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In re Anderson

UNITED STATES BANKRUPTCY COURT WESTERN DISTRICT OF NEW YORK
Mar 22, 2016
Case No. 14-10246 K (Bankr. W.D.N.Y. Mar. 22, 2016)

Opinion

Case No. 14-10246 K

03-22-2016

In re ANGELIQUE R. ANDERSON Debtor


NOT FOR PUBLICATION

OPINION AND ORDER AFTER EVIDENTIARY HEARING

The matter before the Court is whether and how to divide responsibility for accumulated civil coercive penalties as between the Debtor and her former counsel. It also involves the Debtor's request to reconvert to Chapter 13, after having been in Chapter 13 twice before in this one case. The Court will conclude that the amount at issue is $1700; that previous counsel shall disgorge $1100 in fees, but only to the Chapter 7 estate (not to the Debtor); and that the request to reconvert is restored to the calendar for further hearing.

Attorney-client privilege was waived once she put his conduct at issue. As to substitute counsel, no objections were raised at any point.

The procedural history of this case is as follows.

On February 4, 2014, the Debtor filed a Petition under chapter 13 of the Bankruptcy Code. (The meeting of creditors was scheduled to be held on March 24, 2014.) A day or two after the Petition was filed, the Debtor contacted her attorney, Mr. Lazroe, and told him to either convert her case to one under Chapter 7 of the Bankruptcy Code or return his $1100 fee to her so that she could hire another attorney to do so for her. He correctly thought conversion to be a bad idea for the Debtor, for reasons to be discussed below. But a motion to convert from Chapter 13 to Chapter 7 was filed by Mr. Lazroe on behalf of the Debtor on February 26, 2014 and an Order Converting the case to Chapter 7 was signed by this writer on February 28, 2014. The Debtor thus lost the privilege to withdraw the case without leave of Court.

Thomas J. Gaffney, Esq. was appointed as Chapter 7 Trustee and a meeting of creditors was scheduled to be held on April 8, 2014. The meeting of creditors was held, but was not concluded. It was continued to May 2, 2014. On April 15, 2014, the Chapter 7 Trustee filed a Motion for Turnover and to Extend Time to Object to Discharge. It was heard on May 7 and was granted without objection.

The resulting Order (signed on May 8) required the Debtor to turn over non-exempt cash of $20.00; provide bank statements for her First Niagara Bank account showing the balance on February 4, 2014 (the filing date) and the turnover of any non-exempt monies in the account; provide the Trustee with copies of her 2013 Federal and New York State income tax returns and turn over the non-exempt pro-rata share of refunds; and provide the Trustee with copies of searches, surveys, title insurance and copies of transfer documents and proof of consideration received for several income properties listed in her Statement of Financial Affairs as having been transferred in December 2012 to the Debtor's cousin, Talie Parker. (It was because of those transfers that Mr. Lazroe recommended against Chapter 7.)

On June 16, 2014, a Motion for sanctions for failure to comply with that prior order was filed by the Chapter 7 Trustee and was returnable on July 2, 2014. There was no appearance by the Debtor or her attorney and no opposition to the Motion. The Court found the Debtor in contempt of its order of May 8, 2014 and assessed as a contempt sanction a civil coercive penalty of $25.00 per day commencing ten days after entry of the order until full compliance with the Court's prior order. The Order was entered on July 8, 2014. A copy of the Order with Notice of Entry was mailed to the Debtor on July 10, 2014. Mr. Lazroe also was sent notice by electronic mail on July 10, 2014.

Before Rule 4004 became effective in the early 1980's, "Old Rule" 404 applied. Rule 404(c) stated "The court may for cause, on its own initiative or on application of any party in interest, extend the time for filing a complaint objecting to discharge." On that authority, the Court held back the entry of discharge until there was full compliance with any turnover order. Once Rule 4004 took effect, it had to turn to monetary dis-incentives for delay or non-compliance (and the possibility of a § 727 Complaint based on disobeying the turnover order (see In re Robert J. Swan and Dorothy A. Feathers-Swan, Case No. 08-11210K, A.P. No. 13-1027K (decision dated February 18, 2014)).
"Civil coercive penalty" is a term that this writer adopted 24 years ago in order to be clear that the contempt at issue was not criminal contempt, and that no "punishment" was intended, nor to be inferred.

