GUY R. HUMPHREY, Bankruptcy Judge.
These two related appeals address monetary sanctions and post-judgment efforts to collect those sanctions arising out of an attorney's representation of claimants who filed a $2,142,000 non-priority unsecured proof of claim in jointly administered Chapter 11 bankruptcy cases. That claim was disallowed by the bankruptcy court, with that decision being affirmed by both the District Court for the Northern District of Ohio and the Sixth Circuit Court of Appeals. As a result of the multitude of filings, strategies employed and positions taken over a six year period, the bankruptcy court sanctioned the attorney, Dennis Grossman, the sum of $207,004 pursuant to 28 U.S.C. § 1927 and the court's inherent authority under 11 U.S.C. § 105, representing the attorney fees expended by counsel for the Official Committee of Unsecured Creditors (the "Committee") and, post-confirmation, the Liquidation Trustee and his counsel ("Trustee" or "Liquidation Trustee"), directly or indirectly related to the claim litigation. Grossman appeals the orders sanctioning him. He also appeals an order denying a motion which sought the recusal of the Bankruptcy Judge pursuant to 28 U.S.C. § 455 (collectively, the "First Appeal").
In a separate appeal, Grossman challenges the retention of special counsel to collect the judgment against him and also an order requiring him to submit to a debtor's examination and provide written discovery (collectively, the "Second Appeal").
The issues in these appeals are whether the bankruptcy court erred in sanctioning Grossman $207,004 pursuant to 28 U.S.C. § 1927 and the court's inherent authority under 11 U.S.C. § 105(a); denying one of Grossman's motions seeking recusal under 28 U.S.C. § 455; approving the retention of special counsel to pursue collection of the sanctions judgment; and allowing the pursuit of post-judgment discovery to execute upon the $207,004 judgment.
The Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction to decide these appeals. The United States District Court for the Northern District of Ohio has authorized appeals to the Panel, and no party has timely elected to have this appeal heard by the district court. 28 U.S.C. §§ 158(b)(6), (c)(1). A bankruptcy court's final order may be appealed as of right pursuant to 28 U.S.C. § 158(a)(1). For purposes of appeal, an order is final if it "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S.Ct. 1494, 1497, 103 L.Ed.2d 879 (1989) (citation and quotation marks omitted).
An order sanctioning counsel for a sum certain amount generally is a final order. Russell v. City of Farmington Hills, 34 Fed.Appx. 196, 198 (6th Cir.2002). Orders related to the retention of bankruptcy professionals, objections to interim fee applications, and denial of a recusal motion or motion compelling discovery ordinarily are considered interlocutory orders. See In re Union Home and Indus.,
An award of sanctions under a bankruptcy court's inherent authority is reviewed for an abuse of discretion. Chambers v. NASCO, Inc., 501 U.S. 32, 55, 111 S.Ct. 2123, 2138, 115 L.Ed.2d 27 (1991); Stalley ex rel. U.S. v. Mountain States Health Alliance, 644 F.3d 349, 351 (6th Cir.2011). In addition, an order granting sanctions under 28 U.S.C. § 1927 is also reviewed for an abuse of discretion. Dixon v. Clem, 492 F.3d 665, 671 (6th Cir.2007). "An abuse of discretion is defined as 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 EaglePicher Indus., Inc.), 285 F.3d 522, 529 (6th Cir.2002) (internal quotation marks and citation omitted). The 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). 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).
Other determinations that Grossman has appealed are also subject to an abuse of discretion review. Bell v. Johnson, 404 F.3d 997, 1004 (6th Cir.2005) (denial of a motion to recuse); Gen. Elec. Co. v. Joiner, 522 U.S. 136, 141, 118 S.Ct. 512, 517, 139 L.Ed.2d 508 (1997) (evidentiary determinations); Am. Civil Liberties Union of Ky. v. McCreary County, Ky., 607 F.3d 439, 451 (6th Cir.2010) (determination whether a late filing was due to "excusable neglect."); Lavado v. Keohane, 992 F.2d 601, 604 (6th Cir.1993) (scope of discovery); Michel v. Federated Dep't Stores, Inc. (In re Federated Dep't Stores, Inc.), 44 F.3d 1310, 1315 (6th Cir.1995) (orders concerning the retention and compensation of bankruptcy professionals).
Finally, "[t]he Panel must affirm the underlying factual determinations unless they are clearly erroneous." Trudel v. United States Dep't of Educ. (In re Trudel), 514 B.R. 219 (6th Cir. BAP 2014) (quoting Hart v. Molino (In re Molino), 225 B.R. 904, 906 (6th Cir. BAP 1998)).
On February 12, 2008, Royal Manor Management, Inc. ("Royal Manor"), Darlington Nursing and Rehabilitation Center, Ltd. ("Darlington"), Dani Family, Ltd. ("Dani") and other related entities (collectively, the "Debtors") filed a petition for relief under Chapter 11 of the Bankruptcy Code. Sally and Abraham Schwartz were the majority owners (collectively, "Schwartz"). These cases were jointly administered and, on December 5, 2008, the Debtors confirmed their Third Amended Plan of Reorganization. The plan established a liquidating trust (the "Trust" or "Liquidation Trust") and upon the effective date of the plan, David Wehrle became the Liquidation Trustee.
During this same time frame, the litigation began as to the disputed claim. On June 26, 2008, Gertrude Gordon filed a proof of claim, through a power of attorney, on behalf of her children, David and Alison Gordon (the "Gordons") (the "Gordon Claim"). The Gordons are the niece and nephew of Schwartz. Gertrude Gordon is Sally Schwartz's sister. The Gordon Claim asserted a non-priority unsecured claim against Darlington in the total amount of $2,142,000. The basis for the Gordon Claim was a July 27, 2000 agreement, which was notarized on August 24, 2000 (the "Agreement"). The proof of claim did not contain the complete Agreement. It omitted a page which provided important evidence which would support the position that the loan was not to Darlington, but instead was an individual loan to Schwartz.
On September 5, 2008, the Committee, represented by Brouse McDowell, LPA ("Grouse"), objected to this claim for two fundamental reasons. First, the Committee argued that the Gordon Claim was a personal loan from the Gordons to Schwartz and not a loan to Darlington. Further, the Committee took the position that, at best, the Gordon Claim constituted an equity investment in Darlington. The objection was noticed for an October 7, 2008 hearing.
On September 9, 2008, an amended notice was filed and served to correct the date that the objection was filed. The hearing date remained the same. The hearing did not occur because neither the Gordons, nor any counsel representing the Gordons, responded to the objection or appeared to oppose the Committee's objection. On October 29, 2008, an order was entered disallowing the Gordon Claim.
On November 10, 2008, Grossman filed two motions. First, Grossman filed
The Committee's response to the Motion to Vacate noted that the original objection
Grossman noticed Committee counsel for a deposition in order to challenge the Committee's assertion that vacating the order disallowing the Gordon Claim would be unfairly prejudicial because the Committee relied upon the disallowance of the Gordon Claim in negotiating with other claimants. In response, the Committee, in an email dated December 3, 2008, asserted to Grossman that he had less intrusive methods to acquire the discovery. On December 9, 2008, Grossman filed an emergency motion to compel Committee counsel to appear at a single deposition and, separately and alternatively, a request for a determination of the Motion to Vacate as a matter of law. As to the deposition, Grossman stated that the Committee had refused to provide a witness and, instead, provided Grossman with 13 different individuals with whom the Committee had settlement discussions. Additionally, the emergency motion essentially repeated the same arguments Grossman had made in the prior Motion to Vacate. The Committee moved for a protective order.
In response to this flurry of filings, the court conducted a scheduling conference and rescheduled the hearing on the Motion to Vacate for February 24, 2009. The court determined, in the interest of judicial economy, without prejudice to the procedural issues Grossman raised, to first address the merits of the Gordon Claim.
However, on January 13, 2009, Grossman filed another emergency motion. Grossman sought leave to amend the Gordon Claim to recover "unpaid dividends arising out of the same document as their original claim for the unpaid loan." Emergency Mot. of Claimants Alison Gordon and David Gordon for Leave to File Amended Claim Arising out of Identical Contract/Transaction as Original Claim and not Exceeding Amount of Original Claim at 1, In re Royal Manor Mgmt., Inc., No. 08-50421, ECF No. 441 (the "Amended Claim Motion"). The Amended Claim Motion was noticed to be heard February 24, 2009, the same day as the hearing on the Motion to Vacate. However, on February 9, 2009, Grossman filed an emergency agreed motion to continue the hearing on the Amended Claim Motion. The Committee filed a limited objection to that motion, which indicated that while the Committee had agreed to the continuance, it did not agree with the comments and arguments contained within the motion about the merits. Following a February 12th phone conference, the court entered an amended scheduling order. The court concluded that, in light of the recent filings, focusing upon the merits would not save time. Therefore, the court returned to its original position and decided to address the Motion to Vacate first and set that motion for hearing on March 31, 2009.
On March 17, 2009, Grossman filed two more motions on behalf of the Gordons. The first motion sought leave to file a new claim. Mot. of Alison Gordon and David Gordon For Leave To File New Recision/Unjust Enrichment Claim Based on Recently Disclosed (And Previously Concealed) Forgeries Of Their Signatures And Other Material Concealed Facts, In re Royal Manor Mgmt., Inc., No. 08-50421, ECF No. 474 (the "New Claim Motion"). In addition, Grossman filed another emergency motion to continue the March 31, 2009 hearing based on the theory that this new claim would moot out the Gordons' original claim or, in the alternative, render unnecessary a ruling on the pending motion to compel a single deposition of Committee counsel. Gordons's Emergency Motion To Continue, In re Royal Manor Mgmt., Inc., No. 08-50421, ECF No. 475. Grossman also filed a supplemental affidavit of the Gordons. The court scheduled a telephonic status conference for March 20, 2009. Following that conference, the court entered an order denying the motion to continue and, perhaps based on the New Claim Motion, reconsidered its position and indicated it would hold an evidentiary hearing on the Motion to Vacate on March 31, 2009. The court indicated it would hear evidence on the adequacy of the notice the Gordons received concerning the October 7, 2008 hearing, the receipt of such notice and any unresolved discovery issues.
