Bankruptcy and Ethics – Courts Going Behind the Curtain

(Reprinted from Norton Bankruptcy Law Adviser, October 2011, with permission.  Copyright © 2011 Thomson Reuters/West.  For more information about this publication please visit

By Thomas F. Waldron, United States Bankruptcy Judge (Retired)


In the classic movie “The Wizard of Oz”, Dorothy, expending extra effort, goes behind the curtain to locate the source of recurring deception and disregards that disingenuous plea:  “Pay no attention to that man behind the curtain.”[1]

Bankruptcy courts, likewise, expending extra effort, go behind the curtain presented by an individual lawyer to locate the source of recurring deception involving a law firm, disregarding similar disingenuous pleas in connection with legal and ethical violations.

This article examines efforts by bankruptcy courts to halt existing deceptions and prevent, or limit, future deceptions by individual lawyers and their law firms.


It would be appropriate to characterize the decade just ended as the Decade Of Deceit.  It opened with Enron’s bankruptcy in 2001, ran through Madoff in 2009  and closed with untold millions of deceitful documents still circulating in the mortgage meltdown mess. Regrettably, the headline grabbing mega-bankruptcies were often merely magnified versions of instances of individual deception. Deceitful documents, appearing in far too many consumer bankruptcy cases, have only recently received wider public attention from state courts, state attorneys general and Congress.

It is clear there is recurring deception in numerous filings throughout the bankruptcy courts by counsel for creditors and counsel for debtors. It is equally clear that bankruptcy courts’ efforts, sometimes sua sponte, in connection with ethical violations involving a solitary lawyer, while necessary, are often of limited impact.  However, courts going behind the curtain, although certainly expending more effort, have greater impact on the source of existing, and future, deception and provide greater benefit for the bankruptcy community and the public.[2]

Cast of Characters

Some of the examples in this article present an all-too-familiar cast of characters in consumer bankruptcy cases:

the (“prepared”) Overburdened or Undertrained Debtor Attorney – “Whose case is this?”;

the (“responsible”) Managing Debtor Firm Attorney – “I’ll look into this as soon as I can get some time.”;

the (“not practicing law”) Debtor Paralegals – “Why do the lawyers keep messing up my work?”;

the (“innocent”) Initial Creditor Attorney – “I was just following instructions.”;

the (“helpful”) Accompanying Creditor Attorney – “I do not have that information.”; the (“surprised”) Supervising Creditor Attorney – “I never gave those instructions.”;

and an army of (“confused”) Non-Attorney Creditor Assistants – “Who us?”. There are separately the (“shocked”) Referring Entity – “I had no idea anything like this was going on.”

and the (“distant”) Cloaked Client – “ I merely requested that my rights be recognized.”

Although space prevents extended discussion of each of these characters, their individual, and more significantly, their collective deceptions, constituting various legal and ethical violations, present an ongoing and serious threat to the successful operation of the bankruptcy system.


A primary resource for bankruptcy courts in addressing deception is Federal Rule of Bankruptcy Procedure 9011, specifically 9011(c) [3], which by its terms provides for sanctions against not only the individual attorney, but also the related law firm. Bankruptcy courts also have available 28 U.S.C. 1927 [4]and the inherent authority to control proceedings and parties appearing before the court. [5]

Other significant resources are the provisions of the ABA Model Rules (or prior Code) Of Professional Responsibility as adopted by the state where the bankruptcy court is located. [6] It has been a continual process for federal courts, including bankruptcy courts, to incorporate these state adopted ethical requirements into their local rules, orders or procedures in proceedings involving lawyer discipline.[7]

Additional resources are the state court disciplinary authorities employing state standards or applicable principles of preclusion.  Although bankruptcy courts, obviously, do not exercise authority over state disciplinary entities, bankruptcy courts can detail violations of the applicable state rules of professional responsibility in their decisions and then refer the involved lawyers and law firms to the appropriate state entities.[8]

Among the human resources available to a bankruptcy court are the steadfast efforts of attorneys, chapter trustees, particularly chapter 13 trustees, and the offices of the various Estate Administrators and United States Trustees.[9]

Decisions Involving Deception

Before discussing decisions involving sanctions imposed by bankruptcy courts and state disciplinary bodies on individual debtor attorneys and their law firms, it is worthwhile to spend some time on the concept of deception in the bankruptcy courts.

