In re Meltzer

534 B.R. 757

In re: Michael H. Meltzer, Alleged Debtor.

No. 13 B 31151

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

Signed July 29, 2015

Howard Leventhal, pro se.

MEMORANDUM OPINION

A. Benjamin Goldgar, United States Bankruptcy Judge

This long-dismissed involuntary chapter 7 case is awaiting ruling on the appropriate sanctions to be levied against the petitioners because the case was filed in bad faith. Although the sanctions question is fully briefed and has been under advisement for some time, two of the petitioners have persisted in filing frivolous motions designed to waste the time of the alleged debtor and cause him to withdraw his sanctions request. Now before the court is the latest of these motions, a motion from petitioner Howard Leventhal to “dismiss pending sanctions order against petitioners.” (Dkt. No. 191).

Because the motion violated Rule 9011(b), Fed. R. Bankr. P. 9011(b), Leventhal will be sanctioned for filing it, a sanction independent of the sanctions for filing the involuntary petition.

1. Jurisdiction

The court has subject matter jurisdiction over this case pursuant to 28 U.S.C. § 1334(b) and the district court's Internal Operating Procedure 15(a). This is a core proceeding under 28 U.S.C. § 157(b)(2)(A). See Baermann v. Ryan (In re Ryan), 411 B.R. 609, 613 (Bankr.N.D.Ill.2009) ; Troost v. Kitchin (In re Kitchin), 327 B.R. 337, 359 (Bankr.N.D.Ill.2005). The court retains jurisdiction although the case was dismissed on December 18, 2013. In re Letourneau, 422 B.R. 132, 135 (Bankr.N.D.Ill.2010) ; Kitchin, 327 B.R. at 359.

2. Background

The sanctions order that Leventhal wants “dismissed” is the court's order dated August 27, 2014, addressing an involuntary case that Leventhal, his ex-wife Malgorzata Kubiak, and a corporation Leventhal created solely for the purpose had filed against Michael Meltzer. See In re Meltzer, 516 B.R. 504 (Bankr.N.D.Ill.2014). Meltzer was Kubiak's landlord, and it turned out that Leventhal and his co-petitioners had filed the petition to stall an eviction action that Meltzer was pursuing against Kubiak in Illinois state court. Id. at 520. After a trial at which Leventhal was the only petitioner who appeared (and at which he repeatedly asserted his Fifth Amendment privilege), the court found the petition had been filed in bad faith. “Indeed,” the court concluded, “the bad faith was grotesque: the case was thoroughly fraudulent and an egregious abuse of the bankruptcy system.” Id. at 514.

The court also concluded that Meltzer was entitled to a variety of remedies, including awards of attorney's fees, costs, and punitive damages, under sections 303(i) and (k) of the Bankruptcy Code, 11 U.S.C. § 303(i), (k). Id. at 514–15. But the precise amounts of those awards remain to be decided. So does Meltzer's request for an order under Rule 9011(c) barring Leventhal and anyone associated with him from ever filing anything again in the bankruptcy court for this district. Those questions are briefed and under advisement.

Although the sanctions questions are all that remain of the case, Leventhal, Kubiak, or both have persisted in filing motions.¹ Some sought sanctions against Meltzer; others have been aimed at uncovering supposed ex parte communications in the case. (See Dkt. Nos. 165, 173, 174, 178). At a hearing on February 4, 2015, Leventhal was reminded that with the question of appropriate sanctions fully briefed and under advisement, he had no reason to file anything else. (Tr. dated Feb. 4, 2015, Dkt. No. 198, at 5). He was also warned (and an order was entered repeating the warning) that “the next frivolous motion filed by either [Leventhal or Kubiak] in this matter will result in an order to show cause why sanctions should not be imposed under Rule 9011.” (Tr. dated Feb. 4, 2015, Dkt. No. 198, at 5; Dkt. No. 179).

Despite the warning, on May 15, 2015, Leventhal delivered to chambers (and also filed with the court) a request under the Freedom of Information Act (“FOIA”) seemingly intended to root out suspected ex parte communications in the case. (Dkt. No. 189). The FOIA request sought, among other things, records of all internet searches the undersigned judge or his staff had conducted “involving any party” in the case; records of all telephone calls concerning the case, any party to the case, or any attorney in the case; and records of any ex parte communications in the case contained in “the judge's file.” (Id. ). The undersigned judge was told to provide the information within twenty days and was also told that Leventhal reserved his right “to petition the District Court to compel a full and complete response.” (Id. ). Neither the judge nor the court responded to the FOIA request.²

Then, on June 12, 2015, Leventhal filed the motion now at issue. In it, he asserted that the August 2014 sanctions order should be “dismissed” because the involuntary case against Meltzer had involved a “meaningful and significant volume of ex parte communication.” (Dkt. No. 191 at 2). As proof, Leventhal attached a transcript of a January 2015 hearing in United States v. Leventhal, No. 1:13–cr–00695–BMC (E.D.N.Y.).³ At that hearing, an Assistant U.S. Attorney not only mentioned this court's August 2014 order but also said the undersigned judge had “referred Mr. Leventhal to the U.S. Attorney's Office for prosecution in this matter [meaning the Meltzer case].” (Dkt. No. 191, Ex. 1 at 13).⁴ Despite the revelation of this ex parte communication, Leventhal said, the court had “stood in the way of disclosure” of the many other ex parte communications because his FOIA request had not been answered. (Dkt. No. 191 at 3).

