Summary
Denying creditor's motion for leave to amend proof of claim to add missing documentation not attached to original claim, when the request to amend was made both beyond the claims bar date and a month after notice of the debtor's claim objection.
Summary of this case from In re DeveyOpinion
No. 08-37521-H4-13.
6-12-2009
In re Donald G. DEPUGH, Debtor.
John Ernest Smith, John E. Smith & Associates, Houston, TX, for Debtor.
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), 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.
Since rendering its opinion in Gilbreath, this Court has issued another opinion, In re North Bay General Hosp., Inc., 404 B.R. 443 (Bankr.S.D.Tex.2009), which outlines the proof of claim filing requirements.
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. 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."
No account number with the last four digits 59G5 is listed in the Debtor's Schedule F. However, the Debtor has scheduled an unsecured claim held by Wells Fargo arising from an account number ending in 7777 for $ 19,073.04. The Debtor has scheduled this unsecured claim as "disputed."
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. 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."
The Debtor's Schedule F lists an unsecured claim held by "Plaza Associates/Bank of America," arising from an account number ending in 8548 for $31,841.53. This debt is not scheduled as "disputed." Although the account number matches the account number listed in Roundup's Proof of Claim 6, the amount differs from both the amount listed in Proof of Claim 6 — $32,283.66 — and Roundup's Amended Proof of Claim 6 — $34,991.94 — discussed below.
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. 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.
For example, Roundup refers to Claim 5 in the Response as an account held by "FIA Card Services aka Bank of America," ending in 8548, in the amount of $32,283.66. This is the name of the creditor and the amount set forth in Proof of Claim 6, not Proof of Claim 5. Additionally, Roundup alleges that the Debtor scheduled the unsecured claim comprising Proof of Claim 6 in the exact amount listed in Proof of Claim 6, when in actuality, the Debtor scheduled the unsecured claim comprising Proof of Claim 5 — i.e. $19,073.04 — in the same amount listed in Roundup's Proof of Claim 5. The Response also alleges that the Debtor's schedules list the amount sought in Proof of Claim 6 as "disputed," when it is the claim comprising Proof of Claim 5 that the Debtor actually listed as "disputed." The Response also contains a number of grammatical and typographical errors. Further, the Response identifies a slew of cases from other jurisdictions with respect to proof of claim filing requirements; however, the Response fails to discuss, or even mention, this Court's opinion in Gilbreath or District Judge Gray Miller's opinion in Tran.
The Court notes these discrepancies not to dwell on the technical errors in Roundup's Response, but to make a broader point about Roundup's lack of care and diligence with respect to this dispute at large, which has ultimately led this Court to conclude that sanctions in the form of attorneys' fees are warranted against Roundup and its counsel of record, Gill, for their conduct in this dispute. See infra Part III.D.
This Court agrees with the assessment of the Bankruptcy Court for the Northern District of Texas that decisions by the district court are binding on the bankruptcy courts of that district under the federal hierarchical judicial structure. Rand Energy Co. v. Strata Directional Tech., Inc. (In re Rand Energy Co.), 259 B.R. 274, 276 (Bankr.N.D.Tex.2001); see also In re Windmill Farms, Inc., 70 B.R. 618, 621-22 (9th Cir. B.A.P. 1987), rev'd on other grounds, 841 F.2d 1467 (9th Cir. 1988); Johnson-Allen v. Lomas and Nettleton Co. (In re Johnson-Allen), 67 B.R. 968, 972-73 (Bankr. E.D.Pa.1986); In re Windsor Communications Group, Inc., 67 B.R. 692, 698-99 (Bankr. E.D.Pa.1986); In re Moisson, 51 B.R. 227, 229 (Bankr.E.D.Mich.1985); and see generally Daniel J. Bussel, Power, Authority, and Precedent in Interpreting the Bankruptcy Code, 41 UCLA L.Rev. 1063 (1994).
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 Roundup dated December 22,2008, which purports to transfer to Roundup "all right, title and interest in and to (i) Seller's Receivables 6,060 accounts, . . . which are described on computer files furnished by Seller to Buyer in connection herewith (each, an "Account"); (ii) all judgments obtained in connection with any such Account; and (iii) all proceeds of Accounts after the close of business on December 22, 2008." This document also provides that the transfer "is subject to the terms of the Bankruptcy Receivable Forward Flow Purchase Agreement of Chapter 7 and Chapter 13 Receivables dated August 6th, 2008" (which is not provided).
c. A number of what appears to be redacted printouts from some unidentified computer spreadsheet pertaining to account numbers ending in 59G5 and 7777, some of which contain the personal information of the Debtor (though not in connection with the account numbers listed above).
d. An invoice dated December 23, 2008 confirming the terms under which FIA Card Services, N.A. would sell 1,137 accounts to Roundup pursuant to the terms of an "Agreement" (which, once again, has not been provided).
e. A redacted computer printout listing account number ending in 8548, and other printouts listing the Debtor's personal information (again, not alongside the account number listed above).
f. An affidavit signed by Steven G. Kane (Kane), the operations manager for B-Line, LLC, a purported business affiliate that maintains records and provides bankruptcy services to Roundup, in which Kane swears that Roundup is the current holder of an account number ending in 8548 originally held by Bank of America, then assigned to FIA Card Services, N.A., then assigned to Roundup. In this affidavit, Kane also swears that Roundup is the current holder of an account number ending in 7777 originally held by Wells Fargo, then assigned to NCO Portfolio Management, Inc. — at which point the account number changed to a number ending in 59G5 — then assigned to Roundup.
8. Roundup has not amended either of its proofs of claim to include the documents attached to the Response and did not move to offer them into evidence at the hearing on the Objections held on April 27, 2009.
