United States of America v. Darren David Chaker United States District Court Southern District of Texas - Houston Division Case No.

Transcription

1 United States of America v. Darren David Chaker United States District Court Southern District of Texas - Houston Division Case No. H S EXPERT REPORT OF ERIN ELIZABETH JONES I. SCOPE OF ENGAGEMENT I have been retained by Darren Chaker to perform an analysis and provide opinions related to the case of the United States v. Darren David Chaker. To the extent that additional or updated information is made available for review and such additional or updated information impacts my findings, I may update this report II. CREDENTIALS Attached hereto as Exhibit A is my curriculum vitae setting forth relevant experience and qualifications. I am an attorney licensed in the State of Texas and I am admitted to practice before all federal courts in Texas as well as federal courts in Illinois, Delaware, Nevada and New York. I was admitted to practice in This is my twelfth year of practice with over 95% of my practice dedicated to bankruptcy and bankruptcy related litigation. The remaining 5% would be for commercial litigation not related to a bankruptcy case. My practice is primarily dedicated to the representation of interested parties in bankruptcy cases and bankruptcy related litigation. The largest part of my practice is representing bankruptcy trustees. I regularly represent bankruptcy trustees, estates, and other fiduciaries in bankruptcy proceedings. I also file bankruptcy cases for individuals and corporations as debtors in bankruptcy. In my practice of representing bankruptcy debtors, I regularly interview clients regarding their assets, debts, and other aspects of their financial condition. I represent creditors making claims in bankruptcy cases but I do not represent financial institutions. I have represented many bankruptcy estates and bankruptcy trustees to investigate and prosecute fraud claims. I have prosecuted dozens of fraud and fraudulent transfer claims in my years of practice. I often represent bankruptcy estates and bankruptcy trustees to find and recover assets that have been concealed or fraudulently removed from the reach of creditors. I have prosecuted claims seeking exception from discharge and dischargeability on the basis of fraud and misrepresentation. I have represented clients seeking to revoke a debtor s discharge for fraudulent concealment. I have successfully defended debtors in suits by creditors and/or trustees seeking an exception to discharge on the basis of fraud and misrepresentation. 1

2 III. MATERIALS REVIEWED The materials reviewed in connection with the preparation of this report are set forth on the attached Exhibit B. IV. BACKGROUND FACTS / TIMELINE OF KEY EVENTS 1. September 24, 2004: Darren Chaker ( Chaker ) acquired real property at Pampass Pass, Houston, Texas ( Pampass Pass Property ). Chaker was the borrower on the note and deed of trust for the Pampass Pass Property. 2. April 28, 2005: Nevada Spendthrift Trust ( Trust ) created. Chaker is the primary trustee and primary beneficiary of the Trust. Core Capital, LLC ( Core ) membership interests are assets of the Trust. 3. April 28, 2005 / May 3, 2005: Core formation documents executed on April 28, On May 3, 2005 Core is formed as a Nevada Limited Liability Company by filing formation documents. The Trust is a member of Core. Chaker is not individually a member of Core. Operating Agreement of Core indicates Pampass Pass Property was contributed to the Trust by Core. 4. September 6, 2005: Chaker conveyed to Core all individual right, title, and interest in the Pampass Pass Property. 5. December 5, 2006: Bankruptcy Case No filed for Darren Chaker individually ( First Bankruptcy Case ). This is Chaker s first bankruptcy case. Thomas Frederick Fred Jones, III and the firm of Bayley and Galyen appeared as counsel for Chaker in that case. In connection with preparing this report, I reviewed the bankruptcy schedules and statement of financial affairs filed in the First Bankruptcy Case and the docket sheet in the First Bankruptcy Case, both of which are incorporated herein by reference. 6. March 6, 2007: Bankruptcy Case No filed for Darren Chaker individually ( Second Bankruptcy Case ). This is Chaker s second bankruptcy case. Thomas Frederick Fred Jones, III and the firm of Bayley and Galyen appeared as counsel for Chaker in that case. In connection with preparing this report, I reviewed the bankruptcy schedules and statement of financial affairs filed in the Second Bankruptcy Case and the docket sheet in the Second Bankruptcy Case, both of which are incorporated herein by reference. 7. August 7, 2007: Bankruptcy Case No filed for Core Capital, LLC ( Core Capital Bankruptcy Case ). Thomas Frederick Fred Jones, III and the firm of Bayley 2

