Fraga v. The DuBoff Law Group, LLC et al

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	No. 00-44500 TT
Chapter 7
LARRY FRAGA, etc.,
Debtor.
___________________________/
LARRY FRAGA, 	A.P. No. 06-4005 AT
Plaintiff,
vs.
THE DUBOFF LAW GROUP, LLC,
etc., et al.,
Defendants.
___________________________/
MEMORANDUM OF DECISION RE MOTION FOR SANCTIONS
Defendant 	The 	DuBoff 	Law 	Group, 	LLC 	(the 	“DuBoff 	Law 	Firm”)
moves for Rule 9011 sanctions against Plaintiff Larry Fraga (“Fraga”)
and 	his 	counsel, 	Kristine 	Kelly 	(“Kelly”). 	For 	the 	reasons 	stated
below, the 	motion is granted. 	The sanctions awarded are set forth
below.
Signed: April 14, 2006
________________________________________
LESLIE TCHAIKOVSKY
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
April 18, 2006
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
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26 	1The actual firm retained was the DuBoff Law Firm’s
predecessor in interest: DuBoff, Dorband, Cushing and King.
2
SUMMARY OF FACTS
An 	involuntary 	chapter 	7 	petition 	was 	filed 	against 	Fraga 	in
August 2000. 	An order for relief was entered on September 6, 2000.
Prior to the filing of the involuntary petition, Fraga employed the
DuBoff Law Firm to represent him as legal counsel in connection with
copyright matters. 1 	A written retainer agreement was executed on May
19, 2000 (the “Retainer Agreement”). 	Fraga did not inform the DuBoff
Law 	Firm 	about 	the 	bankruptcy 	case 	when 	it 	was 	filed 	and 	did 	not
schedule it as a creditor.
The 	DuBoff 	Law 	Firm 	performed 	legal 	services 	for 	Fraga 	both
before 	and 	after 	the 	commencement 	of 	the 	bankruptcy 	case. 	It 	sent
monthly 	invoices 	to 	Fraga. 	Fraga 	paid 	the 	invoices 	in 	full 	on 	a
timely 	basis 	until 	June 	2001. 	He 	made 	only 	a 	partial 	payment 	for
June 2001, no payment for August 2001, and only a partial payment for
September 2001. 	Thereafter, he made no payments.
In October 2002, the DuBoff Law Firm filed suit against Fraga in
Oregon state court for the unpaid fees and costs (the “Oregon State
Court 	Action”). 	It 	served 	Fraga 	with 	the 	complaint 	and, 	when 	no
answer 	was 	filed, 	took 	Fraga’s 	default. 	At 	this 	point, 	the 	DuBoff
Law Firm learned of Fraga’s bankruptcy. 	As a cautionary matter, the
DuBoff 	Law 	Firm 	moved 	to 	have 	the 	Oregon 	State 	Court 	Action 	abated
and 	filed 	a 	proof 	of 	claim 	for 	the 	unpaid 	fees. 	The 	chapter 	7
trustee 	objected 	to 	the 	proof 	of 	claim 	on 	the 	ground 	that 	the
underlying 	services 	were 	performed 	post-petition 	and 	therefore 	did
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3
not 	give 	rise 	to 	a 	claim 	against 	the 	bankruptcy 	estate. 	The 	claim
was disallowed.
Fraga received his discharge on January 23, 2002. 	Thereafter,
the 	DuBoff 	Law 	Firm 	reactivated 	the 	Oregon 	State 	Court 	Action 	and
obtained 	a 	default 	judgment 	(the 	“Judgment”). 	The 	DuBoff 	Law 	Firm
then obtained a sister state judgment in California and scheduled a
debtor’s 	examination. 	When 	Fraga 	failed 	to 	appear, 	the 	DuBoff 	Law
Firm obtained a bench warrant for his arrest.
In response to the bench warrant, Fraga filed a motion in 	state
court 	in 	California 	to 	stay 	the 	enforcement 	of 	the 	Judgment 	and 	to
recall the bench warrant. 	Fraga alleged that his bankruptcy barred
enforcement of the Judgment. 	The state court denied Fraga’s motion,
concluding 	that 	the 	bankruptcy 	did 	not 	bar 	the 	enforcement 	of 	the
Judgment 	because 	it 	was 	based 	on 	a 	post-petition 	debt. 	The 	state
court in California awarded the DuBoff Law Firm its attorneys’ fees.
