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Delayed and Denied: Failure to Timely Request Sanctions Leads to Denial

Ebony S Morris

Delayed and Denied: Failure to Timely Request Sanctions Leads to Denial
Reza Estakhrian via Getty Images

Compliance with federal and state procedures and timeliness are the crux of the legal profession. Failure to comply with procedures and failure to timely file pleadings will often lead to detrimental consequences from the court. Recently, the U.S. Bankruptcy Court for the Northern District of West Virginia denied a motion for sanctions based on the party’s failure to comply with Federal Rule of Bankruptcy Procedure 9011 and failure to timely file the motion for sanctions. See In Re: Panthera Enterprises, L.L.C., 2021 WL 1235788 (U.S. Bankr. N.D.W. Va.).

In Panthera, Panthera Training alleged that counsel for Panthera Enterprises, LLC (the “Debtor”), filed a complaint in bad faith and advanced it without first conducting a reasonable investigation. Panthera Training assumed operation of a facility pursuant to a lease, which required Panthera Training to pay the Debtor $52,000 a month in “base rent” as well as additional rent according to a formula described in the lease. The Debtor filed a voluntary Chapter 11 petition and a complaint for turnover and possession of real and personal property and for preliminary injunction against possession of property, which commenced an adversary proceeding. 

Panthera Training then filed an answer that asserted counterclaims of fraud, breach of contract, and tortious interference, and included a request for a preliminary injunction. Once it was discovered that the Debtor’s principals were diverting funds to of the estate, the case was converted to Chapter 7, and a Chapter 7 trustee was appointed. Once the trustee discovered that the adversary proceeding was baseless, the trustee requested dismissal of the complaint with prejudice.

Shortly after the adversary proceeding was dismissed, Panthera Training filed a motion in the main action asserting that the Debtor’s counsel failed to conduct a reasonable investigation before filing the complaint and that they filed the complaint for improper purposes. Although the bankruptcy court found that Panthera Training’s motion had merit, the court nonetheless denied the motion because the motion 1) failed to comply with the procedural requirements of Rule 9011 and 2) was untimely.

Rule 9011 contains a “safe-harbor provision” that requires a party seeking Federal Rule of Civil Procedure 11 sanctions first to serve a proposed motion on the opposing party and to give that party at least 21 days to withdraw or correct the offending matter. Only after 21 days have passed may the motion be advanced. Because the motion was advanced after the adversary proceeding was settled, dismissed with prejudice, and closed, the court found the procedural defects of the motion warranted denial.

The Panthera decision provides an important example to practitioners of the importance of following procedural rules and timely filing pleadings. Practitioners filing a motion for sanctions pursuant to Rule 9011 should act quickly to avoid the court’s denial.