In re Linda J. Lane ( 2019 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 19b0008p.06
BANKRUPTCY APPELLATE PANEL
OF THE SIXTH CIRCUIT
IN RE: LINDA J. LANE, ┐
Debtor. │
___________________________________________ │
│
SARAH DEAN; KEVIN DEAN, > Nos. 18-8038/8040
│
Appellants, │
│
v. │
│
│
LINDA J. LANE,
│
Appellee. │
┘
Appeal from the United States Bankruptcy Court
for the Western District of Kentucky at Louisville.
No. 3:17-bk-32237—Joan A. Lloyd, Judge.
Decided and Filed: August 30, 2019
Before: BUCHANAN, DALES, and WISE, Bankruptcy Appellate Panel Judges.
_________________
COUNSEL
ON BRIEF: Neil C. Bordy, SEILLER WATERMAN, LLC, Louisville, Kentucky, for
Appellee. Kevin Dean, Sarah Dean, Mount Washington, Kentucky, pro se.
_________________
OPINION
_________________
SCOTT W. DALES, Bankruptcy Appellate Panel Judge. The appellants in this case,
Sarah and Kevin Dean (the “Deans” or the “Appellants”), by two separate appeals challenge the
orders of the Bankruptcy Court for the Western District of Kentucky (“Bankruptcy Court”)
finding them in contempt and issuing sanctions, as well as orders denying motions for
Nos. 18-8038/8040 In re Lane Page 2
reconsideration. The current appeal is just the latest in a series of appeals emanating from the
chapter 13 bankruptcy case of Linda J. Lane (the “Debtor” or “Appellee”), which has turned out
to be an especially vexing proceeding for the parties and the courts.
STATEMENT OF ISSUES
In their Appellants’ Designations of Record and Statements of Issues to be Presented on
Appeal, the Deans list numerous issues on appeal. Many of the issues they did not address in
their briefing; other issues are not fully developed on appeal or are unrelated to the orders that
are currently before the Panel. As to these unbriefed or underdeveloped issues, the Panel will not
address them because “[i]t is well-established that issues adverted to in a perfunctory manner,
unaccompanied by some effort at developed argumentation, are deemed waived.” Church Joint
Venture, L.P. v. Bedwell (In re Blasingame), 598 B.R. 864, 874 (B.A.P. 6th Cir. 2019) (quoting
Dillery v. City of Sandusky, 398 F.3d 562, 569 (6th Cir. 2005) (internal quotation marks and
citations omitted)). In each appeal, the Panel has fully considered the salient issue, that is,
whether the Bankruptcy Court erred in imposing sanctions against the Deans.
JURISDICTION AND STANDARD OF REVIEW
The Bankruptcy Appellate Panel of the Sixth Circuit (“BAP” or the “Panel”) has
jurisdiction to decide this appeal. The United States District Court for the Western District of
Kentucky has authorized appeals to the Panel, and the parties did not elect to have this appeal
heard by the district court. 28 U.S.C. §§ 158(b)(6), (c)(1). A final order of the bankruptcy court
may be appealed as of right pursuant to 28 U.S.C. § 158(a)(1). The Bankruptcy Court’s order
imposing sanctions is a final, appealable order. See In re Martin, 474 B.R. 789 (table), 2012 WL
907090, at *1 (B.A.P. 6th Cir. Mar. 7, 2012); see also B-Line, LLC v. Wingerter (In re
Wingerter), 594 F.3d 931, 936 (6th Cir. 2010). “An order imposing [Federal] Rule [of
Bankruptcy Procedure] 9011 sanctions is only final upon assessment of fees and expenses.”
Hoover v. Jones (In re Jones), 546 B.R. 12, 15 (B.A.P. 6th Cir. 2016). The Bankruptcy Court’s
order denying the Appellants’ motions for reconsideration is also a final, appealable order.
Hamerly v. Fifth Third Mortg. Co. (In re J & M Salupo Dev. Co.), 388 B.R. 795, 800 (B.A.P. 6th
Cir. 2008).
Nos. 18-8038/8040 In re Lane Page 3
The Panel reviews a bankruptcy court’s imposition of sanctions for abuse of discretion.
Wingerter, 594 F.3d at 936. Likewise, “[t]he denial of a motion for reconsideration is reviewed
for abuse of discretion.” In re Burrage, 464 B.R. 61(table), 2011 WL 6155716, at *1 (B.A.P. 6th
Cir. Nov. 18, 2011). The Panel will find an abuse of discretion when, after careful review, it has
a “definite and firm conviction that the [court below] committed a clear error of judgment.”
Mayor and City Council of Baltimore, Md. v. W. Va. (In re Eagle–Picher Indus., Inc.), 285 F.3d
522, 529 (6th Cir. 2002) (internal quotation marks and citation omitted).
