Opinion ID: 3013652
Heading Depth: 3
Heading Rank: 1

Heading: Evidentiary support for sanctions

Text: Leinbach first argues that there is insufficient evidence to support the bankruptcy court’s sanction. He argues in the alternative that even if the record does support 5 We have jurisdiction pursuant to 28 U.S.C. §§ 158(d) and 1291. “We review the bankruptcy court’s findings of fact for clear error, and we exercise plenary review over conclusions of law. We review the denial of attorney fees and the denial of costs for abuse of discretion. In re Gioioso, 979 F.2d 956, 959 (3d Cir. 1992) (internal citation and quotations marks omitted). 5 sanctions, the court abused its discretion in imposing this specific sanction upon him.6 The bankruptcy court imposed sanctions pursuant to its inherent authority to sanction as well as Federal Rule of Bankruptcy 9011. A court must make a finding of bad faith before imposing sanctions pursuant to its inherent power to sanction attorneys. Sanctions under Rule 9011 can be imposed for objectively unreasonable conduct. Fellheimer, Eichen & Braverman v. Charter Tech., 57 F.3d 1215, 1227-28 (3d Cir. 1995) (internal citations omitted). This record clearly supports the court’s finding of bad faith. In addition, Leinbach’s conduct clearly was objectively unreasonable.
The bankruptcy court found that Leinbach’s failure to serve Fein with a copy of 6 Leinbach’s counsel argues in part that the only evidence in the record regarding Fein’s motion for sanctions came from the brief testimony that Leinbach gave at the hearing on Fein’s motion, and that the courts erred when they relied on other evidence. That argument is frivolous. The hearing on the motion for sanctions was preceded by a hearing on the motion to vacate the court’s order approving the amended plan. During the earlier hearing, Leinbach testified at length regarding his reasons for not serving Fein with a copy of the motion to approve the amended plan. Fein also offered various faxes and other communications between her and Leinbach to show that Leinbach knew that Fein wanted a copy of the motion and planned to oppose it. See June 15, 2000 Tr. at 4749, 52-56, 84-86. At the later hearing on the motion for sanctions, Leinbach’s attorney protested against him needlessly testifying again. Leinbach’s counsel requested an offer of proof regarding Fein’s reasons for calling Leinbach to the stand again because “[w]e sat here four hours last time and had him testify to everything that appears to be discussed in the motion.” January, 18, 2001 Tr. at 4. Leinbach now attempts to use the absence of his testimony at the second hearing as grounds for reversing the sanctions order. That argument appears to be yet another manifestation of what might best be described as Leinbach’s proclivity for avoiding candor with the court. 6 the motion was “improper, vexatious, wanton and bad faith conduct[]” because Leinbach knew that Fein’s client had a “substantial interest in the outcome of the motion[.]” The court also found that Leinbach had a duty to furnish Fein with a copy of the motion upon her request under Local R. Bankr. 9014-3(g)(2) (E.D. Pa. 1999). Bankr. Op. at 2. The district court agreed, concluding that Leinbach’s actions “over the course of a four-month period demonstrate sufficient bad faith to support the bankruptcy court’s decision to impose sanctions.” Dist. Ct. Op. at 7-8. The district court expanded on the bankruptcy court’s rationale detailing the numerous exchanges between Leinbach and Fein regarding the amended plan. The court also noted Leinbach’s assertion that counsel who only enters an appearance for a party by filing a document or motion is not necessarily entitled to service of all papers unrelated to the specific motion filed by that attorney. Id. at 8. The court rejected that claim because the motion in question was directly related to Fein’s negotiations with Leinbach. Id. Finally, the district court stated that it did not need to decide whether Fein was an attorney of record and therefore entitled to service under Local R. Bankr. 9014-3(f) (E.D. Pa. 1999). 7 Id. at 9-10. 7 Local R. Bankr. 9014-3(f)(1) and (g)(2) state: (f) Service of Motion. (1) General. On the day the motion is filed, the movant shall serve a Notice of Motion and Hearing Date. . . , the proposed order, and a copy of the motion . . . on . . .: (I) the debtor and counsel to the debtor; (ii) the United States trustee; (iii) any trustee or interim trustee; (iv) any official committee or, if no committee has been appointed in a chapter 11 case, the twenty (20) largest unsecured creditors of the debtor; 7 We are in substantial agreement with the district court’s analysis. Leinbach refused to give Fein a copy of a motion that significantly affected her client’s interests even though that motion was a product of his recent negotiations with Fein. He compounded this transgression by informing the bankruptcy court that his motion was unopposed even though he knew that Fein had not seen it and had contacted his office to get a copy of it. We need not dignify Leinbach’s continued insistence that this does not establish bad faith with any further discussion. There is, however, a problem with invoking Rule 9014-3 to sanction this conduct because it is not clear that the Rule required