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ATTORNEY SANCTIONS IN BANKRUPTCY
IMPORTANT: THIS FIRM MAKES NO REPRESENTATIONS AS TO THE ACCURACY OR CURRENT STATUS OF ANY LAW, CASE, ARTICLE OR PUBLICATION CITED HEREIN OR LINKED TO. WARNING – SOME OF THESE REFERENCES ARE PRE-BAPCPA.
A bankruptcy attorney’s duties:
Bankruptcy Code Section 707(b)(4)(C) provides in part that “[t]he signature of an attorney on a petition..shall constitute a certification that the attorney has … performed a reasonable investigation into the circumstances that gave rise to the petition.. Sections 526, 527 and 528 detailed specific duties of the bankruptcy attorney. Plus, professional conduct (including the duty of communication and duty of competence).
Duty of reasonable inquiry:
- Consultation must be conducted by an attorney
- Attorney must explain duty of full, complete and accurate disclosure of all information.
- Attorney must demand debtor’s full and complete cooperation and accuracy of all information.
Quote from In re Tran, the Judge found the lawyer involved in Tran did not understand that the every lawyer must interview the client himself to probe every aspect of a client’s situation before bankruptcy can be filed. A bankruptcy lawyer must know family law in order to make sure all the marital debts and assets are properly scheduled. A bankruptcy lawyer needs to know business law to make sure the debts related to partnerships, former partnerships, corporations, and other entities are properly scheduled. A bankruptcy lawyer needs to know probate law to make sure inheritance rights are properly scheduled. A bankruptcy lawyer needs to know real estate law to make sure that all interests in real property are properly scheduled. A bankruptcy lawyer needs to know the laws of secured transactions to make sure that secured debts and collateral are properly scheduled. The list is endless. There is no substitute for detailed questioning by an attorney. Even what appears to be the simplest bankruptcy must be treated very seriously.
Practice pointers and tips – from the Task Force on Attorney Discipline Best Practices Working Group, Ad Hoc Committee on Bankruptcy Court Structure and Insolvency Processes. ABA Business Law, ABA Working Paper – Best Practices for Debtors’ Attorneys 2008, Bus. Law., Nov. 2008, at 79-151
In re Busche, 2015 Bankr. LEXIS 3669 (Bankr. D.S.C. October 27, 2015) (Duncan, C.B.J.). Debtor’s attorney ordered to disgorge fees due to failure to investigate debtor’s finances and failure to attend first meeting of creditors.
In re Finn, 19-71144, 31 (Bankr. C.D. Ill. Aug. 28, 2020). The US Trustee brought an action that Homa failed to meet with the debtors and failed to appear at the 341 meetings. Before the Court are two Motions for Determination of Reasonable Value of Services of Debtor’s Attorney and for Sanctions (“Motions for Sanctions”). Both Motions for Sanctions complain about the quality of work performed by Eric Homa, the attorney for the Debtors in each of the above cases. For the reasons set forth herein, both Motions for Sanctions will be granted, in part.
Attorney Homa’s conduct in the Finn and Custer cases fell well below required standards and violated his duties under the Bankruptcy Code and Rules and the Illinois Rules of Professional Conduct. The Motions for Sanctions will be granted, in part. Attorney Homa will be sanctioned by requiring the disgorgement of all fees and by a public reprimand. Other sanctions requested by the UST will be denied.
In re Tran, 814 F.Supp 2nd 946 (2011) (Dist. Ct, N.D. Cal. 2011) This involved an attorney who allows his non-lawyer spouse (Vietnamese) to conduct all the interviews with clients (advertising to the Vietnamese community), to make decisions about disclosing assets, completing schedules, deciding what chapter to file, staff made its own decisions, including deleting assets from the schedules. Chapter 13 Trustee objected to Appellant’s plan on the ground that it was improper to strip a wholly unsecured junior lien when Appellant was not eligible for a discharge because of earlier chapter 7 discharge. “Considering the totality of these circumstances, the Court affirms the bankruptcy court’s conclusion that Appellant’s Chapter 13 case is an attempt unfairly to manipulate the Bankruptcy Code to evade the holding in Dewsnup and, thus, was not filed in good faith.”
