Opinion
Case No. 18-13425
2021-09-02
IN RE: Joshua V. JONES and Amanda M. Jones, Debtors.
Brian D. Flick, DannLaw, Cuyahoga, OH, for Debtor.
Brian D. Flick, DannLaw, Cuyahoga, OH, for Debtor.
OPINION AND ORDER IMPOSING SANCTIONS AGAINST DEBTORS JOSHUA V. JONES AND AMANDA M. JONES (DOC. 132)
Jeffrey P. Hopkins, United States Bankruptcy Judge
It has long been the rule that "[bankruptcy] gives to the honest but unfortunate debtor ... a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of pre-existing debt." Local Loan Co. v. Hunt , 292 U.S. 234, 244, 54 S.Ct. 695, 78 L.Ed. 1230 (1934) (emphasis added). What the law does not do, however, is give a debtor (or in this case, joint debtors) unrestrained freedom to run roughshod over the court system and insist that their attorney not follow well established law and ethical rules—and, when unsatisfied with that attorney's predilection to adhere to the rule of law, to then begin a campaign of disparaging him, or worse, engaging in boorish even physically threatening behavior towards him and his staff.
I. Procedural Posture
This matter came before the Court for hearing on February 24, 2021 (the "Show Cause Hearing") on this Court's Order to Show Cause Why Sanctions Should Not Be Imposed Against Debtors (Doc. 132) (the "Show Cause Order"). The hearing was attended by attorney Nicholas Zingarelli (the Debtors' former counsel), George Jonson (co-counsel for Mr. Zingarelli), Margaret A. Burks (Chapter 13 Trustee), and Brian Flick (also the Debtors' former counsel). The Debtors filed a pleading in advance of the Show Cause Hearing (Doc. 141), but they failed to appear, despite being forewarned that sanctions might be imposed against them based on their conduct in these proceedings.
II. Preliminary Statement
Even while represented by counsel, the Debtors have taken it upon themselves to file, pro se , several pleadings with this Court. The Debtors' pleadings have repeatedly mischaracterized facts and contained allegations and assertions about the law and their former attorney that demonstrate a lack of reasonable investigation into the veracity of those statements. At times, the factual assertions in the pleadings were reckless and, in instances, totally disregarded whether they were nonfrivolous or capable of having evidentiary support. Much of what the Debtors state in these pleadings was directed at impugning the character of their former attorney, Mr. Zingarelli. The Debtors' quibble in this case, however, was not so much with their former attorney as it was with the constraints placed on him—and ultimately themselves—by the statutes and rules that govern individuals seeking debt relief from their creditors under the bankruptcy laws. The way we change or amend laws in this country, however, is not to verbally castigate or physically threaten those charged with following the law under our system of government but rather to peacefully petition Congress or state legislatures.
Still, when litigants cross the line and their conduct during the litigation becomes abusive, courts cannot remain idle bystanders. Judges are obligated to address that behavior lest the judiciary, our Third Branch of government, risks devolving into just another place where individuals can act out their aggressions and frustrations unbound by respect for the rule of law, common etiquette, and proper decorum. The bankruptcy court, like any federal court, is a forum for peaceful resolution of financial disputes and where mutual respect among parties and attorneys should be exhibited at all times. Although one would be ill advised to do so, debtors can represent themselves. Or, as is the better practice, they can choose an attorney to advocate on their behalf. Here, the Debtors chose the latter approach, but apparently decided at some point during the proceedings that they would go their own way against counsel's advice. Thereafter, the Debtors engaged in a pattern of conduct that leaves no doubt but to conclude that they crossed the line. And instead of self-correcting their behavior by withdrawing those pleadings or issuing a simple apology to those they offended, the Debtors dug in and remain defiant. But unruly or boorish behavior acted out under the auspices of court proceedings, even by pro se litigants, is not without consequence.
III. Summary of the Facts
Mr. Zingarelli represented the Debtors in this bankruptcy case from the time they filed their Chapter 13 petition on September 13, 2018 until the Court granted his motion to withdraw as counsel on June 21, 2019. See Doc. 66. In late 2020, the Debtors filed several pleadings pro se challenging Mr. Zingarelli's representation of them and the validity of these Chapter 13 proceedings. See Docs. 118, 121 & 122. The Debtors' main contention against Mr. Zingarelli has been for ineffective assistance of counsel. The Debtors have argued repeatedly, without proof, that Mr. Zingarelli improperly or unethically mishandled an ongoing dispute they have had with The Commons of Eastgate Condominium Owners Association, Inc. ("Eastgate" or "the homeowners' association"). The Debtors take issue with the dues and fees assessed by Eastgate, which had initiated a prepetition foreclosure action over those unpaid assessments.
The Debtors were also represented for a period of time by Brian Flick, who filed an appearance on their behalf in October 2019. Mr. Flick later moved to withdraw as counsel, which was approved in September 2020. Doc. 116.
The Debtors appear to have two unshakeable beliefs about their case: (1) that the proof of claim asserted by Eastgate is inaccurate (and Mr. Zingarelli improperly refused to object to it); and (2) that all along, they should have been in a Chapter 7—not a Chapter 13—bankruptcy case (and Mr. Zingarelli not only improperly but also fraudulently pushed them into Chapter 13). According to the Debtors, they were eligible for and had come to Mr. Zingarelli for advice exclusively on filing a Chapter 7 bankruptcy petition, but Mr. Zingarelli wrongly advised them to file for relief under Chapter 13. The Debtors maintain, unsubstantiated by the evidence, that Mr. Zingarelli grossly and fraudulently overstated their income when applying the means test in their bankruptcy case in order to push them into Chapter 13, even going so far as to suggest that Mr. Zingarelli was in cahoots with the homeowners' association in working against the Debtors'—his clients'—interests. Ostensibly (and erroneously), the Debtors believe that their home would have been safe from foreclosure had they received a discharge in Chapter 7. In their pro se "Motion for Ineffective Assistance of Counsel and Fraudulent Bankruptcy Proceedings" (Doc. 118) (the "Motion for Ineffective Assistance") and related pleadings, the Debtors sought to obtain a refund of any and all payments they have made in accordance with their confirmed Chapter 13 plan—more than two years of payments—and to have their case converted to Chapter 7.
