By Catherine Peek McEwen
Bankruptcy Judge, United States Bankruptcy Court of the Middle District of Florida
The Fall 2019 issue of The Cramdown included an analysis of an interesting decision by Bankruptcy
Judge Robert Gordon (now retired) involving the judge sua sponte calling the debtor’s lawyer to testify in an adversary proceeding involving an objection to the discharge. The case is In re Spearman.1 Titled “Beware All Ye Who Enter Here,” the article posits that resorting
to the court’s Witness Doctrine “could create a situation in which both the impartiality of the court and the efficient management of the court’s resources are susceptible to close scrutiny, particularly if an appeal ensues.”2
What follows here is a counterpoint to the earlier article in the context of what happened in round two of the Spearman case.
Competency is a requirement of lawyers under the Rules of Professional Conduct of the Rules Regulating The Florida Bar: “A lawyer must provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness, and preparation reasonably necessary for the representation.”3 What happens when a trial judge observes that a litigant’s
counsel is not competently representing the litigant — as Judge Gordon no doubt thought given the circumstances of the discharge trial in Spearman?
Sure, the issue can be left to be sorted out in a malpractice action, which is a meaningful remedy only when the lawyer has malpractice coverage or sufficient nonexempt assets to satisfy a judgment. You can pretty much flip a coin and get the same odds as heads or tails as to whether the lawyer has malpractice coverage, especially in consumer cases.
Or the judge can try to even the playing field as the litigation ensues. A well-reasoned commentary by Judge William Schwartzer, a former director of the Federal Judicial Center and a United States District Judge for the Northern District of California, puts it this way: “[T]rial counsel at times perform with such manifest incompetence that litigants’ rights are prejudiced. When that occurs, the adversary process has effectively ceased to function. The judge then faces the choice of taking
over from counsel or allowing the case to stumble toward a fortuitous result.”4
In his essay, Judge Schwartzer debunks the utility of a malpractice suit as the answer to the choice: Will the client even recognize that he has a malpractice claim? Such an action may require another law suit and the concomitant delay. And as part of that malpractice suit, the underlying litigation is replayed, such that “the client must prove that a more favorable outcome would have resulted but for his attorney’s incompetence.”5 Then, after getting by those significant hurdles, there remains
the collectability issue.
In travelling the alternative path of sua sponte intervention, Judge Schwartzer states that the goal is
fairness, but he advises caution. “The trial judge . . . has a responsibility, grounded on and tempered by the adversary process and constitutional principles and reinforced by the absence of adequate alternatives, to ensure a fair trial by maintaining minimum standards of performance by counsel. But the judge must wield the correlative power with caution lest its exercise defeat its purpose: fairness in the administration of justice.”6 Undue caution should not thwart the main aim, however,
as “judicial passivity would invite injustice. When there is a need to exercise judicial power, the fear of abuse should not be a ground for accepting the evils at which the power is aimed.”7
Judge Schwartzer’s conclusion bears repeating here to set the table for further analysis of Judge Gordon’s Spearman decision and what ensued in his case after Judge Gordon decided to compel counsel to testify:
[D]ifficult questions may arise when the apparent incompetence of one side seems to confer a substantive advantage on the other. . .. The judge’s role in the adversary process does not include playing back-up counsel for any party. Nor does it require, however, indifference to the fairness with which the process operates. The judge has an inescapable responsibility for the maintenance of professional standards in the courtroom to ensure a fair trial. The discharge of that responsibility need not impair the adversary process; on the contrary, it should strengthen it. Promoting the vigorous and effective representation of both sides in the contest will help rather than hurt the
process of finding the truth and achieving a just decision.8
And so it likely was that Judge Gordon resorted to the court’s Witness Doctrine by requiring the debtor’s counsel to testify about the various inaccuracies that were present in the debtor’s filings after the debtor had testified that she had given all of her financial information to her counsel and relied on him to prepare her papers correctly.9 The judge noted that the experienced chapter 7 trustee had no issue with the inaccuracies and that the debtor had cooperated fully with him.10 The judge also
looked favorably on the debtor’s credibility and noted that he was unable to detect “any significant, or even petty, advantage that [the debtor] personally gained” from presenting the erroneous information.11 Consequently, the judge wrote, “I could not help but wonder, again and again, what light [the debtor’s counsel’s] testimony could shed on the particulars of each individual omission, the
overall process that led up to the commencement of the case, and its early days.”12 By stipulation, the debtor’s counsel’s deposition testimony was filed in lieu of resuming the trial with live testimony.