Leinbach to serve Fein with a copy of the motion. Bankruptcy Rule 9014-3(g)(2) requires the movant to provide a copy of motions (v) any person whose interest would be directly, materially and adversely affected if the relief requested in the motion were granted and whose interests are not adequately represented by persons on whom service is otherwise required. ... (g) Notice. . . . (2) The notice shall be given to those on the Clerk’s Service List who are not required to be served under subdivision (f). A movant, at the movant’s expense, shall promptly furnish a copy of the motion and proposed order to anyone on the Clerk’s Service List who requests a copy of the particular motion. A movant may make service in the manner provided in subdivision (f) instead of giving notice under this subdivision. Local R. Bankr. 2002 describes the “Clerk’s Service List” as follows: (c) Clerk's Service List. The clerk shall maintain a Clerk's Service List which lists the name, address, phone number, and fax number of the debtor, counsel for the debtor, the trustee, counsel for any committee and the members of the committee, and all creditors and equity security holders who have filed requests that all notices be mailed to them under F.R.B.P. 2002(I). 8 “to anyone on the Clerk’s Service List.” That list includes the debtor and counsel, the trustee, “counsel for any committee and the members of the committee, and all creditors and equity security holders who have filed requests that all notices be mailed to them under F.R.B.P. 2002(I).” Fein represented a secured creditor, but it is undisputed that she did not file a formal notice of appearance or otherwise formally request filings through the clerk’s office. It appears from the record that no committee was formed. Fein would therefore not qualify under that category, either. Accordingly, Fein would not have been on the Clerk’s Service List, and Rule 9014-3(g)(2) would therefore not have required Leinbach to provide her with a copy of his motion. However, to the extent that the bankruptcy court erred in relying upon that Rule, the error was certainly harmless. Local R. Bankr. 9010.1(a) (E.D. Pa. 1998), 9010.1(a) (E.D. Pa. 1999), and 9010-1(c) (E.D. Pa. 2000) all state that “an attorney who files any. . . motion . . . or other paper with the clerk shall be deemed to have entered an appearance for the party on whose behalf the paper is filed.” Therefore, pursuant to those Local Bankruptcy Rules, Fein is deemed to have entered an appearance by virtue of the filing she made on behalf of NAMC on February 4, 2000. Moreover, Fed. R. Bankr. 9010(b) (1998), 9010(b) (1999), and 9010(b) (2000) all provide in relevant part as follows: “Notice of appearance. An attorney appearing for a party in a case under the [Bankruptcy Code] shall file a notice of appearance with the attorney’s name, office address and telephone number, unless the attorney’s appearance is otherwise noted in the record.” 9 (emphasis added). Clearly, Fein’s appearance was “otherwise noted in the record” as of February 4, 2000. Accordingly, there is sufficient evidence on this record to support the bankruptcy court’s sanctions.
The bankruptcy court also sanctioned Leinbach under Fed. R. Bankr. P. 9011 for improperly executing the certification of no opposition.8 The court explained that sanction as follows: [Leinbach] certified that the notice of motion, response deadline and hearing, along with a copy of the motion to approve [the amended plan] had been served on all interested parties and that he received no opposition to the motion, all the time knowing that he had not served Fein with a copy of the motion . . . despite the repeated requests made by Fein to [Leinbach] for a copy of the motion. Bankr. Op. at 2 n.2. The district court concluded that Leinbach could not have reasonably believed that there was no opposition to the amended plan, yet his certification of no opposition represented that there was none. Dist. Ct. Op. at 12-13. We agree that Leinbach’s certification under these circumstances was, at the very least, objectively unreasonable. Sanctions were therefore appropriate. 8 Fed. R. Bankr. 9011 is the bankruptcy analog to Fed. R. Civ. P. 11. See Fellheimer, Eicher & Braverman, 57 F.3d at 1220 n.2; Landon v. Hunt, 977 F.2d 829, 833 n.3 (3d Cir. 1992); see also Haymaker v. Green Tree Consumer Disc. Co., 166 B.R. 601, 606 (Bankr. W.D. Pa. 1994) (“Rule 9011 is designed to discourage pleadings that are frivolous, legally unreasonable, or without factual foundation.”). 10
Because the findings of bad faith and objective unreasonableness were not in error, the district court had discretion to impose sanctions pursuant to its inherent authority and under Rule 9011. Moreover, we agree that there is a direct correlation between the sanctions against Leinbach and the injury he caused. Although Fein asked for more, the court only ordered Leinbach to pay Fein for the unnecessary hours she billed her client attempting to obtain a copy of the motion, having the order approving the plan vacated, and filing the motion for sanctions. The court thus ensured the compensatory and equitable quality of the sanctions because Fein’s client was relieved of the costs that specifically resulted from Lienbach’s conduct. This was not an abuse of discretion.