Busy lawyers often assume that it’s ok to skip a ministerial presentment hearing and await the Court’s order scheduling a hearing on the merits.  Today’s opinion from the 7th Circuit in United States v. Hyatt, reversing the finding of contempt and award of attorneys’ fees for failing to respond to two subpoenas served on them by the SEC, shows why it’s a BIG mistake to do so.   Here’s the background from the Court’s opinion:

The SEC initiated the contempt proceeding via a motion for a rule to show cause why Hollnagel and BCI should not be held in contempt.  The motion asked the court to: (1) order them to fully comply with the subpoenas; and (2) order them to show cause why they should not be held in contempt for their past noncompliance.  Accompanying this motion was a notice setting a date and time for a hearing at which the SEC said it would “present, and seek a hearing date regarding” its request for a show cause order. Hollnagel and BCI interpreted the notice and motion to mean that the initial hearing would be entirely ministerial—that the court would issue a showcause order and set another date on which the merits of
the contempt issue would be heard.  So they didn’t show up.

When the case was called and Hollnagel and BCI didn’t appear, the SEC skipped over the procedural preliminaries and moved right to the main event:  The agency’s lawyers asked the court to find Hollnagel and BCI in contempt.  The court did so, ordered them to fully comply with the subpoenas within two days, and imposed a $1,000-a-day fine for any noncompliance after that date.  The court later rescinded the fine, but left the contempt order in place and ordered Hollnagel and BCI to pay the [$33,000 in] SEC’s attorney’s fees, [which the district court later reduced to $6,000].

The 7th Circuit’s opinion is especially valuable for its discussion of whether show-cause orders are even contemplated by the Federal Rules of Civil Procedure (it concludes they are not despite the fact that lawyers "routinely ask for such orders to be issued" and courts in the district "regularly treat show-cause motions as distinct from other motions").  The opinion is also valuable for its review of the contempt sanctions available under Rule 45 for not complying with subpoenas issued by an attorney (it concludes that "[while] nothing in Rule 45 or the accompanying commentary purports to limit the contempt power to subpoenas issued with more direct district court involvement or to require an intervening court order when the subpoena is issued by an attorney … [i]t does not follow that a contempt motion for disobedience of a nonparty subpoena should be treated in exactly the same way as a contempt motion for violation of another kind of court order").

Notably, the day after the district court entered the contempt order, the non-party (BCI) filed a motion to vacate, arguing that it had been making reasonable efforts to comply with the subpoenas and therefore was not in contempt.  The district judge, however, denied the motion as moot because he thought BCI had waived its opportunity to contest the contempt finding by failing to show up at the September 3 hearing, and it was on this point that the 7th Circuit reversed and vacated the contempt order, saying:Continue Reading 7th Circuit Shows How “An Ounce of Prevention Is Worth a Pound of Cure”

Professor Eugene Volokh of The Volokh Conspiracy blog recently wrote here of a particularly noteworthy “stupid lawyer trick” in a case involving a lawyer recently charged with suborning perjury by advising his client to lie under oath in a DUI case. The “stupid trick” part of the lawyer’s misconduct involved his documenting his advice to lie in emails to his client, one of which advised:

They won’t have anyone there to testify how much you had to drink. You won’t be charged with perjury. I’ve never seen them charge anyone with perjury, and everybody lies in criminal cases, including the cops. If you want to tell the truth, then we’ll just plead guilty and you can get your jail time over with.

“Stupid lawyer tricks” are not uncommon in bankruptcy cases either, and Professor Volokh’s post prompted me to start a new category called “Stupid Lawyer Tricks” in which I hope to periodically report on some of the “Jackass-type” tricks some bankruptcy lawyers try to get away with from time to time.
This opening segment (vol. 1) of “Stupid Bankruptcy Lawyer Tricks” reports on some tricks found in the following recent cases, each of which is discussed below:
In re Sadorus, 2005 WL 3429467 (Bankr. C.D. Ill., 12/8/05) (advising a client to lie in order to get his bankruptcy case dismissed and thereby avoid having to disclose the existence of a bank account the lawyer had wrongly advised would be exempt)
In re Kollel Mateh Efraim, LLC, 2005 WL 3439684 (Bankr. S.D.N.Y., 12/15/05) (entering into a settlement on the record, but first not telling the client and then evading the client’s attempts to find out what happened)
I.G. Petroleum, L.L.C., v. Fenasci (In re West Delta Oil Co.), 2005 WL 3220291 (5th Cir, 12/1/05) (lawyer retained as special counsel joins with a possible suitor for the debtor’s assets, sends threatening letters to other potential bidders, and never discloses its conflict to the court)
***Continue Reading Stupid Bankruptcy Lawyer Tricks – Vol. 1