Desiderio v. Parikh (In re Parikh)

• Decision Date: 17 April 2014
• Docket Number: Case No. 807–72869–reg,Adv. Proc. No. 808–8062–reg
• Citation: 508 B.R. 572
• Parties: In re: Sunil Parikh, Debtor. John Desiderio, Plaintiff, v. Sunil Parikh, Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of New York

508 B.R. 572

In re: Sunil Parikh, Debtor.John Desiderio, Plaintiff,

v.Sunil Parikh, Defendant.

Case No. 807–72869–reg

Adv. Proc. No. 808–8062–reg

United States Bankruptcy Court, E.D. New York.

Signed April 17, 2014

John S. Desiderio, D&F Associates LLP, Garden City Park, NY, for Plaintiff.

Marc A. Pergament, Weinberg Gross & Pergament LLP, Garden City, NY, for Defendant.

Chapter 7

DECISION

(Re: MOTION FOR SANCTIONS [DKT # 191] and MOTION TO BE RELIEVED AS COUNSEL [DKT # 197] )

Hon. Robert E. Grossman, U.S.B.J.

Before the Court is the motion (“Motion”) by the Plaintiff, John Desiderio Sr. (“Desiderio”), seeking sanctions against the Defendant/Debtor, Sunil Parikh (the “Debtor”), the Debtor's wife, Meena Parikh (“Meena”), the Debtor's counsel, Marc Pergament, Esq. (“Pergament”), and his law firm Weinberg Gross & Pergament LLP (“WGP”), for their alleged bad faith bankruptcy filing and conduct in this adversary proceeding and Debtor's Chapter 7 bankruptcy case. [Adversary Proceeding Docket (“AP Dkt”) # 191]. In seeking sanctions Desiderio relies upon this Court's inherent power, 11 U.S.C. §§ 105(a), 707(b)(4)(C), 707(b)(4)(D), 28 U.S.C. § 1927, and/or Federal Rule of Bankruptcy Procedure 9011 (“Sanctions”). Desiderio also seeks to have costs awarded to him in this adversary proceeding pursuant to 28 U.S.C. § 1920 (“Costs”). He further requests entry of a money judgment against the Debtor and Meena pursuant to an Order of this Court, dated November 4, 2008 [Bankruptcy Case Docket (“BK Dkt”) # 72], granting daily monetary sanctions for failure to comply with subpoenas under Federal Rule of Bankruptcy Procedure 2004 (“Judgment on Prior Sanctions”).

This Court previously denied the Motion by Order, dated March 13, 2012. [AP Dkt # 199]. Desiderio appealed [AP Dkt # 200], and upon review by the District Court for the Eastern District of New York, this Court's denial was vacated and this matter remanded for (1) “further findings regarding whether the actions of the Debtor, [Meena], Pergament, and/or WGP were sanctionable,” and (2) further findings regarding the entry of a Judgment on Prior Sanctions. [AP Dkt # 209, Civil Action No. 12–cv–02148].

Upon reconsideration of the Motion, this Court finds that to the extent the Motion seeks a finding that Pergament's conduct was sanctionable, it should be granted, in part, pursuant to Rule 9011 as to Pergament and WGP. Rule 9011(b) requires an attorney to conduct an inquiry “reasonable under the circumstances” prior to filing a bankruptcy petition and schedules. Here, Pergament signed the Debtor's Chapter 7 petition [BK Dkt # 1] which contained incomplete or incorrect information. These inaccuracies and omissions should have been apparent to the Debtor's counsel based on the existence of a readily-available prior Chapter 13 petition [Case No. 8–06–71203–sb Docket (“Ch. 13 Dkt”) # 1, 14, 15] which should have caused counsel to conduct a further inquiry into the facts. Had counsel conducted this inquiry it would have revealed facts very different from the facts presented in the Chapter 7 petition, as filed. As a result the Court finds that the Debtor's counsel's conduct in this case is sanctionable under Rule 9011.

Pergament's attempt to avoid a finding that his conduct was sanctionable by assertion of the attorney-client privilege fails, as does his defense that this was a “bare bones” petition filed in an emergency filing. First, were counsel able to use the attorney-client privilege as a defense to Rule 9011 or other sanctions, the Court's ability to sanction counsel would be entirely circumvented. Second, the Chapter 7 petition filed in this case was not a “bare bones” petition. A bare bones petition would have been a three-page document consisting of the petition only (Official Form 1). What Pergament filed was a 40–page document including all, or almost all, of the schedules and statements required of a Chapter 7 debtor. The problem is, the information included in those filings was incomplete and/or inaccurate, and if Pergament had conducted a reasonable inquiry, he would have known that. The emergency nature of a bankruptcy filing does not excuse compliance with Rule 9011(b). See In re Moffett, 10–71920, 2012 WL 693362 (Bankr.C.D.Ill. Mar. 2, 2012); In re Alessandro, 10–12511 AJG, 2010 WL 3522255 (Bankr.S.D.N.Y. Sept. 7, 2010).

