In Re Spickelmier
2012 WL 1468458, 469 B.R. 903 (2012)
Rule of Law:
Attorneys appearing in bankruptcy court must conduct reasonable factual and legal inquiries, ensuring that all filed or advocated papers are not frivolous, are not presented for improper purposes, and have evidentiary support. Failure to meet this objective standard can lead to sanctions under Federal Rule of Bankruptcy Procedure 9011 and disgorgement of fees under 11 U.S.C. § 329 for services of poor quality.
Facts:
- James and Katherin Spickelmier (Debtors) filed for Chapter 13 bankruptcy on January 3, 2011, retaining Barry Levinson of Barry Levinson & Associates as counsel.
- The Debtors' schedules, prepared by Mr. Levinson's office, listed total non-contingent, liquidated unsecured debts of $583,888, which exceeded the Chapter 13 debt limit of $360,475.
- On June 1, 2011, the Debtors entered into a stipulation with the Chapter 13 Trustee to either voluntarily convert their case to Chapter 7 or voluntarily dismiss it by June 9, 2011.
- The Debtors failed to comply with the terms of the stipulation by the specified deadline.
- On August 3, 2011, Mr. Levinson’s office filed an “Amended Motion to Vacate Order of Dismissal” (First Amended Motion) that contained no legal or factual analysis.
- On September 20, 2011, Mr. Levinson’s office filed an “Amended Motion to Vacate Order of Dismissal on an Ordering Shortening Time” (OST Motion) and a “Second Amended Motion,” both of which were virtually identical in substance to the First Amended Motion.
- The Levinson Affidavit, submitted in support of the OST Motion, claimed 'good cause' existed for expedited relief due to risks of garnishment, creditors, and foreclosure, but contained no reference to any other evidence in the record.
- At the show cause hearing on October 12, 2011, Jeremy Mondejar, an attorney from Mr. Levinson’s office, arrived 15 minutes late, was unprepared, and struggled to respond to the court's questions, reading from his laptop.
Procedural Posture:
- Bank of Nevada, a creditor, moved to dismiss or convert the Debtors’ case.
- On May 6, 2011, the court entered an order granting the motion, giving the Debtors thirty days to convert or dismiss their case.
- The Chapter 13 Trustee requested dismissal after the Debtors failed to comply with their stipulation to convert or dismiss.
- On June 27, 2011, the Chapter 13 case was dismissed.
- The court denied the Debtors' First Amended Motion to Vacate Order of Dismissal on September 13, 2011, because no one appeared for the Debtors at the scheduled hearing.
- On September 23, 2011, the court denied the Debtors’ OST Motion, finding it did not comply with Local Rule 9006(a), was not sufficiently supported by facts, and requested relief that had been previously requested and denied.
- On September 23, 2011, the court also issued an order for Mr. Levinson's office to show cause why the filing of the OST Motion did not violate Rule 9011, and advised counsel to be prepared to discuss specific conduct at the October 12, 2011 hearing.
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Issue:
Does an attorney's repeated filing of identical motions previously denied, coupled with a failure to conduct reasonable factual or legal inquiry and a lack of preparation, violate Federal Rule of Bankruptcy Procedure 9011 and warrant disgorgement of fees under 11 U.S.C. § 329?
Opinions:
Majority - Bruce A. Markell, Bankruptcy Judge
Yes, the attorneys' conduct violated Rule 9011, and the fees warrant disgorgement under 11 U.S.C. § 329. The court found that Mr. Levinson's office, through both Mr. Levinson and Mr. Mondejar, violated Federal Rule of Bankruptcy Procedure 9011(b)(2) because the OST Motion and accompanying affidavit were frivolous. Mr. Levinson filed a motion identical to one previously denied without citing supporting legal authority or proposing an extension of law, and failed to disclose the prior denial. Mr. Mondejar 'later advocated' these frivolous papers without any familiarity with the matter or its legal basis. The court also found violations of Rule 9011(b)(3) because the factual contentions in the Levinson Affidavit regarding prejudice (garnishment, foreclosure) lacked evidentiary support at the time of filing, and Mr. Mondejar could not provide such evidence at the hearing. The court determined that the reasonable value of the legal services rendered by Mr. Levinson's office was zero, justifying disgorgement of fees under 11 U.S.C. § 329, because counsel filed a Chapter 13 case for ineligible debtors, failed to comply with a stipulation leading to dismissal, and subsequently filed frivolous motions without proper appearance or preparation. The court imposed extensive sanctions, including a public reprimand, disgorgement of all fees to the Debtors' new counsel, requirements for future CLE compliance for Chapter 11 filings, a mandate to disclose this opinion in certain future proceedings for three years, and a referral to the State Bar of Nevada.
Analysis:
This case significantly reinforces an attorney's professional obligations under Federal Rule of Bankruptcy Procedure 9011 and 11 U.S.C. § 329, establishing that an objective standard of 'reasonable inquiry' applies to all filings and advocacy. It clarifies that simply re-filing a previously denied motion without new legal grounds or disclosing prior denials constitutes a Rule 9011 violation, as does making factual claims without contemporaneous evidentiary support. The ruling demonstrates that egregious incompetence, lack of diligence, and failure to prepare, even in the absence of malicious intent, can result in severe sanctions, including public reprimand, complete disgorgement of fees, and referral to professional disciplinary bodies, serving as a strong deterrent for similar attorney misconduct.
