Virginia Obasi

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
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In re:
Chapter 13
VIRGINIA OBASI,
Case No. 10-10494 (SHL)
Debtor.
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MEMORANDUM OPINION AND ORDER
A P P E A R A N C E S:
OFFICE OF THE UNITED STATES TRUSTEE
Tracy Hope Davis, United States Trustee for Region 2
33 Whitehall Street
21st Floor
New York, New York 10004
By: 	Greg M. Zipes, Esq.
WILLKIE FARR & GALLAGHER LLP
Counsel to Brice, Vander Linden & Wernick, P.C. and Lawrence J. Buckley
787 Seventh Avenue
New York, New York 10019
By: 	Alan J. Lipkin, Esq.
Jared R. Jamesson, Esq.
SHAEV & FLEISCHMAN, LLP
Counsel to the Debtor
350 Fifth Avenue
Suite 7210
New York, New York 10118
By: 	David B. Shaev, Esq.
SEAN H. LANE
UNITED STATES BANKRUPTCY JUDGE
Before the Court is an order to show cause brought on motion of the United States
Trustee (the “UST”) as to why the law firm of Brice, Vander, Linden & Wernick, P.C. (the
“Brice Firm”) and Lawrence J. Buckley (“Buckley”), an attorney with the firm, should not be
held in civil contempt or, alternatively, subject to sanctions. The principal issue before the
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Court is Buckley’s failure to review a proof of claim in this case before it was submitted to
the Court with Buckley’s electronic signature. The Court finds that the practice of Buckely,
and the Brice Firm, of submitting proofs of claim without review by the signing attorney is a
clear violation of Bankruptcy Rule 9011, the bankruptcy equivalent of Rule 11 of the Federal
Rules of Civil Procedure. While the Court finds that this practice violates Bankruptcy Rule
9011, it denies the UST’s request for civil contempt and sanctions because the UST’s motion
was not first served upon Buckley and the Brice Firm as required by the safe harbor
provision of Bankruptcy Rule 9011.
BACKGROUND
On January 29, 2010, Virginia Obasi (the “Debtor”) filed a petition for relief under
Chapter 13 of the Bankruptcy Code. The Debtor’s schedules of assets and liabilities included
her interest in a two-family house located at 1255 Harrod Avenue, Bronx, New York (the
“Property”). (ECF Doc. # 1.) On February 5, 2010, a proof of claim (the “Claim”)1 was
electronically filed in the Debtor’s case on behalf of Deutsche Bank National Trust
Company, as Trustee for the Certificateholders of Soundview Home Loan Trust 2005-OPT3,
Asset-Backed Certificates, Series 2005-OPT3 (“Deutsche Bank”). The Claim was filed
using the electronic case filing login and password of Buckley. It was signed electronically
in Buckley’s name using the “/s/” signifier, with Buckley identified as the “Creditor’s
Authorized Agent.” (Zipes Decl. Ex. A.) Attached to the Claim was a note and mortgage
held by Option One Mortgage Corporation (“Option One”) on the Property. (Id.)2 The
Claim did not include an assignment of mortgage from Option One to Deutsche Bank, or any
1 The Clam is designated on the Debtor’s claims register as Claim No. 2. A copy of the Claim is
attached as Exhibit A to the Declaration of Greg M. Zipes, dated August 26, 2011 (ECF Doc. # 58)
(the “Zipes Declaration”). The Claim was amended on October 13, 2011.
2 Beneficial Homeowner Service Corporation appears to hold a second mortgage on the Property in the
amount of $47,925.02.
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other document explaining the basis for Deutsche Bank to seek payment based upon the
mortgage between the Debtor and Option One. Exhibit A to the Claim was an itemization of
amounts asserted to be due and owing by the Debtor, including attorney’s fees and costs.
(Id.)
On May 10, 2010, the Debtor objected to the Claim on the grounds that Deutsche
Bank lacked standing to file a proof of claim against the Debtor. (ECF Doc. # 13.) The
Debtor argued that the Claim failed to demonstrate a complete chain of title for the Property
from Option One to Deutsche Bank. Due to an alleged discrepancy in the request for
attorney’s fees, the Debtor’s objection also asked for an accounting of all charges related to
the Claim. The UST filed a statement in support of the Debtor’s objection. (ECF Doc. # 23.)
On June 30, 2010, counsel to Deutsche Bank filed a response to the objection. It explained
that Buckley was an employee of American Home Mortgage Services, Inc. (“AHMSI”),3 that
he had prepared the Claim, and that AHMSI was authorized to execute the Claim on behalf
of Deutsche Bank. (ECF Doc. # 18, at 4.)
In connection with the objection, Buckley was deposed and provided information
regarding the preparation of the Claim. Buckley testified that, in addition to practicing law
with the Brice Firm and being employed by AHMSI, he was also a part-owner and vice-
president of National Bankruptcy Services (“NBS”), which provided paralegal and other
support services to the Brice Firm. (Zipes Decl. Ex. B, Buckley Dep. Tr., 13:25 – 14:2, Mar.
7, 2011.) The internal procedures at the Brice Firm provided that NBS prepared proofs of
claim, which were then submitted to the firm for review by an attorney at or near the time of
filing. (Id. at 38:20 – 40:3.) Buckley further testified that he did not physically sign the
3 AHMSI is the current servicer of the mortgage loan. (Decl. of Lawrence J. Buckley, Sept. 26, 2011,
¶ 8.)
