Bilfield et al v. Bankers Healthcare Group Inc.

Filing 14

Opinion and Order. The Court affirms the Bankruptcy Court's 9/17/2013 Order and dismisses the case. Judge Christopher A. Boyko on 12/16/2014. (H,CM)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION

JEFFREY S. BILFIELD, et al.,
Plaintiffs,
vs.
BANKERS HEALTHCARE
GROUP, INC.,
Defendant.

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CASE NO. 1:13CV2315
JUDGE CHRISTOPHER A. BOYKO
OPINION AND ORDER

CHRISTOPHER A. BOYKO, J.:
This matter comes before the Court as an Appeal from the Bankruptcy Adversary
Proceeding Case No. 12-1208 in the Related Bankruptcy Case No. 12-12680, before the
Honorable Pat E. Morgenstern-Clarren. Appellants, Jeffrey S. Bilfield and Janet M. Bilfield,
appeal on the issue: Did the Bankruptcy Judge err and abuse her discretion in denying
Appellants’ Motion for Sanctions and Request for Attorney Fees under 28 U.S.C.
§ 1927 and the common law? For the following reasons, the Court finds that the Bankruptcy
Court did not err and abuse its discretion in denying sanctions for violation of 28 U.S.C.
§ 1927, nor in failing to impose sanctions pursuant to its inherent powers. The decision of the
Bankruptcy Court is affirmed and no oral arguments are necessary.
I. BACKGROUND
The Bilfields filed for relief under Chapter 7 of the Bankruptcy Code on April 11,
2012. In December of 2009, Bankers Healthcare Group, Inc. (“BHG”) made a loan to Dr.
Bilfield, allegedly secured by the assets of his dental practice. Subsequently, BHG attempted
to collect on the debt; filed suit (post-petition) against Dr. Bilfield in New York state court;

and engaged a process server to effect service, all in violation of the automatic bankruptcy
stay. As a result, the Bilfields filed a motion, in the bankruptcy proceeding, to show cause
why BHG should not be sanctioned for violation of the automatic stay.
Shortly thereafter, BHG initiated an Adversary Proceeding by filing a Complaint to
deny discharge, partly on the basis of fraud and/or false pretenses, arguing that Dr. Bilfield
had overvalued the assets of his dental practice. In order to resolve all issues in one
proceeding, the Bilfields re-filed their show cause motion as a Counterclaim in the Adversary
Proceeding. The Bankruptcy Court set discovery and motion deadlines.
The Bilfields filed a Motion for Partial Summary Judgment on the grounds that BHG
was not the real party in interest. The facts demonstrated that BHG had sold the Bilfield loan
to a third party shortly after originating the loan; and then, re-purchased the loan after Dr.
Bilfield defaulted and after the Chapter 7 case was filed. The Bankruptcy Court granted the
Motion for Partial Summary Judgment and denied BHG’s Motion to Reconsider.
On May 28, 2013, a trial on the Counterclaim for damages for violation of the
automatic stay was held. Judgment for the Bilfields was entered on June 12, 2013; and BHG
was ordered to pay attorneys’ fees on August 12, 2013. Neither party appealed.
Also on May 28, 2013, the Bilfields filed a Motion for Sanctions, pursuant to 28
U.S.C. § 1927 and common law, for vexatious litigation. The Bankruptcy Court denied the
Motion for Sanctions on September 17, 2013. This Appeal followed.

