Elliott v. PHH Mortgage Corporation as Servicer for KeyBank National Association
MEMORANDUM-DECISION AND ORDER: It is ORDERED that the appeal is DENIED. Signed by Judge Brenda K. Sannes on 8/25/2017. (nmk)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK
JOHN A. ELLIOT,
PHH MORTGAGE CORPORATION as servicer for
Keybank National Association,
James F. Selbach, Esq.
Selbach Law Offices, P.C.
2700 Bellevue Avenue
Syracuse, NY 13219
Nicole DiStasio, Esq.
Thomas Szaniawski, Esq.
Shapiro, Dicaro & Barak, LLC
175 Mile Cross Boulevard
Rochester, NY 14624
Hon. Brenda K. Sannes, United States District Court Judge:
MEMORANDUM-DECISION AND ORDER
Appellant John A. Elliott appeals from a June 30, 2016 Order of United States
Bankruptcy Judge Diane Davis denying his motion for sanctions under Fed. R. Bankr. P. 9011.
For the reasons set forth below, that Order is affirmed.
The history of this dispute dates back to a motion filed by the Appellant and Renee L.
Elliott (Debtors) in the underlying bankruptcy action under 11 U.S.C. §§ 105(a) and 524 seeking
sanctions against Appellee for alleged violations of a discharge injunction. (Dkt. No. 4-8).
Appellee responded and cross-moved for sanctions against Appellants’ attorney, James Selbach,
alleging that his motion itself violated Fed. R. Bankr. P. 9011(b). On February 9, 2016, the
bankruptcy court held a hearing on the motions and denied the relief requested by both sides.
(Dkt. No. 4-24). At that hearing, the bankruptcy court found that Appellee’s motion was
procedurally deficient because a request for relief under Rule 9011 must be brought by a separate
motion. (Dkt. No. 10, p. 10). However, the bankruptcy court also found that notwithstanding
Appellee’s procedural error, it had satisfied the safe-harbor requirement in Fed. R. Bankr. P.
9011(c)(1)(A). (Id.). That rule provides in part:
A motion for sanctions under this rule shall be made separately from other
motions or requests and shall describe the specific conduct alleged to violate
subdivision (b). . . . The motion for sanctions may not be filed with or presented
to the court unless, within 21 days after service of the motion (or such other
period as the court may prescribe), the challenged paper, claim, defense,
contention, allegation, or denial is not withdrawn or appropriately corrected,
except that this limitation shall not apply if the conduct alleged is the filing of a
petition in violation of subdivision (b).
Fed. R. Bankr. P. 9011(c)(1)(A). The bankruptcy court noted that Appellee’s attorneys had
emailed Appellants giving Selbach the chance to withdraw the motion. (Dkt. No. 10, p. 10). As
a result of that email, the bankruptcy court determined that Selbach was on notice and had been
afforded the requisite safe harbor pursuant to Rule 9011(c). (Id.). Thus, the bankruptcy court
found that the rule was satisfied and directed Appellee’s attorney to refile its application for Rule
9011 relief in a new, separate motion “and have it returnable at the March 8 hearing.” (Id.). 1
Appellee re-filed the motion on March 15, 2016. (Dkt. No. 4-17). Thereafter, Appellant
filed opposition papers, in which he repeatedly argued that the safe-harbor provision had not
been satisfied. (Dkt. Nos. 4-23; 4-31). At an April 5, 2016 hearing, the bankruptcy court ruled
that the safe-harbor provision had not been satisfied because PHH did not serve Selbach with the
motion for sanctions 21 days prior to filing it with the Court. (Dkt. No. 4-32, p. 2). The Court
denied Appellee’s Rule 9011 motion based on Appellee’s “failure to strictly adhere to the
procedural requirements of Rule 9011(c)(1)(A).” (Dkt. No. 4-32).
On April 26, 2016, Appellants filed a Rule 9011 motion for sanctions against Appellee,
claiming, inter alia, that Appellee’s prior contention that the safe-harbor had been satisfied was
frivolous. (Dkt. No. 4-33). Appellee responded that it had relied on the bankruptcy court’s
decision that the safe-harbor had been satisfied and that it had followed the instruction to re-file
its Rule 9011 motion. (Dkt. No. 4-37). At the hearing on June 1, 2016, the Bankruptcy Court
denied Appellant’s motion noting that Appellee “had substantive basis to bring the motion.”
(Dkt. No. 8-1, p. 11; see Dkt. No. 4-38) Thereafter, Appellant filed the pending appeal.
