The Ninth Circuit recently upheld a motion for sanctions against an attorney and his law firm for improperly removing a case. This raises the question of whether there is a trend of courts developing less tolerance for aggressive litigation tactics or whether this was an isolated incident where the facts justified the application of sanctions at any period of time.
In In re Fisher Financial & Investment LLC, 2011 WL 1898225 (9th Cir. 2011), the Ninth Circuit upheld the imposition of $15,500 in sanctions against a Debtor’s attorney personally and against his law firm.
Two months after the Debtor filed its petition under Chapter 7 the Debtor filed a notice of removal of a California state court action. At the time of the removal, a motion for sanctions against the Debtors and its principals was pending in the state court action to be heard six days after the removal was filed, several other motions were to be heard a month later with the trial scheduled three months later. After the removal was filed all of the hearings were removed from the state court calendar.
The Bankruptcy Court set a hearing for remand and counsel for the adversary sent a letter pursuant to Rule 9011 stating the removal was improper. The Bankruptcy Court remanded the case because the state court proceedings could not possibly affect the estate as the Debtor had represented it had no assets to distribute. After the case was remanded, the Bankruptcy Court set a hearing on a motion for sanctions filed by the parties who had their case removed.
The Bankruptcy Court in finding sanctions were justified under Rule 9011 and the inherent powers of the Court, found the removal was orchestrated not by the Debtor, but by the non-debtors, and that counsel for the Debtor had failed to attach the proper state court papers to allow the Court to properly evaluate the removal.
The attorney and his firm appealed the Order on the motion for sanctions arguing the Court had abused its discretion and the Court had violated the attorney’s and the firm’s due process rights. The Ninth Circuit disposed of both these arguments finding that the due process rights were satisfied under the inherent authority of the Court because the Court had warned the attorney that the removal may be sanctionable at the Motion to Remand. The Ninth Circuit further found the Bankruptcy Court did not abuse its discretion in awarding sanctions as the bankruptcy findings that the removal was “outrageous,” “without any basis whatsoever,” and done “for a totally improper motive” were supported by the evidence.
In this case, there is little doubt that the Bankruptcy Court imposed sanctions on the attorney and his firm because the Court felt that it was being misled as to the motives for the removal. When it comes to misrepresentations and manipulative tactics, courts have consistently sanctioned attorneys. See In re Ligon, 50 B.R. 127 (M.D. Tenn. 1985); Lahiri v. Universal Music & Video Distrib., 606 F.3d 1216, 1221-22 (9th Cir. 2010).
In this case would the attorney have been sanctioned if the state court papers had been attached showing that there was a sanctions hearing in state court within six days? The Court does not specifically state that the failure to include such documents was the reason for the sanction, but it does note it as one of the elements of bad faith. The Court is clear that the removal was an abuse of process.
A Westlaw search of bankruptcy related cases for the word “sanctions” appearing in the same paragraph as the words “misleading” or “aggressive” reveals more cases in the eighteen months since the beginning of 2010 as appear entirely before January 1, 1990. There is a steady increase in cases in each five year block from 1990 to 2005, with a noticeable increase since 2005.
While this increase may be due more in part to the ability and accessibility to electronically published cases, as well as a drastically increased case load, than to a change in attitude among judges, both judges and the attorneys that practice in front of them have more knowledge of what is considered unacceptable and worthy of sanctions. The availability of this information may very well lead to conduct that was unacceptable a few years ago now becoming sanctionable. Additionally, as the bankruptcy courts handle increased dockets there may be less patience for abuses of process.