Justia Legal Ethics Opinion Summaries

Fireman’s Fund issued insurance covering property damage at Stephens's warehouse. Three days after the policy became effective, Stephens discovered that burglars stripped the property of all electrical and conductive material. Stephens filed an insurance coverage suit, retaining attorney O’Reilly who had a first lien to assure payment of fees. The trial court entered judgment NOV, awarding Stephens nothing. O’Reilly withdrew from the case and was the subject of an involuntary bankruptcy petition. Following a remand, Stephens and Fund settled for $5.8 million. The bankruptcy estate claimed 40% of the settlement. Danko, the largest creditor, bought the claim and obtained the Stephens's files from the trustee. Based on O’Reilly’s failure to sign the retainer agreement, Stephens sent Danko a letter voiding the retainer agreement and sought declaratory relief. The court ordered Danko to return Stephens’s client file and granted a special motion to strike (anti-SLAPP) a claim for breach of trust against Fund based on the theory that Fund breached a fiduciary duty to O’Reilly and/or the bankruptcy estate by failing to advise the bankruptcy court of the Stephens-Fund settlement and “secretly disbursing” the proceeds and a claim for interference with prospective business advantage against Fund based on the same acts. The court of appeal affirmed the trial court’s denial of Stephens’s motion to disqualify the Danko from representing the corporate entity to which Danko assigned the claim; a protective discovery order regarding Stephens’s client file; and the anti-SLAPP order. View "O&C Creditors Group, LLC v. Stephens & Stephens XII, LLC" on Justia Law

The Second Circuit affirmed the district court's orders affirming the bankruptcy court's award of monetary sanctions pursuant to its inherent power. Appellant filed a Chapter 7 petition in bankruptcy court for his client but ultimately failed to prosecute the case. The bankruptcy court then issued multiple orders to show cause, which appellant failed to comply with, and then the bankruptcy court ultimately sanctioned him.The court held, as a matter of first impression, that bankruptcy courts possess inherent power to sanction attorneys in appropriate circumstances. In this case, appellant's challenges to the bankruptcy court's exercise of that power failed for the reasons set forth in a separately-filed summary order. View "In re: Alba Sanchez" on Justia Law

Brooks, Debtor's CEO, was charged with financial crimes. In class action and derivative lawsuits, Debtor proposed a global settlement that indemnified Brooks for liability under the Sarbanes Oxley Act (SOX), 15 U.S.C. 7243. Cohen, Debtor’s former General Counsel and a shareholder, claimed that the indemnification was unlawful. The district court approved the settlement, Cohen, represented by CLM, appealed. The Second Circuit vacated, noting that the EDNY would determine CLM’s attorneys’ fees award. Debtor initiated Chapter 11 bankruptcy proceedings. The Bankruptcy Court confirmed Debtor’s liquidation plan, with a trustee to pursue Debtor’s interest in recouping its losses from the ongoing actions.Brooks died in prison. Because his appeal had not concluded, some of his convictions and restitution obligations were abated. Stakeholders negotiated a second global settlement agreement, under which $142 million of Brooks’ restrained assets were to be distributed to his victims; $70 million has been remitted to Debtor. The Bankruptcy Court awarded CLM fees for the SOX 304 claim; the amount would be determined if Debtor received any funds on account of the claim. CLM’s Fee Appeal remains pending at the district court.CLM requested a $25 million reserve for payment of its fees. The Bankruptcy Court ordered Debtor to set aside $5 million. CLM’s Fee Reserve Appeal remains pending. CLM then moved, unsuccessfully, for a stay of Second Settlement Agreement distributions. In its Stay Denial Appeal, CLM’s motion requesting a stay of distributions was denied. The Third Circuit affirmed. The $5 million reserve is sufficient. A $5 million attorneys’ fees award for 1,502.2 hours of legal work totaling $549,472.61 of documented fees would yield an hourly rate of $3,328.45 and a lodestar multiplier of over nine. In common fund cases where attorneys’ fees are calculated using the lodestar method, multiples from one to four are the norm. View "SS Body Armor I, Inc. v. Carter Ledyard & Milburn, LLP" on Justia Law

