In re Obasi
| Decision Date | 19 December 2011 |
| Docket Number | Case No. 10-10494 (SHL) |
| Parties | In re: VIRGINIA OBASI, Debtor. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
APPEARANCES:
OFFICE OF THE UNITED STATES TRUSTEE
Tracy Hope Davis, United States Trustee for Region 2
By: Greg M. Zipes, Esq.
WILLKIE FARR & GALLAGHER LLP
Counsel to Brice, Vander Linden & Wernick, P.C. and Lawrence J. Buckley
By: Alan J. Lipkin, Esq.
Jared R. Jamesson, Esq.
SHAEV & FLEISCHMAN, LLP
By: David B. Shaev, Esq.
SEAN H. LANE
Before the Court is an order to show cause brought on motion of the United States Trustee (the "UST") as to why the law firm of Brice, Vander, Linden & Wernick, P.C. (the "Brice Firm") and Lawrence J. Buckley ("Buckley"), an attorney with the firm, should not be held in civil contempt or, alternatively, subject to sanctions. The principal issue before theCourt is Buckley's failure to review a proof of claim in this case before it was submitted to the Court with Buckley's electronic signature. The Court finds that the practice of Buckely, and the Brice Firm, of submitting proofs of claim without review by the signing attorney is a clear violation of Bankruptcy Rule 9011, the bankruptcy equivalent of Rule 11 of the Federal Rules of Civil Procedure. While the Court finds that this practice violates Bankruptcy Rule 9011, it denies the UST's request for civil contempt and sanctions because the UST's motion was not first served upon Buckley and the Brice Firm as required by the safe harbor provision of Bankruptcy Rule 9011.
On January 29, 2010, Virginia Obasi (the "Debtor") filed a petition for relief under Chapter 13 of the Bankruptcy Code. The Debtor's schedules of assets and liabilities included her interest in a two-family house located at 1255 Harrod Avenue, Bronx, New York (the "Property"). (ECF Doc. # 1.) On February 5, 2010, a proof of claim (the "Claim")1 was electronically filed in the Debtor's case on behalf of Deutsche Bank National Trust Company, as Trustee for the Certificateholders of Soundview Home Loan Trust 2005-OPT3, Asset-Backed Certificates, Series 2005-OPT3 ("Deutsche Bank"). The Claim was filed using the electronic case filing login and password of Buckley. It was signed electronically in Buckley's name using the "/s/" signifier, with Buckley identified as the "Creditor's Authorized Agent." Attached to the Claim was a note and mortgage held by Option One Mortgage Corporation ("Option One") on the Property. (Id.)2 The Claim did not include an assignment of mortgage from Option One to Deutsche Bank, or anyother document explaining the basis for Deutsche Bank to seek payment based upon the mortgage between the Debtor and Option One. Exhibit A to the Claim was an itemization of amounts asserted to be due and owing by the Debtor, including attorney's fees and costs. (Id.)
On May 10, 2010, the Debtor objected to the Claim on the grounds that Deutsche Bank lacked standing to file a proof of claim against the Debtor. (ECF Doc. # 13.) The Debtor argued that the Claim failed to demonstrate a complete chain of title for the Property from Option One to Deutsche Bank. Due to an alleged discrepancy in the request for attorney's fees, the Debtor's objection also asked for an accounting of all charges related to the Claim. The UST filed a statement in support of the Debtor's objection. (ECF Doc. # 23.) On June 30, 2010, counsel to Deutsche Bank filed a response to the objection. It explained that Buckley was an employee of American Home Mortgage Services, Inc. ("AHMSI"),3 that he had prepared the Claim, and that AHMSI was authorized to execute the Claim on behalf of Deutsche Bank. (ECF Doc. # 18, at 4.)