In re Seare, 493 B.R. 158 (Bankr. D. Nev. 2013) Debtor admits to bankruptcy attorney that he “embellished emails to the district court in his lawsuit.” Debtor’s counsel failed to properly investigate debtor’s statements and potential consequences. Case also involves bi-bifurcated fees.
A. The bankruptcy court’s power to sanction attorneys
“Bankruptcy courts have the inherent authority to regulate the practice of attorneys who appear before them.” In re Nguyen, 447 B.R. at 280 (citing Chambers v. NASCO, Inc., 501 U.S. 32, 43-45, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991); Caldwell v. Unified Capital Corp. (In re Rainbow Magazine, Inc.), 77 F.3d 278, 284-85 (9th Cir.1996)). “Bankruptcy courts also have express authority under the Code and the Rules to sanction attorneys, including disbarment or suspension from practice.” Id. at 281 (citing In re Lehtinen, 564 F.3d at 1058, 1062; § 105(a)). “The bankruptcy court has wide discretion in determining the amount of a sanctions award.” In re Kayne, 453 B.R. at 386 (internal quotation marks and citation omitted). The Local Rules for the District Court of the District of Nevada also grant considerable leeway in fashioning sanctions for violations of the NRPC. Local Rule IA 10-7(a) provides that “[a]ny attorney who violates these standards of conduct may be disbarred, suspended from practice before this Court for a definitive time, reprimanded or subjected to such other discipline as the court deems proper.”1
In reviewing attorney disciplinary sanctions, we determine whether (1) the disciplinary proceeding was fair, (2) the evidence supports the findings, and (3) the penalty imposed was reasonable. In re Nguyen, 447 B.R. at 276.
JURY, Bankruptcy Judge, Concurring. summarizes her suggestions for such attorneys to avoid violating ethical rules and the Bankruptcy Code when they limit the scope of representation of consumer debtors:
1. At the initial intake interview with the debtor, identify fully and completely the debtor’s goals. Almost by definition, the attorney therefore cannot have a predetermined business practice that excepts representation in adversary proceedings from the services the attorney will render unless the attorney and debtor identify that exception before deciding to commence representation. As noted by the bankruptcy judge, the decision to unbundle must be driven by the debtor’s needs, not the attorneys.
2. The attorney may not rely solely on the debtor’s input to help him or her ascertain the debtor’s goal. Both the ethical rules and the Code require the attorney to conduct a reasonable investigation of the debtor’s assets and liabilities. If the attorney learns that a judgment has been taken against the debtor, the attorney must make reasonable inquiry into the nature of the judgment in order to determine whether it might be subject to nondischargeability.
3. If, after ascertaining the debtor’s goals, the attorney believes that limited scope representation is consistent with those goals, the attorney must then fully explain to the debtor the consequences and inherent risks which might arise if an adversary is filed against the debtor and the attorney has not included representation in that proceeding in the unbundled services. Informed consent is just that: informed. The debtor must understand the “legal jargon” and the practical effect on him or her of the limited scope representation before the consent is informed.
4. The attorney must customize the retainer agreement to the goals of debtor. That is not to say that much of the agreement cannot be boilerplate, but boilerplate without the attorney’s active role in its preparation will be insufficient for limited scope representation. Just having the debtor read and initial the agreement does not assure the debtor is giving informed consent.
5. After describing to the debtor the risks of limited scope representation, the attorney must give the debtor the opportunity to “shop elsewhere” for an attorney who will provide full representation before entering into the contractual relationship with the debtor for the limited scope.
