McCauley et al v. McCauley et al

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re:
WILLIAM ARTHUR McCAULEY and
TERRI LYNN McCAULEY, 	No. 14-12093-tl7
Debtors.
VIRGINIA McCAULEY, INDIVIDUALLY AND
AS PERSONAL REPRESENTATIVE OF THE ESTATE
OF FRED L. McCAULEY, RUSSELL REED, and
TOM McCAULEY & SONS, INC.,
Plaintiffs,
v. 	Adv. No. 14-01134-t
WILLIAM ARTHUR McCAULEY and
TERRI LYNN McCAULEY,
Defendants.
MEMORANDUM OPINION
Plaintiffs have asked the Court to sanction Defendants $880 because Defendants
answered Plaintiffs’ complaint improperly and did not fix the problem when it was called to their
attention. The Court agrees that Defendants’ responses to certain allegations were improper, but
declines to enter the requested sanction.
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I. 	FACTS1
Plaintiffs filed their complaint on December 3, 2014. Defendants’ answer, filed January
12, 2015, contains the following paragraph:
Defendant neither admits nor denies the allegations contained in Paragraphs 8, 11,
12, 23, 24, 26, 27, 30, 34, 35 and 40 as the documents referred to speak for
themselves.
Plaintiffs’ counsel sent an e-mail to Defendants’ counsel shortly after the answer was filed,
complaining about this response:
Thank you for your answer. 	I am however concerned with your numerous
responses that, “the document speaks for itself” (11 paragraphs by my count). 	I
thought the old “document speaks for itself” response was, through any number of
decisions, declared to be an insufficient response both in this district and others
across the country. . . . I frankly don’t think there is any dispute any more that this
is not a sufficient response.
Would you please revise your answer by the end of the week to delete from your
pleadings the reference to “the doc. Speaks for itself” and answer the paragraph
with either an admission or a denial? Alternatively, do I have your concurrence in
a motion to strike? I don’t want to be surprised later, and if the debtor’s defense
is somehow going to hinge on advise [sic] of counsel (and that was why there was
the “doc. Speaks for itself” response) I want to know about it so we can tee up the
depositions of the counsel who’s advise [sic] was relied on.
Defendants’ counsel responded the same day:
I’ll take a look at it. Do you have any cites?
Plaintiffs’ counsel replied, again on the same day:
The case most cited is State Farm v. Riley, 199 FRD 276 	There are a number
(hundreds, I believe) of cases citing to this case.”
1 In making these findings the Court took judicial notice of the docket of this adversary
proceeding. See St. Louis Baptist Temple, Inc. v. Fed. Deposit Ins. Corp., 605 F.2d 1169, 1172
(10th Cir.1979) (holding that a court may, sua sponte, take judicial notice of its docket); LeBlanc
v. Salem (In re Mailman Steam Carpet Cleaning Corp.), 196 F.3d 1, 8 (1st Cir.1999) (citing
Fed.R.Evid. 201 and concluding that “[t]he bankruptcy court appropriately took judicial notice of
its own docket”); In re Quade, 496 B.R. 520, 524 (Bankr.N.D.Ill.2013), affirmed, 498 B.R. 852
(N.D. Ill. 2013) (a “bankruptcy court [is authorized] ... to take judicial notice of its own docket”).
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Defendants never amended their answer; on January 26, 2015, Plaintiffs filed a motion to
strike the responses and sanction Defendants.
II. 	DISCUSSION
A. 	Defendants’ “Documents Speak for Themselves” Responses Were Improper.
The only three acceptable responses to an allegation in a pleading are to admit the
allegation, deny it, or state that the party lacks knowledge to admit or deny the allegation, which
has the effect of a denial. Fed.R.Civ.P.2 8(b)(1)(B) and (5). See also National Acceptance Co. of
America v. Bathalter, 705 F.2d 924 (7th Cir. 1983) (only proper answers are admit, deny, or lack
of knowledge); Chanel, Inc. v. Pang, 2014 WL 4620251, at *3 (N.D. Cal. 2014) (same); Lane v.
Page, 272 F.R.D. 581 (D.N.M. 2011) (court orders defendants to amend their answer to either
admit, deny, or claim insufficient knowledge).
Defendants may not respond to an allegation in a complaint by stating that “the document
speaks for itself.” In Lane v. Page the court held:
Defendants must respond to all of a plaintiff's allegations. See Fed.R.Civ.P.
8(b)(1)(B) (“In responding to a pleading, a party must ... admit or deny the
allegations asserted against it by an opposing party.”). Responses that documents
speak for themselves and that allegations are legal conclusions do not comply
with rule 8(b)'s requirements. See Thompson v. Ret. Plan for Employees of S.C.