It is clear that deceptive documents have no place in the bankruptcy system and, of course, may not be presented to a court by any attorney. For an attorney to do so knowingly, or to fail, after becoming aware of the existence of such documents, to bring the deception to the bankruptcy court’s attention exposes an attorney to consequences ranging from civil sanctions to criminal charges. See the ABA Model Rules of Professional Conduct as adopted and modified in specific states, Bankruptcy Rule 9011, §§526, 527, 528 and 18 U.S.C. §§ 152 and 157.

Particularly relevant are ABA Model Rules of Professional Conduct:


(a) …, a lawyer shall not represent a client or, where representation has commenced, shall withdraw from the representation of a client if:

(1) the representation will result in violation of the rules of professional conduct or other law;


(a) A lawyer shall not knowingly:

(1) make a false statement of fact or law to a tribunal or fail to correct a false statement of material fact or law previously made to the tribunal by the lawyer;

(2) …

(3) offer evidence that the lawyer knows to be false. If a lawyer, the lawyer’s client, or a witness called by the lawyer, has offered material evidence and the lawyer comes to know of its falsity, the lawyer shall take reasonable remedial measures, including, if necessary, disclosure to the tribunal. A lawyer may refuse to offer evidence, other than the testimony of a defendant in a criminal matter, that the lawyer reasonably believes is false.

(b) A lawyer who represents a client in an adjudicative proceeding and who knows that a person intends to engage, is engaging or has engaged in criminal or fraudulent conduct related to the proceeding shall take reasonable remedial measures, including, if necessary, disclosure to the tribunal.

(c) The duties stated in paragraphs (a) and (b) continue to the conclusion of the proceeding, and apply even if compliance requires disclosure of information otherwise protected by Rule 1.6;


(a) A partner in a law firm, and a lawyer who individually or together with other lawyers possesses comparable managerial authority in a law firm, shall make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that all lawyers in the firm conform to the Rules of Professional Conduct.

(b) A lawyer having direct supervisory authority over another lawyer shall make reasonable efforts to ensure that the other lawyer conforms to the Rules of Professional Conduct.

(c) A lawyer shall be responsible for another lawyer’s violation of the Rules of Professional Conduct if:

(1) the lawyer orders or, with knowledge of the specific conduct, ratifies the conduct involved; or

(2) the lawyer is a partner or has comparable managerial authority in the law firm in which the other lawyer practices, or has direct supervisory authority over the other lawyer, and knows of the conduct at a time when its consequences can be avoided or mitigated but fails to take reasonable remedial action.


(a) A lawyer is bound by the Rules of Professional Conduct notwithstanding that the lawyer acted at the direction of another person.

(b) A subordinate lawyer does not violate the Rules of Professional Conduct if that lawyer acts in accordance with a supervisory lawyer’s reasonable resolution of an arguable question of professional duty.


With respect to a nonlawyer employed or retained by or associated with a lawyer:

(a) a partner, and a lawyer who individually or together with other lawyers possesses comparable managerial authority in a law firm shall make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that the person’s conduct is compatible with the professional obligations of the lawyer;

(b) a lawyer having direct supervisory authority over the nonlawyer shall make reasonable efforts to ensure that the person’s conduct is compatible with the professional obligations of the lawyer; and

(c) a lawyer shall be responsible for conduct of such a person that would be a violation of the Rules of Professional Conduct if engaged in by a lawyer if:

(1) the lawyer orders or, with the knowledge of the specific conduct, ratifies the conduct involved; or

(2) the lawyer is a partner or has comparable managerial authority in the law firm in which the person is employed, or has direct supervisory authority over the person, and knows of the conduct at a time when its consequences can be avoided or mitigated but fails to take reasonable remedial action; and


It is professional misconduct for a lawyer to:

(a) violate or attempt to violate the Rules of Professional Conduct, knowingly assist or induce another to do so, or do so through the acts of another;

*   *   *   *   *

(c) engage in conduct involving dishonesty, fraud, deceit or misrepresentation;

(d) engage in conduct that is prejudicial to the administration of justice;

(e) … or to achieve results by means that violate the Rules of Professional

Conduct or other law . . . . (emphasis added)

It will also be helpful to have a working definition of deception. The American Heritage Dictionary defines deceive – “1. To cause to believe what is not true; mislead.” [10]

