In re: Jowell A. Hernandez and Anna Lee G. Hernandez, 9th Cir. BAP (2013)

7/25/2019 In re: Jowell A. Hernandez and Anna Lee G. Hernandez, 9th Cir. BAP (2013)

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* Thi s di sposi t i on i s not appr opr i at e f or publ i cat i on.Al t hough i t may be ci t ed f or what ever per suasi ve val ue i t mayhave ( see Fed. R. App. P. 32. 1) , i t has no pr ecedent i al val ue.See 9t h Ci r . BAP Rul e 8013- 1.

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UNI TED STATES BANKRUPTCY APPELLATE PANEL

OF THE NI NTH CI RCUI TI n r e: ) BAP No. NV- 12- 1375- J uKi D

)J OWELL A. HERNANDEZ and ) Bk. No. 10- 15867ANNA LEE G. HERNANDEZ, )

)Debt or s. )

______________________________))

HAI NES & KRI EGER, L. L. C. , ) )

Appel l ant , )

)v. ) M E M O R A N D U M*

)NATI ONAL CAPI TAL MANAGEMENT )LLC, )

)Appel l ee. )

______________________________)

Ar gued and Submi t t ed on J anuar y 25, 2013at Las Vegas, Nevada

Fi l ed - Mar ch 4, 2013

Appeal f r om t he Uni t ed St at es Bankrupt cy Cour tf or t he Di st r i ct of Nevada

Honor abl e Br uce T. Beesl ey, Bankrupt cy J udge, Presi di ng_____________________________________

Appear ances: Davi d Kr ei ger of Hai nes & Kr i eger , L. L. C.appear ed f or appel l ant Hai nes & Kr i eger , L. L. C. ;Dust i n Andr ew J ohnson of Muckl eroy J ohnsonappear ed f or appel l ee Nat i onal Capi t alManagement , LLC.____________________________________

Bef ore: J URY, KI RSCHER and DUNN, Bankr upt cy J udges.

FILED

MAR 04 2013

SUSAN M SPRAUL, CLERKU.S. BKCY. APP. PANELOF THE NINTH CIRCUIT


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1 Unl ess other wi se i ndi cat ed, al l chapt er and sect i onr ef erences are to the Bankr upt cy Code, 11 U. S. C. 101- 1532 andRul e r ef er ences ar e t o t he Feder al Rul es of Bankrupt cyPr ocedur e and Ci vi l Rul e r ef er ences are t o t he Feder al Rul es ofCi vi l Pr ocedur e.

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Chapter 131 debt ors J owel l A. Hernandez and Anna Lee G.

Her nandez f i l ed an obj ect i on t o Nat i onal Capi t al Management ,

LLC s ( NCM) pr oof of cl ai m ( POC) cont endi ng, among ot her t hi ngs,

t hat NCM f ai l ed t o pr ovi de document at i on showi ng t hat i t hadst andi ng t o f i l e t he cl ai m or t hat i t had an enf or ceabl e debt

agai nst t hem under 502( b) ( 1) . The bankrupt cy cour t over r ul ed

t hei r obj ect i on, f i ndi ng debt or s Schedul e F, whi ch l i st ed a

cr edi t car d debt owed t o GE Capi t al / Sam s Cl ub, const i t ut ed an

evi dent i ar y admi ssi on of t he debt cont ai ned i n NCM s POC.

NCM subsequent l y sought sanct i ons agai nst debt or s

at t or neys, Hai nes & Kr i eger , L. L. C. ( Hai nes) , on t he gr ounds

t hat Hai nes cl ai m obj ect i on was not wel l gr ounded i n f act or

l aw i n vi ol at i on of Rul e 9011. NCM f ur t her al l eged t hat Hai nes

engaged i n a per si st ent pat t er n of f i l i ng mer i t l ess cl ai m

obj ect i ons i n t he pr esent case and numerous bankr upt cy cases i n

t he Di st r i ct of Nevada. The bankrupt cy cour t gr ant ed NCM s

mot i on and awarded sanct i ons, payabl e t o NCM, i n t he amount of$3, 000. Thi s appeal f ol l owed.

Wi t hout a mor e det ai l ed expl anat i on of t he r easoni ng f or

i mposi ng sanct i ons based on Hai nes per si st ent pat t er n of

f i l i ng mer i t l ess cl ai m obj ect i ons, t he manner i n whi ch t he

bankrupt cy cour t exer ci sed i t s di scr et i on cannot be det er mi ned.

Fur t her , i t does not appear t hat t he saf e har bor r equi r ement

under Rul e 9011 was met . Accordi ngl y, we VACATE t he bankrupt cy


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cour t s or der and REMAND t he mat t er f or t he bankr upt cy cour t t o

pr ovi de a mor e det ai l ed expl anat i on as t o why i t consi der ed

Hai nes cl ai m obj ect i ons mer i t l ess under t he st andar ds of

Rul e 9011 i n Bankr upt cy Case Nos: 08- 21495, 09- 26913, 10- 19054,10- 20824, 10- 21466, and 10- 31316, and t o expl ai n how t he saf e

har bor r equi r ement was met .

I. FACTS

On Apr i l 5, 2010, debt or s f i l ed t hei r chapt er 13 pet i t i on.

I n Schedul e F, debt or s l i st ed a cr edi t car d debt of $2, 274 owed

t o Gemb/ Sam s Cl ub Dc. Debt ors l i st ed t he account number s

l ast f our di gi t s as 7699 and i ndi cat ed t hat t he cr edi t car d had

an open dat e of 8/ 1/ 09 and was l ast act i ve 3/ 5/ 10. They l ef t

bl ank t he cor r espondi ng col umns whi ch woul d i dent i f y the debt as

cont i ngent , unl i qui dat ed, or di sput ed.