On July 11, 2014, the Debtor's attorney filed a Motion to Re-Convert the case from Chapter 7 to Chapter 13, to be heard on September 8, 2014. The Motion to Re-Convert was granted and an Order Re-Converting the case to Chapter 13 was signed on September 9, 2014. Fifty-three days had passed, at $25/day. $1325.00 (if we count September 9).

A Motion to Convert the case back again to Chapter 7 for Failure to Prosecute was filed by Albert J. Mogavero, Chapter 13 Trustee, which was scheduled to be heard on October 27, 2014. Mr. Lazroe appeared and the Motion was adjourned to January 12, 2015, for reasons not known to the Court. The Debtor's § 341 meeting and confirmation hearing were adjourned to January 12, 2015 as well. After numerous adjournments, the Chapter 13 Trustee's Motion to Re-Convert to Chapter 7 was granted and the Order Re-Converting the case to Chapter 7 was signed on May 14, 2015. The case was again assigned to Chapter 7 Trustee Gaffney. On June 25, 2015, he filed another Motion to Compel and for an Extension of Time to file a § 727 Complaint. Mr. Lazroe filed a motion on June 30, 2015 to withdraw as attorney. Both motions were returnable on July 15, 2015. An order was signed on July 15, 2015 permitting Mr. Lazroe to withdraw as bankruptcy counsel. Also, an order directing the Debtor again to appear before the Chapter 7 Trustee was signed on July 22, 2015 and the remaining relief requested in the motion by the Chapter 7 Trustee was continued to a later date.

On August 11, 2015, Attorney Thomas Denny filed a Response to Trustee's June 25, 2015 Motion, alleging that the Debtor's failure to comply with the Order(s) compelling turnover was not willful, but rather resulted from the failure of Mr. Lazroe to communicate with her and that the Debtor had turned over the requested documents to Mr. Lazroe. Mr. Denny made those allegations by his own unsworn "Response."

It is offensive to the courts and to the taxpaying public which pays for the courts when lawyers turn their clients' unsworn tales into a lawyer's own statement, multiplying proceedings as addressed below.

On August 21, 2015, the Court signed a conditional order (apparently sought by Mr. Gaffney) that directed Debtor to move to convert her case back again to Chapter 13 by 5 p.m. on August 21, 2015. The Debtor complied.

Mr. Denny was instructed by the Court that Mr. Lazroe had to be brought in to the case as a "target." He filed a cross-motion on the Debtor's behalf against Mr. Lazroe, requesting disgorgement of $1100 in fees, reimbursement of sanctions, costs and attorney's fees. Mr. Denny attributed the Debtor's failure to comply with the Court's turnover order and sanctions to "ineffective legal representation" and numerous other insults against Mr. Lazroe. Again he put his own license to practice law at issue by turning what his client told him into his own representations as though he had personal knowledge. (If he had at least called Mr. Lazroe for his side of the story, he might have realized how important it was to get the Debtor's affidavit to support the cross-motion, instead of putting his own reputation behind his client's unsworn assertions. Maybe he might have sat his client down to confront her with Mr. Lazroe's proofs, and possibly settled the matter. (He also strangely asserted that Mr. Lazroe's malfeasances placed the Debtor at risk "of life and limb.")) The Court scheduled discovery, and set the matter for a hearing on January 19, 2016.

Again, putting one's attorney's advice, actions, etc. at issue waives privilege as to that attorney.

By that date, the $25/day civil coercive penalties had grown to over $7000, by the Trustee's reckoning. He had received from Mr. Denny the materials he originally sought and stated his willingness to "settle the case" for $5000 to be paid to the Chapter 7 estate. It was not so settled.

DISCUSSION

Critically, the Court will retroactively abate the daily sanctions while the case pended in Chapter 13, as will be discussed below. The amount in controversy is, thus, greatly reduced.

At the evidentiary hearing the Court heard the testimony of the Debtor and Mr. Lazroe. It is clear to the Court that to the extent that the Chapter 7 Trustee did not receive the materials to which he was entitled, the fault lies with the Debtor and not with Mr. Lazroe. The Court does not find credible the Debtor's testimony that she gave Mr. Lazroe the materials that the Trustee required. (That will be discussed in the final paragraphs of this Decision.)

