In re Brent
- Reporters:
- ,
- Before:
- Goldgar
Timothy K. Liou is one of the most active consumer bankruptcy attorneys in this district, filing nearly 8,000 cases from mid-1996 to the present. More than once, though, Liou’s efforts to get paid have drawn the court’s attention and resulted in sanctions. Now he faces sanctions again. Earlier this year, seven bankruptcy judges issued orders asserting that Liou had filed false applications for compensation as counsel for the debtors in 317 pending chapter 13 cases. The applications were false, the orders said, because in them Liou represented that he had entered into the court’s form retention agreement with the debtor, entitling him to receive a fixed fee of $3,500 (a “flat” or “no look” fee), when in fact he had modified the agreement to charge additional fees. The orders required him to show cause why he should not be sanctioned for violating Bankruptcy Rule 9011(b).
The Rule 9011 proceedings were consolidated for hearing before the undersigned judge. Based on the evidence adduced at the hearing and on the court’s own records in the 317 chapter 13 cases, the court makes the following findings of fact and conclusions of law pursuant to Bankruptcy Rules 7052 and 9014(c). For the reasons discussed below, Liou will be sanctioned for his multiple misrepresentations to the court in violation of Rule 9011(b).
1. Jurisdiction
The court has subject matter jurisdiction over these cases pursuant to
2. Background
a. Attorney Compensation in Chapter 13
Compensation of debtors’ attorneys is a matter critical to “the integrity of the bankruptcy process.” In re Nelson, 424 B.R. 361, 363 (Bankr.N.D.Ill.2009); see also In re Kindhart, 160 F.3d 1176, 1177 (7th Cir.1998) (calling the question of attorney’s fees “an important matter not only to attorneys, but also to the courts and the public”). Because of its importance, the subject is treated extensively in both the Bankruptcy Code and Rules. Section 329(a) of the Code requires every attorney for a debtor to file “a statement of the compensation paid or agreed to be paid . . . for services rendered . . . in contemplation of or in connection with the case..:.”
Section 330 of the Code requires court approval of any compensation of a chapter 13 debtor’s attorney from the debtor’s estate.
But the lodestar method is not required, id., and bankruptcy courts have increasingly adopted systems under which attorneys for chapter 13 debtors can be awarded a presumptively reasonable standard fee for each case. See In re Williams, 357 B.R. 434, 439 n. 3 (6th Cir. BAP 2007) (noting that “[a] growing number of bankruptcy courts” have implemented these fees); In re Debtor’s Attorney Fees in Chapter 13 Cases, 374 B.R. 903, 904-05 (Bankr.M.D.Fla.2007) (same). These flat fees are sometimes called “no look” fees because they are awarded without the kind of detailed application and itemization of services that
By simplifying the compensation process in a large number of fairly routine cases, the adoption of flat or “no look” fees has proven immensely advantageous to both the courts and bar. Flat fees benefit the bar in two ways: they save attorney time otherwise devoted to maintaining extensive records and preparing elaborate fee applications in small cases, and they encourage the efficient practice of law. Eliapo, 468 F.3d at 599. Flat fees benefit courts because they save judicial time “that a busy bankruptcy court would otherwise be required to spend dealing with detailed fee applications.” Id.; see also In re Cahill, 428 F.3d 536, 540-41 (5th Cir.2005). Indeed, the large volume of chapter 13 cases makes full judicial review of a detailed fee application in each case not only “administratively burdensome,” Eliapo, 468 F.3d at 599 (internal quotation omitted), but, as one noted authority has suggested, “almost inconceivable,” Keith M. Lundin & William H. Brown, Chapter 13 Bankruptcy, 4th ed., § 294.1 at ¶ 27, sec. rev. June 17, 2004, www.Chl3online.com.
