I. Discussion

This Court sits as an appellate court for bankruptcy court proceedings. Accordingly, the
Court must accept factual determinations ofa bankruptcy court unless clearly erroneous. Bankruptcy
Rule 8012. The District Court reviews Bankruptcy Court’s imposition of Rule 9011 sanctions for
an abuse of discretion. Matter of Excello Press, Inc., 967 F.2d 1109, 1112 (7th Cir. 1992), An abuse
of discretion is defined as a decision “with no evidence to support it or as a decision based on an
improper understanding of the law.” Bal v. Moyer, 883 F.2d 45, 46 (7th Cir. 1989).

Rule 901 1(c)(2) provides that the sanction may include “, . . an order directing payment to
the Movant of some or all of the reasonable attorneys fees and other expenses incurred as a direct
result of the violation.” (emphasis added). Levit argues that he is entitled to all attorneys fees and
costs, As set forth above, however, Rule 9011 provides that the imposition of attorneys fees and
recoverable costs are within the Bankruptcy Court’s sound discretion, and the Amended Rule
specifically envisions that the Court may award some, but not all, of the reasonable attomeys fees
incurred as a direct result of the violation. Deterrence, rather than compensation, is the primary
purpose of any sanction award. See Cooter & Gell y. Hartmarx Corp., 496 U.S. 384, 393, 110 S.Ct.
2447, 2454, 110 L.Bd.2d 359 (1990) (discussing Fed. R. Civ. P. 11). Imposing all of the costs the
opposing party incurred during the course of litigation is, ipso facto, fee-shifting and should be
reserved for only the most egregious situations. Cf. Chambers v. Nasco, Inc., 501 U.S. 32, 56, 111
S.Ct. 2123, 2139 (1991) (upholding district court's decision, where litigant had been warned
repeatedly about his conduct, that "full attorney's fees were warranted due to the frequency and
severity of [the litigant's] abuses and the resulting need to ensure that such abuses were not

repeated").

4.



the same would be filed with the Court. At the same time, Levit filed with the Court a formal
Objection to the allowance of the Secured Claim together with notice that the same would be
presented to the Court on August 26, 2002. On October 3, 2002 the mortgage debt was paid in full
and Republic withdrew its claim.

On August 26, 2002, Judge Black was unavailable and the hearing was continued until
November 20, 2002. At the commencement of the November 20 hearing, the parties agreed that,
except as to the attorneys’ fees and other expenses which the Estate alleged it had incurred because
of Freud's conduct in refusing to withdraw the claim, there was no real dispute as to the essential
facts. At the hearing, Freud explained that in filing the claim he relied on 11 U.S.C, § 502, which
provides that a claim is to be allowed or disallowed “as of the date of the filing of the petition.” (Tr.
11/20/02, p. 22, lines 3-5). After hearing argument from both sides, the Court considered the matter
in chambers and then announced its ruling, The Court held that “after the discharge of the debtor
and the sale of the residence the claim that the bank filed could never have been allowed under the
law.” (Tr. 11/20/02, p. 21, line 25 - p.22, lines 1-3). Thus, the Court found that under 9011(b)(L),
the filing of the claim “could never have been for any proper purpose” and that it was filed “to cause
unecessary delay or needless increase in the cost of the litigation.” (Tr. 11/20/02, p. 22, lines 7-11).
Nonetheless, the Court did not award the full amount of attorneys’ fees because it found that “the
blame is not entirely on one side.” The Court found that the parties “failed to communicate.” (Tr.
11/20/02, p. 23, lines 15-16). The Court imposed a sanction of $500 against Freud and his firm
because it believed $500 was “sufficient to deter any repeat of similar conduct that will under all the
circumstances be fair to the estate and to the bankruptcy process.” (Tr. 1 1/20/02, p. 23, lines 20-25).

This appeal followed.

