JEFFERY P. HOPKINS, Bankruptcy Judge.
Attorneys occasionally need a reminder of the importance of the office they occupy in our justice system and the attendant elevated responsibilities. While still serving as Chief Judge of the New York Court of Appeals, Justice Benjamin N. Cardozo once observed: "Membership in the bar is a privilege burdened with conditions. [A lawyer is] received into that ancient fellowship for something more than private gain. He [or she becomes] an officer of the court, and, like the court itself, an instrument or agency to advance the ends of justice." People ex rel. Karlin v. Culkin, 248 N.Y. 465, 470-71, 162 N.E. 487 (1928). The Court is reminded of Justice Cardozo's timeless remarks because the attorneys who represent the Debtor, Savan Thach, in this proceeding appear to have forgotten or simply ignored duties associated with becoming an attorney which, fundamentally, are to follow the published rules of the court, applicable legal authorities, and precedent in the quest "to secure the just, speedy and inexpensive determination of every action and proceeding." Fed. R. Civ. P. 1.
On February 20, 2019, the Debtor filed a Chapter 7 case that was later converted to Chapter 13 by Agreed Order entered June 26, 2019 (Doc. 16). On December 19, 2019, a hearing on confirmation on the Debtor's Chapter 13 plan was held. At the hearing, the Chapter 13 Trustee, Margaret A. Burks (the "Trustee"), expressed serious concerns about the Debtor's apparent representation by multiple attorneys. From a review of the docket, the statements of the Trustee, and based upon a colloquy between the Court and the counsel of record for the Debtor in these proceedings, it appears that the Debtor's legal representation has passed indiscriminately between two or more attorneys; these attorneys (until recently) appear not to have been regularly associated or partners in the same law firm; and finally, the attorneys' client (the Debtor) may not have given informed consent to the representation provided or written permission for the attorneys to share fees. The conduct alleged in the Preliminary Findings that follow, if accurate, may constitute multiple serious violations of important provisions of the Bankruptcy Code and Rules, the Ohio Rules of Professional Conduct, and the Local Rules and ECF Procedures. These infractions may warrant sanctions being imposed by this Court against one or more of the attorneys or the law firms involved, including Upright Law, Amourgis & Associates, H. Leon Hewitt, Mary Foster, and Jessica Goldberger.
ECF Procedure 8(a)
The majority of the Debtor's pleadings have been transmitted using the CM/ECF Filer or User login credentials and electronic signature of attorney H. Leon Hewitt. For example, the petition (Doc. 1), the Statement of Intent (Doc. 4), the Verification of Creditor Matrix (Doc. 5), the Certificate of Creditor Counseling (Doc. 6), Amended Schedules (Doc. 9) and several other documents appear to have been transmitted electronically by Mr. Hewitt. Stunningly, however, at the first confirmation hearing held in the case, Mr. Hewitt stated to the Court that, despite the use of his CM/ECF Filer credentials and electronic signature, and his appearance on behalf of the Debtor at the scheduled hearing, he was, nevertheless, not counsel for the Debtor. Instead, Mr. Hewitt asserted that Ms. Mary Foster is the actual attorney representing the Debtor and that he is simply aiding and providing guidance to Ms. Foster. According to Mr. Hewitt, at the time the petition was filed, he and Ms. Foster had been sharing office space and both had been receiving contract work from an entity called Upright Law.
Since filing the petition, however, Mr. Hewitt claims that both he and Ms. Foster have discontinued their association with Upright Law. Mr. Hewitt now asserts that both he and Ms. Foster are currently working with the Amourgis & Associates law firm.
