OPINION SANCTIONING ATTORNEY ANTHONY J. DELUCA FOR FAILING TO REPRESENT WAYNE A. SEARE IN THIS ADVERSARY PROCEEDING
I. INTRODUCTION.170
II. DETAILED FACTS.171
A. The St. Rose Litigation.171
B. The Garnishment.171
C. The Initial Consultation.171
D. The Bankruptcy Case is Filed.173
E. The Adversary Proceeding is Filed.173
F. DeLuca’s Refusal to Defend.173
G. The Order to Show Cause.174
H. The Evidentiary Hearing.175
I. St. Rose and Seare Settle the Adversary Claim.176
III. THE PARTIES AND THEIR POSITIONS.176
A. DeLuca’s Arguments .176
B. Seare’s Contentions .178
C. Seare’s Credibility.180
IV. LEGAL ANALYSIS. rH 00 r — I
A.The Nature of the Legal Profession tH 00 -rH
1. Interplay Between State and Federal Law.182
2. Unbundling.183
3. Nev. Rule of Prof’l Conduct 1.1 — Duty of Competence.188
a. Legal Standard.188
b. Application.190
4. Nev. Rule of Prof’l Conduct 1.2(c) — Scope of Services.192
a. Reasonable Under the Circumstances.192
(1) Legal Standard.192
(2) Application.194
b. Informed Consent.196
(1) Legal Standard.196
(2) Application.203
5. Nev. Rule of Prof’l Conduct 1.5 — Attorneys’ Fees.206
a. Legal Standard.206
b. Application.206
6. Nev. Rule of Prof’l Conduct 1.4 — Communication with Clients.207
a. Legal Standard.207
b. Application.208
7. The Bankruptcy Code.209
a. Section 707(b)(4)(C). 209
(1) Legal Standard. .209
(2) Application.211
b. Sections 526-528 . 213
(1) Legal Standard.213
(2) Application.214
Y. SANCTIONS.216
A. The Purpose of Sanctions.216
B. The Range of Sanctions.217
C. The ABA Standards .219
1. The Duties Violated.220
2. DeLuca’s Mental State.221
3. Seriousness of the Injury.221
4. Aggravating or Mitigating Factors.223
D. The Sanctions Imposed.224
1. Disgorgement of Fees.224
2. Publication of this Decision.226
3. Continuing Education .226
4. Provision of this Decision to Future Clients.226
YI. CONCLUSION.227
1. INTRODUCTION
When a consumer consults a lawyer, there is a reasonable expectation that the lawyer’s advice will address the consumer’s concerns. Here, that didn’t happen. Although the consumers here — debtors Wayne Seare and Marinette Tedoco— gave their attorney what any attorney would need to identify their problem, the attorney gave bad advice. When the bad advice was discovered, the attorney, Anthony J. DeLuca, doubled down. He refused to assist Seare and Tedoco further, whether or not they had the money to pay him for it, which, as Chapter 7 debtors, they did not. DeLuca justified his inaction by pointing to provisions in his standard form retainer agreement that Seare and Tedoco had signed. For the reasons given in this opinion, that conduct was wrong.
A.The St. Rose Litigation
Seare’s legal odyssey began in December 2010 when he filed a complaint in the United States District Court for the District of Nevada alleging employment discrimination against his former employer, St. Rose Dominican Health Foundation (“St. Rose”),
In awarding these attorney’s fees, the district court found that Seare knowingly provided false information to the court, allowed his attorney to file an amended complaint based upon the false information, and instituted and conducted litigation in bad faith — amounting to “fraud upon the court.” (Id. at 3.) The district court then entered judgment on October 25, 2011 in the amount of the attorney’s fees, or $67,430.58 (the “Judgment”).
B. The Garnishment
By January 2012, St. Rose had obtained a writ of execution and served the related writ of garnishment on Seare’s current employer. (Dist.Dkt. Nos. 41, 43.) Seare’s desire to have the garnishment permanently stopped drove Marinette Te-doco (his wife) and him (collectively, the “Debtors”) to DeLuca to seek legal counsel about whether to file for bankruptcy. (Evid. Hr’g Tr. 3-4.)
C. The Initial Consultation
On February 13, 2012, Seare and Tedoco consulted with DeLuca at his law office. (See Bankr.Dkt. No. 27 ¶ 81; Ex. G (Retainer Agreement, executed on Feb. 13, 2012).) It was around 5:00 p.m., and the Debtors were there with their two young children, ages four and six. (Dkt. No. 47 at 4.) They met personally with DeLuca, which, as it turned out, was the only direct contact they had with him during the entire case. (Id. at 3-4.) Among other documents, they gave DeLuca copies of both the Order for Wage Garnishment and Wage Sanctions.
After the short meeting with DeLuca, the Debtors were placed in a small room to sign and initial the 19-page retainer agreement (the “Retainer Agreement”) under which they hired DeLuca. (Id. at 5.) De-Luca’s staff periodically checked to see if they had completed the forms, but no one sat with them to explain any part of the Retainer Agreement. (Id.)
The Debtors proceeded to execute the Retainer Agreement and retain DeLuca with a $200 down payment. In addition, DeLuca provided them with a 19-page “Frequently Asked Questions” document (the “FAQ”). (Ex. N.) The Debtors signed every relevant page and initialed every relevant paragraph of the Retainer Agreement. (Ex. G.) At the bottom of every page (right above the Debtors’ signatures) is the statement: “I have read, understand, and agree to this page and its contents.” (Id.) On the last page (right above the Debtors’ signatures) is the statement: “I have read and received the foregoing NINETEEN (19) pages and I understand and agree to its terms and conditions.” (Id. at 19.)
Notably, DeLuca did not sign or initial the Retainer Agreement. (Id.) The first page, a welcome page of sorts that thanks prospective clients for their business and instructs them to sign and initial the following pages, is a form letter with DeLu-ca’s printed signature. (Id. at 1.) It states that the Retainer Agreement is only valid if the Debtors sign and initial at every location indicated. (Id. at 1, 19.) The Retainer Agreement is evidently the same for all clients, with only a few differences in fees depending on whether the case is filed under Chapter 7 or Chapter 13. For the Debtors’ Chapter 7 case, DeLuca’s flat fee was $1,999.99. (Id. at 3.)
The Retainer Agreement separates basic services from those services that require additional fees:
BASIC SERVICES: Services to be performed by DeLuca & Associates include:
a. Analysis of debtor’s financial situation and assistance in determining whether to file a petition under the United States Bankruptcy code whether in Chapter 7 or chapter 13....
b. Review, preparation and filing of the petition, schedules, statement of affairs, and other documents required by the bankruptcy court;
c. Representation at the meeting of creditors.
d. Reasonable in person and telephonic consultation with the client....
ADDITIONAL FEES: There are circumstances which may require additional fees. Additional attorney fees will be charged for additional services including but not limited to: [1] Addressing allegations of fraud or nondischargeability;
... [13] ... Adversary Proceedings.... (Id. at 5, 7.) The Retainer Agreement does not explain the relationship between items [1] and [13].
The Retainer Agreement includes a fraud disclaimer: “DEBTS THAT DO NOT GO AWAY: Non-dischargeable
D. The Bankruptcy Case is Filed
On February 29, 2012, DeLuca Sled the Debtors’ Chapter 7 bankruptcy petition. (Bankr.Dkt. No. 1.) The St. Rose Debt is listed as a garnishment on Schedule F in the amount of $67,431.00. (Id. at 36.) The district court lawsuit underlying the St. Rose Debt is listed on the Debtors’ Statement of Financial Affairs as “St. Rose Dominican Hospital vs. Wayne Seare, Case No. 10CV-02190.” (Id. at 45.) The Debtors’ Schedule I indicates that Seare’s net monthly take home pay was $2,808 (without deducting the garnishment) and that the monthly garnishment was $329.
E. The Adversary Proceeding is Filed
On May 24, 2012, St. Rose filed its adversary complaint against Seare (the “Complaint”), claiming nondischargeability under Section 523(a)(4) and (a)(6). (Dkt. No. 1.) On May 30, the court granted the Debtors’ discharge with respect to all other debts. (Bankr.Dkt. No. 20.) Approximately $137,430 in unsecured debt was thus discharged, or 62% of the Debtors’ unsecured, non-priority claims.
F.DeLuca’s Refusal to Defend
Within several days, on June 4, 2012, DeLuca sent the Debtors an e-mail informing them of their discharge and that, as of the discharge date, their case was completed. (Ex. H at 2-3.) The e-mail appears to be a form message. It does not mention the particulars of the Debtors’ bankruptcy or the then-recently filed adversary proceeding. (See id.) It states, “we are very happy to inform you that you can now move forward with a fresh start on life, free from the stress of excessive debt. Now you can place your financial situation back on the right track.” (Id. at 3.)
Also on June 4, the Debtors responded via e-mail to DeLuca’s communication. (Ex. H at 2.) They thanked DeLuca for his e-mail and for “all the help in completing our [bjankruptcy.” (Id.)
They asked whether the St. Rose Debt was discharged, since they understood that St. Rose was going to pursue the adversary proceeding against them. (Id.) They closed the e-mail by asking DeLuca to “[pjlease let us know what we need to do.” (Id.)
On June 5, 2012, DeLuca’s office responded. (Id. at 1-2.) They reminded the
On June 6, 2012, the Debtors replied to the e-mail. (Id. at 1.) They admitted to understanding that DeLuca was hired only to “do our bankruptcy,” but were very upset and frustrated that the fax containing the proposed stipulation and order was never sent to them. (Id.) They asserted that they were never even aware that De-Luca had received those documents from St. Rose; “[n]ot informing your clients of very important documents and failing to return phone calls are unacceptable and unprofessional customer service.” (Id.) They requested copies of the proposed stipulation and order and the adversary complaint. (Id.)
Also on June 6, DeLuca sent a letter to the Debtors informing them that he would not represent Seare in the adversary proceeding. (Ex. I.) The substance of the letter is essentially the same as the earlier e-mail. (See Exs. H, I.)
On June 27, 2012, Seare filed his answer pro se in the adversary proceeding. (Dkt. No. 13.) He argued that the debt was dischargeable “due to the hardship on the dependents of debtor.” (Id. ¶¶ 11, 14.) He admitted to having “embellished” an email in the district court proceeding, but stated that there is other evidence to support his position. (Id. ¶ 12.) Seare requested that the court modify the debt for “feasible payments,” if it were found non-dischargeable, given that he has five dependents and lives paycheck-to-paycheck. (Id. ¶ 15.)
On August 2, 2012, the court held a scheduling conference for the adversary proceeding. DeLuca did not appear on behalf of Seare, who explained that DeLu-ca told him that DeLuca does not represent clients in adversary proceedings. (Dkt. No. 14 at 2.) St. Rose’s counsel stated that she had informed DeLuca shortly after the Debtors filed their petition of St. Rose’s intent to file a nondischargeability action. (Id.)
G. The Order to Show Cause
On August 3, 2012, the court issued its “Order to Show Cause Why This Court Should Not Sanction Anthony J. DeLuca for Failing to Represent Debtor in the ... Adversary Proceeding” (Dkt. No. 14.) The court was concerned that DeLuca had not complied with specific provisions of Nevada’s Rules of Professional Conduct,
Meanwhile, the adversary proceeding continued. On August 10, 2012, the court ordered a scheduling conference for September 13, which was later continued to October 19. On August 17, St. Rose filed its discovery plan. (Dkt. Nos. 17, 18, 21, 24.)
On August 22, 2012, DeLuca filed his brief in response to the Order to Show Cause (the “Reply Brief’). (Bankr.Dkt. No. 24.) The Reply Brief suffered from several procedural and substantive defects. DeLuca incorrectly filed the brief on the docket in the main bankruptcy case rather than the adversary proceeding. In addition, he did not file a certificate of service until October 24, 2012, one day after the evidentiary hearing at which the court ordered him to provide copies of his filings to Seare. (Dkt. No. 30.) DeLuca also failed to submit the retainer agreement that the Debtors had signed; instead, he submitted a blank, boilerplate document. (Bankr. Dkt. No. 24, Ex. B.) Substantively, DeLuca did not address the specific provisions of the Nevada Rules of Professional Conduct that the court had raised in the Order to Show Cause. (See Bankr.Dkt. No. 24.)
Back in the adversary proceeding proper, Seare, representing himself pro se, filed a witness list and initial disclosure statement on August 31, 2012. (Dkt. No. 19.)
On September 13, 2012, the court held the Order to Show Cause hearing (“OSC Hearing”). (OSC Hr’g Tr., Dkt. No. 34.) DeLuca, Seare, and Tedoco appeared. In addition to the previously-raised Nevada Rules of Professional Conduct, the court expressed concern that DeLuca had not complied with two sections of the Bankruptcy Code: 707(b)(4)(C), which mandates a “reasonable investigation into the circumstances that gave rise to the bankruptcy petition,” and 526(a), which regulates debt relief agencies. (OSC Hr’g Tr. 13-14.) The court ordered additional briefing and set an evidentiary hearing (the “Evidentiary Hearing”), where either party could call witnesses. On September 20, 2012, the court issued the “Order Setting Evidentiary Hearing.” (Dkt. No. 22.) The order confirmed the court’s instructions at the OSC Hearing and set the Evidentiary Hearing for October 23, 2012.
The adversary proceeding moved forward. On September 28, 2012, the court issued an order setting a settlement conference on October 19, which was later continued to December 13. (Dkt. Nos. 24, 27.)
On October 19, 2012, Seare filed his “Hearing Brief’ regarding the Evidentiary Hearing. (Dkt. No. 29.) The same day, DeLuca filed his supplemental brief in anticipation of the Evidentiary Hearing (the “Supplemental Brief’). (Bankr.Dkt. No. 27.) Again, he incorrectly filed it on the docket for the main bankruptcy case rather than the adversary proceeding. He also failed to file a certificate of service until one day after the Evidentiary Hearing. (Dkt. No. 31.) In addition to the brief, he filed a witness list, exhibit list, and various exhibits. (Bankr.Dkt. Nos. 28, 29.)
H. The Evidentiary Hearing
On October 23, 2012, the court held the Evidentiary Hearing. (Evid. Hr’g Tr., Dkt. No. 35.) Only Seare and DeLuca testified. At the hearing’s close, the court admitted all of DeLuca’s proposed.exhibits
Back in the adversary proceeding, the court issued an order regarding trial and pretrial matters on October 29, 2012, setting trial for March 6-7, 2013. (Dkt. Nos. 32, 33.)
I. St. Rose and Seare Settle the Adversary Claim
On December 5, 2012, St. Rose filed a stipulation and proposed order vacating the then-upcoming settlement conference. (Dkt. No. 48.) The filing indicates that Seare and St. Rose reached a tentative, confidential settlement for all claims in the adversary proceeding. (Id.) On December 6, the court approved the order and vacated the settlement conference. (Dkt. No. 49.) On January 2, 2013, St. Rose filed the “Confession of Judgment,” in which Seare authorizes judgment against him in the amount of $67,430.58. (Dkt. No. 51.) Because the issue of nondischargeability is not relevant to, the sanctions matter, the settlement does not render this analysis moot.
III. THE PARTIES AND THEIR POSITIONS
These facts present the legal issue of when consumer bankruptcy attorneys such as DeLuca may limit the scope of their representation, a practice colloquially referred to as “unbundling.” While un-bundling is permissible, it must be done consistent with the rules of ethics and professional responsibility binding on all attorneys. Those rules allow a lawyer to limit his or her representation only when it is reasonable under the circumstances to do so, and only when the client gives informed consent to the limitation. In this case, DeLuca met neither of these requirements. As a defense, DeLuca asserts that his retainer overrides such mandatory rules. As will be seen, his position is incorrect; to the extent his retainer is inconsistent with the applicable rules of professional responsibility, his retainer is unenforceable, and his abandonment of his clients violated norms applicable to lawyers generally.