However, prior to the March 31, 2009 hearing, the parties entered into an agreed order resolving the Motion to Vacate. The Motion to Vacate was granted and the order disallowing the Gordon Claim was vacated. The scheduled deposition of Marc Merklin, counsel for the Committee, was cancelled. Instead, the Liquidation Trustee and Grossman participated in a court phone conference on March 31st. The parties agreed on a response time to the New Claim Motion and the court set a further status conference for May 12, 2009. The Liquidating Trustee filed a brief in opposition to New Claim Motion. On April 13, 2009, the day the reply brief was due, Grossman sought one additional day — that is, by April 14, 2009 — to file a reply brief. While that motion was pending, Grossman filed a reply brief on behalf of the movant on April 15, 2009 and an amended reply on April 16, 2009. On April 20, 2009, an agreed order was entered allowing Grossman until April 14, 2009 to file a reply brief.
The Liquidation Trustee moved to strike the reply brief as late and also indicated it violated the 20 page reply brief limit by using all 20 pages and adding additional arguments in a 9 page declaration of Gertrude Gordon and an 8 page declaration of Grossman. Alternatively, the Liquidation Trustee sought oral argument or leave to file a sur-reply. Grossman filed a response on May 1, 2009 in which he indicated
As a result of the May 12, 2009 hearing, the court entered an order that denied the Amended Claim Motion and the New Claim Motion. However, the bankruptcy court made it plain that Grossman could pursue any and all theories of recovery based upon the original proof of claim. The court also granted the Trustee's motion to strike the reply brief. In addition, the court overruled Gordon's objection to the final fee application of Committee counsel and an application to employ financial advisors to the Trustee nunc pro tunc.
In addition, the May 18, 2009 order scheduled an evidentiary hearing concerning the Gordon Claim for June 30, 2009 and, among other things, required both parties to file proposed findings of fact and conclusions of law not later than June 29th.
Prior to the merit hearing on the Gordon Claim, on June 25, 2009, the Trustee filed a motion in limine to exclude the testimony of an expert on Jewish religious law.
Both parties filed stipulations and proposed findings prior to the Gordon Claim hearing. The hearing was held on June 30, 2009. Following the hearing, Grossman renewed in writing an oral request to file a post-hearing memorandum to explain the legal theories for the Gordon Claim and provide appropriate legal authority. Grossman noted the lack of formal pleadings, pre-trial order, requirement to provide citations in the scheduling order, and lack of a local rule or standing practice of the bankruptcy court. In his response, the Liquidation Trustee noted that the bankruptcy court had made clear both in its November 26, 2008 scheduling order and in open court on December 6, 2008 that all such legal authority should be included in the proposed findings and conclusions.
The Trustee's objection was sustained in the Merit Opinion. The following is a summary of the bankruptcy court's findings of fact and conclusions of law concerning the Gordon Claim:
Darlington operated a nursing home. The nursing home was located on real property owned by Dani. The majority owners of Dani, Darlington and the other related entities were Schwartz.
The Gordons or Gertrude Gordon loaned Schwartz funds through five different promissory notes from May 1994 through October 1995 for a total of $1,550,000. These notes were replaced with a single promissory note in January 2010. The Gordons agree these are personal obligations of Schwartz.
In July 2010, Gertrude Gordon sent two signed checks with the amount left blank to Schwartz. The checks were from an account in the names of the Gordons. Pursuant to instructions of Sally Schwartz, an employee of the nursing home wrote $500,000 on each check, Sally Schwartz on the payee line and "for Dani Family" on the memo lines. On July 27, 2010, these two checks were deposited into a "personal business account" of Schwartz at Bank One. The bankruptcy court found that the memo designation meant these funds were to be transferred to Dani. The $1,000,000 transaction was memorialized in the Agreement dated July 27, 2000 and notarized on August 24, 2000. The complete Agreement was admitted as a trial exhibit.
As with the prior promissory notes, the Agreement was signed by Schwartz in their individual capacities. A promissory note was not prepared, although it was referenced in the Agreement. The Gordons received a Schedule K-1, consistent with the treatment of the $1,000,000 as a capital contribution. The Gordons never received any funds due under the Agreement and prior to the filing of the proof of claim had never instituted any litigation concerning the Agreement. David Gordon testified that he understood from his mother that the Agreement was a loan with an "equity kicker" in Dani and Darlington. Merit Op. at 7.
In June 2007, prior counsel for Royal Manor, Dani, Darlington and other related corporate entities sought the Gordons' consent for a proposed sale of Darlington and Dani to Orion Care Services, LLC. The Gordons were not represented by counsel. Gertrude Gordon negotiated for the Gordons. Eventually the Gordons agreed to an understanding of the Agreement that the $1,000,000 initial investment would be paid after "mortgagees, secured creditors, trade creditors and related costs." Merit Op. at 8.
In the end, the bankruptcy court determined that "[t]he Gordons presented no credible evidence in support of their argument" that the debt was an obligation of Darlington. Merit Op. at 10.
The decision further found that, under Ohio law, an individual's failure to disclose an agency relationship renders that individual personally liable for agreements executed with third parties.
This portion of the decision concluded that, regardless of whether the Gordons had an equity interest in Dani or Darlington, Schwartz and not Darlington are the obligors under the Agreement.
Next, the decision addressed the Gordons' alternative argument that the transaction was intended to be a loan to Darlington, rather than providing for an equity investment in the Debtors. The decision reviewed the eleven factor test to re-characterize a debt claim as equity from Bayer Corp. v. MascoTech, Inc. (In re AutoStyle Plastics, Inc.):
269 F.3d 726, 749-50 (6th Cir.2001) (citations omitted).
The Merit Opinion found that no evidence was presented as to "the existence of a sinking fund, the extent to which the advances were used to acquire capital assets, the corporation's ability to obtain financing from outside sources, or the adequacy/inadequacy of the purported limited partnerships'/obligors' capitalization." Merit Op. at 12. Thus, factors 5, 8, 10 & 11 were not considered.
The court reviewed the other 7 factors. Concerning the first factor, the court found that there was no promissory note evidencing the indebtedness which AutoStyle Plastics found was a "strong indication" of a capital contribution. In addition, the Gordons, Dani and Darlington treated the transaction as a capital contribution for tax purposes.
The court found factors two and three suggested a loan because of the fixed interest and date for the return of funds. However, the court noted the funds repayment was contingent on the success of the business and therefore found factor four suggested a capital contribution. Regarding the sixth factor, the ratio of contributions by equity holders to the Debtors
Finally, the Gordons argued that pursuant to section 4.7 of the Operating Agreement the Gordons' equity interest converted to unsecured debt. The court noted that no evidence was presented as to this point and the Gordons had alternatively argued that the court should "reject" the operating agreements because they include the forged signatures of the Gordons.
The Merit Opinion found that the Gordons had unnecessarily attempted to delay the final determination of the Gordon Claim:
Merit Op. at 2, n. 2.
The conclusion of the Merit Opinion stated that:
Merit Op. at 14-15.
Grossman appealed the Merit Opinion and elected to pursue the appeal with the district court.
The New Claim Appeal was ruled upon by District Court Judge Patricia A. Gaughan. Mem. of Op. and Order, Gordon v. Wehrle, No. 5:09-cv-1506, ECF No. 26. The opinion affirmed the bankruptcy court's denial of the New Claim Motion. Judge Gaughan rejected Grossman's argument that the bankruptcy court summarily
The Liquidation Trustee moved the District Court for sanctions against Grossman pursuant to Federal Rule of Bankruptcy Procedure 8020, 28 U.S.C. § 1927 and the inherent authority of the district court. The Liquidation Trustee also sought to deny Grossman pro hac vice admission.
The Liquidation Trustee argued that 1) Grossman's pursuit of his first appeal of the decision denying the New Claim Motion violated the Ohio Rules of Professional Conduct; 2) Grossman further violated those rules by "attack[ing] the integrity of the Bankruptcy Court and the integrity of all judges in the Northern District ..." and 3) "Grossman has placed his honesty and integrity at issue by filing briefs containing statements that misrepresent court proceedings." Mem. of Op. and Order at 4, Gordon v. Wehrle, Nos. 5:09 CV 2687 and 5:09 CV 1506, ECF No. 32. Judge Gaughan agreed with the Liquidation Trustee. The decision found that Grossman lacked good faith in misstating the court record by asserting the bankruptcy court denied the New Claim Motion in a summary manner, with a decision consisting only of the word "denied" and was "without justification or explanation." Id. at 8. The transcript from the May 12, 2009 hearing showed that the bankruptcy court gave ample explanation for the decision. Even after the Liquidation Trustee raised the transcript in its appellee brief, Grossman did not alter his position. Judge Gaughan found that Grossman's "factual misstatements" were in violation of Ohio Rule of Professional Conduct 3.3(a)(1).
Grossman claimed that all these statements were to address the standard for judicial disqualification, which depends upon the appearance of partiality to a reasonable observer. See 28 USC § 455. However, Judge Gaughan found that "these accusations are intemperate and degrading — Grossman is essentially accusing the Bankruptcy Court of maintaining a vendetta against him and his clients for the purpose of covering up wrongdoing by the trustee's attorney." Mem. of Op. and Order at 11, Gordon v. Wehrle, Nos. 5:09 CV 2687 and 5:09 CV 1506, ECF No. 32. Judge Gaughan found the statements did not concern what a reasonable person could observe, but attribute an improper motive to the bankruptcy court. Grossman also asserted that because the Bankruptcy Judge "is the Chief Judge in this District", a Judge outside the District with whom neither counsel has ever appeared should hear the motion for disqualification. Id. at 11, n. 6. Judge Gaughan found that this suggestion was completely unsupported.