3 and Galyen appeared as counsel but employment denied. In connection with preparing this report, I reviewed the voluntary petition in the Core Capital Bankruptcy Case and the docket sheet in the Core Capital Bankruptcy Case, both of which are incorporated herein by reference. There are no bankruptcy schedules or statement of financial affairs filed in the Core Capital Bankruptcy Case. 8. In addition to the foregoing key facts, I reviewed and relied upon documents and facts set forth in documents and sources described on the list attached as Exhibit B to this report. V. SUMMARY OPINIONS AND BASES A. Did Mr. Chaker s Bankruptcy Counsel Exercise an Appropriate Standard of Care in his Representation of Mr. Chaker? In my opinion, bankruptcy counsel, which was the same in all three cases did not exercise an appropriate standard of care in the representation of Chaker and/or Core Capital, LLC. From a review of the schedules and statements of financial affairs, there are numerous errors that are obvious without any background knowledge regarding Chaker s financial condition. Some of these are common errors seen regularly in many cases which indicate a substandard level of care and attention to detail. The clerical errors also indicate a lack of familiarity with the computer program which creates the schedules and statements and a lack of understanding of how to properly fill out schedules and how the various sections of the schedules and statements interrelate to one another. It is possible to input data into one section of the software and if the proper radio buttons are not clicked, that same information may not appear in other places in the schedules. The schedules in all three cases appear to be created using the Bankruptcy Pro 1 (a/k/a Legal Pro) or Best Case 2 software, which I am familiar with and have used in my practice. There are other more substantive errors, which after reviewing the record, indicate a lack of diligence or care on the part of the attorney. Bankruptcy is not a practice area to dabble in. While I do not believe board certification is necessary to provide an appropriate standard of care for clients, I do believe that a consumer or commercial bankruptcy practice is too specialized of a practice area for the occasional practitioner. I believe the same is true for para-professional and administrative staff. The technical parts of the bankruptcy process are administrative in nature and it is heavily regulated by rules and procedures that must be followed carefully to be entitled to the relief requested. In addition to mastering the administrative aspects of a bankruptcy case, counsel must

4 also be well versed in their understanding of laws relating to property rights and property exemptions arising under various state and federal laws. The laws concerning property rights and exemptions are intricate and one must have mastery of these concepts in order to adequately represent a client in bankruptcy. Where there is real property and/or trust interests involved, I am certain that legal research would be required in order to ensure compliance with disclosure requirements under the bankruptcy forms. The record is absent of any evidence that Chaker s attorney did any research or diligence concerning the existence of the trust and the relationship to Chaker or Core Capital. The record indicates that such information was disclosed to Chaker s counsel. In my opinion, failing to exercise any diligence on this topic falls below the appropriate standard of care. I have developed a system for client interviews and information exchange to promote accuracy and compliance with the applicable laws concerning bankruptcy petition, schedules, and statements. I have developed this practice over a decade based upon my experiences filing bankruptcy cases and reviewing schedules and statements prepared by other attorneys. I regularly confer with other bankruptcy professionals to compare notes and many other attorneys use similar procedures to safeguard the integrity of the bankruptcy process. While there is no specific manner in which an attorney is required to interview his/her client, there are some basic steps which are common and every attorney should follow to ensure best practices. When preparing a bankruptcy case for a person or entity, I employ the following techniques to obtain the best result possible: (i) (ii) First, I require the prospective client to physically come to the office and have a face-to-face consultation with an attorney. I do not charge for consultations. I do not limit time for consultations. I do not believe that it is effective for the consultation to be done with a paralegal or legal assistant. At the conclusion of the initial consultation, I provide the prospective client with an extensive homework worksheet, information regarding where and how to obtain approved credit counseling, written materials explaining the various chapters of bankruptcy, and a questionnaire used by bankruptcy trustees. The questionnaire used by bankruptcy trustees is especially helpful because it is designed to help identify issues concerning asset transfers and trust interests. In my representation of bankruptcy trustees, I have found that it is not uncommon for a debtor to omit an interest from his/her schedules and statements but disclose it on the questionnaire. This is why I believe this is a helpful tool because it aids the client in understanding the extent and nature of disclosure required in a bankruptcy case. Unfortunately, this questionnaire is only officially used in chapter 7 cases. However, I give this questionnaire to all clients regardless of the chapter of bankruptcy which is appropriate for them because I believe the information it asks for is just another way to verify information in the schedules 4