A. DeLuca’s Arguments
DeLuca’s primary argument is that the Debtors had the burden to inform him that the Judgment was based on Seare’s fraud, and that they failed to meet this burden. In other words, he contends that he did not have an independent duty to investigate the nature of the Judgment. For this proposition, DeLuca cites the Retainer Agreement’s request for copies of all lawsuits within the last two years that involved the Debtors. (Bankr.Dkt. No. 27 at 5-6.) He also stated that his office procedure is to request copies of all lawsuits from debtors for review by himself and/or his staff. (Evid. Hr’g Tr. 39:24-40:7.)
From this dubious premise regarding the Debtors’ duties, he argues that the decision to unbundle all adversary proceedings, regardless of their relation to the relief requested or needed by a debtor was reasonable, and that the reasonable assumption of any attorney would be that a debt owed to a hospital is for medical care rather than a fraud judgment. (OSC Hr’g Tr. 4:8-18.) Had he known of the nature of the Judgment, so he argues, he would have declined to represent the Debtors in the first place. (Bankr.Dkt. No. 24 at 2.) He claims that he undertook representation based on “incomplete, inaccurate, or intentionally omitted information regarding the fraudulent nature of a significant portion of the Debtors’ debt.” (Id. at 3.) He further argues, using the benefit of hindsight, that it is reasonable to limit services when the client is a known liar. (Bankr.Dkt. No. 27 at 14.)
DeLuca’s next argument is that the Debtors gave informed consent to the exclusion of adversary proceedings. He asserts that the Retainer Agreement “specifically excludes adversary proceedings as part of the services provided ... for the basic fee.” (Bankr.Dkt. No. 24 at 2.) He argues that the Debtors had ample warning of the likelihood of an adversary proceeding because St. Rose communicated its intent to enforce its rights under the Judgment at the Section 341 meeting. (Id.) He further argues that the Debtors were “clearly advised of what services were to be covered under the agreement,” and testified that a staff member “go[es] through” the Retainer Agreement, paragraph-by-paragraph, with clients. (Bankr.Dkt. No. 27 at 14; Evid. Hr’g Tr. 41:20-42:2.) He points out that the Debtors signed the page that contains the “DEBTS THAT DO NOT GO AWAY” paragraph, which includes “[djebts incurred through fraud.” (Bankr.Dkt. No. 27 at 4.) Moreover, he argues, the FAQ also explains that debts incurred through fraud are nondischargeable. (Id. at 12-13.) Lastly, he claims that the Retainer Agreement made clear that the representation ended “by operation of law” when the clients obtained their discharge. (Id. at 8.) In short, his argument is that the Debtors executed the Retainer Agreement with the knowledge that (1) such debts are nondischargeable; (2) St. Rose would likely bring an adversary proceeding; (3) adversary proceedings were excluded from the flat fee; and (4) his representation ended when the clients obtained their discharge.
DeLuca seems to respond to the court’s concern that he did not comply with Section 707(b)(4)(C) by claiming that he performed due diligence in light of the limited information that the Debtors provided and their urgency to file for bankruptcy. (Id. at 11-14.) He asserts that Seare understood the Retainer Agreement and was given a copy of the FAQ, and that Seare thus had the burden to inform DeLuca of any fraudulently incurred debts. (Id. at 12.) According to DeLuca, because this is merely an issue of credibility that turns on whether he actually reviewed the Judgment during the initial consultation, the court should side with him because Seare is a known liar. (Id. at 13.) DeLuca did not address the court’s concerns about his compliance with Section 526(a).
DeLuca next claims that Seare suffered no prejudice from the nonrepresentation and that, in any event, Seare benefitted from the discharge. Seare suffered no prejudice, according to DeLuca, because he was “advised immediately after the filing of the adversary proceeding” that De-Luca would not represent him. (Id. at 10.) Seare contradicts this, however, by arguing that he did not learn of the Complaint until about two weeks after it was filed. (Dkt. No. 29 at 3.) DeLuca claims that Seare has had ample time to procure representation for the adversary proceeding;
DeLuca alleges that Seare benefitted from the bankruptcy because the discharge eliminated nearly $137,000 in unsecured debt — “it remains difficult to argue that the elimination of $137,429.69 of unsecured debt is not a benefit that exceeds the $1,999.00 paid for the bankruptcy.” (Bankr.Dkt. No. 27 at 13.) He argues that because the garnishments were stopped during the pendency of the bankruptcy, the Debtors’ goals were at least partially realized. (Id. at 13.) DeLuca also alleges that Seare benefitted from the bankruptcy because his credit score was estimated to increase by approximately 102 points, based on reports by CIN Legal Data Services (“CIN”). (Id. at 31; Ex. O.
DeLuca next asserts that the right to contract includes the right not to contract. (Bankr.Dkt. No. 27 at 9.) “It is certainly within the discretion of DeLuca & Associates to limit its representation of Debtor(s) that have a proven track record of defrauding their own lawyer, opposing counsel, and the Court.” (Id.; see Evid. Hr’g Tr. 39:7-18.) After he learned of the fraud, he decided that “representation of Mr. Seare represented a liability” to his firm and himself personally because, he contends, under the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”),
Finally, DeLuca tops off his defense with an argument under the United States Constitution. He claims that the “basic services bargained for between the parties did not include litigation or adversary proceedings.” (Bankr.Dkt. No. 27 at 8.) To impose additional terms that were not bargained for would violate the Thirteenth Amendment, so he argues, because he would be obligated to perform work against his will and without compensation. (Id.) DeLuca asserts the “right to be free from involuntary servitude” and “enforced compulsory service of one to another.” (Id. (citations omitted).)
B. Scare’s Contentions
The Debtors’ first contention is that their primary goal was to permanently eliminate the wage garnishment and discharge the St. Rose Debt. (Evid. Hr’g Tr. 34:23-35:1; Dkt. No. 47 at 5.) Seare ex
The Debtors claim that during their meeting with DeLuca, they “specifically and clearly” stated the nature of the Judgment to him and provided court documents for his review. (Dkt. No. 47 at 5.) Tedoco claims that they told DeLuca that the Judgment was from a sexual harassment case lost by Seare in which he had “embellished” e-mails. (Id.) Seare and Tedoco have both asserted that DeLuca affirmatively told them, even after hearing this information, that the St. Rose Debt was dischargeable. (Id. at 2, 5, 6; Evid. Hr’g Tr. 13:3-7.) She states that the only reason they hired DeLuca was because he assured them of the dischargeability of the St. Rose Debt. (Dkt. No. 47 at 5.) Seare testified that, although he understood the contract language concerning the nondis-chargeability of debts incurred through fraud, he relied upon DeLuca’s alleged assurances of nondischargeability over the language in the Retainer Agreement. (Evid. Hr’g Tr. 15:13-16:13.) Moreover, Seare did not read the FAQ because De-Luca had already answered their questions. (Id. at 17:22-24.)
Seare claims that he understood that the flat fee did not cover adversary proceedings, but also that, at the time of the initial consultation, he did not even know what an adversary proceeding was. (Id. at 22:9-12, 33:4-7.) The Debtors assert that DeLuca did not explain anything about adversary proceedings at the consultation — either what they are or whether one was likely in their case. (Id. at 21:23-24; Dkt. No. 47 at 4.) According to Seare, DeLuca only told them that following the petition filing there would be a meeting of creditors and, 30 days later, the discharge. (Evid. Hr’g Tr. 33:14-23.) Seare claims that DeLuca did not talk to them about debts that might not be dischargeable during the initial consultation. (Id. at 33:24-34:3.)
The Debtors claim that, contrary to De-Luca’s assertions, no one reviewed the Retainer Agreement with them. (Dkt. No. 47 at 5.) Tedoco asserts that, after meeting with DeLuca, she, Seare, and their two small children were put in a small room to sign and initial the Retainer Agreement. DeLuca’s staff periodically checked to see if they had completed the forms, but no one sat with them to explain any part of the Retainer Agreement. (Id.) It was late in the day, around 5:00 p.m., and they felt rushed. (Id.)
Seare contends that DeLuca’s nonrepre-sentation left him without any possibility of representation in the adversary proceeding. He testified that he consulted with two law firms and that he could not afford to engage either to represent him in the adversarial proceeding. (Evid. Hr’g Tr. at 24-25.)
Tedoco counters DeLuca’s claim that the Debtors posed a danger by referencing the June 6 letter in which DeLuca informs the Debtors that he will not represent them in the adversary proceeding. (Dkt. No. 47 at 5-6.) In that letter, DeLuca mentions nothing that would indicate that he saw them as a threat. (Id. at 6.) Lastly, she argues that the letter is evidence that De-Luca engages in deceptive practices. (Id.
The Debtors also claim that DeLuca did not properly communicate with them or keep them informed of the progress in their case. Throughout the representation, Tedoco claims, DeLuca’s office was nonresponsive. (Dkt. No. 47 at 3-4.) The Debtors only spoke to DeLuca himself during the initial consultation; after that, even if they left messages for him, one of his staff returned the call. (Id.) Sometimes, the calls were only returned after leaving multiple messages. (Id. at 4.) The Debtors are also upset that the proposed stipulation and order that DeLuca received from St. Rose, approximately one month before St. Rose filed the Complaint, were not promptly forwarded to them. (Ex. H.) DeLuca did not even consult with the Debtors before informing St. Rose that he would not sign off on the proposed documents. (See id.)
C. Seare’s Credibility
There is a factual question about whether DeLuca affirmatively told the Debtors that the St. Rose Debt was dischargeable. Seare stated that DeLuca twice told him that it was. (Evid. Hr’g Tr. 15:7-12; Dkt. No. 29 at 2.) Seare also asserted that Tedoco told DeLuca that the St. Rose Debt was not from medical expenses, but rather that the garnishment stemmed from an order for attorney’s fees resulting from the “embellished” e-mails. (Dkt. No. 29 at 2; see Dkt. No. 47 at 2.) At the Evidentiary Hearing, however, Seare contradicted this by saying that the fraud “was never brought up during [the consultation].” (Evid. Hr’g Tr. 13:9.) Finally, Seare also stated that DeLuca did not tell the Debtors that the debt was not dis-chargeable or that there might be an adversarial proceeding. (Id.) Of these assertions, the court finds two facts: (1) the issue of Seare’s fraud at the district court was not overtly discussed during the initial consultation; and (2) DeLuca did not affirmatively represent that the St. Rose Debt was dischargeable.
Although DeLuca does not remember meeting the Debtors, reading any district court documents, or what specifically was said during the consultation, the court does not believe Seare’s testimony that DeLuca told the Debtors that the St. Rose Debt was dischargeable. The court finds it much more likely that he simply “thumbed through” the district court documents without paying them much heed, and that he did not affirmatively represent either way whether the debt was dischargeable. Similarly, his cursory review of the district court documents would not have led him to conclude that an adversary proceeding was likely.
The court finds that DeLuca failed to inquire about the nature of the Judgment during the consultation. If the Debtors did mention any of the facts underlying the Judgment, either the facts as presented did not clearly amount to fraud or DeLuca was not sufficiently attentive to reach that conclusion on his own. If he did know it was for fraud, then he surely would have told the Debtors that St. Rose would likely seek to have the debt found nondischargeable in an adversary proceeding.
The court believes Seare’s testimony that DeLuca did not explain anything about adversary proceedings during the
In sum, the court finds that DeLu-ca did not affirmatively represent that the St. Rose Debt was dischargeable. Nor did he explain anything about adversary proceedings, either in general or in relation to the Debtors’ particular circumstances. He moved quickly and did not pay sufficient attention to the Debtors’ individual goals and needs. His boilerplate forms and standardized approach belie a manner of legal practice that is all too common in consumer bankruptcy — an approach which may suffice for a lot of people, a lot of the time, but is prone to failing clients with circumstances that do not fit the mold of the prototypical consumer debtor.
IV. LEGAL ANALYSIS
Resolution of this matter involves the intersection of contract law and the regulation of lawyers generally. DeLuca strenuously contends that he should be able to limit his representation of clients by contract. If he cannot, he asserts, he cannot run his practice prudently. Seare, on the other hand, wants DeLuca to follow the requirements binding on all lawyers. The contentions of both parties thus require a brief review of the nature of the legal profession.
A. The Nature of the Legal Profession
Lawyers are not plumbers. They cannot indiscriminately dismiss clients at their whim, or even if their clients don’t pay on time. Lawyers are professionals that owe fiduciary duties to their individual clients, and must continue to represent them even if initially rosy predictions turn sour. Am. BAR Ass’n, SECTION OP LlTIG., HANDBOOK ON Ltd. Soope Legal Assistance 91 (2003) (“ABA Handbook”); see Restatement (Third) of Law GoveRning Lawyers § 16 (2000).
The duties that a lawyer owes her client also flow from this understanding of what it means to a be a “professional”— that a lawyer’s superior knowledge and training place clients in a position of trust and dependence such that the lawyer has obligations to individual clients beyond that of two equal parties to a transaction or contract. Instead, a lawyer is a fiduciary that owes the duties of candor, good faith, trust, and care to a client. ABA HANDBOOK 91.
The view of attorneys as professionals with enhanced duties to clients is not new or novel, as many courts have noted. “Attorneys must never lose sight of the fact that the profession is a branch of the administration of justice and not a mere money-making trade.” In re Pair,
The laws of ethics that lawyers must follow are premised on the lawyer’s role as a professional — an agent and fiduciary of the client. See GeoffRey C. Hazard, Je. & W. William Hodes, 1 Law of Lawyering § 1.6 (2012) (“introspection among lawyers about what values beyond obedience to law ought to inform behavior has taken the form of a public debate about “professionalism” (emphasis in original)).
B. The Applicable Law and its Application to the Facts 1. Interplay Between State and Federal Law
Attorneys practicing in this court must adhere to the standards of conduct prescribed by the Nevada Rules of Professional Conduct. Local Rule IA 10-7(a). The Nevada Rules of Professional Conduct in turn are based on, and largely identical to, the ABA Model Rules of Professional
2. Unbundling
Before assessing the specific rules and statutes at issue, a thorough discussion of unbundling is necessary. Unbundling is the practice of limiting the scope of services that an attorney will provide — “dividing comprehensive legal representation into a series of discrete tasks, only some of which the client contracts with the lawyer to perform.” Amber Hollister, Limiting the Scope of Representation: Unbundling Legal Servs., 71 Or. St. B. Bull. 9, 9 (2011). It is growing ever more common in general, and in family law and bankruptcy law in particular.
The practice of unbundling also recognizes that the attorney-client relationship need not fit an identical mold for each client; parties have the right to contract for the services they deem appropriate to the situation. See ABA Handbooe 72 (“[T]he lawyer and client should have the right to adopt any variant of limited representation that they wish. This is a contractual right.”). Clients are given autonomy — the freedom to “choose one or more
Unbundling raises concerns, however. The push to limit representation may come from the attorney, who often benefits from and has superior knowledge of the possible ramifications of excluding certain services.
There are strong reasons for protecting those who entrust vital concerns and confidential information to lawyers.... Clients inexperienced in such limitations may well have difficulty understanding important implications of limiting a lawyer’s duty. Not every lawyer who will benefit from the limitation can be trusted to explain its costs and benefits fairly.... In the long run, moreover, a restriction could become a standard practice that constricts the rights of clients without compensating benefits. The administration of justice may suffer from distrust of the legal system that may result from such a practice. Those reasons support special scrutiny of noncustomary contracts limiting a lawyer’s duties, particularly when the lawyer requests the limitation.
Restatement (Third) of Law GOVERNING Lawyers § 19 (2000).
There is a particular concern in consumer bankruptcy practice that attorneys will unbundle services that are essential or fundamental to bankruptcy cases and clients’ objectives.
A lawyer walks a perilous path in attempting to limit the services provided to bankruptcy debtors. Making an effective disclosure of the risks of such an arrangement, and obtaining informed consent, may be impossible in some cases. As noted, some lawyer services are so fundamental and essential to effective representation, no amount of disclosure and consent will suffice. Instructing a debtor to “go it alone” in any significant aspect of the bankruptcy case exposes counsel to possible criticism, and worse yet, a potential for sanction.