Although this writer stated otherwise in open court on January 19, 2016, the issue is not "who is to blame for the fact that the Chapter 7 Trustee did not receive the materials that he was entitled to receive?" That was the fault of the Debtor, and it really wouldn't matter but for the passage of so much time. The question is "Who is responsible for the fact that the 'civil coercive penalties' of $25 per day got so high?"

It is clear from Mr. Lazroe's dozens of exhibits, attached to his Affidavit in Opposition to Debtor's Cross-Motion, that the Debtor became a difficult client immediately after the case was filed. She had insisted on immediate filing because her utilities otherwise would be shut off the following day. She wanted Chapter 7. Mr. Lazroe correctly chose to file her under Chapter 13 (and did so file her case) rather than Chapter 7 because she had recently transferred several parcels of real estate to her cousin's daughter. But she immediately challenged that decision after she received the benefit of the protection of this Court. (Maybe her filing bought some time to settle as to the utilities.) She insisted that the case be converted to Chapter 7 or that the $1100 she paid in fees to Mr. Lazroe be returned to her. Mr. Lazroe then should have moved for leave of Court to withdraw as counsel. What she directed him to do was adverse to her own interests.

If he had sought to withdraw as counsel when she insisted on conversion to Chapter 7, it is unlikely that this case ever would have been converted to Chapter 7, and unlikely that any Chapter 7 trustee would have become involved at all, and no daily penalties ever would have applied. Rather, either the Chapter 13 case would have been dismissed, or substitute counsel would have convinced the Debtor to propose a Chapter 13 plan that was feasible and confirmable just as Mr. Lazroe advised. (Chapter 7 would be the worst place to be for one who recently deeded several parcels of real estate to her cousin's daughter for nothing in return.)

Apparently, her cousin deeded the properties to her as he was about to serve a criminal sentence, and the Debtor re-deeded the properties to his daughter a few months later. But bankruptcy trustees are statutorily obliged to investigate the stream of rental income, any equity in the properties, etc.

Not only did he fail to seek to withdraw as soon as the Debtor insisted on conversion, he did not oppose Trustee Gaffney's Motion to hold the Debtor in contempt and to impose a civil coercive penalty. Mr. Lazroe testified here in January that he believed that he did not have to appear in opposition to that motion because he was preparing the motion to reconvert the case from Chapter 7 to Chapter 13. (Indeed the motion was filed just 9 days later.) And he believed that Mr. Gaffney's demands would be mooted when (if) the case was converted to Chapter 13. Again, Mr. Lazroe should have sought leave of the Court to withdraw as counsel in response to Mr. Gaffney's Motion to hold the Debtor in contempt and seeking to impose a $25 per day civil coercive penalty for each day that she did not comply with the earlier turnover order. (As the Court advised Mr. Lazroe in open court at the evidentiary hearing on January 19, 2016, it was a "leap of faith" for him to fail to appear on the Motion for Contempt on a supposition that the Chapter 7 Trustee's demands would become moot upon the reconversion to Chapter 13 that Mr. Lazroe reasonably anticipated. That was a mistake, but a harmless one because his supposition in that regard is confirmed below.)

It is clear to the Court that the degree to which the civil coercive penalties have accumulated is due, in part, to the failure of Mr. Lazroe to either control his client or to seek withdrawal as her counsel as soon as she refused to heed his advice and told him that she did not trust him. By no means is this Court suggesting that Mr. Lazroe did not properly advise his client. It appears from what has been submitted to the Court that he gave her good advice at every turn, and she fought it for reasons unknown to the Court, and she demanded (repeatedly) the return of the $1100 if he did not do what she directed him to do. But he should not have obeyed her commands past the point that he knew that obedience to those commands would inure to her detriment. If his supposition were to have been wrong, then the $25 per day would have accrued from approximately July 18, 2014, all the way through the months that he represented her in her second attempt at Chapter 13, all the weeks that he represented her after re-conversion to Chapter 7 until he withdrew as counsel by order dated July 15, 2015, and for all the months thereafter that she was either unrepresented or was represented by substitute counsel, right up to the day that Mr. Denny provided the materials. Even just 365 days at that rate would have been $9,125.

