Burkhart Through Meeks v. Kinsley Bank, 87-1242
| Decision Date | 19 July 1988 |
| Docket Number | No. 87-1242,87-1242 |
| Citation | 852 F.2d 512 |
| Parties | Kenneth BURKHART, Through his Conservator, Byron MEEKS, and Judith Burkhart, Plaintiffs-Appellees, v. The KINSLEY BANK, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Tenth Circuit |
Kenneth M. Nohe of Wisdom & Haag, P.A., Wichita, Kan., for defendant-appellant.
Michael J. Friesen, P.A., Garden City, Kan., for plaintiffs-appellees.
Before LOGAN, McWILLIAMS and TIMBERS, * Circuit Judges.
Kenneth Burkhart, through his Conservator, Byron Meeks, and Judith Burkhart, Kenneth's wife, brought suit on May 21, 1984, in the United States District Court for the District of Kansas against the Kinsley Bank and Cimarron Cooperative Equity Exchange alleging that the two defendants conspired to convert, and did convert, to their own use 4,225.5 bushels of wheat belonging to the Burkharts for which the Burkharts sought compensatory and punitive damages.
More specifically, in their amended complaint the Burkharts alleged the following: (1) that on or about November 12, 1976, they were the owners of 4,225.5 bushels of wheat and that on that date they granted a security interest in the wheat to the Kinsley Bank; (2) that on May 18, 1977, the Burkharts filed a petition for bankruptcy in the United States Bankruptcy Court for Kansas, and that they were discharged in bankruptcy on February 13, 1979; (3) that on May 12, 1982, the trustee in bankruptcy filed in the bankruptcy proceeding a Petition for Authority to Abandon Assets, namely the 4,225.5 bushels of wheat which was at that time stored in the Cimarron Cooperative Equity Exchange, and that on that same date the petition was granted; and (4) that thereafter the defendants, with full knowledge that the Bank's security interest in the wheat "had expired" because a "continuation statement" had not been filed as required by state statute, and with knowledge that by virtue of Section 556 of the Bankruptcy Code title to the wheat had vested in the Burkharts, converted the wheat to their own use by Cimarron's sale of the wheat, at the direction of the Bank, and thereafter remitting to the Bank the proceeds of the sale less storage expenses. Jurisdiction was apparently based on 28 U.S.C. Sec. 1331 and Section 556 of the Bankruptcy Code. 11 U.S.C. Sec. 556 (1982).
Both the Bank and Cimarron filed motions for summary judgment, which, after hearing, were granted. The Burkharts did not appeal the judgments granting summary judgment in favor of the Bank and Cimarron.
The Bank, in addition to its motion for summary judgment, filed a motion for sanctions against the Burkharts and their attorney, alleging that the complaint was not well grounded in fact, was not warranted by existing law and was filed for purpose of harassment, and that, pursuant to Fed.R.Civ.P. 11, sanctions were mandatory. The district court denied the Bank's motion for sanctions, holding that there was no "subjective bad faith" on the part of either the Burkharts or their attorney.
The Bank appealed the district court's denial of its motion for sanctions and, on appeal, we reversed, holding that, under amended Rule 11, subjective bad faith was not a prerequisite to an award of sanctions and remanded the case for further proceedings. Burkhart, through his Conservator, Meeks, v. Kinsley Bank, 804 F.2d 588 (10th Cir.1986).
On remand, the district court, after hearing, again denied the Bank's motion for sanctions, and the present appeal is from that order.
The Burkharts' theory of the case was that by the Bank's inaction, i.e., its failure to participate in any manner in the bankruptcy proceeding or to file a continuation statement, the Bank's security interest in the wheat "expired" and that when the trustee's petition to abandon the wheat as an asset of the estate was granted, title to the wheat vested in the Burkharts free and clear of the Bank's interest. In support of that theory, the Burkharts relied on several rulings to that effect by one of the bankruptcy judges in Kansas. 1
As indicated, the district court rejected Burkharts' theory of the case and granted summary judgment in favor of the Bank, holding that the Bank's security interest was unaffected by the bankruptcy proceeding.
On remand, after our earlier opinion, the district court was given additional briefings by the parties, and the district court again denied the Bank's motion for sanctions. In denying the motion, the district court commented, in part, as follows:
Under Rule 11, which was amended in 1983, "the party or attorney, in signing a pleading, affirms that, after making a reasonable inquiry, he [or she in this case] believes in good faith that the pleading is well grounded both in fact and in law...."
The Bank vehemently contends that it is entitled to Rule 11 attorneys fees because the plaintiffs' attorney made no reasonable inquiry into the facts, because the allegations in the Amended Complaint are not warranted by existing law and because the Amended Complaint was filed for an improper purpose....
What the Bank's arguments boil down to is because it won the summary judgment motion, it is entitled to Rule 11 sanctions. "[W]hile a plaintiff's allegations may fall short of stating a valid claim for relief, this fact alone does not warrant the relief contemplated by Rule 11." [A quote from an unpublished opinion of the United States District Court for the District of Kansas]....
Plaintiffs' legal position, which was based on two decisions by a bankruptcy judge in Kansas, was that because the Bank did not participate in the debtors' bankruptcy, its lien rights were affected. The plaintiffs relied on a 1983 decision by Judge James Pusateri, In Re Ray, 26 B.R. 534 (Br.D.Kan.1983), which, although disagreed with by other bankruptcy judges in the district, afforded them a reasonable argument at the time they filed their Amended Complaint on May 21, 1984. Only last year, on October 14, 1986, did the Tenth Circuit reverse Judge Pusateri, in Chandler Bank of Lyons v. Ray, 804 F.2d 577 (10th Cir.1986)....
Rule 11 provides, in part, as follows:
Every pleading, motion, and other paper of a party represented by an attorney shall be signed by at least one attorney of record in the attorney's individual name, whose address shall be stated. A party who is not represented by an attorney shall sign the party's pleading, motion, or other paper and state the party's address. Except when otherwise specifically provided by rule or statute, pleadings need not be verified or accompanied by affidavit. The rule in equity that the averments of an answer under oath must be overcome by the testimony of two witnesses or of one witness sustained by corroborating circumstances is abolished. The signature of an attorney or party constitutes a certificate by the signer that the signer has read the pleading, motion, or other paper; that to the best of the signer's knowledge, information, and belief formed after reasonable inquiry it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law, and that it is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation ... (emphasis added).
Under Rule 11, the...
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