In re Revco DS, Inc., Bankruptcy No. 588-1308 through 588-1321

• Decision Date: 12 February 1991
• Docket Number: 588-1761 through 588-1812 and 588-1820.,588-1305,Bankruptcy No. 588-1308 through 588-1321
• Citation: 126 BR 741
• Parties: In re REVCO D.S., INC. et al., Debtors.
• Court: U.S. Bankruptcy Court — Northern District of Ohio

126 B.R. 741 (1991)

In re REVCO D.S., INC. et al., Debtors.

Bankruptcy Nos. 588-1308 through 588-1321, 588-1305, 588-1761 through 588-1812 and 588-1820.

United States Bankruptcy Court, N.D. Ohio.

February 12, 1991.

John Silas Hopkins, II, Baker & Hostetler, Cleveland, Ohio, for debtors.

Stuart E. Hertzberg, Pepper, Hamilton & Scheetz, Detroit, Mich., for Official Committee of Unsecured Trade Creditors.

Conrad Morgenstern, Cleveland, Ohio, U.S. Trustee.

Brad Eric Scheler, Fried, Frank, Harris, Shriver & Jacobson, New York City, for Official Committee of Unsecured Noteholders.

Robert J. White, O'Melveny & Myers, Los Angeles, Cal., for Unofficial Committee of Secured Bank Lenders.

Richard Lieb or Robert Feinstein, Kronish, Lieb, Weiner & Hellman, New York

City, for Unofficial Preferred Equity Committee.

Securities & Exchange Com'n, John R. Lee, Chicago.

Paul W. Bridenhagen, Dept. of Justice, Civ. Div., Federal Programs Branch, Washington, D.C., for the U.S. Trustee.

MEMORANDUM ON MOTION OF U.S. TRUSTEE TO DISMISS AND MOTIONS FOR SUMMARY JUDGMENT ON THE RENEWED MOTION FOR SANCTIONS AGAINST THE U.S. TRUSTEE

HAROLD F. WHITE, Bankruptcy Judge.

The "Motion of the United States Trustee to Dismiss, or in the Alternative for Summary Judgment on the Renewed Motion for Sanctions Against the U.S. Trustee" (the "Motion") Application for Fees Docket ("Docket") No. 1295 came before the Court for hearing on June 26, 1990. Paul Bridenhagen appeared for the U.S. Trustee ("UST") and John Silas Hopkins, III, appeared for Baker & Hostetler ("Baker"). Baker filed a pleading in opposition to the Motion and a Cross-Motion for Summary Judgment (the "Opposition") (Docket No. 1344). For the reasons stated herein, the UST's request for dismissal and Baker's cross-motion for summary judgment shall be denied, and the UST's request for summary judgment shall be granted.

BACKGROUND

On November 9, 1988, this Court entered "Administrative Order No. 2: Procedure for Allowance and Payment of Interim Fees and Expenses" (the "Administrative Order")¹ (Docket No. 102). The Administrative Order details the procedures for payment by the Debtors of professional fees and the procedures for filing with this Court applications for allowance of compensation. The Administrative Order, at paragraph 3, provides that all applicants must comply with the Memorandum Regarding Allowance of Compensation for the Bankruptcy Courts of the Northern District of Ohio (the "Fee Guidelines").

In accordance with the Administrative Order, on or about February 15, 1989, the professionals retained in this case, including Baker, filed the first set of applications for interim compensation. A total of 14 applications were filed requesting, in the aggregate, fees and expenses in excess of $5 million (Docket No. 371). In its first application (the "Interim Application"), Baker requested fees of $1,645,087.00 and expenses of $141,427.28. The Interim Application consisted of seven thick volumes which detailed over 11,000 hours of services rendered and also included documentation of all expenses over $25. The UST filed objections to the applications. The UST also filed a lengthy objection to the Interim Application (the "Objection") (Docket No. 403) and asserted several grounds for disallowance or reduction of the fees requested. Attached to the Objection were appendices which included single-spaced listings of time entries the UST asserted were objectionable. The Objection was signed by Maryanne Rackoff, a former staff attorney for the UST. Conrad Morgenstern, the UST, did not sign the Objection.

On March 27, 1989, the day before the hearing on the first set of applications, Baker moved this Court for the imposition of sanctions against the UST pursuant to Bankr.R. 9011 in connection with the Objection. (Docket No. 425). On March 28, 1989, at the hearing on the applications, the Court dismissed Baker's motion for sanctions without prejudice to refile at a later date. (Docket No. 436). On June 15, 1989, the Court entered its Order on the Interim Application wherein it overruled all the grounds for the Objection and allowed Baker a total of $1,645,087.00 for fees and $134,973.30 for expenses (Docket No. 616).