5 and statements. The information sought by this questionnaire is just another layer of diligence that an attorney should perform. (iii) If the prospective client hires the firm, it is the firm s standard practice to provide a written engagement letter and a copy of the Texas Lawyers Creed. (iv) It is the firm s standard practice to require the client to provide all the information and documents requested in the homework worksheet before preparing the schedules and statements. I believe that when the material is provided in a piecemeal fashion, there is more opportunity for mistake, error, or inconsistency. (v) Once all the information is provided by the client, an attorney reviews and analyzes the information and if there are questions will call the client to clarify or verify information. In a typical bankruptcy case, a client will have at least 2-3 interactions with an attorney before preparation of schedules begin (some times more; rarely less). It is standard for attorneys to search various public information databases and other investigatory tools to verify the information provided by the Debtor. I do not believe that this has to be an exhaustive effort by an attorney, but there must be some external verification of data provided by a debtor in order to exercise an appropriate standard of care. (vi) It is the firm s standard practice for an attorney to enter the information provided by the client into the bankruptcy program to ensure proper categorization and scheduling of data. I do believe that data entry can be competently performed by a paralegal or legal assistant as long as the legal decisions are made by an attorney, the attorneys selections are clear to the person doing the data entry, and a lawyer carefully reviews the paralegals work through a quality control process. Based upon the records reviewed, I see no indication of attorney involvement in the preparation of the schedules and statement of financial affairs. (vii) Once a substantially completed draft of the schedules are ready, the client will come to the office for a face-to-face meeting with an attorney to review the draft schedules. Occasionally, a draft of the schedules is ed to the client in advance so that they may look over the schedules and provide comments in advance of the meeting. However, it is absolutely critical to meet the client in person to go through each page of the bankruptcy schedules. At the review meeting, an attorney will go page by page with the client and explain what each page means and make any corrections or revisions. If additional information is necessary, that information is required to be provided before preparing a final draft. (viii) When a final draft of the schedules is ready to be signed, the client must come to the office and sign the schedules in the office. I do not believe an attorney is exercising an appropriate standard of care by receiving a signature via electronic means when initiating a bankruptcy case. Unless the debtor signs the document where indicated and initials each page, there is really no way to verify that the 5

6 debtor actually read each and every page of the schedules prior to signing. Moreover, if an attorney does not see a debtor sign a document with his or her own eyes, there is no way to verify the debtor actually signed the schedules. As I appreciate the rules, an attorney must have an original wet copy of signed petition, schedules, and statements before filing a bankruptcy case. Attorneys are required to maintain original signatures in their files. When a case is filed electronically, the local bankruptcy rules require that an original Declaration of Electronic Filing of Bankruptcy Petition, Lists, Statements, and Schedules to be filed within 5 business days. Part II of the Declaration is a Declaration of Attorney which states: I declare UNDER PENALTY OF PERJURY that: (1) I will give the debtor(s) a copy of all documents referenced by Part I herein which are filed with the United States Bankruptcy Court; and (2) I have informed the debtor(s), if an individual with primarily consumer debts, that he or she may proceed under chapter 7, 11, 12 or 13 of title 11, United States Code, and have explained the relief available under each chapter. This declaration must be signed and attested to by the filing attorney. Upon signing this document, an attorney is promising to provide the Debtor with a copy of the bankruptcy petition, schedules and statement of financial affairs. The records reviewed in this case indicate Chaker did not receive a full copy of his petition, schedules and statement of financial affairs to review. The records reviewed in this case indicate that Chaker did not receive a copy of his petition, schedules, and statement of financial affairs before signing the signature pages. The records reviewed indicate that Chaker was only provided with signature pages and did not have an opportunity to review his schedules and statement of financial affairs prior to them being filed in the First Bankruptcy Case. In my opinion, any attorney who would file a bankruptcy case without their client having seen and approved each and every page of the bankruptcy filing prior to the actual filing, has failed to exercise the appropriate standard of care. The schedules and statements in the Second Bankruptcy Case appear to be identical to the schedules and statements in the First Bankruptcy Case. According to the records reviewed, there is no indication of Chaker s consent to the filing of the Second Bankruptcy Case. The evidence indicates that he believed his First Bankruptcy Case was going to be reinstated. There is no indication of signatures provided for the filing of the Second Bankruptcy Case. As I understand the information I reviewed, there are no original signatures in existence for the Second Bankruptcy Case. Additionally in the Second Bankruptcy Case it appears as if there is no money paid by Chaker prior to the filing. Upon the filing of a Second Bankruptcy Case, Chaker would have had to file another filing fee and administrative fee. In 2007, the filing fee for a chapter 13 was $189 and the administrative fee was $39. I am not aware of any firm that will advance the 6

