The United States Trustee, Region 3 (“Trustee”), appeals the reversal by the District Court of sanctions originally imposed in the bankruptcy court on attorneys Mark J. Udren and Lorraine Doyle, the Udren Law Firm, and HSBC for violations of Federal Rule of Bankruptcy Procedure 9011.
The Taylors filed for a Chapter 13 bankruptcy in September 2007. In the Taylors’ bankruptcy petition, they listed the bank HSBC, which held the mortgage on their house, as a creditor. In turn, HSBC filed a proof of claim in October 2007 with the bankruptcy court. To do so, it used the law firm Moss Codilis. Moss retrieved the information on which the claim was based from HSBC‟s computerized mortgage servicing database. No employee of HSBC reviewed the claim before filing. This proof of claim contained several errors: the amount of the Taylors‟ monthly payment was incorrectly stated, the wrong mortgage note was attached, and the value of the home was understated by about $100,000. It is not clear whether the errors originated in HSBC‟s database or whether they were introduced in Moss Codilis’s filing.
In January 2008, Appellees filed a motion for relief from the stay on behalf of HSBC. This motion was prepared by non-attorney employees of the Udren Firm, relying exclusively on the information provided by NewTrak, HSBC’s online data system. The motion said that the debtor “has failed to discharge arrearages on said mortgage or has failed to make the current monthly payments on said mortgage since” the filing of the bankruptcy petition. It identified “the failure to make . . . post-petition monthly payments” as stretching from November 1, 2007 to January 15, 2008, with an “amount per month” of $1455 (a monthly payment higher than that identified on the proof of claim filed earlier in the case by the Moss firm) and a total in arrears of $4367.
The Appellees did nothing to verify the information in the motion for relief from stay besides check it against “screen prints” of the NewTrak information. They did not even access NewTrak themselves. In effect, they simply proofread the document. It does not appear that NewTrak provided the Udren Firm with any information concerning the Taylors‟ equity in their home, so Doyle could not have verified her statement in the motion concerning the lack of equity in any way, even against a “screen print.”
The Appeals Court found that where a lawyer systematically fails to take any responsibility for seeking adequate information from her client, makes representations without any factual basis because they are included in a “form pleading” she has been trained to fill out, and ignores obvious indications that her information may be incorrect, she cannot be said to have made reasonable inquiry.
The Appeals Court reversed the District Court with respect to Doyle and the Udren Firm, affirming the bankruptcy court‟s imposition of sanctions. With respect to HSBC, the Appeals Court found that the District Court lacked jurisdiction to reverse the sanctions and vacated the District Court‟s order with respect to that party, leaving the sanctions imposed by the bankruptcy court in place. The Appeals Court further affirmed the District Court with respect to Udren individually, reversing the bankruptcy‟s court imposition of sanctions.