Roundup's Amended Proof of Claim 6
9. On April 22, 2009, Roundup — without leave of Court or consent of the Debtor — amended Proof of Claim 6 to include documentation in support of the claim. The amount of the claim listed on Amended Proof of Claim 6 is $34,991.94. A true and correct copy of Amended Proof of Claim 6 is attached to this Opinion as Exhibit C.
10. Roundup attached the following documents to its Amended Proof of Claim 6:(1) A one-page summary of the interest that has accrued with respect to two accounts — one ending in 5261, and another ending in 8548 — since the date the Debtor's bankruptcy petition was filed. This document also represents that the "Charge-Off Balance" on those two accounts as of October 28, 2006 was $27,332.69 and that this amount, when added to the interest that has accrued since the petition date — i.e. $7,659.25 — equals a total claim for $34,991.94; and (2) a number of invoices from 2006 showing various purchases made by the Debtor charged to an account number ending in 5261 held by "MBNA America" or "Bank of America/MBNA." Roundup has not attached any documentation to suggest that Roundup is the current owner and holder of the account ending in 8548, which, according to both the Debtor's Schedule F and the invoices attached to Roundup's Amended Proof of Claim 6, is held by either Plaza Associates or Bank of America (or its affiliate, FIA Card Services).
11. Roundup has not amended Proof of Claim 5.
The Claim Objection Hearing
12. On April 27, 2009, this Court held a hearing on the Objections. Counsel of record for Roundup — Gill — did not appear, but rather sent MacNaughton to appear on behalf of Roundup in his place. At the hearing, MacNaughton conceded that he had not reviewed this Court's opinion in Gilbreath or the District Court's opinion in Tran, that he was unaware of the Notice and Order requiring Roundup to seek leave of Court or the Debtor's consent before amending its contested claims, and that he did not know why supporting documents had not been attached to Proof of Claim 5 and 6 or where such documents might be found. In fact, MacNaughton had virtually no knowledge of the Debtor's case or the nature of Roundup's claim. Additionally, MacNaughton did not offer any evidence to support Roundup's claims at the hearing; he neither adduced testimony nor sought to introduce exhibits. As a result, this Court issued an oral ruling at the conclusion of the hearing sustaining the Debtor's Objections, disallowing Claims 5 and 6, and awarding sanctions in the form of attorneys' fees against Roundup and Gill, its counsel of record, for failing to review applicable case law and to come prepared for the hearing in accordance with the Local Rules for the Southern District of Texas.
This Court chose not to impose sanctions against MacNaughton based upon the Eleventh Circuit's holding in Stuart I. Levin & Assocs., P.A. v. Rogers, 156 F.3d 1135, 1141 (11th Cir. 1998), where the court chose to sanction the attorney-in-charge. See infra Part III.D.
13. On May 27, 2009, this Court issued a written Order Disallowing Proofs of Claim # 5 and # 6 Filed by Roundup Funding LLC, memorializing its ruling from the April 27, 2009 hearing. [Docket No. 63.] In accordance with this Court's oral ruling, the order provides that Roundup and Gill shall pay counsel for the Debtor — John E. Smith (Smith) — for the value of the services rendered by Smith on behalf of the Debtor in objecting to Roundup's claims. Specifically, this Court ordered Roundup and Gill to pay $1,050.00 to compensate Smith (representing the three hours that Smith spent objecting to Roundup's claims, multiplied by his hourly rate of $350.00).
III. CONCLUSIONS OF LAW
A. Jurisdiction and Venue
The Court has jurisdiction over these matters pursuant to 28 U.S.C. §§ 1334(b) and 157(a). This claim objection proceeding is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (B), and (O). Additionally, this proceeding is a core proceeding under the general "catch-all" language of 28 U.S.C. § 157(b)(2). See In re Southmark Corp., 163 F.3d 925, 930 (5th Cir. 1999) ("[A] proceeding is core under section 157 if it invokes a substantive right provided by title 11 or if it is a proceeding that, by its nature, could arise only in the context of a bankruptcy case."); In re Ginther Trusts, No. 06-3556, 2006 WL 3805670, at *19 (Bankr.S.D.Tex. Dec.22, 2006) (holding that a matter may constitute a core proceeding under 28 U.S.C. § 157(b)(2) "even though the laundry list of core proceedings under § 157(b)(2) does not specifically name this particular circumstance"). Venue is proper pursuant to 28 U.S.C. § 1408(1).
B. Standard for Ruling on Claim Objections
Allowance of claims is governed by 11 U.S.C. § 502. Section 502(a) provides that a proof of claim filed under § 501 is deemed allowed unless a party-in-interest objects. Section 502(b) provides that once an objection is made, the Court shall determine the amount of the claim as of the petition date and "shall allow such claim in such amount" unless the claim falls under one of the nine statutory grounds for disallowance listed in § 502(b)(l)-(9).
The statutory grounds for disallowance most applicable to the dispute at bar are § 502(b)(1) and (9). Under § 502(b)(1), a claim must be disallowed if "such claim is unenforceable against the debtor and property of the debtor, under any agreement or applicable law for a reason other than because such claim is contingent or unmatured." Additionally, under § 502(b)(9), a claim must be disallowed if "proof of such claim is not timely filed" with narrow exceptions carved out for tardy claims filed pursuant to 11 U.S.C. § 726(a)(l)-(3), or in accordance with the Bankruptcy Rules.
