597 B.R. 448
Bankr. E.D.N.Y.2019Background
- Debtor Robert Feldman (an attorney) filed Chapter 13 on January 13, 2017, the eve of a scheduled state-court trial brought by former client Donald Glassman for malpractice/defamation; stay was limited (no execution).
- Glassman filed a large contingent claim and an adversary proceeding seeking nondischargeability; he moved to dismiss the bankruptcy for bad faith and later moved for sanctions for discovery breaches.
- Court-ordered Rule 2004 discovery and a November 6, 2017 scheduling order required production of documents (credit card, PayPal, Venmo, etc.), a sworn statement of completeness, a deposition, and pretrial filings.
- Feldman repeatedly failed to produce subpoenaed records, did not provide the sworn completeness statement, filed schedules/SOFAs with material misstatements/omissions (income, spouse, contingent-fee claims), and blamed his counsel for errors.
- At trial the Debtor testified inconsistently, admitted omissions, displayed a dismissive attitude toward disclosure obligations, and the court found the record showed bad-faith filing and continued misconduct.
- The court dismissed the Chapter 13 case with prejudice to re-filing for one year and imposed partial monetary sanctions for discovery noncompliance.
Issues
| Issue | Glassman's Argument | Feldman's Argument | Held |
|---|---|---|---|
| Whether the Chapter 13 petition should be dismissed for bad faith under 11 U.S.C. §1307(c) | Filing was timed to stay the state-court trial; schedules were dishonest; few other creditors; abuse of process | No bad faith; errors inadvertent or counsel's fault | Dismissed for cause for bad faith (case was essentially a two-party dispute; material misstatements; discovery noncompliance) |
| Whether dismissal should be with prejudice to refiling | Debtor's conduct warrants a refile bar to prevent abuse | Opposes bar; disputes bad faith finding | Dismissal with prejudice to refiling for one year granted under §105(a) and court equity powers |
| Whether monetary sanctions are warranted for failure to obey discovery orders (Fed. R. Civ. P. 37 / Fed. R. Bankr. P. 7037 / inherent power) | Seeks full fees/costs from May 2017–June 2018 | Argues procedural defects and/or justification for noncompliance | Sanctions imposed in part: reasonable fees limited to those caused by discovery noncompliance (≈ $15,953.20); full fee request denied as excessive |
| Whether 28 U.S.C. §1927 sanctions apply because Debtor is an attorney | Debtor, being an attorney, should be personally liable for multiplying proceedings | Debtor was represented by counsel (not pro se), so §1927 inapplicable | §1927 sanctions denied because Debtor was represented by counsel and §1927 targets counsel who multiply proceedings |
Key Cases Cited
- C-TC 9th Ave. P'ship v. Norton Co., 113 F.3d 1304 (2d Cir. 1997) (two-party dispute principle favors state-court forum)
- Leavitt v. Soto, 171 F.3d 1219 (9th Cir. 1999) (bad-faith filing can justify dismissal with prejudice)
- Chambers v. NASCO, Inc., 501 U.S. 32 (U.S. 1991) (federal courts have inherent authority to sanction abuse of judicial process)
- Gompers v. Buck's Stove & Range Co., 221 U.S. 418 (U.S. 1911) (sanctioning powers are integral to judicial function)
- Diorio v. Kreisler-Borg Constr. Co., 407 F.2d 1330 (2d Cir. 1969) (reckless indifference to truth in schedules equates to fraud)
- Boroff v. Tully (In re Tully), 818 F.2d 106 (1st Cir. 1987) (debtor remains responsible for accuracy of filings prepared by counsel)