6. The attorney should document as fully as possible all the steps taken to comply with these requirements.
In re Nguyen, 447 B.R. 268 (9th Cir. BAP 2001) “Margolis (attorney for debtors) argues that it was beyond the bankruptcy court’s authority to impose the “potentially onerous obligation to meet for at least an hour with a prospective debtor [which] goes well beyond the duties of a lawyer.” Furthermore, he contends that he cannot be held to guarantee debtors’ representations in the schedules and statements of financial affairs” – BAP: “Here, Margolis’ testimony revealed his generally lax and hands-off approach to the accuracy of bankruptcy schedules and statements of financial affairs. The bankruptcy court was correct to be concerned with potential injury to the public resulting from these practices. Therefore, it enjoined Margolis from filing schedules unless an attorney conducted the initial client interview and spent at least an hour (emphasis added) with the debtor to make sure that assets and debts would be discovered and properly scheduled. Consistent with the bankruptcy court’s findings, the sanction was tailored to coerce Margolis into spending time with clients to ascertain a full picture of their financial history, assure the clients’ awareness of the importance of correctly completing bankruptcy documents, and to assure that Margolis has an adequate understanding of his clients’ needs. …”
In re D’Arata, 18-10524 (Bankr. S.D.N.Y. Aug. 3, 2018) The debtor, living on $1,500 a month, needed eight months to pay the fee in installments – a fee of $900. Raymond Ragues, the debtor’s attorney, did not attend the original creditors’ meeting. Instead, the attorney sent a so-called appearance counsel who was not an employee at the debtor’s attorney’s firm and “was not at all familiar with the debtor’s case.” At the first creditors’ meeting, the debtor had said there were mistakes in his schedules. Among other things, the schedules said he had filed bankruptcy eight years earlier when he had not. The schedules listed student loans when there were none. At the second creditors’ meeting, the debtor said that his attorney had not amended the schedules correctly, according to Judge Lane “effectively left the debtor without representation at his meeting of creditors.”
Judge Lane encouraged the reporting of “any instances where a counsel is failing to meet his or her obligations to a debtor, including, filing documents without the signature or approval of the debtor, failing to personally appear with the debtor at a 341 meeting.” Observing ethical problems such as the appearance counsel did not file 2016 statements disclosing the compensation they were to receive. The debtor’s retained attorney had failed to disclose fee-sharing arrangements with the appearance counsel, as required by Section 329(a).
In Schwartz-Tallard v. America’s Servicing Co. 2012 DJDAR 9091 (2012), the Bankruptcy Appellate Panel for the Ninth Circuit Court of Appeals decided a fee case under the so-called Sternberg bankruptcy doctrine. The doctrine was established under the Ninth Circuit’s decision in Sternberg v. Johnston, 595 F.3d 937 (9th Cir. 2010). Under this doctrine, attorney fees incurred in pursuit of damages for the violation of the automatic bankruptcy stay are recoverable as an exception to the American Rule. That rule states that the parties to litigation are required to pay their own attorney fees.The debtor filed a Chapter 13 bankruptcy petition. The debtor made regular monthly mortgage payments, but the creditor asked for a lift of the stay, court granted the relief. Creditor sold home at foreclosure. Debtor proved payments current and court reinstated the automatic stay. The debtor moved for sanctions on the grounds that the creditor had violated the court’s stay order.The bankruptcy court granted the sanctions motion. In addition, the court awarded the debtor damages and attorney fees. When the creditor appealed, the district court concluded that there had been a violation of the automatic stay. The debtor then moved for additional attorney fees incurred during the defense of the appeal. The creditor contended such fees were prohibited under the decision in Sternberg v. Johnson, cited above. The district court denied the request for the recovery of fees incurred on the appeal. The case was then appealed to the Ninth Circuit’s Bankruptcy Appellate Panel. The Ninth Circuit reversed the denial of the fee award. The Ninth Circuit noted that under the Sternberg doctrine, a debtor’s attorney fees incurred in “pursuit of damages” for a stay violation cannot be awarded as compensation for actual damages. However, a debtor’s appellate attorney fees may be awarded as actual damages for a stay violation. The Ninth Circuit reasoned that the debtor was defending a damages award for the creditor’s stay violation, and fees were appropriate under those circumstances.
