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In Re:

January 21, 2011

IN RE: E.D. BANKR.
RICHARD A. SMITH,
DEBTOR.



The opinion of the court was delivered by: Seybert, District Judge

MEMORANDUM & ORDER

This is the latest installment in a woefully protracted litigation. On March 30, 2010, the Court ordered Appellants to Show Cause why they should not be sanctioned under Federal Rule of Civil Procedure 11 and/or 28 U.S.C. § 1927 ("Section 1927") for pursuing a frivolous appeal. Pending before the Court is Appellants' response to the Order to Show Cause. Appellees Liberty Mutual Insurance Company ("Liberty") and Kenneth P. Silverman (the "Former Trustee") made submissions in support of sanctions; these filings are also under consideration. Although it is a close call, the Court finds that sanctions are not warranted.

BACKGROUND

The Court assumes familiarity with the long and tortuous history of this litigation. For a more comprehensive discussion of the underlying facts, see the Court's March 24, 2010 Order in In re Smith, No. 09-CV-1276, or its February 12, 2009 Order in In re Smith, No. 09-CV-0508. The Court briefly sketches the facts required to give context to this Order.

Appellants, Richard A. Smith, the Debtor in the closed underlying Chapter 7 bankruptcy, and others, sought to bring an adversary proceeding related to the closed bankruptcy case. Appellants moved to re-open the bankruptcy case in October 2008 and, at about the same time, they filed an Adversary Complaint against the Former Trustee and Liberty. The Adversary Complaint asserted claims under Section 322(d) of the Bankruptcy Code ("Section 322(d)").

Because the underlying bankruptcy was a closed case, Appellants filed the Adversary Complaint under a new docket number. According to Appellants, they took this step to prevent the two-year statute of limitations on their Section 322(d) claims from expiring while they waited for the Bankruptcy Court's decision whether to re-open the main proceeding.

As is relevant to this Order, the litigation proceeded as follows:

On January 26, 2009, the Bankruptcy Court denied Appellants' motion to re-open the bankruptcy case.

On March 5, 2009, Liberty filed a motion to dismiss the Adversary Complaint.

On March 26, 2009, Appellants appealed the Bankruptcy Court's order denying them permission to re-open the bankruptcy case.

On May 13, 2009, the Bankruptcy Court dismissed the Adversary Complaint.

On June 23, 2009, while their appeal of the Bankruptcy Court's refusal to re-open the bankruptcy case was pending before this Court, Appellants appealed the dismissal of the Adversary Complaint.

DISCUSSION I. Legal Standard for Sanctions

Below, the Court discusses Section 1927, Rule 11 and the degree of culpability required to trigger ...


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