Flat fee systems are flexible enough, however, to take into account that unusual animal, the complex or involved chapter 13 case. When fees above the flat fee are warranted, either for services beyond those spelled out in the Rights and Responsibilities agreement or for extraordinary work, attorneys are generally permitted to petition for additional compensation. See, e.g., Robinson, 368 B.R. at 499 (permitting additional compensation for services “not reasonably anticipated”). And, of course, no attorney is ever required to participate in the flat fee system; a traditional fee application with a detailed itemization of services can always be filed. Eliapo, 468 F.3d at 600; In re Wesseldine, 434 B.R. 31, 37-38 (Bankr.N.D.N.Y.2010); Robinson, 368 B.R. at 499.
b. Flat Fees in the Northern District of Illinois
In 1998, the Seventh Circuit approved the use of a presumptively reasonable flat fee in chapter 7 consumer cases. See In re Geraci, 138 F.3d 314, 321 (7th Cir.1998). Later that year, the Seventh
In November 2002, the bankruptcy court issued a standing order establishing a flat fee arrangement in chapter 13 cases. See Standing Order dated Nov. 26, 2002. The order recited that the court had adopted a “Rights and Responsibilities Agreement between Chapter 13 Debtors and Their Attorneys,” called the “Model Retention Agreement” (“MRA”) for short, along with a form application for compensation. The MRA set forth in detail the specific responsibilities of the debtor and attorney both before and after a case is filed. See Local Form 23c. Nor were the responsibilities of the attorney limited to those specified. Paragraph 16 contained a catch-all obligating the attorney to “[provide any other legal services necessary for the administration of the case.” Id.
The MRA also addressed attorney compensation and offered two options. One was a flat fee through confirmation, with post-confirmation work compensated through a separate application accompanied by an itemization of services. Id. The other was a flat fee through case closing. Both options allowed the attorney to apply for compensation in an amount greater than the flat fee “in extraordinary circumstances,” but before a higher fee could be awarded the attorney had to submit an application with an itemization of services. Id. The MRA added that “[t]he attorney may receive a retainer or other payment before filing the case, but may not receive fees directly from the debtor after the filing of the case.” Id.
The standing order provided that requests for compensation under
Since its adoption, the flat fee arrangement and accompanying forms have been modified from time to time.1 In 2005, the court raised the flat fees to $2,500 for services through confirmation and $3,500 for services though the entire case. See Standing Order dated Sept. 28, 2005. In 2006, the court adopted a form compensation order that corresponded to the MRA and form fee application, providing blanks where fee amounts could be listed either for “legal services through confirmation of the plan” or “legal services through conclusion of the case.” See Form Order No. 23b, rev. Mar. 27, 2006. In 2007, the court
In March 2011, the court changed the name of the MRA to “Court-Approved Retention Agreement.” The court also entered a General Order requiring every agreement between a debtor and the debt- or’s attorney to be in writing and attached to the
c. The Show Cause Orders
In May 2010, attorney Timothy Liou filed a chapter 13 bankruptcy case, No. 10 B 23825, for debtor Karen T. Carstens. Shortly after filing the case, Liou filed a form fee application, Form No. 23. In the portion of the application entitled “Use of Model Retention Agreement,” Liou checked the box indicating: “The attorney and the debtor(s) have entered into the Court’s Model Retention Agreement.” (Dkt. No. 14). Some months later, chapter 13 trustee Glenn Stearns objected to Liou’s application because the MRA between Liou and the debtor (a copy of which Liou had filed on the petition date (see Dkt. No. 9)) attached an “addendum” that prescribed fees in addition to the flat fee to which Liou was entitled. (Dkt. No. 49). Stearns added that after he complained to Liou about the addendum, Liou filed what purported to be an amended MRA without the addendum that was merely an altered version of the original: Liou had written the word “amended” on the first page and crossed out the phrase “see attached addendum,” but the “amended” MRA still bore the original date and signatures. (Id.; see Dkt. No. 42). Stearns asserted that Liou’s use of the addendum was an “attempt to deceive the court and an attempt to receive more than $3,500” from Carstens. (Dkt. No. 49). Stearns asked for an examination of Liou’s fees pursuant to
Rather than examining the fees, in December 2010 the court issued an order reciting these facts and requiring Liou to appear and show cause why he should not be sanctioned under Bankruptcy Rule 9011(b)(3) for making false statements of fact in papers filed with the court. (Dkt. No. 54). Liou appeared on the required date, and the court set the matter for an evidentiary hearing. (Dkt. No. 59).