Attorneys For Debtors

The bankruptcy court determined individual lawyers for debtors filed deceptive documents in numerous cases and the law firm failed to take corrective action. [11] The Court found, in part,

Ms. Hong’s [Overburdened or Undertrained Attorney] practice of obtaining a debtor’s signatures on documents, then changing the substance of the documents, failing to get the debtor’s signature on the changed form, and ultimately filing the changed documents with an electronic indication of the debtor’s signature is a violation of Local Rule 5005–7(b)(3). Those actions are particularly egregious when, as here, the documents are filed along with a declaration, signed by the debtor, that allegedly verifies the veracity of the attached documents. As Local Rule 5005–7(b)(1) indicates that Ms. Hong’s electronic signature constitutes a signature for purposes of Bankruptcy Rule 9011, Ms. Hong’s practice is also a violation of Rule 9011. The Court finds Ms. Hong’s violation of these rules to be bad faith because Ms. Hong falsely represented to this Court that Debtor signed the filed documents.


The U.S. Trustee’s report confirms that Ms. Hong’s practice of filing changed documents without getting new signatures is a widespread practice at the Semrad office. In addition to being a violation of the Local Rules, this practice is a violation of the Debtor’s Rights and Responsibilities Statement as incorporated in General Order 6–2006. The Rights and Responsibilities Statement identifies specific actions that counsel of Chapter 13 debtors “shall” take prior to filing a case. One responsibility of debtor’s counsel is to “personally review with Debtor and obtain Debtor’s signature on the completed petition, plan, as well as the Statement of Financial Affairs, Income and Expenses, and other statements as well as the various schedules (the “Schedules”), and all amendments thereto, whether filed with the petition or later” (emphasis added). The Semrad practice of obtaining debtors’ signatures on blank or incomplete forms, without later obtaining a signature on the completed forms prior to filing, is therefore a violation of General Order 6–2006.

The court addressed the deception by individual attorneys and the law firm in connection with the specific cases and the more general practices, and

ORDERED that Craig Z. Black, [Managing Debtor Firm Attorney] as managing partner of the Atlanta office of Robert J. Semrad & Associates, LLC [Referring Entity], shall:

(1) meet, within thirty (30) days of this Order, with members of the ad hoc committee of consumer bankruptcy attorneys in this district organized by Mary Ida Townson, Chapter 13 Trustee, to inform himself and the Semrad law firm with respect to successful methods of managing consumer bankruptcy caseloads; and

(2) file with the Court, within sixty (60) days of this Order and on the docket in both of the above-styled cases, an “Action Plan” that addresses the concerns expressed in this Order and that is targeted at providing quality legal representation to consumer debtor clients. This action plan may include additional legal education, the setting of limits on caseloads, and the elimination of the firm’s quota-based bonus system.

IT IS FURTHER ORDERED that Robert J. Semrad & Associates, LLC, shall:

(1) file a signed declaration, with each document filed in this Court for six (6) months from the date of this order and in every case in which they represent a party in interest, to attest to the firm’s compliance with General Order 6–2006; and

(2) pay a fine of $5,000.00 into the registry of the Court within thirty (30) days of the entry of this Order; Semrad shall notify the Court when the payment has been made by filing a certification with the Court on the docket in both of the above-styled cases.

IT IS FURTHER ORDERED that Craig Z. Black and Soo J. Hong [Overburdened or Undertrained Attorneys] shall each attend five (5) credit hours of Continuing Legal Education in ethics and professionalism within five (5) months from the date of this Order and file a certification with the Court, on the docket in both of the above-styled cases, with respect thereto.

Although there are many bankruptcy court decisions imposing sanctions on individual debtor attorneys and their law firms for violations of the applicable rules of professional responsibility, this is also an area in which state disciplinary bodies, either on their own, or as a result of notification from a federal court, take an active role. A decision from the Supreme Court of Arizona, sitting en banc, details the interface between a law firm’s federal bankruptcy court practices and a state disciplinary body’s concerns in connection with required professional conduct.[12] The opinion notes:

¶ 9 The Hearing Officer found that Phillips [Managing Debtor Firm Attorney] violated ER 5.1(a) as alleged in Counts 3 and 4, which related to the caseloads of P & A’s bankruptcy attorneys [Overburdened Debtor Attorney], each of whom carried as many as 500 cases at a time. A former P & A attorney [Overburdened or Undertrained Debtor Attorney] testified that, upon joining the firm, she was immediately responsible for 540 cases. Counts 3 and 4 involved circumstances in which clients’ needs were not met because of the high volume of cases assigned to bankruptcy attorneys. In both counts, the Hearing Officer also found that, because of the number of attorneys handling a given case, inadequate attention was paid to the problems presented in the case and the client was confused and not adequately informed.