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In this case, the Bankruptcy Court specifically found that $500 was “sufficient to deter any
repeat of similar conduct.” (Tr. 11/20/02, p.23, lines 20-25). The Court further found that said
amount “will under all the circumstances be fait to the estate and to the bankruptcy process.” Id, The
Court based its determination on what it found to be a failure to communicate. The Bankruptcy
Court believed that both parties were to blame for the communication failure. The Bankruptcy
Court’s ruling was not an abuse of discretion. No evidence was introduced that Freud had previously
been sanctioned by any court. Levit did not offer any evidence, or even propose an amount of
pecuniary sanction which would satisfy the requirements of the rule. Further, the record is devoid
of any effort by Levit to communicate with Freud concerning the resolution of the Motion for
Sanctions prior to the hearing, even after the Claim at issue was withdrawn. Thus, there is absolutcly
nothing in the record to contradict, let alone reverse, the Bankruptcy Judge’s carefully crafted
sanction tailored to the facts and circumstances of this case.

In his AppelJant’s Brief, Levit posed an issue that was not included on his statement of issues
presented for review. The issue is “Does Filing a Motion for Sanctions Per Se Establish that the
Maker of the Motion Has Been Guilty of Failure to Communicate?” Freud argues that the issue is
waived because it was not designated within ten days after filing the Notice of. ‘Appeal, in accordance
with Bankruptcy Rule 8006, Generally "[aJn issue not presented in the court below cannot be raised
for the first time on appeal and form the basis for reversal." In re Jones, 71 B.R. 682, 685 (S.D.

111.1987), citing, Country Fairways, Inc, v. Mottaz, 539 F.2d 637, 642 (7th Cir.1976). The

Bankruptcy Court in the case at bar found that there was a failure to communicate between the
parties. Since the Bankruptcy Court made an explicit finding on this issue, it is "presented by the

record" and is reviewable by this court on appeal. See Newman v. Magill, 99 B.R. 881, 884 (C.D.

5.



‘Minute Order Fort (06/971

United States District Court, Northern District of linois

fim

‘Name of Assigned Judge i Sitting Judge if Other
or Magistrate Judge David H. Coar than Assigned Judge
CASE NUMBER 02 C9142 DATE 7/14/2003
CASE Tn Re: Joseph Savard
TITLE
{In the following box (a) indicate the party filing the motion, c.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented,]
Bankruptcy Appeal
DOCKET ENTRY:
qd) QO Filed motion of [ use listing in “Motion” box above.]
2 o Brief in support of motion due
Qa) o Answer brief to motion due. . Reply to answer brief due.
(C3) im) Ruling/Hearing on set for , at
(5) o Status hearing{held/continued to) [set for/re-set for] on set for at
(6) Oo Pretrial conference[held/continued to] [sct for/re-set for] on _ set for at
(7) Oo Trial[set for/re-set for] on _. at
(8) Oo [Bench/Jury trial] [Hearing] held/continued to at
(9) Bo This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
OFRCP4(m) O Local Rule 41.1 OOFRCP4i(a(1) OO FRCP41(a)(2).
ao [Other docket entry] For the reasons set forth in the attached Memorandum Opinion and Order, the
judgment of the Bankruptcy Court is affirmed. All other moti re moot and terminated, This action
is closed. . “adhd
(11) [For further detail see order attached to the original minute order.]
No notices required, advised in open court. ‘Document
Number
‘No notices required.
Notices mailed by judge’s staff. We
Notified counsel by telephone.
X | Docketing to muil notices. 2)
X | Mail AO 450 form. und | /
MOOD Pantperqee:
Y_| Serv to ndgermagisrate judue SJ wee Blac be WIA TMISTT Sq
courtroom eH) iy de wailed novice
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111.1989), affd, 903 F.2d 1150 (7th Cir.1990), Nevertheless, Levit mischaracterizes the Bankruptcy
Court’s holding, The Bankruptcy Court did not find that the filing of the Motion for Sanctions per
se established that the maker of the motion had failed to communicate. The filing of the motion was
understandable in light of Freud’s conduct in filing the Claim, The Bankruptcy Court inferred that
the parties had been unable to work out their dispute because they were in court for a hearing. In
light of the fact that the claim had been withdrawn approximately seven weeks prior to the hearing,
the Bankruptcy Court found that the inability to work out the dispute was due to a failure to
communicate, for which both parties were to blame. This was a factual determination. Contrary to
Levit’s argument in his reply brief, the Bankruptcy Court did not award a fraction of the damages
sought simply because Levit “elected to seek the precise remedy that the Bankruptcy Rules afford!”