However, with the exception of revoking his pro hac vice privileges, Judge Gaughan denied the motion for sanctions for that specific action and left the issue of further sanctions for the bankruptcy court to determine:
Id. at 12-13 (italics added).
Judge Gaughan subsequently denied Grossman's motion for rehearing and/or reconsideration of its decision denying him admission pro hac vice.
In September 2010, Judge Gaughan issued her decision in the consolidated appeals of the decision sustaining the Liquidation Trustee's objection to the Gordon Claim. Gordon v. Wehrle, 2010 WL 3835223 (N.D.Ohio Sept. 29, 2010).
On May 8, 2012, the Sixth Circuit affirmed the consolidated appeals, concluding that the loan from Gertrude Gordon to Schwartz was in the Schwartz's individual capacity and not their corporate capacity with Dani or Darlington. Gordon v. Official Committee of Unsecured Creditors (In re Royal Manor Mgmt., Inc.), 480 Fed. Appx. 362 (6th Cir.2012). Further, the Sixth Circuit ruled that the bankruptcy court properly denied the New Claim Motion. It noted that nothing in the bankruptcy court's ruling prevented the Gordons from pursuing any theory for the claim at the hearing on the original claim, asking rhetorically: "What is the source of the confusion?" Id. at 365. The Sixth Circuit also denied a petition for rehearing en banc.
On November 26, 2012, the Supreme Court, without comment, denied the Gordons' petition for certiorari. Gordon v. Wehrle, ___ U.S. ___, 133 S.Ct. 653, 184 L.Ed.2d 460 (2012).
On October 21, 2009, the Trustee filed a motion for sanctions pursuant to Bankruptcy Rule 9011 against Gertrude Gordon, the Gordons, David Mucklow, local counsel for the Gordons,
Also on November 2, 2009, Grossman filed an emergency motion on behalf of himself and Gertrude Gordon for a one day extension. On November 4th, Grossman pro se filed his opposition to sanctions. The Trustee filed a reply on November 9th. That document also included a "supplemental motion" seeking sanctions under an alternative basis — that being the court's inherent authority provided by 11 U.S.C. § 105.
On January 29, 2010, the bankruptcy court issued an order directing Grossman to show cause why she should not adopt the statement of facts in the Liquidation Trustee's sanctions motion and why Grossman should not be sanctioned pursuant to 28 U.S.C. § 1927. The order further provided that the court would not consider responses after February 12, 2010. On February 12th, Grossman filed an "emergency motion" seeking an extension until Tuesday, February 16th. Grossman filed his response (in its then current state) on February 12th. The Liquidation Trustee filed a response to the show cause order on February 19th. Grossman filed an additional response to that filing on March 1st.
On March 12, 2010, the Gordons filed a "partial opposition" to paying Liquidation Trustee and Trustee counsel expenses related to the Gordon Claim issues. Grossman argued that those fees and expenses should be paid by a creditor, the Hochman Trust, rather than the Liquidation Trust. Grossman reasoned that the Trustee had filed many claim objections mostly against other unsecured creditors. He further reasoned if those claim objections were successful, the unsecured creditors would be paid in full and, under the confirmed plan, the Hochman Trust would be paid its claim, which was in excess of $5,000,000. He concluded that therefore the Hochman Trust should pay the Trustee's expenses related to the Gordon Claim. Grossman cited no legal authority for this theory. Both the Trustee and the Hochman Trust responded to the objection, noting, among other things, Grossman's proposal was inconsistent with the Chapter 11 plan. Following a hearing for which Grossman appeared telephonically, the court entered an order approving the fees and expenses. The bankruptcy court stated:
Order Granting Second Interim Application for Comp. and Reimbursement of Expenses for Brouse McDowell, LPA [# 645], Granting Second Interim Application for Comp. and Reimbursement of Expenses
Grossman filed a motion to correct, amend or reconsider the order denying his motion concerning the Hochman Trust's payment of the Trustee's expenses. The court denied the motion, noting the issues raised by Grossman did not address the legal principle that the Liquidation Trust was required to pay the Trustee's expenses, including his counsel fees.
Also in March 2010, Grossman filed a motion to amend or for reconsideration of the order denying the earlier motion for recusal of the Bankruptcy Judge. In this filing, he stated that the order denying the motion for disqualification erroneously found that Grossman stated that the bankruptcy court knowingly approved a fraudulent disclosure statement in his recusal motion. However, Grossman asserted that he only stated that the court "failed to check" the disclosure statement. Mot. for Amendment and/or Recons. of Order Denying Mot. to Disqualify Judge Shea-Stonum in Sanctions Proceeding at 1, In re Royal Manor Mgmt., Inc., No. 08-50421, ECF No. 698. The bankruptcy court denied the motion for failure to articulate a basis under Federal Rules of Bankruptcy Procedure 9023 or 9024 (incorporating Federal Rules of Civil Procedure 59 and 60) for the relief sought. Order Denying Motion To Amend or Reconsider Order Denying Motion To Disqualify, In re Royal Manor Mgmt., Inc., No. 08-50421, ECF No. 783.
On October 19, 2010, the court held a status hearing regarding Grossman's motion to adjourn the pending sanctions motion while he pursued his appeals. The sanctions proceedings were adjourned until the appeals were completed.
From October 2010 until July 2012, while the various appeals were pursued up to and through the Sixth Circuit Court of Appeals, the bankruptcy court had a respite from any filings related to the Gordon Claim or sanctions against Grossman. Following the Sixth Circuit's denial of Grossman's motion for en banc rehearing on June 20, 2012, the Trustee filed a motion to extend the date for any motion for supplemental sanctions. An extension was granted until 14 days after the expiration of the stay of the Sixth Circuit mandate or a final ruling by the Supreme Court.
On November 26, 2012, the Supreme Court denied Grossman's for writ of certiorari. On December 11th, the Liquidation Trustee filed a renewed motion for sanctions against Grossman and Gertrude Gordon pursuant to the bankruptcy court's inherent power under 11 U.S.C. § 105 and separately under 28 U.S.C. § 1927.
The renewed sanctions motion alleges Gertrude Gordon and Grossman took positions that "were unjustified, unsupported, and vexatiously intended to multiply these proceedings." The Liquidation Trustee's Renewed Motion for Sanctions Pursuant to this Court's Inherent Power Under 11 U.S.C. § 105(a), and Under 28 U.S.C. § 1927 at 1, In re Royal Manor Mgmt., Inc., No. 08-50421, ECF No. 953. The motion states that "there was no credible evidence or legal basis to support the claim that the Gordons were general unsecured creditors of Dani, Darlington or any other debtor entity. Despite this fact, Gertrude Gordon and Attorney Grossman continued to file frivolous pleadings to vexatiously multiply these proceedings." Id. at 8.
The first sanctions hearing occurred on January 15, 2013.
On the morning of the sanctions hearing, Grossman filed another emergency motion, in this instance to withdraw the reference
Also on January 15, 2013, the Liquidation Trustee filed a motion to compromise the sanctions motion as it pertained to Gertrude Gordon. The agreement called for Gertrude Gordon to pay the Liquidation Trust $50,000 and provided for a mutual release, excepting any claims against Grossman. Grossman filed a response, indicating that he had no objection to the settlement if it did not prejudice him.
The hearing was also used as an impromptu status conference concerning settling the sanctions issues relating to Grossman, at which the Bankruptcy Judge asked the parties whether they had an interest in discussing settlement. The following exchange occurred:
Tr. of Feb. 12, 2013 Hr'g at 11-13, In re Royal Manor Mgmt., Inc., No. 08-50421, ECF No. 993 (italics added).
The court entered an order approving the compromise with the Gordons. The only reference to Grossman was in paragraph 3(b): "The Trustee and the Gordons shall mutually release each other and all professionals retained by either the Trustee or the Gordons, with the exception of Attorney Dennis Grossman, from all claims, liabilities, and causes of action in relation to the Gordons' Claim (and any appeals therefrom) and the sanctions issues in this Court." Order Granting Motion of the Liquidation Trustee to Approve Compromise at 3, In re Royal Manor Mgmt., Inc., No. 08-50421, ECF No. 988.
Grossman's concern about the Gertrude Gordon settlement continued. On February 27, 2013, Grossman filed a two-part motion. First, he asserted he is entitled to a $49,313.50 credit based upon the settlement with Gertrude Gordon. Second, Grossman sought a separate order confirming the settlement order did not deprive him of this credit.
On March 15, 2013, Grossman moved again for the Bankruptcy Judge to recuse herself. The basis for the motion was threefold. First, Grossman asserted the Bankruptcy Judge improperly entered the settlement process, repeatedly was hostile to Grossman in her statements, including raising sanctions sua sponte on three occasions, commented inappropriately concerning the appeals of the disallowance of the Gordon claim and ignored her own actions in causing delay.
On March 28, 2013, the court issued its first sanctions opinion. Op. re: Liquidation Trustee's Mot. for Sanctions Pursuant to 28 U.S.C. § 1927, In re Royal Manor Mgmt., Inc., No. 08-50421, ECF No. 999 (the "Sanctions Opinion"). The decision addressed whether Grossman should be sanctioned under 11 U.S.C. § 105 as well as 28 U.S.C. § 1927. The bankruptcy court noted that, due to funds reserved for the disputed Gordon Claim, a full distribution by the Liquidation Trustee could not occur. Further, the distribution to allowed claims was diminished by the Liquidation Trustee having to spend attorney fees defending three appeals Grossman filed on behalf of the Gordons.
