In Re Damask, the debtors leased real property from the defendants. After the debtors filed for bankruptcy, the defendants took steps to regain possession of their property. Debtors brought an adversary proceeding against the defendants alleging that they violated the automatic stay. After the bankruptcy court granted summary judgment in favor of defendants and against debtor, the defendants asked the court to sanction debtor’s attorney pursuant to Rule 9011. They said the adversary proceeding was initiated even though the debtors knew that the defendants had a winning defense. They said that the debtors’ counsel not only knew that the facts would not support the debtors’ claim, “but was obstinate in the face of the record on discovery that established that the facts in this case would not support plaintiffs’ claim. The filing and prosecution of the adversary proceeding was itself designed to punish defendants for what plaintiffs saw as offensive behavior. Regardless of how they viewed defendants’ behavior they had no right to abuse the legal process by prosecuting a claim upon grounds that do not exist or based upon circumstances for which the law provides no remedy.”

The court denied the defendants’ request, finding nothing objectively unreasonable with the debtors’ attorney’s conduct. The purpose of Rule 9011 is to deter baseless filings. “As such, the fact that a plaintiff’s attorney is aware of a strong, and possibly winning, defense does not, as the position espoused by the defendants seems to suggest, require the imposition of sanctions under Bankruptcy Rule 9011. In this regard, the question is not whether a party wins or loses, but whether an attorney’s actions were objectively reasonable under the circumstances.” This is a good rule. Otherwise, parties will be afraid to pursue their claims just because the outcome of the case is uncertain.

Lawrence Bautista Yang is a graduate of Georgetown University Law Center and has been in law practice for thirty years. He specializes in bankruptcy, business and civil litigation and has handled more than five thousand successful bankruptcy cases in California. He speaks Mandarin and Fujien and looks forward to discussing your case with you personally. Please call (626) 284-1142 for an appointment at 1000 S Fremont Ave Bldg A-1 Suite 1125 Unit 58 Alhambra, CA 91803.