Thao Tran Nguyen and Andrew HungLam Nguyen

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re
THAO TRAN and ANDREW HUNGLAM
NGUYEN, 	No. 09-10549
Debtor(s).
______________________________________/
Memorandum Regarding Conduct of Debtors’ Former Counsel
_________________
I. Background
The schedules filed in this Chapter 7 case by attorney Joel J. Margolis contained horrific
omissions, including a furniture store filled with furniture, a $13,000.00 bank account, a 2008
Mercedes automobile, and real property. These omissions only came to light through serendipitous
notification by the bank where the deposit was held and by diligent investigation by the Chapter 7
trustee, Jeffry Locke, and his employees.
Pursuant to § 704(a)(6) of the Bankruptcy Code, Locke had a duty to object to the debtors’
discharge. He originally sought to do so based on the false schedules, as § 727(a)(4)(A) forbids a
discharge to debtors who make a false oath. However, it soon came to light that the debtors had a
defense to this claim based on Margolis’ conduct. They had never signed the schedules Margolis filed
on their behalf.
Entered on Docket
April 02, 2010
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 09-10549 Doc# 89 Filed: 04/02/10 Entered: 04/02/10 12:50:57 Page 1 of 7

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The court denied the debtors’ discharge on other grounds. However, during the course of the
trial and after listening to Margolis’ extensive testimony on the witness stand, it became clear to the
court that action against Margolis himself was required for three reasons: First, the court had a duty to
review his fees pursuant to § 329(b) of the Code; second, Margolis had to be sanctioned pursuant to
Rule 9011 of the Federal Rules of Bankruptcy Procedure for filing schedules not actually signed by his
clients; and lastly (and most importantly) Margolis appeared so venally incompetent that some action
was necessary to protect other debtors. The court accordingly ordered Margolis to appear and show
cause why his fees in this case should not be returned, why he should not pay a monetary fine, why he
should not be suspended from practice for a time until he completed remedial education requirements,
and why he should not be permanently enjoined from allowing the terrible office practices he
employed to continue.
Margolis concedes that his fees of $2,400.00 ought to be returned. He also concedes that some
sanction is in order for his Rule 9011 violation, although he argues that the fine should be modest
because his error was caused by inadvertence and not intentional misconduct. His main opposition is
to the court’s suggestion that he should be suspended from practice and his improper office practices
should be enjoined. The court will discuss these matters in order.
II. Fees
Margolis concedes that his fees in this case were not earned. While the court would ordinarily
order the fees returned to the debtors, in this case Margolis’ failure to properly advise them resulted in
their conversion of the bank account and other assets which belonged to their bankruptcy estate.
Margolis shall therefore be directed to return the fees to Locke to partially compensate the bankruptcy
estate for its losses.
III. Rule 9011 Sanctions
Margolis seeks a light slap on the wrist for filing unsigned schedules, arguing that his failure
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1If the offense was intentional, criminal contempt would be appropriate and Margolis would
never again practice bankruptcy law, or perhaps any law.
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was negligent and not intentional. However, a heavy fine is required due to the very serious nature of
the offense, even granting that the cause was negligence.1 A complete and honest listing of all assets is
at the very heart of bankruptcy relief. A debtor simply cannot, under any circumstances, be allowed to
defend against an accusation of filing false schedules by demonstrating that he never actually signed
them.
When an attorney electronically files a schedule on behalf of a client, he is certifying to the
court that he has the schedule in his physical possession bearing the original signature of the client. If
the certification is false, the attorney is subject to sanctions pursuant to Rule 9011. In re Brown, 328
B.R. 556, 559 (Bkrtcy.N.D.Cal 2005). In this case, the negligence which caused the unsigned
schedules to be filed was gross negligence, as outlined below, and was a foreseeable result of
Margolis’ incompetence and his failure to give his uneducated staff any meaningful supervision. A
substantial fine is necessary to uphold the integrity of bankruptcy schedules as well as give Margolis
incentive to make sure his negligence is not repeated. Accordingly, Margolis will be ordered to pay a
fine of $7,500.00. 	Provided, however, that all but $2,500.00 will be stayed so long as Margolis pays
the $2,500.00 to the Clerk within 20 days of entry of an appropriate order and so long as Margolis does
not again, in any case, file schedules not actually signed by his client and in his physical possession.
IV. Discipline
Margolis argues that the court should make no orders regarding his conduct, but instead refer
him to the District Court Standing Committee on Professional Conduct. If Margolis’ actions in this
case were a one-time occurrence, the court would be content to refer the matter to the State Bar of
California or the District Court. To the maximum extent practicable as far as punishment is concerned,
the court will defer to them as to discipline for Margolis’ conduct in this case. However, the court has
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2In addition, Northern District Local Rule 11-6(a), made applicable to bankruptcy cases by
B.L.R. 1001-2(a), provides that the court may take “any or all” enumerated acts to discipline an
attorney, including civil contempt, reference to the Standing Committee, reference to the State Bar,
and imposition of “other appropriate sanctions.”
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the inherent authority and responsibility to regulate the conduct of attorneys who practice before it,
independent of formal disciplinary proceedings. Paul E. Iacono Structural Engineer, Inc. v.
Humphrey, 722 F.2d 435, 439 (9th Cir. 1983). 2 The recurring nature of Margolis’ conduct requires the
court to take action now in order to protect future clients in cases Margolis continues to file.