Hon. Jim D. Pappas, Simple Solution = Big Problem, 46 Advocate (Idaho) 31, 33 (2003) (citing In re Castorena,
An additional concern is that limited representation may not afford a client full protection against direct contact by opposing counsel. Nev. Rule of Prof’l Conduct 4.2 (2011) (“[A] lawyer shall not communicate about the subject of representation with a person the lawyer knows to be represented by another lawyer in the matter....”); Hollister, supra, at 11; see ABA Handboor 107-13. If opposing counsel does not know the extent of a party’s representation, opposing counsel may inadvertently communicate with the party about matters for which the party is represented. See Hollister, supra, at 11. Or worse, opposing counsel may initiate appropriate communication and purposely wander into matters that are off limits.
In spite of the concerns that unbundling raises, the ABA amended Model Rule 1.2(c) in 2002 to expressly allow limited-scope representation and provide a mechanism to regulate it. Struffolino, supra, at 215; Am. BaR Ass’n, Annotated Model Rules of PROf’l Conduct 38 (2011) (“Annotated Rules”). The ABA’s goal was to “encourage attorneys to provide some assistance to low- and moderate-income litigants who could not otherwise afford full representation.” Struffolino, supra note 17, at 215 (citing Am. Bar Ass’n, Standing Comm, on the Delivery of Legal Servs., An Analysis of Rules that Enable LawyeRS to Serve Pro Se Litigants 8 (2009)); Annotated Rules 38 (citing Am. Bar Ass’n, Legislative History: The Development of the ABA Model Rules of Prof’l Conduct, 1982-2005 at 55 (2006)). ABA Model Rule 1.2, which Nevada has adopted verbatim, states that “[a] lawyer may limit the scope of representation if the limitation is reasonable under the circumstances and the client gives informed consent.” Nev. Rule of Prof’l Conduct 1.2(c) (2011) (emphasis supplied).
Shortly after the ABA amended the rule, the ABA published the ABA Handbook, a report on limited scope legal assistance. The ABA Handbook emphasizes
The ABA Handbook lists various factors that lawyers should consider when determining whether unbundling is appropriate,
If limited representation is selected, “the lawyer must also alert the client to reasonably related problems and remedies that are beyond the scope of the limited-service agreement.” Id. at 68. In a related ethics opinion, the Los Angeles County Bar Association put it this way,
The attorney has a duty to alert the client to legal problems which are reasonably apparent, even though they fall outside the scope of retention, and to inform the client that the limitations on the representation create the possible need to obtain additional advice, including advice on issues collateral to representation.
Id. at 69 (quoting Los Angeles County Bar Assoc., Profl Responsibility and Ethics Comm., Ethics Op. 449 (March 1988)).
While the ABA takes the general position that unbundling is acceptable, and even desirable in some circumstances (so long as the ethical rules are followed), the
Nonetheless, several bankruptcy courts also have reached the conclusion that un-bundling adversary proceedings is acceptable if the ethical rules are followed. In re Castoreña’s exclusion of adversary proceedings from the list of “fundamental and core obligations” that a consumer bankruptcy lawyer must provide imply that adversary proceedings may be unbundled.
In light of the above, the court agrees that adversary proceedings can be unbundled, so long as the limitation complies with the applicable rules and statutes, and that a lawyer may charge additional fees for adversary proceedings. The analysis now turns to the applicable rules and statutes.
1.1-Duty of Competence
a. Legal Standard
Under Nevada Rule Li, which is identical to ABA Model Rule 1.1, "[a] lawyer shall provide competent representation to a client ... the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation." NEV. RULE OF PROF'L CONDUCT 1.1 (2011). While there is no precise definition of competence, relevant factors include the lawyer's training, experience, and preparation. ABA MODEL RULE 1.1 cmt. 1; In re Slabbinck,
Whether a lawyer fulfilled the duty of competence depends on the client's objectives. See In re Egwim,
Nevada Rule 1.2(c), which is identical to ABA Model Rule 1.2(c), explicitly permits a lawyer to limit the scope of representation. Nay. RuLE OF PROF'L CONDUCT 1.2(c) (2011). The ABA comments shed light on the relationship between the duty of competence and agreements to limit the scope of representation. “An agreement between the lawyer and client may limit the matters for which the lawyer is responsible.” ABA Model Rule 1.1 cmt. 5 (citing ABA Model Rule 1.2(c)). “Although an agreement for a limited representation does not exempt a lawyer from the duty to provide competent representation, the limitation is a factor to be considered when determining the legal knowledge, skill, thoroughness and preparation necessary for the representation.” ABA Model Rule 1.2 cmt. 7 (citing ABA Model Rule 1.1).
In other words, the duty of competence both informs and survives any and all limitations on the scope of services. See Cal. Ethics Primer 1-2. The baseline obligation to inquire into the facts and circumstances of a case and analyze the possible legal issues is not changed when the scope of services is limited. Struffoli-no, supra note 17, at 218. The level of inquiry and investigation required to discharge the duty of competence may be somewhat relaxed, however, under a limited scope agreement. See ABA Model Rules 1.1 cmt. 5, 1.2 cmt. 7; Struffolino, supra note 17, at 218. Whatever the precise definition of a “relaxed” duty to investigate may be though, the bottom line is that an agreement to unbundle services constitutes a breach of the duty of competence if the agreement excludes the services reasonably necessary to achieve the client’s reasonable objectives. ABA HANDBOOK 93-95.
“Generally, the duty of competence of Rule 1.1 is circumscribed by the scope of representation agreed to pursuant to Rule 1.2. However, a lawyer may not so limit the scope of the lawyer’s representation as to avoid the obligation to provide meaningful legal advice, nor theresponsibility for the consequences of negligent action.”
Id. (quoting Colo. Bar. Ass’n Ethics Comm., Formal Op. 101 (1998)). The duty of competence informs the agreement to unbundle by mandating the inclusion of those services reasonably necessary to achieve the client’s reasonable objectives. Nev. Rule of Prof’l Conduct 1.1 (2011). If those services are excluded, the client’s goals cannot be met regardless of how knowledgeable, skilled, thorough, and prepared the lawyer may be. Id. The duty of competence survives the agreement in that the attorney must competently perform all services included in the agreement. Nev. Rule of Prof’l Conduct 1.1. The client’s objectives thus drive the analysis.
To determine the client's objectives, a lawyer must properly communicate with the client to understand the client's expectations, learn about the client's particular legal and financial situation, and independently investigate any "red flag" areas. See C~. ETHICS PRIMER 1-2. A bankruptcy lawyer cannot assume that a client knows what a bankruptcy will or will not do for her. She may understand that bankruptcy eliminates some debts but is unlikely to know anything else about bankruptcy or even whether she wants or needs to file. For this reason, laypersons seek the advice of bankruptcy lawyers. See Nichols v. Keller,
A lawyer who holds himself out as a bankruptcy expert or specialist should explain the limits of the specialty. For example, a potential client that wants to discharge her student debts should be informed that student debts are nondis-chargeable absent undue hardship, and the lawyer should inquire into her circumstances to determine the likelihood of prevailing on a claim of undue hardship. The lawyer should perform the same inquiry and explanation for all potentially nondis-chargeable debts, such as those incurred through fraud.
While many laypersons have a general understanding that student debts are difficult to eliminate, they likely do not understand the undue hardship test. Similarly, their understanding of what debts constitute fraud and how those debts are treated by the Bankruptcy Code is certainly limited, and more likely nonexistent. A bankruptcy lawyer should inquire into a potential debtor’s situation to determine if any of the debts were incurred by fraud and whether a nondischargeability proceeding is likely. The lawyer should also ascertain to what extent any nondischargeable debts are the driving force behind the potential client’s decision to seek counsel. Again, the client’s objectives drive the analysis, the purpose of which is to guide the client to reasonable objectives and determine which services are reasonably necessary to meet those objectives.
The client’s objectives may, and likely will, change through the course of a proper initial consultation. Because potential clients do not understand bankruptcy law, their pre-consultation expectations may be unreasonable or unachievable. The lawyer must “inquir[e] into and analy[ze] ... the factual and legal elements of the problem” ABA Model Rule 1.1 cmt. 5. The consumer bankruptcy attorney’s role is to determine how bankruptcy may assist the client and whether some of the client’s goals may be left unmet through bankruptcy, and effectively communicate this to the client. The client then decides whether and how to proceed.
Put another way, the law of mutual mistake has no place in the retention of an attorney. The attorney bears the burden of failing to ascertain the client’s objectives and/or failing to shape their objectives to conform to the remedies available under bankruptcy law. Once again, the lawyer is the expert, not the client.
To summarize, a consumer bankruptcy attorney fulfills the duty of competence by providing the bundle of services reasonably necessary to achieve the client’s reasonably anticipated result. The inquiry is fact-specific and depends on the client’s individual circumstance. It also depends on the client’s reasonable pre-consultation goals and how they may have been shaped or refocused through consultation with the attorney. While an attorney is not obligated to help a client meet patently unreasonable goals, the reasonable expectations of a layperson, in the absence of any information by an attorney that may refocus them, -is the basis for the analysis.
b. Application
DeLuca's first failure-the root cause of his other failings-was to not define the goals of the representation, which resulted from a lack of communication with the Debtors at the initial consultation. He apparently treats all debtors the same, as if the discharge of all dis-chargeable debts is always the primary goal. Here, however, the Debtors' goal was to permanently stop the wage garnishment resulting from the St. Rose Debt. While a discharge of their other debts is of some benefit, the reason they sought counsel was the wage garnishment. DeLuca was aware of the garnishment and was given copies of various district court documents. He did not inquire into the nature of the Judgment, either at the initial consultation or thereafter. He apparently assumed that, because the debt was from a hospital, it was for medical services. He argues that any reasonable attorney would make the same assumption. The court disagrees. Competently attaining the Debtors’ goals of representation mandated an independent inquiry into the nature of the Judgment.
DeLuca argues that the Debtors had the burden to inform him that the debt was incurred through fraud, as the Retainer Agreement states that debts incurred through fraud “do not go away” and requests copies of all lawsuits within the last two years. Because the Debtors knew that the Judgment was based on fraud, so DeLuca argues, the burden was on them to communicate that fact to him. DeLu-ca’s argument fails, however, because he improperly placed the burden on the Debtors to make the legal conclusion that fraud, as defined in the Bankruptcy Code, includes the fraudulent act that Seare committed in the district court. A layperson cannot be reasonably expected to connect those dots-that a Judgment under Civil Rule 11 for fabricating evidence (“fraud on the court”) may be nondischargeable as fraud under bankruptcy law. In addition, the Debtors complied with the request in the Retainer Agreement to provide copies of all lawsuits. While they did not give DeLuca hard copies of the entire district court docket, they provided sufficient documents to inform him of the existence of the district court case. Once DeLuca was
Either DeLuca did not understand the Debtors’ primary objective or he negligently assumed that the St. Rose Debt was dischargeable and thus the Debtors’ objective would be met. Either way, he did not exercise the legal knowledge, skill, and thoroughness reasonably necessary for the representation. Nev. Rule of PROf’l Conduct 1.1 (2011). He was not thorough, either in reviewing the documents given to him or in undertaking any independent review of the district court proceedings. He did not apply the knowledge and skill he has acquired through many years of consumer bankruptcy practice to the Debtors’ needs.
Put another way, he did not sufficiently inquire into the factual and legal elements of the Debtors’ problem&emdash;the wage garnishment and related legal issues concerning dischargeability. ABA Model Rule 1.1 cmt. 5. DeLuca failed his primary duty-ascertaining the Debtors’ objectives. See ABA HaNdbook 65-66 (the initial interview is “ ‘[pjerhaps the most fundamental legal skill’ of a lawyer in that it ‘consists of determining what kind of legal problem a situation may involve, a skill that necessarily transcends any particular legal knowledge’ ” (quoting ABA Model Rule 1.1 cmt. 2)).
Based on the initial consultation, the Debtors could have reasonably anticipated that the St. Rose Debt would be discharged and that the garnishment would permanently cease. The Debtors did not likely expect that an adversary proceeding would be filed, especially since DeLuca did not even explain what an adversary proceeding was or the connection between nondischargeable debts and adversary proceedings. The Debtors moved forward without the clarity he had the duty to provide that the St. Rose Debt raised significant dischargeability concerns and was nearly certain to lead to an adversary proceeding. DeLuca counseled the Debtors to file a bankruptcy petition, which embroiled them in an adversary proceeding and threatened to deny the relief they sought in the first place.
In the attorney-client relationship, the client sets the objectives and the attorney determines the means to fulfill them in consultation with the client. NEV. RULE PR0F'L CONDUCT 1.2(a) (2011). Without understanding the Debtors' goals of representation, DeLuca could not determine which legal services were reasonably necessary to attain those goals. Nor could the Debtors properly evaluate DeLuca's choice of means because the Debtors did not understand that filing a petition would likely result in an adversary proceeding-a proceeding in which DeLuca, the lawyer they reasonably understood to represent them for the entire bankruptcy matter, refused to represent them. The Debtors' choice to file was colored by DeLuca's failure to properly advise them. With sufficient information, the Debtors may have chosen not to file or sought an attorney that had a different fee structure concerning adversary proceedings.
DeLuca did not reach an understanding of the Debtors’ goals or explain to them the challenges they were likely to face in trying to achieve those goals by filing for bankruptcy. In the absence of such guidance, he had the duty to offer the services reasonably necessary to achieve a perma
4. Nev. Rule of Prof’l Conduct 1.2(c) — Scope of Services
Unbundling is permissible only if “the limitation is reasonable under the circumstances and the client gives informed consent.” Nev. Rule of Prof’l Conduct 1.2(c).
a. Reasonable Under the Circumstances
(1) Legal Standard
“ ‘Reasonable’ ... denotes the conduct of a reasonably prudent and competent lawyer.” Nev. Rule of Prof’l Conduct 1.0(h) (2011). Like the term “profession,” precisely defining “reasonable” is elusive. A leading treatise states that a limitation is reasonable if it is “not harmful to the client.” HazaRD & Hodes, supra, at § 5.10. The Restatement declares that a limitation is reasonable if the benefits supposedly obtained by the waiver, such as reduced legal fees or the ability to obtain a particularly able lawyer, could reasonably be considered to outweigh the potential risks posed by the limitation. Restatement (Third) of Law GovbRning LawyeRS § 19 (2000). The Restatement also lists as relevant factors whether there were “special circumstances” warranting the limitation, whether it was proposed by the lawyer or client, and whether it is standard practice among lawyers in the client’s local community but not in other communities. Id.
The ABA has stated that a limitation is unreasonable if it would violate another ethics rule or a provision of substantive law. Annotated Rules 40; accord Yer-bich, supra note 17, at 8 (“What is reasonable generally boils down to a question of whether the lawyer’s limited scope of responsibility would amount to a violation of the lawyer’s ethical or legal obligations — a factual, situation-specific determination.”).
