Judge Bruce Markell Sanctions Attorney for Filing Second Chapter 13 When First Case was Still Pending

Brief by University of West Los Angeles student Roksana Moradi:

In re Sanford, --- B.R. ---, 2009 WL 901760 (Bkrtcy.D.Nev., Judge Markell)

Issue:  Is the attorney’s conduct here, filing a second case when the first is still pending, sanctionable conduct? 

Holding: YES

BRUCE A. MARKELL, Bankruptcy Judge.

Attorney Goldberg filed Mr. Sanford's Chapter 7 case in 2004.  The schedules indicated that the debtor had $100,023 in unsecured debts and $159,000 secured by his home worth $200,000.  The $41,000 of equity was claimed exempt.  Goldberg charged the debtor $791.  At the meeting of creditors, the trustee questioned the valuation of the home.  The debtor decided to convert the case to chapter 13.  He later filed a Motion to Convert even though the discharge had already been entered.  At the hearing, the court granted the motion but instructed Goldberg to provide in the order that the discharge was revoked.  Goldberg failed to submit an order.  Instead he filed a second case, also a chapter 13, for the debtor charging him $2,700.  The trustee on the first case eventually submitted an order converting the First Case 20 months later. 

In the Second Case, the home was listed at $460,000 but still exempt because Nevada law had changed the exemption amount in the interim from $200,000 to $350,000.  In the Second Case, no creditor filed a proof of claim probably because they had already received the notice of discharge in the First Case.  When no POCs were filed, Goldberg amended the plan to pay himself only by selling the home.  The home was then sold $415,000 and the plan completed.  

One year later Goldberg brought a motion seeking an order requiring the discharge to be entered in the Second Case.  The court orally granted the motion on October 4, 2007.  Mr. Goldberg, however, failed to submit an order regarding this motion.  About two months later, the trustee figured out what had happened.  The court then set an OSC re sanctions.  

The court focused on Goldberg's failure to submit an order after the conversion motion, given its consequences to the court and to his client; and Goldberg's filing of the Second case.  Goldberg argued that Rule 58 absolved him from the requirement of submitting an order as the ruling became effective 150 days after it was orally entered.  He obviously confused the national rule which promotes finality for purposes of appeal and the local rule which prevents a prejudicial lag between a court's oral ruling and the docketing of the order giving that ruling effect.

As to filing the Second Case, Goldberg argued that there was no rule against filing multiple chapter 13 cases for one debtor.  The court disagreed and said that not only was Goldberg's conduct objectively unreasonable but was also in bad faith.  Given the oral conversion in the First Case, there was no need to file the Second Case.  “Moreover, Mr. Goldberg took unfair advantage of creditor confusion in filing the Second Case, effectively eliminating creditor claims while increasing his overall attorney's fee.”

For four reasons, the court found that Goldberg's actions were made in bad faith.  First, Goldberg filed the Second Case, in part, to take advantage of the Nevada legislative change that increased the homestead exemption.  Second, his knowledge of the prior case is further evidence of bad faith.  This is not a situation in which an attorney was negligent in not investigating and discovering that another lawyer filed an earlier case.  Third, he charged legal fees for both cases.  Fourth, the court considered Goldberg's experience in making its determination regarding bad faith. Goldberg testified that he has filed between 15,000 to 20,000 bankruptcy cases over the last 12 years of practice.  He boldly asserted in advertisements that he could solve almost any consumer's financial problems.

The court ruled as follows for sanctions:

1. Mr. Goldberg received a public reprimand for his conduct in these cases in the form of the publication of the opinion of these cases in the West Reporter system, and in any other reporter system generally publishing bankruptcy court opinions.

2. Mr. Goldberg had to return all fees charged Mr. Sanford.

3. Mr. Goldberg was directed to submit a copy of the opinion of this case with every fee application he submits in this district for work done during the two-year period following the date of entry of this opinion.  During such period, he was also directed to deliver a copy of this opinion to each client that he files a bankruptcy petition for, once his aggregate billings for that client, for any one case or related matters, exceed $5,000.

4. For the two-year period following the date of entry of the opinion of this case, should Mr. Goldberg be served with a motion or an order to show cause that seeks, as relief, sanctions for his conduct in a case or proceeding in this court, or in any other state or federal court in Nevada, he shall deliver a copy of this opinion to the person or entity serving him with such motion or order, and shall include a copy of such opinion in any response to such motion or order that is filed with the court.

5. To the extent that Mr. Sanford still desired his discharge, Mr. Goldberg should pay all costs and expenses, including attorneys' fees, as may be necessary for Mr. Sanford to obtain his discharge.