Before the hearing could take place, another chapter 13 case with similar problems came to light. In August 2010, Liou filed a chapter 13 case, No. 10 B 37403, for debtor Michael P. Iniquez. Again, Liou filed a form fee application shortly after the case was commenced. Again, Liou checked the box indicating: “The attorney and the debtor(s) have entered into the
As in the Carstens case, the court issued an order reciting these facts and requiring Liou to appear and show cause why he should not be sanctioned under Rule 9011(b)(3) for making false statements of fact in papers filed with the court. (Dkt. No. 36). Because the problem no longer appeared to be an isolated one, Liou was also ordered to file a list of all chapter 13 cases pending in the district in which he was counsel for the debtor and in which “a Model Retention Agreement between Liou and the debtor attaches an addendum that alters the compensation arrangement in any respect.” (Id.). The hearing date in Carstens was vacated.
In March 2011, Liou filed the required list. The list disclosed 471 pending chapter 13 cases filed between late 2006 and late 2010 in which Liou had not only entered into an MRA with the debtor but attached to the MRA an addendum that affected his compensation. Seven of the nine judges before whom the cases were pending then issued 321 show cause orders requiring Liou to appear before the undersigned judge and show cause why he should not be sanctioned for violating Rule 9011.3 Four of those orders were later vacated.4
The matters were consolidated for briefing, and an evidentiary hearing was set. Liou filed a written response to the orders. U.S. Trustee Patrick S. Layng and chapter 13 trustees Marilyn O. Marshall and Tom Vaughn filed replies supporting the imposition of sanctions.
d. The Show Cause Hearing
Liou called the only two witnesses who testified at the hearing: Liou himself and Thomas P. Sukowicz, an attorney at Hin-shaw & Culbertson LLP.
i. Liou
Liou testified that he is a consumer bankruptcy lawyer and has focused his practice in that area since late 1996 or early 1997. (Tr. at 9). Liou started entering into the MRA with clients when it was first introduced near the end of 2002. (Id. at 11-12). In roughly 2004, Liou also began using what he called “my addendum.” (Id. at 10, 12). He came up with the addendum because it “spoke to issues that the model retention agreement did not, very important issues.” (Id. at 12; see also id. at 137). The idea, he said, was “to make fuller disclosure” to prospective clients about the kinds of charges for which they would be liable. (Id. at 13).
The content of the addendum was similar if not identical in all the cases. (Id. at
This advance payment retainer agreement has been created to benefit Client because of potential claims of Client’s creditors. Funds paid to Attorney are non-refundable to the extent earned and will be treated as income to the extent earned upon receipt. Client retains no legal or equitable interest in the retainer and understands that fees paid under this agreement are for Attorney to be available to provide specific legal services when needed for the term of the plan.
(Ex. B to Resp. Ex. 30).
The addendum went on to describe six charges for which the debtor would be liable:
• “[L]ate fees of 18 percent per annum from the date below plus reasonable Attorneys fees and court costs” for “any balance due Attorney which is overdue 30 days or more.... ”
• A fee of “$65.00 . . . for processing each NSF check” presented for the payment of attorney’s fees.
• Attorney’s fees at Liou’s standard hourly rate “for prospective work to cover necessary post-termination work such as drafting itemizations of work performed, collection/skip-tracing, etc.,” along with “all costs Attorney incurs on behalf of Client....”
• Attorney’s fees at “the hourly rate of $295.00 for services not specified in the Model Retention Agreement....”
• A ‘“convenience fee’ of 5%” if the debtor elected to pay a portion of the attorney’s fees and costs “by debit card from a checking account or by someone else’s credit card.... ”
• The filing fee and attorney’s fees for “two hours of Attorney time . . . to draft a motion to reopen the bankruptcy case” if the court closed the case without discharge because the debtor had not filed either the credit counseling certificate required under section 109(h) of the Code or the personal financial management certificate required under sections 111 and 1328(g)(1).
(Id.). The addendum also stated that it was “retroactive to cover all legal services described in the Model Retention Agreement that may have been provided before its signing, including, but not limited to, telephone conference(s) and drafting solicitation letter(s) informing of bankruptcy [sic] as a legal option.” (Id.).
Liou asserted that the charges in the addendum were rarely imposed and with limited exceptions did not apply to bankruptcy cases. The late fee, he said, was “Mypically” charged after a case has been dismissed. (Tr. at 100). The charge for checks returned for insufficient funds was also “typically” charged when someone hired him, tendered a bad check, and then terminated the representation. (Id. at 101-02,105). The attorney’s fees for “prospective work to cover necessary post-termination work” referred to work after the client fired Liou and he incurred “collection costs in state court.” (Id. at 106-07). The attorney’s fees provision specifying the $295 hourly rate applied to work that had nothing to do with the bankruptcy case, perhaps drafting a will or handling a real estate sale. (Id. at 107-08). The 5% processing fee for debit and third party credit cards was simply an effort to recover the fees Liou’s office was charged. (Id. at 108-10). The fees for reopening the bankruptcy case, finally, were fees charged only “after the case [was] closed” and so, Liou contended, were outside the MRA. (Id. at 111-13; see also id. at 152).