On Apr i l 29, 2010, NCM f i l ed i t s POC ( cl ai m 4- 1) i n t he

amount of $2, 389. 44, whi ch was appr oxi matel y 5% gr eat er t han t he

sum on debt or s Schedul e F f or t hei r Sam s Cl ub cr edi t car ddebt . Under t he headi ng Account I nf ormat i on, NCM showed t he

l ast f our di gi t s of t he account number as 4623, not t he same

f our di gi t number l i st ed on debt or s Schedul e F. The

Suppl ement al Account Summar y at t ached t o t he POC st at ed, among

ot her t hi ngs, t hat NCM was t he successor t o GE Capi t al / Sam s

Cl ub, t hat t he dat e of t he l oan was 8/ 1/ 09 and t hat t he l ast

payment dat e was 3/ 5/ 10.

The Claim Objection

On Febr uar y 28, 2012, debt or s f i l ed an obj ect i on t o NCM s

POC al l egi ng t hat t he cl ai m l acked pr i ma f aci e val i di t y because

i t was based on an i nsuf f i ci ent wr i t i ng i n vi ol at i on of


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Rul e 3001( c) and t hat t he cl ai m was not suppor t ed by any wr i t t en

evi dence of an enf orceabl e agr eement or a cont r act between NCM

and debt ors or between debt ors and an al l eged pr edecessor- i n-

i nt er est i n vi ol at i on of 502( b) ( 1) .Ci t i ng Campbel l v. Capi t al One Bank, 336 B. R. 430 ( 9t h Ci r

BAP 2005) and Heat h v. Am. Expr ess Rel ated Servs. Co. , I nc.

( I n r e Heat h) , 331 B. R. 424 ( 9t h Ci r . BAP 2005) , debt or s f ur t her

cont ended t hat t hei r obj ect i on was not si mpl y based on NCM s

vi ol at i on of Rul e 3001( c) . Debt or s asser t ed t hat t hey had

l i st ed t he cl ai m as di sput ed on t he f i l ed bankrupt cy schedul es,

t hey obj ect ed t o char ges, i nt er est and f ees t hat t hey bel i eved

wer e i ncl uded i n t he cl ai m and t hey di sput ed t hat NCM coul d

asser t a val i d basi s under st at e l aw t o enf or ce t he obl i gat i on.

Fi nal l y, debt or s mai nt ai ned t hat t hei r obj ect i on was suppor t ed

by the di st r i ct cour t case, I n r e Tr an, 2007 WL 1470900 ( S. D.

Tex. 2007) , and ot her bankr upt cy cases f r om Texas, Okl ahoma, and

Ohi o. Debt or s ar gued t hat , col l ect i vel y, t hese cases st ood f ort he pr oposi t i on t hat a cl ai m based on a cr edi t car d debt needed

t o at t ach document at i on showi ng some ver i f i cat i on of owner shi p

by t he cl ai mant when t he debt has been t r ansf er r ed or assi gned

t o compl y wi t h Rul e 3001( c) and, i f such document at i on was not

at t ached, t he POC was not ent i t l ed t o pr i ma f aci e val i di t y under

Rul e 3001( f ) . I n t hat event , debt or s submi t t ed t hat t he bur den

of pr oof r emai ned on t he cr edi t or ( ci t i ng I n r e Long,

353 B. R. 1, 14 ( Bankr . D. Mass. 2006) ( POC not ent i t l ed t o pr i ma

f aci e val i di t y when document at i on evi denci ng secur i t y i nt er est

or pr oof of per f ect i on i s not at t ached t o POC) and I n r e Whi t e,

2008 WL 269897 ( Bankr . N. D. Tex. 2008) ( not i ng that whi l e cl ai m


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2 I t r emai ns a myst er y as t o what t he l ast f our di gi t s oft he account number actual l y ar e.

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obj ect i on ar ose f r om t he l ack of document at i on, t he bur den was

on credi t or t o pr ove owner shi p of t he cl ai m i n the same manner

as i f t hey wer e sui ng t he debt or i n st at e cour t ) ) . For al l

t hese r easons, debt or s r equest ed t hat NCM s cl ai m be di sal l owed.NCM f i l ed a r esponse r ei t er at i ng t he i nf or mat i on on t he

Suppl ement al Account Summary. NCM admi t t ed t hat i t s POC di d not

have suppor t i ng document s at t ached, but argued t hat i t s POC had

t he account s uni que i dent i f i er s: ( 1) t he car d was i ssued by

GE Capi t al , i ssuer of Sam s Cl ub credi t car ds; ( 2) t he si xt een

di gi t account number cont ai ned t he di gi t s 7699 as i ndi cat ed on

debt or s Schedul e F; ( 3) t he dat e of t he l oan was 8/ 1/ 09; and

( 4) t he bal ance of $2, 389. 44 was owed. Wi t h r espect t o t he

account number, NCM poi nt ed out t hat debt ors Schedul e F and

NCM s POC di scl osed di f f er ent f our di gi t por t i ons of t he same

si xteen di gi t account number . 2 NCM al so poi nt ed out t hat

debt or s Schedul e F l i st ed, wi t hout di sput e, an unsecur ed cl ai m

f or t he cr edi t card debt owed t o Sam s Cl ub, wi t h an accountcont ai ni ng t he di gi t s 7699, havi ng an opened dat e of 8/ 1/ 09 and

owi ng a bal ance of $2, 274. I n ot her wor ds, NCM ar gued t hat i t s

POC had al most i dent i cal i nf ormat i on about t he debt owed t o

Sam s Cl ub as t he undi sput ed l i st i ng i n debt or s Schedul e F.

Ci t i ng I n r e Mi nbat i wal l a, 424 B. R. 104, 116 ( Bankr. S. D. N. Y.

2010) , NCM f ur t her asser t ed t hat debt or s j udi ci al admi ssi on

t hat t hey owed t he debt shi f t ed t he bur den t o t hem t o ref ut e the

cl ai m even t hough NCM s POC may have l acked pr i ma f aci e val i di t y


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3 These obj ect i ons are not par t of t he r ecor d on appeal .However , our cur sory r evi ew of t he var i ous pl eadi ngs whi ch ar e ont he docket shows t hat i ndeed Hai nes f i l ed t he i dent i cal obj ect i ont o ni ne ot her POCs. Thi s case ampl y demonst r ates the pr obl emswhi ch ar i se due t o boi l er pl at e obj ect i ons one si ze does not f i tal l .