The Panel has elaborated on this standard of review in the sanctions context as follows:
Sanctions based upon an erroneous view of the law or an erroneous assessment of
the evidence are necessarily an abuse of discretion. Cooter & Gell v. Hartmarx
Corp., 496 U.S. 384, 405, 110 S. Ct. 2447, 2461, 110 L. Ed. 2d 359 (1990); Salkil
v. Mount Sterling Tp. Police Dept., 458 F.3d 520, 527–28 (6th Cir. 2006). See
also Parrott v. Corley, 266 F. App’x. 412, 415 n.1 (6th Cir. 2008) (arguments
concerning an error in statutory interpretation or due process related to sanctions
are reviewed de novo).
Montedonico v. Blasingame (In re Blasingame), 559 B.R. 676, 679 (B.A.P. 6th Cir. 2016), aff’d,
709 F. App’x 363 (6th Cir. 2018) (quoting In re Royal Manor Mgmt., Inc., 525 B.R. 338, 346
(B.A.P. 6th Cir. 2015), aff'd sub nom. Grossman v. Wehrle (In re Royal Manor Mgmt., Inc.), 652
F. App’x 330 (6th Cir. 2016)). Nevertheless, “[t]he abuse of discretion must be more than
harmless error to provide cause for reversal. Tompkin v. Philip Morris USA, Inc., 362 F.3d 882,
897 (6th Cir. 2004) (citations omitted).” Id. at 679.
With this recent guidance in mind, the Panel turns to the merits of the current appeals.
FACTS
In June 2014, the Debtor sold her home to the Deans. After the closing, the Deans
discovered mold in the basement. The parties agreed to arbitration, and ultimately the arbitrator
awarded the Deans $28,172.99, plus attorney fees of $98,722.58. The Bullitt County Circuit
Court confirmed the arbitration award and entered a judgment against the Debtor for
$126,895.57. The Deans then filed a judgment lien against the Debtor’s current residence.
Nos. 18-8038/8040 In re Lane Page 4
On July 14, 2017, the Debtor filed a chapter 13 bankruptcy petition in the Western
District of Kentucky. She listed the Deans on Schedule D of her petition as secured creditors and
the Deans filed Proof of Claim No. 2.
The Deans, through counsel, initially objected to the Debtor’s proposed chapter 13 plan.
At the hearing on the objection, however, the parties agreed that the only unresolved issue was
the interest rate on the Deans’ claim. Following the hearing, the Bankruptcy Court issued an
order setting the rate at 4.25%. The Bankruptcy Court confirmed the Debtor’s chapter 13 plan
(the “Plan”), and the Debtor is paying the Deans’ claim in full, with interest, over the term of the
Plan.
On October 13, 2017, the Deans filed a complaint against the Debtor, commencing
Adversary Proceeding No. 17-03062. In that adversary proceeding, the Deans claimed damages
of $300,000 for Sarah Dean’s respiratory problems allegedly attributable to mold contamination.
The Deans requested a finding that the damages be declared non-dischargeable. The Bankruptcy
Court later dismissed the Adversary Proceeding, and the Deans did not appeal from the dismissal
order.
Meanwhile, on November 2, 2017, shortly after the entry of the order confirming the
Debtor’s Plan, the Deans filed a motion to dismiss the Debtor’s bankruptcy case. The Debtor
objected, and on February 5, 2018, the Bankruptcy Court entered a Memorandum Opinion
denying the motion to dismiss. The Deans timely filed a notice of appeal from that order, but the
BAP dismissed that appeal for lack of jurisdiction, concluding that the order declining to dismiss
the Debtor’s bankruptcy case was not a final order. Dean v. Lane (In re Lane), 598 B.R. 595
(B.A.P. 6th Cir. 2019) (“BAP Case 18-8005”).
On March 2, 2018, while the appeal in BAP Case 18-8005 was still pending, the Debtor
sent the Deans a letter offering a proposed payout of her claim (“Settlement Letter”). The
Settlement Letter explained that it was not admissible as evidence pursuant to Federal Rule of
Evidence 408 (“Rule 408”). Nonetheless, the Deans immediately filed the Settlement Letter on
the docket, unaccompanied by any other pleading or explanation of the purpose of the filing.
Nos. 18-8038/8040 In re Lane Page 5
The Deans then designated the Settlement Letter as part of the record on appeal in BAP Case 18-
8005, which was still pending.
On April 13, 2018, the Debtor filed a motion for sanctions against the Deans, her first
such motion (Mot. for Sanctions, Case No. 17-32237 ECF No. 62 (the “First Sanctions
Motion”)).1 The First Sanctions Motion asserted the Deans had violated Federal Rule of
Bankruptcy Procedure 9011 (“Rule 9011”) and Rule 408 by filing the Settlement Letter. On
May 3, 2018, the Debtor also filed a motion to strike the Settlement Letter (the “Motion to
Strike,” ECF No. 74). The Deans filed a combined objection to both the First Sanctions Motion
and Motion to Strike on May 14, 2018.