Mary Beth Mantiply v.Richard D. Horne, Case No. 16-16789 (11th Circuit, Dec. 5, 2017). When a person takes an action against an individual debtor in bankruptcy in violation of the automatic stay of Section 362(a) the debtor is entitled to recover damages under Section 362(k)(1) to include costs and attorneys’ fees. Question – are the fees awarded limited to those incurred in ending the stay violation, or do they also include the fees incurred in pursuing the damage award, including defending the award on appeal (in this case multiple appeals).
The 11th Circuit held, as a matter of first impression, that nothing in Section 362(k)(1) limits the scope of the attorneys’ fees to solely ending the stay violation. Instead, the broad language of the statute, permits recovery of fees incurred in stopping the stay, pursuing damages for the violation and defending the judgments on appeal. Therefore, the initial award of fees and costs of $41,714 ballooned to $214,240.03.
Milavetz, Gallop & Milavetz, P.A. v. US, No. 08–1119 (U.S. Supreme Court, March 08, 2010)
In an action by a law firm seeking declaratory relief, arguing that plaintiff was not bound by the Bankruptcy Abuse Prevention and Consumer Protection Act’s (BAPCPA) debt relief agency provisions and therefore could freely advise clients to incur additional debt and need not make the requisite disclosures in its advertisements, the Eighth Circuit’s order rejecting the district court’s conclusion that attorneys are not “debt relief agencies” under BAPCPA, upholding application of BAPCPA’s disclosure requirements to attorneys, and finding BAPCPA section 526(a)(4) unconstitutional, is affirmed in part where: 1) attorneys who provided bankruptcy assistance to assisted persons were debt relief agencies under the BAPCPA; and 2) BAPCPA section 528’s requirements were reasonably related to the government’s interest in preventing consumer deception. However, the court of appeals’ order is reversed in part where BAPCPA section 526(a)(4) prohibited a debt relief agency only from advising a debtor to incur more debt because the debtor was filing for bankruptcy, rather than for a valid purpose.
Hersh v. U.S., 347 B.R. 19 (N.D.Tex. 2006) Godbey, District Judge DEBTORS’ ATTORNEYS ARE “DEBT RELIEF AGENCIES” UNDER 11 U.S.C. § 101(12A)
BAPCPA PROHIBITION AGAINST ATTORNEYS ADVISING CLIENTS TO INCUR NEW DEBT PRIOR TO FILING BANKRUPTCY IS UNCONSTITUTIONAL
BAPCPA REQUIREMENT THAT ATTORNEYS PROVIDE CERTAIN DISCLOSURES IS CONSTITUTIONAL § 101(12A), § 526(a)(4), § 527
Dallas attorney Susan B. Hersh filed this action to have certain portions of BAPCPA declared unconstitutional.
Held: The definition of debt relief agency at § 101(12A) lists 5 exceptions, none of which refers to attorneys. Had Congress meant to exclude attorneys from the category of debt relief agencies it would have been explicit in its list of exclusions. Hence, attorneys are debt relief agencies.
However, the provision found at § 526(a)(4) which states “A debt relief agency shall not … (4) advise an assisted person or prospective assisted person to incur more debt in contemplation of such person filing a case under this title . . .” bans bankruptcy attorneys from advising their clients to take on additional debts ‘in contemplation’ of bankruptcy. Thus, section 526(a)(4) prevents lawyers from advising clients to take actions that are lawful, even under BAPCPA.”
The opinion gives examples of taking on more debt would be lawful, including refinancing a mortgage to get a lower interest rate, taking on secured debt such as a loan on an automobile that would survive bankruptcy and also enable to the debtor to continue with employment. “Thus, § 526(a)(4) prevents lawyers from giving their clients their best advice.” “Thus, section 526(a)(4) of the BAPCPA imposes limitations on speech beyond what is ‘narrow and necessary’” under a constitutional test.