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f or l ack of suf f i ci ent document at i on.

NCM s r emai ni ng ar gument was t hat Hai nes mass produced

i t s cl ai m obj ect i ons whi ch wer e not hi ng mor e t han a col l ect i on

of gener al r est at ement s of t he l aw t hat [ d] ebt or s counsel usesas a f acade t o gi ve t he appear ance t hat i t s papers ar e somehow

not f r i vol ous. NCM i ndi cat ed t hat Hai nes f i l ed ni ne ot her

obj ect i ons i n debt or s case whi ch wer e i dent i cal . 3 NCM f ur t her

i dent i f i ed numer ous bankrupt cy cases i n t he Di st r i ct of Nevada

wher e Hai nes al l egedl y f i l ed mer i t l ess cl ai m obj ect i ons

Bankr upt cy Case Nos. 08- 21495, 09- 26913, 10- 20824, 10- 21466, and

10- 31316. NCM asser t ed t hat i t gave debt or s counsel t he

r equi r ed 21- day not i ce under Rul e 9011( c) ( 1) ( A) and al so not ed

t hat i t mi ght r equest t he cour t t o or der debt or s counsel t o pay

i t s f ees associ at ed wi t h r espondi ng t o obj ect i ons r el at ed t o

cl ai m 4- 1 i n debt or s case and r espondi ng t o obj ect i ons t o

cl ai m 9- 1 i n Bankrupt cy Case No. 10- 19054.

On Apr i l 17, 2012, t he bankr upt cy cour t hear d argument ondebt or s cl ai m obj ect i on and over r ul ed i t . The t r anscri pt

st at es i n r el evant par t :

THE COURT: I have l ooked at your pl eadi ngs. I m goi ng t oover r ul e your obj ect i on. Your f i r m, not you, but your f i r m . . . has I t hi nk a pat t er n of f i l i ng obj ect i ons t hat have nomer i t what soever . Go back t o your of f i ce and t el l t hem t o st opbecause i f I get mor e of t hese I m goi ng t o st ar t sanct i oni ngyour f i r m. Appr oxi mat el y, how much t i me di d i t t ake you t ooppose thi s?


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MR. ALDOUS [ si c] : Your Honor , I m sor r y. I l l have t o got hr ough and l ook at my bi l l i ng f or t hi s one.

THE COURT: Okay. I m not goi ng t o sanct i on t hem t hi st i me. But i f I see any mor e of t hese, I m goi ng t o st ar tsanct i oni ng pr obabl y [ $] 1, 000 or $2, 000, and I don t t hi nk your

f i r m want s t o have t hat happen, but st op f i l i ng f r i vol ousobj ect i ons.

MR. ALDOUS: Sur e. And, your Honor , i f I may speak i n ourdef ense? I n t hi s case t her e s r eal l y not hi ng t yi ng Nat i onalCapi t al Management t o t he Sam s Cl ub debt . The onl y evi dence hepresented was t he debtors own schedul es sayi ng t hey owed moneyt o Sam s Cl ub.

THE COURT: That s an admi ssi on. That s an evi dent i ar yadmi ss i on.

MR. ALDOUS: But he s not Sam s Cl ub.

THE COURT: Okay.

MR. MUCKLEROY: Your Honor , t hat t r ansf er occur r ed pr i or t ot he f i l i ng of t he cl ai m, so we wer en t r equi r ed t o f i l e t hatdocument at i on. I f t he obj ect i on speci f i cal l y st at ed t hat t her ewas an i ssue regar di ng t hat , t hat s what we were pr ovi ded.However , t he obj ect i on st ates a f al se st at ement , your Honor ,actual l y. I t st at es on page 3, [ i ] t di sput es t he obj ected- t ocl ai m on t he f i l ed bankr upt cy schedul es. That i s bl at ant l yf al se.

THE COURT: I agr ee. I agr ee. Your obj ect i on i s

over r ul ed. Go back and t el l your of f i ce, al l t he l awyer s whowor k ther e, t hat t hey ve got t o st op doi ng t hi s and al l t hepar al egal s t hat wor k t her e that t hey ve got t o st op doi ng t hi s.

MR. ALDOUS: Under st ood.

The Sanctions

On May 24, 2012, NCM f i l ed i t s Rul e 9011 mot i on f or

sanct i ons agai nst Hai nes. NCM asser t ed t hat t he basi s f or

debt or s obj ect i on t o i t s POC was t hat t hey di sput ed t he cl ai m

on t hei r Schedul es. Accor di ng t o NCM, debt ors counsel made a

pat ent l y f al se f act ual cont ent i on t hat ha[ d] no evi dent i ar y

suppor t and t her ef or e, t hey wer e subj ect t o sanct i ons. NCM

f ur t her ar gued t hat t her e was no l egal basi s f or di sal l owance of

i t s i nsuf f i ci ent l y document ed cl ai m when t he cl ai m cor r esponded


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t o a schedul ed and undi sput ed debt . Thus, NCM argued, t he

r emedy of di sal l owance was not warr ant ed by exi st i ng l aw. NCM

al so agai n not ed Hai nes per si st ent pat t er n of f i l i ng basel ess

cl ai m obj ect i ons i n bankr upt cy cases i n t he Di st r i ct of Nevada.The mot i on made r ef er ence t o NCM s compl i ance wi t h t he saf e

har bor but di d not at t ach t he l et t er s or pr oposed mot i on t o

demonst r at e t he pr oper t i mel i ne.

On J une 12, 2012, Hai nes f i l ed i t s opposi t i on t o NCM s

mot i on f or sanct i ons. Hai nes ar gued t hat debt or s cl ai m

obj ect i on met t he st andar ds f or Rul e 9011 because i t bel i eved

NCM s POC was def ect i ve. Hai nes acknowl edged t hat whi l e t he POC

r ef erenced a debt schedul ed by debt ors, i t di d not show how NCM

acqui r ed t he pr i or cr edi t or s r i ght s. Hai nes f ur t her cont ended

t hat i t s var i ous case ci t at i ons suppor t ed i t s posi t i on.

