Summit Financial, Inc.

• Court: United States Bankruptcy Court, C.D. California
• Decided: November 5, 2021
• Docket: 8:21-bk-12276
• Status: Unknown

Opinion

2 FILED & ENTERED

4 NOV 05 2021

CLERK U.S. BANKRUPTCY COURT 6 C Be Yn b t r o a l tl e D i s t r i c Dt E o Pf UC Ta Yli f Cor Ln Eia RK 7

8 UNITED STATES BANKRUPTCY COURT 9 CENTRAL DISTRICT OF CALIFORNIA, SANTA ANA DIVISION 10 Case No.: 8:21-bk-12276-SC 11 In re: CHAPTER 11 12 Summit Financial, Inc. ORDER VACATING OSC AND

13 SUGGESTION OF CURTAILMENT OF 14 PLAGIARISM IN COURT PLEADINGS Debtor(s). 15 Date: November 3, 2021 Time: 1:30 PM 16 Courtroom: 5C - Virtual 17 18 On November 3, 2021, the Court conducted a hearing on its Order Directing 19 Debtor to Appear and Show Cause Why Debtor Should Not Be Removed as Debtor in 20 Possession (the “DIP”), Or Alternatively, Why the Case Should Not Be Converted Or 21 Dismissed entered October 22, 2021 [Dk. 47] (the “OSC”). Appearances are as noted in 22 the record. 23 As observed in the OSC, the Court was quite concerned with the Global Notes 24 and Statement of Limitations, Methodology, and Disclaimers Regarding Schedules and 25 Statement of Financial Affairs filed by the DIP on October 4, 2021 [Dk. 34] (the 26 “Disclaimer”). Specifically, the Disclaimer provides that "[t]he Debtor and its agents, 27 attorneys, and financial advisors expressly do not undertake any obligation to update, 28 modify, revise, or re-categorize the information provided herein, or to notify any third 1 party should the information be updated, modified, revised, or re categorized." [Dk. 34, 2 pg. 2:22-25]. Put generically, the Disclaimer notified the Court and all parties in interest 3 that the DIP’s position was (1) it had no duty to insure that the Debtor’s Schedules or 4 Statement of Financial Affairs were accurate; (2) it had no duty to update or correct its 5 Schedules or Statement of Financial Affairs; and (3) even if the Debtor was to make 6 changes to its Schedules or Statement of Financial Affairs, it had no duty to tell any 7 creditor that changes were made, whether affected by the change or not. 8 On October 26, 2021, in response to the OSC, the DIP filed an Amended Global 9 Notes and Statement of Limitations, Methodology, and Disclaimers Regarding 10 Schedules and Statement of Financial Affairs [Dk. 52], as well as declarations from the 11 DIP’s then-proposed counsel (“Counsel”) and the DIP’s general manager [Dks. 53 and 12 54 respectively]. During the hearing and within his declaration, Counsel attested that the 13 amendment was provided to remove the offending language and indicated that the 14 offending language, which Counsel viewed “as somewhat boilerplate,” was generally 15 incorporated into the DIP’s own pleadings from the examples of pleadings filed in 16 various mega-cases1 filed by other law firms in the jurisdictions of the Second Circuit (In 17 re Sears Holdings Corporation, et al, Case No. 18-23538 (RDD) (Bankr. S.D.N.Y. 18 2018), Dkt. No. 1609, at page 3), the Third Circuit (In re Brookstone Holdings Corp., et 19 al., Case No. 18-11780 (BLS) (Bankr. D. Del. 2018), Dkt. No. 361, at page 2; In re Boy 20 Scouts of America and Delaware BSA, LLC., Case No. 20-10343 (LSS) (Bankr. D. Del. 21 2020), Dkt. No. 375, at page 2), and Fourth Circuit (In re Chinos Holdings, et al, Case 22 No. 20-32181 (KLP) (Bankr. E.D. Va. 2020), Dkt. No. 7, at page 2). 23 Ironically, Counsel did not mention that he had also filed the same Disclaimer 24 within the Ninth Circuit, or the level of billing by his firm for the disclaimers in those 25 26 1 It should be noted that this is a Subchapter V Chapter 11 case consisting of seven (7) nail salons in the 27 Orange County, California area with the primary financial issues consisting of accumulated prepetition rent on the leases of the salons. Notwithstanding over 10 pages of "global notes" on the schedules and 28 statement of financial affairs, this is not General Motors. Subchapter V was meant to reduce the costs of Chapter 11 to small businesses, not bilk the small businesses and their creditors with mega case billing opportunities. 1 cases. (In re G-STAR Inc., Case No. 2-20-bk-16040-WB (Bank. C.D. Cal. 2020), Dkt. 2 No. 59; In re Coldwater Development, LLC., Case No. 2-21-bk-10335-BB (Bank. C.D. 3 Cal. 2021), Dkt. No. 22). 4 From the declaration, the Court infers that Counsel’s position is that since the 5 Disclaimer was filed in various large cases (and now we know in cases in the Central 6 District of California), the Disclaimer was valid and acceptable, even though the 7 language of the Disclaimer itself contradicts universal understandings that bankruptcy 8 schedules and statements of financial affairs require continuous monitoring and 9 updating when necessary, and that the Federal Rules of Bankruptcy Procedure require 10 notice of all amendments to affected parties in interest. 11 A debtor in possession is a fiduciary to its creditors. In Hamilton v. State Farm 12 Fire & Cas. Co., the Ninth Circuit succinctly described a debtor’s obligations: 13 The debtor, once he institutes the bankruptcy process, disrupts the flow of 14 commerce and obtains a stay and the benefits derived by listing all his assets. The Bankruptcy Code and Rules ‘impose upon the bankruptcy debtors an 15 express, affirmative duty to disclose all assets, including contingent and unliquidated claims.’ In re Coastal Plains, 179 F.3d at 207–208; Hay, 978 F.2d at 16 557; 11 U.S.C. § 521(1). The debtor's duty to disclose potential claims as assets does not end when the debtor files schedules, but instead continues for the 17 duration of the bankruptcy proceeding. In re Coastal Plains, 179 F.3d at 208; 18 Youngblood Group v. Lufkin Fed. Sav. & Loan Ass'n, 932 F.Supp. at 867; Fed. R. Bankr.P. 1009(a) (schedules may be amended as a matter of course before the 19 case is closed)…We agree with the Fifth Circuit's analysis in In re Coastal Plains when it said, ‘[I]t is very important that a debtor's bankruptcy schedules and 20 statement of affairs be as accurate as possible, because that is the initial 21 information upon which all creditors rely.’ Id.