Hersh also argued that § 527 violates the First Amendment. Held, Section 527 which requires the attorney to provide certain disclosures “advances a sufficiently compelling governmental interest and does not unduly burden either the attorney-client relationship or the ability of a client to seek bankruptcy.”
In re Thomas, 342 B.R. 758 (S.D.Tex. 2006) BAPCPA IMPOSES NEW ACCOUNTABILITY ON DEBTORS AND ATTORNEYS RULE 9011
BAPCPA imposes new responsibilities on debtors and their counsel for omitted and false data on schedules, and imposes on schedules the same standards as for other pleadings.
Debtor criticized for not informing her attorney of student loan lawsuit and attorney for student loan agency of her bankruptcy, and debtor’s attorney criticized for not making sufficient inquiry into debtor’s creditors to discover the lawsuit.In re Moser, 347 B.R. 471 (Bkrtcy.W.D.N.Y. 2006) CARL L. BUCKI, Bankruptcy Judge. ATTORNEY’S OVERSIGHT JUSTIFIED DEBTOR’S FAILURE TO FILE COPY OF TAX RETURN WITH TRUSTEE NO LATER THAN 7 DAYS BEFORE MOC § 521(e)(2)(A), 521(e)(2)(B)
The court held that the debtor’s attorney’s oversight in failing to file tax return with trustee was “circumstance beyond the control of the debtor, thus avoiding dismissal of case. The code provides that in the event of failure to file the return (or transcript of return) with the trustee as required shall result in the case being dismissed unless the debtor can persuade the court the failure was due to “circumstances beyond the control of the debtor.”
In this case the trustee did not receive the documents prior to the meeting of creditors. The debtor’s attorney attempted to present them at the meeting, but the trustee declined to accept them and subsequently moved to dismiss the case. The attorney testified that the debtors had given him the copies of the returns in a timely manner but that he neglected to file them with the trustee.
The court recited the rule that generally the acts of the attorney are imputed to the client. The court observed “The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 has created many new pitfalls for practitioners of bankruptcy law. Even excellent attorneys will encounter an enhanced risk for inadvertent delay.” The court cited in agreement the rulings in In re Grasso, 341 B.R. 821 (Bkrtcy.D.N.H. 2006) and In re Merrill, 340 B.R. 671 (Bkrtcy.D.N.H. 2006).
Briggs v. Reed (In re Reed), 17-1143 (8th Cir. April 25, 2018) Judge Benton therefore held that the “bankruptcy court had authority to enter sanctions for events that occurred while trying to enforce the order compelling turnover and the show cause orders.” The bankruptcy court sanctioned Ross H. Briggs for contempt of an order and 1 for misleading the court. The district court affirmed. Having jurisdiction under 28 2 U.S.C. §§ 158(d)(1) and 1291, this court affirms.
Bankruptcy judge has constitutional authority to sanction counsel for contempt for disobeying orders in the bankruptcy case. The bankruptcy judge ordered counsel under section 542(e) to provide information regarding his representation of numerous chapter 13 debtors to determine whether disgorgement under section 329 was required. Counsel made no sincere effort to comply. After notice and a hearing, the court sanctioned counsel for contempt, prohibiting him from filing any chapter 13 cases in the district for six months and requiring him to take 12 hours of ethics education. Under Article III, without the defendant’s consent, a bankruptcy court may not issue a final judgment against a defendant on a state-law claim or cause of action that is not resolved in ruling on the defendant’s proof of claim. Because the bankruptcy judge’s orders were issued under Bankruptcy Code provisions and related to actions in bankruptcy cases, the sanctions order was not based on a state law claim or cause of action but arose in the bankruptcy case. A bankruptcy judge has constitutional authority to issue such an order.
Attorney discipline debts are nondischargeable under Section 523(a)(7)
In re Tim Osicka, 21-1566, (US Ct Appeals, 7th Cir. 2/7/22) In an issue of first impression for our court, Tim Osicka challenges a bankruptcy court’s ruling that the costs of his attorney disciplinary proceedings imposed by the Wisconsin Supreme Court were not dischargeable under a provision of the Bankruptcy Code, 11 U.S.C. § 523(a)(7). The district court upheld the ruling, and we affirm.
