THE ETHICS OF REPRESENTING DEBTORS AND CREDITORS IN BANKRUPTCY

B. Obtaining Sanctions.

1. Until the 1997 modification of Rule 9011, upon any violation the court was required to impose an appropriate sanction; it exercised discretion only in deciding what sanction was appropriate under the circumstances.⁵⁰¹ Now, sanctions are discretionary, and there is a safe harbor procedure for serving a sanctions motion and giving an opportunity to withdraw the offensive document before filing the motion. There is no safe harbor for filing a bankruptcy petition violating rule 9011 standards, however, including as an electronic filing without an original debtor's signature, which warrants sanctions no matter what the perceived emergency.⁵⁰²
2. The 2005 Bankruptcy Code amendments include specific remedies that may be imsposed if the debtor's lawyer violates Bankruptcy Rule 9011 and the case is dismissed or converted under Bankruptcy Code § 707(b).⁵⁰³ The amendments authorize civil penalties for any Rule 9011 violation.⁵⁰⁴ The amendments further incorporate into the Bankruptcy Code a variation on Bankruptcy Rule 9011 that is harsher than the current rule, and applies to every attorney's signature on a petition, pleading or written motion.⁵⁰⁵ Among other things, the new Code language requires that all factual contentions be "well grounded" instead of having "evidentiary support," and that all legal arguments be made in "good faith," instead of being "nonfrivolous."⁵⁰⁶ Bankruptcy Rule 9011 may also be amended to expressly extend its reach to all documents, including schedules, submitted to the court or a trustee, even if the lawyer does not sign them, to comply with the "sense of Congress" in the 2005 Bankruptcy Code amendments.⁵⁰⁷
3. Sanctions generally take the form of attorneys' fees awards to opponents; in some cases attorneys and clients have been held jointly liable for the opponent's fees and doubled costs, or additional monetary amounts.⁵⁰⁸ Sanctions may also include disgorgement of retainers or interim fees previously awarded to DIP counsel.⁵⁰⁹ Other possible sanctions include