Liou used the addendum in the vast majority of the cases he filed, somewhere between 97% and 99%. (Tr. at 43, 47, 63, 89). His use of the addendum, however, was less than obvious. A review of the dockets reveals that the
Despite his use of the addendum, Liou filed form fee applications in all 317 cases and in every application checked the box representing: “The attorney and the debt- or(s) have entered into the Court’s Model Retention Agreement.” In 98% of the cases, Liou was awarded compensation consisting of the flat fee for handling the entire case.7
Beginning in January 2011, Liou took steps to amend the MRA in some of the cases filed during the latter half of 2010 and still pending.- (See id. at 140). A review of the dockets discloses that in thirty-three 2010 cases, he filed an amended MRA with no addendum attached. In ten of those cases, however, the amendments were unilateral: Liou simply wrote in the word “amended” on the first page and crossed out the phrase “see attached addendum” on a later page. Neither Liou nor the debtor executed the “amended” MRAs which bore the original dates and signatures. (In three of the ten cases, Liou later filed genuine amended MRAs with new dates and signatures; in the other seven, he did not.) In eighteen
During his testimony, Liou said he was aware there was “a strict rule that the model retention agreement could not be altered, amended, doctored in any way.” (Id. at 26; see also id. at 62, 65). Nevertheless, he maintained that the addendum did not alter or amend the MRA but was “its own separately standing agreement.” (Id. at 113). Asked whether he believed it was misleading to state on the form fee application that he had entered into the MRA when in fact he had entered into the MRA plus the addendum, Liou answered: “Absolutely not.” (Id.).
ii. Sukowicz
Sukowicz has represented attorneys in professional responsibility matters for twenty-five years. (Id. at 56-58). From March to September 2010, he represented Liou in connection with three investigations of the Illinois Attorney Registration & Disciplinary Commission (the “ARDC”) concerning what Sukowicz called “Mr. Liou’s retainer agreements in the bankruptcy court.” (Id. at 59). The investigations resulted from complaints that debtors had made to the ARDC. (Id. at 94). According to Sukowicz, the ARDC “was looking to see whether [Liou’s] fees were unreasonable and whether or not his retainer agreements were at all misleading to a potential client or clients.” (Id. at 59).
The agreements that interested the ARDC were not the MRAs but rather “customized fee agreements” that Liou used in a small percentage of cases, agreements with which Liou had also used the addendum. (Id. at 60-62, 64). The ARDC wanted Liou to propose a new customized agreement on which ARDC staff could comment. (Id. at 61, 64). Nevertheless, as part of his work Sukowicz obtained and reviewed a copy of the MRA, forwarding it to the ARDC along with all of Liou’s fee agreements so the ARDC “had a comprehensive picture of what [Liou] was doing.” (Id. at 60, 64-65, 74-75, 86).
Sukowicz testified that the ARDC raised no concern about Liou’s use of the MRA with the addendum. (Id. at 93). He also opined (without objection, although he was not called as an expert and was offering a legal conclusion) that the addendum “merely provided additional information to the clients” and “did not alter anything in the model retention agreement.” (Id. at 68). Sukowicz admitted, however, that Liou had never requested advice about whether checking the box on the form fee application indicating he had entered into the MRA with a debtor would be truthful if he and the debtor had also executed the addendum. (Id. at 78).8 As a consequence, perhaps, Sukowicz never discussed that question with the ARDC (id. at 90), nor did he ask the ARDC whether in its view the addendum altered the MRA (id. at 91). Sukowicz did not supply the ARDC with a copy of the form fee application. (Id. at 95-96).