Reasonableness is assessed at the time the client agreed to unbundled services; neither party has the benefit of hindsight. Nev. Rule of Prof’l Conduct 1.2(c) (2011) (“reasonable under the circumstances ” (emphasis supplied)); Struf-folino, supra note 17, at 225 (“These determinations must be made during the initial interview or soon thereafter ... the conditions that existed at the initial consultation will govern any later reasonableness inquiry.”) (citing ABA Handbook 91) (“Whether a service limitation is reasonable under the circumstances is judged at the time the client and lawyer enter into the representational agreement, not retrospectively ” (emphasis supplied)). The ABA has stated that “the test is not whether, after the fact, the service proved to be of some use to the client, but rather whether, at the time of the agreement, a lawyer reasonably could have concluded that the service would be useful to the client.” ABA HandbooK 91 (emphasis in original); see Annotated Rules 41 (discussing In re Egwim,
In re Egwim assessed the unbundling of adversary proceedings. It applied the prior version of ABA Model Rule 1.2(c), which does not have a reasonableness requirement, but the court did analyze the lawyer’s conduct for reasonableness under the Restatement. “[T]he requirement in the Georgia Rule that the limitation not violate the requirement of competent rep
Because the nondischargeability proceeding in In re Egwim went to the “essential purposes of Debtors in filing the bankruptcy case,” the unbundling appeared to violate the duty of competence and to thus be unreasonable. Id. Nonetheless, the court did not decide the issues of reasonableness and competence because counsel proceeded in good faith and there was no showing of adverse consequences to the debtors. Id. at 563. The point is that In re Egwim equated competence and reasonableness, and found that where an adversary proceeding goes to the “essential purpose” of the debtor in filing, the related unbundling is unreasonable. Id.; cf. Hale v. U.S. Trustee,
In re Johnson held that unbundling the service of appearing at the Section 341 meeting of creditors is per se unreasonable, even if the clients agree to, and the Rule 2016(b) statement reflects, such limitation.
The court follows In re Egwim and In re Johnson, both of which essentially applied the ABA’s formulation of the test. Reasonableness is coextensive with competence. In re Egwim,
Thus, a limitation on services is not “reasonable under the circumstances” if, in light of the relevant information that the lawyer knew or should have known at the time the retainer agreement was formed, the unbundled service was reasonably necessary to achieve the client’s reasonably anticipated result. Nev. Rule of Prof’l Conduct 1.2(c) (2011). A limitation is per se unreasonable if it violates a rule of ethics or provision of
(2) Application
Turning to DeLuca's decision to unbundle adversary proceedings, the first issue is timing-when the decision to ex-elude adversary proceedings was made. There are only three options; the decision was either made before DeLuca met with the Debtors, during the initial consultation, or sometime during the representation of the Debtors in the main bankruptcy case. DeLuca's use of boilerplate contracts that exclude adversary proceedings from the flat fee indicates that the decision to un-bundle was made before DeLuca ever met the Debtors. The court does not find fault with the practice of using pre-prepared forms that limit the scope of services in-eluded in a flat fee, but the decision to unbundle must be reasonable under the circumstances. Boilerplate forms with limited services may be used only if the unbundled services are not reasonably necessary to achieve a particular client’s objectives. As aptly demonstrated by the Debtors in this case, not all clients are the same. By treating them all the same, the decision to unbundle was effectively made before DeLuca ever met the Debtors. This is unreasonable and violates Nevada Rule 1.2(c).
DeLuca argues that the Retainer Agreement clearly excludes adversary proceedings. (Bankr.Dkt. No. 27 at 14; Evid. Hr’g Tr. 41:20-42:2.) He is correct that it excludes adversary proceedings from the flat fee, but not that it excludes them altogether. The Retainer Agreement states that services rendered to address allegations of nondischargeability, and representation in adversary proceedings, “may require additional fees,” but it does not state that DeLuca may decide not to provide such services at all. (Ex. G at 7.) Seare admitted that he understood that DeLuca would not represent him for free in adversary proceedings, and that the flat fee did not include such services, which indicates that Seare thought that DeLuca would represent him in adversary proceedings (albeit for additional fees). (Evid. Hr’g Tr. 22:9-12.)
Even if, however, the decision to unbundle adversary services were made during the initial consultation, that decision would be unreasonable because an adversary proceeding was a near certainty. Had DeLuca even cursorily investigated the nature of the Judgment, he would have uncovered that it was based on Seare's fraudulent conduct. DeLuca should have
The Restatement’s cost-benefit analysis weighs strongly against DeLuca. The supposed benefit afforded to the Debtors by the limitation would be affordable legal representation in the main bankruptcy case by a bankruptcy expert. DeLuca’s failure to explain the nature and likelihood of adversary proceedings, however, deprived the Debtors of relevant information that could have led them to seek another expert attorney who would have included adversary proceedings in the flat fee. The value of the benefit is thus difficult to assess. Similarly, DeLuca’s failure to investigate the Judgment and properly inform the Debtors meant that neither could adequately value the potential risk posed by the limitation. The risks of unbundling adversary proceedings in this case are now clear, but at the time the Retainer Agreement was formed, the benefits and potential risks could not be meaningfully compared. Not only could the Debtors not weigh the costs and benefits (see informed consent, below), DeLuca could not either because he had not investigated the Judgment.
Also weighing against DeLuca is that bankruptcy, and adversary proceedings in particular, are highly complex. See County of Santa Cruz v. Cervantes (In re Cervantes),
Although Seare has been involved in at least one prior court proceeding, there is no reason to believe that he is any more knowledgeable about bankruptcy than the average layperson. A party proceeding pro se in an adversary proceeding faces an uphill climb.
“[P]ro se litigants [in adversary proceedings], in a very real sense can be a danger to themselves. Without an understanding of the importance of facts in issue, the applicable law, or why their discharge has even been challenged, they often flounder helplessly at trial, aimlessly pursuing meaningless points and arguments.... [T]o proceed pro se presents the very real possibility that the creditor will prevail for the sole reason that its opponent did not understand the facts in issue or how to defend against the allegations raised.”
In re Cuddy,
Returning to the issue of timing, DeLu-ca did not communicate his intent to not represent Seare in the adversary proceeding until June 5, 2012. (Exs. H, I.) The circumstances in early June were that (1) St. Rose had filed the Complaint, on May 24, 2012; (2) prior to the Complaint, De-Luca’s office was aware of St. Rose’s intent to enforce its rights under the Judgment because St. Rose had communicated as much at the Section 341 meeting in March and in the proposed order and stipulation sent to DeLuca in April; (3) the Debtors had obtained their discharge, on May 30, 2012; and (4) the Debtors were confused about whether the St. Rose Debt had been discharged. (Dkt. No. 1; Bankr. Dkt. No. 20; Ex. H.)
Unlike during the initial consultation, by June the Complaint had already been filed. To say the least, representing Seare in the adversary proceeding was reasonably necessary to achieve his objective of discharging the St. Rose Debt. In fact, prevailing in the adversary proceeding was the only way that Seare could discharge the St. Rose Debt. Unbundling this service after the Complaint was already filed was patently unreasonable and violated Nevada Rule 1.2(c).
The unbundling of adversary proceedings was unreasonable in light of the Debtors’ circumstances and objectives. If the decision to unbundle were made prior to meeting the Debtors, it is per se unreasonable because it could not have contemplated the Debtors’ circumstances. If the decision were made during the initial consultation, it is also unreasonable. DeLuca knew of the Debtors’ goal of eliminating the St. Rose garnishment. Had he investigated the nature of the Judgment, he would have known that an adversary proceeding was a near certainty and representing the Debtors in the adversary was reasonably necessary to achieve their objectives. Excluding adversary proceedings was thus a violation of the duty of competence and unreasonable under the circumstances. If DeLuca decided to un-bundle in early June, once the Complaint was filed, then the decision was unreasonable for the simple reason that the Debtors only chance of discharging the St. Rose Debt was to prevail in the adversary proceeding. Moreover, bankruptcy is a highly complex area of law; the Debtors are at a significant disadvantage proceeding without legal representation; and the risk of facing an adversary proceeding outweighed the benefits of obtaining affordable counsel. Lastly, the unbundling was DeLuca’s idea, which runs contrary to the ABA’s guidance that unbundling should be client-driven. ABA Handbook 7; see Restatement (ThiRd) of Law GovERNING LAWYERS § 19.
b. Informed Consent
(1) Legal Standard
The second element of Nevada Rule 1.2(c)-informed consent-is “the
[disclosure involves the attorney explaining to a debtor the nature of the bankruptcy process, what problems could or will be encountered, how those problems should be addressed, and the risks or hazards, if any, associated with those problems. Consent involves a clear understanding on the part of the debtor as to these factors and the possible results of a debtor proceeding without an attorney being present.
In re Bancroft,
Not only must the risks of proceeding pro se in a particular situation be explained, but more broadly, the attorney must advise the client of the risks inherent in unbundling legal services. HAZARD & HOnES § 1.2:401. "The chief risk is that purchasing a cheap solution may result in a poor solution that will have to be undone later at a greater cost." Id. Also, the disclosure cannot be limited to the two options of either including or excluding a particular legal service. The lawyer must explain other reasonable alternatives, such as retaining a different lawyer that may have a different fee structure. See Healy v. Axelrod Const. Co. & Defined Ben. Pension Plan & Trust,
While an attorney need not perform an exhaustive survey of his peers' fee schedules, the client is not adequately informed if she thinks that an attorney's unbundling practice is the only option she has to obtain legal services. This depends largely on the client's sophistication and ability to shop the legal marketplace, but nonetheless the attorney has an affirmative duty, at the very least, to explain that not all attorneys unbundle services in the same way. See In re Slabbinck,
The lawyer must explain the advantages and disadvantages of having counsel’s assistance during the pendency of the case. The average layperson has little understanding of the substance and procedure of bankruptcy and is unlikely to be able to meaningfully weigh the benefits of reduced-cost representation with the risks of unbundled services-both the inherent and situation-specific risks. In re Castoreña went so far as to state that informed consent is highly suspect when any services are unbundled by consumer bankruptcy attorneys,
In order to make an informed decision, the client must understand what might be faced in the bankruptcy, and the risks associated with representing himself in handling those contingencies. Many lawyers find themselves surprisedby what can arise in an otherwise “simple” bankruptcy case. The reported decisions of this and other bankruptcy courts make it clear that, even in garden variety consumer chapter 7 cases, counsel for debtors and those who might be characterized as their adversaries (creditors, or occasionally the trustee) sometimes have distinctly polar views of what is permissible and what is not. The ability to adequately explain the lay of the bankruptcy landscape, including all its variations, contingencies and permutations, in order to obtain a truly informed consent is suspect.
In re Castorena,
Regarding nondischargeability proceedings in particular, In re Egwim took a similar view:
There may be an unusual case where an informed debtor could make a reasonable and intelligent decision to engage an attorney to file a chapter 7 bankruptcy petition on a limited basis that excludes services such as representation in discharge or dischargeability litigation; counsel would bear a heavy burden to demonstrate that this case is one of them....
In re Egwim,
In re Slabbinck cited a Michigan ethics opinion that discussed whether a Chapter 7 debtor could exclude representation with respect to a reaffirmation agreement; the disclosures must, “at a minimum,” include information on the “risks to the client that the proposed limitations would create, as well as the technical aspects, legal ramifications and material risks of reaffirming a dischargeable debt.”
In re Slabbinck addressed the issue of unbundling pre- and post-petition services and held that the debtor did not give informed consent to exclude post-petition services because there was no evidence on the adequacy of the attorney’s disclosures. Id. at 595-96. The clients unequivocally stated that they consented to the unbun-dling, but that was insufficient without any proof of the content of the disclosures. Id. The court could not ascertain whether the attorneys had explained (1) that the failure to file certain post-petition forms and schedules would result in the denial of discharge; (2) the consequences of dismissal and serial filings on the automatic stay; (3) that a failure to attend the § 341 meeting would mean no discharge; and (4) that failure to cooperate with the trustee could also mean no discharge. Id. In short, there was no evidence that the risks of going it alone were communicated to the debtor.
Likewise, In re Collmar held that the debtor did not give informed consent to unbundle reaffirmation agreements from the scope of services. In re Collmar,
The nature of the required disclosure is fact-specific and depends on the client's particular situation. For example, the risks of proceeding without representation in adversary proceedings depend on the likelihood of an adversary proceeding, which in turn depends on the nature of the
The ABA also has endorsed the view that attorneys have a dual obligation to explain the inherent risks of unbundling and the specific risks of a particular case.
Although there is no one-size-fits all explanation for clients, it might include a general description of limited representation, a specific description of the type of limited representation the lawyer will provide to the client, what the lawyer and client each will do, what the lawyer will not do under the agreement (a little redundancy here helps), whether the lawyer will enter an appearance and when and how the lawyer will withdraw or strike that appearance (making it clear the client will be required to support the withdrawal), whether and how the lawyer and client can modify the initial agreement if they need or want to do so, and identification of the risks of limited representation.
ABA HANDBOOK 71 (emphasis in original). The lawyer must start with the big picture-explaining what unbundling is-and then go into more detail about the risks of limited representation and the responsibilities of the lawyer and the client.
The explanation must also clearly indicate that the client has responsibilities under a limited scope retainer agreement. A layperson may not understand that he is responsible for any unbundled services. This is especially true if the lawyer does not explain the likelihood of a service being needed. A client may reasonably assume that a service is excluded because it is unlikely to be necessary, or that it could be included later (usually for an additional fee). “Because the client-lawyer relationship is created by consent, the critical issue for the attorney in a limited scope representation is that the client fully understand and agree to what the attorney will do, and, more importantly, what the attorney will not do.” Id. at 92 (internal quotation marks and citation omitted).
The explanation must convey that not all of the risks of limited representation may be apparent from the outset; consequently, "the lawyer should counsel the client about those risks and problems which are typical in cases of the type presented by the client." Id. at 72 n. 229 (citation omitted). A lawyer must advise about the general if the specific is uncertain. A lawyer cannot use the uncertainty of future legal proceedings to shield himself from explaining the risks that may arise, as best known when representation commences.
The primary goal of the information disclosure is to communicate the risks of limited representation. See HAZARD & HOnES § 5.10. Only when the risks are properly communicated, in language comprehensible by the client, is the client capable of valid consent. To enable herself to appreciate the risks, formulate a proposed scope of services that properly accounts for the risks, and communicate to the client the pros and cons of proceeding with some services unbundled, the lawyer must first perform a thorough client interview. In some instances, independent investigation into the client's circumstances is necessary. Because the risks occur at different levels of scale-the macro when considering challenges that all lawyers and clients face under a limited scope arrangement, and the micro when assessing a client's particular situation-a lawyer can only understand the risks by careful examination of the client's situation and objectives. A client is much more likely to understand the risks of limited representation when they are specific to his
A particular risk of limited representation is that the client may find herself in a position of diminished bargaining power if unbundled services become necessary during the course of representation. The lawyer must alert the client to “foreseeable collateral problems” that may arise in the course of representation. See Struffolino, supra note 17, at 233.
A lawyer should not enter into an agreement whereby services are to be provided up to a stated amount when it is foreseeable that more extensive services will probably be required, unless the situation is adequately explained to the client. Otherwise, the client might have to bargain for further assistance in the midst of a proceeding or transaction.
ABA Model Rule 1.5 cmt. 5. Part of being informed is knowing what can reasonably be expected to occur and whether any of the unbundled services are reasonably necessary to deal with those future events.
Because the required information that a lawyer must provide is situation-specific, boilerplate disclosures in contracts of adhesion are highly suspect. Cf. In re Cuddy,
The Annotated Rules discusses two cases to shed light on what constitutes informed consent. Annotated Rules 41. In Johnson v. Board of County Commissioners,
There, the attorney did not consult with the official about the mechanics of a § 1983 claim nor the exposure he faced in his individual capacity. Id. Thus, the official could not have consented and the attorney’s decision to represent him only in his official capacity violated Rule 1.2(c). In short, the client-official chooses whether to proceed with joint or separate representation. The district court plays a direct role by determining whether the information is sufficient to enable a valid consent. The purpose of the disclosure is to communicate risk in a way that the client-official can understand.
In Indianapolis Podiatry, P.C. v. Efroymson, the issue was whether a limited-scope agreement was so limited that it precluded conflict-of-interest disclosures that would have otherwise been required.
The ABA Annotated Rules’s discussion of several ethics opinions reiterates much of what is discussed above — that the attorney must clearly explain (1) the limitations on representation (including what services are and are not included), (2) the probable effect of limited representation on the client’s rights and interests, (3) whether it is foreseeable that more extensive services will be needed, (4) that the limitation cannot so restrict representation as to render it inadequate to meet the client’s goals, and (5) that an attorney hired by a third-party insurer must communicate the limited representation to the client. Annotated Rules 41 (discussing Colo. Ethics Op. 101 (1998); ABA Formal Ethics Op. 96-403 (1996); N.Y. City Ethics Op. 2001-3 (2003)).