The decision includes an appendix summarizing "Documents RE: Gordon's and Attorney Grossman pleadings with arguments." Sanctions Op. at 13-37. This
At the conclusion of the Sanctions Opinion, the bankruptcy court awarded $150,000 in sanctions, concluding that "[t]he fees incurred by the Liquidation Trustee at the bankruptcy court level were proportionate to controversies that Grossman chose to frame."
Grossman appealed the Sanctions Opinion. However, due to the sanctions issues not being fully resolved, this Panel dismissed the appeal as not being from a final, appealable order.
On April 2, 2013, the Liquidation Trustee filed a notice reflecting that since November 30, 2012, he had incurred $61,972.50 concerning the sanctions and related issues. The bankruptcy court scheduled a hearing for June 11, 2013, but it was rescheduled twice and ultimately occurred on August 27, 2013.
On June 6, 2013, Grossman filed his "testimony" in opposition to the trustee's request for sanctions. On July 5th, the Liquidation Trustee and Grossman filed proposed findings of fact and conclusions of law. On July 22nd, Grossman filed a motion to strike certain portions of the Trustee's proposed findings and conclusions.
On August 26, 2013, the day prior to the supplemental sanctions hearing, Grossman filed an "emergency supplemental motion" seeking the Bankruptcy Judge's recusal again.
The supplemental sanctions hearing occurred on August 27, 2013. The witnesses at the hearing were the Trustee, Trustee counsel Louise Mazur and Grossman.
The court entered its decision on December 2, 2013. Supp. to Op. re: Sanctions Against Dennis Grossman, Esq., In Re Royal Manor Mgmt., Inc., No. 08-50421, ECF No. 1057 (the "Supplemental Sanctions Opinion"). It also entered a final judgment on December 3, 2013. The bases for the sanctions were the court's inherent authority, 11 U.S.C. § 105 and 28 U.S.C. § 1927. The decision added an additional $57,004 in sanctions which covered attorney fees of the Trustee after the time covered by the original sanctions hearing, which was through November 30, 2012. The bankruptcy court stated:
Id. at 3.
The Bankruptcy Judge's overall assessment of Grossman's role in the Chapter 11 case was clear:
Id. at 4. The decision found that following the original sanctions hearing "Grossman's pattern of practice continues to be the same." Id. at 8. The decision described the objection to the Gertrude Gordon settlement, the premature request for a credit, the multiple motions to recuse, and the motion to strike proposed findings of the Trustee as examples of this continuing conduct. The bankruptcy court also denied the most recent recusal motion.
On September 10, 2013, Grossman filed a motion to reconsider four discrete trial rulings. The rulings were (1) the denial of Grossman's motion to strike portions of the Trustee's proposed findings of fact and conclusions of law as addressing issues the court had ordered "closed"; (2) objection to the testimony of Mazur as being argument; (3) a denial of Grossman's motion to strike Mazur's testimony to lay a foundation for a purported summary that was not introduced into evidence; and (4) sustaining a work product objection to Grossman's cross-examination of the Trustee. That motion was denied.
On December 16, 2013, Grossman appealed the following orders: (1) the Sanctions Opinion; (2) the Supplemental Sanctions Opinion; (3) the December 2, 2013 order denying the motion to reconsider rulings from the supplemental sanctions hearing [Order Denying Motion to Reconsider Trial Rulings, In re Royal Manor Mgmt., Inc., No. 08-50421, ECF No. 1058]; (4) the order denying a motion for amendment of the bankruptcy court's September 5, 2013 orders approving interim fees for the Trustee and Trustee counsel. [Order Denying Motion for Amendment, In re Royal Manor Mgmt., Inc., No. 08-50421, ECF No. 1059]; and (5) the judgment for the $207,004 in sanctions [Entry of Judgment, In re Royal Manor Mgmt., Inc., No. 08-50421, ECF No. 1059].
Following the entry of the sanctions judgment, the Liquidation Trustee served
While the sanctions judgment, never stayed, was on appeal with this Panel, the Trustee filed two new motions with the bankruptcy court. The first motion sought to employ two law firms as special counsel to attempt to collect the Grossman judgment on a contingent fee arrangement. The motion noted Grossman was a resident of either New York or Florida and practiced law in both states. Further, the Trustee expected Grossman to be "highly resistant to collection efforts." The second motion sought to compel Grossman to respond to written discovery and in addition appear for a debtor's examination pursuant to Ohio Revised Code § 2333.09 and Federal Rule of Civil Procedure 69.
Grossman argued that (1) the post-judgment discovery would prejudice him with other counsel and his clients; (2) that the judgment was "invalid"; (3) the judgment ended the bankruptcy court's jurisdiction and a subpoena was required; (4) the retention of New York counsel made it unfairly burdensome to participate in discovery in Ohio; (5) the discovery constitutes an invasion of privacy; (6) pursuit of post-judgment discovery would frustrate his ability to prosecute the sanctions appeal; (7) the discovery sought confidential information that would expose Grossman to, among other things, identity theft or hacking and (8) the disclosure of documents with Grossman's social security number would violate the Social Security Act. The response did not specifically address the retention of the special counsel except as to its effect on the Trustee's discovery requests.
Following a hearing, the bankruptcy court entered an order compelling discovery and Grossman's participation in the debtor's examination. Order Granting Motion of the Liquidation Trustee to Compel Dennis Grossman: (A) to Respond to Written Discovery Requests, And (B) to Appear for a Debtor's Examination, In re Royal Manor Mgmt., Inc., No. 08-50421, ECF No. 1111. Pursuant to the order, responses to the written discovery were due by March 19, 2014 and the debtor's examination was to be completed by March 29, 2014. The bankruptcy court also entered an order granting the Liquidating Trustee's application to retain special counsel to pursue collection of the sanctions from Grossman. Order Approving Application of the Liquidation Tr. to Employ Borges & Assocs., LLC and Rosenfeld Stein Batta, P.A. as Special Counsel Pursuant to Section 327(E) of the Bankruptcy Code, In re Royal Manor Mgmt., Inc., No. 08-50421, ECF No. 1112.
On March 26, 2014, Grossman timely appealed both orders.
The Panel will first address the bankruptcy court's $207,004 sanction award under 28 U.S.C. § 1927 and then the inherent authority of the bankruptcy court to issue those sanctions under 11 U.S.C. § 105(a). Section 1927 states:
28 U.S.C. § 1927. Case law is split as to whether bankruptcy courts are "court[s] of
Sanctions are warranted under § 1927 if counsel "falls short of the obligations owed by a member of the bar to the court and which, as a result, causes additional expense to the opposing party." Rentz v. Dynasty Apparel Indus., Inc., 556 F.3d 389, 396 (6th Cir.2009) (citation omitted). Sanctions require "more than negligence or incompetence" but "something less than subjective bad faith." Hall v. Liberty Life Assurance Co. of Boston, 595 F.3d 270, 276 (6th Cir.2010) (citation omitted). Sanctions under § 1927 may not be imposed because a claim was ultimately unsuccessful. An attorney that reasonably believes his claim is meritorious is not subject to sanctions. Ridder v. City of Springfield, 109 F.3d 288, 297-98 (6th Cir. 1997). "Discrete acts of vexatious conduct should be identified and a determination made whether they were done in bad faith or, even if bad faith was not present, whether they multiplied the proceedings pursuant to 28 U.S.C. § 1927." Riddle v. Egensperger, 266 F.3d 542, 556 (6th Cir. 2001) (quoting In re Ruben, 825 F.2d 977, 990 (6th Cir.1987)). As further explained by the Sixth Circuit:
Id. at 553.
The purpose of sanctions under § 1927 is "to deter dilatory litigation practices and to punish aggressive tactics that far exceed zealous advocacy." Red Carpet Studios Div. of Source Advantage,
The bankruptcy court found that sanctions were justified for all the attorney fees spent by the Committee, and subsequently the Trustee, in ensuring the disallowance of the Gordon Claim.
It is important to note that sanctions under the bankruptcy court's inherent powers requires a finding of bad faith. Runfola & Assocs. v. Spectrum Reporting II, 88 F.3d 368, 375 (6th Cir.1996); Shimman v. Int'l Union of Operating Eng'rs, Local 18, 744 F.2d 1226, 1229-30 (6th Cir.1984). However, the award of sanctions under § 1927 is appropriate "when an attorney has engaged in some sort of conduct that, from an objective standpoint, `falls short of the obligations owed by a member of the bar to the court and which, as a result, causes additional expense to the opposing party.' ... [or] when an attorney knows or reasonably should know that a claim pursued is frivolous, or that his or her litigation tactics will needlessly obstruct the litigation of nonfrivolous claims...." Wilson-Simmons v. Lake County Sheriff's Dep't, 207 F.3d 818, 824 (6th Cir.2000) (citations and internal quotation marks omitted). In Red Carpet Studios Div. of Source Advantage, Ltd., the Sixth Circuit Court of Appeals stated that sanctions under § 1927 may be issued only when the attorney "intentionally abuses the judicial process or knowingly disregards the risk that his actions will needlessly multiply proceedings." 465 F.3d 642, 646 (6th Cir.2006). The Bankruptcy Judge found Grossman engaged in a course of "vexatious conduct designed to delay, multiply and increase the cost of the proceedings in this case," a finding that would meet either standard. Supp. Sanctions Op. at 4. See Garner v. Cuyahoga Cnty. Juvenile Court, 554 F.3d 624, 645 (6th Cir.2009) (attorney fees from the filing of the complaint justified when the vexatious conduct began with the complaint filing and continued throughout the case).
