In re Cowan

• Decision Date: 17 March 2009
• Docket Number: No. 1:08-mc-3.,1:08-mc-3.
• Citation: 620 F.Supp.2d 867
• Parties: In re Thomas E. COWAN, Jr., Esq. BPR No. 002026.
• Court: U.S. District Court — Eastern District of Tennessee

620 F.Supp.2d 867

In re Thomas E. COWAN, Jr., Esq. BPR No. 002026.

No. 1:08-mc-3.

United States District Court, E.D. Tennessee, at Chattanooga.

March 17, 2009.

THOMAS E COWAN, JR., COWAN & LANDSTREET, PC, ELIZABETHTON, TN, pro se.

MEMORANDUM & ORDER

CURTIS L. COLLIER, Chief Judge.

Attorneys practicing law in the Eastern District of Tennessee are held to certain requirements and standards separate from those imposed by state regulatory bodies. See In re Moncier, 550 F.Supp.2d 768, 769-70 (E.D.Tenn.2008). The vast majority of lawyers who appear in the federal courts in the District conduct themselves admirably. While rare, when attorneys fail to conduct themselves professionally to the detriment of the judicial system and the public, it is incumbent upon the judges in the District to enforce these standards. Id. Such is the situation currently before the Court. For the following reasons, the Court adopts the recommendation of United States Bankruptcy Judge Marcia Phillips Parsons and determines Respondent Thomas E. Cowan should be disciplined.

I. PROCEDURAL HISTORY AND BACKGROUND

On August 25, 2008, the Court, after receiving information regarding potentially unethical conduct, issued a show cause order, which initiated formal disciplinary proceedings against Respondent Thomas E. Cowan ("Cowan") pursuant to E.D.TN. L.R. 83.7 (Court File No. 2). Upon receiving Cowan's response denying misconduct and requesting dismissal of the action (Court File No. 4), the Court appointed Judge Parsons to investigate the allegations and issue recommendations (Court File No. 5). Cowan declined a hearing on the matter and on February 5, 2009, Judge Parsons issued her recommendations (Court File No. 6). Upon investigating the allegations, Judge Parsons determined Cowan should be suspended from the practice of law in the Eastern District of Tennessee for six months based on his violation of Federal Rule of Bankruptcy Procedure 2016(b) and his delay in filing bankruptcy cases for his clients in a timely manner. In addition, Judge Parsons recommended denying Cowan's motion to dismiss the action.

In November 2007, Cowan entered into an agreement with the Tennessee Board of Professional Responsibility to settle disputes on a pending disciplinary action. As part of the settlement, Cowan would be suspended from the practice of law for a period of three months, from December 15, 2007, to March 15, 2008. Cowan wrote letters to clients under the impression he was suspended. However, on May 13, 2008, the Tennessee Supreme Court rejected the settlement and, thus, Cowan's license to practice law in Tennessee was valid during the three months he believed he was suspended.

The United States Trustee, in reviewing newly filed bankruptcy cases, determined Cowan's actions in seven bankruptcy cases warranted investigation. After examining the debtors in these cases, the United States Trustee filed a motion seeking disgorgement of fees paid by these debtors to Cowan and [another person].^* Cowan agreed to disgorge the fees and settled the dispute with the United States Trustee.

In August 2008, Cowan was ordered to show cause why he should not be disciplined for his conduct in the seven bankruptcy cases. Specifically, the Court asked Cowan to respond to allegations he had engaged in the practice of law while under suspension by the state of Tennessee, he accepted fees from clients during the period of suspension, he used another attorney as a "front" while under suspension, he charged clients more than the fee disclosed in bankruptcy filings, he erroneously informed clients as to when to obtain credit counseling, he failed to file clients' cases in a timely manner, he placed electronic signatures of clients on documents the clients had never signed, he acted in an unprofessional and unethical manner, and he violated the Rules of Professional Conduct. Cowan responded to the Order, alerting the Court to the fact the Tennessee Supreme Court had rejected the settlement and he erroneously believed he was suspended when, in fact, he was not under suspension from December 2007 to March 2008. He denied all allegations contained in the show cause order.

Judge Parsons carefully investigated each allegation and determined two of the allegations were supported by "clear and convincing evidence" as required by E.D.TN. L.R. 83.7(h)(4). In addition, she recommended the motion to dismiss the proceeding be denied. Cowan responded to these findings within the ten days provided by E.D.TN. L.R. 83.7(i)(2).

II. DISCUSSION

Cowan objects to Judge Parsons's recommendation to deny the motion to dismiss and to discipline him for violating Rule 2016(b) and failing to file cases in a timely manner.