7 filing fee in a chapter 13 case. The fact that Chaker s attorneys advanced the filing fee is further indicia that the Second Bankruptcy Case was filed without Chaker s knowledge. It also suggests to me that Chaker believed the Second Bankruptcy Case filing was just a reinstatement of the First Bankruptcy Case. In my opinion Chaker s attorney did not exercise a reasonable standard of care in filing a Second Bankruptcy Case without Chaker s consent and signature. Indeed, in my opinion such conduct is fraudulent. If there were errors or omissions in schedules not signed or authorized to be filed by Chaker, those statements could not be made with fraudulent intent because they never should have been made absent Chaker s consent and authorization. The standard of care that a filing attorney must exercise is governed by, among other things, the following statutes and rules: 11 U.S.C. 707(b)(4)(C) states in pertinent part: (C) (i) (ii) (I) (II) The signature of an attorney on a petition, pleading, or written motion shall constitute a certification that the attorney has performed a reasonable investigation into the circumstances that gave rise to the petition, pleading, or written motion; and determined that the petition, pleading, or written motion is well grounded in fact; and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law and does not constitute an abuse under paragraph (1) 11 U.S.C. 707(b)(4)(D) states in pertinent part: (D) The signature of an attorney on the petition shall constitute a certification that the attorney has no knowledge after an inquiry that the information in the schedules filed with such petition is incorrect. Federal Rule of Bankruptcy Procedure 9011 states in pertinent part: (a) Signing of papers Every petition, pleading, written motion, and other paper, except a list, schedule, or statement, or amendments thereto, shall be signed by at least one attorney of record in the attorney's individual name. A party who is not represented by an attorney shall sign all papers. Each paper shall state the signer's address and telephone number, if any. An unsigned paper shall be stricken unless omission of the signature is corrected promptly after being called to the attention of the attorney or party. (b) Representations to the court 7

8 By presenting to the court (whether by signing, filing, submitting, or later advocating) a petition, pleading, written motion, or other paper, an attorney or unrepresented party is certifying that to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances, (1) it is not being presented for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation; (2) the claims, defenses, and other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law; (3) the allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery; and (4) the denials of factual contentions are warranted on the evidence or, if specifically so identified, are reasonably based on a lack of information or belief. The following cases interpret the extent to which various courts believe an attorney must inform and advise his/her client in a bankruptcy case: In re Withrow, 391 B.R. 217, (Bankr.D.Mass 2008) : Inasmuch as Rule 9011 and the 707(b)(4)(C) standard is to be a reasonable one, it must be tested objectively. Id. Accordingly, it seems to this Court that the answers to at least the following questions are germane to a Rule 9011 and 707(b)(4)(C) analysis: (1) did the attorney impress upon the debtor the critical importance of accuracy in the preparation of documents to be presented to the Court; (2) did the attorney seek from the debtor, and then review, whatever documents were within the debtor's possession, custody or control in order to verify the information provided by the debtor; (3) did the attorney employ such external verification tools as were available and not time or cost prohibitive (e.g., on-line real estate title compilations, on-line lien search, tax scripts ); (4) was any of the information provided by the debtor and then set forth in the debtor's court filings internally inconsistent that is, was there anything which should have obviously alerted the attorney that the information provided by the debtor could not be accurate; and (5) did the attorney act promptly to correct any information presented to the Court which turned out, notwithstanding the attorney's best efforts, to be inaccurate. These questions can be further simplified and reduced to one question, their common denominator: Did the attorney do his or her level best to get it right? More cannot, and should not, be asked of any attorney. And when an attorney appears to have provided less, an inquiry under Rule 9011 and 707(b)(4)(C) is proper. In re Trudell, 424 B.R. 786, 791 (Bankr.W.D.MI 2010): Whether Rule 9011 applies to statements of affairs and schedules is debatable. However, Section 707(b)(4)(D), which was added to the Code as part of the 2005 amendments, unquestionably imposes a duty upon the debtor's attorney to ensure the accuracy of his client's schedules. 8

