In re Black
| Decision Date | 18 July 2017 |
| Docket Number | CIVIL ACTION CASE NO. 16-13200 SECTION: "G"(5) |
| Parties | In Re: WILLIAM MATTHEW BLACK |
| Court | U.S. District Court — Eastern District of Louisiana |
Before the Court is William Matthew Black's ("Black") appeal from the United States Bankruptcy Court's July 20, 2016 Order issuing sanctions against Black's counsel in his Chapter 11 bankruptcy proceeding. Considering the briefs filed by the parties, the record and the applicable law, for the reasons that follow, the Court will affirm the Bankruptcy Court's July 20, 2016 Order.
On July 31, 2015, Black filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code.1 Joanne and Walter Gallinghouse, Gallinghouse & Associates, Inc., and G & A Publishing (collectively, "the Gallinghouse entities") filed several proofs of claims as creditors against the bankruptcy estate of Black, arising from a civil judgment against Black and a criminal judgment against his former wife Deborah Black.2 The Gallinghouse entities also filed an adversary proceeding against Black seeking to have the debt owed to them under the state court judgment against Black be declared non-dischargeable under 11 U.S.C. § 523(a),3 and Black filed an adversary proceeding against the Gallinghouse entities seeking to avoid the civil judgment as apreference under 11 U.S.C. § 547.4 On June 6 and 7, 2016, the Bankruptcy Court conducted a trial on the complaint of the Gallinghouse entities, the adversary complaint of Black, and on Black's objections to the Gallinghouse entities' proofs of claims.5
During the trial, counsel for Black attempted to present testimony of an expert whose opinions were not previously disclosed to the Gallinghouse entities and related evidence that was not previously disclosed.6 The Gallinghouse entities objected to the introduction of the testimony and evidence, and the Bankruptcy Court excluded the testimony and evidence from trial.7 Black's counsel sought to make a proffer of the evidence, and the Bankruptcy Judge, as the finder of fact, excused himself from the courtroom while the proffer was made into the record in order to preserve the issue for appeal.8
Both parties subsequently submitted post-trial memoranda to the Bankruptcy Court.9 The Gallinghouse entities then filed a "Motion to Strike Post-Trial Memoranda and for Rule 11 Sanctions," arguing that the memoranda submitted by Black made reference to the evidence that was excluded at trial.10 In response to the Gallinghouse entities' motion to strike, Black filed amended post-trial memoranda removing the references to the excluded evidence.11 On July 13,2016, the Bankruptcy Court conducted a hearing on the motion to strike.12 During the hearing the Bankruptcy Judge stated that he found Black's counsel's conduct "to be a very serious matter."13 Therefore, the Bankruptcy Judge stated that, while he was not going to strike Black's amended post-trial memoranda, he was "going to sanction [Black's counsel] for a violation of the Court's order," which the Bankruptcy Judge found he had "inherent power to do without reference to Rule 11."14
On July 20, 2016, the Bankruptcy Court issued a written Order granting the motion to the extent that it requested that the following portions of Black's original post-trial memoranda be stricken from the record: (1) in Case No. 15-01073, document number 32; (2) in Case No. 15-01071, document number 56; and (3) in Case No. 15-11935, documents number 98, 98-1, 98-2, 98-3, 98-4, 99, 99-1, 99-2, 99-3, 100, 100-1,100-2, 100-3.15 The Bankruptcy Court also granted the motion to the extent that it requested sanctions be assessed against counsel for Black "for the costs and legal fees associated with the preparation, filing and attendance at the hearing of the present Motion to Strike in the amount of $3,000.00."16 The Bankruptcy Court denied the motion to the extent it requested that the amended post-trial memoranda be stricken from the record.17 OnJuly 21, 2016, Black filed a notice of appeal of the Bankruptcy Court's July 20, 2016 Order.18
Black argues that the Bankruptcy Court erred in ordering sanctions against his counsel for four reasons: (1) the Gallinghouse entities filed a "Motion to Strike Post-Trial Memorandum and for Rule 11 Sanctions" despite the requirement under Bankruptcy Rule 9011(c)(1)(A) that a Motion for Rule 11 Sanctions be made separately from other motions or requests; (2) the Gallinghouse entities never presented the motion for sanctions to Black's counsel before filing the motion as required by the Safe Harbor provisions of Rule 9011(c)(1)(A); (3) the Gallinghouse entities did not serve Black's counsel with a copy of the motion 21 days prior to filing the motion as required by Rule 9011; and (4) the offending papers had been revised in accordance with the issues enumerated by the Gallinghouse entities in their motion for sanctions.19