Fi nal l y, Hai nes mai nt ai ned t hat NCM s mot i on f or sanct i ons under

Rul e 9011 was pr ocedur al l y def ect i ve because NCM f i l ed i t s

mot i on af t er t he bankrupt cy cour t had al r eady deci ded t hemat t er , t her eby depr i vi ng Hai nes of t he saf e har bor per i od and

i t s abi l i t y t o wi t hdr aw t he obj ect i on. I n t he end, Hai nes

i nf or med t he bankrupt cy cour t t hat i t had changed i t s pract i ces

t o pr ovi de mor e cl ar i t y i n i t s obj ect i ons t o cl ai ms r egar di ng

speci f i c def ects.

On J une 25, 2012, t he bankr upt cy cour t hear d t he mat t er .

At t he hear i ng, t he bankrupt cy cour t cl ar i f i ed t hat i t had not

pr evi ousl y deni ed sanct i ons and that NCM s counsel sent Hai nes

t wo l et t er s, one at t he end of Mar ch and t he other on Apr i l 3,

2012, pr i or t o t he Apr i l 17, 2012 hear i ng on t he cl ai m


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4 The hear i ng t r anscr i pt cont ai ns a ver bal exchange bet weent he cour t and NCM s counsel whi ch makes i t cl ear t he cour t di dnot have copi es of t he l et t er s or any pr oposed mot i on.

5 Hai nes cl ai m obj ect i ons wi t h r espect t o t hese cases ar enot i n t he r ecor d on appeal nor ar e t he t r anscr i pt s of t he

( cont i nued. . . )

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obj ect i on. 4 Those l et t er s pur por t edl y al er t ed Hai nes of t he

Rul e 9011 vi ol at i on, but t he cour t made no speci f i c f i ndi ng t hat

t he l et t er s act ual l y compl i ed wi t h t he saf e har bor r equi r ement

under Rul e 9011( c) ( 1) ( A) . NCM s counsel r ei t er at ed t hat i tpur sued t he mot i on because Hai nes engaged i n a persi st ent

pat t er n of f i l i ng obj ect i ons t o i t s cl ai ms and t hen, af t er NCM

r esponded and came t o cour t , Hai nes woul d wi t hdr aw t he

obj ect i on. Appar ent l y because i t had f ound debt or s admi t t ed

t he debt i n t hei r Schedul es, t he bankrupt cy cour t pl aced t he

bur den of pr oof on Hai nes t o come f ort h wi t h evi dence t hat NCM

was not t he successor i n i nt er est t o GE Capi t al / Sam s Cl ub. The

cour t asked Hai nes i f i t had any such evi dence and Hai nes

r epl i ed t hat i t di d not . Accor di ngl y, t he bankr upt cy cour t

awar ded NCM i t s at t or neys f ees of $3, 000 i n def endi ng t he

obj ect i ons t o i t s cl ai m i n t hi s case and t he ot her bankr upt cy

cases not ed.

On J ul y 18, 2012, t he cour t ent er ed t he or der gr ant i ngNCM s mot i on f or sanct i ons. The or der s t at ed t hat Hai nes f i l ed

obj ect i ons t o NCM s POC s i n Bankr upt cy Cases Nos. 09- 26913

( Dkt . Nos. 81, 83, 96, 97, and 112) ; 10- 20824 ( Dkt . Nos. 116,

184 and 188; 10- 31316 (Dkt . Nos. 54 and 63) ; 10- 21466 (Dkt . Nos.

69 and 95) ; 08- 21495 ( Dkt . Nos. 42, 75, 78 and 79) ; and 10- 19054

( Dkt . Nos. 83 and 85) . 5 The or der f ur t her st at ed t hat NCM f i l ed


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5( . . . cont i nued)hear i ngs on the obj ect i ons pr ovi ded.

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a mot i on i n t hi s case al l egi ng t hat Hai nes engaged i n a

per si st ent pat t er n of f i l i ng mer i t l ess cl ai ms obj ecti ons i n t hi s

case as wel l as ot her bankrupt cy cases i n t he di st r i ct . The

Cour t concl ude[ d] t hat such obj ect i ons t o NCM s cl ai ms wer ef i l ed wi t h no or near l y no i nqui r y i nt o t he ci r cumst ances,

cont ai ned f act ual al l egat i ons t hat wer e f al se and put f or t h

l egal cont ent i ons t hat wer e not war r ant ed by exi st i ng l aw and

t hat t he f i l i ng of such obj ect i ons const i t ut ed a pat t er n on

behal f of Hai nes & Kr ei ger , L. L. C. and t hat such a per si st ent

pat t er n i s l egal gr ounds f or sanct i ons pur suant t o [ Rul e]

9011( b) ( 1) - ( 3) .

The Appeal

On J ul y 23, 2012, debt or s f i l ed a not i ce of appeal of t he

order . On November 5, 2012, t he Panel i ssued an order t hat gave

Hai nes f our t een days t o f i l e a wr i t t en r esponse i ndi cat i ng

whet her i t woul d subst i t ut e as t he appel l ant and pur sue t he

appeal f i l ed by debt or s. Hai nes f i l ed a t i mel y r esponse and onNovember 7, 2012, t he Panel ent ered an order subst i t ut i ng Hai nes

as t he appel l ant i n pl ace of debt or s i n t hi s appeal .

II. JURISDICTION

The bankrupt cy cour t had j ur i sdi ct i on over t hi s proceedi ng

under 28 U. S. C. 1334 and 157( b) ( 2) ( A) and ( B) . We have

j ur i sdi ct i on under 28 U. S. C. 158.

III. ISSUE

Di d t he bankrupt cy cour t abuse i t s di scr et i on i n gr ant i ng


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NCM s mot i on f or sanct i ons under Rul e 9011?