On the day of the confirmation hearing, Mr. Hewitt explained that Ms. Foster was unavailable because Ms. Goldberger had sent her to attend a scheduled hearing in a different court. Following the conclusion of the confirmation hearing and after being admonished by the Court of the potential rules violations, Mr. Hewitt filed a Notice Confirming Attorney Representation (Doc. 48) (the "Notice") seeking to correct his mistakes, but as it turns out the filing only added to the confusion. It states:
Resolution of this matter requires review of several Bankruptcy Code provisions, Bankruptcy Rules, and ECF procedures which were adopted by this Court and carry the force of law. Among these are 11 U.S.C. §§ 329 and 504, Fed. R. Bankr. P. 2016 and 9011, Ohio Prof. Cond. Rules 1.1 and 1.5(e), and ECF Procedures 8(a) and 8(c). Each may be directly implicated by the conduct of Mr. Hewitt, Ms. Foster, and Ms. Goldberger based upon the record compiled in this case.
Foremost on the list of Bankruptcy Code provisions and Rules potentially violated are 11 U.S.C. § 329 and Rule 2016. Section 329(a), in relevant part, provides:
"Section 329 of the Bankruptcy Code not only recognizes the bankruptcy court's traditional concern for the need to carefully scrutinize the compensation paid to the debtor's attorney, but also underscores that the court has a duty to do so, sua sponte and even in the absence of objections." 3 Collier on Bankruptcy ¶ 329.01 (Richard Levin & Henry J. Sommer eds. 16th ed.); see also In re Williams, 304 B.R. 191, 194 (Bankr. N.D. Ohio 2007).
Rule 2016 establishes the procedure for filing the statement required by § 329. In pertinent part, Rule 2016 provides:
"Federal Rule of Bankruptcy Procedure 2016 is designed to require an applicant for compensation provide the bankruptcy court with sufficient information to allow the court to respond appropriately to the application. The rule also encourages the applicant to comply with the Code and Rules in order to avoid losing any entitlement to compensation." 9 Collier on Bankruptcy ¶ 2016.01 (Richard Levin & Henry J. Sommer eds. 16th ed.); see also In re Dental Profile, Inc., 441 B.R. 885, 908 (Bankr. N.D. Ill. 2011). "Rule 2016 is part of a statutory and rule-based framework designed to provide fair compensation to persons working in the bankruptcy arena while protecting bankruptcy estates from over-reaching." Id.
The arrangement between Mr. Hewitt, Ms. Foster, Upright Law, and Amourgis & Associates calls into question who the Debtor's attorney is, and whether any of the compensation he or she has received should be subject to disgorgement. Indeed, the Amended Disclosure of Compensation of Attorney for Debtor form (Doc. 25) shows that Mr. Hewitt was paid $1,225 for his representation of the Debtor before this case was filed, and states he is still owed $2,475.
A less well known but extremely important provision of the Bankruptcy Code implicated by the law firms' and attorneys' conduct in this case is 11 U.S.C. § 504. In relevant portion, § 504 provides:
Given the concessions on the record already made by counsel, it would appear that the compensation sharing exceptions contained in § 504(b) for attorneys regularly associated in a law firm or law partners do not apply. The Court must therefor scrutinize the conduct potentially engaged in by the attorneys under § 504(a). "Section 504 of the Bankruptcy Code prohibits any person receiving compensation or reimbursement of expenses under subsection 503(b)(2) or (b)(4) from sharing such compensation with another person." 4 Collier on Bankruptcy ¶ 504.01[1] (Richard Levin & Henry J. Sommer eds. 16th ed.); see also In re Fair, 2016 WL 3027264, at *12 (Bankr. N.D. Tex. May 18, 2016) ("Section 504 clearly applies in chapter 13 cases"). The rationale is straight-forward. "Whenever fees or other compensation is shared among two or more professionals, there is incentive to adjust upward the compensation sought in order to offset any diminution to the share of either. Consequently, sharing of compensation can inflate the cost of a bankruptcy case to the bankruptcy estate, and therefore to the creditors." Id, at ¶ 504.01.