9 A reading of the statutes, rules, and small sample of cases on the issue reveal that it is expected for an attorney to employ a process with as many safeguards as possible to avoid material errors and omissions in a bankruptcy filing. Errors and omissions regularly occur in bankruptcy cases. I have yet to attend a panel of 341 creditors meetings where debtors are not sent home to make corrections and amendments to their schedules and statements. I would estimate, in my experience, that errors and omissions occur in at least 30-40% of cases filed (if not more). I have seen cases in which the errors and omissions are far more material than in the Chaker case without so much as a second glance. In my opinion, most of the errors and omissions that I see in bankruptcy cases appear to stem from a combination of factors, including: (1) consumer debtors fundamental lack of understanding of financial documents and concepts; (2) consumer debtors stress and anxiety over the bankruptcy process and financial pressures; and (3) attorneys failure to do an adequate investigation and interview of the client to obtain facts necessary to discover information necessary to prepare an accurate filing. In my opinion, most of the errors and omissions that I see in typical consumer bankruptcy cases are inadvertent and can be remedied with simple amendments. In relation to the third factor cited above, this problem appears to be more prevalent in cases where debtors are represented by lawyers who lack sufficient experience in bankruptcy and in cases where debtors are represented by firms that have a high volume practice. In light of the low success rates for chapter 13 cases and the fact that attorneys are paid as the case progresses, the profit margins are very thin. In order to maintain competitiveness, firms delegate a substantial amount of work to paralegals which should be performed by attorneys. While there are many reputable firms that do high volume bankruptcy filings and have very competent staff who do excellent work, there are many that do a very poor job of representing clients adequately. In an effort to promote accuracy, fairness and to improve professionalism among the consumer bankruptcy bar, the Southern District of Texas has implemented substantial changes to local procedures and practices since There have been many changes to the chapter 13 practice since The problems with inaccuracies and inconsistencies were exacerbated by the amendments to the Bankruptcy Code in October 2005 and the implosion of the subprime market. The amendments to the Bankruptcy Code (referred to as BAPCPA ) were substantial and included many new concepts, forms, and requirements. As the effective date of BAPCPA approached in October 2005, there was a proliferation of filings. In the period right after the BAPCPA amendments were effective, there were cases filed under the old rules and cases filed under the new rules and the melding of the two regimes proved to be very challenging to bankruptcy professionals. The changes to the Bankruptcy Code were significant and there was a certain sense of chaos and uncertainty in the time frame. Moreover, the bankruptcy computer programs used to generate schedules were constantly changing and updating to 3 There have also been many changes to rules and local procedures to improve professionalism, fairness, and accuracy among lawyers practicing in commercial bankruptcy cases as well. The improvements made to local practices were not limited to consumer cases. 9