The Court already denied the relief sought in the Debtors' various motions. See Doc. 133.
Credible evidence presented at the hearing and uncontested facts contained in the Debtors' Chapter 13 petition and schedules, however, belie each of the Debtors' contentions about Mr. Zingarelli's purported incompetence. From a factual and legal standpoint, just the opposite seems to have occurred. By all accounts, Mr. Zingarelli appears to have provided the Debtors with sound legal advice. The income figures Mr. Zingarelli used to calculate the Debtors' means test—the very figures the Debtors claim were grossly inflated—matched the figures contained in Debtor Amanda Jones's pay stubs for the six months prior to their bankruptcy filing. See Doc. 120, Ex. C (spreadsheet summarizing Mrs. Jones's pay stubs) & Ex. D (copies of Mrs. Jones's pay stubs). And the Debtors both signed declarations under penalty of perjury confirming the accuracy and contents of their bankruptcy schedules and filed statements, including the means test and Schedule I. See Doc. 1 at 35, 48 (signatures attesting that the schedules and that the information in the means test, respectively, were true and correct); Doc. 120, Ex. E (copy of "Declaration About an Individual Debtor's Schedules" containing Debtors' "wet" signatures). Thus, rather than grossly or fraudulently inflated, the Debtors' income as represented in their schedules and in their means test calculation appears to have been accurate and based on the information provided and attested to by the Debtors themselves.
More importantly, because of the significant arrearage in their homeowners' association dues that had accrued prepetition, the Debtors were advised and indeed needed to file a petition under Chapter 13 to accomplish their goals. The prepetition debt owed to Eastgate—over $20,000—resulted in a statutory lien and the institution of foreclosure proceedings in state court by the homeowners' association. See Claim 10-1 (Eastgate proof of claim showing over $6,000 in past-due fees and charges and $14,000 in attorneys' fees involved in the collection thereof); Doc. 90 (Eastgate's motion for relief from stay indicating the prepetition amount and referencing the judgment based on that debt obtained in the Court of Common Pleas in Clermont County); Doc. 1 (Debtors' Schedule D estimating the (disputed) prepetition debt, secured by a statutory lien, at about $19,000). Despite the Debtors' beliefs to the contrary, the only way they could keep their home and avoid foreclosure in state court (as they had expressed a desire to prevent during their initial consultation with Mr. Zingarelli) was by filing for bankruptcy relief under Chapter 13. Thus, rather than receiving inadequate legal advice, in this Court's view, the Debtors obtained quite competent bankruptcy counseling from Mr. Zingarelli. Despite this, the Debtors—over two years into their bankruptcy case and over a year after Mr. Zingarelli's representation of them had ended—began a campaign of filing motions with this Court making bald assertions and accusations against Mr. Zingarelli, all while sending Mr. Zingarelli and his staff threatening communications.
Section 524 provides that a discharge under Chapter 7 (or, more precisely, under § 727 of the Bankruptcy Code ) voids any judgments of personal liability of the debtor and operates as an injunction against attempts by creditors to collect against the debtor personally. It is incredibly important to note, however, in the context of a Chapter 7 discharge, that § 524(a) applies only to a debtor's personal liability. Johnson v. Home State Bank , 501 U.S. 78, 83, 111 S.Ct. 2150, 115 L.Ed.2d 66 (1991). The principle is well established that a valid lien that is not paid or eliminated passes through the bankruptcy unaffected. As the Supreme Court in Johnson made clear: "Even after the debtor's personal obligations have been extinguished, the [lien] holder still retains a ‘right to payment’ in the form of its right to the proceeds from the sale of the debtor's property." Id. at 84, 111 S.Ct. 2150.
In this case, the homeowners' association's lien against the Debtors' condominium is one that is statutory under Ohio law, and not judicial; therefore, the lien cannot be avoided in a Chapter 7 case pursuant to § 522(f)(1)(A). See In re Jackson , 554 B.R. 156, 165 (B.A.P. 6th Cir. 2016), aff'd , No 16-4021, 2017 WL 8160941 (6th Cir. Oct. 18, 2017) ; In re Bland , 91 B.R. 421, 423 (Bankr. N.D. Ohio 1988) (A lien from a condominium association is "consensual in nature."); Dover W. Condo. Unit Owners' Ass'n v. Carandang , No. 105490, 2017 WL 6539297, *3 (Ohio Ct. App. Dec. 21, 2017) (holding that condo association liens are consensual liens that take priority over the homestead exemption); see also Ohio Rev. Code § 5311.18 ("Lien for common expenses; appeal procedure for unfair assessment"). The lien held by the homeowners' association extends to "expenses that are chargeable against the unit and that remain unpaid for ten days after any portion has become due and payable." Ohio Rev. Code § 5311.18(A)(1) ; Claim 10-1 at 14 (reflecting Eastgate's lien as covering "all assessments levied by [Eastgate], interest thereon, expenses, late charges, and reasonable attorney fees involved in the collection thereof, which remain unpaid"). And, importantly, under section 5311.18(A)(3) of the Ohio Revised Code, the lien becomes effective upon the date a certificate of lien is filed with the county recorder in the county where the property is situated—which in this case was March 22, 2017 when Eastgate's certificate of lien was filed for record in Clermont County, Ohio. Claim 10-1 at 10.