This dispute between the bankruptcy court and Chapter 13 debtor's attorneys involved no-money-down business models where the debtor's attorney agrees to advance the costs of filing fees, credit counseling course fees, and credit report fees on behalf of the debtor. The bankruptcy court concluded that these fees were non-reimbursable under the district's no-look fee order and that counsel could never be reimbursed by statute.The Fifth Circuit held that debtor's counsel in this case was not entitled to additional reimbursement for advancing the costs of the filing fees, credit counseling fees, and credit report fees as administrative expenses necessary for preserving the estate under 11 U.S.C. 503(b)(1). However, 11 U.S.C. 503(b) and 330 provide bankruptcy courts with the discretion to compensate debtor's counsel for advancing the costs of filing fees, credit counseling fees, and credit report fees if they choose to do so. Therefore, the court held that the bankruptcy court did not err in interpreting its own standing order on no-look fee compensation, but that it did err in its conclusion that bankruptcy courts lack the discretion to ever award reimbursement of those fees. Accordingly, the court affirmed in part and vacated in part. View "McBride v. Riley" on Justia Law

The Debtors filed their bankruptcy petition in 2008. Grusin provided them legal advice before the filing and at the beginning of the bankruptcy case. Fullen filed the petition and represented them in the chapter 7 case. In 2011, the bankruptcy court granted the Trustee summary judgment in an adversary proceeding seeking to deny the Debtors’ discharge and disqualified both lawyers from further representation of the Debtors in that case. The Debtors hired new counsel, who obtained relief from the summary judgment order. Following a trial, in 2015, the bankruptcy court again denied the Debtors’ discharge. The Bankruptcy Appellate Panel affirmed. In 2012, the bankruptcy court granted CJV derivative standing to pursue a malpractice action on behalf of the estate against Grusin and Fullen. Malpractice complaints were filed in the bankruptcy court and in Tennessee state court. In 2014, CJV filed another adversary proceeding, seeking declaratory relief that the malpractice claims constituted property of Debtors’ estate. The Bankruptcy Appellate Panel affirmed the bankruptcy court in holding that the malpractice action for denial of debtors’ discharges based on errors and omissions contained in a bankruptcy petition, as well as pre and post-petition legal advice, was not property of the debtors’ bankruptcy estate. There was no pre-petition injury; the Debtors were injured by that negligence when their discharges in bankruptcy were denied. View "In re Blasingame" on Justia Law

HSBC obtained a foreclosure judgment against the Lisses. To extend the time for appeal of that judgment, attorney Nora filed two bankruptcy petitions and multiple appeals, accusing HSBC and its attorney of federal crimes and seeking sanctions. The district court ultimately ordered Nora and her client to pay damages and costs related to the bankruptcy litigation and suspended her from the practice of law in the Western District of Wisconsin. The Seventh Circuit affirmed, noting that this was not Nora’s first encounter with attorney discipline. Nora’s attempt to relitigate HSBC’s foreclosure judgment in bankruptcy court was frivolous; her stall tactics were “blatant.” Such litigation behavior—even assuming pure motives—constitutes objective bad faith warranting sanctions under 28 U.S.C. 1927. The court noted “her serial dilatory, vexatious, and unprofessional litigation practices” and frivolous motion practice and legal arguments in her appeals. Flippant, unfounded accusations of misconduct and fraud by opposing counsel and court officials demean the profession and impair the orderly operation of the judicial system. View "Nora v. HSBC Bank USA, N.A." on Justia Law