The form and content requirements for proofs of claim are set forth in Federal Rule of Bankruptcy Procedure 3001 (Bankruptcy Rule 3001). Bankruptcy Rule 3001(a) mandates that "[a] proof of claim shall conform substantially to the appropriate Official Form" — that is, Official Form 10 (Form 10). Additionally, Bankruptcy Rule 9009 states that the Official Forms "shall be observed." Fed. R. Bankr.P. 9009. Paragraph 7 of Form 10 requires the creditor to "[a]ttach redacted copies of any documents that support the claim, such as promissory notes, purchase orders, invoices, itemized statements or running accounts, contracts, judgments, mortgages, and security agreements" or a summary of such documents. Paragraph 7 of Form 10 also requires that "[i]f the documents are not available, please explain." Bankruptcy Rule 3001(c) requires that, when a claim is based on a writing, "the original or a duplicate shall be filed with the proof of claim"; or, if the writing has been lost or destroyed, "a statement of the circumstances of the loss or destruction shall be filed with the claim." A proof of claim that comports with the requirements set forth in Bankruptcy Rule 3001, "shall constitute prima facie evidence of the validity and amount of the claim." Fed. R. Bankr.P. 3001(f).
In Gilbreath, this Court described the burden-shifting process that § 502 and Bankruptcy Rule 3001 create during a proof of claim dispute. In re Gilbreath, 395 B.R. at 361-65. If, for example, an unsecured creditor files a proof of claim that fully complies with Bankruptcy Rule 3001, that claim is deemed prima facie valid and, if the debtor objects to that claim, he or she must adduce evidence sufficient to rebut the presumption of validity and establish that the claim should be disallowed pursuant to § 502(b). If, however, an unsecured creditor files a proof of claim that fails to comply with Bankruptcy Rule 3001, the Debtor has no evidentiary burden to overcome when lodging a claim objection pursuant to § 502(b), at which point the burden shifts back to the creditor to prove the underlying validity of its claim by a preponderance of the evidence in order to have its claim allowed. See 11 U.S.C. § 502; In re O'Connor, 153 F.3d 258, 260-61 (5th Cir. 1998); In re Fid. Holding Co., Ltd., 837 F.2d 696, 698 (5th Cir.1988); see also Placid Oil Co. v. IRS (In re Placid Oil Co.), 988 F.2d 554, 557 (5th Cir.1993) abrogated by Raleigh v. III. Dept. of Revenue, 530 U.S. 15, 20, 22 n. 2, 120 S.Ct. 1951, 147 L.Ed.2d 13 (2000) (determining that the bankruptcy process does not alter the applicable burden of proof with respect to state tax liability, but leaving open the question of the applicable burden of proof with respect to proof of claim disputes). This Court rendered its decision in Gilbreath — at least in part — to help curb the growing trend of creditors filing seriously deficient proofs of claim in the name of frugality, only amending those claims to include the proper documentation after the debtor lodges an objection and the Court sets the matter for a hearing.
Some courts have suggested that even if a creditor's proof of claim fails to comply with Bankruptcy Rule 3001, the debtor's objection must still produce "some evidence which tends to `meet, overcome, or at least equalize' the statements on the proof of claim." In re Habiballa, 337 B.R. 911, 915 (Bankr.E.D.Wis. 2006) (quoting In re Cluff, 313 B.R. 323, 338 (Bankr.D.Utah 2004)). These courts essentially reason that because a proof of claim is signed under penalty of up to $500,000.00 or five years in prison, even a skeletal proof of claim should be afforded some sort of evidentiary weight. Id. Based on this reasoning, these courts posit that a debtor's objection to even a bare-bones proof of claim should be accompanied by some evidence, such as a sworn affidavit. Id. This reasoning fails to account for the fact that a debtor is also subject to severe penalties for making false factual statements or frivolous allegations in a claim objection — or in his schedules. Because both creditors and debtors are subject to reprimand for making false statements with respect to claims, the notion that a deficient proof of claim should be afforded some evidentiary weight, but a claim objection without accompanying affidavits should not, rings hollow.
Additionally, despite these opinions, this Court is bound to follow the District Court's decision in Tran, see supra note 5, which holds that a debtor "has no evidentiary burden to overcome" in objecting to a claim that is not prima facie valid. In re Tran, 369 B.R. at 318. Also, even if this Court were to adopt the reasoning from the bankruptcy courts mentioned above, because the Debtor attached a sworn affidavit to the Objection, he has taken sufficient action to "meet, overcome, or at least equalize" the statements made in Roundup's original proofs of claim. In re Habiballa, 337 B.R. at 915.
This Court believes that the Supreme Court created Bankruptcy Rule 3001 for a reason — so that debtors and other parties in interest can see and read the documents upon which claims are based in order to make an initial assessment of their validity. This Court does not believe that the Supreme Court contemplated that creditors could ignore Bankruptcy Rule 3001's requirements unless and until a debtor complains and then cry "no harm, no foul" by producing documents that should have been produced to begin with. This latter scenario subverts the fundamental process by which the American legal system is based — that a claimant must come forward with at least some evidence that its claims are valid before collecting their due. Raleigh v. III. Dep't. of Revenue, 530 U.S. 15, 21, 120 S.Ct. 1951, 147 L.Ed.2d 13 (2000) (recognizing that "the burden of proof is an essential element of the claim itself," and that "one who asserts a claim [has] the burden of proof that normally comes with it"). Though efficiency and the speedy resolution of the claims objection process is important to keep bankruptcy cases running smoothly, such efficiency should not come at the expense of accuracy, fairness, and fundamental evidentiary requirements. Every penny that goes to pay a creditor's allowed claim necessarily diminishes the pool of funds available to pay other creditors while, at the same time, reducing the probability that the Chapter 13 debtor will be able to propose, and make payments on, a feasible plan of reorganization. Creditors are provided ample leeway to have their claims presumed valid — and to shift the evidentiary burden to the debtor — if they simply comply with Bankruptcy Rule 3001 the first time they file a proof of claim. As this Court stated in Gilbreath,
The Federal Rules of Bankruptcy Procedure are promulgated by the Supreme Court of the United States.