In connection with the objection, Buckley was deposed and provided information regarding the preparation of the Claim. Buckley testified that, in addition to practicing law with the Brice Firm and being employed by AHMSI, he was also a part-owner and vice-president of National Bankruptcy Services ("NBS"), which provided paralegal and other support services to the Brice Firm. (Zipes Decl. Ex. B, Buckley Dep. Tr., 13:25 - 14:2, Mar. 7, 2011.) The internal procedures at the Brice Firm provided that NBS prepared proofs of claim, which were then submitted to the firm for review by an attorney at or near the time of filing. (Id. at 38:20 - 40:3.) Buckley further testified that he did not physically sign theClaim, and he did not see the Claim before it was filed with his electronic signature. (Id. at 28:24 - 30:4.) Rather, an attorney at the firm named Craig Edelman ("Edelman") reviewed the Claim. (Second Decl. of Lawrence J. Buckley, October 5, 2011, ¶ 6.) Edelman was under the general supervision of Buckley, and had been trained by Buckley to review proofs of claim through the use of an internal checklist. (Decl. of Lawrence J. Buckley, Sept. 26, 2011, ¶ 16.) Based on pre-authorization from Buckley, Edelman directed that the Claim be filed using Buckley's ECF login and password. (Id. at ¶ 17.) Edelman used Buckley's ECF login and password presumably because Buckley was the only attorney at the firm who had such a login and password for this Court. (See Zipes Decl. Ex. B, Buckley Dep. Tr., 108:6 - 18, Mar. 7, 2011.)
After the order to show cause was issued in this case, Buckley and the Brice Firm further explained the procedures that had been followed in preparing the Claim and presumably all mortgage claims they have filed in this district:
(Memo. of Law ¶ 13.)4 While these steps are described as having been taken by the Brice Firm, a footnote in respondents' briefing acknowledges that "assistance" was provided by NBS pursuant to an agreement with the Firm to provide "certain back office services." (Id. at n. 7.) Indeed, Buckley testified that the firm's internal procedures provided for NBS to prepare the proofs of claim, which were then submitted to the firm for review by an attorney at or near the time of filing. (Zipes Decl. Ex. B, Buckley Dep. Tr., 38:20 - 40:3, Mar. 7, 2011.) It appears, therefore, that the steps identified above were performed by paralegals and support staff, before the Claim was reviewed by Edelman and submitted using Buckley's ECF login and password.
The UST argues that the procedures utilized by Buckley and his firm violate this Court's requirements for the filing and signing of documents submitted by electronic means on the Court's electronic filing system, as set forth in M-242. The UST also asserts that they violate Bankruptcy Rule 9011 and Local Bankruptcy Rule 9011-1. The UST seeks to have the respondents held in civil contempt or, in the alternative, subject to sanctions under Section 105 of the Bankruptcy Code. Buckley and the Brice Firm assert that the UST misinterprets the requirements of M-242, that their activities are not sanctionable, and that neither civil contempt nor sanctions may be imposed because there was no compliance with the safe harbor provision of Bankruptcy Rule 9011.
Under Bankruptcy Rule 5005, "[a] court may by local rule permit or require documents to be filed, signed, or verified by electronic means . . . ." Fed. R. Bankr. P. 5005(a)(2). During the relevant period at issue, Bankruptcy Rule 5005 was implemented through M-242, which provides for the electronic filing, signing and verification of documents in this Court.5 Under M-242, pleadings filed in accordance with the electronic filing procedures must (M-242, Ex. 1, p. 6.) M-242 further requires that "[n]o attorney or other person shall knowingly permit or cause to permit the attorney's password to be utilized by anyone other than an authorized member or employee of the attorney's law firm." (M-242, ¶ 3.) Notably, M-242 explicitly incorporates Bankruptcy Rule 9011 by stating that "the use of an attorney's password to file a document electronically shall constitute the signature of that attorney for purposes of FRBP 9011 and LRBP 9011-1." (Id., ¶ 4.)
While the parties have debated whether the conduct at issue violates the rules regarding the electronic filing of documents, the Court believes the real issue concerns an attorney's obligations when submitting documents to the Court. Those obligations are governed by Bankruptcy Rule 9011. That Rule provides that an attorney presenting adocument to the Court is personally responsible for reviewing the document for a variety of reasons going to the good faith basis for and accuracy of the document's contents. The Rule provides:
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