Bankruptcy Law Roundup

 

Sharp Thinking

No. 102      Perspectives on Developments in the Law from The Sharp Law Firm, P.C.     October 2013

Bankruptcy Intake Form Held Not Privileged

            Look for increased attempts to discover those intake forms used by bankruptcy practitioners – and also fee information for all lawyers – as a result of a recent decision by the Seventh Circuit U.S. Court of Appeals.

            In United States v. Leonard-Allen, __ F.3d __, 2013 WL 4573140 (7th Cir. 2013), the court held that one practitioner’s intake form was not privileged at least as to its disclosure of who recommended that the client see the bankruptcy lawyer.  Whether the form also included the kind of financial information which practitioners often request prospective clients to provide in connection with the initial consultation is not clear from the opinion. 

            Citing United States v. BDO Seidman, LLP, 492 F.3d 806 (7th Cir. 2007), the court said it “construe[d] the [attorney-client] privilege to apply only where necessary to achieve its purpose” and to cover “[o]nly those communications which ‘reflect the lawyer’s thinking (or) are made for the purpose of eliciting the lawyer’s professional advice or other legal assistance’.”  It said the disclosure of who referred the client “does not reflect either the lawyer’s or the client’s thinking, and it was not instrumental to the substance of the bankruptcy advice” provided.  Accordingly it was “incidental” to the representation and not covered by the privilege, the court ruled.

            In so holding, the court likened the referral source information to fee information.   “The latter information falls outside the scope of the privilege because fees are incidental to the substance of representation,” the court said, noting there are exceptions to that rule.

Court Awards Punitives of Double the Scheduled Debt

            A creditor that sold a repossessed auto in violation of the automatic stay has been assessed punitive damages of twice the scheduled debt. 

            Finding the creditor’s conduct “intentional, egregious, and outrageous,” Bankruptcy Judge Paul Bonapfel of the Northern District of Georgia also ordered the creditor to pay compensatory damages and the debtor’s attorney fees.  In re Stephens, 495 B.R. 608 (Bankr. N.D. Ga. 2013).

            In Stephens, the debtor’s auto was lawfully repossessed pre-petition, but the creditor refused to return the car after being informed that a Chapter 13 case had been filed.  It also demanded proof of insurance without moving for adequate protection, and then, while proceedings to enforce the stay were pending, it sold the car.  During the stay proceedings, it also falsely represented that it did not own the debt at issue, the court found.

            The court found that both the retention of the vehicle and the unilateral demand for insurance were stay violations, but it plainly was the sale which primarily motivated the punitives award.

            “[T]he evidence shows that Mr. Hart was determined to sell the car to collect Ms. Stephens’ debt regardless of the requirements of the Bankruptcy Code,” the court said.  “[I]t is appropriate to award punitive damages in an amount that will prevent [the creditor] from realizing its objective of obtaining payment of the debt through violations of the stay and that will also provide an additional monetary sanction to punish and to deter such conduct.  The Court will, therefore, award punitive damages in the amount of $17,890, twice the amount of the debt . . . . The effect is to deny [the creditor] the benefit of its outrageous conduct and to impose an additional penalty of $8,945.”

Report of Personal Bankruptcy Not Defamatory Per Se

            An incorrect statement that an individual has filed for personal bankruptcy is insufficient to constitute defamation per se, a panel in the Seventh Circuit U.S. Court of Appeals has ruled.

            In a case involving former Chicago Bulls star Scottie Pippen, the court rejected the rule that applies when the publication suggests the subject has shirked his contractual obligations.  “A similar taint does not attach to the reputation of people who go bankrupt,” the panel said.  “Many innocent reasons lead to financial distress.  Readers of the defendants’ statements who mistakenly believe that Pippen is insolvent readily could conclude that his advisers bear the blame.”  Pippen v. NBCUniversal Media, LLC, __ F.3d __, 2013 WL 4450590 (7th Cir. 2013).  

“Appearance Attorneys” Outlawed by Texas Judge              

       The use of “appearance attorneys” – attorneys who are not part of the debtor’s record attorney’s law firm but who, at the request of the debtor’s chosen attorney, appear and attempt to represent the debtor at a meeting of creditors or hearing on behalf of the debtor’s attorney – has been outlawed in his court by the Chief Bankruptcy Judge of the Southern District of Texas. 

       Chief Judge Jeff Bohm – who also wrote a recent decision holding that the electronic filing of bankruptcy papers without possession of actual signed copies thereof constituted forgery – said use of appearance attorneys “constitutes improper representation for an attorney’s client” and “undermines the integrity of the legal process.”  In re Bradley, 495 B.R. 747 (Bankr. S.D. Tex. 2013). 

       Though his order applies only to bankruptcy cases before him (including § 341 meetings in those cases), Bohm said he was authorized to make it under 11 U.S.C. § 105(a) and Federal Rule of Bankruptcy Procedure 9029(b). 

       Sanctioning the national bankruptcy firm formerly known as Macey & Aleman, its name partners, a local partner and a paralegal, Bohm reiterated In re Stomberg, 487 B.R. 775 (Bankr. S.D. Tex. 2013), that electronic filing without having a “wet signed” original is forgery (see Sharp Thinking No. 86 (March 2013)). 

       He also ruled that any payment to an appearance attorney required the filing of an amended fee disclosure statement under Bankruptcy Rule 2016.

       Bradley is sure to cause much controversy among the bankruptcy bench and bar.  Whether it will be adopted by other courts remains to be seen.

                                                                                                – John T. Hundley, Jhundley@lotsharp.com, 618-242-0246

102