Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-arwd-2_05-cv-02090/USCOURTS-arwd-2_05-cv-02090-0/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 28:1334 Bankruptcy Appeal

---

AO72A

(Rev. 8/82)

IN THE UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF ARKANSAS

FORT SMITH DIVISION

IN RE STEPHEN A. GRIFFIN DEBTOR

STEPHEN A. GRIFFIN APPELLANT

v. Case No. 05-2090

LANCE BEATY, et al. APPELLEES

MEMORANDUM OPINION AND ORDER

On April 1, 2005, the Honorable James G. Mixon, United

States Bankruptcy Judge, Western District of Arkansas, imposed

Bankruptcy Rule 9011 sanctions in connection with the abovestyled cause. For the reasons which follow, the sanctions order

is AFFIRMED.

A. Background

On January 14, 2002, Appellant filed for Chapter 11

bankruptcy. Appellant’s former business partners, Lance Beaty

and Stephen Nelson (Appellees), filed suit against Appellant in

state court on November 2, 2001. On February 5, 2003,

Appellant’s Chapter 11 was converted to a Chapter 7, and Richard

Cox was appointed trustee of the estate. Accordingly,

Appellees’ state court case against Appellant was removed to the

bankruptcy court and became property of the bankruptcy estate.

Appellant’s schedules reflected nearly $14 million of assets in

excess of liabilities.

Case 2:05-cv-02090-RTD Document 9 Filed 08/23/05 Page 1 of 6 PageID #: <pageID>
AO72A

(Rev. 8/82)

2

Appellant desired to pursue a claim against Appellees and

requested the bankruptcy trustee advise Appellant’s counsel of

his intentions in this regard. No advice was given as to the

trustee’s intentions, and Appellant contends any such claim

would have been barred if not instituted before the statute of

limitations ran on January 14, 2004. On January 14, 2004,

Appellant amended his counterclaims against Beaty and Nelson and

filed a cross-claim against First National Bank of Fort Smith,

a party to the original state court complaint.

On March 24, 2004, Appellees filed a Motion for Sanctions

against Appellant’s counsel. At the hearing held August 25,

2004, the bankruptcy court found Appellant did not have proper

standing to amend his counterclaim or to file a cross-claim and

that Appellant’s counsel had not conducted reasonable inquiry

into the matter before proceeding. The bankruptcy court then

awarded attorney fees in the amount of $1,100.00 to Appellees

against Appellant’s counsel.

B. Discussion 

Appellant contends the bankruptcy court’s sanctions order

was improper as he had requisite standing to file the crossclaim and amended counterclaim instead of the bankruptcy

trustee. Appellant argues this is an unsettled area of the law,

and the sanctions order was inappropriate as his counsel

conducted a reasonable inquiry into the existing law before

Case 2:05-cv-02090-RTD Document 9 Filed 08/23/05 Page 2 of 6 PageID #: <pageID>
AO72A

(Rev. 8/82)

3

filing the cross-claim and amended counterclaim. 

When sitting as an appellate court, the district court

reviews the bankruptcy court’s findings of fact, whether based

upon oral or documentary evidence, for clear error, and reviews

legal conclusions de novo. See Fed. R. Bankr. P. 8013; First

Nat’l Bank of Olathe v. Pontow, 111 F.3d 604, 609 (8th Cir.

1997). A bankruptcy court’s sanctions order is subject to an

“abuse of discretion” standard of review. Mid-Tech Consulting

v. Swendra, 938 F.2d 885, 888 (8th Cir. 1991). A court abuses

its discretion if it bases its sanctions ruling on “an erroneous

view of the law or on a clearly erroneous assessment of the

evidence.” Id. at 888 (citing Cooter & Gell v. Hartmarx Corp.,

496 U.S. 384 (1990)).

Courts considering sanctions under Bankruptcy Rule 9011

rely on case law construing Rule 11 of the Federal Rules of

Civil Procedure. See, e.g., In the Matter of Cohoes Industrial

Terminal, Inc., 931 F.2d 222, 227 (2nd Cir. 1991); In re D. C.

