Were this Court to Grant Sanctions each time a Party Set Forth an Incorrect Legal Argument in its pleadings, it would Not Do Much of anything Else

Were this Court to Grant Sanctions each time a Party Set Forth an Incorrect Legal Argument in its pleadings, it would Not Do Much of anything Else

The instant Motion for Sanctions stems from a dispute between Debtor and Creditor regarding Creditor’s ability to seek equitable contribution on post-petition payments he made on a non-discharged student loan which he co-signed and is jointly liable upon. This Court entered an opinion and held that Creditor had a right to equitable contribution on these post-petition payments and was not barred by the discharge injunction from recovering those payments from Debtor.

Debtor then filed a Motion to Alter or Amend, disputing the Court’s reasoning, particularly its reliance on State law declaring that sureties are entitled to equitable contribution. On April 3, 2018, this Court issued an opinion  denying Debtor’s Motion to Alter or Amend, explaining that as parties who are jointly liable on the loan, Creditor and Debtor are sureties and Creditor is entitled to equitable contribution. The Court further explained that Creditor is only entitled to contribution after he makes payments on the loan which cover Debtor’s share, and that because these payments are being made post-petition, his right to equitable contribution on these specific payments arose post-petition and were not discharged.

On February 27, 2018, Creditor filed the instant Motion for Sanctions. Creditor argues that Debtor’s Motion to Alter or Amend put forth largely the same arguments that the Court found unpersuasive in her Motion to Reopen and Impose Sanctions. Creditor requested that Debtor withdraw the motion on February 2, 2018, or he would pursue sanctions. Debtor refused to do so in the 21-day window provided by Creditor, and he followed through on his threat to file the instant Motion. Creditor argues that Debtor’s conduct is sanctionable under two separate provisions.

First, Creditor asserts that Debtor’s conduct is sanctionable pursuant to Fed. R. Bankr. P. 9011, which incorporates Fed. R. Civ. P. 11. In relevant part, that provision states that by submitting a pleading, a party certifies to the best of its, “knowledge, information, and belief, formed after an inquiry reasonable under the circumstances,” that its pleadings are not presented to unduly delay or harass an opposing party, that the claims have legally sufficient basis, and that the factual allegations have factual support. FED. R. BANKR. P. 9011; FED. R. CIV. P. 11. Rule 11 sanctions are typically imposed on parties who file documents with the court for some improper purpose. Cooter & Gell vHartmax Corp., 496 U.S. 384, 393 (1990) (“It is now clear that the central purpose of Rule 11 is to deter baseless filings in District Court and thus . . . streamline the administration and procedure of the federal courts.”). Such sanctions are often imposed when a party files frivolous or legally unreasonable documents with the court. Fries vHelsper, 146 F.3d 452, 458 (7th Cir. 1998). A suit is frivolous if the probability of the suit’s success is very low. Maxwell vKPMG LLP, 520 F.3d 713, 719 (7th Cir. 2008). The Rule imposes an affirmative duty of reasonable investigation upon the attorney who signs the pleading. Fred ASmith Lumber CovEddin, 845 F.2d 750, 751 (7th Cir. 1988). Creditor seeks payment of his reasonable attorney’s fees and other expenses incurred due to the Motion to Alter or Amend.

Second, Creditor argues that sanctions against Debtor are warranted pursuant to 28 U.S.C. § 1927. That provision provides, in relevant part, that any attorney, “who so multiples 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.” 11 U.S.C. § 1927. Conduct is sanctionable under § 1927 in cases where attorneys act egregiously in disregarding, “the orderly process of justice,” including where an attorney “pursued a claim that is without plausible legal or factual basis and lacking in justification . . . or pursue[d] a path that a reasonably careful attorney would have known, after appropriate inquiry, to be unsound.” Jolly GroupLtdvMedline IndusInc., 435 F.3d 717, 720 (7th Cir. 2006) (internal citations omitted). Creditor seeks payment of his reasonable attorney’s fees and other expenses incurred due to the Motion to Alter or Amend.

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