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Claim, and he did not see the Claim before it was filed with his electronic signature. (Id. at
28:24 – 30:4.) Rather, an attorney at the firm named Craig Edelman (“Edelman”) reviewed
the Claim. (Second Decl. of Lawrence J. Buckley, October 5, 2011, ¶ 6.) Edelman was
under the general supervision of Buckley, and had been trained by Buckley to review proofs
of claim through the use of an internal checklist. (Decl. of Lawrence J. Buckley, Sept. 26,
2011, ¶ 16.) Based on pre-authorization from Buckley, Edelman directed that the Claim be
filed using Buckley’s ECF login and password. (Id. at ¶ 17.) Edelman used Buckley’s ECF
login and password presumably because Buckley was the only attorney at the firm who had
such a login and password for this Court. (See Zipes Decl. Ex. B, Buckley Dep. Tr., 108:6 –
18, Mar. 7, 2011.)
After the order to show cause was issued in this case, Buckley and the Brice Firm
further explained the procedures that had been followed in preparing the Claim and
presumably all mortgage claims they have filed in this district:
 	Obtain and review copies of the Note, Mortgage, and related
AHMSI and Deutsche Bank business records.
 	Compare the Note and Mortgage with the Debtor’s Chapter 13
Petition and Schedules both to confirm the Debtor was the obligor
on the Note and to check related information.
 	Confirm that AHMSI’s business records reflected it was the
servicer for the current holder of the Note and Mortgage.
 	Confirm that the Mortgage was perfected.
 	Review 	AHMSI’s 	business 	records 	to 	calculate 	the 	Debtor’s
liability for principal, interest, and other amounts due under the
Note as of the Debtor’s petition date, including reviewing invoices
for services performed in connection with AHMSI’s efforts to
foreclose on the Mortgage.
 	Redact 	personal 	identifiers 	of 	the 	Debtor 	as 	required 	by
Bankruptcy Rule 9037.
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 	Compare the proof of claim with the Note, Mortgage, and related
attorney invoices.
(Memo. of Law ¶ 13.)4 While these steps are described as having been taken by the Brice
Firm, a footnote in respondents’ briefing acknowledges that “assistance” was provided by
NBS pursuant to an agreement with the Firm to provide “certain back office services.” (Id. at
n. 7.) Indeed, Buckley testified that the firm’s internal procedures provided for NBS to
prepare the proofs of claim, which were then submitted to the firm for review by an attorney
at or near the time of filing. (Zipes Decl. Ex. B, Buckley Dep. Tr., 38:20 – 40:3, Mar. 7,
2011.) It appears, therefore, that the steps identified above were performed by paralegals and
support staff, before the Claim was reviewed by Edelman and submitted using Buckley’s
ECF login and password.
The UST argues that the procedures utilized by Buckley and his firm violate this
Court’s requirements for the filing and signing of documents submitted by electronic means
on the Court’s electronic filing system, as set forth in M-242. The UST also asserts that they
violate Bankruptcy Rule 9011 and Local Bankruptcy Rule 9011-1. The UST seeks to have
the respondents held in civil contempt or, in the alternative, subject to sanctions under
Section 105 of the Bankruptcy Code. Buckley and the Brice Firm assert that the UST
misinterprets the requirements of M-242, that their activities are not sanctionable, and that
neither civil contempt nor sanctions may be imposed because there was no compliance with
the safe harbor provision of Bankruptcy Rule 9011.
4 The respondents cite to certain portions of Buckley’s deposition transcript to support the assertion
that these steps were taken in preparing the Claim. As the pages of the deposition transcript cited by
the respondents were not provided to the Court, however, the Court relies instead on the information
contained in the publicly filed pleadings, including the Buckley Declarations.
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DISCUSSION
Under Bankruptcy Rule 5005, “[a] court may by local rule permit or require
documents to be filed, signed, or verified by electronic means . . . .” Fed. R. Bankr. P.
5005(a)(2). During the relevant period at issue, Bankruptcy Rule 5005 was implemented
through M-242, which provides for the electronic filing, signing and verification of
documents in this Court.5 Under M-242, pleadings filed in accordance with the electronic
filing procedures must “identify the initials and last four digits of the social security number
of the attorney signing such pleading or other document. Additionally, the electronically
filed document shall indicate an ‘electronic signature,’ e.g., ‘s/Jane Doe’.” (M-242, Ex. 1, p.
6.) M-242 further requires that “[n]o attorney or other person shall knowingly permit or
cause to permit the attorney’s password to be utilized by anyone other than an authorized
member or employee of the attorney’s law firm.” (M-242, ¶ 3.) Notably, M-242 explicitly
incorporates Bankruptcy Rule 9011 by stating that “the use of an attorney’s password to file
a document electronically shall constitute the signature of that attorney for purposes of FRBP
9011 and LRBP 9011-1.” (Id., ¶ 4.)
