Justia Professional Malpractice & Ethics Opinion Summaries

Christine Sugar filed for Chapter 13 bankruptcy in the Eastern District of North Carolina in September 2019. Her confirmed bankruptcy plan required her to make monthly payments and prohibited the sale of non-exempt property valued over $10,000 without court approval. Despite this, Sugar sold her residence without obtaining prior court authorization, believing it was fully exempt based on her attorney's advice. The sale resulted in proceeds of approximately $94,000.The bankruptcy court found that Sugar's sale of her residence violated the confirmed plan and the local bankruptcy rule. The court dismissed her Chapter 13 case and barred her from filing another bankruptcy application for five years. Additionally, the court imposed monetary sanctions on her attorney, Travis P. Sasser, for advising her incorrectly and for his conduct during the proceedings.The United States District Court for the Eastern District of North Carolina affirmed the bankruptcy court's findings and sanctions. Sugar and Sasser appealed the decision, arguing that the local rule was invalid, the property was exempt, and that paying off the plan balance entitled Sugar to immediate discharge.The United States Court of Appeals for the Fourth Circuit reviewed the case. The court affirmed the bankruptcy court's determination that Sugar violated the local rule by selling her residence without prior court approval. However, it vacated the judgment dismissing Sugar's Chapter 13 case and the five-year filing bar, remanding the case for the bankruptcy court to consider the effect of Sugar's reliance on her attorney's advice. The court affirmed the monetary sanctions against Sasser, finding that his advice and conduct warranted the penalties imposed. View "Sugar v. Burnett" on Justia Law

Rudolph Rivas, a home builder and real estate developer, engaged the accounting firm Pitts & Pitts, operated by Brandon and Linda Pitts, for various accounting services from 2007 to 2017. The services included preparing quarterly financial statement compilations and tax returns. In 2016, errors were discovered in the financial statements prepared by the Accountants, leading to financial difficulties for Rivas, including overpayment of taxes and loss of credit, which allegedly forced his business into bankruptcy. Rivas sued the Accountants in August 2020, claiming negligence, fraud, breach of fiduciary duty, and breach of contract.The district court granted summary judgment for the Accountants on all claims. The Court of Appeals for the Fifth District of Texas affirmed the summary judgment on the negligence and breach of contract claims but reversed it on the fraud and breach of fiduciary duty claims, holding that these claims were not barred by the anti-fracturing rule and had sufficient evidence to survive summary judgment.The Supreme Court of Texas reviewed the case and held that the anti-fracturing rule barred Rivas's fraud claim because the gravamen of the claim was professional negligence. The Court also held that no fiduciary duty existed as a matter of law under the undisputed facts, thus the breach of fiduciary duty claim failed. Consequently, the Supreme Court of Texas reversed the judgment of the court of appeals and rendered judgment for the defendants on all claims. View "Pitts v. Rivas" on Justia Law

Matthew A. LeFande, a suspended member of the District of Columbia Bar, was found by the Board on Professional Responsibility to have committed seven violations of the District of Columbia and Maryland Rules of Professional Responsibility. These violations stemmed from his involvement in several legal matters, including the District Title litigation, the Warren bankruptcy matter, the Carvalho bankruptcy matter, and his own personal bankruptcy. LeFande's misconduct included orchestrating a transfer of funds to conceal assets, filing frivolous bankruptcy petitions, making false statements to tribunals, and failing to comply with court orders.In the District Title litigation, LeFande represented Anita Warren and her son, Timothy Day, after District Title erroneously wired funds to Warren. LeFande directed the transfer of $82,051.81 to a New Zealand bank account, which was seen as an attempt to conceal assets. He later refused to comply with court orders to sit for a deposition, resulting in criminal and civil contempt findings. In the Warren bankruptcy matter, LeFande filed a petition to avoid deposition, which was deemed frivolous, leading to sanctions. In the Carvalho bankruptcy matter, LeFande's actions were found to be in bad faith, resulting in sanctions for frivolous filings and misrepresentations.The District of Columbia Court of Appeals reviewed the case and agreed with the Board's findings of misconduct. The court noted that LeFande's actions were part of a prolonged pattern of dishonesty and interference with the administration of justice. Given the severity and persistence of his misconduct, along with his lack of remorse and failure to participate in the disciplinary process, the court concluded that disbarment was the appropriate sanction. The court ordered that Matthew A. LeFande be disbarred from the practice of law in the District of Columbia. View "In re LeFande" on Justia Law