The bankruptcy court did not review whether every individual filing was
However, Grossman has attacked virtually everything the Committee's and Trustee's counsel and the bankruptcy court did relating to the Gordon Claim as being unnecessary, multiplicative and unreasonable — attacking the Trustee and bankruptcy court for having vacillated on the issue of whether to address the Motion to Vacate first versus proceeding to the merits of the Gordon Claim; the Committee's or Trustee's decision not to proceed with a motion for summary judgment on the merits of the Claim; and the Trustee and Court having proceeded with several bases for seeking sanctions with multiple motions for sanctions. See Appellant's Corrected Brief at 40-72, In re Royal Manor Mgmt., Inc., 13-8054, ECF No. 29 ("Appellant Principal Br.").
A comparison of Grossman's arguments to the record shows he is second-guessing actions of the Trustee to justify his own vexatious conduct. None of his arguments absolve him of the responsibility for this conduct. The record does not suggest that counsel for the Committee and Trustee attempted to augment their fees unnecessarily.
Grossman has also argued that the language in the order approving interim fee applications of the Trustee and Trustee counsel prejudiced his defense of sanctions. This Panel disagrees. The appeal of the order denying the motion to amend orders approving certain interim fees of the Trustee and his counsel is not well taken because those orders did not prejudice Grossman's defense of the sanctions. The bankruptcy court provided Grossman with the opportunity at the sanctions hearings to establish that the fees and expenses charged were not reasonably incurred
The alternative basis for sanctions was 11 U.S.C. § 105 and the inherent authority of the bankruptcy court to sanction. Section 105(a) provides that:
11 U.S.C. § 105.
The Supreme Court has found that federal courts have the inherent authority to sanction. Chambers, 501 U.S. at 44, 111 S.Ct. 2123. "Because of their very potency, inherent powers must be exercised with restraint and discretion." Id. Federal courts' inherent authority includes the right, in "narrowly defined circumstances," to assess attorney fees against counsel. Id. at 45, 111 S.Ct. 2123. The court may do so when a party has "acted in bad faith, vexatiously, wantonly, or for oppressive reasons." Id. at 45-46, 111 S.Ct. 2123 (internal citations and quotation marks omitted). Sanctions may be appropriate when a party "shows bad faith by delaying or disrupting the litigation ...." Id. at 46, 111 S.Ct. 2123 (quoting Hutto v. Finney, 437 U.S. 678, 689 n. 14, 98 S.Ct. 2565, 2573, 57 L.Ed.2d 522 (1978)). Unlike sanctions under § 1927, sanctions under a court's inherent authority requires a finding of bad faith or recklessness. Continental Corp., 789 F.2d at 1230. This inherent authority extends to the bankruptcy courts. Mapother, 103 F.3d at 477; Knowles Bldg. Co. v. Zinni (In re Zinni), 261 B.R. 196, 203 (6th Cir. BAP 2001).
For all the reasons stated previously, the decision to sanction Grossman based on the court's inherent authority under 11 U.S.C. § 105 and 28 U.S.C. § 1927 was not an abuse of discretion.
The foundation for the sanctions against Grossman was his relentless pursuit of the Gordon Claim, not only through litigation of the substantive merits of the claim, but through repeated collateral attacks, including multiple motions seeking the Bankruptcy Judge's recusal, a motion to withdraw the reference on the morning of a significant hearing on the sanctions, an objection to the settlement of the sanctions against his former client, a motion trying to make a third-party creditor pay the Trustee's expenses, and objections to orders approving fee applications of professionals on the basis that the orders did not include Grossman's own self-serving protections. His tendency to file multiple and duplicative filings for each such matter, including sometimes "status reports" which argued the merits of his positions, further compounded the obstructive nature of this dogged pursuit. Thus, it was not simply whether certain filings or positions were frivolous — although that was a significant issue which was addressed by the bankruptcy court in its decision — it was that the theories of why the Gordons were
In discussing the Agreement, Grossman argues what he refers to as "non-frivolous bases for company liability." Appellant Principal Br. at 42. For example, he notes that ¶ 3(b) provides for the $1 million to be an "investment in the ... Darlington Nursing Home." Id. But the Agreement begins (with its title) and ends (with the signatures) with a loan between individuals. The loan is secured by an interest in "P.S. Realty"
As noted, the Agreement begins by referencing only individuals and is signed by Schwartz in their individual capacity. The Supreme Court of Ohio, as Grossman notes, has indicated that the exact form of the execution of the signature is not necessarily dispositive and the court may consider the whole instrument to determine intention as to liability. Aungst v. Creque, 72 Ohio St. 551, 74 N.E. 1073, 1073-74 (Ohio 1905). But he understates how significant the signatures are to an analysis of the Agreement under Ohio law. An analysis of the case law cited by Grossman shows that those cases do not support his position. In Wells Fargo Bank, NA v. WSW Franchising, Inc., 2009 WL 2374559 (Ohio Ct.App. Aug. 4, 2009), the court found that the corporate president was a personal guarantor of a credit card agreement despite signing in his corporate capacity. The agreement specifically, in the clearest possible language imaginable, provided such a signature created liability for the corporation and the owners. The court held that this was consistent with Ohio law that "[a]n officer of a corporation is not personally liable on contracts for which his corporate principal is liable, unless he intentionally or inadvertently binds himself as an individual." Id. at *3 (citation omitted). Besides the fact that WSW Franchising addresses the issue of liability of an individual when signing in his corporate capacity, the opposite of the question relevant to this appeal, the facts in the instant case provide an ironclad agreement of liability on the part of Schwartz and not Darlington. Baltes Comm'l Realty v. Harrison, 2009 WL 3683681 (Ohio Ct.App. Nov. 6, 2009) is a similar decision where the individual was held liable, despite signing in his corporate capacity, because the agreement itself identified the individual as a guarantor. See also Westgate Village Shopping Ctr. v. Parker, 2008 WL 2221855 (Ohio Ct.App. May 30, 2008) (same proposition of law); S-S-C Co. v. Hobby Ctr., Inc., 1992 WL 355205 (Ohio Ct.App. Dec. 4, 1992) (same). All of these cases are narrow exceptions to the general principle that a note signed by an officer in his corporate capacity does not create individual liability unless that liability is expressed in clear and unambiguous language. Aungst, 74 N.E. at 1073 (syllabus
But what about cases similar to the Gordon Claim theory — in which the signature is in an individual capacity — but corporate liability was nevertheless imposed? The legal analysis is similar. Under Ohio law, "[i]t is well-settled in the law of agency that an agent who discloses neither the existence of the agency nor the identity of the principal is personally liable in his or her contractual dealings with third parties." Dunn v. Westlake, 61 Ohio St.3d 102, 573 N.E.2d 84, 87 (Ohio 1991). Again, as in the examples previously cited, "clear and unambiguous" contract terms may overcome the form of signature. See Norfolk S. Ry. Co. v. Jacobs, 549 F.Supp.2d 990, 1000 (N.D.Ohio 2008) ("The intentions of the parties that Jacob Industries, and not James Jacobs himself, be responsible for and liable on the contract is abundantly clear and carries over to the modification.").
In the end, this entire line of case law cited merely stands for the common sense proposition that a signature in an individual or corporate capacity is not dispositive when the language in the document proves clear and unambiguous intent for dual liability. However, the Agreement does not provide nearly the type or quantum of evidence that would overcome the individual liability of the Schwartz, evidenced by the preface of the Agreement and the individual signatures of the Schwartz, and would establish the sole or dual liability of Darlington or any of the other Debtors.
Instead, the Agreement evidences a loan between family members with the consideration for that loan being a promise to repay with interest, a security interest in a non-debtor asset — "P.S. Realty," an equity interest in Darlington and a share of its profits and additional promises by Schwartz to pay certain incidental expenses and pay for nursing home care, if needed. In order to reasonably expect to overcome the Agreement beginning "Sally and Abraham Schwartz to Gertrude, David, Allison, Gordon" and ending with the Schwartz' individual signatures, the "whole instrument" would need to show clear and unambiguous language of corporate liability. It does not. Read contextually, there is not a single phrase in the document showing clear corporate liability for an unsecured loan.
The determination that Grossman's re-characterization argument was frivolous was also within the bankruptcy court's discretion. Grossman attempts to show the argument was not frivolous by the amount
The record also supports the bankruptcy court's conclusion that Grossman did not provide significant evidence during the Merit Hearing to support any other theory of allowance.
Based on the foregoing, the record is sufficient to show that the bankruptcy court did not abuse its discretion in concluding that the Gordon Claim was premised on frivolous legal theories.
Grossman vexatiously pursued arguments and filed documents throughout the litigation that were frivolous. Particularly based on the deferential standard of review afforded the bankruptcy court, there is more than a sufficient basis to affirm the sanctions.
All of the objections to the allowance of the attorney fees of professionals after the Gordon Claim were disallowed and the repeated objections to the Gordon Claim settlement were frivolous. It should have been clear that none of these motions, nor the orders granting these motions, prejudiced Grossman and, further, he lacked standing to file these objections on his own behalf. But Grossman persisted in making these objections repeatedly, including arguments about how his due process would be prejudiced based upon the particular language chosen in proposed orders. The Panel finds the language chosen only clarified those orders and did not impact the sanctions issue.
A detailed review of the record shows that Grossman repeatedly interjected substantive arguments previously briefed into routine procedural motions. In one instance, the Trustee was forced to respond to such arguments contained within an agreed motion for a continuance. These types of filings, by forcing a response, drained the Liquidation Trust of funds by unnecessarily raising administrative expenses. He filed multiple status reports to the same effect.
The request for a "credit" in the Gertrude Gordon settlement order was frivolous and pursued vexatiously. Prior to being sanctioned, Grossman essentially wanted an advisory opinion before that issue was ripe. His arguments about being concerned about laches or waiver ring hollow. Also, as explained later, his substantive argument about a setoff was not supported by the case law he cited.