On July 5, 1989, Baker filed a Renewed Motion for the Imposition of Sanctions in connection with the Objection (the "Renewed Motion") (Docket No. 652). The UST filed a motion to dismiss the Renewed Motion (Docket No. 761) arguing that the doctrine of sovereign immunity, inter alia, prohibited the imposition of Bankr.R. 9011 sanctions against the UST. Baker opposed the motion. After a hearing, this Court entered an Order denying the motion to dismiss (Docket No. 1168). Following that ruling, the Renewed Motion was set for hearing. The UST then filed the instant Motion.²

THE MOTION

In the Motion, the UST asserts that the Renewed Motion must be dismissed because it fails to state a claim for which relief can be granted because it seeks sanctions only against the UST, a non-signing party to the Objection. In the alternative, the UST seeks full or partial summary judgment on the merits and asserts the Objection was reasonable under the circumstances of the litigation.

In the Opposition, Baker argues that Bankr.R. 9011 sanctions can be imposed on the UST as the "represented party". Baker asserts it is entitled to summary judgment on the Renewed Motion because the UST "after reasonable inquiry" could not have believed that the appendices to the Objection were "well grounded in fact". Baker argues the "numerous glaring factual inaccuracies, mistakes, double counting, and other errors and omissions" contained in the appendices to the Objection are sanctionable under Bankr.R. 9011. Baker does not attack the legal position taken by the UST in the Objection except as it concerns the Boake Sells Setoff Motion.

The UST responds that he is not a "represented party" and, even if this Court determines otherwise, the limited errors in the appendices do not justify sanctions, and the Objection to the Boake Sells Setoff Motion was legally plausible.

ISSUE 1

CAN BANKRUPTCY RULE 9011 SANCTIONS BE IMPOSED UPON THE UST, WHEN A STAFF ATTORNEY, AND NOT THE UST, HIMSELF, SIGNED THE PURPORTEDLY OBJECTIONABLE PLEADING?

DISCUSSION OF LAW

After careful review of the record and the law cited by both parties, this Court concludes that under the circumstances of this case, the UST, not Ms. Rackoff³, is subject to Bankr.R. 9011 sanctions.

Bankruptcy Rule 9011 provides, in pertinent part:

"Rule 9011. Signing and Verification of Papers.

(a) Signature. Every petition, pleading, motion and other paper served or filed in a case under the Code on behalf of a party represented by an attorney, ... shall be signed by at least one attorney of record in the attorney\'s individual name, ... The signature of an attorney or a party constitutes a certificate that the attorney or party has read the document; that to the best of the attorney\'s or party\'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, to cause delay, or to increase the cost of litigation.... If a document is signed in violation of this rule, the court on motion or on its own initiative, shall impose on the person who signed it, the represented party, or both, an appropriate sanction, which may include an order to pay to the other party or parties the amount of the reasonable expenses incurred because of the filing of the document, including a reasonable attorney\'s fee. (Emphasis added.)

Bankr.R. 9011 adopts Rule 11 of the Federal Rules of Civil Procedure ("Rule 11") with only minor changes for use appropriate to bankruptcy cases. If a document is signed in violation of Bankr.R. 9011 ("Rule 9011"), the Court shall impose sanctions on the person who signed it, the represented party, or both parties.

The UST argues that sanctions may not be imposed upon him for two reasons. First, he did not sign the Objection. The UST relies on Pavelic & LeFlore v. Marvel Entertainment Group, 493 U.S. 120, 110 S.Ct. 456, 107 L.Ed.2d 438 (1989) for this position. Secondly, the UST contends he is not a "represented party" and relies on Morgenstern v. Revco D.S., Inc. (In re: Revco), 898 F.2d 498 (6th Cir.1990). The Court finds both positions of the UST are without merit and his reliance on Pavelic and Revco are misplaced.

In Pavelic, the Supreme Court determined that Rule 11 does not authorize a Court to impose sanctions upon the law firm of the individual attorney who signed the offending document. The narrow issue decided therein is not present before this Court. The Supreme Court did not consider whether Rule 11 authorizes sanctions against the "represented party" and nothing in that opinion prohibits sanctions, in the appropriate situation, against the represented party. First National Bank of Louisville v. Lustig, 131 F.R.D. 479, 484 n. 10 (D.La.1990). As the facts of the instant matter are wholly different from the facts in Pavelic, this Court rejects the UST's argument that he, as a non-signing party, is not subject to sanctions under Rule 9011.

Similarly, this Court finds the UST's contention that he is not a "represented party" for purposes of Rule 9011 wholly unpersuasive. The UST asserts that, as counsel for the United States, he represents the public interest and is, therefore, not a represented party. The UST's reliance on Revco, supra, does not support this contention. In that decision, the Sixth Circuit determined that the UST has appellate standing to appeal a decision of a bankruptcy court refusing to appoint an examiner. The Sixth Circuit concluded that the UST's responsibility for "protecting the public interest and ensuring that bankruptcy cases are conducted according to law" provide the...