In his follow-on decision, “Spearman II,”13 Judge Gordon starts with some of the basic tenets of denial-of discharge litigation based on allegedly false statements:
1. Intent is a question of facts based on all circumstances.14
2. “[M]isstatements and omissions on a debtor’s statement of financial affairs and schedules
cannot be readily overlooked. Generally speaking, defenses such as a debtor innocently
forgot to list a particular asset, did not know an asset was required to be listed, or simply
did not review the schedules before filing, do not usually present a viable defense to a . . .
challenge to discharge.”15
3. However, strict liability is not the standard for such challenges, rather, intent is required,
which turns on credibility calls, “with particular focus upon the debtor.”16
Looking at this framework through the lens of a search for the truth and considering the debtor’s counsel’s testimony, Judge Gordon concluded that the plaintiffs had failed to meet their burden. [N.B.: Aside from the lesson about achieving a just decision by resort to the court’s Witness Doctrine, Spearman II is instructive to creditor counsel who may be overly enamored with a discharge
attack theory based on overblown allegations and minor deficiencies, such as when an asset is disclosed in one place in the petition package but may not appear where it should in another. If it’s there, it’s there. The judge looked carefully at and addressed each of the numerous alleged deficiencies; his reaction to the specifics is good guidance to creditor counsel considering whether to
file a dischargeability action based on similar alleged deficiencies.]
The debtor’s counsel’s portrayal of the circumstances of his rushed meetings with the debtor buttressed the debtor’s testimony concerning the intake and review process. And the judge again noted the experienced trustee’s lack of concern with the filings. [N.B.: Creditor counsel should beware of flying solo without the support of the trustee.] The detailed testimony of the debtor’s counsel is recited in Spearman II. [N.B.: The detailed testimony delivers a lesson to debtor’s counsel about
rush jobs and when, as much as judges and the United States Trustee don’t like them, a bare bones filing might be preferable for the sake of accuracy over the risks of mistakes associated with hastily-prepared schedules.] A quick summary of the testimony, as set out by Judge Gordon, suffices for the purpose of this article:
[The debtor’s counsel] candidly admitted the Initial Schedules were not a paragon of perfection, although he takes great exception to the lengths to which the Plaintiffs go in their attempt to state a case . . .. Nevertheless, he took full responsibility for the lack of clarity and inaccuracies in the schedules. He admitted that the Debtor provided him with all important information and did not conceal any financial information from him. She gave him all the documents he requested and was candid in responding to his inquiries. He understood she was relying on him to prepare the filings.
[The debtor’s counsel] admitted he made a mistake by not filing the case as a ‘bare bones.’ He is correct that a ‘bare bones’ filing would likely have eliminated much of the dispute in this proceeding. As he acknowledged, he and the Debtor would have then had time to review the schedules in a less unsettled, hurried manner, if that choice had been made. However, the failure to make that choice in this case should not be a death knell to [the debtor’s] right to a discharge, in consideration of the
totality of the circumstances.17
As the Spearman cases illustrate, a judge may resort to sua sponte intervention without sacrificing the appearance of impartiality. A judge’s instinct that an important set of facts may be simmering below the surface and should be brought to the light of day for a merits-based decision on a fully developed record is hard to argue with if the search for truth is deemed paramount. And as we are all officers of the court with a duty to the system of justice as a whole,18 the search for truth should be paramount.
But would we even be debating the propriety of sua sponte intervention in The Cramdown’s earlier article on Spearman and this one if the debtor’s counsel had sought to put himself on the stand and obtained special trial counsel to conduct his examination? [N.B.: Proper intake and preparation arguably would have avoided the discharge challenge altogether. But in a worst-case situation, a debtor’s counsel should consider falling on the sword when warranted, obtaining permission from
the client to candidly discuss counsel’s shortcomings in the intake process with opposing counsel before the objection is tried.]
1 Nicholson v. Spearman (In re Spearman), 2019 WL 1320550 (Bankr. D. Md. Mar. 22, 2019).
2 CRAMDOWN-11-19.pdf (tbbba.com), p. 12, 13.
3 R. Regulating Fla. Bar 4-1.1.
4 William W. Schwarzer, Dealing with Incompetent Counsel – The Trial Judge’s Role, 93 Harv. L. Rev.
4, 633, 637 (1980).
5 Id. at 646-648.
6 Id. at 649 (citation omitted).
7 Id. at 650.
8 Id. at 669.
9 The plaintiffs in the adversary proceeding were the debtor’s and her ex-spouse’s separate divorce counsel, both of whom had claims for attorney’s fees incurred in the divorce case. Many of the
inaccuracies in the debtor’s papers were related to the divorce judgment, with which the two divorce counsel were keenly familiar.
10 Spearman, 2019 WL 1320550 *1.
11 Id. at *1.
12 Id. at *1.
13 Nicholson v. Spearman (In re Spearman) (“Spearman II”), 2020 WL 6876840 (Bankr. D. Md. June 18, 2020).
14 Id. at *1, *7.
15 Id. at *2.
16 Id. at *3.
17 Id. at *10.
18 Sahyers v. Prugh, Holiday & Karatinos, 560 F.3d 1241, 1244 n.7 (11th Cir. 2009).