Cite as: Keith M. Lundin, Lundin On Chapter 13, § 26.1, at ¶ ____, LundinOnChapter13.com (last visited __________).
Chapter 13 can be a deadly combination for lawyers: high speed, low fees, “small” cases, big emotions, complicated legal questions, unsophisticated clients, a judiciary intent on moving cases and impatient with variations and litigation. Substantial rights of debtors and creditors are at issue, but often the time available for an individual debtor or creditor is minimal. Sophisticated things happen very quickly, but the clients tend to be unsophisticated. Getting information from an unsophisticated client is hard work; giving effective instructions to an unsophisticated client is difficult. After the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA),1 every Chapter 13 debtor’s counsel is a Debt Relief Agency saddled with a host of new statutory duties and responsibilities.2
BAPCPA did something much more pernicious to make Chapter 13 a dangerous place for attorneys. Detailed elsewhere,3 the lobbyists for the credit community who drafted many of the amendments to Chapter 13 in BAPCPA—either by design, incompetence or both—gave us a statute that is nonsensical in important places, incomprehensible in many respects and impossible to apply with certainty in too many ways to count. BAPCPA created tremendous uncertainty of outcomes for Chapter 13 debtors and creditors that have played out in thousands of nonproductive court decisions since 2005. This process of parsing the impossible mess that Congress made in 2005 has cost debtors and creditors untold millions of dollars and has perverted Chapter 13 practice into a battlefield on which debtors, creditors and their attorneys are regularly pilloried for mistakes that are multiplied and magnified by a badly written statute. In this context of small cases with small economies, difficult questions of statutory interpretation demand nonexistent resources and the result is too often trouble for the lawyers.
The counsel fees in Chapter 13 cases are modest. Creditors’ claims are relatively small, and the amount that a creditor is willing to spend to resolve a claim is usually small. Whatever is to be done on behalf of a debtor or creditor must be done quickly and efficiently. Lawyers must get it right the first time—the transaction costs of correcting mistakes are usually prohibitive.
Both debtor and creditor attorneys typically take Chapter 13 cases on a “fixed fee” basis. For debtors’ attorneys, this often takes the form of a “no-look” fee in the district—a set amount per case that covers a basket of services without the usual “lodestar” review of hours and activity.4 No-look fees create dangerous incentives for attorneys to cut costs by cutting corners and force Chapter 13 cases into cookie cutters when debtors are anything but homogenous.
For creditors, a flat fee for “routine” services—for example, motions for stay relief, filing a proof of claim, objecting to confirmation or filing a 3002.1 notice of postpetition fees, costs and expenses—quickly becomes flypaper when the debtor or trustee calls the obvious bluff, knowing that economics rarely favors individual creditors in Chapter 13 cases.5
The meeting of creditors in a Chapter 13 case is almost always held within 50 days of the filing, and in enlightened jurisdictions, confirmation occurs immediately thereafter absent objection.6 This 50-day time frame permits little opportunity to amend schedules that are not correct or to delay filing a plan while gathering more information from a debtor. There is little time for creditors to contemplate objections to confirmation. As a general rule, there is not time for stay relief litigation to wind through its ordinary cycle—a Chapter 13 case is at confirmation more quickly than the creditor can expect final determination of a stay relief request.7
Chapter 13 cases have long tails—most last three to five years. Debtor’s counsel signs on for the duration and the “no-look” fee in use in many districts has to fuel three to five years of representation. There is a flurry of activity in the first 50 days. If confirmed, the case remains debtor’s counsel’s responsibility. Most Chapter 13 cases require some attorney attention after confirmation. Maintaining long-term contact with the debtor is a challenge.
Tracking the performance of a Chapter 13 debtor is difficult. Creditor’s counsel is dependent upon the Chapter 13 trustee’s records and on the ability of creditors to reprogram non-reprogrammable computer systems to accommodate payments through plans. Endless litigation between Chapter 13 debtors and trustees and mortgage lenders/servicers has proven that large segments of the mortgage industry are incapable of coherent, accurate participation in Chapter 13 cases.8 Attorneys for mortgage lenders and servicers are trapped between unmanageable clients and a bankruptcy system that demands honesty and accuracy from creditors.
Dramatic local practice variations further complicate counsel’s role. It is difficult to practice Chapter 13 across jurisdictions. “Foreign” creditors are hard pressed even to file proofs of claim in Chapter 13 cases from a central location because of variations in the handling of secured claims, split claims, deficiency claims, interest on arrearages, documentation requirements and the like.9 Adjoining districts often use completely different forms and notices, and the timing of key events such as confirmation is not standardized.
Perhaps the best example of the conspiracy to make Chapter 13 practice unpracticeable is the demise in 2017 of the decades-long effort to standardize the form of the Chapter 13 plan.10 Attorneys for debtors and, even more so, attorneys for creditors are doomed to have to deal with hundreds of different plan forms that all contain the same basic information, just not arranged the same ways and not using the same words. Chaos defines the fundamental document in Chapter 13 practice because the Advisory Committee on Bankruptcy Rules of the Judicial Conference of the United States failed to show the fortitude necessary to require all districts to speak the same language in the Chapter 13 plan.
At every turn there are reported decisions chastising attorneys and imposing sanctions on attorneys for their advice and participation in Chapter 13 cases. The potential for trouble is evenly spread among those who represent creditors and those who do debtors’ work.
Debtors’ counsel have been sanctioned for filing a Chapter 13 case for a debtor who is ineligible because of § 109(g),11 for advising a debtor that it was okay to sell real property after the petition without an application under § 363,12 for failing to adequately investigate13 or represent debtors,14 for failing to adequately supervise paralegals and employees who assisted Chapter 13 debtors,15 for advising debtors to engage in serial filings of bankruptcy petitions,16 and for failing to follow bankruptcy rules, local rules or court procedures.17 Too many decisions reveal nasty conflicts that result when attorneys presume to represent Chapter 13 debtors in their bankruptcy case and to perform other services such as acting as a real estate agent or “mortgage remediation” specialist.18 Forgetting, faking or tinkering with the prepetition briefing in § 109(h)19 creates trouble for Chapter 13 debtors’ counsel.20 Mishandling the payment of filing fees and interpreting the movement of money from debtors to the Chapter 13 trustee will create problems for lawyers in Chapter 13 cases.21 Mishandling fee applications22 or mishandling claims objections23 has produced problems for lawyers in Chapter 13 cases.
Representing debtors in Chapter 13 cases across state lines or in multiple judicial districts carries special risks for bankruptcy attorneys.24 Debtors’ attorneys get into trouble when they fail to warn their clients that there is no evidentiary or testamentary privilege with respect to many communications between debtors and their attorneys in a Chapter 13 case.25 There is a right way and a wrong way to withdraw as counsel in a Chapter 13 case and doing it wrong is bound to be painful and difficult.26 “Abuse” of the bankruptcy process or facilitating abuse by a client is certain to produce bad outcomes for attorneys in Chapter 13 cases.27
Creditors’ counsel seem to regularly run afoul of the automatic stay.28 Both debtors’ and creditors’ counsel in Chapter 13 cases have been sanctioned for improper pleading and for filing deficiencies—including uninformed use of the Electronic Case Filing system and issues with “wet” signatures.29 When mistakes are made, the courts have recognized that attorneys for all parties share an obligation to correct the mistakes without multiplying the cost or other consequences.30 Debtors’ counsel must be especially sensitive to the conflict issues that arise in the not uncommon disintegration of a joint Chapter 13 case when spouses separate or divorce.31
One court of appeals concluded that a Chapter 13 debtor and his law firm must stand trial for civil RICO claims brought by a disgruntled creditor. In Handeen v. LeMaire (In re LeMaire),32 the debtor confirmed a Chapter 13 plan that compromised a claim for malicious shooting. On the victim’s appeal, confirmation was affirmed by the district court and affirmed by a divided panel of the United States Court of Appeals for the Eighth Circuit.33 On rehearing en banc, the panel decision was reversed based on lack of good faith, and the Chapter 13 case was dismissed.34
After dismissal, the victim brought suit against the debtor and the law firm that represented the debtor in the Chapter 13 case. The complaint alleged that the debtor and law firm engaged in an “intricate scheme” to fraudulently obtain a discharge “by manipulating the bankruptcy system.”35 The complaint alleged that the Chapter 13 case was a criminal enterprise and that the debtor and law firm violated the Racketeer Influenced and Corrupt Organizations Act.36
The district court granted summary judgment to the debtor’s law firm. The Eighth Circuit reversed, finding the facts alleged by the debtor’s victim would support a RICO action. The Eighth Circuit held that the Chapter 13 case could be a criminal enterprise and the debtor’s law firm could be liable under RICO if it “crosses the line between traditional rendition of legal services and active participation in directing the enterprise.”37 The Eighth Circuit remanded for trial.