Sukowicz acknowledged that he was not a bankruptcy lawyer and had never practiced in the bankruptcy court. (Id. at 77). He conceded that he therefore had no real understanding of the attorney compensation process in chapter 13 cases in this district: he did not know why an attorney might want to enter into the MRA with a debtor, what fees an attorney could receive
3. Discussion
Liou violated Rule 9011(b) when he represented in 317 chapter 13 fee applications that he had entered into the MRA with the debtor. Those representations were false. In fact, he had altered the MRA by tacking on his “addendum,” a contract amendment that allowed him to charge fees beyond this district’s flat fee. Not only were Liou’s representations false, they were culpably false. As an experienced consumer bankruptcy practitioner, Liou had to know the flat fee was a ceiling, not a floor. He had to know, too, that in modifying the MRA to get additional fees without filing an additional application and itemization of services, he was breaching the deal implicit in the flat fee arrangement. As a result of his misrepresentations, Liou was awarded more than $1 million in fees without submitting an itemization of services, fees that otherwise would have been denied.
a. Rule 9011
Rule 9011 is the bankruptcy equivalent of
The certification in
To be sanctionable, a misstatement or omission must be more than an innocent mistake; in making the misstatement or omission, the attorney must have been “culpably careless.” Young v. City of Providence ex rel. Napolitano, 404 F.3d 33, 39 (1st Cir.2005); see also Joseph, supra, § 9(F) at 2-136. The test for carelessness is objective rather than
In this case, both requirements for
b. False Statements
The first requirement is satisfied because Liou made false statements of fact to the court — 317 of them to be precise. In each of the 317 cases, Liou falsely stated in his fee application that he and the debtor had entered into the MRA. By his own admission, those statements were false because Liou had not entered into the MRA. He had instead entered into a different agreement — the MRA modified with a written “addendum” of his own creation that allowed him to charge additional fees in connection with the bankruptcy case, fees over and above the flat fee available under this district’s flat fee arrangement.
Liou’s modification of the MRA with this addendum violated the fundamental premise of the arrangement: that the attorney and debtor enter into the MRA and only the MRA, and the attorney therefore receives a flat fee of $3,500 and only the flat fee for handling the entire case. All of this is evident from the MRA itself. It obligates the attorney to provide, not just the specific services listed, but “any other legal services necessary for the administration of the case.” {See, e.g., Ex. A to Resp. Ex. 30). It also declares that “[f]or all of the services outlined above, the attorney will be paid a fee of $3,500.00,” permits additional fees only “[i]n extraordinary circumstances” (and with an additional application), and prohibits the attorney from receiving fees “directly from the debtor after the filing of the case.”11 {Id.). By repeatedly stating in fee applications that he and the debtor had entered into the MRA when in reality he had modified critical terms, Liou misrepresented
Liou, however, claims otherwise. He contends, first, that he did in fact enter into the MRA in each case, and the representation in each form fee application was therefore “true in its literal sense.” (Liou Mem. at 2). Not so. Certainly, in each case Liou and the debtor signed the document, and in no case did Liou and the debtor alter the document physically by inserting or deleting terms on any of its pages. But the addendum Liou admits using in conjunction with the MRA added terms that changed the compensation to which Liou was entitled in the bankruptcy case. The addition of those terms in a separate document modified the MRA, making it a different agreement, as much as if they had been written into the MRA’s own margins. Having added those terms, Liou could not truthfully represent to the court that he had entered into the MRA. At best, the representation was a half-truth, and a half-truth “can be just as misleading, sometimes more misleading, than an absolutely false representation.” Ronco, 838 F.2d at 218.
Liou next contends that the MRA and the addendum were “separate” agreements. (Liou Mem. at 2, 5; see also Tr. at 113). They were not. On the contrary, they constituted a single agreement. Under Illinois law, instruments executed at the same time, by the same parties, for the same purpose, and in the course of a single transaction are treated as one agreement and construed together. Gallagher v. Lenart, 226 Ill.2d 208, 233, 314 Ill.Dec. 133, 874 N.E.2d 43, 58 (2007). In all but a few cases here, the MRA and addendum bore the same dates, suggesting they were executed at the same time. They were executed by the same parties, Liou and the debtor. In all but a few cases, they appear to have been executed in the course of a single transaction, the debtor’s retention of Liou. And they were executed for the same purpose: to memorialize Liou’s representation of the debtor and establish what his compensation would be.