STANDARD OF REVIEW
Orders issued by a bankruptcy court are subject to appellate review by federal district
courts. Fed. R. Bankr. P. 8013. The district court reviews the bankruptcy court’s findings of fact
for clear error and its conclusions of law de novo. In re Stoltz, 315 F.3d 80, 87 (2d Cir. 2002)
Appellee’s motion for sanctions also contained a challenge to Attorney Selbach’s discovery demands. (Dkt. No. 425, pp. 4–5).
(citing McCord v. Agard, 252 F.3d 113, 116 (2d Cir. 2001)). Mixed questions of law and fact
are reviewed de novo. In re Vebeliunas, 332 F.3d 85, 90 (2d Cir. 2003). “[A] district court ‘may
affirm [the bankruptcy court’s decision] on any ground that finds support in the record, and need
not limit its review to the bases raised or relied upon in the decision below.’” Rozier v. Rescap
Borrower Claims Trust, No. 15 Civ. 3248 (KPF), 2016 WL 796860, at *7, 2016 U.S. Dist.
LEXIS 21204, at *19 (S.D.N.Y. Feb. 22, 2016) (quoting Freeman v. Journal Register Co., 452
B.R. 367, 369 (S.D.N.Y. 2010) (second and third alterations original in Rozier)).
Appellant argues that the bankruptcy court erred by “failing to apply the test set forth by
the Second Circuit in deciding motions filed under FRBP 9011.” (Dkt. No. 8, p. 6). Under that
rule, the bankruptcy court may, in its discretion, impose sanctions on a party who presents an
argument or filing for an improper purpose, makes legal contentions that are not warranted by
existing law, and makes contentions devoid of evidentiary support. Desiderio v. Parikh, No. 12CV-2148 (JS), 2013 WL 1305499, at *4, 2013 U.S. Dist. LEXIS 44988, at *11 (E.D.N.Y. Mar.
28, 2013). In the Second Circuit, this standard generally parallels that used for sanctions under
Fed. R. Civ. P. 11. See In re Highgate Equities, Ltd., 279 F.3d 148, 151 (2d Cir. 2002). The
Second Circuit “hold[s] the imposition of Rule 11 sanctions warranted where it is clear that
under existing precedents there is no chance of success and no reasonable argument has been
advanced to extend, modify or reverse the law as it stands.” Securities Industry Ass’n v. Clarke,
898 F.2d 318, 321 (2d Cir. 1990) (internal quotation and alteration marks omitted). “An order of
the Bankruptcy Court granting or denying a motion for sanctions . . . is reviewed for abuse of
discretion.” Desiderio, 2013 WL 1305499, at *4, 2013 U.S. Dist. LEXIS 44988, at *10 (citing
Baker v. Latham Sparrowbush Assocs., 931 F.2d 222, 227 (2d Cir. 1991)).
As a preliminary matter, the Court notes that Appellant has wholly failed to address the
bankruptcy court’s ruling in denying the motion that Appellee “had substantive basis to bring the
motion.” (Dkt. No. 8-1, p. 11).
Appellants’ arguments are without merit: there was no abuse of discretion. Appellants’
first point is that Appellee made a frivolous argument that the safe harbor provision had been
satisfied. This contention must fail because Appellee did not make this argument until after the
bankruptcy court had already ruled that the provision was satisfied. Thus, Appellee’s reliance on
the bankruptcy court’s prior decision in the same litigation was not frivolous. See, e.g.,
Securities Industry Ass’n, 898 F.2d at 321–22 (finding that a party’s position did not merit a Rule
11 sanction where it “crafted a reasonable position . . . in good faith reliance on the district
court’s original order”).
Appellants’ second point is that the bankruptcy court erred in declining to sanction
Appellee under Fed. R. Bankr. P. 9011 for invoking Fed. R. Bankr. P. 7030(d)(3)(A) in response
to discovery demands. Bankruptcy Rule 9011(d) provides, however, that “Subdivisions (a)
through (c) of this rule do not apply to disclosures and discovery requests, responses, objections,
and motions that are subject to the provisions of Rules 7026 through 7037.” Thus, by its plain
meaning, Rule 9011 sanctions are inapplicable to discovery objections under Rule 7030. E.g., In
re Pham, 536 B.R. 424, 432 (B.A.P. 9th Cir. 2015).
For these reasons, it is
ORDERED that the appeal is DENIED.
IT IS SO ORDERED.
August 25, 2017
Syracuse, New York
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