United States Bankruptcy Appellate Panel of the Sixth Circuit
In re: Earl Benard Blasingame; Margaret Gooch Blasingame, Debtors. Church Joint Venture, L.P.; Farmers & Merchants Bank, Plaintiffs-Appellees, Edward L. Montedonico, Jr., Plaintiff,
Earl Benard Blasingame, et al., Defendants, Martin A. Grusin, Appellant.
Argued: March 1, 2016
from the United States Bankruptcy Court for the Western
District of Tennessee at Memphis. No. 08-28289-Jennie D.
M. Bearman, Memphis, Tennessee, for Appellant.
W. Akerly, CANTEY HANGER LLP, Dallas, Texas, for Appellees.
E. Veazey, Memphis, Tennessee, for Appellant. Bruce W.
Akerly, CANTEY HANGER LLP, Dallas, Texas, for Appellees.
Before: HARRISON, HUMPHREY, and PRESTON, Bankruptcy Appellate
KATHRYN PRESTON, Chief Bankruptcy Appellate Panel Judge.
Martin A. Grusin ("Grusin") appeals the bankruptcy
court's orders imposing sanctions against him. Sanctions
were separately awarded against attorney Tommy L. Fullen
("Fullen"), but he did not appeal. The bankruptcy
court imposed monetary sanctions pursuant to Federal Rule of
Bankruptcy Procedure 9011 and 28 U.S.C. § 1927 in the
form of attorney fees and expenses that Chapter 7 Trustee
Edward L. Montedonico ("Trustee") and creditors
Church Joint Venture ("CJV") and Farmers and
Merchants Bank, Adamsville, TN ("FMB") (together,
"Church Joint Venture"),  incurred relating to
Debtors' bankruptcy case and litigation arising in that
analyzing Grusin's assertions that the bankruptcy court
abused its discretion in awarding sanctions against him
pursuant to Federal Rule of Bankruptcy Procedure 9011 and 28
U.S.C. § 1927, the Panel will address the following
1. Did the bankruptcy court err in sanctioning Grusin
pursuant to Federal Rule of Bankruptcy Procedure 9011 when
the movant had not complied with the safe harbor requirement?
2. Did the bankruptcy court err in awarding sanctions
pursuant to 28 U.S.C. § 1927 based upon an erroneous
determination that Grusin's conduct vexatiously
multiplied the proceedings?
AND STANDARD OF REVIEW
January 21, 2015, the Panel entered an order finding that it
has jurisdiction over this appeal because the Amended Order
Setting Amount of Additional Sanctions was a final order and
Appellant's Amended/Corrected Notice of Appeal was filed
within the time provided by Federal Rule of Civil Procedure
Panel reviews the bankruptcy court's imposition of
sanctions under the abuse of discretion standard. Corzin
v. Fordu (In re Fordu), 201 F.3d 693, 711 (6th
[A]n order granting sanctions under 28 U.S.C. § 1927 is
. . . reviewed for an abuse of discretion. Dixon v.
Clem, 492 F.3d 665, 671 (6th Cir. 2007). "An abuse
of discretion is defined as a definite and firm conviction
that the [court below] committed a clear error of
judgment." Mayor and City Council of Baltimore, Md.
v. W.Va. (In re Eagle-Picher Indus., Inc.), 285
F.3d 522, 529 (6th Cir. 2002) (internal quotation marks and
citation omitted). The abuse of discretion must be more than
harmless error to provide cause for reversal. Tompkin v.
Philip Morris USA, Inc., 362 F.3d 882, 897 (6th Cir.
2004) (citations omitted). Sanctions based upon an erroneous
view of the law or an erroneous assessment of the evidence
are necessarily an abuse of discretion. Cooter & Gell
v. Hartmarx Corp., 496 U.S. 384, 405, 110 S.Ct. 2447,
2461, 110 L.Ed.2d 359 (1990); Salkil v. Mount Sterling
Tp. Police Dept., 458 F.3d 520, 527-28 (6th Cir.2006).
See also Parrott v. Corley, 266 F.Appx. 412, 415 n.