Similar to the concerns expressed by the Court under the portion of the Order addressing § 329 and Rule 2016, it also appears on the surface at least that Mr. Hewitt, Ms. Foster, Upright Law, and Amourgis & Associates may have engaged in an unlawful fee sharing arrangement prohibited by § 504(a). Mr. Hewitt's odd response that he has no knowledge of this case despite pleadings being repeatedly transmitted under his ECF Filer credentials and electronic signature does nothing to advance the interests of the Debtor and needlessly delays these proceedings, inconveniencing not only the Debtor but this Court and the Trustee's office. The delays created by the anomalous manner in which this case has been handled by the attorneys and law firms raises serious questions about whether they should be compensated at all or have the attorney's fees substantially reduced. See 11 U.S.C. §§ 329 and 330.
Courts consider violations of Rule 9011 among the more serious. The nature of these infractions cut to the core of the attorney-client relationship and an attorney's responsibilities as an officer of the court. Sanctions can be imposed against the attorney who violates the Rule, his or her law firm or a party. Rule 9011, in pertinent part, provides:
Fed. R. Bankr. P. 9011 seeks to "deter baseless filings in bankruptcy court and thus avoid unnecessary judicial effort, the goal being to make proceedings in that court more expeditious and less expensive." 10 Collier on Bankruptcy ¶ 9011.01 (Richard Levin & Henry J. Sommer eds. 16th ed.); see also Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 393 (1990). These prudential tenets appear to have been trampled upon by counsel in this case without regard for or sadly even an awareness of the rules governing the conduct by all attorneys who practice in this Court.
As previously mentioned, Mr. Hewitt's electronic signature upon the various pleadings transmitted in this matter constitute certifications to this Court that he had conducted reasonable investigations into the bases for the relief sought.
Having transmitted documents electronically with the Court and then claiming to lack knowledge of legal contentions therein, Mr. Hewitt may have also violated the Ohio Prof. Cond. Rule 1.1.
Moreover, if Ms. Foster was not fully capable of representing the Debtor, she too may have violated this Rule. "Competent handling of a particular matter includes inquiry into and analysis of the factual and legal elements of the problem, and use of methods and procedures meeting the standards of competent practitioners. It also requires adequate preparation." Ohio Prof. Cond. Rule 1.1, cmt. 5 (emphasis added). Finally, if Ms. Goldberger was aware of the arrangement between Mr. Hewitt and Ms. Foster and sent Ms. Foster to a different court knowing Mr. Hewitt was ill-prepared and lacked the requisite competence to proceed on the Debtor's case, Ms. Goldberger may also be in violation of the Rule. See Ohio Prof. Cond. Rule 5.1(c)(1) ("A lawyer shall be responsible for another lawyer's violation of the Ohio Rules of Professional Conduct if . . . the lawyer orders or, with knowledge of the specific conduct, ratifies the conduct involved. . . .) (emphasis in original).
Similar to 11 U.S.C. § 504(a) discussed above, Ohio Prof. Cond. Rule 1.5(e), generally disfavors fee splitting by attorneys from different firms and allows it only under very specific circumstances.
Ohio Prof. Cond. Rule 1.5(e) provides in pertinent part:
No evidence of the client's written consent has been provided to show that the Debtor agreed to the form of representation that has heretofore taken place. For the same reasons discussed above, Mr. Hewitt and Ms. Foster may have violated Ohio Prof. Cond. Rule 1.5(e).
Finally, as previously mentioned in the Preliminary Findings supra, ECF Procedure 8(c) specifically disallows the activity which Mr. Hewitt admitted to in this case, namely allowing another attorney to transmit documents under his ECF Filer credentials and electronic signature. It provides:
The activities of Mr. Hewitt, Ms. Foster, Ms. Goldberger, and the Amourgis & Associates and Upright Law firms outlined in this order appear to display a blatant disregard of this procedure and the safeguards it is intended to ensure-namely, that this Court should be aware of who it is that is serving as the attorney of record and providing legal representation to the parties appearing before it.
Based on the foregoing,
Failure by the attorneys who are the subject of this Order to comply with any of its terms shall result in the imposition of further sanctions by this Court.
