The First Circuit Court of Appeals has affirmed an award of sanctions imposed where a lawyer misstated the law. Such sanctions are exceedingly rare. In this case, the bankruptcy court sanctioned David Baker for misstating the law in two briefs.
First, the court alludes to, but does not describe, other instances where Baker was sanctioned by courts.
Second, the court explains the decision to affirm the sanctions awards as follows:
On June 2, 2014, the bankruptcy court ordered Baker to show cause why he should not be sanctioned under Federal Rule of Bankruptcy Procedure 9011(b)(2). As grounds for its order, the court quoted from Paragraph 8 of Baker’s motion for sanctions against BOA, observing that the statement Baker made in that paragraph was not a correct statement of law and was not supported by the cases Baker cited therein. The bankruptcy court also pointed to Paragraph 12 of Baker’s objection to the Trustee’s motion to convert or dismiss, finding that Baker had “misquot[ed] the definition of cash collateral” and “misstat[ed] the law by claiming that the obligation of a debtor to obtain authority to use cash collateral applies only where the lien on cash is a consensual lien.
The bankruptcy court rejected Baker’s explanations on both counts. In re Hoover, No. 14-40478, 2014 WL 3893354, at *3 (Bankr. D. Mass. Aug. 6, 2014). Referring to Baker’s proffered benign reading of Paragraphs 8 and 9 as simply presenting an argument that the law should be modified to require a prompt filing of a motion for relief from the automatic stay, the court observed that the motion itself said “nothing of the kind” and that the proffered reading itself made “no sense” given what Paragraphs 8 and 9 actually said. Id. Referring to Baker’s claim that assets subject to non-consensual liens could not be “cash collateral,” the bankruptcy court found that the part of the definitional section of the applicable statute that Baker selectively omitted when directly quoting it in his objection was not only relevant to the point being made, but directly rebutted that point. Id. The court explained the difference between “paraphrasing” and “quoting” and found that Baker had “purported to quote a statutory definition,” but in doing so had “quot[ed] out of context part of a statute because quoting the statute in its entirety would have disproven his premise.” Id. The court also found that Baker’s legal analysis in support of his interpretation of § 363(a), while “beside the point,” was “absurd because the statute unambiguously states the opposite.” Id.
The bankruptcy court went on to observe that this conduct was not uncharacteristic of Baker. Id. at *4. It explained that on at least three prior occasions Baker had been sanctioned by different sessions of the court for conduct that included asserting frivolous defenses, advancing arguments contrary to express statutory provisions, and filing a meritless motion for sanctions. Id.
In fashioning an appropriate sanction in this case, the bankruptcy court observed that the “hefty” monetary penalties imposed on Baker in those prior cases had not deterred Baker from repeating such conduct. Id. at *5. The court thus decided to impose a non-monetary penalty “in the hope of effecting a more lasting behavioral modification.” Id. It ordered Baker to “enroll in and attend in person (not on-line) a one semester, minimum three credit-hour class on legal ethics or professional responsibility in an ABA accredited law school to be completed within 13 months of this order.” Id.
The Court of Appeals reviewed the sanction carefully and concluded that Baker was not mistaken, but that he had tried to mislead the court. It also noted that Baker has been sanctioned by other courts. (Again the allegations of prior sanctions are not described in the opinion). The court also noted that Baker is an experienced bankruptcy attorney.
While the legal issues raised are technical bankruptcy issues, the courts concluded that Baker was attempting to mislead. In conclusion, this is an unusual holding.