Thereafter, 	Fraga 	filed 	a 	complaint 	in 	this 	court, 	commencing
the 	above-captioned 	adversary 	proceeding 	(the 	“Complaint”). 	The
Complaint 	alleged 	that, 	by 	continuing 	to 	proscute 	the 	Oregon 	State
Court Action and by attempting to enforce the Judgment in California,
the DuBoff Law Firm had violated the injunction protecting Fraga from
the enforcement of discharged debts. 	See 11 U.S.C. § 524(a)(2).
The 	Complaint 	alleged 	that 	the 	Judgment 	was 	based 	on 	a 	debt
incurred 	for 	legal 	services 	performed, 	for 	the 	most 	part, 	pre-
petition 	and 	that 	the 	only 	legal 	services 	performed 	post-petition
were for tracking Fraga’s bankruptcy case and attempting to collect
the unpaid fees and costs. 	It alleged that the DuBoff Law Firm had
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obtained a bench warrant for Fraga’s arrest in an attempt to enforce
the Judgment and that Fraga had filed a motion to stay this action.
It 	did 	not 	disclose 	that 	the 	California 	state 	court 	had 	denied 	its
motion 	and 	ruled 	that 	the 	underlying 	debt 	was 	a 	post-petition 	debt
that was not discharged.
The 	DuBoff 	Law 	Firm 	filed 	a 	timely 	answer 	to 	the 	Complaint.
Thereafter, on March 3, 2006, the DuBoff Law Firm filed two motions:
(1) 	a 	motion 	for 	summary 	judgment 	and 	(2) 	a 	motion 	for 	Rule 	11
sanctions. 	The 	motions 	came 	on 	for 	hearing 	on 	April 	6, 	2006. 	The
Court granted the motion for summary judgment at the hearing, making
an 	oral 	ruling 	from 	the 	bench. 	It 	took 	the 	motion 	for 	sanctions
under submission.
DISCUSSION
Rule 9011(a) provides that [with exceptions not relevant here]
every 	pleading 	shall 	be 	signed 	by 	an 	attorney 	individually. 	Rule
9011(b) provides that:
...by 	presenting 	to 	the 	court...a...pleading,
an attorney...is certifying that to the best of
the person’s knowledge, information, and belief,
formed 	after 	an 	inquiry 	reasonable 	under 	the
circumstances,--
(1) 	it 	is 	not 	being 	presented 	for 	any
improper purpose, such as to harass or to cause
unnecessary 	delay 	or 	needless 	increase 	in 	the
cost of litigation;
(2) 	the 	claims, 	defenses, 	and 	other 	legal
contentions 	therein 	are 	warranted 	by 	existing
law 	or 	by 	a 	nonfrivolous 	argument 	for 	the
extension, modification, or reversal of existing
law or the establishment of new law;
(3) 	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
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2In support of the motion, the DuBoff Law Firm filed the
Declaration of James Filiault (the “Filiault Declaration”).
Attached to the Filiault Declaration are copies of the invoices
describing the legal services upon which the Judgment was based and
providing the dates when the services were provided. 	The dates are
all post-petition and the services described bear no connection to
Fraga’s bankruptcy case and indicate numerous post-petition
communications with Fraga.
5
discovery; and
(4) the denials of factual contentions are
warranted 	on 	the 	evidence, 	or, 	if 	specifically
so 	identified, 	are 	reasonably 	based 	on 	lack 	of
information or belief.
Fed. R. Bankr. Proc. 9011(b).
The 	DuBoff 	Law 	Firm’s 	summary 	judgment 	motion 	contended 	that
there was no material factual issue in dispute in connection with the
adversary 	proceeding 	and 	that 	it 	was 	entitled 	to 	judgment 	in 	its
favor 	as 	a 	matter 	of 	law. 	It 	contended 	that 	there 	was 	no 	material
factual dispute regarding whether the legal services it provided to
Fraga, 	upon 	which 	the 	Judgment 	was 	based, 	were 	provided 	post-
petition. 	It contended that there was no nonfrivolous legal issue as
to whether a debt based on legal services which were provided post-
petition constituted a post-petition debt regardless of whether they
were 	provided 	pursuant 	to 	the 	retainer 	agreement 	executed 	pre-
petition. 2 	In support of the latter contention, the DuBoff Law Firm
cited In re Hines, 147 F.3d 1185 (9 th Cir. 1998) and In re Tredinnick,
264 B.R. 573 (Bankr. 9 th Cir. 2001).
In Hines, Hines, while a chapter 13 debtor, retained an attorney
(“Gordon”) 	to 	convert 	the 	case 	to 	chapter 	7. 	Because 	Hines 	was
unable to pay Gordon’s fee in full up front, Gordon and Hines entered
into 	a 	written 	agreement 	for 	payment 	of 	the 	fee 	in 	installments.
