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In Re: Jowell A. Hernandez and v. National Capital Management LLC

March 4, 2013

IN RE: JOWELL A. HERNANDEZ AND ANNA LEE G. HERNANDEZ, DEBTORS. HAINES & KRIEGER, L.L.C., APPELLANT,
v.
NATIONAL CAPITAL MANAGEMENT LLC, APPELLEE.



Appeal from the United States Bankruptcy Court for the District of Nevada Honorable Bruce T. Beesley, Bankruptcy Judge, Presiding Bk. No. 10-15867

SUSAN M SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT

MEMORANDUM*fn1

Argued and Submitted on January 25, 2013 at Las Vegas, Nevada

Filed - March 4, 2013

Before: JURY, KIRSCHER and DUNN, Bankruptcy Judges.

Chapter 13*fn2 debtors Jowell A. Hernandez and Anna Lee G. Hernandez filed an objection to National Capital Management, LLC's (NCM) proof of claim (POC) contending, among other things, that NCM failed to provide documentation showing that it had standing to file the claim or that it had an enforceable debt against them under § 502(b)(1). The bankruptcy court overruled their objection, finding debtors' Schedule F, which listed a credit card debt owed to GE Capital/Sam's Club, constituted an evidentiary admission of the debt contained in NCM's POC.

NCM subsequently sought sanctions against debtors' attorneys, Haines & Krieger, L.L.C. (Haines), on the grounds that Haines' claim objection was not well grounded in fact or law in violation of Rule 9011. NCM further alleged that Haines engaged in a persistent pattern of filing meritless claim objections in the present case and numerous bankruptcy cases in the District of Nevada. The bankruptcy court granted NCM's motion and awarded sanctions, payable to NCM, in the amount of $3,000. This appeal followed.

Without a more detailed explanation of the reasoning for imposing sanctions based on Haines' "persistent pattern" of filing "meritless" claim objections, the manner in which the bankruptcy court exercised its discretion cannot be determined.

Further, it does not appear that the safe harbor requirement under Rule 9011 was met. Accordingly, we VACATE the bankruptcy 1 court's order and REMAND the matter for the bankruptcy court to 2 provide a more detailed explanation as to why it considered 3 Haines' claim objections meritless under the standards of 4 Rule 9011 in Bankruptcy Case Nos: 08-21495, 09-26913, 10-19054, 5 10-20824, 10-21466, and 10-31316, and to explain how the safe 6 harbor requirement was met.

7 I. FACTS

8 On April 5, 2010, debtors filed their chapter 13 petition. 9 In Schedule F, debtors listed a credit card debt of $2,274 owed 10 to "Gemb/Sam's Club Dc." Debtors listed the account number's 11 last four digits as 7699 and indicated that the credit card had 12 an open date of 8/1/09 and was last active 3/5/10. They left 13 blank the corresponding columns which would identify the debt as 14 "contingent, unliquidated, or disputed."

15 On April 29, 2010, NCM filed its POC (claim 4-1) in the 16 amount of $2,389.44, which was approximately 5% greater than the 17 sum on debtors' Schedule F for their Sam's Club credit card 18 debt. Under the heading "Account Information", NCM showed the 19 last four digits of the account number as 4623, not the same 20 four digit number listed on debtors' Schedule F. The 21 Supplemental Account Summary attached to the POC stated, among 22 other things, that NCM was the successor to GE Capital/Sam's 23 Club, that the date of the loan was 8/1/09 and that the last 24 payment date was 3/5/10.

25 The Claim Objection

26 On February 28, 2012, debtors filed an objection to NCM's 27 POC alleging that the claim lacked prima facie validity because 28 it was based on an insufficient writing in violation of 1 Rule 3001(c) and that the claim was not supported by any written 2 evidence of an enforceable agreement or a contract between NCM 3 and debtors or between debtors and an alleged predecessor-in- 4 interest in violation of § 502(b)(1).