Accordingly, had the Debtors filed under Chapter 7, as they now claim they wanted to do before Mr. Zingarelli intervened, any attempt by the Debtors' homeowners' association to enforce the lien (after the bankruptcy had concluded or after a motion for relief from the automatic stay had been granted) would not have been prohibited. A Chapter 7 discharge would not have enjoined Eastgate's right to foreclose on the Debtors' condominium to collect on the underlying debt. In other words, if the Debtors wanted to keep their home out of foreclosure, filing for protection under Chapter 13 and entering a plan for repayment of the prepetition debt owed to the homeowners' association for the unpaid assessments and fees was perhaps their only option. As noted, the association's lien is not a judgment and, because it cannot be avoided under the Bankruptcy Code, passes through the bankruptcy unaffected. Chapter 7 would have been of no help to the Debtors in the sense that it could not have afforded them the relief they sought from filing for bankruptcy in the first place—to save their home from foreclosure—as their former counsel Mr. Zingarelli had correctly advised them.
During the Show Cause Hearing, the Court heard uncontroverted testimony from attorney Zingarelli regarding his representation of the Debtors and from his former paralegal, Lynley Dunham. Included in his testimony, Mr. Zingarelli thoroughly explained why the Debtors were advised to file under Chapter 13 and why he felt that there was no legal or factual basis for him to object to Eastgate's proof of claim. The Court also admitted into evidence Exhibits A–I, see Doc. 139, which corroborate much of his and Ms. Dunham's testimony. Just as when the Court held a hearing on their various motions seeking relief from this Court and against Mr. Zingarelli, the Debtors were no shows at the hearing.
Having reviewed the entire record in this case, including the pleadings and the documentary evidence submitted, and having considered the testimony and credibility of the witnesses, the Court finds from the totality of circumstances that sanctions against the Debtors pursuant to Rule 9011 of the Federal Rules of Bankruptcy Procedure, § 105 of the Bankruptcy Code, and this Court's inherent authority are warranted in this case.
IV. Law
This Court has the authority to impose sanctions on parties before it on a number bases, several of which warrant discussion and support the issuance of sanctions in this matter.
A. Sanctions Under Federal Rule of Bankruptcy Procedure 9011
First, Rule 9011(b) of the Federal Rules of Bankruptcy Procedure provides that:
By presenting to the court (whether by signing, filing, submitting, or later advocating) a petition, pleading, written motion, or other paper, an attorney or unrepresented party is certifying that to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances,—
(1) it is not being presented for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation;
(2) the claims, defenses, and other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law;
(3) the allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a
reasonable opportunity for further investigation or discovery; and
(4) the denials of factual contentions are warranted on the evidence or, if specifically so identified, are reasonably based on a lack of information or belief.
Fed. R. Bankr. P. 9011(b). The Court may impose sanctions by motion or upon its own initiative "[i]f, after notice and a reasonable opportunity to respond, the court determines that subdivision (b) has been violated ...." Fed. R. Bankr. P. 9011(c).
Rule 9011 primarily seeks to "deter baseless filings in bankruptcy court and thus avoid unnecessary judicial effort, the goal being to make proceedings ... more expeditious and less expensive." 10 Collier on Bankr. ¶ 9011.01 (Richard Levin & Henry J. Sommer eds. 16th ed.); see also Cooter & Gell v. Hartmarx Corp. , 496 U.S. 384, 393, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1990). To determine if sanctions are warranted under Rule 9011(b), the Court must determine "whether the specific conduct at issue was reasonable under the circumstances at the time the filing was submitted." B-Line, LLC v. Wingerter (In re Wingerter) , 594 F.3d 931, 941 (6th Cir. 2010) (citing Corzin v. Fordu (In re Fordu) , 201 F.3d 693, 711 (6th Cir. 1999) ). The inquiry has both a subjective and objective component. Buckeye Retirement Co. v. Hake (In re Hake) , No. 06-8007, 2006 WL 2621116, *6 (B.A.P. 6th Cir. Sept. 14, 2006) (stating that "the objective inquiry ... questions whether the suit was filed after a reasonable investigation into the law and the facts; the subjective inquiry ... requires a determination of why the movant filed the motion"). This analysis "does not lend itself to categorical prescriptions, but rather will depend on the varying facts of each case." Wingerter , 594 F.3d at 941.
Generally, when a Rule 9011 matter is initiated by the court, "the only available sanctions expressly authorized by Rule 9011(c)(2) are (1) nonmonetary directives; and (2) a penalty to be paid into court." Hoover v. Jones (In re Jones) , 546 B.R. 12, 18 (B.A.P. 6th Cir. 2016) (internal quotations omitted). However, notwithstanding the language of Rule 9011(c), courts have inherent authority to award monetary sanctions—including attorneys' fees and expenses—following or related to a Rule 9011 inquiry raised on the court's own initiative when bad faith occurs. Id . ; see also, e.g. , Hake , 2006 WL 2621116, at *9 ("[T]his Panel has recognized that ... bankruptcy courts have the inherent power to impose sanctions on a scope broader than that of Bankruptcy Rule 9011, including monetary sanctions, and that under similar facts, the bankruptcy court did not err in awarding attorneys fees on a Rule 9011 matter raised on the court's own initiative. We reaffirm that conclusion today[.]" (internal citation omitted)); Knowles Bldg. Co. v. Zinni (In re Zinni) , 261 B.R. 196, 203 (B.A.P. 6th Cir. 2001) (noting that bankruptcy courts "have the inherent power to impose sanctions on a scope broader than that of Bankruptcy Rule 9011, including monetary sanctions" even where bankruptcy court acted on its own initiative).