10 accommodate the changes to the Bankruptcy Code. As the subprime crisis grew and foreclosures increased, the Southern District of Texas standardized many forms and practices to cut down on inaccuracies and to improve professionalism on the debtor and creditor sides of the cases. The Official Forms for the petition, schedules, and statements are more or less the same (with a few very notable changes). What was confusing during that time frame was how to fill them out accurately in light of all the changes to the code and local practices. In my opinion and experience, most consumer debtors do not have a sophisticated understanding of the official forms for the bankruptcy petition, schedules, and statements. Consumer debtors often do not understand their own financial documents. Consumer debtors often do not understand what constitutes an asset or property interest. Consumer debtors rarely understand that lawsuits are assets and this must be explained to them carefully. Consumer debtors often believe that if an asset has no value then it is not an asset. Consumer debtors tend to equate value with the need for disclosure. In my opinion, it is a lawyer s duty to provide sufficient instruction to a client to help them understand this. I do not believe that failing to do so is fraudulent on the part of the attorney but it does indicate inadequate representation falling below the standard of care. A client must be interviewed properly and assisted in understanding exactly what information is sought and required. Clients must be cautioned of the importance and need for full disclosure. Based upon the records reviewed, it does not appear as if Chaker received an adequate amount of instruction concerning the nature and extent of disclosure required in his case. The records reviewed do not indicate that Chaker was counseled regarding how the trust should be disclosed. The records reviewed indicate that the trust was disclosed to Chaker s attorneys. The records reviewed do not indicate any follow up effort by the attorneys to understand the nature of the trust so that it could be adequately addressed on the schedules and statement of financial affairs. The records reviewed do not indicate counseling for Chaker concerning the consequences of errors and omissions. In my opinion, it does not appear that Chaker was adequately advised or informed of the nature and extent of disclosure required. However, all of the counseling in the world would not help to ensure proper disclosure if a debtor is deprived of the opportunity to review schedules and statements before filing and certainly if not given the opportunity to sign the schedules and statements before filing. Finally, Debtors do not actually fill out their own forms for filing. Debtors are asked for data and information and then that data and information has to be interpreted by a lawyer and then plugged in to software to generate the forms that are filed. If the lawyer or his/her staff (i) do not get the right information from the client; (ii) do not properly interpret the information given; (iii) do not properly apply the law; or (iv) fail to include the information on the schedules and statements; then it is not only possible but probable that the client will not understand or even notice the error(s) on their filed documents. This appears to be the case based upon the records reviewed. It appears as if the information concerning the existence of the trust and the rental of the Pampass Pass Property were disclosed to the attorneys. It appears from the 10

11 attorney s notes that he was aware of the existence of the property and trust and that he failed to make inquiry. The records reviewed indicate that Chaker provided information of another attorney familiar with the trust to his bankruptcy attorney. The record indicates that his bankruptcy attorney made no inquiry to the Nevada attorney. In my opinion, it falls below the standard of care for Chaker s attorneys to have failed to inquire further regarding the nature of the trust and/or to disclose its existence in various places in the schedules and statements. B. Are the alleged errors/omissions of Mr. Chaker in his bankruptcy cases material? (1) Did Chaker conceal and fail to disclose membership interest and association with Core Capital? Based upon the records reviewed, Chaker was not a member of Core Capital. Accordingly, I do not believe he had a property interest in Core Capital to disclose. I do not believe it is an error or omission and certainly not material to fail to disclose something in which the debtor has no property interest under 11 U.S.C. 541 and applicable state law. It appears as if the income received from the rental of the property was disclosed in Schedule I as current income from a source other than wages. While the interest in the rental income may not be disclosed in all the right places in the schedules, it is disclosed in at least one very prominent place. In my opinion, the disclosure of the income by Chaker in Schedule I is not consistent with concealment. Chaker did not conceal or fail to disclose membership interest and association with Core Capital because it was disclosed to his attorneys. Chaker did not conceal or fail to disclose membership interest and association with Core Capital because he never signed the petition, schedules, or statements in the Second Bankruptcy Case which was filed without his consent. (2) Did Chaker conceal funds obtained from rental income from Pampass by failing to disclose in Schedule G and Statement of Financial Affairs (Question No. 1 Income from Operation of Business)? It appears as if the income received from the rental of the property was disclosed in Schedule I as current income from a source other than wages. While the interest in the rental income may not be disclosed in all the right places in the schedules, it is disclosed in at least one very prominent place. In my opinion, the disclosure of the income by Chaker in Schedule I is not consistent with concealment. If Chaker is not the leasing party for the Pampass Pass Property, then it would not be appropriate to include the lease on Schedule G. Chaker did not conceal or fail to disclose rental income from Pampass because it was disclosed to his attorneys. Chaker did not conceal or fail to disclose rental income from Pampass because he never signed the 11