Finally, every other circuit to have confronted the question presented has come to the same conclusion. See, e.g., In re Albert-Sheridan, 960 F.3d 1188, 1192–93 (9th Cir. 2020); In re Feingold, 730 F.3d 1268, 1275 (11th Cir. 2013); Richmond v. N.H. Supreme Court. Comm. on Prof’l Conduct, 542 F.3d 913, 920–21 (1st Cir. 2008).
Bankruptcy courts in our circuit likewise have found no contradiction between punishing attorney misconduct and measuring that punishment based on the government’s expenses. See, e.g., In re Netzer, 545 B.R. 254, 259–61 (Bankr. W.D. Wis. 2016); In re Betts, 149 B.R. 891, 896 (Bankr. N.D. Ill. 1993). Indeed, such a method responds to Kelly’s directive to “tailor” remedies to “the defendant’s situation.” 479 U.S. at 53
Discovery sanctions were not “payable to and for the benefit of a governmental unit”
Albert-Sheridan v. State Bar of California 19-60023, 9th Cir BAP 18-1222 (9th Cir Court of Appeals, June 10, 2020). The Ninth Circuit affirmed in part and reversed in part the Bankruptcy Appellate Panel’s affirmance of the bankruptcy court’s dismissal and remanded in a chapter 7 debtor’s adversary proceeding asserting that fees imposed by the State Bar of California on a member suspended for misconduct were dischargeable debts. Reversing in part, the panel held that the discovery sanctions under Cal. Civ. Proc. Code § 2023.030 were dischargeable because, under the plain test of 11 U.S.C. § 523(a)(7), they were not payable to and for the benefit of a governmental unit and were compensation for actual pecuniary losses. The Circuit affirmed as to the dismissal of the debtor’s claim that by failing to reinstate her law license, the State Bar violated § 525(a), which prohibits a government unit from denying, revoking, suspending or refusing to renew a debtor’s license solely because the debtor filed for bankruptcy or failed to pay a dischargeable debt.
These are cases that I have used in front of Judge Sala when I argued valuation is as of the date of filing BAC Home Loans Serv., LP v. Abdelgadir (In re Abdelgadir), 455 B.R. 896, 898 (9th Cir. BAP 2011) implied, in dicta, that the value of a claim does not necessarily have to be determined as of the petition date, Abdelgadir, 455 B.R. at 902. That implication, however, does not mean that the petition date should not be used. The Abdelgadir court found that the lower court’s determination of whether a claim is protected from modification should be determined as of the date of confirmation, pursuant to §1123(b)(5), was flawed, as it conflates the analysis of whether a creditor holds a claim with the determination of the value of the claim. The Abdelgadir court found, as a matter of law that the proper date for determining whether a claim is secured by a debtor’s principal residence (and is therefore subject to the § 1322(b) antimodification clause) is, “. . . like all claims, fixed at the petition date.” Abdelgadir, 455 B.R. at 903.
In re Gutierrez, 503 B.R. 458 (Bankr.C.D.Cal., 2013). . . although the distributions on account of a claim are determined in connection with confirmation of a plan, the petition date is used to determine not only the dollar amount of that claim (§ 502) but also the “type” of the claim, meaning whether it is a type of claim that can be modified under section 1322(b)(2). Part of that analysis is whether the property is in fact the “principal residence,” and another part of that analysis is whether the junior lien is entirely underwater, and it is consistent for both parts of the analysis to be done as of the same date, “the petition date.” That is not the only possible reading of the statute, but it appears to be most in keeping with section 502 and the flexibility of section 506.