There is also a concern that a client will sign anything that is put in front of him or her. Clients likely believe that an attorney is acting in the client’s best interest, and that, because the attorney is an expert, whatever limitations the attorney proposes are appropriate to the situation. Simply put, “[sjome clients will sign anything; it is [the lawyer’s] responsibility to make sure the client understands the situation.” Beverly Michaelis, Unbundling in the 21st Century: How to Reduce Malpractice Exposure While Meeting Client Needs, 70 OR. St. BaR Bulletin 44, 45 (2010) (discussing Or. Rule of PROf’l Conduct 1.2(c) (2010), which is identical to Nev. Rule of Prof’l Conduct 1.2(c) (2011)).
In re Cuddy employed the useful metaphor of a professional swim instructor taking on a new student with the understanding that, for the initial fee, the instructor will lead the student to the pool, show her how to enter the water, and explain the basic elements of swimming.
Partly for this reason, the consent itself must be valid. The validity of the consent depends largely on the sufficiency and complexity of the information conveyed by the attorney, but it is an independent inquiry. The form of consent must demonstrate not only that the client received the necessary information, but that the client understood the import of the limitation on services. While it is impossible to subjectively ascertain with certainty that a particular client understood the risks of a limited scope agreement, there must be sufficient indicia of understanding for a court to objectively determine that the client’s consent was based upon a competent and thorough understanding of the risks of the agreement and the client’s responsibilities under the agreement.
Consent is presumed valid in the absence of any red flags, such as indications of incompetence. See In re Schaeffer,
For matters as complex as bankruptcy, a signed retainer agreement that merely states that certain proceedings are excluded from the flat fee is unlikely to suffice. Cf. In re Cuddy,
While not required under the ethical rules, the court agrees with the ABA that the consent should be in writing. ABA Handbook 71; Nev. Rule of Prof’l Conduct 1.5 (2011) (“The scope of the representation ... shall be communicated to the client, preferably in writing....”). Attorneys protect themselves by putting the
To summarize, the informed consent inquiry under Nevada Rule 1.2(c) comprises two issues. The first is whether “the lawyer has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed [limited services agreement.]” Nev. Rule of Prof’l Conduct 1.2(c) (2011). While adequacy is situation-specific, the overriding purpose is to communicate the risks of limited scope representation to the client in language that the client understands. To that end, based on the client’s specific goals and circumstances, the attorney must explain (1) the nature of the bankruptcy process; (2) the foreseeable problems that will arise in the debtor’s case, including but not limited to their complexity and likelihood of occurring; (3) the inherent risks of unbundled legal services; (4) the foreseeable risks to the client arising from the unbundled services at issue (and that not all risks are apparent at the outset of the case); (5) the advantages and disadvantages of having counsel’s assistance with the unbundled services; (6) the likelihood of the client having to perform any of the unbundled services pro se; (7) the client’s responsibilities under the agreement; and (8) the reasonably available alternatives, including but not limited to the fact that not all attorneys unbundle services in the same manner. The client must have enough information to make a reasoned decision as to whether the limited scope agreement with a particular attorney is in the client’s best interest.
The second issue is whether the “agreement by a person” — the consent itself— was valid. Nev. Rule of Prof’l Conduct 1.2(c) (2011). The court does not articulate a black-and-white standard. When the information disclosure was adequate and the client is competent, consent is presumed valid in the absence of any red flags. See In re Schaeffer,
(2) Application
DeLuca failed both aspects of informed consent. First, he did not adequately communicate the material risks of unbundling adversary proceedings — either in general or in the Debtors’ situation — or the available alternatives to such unbun-dling. Without adequate information upon which to base a decision, valid consent was impossible. Second, the means of the con
Turning first to the information that De-Luca communicated to the Debtors, the court points out that DeLuca’s failure to properly understand their goals and the details of their situation — i.e., the nature of the Judgment — rendered adequate communication impossible. DeLuca argues that the Debtors gave informed consent by executing the contract. Because DeLuca has no affirmative recollection of what transpired at the initial consultation, the court views the terms of the Retainer Agreement as the primary “communication” by DeLuca concerning the unbun-dling of adversary proceedings.
The precise question is whether the Retainer Agreement itself constituted adequate communication. The Retainer Agreement states that debts incurred through fraud “do not go away,” that the flat fee does not include representation for nondischargeability claims and adversary proceedings, and that such services would cost extra. Together, these clauses do not adequately communicate the material risks of proceeding without representation in adversary proceedings, or even that DeLuca may decide not to represent the Debtors in adversary proceedings. The Retainer Agreement separately lists nondischargeability claims and adversary proceedings as services that require additional fees; fraud is mentioned in another section. The contract’s essential downfall is that the prospective client is left to connect the dots- — that a debt incurred through fraud (a debt that “does not go away”) is raised in a claim of nondis-chargeability that is litigated in an adversary proceeding. The Debtors had to make yet another analytical connection— that the district court judgment constituted fraud under the Bankruptcy Code.
Turning next to what DeLuca failed to communicate, he first failed to adequately explain the Chapter 7 process, in light of the near certainty that a nondischargeability proceeding would arise. He only told the Debtors to expect the Section 341 meeting and that the discharge would follow. For garden-variety cases, this may be sufficient, but where the Debtors’ primary goal is to eliminate a garnishment connected to a fraud judgment, that explanation falls woefully short. That the process would include a claim of nondis-chargeability was reasonably foreseeable. In the absence of researching the Judgment, DeLuca was unable to explain the likelihood of such a claim nor its complexi
There is no evidence to indicate that DeLuca explained the inherent risks of unbundling legal services to the Debtors, or that such explanations are his standard practice. To the contrary, DeLuca appears to use standard form contracts of adhesion — clients either accept on his terms or reject his services outright. The Debtors could not have known that the bundle of services included in the flat fee was unlikely to meet their objectives. De-Luca neither explained the risks of going it alone in adversary proceedings in general, nor what particular risks the Debtors faced. He did not communicate the high likelihood of having to represent themselves pro se or And another lawyer, which would have been evident had he reviewed the Judgment. Without such explanation, the Debtors could have reasonably agreed to exclude adversary proceedings on the thought that such proceedings were unlikely to occur. That the Debtors made this probability calculation is difficult to believe though because DeLuca did not even explain what an adversary proceeding was.
The Retainer Agreement does not explain that the Debtors have heightened responsibilities related to the unbundled services. Like any layperson, the Debtors may have understood that DeLuca was not providing certain services, but this is not the same as understanding exactly what actions and duties comprise the unbundled services and that the Debtors must assume those duties. The lawyer is the expert and has the duty to explain what a client must actually do to make up for a gap in representation. The Debtors did not know what they did not know. In no sense were they informed such that they could make a meaningful decision about whether to proceed with DeLuca or seek other counsel. They could have reasonably concluded that all Chapter 7 attorneys operate in the same way — that unbundling adversary proceedings is the norm. The Debtors were deprived of the opportunity to obtain additional legal advice, whether from De-Luca or another attorney, about how to deal with an issue which they were unaware of at the time of the initial consultation. The “communication” was inadequate because the Debtors could not have understood the material risks of proceeding without representation in adversary proceedings; nor could they have known the possible advantages of seeking counsel that structured his or her services differently. Nev. Rule of PROf’l Conduct 1.2(c) (2011).
Finally, the form of the consent itself was insufficient. The Debtors merely initialed and signed a standard form contract that reflected neither their understanding of what services were unbundled nor their particular circumstance. The court cannot objectively determine that the Debtors understood the risks of proceeding with limited representation. Even if the Debtors knowingly consented to the precise terms of the Retainer Agreement, however, that consent only extended to additional fees for representation in adversary proceedings. Consent is only presumed if the “communication” was adequate and there were no red flags. The complexity of bankruptcy is itself a red flag in that an attorney must meet a high bar to demonstrate that a client understood the consequences of excluding adversary proceedings. See In re Egwim,
Because the “communication” was inadequate to explain the material risks of the unbundled services and the available alter
5. Nev. Rule of Prof’l Conduct 1.5 — Attorneys’ Fees
a. Legal Standard
Under Nevada Rule 1.5(b),
[t]he scope of the representation and the basis or rate of the fee and expenses for which the client will be responsible shall be communicated to the client, preferably in writing, before or within a reasonable time after commencing the representation, except when the lawyer will charge a regularly represented client on the same basis or rate. Any changes in the basis or rate of the fee or expenses shall also be communicated to the client.
Nev. Rule of Prof’l Conduct 1.5(b) (2011). Subsection (b) of the Nevada Rule is identical to its ABA corollary. Id.; ABA Model Rule 1.5(b). “In a new client-lawyer relationship, ... an understanding as to fees and expenses must be promptly established.” ABA Model Rule 1.5 cmt. 2. The lawyer should explain, again, preferably in writing, “the general nature of the legal services to be provided, the basis, rate or total amount of the fee and whether and to what extent the client will be responsible for any costs, expenses or disbursements in the course of the representation.” Id.
Lawyers are thus required to openly discuss fees in advance — the services covered by the fees, how the fees are calculated, and how the fees may change. See Nev. Rule of Prof’l Conduct 1.5(b) (2011); HazaRD & Hodes § 8.2. “For unsophisticated clients in particular, this communication and counseling may be almost as important as the lawyer’s preliminary legal advice ... Only .after the lawyer provides such disclosure can a client’s agreement to pay a specified fee be considered truly voluntary.” Hazaed & Hodes § 8.2.
The lawyer’s communication concerning her fees must be in plain English. The client must be in a position to understand what the lawyer will do for the agreed upon fees, and, of equal importance, what the lawyer will not do. Simply put, the client must know what he bargained for.
b. Application
DeLuea violated Nevada Rule 1.5 because he did not sufficiently explain the scope of services covered under the flat fee and the scope of services available for additional fees. Nev. Rule of Prof’l Conduct 1.5 (2011). The Debtors were not regular clients of DeLuea, and thus he was required to communicate the scope of representation and the basis of his fees. Id. Because the Debtors were fairly unsophisticated in legal matters, and had no prior experience in bankruptcy, they cannot be said to have voluntarily agreed to pay the fees without adequate explanation by De-Luca. See Hazard & Hodes § 8.2. The problem is not that the Retainer Agreement did not list the fee amount or services to be provided; it did list them.
Rather, the problem is threefold. First, the listed services are described in legal jargon rather than plain English. Seare understood that “adversary proceedings” were excluded, but did not even know what they were. He also knew that “nondis-chargeability allegations” were excluded, but similarly may not have known what they were.
Second, the Debtors did not know the likelihood that they would need to pay for additional services. Without knowing the probability of an adversary proceeding, they did not know “to what extent [they] would be responsible for any costs, ex
Because an adversary proceeding for the St. Rose Debt was reasonably foreseeable at the time the Debtors agreed to the fee structure and DeLuca did not adequately explain this eventuality to the Debtors, he improperly unbundled the adversary proceedings from the flat fee. Id. cmt. 5. He unfairly placed them in the position of having to bargain for additional legal services “in the midst” of the adversary proceeding. Id.; see ABA Handbook 9-10 (“[S]ome people pay lawyers an amount sufficient to buy the limited representation they need, but as a deposit for full-service representation. When the client cannot pay a later installment of the full-service fee, the lawyer discontinues the legal work. This leaves the client, lawyer, and court frustrated, and converts the former client into a pro se litigant.”). The risk of being in this position is borne out by the fact that they met with several attorneys — all of which were too expensive because they would have needed to get up to speed on the case and this complex adversary proceeding. (See Evid. Hr’g Tr. 24-25.)
Third, DeLuca changed the basis of his fees without advance warning to the clients. Nev. Rule of PROf’l Conduct 1.5(b) (2011). The Retainer Agreement does not state that he may decide not to represent the Debtors in adversary proceedings, only that such services would incur additional fees. The Debtors agreed to pay about $2,000 for an attorney, that, for additional fees, would handle nondis-chargeability claims and adversary proceedings. Part of the basis for the $2,000 fee was the availability of additional services if needed. By deciding later not to represent the debtors at all, he essentially changed the basis for his fees. Id.
Viewed objectively, the Debtors did not understand what they bargained their money for. Without an understanding of what an adversary proceeding was, the likelihood of one occurring, and what it could cost them, they could not have known that the approximately $2,000 they agreed to pay did not include the scope of services reasonably necessary to achieve their goal. DeLuca was in a position to modify his standard form contract to include representation in adversary proceedings, or properly explain the financial risks of excluding such representation. Because he failed to investigate the Judgment, however, he could not see the necessity of making such accommodations. With proper information, the Debtors could have chosen to pay the $2,000 in spite of the risks, or sought another attorney. Their choice to pay $2,000 cannot properly be labeled as voluntary. See Hazard & Hodes § 8.2.
For these reasons, DeLuca violated Nevada Rule 1.5.
6. Nev. Rule of Prof’l Conduct 1.4— Communication with Clients
a. Legal Standard
Even if a limitation is reasonable and the client gives informed consent, the lawyer is not discharged of all duties surrounding the unbundled matter. The lawyer still has the duty to communicate under Nevada Rule 1.4, which is identical in pertinent part to ABA Model Rule 1.4. Nev. Rule of PROf’l Conduct 1.4 (2011); ABA Model Rule 1.4 (2002). The lawyer shall “[r]easonably consult with the client
b. Application
DeLuca first violated Nevada Rule 1.4 by failing to reasonably consult with the Debtors about the means to achieve their objectives. Nev. Rule of Prof’l CoNduot 1.4(a)(2) (2011). Because he did not understand that their primary goal was to permanently stop the garnishment, to the near exclusion of discharging other debts, a meaningful consultation about which means best served the Debtors’ goals was rendered impossible.
DeLuca’s failure to forward the proposed stipulation and order that he received via fax from St. Rose one month before St. Rose filed the Complaint also violated Nevada Rule 1.4. Even if DeLuca had properly unbundled representation in the adversary proceeding, which he did not, he had the ongoing duty to “keep the client reasonably informed about the status of the matter.” Nev. Rule of PROf’l Conduct 1.4(a)(3) (2011). There is no doubt that the Debtors’ “matter” included a judgment creditor’s communication concerning the possible settlement of its claim. To make matters worse, DeLuca told St. Rose that he would not sign off on the proposed stipulation without consulting first with the Debtors, a consultation which apparently never happened. (Ex. H.)
DeLuca also violated Nevada Rule 1.4 by failing to timely respond to requests for information by the Debtors. Nev. Rule of Prof’l Conduct 1.4(a)(4) (2011). Tedoco argues that throughout the representation, DeLuca’s office was nonrespon-sive and failed to keep the Debtors informed of the progress in their case. (Dkt. No. 47 at 3-4.) She further argues that DeLuca’s staff returned messages that specifically requested for DeLuca to call. (Id.) Even when DeLuca’s office returned the call, it often took two or three messages to prompt DeLuca’s office to act. (Id.) While a busy attorney is not required to return all calls directed at him or her, especially if the matter can be addressed by a staff member, the primary relationship is between the attorney and client. DeLuca could not simply ignore the requests for direct communication. The Debtors paid for DeLuca’s ongoing professional legal counsel, not just for a one-time meeting.
The Debtors were in a position of trust and relied upon DeLuca to guide them through a new, complex process. Failing to keep them sufficiently informed was unacceptable. Although the court doubts the Debtors’ credibility overall, the court finds their argument about DeLuca’s failure to communicate convincing. DeLuca’s record in this case and office policies indicate an inattention to detail and poor client communication. He fails to log which paralegal in his office reviews the retainer agreements with each prospective client. Twice in this case, he incorrectly filed his briefs on the bankruptcy docket instead of the adversary docket. More importantly, he failed to serve copies of his briefs on the Debtors until after the Evidentiary Hearing, even though the court ordered him to serve his Reply Brief on the Debtors immediately after the OSC Hearing.
