Williams v. Living Hope Se., LLC (In re Living Hope Sw. Med. Servs., LLC), BAP No. 14–6030.
| Decision Date | 29 January 2015 |
| Docket Number | BAP No. 14–6030. |
| Citation | 525 B.R. 95 |
| Parties | In re LIVING HOPE SOUTHWEST MEDICAL SERVICES, LLC, Debtor. Renee S. Williams, Trustee, Plaintiff–Appellee v. Living Hope Southeast, LLC, Defendant David Kimbro Stephens, Interested Party–Appellant. |
| Court | U.S. Bankruptcy Appellate Panel, Eighth Circuit |
David Kimbro Stephens, Little Rock, AR, pro se.
Robert B. Gibson, Crossett, AR, for appellee.
Before FEDERMAN, Chief Judge, SCHERMER and SHODEEN, Bankruptcy Judges.
David Kimbro Stephens appeals from the Order of the Bankruptcy Court1 denying his Motion for Reconsideration of the Court's Memorandum Opinion and Judgment ordering sanctions against him under Federal Rule of Bankruptcy Procedure 9011. For the reasons that follow, the Order of the Bankruptcy Court is AFFIRMED.
The appellant, David Kimbro Stephens, is an attorney. He is an owner and the controlling principal of Living Hope Southwest Medical Services, LLC, the debtor in this bankruptcy case filed in the Western District of Arkansas (“the Debtor”). Mr. Stephens also has an interest in Living Hope Southeast, LLC (“Southeast”), which is the debtor in a separate bankruptcy case filed in the Eastern District of Arkansas.2
The Debtor's case has a long and difficult history, but, as relevant to this appeal, in February 2009, the Chapter 7 Trustee in the Debtor's case, Renee S. Williams, filed an adversary proceeding against Southeast and Stephens (the “Adversary Proceeding”), seeking a judgment or claim for the value of assets which were transferred postpetition by the Debtor to Southeast. The Trustee also sought the imposition of a constructive trust against the transferred assets. By virtue of a joint stipulation signed by Stephens, he was dismissed as a defendant in the Adversary Proceeding prior to trial.
On January 18, 2013, following a trial against Southeast, the Bankruptcy Court3 entered several orders in the Adversary Proceeding, including an Order Denying David Kimbro Stephens' Motion to Intervene in it, and an Order Approving Unsecured Claim in which the Court, inter alia, allowed the Trustee in the Debtor's case an unsecured claim against Southeast in the amount of $1,190,000.4 The Court later denied the Trustee's request for a constructive trust against Southeast's assets. Stephens appealed those Orders, and others, to the United States District Court for the Western District of Arkansas.
On January 17, 2014—while Stephens' appeal to the District Court was pending, and on the last day before the one-year limitation period under Federal Rule of Civil Procedure 60(b) was to lapse—Stephens, pro se, filed a Motion for Relief from Judgment or Order (the “Rule 60 Motion”) and a Brief in Support (the “Original Brief”). As relevant here, Stephens sought relief from the Order approving the unsecured claim against Southeast under Rules 60(b)(3), 60(b)(6), 60(d)(1), and 60(d)(3).5 In sum, Stephens alleged that the Trustee's attorney, Thomas S. Streetman, had colluded with Southeast's attorneys, James Smith and Kimberly Woodyard, and that this collusion resulted in the judgment against Southeast. Stephens alleged that the attorneys' conduct amounted to a “fraud on the court” warranting relief from the Order.
After Stephens filed the Rule 60 Motion and Original Brief, Streetman sent, on the Trustee's behalf, a Rule 9011 safe harbor letter to Stephens.6 Stephens responded by filing a Corrected and Amended Brief in Support of the Rule 60 Motion (the “Corrected Brief”). He did not withdraw or amend the Rule 60 Motion itself. Unsatisfied by that amendment, the Trustee filed a Motion for Imposition of Rule 9011 Sanctions Against David Kimbro Stephens (the “Rule 9011 Motion”), as well as a Motion to Strike Kimbro Stephens' Corrected and Amended Brief and for Imposition of Sanctions (the “Motion to Strike”).
