In re Town & Country Event Center LLC, 25-24205 (Bankr. E.D. Cal. Feb. 11, 2026)
In re Town & Country Event Center LLC, 25-24205 (Bankr. E.D. Cal. Feb. 11, 2026): bankruptcy court decision by BkyJudge Christopher Klein in Sacramento. He’s just a bankruptcy judge, but very well thought of. I will cite this case in updates Chapter 8-I or 8-II, and suggest it be cited in updates re sanctions, since Klein uses FRBP Rule 11 to sua sponte sanction a debtors atty whom judge client found knowingly participated in scheme to hinder, delay or defraud creditors. Cites that 11 USC 362(d)(4). 362(d)(4) says ct can grant RFStay if filing petition was part of a scheme to hinder, delay or defraud creditors. Judge Klein found that debtor’s attorney knowingly participated in a sham sale (from debtor to debtor) to hinder, delay or defraud creditors. Judge Klientherefor sua sponte set OTSC, and when he was not satisfied with response from debtor attorney, sua sponte sanctioned debtor’s attorney, ordering debtors’ attorney to pay $30,000 to the Court pursuant to FRBA Rule 11. He could only order the $30,000 to be paid to the Court, not to the creditors, because there’s no fee shifting for a Rule 11 violation.
Here is American Bankruptcy Institute (“ABI”) write up of case: In October, Bankruptcy Judge Christopher M. Klein of Sacramento, Calif., wrote a handbook on using Section 362(d)(4) to stop someone from using multiple bankruptcy filings to hinder, delay or defraud creditors.
Four months later, Judge Klein has given us a treatise showing how to write an opinion socking a lawyer with $30,000 in sanctions under Rule 9011 for the lawyer’s part in concocting the scheme.
We will spare readers the toil of reading a detailed statement of the facts underlying the alleged Rule 9011 violation. Suffice it to say that Judge Klein concluded that the lawyer had committed fraud on the court. For details, read Judge Klein’s prior decision, In re Town & Country Event Center LLC, 673 B.R. 445 (Bankr. E.D. Cal. Oct. 10, 2025).
The crux of the scheme was the lawyer’s role in filing an unsuccessful motion to sell the debtor’s property for less than the secured debt. However, the lawyer filed the motion on behalf of the buyer, who had no standing to advance a sale motion. More indicative of questionable motive, the lawyer failed to disclose that he represented not only the putative buyer but also the debtor corporation’s owner, who was employing strategies to bollix creditors.
In his prior opinion, Judge Klein telegraphed his design on issuing an order directing the lawyer to show cause why he should not be found in violation of Bankruptcy Rule 9011. He said,
[The debtor’s] counsel will be given a due process opportunity to explain why his failure to disclose [the owner’s] role and the making of a § 363 motion without standing do not violate Federal Rule of Bankruptcy Procedure 9011 and provisions of the California Rules of Professional Conduct regarding candor and attempts to mislead a court.
Reasonable Inquiry
Judge Klein found that the lawyer “participated in an attempt to perpetrate a fraud on the Court, which this Court has determined to have been a scheme to delay and hinder creditors that involved multiple bankruptcy filings.” He also said that “the putative sale was to erect a roadblock to the pending stay relief motions.”
Despite the lawyer’s assertions to the contrary, Judge Klein found by “clear and convincing evidence” that the lawyer’s denials were “not credible” and that the lawyer knew that the debtor’s owner “was on both sides of” the sale as the owner and the seller.
Judge Klein laid out a lawyer’s responsibilities under Rule 9011, beginning with a certification that the lawyer has made an “inquiry reasonable under the circumstances.”
Judge Klein said that the lawyer should have examined his client’s corporate records available online at the state Secretary of State. That inquiry, he said, would have shown that the owner was on both sides of the sale.
Similarly, Judge Klein said that the lawyer should have investigated ownership after creditors filed objections to the sale motion. By not withdrawing or correcting the sale motion, he concluded that the lawyer violated the rule by “‘later advocating it’ for purposes of Rule 9011(b).”
Rule 9011(b) Violations
Judge Klein said that the lawyer “was required by Rule 9011(b)(1) to avoid any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase litigation costs.” He ruled that the motion “to sell for a sum considerably less than the debt occasioning foreclosure is a paradigm example of an improper purpose to cause both unnecessary delay and needlessly to increase litigation costs within the meaning of Rule 9011(b)(1).”
Rule 9011(b)(2) requires a representation to the court that “the claims, defenses, and other legal contentions are warranted by existing law . . . .” Under Section 363, only the trustee has power to sell estate property.
Since the purported buyer “was neither the trustee nor the person performing the duties of the trustee,” Judge Klein found that the purported buyer “had no standing to make a motion under § 363.” Judge Klein said that the lawyer’s contention that he was unaware of Section 363’s standing requirements “rings hollow from a lawyer with decades of bankruptcy experience.”
Under Rule 9011(b)(3), a lawyer represents that “the allegations and factual contentions have evidentiary support . . . .” In the case at hand, Judge Klein said, “None was provided — zilch.”
“Lest there be any doubt,” Judge Klein summed up, he was “persuaded that [the attorney] filed and advocated for the [sale motion] in bad faith.”
Sua Sponte Sanctions
“The Rule 9011 violations are particularly serious,” Judge Klein said, “because this Court is persuaded [that the lawyer] was acting in bad faith in promoting what amounted to an attempted fraud on the Court.”
Under Rule 9011(c)(4)(A), Judge Klein said that sanctions “must . . . be limited to what suffices to deter repetition of the conduct or to deter comparable conduct by others similarly situated.”
Because no party filed a motion for fee shifting, Judge Klein said “there is no Rule 9011 authority for shifting fees and expenses.” But when the court initiates proceedings under Rule 9011, Judge Klein said that the alternatives include “an order to pay a penalty into court (Rule 9011(c)(4)(A)(ii)).”
“Because this is a situation involving a bad faith attempt by a party without standing working in league with other parties to perpetrate a fraud on the court and a fraud on creditors,” Judge Klein said, “the interests of deterrence are particularly powerful in this case.”
“While an appropriate individual sanction would be to require payment of a penalty of $10,000.00 into court,” Judge Klein decided that “the deterrence concern to stop this nonsense on the part of [the lawyer and the owner] and of others similarly situated before it gets out of hand warrants ordering a penalty of $30,000.00 to be paid into court.”
Judge Klein directed the lawyer to pay $30,000 to the clerk of the court within 30 days. If not paid, he said that “the United States may collect by any legal means.”