Stephen Merle Cole

• Court: United States Bankruptcy Court, E.D. California
• Decided: June 17, 2024
• Docket: 24-20976
• Status: Unknown

Opinion

1 POSTED TO THE WEBSITE 2 NOT FOR PUBLICATION 3 4 UNITED STATES BANKRUPTCY COURT 5 EASTERN DISTRICT OF CALIFORNIA 6 7 In re: Case No. 24-20976-A-7 8 STEPHEN COLE, FEC-3 9 10 Debtor. MEMORANDUM 11 12

16 Submitted on June 17, 2024 17 at Sacramento, California 18 Honorable Fredrick E. Clement, Bankruptcy Judge Presiding 19

20 Appearances: None 21 22 23

24 25 26 27 1 Rule 9011(b)(1) prohibits filing bankruptcy for an “improper 2 purpose,” including “to cause unnecessary delay.” Attorney Joseph 3 Sandbank filed sequential skeletal Chapter 7 petitions for husband and 4 for wife, invoking the stay. 11 U.S.C. § 362(a). Each case was later 5 dismissed by the Clerk for failure to file the schedules and 6 statements. Sandbank charged each debtor $150. At the time of 7 filing, did Sandbank intend to prosecute each case to conclusion? 8 I. FACTS 9 Stephen Cole and Vivian Cole are husband and wife. Respondent 10 Joseph Sandbank (“Sandbank”) is an attorney at law; Sandbank 11 represented each of the Coles in separate Chapter 7 bankruptcies. 12 A. Stephen Cole’s Bankruptcy 13 On March 12, 2024, Sandbank filed a skeletal Chapter 7 bankruptcy 14 petition on behalf of Stephen Cole. Vol. Pet., In re Stephen Cole, 15 No. 24-20976 (Bankr. E.D. Cal. March 12, 2024), ECF No. 1. The 16 petition indicated that the debtor “will pay the entire [filing] fee” 17 with the petition. Id. at § 8. The fee was not paid with the 18 petition. The petition contends that the debtor received credit 19 counseling prior to the date of the petition but that the debtor 20 “do[es] not have a certificate of completion.” Id. at § 15. It 21 indicated that Stephen Cole had between “1-49” creditors and owed 22 “$100,001-$500,000” in debts. Id. at § 20. 23 The creditors matrix included only three creditors. Verification 24 of Master Address List, ECF No. 4. 25 The next day, March 13, 2024, the Clerk of the Court issued a 26 Notice of Incomplete Filing, which specified the documents necessary 27 to complete the filing: Form 122A, Schedules A/B-J, Statement of 1 Incomplete Filing, ECF No. 6. It also informed the debtor and 2 Sandbank that the remaining documents were due March 26, 2024. A day 3 later, an Amended Notice of Incomplete Filing was issued to add to the 4 list of missing documents the Disclosure of Compensation, Form B2030. 5 Am. Notice of Complete Filing, ECF No. 7. Both the notice and the 6 amended notice were served on Sandbank. 7 On March 15, and again on March 19, 2024, the Clerk of the Court 8 warned the debtor that the failure to file all the remaining schedules 9 and statements by March 26, 2024, would result in dismissal of the 10 case. Notice of Incomplete Filing, ECF Nos. 10, 15. 11 On Saturday, March 16, 2024, the Clerk of the Court also issued a 12 “Notice of Payment Due,” ECF No. 11. That document warned that the 13 failure to pay the filing fee within three business days [Wednesday, 14 March 20, 2024] would result in an order to show cause. 15 When Sandbank did not file the Disclosure of Compensation, Form 16 B2030, on March 20, 2034, the Clerk of the Court issued an Order to 17 Show Cause why sanctions should not be imposed. Order to Show Cause, 18 ECF No. 16; LBR 2016-4 (instructing the Clerk of the Court to set the 19 matter before the Chief Bankruptcy Judge). The Clerk of the Court set 20 a hearing date for the Order to Show Cause of May 6, 2024. That order 21 stated: 22 THEREFORE, IT IS ORDERED the debtor’s(s’) attorney in this bankruptcy case appear before the Court on the following 23 date, time and place [May 6, 2024, at 1:00 p.m.] and show why sanctions should not be imposed on debtor’s attorney or 24 other appropriate relief ordered this bankruptcy case for failure to comply with the provisions of the Bankruptcy 25 Code, Federal Rules of Bankruptcy Procedure, and Local Rules of Practice and local requirements. 