It is not uncommon for Bankruptcy lawyers to get requests from individuals to just help them fill out the Bankruptcy paperwork, or act as the occasional sounding board behind the scenes, without actually representing the debtor in the Bankruptcy Court. This often happens when the client either does not have the money for fees or simply does not believe they need to pay the full fee for a lawyer. Most reputable lawyers decline to act in this capacity. In the Northern District of Georgia, which is one of the busiest districts in the country, scores of petition preparers have also popped up. This case shows the dangers of acting as behind-the-scenes” lawyers for a debtor, not having procedures and safeguards in place to confirm the scope of employment, and not having clear confirmation from the debtor that he/she approves the filing of a case.
In In re Hood, No. 12-15925, 2013 US App. LEXIS 18088 (11th Cir. August 29, 2013) (click here for .pdf of opinion), the Debtor purportedly retained the Law Firm for “foreclosure defense” work in order to avoid a foreclosure. The facts surrounding the events are disputed, but a pro se Chapter 13 petition was filed for the Debtor via a courier on February 21, 2012, the same day that Debtor paid a $1,000 retainer to the Law Firm for foreclosure defense services. The Debtor claimed that he had no knowledge of the filing, and the Law Firm claimed that its administrative employee acted only as a scrivener in filling out the petition for the Debtor based on Debtor’s oral responses.
The Debtor, in what the Bankruptcy Court called “buyer’s remorse,” claimed he had no knowledge of the Bankruptcy filing and, through o0ther counsel, filed a motion for order to show cause against the Law Firm.
The [Bankruptcy Court] noted that despite Hood’s remorse, he “signed several documents containing the word bankruptcy in multiple places.” Regardless, on June 7, 2012, the bankruptcy court held that Appellants violated 11 U.S.C. §§ 527 and 528(a)(1), Florida Rules of Professional Conduct 4-3.3(a)(1) and 4-8.4(c), and “appear[ed] to have violated 18 U.S.C. § 157(3).” The bankruptcy court found that Appellants acted as ghostwriters by failing to sign the Chapter 13 petition, and thus perpetrated fraud on the court. The bankruptcy court suspended Torrens from practice before the United States Bankruptcy Court for the Southern District of Florida for six months, barred Reyes from applying for admission to practice before the United States Bankruptcy Court for the Southern District of Florida before December 31, 2012, prohibited both Torrens and Reyes from filing any papers in bankruptcy court during their period of suspension, and held that all employees, associates and business affiliates of the firm were enjoined from acting as bankruptcy petition preparers under 11 U.S.C. § 110 or as a “debt relief agency” as defined by 11 U.S.C. § 101(12A). The court also referred the matter to the office of the United States Attorney for possible criminal prosecution and to the Florida Bar for further disciplinary proceedings. The district court affirmed the bankruptcy court’s decision, concluding that the surrounding circumstances revealed at the evidentiary hearing supported the bankruptcy court’s findings.
The District Court affirmed and the Law Firm appealed only the holding that they perpetrated fraud on the Court by ghostwriting the petition. The 11th Circuit reversed the Bankruptcy and District Courts.
Here, the bankruptcy court held that [Law Firm] violated Florida Rules of Professional Conduct 4-3.3(a)(1) and 4-8.4(c) by perpetrating fraud on the court through a ghostwritten pro se Chapter 13 petition. Yet, the bankruptcy court failed to cite Rule 4-1.2(c), the specific Florida Rule of Professional Conduct regulating the practice of ghostwriting… We first note that while this court has not addressed the propriety of ghostwriting,
we do so today only as ghostwriting applies to the factual circumstances of the present case… Rule 4-1.2(c) explains that when an attorney assists “by drafting” a pro se document to be submitted to the court, the attorney must identify the document as “[p]repared with the assistance of counsel.” … It is apparent to us that under the plain language of the rule, [Law Firm] did not “draft” a document for [Debtor]. See R. Regulating Fla. Bar 4-1.2(c) cmt. They did not “write or compose” the pre-formatted Chapter 13 petition… To the contrary, [Law Firm] recorded answers on a standard fill-in-the-blank Chapter 13 petition based on [Debtor]’s verbal responses. Moreover, [Debtor] personally signed the petition. That [Debtor] attempted to attain the best of both worlds by claiming that he had no knowledge of the petition only after the bankruptcy proceeding effectively stalled the foreclosure on his property is patent…
[W]e see no fraudulent intent in this record by [Law Firm]. Rather, they were attempting to assist [Debtor] with the completion of a straightforward pro se Chapter 13 petition for which there was no unfair advantage to be gained. Who, within the firm, filled out the petition is a distinction without a difference. A Chapter 13 petition is a publicly available form that is designed in a manner that lends itself to a pro se litigant. [Debtor] could have personally completed the petition at issue in the exact same manner and likely obtained the same result… Furthermore, there was no finding of fact by the bankruptcy court that any information placed on the Chapter 13 petition was false. Appellants’ conduct was not fraudulent. See R. Regulating Fla. Bar 4-3.3(a)(1), 4-8.4(c)… At bottom, we conclude that Appellants did not “draft” a document within the scope of Rule 4-1.2(c) and did not commit fraud in violation of the Florida Rules of Professional Conduct or 18 U.S.C. § 157(3).
Hindsight is 20/20, but the Law Firm could have had several procedures in place to avoid the consequences (even though they prevailed on some claims on appeal): 1) have the client sign a fee agreement that clearly sets forth the scope of representation (and what is excluded); 2) Have the client confirm that they consent to the filing of a petition; 3) Follow all ethical rules to the letter, and; 4) Avoid handling only part of a debtor’s case, whether it is filling in forms or acting as unofficial Bankruptcy counsel.