This Court's ruling is about the fine line lawyers must navigate between zealous advocacy on behalf of their clients and conduct that is sanctionable. The Court is mindful and strongly believes that zealous advocacy is the bedrock of our legal system. Any restraint or limits placed on a lawyer in the performance of his duties must be applied with the utmost care. However, the Court is also duty bound to ensure the integrity of this Court and hold attorneys who practice before it accountable for conduct that goes beyond zealous advocacy into the realm of sanctionable conduct.

Counsel for debtors in bankruptcy have to be particularly mindful of their duty to conduct an inquiry into the facts presented in a bankruptcy petition and schedules that is reasonable under the circumstances. First, the filing of a bankruptcy petition affords immediate and significant benefits to a debtor. The Court and parties in interest rely heavily on the information disclosed in the petition and schedules. Second, bankruptcy is not a typical adversarial proceeding where abuses by one party are likely to be exposed by another party. Chief Justice Burger famously described the adversarial system of justice as a tripod, one leg representing the court and the other two legs representing the adversaries. Justice William H. Erickson, The History of the Tripod of Justice, 64 Mil. L.Rev. 79, 100 (1974) (citing Chief Justice Warren E. Burger, Second Plenary Session American Bar Association Annual Meeting, July 16, 1971). Each leg must be equally strong to maintain justice. Id. In enacting the Bankruptcy Code, Congress recognized that creditors lack incentive to participate as actively against a debtor in bankruptcy as they would in normal litigation involving a plaintiff and a defendant because “[i]n contrast to general civil litigation, where cases affect only two or a few parties at most, bankruptcy cases may affect hundreds of scattered and ill-represented creditors.” H.R.Rep. No. 595, 95th Cong., 1st Sess. 88 (1977), U.S.Code Cong. & Admin.News 1978, 5787, 6050. In addition, creditors in non-bankruptcy litigation engage in a race to the bottom against a defendant, where the most aggressive, fast-acting creditor recovers the most. However, once a debtor enters bankruptcy, similarly situated creditors recover the same amount from the debtor, often less than the full amount owed to them, regardless of their participation. In bankruptcy, the debtor's “leg” is relatively strong-debtors are afforded an immediate automatic stay and are highly incentivized to zealously participate in their case-while the creditor's leg is relatively weak. Thus, in bankruptcy, the line between zealousness and abuse must be firmly observed to maintain the balance of the bankruptcy process. Courts use sanctions to draw this line and ensure that it is observed. See United States v. Int'l Bhd. of Teamsters, Chauffeurs, Warehousemen & Helpers of Am., AFL–CIO, 948 F.2d 1338, 1343 (2d Cir.1991).

Desiderio has asked this Court to redress the sanctionable conduct in this case by the imposition of monetary sanctions payable to him. However, the Court finds that publication of this Decision is an appropriate sanction in this case – sufficient to deter future sanctionable conduct.

The remainder of the relief sought by Desiderio in the Motion is denied for the reasons as set forth herein. Finally, Pergament's motion to be relieved as counsel to the Debtor and Meena will be granted.

PROCEDURAL HISTORY AND RELEVANT FACTS¹

Prior to filing the instant Chapter 7 petition, the Debtor had filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code (“Chapter 13 Petition”) on May 30, 2006 (“Chapter 13 Petition Date”) with the assistance of bankruptcy counsel. Among the personal property disclosed in the Chapter 13 Petition was a Citibank checking account (account number ending in X9420) held jointly by the Debtor and Meena, with a balance of $146.67. [Ch. 13 Dkt # 1]. The Debtor also scheduled first and second mortgage liens on his residence in favor of Wells Fargo and Citibank, respectively, totaling approximately $200,000, plus a third mortgage to Meera Management LLC (“Meera Mortgage”) in the amount of $300,000. Schedule J listed the monthly payment on the Debtor's first mortgage as $823.73, and on the second mortgage, $550. In the Chapter 13 case, the Debtor also listed Peter Devani and Meena as co-debtors of the Debtor, $2,500 monthly income from Meena, and interests in two businesses (Health Heaven and Kuliwala Food Corp.).

The Chapter 13 Petition was dismissed by Order, dated November 2, 2006 [Ch. 13 Dkt # 16], on motion of the United States Trustee [Ch. 13 Dkt # 9] for the Debtor's failure to produce documents.

Desiderio was a creditor in the Chapter 13 case as he is in the instant Chapter 7 case. Prior to the Chapter 13 Petition Date, on July 19, 2004, Desiderio commenced an action in the Supreme Court of Nassau County against the Debtor and Peter Devani (“Devani”) to enforce personal guarantees related to a commercial transaction among the parties (Index # 009557/04) (“Guaranty Action”). The state court entered judgment in favor of Desiderio, but collection efforts were stayed upon the filing of the Chapter 13 Petition. After the Bankruptcy Court granted the Chapter 13 Trustee's motion to dismiss, but before entering an order dismissing the case Desiderio moved for an amended judgment in the Guaranty Action. On November 1, 2006, the state court entered an amended judgment in favor of Desiderio in the amount of $98,328.28 against the Debtor and Devani, and an additional...