Even if the Court were inclined to consider the potential costs of complying with the Bankruptcy Rules, its decision would be the same. Bankruptcy Rule 3001(c) provides that if the documents supporting the creditor's claim cannot be produced, "a statement of the circumstances of the loss or destruction shall be filed with the claim." Fed. R. Bankr.P. 3001(c). Further, paragraph 7 of Form 10 allows a creditor to attach a summary of documents supporting the claim and requires some explanation if the documents are unavailable. These rules and instructions appear to be designed specifically to accommodate creditors who claim to be unable to locate the documents on which their claims are based. Given these provisions, it is difficult to understand how providing a summary of documents supporting a claim, or at least providing an explanation for why the proof of claim has nothing attached to it, unduly burdens creditors. The only explanation could be that certain creditors wish to continue their routine of executing and filing proofs of claim without objection and without any evidence — essentially, without having to do any work.
In order to ensure compliance with Bankruptcy Rule 3001 and to give effect to the burden-shifting framework contemplated by § 502, this Court — in accordance with Bankruptcy Rule 9014 and this Court's equitable power under 11 U.S.C. § 105(a) — issued a Notice and Order that Bankruptcy Rule 7015 shall apply in all Chapter 13 cases after a claim objection is filed. Bankruptcy Rule 7015 incorporates Federal Rule of Civil Procedure 15, which requires claimants to obtain "the opposing party's written consent or the court's leave" to amend a claim after being served with a response — in this case, a written objection. Fed.R.Civ.P. 15(a)(2). As this Court pointed out in Gilbreath, "most bankruptcy courts have recognized that `[t]he trend of the cases appear to apply Rule 7015 to contested matters'" (here, the Debtor's Objection initiated a contested matter). In re Gilbreath, 395 B.R. at 366 (quoting In re MK Lombard Group I, Ltd., 301 B.R. 812, 816 (Bankr.E.D.Pa. 2003); and citing In re Stavriotis, 977 F.2d 1202, 1204 (7th Cir.1992) (noting that Bankruptcy Rule 9014 permits extension of Rule 7015 to contested matters); In re Best Refrigerated Express, Inc., 192 B.R. 503, 506 (Bankr.D.Neb.1996) (applying Rule 7015 through Rule 9014 to allow amendment to a filed proof of claim to relate back); Enjet, Inc. v. Maritime Challenge Corp. (In re Enjet, Inc.), 220 B.R. 312, 314 (E.D.La.1998) (noting that "numerous courts have applied Rule 7015 and Rule 15(c) explicitly or by analogy in non-adversary [bankruptcy] proceedings"); In re Brown, 159 B.R. 710, 714 (Bankr. D.N.J.1993) (noting that Rule 15's "standards for allowing amendments to pleadings in adversary proceedings . . . also apply to amendments to a proof of claim"); In re Blue Diamond Coal Co., 147 B.R. 720, 725 (Bankr.E.D.Tenn.1992) (extending Rule 9014 to apply Rule 7015 to contested matters); In re Enron Corp., 298 B.R. 513, 521-22 (Bankr.S.D.N.Y.2003) (invoking Rule 9014 to apply Rule 7015); 10 Collier on Bankruptcy 7015.02 n. 1 (Matthew Bender 15th ed. Rev.)).
Bankruptcy Rule 9014 allows a bankruptcy court to apply any of the Bankruptcy Rules in Part VII to a contested matter "at any stage in a particular matter." Fed. R. Bankr.P. 9014. Section 105(a) of the Bankruptcy Code, which allows a bankruptcy court to issue any order "necessary or appropriate to carry out the provisions of" the Bankruptcy Code, has also been frequently applied to allow or disallow amendments to proofs of claim as a matter of equity. See, e.g., United States v. Johnston, 267 B.R. 717, 721 (N.D.Tex.2001) (concluding that "the [bankruptcy] court's power to prevent abuse of process includes bending the time requirements ... to permit amendments" (internal marks omitted)); In re Eden, 141 B.R. 121, 123-24 (Bankr.W.D.Tex.1992) (recognizing that "many bankruptcy courts — for equitable reasons — do permit amendments to proofs of claim, even past the bar date"). The Seventh Circuit explained that "[Bankruptcy] Rule 7015 is not . . . the only possible authority for amendment. Another possible basis is the bankruptcy court's broad equitable jurisdiction." In re Unroe, 937 F.2d 346, 349 (7th Cir. 1991).
Having described the applicable legal standard for ruling on claim objections and amendments to contested proofs of claim, the Court will now apply those standards to the dispute at bar.
C. Debtor's Objections to Roundup's Proofs of Claim
As discussed above, even if Roundup's proofs of claim are not prima facie valid, they are not automatically disallowed. See In re Armstrong, 320 B.R. 97, 106 (Bankr.N.D.Tex.2005). However, the Debtor has no evidentiary burden to overcome in making a claim objection. In re Tran, 369 B.R. at 318. Thus, if the Debtor has lodged a claim objection that constitutes a valid ground for disallowance pursuant to § 502(b), the burden shifts back to Roundup to prove the underlying validity of its claims by a preponderance of the evidence. See In re O'Connor, 153 F.3d at 260-61; In re Fid. Holding Co., Ltd., 837 F.2d at 698.