The criminal conduct alleged in LeMaire was a conspiracy among the debtor, the law firm, and the debtor’s parents to minimize the victim’s recovery by overstating the debtor’s expenses and understating the debtor’s income. It was alleged that the debtor acquired a better job while the confirmed plan was on appeal but manipulated the mailing of checks to the trustee’s office to prevent discovery of the higher income. It was alleged that the debtor and the debtor’s attorney conspired with the debtor’s parents to create a fake lease and higher expenses.38
LeMaire is frightening because the misconduct alleged by the shooting victim is not so unlike everyday events in Chapter 13 practice. Debtors move and change jobs without telling the trustee or the court. Debtors’ law firms don’t always follow through on any obligation they may have to inform of changes in a debtor’s income and expenses. Budgets in Chapter 13 cases are often moving targets.39 Plugging a number into a Chapter 13 debtor’s budget for rent to a family member has not heretofore been perceived as a civil RICO violation. LeMaire is a wake-up call for Chapter 13 lawyers.
1 Pub. L. No. 109-8, 119 Stat. 23 (2005).
2 See 11 U.S.C. §§ 526–528, discussed in § 4.1 WARNING! You Are a Debt Relief Agency.
3 See discussion beginning at § 3.1 Understanding Chapter 13 after BAPCPA.
6 Bankruptcy Rule 2003(a) requires the U.S. trustee to call a meeting of creditors in a Chapter 13 case in “no fewer than 21 and no more than 50 days after the order for relief.” See § 43.1 Timing and Procedure. The timing of the hearing on confirmation of the Chapter 13 plan is discussed in § 115.1 Timing of Hearing on Confirmation before BAPCPA and § 115.2 Timing of Hearing on Confirmation after BAPCPA. The practice in many courts of confirming Chapter 13 plans immediately after the § 341 meeting of creditors is supported by the legislative history to § 307 of the Bankruptcy Reform Act of 1994. See 140 Cong. Rec. H10,770 (daily ed. Oct. 4, 1994) (section-by-section analysis by Congressman Brooks), discussed in § 115.1 Timing of Hearing on Confirmation before BAPCPA.
7 Section 101 of the Bankruptcy Reform Act of 1994 further expedited relief from the stay with respect to property of the estate by amending § 362(e) to require that any final hearing shall be “concluded not later than thirty days after the conclusion of” any preliminary hearing unless the parties consent to an extension of time or the court finds “compelling circumstances.” 11 U.S.C. § 362(e), as amended by Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 101, 108 Stat. 4106 (1994). BAPCPA added that the stay terminates 60 days after a request unless the court finds “good cause” for extension. See 11 U.S.C. § 362(e)(2). Even after the 1994 and 2005 amendments to § 362(e), a Chapter 13 case is likely to be confirmed (or on the way toward dismissal) before final resolution of a stay relief request. See § 63.2 Timing, Procedure and Form and § 115.1 Timing of Hearing on Confirmation before BAPCPA.
9 See discussion of claims allowance process beginning at § 135.1 Timing, Procedure and Evidence Presumption.
11 Moran v. Frisard (In re Ulmer), 19 F.3d 234 (5th Cir. Apr. 22, 1994) (King, Higginbotham, Barksdale) (Sanctions are appropriate under Rule 11 where debtor’s attorney filed Chapter 7 case within 180 days of voluntary dismissal of a Chapter 13 case in which a creditor had filed a motion for relief from the stay.); In re Bouley, No. 11-1682, 2011 WL 4458928 (Bankr. D. Haw. Sept. 23, 2011) (Faris) (Debtor’s attorney and debtor violated Bankruptcy Rule 9011 by filing petition when debtor was obviously ineligible because of secured residence debt exceeding $6 million. Petition was filed with improper purpose of blocking foreclosure. Attorney advanced no legal theory under which debtor would have been eligible. That debtor intended to sell property and pay secured creditors did not justify petition for ineligible debtor. Attorney violated Rule 9011(b)(2) because petition lacked legal merit, and Rule 9011(b)(1) because petition was filed for improper purpose. Attorney ordered to disgorge $3,200 fee and pay same amount to creditor that moved for dismissal.); In re Kim, No. 10-10955, 2010 WL 2816213, at *1 (Bankr. N.D. Cal. July 14, 2010) (Jaroslovsky) (Chapter 13 filing was “an exercise in futility,” since attorney did not schedule $1.9 million secured debt that rendered debtor ineligible.); In re Rose, No. 09-00346, 2009 WL 2855802 (Bankr. D.D.C. Aug. 12, 2009) (not for publication) (Teel) (Disgorgement of all fees was appropriate when debtor’s counsel failed to inquire whether debtor was eligible under § 109(e). Attorney had summary of schedules from prior case showing debts in excess of eligibility limits.).
12 In re Moix-McNutt, 220 B.R. 631 (Bankr. E.D. Ark. Apr. 29, 1998) (Mixon) (Debtor’s attorneys who advised debtor not to schedule a large unsecured claim that would make the debtor ineligible for Chapter 13 and who advised the debtor to sell real property after the petition and distribute proceeds without notice or application under § 363 were sanctioned under Bankruptcy Rule 9011 with a fine of $5,000, disgorgement of fees in the case and suspension from representing debtors in bankruptcy cases for a period of four years.). See also In re Gulezynski, No. 05-21435-RAG, 2008 WL 906816, at *5 (Bankr. D. Md. Apr. 3, 2008) (Gordon) (Debtors’ counsel violated Rules of Professional Conduct 3.3(a)(2) and 4.1(a)(2), and matter is referred to Disciplinary Committee for District Court: “Counsel was not forthcoming about the Debtors’ disposition of the sale proceeds [from sale of timber cut postpetition], despite having an abundance of time and opportunities to set the record straight. As such, the Court can only conclude that Counsel concealed material facts from the Court and the Trustee, seemingly in an attempt to get away with something, either for the benefit of his clients or to cover up his own actions. Counsel seems to acknowledge only that he could have handled the matter better while still refusing to concede the specific ethical lapse.”); In re Dahlgren, 494 F. App’x 201, 204 (3d Cir. Aug. 23, 2012) (not for publication) (Smith, Fisher, Rakoff) (Debtor’s attorney sanctioned under Bankruptcy Rule 9011 for filing second plan that contained same objectionable provision with respect to forced sale of land that was rejected by bankruptcy court in prior plan and that was inconsistent with prebankruptcy judgment. “While the initial submission of the plan could be ‘warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law,’ . . . pursuing a revised plan that included the sale-to-Debtor provision was frivolous in light of the Bankruptcy Court’s initial opinion declaring such a provision ‘patently unconfirmable.’ If Dahlgren and his counsel Shaver disagreed with the Bankruptcy Court’s ruling, they were free to ask the Bankruptcy Court to reconsider that ruling or to seek review by the District Court. They did neither. Instead, they resubmitted a plan that the Bankruptcy Court had unambiguously rejected. We believe that this was not ‘reasonable[ ] under the circumstances[.]’”).
13 See, e.g., Lafayette v. Collins (In re Withrow), 405 B.R. 505, 512 (B.A.P. 1st Cir. May 26, 2009) (Vaughn, Kornreich, Tester) (Bankruptcy court appropriately imposed $3,585 sanction on debtor’s attorney for violations of § 707(b)(4) and Bankruptcy Rule 9011 for failure to conduct reasonable investigation into accuracy of schedules. Attorney “had an affirmative duty to conduct a reasonable inquiry into the facts set forth in the Debtor’s schedules, statement of financial affairs and [other pleadings] before filing them. There is evidence in the record, however, that Attorney . . . violated that obligation. It is undisputed that there were numerous errors and discrepancies in the documents filed by Attorney . . . on the Debtor’s behalf.”); In re Lewis, No. 12-10033, 2012 WL 1682587 (Bankr. N.D. Ohio May 14, 2012) (Harris) (Attorney violated Bankruptcy Rule 9011 by scheduling mortgage arrearage as zero when attorney represented debtor in prior Chapter 7 case and knew that there was an arrearage and a foreclosure sale. Counsel did not conduct reasonable inquiry into representation in schedules. Voluntary dismissal of case without approval of debtor was not safe harbor withdrawal of offending documents for Rule 9011 purposes. Attorney ordered to pay $200 sanction to clerk of court.); In re Spickelmier, No. BK-S-11-10034-BAM, 2012 WL 1190295 (Bankr. D. Nev. Apr. 9, 2012) (Markell) (Attorney violated Rule 9011(b)(2) by signing and filing unwarranted motion without conducting proper investigation. Motion was frivolous, since identical motion had previously been denied. Attorney then appeared late for show-cause hearing and was unable to explain why motion had been filed. Debtors were not eligible for Chapter 13 relief. Value of attorney services was zero. All fees were disgorged, and attorney was publicly reprimanded, with referral to state bar.); In re Antonelli, No. 11-20255/JHW, 2012 WL 280722 (Bankr. D.N.J. Jan. 30, 2012) (not for publication) (Wizmur) (Debtor’s attorney sanctioned $10,000 for fees, payable to creditor’s attorney, for not making reasonable inquiry before filing Chapter 13. Filing was another step by debtor and spouse to stall eviction. Indicia of bad faith included that trust holding mortgage was only true creditor and debtor had no means to reorganize. Debtor’s attorney advised filing and prepared petition and plan containing frivolous and legally unsupportable representations, including attempt to name nonindividual as codebtor, misrepresentation of income and plan to pay $100 a month for 60 months and then refinance the property. Plan proposed to modify mortgage on property that debtor did not own, with cure not feasible since note had matured. Same attorney had represented debtor’s spouse in prior filing, as well as this debtor in prior Chapter 7, and debtor was not eligible for Chapter 13 discharge. Court had power under Rule 9011 and § 105(a) as well as inherent power to impose compensatory sanction or to coerce compliance. 28 U.S.C. § 1927 also provided for sanctions when debtor’s attorney unreasonably multiplied proceedings by filing unsupportable petition. Debtor was not sanctioned, since she acted solely on advice of attorney and could not be expected to know what constituted improper bankruptcy filing.); Pullen v. Cornelison (In re Pullen), No. 07-6220, 2009 WL 6498190, at *4 (Bankr. N.D. Ga. Mar. 31, 2009) (Murphy) (Former bankruptcy attorneys committed professional negligence by failing to investigate need to file new Chapter 13 case to stop pending sale by judgment creditor. Attorneys filed motion to reopen closed case but took no step to immediately reinstate stay. Although no affidavit of expert was filed, as required by Georgia law in professional malpractice actions, bankruptcy judge “has sufficient expertise to evaluate the professional competence of an attorney in a bankruptcy case without expert assistance.” Further hearing was scheduled on damages.).