While the parties have debated whether the conduct at issue violates the rules
regarding the electronic filing of documents, the Court believes the real issue concerns an
attorney’s obligations when submitting documents to the Court. Those obligations are
governed by Bankruptcy Rule 9011. That Rule provides that an attorney presenting a
5 The Court’s current administrative order regarding the electronic filing, signing and verification of
documents is M-399. However, the relevant order for purposes of this discussion is M-242, which was
in effect at the time the Claim was filed. See Schwartz v. Kujawa (In re Kujawa), 256 B.R. 598, 614
(B.A.P. 8th Cir. 2000), rev’d in part on other grounds, 270 F.3d 578 (8th Cir. 2001) (“[An attorney’s]
conduct is to be reviewed under the standards applicable when his conduct took place.”) (citing Retired
Chicago Police Ass’n v. Firemen’s Annuity & Benefit Fund, 145 F.3d 929, 933 (7th Cir. 1998);
Runfola & Assocs. Inc. v. Spectrum Reporting II, Inc., 88 F.3d 368, 373 (6th Cir. 1996)). As M-399
does not contain any material revisions from M-242 regarding electronic filing, the results of this
decision would be the same under either order.
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document to the Court is personally responsible for reviewing the document for a variety of
reasons going to the good faith basis for and accuracy of the document’s contents. The Rule
provides:
By presenting to the court (whether by signing, filing, submitting, or later
advocating) a petition, pleading, written motion, or other paper, an
attorney . . . is certifying that to the best of the person's knowledge,
information, and belief, formed after an inquiry reasonable under the
circumstances,--
(1) it is not being presented for any improper purpose, such as to harass
or to cause unnecessary delay or needless increase in the cost of litigation;
(2) 	the 	claims, 	defenses, 	and 	other 	legal 	contentions 	therein 	are
warranted by existing law or by a nonfrivolous argument for the extension,
modification, or reversal of existing law or the establishment of new law;
(3) the allegations and other factual contentions have evidentiary support
or, if specifically so identified, are likely to have evidentiary support after
a reasonable opportunity for further investigation or discovery; and
(4) the denials of factual contentions are warranted on the evidence or, if
specifically so identified, are reasonably based on a lack of information or
belief.
Fed. R. Bankr. P. 9011(b)(3) (emphasis added). By its provisions, Bankruptcy Rule 9011
places “an affirmative duty on attorneys and litigants to make a reasonable investigation
(under the circumstances) of the facts and the law before signing and submitting any petition,
pleading, motion or other paper.’” 10 Collier on Bankruptcy ¶ 9011.04[2][a] at 9011-7.
Bankruptcy Rule 9011 allows the imposition of “appropriate sanctions upon the
attorneys, law firms, or parties that have violated [Bankruptcy Rule 9011(b)] or are
responsible for the violation. . . . Absent exceptional circumstances, a law firm shall be held
jointly responsible for violations committed by its partners, associates, and employees.” Fed.
R. Bankr. P. 9011(c). The authority to impose sanctions “extends to out-of-state partners of
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multi-state firms.” In re Ulmer, 363 B.R. 777, 782 (Bankr. D.S.C. 2007) (citing In re Rivera,
342 B.R. 435, 465-66 (Bankr. D.N.J. 2006)).
Respondents raise four arguments in support of their position that their conduct did
not violate Bankruptcy Rule 9011. The Court rejects these arguments as flatly inconsistent
with the language and spirit of the Rule.
First, they contend that Bankruptcy Rule 9011’s requirement of reasonable inquiry
was satisfied by the procedures employed by the firm before filing the Claim. But their
argument ignores the personal nature of an attorney’s obligations under Bankruptcy Rule
9011. As the Advisory Committee Notes to the Rule make abundantly clear, “[t]he person
signing, filing, submitting, or advocating a document has a nondelegable responsibility to the
court . . . .” Fed. R. Civ. P. 11 advisory committee’s note (emphasis added). The statutory
history of Rule 11 of the Federal Rules of Civil Procedure6 also clearly supports the notion
that a party whose signature appears on a document must personally review such document
prior to filing. Rule 11 was amended in 1993 to delete language stating that “[t]he signature
of an attorney . . . constitutes a certificate that the attorney . . . has read the document.” Fed.
R. Civ. P. 11 (amended 1993). The Advisory Committee Notes associated with the
amendment observe that this language was deleted only because such an obligation was clear
even without the language:
The provision in the former rule that signing a paper constitutes a
certificate that it has been read by the signer also has been eliminated
as 	unnecessary. 	The 	obligations 	imposed 	under 	subdivision 	(b)
obviously require that a pleading, written motion, or other paper be
read before it is filed or submitted to the court.
6 The Second Circuit has stated that Rule 9011 “parallels Federal Rule of Civil Procedure 11,
containing only such modifications as are appropriate in bankruptcy matters. . . . Accordingly, our
review of the lower courts’ application of Rule 9011 is informed by Rule 11 jurisprudence.” In re
Cohoes Indus. Terminal, Inc., 931 F.2d 222, 227 (2d Cir. 1991) (internal citations and quotations
omitted).
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Fed. R. Civ. P. 11 advisory committee’s note (emphasis added). Bankruptcy Rule 9011 was
amended in 1997 “to conform to the 1993 changes to F.R.Civ.P. 11.” Fed. R. Bankr. P. 9011
advisory committee’s note.
Consistent with the plan language of the Rule, the case law uniformly supports the
view that an attorney who has signed a document must review the document prior to filing.