The Bankruptcy Court scheduled a hearing for April 2, 2014, on Stephens' Rule 60 Motion, the Trustee's Rule 9011 Motion, and the Trustee's Motion to Strike. At the beginning of the hearing, the Court announced that it was going to deny Stephens' Rule 60 Motion because, in essence, he was not a party in the Adversary Proceeding, and only parties can bring a motion for post-judgment relief.7 After that announcement, the parties proceeded to present evidence on the Trustee's Rule 9011 Motion. At the conclusion of the evidence, the Court held that Stephens' allegations of fraud on the court violated Rule 9011(b)(2) and (b)(3) and directed the Trustee to submit a fee request. After the Trustee did so, and Stephens responded, the Court entered a Memorandum Opinion and a Judgment against Stephens on May 29, 2014 (collectively, the “Sanctions Order”). The Court incorporated its oral findings and conclusions from the hearing, and ordered Stephens to pay the Trustee $19,188.42 in attorney fees as the prevailing party on the Rule 9011 Motion under Rule 9011(c)(1)(A), plus $1,659.10 as a sanction under Rule 9011(c)(2) to deter Stephens from repeating the offending conduct. Meanwhile, shortly after the hearing, on April 5, 2014, Stephens moved to withdraw and expunge from the record both the Original Brief and the Corrected Brief, with their attachments. On April 9, 2014, the Court entered an Order placing those documents under seal.8
On June 12, 2014, Stephens timely filed a Motion for Reconsideration of the Sanctions Order,9 which the Bankruptcy Court denied on July 28, 2014. On August 11, 2014, Stephens timely appealed the July 28, 2014 Order denying reconsideration.10 Stephens did not appeal the denial of the Rule 60 Motion itself.
Federal Rule of Bankruptcy Procedure 9011(b) provides, in relevant part, that in presenting a pleading to the Court, an attorney or unrepresented party is certifying that to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances, that:
Rule 9011 further provides that, if, after notice and a reasonable opportunity to respond, the court determines that subdivision (b) has been violated, the court may, subject to certain stated conditions, impose an appropriate sanction upon the attorneys, law firms, or parties that have violated subdivision (b) or are responsible for the violation.12 “Violations of Rule 9011 are determined by applying an objective standard of reasonableness under the circumstances.”13
We review an award of sanctions for an abuse of discretion.14
An award of sanctions involves a consideration of three types of issues: factual, legal, and discretionary. First, a court must consider factual questions regarding the nature of the attorney's inquiry prior to filing the pleading and the factual basis for the pleading. Next, a court must consider legal issues to determine if the pleading is warranted by existing law or a good faith argument for a change in the law and whether the attorney's conduct violated Rule 9011. Finally, if a court determines that sanctions are warranted, it must exercise discretion to ensure the sanction is appropriately tailored to the situation.15
The review of the imposition of sanctions under Rule 9011 “necessarily requires an examination of the underlying factual and legal claims.”16 We will reverse an award of sanctions only if it was based on an erroneous view of the law or on a clearly erroneous assessment of the evidence.17
As stated above, the pleadings which became the subject of the Rule 9011 Motion were Stephens' Rule 60 Motion and related briefs, where he sought relief from the judgment against Southeast because, Stephens asserted, it was obtained through “fraud upon the court.” The Trustee asserted in her Rule 9011 Motion that Stephens' factual allegations concerning the attorneys' conduct were flagrantly false and malicious and, in essence, that the real purpose of Stephens' pleadings was to place allegations of attorney misconduct in front of the District Court where the appeal of the judgment was pending.
At the outset, Stephens asserts that the Trustee's Rule 9011 Motion was procedurally flawed. Specifically, Rule 9011(c)(1)(A) provides a mandatory safe-harbor provision requiring that a motion for sanctions “may not be filed with or presented to the court unless, within 21 days after service of the motion ... the challenged paper, claim, defense, contention, allegation, or denial is not withdrawn or appropriately corrected....”18
As stated above, Stephens filed the Rule 60 Motion on January 17, 2014, along with the Original Brief. On January 21, 2014, Mr. Streetman sent Mr. Stephens a safe harbor letter on behalf of the Trustee, and included a copy of the Rule 9011 Motion they intended to file. The letter advised Stephens that he had twenty-one days in which to withdraw the Rule 60 Motion and Original Brief, or they would file the Rule 9011 Motion with the Court. Although the letter focused on the inappropriate filing of a Rule 60 motion while an appeal of the subject order was pending, the Rule 9011 Motion focused on Stephens' allegations of collusion between attorneys Streetman and Smith in obtaining the judgment against Southeast.
In response to the safe harbor letter, on February 7, 2014, Stephens filed the Corrected Brief to replace the Original Brief. He did not withdraw or amend the actual Rule 60 Motion, however. On February 20, the Trustee filed four documents: the Rule 9011 Motion and a brief in support; and a Motion to Strike the Corrected Brief and a brief in...
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