Margolis’ wife is his principal assistant in his law practice. She is not a lawyer. Her main
value is that she is Vietnamese. Margolis advertizes in Vietnamese-language periodicals, and has filed
approximately 100 bankruptcy cases for Vietnamese clients. If the court does not put a stop to the
worst of Margolis’ practices now, and does not insist that he immediately educate himself on the
proper role of a lawyer in a bankruptcy case, then it will be permitting the continuing victimization of
the Vietnamese community. While the court is content to let other disciplinary bodies consider long-
term sanctions, some action is required now and no other entity is prepared to act immediately. This
court must exercise its inherent authority to protect the public from harm.
Before discussing why immediate action is necessary, the court first addresses Margolis’
argument that he is somehow hamstrung in laying out his defense because of the attorney- client
privilege. The court sees no merit in this, as Margolis was called as a witness by his former clients in
the discharge trial and testified on the stand at length as to his conduct. He answered every question
and no assertions of privilege were made. The findings below are made based on the testimony of
Margolis himself. His lack of competency and shoddy office practices were clear from this testimony.
It is very easy to see how the debtors ended up losing their discharge. Margolis did not
understand the importance of the schedules or his role in preparing them. He did not understand that a
lawyer must interview the client himself to probe every aspect of a client’s situation before a
bankruptcy can be filed. A bankruptcy lawyer needs to know family law, to make sure all marital
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3These facts come from Margolis himself. Trial record, January 20, 2010, 11:21 A.M. (wife
did initial interview); 11:26 A.M. (staff knew about real property, Mercedes); 3:14 to 3:22 P.M. (wife
did initial interview, made decision to represent debtors, had “substantial input” in selection of chapter,
Margolis spent 15 minutes or less himself with debtors before filing, left schedules to non-lawyer
employees).
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debts and assets as well are properly scheduled; a bankruptcy lawyer needs to know business law, to
make sure that assets and debts related to partnerships, former partnerships, corporations and other
entities are properly scheduled; a bankruptcy lawyer needs to know probate law, to make sure that
inheritance rights (including those that arise after filing pursuant to § 541(a)(5)) are properly
scheduled; a bankruptcy lawyer needs to know real estate law, to make sure that all interests in real
property are properly scheduled; a bankruptcy lawyer need to know the law of secured transactions, to
make sure that secured debts and collateral are properly scheduled; the list is endless. There is no
substitute for detailed questioning by an attorney.
Margolis understood none of this. He allowed his wife, a non-lawyer, to conduct the initial
interview with the debtors, advise them as to the chapter they should file under, and prepare their
schedules. Margolis himself spent a total of only about 15 minutes, perhaps less, speaking to the
debtors himself. 3 He completely abdicated his responsibilities to his clients, leaving them in the hands
of untrained non-lawyers.
Worse, Margolis completely failed to instill in his own staff the importance of the schedules or
the need for complete honesty and disclosure. Thus his staff, without even consulting him, removed
the Mercedes from the initial draft of the schedules when the debtors requested that mention of it be
deleted. Margolis’ cavalier attitude toward the schedules was contagious; it was transmitted first to
Margolis’ staff and then from them to the debtors themselves. The debtors, having no other frame of
reference, got the idea that it was normal and expected that they conceal property they wanted to keep
notwithstanding their bankruptcy. That led directly to denial of their discharge.
Margolis did not know, and may still not know, that the primary duty of a debtor’s counsel is to
make sure the schedules are accurate and complete. The attorney must use all of his or her training
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4Competent debtors’ counsel will laugh at this requirement, as they know that two or three
hours, often more, are the norm.
5The court does not care where Margolis obtains this education, but notes that videos meeting
this requirement, eligible for full MCLE credit, are available free of charge at this court at any time.
The court will therefore brook no delay based on availability of courses. The court stresses that the
training must be elementary in nature, designed for attorneys new to bankruptcy practice.
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and experience to make sure that an asset or a debt is not inadvertently omitted. When an attorney
knows that a debtor is not being completely truthful, the attorney’s responsibility is to insist on
truthfulness and refuse to represent a debtor who does not comply.
For the foregoing reasons, a permanent injunction, effective immediately, will be issued. It
shall provide:
1. Margolis or another licensed attorney must conduct the initial client interview in all
bankruptcy cases.
2. Margolis or another licensed attorney must spend at least one hour counseling the debtor
and making sure that all assets and debts are discovered and scheduled. 4
3. Margolis may not permit his wife or any other non-attorney in his employ to give any legal
advice whatsoever to any of his clients, including selection of an appropriate Bankruptcy Code
chapter.
In addition, Margolis will be suspended from bankruptcy practice in this district effective thirty
days after an appropriate order is entered, and may not thereafter appear in a bankruptcy court in this
district or file any petition or pleading in this district without the prior leave of a bankruptcy judge or
district judge of this district, unless before that time he has completed at least 10 hours of continuing
education in elementary bankruptcy law, procedure and ethics.5 Such suspension will take place
unless Margolis has filed a certification of compliance, outlining his training in detail, by the 30th day.
V. Other Provisions
In addition to the above sanctions and orders, Margolis will be referred to both the Standing
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Committee on Professional Ethics and the State Bar of California for such additional discipline as
either or both may think appropriate.
The Clerk shall transmit a copy of this Memorandum and the Order made pursuant to it to the
United States Trustee, with the court’s recommendation that all Chapter 7 trustees in the district
undertake a review of Margolis’ past and current cases in light of the unreliability of schedules
prepared by his office.
An appropriate order will be entered.
Dated: April 2, 2010
SAlan Jaroslovsky
U.S. Bankruptcy Judge
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