See In re Hurd, 2010 Bankr. Lexis 2656, at *5 (Bankr. D. Id. Aug. 11, 2010) (“Counsel did
not review the final documents prior to their submission and, thus did not catch the patent
error in the first order’s terms, or question why the Debtor’s attorney or Trustee would
approve such an order. He did not personally confirm the approvals were obtained. His
approach and his delegated system were flawed.”); In re Ulmer, 363 B.R. 777, 783 (Bankr.
D.S.C. 2007) (“By failing to review and sign the documents submitted to this Court and that
bear her signature, [the attorney] violated Rule 9011(a) and (b). . . . This practice of
submitting documents containing an electronic signature of a party that has not actually
reviewed and signed the documents is not proper.”); In re KTMA Acquisition Corp., 153 B.R.
238, 249 (Bankr. D. Minn. 1993) (“[J]ust reading the filing supports the conclusion that the
signer did not do a reasonable amount of pre-filing inquiry.”) (citing Mars Steel Corp. v.
Continental Bank, N.A., 880 F.2d 928, 932 (7th Cir. 1989)). Thus, this Court concludes that
an attorney’s advance authorization to use his signature, without any intention to personally
review the pleading prior to filing, does not constitute a reasonable inquiry under Bankruptcy
Rule 9011 regardless of the steps taken by the firm.7
7 Buckley and the Brice Firm argue that several of these cases can be distinguished as situations where
paralegals performed work and no attorney was involved in any capacity. But they ignore that the
courts in these cases imposed sanctions based upon the attorney’s failure to personally review the
papers that he or she signed. Indeed, practices like those of Buckley and the Brice Firm have garnered
criticism from the courts. One such decision is In re Rivera, 342 B.R. 435 (Bankr. D.N.J. 2006),
where a law firm engaged in the systematic use of pre-signed certifications in support of motions filed
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Second, respondents question where the dividing line must be drawn with respect to a
reasonable inquiry under Bankruptcy Rule 9011. See Hr’g Tr., dated Oct. 5, 2011, 42:25 –
43:4 (“Let’s say I’m filing a 100-page brief and I’m signing it. I’m the partner and I’m
signing it. Now, of course, I’m going to have reviewed the brief but . . . there could be
hundreds of cases cited in there. Have I reviewed every single case?”); see id. at 58:12 – 16
(“What’s the standard? Does he have to ask five questions and then he can say okay? Does
he have to ask ten questions and say okay? Does he have to read the document twice? I
mean, the . . . Rule is totally vague.”). It is true that “[t]here is no litmus test that can be
applied to a given filing to determine whether Rule 9011 has been violated.” In re KTMA
Acquisition Corp., 153 B.R. at 249. An inquiry must be made on a case-by-case basis, taking
into account the circumstances of each case. See id. (internal citations omitted). “At times,
however, the violation is so obvious that the filing speaks for itself." Id. at 249.
Such are the circumstances of this case. The attorney in question did not review the
document and had no intention of doing so prior to filing. Instead, he authorized – in
advance – an associate under his supervision to sign his name to whatever document that
associate produced. While he set out a “checklist” for the associate to follow, he had no way
of ensuring that the associate would comply with that checklist or the resulting written
product would otherwise meet the requirements of Bankruptcy Rule 9011. 	“A signer may
not drop papers into the hopper and insist that the court or opposing counsel undertake
bothersome factual and legal investigation. . . . At a minimum, the reasonable inquiry
in various bankruptcy and state court proceedings. In holding the firm and attorneys subject to
sanctions, the court stated that “[n]o reasonable attorney would consider [the filed documents] to be
certifications, nor would any reasonable attorney engage in the practice of using “on-file” signature
forms. This practice is in violation of Rule 9011 – because writings were presented for an “improper
purpose,” i.e., to have the court believe they were certifications. Moreover, the threshold “factual
contention” in each of the ersatz submissions – that the signatory read and signed the document – is
flatly untrue (not to mention without any evidentiary support).” Id. at 458.
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standard requires at least some affirmative investigation on the part of the signer.” Id. at 248-
49 (citing Cleveland Demolition Co. v. Azcon Scrap Corp., 827 F.2d 984, 987 (4th Cir.
1987); McCabe v. General Foods Corp., 811 F.2d 1336, 1340-41 (9th Cir. 1987); Stewart v.
RCA Corp., 790 F.2d 624, 633 (7th Cir. 1986); Lieb v. Topstone Indus., Inc., 788 F.2d 151,
157 (3d Cir. 1986) (Rule 11 "imposes on [the signer] a duty to look before leaping and may
be seen as a litigation version of the familiar railroad crossing admonition to 'stop, look and
listen.'")); see also In re Taub, 439 B.R. 276, 281 (Bankr. E.D.N.Y. 2010) (“Rule 9011
serves the purpose of assuring courts and litigants that motions, pleadings, and other written
submissions signed by an attorney bear the attorney’s certification that he or she has acted in
a manner that is objectively professional and reasonable under the circumstances.”) (quoting
In re Ambotiene, 316 B.R. 25, 34 (Bankr. E.D.N.Y. 2004)). Of course, the investigation
performed by a signatory “need not be to the point of certainty to be reasonable.” 	In re
KTMA Acquisition Corp., 153 B.R. at 249 (citing Nemmers v. U.S., 795 F.2d 628, 632 (7th
Cir. 1986)). “However, the signer must explore readily available avenues of factual inquiry.”
