United States District Court, E.D. Michigan, Southern Division
ORDER AFFIRMING BANKRUPTCY COURT'S APRIL 25,
2017, ORDER ASSESSING SANCTIONS AGAINST APPELLANTS
MATTHEW F. LEITMAN UNITED STATES DISTRICT JUDGE.
appeal arises out of an adversary proceeding in the Chapter 7
Bankruptcy of Debtor Gregory Reed. In that proceeding, the
Bankruptcy Court entered an order imposing sanctions (the
“Sanctions Order”) on Appellants Reed, Keeper of
the Word Foundation (“KWF”), Mic-Arian
Corporation (“MAC”), the Gregory J. Reed
Scholarship Foundation (“the Scholarship
Foundation”), James Harris, and the Law Offices of
James Harris (the “Harris Law Office”). (For ease
of reference, the Court will refer to all of the Appellants
except for Reed as the “Reed Affiliates.”) Reed
and the Reed Affiliates now appeal the Sanctions Order.
(See ECF #1.) For the reasons explained below, the
Sanctions Order is AFFIRMED.
filed for bankruptcy under Chapter 7 of the Bankruptcy Code
on August 28, 2014. On December 17, 2015, the Bankruptcy
Court entered an order in which it held, among other things,
that (1) certain assets in KWF's possession were property
of Reed's bankruptcy estate and (2) KWF needed to
turnover the assets to the estate's Trustee, Kenneth
Nathan (the “Turnover Order”). Those assets
included a 50-percent interest in real property located at
1201-1209 Bagley in Detroit, Michigan (the “Bagley
Property”). KWF appealed the Turnover Order to this
Court, and this Court affirmed. See Reed v. Nathan,
558 B.R. 800 (E.D. Mich. 2016), aff'd, No.
16-2685 (6th Cir. Sept. 7, 2017).
August 2016, the Bankruptcy Court authorized Nathan to employ
Dwellings Unlimited, LLC (“Dwellings”) as a real
estate broker to market and sell the Bagley Property. Nathan
and the co-owner of the Bagley Property, the Charles H. Brown
Trust (the “Trust”), eventually agreed to sell
the property, and the Bankruptcy Court entered an order
authorizing the sale.
KWF, MAC, and the Scholarship Foundation filed an action
against, among others, Dwellings, the Trust, and the Brown
Companies (“BC”) in the Wayne County Circuit
Court seeking to stop the sale of the Bagley Property and
partition that property. Harris and the Harris Law Office
represented KWF, MAC, and the Scholarship Foundation in that
the Trust, and BC removed the state-court action to the
Bankruptcy Court, and it was assigned adversary proceeding
case number 17-04125. KWF, MAC, and the Scholarship
Foundation objected to the removal. The Bankruptcy Court
overruled that objection, retained jurisdiction, and declined
to remand to state court.
March 6, 2017, Dwellings, the Trust, and BC served Reed and
the Reed Affiliates with a “safe harbor” letter
and draft sanctions motion pursuant to Bankruptcy Rule
9011. (See ECF #3 at Pg. ID 210.) In
the “safe harbor” letter, Dwellings, the Trust,
and BC said that if the Complaint was not withdrawn, they
would file the sanctions motion in the Bankruptcy Court.
(See id.) Neither Reed nor the Reed Affiliates
responded to the “safe harbor” letter, and the
Complaint was never withdrawn.
the Trust, and BC then filed two motions in the Bankruptcy
Court: (1) a motion to dismiss the Complaint and (2) a motion
to impose sanctions against Reed and the Reed Affiliates. The
Reed Affiliates were served with the two motions through the
Bankruptcy Court's electronic filing system. However,
Reed was not a named party to, nor counsel in, the adversary
proceeding, and thus he did not receive the motions through
the Bankruptcy Court's electronic filing system. And
Dwellings, the Trust, and BC did not personally send either
of the motions to Reed by regular mail or otherwise. Neither
Reed nor the Reed Affiliates filed any response to the motion
to dismiss or the motion for sanctions.
April 25, 2017, the Bankruptcy Court entered two orders
granting the motions: an order dismissing the Complaint in
the adversary proceeding and the Sanctions Order. In the
Sanctions Order, the Bankruptcy Court awarded Dwellings, the
Trust, and BC “all reasonable attorney fees and
expenses in the prosecution of their sanctions motion.”
(ECF #3 at Pg. ID 203.) The Bankruptcy Court issued these
sanctions against Reed and the Reed Affiliates “jointly
and severally.” (Id. at Pg. ID 204.) The
Sanctions Order further reflected the Bankruptcy Court's
belief that Reed had “been served” with the
sanctions motion. (Id. at Pg. ID 202.)
Reed Affiliates were served with the Sanctions Order through
the Bankruptcy Court's electronic filing system. However,
because Reed was not a named party to, nor counsel in, the
adversary proceeding, he did not receive electronic service
of the Sanctions Order through the court's system.
Instead, counsel for Dwellings, the Trust, and BC mailed the
Sanctions Order to Reed on April 26, 2017. (See
adversary proceeding at Dkt. #30.)
9, 2017, the Reed Affiliates filed objections to the
Bankruptcy Court's two orders, and Reed filed a separate
objection to the orders. The Bankruptcy Court overruled the
objections in written orders entered on May 15, 2017.
and the Reed Affiliates timely appealed the Sanctions Order