7. The Bankruptcy Code
a. Section 707(b)(4)(C)
(1) Legal Standard
“The signature of an attorney on a [Chapter 7] petition ... shall constitute a certification that the attorney has ... performed a reasonable investigation into the circumstances that gave rise to the petition....” 11 U.S.C. § 707(b)(4)(C) (2012) (emphasis added). Section 707(b)(4)(C) is one of the provisions that BAPCPA added to the Code in 2005 to impose new duties on attorneys representing consumer debtors. In re Moffett,
The Bankruptcy Appellate Panel of the Ninth Circuit has discussed Section 707(b)(4)(C) on only one occasion. In re Kayne,
The BAP equated the analyses under Section 707(b)(4)(C) and Rule 9011 — “ ‘a debtor’s attorney has a duty, equivalent to that under [Rule] 9011 to perform a reasonable investigation into the circumstances giving rise to the documents before filing them in a Chapter 7 case’ ” Id. at 381 (quoting In re Withrow,
Other courts, the ABA, and the Collier bankruptcy treatise have come to the same conclusion. In re Withrow (BAP),
The ABA has stated that “[a]s a standard, ‘reasonable investigation’ should be governed by the case law interpreting and applying the ‘reasonable inquiry’ standard under Rule 9011.” ABA Attorney Liability 697. The ABA accepted one bankruptcy court’s articulation of an attorney’s reasonable pre-filing investigation duties under Rule 9011 for the purposes of Section 707(b)(4)(C):
“The duty of reasonable inquiry imposed upon an attorney by [Civil] Rule 11 and by virtue of the attorney’s status as an officer of the court owing a duty to the integrity of the system requires that- the attorney (1) explain the requirement of full, complete, accurate, and honest disclosure of all information required of a debtor; (2) ask probing and pertinent questions designed to elicit full, complete, accurate, and honest disclosure of all information required of a debtor; (3) check the debtor’s responses in the petition and Schedules to assure they are internally and externally consistent; (4) demand of the debtor full, complete, accurate, and honest disclosure of all information required before the attorney signs and files the petition;, and (5) seek relief from the court in the event that the attorney learns that he or she may have been misled by a debtor.”
Id. at 704 (quoting In re Robinson,
In re Withrow (Bankr.Ct.) articulated a similar standard, which included a requirement that the attorney “employ such external verification tools as were available and not time or cost prohibitive.... ”
Like the reasonableness inquiries under the ethical rules, reasonableness under Section 707(b)(4)(C) is also examined at the time the petition was filed (without the benefit of hindsight). ABA Attorney Liability 703; see Hamer v. Career College Ass’n,
To summarize, Section 707(b)(4)(C) serves as an enhancement to Rule 9011.
(2) Application
As with the ethical violations discussed above, DeLuca’s violation of Section 707(b)(4)(C) flows from his failure to investigate the nature of the Judgment. The Debtors told him of the circumstance giving rise to the petition — the wage garnishment. They even provided documents from the district court proceeding. DeLu-ca certainly was aware of the district court action, as the case name and case number are listed on the Debtors’ Statement of Financial Affairs. DeLuca’s reasonable next step would have been to investigate the Judgment supporting the garnishment. He could have done this by asking questions or, more effectively, downloading a copy of the Judgment from PACER, the district court’s readily-available electronic docketing system. See In re Withrow (Bankr.Ct.),
DeLuca did not take any affirmative steps to make sure that the Debtors provided complete and accurate information. See In re Robinson,
DeLuca argues that he performed due diligence in light of the limited information that the Debtors provided and their urgency to file. There is clear consensus, however, that an attorney cannot solely rely on the information provided by a client if such information is reasonably apparent to be incomplete or inconsistent, or raises a “red flag.” See id.; In re Kayne,
Here, the documents provided by the Debtors were incomplete — really, how could they not be unless the Debtors handed over the entire district court docket? The fact that the Judgment led to a garnishment was a sufficient red flag to require further inquiry. Blaming the Debtors for not providing sufficient information does not serve DeLuca’s cause. Once again, the Debtors are not bankruptcy experts and could not know what information was relevant or necessary. That is why they retained DeLuca and why the Code places affirmative duties on consumer bankruptcy attorneys.
Other bankruptcy courts have rejected similar blame-the-client arguments. In re Withrow (BAP) rejected an attorney’s claim that the client’s “personal health issues and/or ... faulty memory” justified erroneous and inconsistent petitions and schedules.
Similarly, In re Moffett rejected a lawyer’s justification for failing to list a substantial asset in the petitions:
What [the attorney] misses, however, is that the Debtor provided exactly what she was told she had to provide to get her case filed. The fault for the lack of complete information rests with [the attorney] for not insisting that clients he represents be told — and required — to bring in all necessary information before a case will be filed. He cannot absolve himself of the duty to conduct a reasonable investigation [under § 707(b)(4)(C) ] by affirmatively allowing clients to bring in only the bare minimum of informationand then claiming that it is not his fault that he did not have sufficient information to review.
Nor did the Debtors’ urgency to file absolve DeLuca of taking reasonable, and quite easy, steps to ascertain the nature of the Judgment. In one case, an attorney filed a Chapter 7 petition almost immediately after the clients stepped into his office. In re Alessandro,
The Debtors’ concern over the garnishment was real and deserved prompt attention, but they did not need a same-day filing. And even if they were in such need, reasonable steps should have been taken. DeLuca could have easily checked the district court docket on the PACER system. More broadly, part of an attorney’s role is to guide clients through a complex, and possibly frightening, process. Consumer bankruptcy attorneys regularly deal with clients in financial straits that desire, or demand, immediate action. See In re Moffett,
In short, DeLuca did not do his level best — or anything close to it — to get it right. In re Withrow (Bankr.Ct.),
b. Sections 526-528
(1) Legal Standard
BAPCPA added provisions to the Code to govern the relationship between “debt relief agencies” and “assisted persons.” 11 U.S.C. §§ 526-528 (2012). A “debt relief agency” is “any person who provides any bankruptcy assistance to an assisted person” in return for payment, such as consumer bankruptcy attorneys. Id. § 101(12A); Milavetz, Gallop & Milavetz, P.A. v. U.S.,
A debt relief agency shall not (1) fail to perform any service that' such agency informed an assisted person or prospective assisted person it would provide in connection with a case or proceeding under this title; ... (3) misrepresent to any assisted person ..., directly or indirectly, affirmatively or by material omission, with respect to ... the services that such agency will provide to such person; or the benefits and risks that may result if such person becomes a debtor under this title....
Id. § 526(a).
Section 527 mandates that debt relief agencies provide disclosures to assisted persons that, among other things, (1) briefly describe the general purpose, benefits, and costs of proceeding under Chapters 7, 11,12, and 13 of the Code, and the types of services available from credit counseling agencies; (2) inform them that they must make truthful and accurate disclosures of income and assets; and (3) generally explain that litigation may be an outcome of filing for bankruptcy. Id. § 527.
Section 528 requires that a contract between a debt relief agency and assisted person be in writing and “clearly and conspicuously” explain the scope of services that the agency will provide and the fees or charges for such services. Id. § 528(a)(1). With the exception of the writing requirement, this section mirrors Nevada Rule 1.4. The debt relief agency must provide the assisted person with “a copy of the fully executed and completed contract.” Id. § 528(a)(2).
The contract requirements must be fulfilled within five days of the first date on which the agency provided bankruptcy assistance services to the assisted person, and before the filing of the assisted person’s petition. Id. § 528(a)(1).
Violations of these sections are harsh for debt relief agencies. “[A]ny contract for bankruptcy assistance between a debt relief agency and an assisted person that does not comply with [Sections 526-528] ... shall be void” and may only be enforced by the assisted person. Id. § 526(b).
(2) Application
As a consumer bankruptcy attorney, DeLuca qualifies as a “debt relief agency.” 11 U.S.C. § 101(12A); Milavetz,
DeLuea argues that the Debtors could not afford the additional services anyway, so it is immaterial whether he was willing to perform them or not. His argument, however, improperly benefits from hindsight — the Debtors’ admission that they could not afford the other attorneys that they consulted. At the time DeLuea refused to perform the additional services, there is no evidence that he offered them to the Debtors and they refused for lack of funds. DeLuea offered no evidence to indicate that he consulted at all with the Debtors before sending them the letter of nonrepresentation in June 2012. As discussed above, DeLuea was required to represent Seare in the adversary proceeding because it was reasonably necessary to achieve the Debtors’ ultimate goal — permanent cessation of the wage garnishment. Even if the adversary representation were not so necessary, however, the terms of the Retainer Agreement obligated DeLuea to quote a price to Seare for the adversary representation. The terms of a contract are not just what is written, but what is reasonably necessary to carry out the contract’s purposes. See Hotel Employees, Restaurant Employees Union, Local 2 v. Marriott Corp.,
DeLuea also violated Section 526(a)(3). He misrepresented the risks associated with an adversary proceeding that the Debtors were nearly certain to face if they filed for bankruptcy. See 11 U.S.C. § 526(a)(3) (2012). The Debtors argue that DeLuea told them the St. Rose Debt was dischargeable. The court does not find that he was so direct, but the statute nonetheless imposes liability for material omissions. Because stopping the garnishment was their primary goal, failing to address the risks of a related adversary proceeding was a material omission.
For essentially the same reasons set forth above in relation to Nevada Rule 1. 5, DeLuea violated Section 528(a). He partially complied by providing a written contract on the same day as the initial consultation. 11 U.S.C. § 528(a)(1). He failed, however, to provide a “fully executed and completed contract” because he did not sign the Retainer Agreement. Id. § 528(a)(2). The Retainer Agreement did not “clearly and conspicuously” explain the scope of services and fees. Id. § (a)(1). The Retainer Agreement is reasonably clear in that the attorney billing rate of $495.00 per hour is not buried or hidden, and that the list of services that require additional fees is explicit. There are two problems, however.
First, the list of excluded services uses technical terms. A layperson is unlikely to know what a nondischargeability allegation or bankruptcy adversary proceeding is.
Whether DeLuca complied with the disclosure requirements of Section 527 is unknown. There is insufficient evidence for the court to determine what disclosures, if any, DeLuca provided aside from the Retainer Agreement and the FAQ. If, however, there were no other disclosures, then DeLuca did not comply with Section 527. The Retainer Agreement and FAQ do not include the required statement under Section 527(b), which, among other things, explains that litigation is a possible outcome of filing for bankruptcy. Nor do they include the Section 342(b)(i) disclosure, required by Section 527(a)(1), that explains the general characteristics of the different bankruptcy chapters. 11 U.S.C. § 527(a)(1) (2012).
Nonetheless, the court need not reach the potential Section 527 violations because DeLuca’s non-compliance with Sections 526 and 528 render the Retainer Agreement void and enforceable only by the Debtors. Id. § 526(b).
Y. SANCTIONS
A. The Purpose of Sanctions
A lawyer’s primary obligations are to her client, but she also owes duties to the public, the legal system, and her profession. The ABA has recognized this in articulating that “the purpose of lawyer discipline proceedings is to protect the public and the administration of justice from lawyers who have not discharged, will not discharge, or are unlikely properly to discharge their professional duties to clients, the public, the legal system, and the legal profession.” AM. Bar. Ass’n, Joint Comm, on PROf’l Sanctions, Standards for Imposing Lawyer Sanctions 13 (2005) (the “ABA Standards”). The ABA Standards were developed to address ethical violations — noncompliance with the ABA Model Rules and their state corollaries. In determining sanctions for such violations, deterrence is the essential goal — protection from actual and potential rulebreakers.
Likewise, the court may remedy violations of Section 707(b)(4)(C) by ordering sanctions with the predominant purpose of deterrence. In re OBrien,
The remedy for noncompliance with Sections 526-528 is not a sanction, but rather contract voidance and possible fee disgorgement. 11 U.S.C. § 526(c) (2012). The purpose of deterrence is the same, however, as these Code sections serve to promote proper conduct by consumer bankruptcy attorneys. Cf. Milavetz, 130 S.Ct.
B. The Range of Sanctions
“Bankruptcy courts have the inherent authority to regulate the practice of attorneys who appear before them.” In re Nguyen,
The BAP has endorsed the use of the ABA Standards to determine the appropriate sanctions for attorney misconduct. See In re Nguyen,
The ABA Standards includes a non-exhaustive list of potential sanctions, which the court may impose individually or collectively: (1) disbarment; (2) suspension; (3) interim suspension; (4) reprimand, a declaration that the lawyer’s conduct was improper without limiting the lawyer’s right to practice; (5) admonition, a nonpublic reprimand; (6) probation, which allows the lawyer to practice under specified conditions; (7) reciprocal discipline; and (8) various other sanctions and remedies, such as restitution, assessment of costs, limitation upon practice, appointment of a receiver, requiring that the lawyer take the bar examination or professional responsibility examination, or requiring that the lawyer attend continuing education courses. ABA StaNdaeds 14-16.
The Local Rules for the District of Nevada also grant considerable leeway in fashioning sanctions for violations of the Nevada Rules of Professional Conduct. Local Rule 1A 10-7 (“[A]ny attorney who violates these standards of conduct may be disbarred, suspended from practice before this Court for a definitive time, reprimanded or subjected to such other discipline as the Court deems proper.”).
Violations of Sections 526-528 render the contract void and enforceable only by the debtor. 11 U.S.C. § 526(c)(1) (2012). If the attorney’s violation was intentional or negligent, she is liable to her client for any fees or charges received, actual damages, and reasonable attorney’s fees and costs. Id. § 526(c)(2); see In re Gutierrez,
Section 329(b) and Rule 2017 provide independent bases for the court to examine the reasonableness of attorney’s fees. 11 U.S.C. § 329(b) (2012); Fed. R. BanicrP. 2017. If the court determines
Courts have awarded a variety of sanctions for the violations that DeLuca has committed. For unbundling in violation of ABA Model Rule 1.2(c) (or its predecessor or state corollary), courts have awarded or endorsed fee reductions under Section 329(b). In re Johnson,
For violations of Section 707(b)(4), one bankruptcy court suspended the attorney’s filing privileges for one year and ordered four hours of continuing education courses — three hours in consumer bankruptcy and one in ethics. In re Moffett,
Another bankruptcy court ordered disgorgement under Section 329(b) and Rule 2017 for failing to research the PACER records for previous filings by his client and failing to inform the court of his client’s status as a repeat filer once he should have learned of it. In re Alessandro,
In another case, the First Circuit BAP affirmed a bankruptcy court’s order of sanctions in the amount of three times the lawyer’s fee where the lawyer blamed the client for inconsistent and inaccurate information on the schedules and petitions. In re Withrow (BAP),
For violations of Sections 526-528, bankruptcy courts have ordered partial and total fee disgorgement. In re Gutierrez,
DeLuca argues that the court cannot compel him to represent Seare in the adversary proceeding because to do so would amount to involuntary servitude in violation of the Thirteenth Amendment to the
C. The ABA Standards
Before applying the ABA Standards to DeLuca’s violations, it is worth recapping what those violations are. DeLuca violated the duty of competence, Nevada Rule 1.1, by unbundling services (adversary representation) that were reasonably necessary to achieve the Debtors’ reasonably anticipated result — permanent cessation of wage garnishment. He violated Nevada Rule 1.2(c) because unbundling adversary representation was unreasonable under the circumstances and because he failed to obtain the Debtors’ informed consent. Next, he violated Nevada Rule 1.5 by failing to properly explain the scope of services and fees when the Debtors agreed to retain him. Lastly, he violated Nevada Rule 1.4 by failing to properly communicate with clients — about the overall progress of their case and St. Rose’s intent to file an adversary proceeding.
