Court Sanctions Debtor’s Counsel under Rule 9011 for Filing Stale, Incomplete Petition for an Improper Purpose

Court Sanctions Debtor’s Counsel under Rule 9011 for Filing Stale, Incomplete Petition for an Improper Purpose

On March 9, 2017, the court conducted a hearing on its Order to Show Cause and Setting Hearing (“Order”). Pursuant to the Order, the court required Mr. Auten,  counsel for the debtor, to personally appear, and show cause why sanctions should not be entered for the filing of the instant bankruptcy. Mr. Auten appeared and provided testimony at the hearing. The debtor  appeared telephonically, and also provided testimony. Kathryn Evans Perkins appeared telephonically on behalf of the United States Trustee (“UST”).

The court has carefully considered the arguments and evidence presented in response to its Order, and finds that counsel attempted to deceive his client when he filed her bankruptcy petition in Alaska more than 19 months after she signed her bankruptcy paperwork. At the time she signed those documents, and at the time they were filed with the court, counsel knew the debtor was no longer a resident of this district. Further, the supporting bankruptcy documentation filed by counsel was stale, incomplete, and inadequate to satisfy the debtor’s obligations in bankruptcy. Counsel took these actions in an attempt to conceal his failure to timely commence her bankruptcy case. For these reasons, the court will enter sanctions against Mr. Auten under Fed. R. Bankr. P. 9011 for frivolous filings, as well as under the court’s inherent authority to redress egregious conduct in his representation of the debtor.

On December 30, 2016, attorney  Auten filed a chapter 7 petition on behalf of debtor. Included with the petition were most of the supporting documents required under 11 U.S.C. § 521 and Fed. R. Bank. P. 1007(b), although the forms used were out of date.  The documents were filled out with varying levels of detail. The petition listed a temporary street address for the debtor in Grants Pass, Oregon, but used counsel’s post office box address in Valdez, Alaska, as her mailing address. The debtor appears to have signed the petition, but did not enter the date of her signature. Next to his signature on the petition, Mr. Auten wrote his birth date in 1970, rather than the actual date he executed the document.

The debtor’s Form B22A Chapter 7 Statement of Current Monthly Income and Means-Test Calculation (“Means Test”) is similarly dated May 16, 2015.  The form lists the debtor’s monthly income as $2,356.00, the same figure shown as her monthly income on Schedule I, although all of her income was listed as wages. No payment advices were filed.

At the time he filed the bankruptcy, Mr. Auten also included the debtor’s Statement of Financial Affairs (“SOFA”), which was unsigned.

The clerk of the court issued a Notice Requiring Original Signature the same day the petition was filed, which required the debtor to provide an original signature for her SOFA within 14 days. To date, the debtor has not filed a signed SOFA. Further, the debtor has never filed copies of her payment advices for the 60 days preceding the filing of her petition. Due to these omissions, the UST filed and noticed a hearing on its Standing Motion to Dismiss on January 27, 2017.  The hearing was scheduled for February 7, 2017. The debtor was mailed a copy of the notice of hearing at Mr. Auten’s post office box address in Valdez.

The meeting of creditors was originally scheduled for February 2, 2017. The docket reflects that the panel trustee continued the meeting until March 2, 2017, but does not indicate whether the debtor or Mr. Auten appeared at the initial meeting of creditors.

Neither the debtor nor Mr. Auten filed a response to the Standing Motion to Dismiss, nor did either of them appear at the February 7, 2017 hearing on that motion. Kathleen Perkins, appearing for the UST, attended the hearing. She informed the court of her office’s unsuccessful attempts to contact Mr. Auten to discuss the deficiencies in this case. Further, because notices to the debtor were being sent to Mr. Auten’s mailing address, Ms. Perkins stated her concern that the debtor might be unaware of the pending motion to dismiss. Based upon these concerns the court continued the hearing at the UST’s request.

