Bankruptcy Vlo Case Update

7th Circuit: Busson-Sokolik v. Milwaukee School of Engineering (In re Busson-Sokolik)
Ruling:


The Seventh Circuit Court of Appeals affirmed the denial of debtor's discharge of his educational loans, holding that the determining factor of whether educational loans are educational or not is the purpose of the loan, not the use of the loan proceeds. The Court also affirmed the award of attorney fees for the creditor, as contractually provided for within the terms of the promissory note, and not in violation of the "American Rule" as argued by debtor. Finally, the Court affirmed the denial of sanctions under 9011(c)(1)(A) by the debtor as the debtor failed to provide the creditor with any opportunity to purge itself of sanctionable conduct under the 'safe harbor' rule, and affirmed the award of sanctions, for a lesser amount (by one half), imposed by the court against the Debtor through Fed R Bankr P 8020, such that he award would have deterrent effect, rather than result in financial ruin.

Facts:

Debtor was a student at the Milwaukee School of Engineering (MSOE) from September 1999 through May 2000. He borrowerd $3,000 on October 29, 1999. MSOE sued debtor in April 2005 on account of the note, and obtained a default judgment for $5,909.63. In June 2005, Debtor filed a Chapter 13 petition that was later converted to a Chapter 7 proceeding. MSOE was listed as a creditor, and Debtor filed an adversary to determine dischargeability of the debt. The bankruptcy court found the debt to be non-dischargeable and found that the Debtor owed MSOE $16,248.78, which included costs and attorney fees. Sanctions, on appeal to the District Court, were imposed by the court in an amount just exceeding $60,000.00. The Seventh Circuit reduced the sanction award by just over $30,000.00, finding same would deter future sanctionable conduct by the parties, without finanicially ruining the debtor and his counsel.

11th Circuit: Abrams v. Saint Felix (In re Miller)

Citation:
Case No. 10-12085 (11th Cir. Feb. 10, 2011)

Ruling:

The Eleventh Circuit reversed the district court's affirmance of the bankruptcy court's award of Rule 9011 sanctions because the motion for sanctions did not identify with specificty the conduct alleged to be sanctionable as required by Rule 9011(c)(1)(A).

Facts:

The trustee in bankruptcy sued Mr. Saint Felix to recover an alleged fraudulent transfer to him by the debtor of real property. In response, Mr. Sanit Felix served a Rule 11 motion. SImultaneously with service of the Rule 11 moion, Mr. Saint Felix filed a motion to dismiss; however, he subsequently withdrew the motion to dismiss and then filed a motion for summary judgment. Of note, the motion for sanctions did not refer to or incorporate the bases for the motion to dismiss. Contrary to the requirement of Rule 9011(c)(1)(A), the sanctions motion did not identify the alleged sanctionable conduct. Nevertheless, the bankruptcy court imposed sanctions which award was affirmed by the district court. On further appeal, the Eleventh Circuit held that the award of sanctions was an abuse of discretion because the sanctions motion did not identify the alleged sanctionable conduct. The Eleventh Circuit rejected Mr. Saint Felix's argument that notice was provided by the contemporaneously filed motion to didmiss, explaining that the rule required the sanctions motion to include that information and in any event the sanctions motion did not refer to or incorporate the motion to dismiss which, in fact, was subsequently withdrawn.