Concerning the Bankruptcy Code, De-Luca violated Section 707(b)(4)(C) by failing to reasonably investigate the nature of the Judgment. He violated Section 526(a)(1) when he failed to quote a price to the Debtors for adversary representation and instead flatly refused to represent them. He violated Section 526(a)(3) by failing to explain the risks of filing — namely, that an adversary proceeding was a near certainty. Next, he violated Section 528(a)(2) by failing to provide a “fully executed” contract to the Debtors. Finally, he violated Section 528(a)(1) by failing to “clearly and conspicuously” explain the scope of services and fees when the Debtors retained him.
The ABA Standards dictates consideration of four criteria: (1) the duties violated, whether owed to a client, the public, the legal system, or the profession; (2) the lawyer’s mental state, whether she acted intentionally, knowingly, or negligently; (3) the seriousness of the actual or potential injury caused by the lawyer’s
1. The Duties Violated
The most important duties are those owed to the client — loyalty, diligence, competence, and candor. ABA Standards 9-10. In descending order of importance are the duties owed to the general public, the legal system, and the legal profession. Id. at 10. The public is entitled to be able to trust lawyers to protect their property, liberty, and lives. Id. Accordingly, lawyers should behave with honesty and integrity. Id. Being able to trust lawyers to protect one’s property is especially important for consumer bankruptcy debtors, who typically seek representation in dire circumstances and face a complex legal process. The system is harmed where lawyers create or use false evidence or intend to deceive the court, and where the lawyer’s behavior puts an unreasonable burden on the court. Id. The profession is harmed where an attorney’s practices reflect poorly on the profession or contribute to a decline in the overall quality of services provided by attorneys in a practice area or region. See id.
DeLuea violated his duties to the Debtors, the public, the legal system, and the legal profession. The court considers his violations of the duties of competence and diligence to be of the utmost concern. He failed to perform the most essential of functions — ascertaining the client’s objectives. This failure was the first domino. He could not competently unbundle adversary representation without knowing how crucial such representation could be in the Debtors’ situation. Nor could he obtain informed consent. He did not diligently represent the Debtors; he failed to keep them properly informed. Whether framed under the duty of competence or diligence, he failed his duty to provide the debtors with transparent information about the scope of services and his fee structure under the Retainer Agreement. The Debtors were not in a position to understand the benefits and risks of filing for bankruptcy, the likely costs to them, in terms of time and money, and the other options available. He failed the core attorney duty of treating each client as an individual. He unbundled based on his needs, not those of the Debtors. See ABA Handbook 7.
DeLuea violated his duty to the public by practicing in a manner that erodes the public’s trust in attorneys. He treats all clients the same, creating the impression that attorneys are more interested in fees than solving individual client’s problems. He does not explain that his fee structure, which unbundles various services, may not be standard practice or that it creates certain risks. See Restatement (Third) of Law Governing Lawyers § 19 (2000). This fosters the same impression of profits over clients. The public may grow more distrustful of lawyers if they feel channeled into limited forms of representation that do not respond to individual needs. Because laypeople aré unlikely to understand the advantages and risks of unbundled legal services, the general public is harmed to the extent that DeLuca’s practice is becoming the norm for consumer bankruptcy attorneys. See id.
DeLuca’s conduct also harmed the legal system. While his behavior did not rise to deceit, his abandonment left the court system to deal with a pro se litigant in a complicated adversary proceeding. The court faces considerable administrative challenges with pro se litigants, and if the court takes any action to assist the pro se litigant, however innocent, the court may face allegations of impartiality. See In re
2. DeLuca’s Mental State
The ABA Standards defines three mental states — intent, knowledge, and negligence — in descending order of culpability. ABA STANDARDS 10. “Intent” is when the lawyer acts “with conscious objective or purpose to accomplish a particular result.” Id. “Knowledge” is when the lawyer acts “with conscious awareness of the nature or attendant circumstances of his or her conduct both without the conscious objective or purpose to accomplish a particular result. Id. “Negligence” is when a lawyer “fails to be aware of a substantial risk that circumstances exist or that a result will follow, which failure is a deviation from the standard of care that a reasonable lawyer would exercise in the situation.” Id.
DeLuca’s failure to investigate the Debtors’ circumstances — the wage garnishment and the Judgment — was negligent. The reasonable lawyer in that initial consultation would have performed an independent investigation. DeLuca failed to be aware of the substantial risk of an adversary proceeding that the Debtors were nearly certain to face, and consequently could not advise them about the risks associated with such a proceeding. Not all of his conduct, however, was merely negligent.
He knowingly created a system that fails to explain the risks of particular cases to clients. His system intends to do generally, by use of standard form contracts, that which can only be done specifically. He knowingly chose to unbundle certain legal services for all clients, regardless of their circumstance. The Retainer Agreement and the FAQ are the only information provided to clients, and they do not explain the risks of unbundled services, either general or specific to one’s case. These documents are insufficient to form the basis of informed consent. He repeatedly failed to call the Debtors back when they specifically requested that he, not his staff, return the calls. The repeated nature of this failing contributes to the conclusion that he treats all clients the same and does not provide individualized service.
He knowingly took steps during the course of representation to make sure that he would not represent Seare in the adversary proceeding. He knowingly structured the Retainer Agreement to require extra fees for adversary representation, yet he did not quote a price to Seare for representation in this adversary proceeding. Instead, he sent Seare the nonrepre-sentation letter. He also knowingly failed to forward the proposed stipulation and order that St. Rose sent to him one month prior to filing the Complaint. Further, he knowingly failed to sign the Retainer Agreement.
3. Seriousness of the Injury
“The extent of the injury is defined by the type of duty violated and the extent of actual or potential harm.” ABA Standards 11.
The court first examines the actual injuries to the Debtors. The Debtors spent considerable time pursuing the bankruptcy case and $2,000 in legal fees. If they had known that the St. Rose Debt was nearly certain to face a nondischargeability allegation, they may not even have filed in the first place. Their other creditors were not dunning them. Although Seare is the defendant in the adversary proceeding, both
The potential injuries to the Debtors, and to Seare in particular, are also significant. If Seare and St. Rose had not settled, they would still be embroiled in litigation and preparing for trial. Seare would either be facing a complex proceeding pro se or paying alternative counsel. The cost of that counsel would likely be greater than what DeLuca would have charged because another lawyer would have had to become familiar with the case. The emotional toll for Seare and Tedoco would also likely be great if the proceedings were ongoing.
DeLuca argues that the Debtors were not prejudiced by his nonrepresentation, and that, in fact, they benefitted from the bankruptcy. (Bankr.Dkt. No. 27 at 10, 13.) He first contends that Seare suffered no prejudice because DeLuca advised him “immediately after the filing of the adversary proceeding” of the nonrepresentation. (0 SC Hr’g Tr. 10.) DeLuca did not, however, inform Seare immediately after the § 341 meeting in March 2012, or immediately after the receipt of the proposed order and stipulation (about one month before the Complaint was filed), of the nonrepresentation. DeLuca did not even give Seare the bad news until Seare asked whether the St. Rose Debt had been discharged in an e-mail on June 4, 2012, about two weeks after the Complaint was filed. Had Seare known of the nonrepre-sentation in a timely manner, he may have been in a position to better mitigate the harm. If Seare had not inquired about the St. Rose Debt, it is unclear when, if ever, DeLuca would have informed him of the nonrepresentation.
DeLuca next contends that Seare had ample time to procure alternate representation. This argument misses the point and is belied by the facts. DeLuca did not send the letter of nonrepresentation until about two weeks after the Complaint was filed, putting Seare in the untenable position of having to scramble to prepare a pro se answer, which he did, or try to retain counsel that could prepare a competent answer within a short time frame. In addition, time is not the only relevant issue. Even if Seare had sufficient time, obtaining alternate counsel was unaffordable — -presumably because of the costs of learning the particulars of the case.
Regarding cost, DeLuca claims that Seare did not suffer any prejudice because he could not afford DeLuca’s additional fees anyway. This argument fails for several reasons. First, DeLuca never quoted a fee for additional services so he could not have known whether Seare could afford any additional fees. Second, this argument unfairly benefits from hindsight. Seare testified that he could not afford additional fees, but DeLuca did not know this at the time he decided not to represent him. Third, DeLuca was obligated to provide the services regardless of whether Seare could afford them. Adversary representation was reasonably necessary to achieve the Debtors’ goals. Even if not reasonably necessary, however, withdrawal for nonpayment of fees in the midst of litigation requires leave of court and De-
Also concerning costs, DeLuca argues that Seare benefitted from the bankruptcy because nearly $137,000 in unsecured debt was discharged for his $2,000 fee. This argument entirely misses the purpose of legal representation, however. The Debtors did not “purchase” a discharge from DeLuca. They retained him for professional services. The value of the services does not depend solely on the amount of the discharge; in some cases, the discharge itself might be a lesser goal. They paid him for his experience and expertise, neither of which were sufficiently applied to the facts of their case. Seare admitted that the discharge was a benefit, just not the benefit they retained DeLuca to provide, and based on what occurred at the initial consultation, their expectation of discharging the St. Rose Debt was reasonable.
DeLuca further argues that the Debtors’ goals were partially realized because the garnishments stopped for the pendency of the bankruptcy. DeLuca was not retained for this temporary benefit though. Any pro se filer can obtain this benefit, since the automatic stay is, well, automatic, once the petition is filed. DeLuca essentially served as a bankruptcy petition preparer in obtaining this benefit for the Debtors.
Finally, DeLuca argues that Seare bene-fitted because his credit score is projected to improve by 102 points. (Bankr.Dkt. No. 27 at 31; Ex. P.) Although Seare admitted the increase would be a benefit, this projection may be meaningless. DeLuca testified that he did not know how CIN calculates the scores; his understanding is that they only consider total debt and not the nature of the debt (e.g., nondischargeable and/or incurred through fraud). (Evid. Hr’g Tr. 42:19-44:5.)
The court finds DeLuea’s arguments unavailing. The Debtors, and Seare in particular, suffered substantial actual and potential injury from DeLuca’s unethical behavior.
The injury to the public, the legal system, and the profession, must also be considered. DeLuca’s conduct has eroded the public trust by serving as an example of one more lawyer that values efficiency and what is best for him over the client’s needs. Regrettably, the court has had to expend considerable time and resources to pursue this sanctions matter.
4. Aggravating or Mitigating Factors
The court may consider aggravating and mitigating circumstances in deciding what sanction to impose. ABA StanDARDS 25. Aggravating factors justify an increase in the degree of discipline imposed. Id.; In re Nguyen,
Mitigating factors justify a decrease in the degree of discipline imposed. Id. at 25; In re Nguyen,
D. The Sanctions Imposed
DeLuca violated the most important duties of a lawyer — those to his clients — as well as duties to the public, the legal system, and the legal profession. Many of his actions were done knowingly, while in some instances they were merely negligent. As a consequence of these violations, the Debtors suffered substantial actual and potential injury. The public, the legal system, and the legal profession were also victims. While he made several attempts to rectify the Debtors’ injuries, the aggravating factors overwhelm the mitigating factors.
The ABA Standards recommends sanctions depending on the duty violated and the lawyer’s mental state. They are a good starting point. For the types of violations that DeLuca has committed, the suggested sanctions follow a consistent theme — suspension for knowing violations and reprimand for negligent violations. ABA STANDARDS 18-19, 21, 24.
Based on the ABA Standards and the court’s authority under Sections 105(a), 329(b) and 526(c), the court hereby imposes the following sanctions on DeLuca:
1. Disgorgement of Fees
The court orders the disgorgement of all attorney’s fees that the Debtors paid to DeLuca, including but not limited to the $1,995.00 paid under the Retainer Agreement. Under Section 329(b), the court may order the return of fees that “exceed[] the reasonable value” of the services rendered by DeLuca. 11 U.S.C. § 329(b) (2012). Athough DeLuca did not provide the Debtors with what they reasonably expected in the circumstances—
DeLuca is not entitled to retain this $150.00, however, because deterrence is best-served by disgorging all of the fees. The totality of the ethical and statutory violations, and the harms thereby caused to the Debtors, the legal system, the public, and the profession, are sufficiently severe such that the court cannot send the message that an attorney who so behaves will retain any compensation. DeLuca failed his essential, fundamental duty — determining the Debtors’ primary objective — and cannot be rewarded.
Section 526(c) provides independent grounds for total disgorgement. DeLuca’s noncompliance with Sections 526 and 528 render him liable to the Debtors “in the amount of any fees or charges in connection with providing bankruptcy assistance” to them. Id. § 526(c)(2). In other words, he is liable for the entirety of his attorney’s fees. The court finds that total disgorgement is the most appropriate way to promote compliance with Sections 526-28.
The ABA Standards also supports disgorgement. Although these standards do not expressly link disgorgement to any specific mental state, disgorgement fits well in the general framework of reprimand for negligent violations and suspension for knowing violations. De-Luca engaged in both negligent and knowing conduct, but his core mistake was due to negligence. A suspension is not warranted but a mere reprimand would be insufficient. Disgorgement is thus appropriate, and necessary to deter similar unethical conduct. The aggravating factors also warrant more than a reprimand, as DeLuca is an experienced practitioner, he engaged in a pattern of selfish conduct, and blamed the Debtors instead of owning up to his professional shortcomings.
Moreover, several bankruptcy courts have ordered total disgorgement in like circumstances. In re Alessandro,
The court has wide discretion to fashion appropriate sanctions; the ABA Standards lists restitution as an available remedy; the Code authorizes disgorgement in this circumstance; and case precedent provides additional support. The court believes that complete disgorgement is a fair remedy that sends the appropriate message to the consumer bankruptcy bar that operating consumer bankruptcy “mills” that fail to provide individualized representation inheres the risk of receiving zero compensation where such failure deprives the client from being able to obtain the relief for which she sought assistance of counsel in the first place.
2.Publication of this Decision
The court orders that this opinion be submitted for publication in West’s Bankruptcy Reporter. Publication is a form of reprimand, which the ABA Standards expressly endorses for negligent violations. The seriousness of the harms caused by DeLuea supports a public reprimand. “Only in cases of minor misconduct, when there is little or no injury to a client, the public, the legal system, or the profession, and when there is little likelihood of repetition by the lawyer, should private discipline be imposed.” ABA STANDARDS 13. While DeLuea himself may not engage in the same conduct in the future, the purposes of sanctions are to deter such conduct by all attorneys.
Publication serves to deter future sanc-tionable conduct by shining light on DeLu-ca’s behavior, and more broadly on the negative repercussions of operating a consumer bankruptcy “mill.” The public is better protected by increased awareness of the pitfalls of unbundled representation in general and in the consumer bankruptcy arena in particular. The bar is better informed about what types of conduct are sanctionable and the nature of the sanctions that may be imposed; the level of practice in the community should thus improve.
3.Continuing Education
The court orders DeLuea to complete five hours of continuing education regarding collection and enforcement of judgments, and ten hours regarding ethical responsibilities to clients. He must complete the courses within one year of the date of entry of this opinion. DeLuea shall submit proof of attendance to the court within one week of completing each course.
The essential purpose of this sanction is to deter DeLuea from repeating the conduct that led to these sanctions in the first place. Next, this sanction signals to the bar that an understanding of judgment collection is necessary to the practice of bankruptcy law, as is the understanding of a lawyer’s ethical duties. DeLuea’s experience as a practitioner did not itself deter his misconduct. Therefore, the court must take more coercive action to ensure that Mr. DeLuea has the necessary knowledge to represent consumers within the bounds of ethics and the Bankruptcy Code.
4.Provision of this Decision to Future Clients
Finally, the court orders DeLuea to provide a copy of this opinion to every client in the next two years (commencing on May 1, 2013) who is sued in an adversary proceeding, but only if DeLuea declines to represent them in that adversary proceeding for any reason. If DeLuea properly declines to represent a client in an adversary proceeding — where such limitation is reasonable under the circumstances and the client gives informed consent — then this opinion will merely serve to confirm that DeLuca’s limitation on services is proper. If not, then the opinion will serve to put clients on notice that DeLuea has unethically unbundled services in the past and that unbundling contains certain risks.
