United States District Court, M.D. Florida, Tampa Division
S. MOODY, JR., UNITED STATES DISTRICT JUDGE
CAUSE comes before the Court upon Appellant's appeal of
four Orders entered by the Bankruptcy Court. This Court
previously consolidated the appeals proceeding under case
numbers 8:16-cv-2908-MSS, 8:16-cv-2909-SCB, and
8:16-cv-2910-SCB into the above-referenced case number. On
March 16, 2017, the Court heard oral argument on the appeals.
Upon review, the Court affirms the Bankruptcy Court in part
and reverses and remands in part.
Court has jurisdiction over the appeals under 28 U.S.C.
functioning as an appellate court, the Court reviews de
novo the legal conclusions of a bankruptcy court but
must accept a bankruptcy court's factual findings unless
they are clearly erroneous. See In re JLJ Inc., 988
F.2d 1112, 1116 (11th Cir. 1993). “A finding [of fact]
is ‘clearly erroneous' when although there is
evidence to support it, the reviewing court on the entire
evidence is left with the definite and firm conviction that a
mistake has been committed.” United States v.
United States Gypsum Co., 333 U.S. 364, 395 (1948). In
addition, the Court may not make independent factual
findings. See In re JLJ Inc., 988 F.2d at 1116;
In re Englander, 95 F.3d 1028, 1030 (11th Cir.
1996). Accordingly, “[i]f the bankruptcy court is
silent or ambiguous as to an outcome determinative factual
question, the case must be remanded to the bankruptcy court
for the necessary factual findings.” In re JLJ
Ind., 988 F.2d at 1116.
procedural history of this individual case is extensive and
adequately summarized in the parties' briefs. The
essential issue here is whether the Bankruptcy Court should
have sanctioned the Bankruptcy Trustee and Special Counsel
based on their common practice and conduct of filing
meritless cases. Special Counsel has a paralegal attend
§ 341 Meetings of Creditors in order to solicit
potential violations of consumer protection acts against
creditors. That common practice gave rise to the filing of
this meritless case against Appellant Cadlerock Joint
Court concludes that the Bankruptcy Court committed error
when it granted summary judgment in Appellees' favor
prior to permitting limited discovery regarding
Appellees' conduct in similar cases. Statistical evidence
regarding Appellees' similar filings was presented to
this Court, which the Bankruptcy Court did not have the
opportunity to review. Accordingly, the Court reverses and
remands on this narrow and limited issue so that the
Bankruptcy Court can consider this statistical evidence,
determine if additional discovery is necessary, and, in light
of this evidence and any additional discovery, make
supplemental findings of fact on the issue of whether
sanctions are appropriate in this case. The Court otherwise
U.S.C. § 105(a) permits a bankruptcy court to issue any
“order, process, or judgment that is necessary or
appropriate to carry out the provisions of this title.”
A bankruptcy court may, sua sponte, take “any
action” or make “any determination necessary or
appropriate to enforce or implement court orders or rules,
or to prevent an abuse of process.” 11 U.S.C.
§ 105(a) (emphasis added). Under § 105(a), a
bankruptcy court may consider whether it is appropriate to
remove the bankruptcy trustee to prevent further abuse of the
bankruptcy process. See In re Morgan, 573 F.3d 615,
626 (8th Cir. 2009) (noting that “section 105(a)
expressly provides bankruptcy courts with authority to take
sua sponte action to remove private trustees, and it places
no requirement of actual harm to the estate or its creditors
when doing so.”).
Appellant stated during oral argument, this appeal turns on
the Bankruptcy Court's decision to limit the sanctions
proceeding to the facts of this case alone. By limiting its
review to this singular case, the Bankruptcy Court concluded
that there was not “a whiff of an abuse of process . .
.” The Bankruptcy Court focused on the fact that the
adversary proceeding complaint was dismissed within the safe
harbor time period and concluded that any erroneous
allegations contained in the complaint were therefore
narrowly limiting its review, the Bankruptcy Court was unable
to consider certain statistical evidence that was presented
to this Court during the pendency of this appeal about the
Trustee's and Special Counsel's pattern and practice
of filing similar meritless lawsuits. See Dkts. 25,
27, 29, 31, 34-36. This evidence goes to the heart of the
sanctions issue-that is, whether it is an abuse of process
under § 105(a) for a bankruptcy trustee to invite a law
firm's paralegal to solicit claims at the 341 hearing,
and then permit the filing of adversary proceedings without
any further inquiry into the claims' merits.
Bankruptcy Court had permitted discovery on this statistical
evidence, it may have had a different perspective and may
have reached a different conclusion about the appropriateness
of sanctions. The evidence, if true, raises grave concerns
about the Trustee's conduct in this case and prior cases.
In a larger sense, this evidence raises a concern about an
abuse of the overall bankruptcy process.
evidence suggests that Appellees have made a habit of
routinely filing thousands of lawsuits against creditors with
little investigation of the facts and alleging identical
boilerplate language. The boilerplate complaints are
supported by only the Trustee's leading line of
questioning at a debtor's 341 hearing. Creditors are
forced to settle or spend attorney's fees to defend these
meritless lawsuits, or are left with no option but to execute
a joint stipulation of dismissal with prejudice, thereby
waiving any subsequent claim for sanctions or attorney's
fees to compensate them. ...