Moreover, it would be illogical to determine whether the property is the debtor’s principal residence for purposes of § 1322(b)(2) on the petition date, but to determine the value of the property (which may often be related to the use of the property) at a different date. For example, suppose a debtor used the property as his principal residence on the petition filing date; then, prior to the effective date of the plan, stopped living there (perhaps due to financial hardship), as a result of which the property began to deteriorate and declined in value. Or suppose the debtor moved out and rented the property to tenants who improved the property and increased its value. It would be incongruous to conclude that the operative date for determining each prong of the §1322(b)(2) analysis would be different, especially in light of the relationship between those two prongs. Such an approach would not only be illogical, but it would allow for the possibility of gamesmanship. In re Gutierrez, 503 B.R. at 463.
Judge Nielsen noted in his holding in Michael Eric Mccune vs Orangewood Village Homeowners Association, Adv. No.2-13-01160 (finding that the petition date was the appropriate date to determine valuation), there is no clear decision regarding the appropriate date to determine valuation, but, relying in part in the Gutierrez decision, Judge Nielsen held that the Court has discretion in determining the appropriate date based on the particular facts of the case.
For a thorough analysis (but not binding in this circuit) see Robert J. Hegeduis and Kerri M. Hegeduis vs. Harris, N.A., Adv.No.: 12-2203, Northern District of Indiana (January 23, 2015). (see attached) Benafel v. One West Bank, FSB (In re Benafel), 461 B.R. 581 at 587 (9th Cir. BAP 2011). The logic of the trustee’s position is misplaced as to valuation and increases in that valuation post petition when comparing Judge Curley’s interpretation in a Chapter 11 holding (value as of the date of filing) compared to a chapter 13. Chapter 11s can take a very long time to reach confirmation compared to Chapter 13s. the date of filing of a Chapter 13 case is a watershed moment. The happenstance of an unexpected uptick in the market does not fall within the equitable premise of a fresh start. Also, this happenstance uptick, may, as it did happen in the not so distant past, end up being nothing but a bubble. The debtor could then end up paying a substantial amount of home equity to unsecured creditors and his house may become underwater.
In re Crystal Cathedral Ministries
The bankruptcy court did not abuse its discretion in sanctioning the reorganized debtor’s attorney for causing the reorganized debtor to make “reckless and frivolous” arguments regarding the effect of confirmation of the reorganized debtor’s chapter 11 bankruptcy plan in order to pressure a creditor to release claims post-confirmation.
WARNING: PRE-BAPCPA: Musser v. Provencher 28 Cal.4th 272 (2002) (12/26/02)
BANKRUPTCY ATTORNEY LIABLE FOR GIVING DIVORCE ATTORNEY ADVICE SHE COULD PROCEED WITH MOTION FOR SUPPORT WITHOUT RELIEF FROM AUTOMATIC STAY ON A CALIFORNIA COURT CASE AN ATTORNEY REPRESENTING THE WIFE IN A DIVORCE FILED A MOTION FOR SPOUSAL SUPPORT. BEFORE THE MOTION WAS HEARD IN STATE COURT THE HUSBAND FILED BANKRUPTCY. THE DIVORCE ATTORNEY CALLED A BANKRUPTCY LAWYER (NOT THE HUSBAND’S) TO FILE A MOTION FOR RELIEF FROM STAY ALLOWING THE HEARING ON SUPPORT TO PROCEED. THE BANKRUPTCY ATTORNEY ADVISED HER THAT SHE COULD PROCEED WITHOUT RELIEF FROM STAY, AS LONG AS THE SUPPORT ORDER WAS NOT MADE FINAL UNTIL RELIEF FROM STAY WAS GRANTED. DIVORCE ATTORNEY PROCEEDED WITH HEARING. DEBTOR SOUGHT DAMAGES AGAINST WIFE FOR VIOLATION OF THE STAY, WHO IN TURN SUED HER DIVORCE ATTORNEY FOR MALPRACTICE, WHO IN TURN SUED THE BANKRUPTCY ATTORNEY SHE HAD CONSULTED. BANKRUPTCY ATTORNEY WAS HELD LIABLE.