Liou himself evidently believed the two documents constituted a single agreement. He titled the non-MRA document an “addendum,” meaning “[a] thing that is added or is to be added.” Webster’s Third New Int’l Dictionary 24 (1981). Liou’s “addendum” here was “added” to the MRA. Not only did Liou use the title “addendum,” but he ensured that each document referred to the other. In most cases, the MRA contained the phrase “see attached addendum.” (See, e.g., Ex. A to Resp. Ex. 30). As for the addendum, it began with three sentences discussing “[t]his advance payment retainer agreement,” a reference to the MRA (since the addendum was not a retainer agreement of any kind). (See, e.g., Ex. B to Resp. Ex. 30). It comes as no surprise, then, that Liou’s
Liou disagrees, insisting that the documents must be considered two agreements, not one, because they had different purposes and subject matter. According to Liou, the fees addressed in the addendum were “unrelated to the administration of the Chapter 13 case.” (Liou Mem. at 5).
Liou is mistaken. The addendum allowed Liou to tack on an 18% annual charge for late payments of attorney’s fees — fees generated in the bankruptcy case — increasing those fees in the pro
The only reasonable conclusion is that Liou’s addendum modified the MRA. Because Liou represented to the court that he had entered into the MRA when in fact he had entered into a different agreement, Liou’s representations were false for purposes of
c. Culpable Carelessness
The second requirement for sanctions under
No reasonable attorney would have believed he was telling the truth in representing to the court he had entered into the MRA when the attorney had modified the MRA — which permits a single flat fee for the entire bankruptcy case — with an addendum requiring the debtor to pay additional fees. The addendum produces a different agreement with different terms, terms different in a critical way. The point of the flat fee arrangement is to set a “presumptively reasonable fee” that obviates the need for elaborate fee applications
Liou nevertheless insists that his belief in the truth of his representations was reasonable. He argues, first, that he consulted professional liability counsel, Su-kowicz, who never told him using the MRA with the addendum raised any sort of ethical question. (Liou Mem. at 10; see also Tr. at 75-77).
This argument is problematic for several reasons. For starters, Liou did not consult Sukowicz about using the addendum with the MRA; he consulted him about using the addendum with other “customized” fee agreements. (Tr. at 60-62, 64). Although Liou made Sukowicz aware that he was using the MRA with the addendum, Liou never sought (and so presumably never received) advice from Sukowicz on whether his representations on his fee applications were truthful. (Id. at 78). Su-kowicz’s advice on this point would not have been helpful in any event. Sukowicz admitted he was not a bankruptcy attorney, had never practiced in the bankruptcy court, and so had no understanding of the MRA’s purpose or its role in the attorney compensation process in chapter 13 cases. (Id. at 77-78).
Even if Sukowicz had been knowledgeable on these subjects, moreover, and even if he had advised Liou about the veracity of the fee applications, there is no ironclad “advice of counsel” defense to
Liou next asserts that he used the addendum with the MRA “openly” for “several years” without objection from “any Trustee, creditor or Court.” (Liou Mem. at 9, 14). Therefore, he says, he had no “intent to conceal or deceive.” (Id. at 14).
These assertions will not wash. First, they are factually inaccurate. As discussed earlier, Liou did not use the MRA with the addendum “openly,” in the sense that he started attaching them to his
Finally, Liou contends that the court’s General Order 11-2 issued in March 2011 confirms the reasonableness of his belief that his statements were true. (Liou Mem. at 10). According to Liou, the General Order imposed a new prohibition, demonstrating that the court itself “did not come to the conclusion” Liou’s conduct was impermissible until recently. {Id. at 11).
Liou could not be more mistaken. Some amendments to statutes and rules clarify rather than change existing law. See Middleton v. City of Chicago, 578 F.3d 655, 663 (7th Cir.2009). As trustees Marshall and Vaughn correctly observe (Marshall Reply at 10; Vaughn Reply at 4), the prohibition in General Order 11-2 on altering the MRA or on entering into an agreement other than the MRA imposed no new requirements. It simply codified what had always been the court’s understanding of its flat fee arrangement. General Order 11-2 was prompted by Liou’s transgressions here and was designed to provide an immediate clarification to the bar until Local Rule 5082-2 could be amended. Cf. Hardin Rodriguez & Boivin Anesthesiologists, Ltd. v. Paradigm Ins. Co., 962 F.2d 628, 638 (7th Cir.1992) (noting that an amendment is more likely intended as a clarification when statutory meaning has been the “subject of recent controversy”). The necessary amendment has been proposed and is pending.