The court finds this sanction especially important because DeLuea engaged in a
This sanction also informs the bar that being caught for unethical conduct has repercussions beyond just paying a fine and moving on. Whether to behave ethically should not just be a business calculation that weighs the cost of being caught against the potentially higher profits of streamlining representation to the point at which each client is treated like the next. DeLuca’s sanctionable conduct occurred in a case in which an adversary proceeding was filed — a rare occurrence. Given its rarity, DeLuca need not provide a copy of this opinion to every prospective client. But where he is placing a client in the same predicament as the Debtors, that client should be aware of the related risks. The court believes that the best way to assure such awareness is to mandate the provision of this opinion, which in turn should deter unethical conduct.
Noncompliance with any of the above may result in the imposition of additional sanctions or a finding of contempt of court.
VI. CONCLUSION
DeLuca’s business model automatically divorces representation in a consumer’s main Chapter 7 case from representation in any adversary proceeding that arises after filing — a practice known generally as “unbundling.” While unbundling is not necessarily evil, it must be done intelligently and in accordance with the applicable rules of professional responsibility. One of the aspects of a regulated profession such as law is that the ethical and other rules governing lawyers restrict a lawyer’s freedom of contract with his or her clients. These rules require that limitations in representation such as unbun-dling have to be consistent with the goals of the legal representation, and that the client must give informed consent to the limitations. This should not be exceptional. These rules and the practices of most attorneys are consistent with unbundling of adversary proceedings in most bankruptcy cases.
Here, however, they failed. They failed because DeLuca failed to ascertain the Debtors’ goals, and failed to properly inform himself of the circumstances surrounding Seare’s wage garnishment. Underlying these failures was DeLuca’s system which generically treats all clients the same, with little or no individualized differentiation. But the practice of law is not a one-size-fits-all consumer good; it is a profession that demands individual attention to each client. Lawyers have fiduciary duties to clients, and by definition a fiduciary duty means lawyers must place clients’ interests above their own. DeLuca has done the opposite, by knowingly designing a system that prioritizes efficiency and uniformity above the particularized needs of each client.
DeLuca violated multiple state ethical rules and sections of the Bankruptcy Code as set forth above. Yet all these violations stem from a single source — his “mill” system of processing cases. By blindly adhering to his system in this case, DeLu-ca violated Nevada Rules 1.1, 1.2, 1.4, and
Based on the foregoing, the court ORDERS Anthony J. DeLuca SANCTIONED as set forth above.
This opinion constitutes the court’s findings of fact and conclusions of law under Rule 7052, made applicable here by Rule 9014(c).
Notes
. Unless specified otherwise, all "Chapter” and "Section” references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532; all "Rule” references are to the Federal Rules of Bankruptcy Procedure, Fed. R. Bankr.P. 1001— 9037; all “Civil Rule” references are to the Federal Rules of Civil Procedure, Fed.R.Civ.P. 1-86; and all "Evidence Rule” references are to the Federal Rules of Evidence, Fed.R.Evid. 101-1103.
. The court has the duty to enforce the requirements of professional conduct for law
. Seare v. St. Rose Dominican Health Foundation, No. 2:10-cv-02190-KJD-GWF,
. "Dist. Dkt. No.” refers to the docket entry for documents filed electronically through CM/ECF in the federal district court case. See id. Likewise, "Bankr.Dkt. No.” refers to documents filed electronically in the main bankruptcy case, and "Dkt. No.” refers to documents filed electronically in this adversary proceeding.
. The Judgment amount is the debt that St. Rose claimed is nondischargeable in this adversary proceeding (the "St. Rose Debt”). Seare did not contest that the debt was incurred through fraud, (Evid. Hr’g Tr. 13:10— 11, Oct. 23, 2012), although he did assert that he has a valid defense to St. Rose's claims. (See Dkt. No. 13.)
. It is unclear whether the Debtors gave De-Luca a copy of the Judgment and/or copies of
. This is less than half of the maximum allowable garnishment, which at Seare's pay rate is 25% of his disposable earnings — $702 per month. Nev.Rev.Stat. § 31.295 (2011).
. The approximately $137,430 derives from $219,943 in unsecured, non-priority claims less the St. Rose Debt ($67,431) and less several student loans (approximately $15,083). (Bankr.Dkt. No. 1.) The Debtors did not have any priority claims. (See id.)
. All references to "DeLuca” are inclusive of DeLuca's employees and office staff.
. "Nevada Rule” refers to the Nevada Rules of Professional Conduct. Nev. Rules of Prof’l Conduct 1.0-8.5 (2011).
. That DeLuca admits that he tried to settle St. Rose’s claim raises the question of whether DeLuca decided to represent Seare in the adversary proceeding, and whether Seare agreed to the representation. If DeLuca’s actions constituted a decision to represent Seare, then that in turn raises the issue of whether DeLuca appropriately withdrew from representation. Nonetheless, the court views the circumstances such that DeLuca's settlement efforts did not themselves establish that DeLuca represented Seare in the adversary proceeding.
. The evidence binder submitted by DeLuca before the Evidentiary Hearing contains printouts of the purported credit score estimations. The reports were not marked as an exhibit. However, the court admitted all of the proposed exhibits at the evidentiary hearing and the CIN Legal Data Services Reports are hereby marked as Exhibit O. (Dkt. No. 35 at 47:12-13).
. Pub.L. 109-8, 119 Stat. 23 (2005).
. That debts incurred through fraud are non-dischargeable is black letter bankruptcy law. With 11 years of experience practicing consumer bankruptcy and having filed over 10,-000 cases, DeLuca certainly knew this. (See Evid. Hr’g Tr. 36:23-37:6.)
. See Hon. David S. Kennedy & Vanessa A. Lantin, Litigation: Professionalism: Maintaining the Professionalism and Competence of a Lawyer in Bankruptcy Litigation When Compensation Becomes a Problem and Related Matters, 13 J. Bankr.L. & Prac. 5 Art. 2 (2004) ("[I]t has been said that some consumer attorneys simply run so-called bankruptcy 'mills' where the primary objective is merely to maximize the economic return to the attorney fees with little attendant expense and time in what is negatively stereotyped as an administrative practice or a 'cookie cutter operation.’ ”).
. While a precise definition of "professional” is difficult to pin down, Black’s Law Dictionary defines a "professional” as "[a] person who belongs to a learned profession or whose occupation requires a high level of training and proficiency.” Black’s Law Dictionary 1329 (Brian A. Garner ed., 9th ed. 2009); see generally Kevin F. Ryan, Lex et Ratio ...
The American Bar Association ("ABA”) has supported Dean Roscoe Pound’s definition of a "profession” as " 'pursuing a learned art as a common calling in the spirit of public service — no less a public service because it may incidentally be a means of livelihood.' ” See ABA Blueprint 10 (quoting Roscoe Pound, The Lawyer From Antiquity to Modern Times 5 (1953)). The ABA has rephrased this somewhat: "[a] professional lawyer is an expert in law pursuing a learned art in service to clients and in the spirit of public service; and engaging in these pursuits as part of a common calling to promote justice and the public good.” Am. Bar Ass’n, Section on Legal Educ. & Admission to the Bar, Teaching and Learning Professionalism 6 (1986). Notably, the ABA defined "public service” as "representing in- ■ dividual clients and zealously advocating their interests in a professional manner.” Id. at 6 n. 22 (emphasis added).
. See Michele N. Struffolino, Taking Ltd. Representation to the Limits: The Efficacy of Using Unbundled Legal Sens, in Domestic Relations Matters Involving Litig., 2 St. Mary's J. Legal Mal. & Ethics 166, 176 (2012); Stephanie L. Kimbro, The Ethics of Unbundling, 33 Fam. Advoc. 27 (2010); Thomas J. Yerbich, Testing the Limits on Unbundled Representation, 23 Am. Bankr.Inst. J. 8 (2004).
. The former version of the rule stated, "A lawyer may limit the objectives of representation if the client consents after consultation." ABA Model Rule 1.2(a) (1988) (emphasis supplied). The rule was modified because only a client can limit the objectives, and the addition of the reasonableness standard was thought desirable. Annotated Rules 38.
. While not binding on this court, the state court rules of practice in Clark County impose affirmative duties on attorneys who provide unbundled services that the Nevada Rules do not.
(a)An attorney who contracts with a client to limit the scope of representation shall state that limitation in the first paragraph of the first paper or pleading filed on behalf of that client. Additionally, if the attorney appears at a hearing on behalf of a client pursuant to a limited scope contract, the attorney shall notify the court of that limitation at the beginning of that hearing.
(b) An attorney who contracts with a client to limit the scope of representation shall be permitted to withdraw from representation before the court by filing a Notice of Withdrawal of Attorney with the clerk’s office. The Notice of Withdrawal of Attorney shall state that the attorney is withdrawing from the case because the attorney was hired to perform a limited service, that service has been completed, and shall include a copy of the limited services retainer agreement between the attorney and the client. The Notice of Withdrawal of Attorney shall also state that the client will be representing himself or herself in proper person unless another attorney agrees to represent the client....
Nev. 8th Jud. Dist. Ct. Rule of Practice 5.28 (2012).
. "[1] the capabilities of the client, [2] the nature [i.e., complexity] and importance of the legal problem, [3] the degree of discretion that decision-makers exercise in resolving the problem, [4] the type of dispute-resolution mechanism, and [5] the availability (or not) to the client of other self-help resources.” ABA Handbook 59, 61. For similar factors, see Cal. Comm, on Access to Justice, Ltd. Representation Comm., Gen. Civil Ltd. Scope Representation: Risk Mgmt. Materials (2007); Cal. Comm, on Access to Justice, Family Law Ltd. Scope Representation: Risk Mgmt. Materials (2004).
. The steps relate to both general office practice and individual client interaction: (1) "[c]onsider providing self-help informational materials to prospective clients in your waiting room, through the mail, or on-line;” (2) "stay within your practice area;” (3) perform a thorough and comprehensive "diagnostic” initial interview; (4) identify the client's problems and goals; (5) "[a]dvise the client about the available strategic and representational options, and help the client make selections;” (6) "[(Identify what the lawyer will, and will not, do;” (7) "[(Identify what the client can do;” (8) obtain informed consent from the client; (9) "[e]mbody all of the agreements and understandings, and the informed consent, in a written retainer agreement;” and (10) "[a]nticipate the need to revise the agreement by adding a flexible revision provision to it.” ABA Handbook 4-74.
. At least one bankruptcy court has developed a local rule to deal with the unbundling phenomenon. The U.S. Bankruptcy Court for the District of Maryland mandates:
An attorney who files a petition in bankruptcy on behalf of a debtor ... will be counsel of record in all matters arising during the administration of the case, such as adversary proceedings ... In an individual case, representation will continue through discharge and continue as to any matter pending at the time of discharge. However, an attorney representing an individual debtor may exclude adversary proceedings ... provided that debtor’s written acknowledgment of this limitation is filed with counsel’s Federal Bankruptcy Rule 2016(b) statement.
Bankr.D. Md., Local Rule 9010-5.
Several districts indirectly discuss unbun-dling through their rules on what obligations an attorney incurs by appearing in a case. Some provide that attorneys who appear in a case must represent debtors in all related matters, including adversary proceedings. Bankr.N.D. Ga., Local Rule 9010-4; Bankr. E.D.N.C., Local Rule 9011-1. Others exclude representation in adversary proceedings from those duties incurred merely by appearing in a case. Bankr.N.D. Ill., Local Rule 2090-5(B); Bankr.W.D.N.C., Local Rule 2091-1(a)(1) (in Chapter 7 cases, attorney may exclude representation in adversary proceeding if so provided in attorney’s fee agreement). The local rules for this bankruptcy court fit into the latter category. "An attorney who appears in a case on behalf of a party is the attorney of record for any and all purposes except adversary proceedings until an order is entered permitting the withdrawal of the attorney or the case is closed or dismissed.” Bankr.D. Nev., Local Rule 2014(a). This rule is not dispositive in DeLuca’s favor though, as the issue here is not the scope of duties imposed by making an appearance, but rather the ethical duties surrounding unbundling. The rule does, however, lend support to the notion that unbundling of adversary services is an acceptable practice.
. The ramifications of his failure to investigate are also discussed below in relation to Section 707(b)(4)(C).
. The court does not express an opinion of whether a limitation that does not violate any ethical rules is automatically reasonable.
. Seare may have a misrepresentation claim against DeLuca based on the language of the Retainer Agreement, which stated that adversary proceedings would incur additional fees, and DeLuca’s later outright refusal to represent Seare in the adversary proceeding. De-Luca held out that he would negotiate later for services in adversary proceedings, although he may not have ever had the intent to perform them.
. The court does not consider the FAQ as a meaningful "communication” because there is no evidence that the Debtors ever looked at it, either alone or with guidance from DeLu-ca. Seare testified that he did not look at the FAQ because DeLuca had answered all of his questions. (Evid. Hr’g Tr. 12:22-24.)
. Kayne relied in part upon a "Sense of Congress” provision included in BAPCPA instructing Sections 707(b)(4)(C) and (D) to be read together with Rule 9011. Id. at 381 n. 6 (citing Pub.L. 109-8 § 319 (2005) (“It is the sense of Congress that rule 9011 ... should be modified to include a requirement that all documents ... submitted to the court ... by debtors who represent themselves and debtors who are represented by attorneys be submitted only after the debtors' attorneys have made reasonable inquiry to verify that the information contained in such documents is (1) well grounded in fact; and (2) warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law.”)).
. The entire In re Withrow (Bankr.Ct.) standard: "(1) did the attorney impress upon the debtor the critical importance of accuracy in the preparation of documents to be presented to the Court; (2) did the attorney seek from the debtor, and then review, whatever documents were within the debtor's possession, custody or control in order to verify the information provided by the debtor; (3) did the attorney employ such external verification tools as were available and not time or cost prohibitive ...; (4) was any of the information provided by the debtor and then set forth in the debtor’s court filings internally inconsistent — that is, was there anything which should have obviously alerted the attorney that the information provided by the debtor could not be accurate; and (5) did the attorney act promptly to correct any information presented to the Court which turned out, notwithstanding the attorney’s best efforts, to be
. Section 707(b)(4)(C) is described as an "enhancement” to Rule 9011 because the overarching purpose of both is to deter attorney misconduct and because the review standard for Section 707(b)(4)(C) relies upon Rule 9011 precedent. A Rule 9011 violation, however, is not a necessary element for a violation of Section 707(b)(4)(C). There have been no allegations that DeLuca violated Rule 9011 and thus the court only assesses whether he violated Section 707(b)(4)(C), albeit relying in part on Rule 9011 case law.
. Section 528 also includes advertising restrictions not at issue here. 11 U.S.C. §§ 528(a)(3), (4), 528(b).
. The Debtors’ debts total approximately $230,000, none of which are secured by real property. (Bankr.Dkt. No. 1, Summary of Schedules.) The consumer debts are approximately $159,500 (excluding the St. Rose Debt) — 69 percent of the total debt. (Id.) Whether the St. Rose Debt is a consumer debt is immaterial, and the court does not reach that issue.
. In any event, courts are loath to order specific performance in personal services contracts due to the concern over timely and effective performance by a nonwilling party. See Restatement (Second) of Contracts § 367 (1981). Nonetheless, DeLuca is wrong about the law. If a contract clause is stricken as void as against public policy or otherwise unenforceable, the court may sever that clause and order performance of the remainder of the contract. Dawson v. Goldammer,
. With the second-busiest bankruptcy docket in the country, the court would prefer to spend time on the substantive matters on docket. But regulating the attorneys that practice before the court is a necessary component of what the court does to protect the public and the integrity of the profession.
. U.S. Trustee Program, Region 17, Guidelines for Petition Preparers in the Dist. of Nev. (1997), available at http://www.justice.gov/ust/ rl7/docs/general/nv/petition_preparer_ guidelines.pdf (last visited Feb. 25, 2013) (maximum compensation for a bankruptcy petition preparer is $150.00).