TCI Ltd., In re

• Citation: 769 F.2d 441
• Decision Date: 27 August 1985
• Docket Number: Nos. 84-2610,No. 1081800,84-2655 and 84-2656,1081800,s. 84-2610
• Parties: 13 Collier Bankr.Cas.2d 299, 2 Fed.R.Serv.3d 1373 In re TCI LIMITED, Debtor. Appeals of WILLIAM L. NEEDLER & ASSOCIATES, LTD., Marathon Oil Co. Chicago Title and Trust Company as Trustee under Trust, and Constantine Drugas.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 441

769 F.2d 441

13 Collier Bankr.Cas.2d 299, 2 Fed.R.Serv.3d 1373

In re TCI LIMITED, Debtor.

Appeals of WILLIAM L. NEEDLER & ASSOCIATES, LTD., Marathon

Oil Co. Chicago Title and Trust Company as Trustee

under Trust No. 1081800, and Constantine Drugas.

Nos. 84-2610, 84-2655 and 84-2656.

United States Court of Appeals,

Seventh Circuit.

Argued May 31, 1985.

Decided Aug. 1, 1985.

Rehearing Denied Aug. 27, 1985.

William L. Needler, Chicago, Ill., for plaintiff.

Sherwin J. Malkin and Robert C. Samko, Chicago, Ill., for defendant.

Before CUMMINGS, Chief Judge, EASTERBROOK, Circuit Judge, and PELL, Senior Circuit Judge.

EASTERBROOK, Circuit Judge.

Lawyers sometimes file first and think later. This may impose on the other party the costs of deciphering the pleading, running down the cases, informing the court, and putting things right. One of the premises of the legal system, however, is that each party should bear its own expenses and not fob them off on the otherside.

A court may order an attorney who "multiplies the proceedings ... unreasonably and vexatiously" to bear the adversary's costs and attorneys' fees personally, 28 U.S.C. Sec. 1927. William L. Needler & Associates, Ltd., filed unjustified pleadings in this bankruptcy suit. When its adversaries demonstrated that the pleadings were without substance, Needler's firm revised them slightly and filed them twice more. The district judge awarded costs and fees for the second and third filings.

I

TCI Ltd. ran a restaurant in a building it had leased from Marathon Oil Co. TCI borrowed money from a bank to refurbish the building, and the loan was secured by the lease and the fixtures and furnishings of the restaurant. Tassos and Georgene Chronopoulos guaranteed the loan. TCI fell behind in its rental, and Marathon obtained an order of eviction from a state court. Before the sheriff could put TCI out on the street, however, it filed a petition in bankruptcy, which automatically stayed the eviction and froze the relations among the parties.

Marathon and the bank sought relief from the automatic stay, and in September 1981 (more than a year after TCI stopped paying rent) bankruptcy judge Frederick J. Hertz signed a stipulation of TCI's trustee releasing Marathon and the bank from the stay. The order recites that "there is no valid stay" concerning "the security interests of" Marathon and the bank "as to their respective interests in the debtor's property." It also provides that the trustee "is authorized and directed to abandon any right, title, and interest in and to" the "real estate" that Marathon owned. The bank agreed, in turn, not to pursue the guarantees for 90 days. At one point Judge Hertz orally asked Marathon to sell the property within that 90 days. Counsel for Marathon declined, stating that Marathon had not decided what to do with the property. When a lawyer mentioned "best efforts" to sell, Marathon's attorney said: "I can't speak for what Marathon Oil wants to do with the property. I don't have the authority." The judge responded: "All right. Leave that off of it." The order entered in the case imposes no obligation on Marathon to sell the property or to exercise any care concerning it. The effect of the order is to terminate TCI's lease, leaving Marathon and the bank to work out any rights the bank may retain.

In July 1982 Marathon sold the land and building to Constantine Drugas for $150,000. (Chicago Title and Trust holds this property as trustee. We refer to Drugas as the sole owner to avoid multiplication of titles.) The sale apparently was subject to whatever rights the bank retained. Marathon kept the money. In September 1982 TCI stipulated that Marathon had a claim of $56,108.35 against TCI. Most of this apparently represents back rent.

Three weeks later Jeffrey P. White of William L. Needler & Associates, Ltd., the same attorney who had consented to Marathon's claim for $56,108, filed an adversary proceeding on behalf of TCI and the Chronopouloses against Marathon, Drugas, and the bank. The complaint alleges that Marathon and the bank "were to act in good faith and use their best efforts to get a satisfactory disposition of the property" yet had not done so. The complaint objected to their "failure ... to follow the order of this court by failing to sell the property in good faith and to give notice to all interested parties ... and also giving an opportunity to said parties to purchase." White also asserted in a second count that the fixtures of the restaurant were still the property of TCI. The complaint requested damages together with an order annulling the sale, extinguishing the bank's claims against the Chronopouloses on the guarantees, and requiring Marathon to account for its profits.

