Washington Appellate Court: Bankruptcy Stay Doesn’t Block Rule 11 Sanctions

In the case of Nguyen v. Quality Loan Service Corp., 562 P.3d 384 (attached), the Washington Court of Appeals determined that a debtor's bankruptcy filing does not provide immunity from Rule 11 sanctions. 

Nguyen initiated a baseless lawsuit to prevent foreclosure, despite having previously faced a dismissal with prejudice. In response, the loan servicer requested sanctions, which the court approved, resulting in the award of attorneys' fees. 

On appeal, Nguyen contended that the sanctions infringed upon the automatic bankruptcy stay; however, the court identified an exception under 11 U.S.C. § 362(b)(4), which permits the enforcement of regulatory authority. 

This decision underscores that bankruptcy protections do not serve as a defense against bad-faith litigation, at least within the jurisdiction of Washington.

This post was originally published on March 24, 2025.