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3The principal analysis of the majority opinion is somewhat
convoluted. 	However, it also offers the following much simpler
alternative rationale which was embraced by the concurring opinion:
“[A] prepetition contract for postpetition legal services does not
give the attorney a claim against the estate.” 	Hines, at 1192
(concurring op’n).
6
Hines 	gave 	Gordon 	several 	post-dated 	checks. 	After 	the 	case 	was
converted, Hines stopped payment on the checks, contending that the
debt was a pre-petition debt which was subject to the automatic stay
and 	due 	to 	be 	discharged. 	The 	bankruptcy 	court 	denied 	the 	motion,
concluding that the debt, which was at that point solely for services
performed post-conversion, was a post-petition debt. 	The bankruptcy
appellate panel reversed. 	However, its decision was reversed in turn
by the Ninth Circuit Court of Appeals. 	147 F.3d at 1187-88. 3
In 	Tredinnick, 	the 	Tredinnicks 	entered 	into 	an 	oral 	agreement
for 	legal 	services 	with 	a 	paralegal 	awaiting 	bar 	results. 	The
paralegal prepared several documents for them, for which he was not
paid. 	He continued to do so after the Tredinnicks filed a chapter 7
case. 	The services provided by the paralegal were not in connection
with the bankruptcy case. 	After the bankruptcy case was closed and
the 	Tredinnicks 	failed 	to 	pay 	for 	the 	services 	provided, 	the
paralegal 	filed 	a 	breach 	of 	contract 	action. 	The 	Tredinnicks
responded 	by 	having 	their 	bankruptcy 	case 	reopened 	and 	filing 	an
adversary proceeding, seeking a determination that their debt to the
paralegal 	had 	been 	discharged. 	They 	contended 	that 	the 	debt 	was 	a
pre-petition debt because it was based on a pre-petition contract.
After a trial, the bankruptcy court found for the Tredinnicks.
The 	bankruptcy 	appellate 	panel 	reversed. 	264 	B.R. 	at 	574-75. 	The
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panel relied in part on the concurring opinion in Hines. 	Id. at 575-
76. 	They also cited the following language from a subsequent Ninth
Circuit Court of Appeals decision: “‘There is no question after Hines
that 	a 	reasonable 	fee 	for 	post-petition 	services 	is 	not 	a
dischargeable 	debt 	and 	may 	be 	collected 	in 	the 	course 	of 	the
bankruptcy 	without 	violating 	the 	automatic 	stay.’” 	See 	In 	re
Sanchez, 241 F.3d 1148, 1150-51 (9 th Cir. 2001, cited in Tredinnick,
264 B.R. at 573.
Fraga 	filed 	an 	opposition 	to 	the 	motion 	for 	summary 	judgment
four days after it was due. 	The only basis stated for the opposition
was that the debt was necessarily pre-petition because the Retainer
Agreement 	was 	executed 	pre–petition. 	In 	support 	of 	argument, 	he
cited 	In 	re 	Abercrombie, 	139 	F.3d 	755 	(9 th 	Cir. 	1998). 	In
Abercrombie, the Ninth Circuit denied administrative priority status
to 	a 	claim 	by 	a 	third 	party 	for 	a 	post-petition 	award 	of 	fees 	and
costs 	against 	a 	chapter 	11 	debtor 	who 	unsuccessfully 	defended 	an
appeal from a pre-petition judgment. 	The Abercrombie court held that
“costs and expenses arising out of prepetition contracts are treated
under the Bankruptcy Code as non-prioritized unsecured claims.” 	139
F.3d 	at 	757. 	Fraga 	did 	not 	discuss 	or 	attempt 	to 	distinguish 	the
holdings 	in 	Hines 	or 	Tredinnick. 	Clearly, 	Abercrombie 	is
distinguishable 	on 	its 	facts 	and 	does 	not 	contradict 	the 	much 	more
pertinent authority of the cases cited by the DuBoff Law Firm.
The motion for sanctions is not based on the opposition to the
motion 	for 	summary 	judgment. 	It 	is 	based 	on 	the 	Complaint. 	There
are two bases for the motion: (1) legal and (2) factual. 	First, the
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4The brief filed in opposition to the motion, again four days
late, contained nothing of any substance. 	It merely repeated the
arguments set forth in the opposition to the motion for summary
judgment.
