Proof of Claim: To Sign or Not to Sign?

The Official Form rollout on Dec. 1, 2015, included the handsome new Proof of Claim form, B410. The buzz was that the changes to the form were mostly cosmetic, including a larger font and a computer-friendly format. Part 3 of the Proof of Claim form provides many alternatives as to who may sign the form. They include the creditor, the creditor’s attorney or authorized agent, the trustee or the debtor, and the guarantor or the co-debtor. Those alternatives were added in 2011 to the now-replaced Official Form 10.[1] At the same time, in 2011 Official Form 10 was also changed to include, in small unassuming letters above the signature line, “I declare under penalty of perjury that the foregoing is true and correct.” Thus was set a potential pitfall for the unwary attorney.

To be sure, even prior to the 2011 amendments there was some risk for an attorney in signing a proof of claim on behalf of a client. It is well-established that Rule 9011[2] applies to proofs of claim.[3] The broad coverage of Rule 9011(b) bears emphasizing. The Rule states:

By presenting to the court (whether by signing, filing, submitting, or later advocating) a petition, pleading, written motion, or other paper, an attorney or unrepresented party 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, cause unnecessary delay or needlessly increase the cost of litigation;

(2) the claims, defenses, and other legal contentions are warranted by existing law or by a nonfrivolous argument for the extending, modifying, or reversing existing law or for establishing new law;

(3) the factual contentions have evidentiary support or, if specifically so identified, will likely 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 belief or a lack of information.

In In re Obasi,[4] an attorney narrowly escaped Rule 9011 sanctions as the court set out to explain the application of Rule 9011 in the proof-of-claim context. Attorney B, a senior attorney with the law firm, was apparently the only one in the law firm who possessed an ECF login and password. Consequently, he set up a checklist for preparation of proofs of claim that was then implemented by a junior attorney. Significantly, Attorney B himself never personally reviewed or investigated the proofs of claim filed with his signature.

The court found that the procedures set up by Attorney B did not satisfy the requirements of a “reasonable inquiry,” which must be personal and non-delegable.[5] An attorney’s advance authorization to use his signature with no intention of personally reviewing was not “reasonable inquiry.” Attorney B had no way to know whether his checklist was being followed.[6] Further, the court pointed out, the fact that the information on the proof of claim might have been accurate was no defense to a Rule 9011 sanction.[7] While the court found that Rule 9011 was violated, the court acknowledged that compliance with the “safe harbor” provision of Rule 9011(c) had not been established.[8] Therefore, the court denied the request for civil contempt and sanctions.

As the rule itself indicates, there are numerous ways to run afoul of it. For example, in a case that did not involve filing a proof of claim, In re Rivera,[9] the law firm had a practice of attaching pre-signed certification forms to mortgage data supporting relief-from-stay motions. Some of the signatures were not even connected with the data providers, and the signers certainly had not reviewed the data. The law firm was sanctioned $125,000, and the individual attorney in the Rivera case was fined $500.[10] In another case, an attorney was sanctioned $207,044 for his vexatious conduct in the way he represented claimants who filed a nonpriority unsecured proof of claim in jointly administered chapter 11 cases.[11]

Currently, the law is developing on whether filing stale proofs of claim is sanctionable under Rule 9011. The courts are split as to whether a state statute of limitations defense to a proof of claim subjects the filer to sanctions under Rule 9011.[12]

In In re Freeman,[13] the court carefully considered the issue of Rule 9011 sanctions for filing a stale claim. It concluded that given the uncertain state of the law and the lack of binding precedent in the district, there was no basis to impose sanctions. There is also developing case law on whether the filing of a time-barred proof of claim violates the Fair Debt Collection Practices Act.[14]

Even given these developments in the law, let’s assume that you have been signing and filing proofs of claim for your client for years. You always investigate, review the claim and make sure that the required documents are attached. Moreover, you have an exceptionally trustworthy client. Your practices and procedures ensure that neither you nor your client will be subject to Rule 9011 sanctions. What could go wrong?

In Schmidt v. Rodriguez,[15] the court was required to make rulings on numerous discovery disputes in an adversary proceeding brought by nine petitioning creditors in its related involuntary chapter 7 filing. The petitioning creditors alleged that the debtor unlawfully leased property belonging to the petitioning creditors to a third-party company. The company was allegedly responsible for an oil spill.

The company sought to depose an attorney representing one of the petitioning creditors. The attorney not only represented a petitioning creditor, he had signed the petitioning creditor’s proof of claim. The attorney refused to answer 102 questions, asserting the attorney/client privilege and the work-product doctrine.[16]

The court ultimately found that the attorney’s refusal to answer would normally be appropriate. Under Texas law, however, which applied to the case because of a state law cause of action, the attorney became a fact witness when he signed the proof of claim and thereby waived the attorney/client privilege and the work-product doctrine.[17] The court found that filing a proof of claim “under penalty of perjury” was an assertion of personal knowledge of facts alleged in the claim.[18] The court distinguished signing a complaint from signing a proof of claim. A complaint is not prima facie evidence of the facts asserted, while a proof of claim is prima facie evidence.[19] By signing the proof of claim, the attorney became a fact witness to the allegations in the claim. As a result, the court held that the otherwise-applicable privileges were waived.

There are no published cases in which a court has followed Rodriguez. Nevertheless, the specter that the attorney/client privilege and the work-product doctrine may be waived could have far-reaching and potentially devastating effects that could extend far beyond Rule 9011 sanctions. These considerations suggest that the potential risks of counsel signing a proof of claim may far outweigh the possible inconvenience of someone other than the attorney representing the client signing the proof of claim.

To sign, or not to sign: Is that a question?