On August 3, 2018, the Bankruptcy Court entered an opinion and order granting the
Debtor’s motions. (ECF No. 97 (the “First Sanctions Opinion”).) The Bankruptcy Court
ordered the Settlement Letter stricken from the record, sanctioned the Deans $5,000 (payable to
the Bankruptcy Court), and awarded the Debtor attorney fees as part of the sanction. The Deans
filed a motion to alter or amend, which the Bankruptcy Court denied, then filed a timely notice
of appeal and an amended notice of appeal seeking review of the orders. The Panel docketed the
appeal as BAP Case 18-8038.
While the controversy surrounding their filing of the Settlement Letter was simmering,
the Deans filed another complaint against the Debtor, commencing Adversary Proceeding No.
18-03022, through which they sought revocation of the order confirming the Plan pursuant to
11 U.S.C. § 1330(a). On May 14, 2018, the Debtor moved to dismiss the complaint in the
second adversary proceeding for failure to state a claim, arguing that it raised substantially the
same issues that the confirmation order resolved or foreclosed by operation of law. Three days
later, on May 17, 2018, the Debtor filed a second sanctions motion, asserting the Deans “have
made a habit of filing lengthy-meritless pleadings as a means to harass [the Debtor] and have
needlessly increased the cost of this proceeding.” (Mot. for Sanctions at 3, ECF No. 81 (the
“Second Sanctions Motion”).) On August 22, 2018, the Bankruptcy Court entered a
memorandum opinion and order granting the Debtor’s motion to dismiss the second adversary
1All subsequent references to “ECF No. ___” are to the CM/ECF record in Bankruptcy Case No. 17-32237
unless otherwise specified.
Nos. 18-8038/8040 In re Lane Page 6
proceeding with prejudice. The Bankruptcy Court found the issues raised in the second
adversary complaint repeated the Deans’ previous objections to the Debtor’s chapter 13 Plan and
therefore failed to state a claim upon which relief could be granted.2
On September 4, 2018, the Bankruptcy Court entered a memorandum opinion on the
Second Sanctions Motion but did not set the amount of sanctions. (ECF No. 110 (the “Second
Sanctions Opinion”).) On September 14, 2018, the Deans filed a motion for reconsideration of
the second set of sanctions. The Bankruptcy Court denied the reconsideration motion on
September 18, 2018. Nine days later, the Bankruptcy Court entered an order requiring the Deans
to pay the Debtor $2,641 in attorney’s fees for their filing of the frivolous adversary proceeding.
The Deans timely filed a notice of appeal from this second sanctions order on October 9, 2018.
The Panel docketed the appeal as BAP Case 18-8040.
DISCUSSION
I. BAP Case No. 18-8038
Finding that the Deans filed the Settlement Letter for an improper purpose, the
Bankruptcy Court granted the Debtor’s First Sanctions Motion pursuant to Rule 9011. Federal
Rule of Civil Procedure 11, made applicable to bankruptcy proceedings by Rule 9011, provides,
in part:
(b) Representations to the Court. By presenting to the court (whether by signing,
filing, submitting, or later advocating) a petition, pleading, written motion, or
other paper, an attorney or unrepresented party is certifying that to the best of the
person's knowledge, information, and belief, formed after an inquiry reasonable
under the circumstances,--
(1) it is not being presented for any improper purpose, such as to harass or
to cause unnecessary delay or needless increase in the cost of litigation[.]
Fed. R. Bankr. P. 9011. In this appeal, the Deans argue both that the First Sanctions Motion does
not comply with the procedural requirements of Rule 9011 and that, on the merits, sanctions
were not warranted.
2OnSeptember 4, 2018, the Deans filed a Motion to Reinstate the Adversary Proceeding and Vacate the
Order Dismissing it. The Bankruptcy Court entered an Order denying the motion on October 15, 2018. The Deans
did not appeal either the order dismissing the adversary proceeding or the order refusing to vacate the dismissal.
Nos. 18-8038/8040 In re Lane Page 7
A. Procedural Arguments
1. Safe Harbor Provision
Rule 9011 provides a “safe harbor” in that a motion for sanctions “may not be filed with
or presented to the court unless, within 21 days after service of the motion [in accordance with
Federal Rule of Bankruptcy Procedure 7004], the challenged paper, claim, defense, contention,
allegation, or denial is not withdrawn or appropriately corrected . . . .” Fed. R. Civ. P.
9011(c)(1)(A). The Deans assert that the Debtor did not comply with Rule 9011’s “safe harbor”
requirement due to improper service. The Bankruptcy Court rejected this assertion, as does the
Panel. The Debtor submitted a proof of service showing that she mailed to the Deans the safe
harbor letter accompanied by the as-yet-unfiled First Sanctions Motion via certified mail with a
return receipt requested. The postal receipt that the Debtor subsequently received shows delivery
of the package to the Deans’ address on March 22, 2018. While the Deans claim they did not
sign for the package, they admit receipt of it, claiming to have found it on their porch.
Under Fed. R. Bankr. P. 7004(b), service of process may be obtained by first class
mail. Service of process is complete upon mailing. Fed. R. Bankr. P. 9006(e).
