As the partner in charge, Kerrisk testified that he relied on Kissinger, D & K's counsel, "all the way through" from conducting all phases of the factual investigation to making the determination that sufficient grounds existed for filing involuntary petitions against Quan and GDI. He conceded that he had no independent knowledge of whether Quan was paying her debts as they came due. Delegation does not insulate D & K from liability.

By noticed applications, the alleged debtors, Quan and GDI, sought an interim award of attorneys' fees and costs in the amount of $10,449 through the end of April 1992 under Bankruptcy Code § 303(i)(1), and the Court determined that the applications were premature and deferred ruling pending a determination of liability for filing the petitions in bad faith. Pon also seeks a determination that Kissinger violated Rule 9011 by filing the involuntary petition against her, that he be ordered to pay her attorneys' fees, which were approximately $87,000 as of the end of April 1993, and that he be held jointly and severally liable with his client, D & K, for any damages that may be awarded at the damages phase of the trial. The Court has authority under B.R. 9011 to award to an alleged debtor sanctions against counsel for improperly commencing an involuntary bankruptcy case under § 303. In re Century Tile and Marble, 152 Bankr. 688 (Bankr. S.D. Fla. 1993); In re Walden, 14 B.C.D. 399 (W.D. Tex. 1986), aff'd, 787 F.2d 174 (5th Cir. 1986); In re Tarasi & Tighe, 88 Bankr. 706 (Bankr. W.D. Pa. 1988)(to force settlement of what was essentially a contract dispute).

Bankruptcy Rule 9011 provides in pertinent part:

The signature of an attorney or a party constitutes a certificate that the attorney or party has read the document; that to the best of the attorney's or party's knowledge, information, and belief formed after reasonable inquiry it is well-grounded in fact and is warranted by existing law; and that it is not interposed for any improper purpose, such as to harass, or to cause unnecessary delay, or needless increase in the cost of litigation or administration of the case.

Fed. R. Civ. P. 11, on which B.R. 9011 is based, is aimed at curbing abuses of the judicial system. Cooter & Gell v. Hartmarx Corp., 110 S. Ct. 2447, 2450 (1990). Rule 11 provides two bases for the imposition of sanctions: (a) if the paper is frivolous in the sense that after reasonable inquiry, the sanctioned party could not form a reasonable belief that it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law; or (b) if it is filed for an improper purpose. In re Rainbow Magazine, Inc., 136 Bankr. 545, 550 (Bankr. 9th Cir. 1992).

The Supreme Court has read Rule 11 according to its plain meaning. Business Guides v. Chromatic Communications Enterprises, Inc., 111 S. Ct. 922, 928 (1991). A party who signs a pleading or other paper without first conducting a reasonable inquiry shall be sanctioned. Id. Rule 11 imposes on a party signing a pleading an affirmative duty to conduct a reasonable inquiry into the facts and the law before filing. Id. at 933. The applicable standard requires reasonableness under the circumstances, which is an objective standard. Id. at 934-35. Kissinger has argued that under the circumstances, he believed that involuntary petitions were warranted. However, counsel's subjective intent or belief is irrelevant. Rainbow Magazine, 136 Bankr. at 550-52.

As discussed above, applying an objective standard, Kissinger conducted an inadequate investigation and failed to act reasonably given the results of his investigation. Moreover, the petition against Pon was filed for the improper purposes to gain leverage against her and to harass and embarass her. Kissinger's investigation prior to filing the Quan and GDI cases was also inadequate since it failed to discover whether the debtors were paying their debts as they came due. Kissinger also filed these cases for the improper purposes of collecting a single debt and to exert pressure on Pon's associates.

In addition to its authority under B.R. 9011, the court has the inherent power to impose sanctions for bad faith conduct during litigation. Western Systems, Inc. v. Ulloa, 958 F.2d 864, 873 (9th Cir. 1992), cert. denied, 113 S. Ct. 970 (1993). Although Kissinger filed a chapter 11 case personally since the trial, the court is not precluded by the automatic stay from issuing its opinion so long as the estate is not affected. In re Willard, 15 Bankr. 898. 900 (Bankr. 9th Cir. 1981).

D & K has asserted that it may set off its claim against any damages awarded. However, the purpose and effective operation of § 303(i) would be impaired if a petitioning creditor were permitted to set off its claim against a § 303(i) damage award. In re K.P. Enterprises, 135 Bankr. 174, 186 (Bankr. D. Me. 1992).

For the foregoing reasons, the court finds that D & K filed the Quan and GDI cases in bad faith under § 303(i)(2) and is liable in damages to the alleged debtors.

1. "[T]he objective test is actually a subjective one [for the trial judge's determination], and '[i]n the final analysis, whether a party has acted in bad faith or not is essentially a question of fact to be determined by the court.'" In re Johnston Hawks Ltd., 72 Bankr. 361, 367 (Bankr. D. Haw. 1987)(citing In re Advance Press & Litho, Inc., 46 Bankr. 700, 704 (D. Colo. 1984).

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