A. Motion to Dismiss

Cowan argues the disciplinary proceeding against him should be dismissed because he and the United States Trustee entered into a settlement of the same issues arising out of his actions in the seven bankruptcy cases. As part of the agreement, the United States Trustee agreed not to pursue any further adverse action. Since the United States Trustee filed a motion for an order to show cause regarding attorney discipline against Cowan, which he contends is in violation of the agreement, he asserts the appropriate remedy is dismissal of the proceeding.

E.D.TN. L.R. 83.7(b) provides:

Formal disciplinary proceedings shall be initiated by the issuance of an order to show cause signed by the Chief Judge. An order to show cause may be issued by the Chief Judge on his or her own initiative or upon complaint filed by any such counsel of record or party to an action in this court.

Since disciplinary proceedings can only be initiated by the Chief Judge, whether sua sponte or upon receipt of a meritorious complaint, any agreements between the parties are irrelevant. Once the Chief Judge determines reasonable grounds exist for attorney misconduct, the Court's authority to discipline the members of the bar of the Eastern District of Tennessee is invoked. As outlined in Rule 83.7, the only basis for dismissal of a complaint once disciplinary proceedings have been initiated is the Chief Judge's determination the complaint is without merit. E.D.TN. L.R. 83.7(c) (1) and (e). Since Cowan has not shown the complaint is without merit, the proceeding will not be dismissed.

Moreover, attorneys are under an affirmative obligation not to conceal unethical behavior on the part of their colleagues. Tenn. Sup.Ct. R. 8, RPC 8.3(a). While it is appropriate for attorneys to agree to forego further legal action, it would be against the ethical obligations of the legal profession to agree to conceal discovered unethical conduct. Id.

B. Federal Rule of Bankruptcy Procedure 2016(b)

Federal Rule of Bankruptcy Procedure 2016(b) implements 11 U.S.C. § 329, which requires "any attorney representing a debtor in a case under this title ... [to] file with the court a statement of the compensation paid or agreed to be paid." 11 U.S.C. § 329(a). The disclosure statements filed in the relevant cases revealed $750 was paid to Cowan for services in the bankruptcy cases. However, each debtor actually paid more than what was disclosed. Cowan asserts he did not discover the discrepancies until his appearance at the § 341 meetings in each case (held in April 2008). He did not correct the statements until August 4, 2008.

Cowan disputes Judge Parsons's reading of Rule 2016(b), arguing he was not under an affirmative duty to file a supplemental disclosure statement because he was not the attorney of record for the debtors.¹ This argument, however, is precluded by the plain language of 11 U.S.C. § 329 and case law from the Court of Appeals for the Sixth Circuit. See In re Downs, 103 F.3d 472, 477 (6th Cir.1996) (finding the fact the attorney was not counsel on the date of the filing irrelevant to the application of the statute). Section 329 requires "[a]ny attorney representing a debtor in a case under this title ... file with the court a statement of the compensation paid or agreed to be paid." The obligation attaches when a lawyer receives payment from a debtor for the provision of services in connection with a bankruptcy and is in no way limited to attorneys who are counsel of record. The purpose of the requirement is to "protect both creditors and the debtor against overreaching attorneys." In re Kisseberth, 273 F.3d 714, 721 (6th Cir.2001). While courts have refused to extend the obligation to debtor's attorneys who render services unrelated to bankruptcy, see e.g. In re Triple S Rests. Inc., 306 B.R. 191, 196 (W.D.Ky.2004) (finding an attorney who provided services for a corporation prior to bankruptcy was not bound by the disclosure requirements), Cowan points to no case supporting a distinction based on whether the lawyer is the attorney of record in the bankruptcy. The testimony of the debtors clearly indicates each paid Cowan and received services related to their bankruptcies from him.

Cowan had a continuing obligation under § 329 as implemented by the Federal Rules of Bankruptcy Procedure 2016(b) and 2017 to "disclose fully and completely all fee arrangements and payments." In re Kisseberth, 273 F.3d at 720. It is undisputed the disclosure statements, which revealed only $750 for services rendered, were inaccurate and incomplete. Cowan, as an attorney who received payments from the debtors in connection with their bankruptcy proceedings, had an unconditional duty to disclose the full amounts paid. The disclosure statements violated Rule 2016(b) when filed and Cowan continued to violate the Rule by failing to supplement the statements to correct the fee. The ongoing violation of Rule 2016(b) in seven bankruptcy cases is grounds for discipline.

C. Failure to Act with Reasonable Diligence and Promptness

Judge Parsons found Cowan violated Rule 1.3 of the Tennessee Rules of Professional Conduct, as adopted by the Eastern District of Tennessee. E.D.TN. L.R. 83.6. Rule 1.3 states: "A...