IV. STANDARD OF REVIEW

We r evi ew al l aspect s of a bankrupt cy cour t s deci si on t o

i mpose Rul e 9011 sanct i ons f or abuse of di scr et i on. Val l eyNat l Bank v. Needl er ( I n r e Gr ant ham Br os. ) , 922 F. 2d 1438,

1441 ( 9t h Ci r . 1991) . A bankrupt cy cour t abuses i t s di scr et i on

when i t appl i es t he i ncor r ect l egal r ul e or i t s appl i cat i on of

t he cor r ect l egal r ul e i s (1) i l l ogi cal , ( 2) i mpl ausi bl e, or

( 3) wi t hout suppor t i n i nf er ences t hat may be dr awn f r om t he

f act s i n t he r ecor d. Uni t ed St at es v. Loew, 593 F. 3d 1136,

1139 ( 9t h Ci r . 2010) ( quot i ng Uni t ed St at es v. Hi nkson, 585 F. 3d

1247, 126162 ( 9t h Ci r . 2009) ( en banc) ) ( i nt er nal quot at i on mar ks

omi t t ed) .

V. DISCUSSION

Rul e 9011 st at es i n r el evant par t :

( b) Repr esent at i on t o t he cour t

By pr esent i ng t o t he cour t . . . a pet i t i on, pl eadi ng,wr i t t en mot i on, or ot her paper , an at t or ney orunr epr esent ed par t y i s cer t i f yi ng t hat t o t he best oft he per son s knowl edge, i nf or mat i on, and bel i ef ,f or med af t er an i nqui r y reasonabl e under t heci r cumst ances, - -

( 1) i t i s not bei ng pr esent ed f or any i mpr operpur pose, such as t o harass or t o cause unnecessarydel ay or needl ess i ncrease i n t he cost of l i t i gat i on;

( 2) t he cl ai ms, def enses, and ot her l egal cont ent i onst her ei n ar e war r ant ed by exi st i ng l aw or by a

nonf r i vol ous ar gument f or t he extensi on, modi f i cat i on,or r ever sal of exi st i ng l aw or t he est abl i shment ofnew l aw;

( 3) t he f act ual cont ent i ons have evi dent i ar y suppor tor , i f speci f i cal l y so i dent i f i ed, wi l l l i kel y haveevi dent i ar y suppor t af t er a reasonabl e oppor t uni t y f orf ur t her i nvesti gat i on or di scover y; . . . .


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The l anguage of Rul e 9011 par al l el s t hat of [ Ci vi l

Rul e] 11. Ther ef or e, cour t s anal yzi ng sanct i ons under Rul e 9011

may appr opr i at el y rel y on cases i nt er pr et i ng [ Ci vi l Rul e] 11.

Wi nt er t on v. Humi t ech of N. Cal . , LLC ( I n r e Bl ue Pi ne, I nc. ) ,457 B. R. 64, 75 ( 9t h Ci r . BAP 2011) ( ci t i ng Mar sch v. Mar sch

( I n r e Mar sch) , 36 F. 3d 825, 829 ( 9t h Ci r . 1994) ) .

A. Standards for Imposition of Sanctions Under Rule 9011

Under t he Rul e, a f i l i ng i s f r i vol ous i f i t i s bot h

basel ess l acks f act ual f oundat i on and made wi t hout a

r easonabl e and compet ent i nqui r y. I n r e Bl ue Pi ne, I nc. ,

457 B. R. at 75 ( ci t i ng Townsend v. Hol man Consul t i ng Corp. ,

929 F. 2d 1358, 1362 ( 9t h Ci r . 1991) ( en banc) ) . The at t or ney

has a dut y t o conduct a r easonabl e f act ual i nvest i gat i on as

wel l as t o per f or m adequat e l egal r esear ch t hat conf i r ms t hat

hi s posi t i on i s war r ant ed by exi st i ng l aw ( or by a good f ai t h

ar gument f or a modi f i cat i on or ext ensi on of exi st i ng l aw) . I d.

( ci t i ng Chr i st i an v. Mat t el , I nc. , 286 F. 3d 1118, 1127 ( 9t h Ci r .2002) ) . Thus, a f i ndi ng t hat t her e was no r easonabl e i nqui r y

i nt o ei t her t he f act s or t he l aw i s t ant amount t o a f i ndi ng of

f r i vol ous. I d. ( ci t i ng Townsend, 929 F. 2d at 1362) .

To det er mi ne whet her Hai nes vi ol at ed Rul e 9011, t he

bankr upt cy cour t must have j udged Hai nes conduct under an

obj ect i ve st andar d of r easonabl eness. G. C. & K. B. I nvs. , I nc.

v. Wi l son, 326 F. 3d 1096, 1109 ( 9t h Ci r . 2003) ( ci t i ng Townsend,

929 F. 2d at 1362) ) . The r easonabl eness of at t or ney conduct i s

measur ed agai nst t he conduct of a competent at t orney admi t t ed

t o pr act i ce bef or e t he i nvol ved cour t . I n r e Gr ant ham Br os. ,

922 F. 2d at 1441.


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6 At t he sanct i ons hear i ng, NCM agai n compl ai ned t hat t hesol e basi s f or Hai nes obj ect i on was t hat debt or s di sput ed t hecl ai m i n t hei r schedul es. The cour t appear ed t o agr ee wi t h t hat

asser t i on.7 Al t hough Hai nes di scussi on i n i t s cl ai m obj ect i on on t hi s

poi nt was cur sor y, t her e ar e speci f i c st at ut es i n Nevada thataddr ess act i ons br ought t o col l ect a cr edi t car d debt owed t o apur chaser of cr edi t car d debt . See Nev. Rev. St at . 97A. 160,97A. 165. The bankr upt cy cour t di d not addr ess Hai nes argumentunder 502( b) ( 1) because i t over r ul ed Hai nes cl ai m obj ect i on onother gr ounds.

