Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.
By Diane Davis
April 5 — A debtor's attorney was properly sanctioned by a bankruptcy court because of his “wholly unreasonable behavior” in filing bankruptcy for a second time despite a court order prohibiting such a filing, a district court in New York held March 31.
Judge Ann M. Donnelly of the U.S. District Court for the Eastern District of New York affirmed the bankruptcy court's order imposing $9,786 in sanctions on the debtor's second attorney, including legal fees and expenses that the secured creditor incurred in connection with the aborted foreclosure sale.
“Few principles should be more obvious to practicing lawyers than this: that they have a professional and ethical obligation to familiarize themselves with the basic facts of the cases that they take on, and that they read documents before filing them in courts of law,” the court said.
Fed. R. Bankr. P. 9011 imposes a duty on attorneys to certify that any “petition, pleading, written motion or other paper” filed with the court isn't being presented for any improper purpose and is “warranted by existing law and evidentiary support,” the court said. Attorneys must conduct “an inquiry reasonable under the circumstances” before presenting a petition to the court, the court said. Under Rule 9011(c), courts have discretion to impose sanctions against attorneys who have violated the affirmative duty not to file, submit, or advocate a position in a written document for an improper purpose or a position without legal or evidentiary support.
According to the court, the bankruptcy court's decision to sanction the debtor's second attorney was “eminently reasonable” in light of his conduct and his “absurd efforts to explain away that conduct.”
Debtor JJE & MM Group LLC owned two properties and they were scheduled to be sold at a foreclosure sale. On the same day, the debtor filed for Chapter 11 protection, which is for businesses or individuals whose debts exceed the statutory thresholds for Chapter 13.
The sole creditor, 1354 Realty, moved to dismiss the bankruptcy action on the ground that the debtor acted in bad faith in filing for bankruptcy on the day of the foreclosure sale.
Judge Carla E. Craig of the U.S. Bankruptcy Court for the Eastern District of New York determined that the petition was filed in bad faith and dismissed the case. Craig's dismissal order also barred the debtor from filing another case under Chapter 11 for a one year period from the date of the order.
The creditor obtained a judgment of foreclosure and, on the afternoon of the sale, debtor, through new counsel, filed a second bankruptcy petition in direct violation of Judge Craig's order.
At a show cause hearing before Judge Craig, the debtor's new attorney, appellant Noson A. Kopel, told the court that the case was brought to him on an emergency basis an hour and a half before a scheduled sale and that he hadn't read an affidavit the debtor handed him.
Craig found Kopel in contempt for violating the previous order, and issued sanctions against Kopel, but not the debtor because he represented at the hearing that his client didn't understand the court's order. Craig found that he “nobly absolved his client of responsibility.”
The district court found Craig's decision to impose sanctions was reasonable in view of Kopel's conduct. His insistence that he wasn't a party to the initial action in which his client filed for bankruptcy on the same date as the foreclosure sale “misses the point entirely,” the court said. He wasn't sanctioned for the underlying first bankruptcy filing in bad faith, but for his behavior in filing for bankruptcy a second time on the day of the foreclosure sale in the face of an order prohibiting such a filing, the court said.
It was also appropriate for the bankruptcy court to sanction only the attorney, not the debtor, the court said. Rule 9011 also explicitly contemplates attorneys' fees incurred in presenting or opposing a motion as an appropriate sanction, the court said.
Pincus David Carlebach, Law Offices of David Carlebach, Esq., New York, N.Y., represented debtor JJE & MM Group, LLC; and Noson Aharon Kopel, Attorney-At-Law, Brooklyn, N.Y., represented himself as appellant.
To contact the reporter on this story: Diane Davis in Washington at email@example.com
To contact the editor responsible for this story: Jay Horowitz at firstname.lastname@example.org
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)