The Bankruptcy Court did not adopt a per se rule and its ruling was not based on an improper

understanding of law. Thus, the Bankruptcy Court’s factual finding was not clearly crroneous.

Conclusion

For the foregoing reasons, the judgment of the Bankruptcy Court is affirmed.

David H. Coar
United States District Judge

Dated: July 14, 2003



IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION
IN RE: )
JOSEPH SAVARD, )
)
DEBTOR, )
) No. 029142
)
LOUIS W. LEVIT, AS TRUSTEE OF THE)
ESTATE OF JOSEPH SAVARD, )
)
PLAINTIFE-APPELLANT __)
)
v. )
} HONORABLE DAVID H. COAR
JOSEPH P. SAVARD, )
CEP
DEFENDANT-APPELLEE. _) ers
) a. lg d

2003

MEMORANDUM OPINION AND ORDER

Louis W. Levit (“Levit”), the Trustee of the Estate of Joseph Savard, Debtor, sought
sanctions in the amount of $9,000.00 against Attomey Edward P. Freud (“Freud”) and his law firm,
Ruff, Weidnaar & Reidy (“Ruff”), for a violation of Rule 9011 of the Federal Rules of Bankruptcy
Procedure which is the Bankruptcy counterpart of Rule 11 of the Federal Rules of Civil Procedure.
The Bankruptcy Court granted Levit’s motion for sanctions in the amount of $500, Before this Court
is Levit’s appeal from the final Order of the Bankruptcy Court entered on December 3, 2002. This
Court has reviewed the judgment of the bankruptcy court, the record, and the briefs of the parties.
For the reasons set forth below, the decision of the bankruptcy court is affirmed.

I Factual Background

-l-

[wy


Joseph Savard (“Debtor”) filed a voluntary petition in the Bankruptcy Court for relief under
Chapter 7 of the Bankruptcy Code on September 29, 2000. The sole asset was the Debtor’s interest
in a single family residence occupied by the Debtor and his wife, Evelyn Savard. At the time of the
commencement of the bankruptcy case, the said real estate was subject to two mortgages. One
mortgage was held by Old Kent Bank securing an indebtedness of approximately $4,000. The other
mortgage was a home equity mortgage held by Republic Bank of Chicago (“Republic Bank”)
securing an indebtedness slightly in excess of $148,000.

On or about May 24, 2001, pursuant to an order approving the sale of real estate, this estate’s
intcrest in said real estate above described was sold and quit claimed for $35,000, subject to all valid
liens and encumbrances of any nature and description, including, without limitation, the Republic
Bank mortgage note and equity home loan agreement. The purchaser at said sale was Lynne
Glennon, the daughter of the Debtor and his wife, Evelyn, On March 12, 2002, Republic Bank filed
with the Clerk of the Court Proof of Secured Claim in the sum of $148,158.04, bearing the signature
of Edward P. Freud. On or about June 19, 2002, Joseph R. Brehm (“Brehm”), a paralegal employed
by Ross & Hardies, telephoned Freud and requested him to withdraw the Proof of Secured Claim
since the real estate covered by that claim had been sold subject to all of Republic’s rights. Freud
refused. On or about July 17, 2002, Levit telephoned Freud and repeated the request for withdrawal
of the Proof of Claim. Freud again refused.

On or about July 24, 2002, Levit served upon Freud, but did not file with the Clerk of the
Court, a Motion to Impose Sanctions together with Notice that the same would be presented to the
Court on August 26, 2002, provided, as required by Bankruptcy Rule 9011 that ifthe Proof of Claim

were withdrawn within 21 days, neither the Motion, Notice, nor the proposed Order accompanying

2.