14 Price v. Lehtinen (In re Lehtinen), 564 F.3d 1052 (9th Cir. Apr. 28, 2009) (Nelson, Fletcher, Tallman) (Bankruptcy court has inherent authority to discipline Chapter 13 attorney for failing to properly represent debtor; counsel was appropriately suspended from practice in bankruptcy court for failing to appear at meeting of creditors, for failing to appear at confirmation hearing and for representing a conflicting interest by pressuring debtor to use counsel as a real estate broker.), aff’g 332 B.R. 404 (B.A.P. 9th Cir. Oct. 11, 2005) (Brandt, Marlar, Smith) (Discipline of debtor’s counsel, for conflict of interest in acting as both bankruptcy attorney and real estate broker and for failure to advise debtor of conflict, is within bankruptcy court’s core jurisdiction. Attorney was suspended for three months and required to disgorge fees, but remand ordered for court to consider mitigating and aggravating factors concerning suspension.); In re Parker, No. 3:14cv241, 2014 WL 4809844 (E.D. Va. Sept. 26, 2014) (Payne) (Bankruptcy judge appropriately exercised authority to suspend poorly performing attorney from practice, to impose monetary sanctions and to require reeducation in bankruptcy and ethics.); In re Mercadal, No. 12-35, 2012 WL 3027940 (E.D. La. July 23, 2012) (Milazzo) ($350 sanction for debtor’s attorney’s failure to appear at hearing on dismissal was reversed when bankruptcy court made no finding of bad faith. Notice had provided that hearing would be held only if objection were filed.); Cohn v. United States Tr. (In re Ostas), 158 B.R. 312 (N.D.N.Y. Sept. 2, 1993) (McCurn) (Debtors’ counsel was ordered to pay the debtors $2,000 as a sanction pursuant to Bankruptcy Rule 9011 and to pay an additional $2,000 to the debtors as a refund of excessive fees when counsel failed to disclose all of the fees paid by the debtors and failed to adequately represent the debtors.); In re Winston, No. 11-14792PM, 2012 WL 528175 (Bankr. D. Md. Feb. 16, 2012) (Mannes) (In multiple cases, attorney violated Maryland Rules of Professional Conduct: office manager controlled trust account, failing to retain funds in trust until earned; full disclosure of fees paid was not made; attorney other than of record appeared at § 341 meetings; debtors were given incorrect legal advice, sometimes by office personnel; and non-attorney interviewed and advised debtors. Opinion sent to professional conduct authorities.); In re Love, 461 B.R. 29 (Bankr. N.D. Ill. Dec. 23, 2011) (Schmetterer) (Attorneys poorly advised debtor to file 100% Chapter 13 plan when over 80% of debts were business debts and debtor’s status as sergeant in U.S. Army would exempt debtor from means testing under § 707(b). Attorneys demonstrated lack of ability and training to properly advise debtor, who was eligible for Chapter 7 relief. Debtor received no benefit from Chapter 13, except for stay that would have been available in Chapter 7. Unnecessary Chapter 13 plan caused payment of thousands for dischargeable debts. After obtaining new counsel, debtor converted to Chapter 7, obtained discharge, but had paid Chapter 13 plan payments for two years. $3,500 fee for Chapter 13 was disgorged to debtor. Claim for legal malpractice was not within jurisdiction of bankruptcy court. Chapter 13 attorneys were ordered to explain what procedural training and supervisory reform will be taken to prevent similar inadequate representation.); In re Monroe, No. 11-05167-8-RDD, 2011 WL 6010280, at *3 (Bankr. E.D.N.C. Dec. 1, 2011) (Doub) (Attorney sanctioned for incompetent management of stay relief order and plan modifications. Attorney failed to properly communicate with debtor regarding stay relief consent order, failed to competently negotiate consent order, and negligently failed to timely modify confirmed plan. Attorney ordered to pay sanction in amount of vehicle repossession charge and creditor’s attorneys’ fees. “While negotiating the consent order, [debtor’s attorney] was aware that the Debtor’s plan would need to be modified to account for the Debtor’s residence no longer being included in the Chapter 13 plan. However, [attorney] failed to competently handle these matters to the detriment of his client.” If plan had been timely amended to reduce plan payments, and if all information had been properly communicated by attorney, debtor would have been current and would not have triggered drop-dead provision in consent order, leading to repossession.); In re Lichtenberg, 457 B.R. 908, 910 (Bankr. N.D. Ga. July 8, 2011) (Bonapfel) (Attorney ordered to appear and show cause why fees should not be reduced or disallowed, why attorney should not be suspended from practice for six months and why court should not refer matter to state bar for disciplinary action. Attorney did not appear at confirmation hearing, instead sending attorney who had no opportunity to prepare. “[A]bsent some emergency, the attorney who is counsel of record—the lawyer the client actually hired—has no business putting another lawyer in a situation where the attorney who appears cannot represent the client. Clearly, this does not provide proper representation to the client.” Show cause was required because of prior concerns with attorney’s practice.); In re Small, No. K10-01027-DMD, 2011 WL 5508825, at *1 (Bankr. D. Alaska June 2, 2011) (MacDonald) (Debtor and attorney made false statements in motion to convert from Chapter 7, representing debtor was “making more money” when debtor was not making additional income. Schedules I and J were similarly false. Dismissal of case was overly harsh sanction but court invited motion by trustee or U.S. trustee for order to show cause why debtor and counsel should not be required to pay substantial monetary sanctions.); In re Menton, No. 10-31635, 2011 WL 2038976 (Bankr. N.D.N.Y. May 24, 2011) (Cangilos-Ruiz) (Debtors’ attorney was sanctioned $2,000 with referral to district court for disciplinary consideration. Errors included Rule 2016(b) statement of no fee when plan provided for $2,000 fee, which had been paid. Attorney failed to complete filings or timely request adjournment of confirmation hearing, and improperly filed motion to dismiss without clients’ knowledge. New York Rules of Professional Conduct were violated and attorney had been sanctioned previously for similar actions.); In re Burnett, 450 B.R. 116, 119 (Bankr. E.D. Ark. Apr. 15, 2011) (Evans) (Attorney neglected responsibility to debtors by failing to provide legal advice or explore options outside of bankruptcy, failing to timely file petition to prevent foreclosure and permitting paralegals to practice law. Debtors filed bankruptcy two weeks after foreclosure sale when debtors had $6,000 tax refund that would have cured mortgage arrearage. “As a direct result of [attorney’s] failure to provide legal services: the debtors lost their home; got behind on car payments; used their $6,000 tax refund for purposes other than paying their mortgage arrearage; filed a bankruptcy; and ultimately, ended up living in a borrowed camper in an RV park. [Attorney] failed to meet with his clients prior to filing the bankruptcy case, failed to provide them with legal advice, and ignored them in spite of his first-hand knowledge of the harm he had inflicted on them. [Attorney] acted purposefully to conceal his errors and shield himself from liability by removing documents from the Debtors’ file, and by making misleading statements in his letters to the Debtors and in his sworn testimony before this Court.” $526 fee was excessive in light of services provided and must be disgorged, and attorney was suspended from appearing before bankruptcy court until review by Arkansas Supreme Court Committee on Professional Conduct.); In re Bowen, No. 09-70395-MHM, 2010 WL 7768240, at *2 (Bankr. N.D. Ga. July 30, 2010) (Murphy) (Debtors’ lawyer sanctioned $1,025 for repeated failures to comply with local rule requiring counsel to timely submit orders. “‘Debtors’ counsel’s failure to submit proposed orders subjected their clients to denial of the motions or objections for want of prosecution. Pursuant to 11 U.S.C. § 329, the bankruptcy court may review and determine whether compensation paid or to be paid to a debtor’s attorney exceeds the reasonable value of the services provided.’”); In re Johnson, 408 B.R. 61 (Bankr. W.D. Pa. July 28, 2009) (Deller) (Attorney who failed to properly communicate with debtor, refused to file wage attachment order until paid and exhibited pattern of disregard in prior cases was ordered to promptly file wage attachment order and to disgorge all fees.); In re Bardenshtein, No. 07-72594, 2009 WL 722590 (Bankr. C.D. Ill. Mar. 17, 2009) (Gorman) (Attorney’s failure to participate in telephonic hearing results in dismissal, and case will not be reinstated; instead, counsel must face responsibility to client for failure of the case.); In re Acosta, No. 08-40623-pwb, 2008 WL 7880898 (Bankr. N.D. Ga. June 12, 2008) (Bonapfel) (Debtor’s attorney who failed to appear at confirmation hearing when there were unresolved issues ordered to show cause why contempt should not be imposed and why fees should not be reduced or disallowed. Court would also consider whether to suspend attorney from practice in bankruptcy court and other sanctions.); In re Robbins, No. 07-62006-PWB, 2007 WL 7143408, at *6 (Bankr. N.D. Ga. Oct. 2, 2007) (Bonapfel) (Attorney did not properly represent debtor by failing to appear for motion to reconsider dismissal, failing to properly schedule motion hearings on multiple occasions and failing to track pleadings in case. Attorney’s “inadvertence defense reflects a cavalier attitude toward the Court that borders on contempt.” Matter was referred to State Bar of Georgia in light of attorney’s professional responsibility violations, and attorney was ordered to pay Chapter 13 trustee $935 for benefit of estate.).