Under Rule 9011(b)(1), "[a]n improper purpose is generally found where the evidence shows that the party against whom sanctions are sought has engaged in a pattern of abusive litigation for the purpose of delay or harassment." In re Lawrence , 494 B.R. 525, 533 (Bankr. E.D. Cal. 2013). A party's conduct may be considered harassing when "it persistently irritates or torments the other party." In re KTMA Acquisition Corp. , 153 B.R. 238, 266 (Bankr. D. Minn. 1993) ("[O]bjectively analyzing whether the filing was brought to harass, courts should consider whether there was some motive to harass, such as retaliation; whether the filing merely repeats previously unsuccessful claims; and the frivolousness of the current filing." (internal citations omitted)). To make this determination, the Court may consider a party's "entire pattern of filings" and litigious conduct throughout the case. See Hake , 2006 WL 2621116, at *9 (finding that it was not error for the bankruptcy court to consider the party's prior filings and past litigious conduct, such as filing an excessive number of motions and even objecting to the imposition of a bar date, to determine that the motive for the filing at issue was to harass debtors under Rule 9011(b)(1) ).
Under Rule 9011(b)(2), "sanctions are appropriate if a pleading is not warranted by existing law or a good faith argument for the extension or modification, or reversal of existing law." In re Dunn , 320 B.R. 161, 164 (Bankr. S.D. Ohio 2004) (internal citations omitted). A legal position is unwarranted for Rule 9011 purposes if it has no chance of success under controlling precedent. Id . ; see also Lawrence , 494 B.R. at 533 (finding a violation of Rule 9011(b)(2) where the party's argument had been explicitly rejected by the controlling B.A.P. and circuit courts). Although pro se parties may be entitled to some leniency, see, e.g. , In re Posada , 124 B.R. 39, 42 (Bankr. N.D. Ohio 1990), ultimately pro se litigants are not exempted from the duties of Rule 9011, including the obligation to put forth nonfrivolous arguments. See, e.g. , In re Weiss , 111 F.3d 1159, 1170 (4th Cir. 1997) (" Rule 9011 does not exempt pro se litigants from its operation; a pro se litigant has the same duties under Rule 9011 as an attorney."); In re Woodruff , 610 B.R. 707, 712–13 (Bankr. M.D. Ga. 2019) (imposing sanctions including attorney's fees upon findings that pro se debtor violated Rule 9011, including a violation of Rule 9011(b)(2) because debtor's arguments were plainly dispelled by the Bankruptcy Code and Supreme Court precedent and thus frivolous in violation of 9011(b)(2), stating that "while the Debtor is not an attorney and is acting Pro Se, the Federal Rules of Bankruptcy Procedure ... apply to all persons who submit writings to the Court"); In re Lane , No. 17-32237(1)(13), 2018 WL 4210234, at *3–4 (Bankr. W.D. Ky. Sept. 4, 2018) (imposing sanctions against pro se creditors who filed a second adversary proceeding on issues that had already been fully litigated, appealed or otherwise waived, which "amount[ed] to frivolous and/or vexatious litigation tactics that had only an improper purpose and amount to an abuse of the bankruptcy process" in violation of Rule 9011 ), aff'd , 604 B.R. 23 (B.A.P. 6th Cir. 2019).
Under Rule 9011(b)(3), the Court may award sanctions where a party's allegations or other factual contentions do not have, or are not likely to have, evidentiary support. See Zinni , 261 B.R. at 203 (affirming the bankruptcy court's award of sanctions under Rule 9011(b)(3) where plaintiff continued prosecution against a defendant "despite clear and explicit warnings and early, unchallenged evidence that it had no case against" her and where instead the "only apparent explanation for that behavior was to increase ... leverage against the Debtors, the sort of behavior that Rule 9011 is intended to discourage by appropriate sanction."). Sanctions may be especially warranted in instances where the unsupported claims and allegations are of a particularly egregious nature. See Woodruff , 610 B.R. at 712–13 (finding a violation of Rule 9011(b)(3) that supported imposing sanctions because, although "there is generally some level of flexibility in pleadings," the debtor's "particularly egregious" claims—such as that the trustee had made inappropriate remarks without any record of such inappropriate remarks—did not have and were not likely to have evidentiary support).
B. Sanctions under Bankruptcy Code § 105
Second, sanctions may also be assessed under § 105 of the Bankruptcy Code, which grants courts broad discretion to implement the Bankruptcy Code, prevent abuse of the bankruptcy process, and protect the integrity of the judicial process. 11 U.S.C. § 105(a) ; see also Ettinger & Assocs. LLC v. Miller (In re Miller) , 529 B.R. 73, 91 (Bankr. E.D. Pa. 2015) (quoting Brown v. Mitchell (In re Ark. Communities, Inc.) , 827 F.2d 1219, 1222 (8th Cir. 1987) ). As § 105(a) states, this Court has the power to "issue any order, process, or judgment that is necessary or appropriate to carry out the provisions" of the Code and to "sua sponte ... tak[e] any action or mak[e] any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process." While this power is not limitless, it is broad. In re Mehlhose , 469 B.R. 694, 710 (Bankr. E.D. Mich. 2012).