Johnson & Sons, Inc., Nos. 07–CV–1047, 08–CV–0245, 2008 WL 5377712, at
*1–2 (E.D. Wis. Dec. 22, 2008) (“Rule 8 does not permit a defendant to respond
only by stating that the plaintiff's allegations ‘constitute conclusions of law.’ ...
Similarly, Rule 8 does not permit a defendant to respond that the document
‘speaks for itself.’”) (quoting State Farm Mut. Auto. Ins. Co. v. Riley, 199 F.R.D.
276, 278 (N.D. Ill. 2001)); N. Ind. Metals v. Iowa Exp., Inc., No. 2:07–CV–414–
PRC, 2008 WL 2756330, at *3 (N.D. Ind. July 10, 2008) (“[A] responsive
pleading indicating that a document ‘speaks for itself’ is insufficient and contrary
to the Federal Rules of Civil Procedure.”); Rudzinski v. Metropolitan Life Ins.
Co., Case No. 05 C 0474, 2007 WL 2973830, at *4 (N.D. Ill. Oct. 4, 2007)
(stating that a defendant may not simply employ “summarizing language” and
then state, “essentially, that the terms of the referenced documents speak for
themselves.”)
2 A “Rule.”
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272 F.R.D. at 601. See also State Farm Mut. Auto. Ins. Co. v. Riley, 199 F.R.D. 276, 279 (N.D.
Ill. 2001) (the “documents speaks for itself” response violated Rule 8(b)). 	In Chicago Dist.
Council of Carpenters Pension Fund v. Balmoral Racing Club, Inc., 2000 WL 876921 (N.D. Ill.
2000), the court stated:
. . . instead of providing forthright responses to the specific allegations, Balmoral
asserts that 	the documents “speak for themselves.” 	This 	Court has 	been
attempting to listen to such written materials for years (in the forlorn hope that
one will indeed give voice)—but until some such writing does break its silence,
this Court will continue to require pleaders to employ one of the only three
alternatives that are permitted by Rule 8(b) in response to all allegations,
including those regarding the contents of documents.
2000 WL 876921, at *1.
When Plaintiffs told Defendants that their responses violate Rule 8(b), Defendants should
have filed an amended answer promptly, fixing the problem. Defendants did not do so and have
not explained their inaction. Their argument that Plaintiffs were not prejudiced by the improper
responses is weak and irrelevant.
B. 	The Court’s Power to Sanction Defendants.
The Court’s power (and in some cases obligation) to impose sanctions comes from a
number of sources, depending on the situation. For example, Rule 37 (incorporated by reference
by Fed.R.Bankr.P.3 7037) requires that a court award reasonable attorney fees and costs if it
grants a motion to compel. 	Rule 37(a)(5). 	Other parts of Rule 37 allow or require similar
sanctions awards.
Bankruptcy Rule 9011 allows a court to sanction parties and their counsel if any written
submission is presented for an improper purpose, contains claims or defenses not warranted by
3 A “Bankruptcy Rule.”
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existing law, contains allegations lacking evidentiary support, or contains denials that are not
warranted on the evidence. Bankruptcy Rule 9011(b).
Bankruptcy courts have the authority to award attorney fees under 28 U.S.C. § 1447(c),
as part of an order remanding a case that had been removed to bankruptcy court. See Daleske v.
Fairfield Communities, Inc., 17 F.3d 321, 324 (10th Cir. 1994), cert. denied, 511 U.S. 1092
(1994); In re Midgard Corp, 204 B.R. 764, 772-73 (10th Cir. B.A.P. 1997); In re Maale, 2014
WL 896994, at *7 (Bankr. D. Utah 2014) (citing Daleske and Maale).
Section 362(k)(1)4 requires the court to award damages suffered by an individual injured
by a willful violation of the automatic stay. 	Such awards are characterized as sanctions. 	See,
e.g., In re Johnson, 575 F.3d 1079, 1083 (10th Cir. 2009); In re Cook, 2012 WL 1356490, at *9
(10th Cir. BAP 2012), affirmed, 520 Fed. Appx. 697 (10th Cir. 2013).
Section 303(i)(1) allows a bankruptcy court to award attorney fees and costs in
connection with dismissal of an involuntary bankruptcy petition. See In re Rosenberg, 2015 WL
845578, at *10 (11th Cir. 2015). A companion provision, § 303(i)(2), has been held to allow the
award of attorney fees incurred in connection with a bad-faith involuntary filing. Id.; Glannon v.
