In the bankruptcy case of Wingerter, Gerald and Janet G.; In re (B-Line LLC v. Wingerter), the 6th Circuit Court ruled that Rule 9011 does not impose a continuing obligation on a creditor to obtain more information or revaluate its position as the case develops and that the bankruptcy court erred when it sanctioned the creditor, B-Line.
The details of the bankruptcy case:
B-Line LLC, a business that purchases “consumer bankruptcy debt,” filed a proof of claim in the debtors’ Chapter 13 case. B-Line acquired the claim from an entity that was not the original creditor. In order to keep its costs down, B-Line does not acquire a claim’s original documentation when it acquires the claim. It relies on the seller to provide truthful information and to be able to document the claim if challenged by the debtor. B-Line withdrew the claim filed in the debtor’s case because it was unable to acquire the original documents in response to the debtors’ objection. The bankruptcy court sanctioned B-Line for failing to comply with Rule 9011 by not conducting a reasonable inquiry into the claim’s validity before filing the claim. The court did not impose a monetary sanction on B-Line, but warned that B-Line’s business practice violated Rule 9011.
However, the 6th Circuit also found that the bankruptcy court erred by finding that the claim seller did not warranty the claim’s validity and furthermore said that the B-Line acted reasonably when it relied on the previous creditor’s warranties that the information provided was correct. The 6th Circuit also found that B-Line conducted a reasonable investigation by looking for obvious flaws before fling the claim with the bankruptcy court.