Recent case development: Frivolous Rule 60 motion carries sanctions for debtor and debtor’s counsel.

Case: In re Robert J. Spenlinhaur, Debtor no. 13-17191-JNF (Bankr. D. Mass.).

Opinion by: Judge Joan N. Feeney

November 2, 2018

Facts:

At an evidentiary hearing, Debtor Robert Spenlinhaur and Respondents Eric Josephson and Jackson Hole Classic Cars, LLC were found to be in contempt of a previous court order to deliver non-exempt assets of the chapter 7 estate. The assets included vehicles, boats, keys, and registration documents. The Bankruptcy Court found no cause or justification for disobeying the order and ordered the Trustee to immediately collect the non-exempt assets.

Debtor subsequently filed a Motion for Partial Relief from Judgment and Request for Emergency Consideration. He represented that the non-exempt assets, which consisted of a camper and a pickup truck, should be carved out from the Court’s order because without the camper he would be homeless and without the truck he would have no transportation. He also sought relief on behalf of respondent Josephson, representing that another pickup truck and a trailer, both already in possession of the Trustee, should also be carved out from the order for the same reasons.

To support these requests, he argued these needs constituted “any other reason that justifies relief” from a final judgment, order, or proceeding under Fed. R. Civ. P. 60(b)(6). The Court denied the motion stating that if the Trustee were not to collect the non-exempt assets it would be expressly contrary to his duties. The Court found that the debtor did not meet the threshold for Fed. R. Civ. P. 60(b)(6) and was ordered to show cause as to why he should not be sanctioned under Fed. R. Bankr. P. 9011(b) for the filing of the motion. Debtor argued that the motion was filed in the appeals period, was not submitted for improper purpose or unnecessary delay, not intended to needlessly increase litigation costs, and not hinder the Trustee’s duties. Debtor argued the motion was not frivolous because an open tax court case may be resolved in his favor and the zealous advocacy did not cross the line into an area where sanctions could be permitted.

Holding:

After noting that a movant pursuing a Rule 60(b)(6) claim “faces formidable hurdles,” and that “Rule 60(b)(6) motions should be granted only where exceptional circumstances justifying extraordinary relief exist…” Ross v. Garcia (In re Garcia), 532 B.R. 173 (B.A.P. 1st Cir. 2015), citing Simon v. Navon, 116 F.3d 1, 5 (1st Cir. 1997), the Bankruptcy Court observed that the Rule 60(b)(6) request of the Debtor and his counsel was a merely a reiteration of prior arguments made at the evidentiary hearing, was not supported by any legal authority, and therefore did not meet the required threshold for relief. The Court further held that motion was frivolous and therefore violated Fed. R. Bankr. P. 9011(b)(2). In reaching this conclusion, the Court noted that neither the Debtor nor the Respondents made any offer to pay the Trustee for the use of or insurance for the property, nor did they cite any case law or legal authority to support the proposed use.

The Court explained that since the Trustee is a fiduciary to creditors and is required to uphold his duties of collecting and reducing to money property of the estate (citing In re Feinstein Family Partnership, 247 B.R. 502 (Bankr. M.D. Fla. 2000)), granting the requested relief would effectively authorize a breach of the Trustee’s fiduciary duties under 11 U.S.C. § 704(a). Accordingly, the Court issued a monetary sanction against the Debtor and his counsel in the amount of $1,500 for filing a frivolous pleading.

Summary Prepared By:

Erica James

New Lawyers Section Liaison to Bankruptcy Law Section

Read The Full Case Here: http://www.mab.uscourts.gov/mab/opinions