At the hearing on the New Claim Motion, despite the motion being denied, Grossman was plainly told he could pursue alternative legal theories. He appealed anyway and disingenuously claimed confusion when none reasonably existed. He accused the bankruptcy court of bias for
Grossman frivolously argued that he was denied due process because he was not entitled to file a post-hearing brief concerning the Gordon Claim. First, it was his responsibility to ensure he understood all court orders prior to the hearing, including the bankruptcy court's order requiring that proposed findings of fact and conclusions of law be filed prior to the hearing. Given such a requirement, Gordon had the opportunity to provide the bankruptcy court with legal authority for the propositions which he was espousing and a post-hearing brief was unnecessary. Second, litigants have no due process right to submit post-hearing briefs. Those decisions are left in the discretion of the bankruptcy judge presiding over the case. The record shows that every legal issue related to the objection to the Gordon Claim had been briefed well beyond what most litigants in bankruptcy courts ordinarily would do and the opportunities which Grossman had to brief such issues exceeded those which most practitioners would expect or receive.
Grossman unnecessarily repeated arguments time and again. As just one example, his voluminous filings concerning an expert witness were beyond what was reasonable and were vexatious. Grossman has taken the position this witness should have been allowed to testify to explain specialized terms. An exception is recognized to the parol evidence rule under Ohio law for this purpose, but when Grossman entered the stipulation during the hearing he failed to reference such an exception. Having not raised the expert witness issue at the time of the stipulation and having agreed to the stipulation, Grossman had no cause to raise arguments concerning parol evidence. Despite all of this, Grossman sought to have the Trustee pay the witness's travel expenses.
He filed repeated motions for recusal and re-raised the same essential arguments, even after the district court issued a decision finding the Bankruptcy Judge had no discernable bias. He filed a motion to withdraw the reference immediately prior to a sanctions hearing. He frivolously argued at that same hearing that his motion to withdraw the reference, without any ruling by the district court, somehow divested the bankruptcy court of its subject matter jurisdiction. He also frivolously asserted the sanctions issues should be decided by a federal judge outside the Northern District of Ohio because the Bankruptcy Judge was the "Chief Judge of the District." Grossman's argument that Judge Gaughan's decision regarding sanctions barred further sanctions is belied by a simple reading of the language used in her decision. As this decision details in the recusal section, many of his arguments take statements out of context to create a distorted impression of the record.
He frivolously argued that the Hochman Trust, a creditor, should bear the Liquidation Trust's administrative expenses. He had no legal authority whatsoever to support this argument and wasted counsel's time and judicial resources responding to this argument and his related filings. Nevertheless, he compounded the frivolousness by vexatiously pursuing a motion to reconsider that ignored the basis for the bankruptcy court's decision.
All these arguments that Grossman pursued, and others described in this decision, support the sanctions decision of the bankruptcy
Grossman argues that the bankruptcy court failed to articulate the specific bases for sanctions against him. However, the bases for the sanctions may be found in the two sanctions decisions. The bankruptcy court was clear that the Gordon Claim theories lacked merit and, in addition, were pursued vexatiously. The decisions conclude that, perhaps motivated by his contingent fee arrangement, Grossman sought to use the Committee's concern for the bankruptcy estate and, later, the Trustee's concern for an efficient administration of the Liquidation Trust, to force a settlement. This conclusion was articulated, without any ambiguity, in the Sanctions Opinion:
Sanctions Op. at 7.
Grossman makes much of the fact that the Sanctions Opinion did not cite any Ohio law, but it fully incorporated the Merit Opinion, which did cite Ohio law and, as discussed, shows why the bankruptcy court did not abuse her discretion in reaching the conclusion that the Gordon Claim had no reasonable chance of allowance. In addition, the Sanctions Opinion lists a series of arguments Grossman raised that were frivolous such as the theory of the Gordon Claim itself, and explains the repetitive nature of his filings. The Supplemental Sanctions Opinion provided further examples. The bankruptcy court was not required to review every document filed and every argument made by Grossman in the case and separately find them to be frivolous.
Grossman argues that he was not put on notice that all of his filings concerning the Gordon claim were subject to the sanctions motion. On December 11, 2012, following the Supreme Court's denial of the writ of certiorari which rendered the disallowance of the Gordon claim a final non-appealable order, the Trustee filed a renewed motion for sanctions. According to Grossman, that motion only sought sanctions for specific items. Grossman responded
Grossman vociferously argues that he was denied "equal justice" because the bankruptcy court enforced a deadline against him while allowing the Trustee to file a sanctions motion one day late. The deadline enforced against him was his reply brief to the New Claim Motion which was filed two days late by rule and one day late based upon an agreed order entered into by the parties. The Judge's ruling was explained during the hearing:
Partial Tr. of May 12, 2009 Hr'g at 28-29, In re Royal Manor Mgmt., Inc., No. 08-50421, ECF No. 566.
In essence, the bankruptcy court determined that, particularly in light of the fact the reply brief did not raise any new issues, it was appropriate to strike the brief as beyond rule time. A bankruptcy judge generally has broad discretion in such decisions and her decision that the computer problems did not warrant extra time was within her discretion. Grossman compares this situation to the decision of the Bankruptcy Judge to allow the Trustee to file a sanctions motion one day late. (This motion included additional fees since the issue had been held in abeyance by the pursuit of the appeals of the disallowance of the Gordon Claim). In a footnote to the Supplemental Sanctions Opinion, the Bankruptcy Judge stated:
Supp. Sanctions Op. at 4, n. 3. The renewed sanctions motion was not timely filed and the finding otherwise is clearly erroneous. The mandate terminated on November 26, 2012 and, therefore, the renewed sanctions motion was to be filed no later than December 10, 2012. It was filed one late, on December 11th. The Trustee erroneously believed the 3 day "mailbox rule" in Bankruptcy Rule 9006(f) applied. However, that rule only applies when the response time is counted from service. In such a situation, the motion may only be permitted if there exists excusable neglect on the part of the filer. Fed. R. Bankr.P. 9006(b)(1). Grossman argues excusable neglect should not apply and he is being denied "equal justice."
The case law Grossman cited addresses statutes of limitation, specific federal rules or policy issues that the relevant order in this appeal does not implicate. Carlisle v. United States, 517 U.S. 416, 418, 116 S.Ct. 1460, 1462, 134 L.Ed.2d 613 (1996) addressed whether a district court had "authority to grant a postverdict motion for judgment of acquittal filed one day outside the time prescribed by Federal Rule of Criminal Procedure 29(c)." In that instance, the Supreme Court found that the language of that rule did not provide any basis for such a late filing. United States v. Locke, 471 U.S. 84, 105 S.Ct. 1785, 85 L.Ed.2d 64 (1985) addressed a specific statutory filing deadline under the Federal Land Policy and Management Act. Cook v. Comm'r of Social Security, 480 F.3d 432 (6th Cir.2007) addresses a specific limitations statute for applying for social security disability benefits. Merriweather v. City of Memphis, 107 F.3d 396 (6th Cir.1997) addressed a one-year limitations statute to file a § 1983 action. Graham-Humphreys v. Memphis Brooks Museum of Art, Inc., 209 F.3d 552 (6th Cir. 2000) addressed a statute of limitation under Title VII. See also Johnson v. U.S. Postal Service, 863 F.2d 48, 1988 WL 122962 (6th Cir. Nov. 16, 1988) (table decision) (plaintiff's late appeal to the EEOC ultimately resulted in a dismissal of a Title VII complaint for failure to exhaust administrative remedies); Watson v. Brady, 9 F.3d 1548, 1993 WL 469078 (6th Cir. Nov. 12, 1993) (table decision) (the filing of an employment discrimination complaint against the federal government was dismissed for failure to follow the 30-day statutory limitation). FHC Equities, LLC v. MBL Life Assurance Corp., 188 F.3d 678 (6th Cir.1999) addressed a late appeal. In re KMart Corp., 381 F.3d 709 (7th Cir.2004) concerns an affirmance of a decision to deny a proof of claim filed after the Chapter 11 bar date, which has policy implications for all creditors and parties in interest not present here. See also In re Sterling Rubber Prods. Co., 316 B.R. 485 (Bankr.S.D.Ohio 2004) (similar).
As to the broader comparison to the striking of the reply brief, that decision did not deny Grossman a chance to prosecute his motion and was based on specific circumstances. The decision to deny the Trustee any opportunity to fully prosecute his sanctions motion is of an entirely different order. The bankruptcy court had no obligation to treat every tardy filing the same way, regardless of the circumstances, particularly when the ruling would deprive a party of any ruling on the merits and the sanctions issue originally was raised by the Bankruptcy Judge. There is an enormous difference between striking a reply brief and denying any hearing on the merits of a sanctions motion that renewed a pending motion. These decisions were years apart, have little relationship to one another and Grossman's "late is late" analysis cannot withstand scrutiny.
For these reasons, Grossman's argument about the denial of "equal justice" is not well taken.
Grossman argues that the Trustee failed to mitigate damages by not filing for summary judgment at an earlier date. Grossman cites Riddle v. Egensperger, 266 F.3d 542, 553-54 (6th Cir.2001) for the proposition that sanctions are generally improper when a successful motion could have avoided the bulk of the fees which are sought. See also Rathbun v. Warren City Sch. (In re Ruben), 825 F.2d 977, 988 (6th Cir.1987) (failure to file a motion to dismiss precludes sanctions based on a groundless claim).
The convoluted circumstances surrounding the Gordon Claim litigation do not support an argument that the sanctions should be reversed because the Trustee failed to mitigate. The decision whether to file a motion for summary judgment or litigate the issue at a hearing was not based on the type of clear fact pattern as the precedent cited. Summary judgment
Grossman argues he was entitled to a $49,313.50 credit or setoff for the funds paid in the Gordon settlement that "overlapped" with the judgment against him.
