In re Cochener
| Citation | 382 B.R. 311 |
| Decision Date | 28 December 2007 |
| Docket Number | No. 01-34884-H4-7.,Civil Action No. H-07-0629.,01-34884-H4-7. |
| Parties | In re Beverly COCHENER, Debtor. David Barry, Appellant, v. Ronald L. Sommers, Trustee, Appellee. |
| Court | U.S. District Court — Southern District of Texas |
Edmond Nwamdi O'Suji, Attorney at Law, Houston, TX, for Debtor.
Appellant, David Barry, appeals the Bankruptcy Court's February 9, 2007, Order granting the motion of Ronald L. Sommers, Trustee, for sanctions.1 See In re Cochener, 360 H.R. 542 (Bankr.S.D.Tex. 2007). Pending before the court are the Appellant's Brief (Docket Entry No. 8), Brief for Appellee Ronald J. Sommers, Trustee (Docket Entry No. 17), Appellant's Reply Brief (Docket Entry No. 21), Motion of Ronald J. Sommers, Trustee, for Leave to File Surreply Brief (Docket Entry No. 22), and Appellee's Motion to Strike Certain of Appellant's Record (Docket Entry No. 23). For the reasons explained below the Bankruptcy Court's order granting the trustee's motion for sanctions will be reversed in part and affirmed in part, Appellee's motion to file surreply brief will be granted, and Appellee's motion to strike will be declared moot.
On May 1, 2001, the debtor, Beverly Cochener, filed for relief under Chapter 7 of the Bankruptcy Code.2 The debtor's attorney on May 1, 2001, was Jason Hawks.3 Schedules filed together with the debtor's petition reflected total assets of $403, total liabilities of $111,000 owed to unsecured creditors, and no monthly income or expenses.4 A footnote explained that the "[d]ebtor currently lives expense free with her son [Chad Cochener], who has been supporting her in his home since just prior to the date of [her] divorce [on November 3, 2000]."5 See In re Cochener, 360 B.R. at 547-48.
On May 2, 2001, Sommers was appointed trustee for the debtor's bankruptcy estate.6 The initial meeting of creditors was held on June 6, 2001. The only attendees were (1) the debtor, (2) Hawks, (3) the trustee, and (4) Pam Stewart, counsel for John Cochener, the debtor's former spouse. Based on information received from the attorney, representing the debtor's former spouse the trustee asked the debtor for documents including her divorce decree, any trust agreements she had with her son, Chad Cochener, and ownership information for the house in which she lived. Following the debtor's and Hawks' agreement to produce the requested documents, the creditors' meeting was continued until June 20, 2001.7 See In re Cochener, 360 B.R. at 549-50 ¶¶ 16-22.
Concerned that the debtor's former spouse would file an adversary action, Hawks — who was not board certified in bankruptcy law — brought the case to Barry in search of more experienced representation.8 Since the debtor's former spouse was also her primary creditor, Barry concluded that bankruptcy would not achieve the debtor's objectives.9 On June 18, 2001, Barry filed a motion to dismiss the debtor's petition on which he signed Hawks' name as "Attorney for Debtor" "with permission," and he signed his own name as "Associate Counsel for Debtor."10 Citing 11 U.S.C. § 305, the motion, sought dismissal on grounds that "[n]o creditor in this case would suffer any legal prejudice by its dismissal"; and that "[t]he interests of the creditors and Debtor would be better served by the dismissal of this bankruptcy proceeding rather than its continuation and adjudication."11 The day he filed the motion, Barry sent a copy of it to the trustee together with a letter stating that the debtor would not attend the continued creditors' meeting on June 20, 2001.12 See In re Cochener, 360 B.R. at 550-52 ¶¶ 23-30. On July 24, 2001, Barry filed a motion seeking to substitute for. Hawks as debtor's attorney of record,13 In re Cochener, 360 B.R. at 552 ¶ 26, which the Bankruptcy Court granted on September 3, 2001.14
On August 6, 2001, the debtor's former spouse filed an adversary action against the debtor.15
On August 14, 2001, Barry wrote a letter to the trustee stating that neither he nor the debtor would appear at the continuation of the first creditors' meeting, which had been rescheduled for August 29, 2001, that a hearing on the debtor's motion to dismiss had been scheduled for September 4, 2001, and that "[i]n the unlikely event the case is not dismissed on September 4, 2001, if you wish to reconvene the § 341 meeting after that date, I will be glad to prepare, serve, and file the appropriate notice."16 See In re Cochener, 360 B.R. at 553-54 ¶ 38.
