I don’t think that anyone truly thinks that fraud and actions to cover up fraud don’t exist in our world. I myself have spent many times around the watercooler at my job, talking with co-workers about the lengths that people go to in order to make it that their illegal actions don’t see the light of day. What we are blown away by are stories where attorneys are doing the illegal activities to help their client who has been fraudulent in the first place. The last blog post sparked our interest in these sorts of situations.
And they do happen.
The good news for those of us who think there is no hope for a system where these things are tolerated by the very officers who are entrusted with the care of that system, is that they often times get caught. That is the subject of my post: those naughty bankruptcy attorneys.
Federal Rule of Bankruptcy Procedure 9011 provides guidance about an attorney’s filings:
“The attorney “is certifying that to the best of the person’s knowledge, information, and belief, formed after an inquiry reasonable under the circumstances” that the information presented by the attorney to the court is such.
So you can’t just upload things just because you feel like it, and you can’t to purposefully cause delay, and you can’t to try to increase the cost of litigations, and you can’t make allegations unless you have evidentiary support for them. So actually I wrote it wrong to say “you can’t”. You CAN, but doing so will subject you to sanctions, and a nice big fat Order for Show Cause that starts the ball rolling. Bankruptcy courts can impose sanctions in three situations: where papers that are submitted demonstrate factual frivolity, legal frivolity, or where papers are submitted for an ‘improper purpose.’ Attorneys have been penalized by the bankruptcy court for their actions. THIS case involves sanctions against an attorney who advised their client not to disclose assets. And THIS case shows the importance of the attorney having information to back up their claims, and what happens when your client contradicts their facts to save themselves.
At all times once an attorney is retained as their counsel, it is THEY who are running the show and are responsible for authenticity of information on schedules. It doesn’t work to say you believed what your client told you about the amount in their accounts or their income amount, if you don’t get the statements to corroborate what they’ve said. Attorneys are responsible for doing discovery on their clients’ information BEFORE filing things in the court about them. Not that you can’t do that, but if you do, it is your ass in the sling swinging in front of the Judge at your Show Cause hearing. It’s also a no-no to repeatedly submit unconfirmable plans (see Dahlgren v. Palone case), and to do so in a deliberate attempt to multiply or delay proceedings subjects the attorney to sanctions also. It’s a privilege to operate in the court, and if you abuse it by being negligent, too bad for you (see Thao Tran).
Finally, it’s worth mentioning that an attorney’s show cause hearing isn’t the place for them to lie about what or why they did what they did. Ask Kathy Cruz, who put wrong information on schedules that affected funds available to creditors, mischaracterized monies in order to obtain confirmation for their client, and then made misrepresentations in her show cause hearing to the Judge about her actions. Fines, mandatory reeducation and suspension of practice for 6 months. Was that little money your client gave you really worth all of that, Kathy? Kathy isn’t alone. If attorneys think they can get one over on a determined Judge, just look at this case, also found on the internet, involving what at first was an attorney not using Federal upload system in accordance with the Rules:
There is a blog post found HERE, where an attorney asks “what has happened to honesty in the Bar, for Pete’s sake?” We applaud any avenues that exist to bring out and showcase the fraudulent behavior of clients hell-bent on committing bankruptcy fraud, and their attorneys who are determined to “win” by any means necessary to help them. At some point, it becomes clear that your client is committing fraud, and an attorney that keeps walking beside them to help them do it… well, hopefully they don’t mind their character and reputation being judged accordingly. Birds of a feather, do tend to flock together!