26 27 Order to Show Cause, ECF No. 16. 1 payment, Notice of Payment Due,” ECF No. 11, the filing fee was paid. 2 Neither debtor Cole, nor Sandbank, filed the schedules and 3 statements, nor the certificate of completion for credit counseling. 4 Nor did the debtor, or Sandbank, seek an enlargement of time to do so. 5 On April 1, 2024, the Clerk of the Court dismissed the case for 6 failure to file the schedules and statements. Order Dismissing Case, 7 ECF No. 20. 8 Notwithstanding dismissal, on May 6, 2024, this court convened 9 the hearing on the Order to Show Cause for failure to file the 10 Disclosure of Compensation, Form B2030. Neither Sandbank, nor the 11 debtor, appeared. Civ. Minutes, ECF No. 26. The court imposed 12 monetary sanctions of $1,000. Order, ECF No. 27. 13 On May 8, 2024, the day following the imposition of monetary 14 sanctions against him, Sandbank filed the Disclosure of Compensation. 15 Disclosure of Compensation, ECF No. 28. It stated: 16 Pursuant to 11 U.S.C. § 329(a) and Bankruptcy Rule 2016(b), I certify that I am the attorney for the above-named 17 debtor(s) and that compensation paid to me within one year before the filing of the petition in bankruptcy, or agreed 18 to be paid to me, for service rendered or to be rendered on behalf of the debtor(s) in contemplation of or in 19 connection with the bankruptcy case is as follow: 20 For legal services, I have agreed to accept $150.00. 21 Prior to the filing of this statement I have received $150.00. 22 Balance Due $0.00. 23 ... 24 [Other provisions as needed] FEE OF $150 FOR FILING OF 25 INITIAL PETITION, ADDITIONAL HOURLY FEES WOULD HAVE APPLIED HAD CASE PROCEEDED TO CREDITOR MEETING, ETC. 26 Disclosure of Compensation para. 1, 5(e), ECF No. 28.1 27 1 Concerned that Stephen Cole and Sandbank filed the petition 2 without the intent of prosecuting the case to discharge, the court 3 ordered Sandbank to file the fee agreement with Stephen Cole. Order, 4 ECF No. 32. He has not done so. From that refusal, the court draws 5 the negative inference, i.e., that the fee agreement would show that 6 from the beginning Sandbank did not intend to prosecute the case to 7 conclusion. 8 B. Vivian Cole’s bankruptcy 9 On April 2, 2024, the day following the dismissal of Stephen 10 Cole’s bankruptcy, Sandbank filed a skeletal Chapter 7 bankruptcy on 11 behalf of Vivian Cole. Vol. Pet., In re Vivian Cole, No. 24-21359 12 (Bankr. E.D. Cal. April 2, 2024), ECF No. 1. Vivian Cole’s bankruptcy 13 followed a nearly identical path to that of her husband. The petition 14 indicated that the debtor “will pay the entire [filing] fee” with the 15 petition. Id. at § 8. The fee was not paid with the petition. The 16 petition contends that the debtor received credit counseling prior to 17 the date of the petition but that the debtor “do[es] not have a 18 certificate of completion.” Id. at § 15. It indicated that Vivian 19 Cole had between “1-49” creditors and owed “$100,001-$500,000” in 20 debts. Id. at § 20. 