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In re Lane

United States Bankruptcy Appellate Panel of the Sixth Circuit

August 30, 2019

In re: Linda J. Lane, Debtor.
v.
Linda J. Lane, Appellee. Sarah Dean; Kevin Dean, Appellants,

          Appeal from the United States Bankruptcy Court for the Western District of Kentucky at Louisville. No. 3:17-bk-32237-Joan A. Lloyd, Judge.

          Neil C. Bordy, SEILLER WATERMAN, LLC, Louisville, Kentucky, for Appellee.

          Kevin Dean, Sarah Dean, Mount Washington, Kentucky, pro se.

          Before: BUCHANAN, DALES, and WISE, Bankruptcy Appellate Panel Judges.

          OPINION

          SCOTT W. DALES, BANKRUPTCY APPELLATE PANEL JUDGE.

         The appellants in this case, Sarah and Kevin Dean (the "Deans" or the "Appellants"), by two separate appeals challenge the orders of the Bankruptcy Court for the Western District of Kentucky ("Bankruptcy Court") finding them in contempt and issuing sanctions, as well as orders denying motions for reconsideration. The current appeal is just the latest in a series of appeals emanating from the chapter 13 bankruptcy case of Linda J. Lane (the "Debtor" or "Appellee"), which has turned out to be an especially vexing proceeding for the parties and the courts.

         STATEMENT OF ISSUES

         In their Appellants' Designations of Record and Statements of Issues to be Presented on Appeal, the Deans list numerous issues on appeal. Many of the issues they did not address in their briefing; other issues are not fully developed on appeal or are unrelated to the orders that are currently before the Panel. As to these unbriefed or underdeveloped issues, the Panel will not address them because "[i]t is well-established that issues adverted to in a perfunctory manner, unaccompanied by some effort at developed argumentation, are deemed waived." Church Joint Venture, L.P. v. Bedwell (In re Blasingame), 598 B.R. 864, 874 (B.A.P. 6th Cir. 2019) (quoting Dillery v. City of Sandusky, 398 F.3d 562, 569 (6th Cir. 2005) (internal quotation marks and citations omitted)). In each appeal, the Panel has fully considered the salient issue, that is, whether the Bankruptcy Court erred in imposing sanctions against the Deans.

         JURISDICTION AND STANDARD OF REVIEW

         The Bankruptcy Appellate Panel of the Sixth Circuit ("BAP" or the "Panel") has jurisdiction to decide this appeal. The United States District Court for the Western District of Kentucky has authorized appeals to the Panel, and the parties did not elect to have this appeal heard by the district court. 28 U.S.C. §§ 158(b)(6), (c)(1). A final order of the bankruptcy court may be appealed as of right pursuant to 28 U.S.C. § 158(a)(1). The Bankruptcy Court's order imposing sanctions is a final, appealable order. See In re Martin, 474 B.R. 789 (table), 2012 WL 907090, at *1 (B.A.P. 6th Cir. Mar. 7, 2012); see also B-Line, LLC v. Wingerter (In re Wingerter), 594 F.3d 931, 936 (6th Cir. 2010). "An order imposing [Federal] Rule [of Bankruptcy Procedure] 9011 sanctions is only final upon assessment of fees and expenses." Hoover v. Jones (In re Jones), 546 B.R. 12, 15 (B.A.P. 6th Cir. 2016). The Bankruptcy Court's order denying the Appellants' motions for reconsideration is also a final, appealable order. Hamerly v. Fifth Third Mortg. Co. (In re J & M Salupo Dev. Co.), 388 B.R. 795, 800 (B.A.P. 6th Cir. 2008). The Panel reviews a bankruptcy court's imposition of sanctions for abuse of discretion. Wingerter, 594 F.3d at 936. Likewise, "[t]he denial of a motion for reconsideration is reviewed for abuse of discretion." In re Burrage, 464 B.R. 61(table), 2011 WL 6155716, at *1 (B.A.P. 6th Cir. Nov. 18, 2011). The Panel will find an abuse of discretion when, after careful review, it has 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 Panel has elaborated on this standard of review in the sanctions context as follows:

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) (arguments concerning an error in statutory interpretation or due process related to sanctions are reviewed de novo).

Montedonico v. Blasingame (In re Blasingame), 559 B.R. 676, 679 (B.A.P. 6th Cir. 2016), aff'd, 709 Fed.Appx. 363 (6th Cir. 2018) (quoting In re Royal Manor Mgmt., Inc., 525 B.R. 338, 346 (B.A.P. 6th Cir. 2015), aff'd sub nom. Grossman v. Wehrle (In re Royal Manor Mgmt., Inc.), 652 Fed.Appx. 330 (6th Cir. 2016)). Nevertheless, "[t]he 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)." Id. at 679.

         With this recent guidance in mind, the Panel turns to the merits of the current appeals.

         FACTS

         In June 2014, the Debtor sold her home to the Deans. After the closing, the Deans discovered mold in the basement. The parties agreed to arbitration, and ultimately the arbitrator awarded the Deans $28, 172.99, plus attorney fees of $98, 722.58. The Bullitt County Circuit Court confirmed the arbitration award and entered a judgment against the Debtor for $126, 895.57. The Deans then filed a judgment lien against the Debtor's current residence.

         On July 14, 2017, the Debtor filed a chapter 13 bankruptcy petition in the Western District of Kentucky. She listed the Deans on Schedule D of her petition as secured creditors and the Deans filed Proof of Claim No. 2.