There is a presumption that an addressee receives a properly mailed item when
the sender presents proof that the item was properly addressed, stamped, and sent
through the United States mail. See Hagner v. United States, 285 U.S. 427, 430,
52 S. Ct. 417, 76 L. Ed. 861 (1932); Bratton v. Yoder Co., (In re Yoder), 758 F.2d
1114, 1118 (6th Cir. 1985).
In re Chess, 268 B.R. 150, 156 (Bankr. W.D. Tenn. 2001).
In the present case, the Debtor provided a proof of service showing that the unfiled First
Sanctions Motion, accompanied by a safe harbor letter, was properly addressed, stamped and
mailed. The Deans admitted to receipt of the package. The Bankruptcy Court did not err in
determining that the Debtor had complied with Rule 9011’s safe harbor provision by mailing the
First Sanctions Motion to the Deans before filing it.
2. Separate Motion Requirement
Rule 9011 requires a “separate motion” so that “a request for sanctions [is not] buried at
the end of a motion for summary judgment or a motion to dismiss, but rather [is] highlighted as a
Nos. 18-8038/8040 In re Lane Page 8
separate event.” Walton v. Roberts (In re Kiamsha Cmty. Dev. Corp. Inc.), No. 10-72520-WLH,
2010 WL 4881524, at *3 (Bankr. N.D. Ga. Sept. 9, 2010), citing Ridder v. City of Springfield,
109 F.3d 288, 294 n. 7 (6th Cir. 1997). The Deans assert the Debtor violated the “separate
motion” requirement by requesting the Settlement Letter be stricken from the docket in the
prayer for relief in her First Sanctions Motion. Again, the Deans’ argument fails.
This provision is intended as a shield not a sword. The Debtor’s request for sanctions is
not buried in some other type of motion. She filed a motion for sanctions, properly titled as
such, which requested sanctions for the Deans’ improper conduct regarding the Settlement
Letter. Additionally, the Debtor separately filed the Motion to Strike. The Panel finds that both
motions were procedurally proper, and the Bankruptcy Court did not err in considering them.
3. Signature Requirement
The Deans assert they cannot be punished under Rule 9011 for filing the Settlement
Letter on the docket because they did not sign the letter. They point to Rule 9011(a) which
requires, in part, that every document “shall be signed by at least one attorney of record or party
personally if unrepresented.” Fed. R. Bankr. P. 9011(a). The Deans’ argument, again,
misinterprets the rule.
Under Rule 9011(b), by filing the Settlement Letter in the record, the Deans certified it
was not filed for an improper purpose. “Rule 9011(b) broadly defines the manner by which a
party may present “a petition, pleading, written motion, or other paper” to the court to include
“signing, filing, submitting, or later advocating.” In re Blasingame, 559 B.R. at 685. Rule
9011(b) does not require a party to have signed a document to be sanctioned if the filing
otherwise violates the rule. Behavior that is sanctionable under Rule 9011(b) includes filing or
submitting a pleading or other paper for an improper purpose, such as to harass or to cause
unnecessary delay or needlessly increase in the cost of litigation.
The Deans cite In re Ruben, 825 F.2d 977, 981 (6th Cir. 1987), for the proposition that
they cannot be sanctioned under Rule 9011 because they did not sign the Settlement Letter, but
their argument is not persuasive. In Ruben, the Sixth Circuit reversed Rule 9011 sanctions
imposed against an attorney when the trial court failed to delineate the legal grounds for the
Nos. 18-8038/8040 In re Lane Page 9
sanctions, the attorney only appeared in the matter as “additional counsel” and the attorney was
not the one who signed the pleadings filed. 825 F.2d at 980-81, 984. Accordingly, Ruben is
distinguishable on the facts and does not stand for the rule of law the Deans advocate. The
Deans may not have signed the Settlement Letter, but they alone were responsible for filing it on
the docket and making it part of the record. Accordingly, they may be sanctioned for filing it,
even without a signature.
4. Failure to Issue an Order to Show Cause
In their Reply Brief, the Deans raise an argument not listed in their issues on appeal, and
not addressed by the Debtor in her brief. The Deans assert the Bankruptcy Court was required to
issue an order to show cause to provide them with notice and an opportunity to be heard prior to
issuing the $5,000 sanction. The Deans cite Rule 9011(c)(1)(B) and use the phrase “sua sponte”
in their brief, but they evidently misapprehend its meaning. (Appellants’ Reply Br. at 11, BAP
Case 18-8038 ECF No. 15.) But, the Bankruptcy Court did not raise a Rule 9011 violation on its
own initiative as that Rule contemplates. Rather, the sanctions were imposed after the Debtor
filed the First Sanctions Motion and the Bankruptcy Court held a hearing. Rule 9011(c) is
simply not applicable.
