Sanction Reduced For Bankruptcy Court Disbarment

Reciprocal discipline of a three-month suspension with fitness has been imposed by the New York Appellate Division for the First Judicial Department

Respondent’s misconduct before the bankruptcy court stemmed in large part from the unusual organizational structure of her law firm. In or about May 2015, respondent, who had been admitted in New York for less than two years, formed the law firm of Volks Anwalt Law of New York, LLC of which she was the sole owner and managing partner. Respondent, who was only admitted in New York and Florida, used information on employment websites, contacted attorneys in various jurisdictions and entered into partnership agreements with them notwithstanding that she did little or no vetting of their qualifications. These “partners” had no voting rights, received only nominal shares in the firm, and had no managerial authority. Volks Anwalt operated in 43 states and, as of February 2016, had handled approximately 400 bankruptcy cases. Neither respondent, nor any representative of her firm, did any legal research as to the laws and requirements of the states in which Volks Anwalt operated.

A North Carolina resident who was facing foreclosure and intended to file for bankruptcy in order to save her home, contacted Volks Anwalt in response to a direct mailing she received from the firm. A Volks Anwalt representative persuaded her to retain the firm for her bankruptcy case. The debtor paid the firm a $1,000 fee which allowed for sufficient time to file her bankruptcy petition prior to the expiration of a 10-day upset foreclosure bid period, which was to expire on November 5, 2015. Pursuant to the “partnership” arrangement, respondent referred the debtor’s case to a North Carolina attorney. Volks Anwalt prepared the debtor’s Chapter 13 bankruptcy petition but did not file it until November 6, 2015, after the 10-day upset period had expired. Prior to its filing, no attorney licensed to practice in North Carolina ever met with or spoke with the debtor. Further, the bankruptcy petition was defective. Neither the North Carolina attorney nor Volks Anwalt, whom the court notified of the defects, properly amended the petition.

In addition, neither respondent, nor anyone else associated with Volks Anwalt, notified the debtor that her bankruptcy filing did not stop the pending foreclosure action against her because her petition was filed after expiration of the 10-day upset bid period. Respondent and her firm also failed to communicate with the debtor despite her repeated attempts to obtain information and assistance, especially after she received eviction notices. Respondent and Volks Anwalt also failed to propose a proper and confirmable Chapter 13 plan.

On January 13, 2016, the Bankruptcy Administrator filed a motion seeking sanctions against respondent and/or her firm for allegedly engaging in the unauthorized practice of law.

In addition, the North Carolina State Bar’s Authorized Practice Committee issued a Letter of Caution dated January 27, 2016 to respondent advising her that it had determined that Volks Anwalt’s activities violated North Carolina’s unauthorized practice of law statutes, and it expected her to cease such activities or it would consider pursuing injunctive relief.

By order filed February 2, 2016, upon motion by the Bankruptcy Administrator, the court directed respondent and Volks Anwalt to appear and show cause at a hearing “why they should not be sanctioned for their actions in the Debtor’s case.” While respondent was not admitted to practice before the WDNC Bankruptcy Court, nor in North Carolina, she was subject to discipline pursuant to WDNC Local Bankruptcy Rule 2090-3.

Respondent, represented by counsel, appeared at the February 18, 2016 hearing, testified, and cross-examined witnesses. At the conclusion of the hearing, the court announced that it intended to issue an order finding that respondent, the North Carolina attorney, and Volks Anwalt had engaged in misconduct in connection with the debtor’s case and imposing monetary sanctions and disbarring them.

By order entered June 2, 2016, the WDNC Bankruptcy Court found that neither respondent, nor the North Carolina attorney, took steps to correct the deficiencies in the debtor’s Chapter 13 petition, despite having been advised of such. The court also found that the North Carolina attorney readily admitted that he was not competent to represent the debtor and that respondent’s lack of bankruptcy experience did nothing to assist him in providing competent representation. The court also noted the lack of communication by both with the debtor.

The court found that the conduct of respondent, Volks Anwalt and the North Carolina attorney evinced that they had abandoned their representation of the debtor without notice to her and without permission of the court in violation of WDNC Local Bankruptcy Rule 2091-1(a) (requiring the debtor’s counsel of record to remain the responsible attorney in all matters that arise in the case) and North Carolina Rules of Professional Conduct (NC RPC) rule 1.16(c) (requiring attorneys to comply with applicable laws regarding notice to or permission of a tribunal when terminating representation).

The court also found that respondent and Volks Anwalt had engaged in the unauthorized practice of law in violation of NC RPC rule 5.5(b)(1) (prohibiting a nonmember of the NC Bar from establishing an office or other systematic and continuous presence in that state for the practice of law), NC General Statutes § 55-15-01 (transacting business in North Carolina without authorization), and NC General Statutes § 84-8 (prohibiting the practice of law by persons other than members of the North Carolina Bar for which criminal and civil penalties can be imposed).

The court also found that NC RPC rule 5.5(c)(4), which permits an attorney not admitted in North Carolina to provide legal services in that state when associated with a member of the North Carolina Bar “who actively participates in the representation,” did not apply to respondent’s situation because the North Carolina attorney did not “actively participate” in representing the debtor.

On the issue of sanction, the court found that respondent’s misconduct was aggravated by the resulting harm to the debtor; namely, the flagrant mishandling of her bankruptcy case lost her the opportunity to try and save her home where she lived with her four children and grandchild, which was her stated goal in filing for bankruptcy relief. The court also found that respondent failed to take responsibility for her misconduct, lacked remorse, and her testimony was “generally vague or non-responsive” and not credible.

As to the sanction imposed, respondent and Volks Anwalt were disbarred from practice before the WDNC Bankruptcy Court for a period of five years; respondent was directed to disgorge and refund all fees she received from the debtor; both she and the North Carolina attorney were sanctioned $5,000 which was to be paid to the debtor; bankruptcy law educational requirements were imposed should respondent seek admission to practice before the court after serving her disbarment; and the court directed that its order be sent to disciplinary authorities in New York and Florida.

Respondent filed a notice of appeal of the bankruptcy court’s five-year disbarment order; however, she subsequently failed to file certain required documents within the requisite 14-day period, as a sanction for which the US District Court for the Western District of North Carolina, by order filed August 8, 2016, dismissed her appeal with prejudice.

Sanction

While respondent neglected only one matter and engaged in the unauthorized practice of law in North Carolina, that neglect caused serious harm to the debtor, the bankruptcy court found that respondent failed to take responsibility for her misconduct and failed to express remorse, and there was no evidence in mitigation. Moreover, the court expressed its “shock[]” that respondent “has caused Volks Anwalt to conduct business in 43 states without investigating each state’s requirements and without any effort to comply with the laws of states where Volks Anwalt has conducted business,” and that it appeared that respondent “designed the Volks Anwalt business plan with the sole purpose of making money while taking no responsibility for the firm’s clients and attempting to isolate the firm from any liability related to client representation by associating a local partner’.”

Accordingly, the Committee’s motion should be granted to the extent of imposing reciprocal discipline pursuant to 22 NYCRR 1240.13 and suspending respondent from the practice of law for a period of three months and until further order of the Court.