z Bankruptcy Litigation Blog : Stupid Lawyer Tricks

7th Circuit Shows How "An Ounce of Prevention Is Worth a Pound of Cure"

Busy lawyers often assume that it's ok to skip a ministerial presentment hearing and await the Court's order scheduling a hearing on the merits.  Today's opinion from the 7th Circuit in United States v. Hyatt, reversing the finding of contempt and award of attorneys' fees for failing to respond to two subpoenas served on them by the SEC, shows why it's a BIG mistake to do so.   Here's the background from the Court's opinion:

The SEC initiated the contempt proceeding via a motion for a rule to show cause why Hollnagel and BCI should not be held in contempt.  The motion asked the court to: (1) order them to fully comply with the subpoenas; and (2) order them to show cause why they should not be held in contempt for their past noncompliance.  Accompanying this motion was a notice setting a date and time for a hearing at which the SEC said it would “present, and seek a hearing date regarding” its request for a show cause order. Hollnagel and BCI interpreted the notice and motion to mean that the initial hearing would be entirely ministerial—that the court would issue a showcause order and set another date on which the merits of
the contempt issue would be heard.  So they didn’t show up.

When the case was called and Hollnagel and BCI didn’t appear, the SEC skipped over the procedural preliminaries and moved right to the main event:  The agency’s lawyers asked the court to find Hollnagel and BCI in contempt.  The court did so, ordered them to fully comply with the subpoenas within two days, and imposed a $1,000-a-day fine for any noncompliance after that date.  The court later rescinded the fine, but left the contempt order in place and ordered Hollnagel and BCI to pay the [$33,000 in] SEC’s attorney’s fees, [which the district court later reduced to $6,000].

The 7th Circuit's opinion is especially valuable for its discussion of whether show-cause orders are even contemplated by the Federal Rules of Civil Procedure (it concludes they are not despite the fact that lawyers "routinely ask for such orders to be issued" and courts in the district "regularly treat show-cause motions as distinct from other motions").  The opinion is also valuable for its review of the contempt sanctions available under Rule 45 for not complying with subpoenas issued by an attorney (it concludes that "[while] nothing in Rule 45 or the accompanying commentary purports to limit the contempt power to subpoenas issued with more direct district court involvement or to require an intervening court order when the subpoena is issued by an attorney ... [i]t does not follow that a contempt motion for disobedience of a nonparty subpoena should be treated in exactly the same way as a contempt motion for violation of another kind of court order").

Notably, the day after the district court entered the contempt order, the non-party (BCI) filed a motion to vacate, arguing that it had been making reasonable efforts to comply with the subpoenas and therefore was not in contempt.  The district judge, however, denied the motion as moot because he thought BCI had waived its opportunity to contest the contempt finding by failing to show up at the September 3 hearing, and it was on this point that the 7th Circuit reversed and vacated the contempt order, saying:

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Legal Ethics and Web 2.0: Revisiting the "Law of the Horse"

[9/3/2010 Update:  Here's a transcript of the panel discussion published in the Emory Bankruptcy Developments Journal.]

Thanks to Emory University Law School, host of the 7th Annual Symposium of the Bankruptcy Developments Journal, for generously sponsoring my trip to Atlanta yesterday to participate in a panel discussion, moderated by my friend Mark Duedall, entitled Ethics 2.0--The Ethical Challenges and Pitfalls of Web 2.0.  The panel included Kevin O'Keefe, founder of LexBlog (and purveyor of this blog and that of an amazing 3,000 other authors--I think I was in the first 30), and Scott Riddle, founder of the Georgia Bankruptcy Blog.  Kevin even twittered a picture of me during my part of the presentation.

Drawing upon this fantastic 1996 essay by Chief Judge Easterbrook entitled Cyberspace and the Law of the Horse, my main point was that analyzing the ethical challenges of web 2.0 is like analyzing the "Law of the Horse."  What is the "Law of the Horse," you ask?  Here's how Chief Judge Easterbrook described it:

When he was dean of this law school, Gerhard Casper was proud that the University of Chicago did not offer a course in "The Law of the Horse."  He did not mean by this that Illinois specializes in grain rather than livestock.  His point, rather, was that "Law and . . . " courses should be limited to subjects that could illuminate the entire law....  We are at risk of multidisciplinary dilettantism, or, as one of my mentors called it, the cross-sterilization of ideas.  Put together two fields about which you know little and get the worst of both worlds.