Section 105 provides bankruptcy courts the authority to award attorney fees as a sanction upon a finding of misconduct, such as when "a litigant intentionally abuse[s] the judicial process in an unreasonable and vexatious manner." In re CMGT, Inc. , 458 B.R. 473, 492 (Bankr. N.D. Ill. 2011), aff'd , No. 11 C 8782, 2012 WL 1802092 (N.D. Ill. May 15, 2012) ; see also Mehlhose , 469 B.R. at 711 (finding that "the Debtors' bad faith and abuse of the bankruptcy system" caused the creditor to incur attorney fees and expenses and thus warranted sanctions under § 105 and the court's inherent authority in the form of payment of the reasonable attorney fees and expenses incurred); In re Dental Profile Inc. , 446 B.R. 885, 906-07 (Bankr. N.D. Ill. 2011) ("[W]here a party unreasonably prolongs litigation, it is within the court's [ § 105(a) ] authority to require that party to pay attorneys' fees.").
C. Sanctions under this Court's Inherent Authority
Third, in addition to its authority under Rule 9011 and § 105, the Court also has broader inherent authority to sanction bad faith conduct. See, e.g. , Jones , 546 B.R. at 18 ; Zinni, 261 B.R. at 203. Indeed, "[t]he federal courts' inherent power to protect the orderly administration of justice and to maintain the authority and dignity of the court extends to a full range of litigation abuses." Mitan v. Int'l Fid. Ins. Co. , 23 F. App'x 292, 298 (6th Cir. 2001) (finding that a court can award sanctions "when bad faith occurs" and upholding the district court's order sanctioning a party for "repeated abuse of the judicial process" under an abuse of discretion standard); see also, e.g. , In re Royal Manor Mgmt., Inc. , 525 B.R. 338, 368 (B.A.P. 6th Cir. 2015) ("Sanctions may be appropriate when a party ‘shows bad faith by delaying or disrupting the litigation ....’ " (quoting Chambers v. NASCO, Inc. , 501 U.S. 32, 45–46, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991) )), aff'd , 652 F. App'x 330 (6th Cir. 2016) ; In re Antonelli , No. 11-20255/JHW, 2012 WL 280722, at *15 (Bankr. D.N.J. Jan. 30, 2012) (awarding sanctions against debtor's counsel under § 105 and the court's inherent powers for bad faith, including the filing of a motion that was "wholly without merit, and served only to cause additional delay and to increase the cost of the litigation").
As for what sanctions may be issued, "[t]he United States Supreme Court has long recognized the inherent power of a federal court to ‘assess attorney's fees when a party has acted in bad faith, vexatiously, wantonly, or for oppressive reasons.’ " Miller , 529 B.R. at 91 (quoting Chambers , 501 U.S. at 45–46, 111 S.Ct. 2123 ) (internal quotation marks omitted) (finding monetary sanctions under 11 U.S.C. § 105(a), Rule 9011, and the court's inherent authority were warranted against a creditor for continuing to pursue a claim that he knew lacked evidentiary and legal support); Royal Manor Mgmt. , 525 B.R. at 368. Such sanctions should be limited, however, "to the fees the innocent party incurred solely because of the misconduct—or put another way to the fees that party would not have incurred but for the bad faith." Goodyear Tire & Rubber Co. v. Haeger , ––– U.S. ––––, 137 S. Ct. 1178, 1184, 197 L.Ed.2d 585 (2017).
As one court recently acknowledged, "[t]o award attorneys' fees [for bad faith conduct in litigation], a [trial] court must find that (i) ‘the claims advanced were meritless’; (ii) ‘counsel knew or should have known this’; and (iii) ‘the motive for filing the suit was for an improper purpose such as harassment.’ " King v. Whitmer , ––– F. Supp. 3d ––––, ––––, No. 20-13134, 2021 WL 3771875, at *16 (E.D. Mich. Aug. 25, 2021) (quoting Big Yank Corp. v. Liberty Mut. Fire Ins. Co. , 125 F.3d 308, 313 (6th Cir. 1997) ). Further, "parties and/or attorneys may be sanctioned even if the lack of merit was not initially apparent but later became apparent and they, nevertheless, continued to press baseless claims." Dorbeck v. Sykora , No. 09-CV-14646, 2010 WL 4923215, at *2 (E.D. Mich. Nov. 29, 2010). As the Sixth Circuit has stated:
The Court reiterates that if a party takes it upon himself to file pleadings pro se (even though still represented by counsel), then that party becomes subject to the same rules governing all filers and sanctions can be imposed if the party litigates in bad faith, vexatiously, wantonly, or for oppressive reasons. See, e.g. , Patterson v. Aiken , 841 F.2d 386, 387 (11th Cir. 1988) ("[P ]ro se filings do not serve as an ‘impenetrable shield [from sanctions], for one acting pro se has no license to harass others, clog the judicial machinery with meritless litigation, and abuse already overloaded court dockets.’ " (quoting Farguson v. MBank Houston, N.A. , 808 F.2d 358, 359 (5th Cir. 1986) )); see also supra Section IV.A.
For a court to impose sanctions under its inherent powers, it is not necessary that the court find that an action was meritless as of filing, or even shortly thereafter. It can become apparent part-way through a suit that an action that initially appeared to have merit is in fact meritless; parties and attorneys have a responsibility to halt litigation whenever they realize that they are pursuing a meritless suit.... A court imposing sanctions under its inherent powers may consider the nature and timing of the actions that led to a finding of bad faith in determining whether to impose sanctions on conduct from that point forward, or instead to infer that the party's bad faith extended back in time, perhaps even prior to the filing of the action.
