Attorney sanction not excessive, rules Bankruptcy Appellate Panel

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By Tom Egan
Dolan Newswires

A U.S. Bankruptcy Court did not abuse its discretion in imposing sanctions in the amount of $9,000 against a debtor’s attorney for violating Bankruptcy Rule 9011 by advancing arguments not warranted by fact or law, the Bankruptcy Appellate Panel has ruled.

The attorney argued that the $9,000 amount was “grossly excessive in view of the bankruptcy court’s admissions that there was some basis for the arguments made.”

But the BAP found that the sanction was not in excess of what was necessary for deterrence.

“[The attorney’s] actions transformed a simple nondischargeability proceeding into a protracted, five-year litigation,” the panel stated in a per curiam opinion. “Under the circumstances, the $9,000 sanction the court imposed was not ‘grossly excessive’ and was consistent with controlling authority.”

The 19-page decision is In Re: Hermosilla, Alex, Lawyers Weekly No. 03-018-11.

Boston attorney David G. Baker argued the appeal on behalf of himself, pro se.

Violent debtor 
Prior to filing for bankruptcy, debtor Alex Hermosilla was married to Hilda Cristina Hermosilla. During the marriage, he severely beat her, resulting in a criminal complaint to which he pleaded sufficient facts to be found guilty. The couple eventually divorced.

The debtor filed a Chapter 7 petition in February 2005. His former wife commenced an adversary proceeding seeking, among other things, a determination that her unliquidated personal injury claim was nondischargeable pursuant to §523(a)(6) of the Bankruptcy Code.

In a pretrial order, the U.S. Bankruptcy Court judge ordered the parties to file a joint pretrial statement which included a statement of facts that required no proof and expressly provided that the statement “shall supercede the pleadings and govern the course of trial.” Thereafter, the parties filed an “Amended Joint Pre-Trial Statement” setting forth the stipulated facts.

On May 26, 2010, judgment was entered in favor of the debtor’s ex-wife, holding her claim to be nondischargeable under §523(a)(6). The judge also ordered attorney Baker to show cause why he should not be sanctioned for advancing arguments not warranted by fact or law in violation of Bankruptcy Rule 9011.

After a hearing, the judge issued a 45-page decision finding that in his memorandum of law filed on behalf of the debtor Baker had set forth four defenses that had no basis in law or fact, and imposed a $9,000 sanction.

Baker asked the judge to reduce the sanctions amount to $900, but his request was denied. He then appealed.

Rule violation 
Bankruptcy Rule 9011(b), the BAP noted, provides that an attorney who presents a document to the court certifies, among other things, that it is not presented for an improper purpose, that its arguments are warranted by existing law or are nonfrivolous attempts to modify the existing law, and that its factual assertions (or denials thereof) are supported by evidence.

The “core” of Baker’s position on appeal was that the bankruptcy judge “acknowledged repeatedly that the appellant had some basis for the arguments he made” and, therefore, the imposition of sanctions was a manifest abuse of judicial discretion.

“This theme continues throughout the brief and Attorney Baker repeatedly quotes phrases from the bankruptcy court’s decision to argue that the bankruptcy court conceded that each of the defenses had some basis in law,” the panel observed. But “most of these quotations are presented out of context and with key portions of the court’s discussion missing.”

Citing 1st Circuit precedent, Baker also argued that subjective intent is “entirely relevant” to the Rule 9011 inquiry. He claimed that the bankruptcy judge erred by exclusively employing an “objectively reasonable” standard.

“However, subjective good faith is not enough to protect an attorney from sanctions,” the BAP responded.

Although the 1st Circuit has stated that subjective intent can bear on whether to impose a sanction, “Attorney Baker is trained in the law and well traveled in the bankruptcy court,” the panel stressed.

“Thus, his advancement of an argument that directly contradicts an express provision of the Bankruptcy Code cannot be excused.”

Moreover, “although counsel is free to argue for an extension or modification of existing law, such an argument is frivolous if no reasonable argument can be advanced,” the BAP added.

Baker had argued that the adversary complaint filed by the debtor’s former wife should have been dismissed for failure to state a cause of action because it did not describe the nature of her injury and did not allege that she was intentionally injured by the debtor or that she incurred a monetary loss as a result. The bankruptcy judge, however, found these arguments were clearly contradicted by admissions the debtor made in the pretrial statement.

On appeal, Baker contended that he “underestimated the weight that the bankruptcy court would put on the admissions in the Pre-Trial Statement” but that this did not warrant sanctions.

The panel disagreed.

“Attorney Baker’s argument that he ‘underestimated the weight that the bankruptcy court would put on the admissions’ is unreasonable,” the court said. “Attorney Baker simply cannot escape the fact that he was challenging the sufficiency of the complaint despite the admissions made in the pre-trial statement,”

Not excessive 
The BAP concluded that several factors in the case “weigh in favor of a sanction that is not just a slap on the wrist but carries instead some lasting sting.”

First, “this is not the first time Attorney Baker has been sanctioned for violating Bankruptcy Rule 9011 in connection with this bankruptcy case,” the panel emphasized, pointing out that the U.S. Bankruptcy Court previously imposed sanctions of $1,585.70 against Baker in the debtor’s main case for filing a motion for sanctions that was wholly without merit.

“Additionally, Attorney Baker’s disregard for the binding nature of stipulated facts forced the bankruptcy court to expend considerable resources needlessly on an otherwise stipulated case,” the panel concluded.