Page 29 - John Hundley 2011

Happy Holidays from The Sharp Law Firm, P.C.!

Sharp Thinking

No. 55 Perspectives on Developments in the Law from The Sharp Law Firm, P.C. December 2011

Rules 11, 9011 . . .
Reliance on Automated Database Held Sanctionable

By Bentley J. Bender, BBender@lotsharp.com, 618-242-0246

Bankruptcy Rule 9011 is modeled after Federal Rule of Civil Procedure 11 and is “essentially
identical” to Rule 11. In re Park Place Assocs., 118 B.R. 613, 616 (Bankr. N.D. Ill. 1990). The rule
provides that by filing a document with the court a party is certifying that
to the best of that person's knowledge, information, and belief, formed
after an inquiry reasonable under the circumstances, that the allegations
and other factual contentions have evidentiary support and the legal
theories expounded therein have merit. Rule 9011. “The central goal of
Rule 11 is to deter abusive litigation practices.” Corley v. Rosewood
Care Ctr., Inc. of Peoria, 388 F.3d 990, 1013 (7th Cir. 2004). Thus, the
concern of Rule 9011 is not the truth or falsity of the representation
in itself, but rather whether the party making the representation
reasonably believed it at the time to have evidentiary support. To
impose sanctions pursuant to Rule 9011, the court need not find that a
party acted in bad faith, but instead merely needs to find the complained-
of conduct to be objectively unreasonable. Fellheimer, Eichen & Braver-
man, P.C. v. Charter Tech., Inc., 57 F.3d 1215, 1225 (3d Cir. 1995). Bender

While the standard imposed by this rule can be succinctly summarized, its application in practice
has resulted in controversy, especially in the context of the continuing boom in mortgage foreclosures
and their pursuit following a bankruptcy filing. Recently, the Third Circuit seized the opportunity to
address this rule's application in such a context. In re Taylor, 655 F.3d 274 (3d Cir. 2011). The
court's review of the conduct of the attorneys in the proceeding ultimately resulted in sanctions
against both the firm and the lender for misstatements contained in a motion for relief from the
automatic stay.

I. Literal Truth of a Statement Does Not Preclude Sanctions.

In reaching its decision, the Third Circuit considered statements in the motion suggesting that the
debtors had failed to remit regular monthly payments on the mortgage and lacked equity in their
residence. Counsel for the lender argued that the statements were literally true as the debtors had
not made full payments upon the mortgage, but rather only partial payments. Citing to Williamson v.
Recovery L.P., 542 F.3d 43, 51 (2d Cir. 2008), the court refuted this argument by asserting that if the
reasonably foreseeable effect of the representation to the Bankruptcy Court was to mislead that court,
then counsel still failed to comply with Rule 9011. In re Taylor, 655 F.3d 274, 283 (3d Cir. 2011). In

●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●
Sharp Thinking is an occasional newsletter of The Sharp Law Firm, P.C. addressing developments in the law which may be of interest. Nothing contained in Sharp
Thinking shall be construed to create an attorney-client relation where none previously has existed, nor with respect to any particular matter. The perspectives herein
constitute educational material on general legal topics and are not legal advice applicable to any particular situation. To establish an attorney-client relation or to obtain legal
advice on your particular situation, contact a Sharp lawyer at the phone number or one of the addresses provided on page 2 of this newsletter.