Carpenter (In re Glannon), 245 B.R. 882, 894-95 (D. Kan. 2000).
Again, attorney fees may be awarded under § 707(b)(4) or (b)(5), in connection with an
“abusive” Chapter 7 filing.
Finally, bankruptcy courts have inherent power under § 105(a) to sanction conduct
abusive of the judicial process. In In re Courtesy Inns, Ltd., Inc., 40 F.3d 1084, 1089 (10th Cir.
1994), the Tenth Circuit ruled:
4 All statutory references are to 11 U.S.C. unless otherwise noted.
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We believe, and hold, that § 105 intended to imbue the bankruptcy courts with the
inherent power recognized by the Supreme Court in Chambers.5 Cf. Mountain
Am. Credit Union v. Skinner (In re Skinner), 917 F.2d 444, 447 (10th Cir.1990)
(concluding that bankruptcy courts do not have inherent civil contempt power but
that such power is granted by 11 U.S.C. § 105-disagreeing with Ninth Circuit).
The 	power 	to 	maintain 	order 	and 	confine 	improper 	behavior 	in 	its 	own
proceedings seems a necessary adjunct to any tribunal charged by law with the
adjudication of disputes. We should not lightly infer its absence, and we see no
reason to do so here.
40 F.3d at 1089. In In re Thomas, 397 B.R. 545 (10th Cir. BAP 2008), affirmed, 348 Fed. Appx.
(10th Cir. 2009), the Tenth Circuit Bankruptcy Appellate Panel, citing Courtesy Inns, held that “a
court may sua sponte impose sanctions for conduct abusive of the judicial system under its
inherent authority under 11 U.S.C. § 105(a)”). 397 B.R. 545, at *4.
The power to sanction under § 105(a) has been used to address a variety of improper
conduct. 	See, e.g., In re Clink, 770 F.3d 719 (10th Cir. 2014) (advising client not to disclose
assets); In re Hann, 711 F.3d 235 (1st Cir. 2013) (collection of disallowed claim); Franken v.
Mukamal, 449 Fed. Appx. 776 (11th Cir. 2011) (conflict of interest representation); Thomas, 397
B.R. 545, at *3 (pattern of bad faith and abusive conduct in litigation); In re Lacy, 306 Fed.
Appx. 413, at *4 (10th Cir. 2008) (violating debtor’s confirmed plan, unprofessional conduct,
and conflict of interest); In re Aspen Limousine Service, Inc., 198 B.R. 341, 346 (D. Colo. 1996)
(interfering with plan of reorganization voting process); In re Kleinhans, 438 B.R. 355 (10th Cir.
2010) (abusive litigation practices and Code violations); In re Otero, 498 B.R. 313, 321 (Bankr.
D.N.M. 2013) (violation of the discharge injunction).
Courts must use their inherent power to sanction sparingly and cautiously. 	“Because of
their very potency, inherent powers must be exercised with restraint and discretion.” Chambers,
501 U.S. at 43 (1991). 	See also In re Wilkinson, 103 F.3d 146, at *1 (10th Cir. 1996) (quoting
5 Chambers v. NASCO, Inc., 501 U.S. 32, 43 (1991).
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Chambers); In re Endrex Investments, Inc., 84 B.R. 207, 211 (Bankr. D. Colo. 1988), reversed in
part on other grounds, 111 B.R. 939 (D. Colo. 1990) (power to sanction should be used
sparingly); Grochocinski v. Mayer Brown Rowe & Maw LLP, 452 B.R. 676, 685 (N.D. Ill. 2011)
(inherent power of the court ‘is a residual authority, to be exercised sparingly,’ and only when
other rules do not provide sufficient basis for sanctions); Robertson v. Cartinhour, 883 F. Supp.
2d 121, 129 (D.D.C. 2012) (court’s authority to sanction should be exercised sparingly).
A corollary to the Court’s inherent power to sanction improper conduct is that the power
should not be exercised if the conduct at issue is addressed by a statute or rule. In In re Gordon,
484 B.R. 825 (Bankr. N.D. Okla. 2013), the court stated:
Under the rationale set forth in Courtesy Inns, a bankruptcy court's power under
§ 105(a) is limited by the principles outlined by the United States Supreme Court
in Chambers. 	In Chambers, the United States Supreme Court stated that if bad-
faith conduct can be fully addressed by statute or rule, resort to equitable powers
is neither necessary nor permissible. Such pronouncements are binding upon this
Court. Moreover, they are legally sound and proper.
