Split Noted: Does Informal Notice Suffice to Meet the Service Required for a Sanctions Motion?

Per Cadle Co. v. Pratt (In re Pratt), 2008 WL 933633, *7-*11 (5th Cir. Apr. 8, 2008)

This appeal is the third to reach the Fifth Circuit in a long-running dispute between the Cadle Company and Jack Pratt. Mr. Pratt, represented by Schiro, voluntarily filed for Chapter 7 relief. The Cadle Company, a creditor of Mr. Pratt, later moved to have the discharge set aside because Pratt had not revealed that he was entitled to payments from his mother’s estate. At trial, Schiro presented testimony that Pratt was not entitled to any distributions form the estate because he owed money for loans made to him. After trial, it became known that Pratt had, in fact, received money from his mother’s estate after her death. Cadle filed a motion for Rule 9011 sanctions against Schiro.

Rule 9011 of the Federal Rules of Bankruptcy Procedure requires a motion for sanctions to be served 21 days prior to its filing, so that the recipient has an opportunity to withdraw or correct the offending contention. This provision is substantially the same as the notice requirement of Rule 11 of the Federal Rules of Civil Procedure, and the two have been interpreted similarly.

Cadle did not serve Schiro with an advance copy of the motion for sanctions, but sent two different warning letters more than 21 days before he filed his motion for sanctions. The bankruptcy court held such informal notice insufficient to satisfy the notice requirement and denied sanctions. Judge Wiener, on behalf of a unanimous panel, notes that the circuits have split on this question. The CAs 2,4,5,8,9,10 all require formal service of the motion for sanctions, whereas the CA 7 permits informal notice that substantially complies with Rule 11. The CA 6 has conflicting panel opinions. Although the CA 1 has not decided the issue, the D.R.I. has held that informal notice does suffice. In light of the plain language of the rule and previous Fifth Circuit precedent, the panel affirms the denial of sanctions for failure to formally serve the motion.