Roundup argues that the Debtor's Objections are invalid because they are merely technical complaints that Roundup did not comply with Bankruptcy Rule 3001, and that the Debtor needed to object based on one of the nine grounds enumerated in § 502(b). As in Gilbreath, this Court need not decide whether § 502(b) provides an exclusive list of valid claim objections because the Debtor has, in fact, raised a valid objection pursuant to § 502(b)(1). See In re Gilbreath, 395 B.R. at 364 n. 3. Specifically, the Debtor has alleged that he does not have any liability to Roundup and has attached an affidavit supporting this allegation. [Finding of Fact No. 5.] This objection falls squarely within the ambit of § 502(b)(1), which provides that a claim must be disallowed if "such claim is unenforceable against the debtor and property of the debtor, under any agreement or applicable law for a reason other than because such claim is contingent or unmatured." Additionally, as this Court stated in Gilbreath, even if the Debtor had merely complained that Roundup has not produced sufficient documentation to support its claims, such an objection "necessarily asserts that the claim is `unenforceable against the debtor ... under ... applicable law' under § 502(b)(1)." Id. ("This Court knows of no jurisdiction where a claim arising out of a credit card agreement is enforceable without proof of the underlying agreement. Neither is this Court aware of any jurisdiction where a purchaser of contract rights may establish the enforceability of those rights without proof of purchase.").
Additionally, this Court's Notice and Order became applicable in December of 2008 and the Debtor's Objection was filed on February 4, 2009, such that Roundup was required to obtain leave of this Court or the Debtor's consent before amending Proof of Claim 6 on April 22, 2009. [Finding of Fact No. 9.] Because Roundup did neither, it was barred from amending Proof of Claim 6 and, therefore, Amended Proof of Claim 6 will be stricken. It is also noteworthy that even though Roundup attached a slew of documentation to its Response to the Debtor's Objection, it chose to offer none of these documents at the evidentiary hearing on April 27, 2009. While, at the outset, Roundup's claims might have enjoyed prima facie validity had these documents been attached to its original proofs of claim, the Objection initiated a full blown evidentiary dispute which required Roundup to introduce evidence or adduce testimony to establish the underlying validity of its claims by a preponderance of the evidence. See In re O'Connor, 153 F.3d at 260-61; In re Fid. Holding Co., Ltd., 837 F.2d at 698. Because Roundup's Amended Proof of Claim 6 is stricken, and because Roundup chose not to offer any evidence at the hearing, this Court will look only to Roundup's original Proof of Claim 6 (and Proof of Claim 5, which was never amended) to determine whether they are valid and enforceable under Texas law.
1. Validity of Roundup's Original Proofs of Claim 5 and 6
Here, Roundup's original proofs of claim fail to satisfy the requirements set forth in Bankruptcy Rule 3001 and the instructions in Form 10. Proof of Claim 5 and 6 — which both purportedly arise out of credit card agreements — consist of nothing more than the official form with a single, desultory document attached to it that essentially re-alleges the scant information that Roundup provided on the form. Proof of Claim 5 and 6 merely inform the Debtor, the Court, and indeed, any interested party, that a numbered account exists based on some unknown credit card agreement, allegedly executed between the Debtor and some third party, which was eventually assigned to either FIA Card Services NA aka Bank of America or NCO Portfolio Management, Inc., and which is now held by Roundup. Roundup now seeks to avail itself of the presumption that its claims are valid based on this paltry smattering of information. This Court will not allow it to do so.
As stated above, Bankruptcy Rule 3001(a) requires that Roundup's proofs of claim substantially conform to the instructions in Form 10. Form 10 instructs Roundup to "[a]ttach redacted copies of any documents that support the claim, such as promissory notes, purchase orders, invoices, itemized statements or running accounts, contracts, judgments, mortgages, and security agreements" or a summary of such documents. Roundup failed to do so. Additionally, if such documents are unavailable, Form 10 instructs Roundup to "please explain." Roundup failed to do so. Bankruptcy Rule 3001(c) requires that, for claims based on a writing — such as credit card agreements — "the original or a duplicate shall be filed with the proof of claim"; or, if the writing has been lost or destroyed, "a statement of the circumstances of the loss or destruction shall be filed with the claim." Roundup has failed to file any documents along with Proof of Claim 5 or 6 and has not provided any statement explaining that such documents were lost or destroyed. There is no doubt that Roundup's claims do not enjoy prima facie validity under Bankruptcy Rule 3001(f), as they fail to comply with nearly every requirement of Bankruptcy Rule 3001. Thus, in accordance with the burden-shifting framework described in Gilbreath and above, the Debtor had no evidentiary burden to overcome when making the Objections and needed only to raise a valid objection pursuant to § 506(b) to shift the burden back to Roundup to prove — by a preponderance of the evidence — that its claims are valid.
While the question of whether Roundup's claim is allowable in bankruptcy "is a matter of federal law and the bankruptcy court's exercise of equitable powers," the underlying validity of Roundup's claim is based on Texas contract law. See First City Beaumont v. Durkay (In re Ford), 967 F.2d 1047, 1050 (5th Cir.1992). For a contract to be enforceable under Texas law, a creditor must produce evidence of the contract under which a debtor is allegedly liable. See Preston State Bank v. Jordan, 692 S.W.2d 740, 744 (Tex. App.-Fort Worth 1985, no writ). Texas law also requires an alleged assignee of a contract to come forward with evidence of the assignment. See Skipper v. Chase Manhattan Bank USA, N.A., No. 09-05-196 CV, 2006 WL 668581, at *1 (Tex.App.-Beaumont, 2006, no. pet.hist.) (citing cases). Therefore, Roundup has the burden of proving the validity of its underlying claim, which, under Texas law, requires (1) proof of an enforceable credit card agreement between the Debtor and the original creditor, and (2) proof of any subsequent assignment of rights under that agreement to Roundup.
