In re Dobbs, Case No.: 15–11096–JDW

• Decision Date: 20 August 2015
• Docket Number: Case No.: 15–11096–JDW
• Citation: 535 B.R. 675
• Parties: In re: Jackey L. Dobbs, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Mississippi

535 B.R. 675

In re: Jackey L. Dobbs, Debtor.

Case No.: 15–11096–JDW

United States Bankruptcy Court, N.D. Mississippi.

Signed August 20, 2015

William L. Fava, Mitchell, Cunningham & Fava, Southaven, MS, for Debtor.

MEMORANDUM OPINION AND ORDER

Judge Jason D. Woodard, United States Bankruptcy Judge

This matter comes before the Court on the Order to Show Cause (the “Show Cause Order”) (Dkt. # 35), entered on May 14, 2015, in this now-dismissed chapter 13 bankruptcy case of Jackey L. Dobbs (the “Debtor”). As stated in the Show Cause Order, the issues discussed herein first came to the Court's attention after a review of the Chapter 13 Voluntary Petition (the “2015 Petition”)(Case No. 15–11096; Dkt. # 1), the Certificate of Credit Counseling (the “First Certificate”)(Case No. 15–11096; Dkt. # 3), a second Certificate of Credit Counseling (the “Second Certificate”)(Case No. 15–11096; Dkt. # 16), and the Debtor's testimony at a May 12, 2015 hearing. At that time, the Debtor appeared and testified that his former attorney, Neal H. Labovitz, had forged the Debtor's signature on the bankruptcy petition and filed a bankruptcy case on the Debtor's behalf without being authorized to do so. The Debtor also testified that the First Certificate was falsified, as he never took the credit counseling. Upon consideration of the 2015 Petition, the First and Second Certificates, and the Debtor's May 12 testimony, the Court found it necessary for Mr. Labovitz, to appear and show cause why sanctions and other disciplinary actions should not be imposed.

Pursuant to the directives of the Show Cause Order, a hearing was held on July 7, 2015, at which time Mr. Labovitz appeared as directed. Mr. Labovitz did not call any witnesses, nor did he present any new evidence, but instead relied on his own recitation of events as an explanation to the Court. The details of the July 7 hearing—and of this matter as a whole—are discussed below. Based on Mr. Labovitz's own statements, it is clear that the Debtor's May 12 testimony regarding the forged signatures and unauthorized filings was true.

In short, the Court has concluded that Mr. Labovitz put the Debtor in bankruptcy without the Debtor's authorization or knowledge, forged the Debtor's signature, had the Debtor's estranged wife take a credit counseling course in place of the Debtor, and then filed fabricated documents with the Court.

Mr. Labovitz owes a duty of candor to this Court and fidelity to his clients. These duties are not only two of the most important attributes of an ethical lawyer, but are absolute baseline requirements for the practice of law. Mr. Labovitz has failed at both in this case.

I. JURISDICTION

This Court has jurisdiction pursuant to 28 U.S.C. § 151, 157(a) and 1334(b) and the United States District Court for the Northern District of Mississippi's Order of Reference of Bankruptcy Cases and Proceedings Nunc Pro Tunc Dated August 6, 1984. This is a core proceeding arising under Title 11 of the United States Code (the “Bankruptcy Code”) as defined in 28 U.S.C. § 157(b)(2)(A).¹

II. BACKGROUND

As this matter originally came to the attention of the Court through an examination of the Debtor's now-dismissed chapter 13 case, a review of that case history is appropriate. The following summary of facts and events is taken from the Show Cause Order, through which Mr. Labovitz was given notice of the allegations made against him (Dkt.# 35).

A. The 2013 Case

On February 22, 2013, the Debtor and his then-wife, Janette Dobbs,² filed a joint Chapter 13 Voluntary Petition (the “2013 Case”)(Case No. 13–10662; Dkt. # 1). At the time the 2013 Case was filed, Mr. Labovitz was counsel of record for the Debtor and Mrs. Dobbs. On April 8, 2013, a proposed plan of reorganization was filed (the “2013 Plan”)(Case No. 13–10662; Dkt. # 16), though no plan was ever confirmed.

Objections to confirmation of the 2013 Plan were filed by both the case trustee, Locke Barkley, and creditor Bank of Holly Springs (the “Bank”)(Case No. 13–10662; Dkts. # 18, 23, 91 and 95). In addition to the objections, the Bank filed a motion to lift stay (the “Motion to Lift”) (Case No. 13–10661; Dkt. # 19). Although the response deadline was May 7, an objection to the Motion to Lift was not filed until May 20. (Case No. 13–10662; Dkt. # 34). The Bank subsequently filed an amended motion to lift stay (the “Second Motion to Lift”)(Case No. 13–10662; Dkt. # 88). The Motion to Lift and Second Motion to Lift sought stay relief as to the same property that was the subject of the Bank's objections. No response was filed or defense offered as to the Second Motion to Lift, and the stay was lifted. (Case No. 13–10662; Dkt. # 105).