In re KTMA Acquisition Corp., 153 B.R. at 249 (citing Chapman & Cole v. Itel Container
Int'l. B.V., 865 F.2d 676, 684 n.11 (5th Cir. 1989), cert. denied, 493 U.S. 872 (1989)).
Third, Buckley and the Brice Firm argue that Bankruptcy Rule 9011 sanctions are
only appropriate where “a particular allegation is utterly lacking in support” and thus are
inappropriate here because evidentiary support exists for the factual assertions in the Claim.
(Post-Hearing Memo., at 8) (quoting Klein v. Wilson, Elser, Moskowitz, Edelman & Dicker
(In re Highgate Equities, Ltd.), 279 F.3d 148, 154 (2d Cir. 2000)). As a threshold matter,
their argument ignores the plain text of Bankruptcy Rule 9011, which provides for a
“certification] . . . to the best of the person’s knowledge, information, and belief [that is]
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formed after an inquiry reasonable under the circumstances.” Fed. R. Bankr. P. 9011(b). 8 It
cannot be that an attorney satisfies his obligation under Bankruptcy Rule 9011 when he
conducts no review of the document submitted to the Court. Indeed, some courts have
concluded that “[t]he fact that the information contained in documents bearing [the
attorney’s] signature may have been accurate is not a defense to a Fed. R. Bankr. P. 9011
sanction.” In re Ulmer, 363 B.R. at 782; see also Calloway v. Marvel Entertainment Group,
854 F.2d 1452, 1470 (2d Cir. 1988) (“Rule 11 applies to all papers filed in a lawsuit and . . .
the signer’s conduct should be judged at the time the paper is signed.”), rev'd in part on other
grounds, 493 U.S. 120 (1989); In re KTMA Acquisition Corp., 153 B.R. at 249 (“Whether the
signer's conduct was reasonable is an inquiry that focuses on what should have been done by
the filer before filing rather than how things turned out; conduct rather than result.”). As the
court in In re Rivera wisely observed:
[S]omething more than claimed accuracy is required. 	The rules of this
court should be followed . . . [The attorney’s] seeking of refuge in the
purported accuracy of her data submission is therefore rejected as a
defense to violation of Rule 9011. A certifying party must be responsible
for that data submission. The [law firm’s practice] has annulled the
purpose of the responsible party requirement: that is, to prompt diligent
inquiry by the certifying individual, and a resulting careful statement made
under penalty of perjury, with all of its attendant solemnity.
In re Rivera, 342 B.R. at 461 - 462. 9
8 Each of the Second Circuit cases cited by the respondents is factually distinct from the case at hand
because none involve a situation where an attorney did not personally review the document that he
signed and submitted to the court. See In re Highgate Equities, Ltd., 279 F.3d 148 (2d Cir. 2002)
(sanctions sought against attorney for letter he drafted and sent to bankruptcy court for which he
allegedly did not make reasonable inquiry as to the evidentiary basis and which was allegedly
submitted for improper purpose); Sussman v. Bank of Israel, 56 F.3d 450 (2d Cir. 1995) (sanctions
sought against attorney with respect to a complaint and letters allegedly lacking factual or legal basis
and allegedly filed for an improper purpose); Hadges v. Yonkers Racing Corp., 48 F.3d 1320 (2d Cir.
1995) (sanctions sought against attorney for misstatements made in pleadings that were based on client
representations, as well as for failure to disclose a state court action to the district court).
9 The lack of diligence before affixing one’s signature has also historically been frowned upon.
Thomas Jefferson derisively commented about King Louis XIV’s practice of signing whatever
documents were presented to him. See Letter from Thomas Jefferson to John Jay (Oct. 8, 1787),
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In any event, this argument fails because the Claim as originally filed lacked an
evidentiary basis. The Claim was not “buttressed by several documentary exhibits,” as was
the case in the Highgate decision relied on by respondents. Highgate, 279 F.3d at 155.
Rather, the Claim attached a note and mortgage between the Debtor and Option One, with no
documentation to connect Option One to Deutsche Bank or to AHMSI. Under the precedent
in this jurisdiction, therefore, the Claim was facially deficient as a basis for Deutsche Bank to
foreclose or to recover on its Claim because it did not establish the assignment of the note
and mortgage from Option One to Deutsche Bank. As Judge Glenn of this Court has
explained:
[I]n the mortgage context, the creditor may initially attach only a summary
of its claim, containing the debtor’s name, account number, the prepetition
account balance, interest rate, and a breakdown of the interest charges,
finance charges and other fees that make up the balance of the debt. If the
creditor is an assignee, it must also provide an affidavit attesting to the
assignment of the note and mortgage.
In re Minbatiwalla, 424 B.R. 104, 117 (Bankr. S.D.N.Y. 2010); see also In re Mims, 438
B.R. 52, 56 - 7 (Bankr. S.D.N.Y. 2010) (in the lift stay context, stating that “Wells Fargo has
not supplied the Court with any evidence that the Note was physically delivered or assigned
pursuant to a written agreement. Here, the Note only indicates a transfer from Lend America
to Washington Mutual Bank and not to Wells Fargo. Wells Fargo has not presented any
evidence that it is in possession of the original Note, or that it received the Note via a valid
written assignment.”)