5 Citing Campbell v. Capital One Bank, 336 B.R. 430 (9th Cir 6 BAP 2005) and Heath v. Am. Express Related Servs. Co., Inc. 7 (In re Heath), 331 B.R. 424 (9th Cir. BAP 2005), debtors further 8 contended that their objection was not simply based on NCM's 9 violation of Rule 3001(c). Debtors asserted that they had 10 listed the claim as disputed on the filed bankruptcy schedules, 11 they objected to charges, interest and fees that they believed 12 were included in the claim and they disputed that NCM could 13 assert a valid basis under state law to enforce the obligation. 14 Finally, debtors maintained that their objection was supported 15 by the district court case, In re Tran, 2007 WL 1470900 (S.D. 16 Tex. 2007), and other bankruptcy cases from Texas, Oklahoma, and 17 Ohio. Debtors argued that, collectively, these cases stood for 18 the proposition that a claim based on a credit card debt needed 19 to attach documentation showing some verification of ownership 20 by the claimant when the debt has been transferred or assigned 21 to comply with Rule 3001(c) and, if such documentation was not 22 attached, the POC was not entitled to prima facie validity under 23 Rule 3001(f). In that event, debtors submitted that the burden 24 of proof remained on the creditor (citing In re Long, 25 353 B.R. 1, 14 (Bankr. D. Mass. 2006) (POC not entitled to prima 26 facie validity when documentation evidencing security interest 27 or proof of perfection is not attached to POC) and In re White, 28 2008 WL 269897 (Bankr. N.D. Tex. 2008) (noting that while claim 1 objection arose from the lack of documentation, the burden was 2 on creditor to prove ownership of the claim in the same manner 3 as if they were suing the debtor in state court)).

For all 4 these reasons, debtors requested that NCM's claim be disallowed. 5 NCM filed a response reiterating the information on the 6 Supplemental Account Summary. NCM admitted that its POC did not 7 have supporting documents attached, but argued that its POC had 8 the account's unique identifiers: (1) the card was issued by 9 GE Capital, issuer of Sam's Club credit cards; (2) the sixteen 10 digit account number contained the digits 7699 as indicated on 11 debtors' Schedule F; (3) the date of the loan was 8/1/09; and 12 (4) the balance of $2,389.44 was owed. With respect to the 13 account number, NCM pointed out that debtors' Schedule F and 14 NCM's POC disclosed different four digit portions of the same 15 sixteen digit account number.*fn3 NCM also pointed out that 16 debtors' Schedule F listed, without dispute, an unsecured claim 17 for the credit card debt owed to Sam's Club, with an account 18 containing the digits 7699, having an opened date of 8/1/09 and 19 owing a balance of $2,274. In other words, NCM argued that its 20 POC had almost identical information about the debt owed to 21 Sam's Club as the undisputed listing in debtors' Schedule F. 22 Citing In re Minbatiwalla, 424 B.R. 104, 116 (Bankr. S.D.N.Y. 23 2010), NCM further asserted that debtors' judicial admission 24 that they owed the debt shifted the burden to them to refute the 25 claim even though NCM's POC may have lacked prima facie validity for lack of sufficient documentation.

NCM's remaining argument was that Haines "mass produced" its claim objections which were nothing more than a "collection of general restatements of the law that [d]ebtors' counsel uses as a facade to give the appearance that its papers are somehow not frivolous." NCM indicated that Haines filed nine other objections in debtor's case which were identical.*fn4 NCM further identified numerous bankruptcy cases in the District of Nevada where Haines allegedly filed meritless claim objections -- Bankruptcy Case Nos. 08-21495, 09-26913, 10-20824, 10-21466, and 10-31316. NCM asserted that it gave debtors' counsel the required 21-day notice under Rule 9011(c)(1)(A) and also noted that it might request the court to order debtors' counsel to pay its fees associated with responding to objections related to claim 4-1 in debtors' case and responding to objections to claim 9-1 in Bankruptcy Case No. 10-19054.

On April 17, 2012, the bankruptcy court heard argument on debtors' claim objection and overruled it. The transcript states in relevant part:

THE COURT: I have looked at your pleadings. I'm going to overrule your objection. Your firm, not you, but your firm -

. . . has I think a pattern of filing objections that have no merit whatsoever. Go back to your office and tell them to stop because if I get more of these I'm going to start sanctioning your firm. Approximately, how much time did it take you to oppose this?

1 MR. ALDOUS [sic]: Your Honor, I'm sorry. I'll have to go through and look at my billing for this one.

THE COURT: Okay. I'm not going to sanction them this time. But if I see any more of these, I'm going to start sanctioning probably [$]1,000 or $2,000, and I don't think your 4 firm wants to have that happen, but stop filing frivolous objections.

MR. ALDOUS: Sure. And, your Honor, if I may speak in our 6 defense? In this case there's really nothing tying National Capital Management to the Sam's Club debt. The only evidence he 7 presented was the ...


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