Response Opposing Receiver’s Motion for Sanctions

Response Opposing Receiver’s Motion for Sanctions

(March 19, 2026)

Filing Says Sanctions Request Lacks Legal Basis and Required Proof. Opposition argues the Receiver seeks punitive sanctions based on a disputed interpretation of the Receivership Order without meeting the Sixth Circuit standard for bad faith.

1. The Lawsuit Alleges a Coordinated Campaign of False Accusations

   The opposition relies on Sixth Circuit precedent stating that the appointment of a receiver does not ordinarily prevent a company or its management from filing for bankruptcy.

   It cites both longstanding and recent decisions supporting the position that filing authority may remain with company leadership, and further notes that restrictions on bankruptcy access may raise preemption or constitutional concerns under federal law.

2. Actions Taken With Advice of Counsel

   The filing states that the bankruptcy petitions were filed after consultation with multiple experienced attorneys, restructuring professionals, and advisors across the country.

   It states that the decision followed extensive diligence and consistent legal guidance that the filings were permissible, which the opposition argues negates any inference of bad faith.

3. Sanctions Require Proof of Bad Faith

   The filing emphasizes that under Sixth Circuit law, sanctions imposed under a court’s inherent authority require a clear showing of bad faith or conduct tantamount to bad faith.

   According to the response, the motion does not establish that the bankruptcy filings were meritless, that counsel knew they were meritless, or that they were pursued for an improper purpose. The filing states that disagreement over legal interpretation, without more, does not meet the required standard.

4. Filings Presented as Legally Reasonable

   The filing states that the Chapter 11 petitions were based on a plausible and defensible reading of existing law.

   It states that sanctions are improper where conduct is grounded in a reasonable legal interpretation, even if that interpretation is later disputed, and emphasizes that inherent-power sanctions are reserved for extreme misconduct.

5. Court Previously Raised Bankruptcy Option

   The filing states that the Court suggested bankruptcy as a potential forum during a prior hearing.

   It states that filing Chapter 11 petitions in the same district, through licensed counsel, does not constitute abusive or sanctionable conduct.

6. No Evidence of Improper Purpose

   The filing states that the motion does not establish that the filings were made for harassment, delay, or any improper objective.

   It further states that the requested monetary penalty is punitive and not tied to demonstrated harm or proportionality.

7. Expedited Sanctions Raise Due Process Concerns

   The filing states that the sanctions request is based on an underdeveloped record, including unresolved questions about authority, intent, and legal advice.

   It states that Sixth Circuit precedent requires a developed evidentiary record before sanctions may be imposed.

8. Filing Tied to Protecting Creditors and Enterprise Value

   The filing states that more than $13 million in unsecured creditor obligations remain outstanding, while secured debt increased during the receivership.

   It states that the Chapter 11 filing was undertaken to preserve enterprise value, stabilize operations, and provide a structured path to address creditor claims and long-term viability.

Read the full filing → Response in Opposition to Receiver’s Expedited Motion for Sanctions