The American Bar Association Young Lawyers Division 2012 Fall Conference Charleston SC

Transcription

1 The American Bar Association Young Lawyers Division 2012 Fall Conference Charleston SC Young Lawyers Division Young Lawyers Division October 18-20, 2012 Ethics and Bankruptcy: Tips and Traps for New Lawyers and Non- Bankruptcy Practitioners (Ethics CLE) Francis Marion Hotel Carolina B Friday, October 19, :55 a.m. 9:55 a.m.

2 ETHICS AND BANKRUPTCY: TIPS AND TRAPS FOR NEW LAWYERS AND NON BANKRUPTCY PRACTITIONERS Presented by: Honorable John E. Waites, Chief Judge of the United States Bankruptcy Court for the District of South Carolina Samuel J. Zusmann, Jr., Esq. Kathleen Harrell Latham, Esq. Moderator: Edward Fitzgerald, Esq. October 19, 2012

3 Introduction Ethical concerns arise throughout a bankruptcy case, from the initial client meeting to the confirmation of a plan or entry of a discharge. It is important that you recognize these issues at the outset to avoid many of the common pitfalls that result from a lack of understanding or disclosure.

4 I want to warn you that at some point in your career, and believe it or not, earlier than you think, you will be invited to abandon your principles to satisfy a client. My advice to you is simple: Don t. Don t. It s not worth it. Don t be afraid to lose a client and even lose a job if it means compromising what you believe to be right and appropriate. p Larry Thompson Former U.S. US Deputy Attorney General May15 15, 2002

5 Duties as Debtor s Counsel Be competent and understand the relevant sections of the United States Bankruptcy Code. Determine if there is any conflict of interest in representingthe the debtor. Counsel the client as to whether filing for bankruptcy is necessaryand and appropriate. Understand the debtor s situation why do they want to file bankruptcy. Understand the debtor s financial situation before filing.

6 Duties as Debtor s Counsel Gather information and assist your client in preparing their bankruptcy schedules and statement of financial affairs. As counsel, explain and supervise the process. If the debtor is an individual and married, explain and counsel them as to whether only one spouse should file or if they should file jointly. If the Debtor is an individual, explain exemptions and what may or may not become property of the bankruptcy estate. Gather information and use common sense. Do not file anything until you have sufficient information from your client to verify financial status, assets, and liabilities.

7 Scope of Services as Debtor s Counsel As Debtor s counsel, it is important to have a clear contract for services with your client that t provides what services are being provided and for what fee, and what services will require an additional fee. Courts have held that where an attorney s scope of services agreement is not specific, they are obligated to represent the debtor in all aspects of the case, including dischargeability proceedings, motions to avoid liens, or any contested matter. See In re DS DeSantis, 395 B.R. 162 (Bankr. M.D.Fla. 2008) (holding that t absent a valid contractual limitation upon an attorney s scope of services to a debtor, attorney is obligated to represent client in all matters, including any discharge or dischargeability litigation, unless and until grounds exist for attorney s withdrawal under applicable professional standards).

8 Fee Disclosures Concerns for Your Wallet and Your License Section 329 of the United States Bankruptcy Code also requires an attorney representing a debtor to file a statement of the compensation paid within one year for services rendered or to be rendered in contemplation of or in connection with the bankruptcy case and the source of the compensation. Federal Rule of Bankruptcy Procedure 2016(b) relates to Section 329 and provides that a debtor s attorney must submit the statement required under Section 329 within 14 days after the order for relief is entered. Federal Rule of Bankruptcy Procedure 2017 enables any party or the court to seek a hearing as to whether any payment made by the debtor to an attorney for services related to the case is excessive. A failure to disclose fees can lead to sanctions and a disgorgement of fees. See In re Kissberth, 273 F3d714 F.3d (6th Cir. 2001) (attorney ordered to disgorge fees where he failed to disclose all amounts paid by the debtors as required by Section 329).

9 Representing a Creditor and Filing a Proof of Claim Federal Bankruptcy Rule of Procedure 9011 applies to proofs of claim, and as such, attorney and litigants have an affirmative duty to make a reasonable investigation of the facts and the law before submitting a pleading, motion, or paper. Attorney signing the Proof of Claim has a duty to personally review the document for accuracy and a good faith basis for filing.

