In re Reyes
| Decision Date | 28 April 2023 |
| Docket Number | 16-22556 (CGM),16-23514 (CGM),17-22921 (CGM),18-22239 (CGM),18-22690 (CGM),18-22923 (CGM),18-22940 (CGM),18-23750 (CGM),19-22007 (CGM),19-22051 (CGM),19-22172 (CGM),19-22229 (CGM),19-22276 (CGM),19-22281 (CGM),19-22520 (CGM),19-23034 (CGM) |
| Parties | In re: Justo Reyes, Debtor. In re: Karen Jackson, Debtor. In re: Janet Berger, Debtor. In re: Anastasia Cretekos, Debtor. In re: Frank Occhipinti, Debtor. In re: Richard Graham Watson, Debtor. In re: Douglas Kramer, Debtor. In re: Charmaine J. Brown, Debtor. In re: Janice K. Desmond, Debtor. In re: Suzanne M. Faupel, Debtor. In re: Christopher Rocco Gizzo, Debtor. In re: John Kolkowski, Debtor. In re: Catherine R. Pelle, Debtor. In re: David Daniel Akerib, Debtor. In re: Sarah Frankel, Debtor. In re: Malka Farkas, Debtor. In re: Blossom Joyce Consingh, Debtor. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York |
WILLIAM K. HARRINGTON United States Trustee for Region 2 Alexander Hamilton Customs House By: Andrew D. Velez-Rivera Esq. Linda A. Riffkin, Esq. Mark E. Bruh, Esq.
KRISTA PREUSS Standing Chapter 13 Trustee, S.D.N.Y. By: Krista Preuss, Esq. Dennis Jose, Esq.
THE WIEDERKEHR LAW GROUP, P.C. Counsel for Linda Tirelli, Esq. By: Evan Wiederkehr, Esq.
Before the Court is the Order to Show Cause Why Court Should Not Sanction Counsel [ECF No. 112][1] (the "OSC") issued by the Court against Linda M. Tirelli, Esq., counsel to the debtors in each of the above-captioned Chapter 13 cases (collectively, the "Debtors").[2] The OSC is based on Ms. Tirelli's representations to the Court that postpetition mortgage payments on the Debtors' real property were being held in escrow by Ms. Tirelli for the ultimate benefit of creditors, when, in fact, such amounts were not routinely being escrowed in a significant number of cases. See OSC at 3-5.
With respect to the disposition of the OSC, the Office of the United States Trustee (the "UST") and the Standing Chapter 13 Trustee for the Southern District of New York (the "Chapter 13 Trustee") have recommended that the Court sanction Ms. Tirelli and refer her to the state and federal bar grievance committees for her actions with respect to the Debtors' cases. See Recommendation of United States Trustee, William K. Harrington, Re: Order to Show Cause Why Court Should Not Sanction Counsel [ECF No 176] (the "UST Recommendation"); Aff. with Citation to Legal Auth. with the Chapter 13 Trustee's Recommendations [ECF No. 180] (the "Chapter 13 Trustee Recommendations"). The UST and the Chapter 13 Trustee have also requested that the Court unseal the record with respect to the OSC, which was originally placed under seal at the request of Ms. Tirelli. See Mot. of United States Trustee, William K. Harrington, to Unseal Recommendation Re: Order to Show Cause Why Ct. Should Not Sanction Counsel Pursuant to 11 U.S.C. § 107 [ECF No. 177] (the "Motion to Unseal"); Aff. of Joinder [ECF No. 181]. For the reasons discussed below, the Court grants the Motion to Unseal, as the information relating to these proceedings should be in the public record consistent with the policy of transparency in court proceedings. As to the merits of the OSC, the Court concludes that Ms. Tirelli's conduct violates applicable state law ethics rules governing attorney escrow accounts and that she lacked candor in her representations to the Court. Based on these findings, the Court refers Ms. Tirelli to the Committee on Grievances for the United States District Court, S.D.N.Y. for any appropriate discipline.
The representations that led to the issuance of the OSC were contained in Chapter 13 plans filed by Ms. Tirelli in the Debtors' cases and were subsequently repeated verbally to the Court in multiple Chapter 13 hearings. See OSC at 3 & n.1.[3] In these Chapter 13 plans, Ms. Tirelli-as Debtors' counsel-identified herself as acting as an escrow agent to hold the Debtors' postpetition monthly mortgage payments in these Chapter 13 cases where the Debtor had raised issues with the validity of the secured creditors' lien on the property. See id. In light of issues raised about these liens, the Chapter 13 plans filed by Ms. Tirelli for her clients provided that the postpetition payments to the mortgage lenders would be held by her in escrow rather than being paid directly to secured creditors or the Chapter 13 Trustee. See id.
Upon taking over the Chapter 13 calendar in May 2019, the Court expressed its clear reservations regarding the escrow procedures established by Ms. Tirelli in the Debtors' plans. See, e.g., In re Jackson, Case No. 16-23514, Hr'g Tr. 5:2-7:12 (May 8, 2019) [ECF No. 142] ().[4] But the Court understood that these procedures had been put in place prior to the transfer of the Chapter 13 calendar to the undersigned Judge, and therefore allowed them to continue. See, e.g., Attorney Declaration of Linda Tirelli, dated September 20, 2021 ¶ 4 (the "Attorney Declaration") [ECF No. 139-1] ( that procedures were put in place years before "with the knowledge, consent and actual direction of Judge Robert Drain. . . ."); Affirmation of Counsel to Linda Tirelli with Citation to Legal Authority in Opposition to Recommendations of Chapter 13 Trustee and United States Trustee, dated August 1, 2022 ¶ 51 (). Due to its reservations, however, the Court made clear that these procedures would be limited to circumstances where there was a challenge to the validity of the mortgage. See, e.g., In re Akerib, Case No. 19-22276, Hr'g Tr. 5:19-24 (Aug. 28, 2019) [ECF No. 29] ).
During the course of subsequent Chapter 13 hearings in June 2021, it came to the Court's attention that funds were not being escrowed in numerous cases as required by the terms of these Chapter 13 plans, nor were they being remitted to the Chapter 13 Trustee for the benefit of creditors or paid directly to the secured creditors as required by the Bankruptcy Code. See OSC at 3-5.
On June 17, 2021, the Court issued the OSC in the Debtors' cases. See generally OSC. The OSC directed Ms. Tirelli to show cause as to:
Id. at 5-6. The OSC further directed Ms. Tirelli to file a declaration by July 14, 2021 providing the following information:
Id. at 6-7. The OSC set a hearing date of August 4, 2021. See id. at 5.
At Ms. Tirelli's request, the Court granted an extension of time to file the declaration required by the OSC and rescheduled the hearing to a later date. See Letter from Ms. Tirelli, dated June 30, 2021 [ECF No. 115]; Order Adjourning Order to Show Cause at 3-4 (the "Adjournment Order") [ECF No. 116]. But given concerns about the status of funds in the Debtors' cases, the Court further ordered that:
within two weeks of the date of entry of this Order, each of the Chapter 13 Plans filed in the above-captioned cases shall be amended to replace any language regarding the escrow of postpetition mortgage payments with Ms. Tirelli or her law firm with language providing that all future postpetition mortgage payments shall be paid either directly to the secured creditors or to the Chapter 13 Trustee as conduit payments to the secured creditors . . . [and] that by August 4, 2021, Ms. Tirelli shall provide the Court with a comprehensive list of all pending Chapter 13 cases in which the Chapter 13 Plan provides for the escrow of postpetition mortgage payments with Ms....
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