¶ 10 Count 3 specifically involved a breakdown in communication between the attorney and the client, missed hearings by the attorney, and a failure to keep the client reasonably informed. Count 4 involved P & A’s practice of having one attorney handle all of the firm’s “341 meetings,” which are short, informal meetings that debtors are required to attend after filing a bankruptcy petition under Chapter 7 or Chapter 13 of the federal Bankruptcy Code. The P & A attorney handled forty files per day and at times would have six to seven 341 meetings within thirty minutes. Count 4 included a client’s complaint that a P & A attorney had missed a 341 meeting and failed to act with reasonable diligence. The Hearing Officer concluded that Phillips violated ER 5.1(a) in both counts for establishing and maintaining a business model in which such ethical violations were likely to occur.


¶ 21 Phillips first argues that the Hearing Officer used an improper standard of vicarious liability in finding violations of ERs 5.1(a) and 5.3(a) because his analysis was based solely on the ethical breaches of other firm employees. We disagree.

¶ 22 Ethical Rule 5.1(a) provides that a partner or an attorney with comparable managerial authority “shall make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that all lawyers in the firm conform to the Rules of Professional Conduct.” Similarly, ER 5.3(a) provides that a partner or a lawyer with comparable managerial authority must make “reasonable efforts to ensure that the firm has in effect measures giving reasonable assurances that” nonlawyers employed by the firm or associated with the lawyer comply with the professional obligations of the lawyer.

¶ 23 These duties require not only supervision, but also that the supervising attorney establish “internal policies and procedures” providing reasonable assurances that lawyers and nonlawyers in the firm conform to the Rules of Professional Conduct. ERs 5.1 cmt. 2; 5.3 cmt. 2. The size of the firm is relevant in determining what is “reasonable,” and in a large firm such as P & A, “more elaborate measures may be necessary.” ER 5.1 cmt. 3.

¶ 24 The rules imposing managerial and supervisory obligations, however, do not provide for vicarious liability for a subordinate’s acts; rather, they “mandate an independent duty of supervision.” In re Galbasini, 163 Ariz. 120, 124, 786 P.2d 971, 975 (1990). Nor is a supervising attorney of a nonlawyer assistant “required to guarantee that that assistant will never engage in conduct that is not compatible with the professional obligations of the lawyer.” In re Miller, 178 Ariz. 257, 259, 872 P.2d 661, 663 (1994).

¶ 25 The Hearing Officer expressly recognized these legal principles in his decision and did not apply an incorrect vicarious liability standard when finding that Phillips violated ERs 5.1(a) and 5.3(a). Although he found on many of the counts that P & A attorneys’ and staff members’ conduct violated various ethical rules, the supervisory and managerial breaches for which Phillips was found liable under ER 5.1 or 5.3 were independent. For each violation of ER 5.1 or 5.3, the Hearing Officer found that Phillips had personally failed to engage in the required supervision of either lawyers or nonlawyer personnel. Indeed, on a number of counts (for example, Counts 5 and 6), the Hearing Officer found that someone at P & A had violated an ethical rule, but that Phillips had not personally violated the rules requiring supervision. Had the Hearing Officer or the Commission applied a vicarious liability standard, Phillips would have been held liable for those violations as well.

¶ 26 In contesting the findings that he violated ERs 5.1(a) and 5.3(a), Phillips refers to the “mountain of undisputed evidence” adduced at the hearing of P & A’s supervisory efforts and the “relatively rare” occurrence of ethical breaches by other P & A employees. But the prior modification of firm policies, made pursuant to the 2002 judgment and order, did not alleviate Phillips’s ongoing duty to ensure that his subordinates complied with the revised policies and ethical rules. Because the Hearing Officer clearly understood and correctly applied the law by carefully not conflating vicarious liability with managerial and supervisory liability, we find no error in his determination, adopted by the Disciplinary Commission, that Phillips violated ERs 5.1(a) and 5.3(a).