         The Deans, through counsel, initially objected to the Debtor's proposed chapter 13 plan. At the hearing on the objection, however, the parties agreed that the only unresolved issue was the interest rate on the Deans' claim. Following the hearing, the Bankruptcy Court issued an order setting the rate at 4.25%. The Bankruptcy Court confirmed the Debtor's chapter 13 plan (the "Plan"), and the Debtor is paying the Deans' claim in full, with interest, over the term of the Plan.

         On October 13, 2017, the Deans filed a complaint against the Debtor, commencing Adversary Proceeding No. 17-03062. In that adversary proceeding, the Deans claimed damages of $300, 000 for Sarah Dean's respiratory problems allegedly attributable to mold contamination. The Deans requested a finding that the damages be declared non-dischargeable. The Bankruptcy Court later dismissed the Adversary Proceeding, and the Deans did not appeal from the dismissal order.

         Meanwhile, on November 2, 2017, shortly after the entry of the order confirming the Debtor's Plan, the Deans filed a motion to dismiss the Debtor's bankruptcy case. The Debtor objected, and on February 5, 2018, the Bankruptcy Court entered a Memorandum Opinion denying the motion to dismiss. The Deans timely filed a notice of appeal from that order, but the BAP dismissed that appeal for lack of jurisdiction, concluding that the order declining to dismiss the Debtor's bankruptcy case was not a final order. Dean v. Lane (In re Lane), 598 B.R. 595 (B.A.P. 6th Cir. 2019) ("BAP Case 18-8005").

         On March 2, 2018, while the appeal in BAP Case 18-8005 was still pending, the Debtor sent the Deans a letter offering a proposed payout of her claim ("Settlement Letter"). The Settlement Letter explained that it was not admissible as evidence pursuant to Federal Rule of Evidence 408 ("Rule 408"). Nonetheless, the Deans immediately filed the Settlement Letter on the docket, unaccompanied by any other pleading or explanation of the purpose of the filing. The Deans then designated the Settlement Letter as part of the record on appeal in BAP Case 18-8005, which was still pending.

         On April 13, 2018, the Debtor filed a motion for sanctions against the Deans, her first such motion (Mot. for Sanctions, Case No. 17-32237 ECF No. 62 (the "First Sanctions Motion")).[1]The First Sanctions Motion asserted the Deans had violated Federal Rule of Bankruptcy Procedure 9011 ("Rule 9011") and Rule 408 by filing the Settlement Letter. On May 3, 2018, the Debtor also filed a motion to strike the Settlement Letter (the "Motion to Strike," ECF No. 74). The Deans filed a combined objection to both the First Sanctions Motion and Motion to Strike on May 14, 2018.

         On August 3, 2018, the Bankruptcy Court entered an opinion and order granting the Debtor's motions. (ECF No. 97 (the "First Sanctions Opinion").) The Bankruptcy Court ordered the Settlement Letter stricken from the record, sanctioned the Deans $5, 000 (payable to the Bankruptcy Court), and awarded the Debtor attorney fees as part of the sanction. The Deans filed a motion to alter or amend, which the Bankruptcy Court denied, then filed a timely notice of appeal and an amended notice of appeal seeking review of the orders. The Panel docketed the appeal as BAP Case 18-8038.

         While the controversy surrounding their filing of the Settlement Letter was simmering, the Deans filed another complaint against the Debtor, commencing Adversary Proceeding No. 18-03022, through which they sought revocation of the order confirming the Plan pursuant to 11 U.S.C. § 1330(a). On May 14, 2018, the Debtor moved to dismiss the complaint in the second adversary proceeding for failure to state a claim, arguing that it raised substantially the same issues that the confirmation order resolved or foreclosed by operation of law. Three days later, on May 17, 2018, the Debtor filed a second sanctions motion, asserting the Deans "have made a habit of filing lengthy-meritless pleadings as a means to harass [the Debtor] and have needlessly increased the cost of this proceeding." (Mot. for Sanctions at 3, ECF No. 81 (the "Second Sanctions Motion").) On August 22, 2018, the Bankruptcy Court entered a memorandum opinion and order granting the Debtor's motion to dismiss the second adversary proceeding with prejudice. The Bankruptcy Court found the issues raised in the second adversary complaint repeated the Deans' previous objections to the Debtor's chapter 13 Plan and therefore failed to state a claim upon which relief could be granted.[2]

         On September 4, 2018, the Bankruptcy Court entered a memorandum opinion on the Second Sanctions Motion but did not set the amount of sanctions. (ECF No. 110 (the "Second Sanctions Opinion").) On September 14, 2018, the Deans filed a motion for reconsideration of the second set of sanctions. The Bankruptcy Court denied the reconsideration motion on September 18, 2018. Nine days later, the Bankruptcy Court entered an order requiring the Deans to pay the Debtor $2, 641 in attorney's fees for their filing of the frivolous adversary proceeding. The Deans timely filed a notice of appeal from this second sanctions order on October 9, 2018. The Panel docketed the appeal as BAP Case 18-8040.

         DISCUSSION

         I. BAP Case No. 18-8038

         Finding that the Deans filed the Settlement Letter for an improper purpose, the Bankruptcy Court granted the Debtor's First Sanctions Motion pursuant to Rule 9011. Federal Rule of Civil Procedure 11, made applicable to bankruptcy proceedings by Rule 9011, provides, in part:

(b) Representations to the Court. By presenting to the court (whether by signing, filing, submitting, or later advocating) a petition, pleading, written motion, or other paper, 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, --
(1) it is not being presented for any improper purpose, such as to harass or to cause unnecessary delay or needless ...

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