B. Arguments on the Merits
1. Motion to Strike
The Deans assert “[i]t was an abuse of discretion to Strike the [Settlement Letter] because
the Debtor showed no prejudice or substantial right affected by its presence, and the Deans’ [sic]
were prejudiced by the Bankruptcy Court striking it to cover up the Debtor and Neil Bordy’s
improper, ill intended actions.” (Appellants’ Br. at 10, BAP Case 18-8038 ECF No. 13.) The
Deans also assert the length of time the Settlement Letter remained on the docket after it was
filed, five months, indicates the Bankruptcy Court’s order striking the document was in
retaliation for the Deans’ objection to the interim fee application filed by Debtor’s counsel.
(Appellants’ Br. at 11.) Neither of these arguments is developed or supported and therefore the
Panel will not address them.
Nos. 18-8038/8040 In re Lane Page 10
2. Improper Use of Estate Property
In their Reply Brief, the Deans argue the offer reflected in the Settlement Letter
improperly uses property of the bankruptcy estate, and the Debtor “intentionally fail[ed] to
inform and involve the United States Trustee” and such was “further proof of their ongoing
deceptive acts.” (Appellants’ Reply Br. at 8.) The Deans did not raise this argument in their
response to the First Sanctions Motion, nor did they raise it during the hearings, nor in their
motions for reconsideration. “It is well-settled that this court will not consider arguments raised
for the first time on appeal unless our failure to consider the issue will result in a plain
miscarriage of justice.” U.S. Bank N.A. v. Barbee (In re Barbee), 461 B.R. 711, 718 (B.A.P. 6th
Cir. 2011) (quoting Bailey v. Floyd Cnty. Bd. of Educ., 106 F.3d 135, 143 (6th Cir. 1997)).3
The Panel perceives no miscarriage of justice, plain or otherwise.
3. Sanctions Warranted
In granting the First Sanctions Motion, the Bankruptcy Court determined the Deans had
not “presented evidence of or otherwise persuaded the Court of any permissible use of this
letter.” (First Sanctions Opinion at 4.) Moreover, the Bankruptcy Court concluded that “filing
the letter was to foster all of the prohibited uses listed in Rule 408.” (Id. (emphasis in original).)
The Bankruptcy Court noted that the Deans had filed the Settlement Letter on the docket, then
immediately added it to their designation of record on appeal. The Bankruptcy Court then held
“[t]he Deans’ actions with respect to their filing of the [Settlement Letter] are impermissible,
serve no evidentiary value and amount to frivolous litigation tactics. These actions constitute the
latest in a series of harassing, baseless and inflammatory litigation tactics by the Deans.” (Id. at
6.)
3In their brief, the Deans assert that the Bankruptcy Court granted the motion for sanctions without holding
an evidentiary hearing. This argument is never developed. The Deans requested an evidentiary hearing during the
hearing on May 21, 2018 on the Motion to Strike. The Bankruptcy Court held another hearing on June 27, 2018.
The Deans did not attempt to offer any evidence at either of these hearings.
Nos. 18-8038/8040 In re Lane Page 11
Rule 408 addresses the use of Compromise Offers and Negotiations. It provides, in part:
(a) Prohibited Uses. Evidence of the following is not admissible--on
behalf of any party--either to prove or disprove the validity or amount of a
disputed claim or to impeach by a prior inconsistent statement or a contradiction:
(1) furnishing, promising, or offering--or accepting, promising to accept,
or offering to accept--a valuable consideration in compromising or attempting to
compromise the claim; and
(2) conduct or a statement made during compromise negotiations about the
claim--except when offered in a criminal case and when the negotiations related
to a claim by a public office in the exercise of its regulatory, investigative, or
enforcement authority.
Fed. R. Evid. 408.
The Deans filed the Settlement Letter on the docket in the bankruptcy case without any
explanation. It was not filed as an attachment to a motion, objection, or other request for relief,
nor was it offered as evidence for a hearing. Still, the Deans argue they had a legitimate purpose
in filing it on the docket. They argue the Settlement Letter is admissible to show the Debtor
acknowledges a personal injury claim. The Bankruptcy Court rejected this argument, holding:
“Any personal injury claim the Deans may have, however, is not part of this chapter 13
proceeding.” (First Sanctions Opinion at 5 (emphasis in original).)
The Deans’ own statements regarding their intended use defeat their argument. Rule 408
clearly states a compromise offer cannot be used to prove or disprove the validity of a disputed
claim or to contradict a prior statement. Accordingly, the Settlement Letter cannot be offered to
show that the Debtor acknowledges a personal injury claim outside the chapter 13 proceeding.
On appeal, the Deans argue their intended use of the Settlement Letter falls within the
exceptions stated in Rule 408. This argument also fails. The rule provides:
(b) Exceptions. The court may admit this evidence for another purpose,
such as proving a witness's bias or prejudice, negating a contention of undue
delay, or proving an effort to obstruct a criminal investigation or prosecution.
Fed. R. Evid. 408. The Deans have not shown any of the exceptions articulated by Rule 408, nor
have they presented any authority showing any other exception that would apply.