Hamzah Ali, a legal immigrant from Yemen and Dubai, retained Azhar Chaudhary as his attorney in February 2017 and paid him $810,000 over three months. Chaudhary claimed this was a nonrefundable retainer, while Ali asserted it was for hourly billing. The bankruptcy court found that Chaudhary did little work of value for Ali and that much of his testimony was false. Ali fired Chaudhary in October 2017 and later learned from another attorney that most of Chaudhary’s advice was misleading or false.Ali sued Chaudhary and his law firm in Texas state court in 2018 for breach of contract, quantum meruit, breach of fiduciary duty, fraud, negligence, and gross negligence. In October 2021, Riverstone Resort, an entity owned by Chaudhary, filed for Chapter 11 bankruptcy. In May 2022, Ali sued Chaudhary, his law firm, and Riverstone in bankruptcy court, alleging breach of fiduciary duty and unjust enrichment, and seeking a constructive trust over Riverstone’s property. The bankruptcy court dismissed Ali’s claims against Chaudhary and his firm, citing lack of jurisdiction or abstention, and granted a take-nothing judgment for Riverstone based on the statute of limitations.The United States District Court for the Southern District of Texas dismissed all appeals and affirmed the bankruptcy court’s judgment. Ali appealed to the United States Court of Appeals for the Fifth Circuit, arguing that the bankruptcy court erred in not equitably tolling the statute of limitations and that Chaudhary had fraudulently concealed his cause of action.The Fifth Circuit dismissed the appeals of Chaudhary, his law firm, and Riverstone, as they were not aggrieved parties. The court reversed the district court’s judgment in favor of Riverstone and remanded the case to the bankruptcy court to consider whether equitable tolling should apply due to Chaudhary’s alleged misconduct. View "Azhar Chaudhary Law v. Ali" on Justia Law

Jan Kowalski, an attorney, was accused of using her position to hide her brother's assets during his bankruptcy proceedings. She allegedly concealed around $357,000 in her attorney trust account and made false statements under oath to cover up the concealment. Kowalski was charged with four counts of bankruptcy fraud and one count of concealing assets from the bankruptcy trustee. She pleaded guilty to the charge of concealing assets.Prior to her trial, Kowalski had been involved in her brother's bankruptcy proceedings, where she used her attorney trust account to hide her brother's assets from his creditors and the bankruptcy trustee. She also made false statements under oath and fabricated documents to cover up her actions. The bankruptcy trustee confronted Kowalski with inconsistencies between her personal bank records and her earlier testimony, but she continued to lie under oath.Kowalski was sentenced to 37 months' imprisonment by the United States District Court for the Northern District of Illinois, Eastern Division. The court applied two sentencing enhancements: the § 2B1.1(b)(10)(C) sophisticated-means enhancement, and the § 3B1.3 abuse of position of trust enhancement. Kowalski appealed her sentence, arguing that the district court erred in applying these enhancements and that her sentence was substantively unreasonable.The United States Court of Appeals for the Seventh Circuit affirmed the district court's decision. The court found that Kowalski had indeed used sophisticated means to commit the offense and had abused her position of trust. The court also found her sentence to be substantively reasonable. View "United States v. Kowalski" on Justia Law

The case involves the Roman Catholic Archdiocese of New Orleans ("Archdiocese") which sought Chapter 11 bankruptcy relief due to numerous lawsuits alleging sexual abuse by priests. The United States Trustee appointed an Official Committee of Unsecured Creditors ("Committee"), which included the appellants. The appellants' attorney, Richard Trahant, violated a protective order by disclosing confidential information related to abuse allegations against a priest. The bankruptcy court found Trahant's breach to be a disruption to the bankruptcy process and ordered the removal of Trahant's clients, the appellants, from the Committee.The appellants appealed their removal from the Committee to the district court, arguing that the district judge who was originally assigned their appeal should have recused himself earlier. The district court dismissed the appeal, concluding that the appellants lacked standing to appeal their removal from the Committee. The appellants then appealed to the United States Court of Appeals for the Fifth Circuit.The Fifth Circuit affirmed the district court's decision. It found that the district court did not err in declining to vacate the judgment, and the appellants lacked standing under Article III to prosecute this appeal. The court held that the appellants failed to demonstrate an injury to any legally protected interest. Their substantive rights as creditors in the bankruptcy case were not impaired by their removal from the Committee. The court also noted that the bankruptcy court's order did not amount to a personal sanction against the appellants, but was a consequence of the conduct of their attorney. View "Adams v. Roman Catholic Church" on Justia Law