15 See § 26.2 Use of Paralegals and Representatives. See, e.g., In re Caise, 359 B.R. 152, 156 (Bankr. E.D. Ky. Feb. 6, 2006) (Howard) (Debtors’ attorney was ordered to refund all fees when attorney failed to adequately supervise paralegal who met with debtors. “[A] lawyer cannot adequately represent a client consistent with the Kentucky Supreme Court Rules governing professional conduct and appropriate bankruptcy practice standards without meeting with the client before the client’s bankruptcy petition is prepared and readied for filing.”); In re Pinkins, 213 B.R. 818 (Bankr. E.D. Mich. Oct. 14, 1997) (Rhodes) (Castle Law Office, high-volume Chapter 13 filer, violated Michigan unauthorized practice of law rules by allowing legal assistants to explain the differences between Chapter 7 and Chapter 13 to prospective clients, by using legal assistants to make the determination which chapter was best for a particular individual, by imposing legal assistants between the client and an attorney with respect to advice and information without a direct relationship between an attorney and the client and by allowing nonlawyer assistants to handle retention letters with clients. Court denies all fees collected for the work of legal assistants.); O’Connell v. Mann (In re Davila), 210 B.R. 727, 732, 732, 731, 731, 729 (Bankr. S.D. Tex. Dec. 6, 1996) (Brown) (On trustee’s complaint, debtor’s counsel fees are disallowed in 155 Chapter 13 cases and counsel is ordered to disgorge all fees. Debtor’s counsel’s services “amount to little more than a large scale petition preparer service for which Mann receives an unreasonably high fee. . . . Because Mann is a licensed attorney, however, he and his office personnel avoid the statutory sanctions provided by 11 U.S.C. § 110.” Debtor’s counsel’s employees were “inadequately trained and supervised.” Debtor’s counsel’s “delegation of almost all client contact and pleading preparation to non-attorneys guarantees that his clients receive very little, if any, accurate legal advice.” Legal assistants in debtor’s counsel’s office “sign[ed] the pleading[s] with the client’s name, attempting to imitate the client’s signature.” Legal assistant and “in putters” collect all information and prepare all statements and schedules often without review by an attorney. Debtor’s counsel “blames his legal assistants” for errors in petitions, schedules and other documents filed in the 155 cases.).
16 See, e.g., In re Lewis, No. 12-10033, 2012 WL 1682587 (Bankr. N.D. Ohio May 14, 2012) (Harris) (Attorney violated Bankruptcy Rule 9011 by scheduling mortgage arrearage as zero when attorney represented debtor in prior Chapter 7 case and knew that there was an arrearage and a foreclosure sale. Counsel did not conduct reasonable inquiry into representation in schedules. Voluntary dismissal of case without approval of debtor was not safe harbor withdrawal of offending documents for Rule 9011 purposes. Attorney ordered to pay $200 sanction to clerk of court.); In re Jackson, No. 11-00007, 2011 WL 768098 (Bankr. D.D.C. Mar. 4, 2011) (Teel) (Debtor’s attorney violated Bankruptcy Rule 9011 by filing third case while second case was pending, and schedules contained gross inaccuracies. Third case was unnecessary when debtor scheduled only Capital One, which had foreclosed prepetition. Attorney had primary blame for filing schedules and statement of financial affairs that falsely stated debtor owned real property. Petition stated that estimated liabilities were between $500,001 and $1,000,000, which attorney knew could not be true, in violation of Bankruptcy Rule 9011(b)(3). Reasonable inquiry would have led attorney to conclude that filing was for improper purpose—to circumvent triggering of § 362(c)(4) had second case been dismissed prior to third filing.); In re Robinson, 198 B.R. 1017, 1024–25 (Bankr. N.D. Ga. July 25, 1996) (Murphy) (Dismissal with prejudice to refiling for 180 days and with sanctions under Rule 9011 and § 105 when debtor filed a skeletal petition to stop a foreclosure; listed only one creditor; told his attorney at the beginning of the case that he was refinancing his residence and had no intention of filing a plan; filed no statements, no schedules and no plan; made no payments; and sought to voluntarily dismiss when refinancing was complete. “Debtor’s attorney knew or should have known of Debtor’s prior filing. The circumstances of Debtor’s filing so soon after dismissal in the previous case, Debtor’s lack of performance in the previous case, and the pending foreclosure sale created for Debtor’s attorney a duty of inquiry to determine whether the filing of this case was in good faith or merely for delay. . . . Debtor’s attorney actually knew within the first ten days after the case was filed that Debtor had no intent to reorganize. Debtor’s attorney should have immediately attempted to persuade the debtor to voluntarily dismiss the case. If the debtor adamantly refused to dismiss, the attorney could have sought to withdraw for cause. . . . Using the automatic stay and the filing of the petition as a shield to buy time to negotiate a loan refinancing abuses the bankruptcy system. . . . Debtor’s attorney facilitated, encouraged and advised his client’s abuse of the bankruptcy system.” Debtor ordered to pay $400, and debtor’s attorney ordered to pay $510 to mortgage holder for its attorney’s fees and costs.); In re Armwood, 175 B.R. 779 (Bankr. N.D. Ga. Dec. 13, 1994) (Murphy) (Fifth Chapter 13 case dismissed with prejudice to refiling within 180 days and $500 sanction on debtor and debtor’s attorney. Debtor was a lawyer. Fifth case failed to reveal all prior cases and was filed solely to stop repossession of car. Debtor failed to make payments and failed to attend § 341 meeting.).
17 See, e.g., In re Plumeri, 434 B.R. 315 (S.D.N.Y. Aug. 2, 2010) (Cote) (Attorney’s failure to disclose prepetition judgment for possession as required by § 362(l)(5) was reckless conduct that violated attorney’s duties as an officer of the court and was sanctionable; attorney was ordered to pay landlord $2,500 for attorney’s fees.); In re Smith, Nos. 12-11603, 12-11857, 2013 WL 1092059 (Bankr. E.D. Tenn. Jan. 30, 2013) (Rucker) (Attorney committed ethical violation by preparing pro se petitions for debtors while attorney was under suspension from practice by Tennessee Supreme Court for nonpayment of annual fees. Although attorney was later reinstated to practice, she violated duty of candor to court, by preparing pleadings misrepresenting attorney’s participation and assistance to debtors. Attorney was required to complete six hours of ethics continuing legal education and pay attorney’s fees to U.S. and Chapter 13 trustees, as well as out-of-pocket expenses incurred by debtors.); In re Green, 422 B.R. 469 (Bankr. S.D.N.Y. Feb. 2, 2010) (Glenn) (Debtor’s attorney sanctioned $250, payable to clerk of court, and ordered to pay $4,503 to debtor’s landlord when attorney failed to disclose in petition that landlord had obtained prebankruptcy judgment for possession, thereby removing leasehold from automatic stay.); In re Brown, 408 B.R. 509 (Bankr. D. Idaho June 12, 2009) (Myers) (Citing Price v. Lehtinen (In re Lehtinen), 564 F.3d 1052 (9th Cir. Apr. 28, 2009) (Nelson, Fletcher, Tallman), debtor’s attorney is disbarred from practice before bankruptcy and all federal courts in District of Idaho based on history of ongoing practice violations in bankruptcy cases.); In re Johnson, 336 B.R. 568, 574 (Bankr. S.D. Fla. Jan. 3, 2006) (Friedman) (Debtor’s attorney was assessed $10,420 in fees for failing to file state court “suggestion of bankruptcy” when Chapter 13 case was filed two days prior to scheduled foreclosure sale. That failure constituted “willful failure to comply with a lawful administrative order of the Fifteenth Judicial Circuit and a willful abuse of this Court’s judicial process, whether by gross negligence or by voluntary and intentional act.”); In re Perez, 327 B.R. 94 (Bankr. E.D.N.Y. Mar. 18, 2005) (Bernstein) (Suspended attorney engaged in unauthorized practice of law by assisting debtor with pleadings in opposition to mortgagee’s stay relief motion; attorney must return payments received.); In re Yonce, 391 B.R. 564 (Bankr. D. Vt. Oct. 7, 2002) (Brown) (Motion by debtor’s attorney to practice pro hac vice was denied when attorney filed papers prior to entry of order granting admission; debtor had 15 days to find other counsel.).