10 Representing a Creditor and Filing a Proof of Claim In In re Obasi, 2011 WL (Bankr. S.D.N.Y. 2011), an attorney submitted a proof of claim on behalf of a creditor in a bankruptcy case with his electronic signature on the proof of claim, but he never reviewed the claim in any manner before it was filed. Court concluded that the attorney was in violation of Federal Bankruptcy Rule of Procedure 9011, but did not order sanctions under the circumstances.

11 Ethical Obligations in Objecting to a Proof of Claim Debtors attorneys must consider their ethical obligations under Federal Rule of Bankruptcy Procedure 9011 before objecting to a claim. If Debtor has scheduledthe debt in substantially the same or a greater amount than the claimed amount, and it is not scheduled as contingent or disputed, and the claim substantially conforms to the official form, an objection to the claim may be found to be in bad faith and in violation of an attorney s ethical obligations under Federal Rule of Bankruptcy Procedure 9011.

12 Ethical Obligations in Objecting to a Proof of Claim In In re MacFarland,, 662 B.R. 857 (Bankr. S.D.Fla 2011) the Bankruptcy Court for the Southern District of Florida issued an order sanctioning a debtor s attorney for filingclaimobjectionsin in objective bad faith and in violation of Federal Rule of Bankruptcy Procedure The court hldth held that t the dbt debtor s attorney s filing of mass claim objections for lack of documentation was in bad faith where the debtor had already admitted to owing the debt. Debtor s attorney suspended for 30 days from practicing before the court.

13 Retention as a Professional in a Bankruptcy Case Governed by Section 327 of the United States Bankruptcy Code. A professional must be disinterested and not hold an interest adverse to the bankruptcy estate.

14 What is Disinterested? Disinterested is defined under Section 101(14) of the United States Bankruptcy Code as a person that: (a) is not a creditor, and equity security holder, or an insider; (b) is not and was not, within 2 years before the date of the filing of the petition, a director, officer, or employee of the debtor; and (c) does not hold an interest materially adverse to the interest of the estate or any class of creditors or equity security holders, by reason of any direct or indirect relationship to, connection with, or interest in the debtor, or for any other reason.

15 What is an Adverse Interest? Adverse interestis is not a definedterm under the United States Bankruptcy Code. Generally understood to mean: (1) to possess or assert an economic interest that would tend to lessen the value of the bankruptcy estate or that would create either an actual or potential dispute in which the estate is a rival claimant. See TWI Intern, Inc. v. Vanguard Oil and Service Co.,, 162 B.R. 672 (Bankr. S.D.N.Y. 1994).

16 Disclose, Disclose, Disclose! Federal Rule of Bankruptcy Procedure 2014 provides that an application for an order of employment must include a verified statement setting forth the person s connections withthedebtor the debtor, creditors, and any other party in interest, their respective attorneys and accountants, theunited States Trustee, or any person employed in the office of the United States Trustee.

17 Disclose, Disclose, Disclose! A failure to disclose any conflict of interest under Bankruptcy Rule of Procedure 2014 can have severe consequences. Conflicts often arise in bankruptcy cases when you also represent a principal or shareholder of the debtor, interrelated companies, and creditors of the Debtor.

18 Disclose, Disclose, Disclose! So what is the worst that atcan happen if you fail to make a disclosure? Fee application can be denied. See In re Prince, 40 F.3d 356 (11th Cir. 1994). In United States v. Gellene, 182 F.3d 578 (7th Cir. 1999), an attorney that represented a debtor and failed to also disclose his representation of the senior secured creditor was convicted of bankruptcy fraud, fined, and sentenced to 15 months in prison.

19 Conclusion The first rule of the Model Rules of Professional Conduct is that a lawyer shall provide competent representation to a client. These fundamental duties include communicating with the client, diligence, and promptness. You can avoid many of the common pitfalls in bankruptcy by following these core principles and understanding your basic duties to the client and your duty to disclose.