¶ 45 The Hearing Officer and the Commission recommended that Phillips’s [Managing Debtor Firm Attorney] two-year probation term and conditions of probation begin and take effect after Phillips’s suspension is fully served. We accept that recommendation. Although Phillips is prohibited from practicing law or holding himself out as an active attorney during his suspension, he is permitted and strongly encouraged during that time to work with the Bar to immediately address the issues and rectify the problems that led to the violations of ERs 5.1 and 5.3 in this case.

Attorneys For Creditors

A bankruptcy court found violations of Rule 9011 and the applicable rules of professional responsibility in circumstances frequently encountered in connection with consumer mortgage proofs of claim[13]:

Local counsel [Initial Creditor Attorney and Accompanying Creditor Attorney] are not given access to either the electronic files or accounting history but receive all of their information from national counsel [Supervising Creditor Attorney]. They typically do not have direct client access and may even be prohibited from contacting the service provider [Referring Entity] or note holder [Cloaked Client] by their retainer agreements.FN20

FN20. See, In re Parsley, 384 B.R. 138 (Bankr.S.D.Tex.2008). Although the Parsley opinion involved Countrywide, it contains an excellent explanation of the typical relationship between national counsel and local firms with regard to their representation of parties in this industry. In this Court’s experience, the relationships and practices are similar from service provider to service provider, note holder to note holder. Wells Fargo’s testimony substantiates this belief.

This Court has already remarked on the obvious problems with this system. Local counsel are rarely prepared to answer specific questions about the information contained in a proof of claim or a motion for relief from the automatic stay. They do not have access to either a loan history or the documents necessary to substantiate any charge or discrepancy. Typically they assume the role of dutiful scribes, taking notes on the Court or Debtor’s questions and promising to deliver documents or answers at the next hearing. This practice is both wasteful and inefficient. It also does not comport with the Canons of Ethics or the Local Rules of the District Court. See, generally, Bankruptcy Rule 9011, E.D. La. Loc. R. 11, Louisiana State Bar Assc. Rules of Professional Conduct, Art. 16, Rules 1.3, 5.1, 5.4, and 5.5; see also, In re Porcheddu, 338 B.R. 729 (Bankr.S.D.Tex.2006); In re Ulmer, 363 B.R. 777 (Bankr.D.S.C.2007); In re Osborne, 375 B.R. 216 (Bankr.M.D.La.2007); and In re Parsley, supra.

A bankruptcy court, recognizing motions for relief from stay often present circumstances where going behind the curtain is appropriate to prevent violations of Rule 9011 and obligations under the applicable rules of professional responsibility, stated[14]:

This case raises the issue of whether, and to what extent, the court should impose sanctions on a law firm for filing twenty-one relief from automatic stay motions in chapter 7 cases with no competent evidence to support any of the motions and no intent to proceed to a hearing on the merits of the motions.

Under the facts of these cases, the court finds that Pite Duncan LLP (“Pite”) [Initial Creditor Attorney] filed twenty-one relief from stay motions in bad faith and with the improper purpose of delaying and increasing the costs of litigation. The court further finds that Pite knowingly or recklessly filed the motions with no adequate evidentiary support.

Pursuant to Rule 9011(b)(1) and (3), § 105(a) and the court’s inherent authority, the court orders that Pite pay sanctions to the court in the amount of $1,000 for each motion filed after April 1, 2008, for a total of $21,000. This payment is due thirty days from the date of entry of this order. (footnote omitted)

Similarly, another bankruptcy court noted[15]:

The only apparent justification for counsel’s unseemly haste was that his client insisted that the motion should be filed right away. While it may well be that creditors often insist that their attorneys [Initial Creditor Attorney] file motions for relief from the automatic stay and abandonment as soon as they receive notice of a bankruptcy, “[t]he importunities of a desperate client do not relieve an attorney of the affirmative duty of reasonable inquiry imposed by Rule 9011.” In re Villa Madrid, 110 B.R. 919, 924 (9th Cir. BAP 1990). See also, In re Brooks, 305 B.R. 827, 829 fn. 2 (Bankr.N.D.Ohio 2004)(“I have heard that mortgagees often grade their lawyers [Initial Creditor Attorney] on how quickly they can have a Motion for Relief on file···· This Court assesses the lawyer’s performance on whether it comports with Fed. R. Bankr.P. 9011.”).