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B. The Claim Objection In this Case Was Not Frivolous

Hai nes obj ect ed t o NCM s POC on not one, but several

grounds. 6 Hai nes chal l enged NCM s POC because i t l acked

document ary pr oof under Rul e 3001( c) ( 1) and t hus cont ended t hatt he POC was not ent i t l ed t o pr i ma f aci e val i di t y. Hai nes al so

asser t ed as a def ense under 502( b) ( 1) t hat NCM f ai l ed t o

pr ovi de evi dence of an enf or ceabl e cont r act t hat woul d ent i t l e

i t t o make t he cl ai m agai nst debt or under Nevada l aw. 7 Fi nal l y,

t he cl ai m obj ect i on i ncl uded a st at ement t hat debt or s di sput ed

t he obj ect ed t o cl ai m on t he Fi l ed Bankrupt cy Schedul es. For

al l t hese reasons, Hai nes r equest ed t he di sal l owance of NCM s

POC.

A f ai r r eadi ng of Hai nes cl ai m obj ect i on shows t hat i t s

argument r egardi ng t he l ack of document at i on was di r ected

t owards t he pr i ma f aci e val i di t y of NCM s POC and t he bur den of

pr oof i n t he cl ai ms obj ect i on pr ocess. Speci f i cal l y, Hai nes

quest i oned NCM s st andi ng t o f i l e t he cl ai m and mai nt ai ned,because of t hat def i ci ency, debt or s had no evi dent i ar y bur den t o

over come i n obj ect i ng t o NCM s POC.

Hai nes ci t at i on t o I n r e Tr an, 369 B. R. 312 ( S. D. Tex.


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8 I n a di f f er ent cont ext , we have hel d t hat st andi ng i spr er equi si t e t o t he evi dent i ar y benef i t s set f or t h i nRul e 3001( f ) . Veal v. Am. Home Mor t g. Ser vi ci ng, I nc.

( I n r e Veal ) , 450 B. R. 897 ( 9t h Ci r . BAP 2011) . Ther e, t he Panelr easoned t hat Rul e 3001( f ) st at es t hat a pr oof of cl ai m i s pr i maf aci e evi dence of t he val i di t y and amount of t he cl ai m i f i t i sbot h execut ed and f i l ed i n accordance wi t h t he Rul e, and Rul e3001( b) r equi r es t hat a cl ai m be execut ed by t he cr edi t or or i t saut hor i zed agent . . . . i f a cl ai m i s chal l enged on t he basi s ofst andi ng, t he par t y who f i l ed t he pr oof of cl ai m must show t hati t i s ei t her t he credi t or or t he credi t or s aut hor i zed agent i n

( cont i nued. . . )

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2007) suppor t ed i t s ar gument s. I n Tr an, t he debt or obj ect ed t o

eCast Set t l ement Corp. s POCs because eCast , who was an assi gnee

of t hr ee banks whi ch al l egedl y i ssued cr edi t car ds t o Tr an, was

a s t r anger and t heref ore she owed t hem no money. ECastr esponded by pr ovi di ng addi t i on evi dence consi st i ng pr i mar i l y of

gener al assi gnment agr eement s between eCast and t he t hree banks,

but t hose assi gnment s di d not speci f i cal l y i dent i f y Tr an or her

r espect i ve account s. At an evi dent i ar y hear i ng, eCast was

assi gned t he bur den t o overcome Tran s obj ect i ons. ECast

at t empt ed t o i nt r oduce evi dence suppor t i ng i t s POCs, but t he

assi gnment s were excl uded as hear say. I n t he end, t he

bankrupt cy cour t f ound t hat eCast f ai l ed t o f i l e a pr oper POC

based upon a wr i t i ng and t hus i t s POCs wer e not ent i t l ed t o

pr i ma f aci e val i di t y. Ther ef or e, t he cour t f ound t hat under

Fi f t h Ci r cui t l aw, Tr an had no evi dent i ar y bur den t o over come i n

obj ect i ng t o eCast s cl ai ms. The bankrupt cy cour t al so f ound

t hat eCast f ai l ed t o sat i sf y i t s evi dent i ar y bur den of pr ovi di ngt he val i di t y and amount s of i t s cl ai ms under a cont r act ual

anal ysi s under Texas l aw and t hus di sal l owed i t s POCs. On

appeal , t he di st r i ct cour t af f i r med. 8


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8( . . . cont i nued)or der t o obt ai n t he benef i t s of Rul e 3001( f ) . I d. at 922.

9 See al so I n r e Samson, 392 B. R. 724, 733 ( Bankr . N. D. Ohi o2008) ( Ther e i s . . . no br i ght - l i ne t est t o det er mi ne t hesuf f i ci ency of t he wr i t t en mat er i al s submi t t ed by t he cr edi t or

f or pur poses of Bankrupt cy Rul e 3001. ) ; I n r e Heat h, 331 B. R. at432 ( There i s no uni f or m st andar d f or what must be cont ai ned i na summar y. ) ( per t ai ni ng t o cr edi t car d debt ) .

10 Af t er t he bankr upt cy cour t hear d and r ul ed on Hai nesobj ect i on t o NCM s POC, f ur t her amendment s t o Rul e 3001 tookef f ect on December 1, 2012. Those amendment s, whi ch do not appl yt o t hi s case, wer e i nt ended t o st andar di ze t he pr oof s of cl ai mand support i ng document at i on f i l ed by assi gnees.

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The ot her cases ci t ed by Hai nes al so l egal l y suppor t ed i t s

posi t i on. I n r e Rochest er , 2005 WL 3670877 ( Bankr . N. D. Tex.

2006) ( hol di ng t hat f or a cl ai m based upon a wr i t i ng, t he

under l yi ng document s and t he ass i gnment or t r ansf er document areneeded t o compl y wi t h Rul e 3001( c) ) ; I n r e Kendal l , 380 B. R. 37

( Bankr . N. D. Okl a. 2007) ( same) . Thus, obj ect i vel y, Hai nes

cl ai m obj ect i on was war r ant ed by exi st i ng l aw and t hus coul d not

have vi ol at ed 9011( b) ( 2) . 9

NCM conceded t hat i t had at t ached no document at i on t o i t s

POC, 10 but ar gued t hat i t s POC st i l l pr ovi ded suf f i ci ent i ndi ci a

of t he cl ai m s val i di t y and amount i n l i ght of debt or s

admi ss i ons on t hei r schedul es. Thus, accor di ng t o NCM, t her e

was enough i nf ormat i on i n t he POC t o shi f t t he bur den of

pr oduct i on t o debt or s. See I n r e Mi nbat i wal l a, 424 B. R. at 113

( ci t i ng I n r e J or czak, 314 B. R. 474, 483 n. 11 ( Bankr . D. Conn.