21 The creditors matrix included only four creditors. Verification 22 of Master Address List, ECF No. 4. Three of the four precisely 23 overlapped with the creditors listed by her husband, Stephen Cole. 24 The next day, on April 3, 2024, the Clerk of the Court issued a 25 Notice of Incomplete Filing, which specified the documents necessary 26 to complete the filing: Form 122A, Schedules A/B-J, Statement of 27 unlawfully between pre-petition and post-petition work. Gordon v. Hines (In re Hines) 1 Financial Affairs and the Summary of Liabilities. Not. Incomplete 2 Filing, ECF No. 6. It also informed the debtor and Sandbank that the 3 remaining documents were due April 16, 2024. The notice was served on 4 Sandbank. 5 On April 5, 2024, the Clerk of the Court warned the debtor that 6 the failure to file all the remaining schedules and statements by 7 April 16, 2024, would result in dismissal of the case. Notice of 8 Incomplete Filing, ECF Nos. 9. 9 On Saturday, April 6, 2024, the petition, the Clerk of the Court 10 also issued a “Notice of Payment Due,” ECF No. 10. That document 11 warned the that the failure to pay the filing fee within three 12 business days [Wednesday, April 10, 2024] would result in an order to 13 show cause. Id. 14 When Sandbank did not file the Disclosure of Compensation, Form 15 B2030, on April 10, 2024, the Clerk of the Court issued an Order to 16 Show Cause why sanctions should not be imposed. Order to Show Cause, 17 ECF No. 14; LBR 2016-4 (instructing the Clerk of the Court to set the 18 matter before the Chief Bankruptcy Judge). The Clerk of the Court set 19 a hearing date for the Order to Show Cause of May 20, 2024. That 20 order stated: 21 THEREFORE, IT IS ORDERED the debtor’s(s’) attorney in this bankruptcy case appear before the Court on the following 22 date, time and place [May 20, 2024, at 1:00 p.m.] and show why sanctions should not be imposed on debtor’s attorney or 23 other appropriate relief ordered this bankruptcy case for failure to comply with the provisions of the Bankruptcy 24 Code, Federal Rules of Bankruptcy Procedure, and Local Rules of Practice and local requirements. 25 26 Order to Show Cause, ECF No. 14. 27 Neither debtor Cole, nor Sandbank, filed the schedules and 1 Nor did the debtor, or Sandbank, seek an enlargement of time to do so. 2 On April 22, 2024, the Clerk of the Court dismissed the case for 3 failure to file the schedules and statements. Order Dismissing Case, 4 ECF No. 19. 5 On April 22, 2024, the Clerk of the Court dismissed the case for 6 failure to file the schedules and statements. Order Dismissing Case, 7 ECF No. 19. 8 On May 8, 2024, the day following the imposition of monetary 9 sanctions against him in In re Stephen Cole, No. 24-20976 (Bankr. E.D. 10 Cal. March 12, 2024), Sandbank filed the Disclosure of Compensation. 11 Disclosure of Compensation, ECF No. 21, in this case. It stated: 12 Pursuant to 11 U.S.C. § 329(a) and Bankruptcy Rule 2016(b), I certify that I am the attorney for the above-named 13 debtor(s) and that compensation paid to me within one year before the filing of the petition in bankruptcy, or agreed 14 to be paid to me, for service rendered or to be rendered on behalf of the debtor(s) in contemplation of or in 15 connection with the bankruptcy case is as follow: 16 For legal services, I have agreed to accept $150.00. 17 Prior to the filing of this statement I have received $150.00. 18 Balance Due $0.00. 19 ... 20 [Other provisions as needed] FEE OF $150 FOR FILING OF 21 INITIAL PETITION, ADDITIONAL HOURLY FEES WOULD HAVE APPLIED HAD CASE PROCEEDED TO CREDITOR MEETING, ETC. 22 23 Disclosure of Compensation para. 1, 5(e), ECF No. 21.2 24 Also, on Wednesday, May 8, 2024, four weeks after the last day 25 for paying the filing fee to avoid dismissal, the filing fee was paid. 26

