In re Borden

104 B.R. 167, 1989 Bankr. LEXIS 1461, 1989 WL 101374
CourtDistrict Court, D. Minnesota
DecidedSeptember 5, 1989
DocketBankruptcy No. 4-89-2996
StatusPublished
Cited by2 cases

This text of 104 B.R. 167 (In re Borden) is published on Counsel Stack Legal Research, covering District Court, D. Minnesota primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Borden, 104 B.R. 167, 1989 Bankr. LEXIS 1461, 1989 WL 101374 (mnd 1989).

Opinion

MEMORANDUM ORDER GRANTING SANCTIONS PURSUANT TO BANKRUPTCY RULE 9011

NANCY C. DREHER, Bankruptcy Judge.

The above entitled matter came on for hearing before the undersigned on the 3rd day of August, 1989 on a motion brought by TCF Bank Savings (“TCF”) to dismiss the case and for sanctions. William G. Mohrman appeared on behalf of TCF; Michael T. Kallas appeared on behalf of the Debtors. Based on the moving and responsive documents, the affidavits filed in support of the motions, and the arguments of counsel, at the conclusion of the hearing I read into the record extensive and detailed findings to support my order, dated August 7, 1989, dismissing this chapter 13 case under Section 109(g) and prohibiting the debtors, for a period of 180 days after the date of the order, from filing a petition for relief. I also deferred ruling on the request for sanctions, so as to allow the parties time for briefing. The briefs have now been filed. This Order solely addresses the issue of the appropriateness of the imposition of sanctions under Bankruptcy Rule 9011.

FACTS

By way of Promissory Note dated April 9, 1987, debtors became indebted to TCF in the sum of $175,000. The Note was secured by a second mortgage on the debtors’ property in Edina, Minnesota. Debtors became seriously in arrears in making payments under the Note. No payments were made after April 30, 1988.

Thus, on December 5, 1988, TCF commenced foreclosure by advertisement proceedings against the debtors’ property and scheduled a foreclosure sale for February 16, 1988. At a hearing held in state court on that date, by agreement of counsel for TCF and for debtors, the foreclosure sale was deferred temporarily until March 8, 1989. In order to obtain this deferral, debtors represented that they were attempting to obtain additional financing sufficient to cure $19,000.00 in arrearages owing to TCF.

On March 7, 1989, one day prior to the scheduled foreclosure sale, debtors filed a petition for relief under Chapter 13. The filing of that petition stayed the foreclosure sale. Debtors and their counsel, who has represented them throughout these proceedings, were contemplating such a filing from as early as December, 1988 when the foreclosure proceedings commenced. This was not, as counsel for the debtors urged, an “emergency filing” made at the last minute when debtors finally lost hope in obtaining additional input of capital to cure arrearages. It was a deliberately calculated move on the part of debtors and their counsel to halt the foreclosure proceedings.

Because the filing was partial and incomplete, on March 10, 1989, I issued an order requiring the debtors to complete their partial filing and notified debtors and their counsel that if the filings were not completed by March 22, 1989 “an order dismissing the case shall be entered immediately”. By their own admissions, debtors chose not to file the schedules necessary to complete their filing for relief because they knew they were not eligible for relief under Chapter 13. Their unsecured and secured debts exceeded the monetary limitations of 11 U.S.C. § 109(e). Debtors chose, instead, to allow the filing to lapse and the case to be dismissed. When debtors failed to timely comply with the March 10 Order, on March 25, 1989, I entered a further order dismissing the debtors’ Chapter 13 case.

On April 13, 1989, TCF recommenced its foreclosure proceeding and scheduled a foreclosure sale for June 27, 1989. However, on June 27, 1989, debtors once again filed a petition for relief in Chapter 13. This second filing for relief came 95 days after the dismissal of the first case and one [169]*169hour prior to the foreclosure sale. The filing of this second petition for relief stayed the foreclosure set for June 27.

DISCUSSION

A. Rule 9011 Violation

Under Bankruptcy Rule 9011, the filing of any pleading, including a petition for relief in bankruptcy (with certain exceptions not relevant here), constitutes a certificate by counsel and by the party that the signatory has read the document; that to the best of the signatory’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 thereof; and that it is not interposed for improper purpose such as to delay, hinder, or increase the cost of litigation. Debtors and their counsel made their first filing for Chapter 13 relief without first making a reasonable inquiry into the facts and the law to determine whether debtors were eligible for relief. That filing was clearly intended to delay the foreclosure proceeding. Counsel’s excuse is that he never knew up until March 8, 1989 whether his clients would obtain the $19,-000.00 they needed to cure arrearages and he had difficulty getting information from them. He urges:

“Psychologically the Bordens did not wish to face the prospect of filing bankruptcy and were forever hopeful and optimistic of raising funds to reinstate the mortgage. Therefore, despite requests, information was not provided by the Bor-dens and all their energies were consumed in attempting to raise necessary funds. At the time the foreclosure sale arrived I was still without the needed information. At that point there was a choice of either filing without the information or allowing the sale to proceed.”

Debtors’ brief, at 1 (emphasis added). This statement amounts, on its face, to an admission that counsel made the first filing without making an appropriate inquiry into the facts that would have supported the filing of a petition for relief under chapter 13 and a further admission that the petition was interposed for improper purpose. The failure to have the requisite information was the fault of counsel who had over three months to obtain such information. If counsel had truly had little time to prepare the first filing, this court would be more receptive to his argument and to his statement that he now knows he made a mistake and is sorry for it. But that is not the case. Counsel represented these debtors throughout these proceedings. If, as the record established, a bankruptcy filing was contemplated from December, 1988 on, counsel had plenty of time to prepare and had an obligation to do so before commencing the first case. The filing of the Chapter 13 petition with inadequate information only hours before the first scheduled foreclosure constituted a violation of Rule 9011.

Similarly, the second filing constituted a Rule 9011 violation. The second filing for relief under Chapter 13 was made without first making a reasonable inquiry into the law. Section 109(g) of the Bankruptcy Code bars a filing within 180 days of an earlier filing if the prior case was dismissed by the court for willful failure of the debtor to abide by a court order. That is precisely what I did when I dismissed the first case for failure to complete the necessary schedules. Counsel’s excuse in this case is that in the interim between the first and the second filing he learned of certain facts that led him to believe that the clients may have gone under the monetary limitations provided by 11 U.S.C. § 109(e). This decision, he admits, was based on “cursory research and informal discussion with another practitioner”. Debtors’ brief, at 2. Counsel’s research was admittedly inadequate.

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Related

In Re Robertson
105 B.R. 504 (D. Minnesota, 1989)

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Bluebook (online)
104 B.R. 167, 1989 Bankr. LEXIS 1461, 1989 WL 101374, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-borden-mnd-1989.