John Douglas Burns v. George Basilikas Trust

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued February 4, 2010 Decided March 26, 2010
No. 09-7045
J OHN DOUGLAS BURNS ,
APPELLANT
V.
GEORGE BASILIKAS TRUST ,
APPELLEE
Consolidated with 09-7078
Appeals from the United States District Court
for the District of Columbia
(No. 1:07-bk-00235)
John D. Burns, appearing pro se, argued the cause and
filed the briefs for appellant.
Before: ROGERS and TATEL , Circuit Judges, and
WILLIAMS, Senior Circuit Judge.
Opinion for the Court filed by Senior Circuit Judge
WILLIAMS.

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WILLIAMS, Senior Circuit Judge: The bankruptcy court
imposed sanctions on John Burns, counsel for a debtor, for
violation of Rule 9011(b)(2) of the Federal Rules of
Bankruptcy Procedure, and the district court affirmed. Burns
appeals. Because the sanctions were based on an erroneous
reading of law, we reverse.
Filing a voluntary Chapter 13 petition, Frances Haylock
invoked 11 U.S.C. § 109(h)(3) as the basis for exemption
from § 109(h)(1)’s credit counseling requirement. Section
109(h)(1) provides that:
Subject to paragraphs (2) and (3) . . . an individual may
not be a debtor under this title unless such individual has,
during the 180-day period preceding the date of filing of
the petition by such individual, received from an
approved nonprofit budget and credit counseling agency
described in section 111(a) . . . [a] briefing (including a
briefing conducted by telephone or on the Internet) that
outlined the opportunities for available credit counseling
and assisted such individual in performing a related
budget analysis.
Id.1 Section 109(h)(3) allows a debtor to delay receiving
counseling until after the petition so long as “the debtor
submits to the court a certification” that:
1 11 U.S.C. § 111 requires the U.S. trustee (or bankruptcy
administrator) to maintain a publicly available list of agencies
providing one or more of the services described in § 109(h)
“currently approved by the United States trustee (or the
bankruptcy administrator, if any),” and specifies the process
and criteria used to revise the list.

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(i) describes exigent circumstances that merit a waiver of
the requirements of [§ 109(h)(1)];
(ii) states that the debtor requested credit counseling
services from an approved nonprofit budget and credit
counseling agency, but was unable to obtain the services
referred to in [§ 109(h)(1)] during the 5-day period
beginning on the date on which the debtor made that
request; and
(iii) is satisfactory to the court.
11 U.S.C. § 109(h)(3).
Haylock had contacted Burns’s law firm on the morning
of a scheduled foreclosure. She was elderly, unsophisticated,
and apparently without a place to stay in the event of
foreclosure. Burns interviewed Haylock and assisted in the
bankruptcy filing, which was made in time to stay foreclosure.
During the pre-filing interview, she explained that she had
attempted to receive credit counseling at her church and
online. But Burns did not establish whether any agency that
Haylock reached had been approved.
Exhibit D of the form bankruptcy petition that the federal
courts make available to prospective filers,2 the “Individual
Debtor’s Statement of Compliance with Credit Counseling
Requirement,” contains various preprinted statements. The
first two deal with a debtor who has received the sort of
counseling required by § 109(h)(1). The third, which Haylock
checked, is for debtors relying on § 109(h)(3)’s provision for
waiver; it provides:
2 See Official Bankruptcy Form B1D (Oct. 06) available at http://
www.uscourts.gov/rules/BK_Forms_1207/B_001D_1006f.pdf.