A bankruptcy court, sanctioning both the individual lawyer and the law firm, observed[16]:

The smooth functioning of the courts and the interests of justice always trump a client’s unreasonable demands. See In re Castorena, 270 B.R. 504, 526–32 (Bankr.D.Idaho 2001) (recognizing the economic pressures on lawyers but nonetheless requiring adherence to court rules and rules of professional conduct). A lawyer representing a client whose business contributes to a lawyer’s income necessarily faces a difficult question every day: Will the lawyer remain an independent professional or instead become a fancy butler serving the needs of a more powerful principal? See Rob Atkinson, How the Butler Was Made To Do It: The Perverted Professionalism Of The Remains Of The Day, 105 YALE L.J. 177, 184 (1995). This court cannot force a party to undertake such introspection; however, to the extent the questions posed by such introspection are answered by the law governing lawyers, the court can compel compliance.


A lawyer is not freed from ethical duties simply by virtue of practicing under the direction of a senior lawyer. The Nevada Rules of Professional Conduct require that a lawyer abide by the Rules of Professional Conduct “notwithstanding  that the lawyer act[s] at the direction of another person.” NEV. ST. RPC 5.2(a). See also Phil Pattee, Practice Tips from Bar Counsel: “I Was Only Following Orders” Isn’t a Preferred Defense, NEV. LAW., Aug. 2008, at 43. This rule is further reinforced by the comment that “a junior law-firm associate working under the supervision of a senior partner is nonetheless personally responsible to know and apply relevant lawyer-code and other legal requirements in the course of the associate’s work.” RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 12 cmt. b (2000). In addition, Rule 9011(b) violations are not determined based on whether lawyers act of their own initiative or the initiative of a senior lawyer. Thus, the junior lawyer [Initial Creditor Attorney]is charged with the professional duty to know and comply with the applicable rules of professional conduct, despite being employed by and subordinate to a senior lawyer [Supervising Creditor Attorney]. (footnote omitted)

In a decision containing extensive discussions of individual attorneys, law firms, violations of Rule 9011 and the applicable rules of professional responsibility, the bankruptcy court[17]:

sua sponte, ordered a secured party and its counsel to explain certain anomalies related to the execution of certifications, including a certification which would support stay relief to allow foreclosure to proceed against Jenny Rivera’s residence in Lodi, New Jersey. These parties were to show cause why sanctions should not be imposed if the court’s suspicions were to be borne out. In fact, the court’s inquiry has exposed a long-standing and regularized practice of creating documents purported to be “certifications”; however, presigned forms were kept on file by counsel and simply, in case after case, attached to the body of data-laden mortgage default accountings, the composite being filed with the court as if they were certifications.

It is now clear that the respondent law firm, Shapiro & Diaz, LLP (“S & D”), had for an extended period engaged in the practice of preparing certifications in support of bankruptcy stay relief motions and applications, knowingly attaching presigned statements of certification. The actual signatories to the “on-file” forms were in many instances not the client-providers of the information contained in the certifications as submitted, nor did those signatories (whether or not the information providers) actually review the final form of the certifications before the documents were filed with this court. In fact, in the immediate matter which sparked the court’s interest, the “signatory” (one “Amirah Shahied”) had not been in the employ of anyone related to the client-secured party for over a year before the certification was filed. Moreover, in that period when no relevant client relationship existed with Amirah Shahied, her warehoused statement of certification was appended to the tail end of accountings of default in mortgage payments and filed with this court by S & D approximately 250 times.

S & D [Referring Creditor Attorney] is part of a national network of law firms owned or controlled by two Illinois attorneys, Gerald M. Shapiro and David Kreisman. Shapiro and Kreisman had, until June or so of 2004, operated a mortgage loan default outsourcing service (“LOGS Financial Services, Inc.”), which interfaced with either mortgage holders or other servicers to process real estate foreclosures and related bankruptcy matters.


Sanctions are provided for in Rule 9011(c). As already indicated, Ms. Schwartz [Initial Credotor Attorney] has violated Rule 9011(b)(1) and (3) by filing a writing in the Rivera case (i) for an improper purpose, i.e., to have the court believe that the writing was a validly reviewed and executed certification, and (ii) which states facts as to Amirah Shahied being the signatory (and presumably the reviewer of the final form of document), which are blatant falsehoods. Ms. Schwartz has filed this document in her capacity as an attorney with S & D, making Ms. Schwartz and S & D jointly responsible for the Rule 9011 violations. S & D’s longtime practice of filing such documents (known to and overseen by Ms. Schwartz as principal bankruptcy attorney) calls for substantial sanctions beyond those assessable in the Rivera case.