Nos. 18-8038/8040 In re Lane Page 12
Because the Deans filed the Settlement Letter on the docket without any context, the
Bankruptcy Court had to ascertain their motivation from their actions. The Bankruptcy Court
noted that immediately following the filing, the Deans designated the Settlement Letter as part of
the record on appeal. Accordingly, the Bankruptcy Court found the Deans’ intention was to use
the Settlement Letter to support their arguments on appeal that the chapter 13 bankruptcy case
should be dismissed due to fraud, in part based on the Debtor’s failure to address the Deans’
other claims. As Rule 408 prohibits this use, the Bankruptcy Court did not abuse its discretion in
holding the filing of the Settlement Letter on the docket did not have a proper purpose.
Incorrectly citing the standard governing motions to dismiss under Federal Rule of Civil
Procedure 12(b)(6), the Deans assert “the Bankruptcy Court abused its discretion in finding the
Deans’ conduct was not reasonable under the circumstances, in failing to analyze,
nor stating with any specificity the Deans’ supposed misconduct.” (Appellants’ Br. at 17.)
As demonstrated above, the Bankruptcy Court did state the misconduct with specificity, finding
that the Deans filed the Settlement Letter without a proper purpose.4 Moreover, the filing was
the latest in a pattern of harassment from the Deans toward the Debtor.5 The Bankruptcy Court
did not abuse its discretion in imposing sanctions in response to the harassment.
4. Ability to Pay
Rule 9011 mandates that sanctions be limited to the amount required to deter future
conduct.
After a bankruptcy court determines that Rule 9011 has been violated by a
party, it has wide discretion in selecting the appropriate sanction. Jackson v. The
Law Firm of O'Hara, Ruberg, Osborne, & Taylor, 875 F.2d 1224, 1229 (6th Cir.
4This section of the Deans’ brief alternates between the August 3, 2018 and September 4, 2018 sanctions
orders and does not clearly convey how the arguments pertain to either order. To the extent that the Deans cite Rule
12(b)(6) and Bell Atlantic Corp v. Twombly, 550 U.S. 544, 127 S. Ct. 1955 (2007) in relation to BAP Case No. 18-
8040, where their adversary proceeding was dismissed for failure to state a claim, that issue is not before the Panel
because the Deans did not timely file an appeal from the order dismissing the adversary proceeding.
5This opinion should be read narrowly. In holding that the Bankruptcy Court did not abuse its discretion in
determining that the Deans docketed the Settlement Letter for an improper purpose, this Panel does not find a
private right of action for violations of Rule 408, but instead relies on Rule 9011. The Panel holds only that the
Bankruptcy Court did not err in its determination that the filing of this document on the docket in this case did not
have a proper purpose and was intended to harass the Debtor or create undue delay or frivolous litigation.
Nos. 18-8038/8040 In re Lane Page 13
1989). The two goals of the rule are deterrence and compensation, with
deterrence being the primary goal. Orlett v. Cincinnati Microwave, Inc., 954 F.2d
414, 419 (6th Cir. 1992). As such, the “court should impose the least severe
sanction that is likely to deter.” Jackson, 875 F.2d at 1229; Orlett, 954 F.2d at
419; see also [Heavrin v. Schilling (In re Triple S Restaurants, Inc.), 342 B.R.
508, 513 (Bankr. W.D. Ky. 2006] (sanction imposed is limited to “what is
sufficient to deter repetition of such conduct or comparable conduct by others
similarly situated.”). One type of sanction which may be imposed is “reasonable
attorney fees.” Orlett, 954 F.2d at 419. Reasonable attorney fees do not
necessarily mean actual legal expenses incurred. In determining the amount of
attorney fees to impose as a sanction, the court must consider the party’s ability to
pay. Jackson, 875 F.2d at 1230.
Byrd v. Arvest Bank (In re Lamar Crossing Apartments, L.P.), 464 B.R. 61 (table), 2011 WL
6155714, at *8 (B.A.P. 6th Cir. Sept. 20, 2011). The BAP has explained “[w]hile failure of the
court to inquire into a sanctioned party’s ability to pay is an abuse of discretion, . . . ‘the burden
of proof is on the sanctioned party to provide evidence of financial status.’ ” Id. *10 (quoting
Legair v. Circuit City Stores, Inc., 213 F. App’x 436, 440 (6th Cir. 2007)). Accordingly, “[a]n
unsupported claim regarding financial status is clearly insufficient [and] [e]ven in the case of a
proven total inability to pay, a court may still impose modest sanctions, because the purpose is to
deter future misconduct in litigation.” Id. (internal citations omitted); see also White v. General
Motors Corp., Inc., 908 F.2d 675, 685 (10th Cir.1990) (“We also hold that even if plaintiffs
prove that they are totally impecunious the court may impose modest sanctions to deter future
baseless filings.”).