Leventhal's motion to “dismiss” the August 2014 order was set to be presented on June 24, 2014. He failed to appear, and the motion was denied. (Id., No. 192). Because the motion seemed to violate Rule 9011(b), an order was entered in accordance with Rule 9011(c)(1)(B) requiring Leventhal to show cause why there had been no violation. (Id., No. 193); see Letourneau, 422 B.R. at 139 (explaining the purpose of a show cause order under Rule 9011(c)(1)(B) ). Leventhal filed a response to the show cause order. (Dkt. No. 201).

3. Discussion

Leventhal's motion to “dismiss” the sanctions order violated Rule 9011(b) in multiple ways. The motion had no basis in law (or a nonfrivolous argument for its extension, modification, or reversal). The motion had no basis in fact (or any facts that an investigation might uncover after a reasonable opportunity). And the motion was filed for an obviously improper purpose. Leventhal will be sanctioned for filing it.

a. Rule 9011

Rule 9011 is the bankruptcy analogue of Rule 11 of the Federal Rules of Civil Procedure and is “essentially identical” to Rule 11. In re Excello Press, Inc., 967 F.2d 1109, 1111 (7th Cir.1992) ; In re Collins, 250 B.R. 645, 659 (Bankr.N.D.Ill.2000) (internal quotation omitted). Like Rule 11, Rule 9011 is intended to deter baseless and abusive litigation and litigation tactics. See Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 393, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1990) ; Corley v. Rosewood Care Ctr., Inc., 388 F.3d 990, 1013 (7th Cir.2004) ; Kitchin, 327 B.R. at 363.⁵

Under Rule 9011(b), every person filing a “petition, pleading, written motion, or other paper” with the bankruptcy court makes four certifications to the best of his “knowledge, information and belief” formed after a reasonable inquiry. Fed. R. Bankr. P. 9011(b). Three are relevant here. The first is a certification that the paper is not presented for any improper purpose. Fed. R. Bankr. P. 9011(b)(1). The second is that the legal contentions in the paper have a basis in existing law, or a nonfrivolous argument either for the law's extension, modification, or reversal, or for the establishment of new law. Fed. R. Bankr. P. 9011(b)(2). The third is that the paper's factual contentions have evidentiary support or, if specifically identified as such, are likely to have support after a reasonable opportunity for further investigation. Fed. R. Bankr. P. 9011(b)(3). If the rule is violated, the violator can be sanctioned. Fed. R. Bankr. P. 9011(c).

Rule 9011 applies to pro se parties like Leventhal just as it does represented parties and their lawyers. Vukadinovich v. McCarthy, 901 F.2d 1439, 1445 (7th Cir. 1990) ; Shrock v. Altru Nurses Registry, 810 F.2d 658, 661–62 (7th Cir.1987). By the terms of the rule itself, an “unrepresented party” who presents a paper to the court makes the same certifications under Rule 9011(b) that “an attorney” does. See Fed. R. Bankr. P. 9011(b). Although pro se status can be taken into account in imposing sanctions, Vukadinovich, 901 F.2d at 1445, it does not relieve a pro se party from his duties under the rule, Phillips v. ITT Educ. Servs., Inc., No. 10 C 2441, 2010 WL 4423953, at *1 n. 1 (N.D.Ill. Oct. 25, 2010) ; Chapman v. Charles Schwab & Co., No. 01 C 9697, 2002 WL 818300, at *13 (N.D.Ill. Apr. 30, 2002). Sanctions can be imposed for any frivolous paper, regardless of who presents it. Vukadinovich, 901 F.2d at 1445 ; see also Farguson v. MBank Houston, N.A., 808 F.2d 358 (5th Cir.1986) (noting that pro se status provides “no impenetrable shield” to sanctions).

b. Leventhal's Violations

i. No Legal Basis

Leventhal's motion violated Rule 9011, first, because the motion had no basis in existing law, any good faith argument for the extension, modification, or reversal of existing law, or any good faith argument for the establishment of new law. Nor has Leventhal shown that he made a reasonable inquiry into the law before filing the motion. The motion therefore ran afoul of Rule 9011(b)(2).

Leventhal sought to “dismiss” the sanctions order on the ground that the case had been rife with ex parte communications, and the court had stymied his efforts to use the FOIA to investigate them.⁶ But the only supposedly ex parte communication identified in the motion was the court's written referral of Leventhal to the U.S. Attorney in Chicago...