03 May Lawyers: Think Twice Before Signing Your Client’s Bankruptcy Proof of Claim
Henry FloresSenior Counsel
An interesting discussion at a recent conference brought to mind a situation that many lawyers have encountered — a panicked client calls to inform you that the client is a creditor in a bankruptcy case and that today is the deadline to file a claim. To make things even more complicated, the client representative is traveling and unable to send you a PDF signature for the claim form. The client sends supporting documents by email and instructs you to prepare and file the proof of claim on the client’s behalf.
Page 3 of the official claim form includes a signature block that specifically contemplates that an attorney might sign the claim form, and you are running out of time to file a timely claim. Should you sign the claim form to expedite the process? Before doing so, the lawyer should know the potential consequences.
Signature triggers Rule 11. The official claim form specifically states, “The person completing this proof of claim must sign and date it. FRBP 9011(b).” The last reference is to Fed. R. Bankr. P. 9011, which is the Bankruptcy Court counterpart to Fed. R. Civ. P. 11. The invocation of Rule 9011 means that the person signing the claim form is representing to the Court that the signer has made reasonable inquiry into the facts and that the allegations in the claim are backed by evidentiary support or likely to be supported by evidence after discovery (among other aspects of Rule 9011). What level of inquiry is “reasonable” before a lawyer signs a claim? Are the client’s representations sufficient? How much of an inquiry can you make in the hypothetical emergency scenario described above?
The official form imposes additional duties on the person who signs the claim. The official claim form requires the signer to declare under penalty of perjury that the claim is true and correct. By signing the claim, the individual is also confirming that the creditor has given the debtor credit for “any payments received toward the debt.” Finally, the form states, “A person who files a fraudulent claim could be fined up to $500,000, imprisoned for up to 5 years, or both. 18 U.S.C. §152, 157, and 3571.” The statutory references relate to penalties for misconduct such as making a false oath or committing bankruptcy fraud. Once again, what level of inquiry should the lawyer perform before executing a document under a perjury standard? What type of inquiry is required before the lawyer can confirm the status of the client’s payment history with the debtor?
Attorney signature might waive the attorney-client privilege. Perhaps the most troubling consequence of an attorney signature is the potential for privilege waiver. A case from the Bankruptcy Court in the Southern District of Texas provides an enlightening discussion of the waiver issue. See In re Rodriguez, 2013 WL 2450925 (Bankr. S.D. Tex. June 5, 2013).
In Rodriguez, a lawyer signed and filed proofs of claim on behalf of three clients, asserting state law tort causes of action against the debtor. The lawyer was later deposed as part of litigation in the Bankruptcy Court regarding the proofs of claim. During the deposition, the lawyer objected to and refused to answer 102 questions on attorney-client privilege grounds. The party seeking the discovery filed a motion to compel, arguing that the lawyer made himself a fact witness by signing the proofs of claim.
In partially granting the motion to compel, the Bankruptcy Court concluded that the lawyer made himself a fact witness by signing the proofs of claim. The Court reasoned that the claims were filed under penalty of perjury, constitute prima facie evidence of the validity of the underlying debt, and the factual assertions in the claims are outcome determinative. As he had attested to the validity of the causes of action listed in the claims and confirmed the accuracy of the allegations under penalty of perjury, the lawyer could not invoke privilege to avoid answering questions relating to the claims.
The Court then concluded that the clients had consented to a waiver of privilege by instructing their lawyer to sign the proofs of claim. In terms of scope of the waiver, the Court found a waiver of both the attorney-client privilege and attorney work product protections and ordered the lawyer to respond to questions about the factual basis of the claims and background information, like what claim-related documents he reviewed and who he spoke to about the claims.
Conclusion. Non-bankruptcy litigators sometimes equate filing a proof of claim to filing a lawsuit, but the evidentiary impact of a bankruptcy claim undermines that analogy. By signing and filing a lawsuit, the lawyer is merely presenting allegations to the Court, subject to applicable rules regarding pre-suit investigation. Conversely, when a lawyer signs a proof of claim, a Bankruptcy Court might conclude that the lawyer has become a sponsor of the underlying facts and allow opponents to invade what might otherwise be privileged topics or discussions.
Deadlines or other circumstances might give a lawyer no choice but sign a proof of claim on behalf of a client, but the lawyer and the client should understand the potential ramifications of that decision, given cases like Rodriguez and the strict guidelines imposed by the official claim form, the Bankruptcy Code and the Bankruptcy Rules.
ABOUT THE AUTHOR: Henry Flores is Senior Counsel at Rapp & Krock, PC in the Bankruptcy and Creditors Rights group.
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