22 Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 785 (9th Cir. 2001). 23 Accordingly, contrary to the Disclaimer, the DIP is required to update, modify, 24 revise, or re-categorize the information provided therein, and to notify any applicable 25 third party. Moreover, the failure to notify an affected party of an amendment, “…clearly 26 violates the applicable bankruptcy rule, which provides that "the debtor shall give notice 27 of [any] amendment [to the schedule of assets] to the trustee and to any entity affected 28 thereby." Bankr. R. 1009.” In re Woodson, 839 F.2d 610, 615 (9th Cir. 1988). 1 This Court is not naive; bankruptcy practice for attorneys can be difficult at times, 2 as can certain clients with respect to their veracity or transparency. Limiting liability is 3 typically at the forefront of legal practitioners’ minds. Also, this Court appreciates that 4 simply filing non-sequitur statements of disclaimer or unilateral liability limiting 5 declarations do not make them enforceable. So, what’s the big deal, some would say? 6 At the hearing, Counsel acknowledged that most of the Disclaimer was simply 7 copied and pasted, with certain amendments, from pleadings filed in other cases. Since 8 Counsel cited pleadings filed in several cases, this Court took the opportunity to 9 examine the disclaimers filed therein. Indeed, a significant amount of boiler-plate 10 language from the cases cited by Counsel was adopted, and some might even say 11 plagiarized. 12 Which brings us to the next point. Is copying and pasting significant text from 13 another law firm’s pleading into your own plagiarism2, and even if not, is it ethical? 14 Federal and state courts have sanctioned counsels for plagiarism. Lindsay Lohan 15 v. Perez, et al., 924 F.Supp.2d 447 (E.D.N.Y. 2013). 16 With respect to defendants' allegations that the majority of the Opposition was plagiarized, plaintiff and her counsel do not deny these assertions. Indeed, 17 defendants' submissions to the Court evidence that almost the entire text of the Opposition is taken from unidentified, unattributed sources. (See Jimenez Decl., 18 Ex. A.) Obviously, this type of conduct is unacceptable and, in the Court's view, is 19 sanctionable pursuant to its inherent powers.