Black asserts that the Bankruptcy Court's decision to impose sanctions is discretionary, and so the exercise of the power is reviewed for abuse of discretion.20 Black contends that a bankruptcy court abuses its discretion when it: "(1) applies an improper legal standard or follows improper procedures, or (2) rests its decision on findings that are clearly erroneous."21 Here, Black argues that the Bankruptcy Court "did not follow the restrictive covenants contained within the revised Rule 9011 requirements" in ordering sanctions against his counsel, and so the Order wasclearly an abuse of discretion.22
Black contends that following the trial held on June 6 and June 7, 2016, the Bankruptcy Court ordered counsel to file post-trial memoranda.23 According to Black, he attached four exhibits to the post-trial memorandum filed in Case No. 15-11935, and the Gallinghouse entities moved to strike the exhibits from the record because they were not offered into evidence at trial and sanctions were appropriate as a result.24 Black contends that Exhibit 2 to his post-trial memorandum was admitted at trial as Trial Exhibit 239 and Exhibit 3 was admitted as Trial Exhibit 243.25 Nevertheless, Black asserts that "upon review of the situation [his counsel] took a conservative approach and in response filed on June 30, 2016 a First Amended Brief/Memorandum on Objection to Proof of Claim No. 2 (Doc 104) removing Exhibits No. 1, (Trial Doc. 246); No. 2 (Trial Doc. 239) and No. 3 (Trial Doc. 243); leaving only [Exhibit 4] the Gallinghouse Proof of Claim No. 2 attached thereto."26
Black also notes that he hired Frank Tranchina ("Tranchina") as an expert in domestic relations and community property law to testify at the trial, but Tranchina did not prepare a report of his findings or proposed testimony.27 According to Black, at trial the Gallinghouse entities objected to allowing Tranchina to testify, and the Bankruptcy Judge sustained the objection.28Black notes that the Gallinghouse entities' motion to strike Black's post-trial memoranda objected to the inclusion of Tranchina's expert report in Black's post-trial memoranda, and in response Black's counsel removed the offending language and exhibits from his post-trial memoranda.29 Black asserts that Tranchina did not prepare an expert report, but he contends that Exhibit 2 was a sworn descriptive list of community property prepared by Tranchina, and Exhibit 3 was an analysis of the sworn descriptive list prepared by Black's counsel.30 Black contends that both exhibits were removed from his amended post-trial memoranda after the Gallinghouse entities raised the issue in their motion.31 Finally, Black notes that the Gallinghouse entities objected to the inclusion of references to the valuation of a Thrift Savings Plan account in the post-trial memorandum filed in Case No. 15-1071 and the post-trial memorandum filed in Case No. 15-1073, and in response Black's counsel removed references to the account from his amended post-trial memoranda.32
Addressing the first issue raised on appeal, Black contends that the Bankruptcy Court erred in ordering sanctions against his counsel because the Gallinghouse entities filed a "Motion to Strike Post-Trial Memorandum and for Rule 11 Sanctions" despite the requirement under Bankruptcy Rule 9011(c)(1)(A) that a Motion for Rule 11 Sanctions be made separately from other motions or requests.33 Black contends that the Bankruptcy Court's decision allowing the Gallinghouse entities to file these motions in combination violated the clear language or Rule9011(c)(1)(A) and was therefore unreasonable.34
Turning to the second issue raised on appeal, Black contends that the Bankruptcy Court erred in ordering sanctions against his counsel because the Gallinghouse entities never presented the motion for sanctions to his counsel before filing the motion as required by the safe harbor provisions of Rule 9011(c)(1)(A).35 He asserts that the Fifth Circuit has found that the safe harbor provisions are intended to "protect litigants from sanctions wherever possible in order to mitigate Rule 11's chilling effects, formalize procedural due process considerations, such as notice for the protection of the party accused of sanctionable behavior, and encourage the withdrawal of papers that violate the rule without involving the Court."36 Black contends that the Fifth Circuit has held that strict compliance with Rule 11 is mandatory, and the Bankruptcy Court erred in not considering the safe harbor requirements.37
Addressing the third issue raised on appeal, Black contends that the Bankruptcy Court erred in ordering sanctions against his counsel because the Gallinghouse entities failed to serve the motion for sanctions to his counsel at least 21 days before filing the motion.38 Black contends that the motion was served on his counsel the same day it was filed with the Bankruptcy Court and set for hearing 19 days later.39 Therefore, Black asserts that the Gallinghouse entities failed to complywith the mandatory notice...
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