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motion 	contends 	that, 	based 	on 	the 	cases 	cited 	above, 	no 	competent
attorney 	could 	make 	a 	good 	faith 	argument 	that 	the 	Judgment
represented a pre-petition debt simply because the Retainer Agreement
was 	executed 	pre-petition. 	Second, 	it 	contends 	that 	the 	Complaint
contains gross misstatements as to the underlying facts. 	The Court
agrees with both contentions. 4
(1) Legal Basis
As discussed above, Ninth Circuit law does not support the legal
theory upon which the Complaint is based. 	Although an unsuccessful
litigant 	is 	not 	generally 	subject 	to 	Rule 	9011 	sanctions, 	such
sanctions 	are 	appropriate 	if 	no 	competent 	attorney, 	acting 	in 	good
faith, 	could 	have 	concluded 	that 	the 	law 	supported 	the 	claim
asserted. 	Based on the authorities cited above, the Court concludes
that this is the case here. 	Hines and Tredinnick make it clear that,
in the Ninth Circuit at least, legal services provided to a chapter
7 debtor post-petition constitute a post-petition debt of the debtor
notwithstanding the existence of a pre-petition contract to provide
the services.
Kelly may have failed to conduct adequate research before filing
the Complaint so as to determine the relevant law. 	That, in itself,
given 	the 	lack 	of 	any 	extreme 	time 	pressure, 	would 	constitute 	a
violation 	of 	Rule 	9011. 	However, 	even 	so, 	she 	could 	have 	avoided
being sanctioned by dismissing the Complaint when informed of Hines
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5Before filing the motion for sanctions, the Duboff Law Firm
served a copy of the motion on Kelly, giving her an opportunity to
dismiss the Complaint voluntarily in order to avoid incurring
sanctions as required by Rule 9011(c)(1)(A).
9
and 	Tredinnick 	by 	the 	DuBoff 	Law 	Firm. 5 	There 	is 	no 	explanation,
other 	than 	incompetence 	or 	bad 	faith, 	for 	her 	having 	continued 	to
prosecute 	the 	adversary 	proceeding 	after 	receiving 	a 	copy 	of 	the
sanctions 	motion. 	No 	reasonable 	attorney 	could 	have 	believed 	that
the 	holding 	in 	Abercrombie 	would 	apply 	to 	the 	facts 	presented 	here
with more force than the holdings in Hines and Tredinnick.
(2) Factual Basis
The misrepresentations of fact, as alleged in the Complaint, are
even 	more 	shocking. 	The 	DuBoff 	Law 	Firm 	cited 	the 	following 	four
misstatements of fact contained in the complaint.
1. 	“The Declaration [of Christoper Brown] was based upon fees
DUBOFF 	claims 	it 	‘incurred’ 	in 	pursuing 	FRAGA 	for 	pre-
petition 	debts 	that 	had 	already 	been 	discharged.”
[Complaint, para. 9]
2. 	“It is clear by examining the attached Exhibits that DUBOFF
asserted a claim in the Bankruptcy Court for pre-petition
debt, 	incurred 	by 	way 	of 	the 	May 	2000, 	contract.”
Complaint, para. 13]
3. 	“DUBOFF fabricated the post-petition fees veiling the very
debt it attempted to assert, but was denied, in Bankruptcy
the 	[sic] 	Court, 	hoping 	to 	avoid 	statutory 	language 	and
authority from the 9 th Circuit.” [Complaint, para. 14]
4. 	“All of the alleged post-petition fees sought by DUBOFF are
for 	costs 	incurred 	by 	DUBOFF 	in 	tracking 	the 	status 	of
FRAGA’s bankruptcy case and DUBOFF’s costs in preparing its
lawsuit for the claim herein. 	None of the entries and fees
associated 	therewith 	arose 	from 	any 	work 	done 	at 	FRAGA’s
request. 	It 	was 	purely 	for 	DUBOFF’s 	financial 	gain 	to
pursue 	FRAGA 	on 	a 	pre-petition 	debt.” 	[Complaint, 	para.
15.]
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As noted by the DuBoff Law Firm, attached to the Complaint is a
copy 	of 	the 	Declaration 	of 	Christopher 	Brown 	(the 	“Brown
Declaration”) 	in 	support 	of 	the 	DuBoff 	Law 	Firm’s 	request 	for 	a
default 	judgment 	in 	the 	Oregon 	State 	Court 	Action. 	As 	filed 	with
the Oregon State Court, according to the DuBoff Law Firm, the Brown
Declaration 	contained 	as 	an 	exhibit 	a 	complete 	description 	of 	the
services provided for which the judgment was sought.