BDT Prod., Inc. v. Lexmark Int'l, Inc ., 602 F.3d 742, 753 n.6 (6th Cir. 2010) (emphasis in original).
V. Analysis
Upon consideration of the pleadings, evidence, and testimony offered at the Show Cause Hearing, the Court finds that Debtors' conduct warrants sanctions under Rule 9011, § 105, and this Court's inherent authority. First, the documents and testimony properly admitted into evidence before the Court demonstrate that the Debtors' filings have been made for the improper purpose of harassment in violation of Rule 9011(b)(1). Specifically, the Court reviewed various email correspondence between the Debtors and Mr. Zingarelli submitted as evidence that included threatening and derogatory statements. See Doc. 139, Exs. A–C & F–I. For example:
On February 19, 2021, the Debtors filed a pleading ostensibly in response to the Court's Show Cause Order. See Doc. 141. The Court has carefully reviewed and considered this pleading, especially in light of the Debtors' failure to appear at the Show Cause Hearing. Unfortunately, the pleading does not provide any factual or evidentiary support, explanation, or justification for the conduct this Court identified as troubling in the Show Cause Order, nor does it otherwise directly address why the Debtors should not be sanctioned under Rule 9011, § 105(a), and this Court's inherent authority. Instead, the Debtors' pleading largely does three things: (1) reiterates previous pleadings on which this Court has already made rulings; (2) takes issue with the Court's previous rulings and orders; and/or (3) challenges this Court's authority to manage these proceedings at all, asserting—without legal support—that the Court has "no lawful right" to accept Zingarelli's pleadings and that doing so is a violation of the Debtors' "rights."
Courts disagree about the proper standard of proof necessary to impose sanctions—preponderance of the evidence or clear and convincing evidence. See, e.g. , In re Mills , No. 15-11766, 2018 WL 10323376, at *18 (Bankr. W.D. Tenn. July 24, 2018) (noting that the "burden of proof required for the imposition of inherent power sanctions is not a well settled area of the law" and discussing cases); see also Plastech Holding Corp. v. WM Greentech Auto. Corp. , 257 F. Supp. 3d 867, 872–73 (E.D. Mich. 2017) (noting split in burden of proof necessary to determine fraud on the court—one example of bad faith litigation conduct sanctionable under a court's inherent authority). The Court need not resolve this dispute, however, as it finds that the Debtors' conduct warrants sanctions even applying the higher clear-and-convincing standard.
Although the emails all came from accounts that appear to be associated with Mr. Jones only, many of the emails were either signed as being from both of the Debtors or used "we" in reference to both Mr. and Mrs. Jones. The Court will attempt to specify which messages appear to have come from both of the Debtors and which from Mr. Jones only.
1. The Debtors told Mr. Zingarelli that he should "figure out a solution in remedying this mess ... and the solution better be in the best interests of YOUR clients." Doc. 139, Ex. A.
2. The Debtors stated that Mr. Zingarelli lied to them and "worked VERY hard against [his] clients" and that the Debtors "would say that [they] hope for the best outcome for [Mr. Zingarelli], but [they] would be lying." Doc. 139, Ex. B.
3. The Debtors called Mr. Zingarelli "a disgusting human being" and said that they "will cherish the moment [Zingarelli is] held accountable for [his] criminal actions and violations of [his] own clients' ‘Rights’!" Doc. 139, Ex. C.
4. Mr. Jones stated that "[t]he rats are abandoning the sinking ship. Time is no longer in your favor in providing statements." Doc. 139, Ex. F.
5. Mr. Jones baselessly accused Mr. Zingarelli of "fraudulent[ly]" and "GROSSLY" inflating the Debtors' income on the means test filed with this Court and stated that Mr. Zingarelli "can't run away from the facts ... not even to Missouri." Doc. 139, Ex. G.
6. Mr. Jones threatened to deprive Mr. Zingarelli and his counsel, Mr. Jonson, of the ability to practice law and suggested that the Debtors have filed "multiple ethical complaints"
Mr. Zingarelli closed his physical office at the end of October 2019 and moved out of state. He maintained a virtual office in Cincinnati until his practice was sold on July 1, 2020.
against them. Doc. 139, Ex. H. Mr. Jones also stated that there is "[n]ot a chance in hell that [he] will stand idly by while [Mr. Zingarelli and Mr. Jonson] defraud [the Debtors], [and] violate [their] ‘Rights’...." Id.
7. Mr. Jones told Mr. Zingarelli and his counsel that "not even luck will save you at this point." Doc. 139, Ex. I.
Most alarming, the Court also heard credible testimony that, on or about June 20, 2020, Mr. Jones left a note on the car windshield of Mr. Zingarelli's former paralegal, Ms. Dunham, at her home in the middle of the night. See Doc. 139, Ex. D (copy of the note). This incident led to Mr. Zingarelli and Ms. Dunham contacting the local police out of concern for their safety.
Further, despite receiving a letter from Mr. Zingarelli's counsel instructing the Debtors to cease and desist all communication, Mr. Jones continued to email Mr. Zingarelli, threatening "criminal and ethics complaints." See Doc. 139, Ex. E. All of this disturbing and harassing conduct took place in the months and weeks preceding the Debtors' filing of the Motion for Ineffective Assistance, which itself contained numerous accusatory, insulting, and potentially defamatory statements toward Mr. Zingarelli. When read in conjunction with the Debtors' correspondence with and conduct toward Mr. Zingarelli, as described above and as confirmed by testimony provided at the Show Cause Hearing, the Court can reach no other conclusion than that the Debtors' Motion for Ineffective Assistance was intended to irritate and torment Mr. Zingarelli, and thus was made in bad faith and for the improper purpose to harass Mr. Zingarelli in violation of Rule 9011(b)(1). See KTMA Acquisition Corp. , 153 B.R. at 266.
