Filing Tag-Team Bankruptcies Resulted in Suspension from Practice

By using tag-team bankruptcies and meritless tactics, a Wisconsin lawyer did succeed in forestalling foreclosure of her clients’ home for eight years, but at a cost to the lawyer herself: On top of monetary sanctions imposed by the district court and the Seventh Circuit, she was suspended from practice for six months in the Eastern District of Wisconsin for at least a year by the Wisconsin Supreme Court for her actions in other litigation.

A state court had entered a foreclosure judgment against a husband and wife. The couple’s lawyer first put the wife in chapter 13 and then filed a chapter 13 petition for the husband after the wife’s petition was dismissed. While no bankruptcy was pending, the Wisconsin Supreme Court upheld the foreclosure judgment.

In the bankruptcies, the lawyer argued that the mortgage note was forged. On numerous occasions, the federal courts ruled in the trial court and on appeal that the debt and the validity of the note were unassailable under the Rooker-Feldman doctrine.

The lawyer filed countless motions and appeals in state and federal courts, mostly frivolous. Eventually, the lawyer found herself in the Seventh Circuit attempting to overturn a monetary sanction and a six-month suspension.

Circuit Judge Michael B. Brennan upheld the sanction and the suspension in an April 1 opinion. He detailed the lawyer’s “frivolous motion practice . . . in these appeals” and “her dilatory, vexatious and unprofessional litigation practices.”

Because the couple owned their home together, a bankruptcy by one of them would halt foreclosure. The lawyer therefore filed chapter 13 petitions one after another to maximize the effect of the stay. The tactic backfired, because Judge Brennan said the filings were “for the improper purpose of thwarting the [homeowners’] creditors, rather than paying them.”

Although the couple could use chapter 13 legitimately to cure arrears on the mortgage, they could not use bankruptcy to challenge the validity of the debt that had been established in state court. Judge Brennan said that “an effort to relitigate a creditor’s rights — already established in state court proceedings — is an improper, bad faith use of a chapter 13 petition.”

To impose sanctions under 28 U.S.C. § 1927, Judge Brennan said that a “lawyer’s subjective bad faith is sufficient, but not necessary . . . ; objective bad faith is enough.” He went on to say that using the automatic stay “as a litigation ploy to drag out foreclosure proceedings in another jurisdiction constitutes objective bad faith.”

In court filings, the lawyer accused adversary counsel by name of committing bankruptcy fraud, among other crimes. Judge Brennan said, “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. [Citation omitted.] They also violate the ethical standards for lawyers practicing in this circuit.”

Judge Brennan found no error in the imposition of monetary sanctions and upheld the suspension from practice.