Because Liou not only made factual misstatements in his fee applications but reasonably should have known his statements were indeed misstatements, he violated
d. Sanctions
The remaining question is the appropriate sanction. Sanctions for violations of
The equitable considerations here point to a severe sanction. Liou’s misrepresentations to the court were quite serious, far worse than simply checking the wrong box on a bunch of forms. In this district, an attorney’s representation on his fee application that he has entered into the MRA with the debtor entitles him to the court’s flat fee and exempts him from the onerous task of itemizing his services, a task that
Not only were the misrepresentations serious, but Liou engaged in a long pattern of them. In at least 317 cases over nearly four years, he filed fee applications stating that he had entered into the MRA when he had not. It could be argued, of course, that since Liou made the same misrepresentation mechanically in each case, the pattern is less damning. But this is not the first time Liou has been less than honest with the court in his fee practices. In 2009, he was sanctioned three times, twice in published opinions, for filing misleading
Liou unquestionably should have known better. He has represented debtors in chapter 13 bankruptcies for almost fifteen years and is a regular practitioner in this court. See Jackson, 401 B.R. at 336. His practice of modifying the MRA with an addendum was not only inconsistent with the basic principle underlying the court’s flat fee arrangement but plainly so. If, as he now says, he did not actually intend to conceal anything or mislead anyone, he should certainly have realized that was the effect. The call is not even a close one. All told, Liou’s moral compass badly needs repair.
For his part, Liou suggests several reasons he believes weigh in favor of a lighter sanction, but none is persuasive. Liou notes again that he consulted his professional liability counsel, Sukowicz, in an effort to comply with his obligations. Although reliance on counsel is not usually relevant to the question of whether there has been a
Liou also asserts again that he did not intend to mislead anyone — another factor
Finally, Liou asks to be recognized for “taking corrective action.” (Liou Mem. at 12). After the December 2010 show cause order suggested his conduct was sanctionable, Liou says he amended the MRAs and withdrew and then refiled any pending fee applications. (Id.). But Liou’s “corrective action” was half-hearted at best. He filed amended MRAs in only thirty-three cases and withdrew fee applications in only eighteen. In several instances, moreover, Liou added insult to injury by committing yet another set of
With the foregoing considerations in mind, the court will impose the following sanctions on Liou for his violations of
• Liou will be fined $10,000, the fine payable to the clerk of the bankruptcy court pursuant to
• Liou will be ordered to attend and complete successfully a course in legal ethics at an accredited law school. See
• This opinion will be published. The opinion will serve as the court’s formal censure of Liou for his misconduct. See
• Copies of this opinion will be forwarded to the Executive Committee of the U.S. District Court and to the ARDC for whatever disciplinary action those bodies deem appropriate. See
4. Conclusion
For these reasons, the court finds that attorney Timothy K. Liou made false statements of fact in fee applications in 317 chapter 13 cases in violation of Bankruptcy
a. Liou is ordered to pay to the clerk of the bankruptcy court a fine of $10,000. Payment is due no later than 30 days from the date of this opinion.
b. Liou is ordered to attend and complete successfully a course in legal ethics at an accredited law school. The course must be completed before January 1, 2013. A letter from the course instructor attesting to Liou’s successful completion of the course must be filed with the court in the above-captioned case.
c. Liou is censured for his misconduct.
d. Copies of this opinion will be forwarded to the Executive Committee of the U.S. District Court and to the ARDC for those bodies to consider disciplinary action.
A separate order consistent with this opinion will be entered.
APPENDIX
Debtor(s) Case No. Debtor(s) Case No.
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Notes
. As the bar began to use the system, see In re Kowalski, 402 B.R. 843, 849 (Bankr.N.D.Ill.2009) (noting that “[m]ost attorneys who represent Chapter 13 debtors in this district have shifted to the flat fee arrangement”), modifications were necessary to address problems that arose as well as changes in the economics of consumer bankruptcy practice.
. The court has proposed to the district court an amendment to Local Rule 5082-2 that would incorporate the provisions of General Order No. 11-2.
. The 317 show cause orders required Liou to appear before a single judge in the interest of economy. Only seven of the ten bankruptcy judges in the district issued the show cause orders because the chief judge at the time had no chapter 13 calendar, see Internal Operating Procedure 3(B); Administrative Order No. 07-07, and two judges elected to retain control over any
. In four cases, it was later determined that either Liou’s fee applications had not violated
. The court can take judicial notice of matters in its own records. Griffin v. United States, 109 F.3d 1217, 1218 n. 1 (7th Cir.1997); Brown v. Job (In re Polo Builders, Inc.), 433 B.R. 700, 706 n. 6 (Bankr.N.D.Ill.2010).