The Debtors' conduct since that time only furthers the Court's conclusion that the Debtors' pleadings have been made for an improper purpose. For example, after contending that their Motion for Ineffective Assistance warranted emergency consideration by the Court, the Debtors complained that the initial emergency hearing did not provide them sufficient notice and then failed to appear for the rescheduled hearing and prosecute their claims. Moreover, the Debtors have repeatedly challenged Mr. Zingarelli's ability to file a response or appear before the Court to defend against the accusations made against him. In sum, Debtors' entire pattern of filings and litigious conduct toward Mr. Zingarelli support the imposition of sanctions under Rule 9011(b)(1). Hake , 2006 WL 2621116, at *9.
In addition, the Debtors' various pleadings include arguments that are not colorable under existing law, and for which they offer no argument for extending, modifying, reversing, or establishing new law, in violation of Rule 9011(b)(2). First, one of the Debtors' primary claims against Mr. Zingarelli was for ineffective assistance of counsel. Yet it is well settled that claims of ineffective assistance of counsel are based on the right to counsel under the Sixth Amendment, and there is no Sixth Amendment right to counsel in bankruptcy proceedings. Second, the Motion for Ineffective Assistance seeks, in part, a refund of all of the payments the Debtors have made in accordance with their confirmed plan in this voluntary Chapter 13 bankruptcy case. But the Debtors have not offered—nor has the Court found—any authority for the proposed disgorgement of payments already distributed by the Chapter 13 trustee under a confirmed plan. See Bullard v. Blue Hills Bank , 575 U.S. 496, 503, 135 S.Ct. 1686, 191 L.Ed.2d 621 (2015) ("When the bankruptcy court confirms a plan its terms become binding on the debtor and creditor alike."). Third, the Debtors' pleadings continue to argue that Mr. Zingarelli somehow improperly or unethically handled their dispute with the homeowners' association during his time as their counsel. In doing so, the Debtors are seeking to relitigate an argument this Court has already considered and rejected, and on which this Court has already made a ruling. See Doc. 66 at 1 (finding that "no basis exists to impose sanctions upon Counsel, or for the Court to take any other disciplinary action toward [Mr. Zingarelli]" given that the "Debtors have failed to demonstrate that [Mr. Zingarelli] has acted unethically in his representation of them in this case"). Because the Debtors have not put forth arguments that have any chance of success under controlling precedent, they have violated Rule 9011(b)(2). Notwithstanding their status as pro se litigants, this violation supports the imposition of sanctions under the circumstances of this case. See Woodruff , 610 B.R. at 712–13 ; Lane , 2018 WL 4210234, at *3–4 ; Dunn , 320 B.R. at 164.
See, e.g. , Lassiter v. Dep't of Soc. Servs. of Durham Cty., N.C. , 452 U.S. 18, 25, 101 S.Ct. 2153, 68 L.Ed.2d 640 (1981) ("[A]n indigent's right to appointed counsel ... has been recognized to exist only where the litigant may lose his physical liberty if he loses the litigation."); Washpun v. United States , 109 F. App'x 733, 735 (6th Cir. 2004) ("Where the defendant has no right to counsel, he cannot be deprived of the effective assistance of counsel." (citing Wainwright v. Torna , 455 U.S. 586, 587–88, 102 S.Ct. 1300, 71 L.Ed.2d 475 (1982) )); Patmon v. Parker , 3 F. App'x 337, 339 (6th Cir. 2001) ("There is no constitutional right to counsel in civil cases."); Lussier v. Sullivan (In re Sullivan ), 455 B.R. 829, 836 (B.A.P. 1st Cir. 2011) ("[T]he Debtor cannot claim ineffective assistance of counsel where he does not have a Sixth Amendment right to counsel in a bankruptcy proceeding."); Eagle v. Bank of Am. (In re Eagle) , 373 B.R. 609, 612 (B.A.P. 8th Cir. 2007) (holding that a pro se debtor had no right to counsel in his bankruptcy case).
Further, the Court finds that the allegations and factual contentions in the Debtors' various pleadings were made without any evidentiary support, and without the likelihood of evidentiary support after reasonable opportunity for further investigation, in violation of Rule 9011(b)(3). For example, in the Motion for Ineffective Assistance alone, the Debtors declare upwards of 30 times that Mr. Zingarelli engaged in fraud, and they make these accusations without factual support or other evidence. These unsupported allegations of fraud and additional tenuous claims that Mr. Zingarelli engaged in "unlawful conduct" persist in the Debtors' "Motion to Strike Special Counsel Appointment & Special Counsel Motion in Opposition of Debtors' Motion for Ineffective Assistance of Counsel & Fraudulent Bankruptcy Proceedings" (Doc. 121) and in the Debtors' "Motion in Opposition of Special Counsel Motion in Opposition of Debtors['] Motion of Ineffective Assistance of Counsel & Fraudulent Bankruptcy Proceedings" (Doc. 122). However, the Court finds that the evidence and testimony presented by Mr. Zingarelli at the Show Cause Hearing, and the total lack of evidence or testimony provided by the Debtors either in their pleadings and response to the Show Cause Order (Doc. 141) or at the hearing, support the conclusion that the Debtors' factual contentions do not have and will not have evidentiary support, in violation of Rule 9011(b)(3). Sanctions are especially warranted here given the particularly egregious nature of the unsupported allegations and contentions included in the Debtors' pleadings. See Woodruff , 610 B.R. at 712–13. Finally, the Court finds the Debtors' conduct has been vexatious and in bad faith, and thus warrant sanctions under § 105(a) and the Court's inherent authority. As described above, the Debtors have filed multiple pleadings that (1) contain egregious, potentially defamatory allegations without factual support, (2) contest Mr. Zingarelli's ability even defend himself against these accusations, and (3) were made through misuse of the Court's emergency filing procedures and involved improper ex parte communications. See Doc. 130 (order prohibiting further inappropriate use of the emergency filing procedures and ex parte contacts). The Debtors then declined to appear for an expedited hearing scheduled to adjudicate their own "emergency" motions (as well as the hearing rescheduled at their request). The Court takes seriously its duty to protect the integrity of the judicial process from abuse and to deter baseless filings; thus, in light of Debtors' unreasonable, vexatious, and bad faith conduct, the Court finds that sanctions are also appropriate here pursuant to § 105(a) and the Court's inherent authority.