1 (6th Cir. 2008) (arguments concerning an error in statutory
interpretation or due process related to sanctions are
reviewed de novo).
In re Royal Manor Mgmt., Inc., 525 B.R.
338, 346 (B.A.P. 6th Cir. 2015), aff'd sub nom.
Grossman v. Wehrle (In re Royal Manor Mgmt.,
Inc.), Case No.15-3146, 2016 WL 3268743 (6th Cir. June
and August of 2008, Earl Benard Blasingame ("Benard
Blasingame") and Margaret Gooch Blasingame
("Margaret Blasingame") (together,
"Debtors") met with Grusin and attorney Hank
Shackelford ("Shackelford"), to discuss their
financial situation, including their personal exposure in
pending garnishment and debt collection
proceedings. On August 8, 2008, Margaret Blasingame
executed an engagement letter with Grusin. Margaret
Blasingame assigned to Grusin her interest in $20, 000 held
by the McNairy Circuit Court [Tennessee] as payment for
representation in connection with Church Joint Venture v.
Aqua Air Aviation, and related issues arising from that
case. Grusin, who was not a bankruptcy attorney, referred
Debtors to Fullen, a local bankruptcy attorney. Debtors hired
Fullen to represent them in a bankruptcy case. On August 15,
2008, Fullen signed a voluntary chapter 7 petition as the
attorney for Debtors and filed it on their behalf.
petition, schedules, and statement of financial affairs
("SoFA"), as initially filed, did not disclose
several trusts for which Debtors were trustees (collectively,
the "Trusts"), certain household goods, and the
pre-petition assignment to Grusin. Debtors amended these
documents multiple times throughout the proceedings.
Following lengthy discovery, including 2004 examinations,
Trustee and Church Joint Venture filed an adversary
proceeding (Adv. No. 09-00482) against Debtors, the Trusts,
the Corporations and Debtors' children on September 29,
2009. Pursuant to the complaint, Trustee and Church Joint
Venture sought a declaration that the Trusts are alter egos
or reverse alter egos of Debtors, sought avoidance of certain
transfers, sought denial of Debtors' discharges under
several Bankruptcy Code sections, and objected to
Debtors' claim to certain exemptions. On April 26, 2010,
Church Joint Venture and Trustee filed Plaintiffs' Motion
for Partial Summary Judgment ("PSJ Motion") seeking
judgment on those counts of the complaint objecting to
30, 2010, attorney Joseph Townsend
("Townsend") filed Defendants' Response To
Plaintiffs' Motion For Partial Summary Judgment On
Discharge Claims ("Response to PSJ Motion"). Grusin
co-signed this filing as the attorney for the Trusts, the
Corporations, Katherine Blasingame Church and Earl Benard
Blasingame, Jr. (collectively with Debtors,
"Defendants"). In the opening paragraph of the
Response to PSJ Motion, Debtors asserted an "advice of
counsel" defense and posited that the petition,
schedules, SoFA, and amendments were correctly completed,
arguing that the Trusts were not assets of Debtors. In their
Response to PSJ Motion, Defendants also incorporated by
reference an appendix of exhibits, including a Joint
Affidavitfiled in support of a previous motion to
dismiss the complaint as to the children, the Trusts, and the
Corporations. Grusin co-signed the Joint Affidavit as
attorney for the Corporations, the Trusts, Katherine
Blasingame Church, and Earl Benard Blasingame, Jr. Defendants
also requested the dismissal of the adversary proceeding
against the non-debtor defendants in their Response to PSJ
Motion. On February 22, 2011, the bankruptcy court entered an
Order Granting in Part, Denying in Part Plaintiff's
Motion for Partial Summary Judgment. The bankruptcy court
denied Debtors' discharges pursuant to 11 U.S.C. §
727(a)(4) based on the errors and omissions in the petition
and schedules. The bankruptcy court also denied Benard
Blasingame's discharge pursuant to 11 U.S.C. §
727(a)(5) for failure to explain loss of assets. The
bankruptcy court rejected Debtors' advice of counsel
March 8, 2011, Debtors filed Debtors' Motion to Alter or
Amend Judgment. This filing was signed by Townsend, on behalf
of the Law Offices of Tommy L. Fullen, and included
Fullen's name in the signature block. Debtors attempted