2004) ( [ W] hen a pr oof of cl ai m [ agai nst an est at e sur pl us]

has been f i l ed i n a chapt er 7 case and t he chapt er 7 debt orobj ect s t o t he same but schedul ed t he r el evant cl ai m as


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undi sput ed, t he bur den i s on t he debt or t o of f er some adequate

l evel of expl anat i on as t o why hi s schedul i ng of t hat cl ai m as

undi sput ed was i ncor r ect . ) ( credi t car d cl ai m) ) . NCM f ur t her

ar gued at t he cl ai ms obj ect i on hear i ng t hat Hai nes st at ement i nt he obj ect i on t hat debt or s di sput ed t he obj ect ed t o cl ai m on

t he Fi l ed Bankrupt cy Schedul es was f al se.

The bankrupt cy cour t agr eed, essent i al l y adopt i ng NCM s

argument t hat debt ors had admi t t ed i n t hei r Schedul e F owi ng t he

debt set f or t h i n NCM s POC. Ther ef or e, i t f ol l owed t hat t he

obj ect ed- t o cl ai m coul d not have been di sput ed i n t hose same

schedul es and t hus t he st at ement i n t he cl ai m obj ect i on was

f al se. I t i s t r ue, of cour se, t hat Hai nes st at ement was

i ndeed i ncor r ect because NCM was nowhere t o be f ound on debt ors

schedul es. Thi s i s not sur pr i si ng i n l i ght of Hai nes obj ect i on

t o NCM s cl ai m based on i t s l ack of st andi ng.

However , when Hai nes st atement about t he di sput ed debt

i s consi der ed i n r el at i on t o t he cl ai m obj ect i on as a whol e, seeTownsend, 929 F. 2d at 1364, we do not bel i eve t hat t hi s si ngl e

st at ement was so si gni f i cant as t o cause Hai nes t o be l i abl e f or

sanct i ons f or vi ol at i ng Rul e 9011( b) ( 3) . Ther e ar e no har d and

f ast r ul es f or descr i bi ng t he r ol e of t he debt or s schedul es t o

f i l l i n gaps i n a POC t hat ot her wi se l acks pr i ma f aci e

evi dent i ar y st at us under Rul e 3001( f ) . See I n r e Mi nbat i wal l a,

424 B. R. at 116- 17 ( di scussi ng t he var i ous appr oaches t o t he

r ol e of t he debt or s schedul es i n cl ai m obj ect i on pr oceedi ngs) .

Fur t her , because debt ors can amend t he schedul es at any t i me

bef or e t he case i s cl osed, a change i n t he l i st i ng f r om

undi sput ed t o di sput ed has no ef f ect on t he bur den associ at ed


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wi t h t he cl ai m and t he cour t s wi l l not r el y on such admi ssi ons.

Heat h, 331 B. R. at 431. See al so I n r e Veal , 450 B. R. at 921

( admi ssi ons i n debt or s bankrupt cy schedul es not concl usi ve

evi dence on i ssue of cl ai mant s st andi ng) ; B- Real , LLC v.Mel i l l o ( I n r e Mel i l l o) , 392 B. R. 1, 6 ( 1st Ci r . BAP 2008)

( i nf or mat i on i n t he debt or s bankrupt cy schedul es t hat t ended t o

est abl i sh t he exi st ence of t he under l yi ng debt pr ovi de[ d] an

i nadequat e showi ng of t he Appel l ant s owner shi p as a

t r ansf er r ee. ) .

C. Persistent Pattern of Meritless Claims Objections

Our i nqui r y i nt o t he appr opr i at eness of t he sanct i ons does

not end here because t he Rul e 9011( b) ( 1) i mpr oper pur pose

i nqui r y r emai ns. Even i f t he cl ai m obj ect i on i n t hi s case i s

not consi der ed f r i vol ous, i f a cour t f i nds t hat a mot i on or

paper , . . . , i s f i l ed i n t he cont ext of a per si st ent pat t er n

of cl ear l y abusi ve l i t i gat i on acti vi t y, i t wi l l be deemed t o

have been f i l ed f or an i mpr oper pur pose and sanct i onabl e. Aet na Li f e I ns. Co. v. Al l a Med. Ser vs. , I nc. , 855 F. 2d 1470,

1476 ( 9t h Ci r . 1988) . On t hi s r ecor d, we cannot t el l whet her

Hai nes conduct r i ses t o t he l evel of abusi ve l i t i gat i on

act i vi t y t hat Rul e 9011 was meant t o pr ot ect agai nst namel y

conduct t hat har asses, causes unnecessar y del ay, or needl essl y

i ncreases t he cost of l i t i gat i on. See Rul e 9011( b) ( 1) .

Because t he sanct i on mot i on was a cont est ed mat t er subj ect

t o Rul e 9014, t he bankr upt cy cour t was r equi r ed t o make f i ndi ngs

of f act , ei t her or al l y on t he r ecor d, or i n a wr i t t en deci si on.

See Rul e 9014( c) ( i ncor por at i ng Rul e 7052, whi ch i n t ur n

i ncor por at es Ci vi l Rul e 52) . These f i ndi ngs must be suf f i ci ent


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t o enabl e a r evi ewi ng cour t t o det er mi ne t he f act ual basi s f or

t he cour t s r ul i ng. I n r e Veal , 450 B. R. at 919.

Al t hough t he r ecor d i ndi cat es t hat t he bankrupt cy cour t was

concer ned wi t h Hai nes conduct i n ot her bankrupt cy cases, t hecour t never made speci f i c f act ual f i ndi ngs wi t h r espect t o t he

cl ai m obj ect i ons whi ch wer e par t of Hai nes per si st ent pat t er n

of f i l i ng mer i t l ess cl ai m obj ect i ons as stat ed i n i t s or der .