27 2 The agreement between Vivian Cole and Sandbank also appears to split fees unlawfully between pre-petition and post-petition work. Gordon v. Hines (In re Hines) 1 Concerned that Vivian Cole and Sandbank filed the petition 2 without the intent of prosecuting the case to discharge, the court 3 ordered Sandbank to file the fee agreement with Vivian Cole. Order, 4 ECF No. 32. He has not done so. From that refusal, the court draws 5 the negative inference, i.e., that the fee agreement would show that 6 from the beginning Sandbank did not intend to prosecute the case to 7 conclusion. 8 Notwithstanding dismissal, on May 20, 2024, this court convened 9 the hearing on the Order to Show Cause for failure to file the 10 Disclosure of Compensation, Form B2030. Neither Sandbank, nor the 11 debtor, appeared. Civ. Minutes, ECF No. 31. Because the Disclosure 12 Statement had been filed, the court dropped the matter without further 13 action. Civil Minutes, ECF No. 31. 14 II. PROCEDURE 15 This court issued an order to show cause to Joseph Sandbank, 16 attorney for the debtors; the gist of that order was whether Sandbank 17 should be sanctioned for filing Chapter 7 bankruptcies for Stephen 18 Cole and Vivian Cole for the purpose of causing unnecessary delay, 19 Fed. R. Bankr. P. 9011(b)(1), to wit: filing bankruptcy without the 20 intention of prosecuting the case to conclusion and/or discharge. 21 Sandbank has not filed opposition to the order to show cause. Nor did 22 Sandbank appear at the hearing on the order to show cause. 23 III. JURISDICTION 24 This court has jurisdiction. 28 U.S.C. §§ 1334(a)-(b), 157(b); 25 see also General Order No. 182 of the Eastern District of California. 26 Jurisdiction is core. 28 U.S.C. § 157(b)(2)(A); In re Carrera, No. 27 2016 WL 4400652, at *5 (B.A.P. 9th Cir. Aug. 16, 2016), aff'd sub nom. In re Vizconde 1 IV. LAW 2 Federal Rule of Bankruptcy Procedure 9011 provides: 3 By presenting to the court (whether by signing, filing, submitting, or later advocating) a petition, pleading, 4 written motion, or other paper, an attorney or unrepresented party is certifying that to the best of the 5 person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances,-- 6 (1) it is not being presented for any improper 7 purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation; 8 (2) the claims, defenses, and other legal contentions 9 therein are warranted by existing law or by a nonfrivolous argument for the extension, modification, 10 or reversal of existing law or the establishment of new law; 11 (3) the allegations and other factual contentions have 12 evidentiary support or, if specifically so identified, are likely to have evidentiary support after a 13 reasonable opportunity for further investigation or discovery; and 14 (4) the denials of factual contentions are warranted 15 on the evidence or, if specifically so identified, are reasonably based on a lack of information or belief. 16 17 Fed. R. Bankr. P. 9011(b) (emphasis added). 18 Violations of Rule 9011 may form the basis of monetary sanctions. 19 Fed. R. Bankr. P., 9011(c); sanctions may be ordered after a motion by 20 a party in interest or sua sponte. Fed. R. Bankr. P. 9011(c)(1)(A)- 21 (B). 22 Where Rule 9011 sanctions are ordered sua sponte, a heightened 23 standard applies; the conduct that is the subject of the sanction must 24 amount to bad faith. In re Nakhuda, 544 B.R. 886, 899, 901 (9th Cir 25 BAP 2016). The filing of a bankruptcy petition for the purpose of 26 stalling creditors and without the intention of prosecuting the case 27 to discharge may form the basis of Rule 9011(b)(1) bad faith. In re Carrera 1 V. DISCUSSION 2 A. Bad Faith 3 The court finds an improper purpose: a specific intent to 4 unnecessarily delay creditors. Sandbank filed the case to obtain the 5 stay, 11 U.S.C. § 362(a), and without the intention of prosecuting it 6 to conclusion and discharge. At least in this case, that conduct 7 rises to the level of the bad faith described in Nakhuda and Carrera. 8 The court draws that inference from the following direct evidence. 9 First, in each case, Sandbank exhibited stalling behaviors. Examples 10 include: the filing of two skeletal petitions without later effort to 11 complete the required schedules and statements; the 11th hour payment 12 of the filing fees to avoid dismissal; failure to obtain credit 13 counseling;3 and failure to file the Disclosure of Compensation until 14 after the court sanctioned counsel $1,000. 15 Second, a pattern of delay exits between the petitions of Stephen 16 Cole and Vivian Cole; Sandbank was counsel of record for each of the 17 Coles. In almost every instance, spouses file a joint bankruptcy 18 petition. 11 U.S.C. § 302. Without apparent good reason, Stephen 19 Cole and Vivian Cole filed individual petitions. 11 U.S.C. § 301. 20 And the timing of those petitions strongly suggests an improper 21 purpose. Stephen Cole’s Chapter 7 case was dismissed on April 1, 22 2024, and Vivian Cole’s Chapter 7 petition was filed April 2, 2024. 