. Liou filed a full copy of the MRA in only 217 of the cases. In virtually all of the cases where the MRA was filed, he employed the version requiring an explanation why any retainer should be considered an advance payment retainer. (An earlier version of the MRA predating the Illinois Supreme Court’s approval of advance payment retainers had required no explanation.) About 30% of the time, Liou checked the box on the MRA indicating that his retainer should be considered an advance payment retainer but neglected to provide the required explanation. (See, e.g., Resp. Exs. 3, 4).
.Four applications were denied in 2011 because Liou’s representations in the fee applications were false. One application became moot when the case was dismissed.
. Sukowicz‘s specific testimony on this score was more convincing than Liou’s vague assertion that he retained Sukowicz in part to make sure the “use of the model retention agreement with the addendum was acceptable to [the ARDC].” (Id. at 24).
. Because the rules are largely the same, case law under
. Much of the case law under
. The MRA contains a blank in which the attorney fills in the amount of the flat fee. As the applicable local rule indicates, the flat fee is set separately by general order. L.R. 5082-2(C)(1). During the period at issue here, the flat fee for representing the debtor in the entire case was $3,000 in 2006 and the first four months of 2007 and $3,500 thereafter. See Standing Order dated Sept. 28, 2005; Gen. Order No. 07-02 dated Apr. 26, 2007. Only seven of the 317 cases here predate the $3,500 flat fee.
. It is unclear what a “late” payment could be, since nothing in the MRA or addendum set any kind of deadline. But it is clear that Liou charged late fees. In at least one case that another attorney filed involving a former Liou client, Liou filed a proof of claim for unpaid attorney‘s fees that included late fees. (See Tr. at 142-145; Marshall Exs. 5-6).
. How there could be services in the bankruptcy case “not specified in the Model Retention Agreement” (Ex. B. to Resp. Ex. 30) is unclear, since the MRA requires the attorney to provide all “legal services necessary for the administration of the case” (Ex. A to Resp. Ex. 30). Still, the only plausible interpretation of the addendum is that it was meant to enable Liou to charge additional attorney’s fees for the case. Liou‘s view that the provision referred to fees for services unrelated to the case (“probate matters” or “transfer[s] of . . . property” (Tr. at 107)) is not plausible. As chapter 13 trustee Marshall correctly points out (Marshall Reply at 6-7), if this provision and the “post-termination” provision truly concerned non-bankruptcy services, they would not appear in a fee agreement for a bankruptcy case.
.Liou admits these attorney’s fees are related to the bankruptcy case but argues the MRA does not cover them. (Liou Mem. at 5). The flat fee, he says, covers services only through the closing of the case, and a motion to reopen a case necessarily is filed after the case is closed. (Id. at 8). Liou is right that the original version of the MRA referred to a flat fee for services “through case closing.” But the current version — as well as the versions Liou used in the cases here — does not. It provides that the attorney will be paid the flat fee “[f]or all of the services outlined above,” meaning the specified services as well as all “legal services necessary for the administration of the case.” (Ex. A to Resp. Ex. 30). The court has always interpreted the flat fee as a fee for the entire case. See Standing Order dated Nov. 26, 2002 (describing flat fee as a fee for “the entire case”); Standing Order dated Sept. 28, 2005 (same); Gen. Order No. 07-02 dated Apr. 26, 2007 (describing flat fee as a fee for services through “the completion of the case”); Form Order No. 23b (awarding fees for “legal services through conclusion of the case”).
. Liou argues that a 2004 announcement on the court’s web site instructed lawyers not to file the MRA. (Tr. at 16-18). True. But the point is not that Liou violated any statute or rule in failing to file the MRA and addendum. The point is simply that until he began filing them in mid-2009, no one could have known, even after an investigation of the kind a court has no obligation to conduct, that he had modified the MRA with the addendum and thus that his representations about the MRA in his fee applications were false.
. The concern is not that the fine is too large — if an attorney collected all possible fees in 317 chapter 13 cases with fees awarded at the $3,500 flat rate, he would gross more than $1.1 million — but rather that the fine is too small.