Legal Updates

Bankruptcy Court Awards Nearly $100K in Sanctions Against Individual Asserting Estate’s Claims

A bankruptcy appellate panel of the Sixth Circuit recently affirmed a bankruptcy court’s award of significant sanctions against an individual for asserting claims that were property of the bankruptcy estate.  In Low v. Ransier (In re Nicole Gas Production, Ltd.), case no. 15-8053/8055 (B.A.P. 6th Cir. 2018), an individual who was the indirect owner of the debtor corporation brought claims in state court under the Ohio Corrupt Practices Act.  The owner claimed that he was asserting damages he had suffered as a shareholder and, therefore, the claims were not property of the bankruptcy estate.  The appellate panel disagreed, stating that the lost value of his shares was “nothing more than the corporation’s lost value reduced in proportion to the shareholder’s interest.”  Therefore, the claims belonged to the estate of the bankrupt corporation and the owner’s actions violated the automatic stay. 

The appellate panel further affirmed the bankruptcy court’s contempt holding and award of sanctions totaling $91,068 in attorney fees and expenses the Trustee incurred as a result of the owner’s stay violation.  The owner argued that the award was inappropriate under 11 U.S.C. § 330, which governs compensation for certain professionals in a bankruptcy case.  The appellate panel disagreed because the bankruptcy court did not rely on section 330 when awarding the attorney fees.  Instead, the court cited its “broad discretion to fashion an appropriate remedy for . . . contempt.”  Therefore, the court’s inherent authority as an Article III court enabled it to award fees that were “reasonably and necessarily incurred as a result of [the owner’s] persistent attempts to exercise control over property of [the bankruptcy estate].” 

The opinion is a strong reminder of the significant penalties a non-debtor may incur for asserting claims that belong to the bankruptcy estate.