Fourth and finally, respondents suggested at oral argument that Bankruptcy Rule
9011 is not implicated because the document in question was merely a proof of claim and the
reprinted in 2 Memoir, Correspondence and Miscellanies from the Papers of Thomas Jefferson, 249
(Thomas Jefferson Randolph ed., Gray and Bowen 2d ed. 1830) (observing that the King “hunts one
half the day . . . and signs whatever he is bid”).
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amount paid for its preparation was modest. See Hr’g Tr. 33:13 – 15, Oct. 5, 2011 (“This is a
proof of claim. A garden variety proof of claim fill in the blanks for which the firm is paid
$150.00.”); Id. at 42:18-23 (“Typically proofs of claim as Mr. Zipes, in fact, said are fine –
filed by – signed by clients. That’s all the Brice Firm does is they help prepare and file the
proof of claim.”); Id. at 56:16-20. But proofs of claim are central to the bankruptcy process
as they are the vehicle through which a creditor recovers on its claim. Compliance with
Bankruptcy Rule 9011 is particularly important for proofs of claim because a properly filed
proof of claim constitutes “prima facie evidence of the validity and amount of the claim.”
Fed. R. Bankr. P. 3001(f). Unlike most litigation, the burden is initially placed on the party
objecting to the claim to come forward with “evidence equal in force to the prima facie case .
. . which, if believed, would refute at least one of the allegations that is essential to the
claim’s legal sufficiency.” In re Oneida Ltd., 400 B.R. 384, 389 (Bankr. S.D.N.Y. 2009)
(quoting In re Allegheny Int’l, Inc., 954 F.2d 167, 173-74 (3d Cir. 1992)). Under Section
502(a) of the Bankruptcy Code, such a claim is deemed allowed unless a party objects. 11
U.S.C. § 502(a). The Court must therefore be able to rely on the integrity of the proofs of
claim before it. Not surprisingly then, Bankruptcy Rule 9011 has specifically been held to
apply to proofs of claim. See Hannon v. Countrywide Home Loans, Inc. (In re Hannon), 421
B.R. 728, 731 (Bankr. M.D. Pa. 2009); see also In re Thomas, 337 B.R. 879, 895 (Bankr.
S.D. Tex. 2006), aff'd, 223 Fed. Appx. 310 (5th Cir. 2007); Knox v. Sunstar Acceptance
Corp. (In re Knox), 237 B.R. 687, 699 (Bankr. N.D. Ill. 1999).10
10 Recent amendments to Bankruptcy Rule 3001 have bolstered the protections afforded to individual
debtors with respect to proofs of claim. The Rule has been amended to require that proofs of claim
based on a security interest in an individual debtor’s property contain certain specific information in
support of the claim, including a statement of the amount necessary to cure any prepetition default and,
if the security interest is in the debtor’s principal residence, an escrow account statement prepared as of
the date of the petition. See Comm’n from the Chief Justice, The Supreme Court of the United States
Transmitting Amendments to the Federal Rules of Bankruptcy Procedure, May 24, 2011, p. 65-6. The
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Indeed, serious issues of public policy are raised by the practices at issue here. The
country is in the midst of a foreclosure crisis, and the news is replete with examples of
misleading, inaccurate or incomplete mortgage related pleadings that have been filed in both
the federal and state courts.11 It is easy to find examples in this Court and other local
bankruptcy courts of the problems caused by the filing of inadequate documentation related
to mortgage obligations. See In re Lippold, 2011 Bankr. LEXIS 3282, at *13-14 (Bankr.
S.D.N.Y. Sept. 6, 2011); In re Agard, 444 B.R. 231, 245-46 (Bankr. E.D.N.Y. 2011); Bank of
New York v. Silverberg, 926 N.Y.S.2d 532, 538 (2d Dept. 2011). Thus, it is of the utmost
importance that the attorneys practicing before this Court maintain integrity in preparing the
documentation of such mortgage obligations. Doing otherwise causes risk that “[t]he debtor
and his/her family may lose their home, and the debtor and other creditors may lose
significant equity in foreclosure.” In re Gorshtein, 285 B.R. 118, 122 (Bankr. S.D.N.Y.
2002).
Having found that the conduct here runs afoul of Bankruptcy Rule 9011, the Court
turns to the question of whether sanctions should be imposed. The Second Circuit has stated
that “[t]he Bankruptcy Court's discretion to award sanctions may be exercised only on the
basis of the specific authority invoked by that court. Because an award might be based on
‘any of a number of rules or statutory provisions,’ each ‘governed by differing standards,’ we
Rule also was amended to state that failure to provide such information may result in preclusion of
“the holder from presenting the omitted information, in any form, as evidence in any contested matter
or adversary proceeding in the case . . . [or the] award [of] other appropriate relief, including
reasonable expenses and attorney’s fees caused by the failure.” Id. at p. 66. The amendments took
effect on December 1, 2011.
