In the recent case Golden One Credit Union v. Fiedler (In re Fiedler), 23-02038 (Bankr. E.D. Cal. Nov. 2, 2023), Honorable Judge Klein called the case one of “sue first and ask questions later.” The complaint had been filed in disregard of the Rule 9011 duties to “inquire” and to “stop and think” before filing legal or factual contentions of dubious merit.[1] Unfortunately, these acts led to the lawyer and the lender to be sanctioned under Bankruptcy rule 9011 for filing a dischargeability complaint against a consumer based solely on allegations that they must have been fraud because the debtor filed a chapter 7 petition 34 days after taking down a $9,000 loan.
In summation, the Debtor filed her chapter 7 case in March of 2023. The Meeting of Creditors was in April 2023. The complaint was then filed on April 25, 2023. It was found that Plaintiff’s counsel had not attended the Meeting of the Creditors, did not listen to the recording, or pose any questions to Debtor or their counsel. Further, no inquiries were made to identify surrounding facts that could potentially support its allegations that the Debtor intended to defraud Plaintiff. Moreover, the Debtor had stated in the “Defendant’s Statement of Undisputed Facts in Support of Her Motion for Bankruptcy,” that she accepted the $9,000 unsecured loan because Plaintiff had told her not to consult with another company or file for bankruptcy. The Debtor mentioned that the $9,000 did not benefit her financial situation and she understood the advice she received was improper. Eventually, the Debtor spoke to an attorney who counseled her to default on her loans and make monthly payments on her retainer for his services. Finally, she stated that she originally had every intention to pay back the lender, but she had to find a solution to help her out of her debt. At a status conference held on June 28, 2023, the court determined that “Defendant’s Statement of Undisputed Facts” was indeed an Answer and did not think discovery was needed, since it was not being requested by Plaintiff anyway. After scheduling a trial, the lender moved for dismissal which was granted. However, Honorable Judge Klein issued an order to show cause to the lender and its counsel. Unhappy with the complaint, Honorable Judge Klein cited to rule 9011(b) which requires an “inquiry reasonable under the circumstances.” Moreover, Honorable Judge Klein was dissatisfied with the lender for failing to send anyone to the creditors’ meeting, not taking discovery, and for making no inquiry from the debtor’s counsel. Additionally, he cited to 9011(b)(3), stating that the “signature on the Complaint constitutes a certification that the allegations and other factual contentions have evidentiary support or, if specifically, so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery.” According to Honorable Judge Klein, there were no surrounding circumstances that might support an inference of factual intent to defraud. Beyond the complaint, he stated, “the question becomes what remedial sanctions are appropriate to impose on account of the Rule 9011 violations described here.” He noted that on six other occasions counsel had filed complaints containing language identical to the complaint at bar. He stated that this was an “established pattern of violation of Rule 9011(b)(2) by counsel.
In the wake of the disregard to Rule 9011, Honorable Judge Klein stated “what is reasonably necessary to deter repetition of the conduct in this instance is to impose a requirement of prefiling review by the undersigned judge of every complaint alleging nondischargeable debt before it is filed in the U.S. Bankruptcy Court for the Eastern District of California by Karel Rocha or the law firm of Prenovost, Normandin, Dawe & Rocha between now and June 30, 2025.”
[1] Article: https://www.abi.org/newsroom/daily-wire/a-dischargeability-complaint-filed-without-investigation-resulted-in-sanctions
Opinion linked in article