20 The Honorable John E. Waites, Chief Bankruptcy Judge, United States Bankruptcy Court, District of South Carolina was appointed as a United States Bankruptcy Judge for the District of South Carolina in 1994, and has served as the District s Chief Bankruptcy Judge since He is a member of the Board of Governors of the National Conference of Bankruptcy Judges and is chairman of the Bankruptcy Judges Advisory Group for the Administrative Office of the United States Courts. He also serves as a member of the Access to Justice Commission of the South Carolina Supreme Court and teaches as an Adjunct Professor at the Charleston School of Law.

21 Samuel J. Zusmann, Jr. is a partner in the Orlando office at Holland & Knight LLP and concentrates his practice in bankruptcy and workout law, representing creditors, debtors, examiners, trustees and creditors' committees. He is experienced in cases involving manufacturing organizations, wholesale and retail businesses, service businesses, including truck lines, laundries, and restaurants, crop and livestock farming, and hotel, commercial, residential and resort developments. He has represented appellants and appellees in district and circuit courts and receivers in Federal Trade Commission actions. Mr. Zusmann practiced in Atlanta for 35 years prior to joining the firm in He has been an active leader and frequent lecturer at the national level in the fields of bankruptcy and debtors' and creditors' rights. Honors & Awards The Best Lawyers in America guide, Orlando Bankruptcy and Creditor-Debtor Rights/Insolvency and Reorganization Law Lawyer of the Year, 2013 The Best Lawyers in America guide, Bankruptcy and Creditor-Debtor Rights Law/Insolvency and Reorganization Law, Litigation - Bankruptcy, , Florida Super Lawyers magazine, Chambers USA - America's Leading Business Lawyers guide, Bankruptcy/Restructuring, Corporate Counsel Edition, Super Lawyers magazine, July 2009 Professionalism Award, Central Florida Bankruptcy Law Association Fellow of the American College of Bankruptcy Martindale-Hubbell AV Rated Georgia Bar Journal, former Student Editor-in-Chief Memberships Southeastern Bankruptcy Law Institute, Director Emeritus and former Chairman American Bar Association State Bar of Georgia The Florida Bar Orange County Bar Association Central Florida Bankruptcy Law Association American Bankruptcy Institute American College of Bankruptcy 2

22 Paige A. Greenlee is a commercial litigator with the law firm of Sivyer, Barlow & Watson in Tampa, and has extensive experience representing clients in complex commercial litigation matters, including contracts, real estate, construction, and creditors rights. She was listed in Super Lawyers Magazine in 2009 and 2010 as a "Rising Star" for Business Litigation and Construction/Surety. Paige attended the University of Pennsylvania for her undergraduate degree and earned her J.D. from Emory University School of Law. Following graduation from law school, Paige served as a Law Clerk to the Honorable William Houston Brown and the Honorable Jennie D. Latta, both with the U.S. Bankruptcy Court, Western District of Tennessee. Membership and Leadership Positions President of the Florida Bar Young Lawyers Division, Florida Bar Board of Governors, Hillsborough County Young Lawyers Division Hillsborough Association for Women Lawyers, Board Member, Tampa Bay Bankruptcy Bar Association, Member Young Lawyers Committee for the Florida Association for Women Lawyers American Bar Association Children's Advocacy Center Foundation, Board Member 3

23 Edward M. Fitzgerald is an associate in the Orlando office at Holland & Knight LLP and practices in the area of bankruptcy, creditors' rights, and commercial litigation. His practice focuses on the representation of financial institutions and other creditors, including commercial banks, corporations, and receivers. Edward attended the University of Florida and earned a degree in Business Administration, majoring in Finance. Edward earned his J.D. from Stetson University College of Law. During law school, Mr. Fitzgerald served as a Federal Judicial Intern in the United States District Court, Middle District of Florida, for The Honorable Judge Magistrate Mark A. Pizzo. Membership and Leadership Positions ABA Young Lawyers Division, Bankruptcy Committee, Chair ABA Young Lawyers Division Assembly, Florida Delegate American Bar Association Orange County Bar Association Central Florida Bankruptcy Law Association 4