In re Depugh

• Decision Date: 12 June 2009
• Docket Number: No. 08-37521-H4-13.,08-37521-H4-13.
• Citation: 409 B.R. 125
• Parties: In re Donald G. DEPUGH, Debtor.
• Court: U.S. Bankruptcy Court — Southern District of Texas

409 B.R. 125

In re Donald G. DEPUGH, Debtor.

No. 08-37521-H4-13.

United States Bankruptcy Court, S.D. Texas, Houston Division.

June 12, 2009.

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John Ernest Smith, John E. Smith & Associates, Houston, TX, for Debtor.

MEMORANDUM OPINION REGARDING DEBTOR'S OBJECTION TO ROUNDUP FUNDING, LLC'S PROOF OF CLAIM NUMBERS 5 AND 6

[Docket Nos. 23 & 24.]

JEFF BOHM, Bankruptcy Judge.

I. INTRODUCTION

In October of 2008, this Court issued a memorandum opinion in In re Gilbreath criticizing the lax practices and gamesmanship that pervade the bankruptcy system with respect to the filing and amending of deficient proofs of claim. 395 B.R. 356 (Bankr.S.D.Tex.2008). Following its ruling in Gilbreath, in order to prevent future violations of Bankruptcy Rule 3001 and to foster judicial efficiency and economy, on December 11, 2008, this Court issued a written notice and order in all Chapter 13 cases requiring creditors to seek leave of court or written consent of the debtor before amending a deficient proof of claim after the debtor has lodged a valid claim objection (the Notice and Order). See Notice and Order that Federal Rule 15, as Made Applicable by Bankruptcy Rule 7015, Shall Apply Whenever an Objection to a Proof of Claim Is Lodged, available at http://www.txs.uscourts.gov/bankruptcy/ judges/jb/notice.htm.

Despite this Court's prior published opinion in Gilbreath, the Notice and Order (and its continuing efforts to have creditors comply with Bankruptcy Rule 3001),¹ Roundup Funding, LLC (Roundup) — either due to a flagrant disregard of this Court's prior rulings or a complete lack of diligence — filed two proofs of claim in the present case in January of 2009 with no documents attached to them. Additionally, despite the Notice and Order, Roundup, without leave of Court or the Debtor's written consent, amended one of its deficient proofs of claim in this case on April 22, 2009, seventy-seven days after the Debtor objected to Roundup's original proofs of claim.

Additionally, Roundup's counsel of record, Kelly Gill (Gill), did not appear at the hearing on the Debtor's objections to Roundup's proofs of claim, but rather sent another attorney in his place, Robert MacNaughton (MacNaughton), who had virtually no knowledge of Roundup's claims or the applicable opinions issued by this Court and the United States District Court for the Southern District of Texas. MacNaughton was therefore in violation of Local Rule for the Southern District of Texas 11.2 because he appeared in Court without being "fully informed"; and, further, Gill, as the attorney-in-charge, was in violation of this same rule because of his duty to attend all proceedings "or send a fully informed attorney."

Where a debtor is forced to incur attorneys' fees objecting to deficient proofs of claim and attending hearings for which the creditor's counsel is woefully unprepared, it is not only the debtor that bears these costs but also every other unsecured creditor, as every penny used to pay a debtor's attorney's priority claim for fees necessarily reduces the amount available to pay other creditors. Additionally, the practice of filing skeletal proofs of claim and requiring the debtor to object before producing documents that should have been produced to begin with could, in the aggregate, cost Chapter 13 debtors substantial sums that could be put to better use proposing and maintaining payments on a feasible plan of reorganization. "[T]he fact is that debtors in chapter 13 frequently live so close to the line that every penny counts: Every penny that they keep, and every penny that they put toward their plan." See In re Fauntleroy, 311 B.R. 730, 739 (Bankr.E.D.N.C.2004); see also In re T-H New Orleans Ltd. Partnership, 116 F.3d 790, 802 (5th Cir. 1997) (noting that the dual aims of bankruptcy are payment of claims and a debtor's ability to obtain a fresh start). In the case at bar, the Debtor has been forced to needlessly incur attorney's fees due to Roundup's failure to comply with the fundamental requirements set forth in Bankruptcy Rule 3001. Accordingly, this Court not only sustains the Debtor's objection to Roundup's proofs of claim, but also imposes sanctions on Roundup and Gill, its counsel of record, by requiring them to pay the attorney's fees incurred by the Debtor.