to bolster their advice of counsel defense by filing two
similar affidavits executed by Grusin and Fullen. In his
affidavit, Fullen admitted his mistake in failing to disclose
the Trusts. Grusin's affidavit admitted that he offered
advice to Fullen and Debtors that the Trusts were not assets
of the bankruptcy estate and that "there was no need for
the Debtors to add those Trusts and/or Corporations nor the
benefits they received from those Trusts and/or Corporations,
on their Petition for Bankruptcy." (Grusin Aff. at 2-3,
Adv. No. 09-00482 ECF No. 126-1). The bankruptcy court denied
a motion by Church Joint Venture, the bankruptcy court
entered an order disqualifying Grusin, Fullen, and Townsend
as counsel for Debtors and other defendants. On April 8,
2013, the bankruptcy court granted a motion to set aside the
judgment pursuant to Federal Rule of Civil Procedure 60(b)
(the "Rule 60(b) Motion"), brought by Debtors'
new counsel, David Cocke ("Cocke"). Grusin gave
deposition and direct testimony in connection with the trial
on the complaint seeking denial of Debtors' discharge,
during which he attempted to explain the advice he had given
Debtors: Grusin asserted that he had spoken
"inartfully" in his affidavit. He explained that
the advice he had given Debtors related only to whether the
Trusts were protected under Tennessee law and, thus, not a
part of the estate. He further asserted that he did not know
whether Debtors had a duty to disclose the Trusts on their
bankruptcy petition, schedules, and SoFA and had not intended
to give Debtors advice on that question.
January 30, 2012, the bankruptcy court entered an Order
Granting Motion for Derivative Standing, allowing Church
Joint Venture to bring a malpractice action against Grusin
and Fullen on behalf of the bankruptcy estate. Following the
filing of the malpractice action, Church Joint Venture filed
a Motion for Sanctions Against Tommy L. Fullen and Martin A.
Grusin ("Sanctions Motion").
Sanctions Motion, Church Joint Venture requested sanctions
for abuse of the litigation process, relying on Federal Rule
of Bankruptcy Procedure 9011, 28 U.S.C. § 1927, and the
inherent power of the court. Church Joint Venture asserted
that the bankruptcy case should never have been filed and
that Fullen and Grusin exhibited gross negligence in handling
the case from the start, which, parenthetically, would likely
cost Debtors their discharge. Church Joint Venture posited
that Grusin and Fullen exhibited a total lack of
responsibility toward the completion of Debtors'
Schedules and SoFA, and total failure to responsibly advise
Debtors post-petition with respect to timely filing
amendments or supplements and defending Debtors in the
adversary proceeding. Further, they accused Fullen and Grusin
of changing their stories under oath and being "less
than candid with the Court." Id. at 26. Church
Joint Venture sought payment of attorney fees, costs, and
expenses related to attendance at 2004 examinations, filing
and prosecution of the objection to discharge, responding to
the motions for reconsideration of the order granting partial
summary judgment, and the prosecution of the appeal from the
order that granted the Rule 60(b) Motion. Church Joint
Venture also requested that Fullen and Grusin be ordered to
disgorge all fees and/or property received from Debtors for
legal services related to the case, attend 25 hours of ethics
courses, provide 40 hours of pro bono work and make
a $5000 donation to a local pro bono or legal
services organization or program. Additionally, Church Joint
Venture requested that Fullen and Grusin be banned from
practicing law in the bankruptcy court for the Western
District of Tennessee and be referred to the State Bar of
Tennessee for additional discipline.
bankruptcy court entered its Order Granting Sanctions on July
16, 2014. (Order Granting Sanctions, Adv. No. 09-00482 ECF
No. 528). At the outset, the bankruptcy court recounted the
procedural history of the case, noting that the discharge
trial and malpractice case were on-going. The court then
undertook an analysis of each of ...