II. LAW AND ANALYSIS

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Statutory Authority
Pursuant to 28 U.S.C. § 1927, an attorney “who so multiplies the proceedings in any
case unreasonably and vexatiously may be required by the court to satisfy personally the
excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.”
A court may sanction an attorney under § 1927 even without finding “conscious
impropriety.” Hall, id.; Rentz v. Dynasty Apparel Indus., Inc., 556 F.3d 389, 396 (6th Cir.
2009). The necessary inquiry for an award of fees is not whether the attorney acted in bad
faith. Rather, the required showing is “something less than subjective bad faith, but
something more than negligence or incompetence.” Red Carpet Studios Div. of Source
Advantage, Ltd. v. Sater, 465 F.3d 642, 646 (6th Cir. 2006).
There must be some conduct on the part of the subject attorney that trial
judges, applying the collective wisdom of their experience on the bench, could
agree 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. In re
Ruben, 825 F.2d 977, 984 (6th Cir. 1987).
Common Law Authority
“Bankruptcy courts, like Article III courts, enjoy inherent power to sanction parties for
improper conduct.” In re Downs, 103 F.3d 472, 477 (6th Cir. 1996) (citing In re Rainbow
Magazine, Inc., 77 F.3d 278, 283-4 (9th Cir. 1996)). Unlike the § 1927 sanction, punishment
under a court’s inherent powers necessitates “a finding that an attorney ‘willfully abuse[d]
judicial processes’ by conduct ‘tantamount to bad faith.’” Jones v. Continental Corp., 789
F.2d 1225, 1229 (6th Cir. 1986) (quoting Roadway Express, Inc. v. Piper, 447 U.S. 752, 76466 (1980)). The court must find facts demonstrating that the offending party litigated
vexatiously, wantonly or for oppressive or improper purposes. See Big Yank Corp. v. Liberty

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Mut. Fire Ins. Co., 125 F.3d 308, 313-14 (6th Cir. 1997).
Standard of Review
A decision to grant or deny sanctions is reviewed under the abuse-of-discretion
standard. See Hall v. Liberty Life Assurance Co. of Boston, 595 F.3d 270, 275 (6th Cir.
2010); Mich. Div.- Monument Builders of N. Am. v. Mich. Cemetery Ass’n, 524 F.3d 726, 739
(6th Cir. 2008); In re Level Propane Gases, Inc., 2007 WL 2344919, *1 (N.D.Ohio Aug.16,
2007). The Sixth Circuit “has defined an abuse of discretion as a definite and firm conviction
that the trial court committed a clear error of judgment.” Hall, 595 F.3d at 275, citing Arban
v. W. Publ’g Corp., 345 F.3d 390, 404 (6th Cir. 2003). “Such an error occurs ‘when the
district court applies the wrong legal standard, misapplies the correct legal standard, or relies
on clearly erroneous findings of fact.’” Hall, id., quoting Geier v. Sundquist, 372 F.3d 784,
789-90 (6th Cir. 2004).
Although courts are given a great deal of latitude in fashioning an appropriate
sanction, they “must exercise such power with restraint and discretion.” Chambers v.
NASCO, Inc., 501 U.S. 32, 44 (1991); In re Downs, 103 F.3d at 478. “The sanction levied
must be commensurate with the egregiousness of the conduct.” In re Downs, id.
In the instant matter, the Bankruptcy Judge denied the Bilfields’ Motion for Sanctions,
concluding:
In the exercise of its discretion based on having presided over this case for an
eventful year and a half, the court determines that the totality of the
circumstances does not establish that Bankers Healthcare unreasonably and
vexatiously prolonged these proceedings. The record shows that both sides
could and should have taken steps early on to make sure that their clients were
objectively evaluating the dispute and all counsel could and should have
maintained a stronger focus on the relevant legal and factual issues raised.
(Emphasis added).
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The Bilfields contend that the Bankruptcy Judge relied on clearly erroneous findings
of fact. In reality, the Bilfields disagree with the Bankruptcy Judge’s characterization of the
facts and mistake her recitation of the parties’ positions as factual findings. Further, the
Bilfields contend that the Bankruptcy Judge misapplied the legal standard and applied the
wrong legal standard when she considered the totality of the circumstances in her ruling on
their Motion for Sanctions. The relevant statute and the common law mandate that the
Bankruptcy Judge be judicious, and fairly and equitably match any contemplated sanction to
the conduct of the parties. This mandatory restraint on the exercise of a court’s sanctioning
authority required the Bankruptcy Judge to thoughtfully consider all that transpired over the
year-and-a-half span of the litigation.
III. CONCLUSION
Therefore, upon review of the briefs, the record and the applicable law, the Court
determines that the Bankruptcy Judge did not rely on clearly erroneous findings of fact; it was
not inappropriate for the Bankruptcy Judge to look at the totality of the circumstances; and the
Bankruptcy Court did not abuse its discretion in denying sanctions against BHG. Thus, the
Court affirms the Bankruptcy Court’s September 17, 2013 Order and dismisses the captioned
case.
IT IS SO ORDERED.

Dated: December 16, 2014

s/ Christopher A. Boyko_______
CHRISTOPHER A. BOYKO
United States District Judge

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