In this case, the Supreme Court of the State of Alaska was tasked with determining whether a judgment against a self-represented litigant, Jon Buchholdt, was void due to improper service of process. Jeremy Nelson, Buchholdt's former client, had sued him for legal malpractice and won a judgment of $200,000, but Buchholdt argued that he was not properly served and therefore the court lacked personal jurisdiction over him.The main issue in this case was whether Buchholdt was properly served with the summons and complaint by certified, restricted mail sent to his law office, which was rerouted to his home and signed by his alleged agent, "Suz Miller." Buchholdt contended that he was not properly served as he never personally signed for the service, and therefore the court lacked personal jurisdiction over him.The court held that Buchholdt failed to meet his burden of demonstrating that the judgment was void. Despite his claims, Buchholdt did not provide any evidence to contradict Nelson's evidence of service or to show that Suz Miller was not authorized to receive service on his behalf. Additionally, Buchholdt had listed Nelson's lawsuit as a contingent liability when he filed for bankruptcy, indicating he had knowledge of the suit.Therefore, the court affirmed the denial of Buchholdt's motions to set aside the judgment and for reconsideration. The court did not find that the judgment was void due to a lack of personal jurisdiction resulting from improper service of process. View "Buchholdt v. Nelson" on Justia Law

Appellant, an attorney, represented debtor in proceedings before the United States Bankruptcy Court. After Appellant failed to comply with a series of discovery orders, the bankruptcy court imposed sanctions of $55,000 for 55 days of non-compliance and $36,600 in attorneys' fees. The orders were affirmed by the district court. Appellant appealed, arguing that, first, the bankruptcy court lacked inherent authority to issue civil contempt sanctions, and second, as a matter of due process, he was not provided with sufficient notice of the basis for the sanctions imposed against him.   The Second Circuit affirmed. The court concluded that the civil contempt sanctions imposed against Appellant were within the scope of the bankruptcy court's discretion and that he had ample notice of the basis and reasons for the imposition of sanctions. The court explained that it appears that Appellant could not have been sanctioned under any express authority; the bankruptcy court was right to consider its inherent contempt authority. Nor was the bankruptcy court's exercise of its inherent contempt authority contrary to any provision of the Bankruptcy Code, including Section 105(a). Further, the court reasoned that the bankruptcy court found all the necessary elements -- that is, a finding of bad faith and satisfaction of the King factors -- to order contempt sanctions in the circumstances here, where Appellant was acting as an advocate. View "In re: Larisa Ivanovna Markus" on Justia Law

Attorney and his law firm, Pesner Kawamato Conway, P.C. (collectively, Conway), appealed the district court’s order rejecting the bankruptcy court’s report and recommendation to enjoin Smith Development, Inc.’s legal malpractice suit against Conway and to impose sanctions for violating the Barton doctrine and the automatic stay.   The Fourth Circuit dismissed the appeal, finding that it lacks subject-matter jurisdiction because the district court’s decision rests on the abstention principles. The court explained that Conway suggests the district court had no authority to enter an abstention order because, under Barton, the district court itself lacked jurisdiction over Smith Development’s malpractice claims. However, the court wrote that this argument fares no better than the first. Barton concerns subject-matter jurisdiction over a separate action, not jurisdiction over the proceedings in which a party seeks Barton protection in the first place. And even if the court accepted the argument’s doubtful premise, it fails on its own logic because the bankruptcy court issued a report and recommendation to the district court, thereby authorizing the district court to rule on the matter. Further, the court found that even if it recognized a narrow exception to Section 1334(d)’s clear jurisdictional bar, the district court’s order would not fall within it. View "Martin Conway v. Smith Development, Inc." on Justia Law

Peraica represented Dordevic in her Chapter 7 bankruptcy proceeding and submitted a Statement of Financial Affairs (Rule 2016 disclosure) in which he reported that Dordevic had paid him $5,000. As the Trustee learned during discovery, Dordevic had actually paid Peraica $21,500. The Trustee informed Peraica that he needed to file an updated Rule 2016 fee disclosure. Peraica instead sent the Trustee an informal accounting document listing $21,500 in fees. The Trustee responded: “The Rule 2016 disclosures actually need to be filed with the Court” by submitting “an official form.” Peraica repeatedly ignored the Trustee’s reminders. The Trustee filed a motion, 11 U.S.C. 329, to examine the fees. Peraica failed to respond; the Trustee then requested that all fees be forfeited. The bankruptcy court granted the motion.The district court and Seventh Circuit affirmed. Beyond Peraica’s brazen disregard of the Trustee’s advice, Peraica’s proffered explanation for not updating his fee disclosure lacking, if not false. Peraica had been involved in more than 350 bankruptcy cases in the Northern District of Illinois alone. The bankruptcy court ordered Peraica to disgorge all past fees as a penalty for his blatant lack of compliance with his obligations. There is no leeway for partial or incomplete disclosure. View "Peraica v. Layng" on Justia Law