Kelly v. Cuomo (In re Cuomo)

• Decision Date: 20 June 2013
• Docket Number: BK-S-12-1124-BAM,BK-S-10-14813-BAM
• Parties: In re: JODY MARIE CUOMO, Debtor. GREGORY KELLY, Plaintiff, v. JODY MARIE CUOMO, Defendant.
• Court: U.S. Bankruptcy Court — District of Nevada

In re: JODY MARIE CUOMO, Debtor.GREGORY KELLY, Plaintiff,

v.JODY MARIE CUOMO, Defendant.

BK-S-10-14813-BAM

BK-S-12-1124-BAM

UNITED STATES BANKRUPTCY COURT DISTRICT OF NEVADA

Date: April 2, 2013

Entered: June 20, 2013

______________

Honorable Bruce A. Markell

United States Bankruptcy Judge

Chapter 7

Adversary Proceeding

OPINION SANCTIONING ATTORNEY ANTHONY J. DELUCA FOR FAILING

TO SCHEDULE A KNOWN DEBT AND GRANTING HIS MOTION TO

WITHDRAW AS COUNSEL FOR JODY MARIE CUOMO

I. INTRODUCTION....................................................... 3

II. FACTS ................................................................ 3

A. Cuomo's Prior Bankruptcy Filings ................................... 3

B. The Instant Bankruptcy Case........................................ 4

C. The Adversary Proceeding .......................................... 6

D. The Order to Show Cause........................................... 6

E. The Motion to Withdraw............................................ 7

III. THE PARTIES AND THEIR POSITIONS .................................. 8

A. DeLuca's Arguments............................................... 8

1. Sanctions................................................... 8

2. Motion to Withdraw ........................................ 11

B. Cuomo's Contentions ............................................. 11

C. Factual Findings.................................................. 11

IV. LEGAL ANALYSIS .................................................... 13

A. Sanctions........................................................ 13

1. "Specifically Targeting" DeLuca and His Firm .................. 13

2. Interplay Between State and Federal Law ...................... 14

3. Nev. Rule of Prof'l Conduct 1.1 — Duty of Competence........... 14

a. Legal Standard....................................... 14

b. Application.......................................... 16

4. Nev. Rule of Prof'l Conduct 1.2 — Scope of Services ............. 21

a. Legal Standard....................................... 21

b. Application.......................................... 21

5. Nev. Rule of Prof'l Conduct 1.5 / Rule 2016 — DeLuca's Fees...... 22

6. Section 707(b)(4)(C)......................................... 22

a. Legal Standard....................................... 22

b. Application.......................................... 23

7. The Sanctions Imposed ...................................... 25

a. The Purpose of Sanctions .............................. 25

b. The Range of Sanctions................................ 25

c. The ABA Standards ................................... 27

(1) The Duties Violated............................. 27

(2) DeLuca's Mental State .......................... 29

(3) Seriousness of the Injury......................... 30

(4) Aggravating or Mitigating Factors ................ 31

d. Fee Disgorgement..................................... 32

B. Motion to Withdraw .............................................. 33

1. Legal Standard............................................. 33

2. Application................................................ 35

V. CONCLUSION ........................................................ 36

I. INTRODUCTION

This memorandum addresses the question of whether a consumer bankruptcy attorney must review a client's prior bankruptcy petitions to determine whether the information in those petitions is consistent with the information in the client's current credit reports and the information presently provided by the client. With some limitations, the answer is yes.

II. FACTS

A. Cuomo's Prior Bankruptcy Filings

This bankruptcy case is Cuomo's third since 2009. In April 2009, she filed a Chapter 7 petition (the "First Petition"). (Case No. 09-16409-bam, Dkt. No. 1.) Her attorney was William J. Crock ("Crock") of the Nevada Law Group. In the First Petition, Cuomo certified that she had timely obtained the required credit counseling but did not file the related credit counseling certificate. (Id. at 4.) In June 2009, the case was dismissed under Section 521(i) for failure to file the schedules required by Section 521(a)(1). (09-16409, Dkt. No. 21.)

She then filed another Chapter 7 petition in July 2009 (the "Second Petition"). (Case No. 09-22203-bam, Dkt. No. 1.) The Nevada Law Group continued to represent her, but John E. Cereso ("Cereso") had replaced Crock as Cuomo's attorney of record. Regarding credit counseling, she certified that she had requested it but was unable to complete it for unstated reasons. (09-22203, Dkt. No. 1 at 4.) This conflicted with her assertion in the First Petition that she had in fact completed the counseling. Cuomo's Schedule F listed 27 unsecured nonpriority claims, one of which was a "Personal Loan" owing to "Pat Richie [sic]"for $100,000, which represented 17.9% of Cuomo's unsecured nonpriority claims.¹ (09-22203, Dkt. No. 15 at 8.) Ultimately, the case was dismissed in October 2009 for failure to comply with the creditcounseling requirements of Section 109(h). (09-22203, Dkt. No. 50.)