Grossman cites BP Exp. & Oil Co. v. Maint. Svcs., Inc., 313 F.3d 936 (6th Cir. 2002) and E.D.S. Corp. v. W.A. Foote Mem'l Hosp., Inc. (In re Foote Mem'l Hosp./PCIS Litig.), 25 F.3d 406 (6th Cir. 1994). The BP decision determined that, under Ohio statutory law, a non-settling party in tort is entitled to a set-off for the amount paid to the claimant by a settling party for the same injury. Id. at 942. The court noted that closely related to that principle is the rule that an injured party who receives full compensation is not entitled to further compensation from another defendant. Id. However, the court noted that neither the statutory nor the common law rule applies unless there has been a determination of the settling defendant's liability. Id. Foote Mem'l, 25 F.3d at 410, refers to the same "one satisfaction" rule in the context of "common damages."
Even assuming for argument that the legal principles in this case law apply to federal sanctions, Gertrude Gordon settled her sanctions without a determination of liability. It was a mutual release without findings. In addition, the settlement did not include "common damages" with the sanctions judgment against Grossman. The sanction allegations against Gertrude Gordon included filing a fraudulent proof of claim. If proven, the bankruptcy court could have sanctioned Gertrude Gordon, regardless of whether the Trustee had spent attorney fees directly related to that filing. Without a finding of liability, a setoff or credit to Grossman cannot be applied.
Grossman raised four issues in his motion for reconsideration that all arose during the supplemental sanctions hearing. First, Grossman moved to strike portions of the Trustee's proposed findings because they addressed "closed" issues that were resolved by the court at the January 15, 2013 sanctions hearing. Specifically, Grossman cites a statement by the bankruptcy court at the hearing concerning Grossman's objection to the Gertrude Gordon settlement. At the hearing, the bankruptcy court appeared to be trying to impress upon Grossman that issues from the January 15, 2013 sanctions hearing would be separately determined and that record was "closed." Therefore, the Gertrude Gordon settlement was irrelevant to the sanctions issues facing Grossman. The Bankruptcy Judge stated:
Tr. of Hr'g Feb. 12, 2013 at 6, In re Royal Manor Mgmt., Inc., No. 08-50421, ECF No. 993. Grossman takes this statement out of its context and argues that the Trustee's proposed findings of fact included time periods from the "closed" hearing. The bankruptcy court was free to ignore any of the proposed findings (or merely consider those findings as background) and the decision concerning supplemental sanctions was not based on a re-opening of the sanctions issues previously determined, but a continuation of Grossman's actions after that hearing. The Judge's denial of the motion to strike was not an abuse of discretion.
Second, Grossman objects that attorney Mazur gave argument, rather than testimony, from the witness stand and other portions of her testimony were foundation for a summary that was never introduced. As the trier of the fact and the arbiter of the law, a bankruptcy judge can separate argument from evidence and give little weight to evidence of marginal relevance. The Supplemental Sanctions Opinion does not credit argument as facts. Assuming any error in admitting Mazur's testimony, it is harmless. Grossman argues third that the bankruptcy court erred by prohibiting cross-examination as to how specific language Grossman wanted in the Gordon settlement order would have prejudiced the Trustee. The court sustained an objection to the questioning based upon the work product privilege. Grossman then argues that the privilege was waived because the direct examination of Mazur included a discussion of the negotiation with Grossman over the proposed language. That testimony had little meaning because the objections to the Gertrude Gordon settlement were frivolous anyway. Further, Grossman lacked standing to object to the settlement because he is not a beneficiary of the Liquidation Trust and, at that time, did not represent a beneficiary of the Trust. Grossman also had not yet been sanctioned. In any event, the bankruptcy's court's distinction between the basic facts of the negotiation and delving into a lawyer's legal impressions and reasoning was within her sound discretion.
A federal judge "shall disqualify himself in any proceeding in which his impartiality
Recusal is mandatory when, based on an objective standard of a reasonable person with knowledge of all the facts, the Bankruptcy Judge concludes that her impartiality is reasonably placed in question. Barna v. Haas (In re Haas), 292 B.R. 167, 175-76 (Bankr.S.D.Ohio 2003). However, a federal judge also has a mandatory duty not to recuse unless that standard has been met. Id.
Expressing an opinion about litigation is not a reason for recusal. Liteky v. United States, 510 U.S. 540, 555, 114 S.Ct. 1147, 1157, 127 L.Ed.2d 474 (1994) ("opinions formed by the judge on the basis of facts introduced or events occurring in the course of the current proceedings, or of prior proceedings, do not constitute a basis for a bias or partiality motion unless they display a deep-seated favoritism or antagonism that would make fair judgment impossible."). The Court has stated that "[n]ot establishing bias or partiality... are expressions of impatience, dissatisfaction, annoyance, and even anger, that are within the bounds of what imperfect men and women, even after being confirmed as federal judges, sometimes display." Id. at 555-56. Rather, bias must either be based on an extrajudicial source, which is not alleged, or because it is undeserved or excessive in degree or the behavior is "so extreme as to display clear inability to render fair judgment ...." Id. at 550-51. See also Schilling v. Heavrin (In re Triple S Rests., Inc.), 422 F.3d 405, 417 (6th Cir.2005) (affirming bankruptcy judge's denial of motion to recuse when the record lacked "concrete examples of hostility.").
Although Grossman raised recusal concerns in this litigation on multiple occasions, the only order on appeal is the March 2013 order denying his motion for recusal. Grossman sought recusal based upon assertions that 1) the Bankruptcy Judge required him to answer, on the record, whether he would make a "substantial contribution" to settle the sanctions motion; 2) the Bankruptcy Judge "repeated expressions of hostility" toward him concerning his appeals and 3) the Bankruptcy Judge became a "judge in her own case."
On the day that the Bankruptcy Judge approved the settlement with Gertrude Gordon, the "substantial contribution" comment was made by the Bankruptcy Judge to explore with the parties whether settlement discussions might be productive to avoid the further expenditure of resources by the parties and the court with respect to the sanctions motion. The Bankruptcy Judge had presided over the bench hearing concerning significant possible sanctions against Grossman. That contested matter was under advisement. The Bankruptcy Judge attempted to encourage a settlement, suggesting it would require a "substantial contribution" from Grossman. The question is whether a reasonable observer would question her partiality. The exchange appears to be an attempt to advise Grossman that a "significant contribution" might be less than what the Bankruptcy Judge, having heard the evidence as the determiner of both the
Grossman's argument that the Bankruptcy Judge made "repeated expressions of anger and hostility" toward Grossman's prosecution of the appeals of the Gordon Claim is not well taken. In Webster v. Sowders, the Sixth Circuit Court of Appeals stated:
846 F.2d 1032, 1040 (6th Cir.1988) (footnote and citations omitted). However, the Bankruptcy Judge did not threaten Grossman if he appealed nor did she rule on a motion to stay (or anything else) interfering with the appeals. She negatively commented, as part of her larger discussion of Grossman's pattern of conduct throughout the litigation, upon the appeals as part of her consistent view of Grossman's filings as attempting to force a settlement.
Grossman exaggerates the Bankruptcy Judge's statement in the Sanctions Opinion by redacting portions of her comments. The impression sought is that the Bankruptcy Judge invited the appellate court to award further sanctions. Appellant Principal Br. at 24. She stated that, if the Trustee did not seek further sanctions, the final judgment would be $150,000, "subject to any amount which an appellate court might decide to add, in the event of an appeal of that final judgment." The record is clear that earlier in that decision, the Bankruptcy Judge acknowledged the sanctions would not include fees relating to any appeal because the Trustee determined that he would not seek such fees at the bankruptcy court level. The quotation is best read as another acknowledgment that the decision does not address such fees and that issue may be the province of appellate courts. The other "invitation" mentioned by Grossman is less an invitation when the entire statement is read, but more another explanation that the bankruptcy court is addressing fees at the bankruptcy court level, not appellate fees. Compare Appellant Principal Br. at 24 (Grossman's redacted version of the quotation) with Supp. Sanctions Op. at 8, n. 4. Grossman is ascribing a motive which the weight of the record cannot support.
Grossman's other examples also fail to support his narrative. At a January 8, 2013 discovery hearing, the Bankruptcy Judge stated that "dividends have been held hostage during this appellate process." Tr. of Hr'g at 23, In re Royal Manor Mgmt., Inc., No. 08-50321, ECF No. 965. This statement was consistent with other statements of the Bankruptcy Judge that Grossman had pursued sanctionable conduct. The statement does not threaten Grossman from appealing any issue or reflect anger or hostility. This statement should be considered in the context of a hearing resulting in a 40 page transcript during which Grossman freely interjected his opinion that the Bankruptcy Judge was largely responsible for the delays in the litigation.
At the January 15, 2013 sanctions hearing, Grossman points to the Bankruptcy Judge questioning Grossman about how many additional months that distributions to creditors were delayed by Grossman's application for writ of certiorari to the Supreme Court. Tr. of Hr'g at 145, In re Royal Manor Mgmt., Inc., No. 08-50421, ECF No. 981. When read in context, Grossman was describing how the New Claim Motion was not frivolous and, as part of that, noted the Sixth Circuit stayed its decision to allow Grossman to pursue a writ of certiorari. As part of the colloquy, the Bankruptcy Judge asked about the delay by proceeding to the Supreme Court. It is unreasonable to view this statement as an expression of anger or hostility. Following that statement, Grossman and the Bankruptcy Judge continued to discuss the evidence during closing argument on a variety of points.
