In re Royal Manor Mgmt., Inc.
| Decision Date | 05 February 2015 |
| Docket Number | 14–8018.,BAP Nos. 13–8054 |
| Citation | 525 B.R. 338 |
| Parties | In re ROYAL MANOR MANAGEMENT, INC., Debtor. |
| Court | U.S. Bankruptcy Appellate Panel, Sixth Circuit |
OPINION TEXT STARTS HERE
Affirmed. ARGUED: Dennis Grossman, Great Neck, New York, for Appellant in 13–8054. Louise M. Mazur, Brouse McDowell, LPA, Akron, Ohio, for Appellee in 13–8054. ON BRIEF: Dennis Grossman, Great Neck, New York, for Appellant in 13–8054 and 14–8018. Louise M. Mazur, Marc B. Merklin, Brouse McDowell, LPA, Akron, Ohio, Caroline L. Marks, Brouse McDowell LPA, Cleveland, Ohio, for Appellee in 13–8054. Louise M. Mazur, Marc B. Merklin, Kate M. Bradley, Brouse McDowell, LPA, Akron, Ohio, for Appellee in 14–8018.
Before: HARRISON, HUMPHREY and PRESTON, Bankruptcy Appellate Panel Judges.
These two related appeals address monetary sanctions and post-judgment efforts to collect those sanctions arising out of an attorney's representation of claimants who filed a $2,142,000 non-priority unsecured proof of claim in jointly administered Chapter 11 bankruptcy cases. That claim was disallowed by the bankruptcy court, with that decision being affirmed by both the District Court for the Northern District of Ohio and the Sixth Circuit Court of Appeals. As a result of the multitude of filings, strategies employed and positions taken over a six year period, the bankruptcy court sanctioned the attorney, Dennis Grossman, the sum of $207,004 pursuant to 28 U.S.C. § 1927 and the court's inherent authority under 11 U.S.C. § 105, representing the attorney fees expended by counsel for the Official Committee of Unsecured Creditors (the “Committee”) and, post-confirmation, the Liquidation Trustee and his counsel (“Trustee” or “Liquidation Trustee”), directly or indirectly related to the claim litigation. Grossman appeals the orders sanctioning him. He also appeals an order denying a motion which sought the recusal of the Bankruptcy Judge pursuant to 28 U.S.C. § 455 (collectively, the “First Appeal”).
In a separate appeal, Grossman challenges the retention of special counsel to collect the judgment against him and also an order requiring him to submit to a debtor's examination and provide written discovery (collectively, the “Second Appeal”).
The issues in these appeals are whether the bankruptcy court erred in sanctioning Grossman $207,004 pursuant to 28 U.S.C. § 1927 and the court's inherent authority under 11 U.S.C. § 105(a); denying one of Grossman's motions seeking recusal under 28 U.S.C. § 455; approving the retention of special counsel to pursue collection of the sanctions judgment; and allowing the pursuit of post-judgment discovery to execute upon the $207,004 judgment.
The Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction to decide these appeals. The United States District Court for the Northern District of Ohio has authorized appeals to the Panel, and no party has timely elected to have this appeal heard by the district court. 28 U.S.C. §§ 158(b)(6), (c)(1). A bankruptcy court's final order may be appealed as of right pursuant to 28 U.S.C. § 158(a)(1). For purposes of appeal, an order is final if it “ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.” Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S.Ct. 1494, 1497, 103 L.Ed.2d 879 (1989) (citation and quotation marks omitted).
An order sanctioning counsel for a sum certain amount generally is a final order. Russell v. City of Farmington Hills, 34 Fed.Appx. 196, 198 (6th Cir.2002). Orders related to the retention of bankruptcy professionals, objections to interim fee applications, and denial of a recusal motion or motion compelling discovery ordinarily are considered interlocutory orders. See In re Union Home and Indus., Inc., 376 B.R. 298, 301–02 (10th Cir. BAP 2007) (); Lopez v. Behles (In re Amer. Ready Mix, Inc.), 14 F.3d 1497, 1499 (10th Cir.1994) (); U.S. ex rel. Pogue v. Diabetes Treatment Centers of Am., Inc., 444 F.3d 462, 471 (6th Cir.2006) (). However, in these circumstances, these orders are deemed final because they all relate to the sanctions judgment and that is the only issue remaining to complete these Chapter 11 cases. See also Huntington Nat'l Bank v. Richardson (In re Cyberco Holdings, Inc.), 734 F.3d 432 (6th Cir.2013) (quoting Cottrell v. Schilling (In re Cottrell), 876 F.2d 540, 541–42 (6th Cir.1989)).