484 B.R. at 832. See also In re Courtesy Inns, Ltd., Inc., 40 F.3d 1084 (10th Cir. 1994) (quoting
Chambers); Klein v. Stahl GMBH & Co. Maschinefabrik, 185 F.3d 98, 110 (3d Cir. 1999) (when
rules or pertinent statutes are “up to the task,” they should be used instead of inherent equitable
power); In re DeVille, 361 F.3d 539 (9th Cir. 2004) (citing and following Chambers).
This rule is echoed in the recent Supreme Court decision Law v. Siegel, 134 S. Ct. 1188
(2014), which held that a bankruptcy court’s § 105(a) powers cannot be used to override specific
statutory provisions. With Law, the Supreme Court agreed with the Tenth Circuit’s decision In
re Scrivner, 535 F.3d 1258, 1263 (10th Cir. 2008), cert. denied, 556 U.S. 1126 (2009) (“we have
repeatedly emphasized, however, that a bankruptcy court may not exercise its “broad equitable
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powers” under § 105(a) ‘in a manner that is inconsistent with other, more specific provisions of
the [Bankruptcy] Code.’”).
C. 	Should the Court Sanction Defendants?
Two rules of civil procedure address the conduct Plaintiffs complain of. First, there is a
sanction in Rule 8 for failing to respond appropriately to an allegation in a complaint. 	Rule
8(b)(6) provides:
Effect of Failing to Deny. An allegation – other than one relating to the amount
of damages – is admitted if a responsive pleading is required and the allegation is
not denied.
Depending on the facts of the case, a deemed admission can be a significant penalty. One
court characterized the remedy of deeming allegations admitted as “extreme.” U.S. ex rel. Minge
v. TECT Aerospece, Inc., 2011 WL 2473076, at *3 (D. Kan. 2011).
Second, improper responses may be stricken. Rule 12(f) provides:
Motion to Strike. 	The court may strike from a pleading an insufficient defense
or any redundant, immaterial, impertinent, or scandalous matter. 	The court may
act:
(1) on its own; or
(2) on motion made by a party either before responding to the pleading or,
if a response is not allowed, within 21 days after being served with the pleading.
Striking an insufficient response to an allegation in a complaint, or alternatively ordering that the
defendant file an amended answer, is an acceptable way of dealing with responses that violate
Rule 8(b). See Lane v. Page, 272 F.R.D. at 603 (in response to plaintiff’s Rule 12(f) motion, the
court struck the answer on file and ordered defendants to file an amended answer that complied
with Rule 8(b)); State Farm v. Riley, 199 F.R.D. at 279-80 (answer was stricken sua sponte with
leave to file an amended answer); Nash v. Fair Collections & Outsourcing, Inc., 2009 WL
1636950 (N.D. Ill. 2009) (same); Clarendon American Ins. Co. v. All Brothers Painting, Inc.,
2013 WL 5921538 (M.D. Fla. 2013) (same). See also Local Ad Link, Inc. v. Adzzoo, LLC, 2010
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WL 3636173, at *6 (D. Nev. 2010) (remedies under Rule 8(b)(6) were sufficient; no further
sanctions necessary).
Here, the Court previously granted Plaintiffs’ motion to strike and required Defendants to
file an amended answer within ten days. 	This ruling ensures that Plaintiffs will get an answer
that complies with Rule 8. Because of the remedies available in Rules 8 and 12, exercising the
Court’s § 105(a) powers to enter a monetary sanction may not be advisable. Although the Court
does not rule that such an additional, monetary sanction could never be entered, regardless of the
facts, it holds that such a sanction is not indicated in this case.
Defendants’ counsel should have filed an amended answer promptly after Plaintiffs’
counsel pointed out the original answer’s shortcomings. Because Defendants’ counsel did not do
so, the Court will order counsel not to charge Defendants for the time spent opposing the motion
to strike and filing the amended answer. See, e.g., State Farm v. Riley, 199 F.R.D. at 280.
III. 	CONCLUSION
In view of the remedies available under Rules 8(b)(6) and 12(f) if an improper response
is asserted in an answer, the Court concludes that in the typical case there is no need for, and
may be limited ability to award, an additional, monetary sanction. 	Plaintiffs’ request for
sanctions therefore is denied. A separate order will be entered.
__________________________________________
Hon. David T. Thuma
United States Bankruptcy Judge
Entered: March 10, 2015
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Copies to:
R Trey Arvizu, III
P.O. Box 1479
Las Cruces, NM 88004
Jerome A. O'Connell
1020 S. Main
Las Cruces, NM 88005
James A. Roggow
P.O. Drawer 1837
Las Cruces, NM 88004
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