Based upon the termination of the stay in relation to the real property, the Court found that the Bank's objections to confirmation should be sustained. Accordingly, on December 23, 2014, an order was entered (the “December 23 Order”)(Case No. 13–10662; Dkt. # 99) sustaining the various objections to confirmation made by the Trustee and Bank. The December 23 Order further denied confirmation of the 2013 Plan, and ordered the debtors to file an amended plan within sixty (60) days from entry of the order. No amended plan was filed as directed by the December 23 Order, and on March 24, 2015, the 2013 Case was dismissed (Case No. 13–10662; Dkt. # 114).

B. The 2015 Petition and the First Certificate

On March 26, 2015, this case was commenced with the filing of the 2015 Petition and First Certificate (the “2015 Case”).³ According to the First Certificate, the Debtor obtained his mandatory credit counseling on March 26, 2015 at 9:04 AM, several hours before the 2015 Petition was filed. The 2015 Petition contains what purports to be the Debtor's electronic signature and the certifications that he took credit counseling, and Mr. Labovitz was again listed as counsel of record for the Debtor. The 2015 Petition also contains the electronic signature of Mr. Labovitz.

On April 1, 2015, Mr. Labovitz filed a Motion to Withdraw as Attorney (Case No. 15–11096; Dkt. # 6), which was subsequently granted by this Court without objection (Case No. 15–11096; Dkt. # 22). On April 8, 2015, William Fava filed a Notice of Appearance Combined with Request for Notices and Copies (Case No. 15–11096; Dkt. # 8), assuming the role of counsel of record for the Debtor. On April 9, 2015, Mr. Fava filed the Second Certificate (Case No. 15–11096; Dkt. # 16) on the Debtor's behalf. According to the Second Certificate, the Debtor completed credit counseling on April 8, 2015. Because 11 U.S.C. § 109 requires that a debtor obtain credit counseling within the 180–days prior to filing for bankruptcy protection, the Court entered an Order Scheduling Show Cause Hearing for Fail ure to Obtain Pre–Petition Credit Counseling (Case No. 15–11096; Dkt. # 21). Pursuant to that order, a hearing was scheduled for, and held on, May 12, 2015.

C. The May 12 Hearing

The Debtor and Mr. Fava appeared at the May 12 hearing. At that time, the Debtor testified as to the history of his 2015 Case. When asked why the Second Certificate was filed, given that the seemingly valid First Certificate had already been filed, the Debtor testified that he never obtained credit counseling as alleged in the First Certificate. More importantly, the Debtor testified that he had not even been aware that the 2015 Petition had been filed. The Debtor unequivocally and credibly testified that he had not participated in the filing of the 2015 Petition, that he had not authorized Mr. Labovitz to file the 2015 Petition, that he never signed the 2015 Petition, that he did not attend any pre-petition credit counseling session in regard to the 2015 Case, and that he was not even aware of the 2015 Case until several weeks after its commencement when he consulted another attorney. The Debtor further testified that he had not been in Mr. Labovitz's office since approximately December 2014 or January 2015.

As a result of the troubling testimony presented at the May 12 hearing, the Court found it necessary to issue the Show Cause Order to Mr. Labovitz.

D. Show Cause Order

The Show Cause Order provided a detailed report of the May 12 hearing, of the allegations made by the Debtor regarding Mr. Labovitz's involvement in the 2015 Case, the statutory, rule and ethical violations implicated by the alleged conduct, and the possible sanctions that could be imposed on Mr. Labovitz if the Debtor's allegations proved to be true. As a result, Mr. Labovitz was afforded his due process rights as required by law.

With respect to the procedure in imposing sanctions, the Fifth Circuit Court of Appeals opined in Thomas v. Capital Sec. Services, Inc., 836 F.2d 866, 878 (5th Cir.1988), that “a court's sanctioning decision may be affected by due process considerations” but declined specifically to address the issue. In interpreting Thomas, the Fifth Circuit reasoned that “[t]he advisory committee's note to Rule 11 states that a judge's decision to impose Rule 11 sanctions ‘obviously must comport with due process requirements,’ and Jurisprudence has held similarly.”⁴ Spiller v. Ella Smithers Geriatric Ctr., 919 F.2d 339, 346 (5th Cir.1990) (quoting Veillon v. Exploration Services, Inc., 876 F.2d 1197, 1201–02 (5th Cir.1989) ; Donaldson v. Clark, 819 F.2d 1551, 1559–60 (11th Cir.1987) (en banc)). Accordingly, an attorney facing potential sanctions must be given notice and a hearing. Boddie v. Connecticut, 401 U.S. 371, 379, 91 S.Ct. 780, 786, 28 L.Ed.2d 113 (1971) (procedural due process ordinarily requires notice and an opportunity to be heard). In the Show Cause Order, the Court described the allegations leveled against Mr. Labovitz, and alerted him to the potential sanctions that might be imposed. The Show Cause Order also provided that Mr. Labovitz would have an opportunity to respond to the possible sanctions and otherwise be heard on July 7, 2015.

After the Show Cause Order was entered, Mr. Labovitz sent the Court a letter (the “May 26 Le...