18 See Price v. Lehtinen (In re Lehtinen), 564 F.3d 1052 (9th Cir. Apr. 28, 2009) (Nelson, Fletcher, Tallman) (Bankruptcy court has inherent authority to discipline Chapter 13 attorney for failing to properly represent debtor; counsel was appropriately suspended from practice in bankruptcy court for failing to appear at meeting of creditors, for failing to appear at confirmation hearing and for representing a conflicting interest by pressuring debtor to use counsel as a real estate broker.), aff’g 332 B.R. 404 (B.A.P. 9th Cir. Oct. 11, 2005) (Brandt, Marlar, Smith) (Discipline of debtor’s counsel, for conflict of interest in acting as both bankruptcy attorney and real estate broker and for failure to advise debtor of conflict, is within bankruptcy court’s core jurisdiction. Attorney was suspended for three months and required to disgorge fees, but remand ordered for court to consider mitigating and aggravating factors concerning suspension.); In re Silveira, No. 11-44812-MSH, 2012 WL 2370102 (Bankr. D. Mass. June 22, 2012) (Hoffman) (Attorney representing debtors while affiliated with Alliance for Affordable Housing—which had been ordered to turn over $3,218 to debtors—had conflict of interest, was disqualified and was ordered to refund $850 fee.); Smith-Canfield v. Spencer (In re Smith-Canfield), No. 09-6327-fra, 2011 WL 1883833 (Bankr. D. Or. May 17, 2011) (Alley) (Bankruptcy court had core jurisdiction in action against attorney who represented debtor and acted as real estate broker for debtor. Attorney recommended purchase of real estate prior to bankruptcy filing in order to obtain Oregon homestead exemption and reduce income available to creditors in Chapter 13. Attorney was negligent, as both attorney and broker, for failure to advise debtor of risk involved in purchasing property that had defective retaining wall. Attorney knew that seller was in financial distress and might be unable to repair defect. Breaches of duty caused $5,266.30 in damages for engineering costs related to repair of retaining wall, and attorney was ordered to disgorge $4,000 of attorney’s fees.); In re Kim, No. 10-10955, 2010 WL 2816213, at *1–*2 (Bankr. N.D. Cal. July 14, 2010) (Jaroslovsky) (Newly admitted attorney who heavily advertised bankruptcy and “foreclosure defense” was ordered to return $4,000 charged for worthless Chapter 13 services. Attorney charged debtor $15,000, of which $4,000 was allocated to bankruptcy services under Rule 2016 disclosure. Services were of no value for foreclosure prevention, and Chapter 13 filing was “an exercise in futility,” since attorney did not schedule $1.9 million secured debt that rendered debtor ineligible. “There is no sin in being a new lawyer; everyone has to start some time, and there is a shortage of good bankruptcy attorneys these days. However, some of [attorney]’s conduct is of serious concern to the court. . . . [Attorney]’s Chapter 13 services were worthless due to a fundamental mistake of law. The court will accordingly order [attorney] to return to Kim the sum of $4,000.00, which Kim paid for Chapter 13 services.” Allegations referred to State Bar of California included that attorney began to practice law before admission to bar, that she misled debtor and public as to experience level, and that she may have taken advance fee for loan modification services in violation of California Business and Professions Code.); In re Ross, No. 09-12073, 2010 WL 2509939 (Bankr. N.D. Cal. June 16, 2010) (Jaroslovsky) (Law firm that did not appear as counsel of record for pro se debtor, but did prepare skeletal Chapter 13 petition, provided bankruptcy services and was obligated to disclose bankruptcy-related fees. Firm admitted that it accepted fees and advised debtors of availability of bankruptcy. That firm claimed to be performing foreclosure avoidance services did not change bankruptcy content.). But see In re Vernell, No. 07-15396-BKC-AJC, 2007 WL 2746624 (Bankr. S.D. Fla. Sept. 14, 2007) (Cristol) (Special counsel had no adverse interest that would disqualify representation of debtor. Special counsel made complete disclosure of unpaid fees, receipt of mortgage instead of cash retainer and other circumstances surrounding representation of debtor. Court finds all arrangements to be reasonable, with nothing suggesting overreaching by counsel.).
19 See discussion of 11 U.S.C. § 109(h) beginning at § 18.1 In General.
20 See, e.g., Goldberg v. Pagaduan (In re Pagaduan), 447 B.R. 614 (D. Nev. Mar. 25, 2011) (Dawson) (Debtors’ attorney was appropriately sanctioned for impersonating debtors online to obtain prepetition briefing certificates; monetary sanction was within court’s discretion, but bankruptcy court did not have authority to extend sanctions imposed on same attorney in earlier case that required attorney to provide copy of sanction order to each client.), aff’g in part, vacating in part, 429 B.R. 752, 759, 760 (Bankr. D. Nev. Apr. 12, 2010) (Markell) (Debtors’ attorney violated Bankruptcy Rules 9010 and 9011 and Nevada Rules of Professional Conduct by filing Chapter 13 case with credit counseling certificates that debtors did not sign. Crediting debtors’ testimony, attorney “or someone in his office, impersonated the Debtors online to complete the [credit counseling] class. This is forgery.” Attorney was not authorized to complete credit counseling form without debtors’ participation. Bankruptcy Rule 9010 authorizes actions by attorney-in-fact, but debtors’ attorney acted as attorney-at-law. “All Rule 9010 does is distinguish between an attorney-at-law, permitted to practice law, and an attorney-in-fact—essentially an agent—who is not permitted to practice law.” Referral appropriate to U.S. Attorney to determine whether crime had been committed and whether violation of Nevada Rules of Professional Conduct required sanction. Attorney’s testimony revealed commingling of client funds with funds earned from other clients—another violation of ethical rules. Nevada has adopted Model Rule 1.15(c), providing that advance payments for fees and expenses cannot be commingled with lawyer’s own funds but must be held in trust and withdrawn only as fees are earned or expenses are incurred. Attorney violated clients’ wishes by scheduling home to be surrendered, when they wished to retain home and attorney refused to work on loan modification requested by debtors. Sanctions, in addition to referral to U.S. Attorney, included requiring attorney to return $1,000 to debtors and to pay court $4,920, the expected fee from debtors. For commingling client funds, attorney must bring his practice into compliance with Nevada Rules of Professional Conduct within 60 days and report to court steps taken to remedy violation. As further sanction, opinion will be published, and for five years following publication, attorney shall be required to give copy of opinion to every client in all cases where professional fees exceed $5,000, excluding costs.).
21 See, e.g., In re Oliver, 480 B.R. 275 (Bankr. W.D. Ky. Oct. 22, 2012) (Lloyd) (When debtor paid filing fee to attorney but attorney then filed application to pay filing fee by installments, attorney ordered to pay for independent audit of office practices.); In re Torres Jimenez, No. 09-03849 ESL, 2011 WL 1758640, at *2, *5 (Bankr. D.P.R. May 6, 2011) (Lamoutte) (Attorney’s practice of depositing monies received from debtors into “sort of trust account” did not comply with Model Rule 1.15(a) requirement to hold client property separately. Attorney admitted that commingling of funds was wrong but that account had been used to deposit payments from debtors for disbursement to trustee when debtors did not have bank accounts. Attorney was enjoined from using trust account “as a vehicle to channel payments from chapter 13 debtors to the chapter 13 trustee.”); In re Seidel, 443 B.R. 411 (Bankr. S.D. Ohio Jan. 26, 2011) (Preston) (Stay pending appeal is denied based on public interest and unlikelihood of success after debtor’s attorney was sanctioned for violations of § 526 and Ohio Rules of Professional Conduct. Attorney had been ordered to disgorge fees and costs received through credit card charge. No-look fee for Chapter 13 cases filed by attorney had been suspended, and attorney was required to complete six hours of bankruptcy ethics instruction.); In re Harmon, No. 1074390 AST, 2010 WL 3788052 (Bankr. E.D.N.Y. Sept. 22, 2010) (Trust) (Electronic filing privileges and access were revoked for 90 days as sanction for attorney who filed numerous cases without paying filing fees through Pay.gov as required by local procedures for electronic filing. Further hearing was required concerning disgorgement of fees paid by debtor. Attorney had been filing incomplete petitions and then failing to meaningfully prosecute the cases.); In re Willis, No. 06-61285-JB, 2007 WL 7140150 (Bankr. N.D. Ga. Aug. 29, 2007) (Bihary) (Debtor’s attorney ordered to show cause why Rule 2016(b) disclosure of compensation was not filed. Attorney is required to file Rule 2016(b) statement in every case in which he seeks to represent debtor. Court expressed concern about attorney having all-cash law practice, who did not maintain escrow account or file tax returns. Attorney ordered to limit case load, attend legal education and confer with state bar for assistance with practice procedures.).
