attorney certifies under Rule 9011 of the Federal Rules of Bankruptcy Procedure, that (1) it is not being presented for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation; (2) the legal positions in the document are supported by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law; and (3) the allegations and factual contentions have evidentiary support or are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery. See F.R.Bankr.P. 9011(B)(1)-(3); see also 5A Wright Miller, Federal Practice and Procedure: Civil 2d § 1335 (West 1990).
Purposes of Rule 11 "include punishing present litigation abuse, compensating the victims of the violation and streamlining court dockets." Allnutt v. Assoc. Leasing, Inc. (In re Allnutt), 220 B.R. 871, 896 (Bankr.D.Md. 1998), aff'd, 238 F.3d 410 (4th Cir. 2000), cert. denied, 534 U.S. 814 (2001). However, "the primary purpose of [Rule 11] sanctions is to deter future litigation abuse." Id. (citations omitted).
The standard for imposing sanctions under Rule 11 is applicable to a motion for sanctions under Bankruptcy Rule 9011. See In re Weiss, 111 F.3d 1159, 1170 (4th Cir. 1997). In deciding whether a signatory to a document violates Rule 9011, the court must apply an objective standard of reasonableness rather than an assessment of the party's subjective intent. See id.; Robeson Defense Comm. v. Britt (In re Kunstler), 914 F.2d 505, 514 (4th Cir. 1990). The inquiry focuses on whether a reasonable attorney in like circumstances could believe his actions were factually or legally justified. See Cox v. Saunders (In re Sargent), 136 F.3d 349, 352 (4th Cir. 1998). A "violation of Rule 9011 does not require subjective bad faith." Yagman v. Republic Ins., 987 F.2d 622 (9th Cir. 1993); Corporate Printing Co. v. New York Typographical Union, 886 F. Supp. 340, 344 (S.D.N.Y. 1995).
An improper purpose includes filing to "harass or to cause unnecessary delay or needless increase in the cost of litigation." F.R.Bankr.P. 9011. A signatory's purpose is derived from the objective evidence surrounding the litigation. See In re Weiss, 111 F.3d at 1171 (citing In re Kunstler, 914 F.2d at 518); Carlton v. Jolly, 125 F.R.D. 423, 426 (E.D.Va. 1989). Documents which are filed for the central purpose of affecting collateral state court actions are filed for an improper purpose. See In re Weiss, 111 F.3d at 1171; Wright v. Tackett, 39 F.3d 155, 158 (7th Cir. 1994); Silva v. Witschen, 19 F.3d 725, 730 (1st Cir. 1994).
Even though this court abstained from hearing the unlawful detainer case by order entered August 12, 2001, the court finds that neither debtor nor counsel for debtor violated Rule 9011(b)(1), (2) or (3). The motion for removal to this court was: 1)not presented for any improper purpose to harass, increase litigation costs or cause unnecessary delay; 2) the legal contentions in the motion were not frivolous; and 3) the allegations have evidentiary support or would likely have had evidentiary support after a reasonable opportunity for further investigation or discovery. Debtor's counsel's attempt to remove the unlawful detainer action to this court was neither frivolous nor filed for any improper purpose as debtor's counsel sought to bring to the court's attention potential fraud in an earlier proceeding before this court as well as debtor's representation problems with prior counsel who has since been disbarred.
Because the court has determined that neither debtor nor debtor's counsel have violated the provisions of Federal Rule of Bankruptcy Procedure 9011, the court finds it unnecessary to address the merits of Maguire's assertions of collateral estoppel and res judicata in her motion for sanctions. Regarding Maguire's assertions that 1) this court does not have jurisdiction over the unlawful detainer action as it is not a core proceeding and 2) debtor's notice of removal was not timely filed as required by Federal Rules of Bankruptcy Procedure (a)(3), this court has already issued an order on August 12, 2001, ruling on both of these issues. The court stands by its August 12 order on these two issues. Therefore, the court will deny an award of attorney's fees to Maguire.
The order entered on August 12, 2001, stated that the matter was a core proceeding, but that the notice of removal was not timely filed as required by Federal Rules of Bankruptcy Procedure 9027(a)(3).
Lastly, sanctions imposed for violating Rule 9011 are limited to that which is "sufficient to deter repetition of such conduct or comparable conduct by others similarly situated." F.R.Bankr.P. 9011(c)(2). The sanctions may include directives of a nonmonetary nature, an order to pay a penalty to the court, some or all of the reasonable attorney's fees and other expenses incurred as a direct result of the violation. F.R.Bankr.P. 9011(c)(2). While Rule 11 does not limit courts to a maximum monetary sanction or even require courts to consider only monetary penalties, "Rule 11 does not encompass all conduct within judicial proceedings." In re Kunstler, 914 F.2d at 525 (citations omitted). Rather, the rule pertains only to a "pleading, motion, or other paper." Id.
In her motion for sanctions, Maguire seeks not only attorney's fees but rental reimbursement for the time during which debtor remained on the property after Maguire was granted a favorable judgment in the general district court for possession of the property until debtor vacated the premises. While rental reimbursement may be an appropriate remedy in unlawful detainer actions, Rule 11 (and, therefore, Federal Rule of Bankruptcy Procedure 9011) was not designed to encompass this conduct. See id. Therefore, the court will deny Maguire's request for rental reimbursement.
Because the court finds that neither debtor nor debtor's counsel violated the provisions of Federal Rule of Bankruptcy Procedure 9011(b)(1), (2) or (3), the court will deny Maguire's request for sanctions.
An order consistent with this memorandum opinion will be entered..