When a client will not heed counsel's advice, but counsel continues to do the client's bidding in a case such as this (in which there is no injury to others (so long as someone eventually pays the daily penalty)), it is hard for this writer to see even a "fee dispute" or a "grievance," let alone a claim of malpractice. (But this writer is not an expert as to such a matter.) When in practice a long time ago, this writer had some clients who wished to proceed against my advice. I fully documented the advice, the reasons for the advice, and the client's choice to go ahead anyway. The voluminous exhibits produced by Mr. Lazroe document the numerosity of his communications with the Debtor, but not the content of their in-person or telephonic communications. (See the final paragraphs of this Decision.)

After a very great deal of reflection, this writer has decided to abate the daily sanctions while the case was pending in Chapter 13, even though it ended-up back in Chapter 7 with creditors still being no further along in knowing whether they might see some recovery than they did at the time that Mr. Gaffney was investigating. The reason is this writer's view that "civil coercive penalty" in the Chapter 7 context reflects, in part, the burden upon the Chapter 7 Trustees of reporting about cases in which they serve, and the burden of pressing ahead with fiduciary responsibility, possibly even without remuneration.

Once this case converted from Chapter 7 to Chapter 13 with Court approval, there were consequences relieving Mr. Gaffney of such burdens. (Again, the case was filed under Chapter 13 and then converted to Chapter 7. The reconversion required the approval of the Court.) He was relieved of duty to creditors and the Chapter 13 Trustee took over. The duty of the Debtor to Mr. Gaffney ended so long as his claims on behalf of the Chapter 7 estate would be promised to be paid by the Debtor in her Chapter 13 case, including any "Chapter 7 test" obligations regarding the real estate transfers, etc.

Mr. Gaffney was not again burdened (and the Chapter 7 estate was not again placed at risk of further attorney's fees to Mr. Gaffney) until the case reconverted to Chapter 7.

CONCLUSION

Because any possibility of a claim of "malpractice" is not before this Court, and the request for "sanctions" against Mr. Lazroe comes only in an unfortunate claim by Mr. Denny on his own "say so," the Court rules as follows. Under 11 U.S.C. § 329, Mr. Lazroe is ordered to turn his $1100 fee over to the Chapter 7 Trustee in partial satisfaction of the penalties owed by the Debtor to the Chapter 7 Estate. (This is not a "sanction" or a "disciplinary matter.") Rather his reluctance to reject the Debtor as a client increased her financial exposure, and retention of the fee would be "unreasonable."

Because his actions are not sanctionable, the Court has no authority to shift to him any other portion of the amount to which the Chapter 7 estate is entitled.

If the Court were to have concluded that he did receive the relevant materials from the Debtor, and failed to provide those to the Trustee, and now is falsely denying same, sanctions would be awarded. But the Court rejects the Debtor's testimony and arguments to that effect, as discussed below. --------

Finally, the Court explains its disbelief of Ms. Anderson's testimony. There is an axiom in the law. In Latin it is "falsus in uno, falsus in omnibus." In plain English, it means that if the Court believes that a witness is not truthful as to any one thing, the Court may conclude that nothing the witness says is truthful. The Debtor has made a demonstrably false statement to the Court. When she was on the witness stand, the Court read to her, her current counsel's representation (in the Cross-Motion against Mr. Lazroe) that "from July 11, 2014 forward [Lazroe] failed to communicate with the Debtor." The Court asked her whether that is what she told current counsel, as follows: Judge Kaplan: Q: Did you tell Mr. Denny that Mr. Lazroe would not communicate with you after July 2014? A. Anderson: A: After July of 2014? Judge Kaplan: Q: No, did you tell Mr. Denny that . . . A. Anderson: A: I do feel like he failed to communicate with me, yes (repeated again) (some questions - statements in between?) then . . . Judge Kaplan: Q: What did you tell Mr. Denny . . . Paragraph 7 - Is that what you told him . . . A. Anderson: A: Mr. Denny is correct, yes. Yes, cause he failed to communicate with me. Judge Kaplan: Q: Now you said he did from time to time more in person than by e-mail during, after July (whatever date) 2014? A. Anderson: A: I don't feel like he did.

Appended to this Decision are print-outs of e-mails (submitted by Mr. Lazroe) memorializing many communications between the Debtor and Mr. Lazroe after July, 2014, plus a "snail mail" letter. Although they were not offered into evidence, there was no objection to the consideration of them by the Court. They disprove her testimony.