Set forth below are this Court's written findings of fact and conclusions of law. To the extent a finding of fact is construed to be a conclusion of law, it is adopted as such. To the extent a conclusion of law is construed to be a finding of fact, it is adopted as such. This Court reserves the right to make additional findings of fact and conclusions of law as it deems necessary or appropriate, or as may be requested by any of the parties. Additionally, to the extent that a finding of fact or conclusion of law set forth in this written Memorandum Opinion conflicts with a finding of fact or conclusion of law made orally at the claim objection hearing held on April 27, 2009, the former controls. For the reasons set forth below, the Debtor's objections to Roundup's proofs of claim should be sustained, Roundup's claims should be disallowed, and sanctions should be imposed against Roundup and Gill, its counsel of record, for their violations of the local rules and this Court's Notice and Order.

II. FINDINGS OF FACT

1. On November 25, 2008, Donald G. DePugh (the Debtor) filed a voluntary Chapter 13 petition, initiating the above-referenced Chapter 13 case. [Docket No. 1.]

2. The last day for a non-government creditor to file a proof of claim in this Chapter 13 case was April 23, 2009. See [Docket No. 16.]

Roundup's Original Proofs of Claim

3. On January 26, 2009, Roundup filed Proof of Claim 5, a true and correct copy of which is attached to this Opinion as Exhibit A. Proof of Claim 5 consists of the official proof of claim form along with one attachment. On the form, Roundup lists the amount of the claim as $19,073.04, lists the basis for the claim as "Unsecured Account," and provides the last four digits of an account number — XX59G5 — by which the Debtor may be identified.² Roundup also notes on the proof of claim form that the Debtor may have scheduled the claim as being held by "Wells Fargo." Roundup attached a single document to Proof of Claim 5 that contains the same information provided on the form with respect to the claim, but which also represents that the claim was assigned to Roundup by "NCO Portfolio Management, Inc." and that the original creditor on this account was "WELLS FARGO."

4. On January 27, 2009, Roundup filed Proof of Claim 6, a true and correct copy of which is attached to this Opinion as Exhibit B. Proof of Claim 6 consists of the official proof of claim form along with one attachment. On the form, Roundup lists the amount of the claim as $32,283.66, lists the basis for the claim as "Credit Card," and provides the last four digits of an account number — 8548 — by which the Debtor may be identified.³ Roundup also notes on the proof of claim form that the Debtor may have scheduled the claim as being held by "FIA Card Services NA aka Bank of America." Roundup attached a single document to Proof of Claim 6 that contains the same information provided on the form with respect to the claim, but which also represents that the claim was assigned to Roundup by "FIA Card Services NA aka Bank of America."

5. On February 4, 2009, the Debtor filed objections to Proof of Claim 5 and 6 (the Objections). [Docket Nos. 23 & 24.] The Debtor objects to both of Roundup's proofs of claim on the following grounds: (1) Roundup failed to attach documentation to prove the existence of its purported claims; (2) Roundup failed to comply with Federal Rule of Bankruptcy Procedure 3001 (Bankruptcy Rule 3001); and (3) the Debtor denies that he has any liability to Roundup. In support of this third contention, the Debtor has attached an affidavit to the Objections, in which he swears that he does not owe any money to Roundup and that he has no proof of the debt, the transfer, or the proper amount owed. The Debtor requests that Claims 5 and 6 be disallowed.

6. On February 20,2009, Roundup filed a Response to the Objections (the Response). [Docket No. 26.] The Response alleges that Roundup purchased the accounts ending in 8548 and 59G5 as part of a "bulk purchase" from "FIA" and "NCO," respectively. Additionally, throughout the Response, Roundup confuses Proofs of Claim 5 and 6.⁴ The Response cites to a number of published (and unpublished) opinions from courts in other circuits and one published opinion issued by the Bankruptcy Court for the Northern District of Texas in support of Roundup's contention that its skeletal proofs of claim should not be disallowed, but rather are only deprived of prima facie validity. Roundup also asserts that an objection to a proof of claim based solely on a creditor's failure to comply with Bankruptcy Rule 3001 (which requires creditors to attach supporting documentation to their proofs of claim) is not a valid objection under 11 U.S.C. § 502(b). The Response does not mention this Court's published opinion in Gilbreath, or the published opinion issued by the Honorable Gray H. Miller, United States District Judge for the Southern District of Texas, in eCast Settlement Corp. v. Tran (In re Tran), 369 B.R. 312 (S.D.Tex.2007), which affirmed a ruling by Bankruptcy Judge Karen K. Brown, and which is binding on this Court.⁵

7. Roundup attached the following documents to the Response:

a. A "Term Agreement" between NCO Portfolio Management, Inc. and Roundup dated December 22, 2008, which "[p]ursuant to the Bankruptcy Receivable Purchase Agreement dated as of August 6th, 2008" (which has not been provided), purports to transfer to Roundup "all right, title and interest in the Accounts or receivables arising therefrom described below."

b. An "Assignment of Accounts" between NCO Portfolio Management, Inc. and...