During the February 7 hearing, the court raised its own concerns regarding this case. It noted the discrepancies in the dates of the documents filed, the incomplete bankruptcy filing, Mr. Auten’s failure to respond to either the Motion to Dismiss or Mr. Perkin’s efforts to contact him, and the amount of fees Mr. Auten had charged the debtor in light of these deficiencies. For these reasons, the court entered its Order requiring Mr. Auten to appear at the March 9 hearing and show cause why he should not be sanctioned pursuant to Fed. R. Bankr. P. 9011(c)(1)(B) for violations of Rule 9011(b), or under its inherent authority to sanction attorneys.11 The Order required Mr Auten to explain: 1) the basis for filing a bankruptcy in the District of Alaska for a debtor who was not domiciled, and had not resided, within the district for at least the prior 17 months, 2) the good faith factual and legal basis for claiming Alaska state exemptions in this case, in light of the issues regarding the debtor’s residency status, and 3) the good faith factual and legal basis for filing a statement of current monthly income covering a period ending 19 months prior to the bankruptcy filing. The Order specifically gave Mr. Auten notice that the court would consider imposing: 1) an award of monetary sanctions, 2) requiring disgorgement of fees, and/or 3) suspension or disbarment from filing any further bankruptcy cases in this district, based his conduct.

As required, Mr. Auten appeared at the March 9th hearing on the Order. Ms. Henry appeared, by telephone, and testified that she had first discussed the need for a bankruptcy filing with Mr. Auten as early as 2013. As of their first meeting, Ms. Henry was an Alaska resident. In July 2014, however, Ms. Henry moved to Oregon. Before she moved, she met with Mr. Auten to further discuss her bankruptcy filing. She testified that she informed Mr. Auten of her move, and inquired whether it would affect her ability to file for bankruptcy in Alaska. Ms. Henry recalled that Mr. Auten advised that it would not, and that he told her that they would use his post office box as her mailing address. Ms. Henry paid Mr. Auten his legal fee of $2,000.00 before she moved to Oregon.

Mr. Auten mailed the bankruptcy paperwork, including the schedules and statements, to Ms. Henry after she had moved to Oregon. She signed the documents on May 16, 2015, and returned them to Mr. Auten. She recalls taking the credit counseling course in 2015, in anticipation of Mr. Auten filing her bankruptcy at that time. Having paid Mr. Auten, filled out the bankruptcy forms, and taken the credit counseling course, Ms. Henry assumed that Mr. Auten had filed her bankruptcy. She sporadically spoke with him about her case. In these conversations, Mr. Auten never disclosed that the bankruptcy had not yet been filed. Ms. Henry was adamant in her testimony that throughout these conversations he lead her to believe that he had filed her bankruptcy petition in 2015.

In the fall of 2016, more than a year after she had signed her bankruptcy documents, Mr. Auten informed Ms. Henry that she needed to again take the prepetition credit counseling course. He provided no reason for this request, but Ms. Henry did as she was instructed.14 On October 31, 2016, Ms. Henry obtained her second credit counseling certificate.

Ms. Henry further testified that she was unaware of either the initial or rescheduled § 341 meeting of creditors. Similarly, she did not know about the UST’s motion to dismiss her case. Mr. Auten acknowledged that he had received notice of the hearing on the motion to dismiss, but had failed to inform his client of that motion or the scheduled hearing. Only after the court’s Order was mailed directly to Ms. Henry in Oregon did she discover that her bankruptcy case had not been filed until December 30, 2016, and that a motion to dismiss was pending

Mr. Auten was offered the opportunity to provide additional facts and explain the basis for filing his actions in this case. While he provided some testimony, he offered no explanation or reason for his lengthy delay in filing Ms. Henry’s petition. As to why he filed the bankruptcy in Alaska, Mr. Auten stated he understood that Ms. Henry had originally intended to retain her Alaska residency despite her move to Oregon. He offered no reason for his failure to inform his client of the dates for her original or continued § 341 meeting of creditors. When asked why he did not inform his client of the UST’s motion to dismiss, he replied that he understood that the motion was directed to missing documents that could still be provided. Yet, Mr. Auten has never taken any steps to procure those documents, nor did he oppose or attend the initial hearing on the motion to dismiss.

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