Dean Casper's remark had a second meaning--that the best way to learn the law applicable to specialized endeavors is to study general rules.  Lots of cases deal with sales of horses; others deal with people kicked by horses; still more deal with the licensing and racing of horses, or with the care veterinarians give to horses, or with prizes at horse shows.  Any effort to collect these strands into a course on "The Law of the Horse" is doomed to be shallow and to miss unifying principles. Teaching 100 percent of the cases on people kicked by horses will not convey the law of torts very well.  Far better for most students--better, even, for those who plan to go into the horse trade--to take courses in property, torts, commercial transactions, and the like, adding to the diet of horse cases a smattering of transactions in cucumbers, cats, coal, and cribs.  Only by putting the law of the horse in the context of broader rules about commercial endeavors could one really understand the law about horses. 

Now you can see the meaning of my title. When asked to talk about "Property in Cyberspace," my immediate reaction was, "Isn't this just the law of the horse?"  I don't know much about cyberspace; what I do know will be outdated in five years (if not five months!); and my predictions about the direction of change are worthless, making any effort to tailor the law to the subject futile. And if I did know something about computer networks, all I could do in discussing "Property in Cyberspace" would be to isolate the subject from the rest of the law of intellectual property, making the assessment weaker.

For a contrary view, be sure to read Professor Lessig's 1999 commentary published in the Harvard Law Review entitled, The Law of the Horse: What Cyberlaw Might Teach.

Late last year, the ABA announced the formation of ABA Commission on Ethics 20/20, whose purpose is "to perform a thorough review of the ABA Model Rules of Professional Conduct and the U.S. system of lawyer regulation in the context of advances in technology and global legal practice developments, to study these issues and, with 20/20 vision, [to] propose policy recommendations that will allow lawyers to better serve their clients, the courts and the public now and well into the future." 

The panel is filled with brilliant thinkers, including the inspirational future (I pray) Supreme Court nominee Judge Diane Wood and the leading ethics maven, Professor Stephen Gillers

The Commission’s preliminary outline (at pp. 7-9) suggests it won’t generate a “Law of the Horse,” but instead a thoughtful analysis of how existing rules should be modified to address the unique issues raised by burgeoning technology and its many applications.  I highly recommend reviewing the outline for insight into the complexity of the issues being examined.

Meanwhile, to avoid suffering a "Woodsian" fall from grace, from which you’ll never fully recover, be sure to review existing ethics rules before you plunge into Web 2.0, for when it comes to legal ethics, the old saying "look before you leap" most assuredly trumps its counterpart, "he who hesitates is lost."

Kevin's take on yesterday's symposium is in his post entitled Focus on the Possibilities of Blogging and Social Media, Not the Challenges.  Kevin's focus is certainly rightly placed, though every blogger I know will tell you that--ethics aside--blogging on a consistent basis is an unquestionable challenge.

© Steve Jakubowski 2010

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Stupid Bankruptcy Lawyer Tricks - Vol. 1

Professor Eugene Volokh of The Volokh Conspiracy blog recently wrote here of a particularly noteworthy "stupid lawyer trick" in a case involving a lawyer recently charged with suborning perjury by advising his client to lie under oath in a DUI case. The "stupid trick" part of the lawyer's misconduct involved his documenting his advice to lie in emails to his client, one of which advised:

They won't have anyone there to testify how much you had to drink. You won't be charged with perjury. I've never seen them charge anyone with perjury, and everybody lies in criminal cases, including the cops. If you want to tell the truth, then we'll just plead guilty and you can get your jail time over with.

"Stupid lawyer tricks" are not uncommon in bankruptcy cases either, and Professor Volokh's post prompted me to start a new category called "Stupid Lawyer Tricks" in which I hope to periodically report on some of the "Jackass-type" tricks some bankruptcy lawyers try to get away with from time to time.

WARNING: THE FOLLOWING CASES FEATURE STUNTS PERFORMED BY PROFESSIONALS OR UNDER THE SUPERVISION OF PROFESSIONALS. THE BANKRUPTCY BLOG MUST INSIST THAT NO ONE ATTEMPT TO RECREATE ANY STUNT OR ACTIVITY REPORTED, OTHER THAN IN A SUPERVISED CLASSROOM SETTING.

This opening segment (vol. 1) of "Stupid Bankruptcy Lawyer Tricks" reports on some tricks found in the following recent cases, each of which is discussed below:

In re Sadorus, 2005 WL 3429467 (Bankr. C.D. Ill., 12/8/05) (advising a client to lie in order to get his bankruptcy case dismissed and thereby avoid having to disclose the existence of a bank account the lawyer had wrongly advised would be exempt)

In re Kollel Mateh Efraim, LLC, 2005 WL 3439684 (Bankr. S.D.N.Y., 12/15/05) (entering into a settlement on the record, but first not telling the client and then evading the client's attempts to find out what happened)

I.G. Petroleum, L.L.C., v. Fenasci (In re West Delta Oil Co.), 2005 WL 3220291 (5th Cir, 12/1/05) (lawyer retained as special counsel joins with a possible suitor for the debtor's assets, sends threatening letters to other potential bidders, and never discloses its conflict to the court)

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