An award of sanctions under a bankruptcy court's inherent authority is reviewed for an abuse of discretion. Chambers v. NASCO, Inc., 501 U.S. 32, 55, 111 S.Ct. 2123, 2138, 115 L.Ed.2d 27 (1991); Stalley ex rel. U.S. v. Mountain States Health Alliance, 644 F.3d 349, 351 (6th Cir.2011). In addition, an order granting sanctions under 28 U.S.C. § 1927 is also reviewed for an abuse of discretion. Dixon v. Clem, 492 F.3d 665, 671 (6th Cir.2007). “An abuse of discretion is defined as 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 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). 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 Fed.Appx. 412, 415 n. 1 (6th Cir.2008) ().
Other determinations that Grossman has appealed are also subject to an abuse of discretion review. Bell v. Johnson, 404 F.3d 997, 1004 (6th Cir.2005) (); Gen. Elec. Co. v. Joiner, 522 U.S. 136, 141, 118 S.Ct. 512, 517, 139 L.Ed.2d 508 (1997) (evidentiary determinations); Am. Civil Liberties Union of Ky. v. McCreary County, Ky., 607 F.3d 439, 451 (6th Cir.2010) (); Lavado v. Keohane, 992 F.2d 601, 604 (6th Cir.1993) (scope of discovery); Michel v. Federated Dep't Stores, Inc. (In re Federated Dep't Stores, Inc.), 44 F.3d 1310, 1315 (6th Cir.1995) ().
Finally, “[t]he Panel must affirm the underlying factual determinations unless they are clearly erroneous.” Trudel v. United States Dep't of Educ. (In re Trudel), 514 B.R. 219 (6th Cir. BAP 2014) (quoting Hart v. Molino (In re Molino), 225 B.R. 904, 906 (6th Cir. BAP 1998)).
On February 12, 2008, Royal Manor Management, Inc. (“Royal Manor”), Darlington Nursing and Rehabilitation Center, Ltd. (“Darlington”), Dani Family, Ltd. (“Dani”) and other related entities (collectively, the “Debtors”) filed a petition for relief under Chapter 11 of the Bankruptcy Code. Sally and Abraham Schwartz were the majority owners (collectively, “Schwartz”). These cases were jointly administered and, on December 5, 2008, the Debtors confirmed their Third Amended Plan of Reorganization. The plan established a liquidating trust (the “Trust” or “Liquidation Trust”) and upon the effective date of the plan, David Wehrle became the Liquidation Trustee.
During this same time frame, the litigation began as to the disputed claim. On June 26, 2008, Gertrude Gordon filed a proof of claim, through a power of attorney, on behalf of her children, David and Alison Gordon (the “Gordons”) (the “Gordon Claim”). The Gordons are the niece and nephew of Schwartz. Gertrude Gordon is Sally Schwartz's sister. The Gordon Claim asserted a non-priority unsecured claim against Darlington in the total amount of $2,142,000. The basis for the Gordon Claim was a July 27, 2000 agreement, which was notarized on August 24, 2000 (the “Agreement”). The proof of claim did not contain the complete Agreement. It omitted a page which provided important evidence which would support the position that the loan was not to Darlington, but instead was an individual loan to Schwartz.
On September 5, 2008, the Committee, represented by Brouse McDowell, LPA (“Grouse”), objected to this claim for two fundamental reasons. First, the Committee argued that the Gordon Claim was a personal loan from the Gordons to Schwartz and not a loan to Darlington. Further, the Committee took the position that, at best, the Gordon Claim constituted an equity investment in Darlington. The objection was noticed for an October 7, 2008 hearing.
On September 9, 2008, an amended notice was filed and served to correct the date that the objection was filed. The hearing date remained the same. The hearing did not occur because neither the Gordons, nor any counsel representing the Gordons, responded to the objection or appeared to oppose the Committee's objection. On October 29, 2008, an order was entered disallowing the Gordon Claim.
On November 10, 2008, Grossman...
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