Opinion
No. 03-10933-WCH.
September 16, 2009
DECISION ON MOTION FOR SANCTIONS
Elliott N. Rowlands ("Debtor:) has moved for sanctions again Arthur J. Fraser ("Fraser") pursuant to Fed.R.Bankr.P. 9011. Fraser opposed the motion. After a hearing, I took the matter under advisement. I now deny the motion.
Background
Debtor filed his original petition under Chapter 13 on February 5, 2003. He converted the case to Chapter 7, and subsequently moved to convert to Chapter 11, which I allowed and where it remains today. Fraser and AJF Financial Corp. ("AJF") filed a series of motions to enlarge the deadlines for filing of a complaint under Sections 727 and 523, all of which I granted. The complaint was ultimately filed on December 21, 2004.
On June 23, 2006, AJF filed a proof of claim in the amount of $149,450.00. Although only AJF is named as the creditor, the attachment to the Form B10 asserts that it is an "attachment to proof of claim of creditors Arthur J. Fraser and AJF Financial Corp." The attachment reads:
1. The total principal amount owing creditors Arthur J. Fraser and AJF Financial Corp. is $149,450.83, excluding any interest charges.
The box in Block 4 of Form B10 which should be checked if interest is claimed is not checked, nor is an itemized statement of interest attached.
2. The total principal amount of $149,450.83 is derived from financial records of creditors Arthur J. Fraser and AJF Financial Corp.
3. Due to the fact that the checkbook and records of AJF Financial Corp. were actually kept by debtor Elliott M. Rowlands or those under his control, funds belonging to both creditors were freely intermingled with those of Elliott M. Rowlands during the period 1992 through 2002.
4. As a result of this confused intermingling of funds, Elliott M. Rowlands actually used funds belonging to these creditors for his personal expenses.
5. These two [sic] Proofs of Claim are filed as a protective measure to insure that all funds due to these creditors collectively (or a total of $149,450.83, excluding interest) are recovered, no matter how they may have been accounted for by the debtor.
6. These creditors are prepared to submit detailed accounts and supporting documents for these funds as may be requested by the trustee or the Court.
On June 15, 2007, as part of a omnibus objection to claims, Debtor asserted that these claims were being contested separately, and funds had been set aside to pay those claims when and if determined. The claim objection and the adversary proceeding were combined for trial.
In the course of discovery, Fraser's contentions changed markedly. In responses to interrogatories, he now asserted that Debtor owed him a total of $1,466,517.66, arising from a claimed cash payment to Debtor ($109,800.00), certain falsifications and defalcations ($438,644.00), and false reporting of "phantom income", which Fraser asserted caused him to overpay income taxes ($14,733.14), to which Fraser had added interest at 12%. However, on December 18, 2007, Fraser's counsel advised Debtor's counsel that
the two claims which my clients Arthur J. Fraser and AJF Financial Corp. will pursue at the trial . . . will be (1) the $50,000.00 loan by Arthur J. Fraser to Elliot M. Rowlands and Kingston Motor Car Sales as evidenced by a promissory note from Mr. Rowlands to Mr. Fraser, and (2) the $29,000.00 loan by Arthur J. Fraser to Elliot M. Rowlands and Kingston Motor Car Sales, the proceeds of which were withdrawn by Mr. Rowlands from a joint bank account at the Salem Five Savings Bank standing in the names of Mr. Fraser and Mr. Rowlands.
On January 23, 2008, the Debtor moved for summary judgment to resolve the claims dispute. On February 27, 2008, I held a hearing and granted summary judgment for Debtor by agreement as to the claims of AJF and denied it beyond that. A hearing was held on the remaining claims — those of Fraser against Debtor — on June 3, 2008, and I ruled in favor of Debtor. The details of the evidence and the decision are not relevant. The present motion followed.
Positions of the Parties
The essence of the present motion under Rule 9011, which Debtor expressly presses only against Fraser and not his counsel, is as follows:
The alleged creditor Fraser made several allegations and factual contentions in the underlying litigation which had absolutely no evidentiary support and were not likely to have evidentiary support even after a reasonable opportunity for further investigation or discovery. As a result of these false and frivolous claims, the Debtor Rowlands was forced to undertake unnecessary discovery, file a motion for summary judgment, and spend time, effort and significant unnecessary legal fees defending these claims which were not brought in good faith.
Fraser's opposition focused on the "safe harbor" provision of Rule 9011(c)(1)(A), and the Debtor's failure to comply with its requirements, and Fraser's good faith in pressing the claims which were ultimately brought to trial.
Discussion
I have several problems with the motion. First, Fraser's assertion of the vastly expanded claims against Debtor arose from his answers to interrogatories, not from a pleading as that word is normally used. I suppose that answers to interrogatories are an "other paper", but I believe that ejusdem generis stops me from defining the term that broadly. But even if I were to do so, interrogatories are part of the discovery process and Rule 9011(d) is explicit that the portions of Rule 9011 which could result in sanctions "do not apply to disclosures and discovery requests, responses, objections, and motions that are subject to the provisions of Rule 7026 through 7037." Interrogatories are subject to Rule 7033.
Rule 9011(d) (in part).
Even if I were in error in my previous legal conclusion, and a motion under Rule 9011 is appropriate under the circumstances here, it cannot be disputed that Debtor did not comply with the notice-before-filing elements of Rule 9011(c)(1)(A). "The safe harbor provision must be strictly complied with in order for sanctions to be imposed under the amended Rule." There is no exception in the Rule for particular types of activity. This alone would require that the motion fail.
In re M.A.S. Realty Corp., 326 B.R. 31, 38 (Bankr. D. Mass. 2005).
Conclusion
For the reasons stated, the Motion for Sanctions is denied.