%1

On Sept. 29, 2016, the Ninth Circuit Court of Appeals affirmed[1] the district court’s decision upholding the bankruptcy court’s denial of a post-discharge motion for attorneys’ fees. The underlying motion stemmed from pre-petition state court litigation brought by creditor against debtor. While the ruling was against the creditor, debtors should be keenly aware of the applicable law, as the Ninth Circuit’s detailed opinion makes it clear that the “fair contemplation” test can cut both ways.

Background

[1]Most practitioners are aware of the risks that petitioning creditors face when filing an involuntary petition against an alleged debtor.[2] If the court determines that the filing was improper or done in bad faith, penalties can be assessed against the petitioning creditors under 11 U.S.C. § 303(i), which can include requiring petitioning creditors to pay legal fees and costs as well as compensatory and punitive damages to the alleged debtor.[3]

Debtor’s counsel must be a “disinterested person” pursuant to § 327(a) of the Bankruptcy Code for a court to approve its retention or to award debtor’s counsel compensation for its services.[1] As defined in the Bankruptcy Code, a disinterested person means, among other things, a person who is not a creditor of the debtor on the petition date.[2] This can be problematic for counsel who finds themselves in the undesirable position of having to file a bankruptcy petition before a client has paid for all

Recently, in In re Dynamic Drywall,[1] the U.S. Bankruptcy Court for the District of Kansas denied an attorney’s application for quantum meruit hourly compensation, stating that when an agreement for employment based on a contingency fee is approved by the court, that agreement can only be altered in very unusual circumstances. An attorney who was employed to work on two separate matters for the same client filed an application to receive quantum meruit hourly compensation for work done on one of the matters.

At the December 2016 Winter Leadership Conference, we joined with the Young and New Members Committee to present a panel discussion entitled “Ethical Issues that Arise When Supervising Attorneys Work with Junior Attorneys and Non-Attorney Professionals.” The panel consisted of Jennifer B. Kimble (Prime Clerk; New York), Michelle K.

A debtor cannot recover sanctions or attorneys’ fees under 11 U.S.C. § 362(k) when the debtor admits to having suffered no actual damages and the filing of a motion for sanctions was not necessary to remedy a stay violation.[1] Denying the debtor’s motion for sanctions, the U.S. Bankruptcy Court for the Western District of New York reached this conclusion and, in its opinion, colorfully addressed the potential for encouraging wasteful litigation that would arise from a contrary conclusion.[2]

On Aug. 30, 2016, in Roberts Broadcasting v. McKitrick,[1] the U.S. District Court for the Eastern District of Missouri (Eastern Division) decided that a legal malpractice claim against bankruptcy counsel based on services rendered in the bankruptcy case “arises in” a case under the Bankruptcy Code. By concluding that the malpractice claim arose in a case under the Code, the district court determined that it had federal subject-matter jurisdiction over the case pursuant to 28 U.S.C. § 1334(b).

Electronic signature software, such as DocuSign, is increasingly accepted in commercial transactions as an enforceable means of signing contracts and other agreements. However, in a recent decision by the U.S. Bankruptcy Court for the Eastern District of California, In re Mayfield,[1] the court sanctioned a bankruptcy attorney who had his client DocuSign his bankruptcy petition, schedules and other related bankruptcy documents filed with the court because such signatures are not original signatures as required by bankruptcy rules.

Recently, in In re Frantz,[1] the U.S. District Court for the District of Idaho affirmed the bankruptcy court’s assessment of $49,477.46 in sanctions against the debtors and their attorney for improper litigation tactics. The court held that evidence that the debtors delayed filing motions to disqualify Idaho Independent Bank’s (IIB’s) counsel and expert witnesses until shortly before trial was sufficient to support a finding of bad faith.