Shortly thereafter, the court sanctioned Cereso and Crock in December 2009 for their conduct in these two cases. The court ordered disgorgement of all their attorney's fees ($5,000) for violations of (i) Rule 9011, for "later advocating" the Second Petition which contained an untrue statement about Cuomo's completion of credit counseling; (ii) Rule 2016, for failure to file a statement of compensation and for an unreasonable compensation amount; and (iii) Sections 527 and 528, for failure to provide Cuomo with various required written disclosures. (09-16409, Dkt. No. 30.) Notably, the sanctions do not relate to the veracity or completeness of the information in Cuomo's schedules.

With two failed bankruptcy attempts behind her—and the lost time and energy that went with them—Cuomo sought to improve her chances by hiring DeLuca as her new attorney.

B. The Instant Bankruptcy Case

On December 17, 2009, two months after the dismissal of her second bankruptcy attempt, Cuomo had a consultation with DeLuca and Associates, presumably at the firm's office. The Retainer Agreement includes a clause which purports to place all responsibility for listing creditors on the client:

Client will thoroughly review Schedule F which includes the list of creditors. Client has the full responsibility to ensure that all creditors have been listed on Schedule F prior to signing the petition. . . . CLIENT UNDERSTANDS THAT ANY CREDITORS LEFT OFF THE PETITION WILL NOT BE DISCHARGED.²

(Dkt. No. 45, Doc. 45-4 at 6-7 (emphasis added).) The Retainer Agreement also separates basicservices from those services that require additional fees:

BASIC SERVICES: Services to be performed by DeLuca & Associates include:

a. Analysis of debtor's financial situation and assistance in determining whether to file a petition under the United States Bankruptcy Code . . .

b. Review, preparation and filing of the petition, schedules, statement of affairs, and other documents required by the bankruptcy court;

c. Representation at the meeting of creditors.

d. Reasonable in person and telephonic consultation with the client. . . . FRAUD OR OTHER NON-ROUTINE MATTERS. There are circumstances which may require additional fees. Additional attorney fees will be charged for additional services including but not limited to: [1] addressing allegations of fraud or non-dischargeability . . . . ADVERSARY PROCEEDINGS . . . [ARE] SPECIFICALLY EXCLUDED FROM THIS AGREEMENT.

(Id. at 5-6.)

Two months later, on March 15, 2010, Cuomo had what DeLuca describes as her "paperwork appointment"—her opportunity "to provide DeLuca & Associates the necessary information to prepare [her] final petition." (Dkt. No. 45 at 5.) For her review—to ensure that all creditors were listed—she was given a copy of her credit reports from all three agencies and a draft copy of her Schedule F. The idea was that she could make any corrections before attending the "signing appointment." (See id.)

On or about March 22, 2012, she attended the "signing appointment." (Id.) She signed a form titled "Chapter 7 - Schedule F Review," which contained the following language:

Today is your signing appointment. The purpose of this appointment is for you to review your petition, sign it, and schedule a date for your bankruptcy to be filed. Before your meeting today it is necessary that all your creditors are added to your Schedule F. If you have not done so already, please take a moment now and make sure all your creditors are added on schedule F. (You should have received a copy of your schedule F at your last appointment).

(Dkt. No. 45, Doc. 45-2 at 10 (emphasis added).) This document does not state that unlisted debts may not be discharged, only that it is "necessary" to list all creditors. (Id.)

On March 23, 2010, Cuomo filed her petition in the instant case (the "Third Petition"), which did not list the Ritchie Debt. (See Bankr. Dkt. No. 1 at 19-36.) The case seemingly proceeded without a hitch and Cuomo obtained her discharge on July 1, 2010. (Bankr. Dkt. No.28.)

In October 2011, after having acquired Ritchie's interest in the Ritchie Debt, Kelly, as Ritchie's assignee, sued Cuomo in Nevada district court on a breach of contract theory to collect on the debt (the "State Court Action"). (See Bankr. Dkt. No. 32, Doc. 32-1.) DeLuca learned of the proceeding and informed Kelly that the Ritchie Debt had been discharged and that Kelly's collection efforts were in violation of the "Bankruptcy Stay." (Bankr. Dkt. No. 32, Doc. 32-1 at 11.) Although his terminology was imprecise, DeLuca was correct; this court has since ruled that the State Court Action was void ab initio as violative of the Section 524 discharge injunction. (Dkt. No. 51 at 18.)

On April 12, 2012, Cuomo filed a motion to reopen the bankruptcy case. (Bankr. Dkt. No. 32.) On April 26, she filed an amended Schedule F listing the Ritchie Debt (the "Amended Third Petition"). (Bankr. Dkt. No. 37.) On May 14, the court granted her motion and reopened the case.

C. The Adversary Proceeding

On June 15, 2012, Kelly...