Commercial Litigation and Arbitration

Sanctions — Position Not Frivolous Where Supported by One, Out-of-Circuit, Lower Court, Minority-View Opinion and There Is No Binding Supreme Court Precedent

From Burns v. George Basilikas Trust, 2010 U.S. App. LEXIS 6290 (D.C. Cir. Mar. 26, 2010) (issue of statutory construction):

In awarding sanctions, the bankruptcy court relied on the proposition that "§ 109(h)(3)(A), when read in the context of § 109(h) as a whole, cannot in any fashion be read to support" an interpretation that a petition may be filed without the filer's having made a request from an approved credit counseling agency. That is one interpretation of the statute; certainly it appears literally correct, and perhaps it will prove ultimately "correct" in the sense of receiving the Supreme Court's blessing or emerging as the unanimous opinion of the circuits. But counsel's reliance on a contrary view would be frivolous for purposes of Rule 11 sanctions only if "it can be said that a reasonable attorney in like circumstances could not have believed his actions to be legally justified." In re Sargent, 36 F.3d 349, 352 (4th Cir. 1998) (brackets and ellipses deleted). The Advisory Committee Notes on the most recent amendments of Rule 11 caution that "the extent to which a litigant has researched the issues and found some support for its theories even in minority opinions, in law review articles, or through consultation with other attorneys should certainly be taken into account in determining whether [11(b)(2)] has been violated." Fed. R. Civ. Pro. 11, Advisory Committee's Note (1993 Amendments) (emphasis added). Here we need not face when or how aggressively counsel can "swim upstream against the current of stare decisis," Gurary v. Winehouse, 235 F.3d 792, 799 (2d Cir. 2000), asserting theories rejected by the circuit or the Supreme Court. Burns faced no such preclusive authority, and his position had support in the Meza case [In re Meza, No. 2:06-cv-1307, 2007 U.S. Dist. LEXIS 48430 (E.D. Cal. June 25, 2007)], which he brought to the judge's attention.***

The bankruptcy court's view of the law—in the sense of the array of interpretations accepted by courts—was therefore mistaken, and its award of sanctions an abuse of discretion.

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