11 See Andrew Keshner, Upstate Foreclosure Firm Fined $2 Million, Agrees to Overhaul Its Filing
Practices, N.Y.L.J., Oct. 7, 2011, at 1; U.S. Gov’t Accountability Office, GAO-11-433, Mortgage
Foreclosures: Documentation Problems Reveal Need for Ongoing Regulatory Oversight (2011);
Testimony of Gov. Elizabeth A. Duke on Foreclosure Documentation Issues: Robo-Signing, Chain of
Title, Loss Mitigation, and Other Issues in Mortgage Servicing Hearing Before the Subcomm. on
Housing and Community Opportunity of the House Comm. on Financial Services, 11th Cong. 2 (2010).
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have found it ‘imperative that the court explain its sanctions order with care, specificity, and
attention to the sources of its power.’” Solow v. Kalikow (In re Kalikow), 602 F.3d 82, 96
(2d Cir. 2010) (quoting Sakon v. Andreo, 119 F.3d 109, 113 (2d Cir. 1997)). The UST
argues that it does not seek relief under Bankruptcy Rule 9011, but rather requests that the
respondents be held in contempt for violation of M-242 or through the Court’s authority
under Section 105 of the Bankruptcy Code. For the reasons set forth earlier, however, it is
clear that the applicable provision is Bankruptcy Rule 9011, and the Court must therefore
address the issue of sanctions as provided for therein.12
“Rule 9011, like its counterpart Federal Rule of Civil Procedure 11, plays an
important role in maintaining the professionalism of the bar and the integrity of court
processes. That role is best effectuated when the Rule is invoked sparingly, and ‘[a] request
for sanctions under Rule 11 is not a tactical device.’” In re Taub, 439 B.R. at 281 (quoting
Nakash v. U.S. Dep’t of Justice, 708 F. Supp. 1354, 1370 (S.D.N.Y. 1988)). Parties facing
sanctions under Bankruptcy Rule 9011 must be provided with “notice and a reasonable
opportunity to respond.” Fed. R. Bankr. P. 9011(c). The Second Circuit has held that “a
sanctioned attorney must receive specific notice of the conduct alleged to be sanctionable and
12 At the hearing, Buckley and the Brice Firm argued that they had not been given proper notice that
Rule 9011 was implicated and requested the opportunity to submit post-hearing briefing. Substantial
post-hearing submissions were provided to the Court. See Post-Hearing Memorandum of Law of
Brice, Vander Linden & Wernick, P.C. and Lawrence J. Buckley in Opposition to Motion of United
States Trustee Requesting that Such Parties Be Held in Civil Contempt or Be Subject to Sanctions
Under 11 U.S.C. § 105 (ECF Doc. # 75); Third Declaration of Lawrence J. Buckley in Support of
Memoranda of Law of Brice, Vander Linden & Wernick, P.C. and Lawrence J. Buckley in Opposition
to Motion of United States Trustee Requesting that Such Parties Be Held in Civil Contempt or Be
Subject to Sanctions Under 11 U.S.C. § 105 (ECF Doc. # 76); Declaration by David B. Shaev, Esq. on
Behalf of Debtor, Virginia Obasi in Support of the United States Trustee’s Motion Requesting that
Brice Vander Linden & Wernick, P.C. and Lawrence J. Buckley Should Be (A) Held in Civil Contempt,
or Alternatively, (B) Subject to Sanctions Under 11 U.S.C. Section 105 (ECF Doc. # 78); Post-Hearing
Response in Further Support of the United States Trustee’s Motion for an Order to Show Cause Why
Brice Vander Linden & Wernick, P.C. and Lawrence J. Buckley Should Not Be: (A) Held in Civil
Contempt, or Alternatively, (B) Subject to Sanctions Under 11 U.S.C. § 105 (ECF Doc. # 79); Motion
of Brice, Vander Linden & Wernick, P.C. and Lawrence J. Buckley for Authority to File Fourth
Declaration of Lawrence J. Buckley in Response to Issues Raised by the United States Trustee (ECF
Doc. # 80). The Court has considered all these post-hearing submissions in rendering its decision.
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the standard by which that conduct will be assessed, and an opportunity to be heard on that
matter.” In re Highgate Equities, Ltd., 279 F.3d at 152 (quoting Nuwesra v. Merrill Lynch,
Fenner, & Smith, Inc., 174 F.3d 87, 92 (2d Cir. 1999)). These requirements “reflect the
importance of according fair procedural protections to an attorney or other party facing
sanction.” Id. (citing Ted Lapidus, S.A. v. Vann, 112 F.3d 91, 96 (2d Cir. 1997), cert. denied,
522 U.S. 932 (1997)).
Buckley and the Brice Firm argue that sanctions cannot be imposed because the “safe
harbor” provisions of Bankruptcy Rule 9011 have not been met. Bankruptcy Rule 9011(c)
sets forth the requirements of this safe harbor:
a motion for sanctions under this rule shall be made separately from other
motions or requests and shall describe the specific conduct alleged to
violate [Rule 9011(b)] . . . . The motion for sanctions may not be filed
with or presented to the court unless, within 21 days after service of the
motion (or such other period as the court may prescribe), the challenged
paper, claim, defense, contention, allegation, or denial is not withdrawn or
appropriately corrected . . . .