12 petition, schedules, or statements in the Second Bankruptcy Case which was filed without his consent. (3) Did Chaker falsely testify in the Second Bankruptcy Case when he stated that the Pampass Pass Property never leased out prior to January 2007? Based upon a review of the transcript of the hearing in the Second Bankruptcy Case, it appears that Chaker stated the he had not leased the Property prior to Given that Chaker did not personally own the Pampass Pass Property, he would not have been the leasing party. Accordingly, I do not believe this is a false statement. I also note from the record of that hearing that Chaker appears to not be familiar with the schedules and statements filed in the case (consistent with not having seen them before being filed) and appears to be quite confused. (4) Did Chaker falsely testify in the Core Capital Bankruptcy Case when he said if I was asked the question of if its rented or who owns it, yeah, absolutely, I would have said that s Core Capital? Based upon the records reviewed, it appears as if Chaker did everything he knew to do to disclose the existence of the trust, Core Capital, and the rental income to his attorneys. It appears as if Chaker relied on counsel to ensure that property interests were adequately disclosed. It appears from the record that the income from the rental of the Pampass Pass Property was disclosed. The records reviewed indicate that Chaker was never asked who owns the Pampass Pass Property. The records review only discussion concerning the income and feasibility of a chapter 13 plan based on that income. In my opinion, it is not false testimony for Chaker to state what he would have done in a hypothetical scenario. (5) Did Chaker intentionally fail to attend the 341 creditors meeting as part of the scheme or artifice? Many debtors inexcusably and inexplicably miss their scheduled 341 meetings or arrive late. In my opinion, an unacceptable number of debtors miss their scheduled 341 meetings. I did not find any evidence that Chaker purposefully missed his 341 meeting of creditors. I believe it is the attorneys responsibility to communicate these dates to clients to ensure their compliance with attending the meeting. I do not see any evidence indicating that Chaker s attorneys informed Chaker of his meeting time and date. My firm sends a letter and to every client with information about the date, time and location of their 341 meeting as well as information about where to park, how to get through security at the courthouse, and what materials they should bring. A review of the record indicates that Chaker did not receive the notices of his 12

13 341 meetings at the address listed in the petition. The P.O. Box address given by his attorneys was forwarding to Chaker s proper address and it took months for Chaker to receive mail. It also appears as if faxes were sent to the wrong fax number and therefore fax notice was not accomplished. It does not appear from the records reviewed that Chaker had actual notice of the 341 meeting dates and therefore it is my opinion that he did not purposefully fail to attend those meetings as part of a fraudulent scheme. (6) Did Chaker file the chapter 13 to obtain the automatic stay as part of the scheme or artifice? The primary reason for filing a chapter 13 case is to obtain the automatic stay to prevent the foreclosure of a home or repossession of a car. The Bankruptcy Code is designed precisely to afford debtors this protection. If a debtor is a repeat filer with no hope of reorganization, the debtor will not get the benefit of the automatic stay beyond 30 days. In the case of a repeat filer, if the circumstances have not substantially changed between filings to justify an extension of the automatic stay beyond 30 days, there really is no benefit to the subsequent filing. It is a perfectly legitimate reason to file a bankruptcy case to prevent a foreclosure. Moreover, the evidence in this case indicates that the income from the rental of the Pampass Pass Property were to be used under the chapter 13 plan to pay the secured creditor. The record indicates that the chapter 13 case was filed to become current on a going forward basis and to catch up the arrearage on the Pampass Pass Property. In my opinion, if a chapter 13 case is filed (even a repeat filing) and the plan is to pay the mortgage, the clear purpose of the chapter 13 case is reorganization. It is not fraudulent to seek to reorganize mortgage debt through a chapter 13 plan; indeed it is the purpose of chapter 13 to do so. C. Did Chaker s attorney exercise appropriate standard of care in the maintenance and retention of the client file? It appears from the records reviewed that Chaker s attorneys failed to maintain the client files. The records reviewed indicate that documents in the file were destroyed and or deleted. The records reviewed indicate that it was Bayley and Galyen s policy to retain such files. The records reviewed indicate that notwithstanding the firm s policy to retain such files, those files were nevertheless destroyed and/or deleted. The record reviewed also indicates alterations to the parts of the file that exist. The local rules of this district clearly require retention of original documents. See In my opinion, Chaker s 13

14 attorneys conduct in destroying, deleting, or altering his file and failing to maintain original signatures falls far below the appropriate standard of care. Index of Exhibits 1. Exhibit A - Curriculum Vitae of Erin E. Jones 2. Exhibit B - Index of Documents Reviewed 14