Roundup's original proofs of claim are woefully insufficient to establish the enforceability of Roundup's claims under Texas law. Proofs of Claim 5 and 6 are simply bald allegations that certain credit card accounts were ultimately assigned to Roundup without any evidence to establish (a) that there was an enforceable agreement between the Debtor and the original credit-card issuer; (b) the accounts in question are actually in the Debtor's name; or (c) Roundup is the current holder of the accounts. [Findings of Fact No. 3 & 4.] Roundup cannot establish the validity of its claims by a preponderance of the evidence without offering any evidence. Therefore, Claims 5 and 6 should be disallowed.
2. Validity of Roundup's Amended Proof of Claim 6
Even if the Notice and Order had not been issued, and even if this Court did not elect to apply Bankruptcy Rule 7015 — and therefore Rule 15(a)(2) — pursuant to its authority under Bankruptcy Rule 9014 and § 105(a), Roundup's Amended Proof of Claim 6 would still be insufficient to establish the underlying validity of Claim 6 under Texas law.
First, because Roundup has the burden to establish the enforceability of Claim 6 pursuant to Texas law by a preponderance of the evidence, it was required to do more than simply affix documents — all of which are hearsay, as no foundation has been laid under the business records exception to the hearsay rule under Fed.R.Evid. 803(6) — to its pleadings or its amended proof of claim. Indeed, the very purpose of the April 27,2009 hearing was to give Roundup the opportunity to come forward with evidence of its claims sufficient to establish their validity in the face of the Debtor's Objections. However, Roundup chose not to offer any evidence at the hearing and, indeed, could not even articulate that documents existed to establish that Roundup owned the debt or that enforceable credit card agreements existed to support the accounts upon which Roundup bases its claims. [Finding of Fact No. 12.] Because there is no evidence that Roundup owns Claim 6 or that Claim 6 is enforceable, Claim 6 must be disallowed.
Second, even if Roundup had admitted the documents attached to Amended Proof of Claim 6 into evidence at the April 27, 2009 hearing, these documents do not establish that Roundup owns the accounts in question or that the accounts are based on enforceable credit card agreements executed by the Debtor. Although Roundup attached documents to its Response — and not to Amended Proof of Claim 6 — suggesting that a bundle of accounts originally held by Bank of America (or Wells Fargo) were subsequently assigned to FLA Card Services, N.A. (or NCO Portfolio Management, Inc.) and were eventually assigned to Roundup, there is no documentation suggesting that this particular Debtor's accounts were among those transferred. [Finding of Fact No. 7.] That Roundup attached one-page, untitled, and unidentified computer printouts listing the last four digits of the applicable account number does not somehow bridge that gap. Most importantly, however, Roundup never produced any evidence of a valid credit card agreement between the Debtor and the original account holder — the essence of its claim.
Therefore, even if Roundup was permitted to amend Proof of Claim 6 despite this Court's Notice and Order and despite this Court's election to apply Bankruptcy Rule 7015 to proof of claim disputes, Roundup has offered no evidence to prove the underlying validity of Claim 6 under Texas law. And, even in the event that Roundup had properly offered the attachments to Amended Proof of Claim 6 and the Response at the hearing, these documents would still be insufficient to prove the existence of a valid and enforceable contract between the Debtor and the original account holder and that Roundup is the current owner and holder of the accounts in question. Roundup might have avoided having to establish the validity of its claims by a preponderance of the evidence if it had attached all of these documents to its initial proofs of claim, but it chose not to do so. See In re Gilbreath, 395 B.R. at 368 ("The point is this: had eCast correctly filed its original proofs of claim, it could have availed itself of prima facie validity, shifted the evidentiary burden to the Debtors, and avoided the strictures and equitable balancing of the post-objection amendment process.")
D. Sanctions Against Roundup and Gill, its Counsel of Record
A bankruptcy court's power to impose sanctions upon a party or its attorney derives from Federal Rule of Bankruptcy Procedure 9011 and its role as guardian of the integrity of the bankruptcy process. See, e.g., Campbell v. Countrywide Home Loans, Inc., 545 F.3d 348, 356 n. 1 (5th Cir.2008) (noting that Bankruptcy Rule 9011 and 11 U.S.C. § 105 provide "mechanisms to impose sanctions on parties who may attempt to abuse the procedural mechanisms within the bankruptcy court"). Under 11 U.S.C. § 105, a bankruptcy court has the power to issue sanctions against parties and their attorneys to effectuate the provisions of the Bankruptcy Code. See In re Volpert, 110 F.3d 494, 500-01 (7th Cir.1997); Caldwell v. Unified Capital Corp. (In re Rainbow Magazine), 77 F.3d 278, 283-84 (9th Cir.1996); In re Courtesy Inns, Ltd., Inc., 40 F.3d 1084, 1089 (10th Cir.1994). Additionally, this Court may impose sanctions pursuant to 28 U.S.C. § 1927 by requiring attorneys to pay excess costs attributable to their misconduct. See, e.g., Bishop v. W. Fid. Mktg., Inc. (In re W. Fid. Mktg., Inc.), No. 4:01-MC-0020-A, 2001 WL 34664165, at *22 (N.D.Tex. June 26,2001) (determining that bankruptcy courts are "courts of the United States" that may award sanctions pursuant to 28 U.S.C. § 1927).