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I certify that I requested credit counseling services from
an approved agency but was unable to obtain the services
during the five days from the time I made my request, and
the following exigent circumstances merit a temporary
waiver of the credit counseling requirement so I can file
my bankruptcy case now.
Next to this preprinted statement is a request that the debtor
“summarize [the] exigent circumstances.” In the space
provided, Haylock’s petition said: “Debtor was unable to
obtain credit counseling prior to scheduled foreclosure.”
Twelve days after the filing, the Chapter 13 trustee
moved to dismiss the case for failure to qualify under
§ 109(h); George Basilikas Trust, a secured creditor with a
lien on Haylock’s home, joined the motion. The next day
Haylock filed a response saying she would not oppose the
trustee’s motion, possibly because refinancing had become
available in the form of a reverse mortgage. Attached to her
response was an affidavit saying that she was “not able to
provide proof of my efforts to obtain credit counseling prior to
the foreclosure date.” The Trust then filed a motion seeking
sanctions against Haylock and her counsel for violation of
Rule 9011(b), which provides in relevant part:
By presenting to the court . . . a petition, pleading, written
motion, or other paper, an attorney . . . is certifying that to
the best of the person's knowledge, information, and
belief, formed after an inquiry reasonable under the
circumstances,— . . .
(2) the claims, defenses, and other legal contentions
therein are warranted by existing law or by a
nonfrivolous argument for the extension,
modification, or reversal of existing law or the
establishment of new law . . . .

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Id.
The bankruptcy court dismissed Haylock’s petition but
retained jurisdiction to resolve the motion for sanctions. At
the sanctions hearing, the court found that Burns violated Rule
9011(b)(2) by having made “a legal determination that the
petition can be filed,” even though there was “no evidence
that [Haylock] actually came within [the] exception” provided
by § 109(h)(3). It was uncontested that Burns obtained only
Haylock’s assurance that she had sought credit counseling, not
that she had communicated with “an approved agency.”
Burns maintained that “the case law is divergent” as to
whether satisfying § 109(h)(3) requires a debtor to seek credit
counseling from an approved agency before petitioning and
that “[s]ome cases have said . . . that some attempt to get
credit counseling within the time parameters is sufficient.”
The bankruptcy court dismissed the motion as against the
debtor, but granted it as against Burns.
After the Trust filed a statement computing fees and
expenses allegedly incurred by reason of the bankruptcy
filing, Burns filed a response, renewing his argument that
sanctions under Rule 9011(b)(2) were improper. He pointed
to In re Meza, No. 2:06-cv-1307, 2007 U.S. Dist. LEXIS
48430 (E.D. Cal. June 25, 2007) (unreported), as authority for
the proposition that credit counseling requested from a non-
accredited agency could satisfy the requirements of § 109(h).
He argued:
The question of whether the credit counseling agency
must be a compliant agency or a non-compliant agency
. . . is the subject of varied opinions. In the case of In re
Meza . . . a debtor who visited a . . . non-accredited
agency[] well in excess of 180 days prior to her petition
date was found to have been in compliance with her
credit counseling obligations under Section 109(h)

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because of her ‘substantial compliance’ with the
requirements of 11 U.S.C. Section 109(h), permitting the
underlying bankruptcy court to forego analysis of any
waiver request. In short, visiting some private company
and attempting some measure of debt counseling was
found to meet the call of a debtor’s obligations.
As we shall see, this is a correct summation of In re Meza.
After a hearing to consider the Trust’s calculation of
sanctions and Burns’s response, the court issued an Interim
Memorandum Decision rejecting Burns’s renewed challenge.
It said that a request to a non-accredited agency could never
satisfy § 109(h)(3) and that arguments to the contrary were
legally frivolous:
The debtor’s counsel’s obligation was to advise the
debtor that, because she had made no request for
prepetition credit counseling from an approved agency,
she was ineligible to file a petition and to decline to file a
petition on her behalf unless and until she could satisfy
§ 109(h).
The bankruptcy court said that Meza was “open to possible
criticism, but even if . . . correctly decided . . . only hold[s]
that when some error regarding compliance with § 109(h)(3)
has occurred due to negligence, the court has discretion to
permit the case to remain pending.”
After Burns and the Trust agreed that an appropriate
figure for sanctions would be $2000, the court issued a Final
Memorandum Decision expunging a finding of bad faith that
it had made in the Interim Memorandum Decision, fixing the
amounts of sanctions at the agreed sum, and further
explaining the basis of its ruling:

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[Counsel’s] good faith . . . does not alter the correctness
of the conclusion in the Interim Memorandum Decision
that the petition was not well-founded as a matter of law
because of the debtor’s ineligibility under § 109(h) and
that the creditor was thus entitled to Rule 9011 sanctions.
Burns appealed to the district court, which tersely affirmed; he
then appealed. The Trust did not oppose Burns in the district
court and does not do so here.
Sanctions for violation of Federal Rule of Civil Procedure
11(b) are reviewable for abuse of discretion. Cooter & Gell v.
Hartmarx Corp., 496 U.S. 384, 405 (1990). Such an abuse
occurs if a court relies “on a materially incorrect view of the
relevant law in determining that” an attorney’s position was
legally frivolous. Id. at 402. See also Lucas v Duncan, 574
F.3d 772, 775 (D.C. Cir. 2009). Rule 11(b) of the Federal
Rules of Civil Procedure and Rule 9011(b) are identical in all
material respects, and at least on this issue nothing in the
context suggests any reason to treat sanctions differently as
between the two.
In awarding sanctions, the bankruptcy court relied on the
proposition that Ҥ 109(h)(3)(A), when read in the context of
§ 109(h) as a whole, cannot in any fashion be read to support”
an interpretation that a petition may be filed without the filer’s
having made a request from an approved credit counseling
agency. That is one interpretation of the statute; certainly it
appears literally correct, and perhaps it will prove ultimately
“correct” in the sense of receiving the Supreme Court’s
blessing or emerging as the unanimous opinion of the circuits.
But counsel’s reliance on a contrary view would be frivolous
for purposes of Rule 11 sanctions only if “it can be said that a
reasonable attorney in like circumstances could not have
believed his actions to be legally justified.” In re Sargent, 136
F.3d 349, 352 (4th Cir. 1998) (brackets and ellipses deleted).

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The Advisory Committee Notes on the most recent
amendments of Rule 11 caution that “the extent to which a
litigant has researched the issues and found some support for
its theories even in minority opinions, in law review articles,
or through consultation with other attorneys should certainly
be taken into account in determining whether [11(b)(2)] has
been violated.” Fed. R. Civ. Pro. 11, Advisory Committee’s
Note (1993 Amendments) (emphasis added). Here we need
not face when or how aggressively counsel can “swim
upstream against the current of stare decisis,” Gurary v.
Winehouse, 235 F.3d 792, 799 (2nd Cir. 2000), asserting
theories rejected by the circuit or the Supreme Court. Burns
faced no such preclusive authority, and his position had
support in the Meza case, which he brought to the judge’s
attention.
In Meza, the debtor filed for Chapter 7 relief after having
received credit counseling from a non-approved agency. In re
Meza, 2007 U.S. Dist. LEXIS 48430 at *1. The United States
Trustee “moved to dismiss the filing due to Meza’s failure to
obtain pre-petition credit counseling and properly file a
certificate regarding the same, as required by § 109(h).” Id.
The bankruptcy court dismissed the motion, finding that the
debtor had “substantially complied” with the requirements of
§ 109(h). Id. at *2. On appeal, the district court affirmed. It
acknowledged that “the counseling was provided by an un-
approved service and was received more than 180 days prior
to filing,” but it looked to the substance of the counseling.
Finding that the counseling had “resulted in the type of debt
repayment contemplated by Congress” and that the
bankruptcy court had been satisfied with the petition “in
general” and with Meza’s continued counseling post-petition,
it held that it could not “determine, as it must to warrant
reversal on appeal, that the bankruptcy court’s finding of
substantial compliance with eligibility requirements
constituted clear error.” Id. at *4.

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Contrary to the bankruptcy court’s description, Meza does
not “hold that when some error regarding compliance with
§ 109(h)(3) has occurred due to negligence, the court has
discretion to permit the case to remain pending.” Nothing in
Meza turned on negligence. Instead, Meza held that
§ 109(h)(1) could be satisfied through substantial compliance
even though the debtor never sought credit counseling from an
approved agency. By holding that counseling with an
unapproved agency can satisfy § 109(h)(1), Meza supports
Burns’s position that requesting counseling from such an
agency can satisfy § 109(h)(3). The bankruptcy court’s view
of the law—in the sense of the array of interpretations
accepted by courts—was therefore mistaken, and its award of
sanctions an abuse of discretion.
Conclusion
We reverse the district court’s affirmance of sanctions
and remand for proceedings consistent with this opinion.
So ordered.

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