On September 4, 2001, the Bankruptcy Court held a hearing on the debtor's motion to dismiss.17 Barry's associate, Ira Joffe, explained that Hawks had filed the debtor's petition and that Barry substituted in because Hawks found himself "out of his depth."18 Joffe explained that had the debtor come to Barry first, the bankruptcy would not have been filed because the debtor mistakenly believed that by filing bankruptcy she could obtain relief from a state court contempt proceeding arising from a messy divorce. Although the trustee's attorney agreed that the debtor's petition should not have been filed, she opposed the motion to dismiss because pleadings in the adversary action filed by the debtor's former spouse alleged that prior to filing her petition the debtor had transferred funds to family members that could possibly be made available to pay creditors.19 Observing that such motions are rarely opposed, but that when they are opposed they deserve a full hearing, the Bankruptcy Court continued the hearing so that the parties could conduct discovery.20
On October 17, 2001, the trustee noticed an examination of the debtor pursuant to 11 U.S.C. § 2004, which included a document production request.21 Barry protested the document production request as overreaching because
[t]he Bankruptcy Code permits the Trustee to look back for up to one year with an eye toward fraudulent transfers or preferences to insiders. As you know, the Debtor was divorced in November 2000 and that court divided whatever property the Debtor may have owned prior to her divorce. Given the time limits permitted in the Bankruptcy Code and since the divorce decree will show transfers of property owned by the Debtor and her former spouse on the date of its entry, it would seem that only transfers made later are relevant here.22
Disagreeing with Barry, the trustee's attorney responded that
the Trustee[] can inquire about transactions for the past four years as he can avail himself of the fraudulent transfer statute under Texas law, as well as the one year statute provided by the Bankruptcy Code. I am not only concerned about transfers that the Debtor made to her ex-husband, but also transfers she may have made to any insider, including her children. Her divorce in 2000 does not necessarily shield her transfers made prior to her divorce during the four year period. The Debtor's refusal to produce documents during this four year time period makes me ... suspect that she is hiding assets.23
See In re Cochener, 360 B.R. at 555-56 ¶¶ 44 and 46.
The 2004 examination was ultimately set for November 14, 2001. The debtor neither appeared nor produced documents, and Barry appeared only to state that he had lost contact with the debtor. See In re Cochener, 360 B.R. at 556 ¶¶ 47-49.
On November 20, 2001, the trustee filed an expedited motion to dismiss the debtor's motion to dismiss. Id. at ¶ 50 (citing Docket Entry No. 26 in Bankruptcy Case No. 01-34884-H4-7).24 On. November 29, 2001, Barry filed a Motion to Withdraw.25 Id. at ¶ 51.
On December 7, 2001, the Bankruptcy Court held a hearing on the trustee's motion to dismiss the debtor's motion to dismiss.26 Asserting that the debtor had refused to participate in the discovery process, the trustee asked the court to dismiss the debtor's motion to dismiss because the debtor's failure to participate suggested that she had something to hide, Citing 11 U.S.C. § 109(g), Barry argued in response that the debtor's failure to cooperate with the trustee constituted additional evidence in favor of granting her motion to dismiss. Barry explained that
the penalty for not showing up to prosecute your case properly is dismissal with prejudice for 480 days, which is basically, you know, what we've asked for in the Motion to Dismiss anyway.
At this point, the major creditor in the case is her ex-husband. He already has a judgment against her from the State Court he was pursuing when she filed the bankruptcy. The other creditors, which are a few credit cards, have not made an appearance in the case.27
Explaining that the trustee did not know enough to dismiss the case, the court continued the hearing and told the trustee to "do whatever you need to do to ... collect, or find the Debtor and obtain the information you need or want."28
On December 17, 2001, the trustee filed an opposition to Barry's motion to withdraw.29 Id. at ¶ 52. The trustee argued, inter alia,
[a]t the first meeting of creditors, it became apparent that Debtor may have concealed, hidden or failed to disclose transfer of assets to her son and other insiders. Barry's continued refusal to produce the documents and have Debtor appear at the first meeting of the creditor [sic] has caused the bankruptcy to incur costs and expenses. It is apparent that he had advised her not to appear or produce such documents which has now caused Debtor not to comply with the 2004 examination request.
. . .
Trustee requests that this Court deny Barry's motion to withdraw, or alternatively, if the Court allows withdrawal, require Barry to pay the Trustee's fees and costs incurred to date because of his refusal to produce the Debtor and documents at the reset creditors [sic] meetings.30
Id. On January 21, 2002, the Bankruptcy Court granted Barry's motion to...
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