22 See, e.g., In re Brent, 458 B.R. 444, 460–61 (Bankr. N.D. Ill. Sept. 29, 2011) (Goldgar) (Attorney violated Bankruptcy Rule 9011(b) when fee applications in 317 pending cases contained false representations. Model retention agreement (MRA) in district provided for $3,500 fixed fees. Attorney utilized undisclosed addendum that provided for additional fees. “No reasonable attorney would have believed he was telling the truth in representing to the court he had entered into the MRA when the attorney had modified the MRA—which permits a single flat fee for the entire bankruptcy case—with an addendum requiring the debtor to pay additional fees. The addendum produces a different agreement with different terms, terms different in a critical way. The point of the flat fee arrangement is to set a ‘presumptively reasonable fee’ that obviates the need for elaborate fee applications in routine cases. . . . Modifying the MRA to authorize fees beyond the presumptively reasonable fee defeats the purpose of the arrangement.” Attorney ordered to pay $10,000 fine to clerk of court, ordered to successfully complete legal ethics course at accredited law school, and censured for misconduct, with opinion forwarded to district court and disciplinary agency.).
23 See, e.g., In re Armstrong, 487 B.R. 764, 771 (E.D. Tex. Sept. 21, 2012) (Clark) (Debtor’s counsel sanctioned $500 under Bankruptcy Rule 9011(b)(1) and (b)(3) for objecting to allowance of each scheduled claim. “[A]ll credit card debts [were scheduled] as ‘disputed’ to justify his later objections. . . . [H]e lulled creditors into complacency by filing a plan that provided for payment to all these creditors, which resulted in no objections to the plan being filed. Then he objected to every single proof of claim on the sole grounds of ‘insufficient’ documentation, without any evidence, or even any belief, that the debt was not owed or that a substantive defense under Texas law existed. If he had a good defense to these claims under Texas law, there would be no need to file bankruptcy. Although given ample opportunity . . . at two hearings, debtor set out no proper purpose for these actions. Attempting to manipulate the bankruptcy process is an improper purpose under 9011 and, grounds for sanctions.”); In re MacFarland, 462 B.R. 857, 880–81 (Bankr. S.D. Fla. Nov. 14, 2011) (Olson) (In multiple cases, debtors’ counsel were sanctioned under Bankruptcy Rule 9011 for objecting to claims that had been scheduled in same amounts as proof of claims. “The cases addressed by this sanctions order present essentially baseless claims objections which appear to be shotgun attempts to object to everything and ‘see what sticks.’ Requiring creditors to attach documentation in response to frivolous claims objections increases abuse in litigation. . . . If there is no substantive objection to the claim, the creditor should not be required to provide further documentation because it serves no purpose other than to decrease the likelihood that a valid claim against the estate will be disallowed on specious grounds. . . . The instant cases present objections to claims for debts which were scheduled in amounts substantially identical to (or greater than) the claimed amounts. All of the relevant debts were scheduled as neither contingent, nor unliquidated, nor disputed.” Sanction was 31 days’ suspension from practice, with some attorneys receiving consecutive suspensions for repeated violations.).
24 See, e.g., In re Dynowski, No. 15-28574-A-13J, 2017 WL 949359 (Bankr. E.D. Cal. Feb. 28, 2017) (McManus) (Attorney not admitted in Eastern District of California was sanctioned for filing 14 bankruptcy cases over five years—most filed to stop foreclosures—in which Bankruptcy Rule 2016 disclosures were missing, counsel failed to appear at many meetings of creditors and no genuine efforts were made to maintain the cases once filed.); In re Todarello, No. 16-60064, 2016 WL 4508188, at *1–*3 (Bankr. N.D. Ohio Aug. 26, 2016) (not for publication) (Kendig) (Partnership agreement between Ohio lawyer and Illinois LLC did not facially violate fee-sharing prohibition in 11 U.S.C. § 504. “Mr. Hausen, a licensed attorney in Ohio, is counsel for Debtors . . . . He filed the case under the name Allen Chern LLC, a law firm (‘Firm’) located in Chicago, Illinois. Mr. Hausen is associated with Firm via what is called a ‘Partnership Agreement’ (‘Agreement’) executed between ‘Jason Allen Law LLC, an Illinois limited liability company registered to do business in the State of Ohio as Allen Chern Law LLC’ . . . . [T]he Bankruptcy Code prohibits fee sharing. 11 U.S.C. § 504. However, an exception allows fees to be shared between attorneys in the same firm . . . . Mr. Hausen asserts that he has a formalized relationship with Firm that is protected under § 504(b) and does not require additional disclosures under Rule 2016. . . . No one has presented any argument or documentation to refute Mr. Hausen’s position. . . . It would not be fair for the court to go off on an investigation like a judge under the Napoleonic Code and then decide the issues it selected. The court might be inclined to grade its own paper on a very favorable curve. One of the fundamental changes envisioned by the rewriting of bankruptcy law with the passage of the Bankruptcy Code . . . was the removal of the judge from day to day administration and converting him or her to a neutral who decides disputes brought by adversaries.”).
25 See, e.g., In re Myers, 382 B.R. 304, 307, 310–11, 311 (Bankr. S.D. Miss. Jan. 31, 2008) (Ellington) (Attorney-client privilege does not apply to information debtor gave bankruptcy counsel; even if privilege arises, it is waived by advice-of-counsel defense. In adversary proceeding defendant’s motion for discovery from debtor’s counsel is granted with respect to “complete copy of his file pertaining to his representation of the Debtors in their bankruptcy and to testify as to what specific information was given to him by the Debtors in order for him to represent them in their bankruptcy.” No attorney-client privilege is applicable: “When information is disclosed by a debtor to his bankruptcy attorney for the purpose of preparing and assembling the schedules and supporting documents, there is no reasonable expectation that the attorney will keep the information confidential because it will be disclosed on documents publically filed with the bankruptcy court. Therefore, the attorney-client privilege does not arise.” Even if a privilege existed, on debtors’ invocation of attorney advice as defense in adversary proceeding, attorney-client privilege is waived. Finally, “privilege does not exist if the legal representation was used in order to commit a crime or fraud.”).