In the First Sanctions Opinion, the Bankruptcy Court acknowledged the duty to limit
sanctions “to what is sufficient to deter the repetition of such conduct[.]” (First Sanctions
Opinion at 6.) The Bankruptcy Court also noted “the Deans refused to cash any of the
disbursement checks sent to them by the chapter 13 Trustee as payment on their claim from the
Debtor.” (Id. at 5-6.) In imposing the $5,000 sanction for filing the Settlement Letter on the
docket, the Bankruptcy Court stated that it was imposing an amount sufficient to deter the
Deans’ conduct. The Bankruptcy Court also indicated the cumulative nature of the abuse of
process was a factor in determining the amount.
The Panel finds that the Bankruptcy Court properly considered the financial information
presented regarding the Deans’ ability to pay and limited the sanctions awarded to an amount
Nos. 18-8038/8040 In re Lane Page 14
designed to deter future harassing litigious behavior. While the Deans claimed that they could
not afford an attorney because they did not have the financial resources, their refusal to cash
disbursement checks undermined their argument, as the Bankruptcy Court observed.
For the reasons stated, the Panel finds that the Bankruptcy Court did not abuse its
discretion by imposing sanctions against the Deans for filing the Settlement Letter on the docket.
The Bankruptcy Court’s orders appealed in BAP Case No. 18-8038 are AFFIRMED.
II. BAP Case No. 18-8040
In the second appeal, the Deans argue the Bankruptcy Court erred in granting the Second
Sanctions Motion for filing a frivolous adversary proceeding. Again, the Deans make both
procedural and substantive arguments.
A. Procedural Arguments
1. Timing of the Motion for Reconsideration
The Deans assert the Bankruptcy Court granted the Second Sanctions Motion before
ruling on the Deans’ pending motion to vacate or reconsider the order dismissing the Deans’
complaint under 11 U.S.C. § 1330 to revoke the confirmation order. (Appellants’ Br. at 20.)
They argue “[b]ased on the entry of its Order, it is an undeniable fact that the Bankruptcy Court
had already pre-determined that it was not going to even consider vacating or reconsidering the
[dismissal] Order[.]” (Id. at 20-21 (emphasis in brief).) The Deans’ argument is factually
incorrect. The time stamp on the second order granting sanctions is 3:18 pm on September 4,
2018. The time stamp on the motion to vacate or reconsider the order dismissing the adversary
proceeding is 4:14 pm that same afternoon. Accordingly, the motion to vacate or reconsider was
not pending when the Bankruptcy Court entered the Second Sanctions Order and this argument
lacks merit.
2. Lack of Objections
The Deans assert “no other creditors, nor did the Trustee(s), object to the Bankruptcy
Court Vacating or Reconsidering any of the Orders. Neil Bordy did not even file an Objection to
the Deans’ September 14, 2018, Motion to Vacate or Reconsider second Order for Sanctions on
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the Dismissal of the Deans’ fraud Complaint.” (Appellants’ Br. at 25.) The Deans’ argument
that a bankruptcy court must grant a motion to vacate if no one objects is plainly wrong.
A court may reconsider a previous judgment: (1) to accommodate an intervening
change in controlling law; (2) to account for newly discovered evidence; (3) to
correct a clear error of law; or (4) to prevent manifest injustice. See GenCorp,
Inc. v. American Int’l Underwriters, 178 F.3d 804, 834 (6th Cir. 1999).
“A motion under Rule 59(e) is not intended to provide the parties an opportunity
to relitigate previously-decided matters or present the case under new theories.
Rather, such motions are intended to allow for the correction of manifest errors of
fact or law, or for the presentation of newly-discovered evidence.” In re Nosker,
267 B.R. 555, 564 (Bankr. S.D. Ohio 2001). “The burden of demonstrating the
existence of a manifest error of fact or law rests with the party seeking
reconsideration.” Id. at 565.
In re J & M Salupo Dev. Co., 388 B.R. 795, 800–01 (B.A.P. 6th Cir. 2008). Moreover, “[t]he
granting of a Rule 59(e) motion is an extraordinary remedy and should be used sparingly.” Id.
(quoting Pequeno v. Schmidt (In re Pequeno), 240 F. App’x. 634, 636 (5th Cir. 2007) (internal
citations and footnotes omitted)).
The Deans did not carry their burden of demonstrating the existence of a manifest error
of fact or law in the Bankruptcy Court. They did not present an intervening change in law or any
newly discovered evidence. Rather, at its root, their argument was that sanctions were not
warranted because all their behavior was justified. In making that assertion to the Bankruptcy
Court, which they now reiterate to this Panel, the Deans repeated the same arguments they have
presented at every stage of this litigation.
The Panel finds that the Bankruptcy Court did not abuse its discretion by considering the
motion to vacate in the absence of an objection or in holding there were no grounds to vacate its
orders.
B. Substantive Arguments
1. Ability to Pay
In the Second Sanctions Opinion, the Bankruptcy Court noted that the “Court previously
sanctioned the Deans in an amount it believed would deter this type of conduct.” (Second
Sanctions Opinion at 7.) The Bankruptcy Court held that “the filing of the second adversary
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proceeding based on issues that had already been fully litigated, appealed or otherwise waived,
amounted to frivolous and/or vexatious litigation tactics on the part of the Deans that could only
have an improper purpose and amounted to an abuse of the bankruptcy process.” (Id.) Then, in
the subsequent order setting the amount of sanctions, the Bankruptcy Court limited the amount
of attorney fees that it awarded to only those incurred with the prosecution and filing of the
motion for sanctions related to the dismissal of the second adversary proceeding, reducing the
amount from the $7,075.50 requested to $2,641.