23 By timing these petitions as Sandbank did, the debtor purchased the 24 stay, 11 U.S.C. § 362(a), without intervening gap for $3004 for 42 days 25 3 Concededly, the petition represents that credit counseling was obtained 26 prior to the petition. Vol. Pet. § 15, In re Stephen Cole, No. 24-20976 (Bankr. E.D. Cal. March 12, 2024), ECF No. 1. But because the certificate of 27 completion was never filed the court infers that credit counseling was not obtained prior to the filing of the petition. 1 (March 12, 2024, to April 22, 2024, inclusive). Absent other reason, 2 the filings of serial, sequential bankruptcy petitions are strong 3 evidence of an improper purpose. 4 Third, Sandbank has not cooperated with the court in its effort 5 to investigate the issue. For example, this court ordered Sandbank to 6 file with the Clerk of the Court his fee agreement with each debtor. 7 Order, In re Stephen Cole, No. 24-20976 (Bankr. E.D. Cal. March 12, 8 2024), ECF No. 32; Order, In re Vivian Cole, No. 24-21359 (Bankr. E.D. 9 Cal. April 2, 2024), ECF No. 25. He has not done so. From the lack 10 of cooperation, the court infers the most negative inference, i.e., 11 that Sandbank specifically intended to unnecessarily delay creditors 12 and that the fee agreement provides evidence of that fact. 13 Fourth, a fee of $150 for filing a Chapter 7 suggests that 14 Sandbank believed that little work would be required and that the case 15 would last a limited time. While the fee agreement might provide 16 evidence to the contrary, i.e., hourly charges for work thereafter, 17 Sandbank has refused to provide the court a copy of the fee agreement. 18 For each of these reasons, the court infers bad faith, i.e., a 19 specific intention to unnecessarily delay creditors without the 20 intention of pursuing either case to conclusion. 21 B. Sanction 22 The amount of the sanction should be sufficient to deter 23 repetition of the conduct by the offending attorney and others. Fed. 24 R. Bank. P. 9011(c)(2); In re Carrera, No. BAPNC151383KITAJU, 2016 WL 25 4400652, at *9 (B.A.P. 9th Cir. Aug. 16, 2016) ($2,000 penalty 26 upheld), aff'd sub nom. In re Vizconde, 715 F. App'x 630 (9th Cir. 27 2017). It should not be a serious penalty in the nature of criminal Id. 1 The court should consider a variety of factors. 2 To determine an appropriate sanction, the bankruptcy court should consider: (1) whether the duty violated was to a 3 client, the public, the legal system or the profession; (2) whether the lawyer acted intentionally, knowingly or 4 negligently; (3) whether the lawyer's misconduct caused a serious or potentially serious injury; and (4) whether 5 aggravating factors or mitigating circumstances exist. Crayton, 192 B.R. at 980. 6 Aggravating factors include considerations that justify an 7 increase in the degree of discipline imposed, such as a prior disciplinary offense, multiple offenses, a pattern of 8 misconduct, and refusal to acknowledge the wrongful nature of the conduct. Id. at 981. Mitigating circumstances 9 include considerations which justify a reduction in the degree of discipline, such as the absence of a prior 10 disciplinary record, personal or emotional problems, inexperience in the practice of law, or a timely good faith 11 effort to make restitution or to rectify the consequences of the misconduct. Id. 12 In re Brooks-Hamilton, 400 B.R. 238, 252–53 (B.A.P. 9th Cir. 13 2009) 14 Considering the Brooks-Hamilton factors, the court finds that: 15 (1) the filing a bankruptcy with the sole intention of causing 16 unnecessary delay injures the public; (2) Sandbank acted 17 intentionally, rather than carelessly; (3) the injury to the public 18 was modest, i.e., a 42-day delay, not serious; and (4) aggravating, 19 not mitigating, factors exist. Aggravating factors include: multiple 20 offenses, i.e., two separate Chapter 7 cases; a pattern of misconduct, 21 i.e., stalling behaviors; and a refusal to acknowledge the wrongful 22 nature of the conduct, i.e., refusal to cooperate in the resolution of 23 the problem or to appear at any of the hearings noticed by this court. 24 For these reasons, the court imposes a sanction of $2,000 in each 25 case. 26 \ 27 \ 1 VI. CONCLUSION 2 The order to show cause is sustained and a monetary sanction of 3 $2,000 in each case is imposed. 4 Dated: June 17, 2024 MfS. 6 ‘ Fredrick E. Clement 7 United States Bankruptcy Judge 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 13

1 Instructions to Clerk of Court

2 Service List - Not Part of Order/Judgment

3 The Clerk of Court is instructed to send the Order/Judgment or other court generated document transmitted herewith to the parties below. The Clerk of Court will send the document 4 via the BNC or, if checked ____, via the U.S. mail.

6 Debtor(s) Attorney for the Debtor(s) (if any)

7 Bankruptcy Trustee (if appointed in the case) Office of the U.S. Trustee Robert T. Matsui United States Courthouse 8 501 I Street, Room 7-500 9 Sacramento, CA 95814 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27