The Court is not implying that Ms. Anderson consciously lied under oath. Rather, it appears to the Court that she had made an unequivocal statement to Mr. Denny that she knew was not objectively true, and he made that allegation against Mr. Lazroe above his own signature. It was her "feeling" or opinion as to the degree to which Mr. Lazroe communicated with her in what she thought to be an effective way. Given her employment history (as per Schedule I), it seems that Ms. Anderson is a very capable customer service representative at a well-regarded company. Here, on the stand, her answers were imprecise even as to the questions asked by her own counsel. Consider this exchange between Mr. Denny and the Debtor. Mr. Denny: Q: Miss Anderson, you told me that when you first filed, Mr. Lazroe asked for a copy of your tax returns. Did you provide that to him? Debtor : A: Mr. Lazroe has all the information that he's ever asked me for, yes. Mr. Denny: Q: So when he asked you for documents regarding property you turned those over to him? Debtor: A: Yes Mr. Denny: Q: Also bank statements, did you turn those over to him? Debtor: A: Yes.

Then Debtor provided a lengthy answer in response to Denny's question as to when she turned them over, in which she ended with Debtor: A: Mr. Lazroe has all of the information that I, that he's ever requested. Mr. Denny: Q: The documents also? Debtor: A. Yes. Mr. Denny: Q: All of the documents? Debtor: A: Yes, all of the deeds. (Some responses in between this answer and next question.) Mr. Denny: Q: . . . the documents that are - that you are being sanctioned for not producing? Debtor: A: Yes. Bank statements which he had, all the property information which he had and my tax information, yes.

It seemed to the Court that the Debtor was impatient with the questioning by her own current counsel.

It seems likely that the Debtor dropped off various things at Mr. Lazroe's office from time to time. (Their offices are across the street from one another.) But when one examines all of the e-mails, etc. provided by Mr. Lazroe (including the ones before and during July, 2014) he had not received everything that he needed to put together for turnover to Mr. Gaffney.

At the evidentiary hearing, the Court flatly asked Mr. Lazroe: Judge Kaplan: A: You stated and I want to make sure that you meant to state that you never received the documents that she claims she sent to you. Mr. Lazroe: A: No. Judge Kaplan: Q: Is that your testimony? Mr. Lazroe: A: Yes Mr. Lazroe has practiced extensively here for several years and has been forthright with this Court, so far.

The Court concludes that it more likely than not that Mr. Lazroe is telling the truth and Ms. Anderson qualifies her testimony with such words as "I don't feel like he did," or "I do feel like he failed to communicate with me," as if her "feelings" justify serious, unequivocal allegations.

My Honored predecessor on this Bench - - the late Hon. John Creahan - - would have pronounced this case to be a "cobbed-up mess" created as much by the lawyers as by the Debtor. Disgorgement is appropriate, and the disgorgement of the $1100 fee will leave approximately $600 for the Debtor to pay to her Chapter 7 estate.

It is not clear whether Trustee Gaffney's settlement offer of $5,000 implicated some elements of § 541 "value" (rather than "sanctions" value) of which the Court is unaware. (For example, he might have seen recoverable value in the transferred properties, etc.) Consequently, the $25/day civil coercive penalties are now computed to total $1700. Mr. Lazroe's disgorgement of his $1100 fee to the Chapter 7 estate will be a final resolution of his involvement in this case. The Debtor and/or others must pay the other $600.

Her motion to reconvert to Chapter 13 is restored to the Calendar for April 25 , 2016 at noon to hear the Trustee and the Debtor as to whether her case should proceed in Chapter 7 or Chapter 13. (The only reason that Ms. Anderson cannot simply walk away from this case by payment of that $600 is that she would not and did not heed Mr. Lazroe's advice to keep the case in Chapter 13.)

SO ORDERED. Dated: Buffalo, New York

March 22, 2016

s/ Michael J. Kaplan

U.S.B.J.

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Summaries of

In re Anderson

UNITED STATES BANKRUPTCY COURT WESTERN DISTRICT OF NEW YORK
Mar 22, 2016
Case No. 14-10246 K (Bankr. W.D.N.Y. Mar. 22, 2016)
Case details for

In re Anderson

Case Details

Full title:In re ANGELIQUE R. ANDERSON Debtor

Court:UNITED STATES BANKRUPTCY COURT WESTERN DISTRICT OF NEW YORK

Date published: Mar 22, 2016

Citations

Case No. 14-10246 K (Bankr. W.D.N.Y. Mar. 22, 2016)