This Court also has the inherent power to police the conduct of litigants and attorneys who appear before it. Chambers v. NASCO, Inc., 501 U.S. 32, 43-46, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991); see also Flaksa v. Little River Marine Const. Co., 389 F.2d 885, 888 (5th Cir.1968) ("The inherent power of a court to manage its affairs necessarily includes the authority to impose reasonable and appropriate sanctions upon errant lawyers practicing before it."). This Court has previously noted that "a federal court's inherent power to sanction bad faith conduct serves the dual purpose of covering the gaps where there are no applicable rules and also covering situations where `neither the statute nor the Rules are up to the task.'" In re Cochener, 360 B.R. 542, 570 (Bankr.S.D.Tex.2007), aff'd in part, rev'd in part, 382 B.R. 311 (S.D.Tex.2007), rev'd, 297 Fed.Appx. 382 (5th Cir.2008) (quoting Chambers v. NASCO, 501 U.S. 32, 50, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991)) ("The bankruptcy court acted well within its authority to enforce the integrity of the process by policing the accuracy of debtors' schedules and representations to the court."). The imposition of sanctions to control attorney misconduct "transcends a court's equitable power concerning relations between the parties and reaches a court's inherent power to police itself, thus serving the dual purpose of `vindicat[ing] judicial authority without resort to the more drastic sanctions available for contempt of court and mak[ing] the prevailing party whole for expenses caused by his opponent's obstinacy.'" Chambers, 501 U.S. at 46, 111 S.Ct. 2123 (citations omitted). Accordingly, a court may sanction an attorney for violating the local rules, even if the violation was not committed wilfully. See Barbosa v. County of El Paso, No. 97-51098, 1998 WL 648596, at *2 n. 1 (5th Cir.1998) (unpublished) ("Only a violation of a requirement of form must be willful before the court may sanction the party; a court may sanction any other violation of its local rules even if nonwillful."); Miranda v. S. Pac. Transp. Co., 710 F.2d 516, 520-21 (9th Cir.1983).
An attorney's misconduct may also be imputed to his law firm. See, e.g., In re Parsley, 384 B.R. 138, 182 (Bankr. S.D.Tex.2008) (holding that it maybe appropriate to impose responsibility for an attorney's misconduct on his law firm). Additionally, the Supreme Court has recognized that counsel of record for a party may be sanctioned for the actions or inactions of the substitute counsel it sends to represent its client at hearings. See Pavelic & LeFlore v. Marvel Entm't. Group, 493 U.S. 120, 125, 110 S.Ct. 456, 107 L.Ed.2d 438 (1989). The Eleventh Circuit, when faced with a similar situation to the one at bar — i.e. where counsel of record sent substitute counsel to represent the client at a hearing — held as follows:
Levin asserts that he turned over responsibility for representing Simmons to his associate, Horkitz, and that Horkitz was responsible for the discovery abuse for which he is now being sanctioned. This argument is unavailing. As counsel of record, Levin owed a duty to his client fully to represent his interests, and he owed a duty to the court to comply with the court's orders. Although Levin may have delegated some of these duties to his associate, such a delegation — while it may provide a ground for sanctioning Horkitz — did not relieve Levin of his own duties. We find that the record fully supports the district court's determination that Simmons was an "advising" attorney and therefore hold that the district court did not abuse its discretion when it held Levin liable for sanctions. . . .
Stuart I. Levin & Assocs., P.A. v. Rogers, 156 F.3d 1135, 1141 (11th Cir.1998).
As discussed above, this Court may sanction a party or its attorney for violating the Local Rules of the United States District Court for the Southern District of Texas (the Local Rules) — which also apply to the Bankruptcy Courts in this District, see Bankruptcy Local Rule 1001(b) — even if such violation is not willful. Additionally, Appendix A of the Local Rules states that "the minimum standard of practice shall be the Texas Disciplinary Rules of Professional Conduct" (the Texas Disciplinary Rules) and that "[v]iolation of the Texas Disciplinary Rules of Professional Conduct shall be grounds for disciplinary action, but the court is not limited by that code." This Court believes that Roundup's conduct and the conduct of Gill, its counsel of record, with respect to this dispute violate provisions of the Local Rules and the Texas Disciplinary Rules and, therefore, warrant the imposition of sanctions in the form of paying the Debtor's attorney's fees.
Courts are vested with a large measure of discretion in applying and enforcing local rules. See McLeod, Alexander, Powel & Apffel, P.C. v. Quarles, 894 F.2d 1482, 1488 (5th Cir. 1990) ("We recognize that district courts have considerable latitude in applying their own rules."); Hernandez v. George, 793 F.2d 264, 266 (10th Cir.1986) (recognizing that "district courts have discretion in applying local rules" and that "[considerable deference is accorded to the district court's interpretation and application of their own rules of practice and procedure"); Silberstein v. IRS, 16 F.3d 858, 860 (8th Cir. 1994) ("[T]he district court has considerable leeway in the application of its local rules."). Indeed, the First Circuit has acknowledged that "[r]ules of procedure are vitally important in judges' efforts to manage burgeoning caseloads with some semblance of efficiency. Within wide limits, it is for courts, not litigants, to decide what rules are desirable and how rigorously to enforce them." Air Line Pilots Ass'n v. Precision Valley Aviation, Inc., 26 F.3d 220, 224 (1st Cir. 1994). Indeed, that same court determined that "[s]uch rules carry the force of law." Id. (citing 12 Charles A. Wright & Arthur R. Miller, Federal Practice & Procedure § 3153 (1973)).