20 Id. at 459 (2013). See also Kim v. Westmoore Partners, Inc., 201 Cal. App. 4th 267, 273 21 (2011) (“The conduct of [] counsel herein, which included seeking an extension of time 22 to file his brief under false pretenses, and then filing a brief which was not just 23 boilerplate, but a virtual copy of a brief for another case—including a boilerplate 24 accusation of misconduct against appellants' counsel and a boilerplate request for 25 sanctions based on a purportedly ‘frivolous’ appeal—will not be countenanced… 26 Donahue's conduct on appeal was inappropriate in nearly every respect, and we hereby 27 28 2 “Plagiarism” is also the seventeenth (17th) album (1997) by the great rock duo Ron Mael and Russell Mael, aka Sparks. 1 sanction him in the amount of $10,000”). 2 Academics have opined on this subject. Professor Peter A. Joy, Henry Hitchcock 3 Professor of Law and Co-Director of the Criminal Justice Clinic of Washington 4 University School of Law in St. Louis Missouri, and Professor Kevin C. McMunigal, 5 Judge Ben C. Green Professor at Case Western Reserve School of Law in Cleveland, 6 Ohio, stated in their article “The Problem of Plagiarism as an Ethics Offense” the 7 following: 8 Plagiarism as a potential pitfall does not burn brightly on the ethical radar screens of litigating lawyers. They are likely to view plagiarism as a species of 9 offense peculiar to academia and the publishing world, not litigation filings. A recent disciplinary case from Iowa, though, demonstrates that judges and ethics 10 authorities do discipline lawyers for what they label as plagiarism in connection with court filings. In this column, we question the practices of labeling attorney 11 copying, even without acknowledgment, as plagiarism, and treating it as a per se ethics violation. We argue, instead, that analysis of copying in the context of 12 litigation should focus directly on the quality of the filing at issue and the 13 competence and diligence of the lawyer who prepared it. 14 Peter A. Joy. and Kevin C. McMunigal, The Problems of Plagiarism as an Ethics 15 Offense (2011), Washington University in St. Louis Legal Studies Research Paper No. 16 12-05-13, available at https://ssrn.com/abstract=2067694. 17 Professors Joy and McMunigal argue that all, or almost all, lawyers and judges 18 copy and/or paste the work of others – the work of associates, the work of law clerks – 19 without repercussion or recrimination. Id. None dare call that plagiarism. They argue, as 20 Counsel argued here, that since form books exist, as do form files, PACER/ECF, and 21 Westlaw©3 and Lexis©, there is no plagiarism. Id. Professors Joy and McMunigal tell us 22 that “[a]ll lawyers know how it works.” Id. at 57. “Also, judge’s work, in other words, is 23 frequently that of a compiler and editor of an opinion rather than its sole author… Also, 24 judges make no implicit claim of originality.” Id.4 25 26 3 At the hearing, Counsel referred to the existence of a Global Notes “form” located on Westlaw. Global 27 Notes for Schedules and Statements of Financial Affairs, Practical Law Standard Document w-001-4367. However, as noted by the Court and conceded by Counsel at the hearing, the Disclaimer at issue herein 28 is nearly identical to the cases cited in Counsel’s declaration, and not the purported “form” language contained on Westlaw. 4 In case anyone wonders, please be assured that this Judge wrote this order’s text himself. 1 Their solution for any ethical quandary of this nature is: copy smart. Only copy 2 || without attribution from competent legal writing, they instruct. The Professors justify 3 || copied text with the belief that it probably is written more competently than the copying 4 || attorney could do it.° /d. at 58. But they add, for goodness’s sake, when you copy be 5 || sure that you fulfill “one of a lawyer's most basic duties, competence.” /d. If you're going 6 || to copy, they insist, make sure that your own facts match up with the facts present from 7 || the original source. /d. And make sure that the law is correct and hasn’t changed since 8 || the original text was written. /d. at 58 — 59. That might be considered Joy/McMunigal 9 || rule # 2 — don’t embarrass yourself or your client. Portrayed as an ethical consideration, 10 || they note that copying without attribution “may be (ethically) inappropriate to the extent 11 || that it reflects on the lawyer failing to do the work for which he or she was hired, which 12 || would include at least ensuring that the copied material was relevant, accurate, and up 13 || to date.” /d. at 59 (emphasis added). 14 Notwithstanding the foregoing, after consideration of the pleadings filed in 15 response to the OSC and the argument of Counsel at the hearing, but with very limited 16 || cause, the Court hereby VACATES the OSC. However, this matter will be revisited at 17 || the time of professional compensation review. 18 IT IS SO ORDERED. 19 20 21 22 23 Ax Lo 25 Date: November 5, 2021 Scott C. Clarkson United States Bankruptcy Judge 26 27 28 5 With this, the Court sincerely agrees. Anyone who believes that it’s a good idea to copy and paste from another firm’s brief in another case without attribution, or to rely on boilerplate language without careful vetting, is probably unable to prepare and present as good an argument as the original drafter.