26 See, e.g., Balooch v. Boone (In re Balooch), No. NC-11-1331-DHDo, 2012 WL 603684 (B.A.P. 9th Cir. Feb. 8, 2012) (not for publication) (Dunn, Hollowell, Donovan) (Bankruptcy court did not abuse discretion by granting motion to withdraw as debtor’s counsel when debtor was dissatisfied with representation and real dispute with counsel was about fees allowed by the bankruptcy court. Counsel’s limited representation of the debtor did not include postconfirmation litigation with mortgage servicer regarding tax obligations that were to be paid through the plan, not as an advance by the servicer.); In re Galloway, No. 15-12646, 2018 WL 1065124 (Bankr. E.D. La. Feb. 23, 2018) (Magner) (Attorney with active Chapter 13 practice who abruptly retired and moved 2,000 miles away without providing for continued representation of approximately 50 debtors violated several rules of professional responsibility and was required to disgorge fees in many cases.); In re Mazzei, 522 B.R. 113, 130–36 (Bankr. W.D. Pa. Nov. 10, 2014) (Taddonio) (Large-volume Chapter 13 debtors’ attorney failed to comply with notice provisions of Pennsylvania Rules of Professional Responsibility when he sold his practice to another attorney during investigation by bankruptcy court of questionable practices; seller also violated fee-sharing prohibition in 11 U.S.C. § 504 by continuing to bill some clients after transfer of practice. “Section 504 of the Bankruptcy Code contains a broad prohibition against the sharing of compensation awarded under sections 330(a) and 503(b)(4). . . . The restriction applies to compensation payable to counsel for a debtor in a chapter 13 proceeding. . . . [F]ee sharing between attorneys in a bankruptcy case violates public policy. . . . [F]ee sharing is prohibited in bankruptcy cases even when such arrangements might otherwise be permissible under other applicable law. . . . M & A’s [seller’s] fees were allowed as administrative expenses under section 503(b)(2). . . . M & A has no affiliation with MLH [buyer]. . . . Because the Court has never authorized the distribution of M & A’s compensation to MLH, . . . the channeling of funds to MLH . . . appears to be the type of phantom compensation and fee sharing that section 504 was designed to prevent. . . . The distinguishing factor that excepts this arrangement from the definition of fee sharing is that M & A and MLH do not have simultaneous claims to the same fee. . . . MLH stands in the shoes of M & A for those cases ultimately transferred to MLH. M & A’s claim to the receivables is extinguished because it no longer holds an engagement agreement with the respective debtors. The right to collect those fees is now held by MLH. Accordingly, the sale date bifurcates the fees between buyer and seller and there is no concurrent right to payment. Amounts paid prior to the sale remain the property of M & A, while distributions paid after the sale belong to MLH. The parties are therefore not engaging in fee sharing in violation of section 504 of the Bankruptcy Code because only the purchaser can collect the fees after the sale date. . . . Because the sale effectively terminates [M & A’s] ability to practice law in Pennsylvania . . . he cannot accept fees paid to MLH after the sale date. . . . By transferring its assets in a sale, M & A irrevocably relinquished its right to collect any additional fees in the assigned cases. . . . The Court will therefore authorize the distribution of fees to MLH in the Transferred Cases once it is satisfied that MLH complied with the notice requirements of [Pennsylvania Rules of Professional Responsibility]. . . . [MLH] has not obtained the requisite client consents and therefore has no basis to collect the fees payable in the Non-Transferred Cases. . . . [T]hat fees on the Non-Transferred Cases were paid to MLH without credit, allocation, or payment of any sort borders on the type of fee sharing prohibited by section 504 of the Bankruptcy Code. . . . MLH shall provide an accounting regarding fees received . . . on all Non-Transferred Cases. In the event MLH is not retained by the clients in the Non-Transferred Cases, MLH may be required to disgorge any fees received on these particular cases. . . . By filing fee applications in cases which have been transferred to [MLH, M & A] appears to have violated [Pennsylvania Rules] and Bankruptcy Code section 504(a).”); In re Toney, No. 09-61830, 2012 WL 1854259 (Bankr. N.D. Ohio May 21, 2012) (not for publication) (Kendig) (That debtors filed grievance under Ohio Rules of Professional Conduct was not per se conflict of interest for purposes of motion to withdraw as counsel. Court could not determine whether attorney-client relationship was irreparably harmed.).
27 See, e.g., Vizconde v. Burchard (In re Vizconde), Nos. 16-60072, 16-60073, 2017 WL 5770034 (9th Cir. Nov. 29, 2017) (not for publication) (Thomas, Fletcher, Paez) (Bankruptcy court appropriately imposed sanctions on counsel under Bankruptcy Rule 9011 for knowingly and willfully facilitating abuse of the Bankruptcy Code and for bad-faith manipulation of the bankruptcy process by filing Chapter 13 petitions that failed to disclose prior bankruptcies and then failing to file other required documents.); In re Armstrong, 487 B.R. 764, 771 (E.D. Tex. Sept. 21, 2012) (Clark) (Debtor’s counsel sanctioned $500 under Bankruptcy Rule 9011(b)(1) and (b)(3) for objecting to allowance of each scheduled claim. “[A]ll credit card debts [were scheduled] as ‘disputed’ to justify his later objections. . . . [H]e lulled creditors into complacency by filing a plan that provided for payment to all these creditors, which resulted in no objections to the plan being filed. Then he objected to every single proof of claim on the sole grounds of ‘insufficient’ documentation, without any evidence, or even any belief, that the debt was not owed or that a substantive defense under Texas law existed. If he had a good defense to these claims under Texas law, there would be no need to file bankruptcy. Although given ample opportunity . . . at two hearings, debtor set out no proper purpose for these actions. Attempting to manipulate the bankruptcy process is an improper purpose under 9011 and, grounds for sanctions.”); In re Dynowski, No. 15-28574-A-13J, 2017 WL 949359 (Bankr. E.D. Cal. Feb. 28, 2017) (McManus) (Attorney not admitted in Eastern District of California was sanctioned for filing 14 bankruptcy cases over five years—most filed to stop foreclosures—in which Bankruptcy Rule 2016 disclosures were missing, counsel failed to appear at many meetings of creditors and no genuine efforts were made to maintain the cases once filed.); In re Lockhart, No. 16-32803(1)(13), 2017 WL 187560 (Bankr. W.D. Ky. Jan. 17, 2017) (Lloyd) (Debtor and attorney sanctioned with payment of attorney’s fees under Bankruptcy Rule 9011 for filing Chapter 13 as a delaying tactic with respect to contempt and incarceration by domestic relations court; payment of arrears to former spouse would require $8,000-per-month payments into plan and debtor had monthly income of only $2,700.); In re Mabone, 471 B.R. 534 (Bankr. E.D. Mich. May 25, 2012) (Tucker) (Motion for sanctions against debtor and attorney for filing case in bad faith is denied when creditor’s misconduct in disabling vehicle ignition system prevented equitable relief.); In re Sanford, 403 B.R. 831, 845 (Bankr. D. Nev. Mar. 17, 2009) (Markell) (Counsel’s 20-month delay in submitting order converting case from Chapter 7 to Chapter 13 coupled with filing of second case while first case was pending amply demonstrated bad faith by counsel. “[B]ad faith is further evidenced by [attorney’s] financial dealings with the debtor. After charging in full for the First Case, [attorney] then charged Mr. Sanford the full $2,700 fee for a chapter 13 case. This is indicative of bad faith for two reasons. The initial reason is that if [attorney] had done what he should have, and gone forward with the converted First Case, he likely would not have been able to charge Mr. Sanford the full chapter 13 fee, based on the prevailing practice in this district and what courts in this district (including this court) find to be reasonable fees. . . . Second, [attorney] had a duty to his client to follow through with his duties in the First Case, and not to cover up his defalcation with a new case and a new fee.” Applying ABA standards for discipline of attorneys, court reprimands attorney by publishing opinion, ordering disgorgement of all fees charged to debtor, requiring attorney to provide copy of opinion to every client for two-year period, requiring attorney to deliver copy of opinion to any other court that issues show cause concerning attorney’s conduct for two years and requiring attorney to pay all costs for debtor to obtain discharge.).
28 See § 62.1 Examples of Stay Violations, and Not. See, e.g., In re Taylor, 655 F.3d 274 (3d Cir. Aug. 24, 2011) (Fuentes, Smith, Van Antwerpen) (Mortgage lender, attorney and law firm are sanctioned for inaccurate representations in stay relief motion and response to claim objection; Bankruptcy Rule 9011 reaches attorney’s blind reliance on client’s computer-generated misinformation.); Young v. Repine (In re Repine), 536 F.3d 512 (5th Cir. July 22, 2008) (Reavley, Smith, Garza) (Attorney for former spouse willfully violated stay by collection efforts, including having debtor incarcerated.); Barnett v. Edwards (In re Edwards), 214 B.R. 613 (B.A.P. 9th Cir. Nov. 5, 1997) (Russell, Hagan, Ryan) (Postpetition recording of lis pendens with full knowledge of Chapter 13 case was willful violation of stay; bankruptcy court appropriately awarded sanctions against ex-spouse and ex-spouse’s counsel.); In re Taylor, 190 B.R. 459, 461 (Bankr. S.D. Fla. Dec. 8, 1995) (Cristol) (Law firm’s refusal to vacate default judgment taken in violation of the stay was a willful violation of the stay. Law firm ordered to pay attorney’s fees under § 362(h). Default judgment after petition was only a technical violation of stay because although creditor was listed, law firm representing creditor “had no actual knowledge of the filing of the petition for relief when the judgment was entered. However once notice was given that the petition for relief had been filed [the attorney] had an affirmative duty to undo the technical violation.”); United Student Aid Funds, Inc. v. Clemmons (In re Clemmons), 107 B.R. 488 (Bankr. D. Del. Nov. 9, 1989) (Balick) (Willful violation of automatic stay by failing to stop postpetition wage assignment. Creditor’s attorney required to reimburse the debtor for attorney’s fees and costs.).