Sullivan Co., 843 F.2d 596, 598 (1st Cir. 1988); Cinema Service

Corp. v. Edbee Corp., 774 F.2d 584, 585 (3d Cir. 1985). “The

standard by which courts are to judge conduct challenged under

[R]ule 11 [or Bankruptcy Rule 9011] is one of objective

reasonableness.” Hartman v. Hallmark Cards, Inc., 833 F.2d 117,

124 (8th Cir. 1987). The Court must determine whether the

attorney signing the pleading conducted a reasonable inquiry

Case 2:05-cv-02090-RTD Document 9 Filed 08/23/05 Page 3 of 6 PageID #: <pageID>
AO72A

(Rev. 8/82)

Beaty, et al., v. Griffin, et al., Case No. 02-7029 1

(Bankr. W.D. Ark. filed Feb. 19, 2002).

4

into the facts and law supporting the pleading. See O’Connell

v. Champion Int'l Corp., 812 F.2d 393, 395 (8th Cir. 1987). 

 The bankruptcy court determined Appellant did not have

standing to file a cross-claim and amended counterclaim in the

adversary proceeding which had been removed from state court.1

The court also determined that Appellant’s counsel did not

conduct a reasonable inquiry into the relevant facts and law in

electing to file said pleadings. 

According to the Bankruptcy Code, upon conversion of a

Chapter 11 bankruptcy case to Chapter 7, “all legal or equitable

interests of the debtor in property as of the commencement of

the case” become property of the bankruptcy estate. See 11

U.S.C. § 541 (2005). Once the bankruptcy estate is formed and

a trustee appointed, the trustee is the “representative of the

estate” and “has capacity to sue and be sued.” See 11 U.S.C. §

323 (2005). This authority is granted to the trustee to the

exclusion of the debtor. See generally Wolfe v. Gilmour Mfg.

Co., 143 F.3d 1122 (8th Cir. 1998). As such, the only party who

can pursue a claim on behalf of the bankruptcy estate is the

trustee, thus the debtor lacks standing. See Bankr. Estate of

B.J. McAdams, Inc. v. Ralston Purina Co., 154 B.R. 809 (Bankr.

N.D. Ga. 1993); Nassau Savs. and Loan Assoc. v. Miller, 116 B.R.

Case 2:05-cv-02090-RTD Document 9 Filed 08/23/05 Page 4 of 6 PageID #: <pageID>
AO72A

(Rev. 8/82)

In his brief, Appellant cites several cases in support of 2

his position that he had standing since his assets exceeded his

liabilities in the bankruptcy case and he stood to receive the

surplus after distribution of the estate assets to creditors.

These cases, however, pertain to the debtor’s standing to object

to and appeal the bankruptcy court’s order and do not confer

standing on the debtor to bring a case in place of the

bankruptcy trustee.

5

423 (Bankr. E.D. Pa. 1990).

Appellant argues he possessed standing because his assets

exceeded the liabilities in the bankruptcy case and because he

would receive the surplus after creditors were paid. His theory

is also based on his contention that his share of the surplus

would be enlarged if he were entitled to sue and lessened if the

trustee failed to sue. Despite this argument, the trustee was

the real party in interest and the only person who could sue for

the benefit of Appellant’s bankruptcy estate. It follows that 2

the only person who had standing to amend the pleadings was the

trustee. Therefore, Appellant was without standing to file the

cross-claim and without standing to amend his counterclaim in

the adversary proceeding.

Appellant further argues the sanctions award of $1,100.00

was improper as Appellant’s counsel conducted a reasonable

inquiry into the facts and law surrounding the issue, relied on

their research results, and filed their cross-claim and amended

counterclaim in good faith.

In the hearing transcript on the Motion for Sanctions,

Case 2:05-cv-02090-RTD Document 9 Filed 08/23/05 Page 5 of 6 PageID #: <pageID>
AO72A

(Rev. 8/82)

6

Judge Mixon found the trustee had entered into a tolling

agreement, which tolled the statute of limitations, and that

Appellant’s efforts should have been to confer with the trustee

concerning such an agreement. (Transcript of Sanctions Hearing

on 8/25/04, at 11.) Appellant’s counsel’s decision to amend

Appellant’s counterclaim and file a cross-claim has no legal

support. We find the decision of the bankruptcy judge to award

attorney fees of $1,100.00 in sanctions reasonable, did not

constitute an abuse of discretion, and not clearly erroneous.

Accordingly, the judgment of the bankruptcy court is

AFFIRMED. 

IT IS SO ORDERED this 23rd day of August, 2005.

/s/ Robert T. Dawson

______________________________

Robert T. Dawson

United States District Judge

Case 2:05-cv-02090-RTD Document 9 Filed 08/23/05 Page 6 of 6 PageID #: <pageID>