This is also not the first time that the Debtors have raised some of these unsupported allegations against Mr. Zingarelli. Part of the reason Mr. Zingarelli moved to withdraw as counsel in 2019 was because the Debtors had "insisted upon taking actions and/or seeking to force [Mr. Zingarelli] to take actions for which [he had] a fundamental disagreement." Doc. 48. In their joint objection to Mr. Zingarelli's withdrawal and request for sanctions against Mr. Zingarelli, the Debtors accused Mr. Zingarelli of "unethical actions," including acting "against the interest of his clients" in declining to pursue fraud or criminal actions against the homeowners' association in either state court or this Court. Doc. 52. The Court specifically found "that no basis exists to impose sanctions upon [Mr. Zingarelli], or for the Court to take any other disciplinary action toward [him]. Debtors have failed to demonstrate that [Mr. Zingarelli] has acted unethically in his representation of them in this case." Doc. 66. And yet, a year and a half after the Court issued this ruling, the Debtors persisted in asserting unfounded accusations of fraud and of ineffective and unethical representation by Mr. Zingarelli.
VI. Conclusion
For the reasons set forth above, and pursuant to Rule 9011 of the Federal Rules of Bankruptcy Procedure, § 105 of the Bankruptcy Code, and this Court's inherent power, the Court finds that monetary sanctions should be imposed against the Debtors, and that an appropriate sanction in this case is "the fees the innocent party incurred solely because of the misconduct." Haeger , 137 S. Ct. at 1184. The Court has reviewed the Report to Court in Response to Order to Show Cause Regarding Attorney Fees Incurred (Doc. 138) and Supplemental Report to Court Regarding Additional Attorney Fees Incurred (Doc. 142) and finds the fees set forth to be reasonable and incurred solely as a result of the Debtors' misconduct. Therefore, sanctions representing attorneys' fees in the amount of $4,920.00 are imposed against the Debtors . Accordingly, the Debtors are ORDERED to pay attorneys' fees to Mr. Zingarelli in the amount of $4,920.00 . The monetary sanction may be paid directly to Mr. Zingarelli's counsel (payable to the Montgomery Jonson LLP Trust Account) and forwarded to the following address:
Mr. Zingarelli has also requested the imposition of a personal protective order to prohibit direct communications between himself and the Debtors because of the Debtors' harassing conduct. See Doc. 120. Although the Court is troubled by the Debtors' conduct toward Mr. Zingarelli, the Court does not believe it has the authority to issue the protective order that has been requested. If Mr. Zingarelli desires this relief, it will be necessary for him to pursue it in a court with the requisite authority. However, the Court cautions the Debtors that it will consider imposing additional sanctions or other relief against them if further misconduct or harassment occurs in the future.
Should the Debtors continue to make improper filings with this Court, one sanction the Court may consider is declaring the Debtors to be vexatious litigators and barring them from making future filings without first obtaining leave to do so. See United States ex rel. Odish v. Northrop Grumman Corp. , 843 F. App'x 748, 750 (6th Cir. 2021) ("There is nothing unusual about imposing prefiling restrictions in matters with a history of repetitive or vexatious litigation."); In re Amir , No. 08-13700, 2013 WL 5302549, at *2 (Bankr. N.D. Ohio Sept. 18, 2013) ("[R]equiring a litigant to obtain leave of the court is a proper means by which this Court may prevent undue interference with the orderly administration of the debtor's bankruptcy proceedings resulting from vexatious or abusive filing practices. Where a litigant has abused the legal process, he may be required to ‘make a showing that a tendered lawsuit is not frivolous or vexatious before permitting it to be filed.’ " (quoting Ortman v. Thomas , 99 F.3d 807, 811 (6th Cir. 1996) ) (citations omitted)); see also Moise v. Ocwen Loan Servicing LLC (In re Moise) , 575 B.R. 191 (Bankr. E.D.N.Y. 2017) ; In re Belmonte , 524 B.R. 17, 32 (Bankr. E.D.N.Y. 2015).
Montgomery Jonson LLPAttn: George Jonson600 Vine Street – Suite 2650Cincinnati, OH 45202
Alternatively, the sanction may be paid inside of the Chapter 13 plan through the payments made by the Debtors to the Chapter 13 Trustee. The Trustee shall begin disbursement on the sanction following the payment in full of the claim filed by The Commons of Eastgate Condominium Unit Owners (Claim 10-1), and the disbursement of the dividend due to unsecured creditors. The disbursement shall be payable to the Montgomery Jonson LLP Trust Account and forwarded to Montgomery Jonson LLP at the above address.