For Ms. Schwartz’s role in the Rivera case, the court levies a fine of $500 for that single act. This amount is in the range of ordinary fines and penalties for more isolated and less egregious infractions in the face of bankruptcy courts (e.g., simple stay relief violations, errant discovery tactics, etc.) and less than the routine S & D charges for processing stay lift applications (as indicated to this court by S & D’s counsel). This penalty is quite modest, partly because the court recognizes that Ms. Schwartz’s compensation is at or near the bottom of the pay scale for experienced attorneys in this district, and partly because her jeopardy as to discipline is far from over.

S & D as a firm must suffer a substantial fine in order for this court’s point to be made effectively and for deterrence to be reasonably assured. S & D’s filings after the departure of Amirah Shahied are the clearest examples of its abusive certification practice; for the roughly 250 such filings, the court will impose a $125,000 penalty (again, $500 per incident). The years of wrongful filings could well have justified a fine of many times this amount, but this court is mindful of the law’s caution to keep such penalties to the minimum necessary to meet the purposes of Rule 9011.

The court notes the involvement of court personnel, facilities and calendar time involved in bringing this immediate matter to conclusion. The systemwide cost of all of this, plus the considerable involvement of the Office of the United States Trustee is a significant public expenditure. All of this was prompted by the blithe implementation of a renegade practice—the use of presigned forms in lieu of contemporaneous review and execution of certification.


The court depends on the ethical and professional conduct of attorneys. As volume increases, judicial processes and participants are subjected to certain pressures. Electronic filing and retrieval are necessary court aids, but dependable, ethical performance by lawyers remains indispensable. Lawyers must maintain their independence—and resist, at the risk of losing a client or their employment, pressures which would undercut their professionalism.


Ms. Schwartz shall be fined $500 and S & D shall be fined $125,000 for their Rule 9011 violations, and the conduct of Ms. Schwartz, Mr. Diaz and S & D shall be referred to the Chief Judge under the applicable disciplinary rules.


A combination of courts, counsel and cooperating professional organizations[18], although expending extra effort — going behind the curtain to prevent, or limit, the violations of applicable law and rules of ethics by individual attorneys and involved law firms — continue the highest traditions of service and benefit to the bankruptcy community and the public.


[2] See generally, Nancy B. Rapoport, Through Gritted Teeth and Clenched Jaw: Court-Initiated Sanctions Opinions In Bankruptcy Courts, 41 STMLJ 701 (2010)

[3] 9011(c) Sanctions:

If, after notice and a reasonable opportunity to respond, the court determines that subdivision (b) has been violated, the court may, subject to the conditions stated below, impose an appropriate sanction upon the attorneys, law firms, or parties that have violated subdivision (b) or are responsible for the violation. (emphasis added)

[4] In re Ulmer, 363 B.R. 777 (Bankr. D. S.C. 2007

[5] In Re Evergreen Security, Ltd., 570 F.3rd 1257, (11th Cir. 2009)

[6] The ABA Standards are more formally cited as Joint Committee on Professional Sanctions, Standards for Imposing Lawyer Sanctions, available at http:// www. abanet. org/ cpr/ regulation/ scpd.

[7] “In the federal system there is no uniform procedure for disciplinary proceedings. The individual judicial districts are free to define the rules to be followed and the grounds for punishment. See 28 U.S.C. § 1654. In the Southern District of California, Local Rule 110-5 states that attorneys must abide by the California Rules, the ABA Code, and applicable court decisions.” Standing Committee on Discipline of U.S. Dist. Court for Southern Dist. of California v. Ross, 735 F.2d 1168, C.A.9 (Cal.), 1984; and see, In re Nguyen, 447 B.R. 268, (9th Cir. BAP), 2011, “Bankruptcy courts remain free to consult the ABA Standards when formulating sanctions; however, it is not reversible error if a bankruptcy court does not do so.”

