Lawyers Crossing The Line: Sanctioned And Reprimanded

• Published date: 30 December 2021
• Subject Matter: Insolvency/Bankruptcy/Re-structuring, Compliance, Insolvency/Bankruptcy
• Law Firm: Cullen and Dykman
• Author: Mr Michael Traison and Elizabeth Usinger

The line between zealousness and sanctionable conduct can be blurry. Courts can impose sanctions on attorneys and their clients when that line is crossed. The procedures to be followed when litigation is necessary in federal court include those governing the truthfulness of what is stated in pleadings. See Fed. R. Bankr. P. 9011; Fed R. Civ. P. 11. Bankruptcy Rule 9011 will be the bane of one asserting frivolous suggestions or acting in bad faith in the bankruptcy court.

In presenting a pleading to a court, the attorney or litigant certifies that to the best of her knowledge and belief, after reasonable inquiry, the pleading is not being presented for an improper purpose, the legal contentions are not frivolous, the factual contentions have or will likely have evidentiary support, and any denials of factual contentions are evidence-based or reasonably based on belief or lack of information. See Fed. R. Bankr. P. 9011(b); Fed. R. Civ. P. 11(b).

Attorneys must verify publicly available facts to determine if their client's representations are reasonable and must investigate if any inconsistencies are raised. See In re Zucaro, 615 B.R. 150, 157 (Bankr. E.D.N.Y. 2020) (citing In re Beinhauer, 570 B.R. 128, 137 (Bankr. E.D.N.Y. 2017)). "'Objectively reasonable' is measured by what a competent attorney admitted to practice before the court would do." Zucaro, at 157 (citing Orton v. Kayne (In re Kayne), 453 B.R. 372, 381-82 (9th Cir. BAP 2011)).

In Bankruptcy, federal court rules of procedure governing sanctionable conduct are incorporated into the Bankruptcy Court Rules as Rule 9011 which sets the parameters for sanctions. A party may file a motion asking the court to impose sanctions on the opposing party, describing the alleged sanctionable conduct, as is set forth in Rule 9011(c)(2). Most importantly is compliance with the "safe-harbor provision" which provides that the movant must serve the motion on the opponent but not file it with the court unless the opponent does not withdraw the pleading within 21 days after service. See Fed. R. Bankr. P. 9011(c)(2); see also Bagbag v. Summa Capital Corp. (In re Bagbag), 2020 WL 1304146 (Bankr. S.D.N.Y. Mar. 17, 2020) ("Essentially, Rule 9011(c) provides a chance for atonement. Sanctions may not be sought unless the atonement is not forthcoming.").

Strict compliance with the procedure is required, and failure to comply warrants denial of the motion. See Glassman v. Feldman (In re Feldman), 606 B.R. 189, 197 (Bankr...