During a February 12, 2013 hearing on the motion to compromise the request for sanctions as to Gertrude Gordon, the Bankruptcy Judge stated that "[y]our activity in this court and other courts within the Northern District of Ohio will be judged by a review of activity." Tr. of Hr'g at 7, In re Royal Manor Mgmt., Inc., No. 08-50421, ECF No. 993. The statement is in context not an expression of anger or hostility nor is it a threat. The Bankruptcy Judge previously noted her view of the irony of Grossman's concern that the language in the Gordon compromise order would lead to further sanctions
In the Supplemental Sanctions Opinion, the Bankruptcy Judge stated that filings related to appeals "contain largely frivolous and repetitive arguments designed to multiply and delay the ultimate resolution of this case." Supp. Sanctions Op. at 8, n. 4. This statement represents the Bankruptcy Judge's view of the litigation as part of the pattern of Grossman's filings. Merely commenting on her view of these appeals did not represent a persistent pattern of hostility or anger toward Grossman nor a threat. None of the sanctions concerned fees expended by the Trustee on appeals.
The balance of the comments which concern Grossman are from the Sanctions Opinion and were appropriate. She noted that Grossman's appeals diminished the distribution to holders of allowed claims because the Trustee incurred greater attorney fees and distributions were delayed. Sanctions Op. at 4. Later, the Bankruptcy Judge wrote "[f]or more than four years and continuing to the present Grossman seemed to find any and every occasion to multiply the ongoing proceedings." The paragraph also references the various appeals that were not included in an Appendix of his filings. Id. at 6. Similar statements were made about the delays to distribution and additional fees at other portions of the decision. Id. at 7-8 and 11. For a complete list, see the Appellant Principal Br. at 16. All these comments were appropriate for a sanctions decision.
Grossman also mentions three separate incidents, occurring over a period of 3 ½ years, in which the Bankruptcy Judge sua sponte invited the Trustee to seek sanctions. While Grossman appears to concede that sua sponte sanctions "invitations" are not per se impermissible, he states, without a citation, that "[t]hree (3) times is too much." Appellant Principal Br. at 23. Starting from the most recent, the Sanctions Opinion, the Bankruptcy Judge gave the Trustee the opportunity to file for supplemental sanctions for attorney fees and five days to make that decision. Over three years earlier, on January 29, 2010, the Bankruptcy Judge issued a sua sponte show cause order requiring Grossman to explain why he should not be sanctioned pursuant to the court's power under 28 U.S.C. § 1927 based on the findings proposed by the Liquidation Trustee. Finally, the Bankruptcy Judge invited the Trustee to seek sanctions under Bankruptcy Rule 9011 in her decision sustaining the Trustee's objection to the Gordon Claim.
The most recent mention of sanctions appears to be an attempt to fully and finally have all sanctions issues resolved by setting a final date for such motions. The first mention of sanctions was within the Bankruptcy Judge's discretion based on her views articulated in the Merit Opinion and, apparently based on issues with raising such claims under Bankruptcy Rule 9011, the Bankruptcy Judge subsequently issued a show cause under 28 U.S.C. § 1927, which was an alternative legal basis for sanctions. In the context of 4 ½ years of contentious litigation, in which the Bankruptcy Judge determined and repeatedly told Grossman that he was consistently filing frivolous documents and raising frivolous arguments, the characterization
Grossman attempts to frame a personal dispute between himself and the Bankruptcy Judge and reaches the conclusion that the Bankruptcy Judge was "judging her own case." Based on established case law that a judge cannot have a material (pecuniary or otherwise) interest in the litigation, he points to the fact that the Bankruptcy Judge criticized him of delay in pursuing the Gordon Claim while, in his view, poor case management was responsible for significant delay.
As further evidence of bias, Grossman raises the fact that the Sanctions Opinion mentions that Grossman had a 40 percent contingency interest in the Gordon Claim (reduced to 30 percent after his pro hac vice privileges were withdrawn by the District Court) and this interest was not disclosed in the pro hac vice motion. Grossman believes this was intended to create a "false impression of illegality." Appellant Principal Br. at 27. The record shows that the Bankruptcy Judge ultimately concluded this fee arrangement was part of what led to Grossman's actions. He would not be paid any legal fees if he did not successfully pursue the Gordon Claim. The statements in the opinion about the fee arrangement are factually correct and Grossman ascribes to them motives that the record cannot support.
Another asserted misstatement by the Bankruptcy Judge in the record is in the Supplemental Sanctions Opinion, in which the Bankruptcy Judge commented on Grossman's characterization (in a recusal motion and reply) of her previously discussed
The next asserted misstatement is that the Bankruptcy Judge referred to the "substantial contribution" settlement question to Trustee counsel as a "general inquiry regarding settlement." However, the record is cited in the Bankruptcy's Judge's decision and there is no intentional misstatement. The term "general inquiry" is a matter of reasonable interpretation — as is so many of Grossman's concerns — and is not a reason to find bias sufficient to justify recusal.
The next asserted misstatement ultimately is an argument about semantics that misses the point of the Bankruptcy Judge's concern. The Supplementary Sanctions Opinion discussed Grossman's objection to the Gertrude Gordon settlement. He states this was not an objection to the settlement, but instead, in essence, an attempt to obtain comfort type language that such settlement would not lead to further sanctions against him. Grossman believes the Bankruptcy Judge misstated the record by stating he opposed or objected to the settlement itself. The reality is Grossman filed an objection to approval of the settlement without specific language in the order that he wanted. The record is clear as to why he objected, which as discussed elsewhere, was based on a frivolous argument. It is of no moment that he was not objecting to the specific terms of the settlement itself. His objection required a further hearing and expense for the Trustee. The statement that Grossman objected to the Gertrude Gordon settlement is not inaccurate.
The next asserted misstatement is that the Bankruptcy Judge created a "false impression of repetitiveness" by stating in her Supplemental Sanctions Opinion that Grossman had filed 3 opposition responses to the Gertrude Gordon settlement motion,
Next, Grossman asserts that the Bankruptcy Judge gave an appearance that Grossman's filings were excessive by noting he had filed a 46-page brief in opposition to the supplemental sanctions motion, but failed to mention the Trustee's motion was 45 pages. However, Grossman takes the comment out of its context. The Judge noted in the same paragraph that Grossman later, on January 13, 2013, filed an "opposition as a matter of right" to the reply brief of the Trustee that repeated arguments in the 46-page brief. Grossman mischaracterizes the record with this example and fails to state the Judge's actual concerns in her Supplemental Sanctions Opinion. Grossman's comparison with the Trustee's brief is a straw man argument.
Finally, Grossman states the Bankruptcy Judge misstated the record in her Supplemental Sanctions Opinion by indicating that Grossman "filed a motion to strike the Liquidation Trustee's proposed findings of fact and conclusions of law." Supp. Sanctions Op. at 7. Grossman had moved to strike parts of the findings of fact and conclusions of law because, in his view, the findings and conclusions addressed issues previously determined through the first sanctions hearing and the Judge had ruled those issues "closed." This statement in the Supplemental Sanctions Opinion, for what it is worth, is not completely correct. However, more salient to the decision is the Judge's determination that the motion to strike, regardless of the breadth, "has no basis in law or fact." Id. The Bankruptcy Judge continued: "It appears to this Court to be merely reflective of Grossman's inability to let pass any opportunity to reiterate and restate arguments that have already been fully briefed." Id. at 7-8. The Judge cited the relevant documents from the record and the decision showed no intention to stray from the record. Moreover, the notion that the Bankruptcy Judge, when deliberating sanctions, could not consider any past history because the previous proceeding was "closed" is itself an unnecessary vexatious argument.
Grossman characterizes these as an "extraordinary series of record misstatements" which showed bias indicating recusal is appropriate. For the reasons just detailed, the statements mostly represent exaggerations and mischaracterizations of the record by Grossman or nonmaterial factual errors. None of these statements, individually or in the aggregate, demonstrates bias which justified recusal.
Grossman argues that the Trustee's service of the requests for post-judgment discovery was improper because a subpoena or other formal process was required. Federal Rule of Civil Procedure 69(a)(2), applicable to this contested matter by Federal Rules of Bankruptcy Procedure 7069 and 9014, provides: "In the aid of judgment or execution, the judgment creditor or a successor in interest whose
Grossman argues that "fundamental fairness" should require staying discovery because of delays in adjudicating his sanctions appeal. However, the procedure for any party to seek a stay pending an appeal of a judgment is mandatory. See Fed. R. Bankr.P. 8005 ("A motion for a stay of the judgment, order or decree of a bankruptcy judge ... or for other relief pending appeal must ordinarily be presented to the bankruptcy judge in the first instance.... A motion for [stay pending appeal] ... may be made to the ... bankruptcy appellate panel, but the motion shall show why the relief ... was not obtained from the bankruptcy judge.")
Grossman argues the order compelling him to appear at the debtor's examination was invalid. However, this type of examination is an entitlement of a judgment creditor pursuant to Ohio Revised Code § 2333.09 and the Bankruptcy Judge's authority to apply this Ohio statute is found in Federal Rule of Civil Procedure 69(a)(2).
Grossman raises as error the Bankruptcy Judge's refusal to issue a protective order. Grossman was concerned that private financial and tax information could be disclosed. The bankruptcy court reasoned Grossman could redact account numbers and social security numbers and, moreover, the discovery would not be filed with the bankruptcy court. Grossman argues that documents could be filed later. However, Grossman may address that issue with any other tribunal in which this collection matter may land. As far as
Grossman argues that the interrogatories exceed the number allowed without leave of court. Federal Rule of Civil Procedure 33(a)(1) limits interrogatories to 25, "including all discrete subparts" without leave of court or stipulation. The court found the interrogatories were within 25, but regardless of this finding, would have allowed the greater number. This determination was within the bankruptcy court's reasonable discretion. See Harhara v. Norville, 2007 WL 2897845 (E.D.Mich. Sept. 25, 2007) (related subparts may be treated as part of the primary question and not a "discrete subpart.").
The orders appealed from in both of Grossman's appeals are affirmed.
Mem. of Op. and Order at 9-10, Gordon v. Wehrle, Nos. 5:09 CV 2687 and 5:09 CV 1506 (N.D.Ohio Dec. 17, 2009), ECF No. 32.