[8] A body of law has developed which establishes that a bankruptcy court determination will have preclusive effect in a subsequent consideration of the same facts and circumstances in connection with a state court discipline proceeding of an attorney and law firm. For example, the bankruptcy court, acting sua sponte, conducted various hearings and then submitted a recommendation to the District Court that an attorney be barred from further practice in the bankruptcy court. The District Court, in an unreported decision, adopted the bankruptcy court’s recommendation and suspended the attorney from practice. In the subsequent reported state court decision Disciplinary Counsel v. Harp, 101 Ohio St.3d 1241, 1242, 805 N.E.2d 98, 99 (2004), the Ohio Supreme Court held the attorney:  “… will not be reinstated to the practice of law in Ohio until such time as the [attorney] is reinstated to the practice of law in the United States Bankruptcy Court for the Southern District of Ohio.”); see also, Kentucky Bar Ass’n v. Rowsey, 334 S.W. 3rd 105, 2011 in which the Kentucky Supreme Court in affirming a state suspension based on an attorney’s false testimony in a bankruptcy court proceeding, stated: “Rowsey acknowledges that due to collateral estoppel she is barred from challenging the conclusions and ruling of the bankruptcy court. Thus she has effectively stipulated she is guilty of violating (… and SCR 3.130-8.4 (It is professional misconduct for a lawyer to …[e]ngage in conduct involving dishonesty, fraud, deceit, or misrepresentation.). See also, Neil M. Berman and Joseph T. Phillips, From Bad to Worse-State Court Consequences of Attorney Conduct in the Bankruptcy Courts, 2005 No. 5 Norton Bankr. L. Adviser 1 (May 2005).

[9] “In this case, the process utilized for default affidavits has been examined. Although it has been four (4) years since Jones [Jones v. Wells Fargo, 366 B.R. 584 (Bankr. E.D. La.2007)] serious problems persist in mortgage loan administration. But for the dogged determination of the UST’s office and debtors’ counsel, these issues would not come to light and countless debtors would suffer. For their efforts this Court is indebted.” In re Wilson, 2011 WL 1337240 (Bankr. E.D. La. 2011)

[10] See Olympic Airways v. Husain, 540 U.S. 644, 124 S. Ct. 1221 (2004) – U.S. Supreme Court decision citing the American Heritage Dictionary for the definition of a word not otherwise defined. See also, The Lexicon has become a Fortress: the United States Supreme Court’s Use of Dictionaries”, 47 Buffalo Law Review 227 (1999).

[11] In re Harmon, 435 B.R. 758 (Bankr. N.D. Ga. 2010)

[12] In the Matter of the State Bar of Arizona, Jeffrey Phillips, Attorney No. 13362, Respondent, 226 Ariz. 112, 2010

[13] In re Stewart, 391 B.R. 327 (Bankr. E.D. La. 2008), aff’d, 2009 WL 2448054 (E.D. La. 2009)

[14] In In re Cabrera-Mejia, 402 B.R. 335 (Bankr. C.D. Cal. 2008)

[15] In re Szymanski, 344 B.R. 891, 894, 898 (Bankr. N.D. Ind. 2006)

[16] In re Martinez, 393 B.R. 27 (Bankr. D. Nev 2008)

[17] In re Rivera 342 B.R. 435 (Bankr. D. N.J. 2006) aff’d, 2007 WL 1946656  (D. N.J. 2007)

[18] See Creditors: Make Sure Stay-Relief Affidavits Are Accurate! Attorneys: Do Not Sign Them!, 28-MAR Am. Bankr. Inst. J. 32, 33 (2009); See Ronald C. Minkoff, Reviving A Tradition Of Service: Redefining Lawyer Professionalism In The Twenty-First Century, 19(4) THE PROF. LAW., 1, 20 (2009) (American Bar Ass’n Center for Professional Responsibility, Standing Committee on Professionalism); See also, Robo signing is back. .

Thomas F. WaldronTHOMAS F. WALDRON was appointed as a United States Bankruptcy Judge for the Southern District of Ohio, at Dayton, in 1985 and served as Chief Judge of the Bankruptcy Court and the first Chief Judge of the Bankruptcy Appellate Panel of the Sixth Circuit. He retired after 22 years of judicial service in October of 2007. He has been a member of the adjunct faculty at the University of Cincinnati and the University of Dayton law schools. He is a member of the American College of Bankruptcy, his contributions to publications include the American Bankruptcy Law Journal and he is a managing editor for Norton’s Bankruptcy Advisor. He has been the recipient of numerous awards and is a frequent speaker at national, regional and local bankruptcy education programs. He was the inaugural Advisor for the NACTT Academy.

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