In re Armstrong

487 B.R. 764, 2012 WL 4355464, 2012 U.S. Dist. LEXIS 135389
CourtDistrict Court, E.D. Texas
DecidedSeptember 21, 2012
DocketCivil Action No. 4-11-cv-772; Bankruptcy No. 09-42865
StatusPublished
Cited by8 cases

This text of 487 B.R. 764 (In re Armstrong) is published on Counsel Stack Legal Research, covering District Court, E.D. Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Armstrong, 487 B.R. 764, 2012 WL 4355464, 2012 U.S. Dist. LEXIS 135389 (E.D. Tex. 2012).

Opinion

MEMORANDUM OPINION ON APPEAL FROM BANKRUPTCY COURT

RON CLARK, District Judge.

Appellant, debtor’s counsel Gary Armstrong, appeals an order by the Honorable Brenda T. Rhoades, Chief United States Bankruptcy Judge, imposing $500 in sanctions pursuant to Federal Rule of Bankruptcy Procedure 9011. Judge Rhoades found that Mr. Armstrong filed a petition under Chapter 13 for an affluent debtor, representing that all creditors would be paid, all the while intending to avoid paying her credit card debts, and concluded that Mr. Armstrong engaged in an improper scheme to obtain the equivalent of a Chapter 7 discharge.

This court finds no clear error in Judge Rhoades’ findings of fact, and, after de novo review, finds no error in her conclusions of law. Judge Rhoades did not abuse her discretion in sanctioning debt- or’s counsel for attempting to abuse the bankruptcy process by discharging debts his client could not in good faith challenge. The judgment of the Bankruptcy Court is therefore affirmed.

[767]*767I. BACKGROUND

The somewhat complicated factual and procedural background of this case is well set out in Judge Rhoades’ Memorandum Opinion and Order on objections [Doc. # 75]1 and her Memorandum Opinion ordering sanctions. [Doc. # 118]. In summary, Debtor Diane M. Davis filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code. She was represented by Gary Armstrong of the law firm Armstrong Kellett Bartholow P.C. Ms. Davis is by all accounts an affluent debtor. She is a single woman with no dependents, and her gross annual income was $121,760 in the year preceding her petition.

Her schedule of general unsecured creditors lists all of her credit card debts. With respect to each of these debts, the debtor included the following remark in her Schedule F: “Debtor listed the balance shown on last statement, debtor not presently able to determine if balance is correct and is uncertain if trade name is correct legal creditor.” [Doc # 1 at 17-20]. Twelve creditors, including seven that were listed in the debtor’s schedule F filed claims against the debtor, totaling $147,400.68. Debtor’s Chapter 13 plan proposed to make monthly payments to the chapter 13 trustee for a period of 60 months which would result in full payment to all her general unsecured creditors. [Doc. #2]. Not surprisingly, no creditor objected. The Bankruptcy Court entered an order confirming the plan, subject to the claims allowance process. [Doc. # 21]

The debtor filed identical objections to the claims of each and every one of her general unsecured creditors. [Doc. # 32-43], The debtor submitted substantially identical affidavits in support of each of her claim objections which stated that she has received the claim but “cannot determine that the amount stated on the claim is accurate because there are no ledgers or other accounting records attached to the proof of claim.” The affidavit further provides that due to this lack of documentation provided by the claimant, she cannot verify the account, establish that the charges were made within the limitations period, or determine whether the claim was enforceable against her. [Id].

Some claimants subsequently either filed amended claims with additional documentation or provided debtor’s counsel with additional documentation including billing statements and cardholder agreements. Upon receiving documentation from these claimants, counsel withdrew the objections to their claims. However, counsel filed seven certificates of no response to debt- or’s objections, notifying the court that these seven creditors had not responded to the debtor’s lack of documentation objections. [Doc. # 53-59].

The Bankruptcy Court held a hearing to address its concern that counsel was abusing the bankruptcy process by filing objections to every claim based on lack of documentation when the debtor was not denying that she had liability to these creditors. Judge Rhoades pointed out to counsel that the debtor’s objections failed to satisfy the burden of producing at least some evidence, equal in probative evidence to that offered by the proof of claim, and which, if believed, would refute at least one of the allegations essential to the claim’s legal sufficiency. See In re Rally Partners, L.P., 306 B.R. 165, 168-69 (Bankr.E.D.Tex.2003).

As the Bankruptcy Court stated on the record, it appeared that counsel was “playing games” by asking the court to disallow claims simply based on an alleged lack of [768]*768“sufficient” documentation attached to the claim and not upon debtor’s own knowledge of documents or statements she had received, or on a belief that the claim was improper or was not actually owing. [Doc. #85 at 7]. Mr. Armstrong was not prepared to address the court’s concerns, so the court continued the hearing to allow testimony from the debtor regarding any substantive objection to the claims in her case as well as testimony about investigation conducted prior to filing each objection to her creditors’ claims.

Several members of Mr. Armstrong’s law firm appeared for the continued hearing. They represented that their client was present in the courtroom but refused to offer any evidence, including testimony from the debtor, establishing a substantive ground for the disallowance of the disputed claims. Instead, they stated that they believed their objections were sufficient because the creditors did not comply with Federal Rule of Bankruptcy Procedure 80012, and, as such, their claims were not prima facie valid. Counsel requested that the bankruptcy court disallow each and every one of these claims. [Doc. # 86].

On March 31, 2011, the bankruptcy court entered a twenty-seven page memorandum detailing the factual and legal basis for overruling the debtor’s claim objections. Judge Rhoades noted that the proofs of claim substantially complied with Federal Rule of Bankruptcy Procedure 3001, and sufficiently informed the debtor of the basis of the claims. She pointed out that debtor articulated no substantive reason for disallowing the disputed claims under 11 U.S.C. § 502(b) (1). The court vacated the order confirming the debtor’s plan on the grounds that the debtor acted in bad faith.

The court also addressed the ethical concerns raised by the evident deliberate blindness of debtor’s counsel to the debt- or’s personal knowledge of her debts; his failure to investigate and to assure to the best of his ability that the schedules were complete and accurate before they were filed, and the failure to comply with the court’s request to provide the court with some evidence in support of claim objections. The bankruptcy court required counsel for debtor to appear and show cause as to why the court should not impose sanctions. [Doc. # 75].

On May 12, 2011, the court held a show cause hearing in order to determine whether Mr. Armstrong’s conduct violated Bankruptcy Rule 9011(b) and, if so, whether to sanction him. At the hearing, counsel for Mr. Armstrong argued that Mr. Armstrong was an experienced bankruptcy attorney who made an effort to comply with the bankruptcy code while diligently representing his client. Mr.

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Cite This Page — Counsel Stack

Bluebook (online)
487 B.R. 764, 2012 WL 4355464, 2012 U.S. Dist. LEXIS 135389, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-armstrong-txed-2012.