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In Re: David A. Russ, Debtor. Kevin J. Lamson, Bankruptcy Appellate v. David A. Russ
Citations: 187 F.3d 978; 44 Fed. R. Serv. 3d 937; 1999 U.S. App. LEXIS 18763; 1999 WL 608629Docket: 98-3084
Court: Court of Appeals for the Eighth Circuit; August 13, 1999; Federal Appellate Court
David A. Russ filed a voluntary Chapter 7 bankruptcy petition on July 10, 1987, receiving a discharge in 1989. In 1993, creditor Kevin J. Lamson sought to reopen the case to address undisclosed assets. After several motions and amendments to Russ's filings, including a First Amended Petition in 1996 and a Second Amended Petition in December 1997, Lamson filed a motion in January 1998 for sanctions against Russ and his attorneys under Rule 9011, alleging fraudulent filings. The bankruptcy court denied Lamson's motion, ordering him to pay Russ's reasonable attorney's fees. The Eighth Circuit Bankruptcy Appellate Panel affirmed this decision. The case revealed significant discrepancies in Russ's disclosures: his initial petition stated he earned $38,000 as a Sales Manager, while later filings revealed multiple undisclosed business interests, including significant investments in Damark International, Inc. Notably, Russ later owned Damark stock worth over $5 million, which Lamson argued should be part of the bankruptcy estate. However, the Minnesota Supreme Court ruled that Russ did not own Damark stock at the time of his bankruptcy filing. The bankruptcy court characterized Lamson’s motion for sanctions as a final attempt to leverage the legal battle after his unsuccessful state court claim for the undisclosed asset, ultimately sanctioning him for presenting only accusatory claims against Russ's veracity. The Eighth Circuit reversed the sanctions against Lamson but affirmed the bankruptcy court's ruling otherwise. In the bankruptcy court, Lamson's motions for sanctions and contempt primarily targeted Russ's amended petitions and schedules from 1996 and 1997. The court found technical inaccuracies in the First Amended Petition, necessitating more disclosures in the Second Amended Petition. Lamson accused the Second Amended Petition of being false and incomplete; however, his claims were deemed conclusory and unsupported. Lamson's appeal for an evidentiary hearing was rejected, as the court appropriately relied on the extensive eight-year litigation record and expected detailed substantiation from Lamson. Additionally, Lamson sought Rule 9011 sanctions against Russ for an allegedly fraudulent initial Petition filed in July 1987. While Russ's initial filings exhibited significant deficiencies, the bankruptcy court was not compelled to impose sanctions despite the potential justification for doing so. The court's familiarity with the case and the seriousness of the non-disclosures placed it in the best position to assess materiality. The court also sanctioned Lamson for lacking evidentiary support for his motion, but this was only pertinent to his claims against the amended petitions. Evidence indicated Russ's initial filings contained substantial non-disclosures. Lamson's actions, although unsuccessful, added value to the bankruptcy estate. Therefore, the sanctions against Lamson were reversed, while the rest of the Bankruptcy Appellate Panel's judgment was affirmed. The ruling did not implicate Russ's current attorneys, who were not involved in the initial Petition.