Fed. R. Bankr. P. 9011(c)(1)(A). The procedural safeguards afforded by the safe harbor
provisions of Bankruptcy Rule 9011 “are intended to reduce the number of motions for
sanctions and to provide opportunities for parties to avoid sanctions altogether.” Perpetual
Secs., Inc. v. Tang, 290 F.3d 132, 141 (2d Cir. 2002) (citing Hadges v. Yonkers Racing
Corp., 48 F.3d 1320, 1327 (2d Cir. 1995)); see Vuitton et Fils S.A. v. Carousel Handbags,
592 F.2d 126, 130 (2d Cir. 1979) (“[S]anctions imposed after a finding of civil contempt
serve two functions: to coerce future compliance and to remedy past noncompliance.”). As
no evidence has been presented that the UST has complied with the safe harbor provisions by
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serving a copy of its motion on Buckley and his firm before filing it with this Court, the
Court declines to enter sanctions in this case.13
Of course, Bankruptcy Rule 9011(c) also states that “[o]n its own initiative, the court
may enter an order describing the specific conduct that appears to violate [Rule 9011(b)] and
directing an attorney, law firm, or party to show cause why it has not violated [Rule 9011(b)]
with respect thereto.” Fed. R. Bankr. P. 9011(c)(1)(B). It is true that this matter was
technically brought on by an order to show cause issued by the Court. The safe harbor
provision is nonetheless implicated because the order was not issued sua sponte, but rather in
response to a motion made by the UST. See Hadges v. Yonkers Racing Corp., 48 F.3d 1320,
1329 (2d Cir. 1995) (finding that a request for sanctions under Federal Rule of Civil
Procedure 11 had not been brought on the district court’s own initiative because “the court
indicated that it was imposing sanctions in response to [movant’s] request and did not state
that it was imposing sanctions on [respondent] sua sponte.”).
In any event, the Court notes that Buckley and his firm have taken steps to remedy
the defects in the procedures employed in filing the Claim. To begin with, the Claim filed in
this case has been amended to include the electronic signature of Edelman, the same attorney
that reviewed the Claim prior to its filing. Beginning in March 2011, the Brice Firm also
13 The facts that form the basis of the UST’s motion for sanctions came to light during Buckley’s
deposition on March 7, 2011. (See Zipes Decl. Ex. B, Buckley Dep. Tr., 28:24 – 30:4, Mar. 7, 2011.)
Given that this motion was not filed until more than five months later, one can reasonably assume that
the conduct here was the subject of extensive discussion between the UST and the respondents before
the UST filed its motion. At least one court outside this circuit has found that Bankruptcy Rule 9011’s
safe harbor requirement can be satisfied by giving appropriate notice to a party other than by the
service of a motion. See Raymond Prof’l Grp., Inc. v. William A. Pope Co. (In re Raymond Prof’l
Grp., Inc.), 420 B.R. 420, 463 (Bankr. N.D. Ill. 2009) (“The Rule 9011 letter was sufficient in this case
to give [respondent] the notice and opportunity to withdraw as is required by the safe harbor provision.
The letter contained a detailed recitation of the same violations set forth in the Debtors motion for
sanctions and expressly informed [respondent] of the Debtors’ intent to seek Rule 9011 sanctions . . . .
In this case, [respondent] did thereby receive the intended benefit of the full safe harbor period, and
therefore the Debtors are entitled to a decision on the merits of their request for sanctions.”) As no
argument or evidence has been presented on that issue, however, the Court declines to address it here.
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revised its procedures for filings in this jurisdiction, so that the attorney whose signature
appears on a proof of claim will be the same individual that has reviewed the claim. 14 (See
Fourth Declaration of Lawrence J. Buckley, Oct. 17, 2011, at ¶ 3) (“As to the Brice Firm’s
new procedures, in March 2011 . . . the Brice Firm improved the procedure for SDNY ECF
filings by requiring that the attorney whose ECF signature appears on a proof of claim is the
same attorney who reviewed the claim to ensure the Checklist was satisfied.”) (emphasis
added). The Court assumes that respondents are taking any other steps necessary in this
Court and in other jurisdictions so as to be in compliance with Rule 9011 going forward and
to remedy any past deficiencies.15
CONCLUSION
For the reasons set forth above, the Court concludes that the conduct of the
respondents was in violation of Bankruptcy Rule 9011, but denies the request for civil
contempt and sanctions based on the safe harbor provision of Bankruptcy Rule 9011.
IT IS SO ORDERED.
Dated: New York, New York
December 19, 2011
/s/ Sean H. Lane
UNITED STATES BANKRUPTCY JUDGE
14 As a related matter, the Brice Firm has instituted a process to review and report on unresolved claims
filed by the Brice Firm in this jurisdiction since January 1, 2010.
15 The Court is disturbed by respondents’ suggestions that, despite these changes, their original filing
procedures were adequate. (See Fourth Declaration of Lawrence J. Buckley, Oct. 17, 2011, at ¶ 4)
(“[T]he Brice Firm believes all proofs of claim filed in the SDNY by the firm are accurate due, in part,
to the prior attorney review to ensure compliance with the Firm’s Checklist.”); Hr’g Tr., 57:13 – 19
(“[A] preauthorization as done here is effectively an inquiry for purposes of 911 [sic] because it’s the
same inquiry you would have made afterwards.”). The Court’s refusal to impose sanctions is a direct
result of Rule 9011’s safe harbor provision and not in any way an approval of the patently
unacceptable conduct that is the subject of this decision.
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