THE ETHICS OF REPRESENTING DEBTORS AND CREDITORS IN BANKRUPTCY

a reprimand, reference to bar disciplinary authorities, an order precluding the introduction of evidence or litigation of certain issues, default judgment or dismissal, injunctive relief limiting future access to the courts to a party or attorney, or mandatory legal education.⁵¹⁰ Rule 9011 now includes a provision on the nature and limitations of sanctions.⁵¹¹

1. The party seeking sanctions has a duty to mitigate its damages by using reasonable efforts to resolve disputes by inexpensive means, but need not take actions that would impair its rights.⁵¹²
2. Counsel is entitled to a meaningful opportunity to explain his conduct before sanctions are awarded, generally but not necessarily at a "show cause" hearing.⁵¹³ While good intentions will not stop a violation of Rule 9011, they may save the attorney from onerous sanctions.⁵¹⁴A sanctions award must specify how the fees and expenses were calculated, and how they were caused by the conduct of the parties sanctioned, so the appellate court has sufficient basis to review the decision.⁵¹⁵ The court may take into account prior conduct in other cases when determining what sanction is appropriate to deter further misconduct.⁵¹⁶Adequate notice is important before any sanctions hearing, but especially important if the severe sanction of disbarment from the bankruptcy court is to be considered.⁵¹⁷ The factors and standards to be used in determining appropriate attorney discipline are set forth in ABA Standards, which are to be followed when the bankruptcy court imposes such discipline instead of referring it to another court or State Bar authority.⁵¹⁸
3. Rule 11 motions for sanctions, like all other motions, must be filed in good faith. Rule 11 does not mandate punishment just because an adversary's theory is rejected at trial, and is not intended to "kill an attorney's enthusiasm or creativity."⁵¹⁹ Courts generally evaluate whether a "colorable" basis for the attorney's contentions was asserted, in deciding on sanctions requests, ⁵²⁰ or an "objective reasonableness" standard for a competent attorney.⁵²¹ Sanctions may not be imposed against counsel merely because the court finds the client's testimony not credible.⁵²² Cause for imposition of sanctions must be proved by evidence that is clear and convincing or substantial, not just a preponderance of the evidence.⁵²³

C. Reporting Bankruptcy Misconduct.