In their motion for reconsideration of the Second Sanctions Opinion, the Deans asserted
the Bankruptcy Court erred when it failed to take into account the Deans’ ability to pay the
sanctions. The Deans, however, did not file any proof of their financial status with that motion
or in response to the Second Sanctions Motion. In the Bankruptcy Court, the Deans only offered
anecdotal comments regarding their inability to afford a lawyer, not evidence, to support their
contention that they could not afford to pay sanctions. (See June 27, 2018 Hr’g Tr. 15:10-20
(ECF No. 120).) Moreover, their failure to cash the chapter 13 trustee’s dividend disbursement
checks undermined any assertion that the Deans were unable to pay. Finally, it is telling that the
sanctions have apparently not deterred the Deans from continuing to file frivolous documents,
adversary proceedings, and appeals, suggesting, perhaps, that the award was too low.
Accordingly, the Panel finds that the Deans’ inability to pay argument was without merit. The
Bankruptcy Court was not obligated to provide an in-depth analysis of the Deans’ ability to pay
when they had not offered any substantial evidence of their financial hardship.6
2. Reduction of plan payments
The Deans assert that the Bankruptcy Court erred by allowing the Trustee to pay the
sanctions from estate funds and reduce the amount distributed to the Deans. The Bankruptcy
Court did not grant such a request. Specifically, the Bankruptcy Court denied the Debtor’s
6The Deans’ Statement of Issues on Appeal asserts the Bankruptcy Court abused its discretion because it
did not give the Deans’ a procedure for objecting to the Debtor’s attorney fees. This argument is not developed in
the Deans’ briefing; therefore, it is waived. The Panel, however, notes that after the Bankruptcy Court entered the
Second Sanctions Opinion, it gave the Debtor’s attorney fourteen days to file a billing statement, then waited
another nine days after it was submitted before entering the order setting the amount of sanctions. The Deans could
have filed a response to the billing statement or could have filed a motion for reconsideration regarding the amount.
They did neither.
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request to proceed in this manner, stating: “The Court declines this request due to the form in
which it is made. Debtor’s counsel may pursue funds held by the chapter 13 Trustee on behalf of
the Deans upon proper request under Bankruptcy Rule 7000, et seq.” (Second Sanctions Opinion
at 7.) Likewise, the Bankruptcy Court noted that “counsel for the Debtor may pursue a direct
claim for reimbursement against the Deans for such fees through appropriate means.” (Id.)
Therefore, this argument is not ripe for appeal and the Panel will not address it.
For the reasons stated, the Panel finds that the Bankruptcy Court did not err by imposing
sanctions against the Deans for filing a frivolous adversary proceeding. The Bankruptcy Court’s
orders appealed in BAP Case No. 18-8040 are AFFIRMED.
CONCLUSION
Sometimes the bankruptcy process can be confusing and counter-intuitive. Before
bankruptcy, creditors may seem to have all the cards but after bankruptcy, leverage shifts, and
the playing field changes, given important federal policies woven into the Bankruptcy Code.
The chapter 13 process can be especially bewildering to the untrained eye, unfamiliar with the
rules and without legal guidance. It is obvious the Deans do not understand the system. They do
not understand the effect of a confirmation order. They do not understand the purpose or
legitimacy of plan modification. As creditors whose claims will be paid in full through the
chapter 13 case, yet who have obstreperously objected throughout the case, they evidently do not
understand the purpose of chapter 13, which appears in this case to be working as Congress
intended (except for the multiplication of litigation at the behest of the Deans). And perhaps
most importantly, they do not understand that the Debtor’s lawful exercise of the privileges
accorded by a bankruptcy filing does not amount to fraud. Due to these misunderstandings, the
Deans have ignored the Bankruptcy Court’s admonitions to stop filing pleadings that
unnecessarily increase litigation expenses and harass the Debtor. By ignoring these warnings,
the Deans are only increasing expenses and delaying payment of their own claim. And now, due
to their own actions, they are decreasing their 100% dividend by the amount of sanctions the
Bankruptcy Court ordered them to pay. In other words, they are only hurting themselves. It is
their choice to continue down this same road by continuing to file objections, refusing to cash
their dividend checks, and increasing the Debtor’s litigation expenses, but in the end, the Deans
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may see the favorable terms of the Debtor’s chapter 13 plan reduced either by a decrease in the
Debtor’s resources or by an increase in their own liability to the Debtor or her bankruptcy estate.
Whether or not specifically addressed in this opinion, the Panel has considered all the
arguments raised in the Deans’ briefs and finds them without merit. For the reasons stated, the
Bankruptcy Court’s orders are AFFIRMED.