The t r anscr i pt of t he sanct i ons hear i ng shows t he f ol l owi ng

di scussi on:

THE COURT: . . . I t appear s t o me you ve t r i ed t o si dest ep

t he Cour t s obj ect i on by movi ng back a st ep and l i st i ng cl ai mswi t h an unf ounded di sput e. . . . That s how i t appear s t o me.

MR. ALDOUS: Okay. I s t her e a speci f i c case you r e. . . . r ef er r i ng to?

THE COURT: We l l di scuss t hat l at er .

MR. ALDOUS: Okay.

THE COURT: I m havi ng a meet i ng wi t h t he ot her j udges t hi saf t er noon t o see i f we can addr ess t hi s gl obal l y.

MR. ALDOUS: Okay.Whi l e a bankrupt cy cour t s di scr et i on i n i mposi ng sanct i ons

under Rul e 9011 i s subst ant i al , di scussi on of i t s anal ysi s i s

cr uci al bot h t o i nsur e t hat i t s di scr et i on has not been abused

and t o pr oper l y i nf or m t he i nvol ved par t i es of t he pr eci se basi s

upon whi ch any sanct i ons have been i mposed. I f each of t he

cl ai ms obj ect i ons was mer i t l ess as st at ed i n t he cour t s

or der , t he bankrupt cy cour t shoul d have di scussed each obj ect i on

and t ol d Hai nes why i t was wi t hout mer i t . I nst ead, t he

bankr upt cy cour t si mpl y sai d: We l l di scuss t hat l at er .

Accor di ngl y, nei t her Hai nes nor t hi s cour t can di scer n t he

pr eci se basi s upon whi ch t he sanct i ons were i mposed. [ W] hen


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t he r ecor d does not cont ai n a cl ear basi s f or t he cour t s

r ul i ng, we must vacat e t he cour t s order and r emand f or f ur t her

pr oceedi ngs. I n r e Veal , 450 B. R. at 920.

D. Safe Harbor

Gener al l y, as an i ni t i al i nqui r y, t he bankrupt cy cour t must

determi ne whether t he part y seeki ng sanct i ons compl i ed wi t h t he

so- cal l ed saf e har bor pr ovi si on. Rul e 9011( c) ( 1) ( A) set s f or t h

t he r equi r ement s f or how a mot i on f or sanct i ons i s i ni t i at ed.

The Rul e r equi r es t hat a mot i on must be ser ved, but not f i l ed or

be pr esent ed t o t he cour t i f t he chal l enged paper , cl ai m,

def ense, cont ent i on, or deni al i s wi t hdr awn or appr opr i at el y

cor r ect ed wi t hi n 21 days af t er ser vi ce or wi t hi n anot her t i me

t he cour t set s. The saf e harbor r equi r ement s have been

descr i bed as f ol l ows: The movant serves t he al l egedl y

of f endi ng par t y wi t h a f i l i ng- r eady mot i on as not i ce t hat i t

pl ans to seek sanct i ons. Af t er 21 days, i f t he of f endi ng par t y

has not wi t hdr awn t he f i l i ng, t he movant may f i l e t he Rul e 11mot i on wi t h t he cour t . Truesdel l v. S. Cal . Per manent e Med.

Gr p. , 293 F. 3d 1146, 1151 ( 9t h Ci r . 2002) .

The bankrupt cy cour t made no expr ess f i ndi ng t hat t he saf e

harbor r equi r ement under Rul e 9011( c) ( 1) ( A) was met and t he

r ecor d on t hi s poi nt i s spar se. NCM made a vague r ef er ence at

t he sanct i ons hear i ng t hat i t sent Hai nes t wo l et t er s

accompani ed by a proposed mot i on but none of t hose document s

wer e i n t he r ecor d on appeal . As a r esul t , t her e i s no

i ndi cat i on t hat t he l et t er s/ mot i on wer e t i mel y ser ved.

Hai nes r ai sed t he i ssue of t he saf e har bor i n t he

bankrupt cy cour t , but does not speci f i cal l y pur sue the i ssue on


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appeal . Al t hough we general l y do not consi der a mat t er on

appeal t hat i s not speci f i cal l y and di st i nct l y ar gued i n

appel l ant s openi ng br i ef , Af f or dabl e Housi ng Dev. Cor p. v.

Fr esno, 433 F. 3d 1182, 1193 ( 9t h Ci r . 2006) , we consi der t hei ssue her e because t he Ni nt h Ci r cui t has st at ed t hat t he saf e

har bor r equi r ement i s not onl y st r i ct l y enf or ced, but i s

mandat or y. Hol gat e v. Bal dwi n, 425 F. 3d 671, 677 ( 9t h Ci r .

2005) ; Bar ber v. Mi l l er , 146 F. 3d 707 ( 9t h Ci r . 1998) . Fur t her ,

i nf or mal l et t er s or war ni ngs do not meet t he saf e har bor

r equi r ement s. Bar ber , 146 F. 3d at 71011. I t i s t he ser vi ce

of t he mot i on t hat gi ves not i ce t o a par t y and i t s at t or neys

t hat t hey must r et r act or r i sk sanct i ons. Radcl i f f e v. Rai nbow

Const r . Co. , 254 F. 3d 772, 789 ( 9t h Ci r . 2001) . I t does not

appear t hat t he bankrupt cy cour t f ol l owed t hi s pr ecedent .

VI. CONCLUSION

For t he reasons s t ated, we VACATE t he sanct i ons or der and

REMAND t o t he bankr upt cy cour t t o al l ow i t t o make speci f i cf act ual f i ndi ngs and concl usi ons of l aw as t o why sanct i ons

under Rul e 9011 were warr ant ed based on Hai nes persi st ent

pat t er n of f i l i ng mer i t l ess cl ai m obj ecti ons and t o al so

ar t i cul at e f i ndi ngs whi ch suppor t a concl usi on t hat t he movi ng

par t y compl i ed wi t h t he saf e har bor r equi r ement s.

Documents

In re: Jowell A. Hernandez and Anna Lee G. Hernandez, 9th Cir. BAP (2013)