29 See, e.g., In re Rice, 521 B.R. 405 (Bankr. N.D. Ga. Oct. 30, 2014) (Murphy) (Debtors’ attorney violated Bankruptcy Rule 9011 and local bankruptcy rules governing electronic filing of documents when he filed a petition he knew was signed in a representative capacity with no disclosure on document and he had reservations that original power of attorney did not cover the filing of bankruptcy. Counsel ordered to obtain six hours of CLE credits in ethics and professionalism.); In re Tran, No. 14-11837-BFK, 2014 WL 5421575 (Bankr. E.D. Va. Oct. 17, 2014) (Kenney) (Forfeiture of fees and three-month suspension from practice before court for filing petition without a “wet signature,” making a materially false Bankruptcy Rule 2016(b) statement and failing to meet with client in person prior to filing.); In re Obasi, No. 10-10494 (SHL), 2011 WL 6336153, at *4 (Bankr. S.D.N.Y. Dec. 19, 2011) (Lane) (Attorney violated Bankruptcy Rule 9011 by allowing another to use ECF password and signature and failing to personally review proof of claim or documentation. Advisory Committee Note to rule clearly provides that person signing, filing, submitting or advocating document has “nondelegable responsibility to court.” Claim lacked evidentiary basis and was filed without documentation. Notwithstanding Rule violation, U.S. trustee did not comply with safe harbor provisions of Rule 9011(c), preventing sanctions. Law firm and individual attorney had taken steps to remedy defects in procedures for filing proofs of claim. Claim at issue was amended to include electronic signature of attorney reviewing claim.); In re Harmon, 435 B.R. 758, 767 (Bankr. N.D. Ga. June 3, 2010) (Diehl) (Attorneys and firm violated Bankruptcy Rule 9011 and local bankruptcy rules by failing to obtain new client signatures on documents that changed between the time of review by the client and electronic filing. Electronic filing of changed documents with electronic indication of client signatures was violation of attorneys’ responsibilities to court. Attorneys’ and managing partner’s misconduct was imputed to law firm. “As this Court relies heavily on electronic filings, the adherence of attorneys to the local rules regarding electronic signatures is imperative.” $5,000 sanction was imposed, and firm was ordered to provide action plan addressing its practices. Attorneys were required to attend five hours of continuing legal education in ethics and professionalism.); Nosek v. Ameriquest Mortg. Co. (In re Nosek), 386 B.R. 374, 380 (Bankr. D. Mass. Apr. 25, 2008) (Rosenthal) (Attorneys filing claims and pleadings asserting that client held note and mortgage were sanctioned more than $150,000 when client was only mortgage servicer. “Throughout most of these proceedings, Ameriquest and its attorneys represented that Ameriquest was the ‘holder’ of the note and mortgage. The word ‘holder’ has a very specific definition when used in connection with a negotiable instrument such as a note. . . . Unfortunately the parties’ confusion and lack of knowledge, or perhaps sloppiness, as to their roles is not unique in the residential mortgage industry.” Reasonable inquiry as to correctness of pleadings is required under Bankruptcy Rule 9011.); In re Irons, 379 B.R. 680, 682 (Bankr. S.D. Tex. Dec. 19, 2007) (Isgur) (Separate hearing was necessary to determine whether to discipline counsel under § 329 or § 526 for multiple deficiencies in and failure to file documents required by § 521. “The vast majority of chapter 13 debtors’ counsel do outstanding legal work. Those counsel undertake difficult cases. They represent individuals in chapter 13 cases with diligence, competence, and compassion. There is often substantial risk that their work will not be fully compensated. A Debtor’s counsel’s burden is increased by the fact that often the professional relationship is limited to a single engagement. Counsel must prepare complex and exhaustive pleadings quickly, without the luxury of pre-filing familiarity with the client and his affairs. Exigent circumstances often preclude an extended review of the information provided by the client. In such circumstances, honest and occasional errors can be expected. The Court will not criticize counsel for such errors. . . . If the deficiencies in this case are indeed counsel’s fault, as Debtor alleges, then counsel’s conduct may exceed the limits of excusable negligence. When such egregious behavior is alleged, the Court has a statutory obligation to act.”); In re Allen, No. 06-60121, 2007 WL 1747018, at *1, *14 (Bankr. S.D. Tex. June 18, 2007) (Steen) (Law firm for creditors in numerous Chapter 13 cases was sanctioned $75,000 for “the filing of pleadings with the court that are clearly wrong (even contrary to the information in Barrett Burke’s own files) or that otherwise are not thoughtful, considered, and intelligible. Further, the Court seeks to discourage Barrett Burke from failing to attend hearings that have been set on its motions and from making token appearances in other hearings through local counsel who are so ill-informed that they actually misinform the Court.” Because the firm “recognizes the gravity of its actions and takes responsibility for those actions, and to recognize Barrett Burke’s current intensity in addressing its deficiencies,” sanctions were reduced from $150,000 to $75,000.); In re Morrison, 375 B.R. 179 (Bankr. W.D. Pa. Sept. 26, 2007) (Agresti) (Debtor’s attorney may be subject to “progressive sanctions” for intentionally violating court orders and local rules by omitting from captions of motions all creditors affected by each motion.); In re West, 338 B.R. 906, 916–17 (Bankr. N.D. Okla. Mar. 6, 2006) (Michael) (When counsel failed to comply with electronic filing requirements and then prepared pleadings for debtors to file on their own behalf, ghostwriting was sanctionable deception. “For whatever reason, Shumberger has decided that he cannot or will not file pleadings in electronic form. That is his choice, and the Court will respect it. What Shumberger may not do is circumvent the rules requiring electronic pleading or engage in any manner of subterfuge or deceit in order to file pleadings in paper format. The Court finds that Shumberger has violated Bankruptcy Rule 9011 as well as his duty of candor to the Court.” Sanction of $1,000 was imposed.).
30 See, e.g., In re Lott, No. 10-35182-BKC-JKO, 2011 WL 1398995, at *2, *3 (Bankr. S.D. Fla. Apr. 7, 2011) (Olson) (Attorney who had not satisfied prior $500 sanction was in contempt; to purge contempt, attorney must pay prior $500 sanction and additional $1,000 sanction within seven days to clerk of court, disgorge $3,500 fee to client, reimburse client for $274 filing fee, and pay $500 to client for “troubling Ms. Lott to come to the courthouse more often than she should have[.]” Attorney was also prohibited from practicing in bankruptcy court in district until petitioning “within this bankruptcy case for reauthorization[.]”); In re Martinez, 393 B.R. 27, 31 (Bankr. D. Nev. Aug. 1, 2008) (Markell) (Wells Fargo Bank and its law firm violated Rule 9011 and Nevada Rules of Professional Responsibility by refusing to correct mutual mistake in description of property to be surrendered. Wells Fargo and its attorneys admitted mutual mistake, but their refusal to correct mistake without necessity of debtors’ filing motion and having hearing was inappropriate. Sanction was publication of opinion as public reprimand of law firm, and Wells Fargo was required to pay debtors’ attorneys’ fees related to motion and hearing. “Both the lawyer from Cooper Castle and Haines thought at the time that the stipulation related to a property the debtors intended to surrender. Both were mistaken. The stipulation contained the legal description of the home that debtors intended to keep. In the buzz of the bazaar, both lawyers failed to match up the documents with their clients’ intent. When the mistake was pointed out to the lawyer from Cooper Castle, he ultimately acknowledged it. When asked to sign a stipulation vacating the order on the mistaken stipulation, the lawyer refused. He claimed that his client, Wells Fargo, would not consent to vacating the mistaken stipulation.”).
31 See, e.g., In re Carpenter, No. 10-13256-PB11, 2011 WL 250746 (Bankr. S.D. Cal. Jan. 24, 2011) (not for publication) (Bowie) (Since debtor’s spouse’s case had been dismissed based on statutory debt limits, any potential conflict for debtor’s firm in representing both spouses evaporated; law firm was not disqualified in instant case.); In re Josephson, No. 04-60004-13, 2008 WL 113861 (Bankr. D. Mont. Jan. 9, 2008) (Kirscher) (Continuing to represent joint debtors after divorce and filing plan amendments without obtaining one debtor’s signature or consent violated Bankruptcy Rule 9011; half of fee received was disgorged.).
32 112 F.3d 1339 (8th Cir. May 7, 1997) (R. Arnold, Gibson, M. Arnold).
33 Handeen v. LeMaire (In re LeMaire), 883 F.2d 1373 (8th Cir. July 5, 1989) (McMillian, Gibson, Magill).
34 Handeen v. LeMaire (In re LeMaire), 898 F.2d 1346 (8th Cir. Mar. 26, 1990) (en banc).
35 Handeen v. LeMaire (In re LeMaire), 112 F.3d at 1343–44.
36 18 U.S.C. §§ 1961–1968.
37 Handeen v. LeMaire (In re LeMaire), 112 F.3d at 1349.
38 See also In re Johnson, No. 07-33312-KRH, 2008 WL 183342 (Bankr. E.D. Va. Jan. 18, 2008) (Huennekens) (When debtor’s counsel participated in scheme to hinder, delay and defraud creditors, counsel is suspended from filing bankruptcy cases for 120 days, required to complete 17 hours of CLE and ordered to undergo small practice audit by Virginia State Bar. Counsel filed case for 18-year-old who had no employment and no debt, as part of scheme by debtor’s grandmother and father to transfer real property on eve of foreclosure to teenager and stop foreclosure by bankruptcy filing. Grandmother and father had filed prior bankruptcies for same purpose. Attorney’s conduct caused harm by ruining debtor’s credit report and caused creditor to incur unnecessary fees and delay.).