Local Rule 11.2 provides that "[t]he attorney-in-charge . . . shall attend all court proceedings or send a fully informed attorney with authority to bind the client." (emphasis added). Additionally, Texas Disciplinary Rule 1.01 requires that an attorney provide competent and diligent representation to his or her clients. Texas Disciplinary Rule 1.01(a) provides that "[a] lawyer shall not accept or continue employment in a legal matter which the lawyer knows or should know is beyond the lawyer's competence." Comment 1 to this rule provides that "[c]ompetence is defined in Terminology as possession of the legal knowledge, skill, and training reasonably necessary for the representation. Competent representation contemplates appropriate application by the lawyer of that legal knowledge, skill and training, reasonable thoroughness in the study and analysis of the law and facts, and reasonable attentiveness to the responsibilities owed to the client." (emphasis added). Finally, Texas Disciplinary Rule 3.03 requires that attorneys exhibit candor when appearing or making written submissions to the court. Texas Disciplinary Rule 3.03(a)(4) provides that a lawyer shall not knowingly "fail to disclose to the tribunal authority in the controlling jurisdiction known to the lawyer to be directly adverse to the position of the client and not disclosed by opposing counsel." The comments to this rule provide that "[a] lawyer is not required to make a disinterested exposition of the law, but should recognize the existence of pertinent legal authorities. Furthermore, as stated in paragraph (a)(4), an advocate has a duty to disclose directly adverse authority in the controlling jurisdiction which has not been disclosed by the opposing party." (emphasis added).
This Court can think of no legal authority more pertinent to the dispute at bar than the published opinion it issued in Gilbreath and the opinion of District Judge Miller in Tran — two recent and highly pertinent opinions from this District on proof of claim objections and Bankruptcy Rule 3001. It is highly troubling that neither of these two opinions were discussed in Roundup's Response. Even more troubling — and particularly relevant to the "knowingly" requirement in Texas Disciplinary Rule 3.03 — is that nearly every other published opinion that discusses Bankruptcy Rule 3001 from nearly every circuit throughout the country is cited and discussed in Roundup's Response to the Objection. It is unfathomable to this Court that counsel for Roundup's legal research turned up opinions from the First, Second, Third, Fifth, Sixth, Seventh, Eighth, Ninth, Tenth, and Eleventh Circuits, including a highly recent unpublished opinion from the Bankruptcy Court for the Eastern District of Pennsylvania, but not the opinions from this Court or the District Court for the Southern District of Texas. As this Court stated on the record at the April 27,2009 hearing, these undisclosed cases (which, incidentally, are adverse to Roundup's position) are "conspicuous by their absence."
These omissions, when coupled with MacNaughton's paltry knowledge about Roundup's claims, the documents supporting them, and the chain of title with respect to the accounts purportedly held by Roundup, [Finding of Fact No. 12], violate the Local Rules and the Texas Disciplinary Rules, and are therefore grounds for sanctions against Roundup and its counsel of record. Gill, as the attorney-in-charge for Roundup, violated Local Rules by failing to send a "fully informed" attorney to the April 27, 2009 hearing. See Local Rule 11.2. The Debtor has expended considerable sums for his counsel to prepare and prosecute the Objections. These costs were incurred as a direct result of Roundup's failure to comply with Bankruptcy Rule 3001, its failure to review applicable case law from this District, and the failure of its attorney of record, Gill, to send a fully informed attorney to the April 27, 2009 hearing.
This Court concludes that Roundup and Gill should bear the Debtor's costs incurred in preparing and filing the Objections and appearing at the April 27, 2009 hearing. This Court further concludes that Smith's fee is reasonable compensation for the services he rendered in objecting to Roundup's proofs of claim and that Smith's $350.00 hourly rate is reasonable, given that Smith has practiced law for over twenty-five years and is board certified in consumer bankruptcy law.
IV. CONCLUSION
For the reasons set forth above and for the reasons stated on the record at the April 27,2009 hearing, this Court concludes that the Debtor's Objections should be sustained and that Claim 5 and Claim 6 should be disallowed. Roundup failed to comply with Bankruptcy Rule 3001 when filing Proofs of Claim 5 and 6, and the Debtor's Objections placed the burden on Roundup to introduce evidence to support its claims at the hearing. Because Roundup failed to introduce any exhibits or adduce any testimony, this Court must disallow Claim 5 and 6 pursuant to § 502(b). See In re Foreclosure Cases, 2007 WL 3232430, at *3 n. 3 (N.D.Ohio.2007) ("Unlike the focus of financial institutions, the federal courts must act as gatekeepers, assuring that only those who meet [certain requirements] are allowed to pass through."), In effect, Roundup wants this Court to disregard the rules of evidence and allow its claims. This, the Court will not do.
Additionally, Roundup's conduct — or the conduct of MacNaughton, which may properly be imputed to Gill, as Roundup's counsel of record — warrants the imposition of sanctions in the form of attorneys' fees. It is not one particular incident, but many compounded instances of misconduct that have led this Court to conclude that sanctions are appropriate. Roundup did not bother to attach the exhibits attached to its Response to its original proofs of claim; it neglected to review this Court's or the District Court's recently published opinions that were precisely on point with respect to the issues being addressed herein; it neglected to review this Court's Notice and Order before amending Proof of Claim 6; and it filed a Response to the Debtor's Objections that not only confuses the facts, but also ignores the applicable law in this District. Roundup's lack of competence and diligence is compounded by the fact that Gill, in violation of Local Rule 11.2, sent an attorney with virtually no knowledge of the Debtor's case or Roundup's file to the hearing on the Objections. This Court is very concerned with the conduct of Roundup and its counsel of record in this case and hopes that both exercise more care and diligence in the future in cases before this Court. The purpose of the sanctions issued against Roundup and Gill, its counsel of record, is to compensate the Debtor for the time his counsel spent preparing and filing written objections to two proofs of claim that clearly fail to comply with Bankruptcy Rule 3001 and for having to appear at the April 27,2009 hearing for which counsel for Roundup was grossly unprepared.
An order consistent with this Memorandum Opinion was entered on the docket on May 27, 2009. [Docket No. 63.]
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