Sharp  Thinking

No. 86   Perspectives on Developments in the Law from The Sharp Law Firm, P.C.     March 2013

It’s “Forgery” and “Never Justified” …

Court Levies Harsh Sanctions for Filing Bankruptcy Papers Without Actual Signature 

            By John T. Hundley,, 618-242-0246

            There are no circumstances that would ever justify an attorney filing a bankruptcy petition, the supporting schedules, or the debtor’s Statement of Financial Affairs (“SOFA”) without first obtaining the debtor’s actual signature thereto, the chief judge of a Texas bankruptcy court has held.


            Moreover, electronically filing a document that purports to have the debtor’s signature but which was not, in fact, signed by the debtor constitutes forgery, the court held.  In re Stomberg, __ B.R. __, 2013 WL 142396 (Bankr. S.D. Tex. 2013). 

            The court imposed a series of sanctions under Federal Rule of Bankruptcy Procedure 9011, 11 U.S.C. § 105, and its inherent authority to sanction bad-faith conduct.  Significantly, the court found that the forgery – i.e., electronic filing of a document with the familiar /s/ designation when the purported signer had not “wet signed” an original – necessarily evidenced the bad faith neces-sary to impose sanctions under § 105 and the inherent-authority doctrine. 

            Furthermore, the court said its “wet signature” rule prohibited the attorney from making changes to the papers – even allegedly de minimus ones – without obtaining the client’s signature to the revised document.  Quoting In re Phillips, 317 B.R. 518 (8th Cir. BAP 2004), it said that under Bankruptcy Rules 1008 and 9011 “‘(t)he issue is not whether the debtor authorized the filing of a petition, but whether she signed the petition that was filed,’ because the signature is not only authorization to file, but verification that the information provided is correct.”

            “[Lawyer] attempts to justify his decision to file the Schedules . . . without first obtaining the Debtor’s signature on the changes he made by stating that the Debtor was unable to come down to his office, that it was a unique situation, and that the changes were very minor in nature.  [Lawyer’s] excuse fails:  regardless of the circumstances and whether the changes were substantial or not, no changes are to be made without the Debtor expressly signing off on them.”                                                   

            But that is not all:  the court found that an attorney’s failure to personally meet with his or her client to review the accuracy and importance of the schedules and SOFA “is also bad faith.”  Relying in part on local ethical rules, the court said an attorney breaches duties owed to both the client and to the judicial system when he fails to personally go over the schedules and SOFA with the client and passes that responsibility off to a legal assistant.  

            “[L]egal assistants are not attorneys,” the court emphasized.  “Legal assistants may not counsel, warn, or ensure the Debtor’s compliance with bankruptcy law; rather, they are charged with mere transposition of the debtor’s information onto the Schedules and SOFA.” 

            The court made those rulings in an exhaustive decision in an egregious case – but the court’s laying down of clear black lines on such points invites application in less egregious cases.  Technically, the opinion constitutes just the rulings of a single bankruptcy judge and is not binding precedent – but Chief Judge Jeff Bohm’s thoroughness and language leave little doubt that the decision is offered as a seminal clarion call to other judges faced with sloppy and unethical bankruptcy practice, and a warning to practitioners tempted to cut corners.

            The court imposed fines totaling $4,000 payable to the clerk of court, and ordered the offending lawyer also to pay attorneys’ fees and costs incurred by a critical creditor, the United States Trustee, and successor counsel for the client at issue.  It further ordered him to pay expenses that the creditor had incurred in attending hearings on the matter. 

            Lawyers seeking to thwart the spread of the Stomberg rulings will point to its egregious background: the law firm was working under an indisputable conflict of interest as it simultaneously represented both the client and his ex-wife who was a significant creditor of the estate, without disclosing the conflict in required bankruptcy court papers.  Moreover, to the end the offending lawyer showed no remorse but maintained an attitude that he was being victimized.  And the case involved a lawyer with a long history of run-ins before Judge Bohm, a record showing that admonitions and lesser sanctions had not improved the offender’s practice, and several instances of what Bohm found to be perjury in the offender’s defense in the case.

            But according to the decision, those factors are not critical to the holding requiring actual signatures to the exact form of papers being filed as a precondition to electronic filing, or to the ruling that failing to have such signatures necessarily constitutes forgery and bad faith warranting sanctions, or to the statements limiting the proper role of legal assistants.

            The decision constitutes a continuation of a perceptible trend of bank-ruptcy courts enforcing Bankruptcy Rule 9011.  See Sharp Thinking No. 55 (Dec. 2011); No. 71 (Sept. 2012); No. 81 (Jan. 2013).  However, the opinion also relies heavily on Bankruptcy Rule 1008, requiring that certain papers be verified; the rules regarding electronic filing; local ethical rules, which future sanctions respondents may argue are distinguishable; and the ability to apply § 105 and the inherent authority doctrine where the bankruptcy rules are not directly on point.  In these respects also, the opinion is significant.  The decision was plainly written with a prospective appeal in mind, and an appeal has been filed.  We’ll keep our eye on Stomberg and its progeny in future issues of Sharp Thinking.  


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