Attorney Boland was an expert witness and defense counsel in child pornography cases. To demonstrate that pornographic images may be altered to appear that minors were engaged in sexual conduct when they were not, Boland purchased innocent stock images of minors and "morphed" them into pornographic images for use in criminal proceedings. The issue of whether Boland committed a crime in creating and displaying these images of child pornography was raised and Boland eventually voluntarily entered into a Pretrial Diversion Agreement, explaining and apologizing for creating the images. Two of the minors, depicted in the images Boland created, won awards under 18 U.S.C. 2252A(f), which provides civil damages for victims of child pornography. Boland filed a Chapter 7 bankruptcy petition; the minors filed an unsuccessful adversary proceeding, asserting their awards were non-dischargeable debts for willful and malicious injury under 11 U.S.C. 523(a)(6).The Sixth Circuit Bankruptcy Appellate Panel remanded. Collateral estoppel did not apply on the issue of whether Boland intended to injure the minors since intent was not actually litigated or necessary to the outcome of the prior litigation, but stipulations made through Boland's Diversion Agreement and judicial decisions concerning his liability to the minors established that Boland knowingly created and possessed pornographic images involving images of real children. The bankruptcy court did not consider the legal injury suffered by the minors as a result of the invasion of their privacy and reputational interests. Boland acted without justification, maliciously injuring the minors under 11 U.S.C. 523(a)(6). View "In re Boland" on Justia Law

The Ninth Circuit reversed the district court's denial of debtors' motion under 11 U.S.C. 362(k) for attorneys' fees incurred on appeal in successfully challenging the bankruptcy court's award of attorneys' fees to debtors for a willful violation of an automatic stay. The panel held that section 362(k) also authorizes attorneys' fees and costs to the debtor incurred on appeal in successfully challenging an initial award made pursuant to section 362(k).The panel also held that the district court abused its discretion by denying the motion on the alternative ground that debtors failed to comply with a local rule. In this case, the memorandum of points and authorities filed with the district court sufficiently clarified the attorneys' fees and costs. The panel remanded for further proceedings. View "Easley v. Collection Service of Nevada" on Justia Law

NOV purchased industrial-strength "desert-proof" air conditioners from Technicool for use on specialty oil-and-gas rigs, for more than $3 million. After multiple units failed, NOV, represented by SBPC, sued Technicool in Texas state court. Technicool filed for Chapter 7 bankruptcy. NOV sought relief from the automatic stay and was allowed to join Technicool’s owner, Furlough, to its state suit. NOV, again represented by SBPC, filed a claim in the bankruptcy case, representing 93 percent of the total claims. After learning that Furlough had formed other companies, the Trustee sought to consolidate the businesses and pierce the corporate veil and to employ SBPC as special counsel under 11 U.S.C. 327(a). Furlough objected, arguing that SBPC’s representation of NOV was a disqualifying “interest adverse to the estate.” In an engagement letter, signed by SBPC, NOV agreed to transfer to the bankruptcy estate funds it recovered from Furlough in state court. The bankruptcy court, district court, and Fifth Circuit held that Furlough lacked standing to object. Furlough cannot show that he was “directly and adversely affected pecuniarily by the order of the bankruptcy court.” SBPC’s appointment does not directly affect whether the bankruptcy court approves NOV’s claim. Under section 327(c), “a person is not disqualified for employment . . . solely because of such person’s employment by or representation of a creditor, unless there is objection by another creditor or the United States trustee, [and] an actual conflict of interest.” View "Furlough v. Cage" on Justia Law

NPC’s adversary proceeding against the Chapter 7 Trustee and his surety alleged that the trustee breached his fiduciary duties with respect to one of the Debtor’s assets, a former Benton Harbor manufacturing facility. NPC’s attorney (Demorest) served five non-parties with subpoenas duces tecum under Federal Rule of Civil Procedure 45. The ensuing discovery dispute, including several motions, hearings, and orders, resulted in an award of attorney fees and costs to the non-parties, $104,770.00 to one group and $61,417.50 to another. After a subsequent finding of civil contempt for failure to pay, payment was made and the bankruptcy court ordered payment of an additional $4,725.00 in attorney fees and costs incurred in connection with the contempt proceedings. The district court and Sixth Circuit affirmed. The bankruptcy court specifically found, after a case-specific inquiry, that the subpoenas issued to the non-parties were unduly burdensome, given the undisputedly broad scope of the requests and the temporal reach of the requests. As an experienced commercial litigator, Demorest would have known that complying with such subpoenas would involve considerable time and resources, implicate significant concerns about customer privacy, and require review for privileged communications and attorney work product. The bankruptcy court did not abuse its discretion in finding that sanctions were warranted. View "New Products Corp. v. Dickinson Wright PLLC" on Justia Law