Fraga 	omitted 	the 	bulk 	of 	this 	exhibit 	from 	the 	Brown
Declaration when he attached it to the Complaint. 	The pages included
described 	only 	those 	fees 	incurred 	after 	Fraga 	had 	defaulted 	in
making payments and the DuBoff Law Firm was attempted to collect its
debt. 	Omitted 	were 	the 	pages 	describing 	the 	numerous 	substantive
legal 	services 	performed 	post-petition 	for 	Fraga’s 	benefit 	in
connection with copyright matters. 	It is impossible to conclude that
this 	selective 	omission 	was 	accidental. 	This 	concept 	goes 	beyond
incompetence or frivolousness and constitutes an attempted fraud on
the court. 	This is particularly true when coupled with the failure
to 	disclose 	the 	fact 	that 	the 	California 	state 	court 	had 	already
ruled 	that 	the 	debt 	was 	post-petition. 	The 	Court 	notes 	that 	Kelly
was counsel of record for Fraga in that proceeding.
Nature and Allocation of Sanctions
Rule 	9011(c) 	provides 	that, 	if 	the 	Court 	concludes 	that 	Rule
9011(b) 	has 	been 	violated, 	the 	Court 	may, 	subject 	to 	certain
conditions, 	impose 	an 	appropriate 	sanction 	upon 	the 	attorneys, 	law
firms, or parties responsible for the violation. 	Rule 9011(c)(1)(A)
provides 	that, 	when 	the 	sanctions 	are 	based 	on 	a 	motion 	filed 	by 	a
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party, the court may award the prevailing party its reasonable fees
and 	expenses 	in 	presenting 	or 	opposing 	the 	motion. 	It 	may 	also
include a nonmonetary sanction or an order directing a specified sum
to be paid to the Court. 	Rule 9011(c)(2) provides that the sanction
should 	be 	sufficient 	to 	deter 	repetition 	of 	such 	conduct 	either 	by
the party or as an example by other similarly situated parties. 	The
limiting 	conditions 	are 	that 	monetary 	sanctions 	may 	not 	be 	awarded
against 	a 	represented 	party 	for 	a 	violation 	of 	subdivision
(b)(2)(asserting frivolous claims or defenses).
In its motion for sanctions, the DuBoff Law Firm requested only
its 	attorneys’ 	fees 	and 	costs 	in 	connection 	with 	this 	adversary
proceeding. 	The Court grants this request. 	Since the basis for its
ruling 	is 	both 	factual 	and 	legal 	in 	nature, 	this 	sanction 	will 	be
imposed jointly and severally on both Kelly and Fraga.
The 	DuBoff 	Law 	Firm 	has 	not 	yet 	quantified 	the 	fees 	and 	costs
requested. 	The 	Court 	directs 	it 	to 	do 	so 	by 	filing 	a 	statement 	of
fees and expenses and serving them on Fraga within 30 days from the
date of service of this Memorandum. 	Fraga will be given 14 days from
the 	date 	of 	service 	of 	the 	statement 	to 	file 	an 	opposition 	to 	the
amount of the request. 	No late filed opposition will be considered.
If a timely opposition is filed, the DuBoff Law Firm will be given 7
days from the date of service of the opposition to file a reply and
a proposed form of order. 	The Court will consider the amount of the
sanctions to be awarded upon receipt of the reply and proposed form
of order.
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6The DuBoff Law Firm also requested that the adversary
proceeding be dismissed with prejudice as a further sanction.
However, the Court has already ordered summary judgment in its
favor which provides comparable relief. 	A proposed form of
judgment should submitted with the proposed form of order. 	The
Court has previously issued a 60 day dismissal order in this case
as a monitoring device. 	In the event the judgment is not entered
within the 60 days, the Court will retain jurisdiction to issue the
relief set forth herein, nunc pro tunc if necessary.
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However, in light of the apparent fraud on the Court committed
by Kelly with regard to factual matters, the Court is not satisfied
that this compensatory award adequately serves the deterrence purpose
of Rule 9011. 	The Court is contemplating a further sanction, either
monetary 	or 	nonmonetary, 	to 	be 	imposed 	on 	her. 	In 	determining
whether to impose such a sanction and the sanction to be imposed, the
Court will consider any explanation for her conduct provided by Kelly
in 	a 	declaration 	filed 	by 	no 	later 	than 	30 	days 	from 	the 	date 	of
service of this memorandum. 6
END OF DOCUMENT
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COURT SERVICE LIST
James Filiault
The DuBoff Law Group, LLC
6665 SW Hampton St., Ste. 200
Portland, OR 97223-8357
Kristine M. Kelly
4025 N. Fresno St., #103
Fresno, CA93726
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