Marathon and Drugas filed motions to dismiss and motions for costs under 28 U.S.C. Sec. 1927. They observed that the order of September 1981 was unconditional and that Marathon, as the owner of the building and real estate, was free to do with the property what it pleased. After several continuances, Judge Hertz heard the motions. Marathon and Drugas orally represented that they had been trying without success to get TCI to take the restaurant's fixtures and any other property off their hands. The judge orally dismissed the complaint for failure to state a claim.

Thirteen days later White filed an amended complaint. The amended complaint repeated all of the contentions of the first and added the assertion that the order of September 1981 had not abandoned TCI's interest in the building. First, White argued, the order applied only to "real estate." The building was not "real estate," White pleaded, because TCI had made improvements to it. Therefore "the restaurant building constitutes trade fixtures and as such is personal property." Second, White maintained that the stay had been lifted only with respect to premises in which Marathon and the bank had a security interest, and they had none in the building itself. (The complaint does not spell this out, but the theory must have been that Marathon, as the owner of the building could not also have a security interest in it, and the bank's security interest was in TCI's lease and fixtures rather than the building.) The amended complaint also averred that the "sale was done for an inadequate price without notice and not done in a commercially reasonable manner" and that Drugas was not a bona fide purchaser for value.

New motions to dismiss followed, as did a new hearing. When it became clear that the bankruptcy judge thought the amended complaint no better than the first, White voluntarily dismissed it. Judge Hertz asked whether there was any allegation of fraud in obtaining the order of September 1981 and volunteered the advice that fraud would be about the only thing entitling TCI and the Chronopouloses to relief. White asked for leave to file still another amendment, which Judge Hertz granted with the ominous note that "there are certain risks you are going to run."

The second amended complaint was not long in coming. This document contained five counts instead of the two in the earlier pleadings. But nothing of substance changed. Every assertion in this complaint had been in an earlier one. It did not mention fraud. Still another hearing on the complaint, and still another dismissal was its fate. Judge Hertz denied the requests under Sec. 1927, however, because White had not been "malicious." White filed an appeal to the district court; Marathon and Drugas filed cross-appeals. White later dismissed his appeal, bringing to an end the effort to upset the sale. The district court held that "malice" is not necessary to obtain fees under Sec. 1927 and stated: "[T]his matter is remanded to Judge Hertz for a determination" whether White's conduct unreasonably and vexatiously multiplied the proceedings.

Judge Hertz transferred the case to Judge Robert D. Martin, who usually sits in Madison, Wisconsin, but who had volunteered to help clear up a backlog in the bankruptcy court in Chicago. William L. Needler, now handling things himself, asked Judge Hertz to take the case back; he declined. Judge Martin held a new hearing, at which Needler explained that his firm had filed the complaints at the insistence of the Chronopouloses, who feared liability on their guarantees to the bank. Judge Martin found that White had "responded to the urgings of the debtor's principal to stop or undo the sale by whatever means possible. The matter was viewed as urgent and the pressure from the client was no doubt intense." 36 B.R. 364, 367 (Bankr.N.D.Ill.1984).

Judge Martin concluded that the conduct of the Needler firm had been unreasonable. "Desperate problems are said to call for desperate measures. However, the measures available to counsel are not unlimited." Ibid. Once the automatic stay has been lifted, only proof of fraud or changed circumstances will allow alteration. The three complaints filed here did not allege either. "Mr. White filed a complaint which made only vague claims under general powers of equity. Rather than present a sound legal theory, the complaint recited remedies for which there was no precedent nor statutory authority." Ibid. Judge Martin conceded that counsel must have room for creative endeavors, but here "[w]hat was actually pleaded ... does not demonstrate imagination, but rather a lack of care, scrutiny and serious intention to put forth any bona fide claims." Ibid.

Judge Martin concluded that White had framed and prosecuted the complaint without any effort to ascertain whether it had a basis in law. He did not grant the request for fees in full, however, but awarded only the expenses Marathon and Drugas incurred in defending against the amendments. "The initial attempt may well be deemed creative. Subsequent efforts to plead the case, however, lacked the real or imagined urgency which may have justified Mr. White's first effort.... [A]rguing the same claims after repeated...