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CadleRock Joint Ventures, L.P. v. Herendeen

United States District Court, M.D. Florida, Tampa Division

May 26, 2017




         THIS 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.

         The Court has jurisdiction over the appeals under 28 U.S.C. § 158(a).


         In 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.


         The 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 Ventures, L.P.

         The 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 affirms.[1]


         11 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.”).

         As 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 harmless.

         In 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.

         If the 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.

         The 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. ...

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