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Bankruptcy

: The Law of Second Chances

WELLS FARGO IS RUTHLESS AS IT TRIES TO TAKE ADVANTAGE OF HOMEOWNER IN BANKRUPTCY

By R. Grace Rodriguez, Esq.

In re Hector J. MARTINEZ and Tiffany T. Martinez, Debtors.

No. BK-S-07-15189-BAM.Aug. 1, 2008.

Background: Order to show cause was entered why sanctions should not be imposed on mortgage lender and its attorneys for opposing Chapter 13 debtors' request for relief from stipulation lifting automatic stay, given that all parties acknowledged that, due to mutual mistake, stipulation erroneously identified real property as to which stay was to be lifted.

Holdings: The Bankruptcy Court, Bruce A. Markell, J., held that:

(1) mortgage lender, law firm that represented mortgage lender, and individual lawyer in firm each violated Bankruptcy Rule 9011 in opposing Chapter 13 debtors' request to set aside stipulation;

(2) mortgage lender's conduct was vexatious, wanton or oppressive, and provided grounds for sanctions in exercise of court's inherent powers;

(3) public reprimand was appropriate sanction for attorneys' error; and

(4) lender would be required to pay attorney fees incurred by debtors, as well as to refrain from collecting any fees to which it might otherwise be entitled, in its capacity as oversecured creditor, in connection with debtors' motion for relief from stipulation.

So ordered.

West Headnotes

[1]

KeyCite Citing References for this Headnote

363 Stipulations
363k1 k. Nature and Essentials in General. Most Cited Cases

Stipulation is in nature of contract.

[2]

KeyCite Citing References for this Headnote

95 Contracts
   95I Requisites and Validity
     95I(E) Validity of Assent
       95k93 Mistake
         95k93(5) k. Mutual Mistake. Most Cited Cases

328 Reformation of Instruments KeyCite Citing References for this Headnote
   328I Right of Action and Defenses
     328k15 Grounds for Reformation
       328k19 Mutuality of Mistake
         328k19(1) k. In General. Most Cited Cases

Under Nevada law, any contract formed under mutual mistake by parties as to property to which it relates can be reformed by either party or, if not reformed, avoided.

[3]

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51 Bankruptcy
   51II Courts; Proceedings in General
     51II(B) Actions and Proceedings in General
       51k2164 Judgment or Order
         51k2164.1 k. In General. Most Cited Cases

Any mutual mistake sufficient to reform or avoid a stipulation is also sufficient mistake to reform or set aside order entered on that stipulation under Federal Rule of Civil Procedure governing motions for relief from judgment. Fed.Rules Bankr.Proc.Rule 9024, 11 U.S.C.A.; Fed.Rules Civ.Proc.Rule 60(b), 28 U.S.C.A.

[4]

KeyCite Citing References for this Headnote

328 Reformation of Instruments
   328I Right of Action and Defenses
     328k15 Grounds for Reformation
       328k19 Mutuality of Mistake
         328k19(1) k. In General. Most Cited Cases

328 Reformation of Instruments KeyCite Citing References for this Headnote
328I Right of Action and Defenses
328k25 k. Defenses and Objections to Relief. Most Cited Cases

Reformation of contract to correct mutual mistake is available under Nevada law, even if mistake resulted from parties' negligence.

[5]

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51 Bankruptcy
   51II Courts; Proceedings in General
     51II(C) Costs and Fees
       51k2182 Grounds and Circumstances
         51k2187 k. Frivolity or Bad Faith; Sanctions. Most Cited Cases

Rule 9011 sanctions are warranted when a filing is frivolous, legally unreasonable or without factual foundation, or is brought for improper purpose. Fed.Rules Bankr.Proc.Rule 9011, 11 U.S.C.A.

[6]

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51 Bankruptcy
   51II Courts; Proceedings in General
     51II(C) Costs and Fees
       51k2182 Grounds and Circumstances
         51k2187 k. Frivolity or Bad Faith; Sanctions. Most Cited Cases

In considering sanctions under Bankruptcy Rule 9011, court measures attorney's conduct objectively against a reasonableness standard, which consists of competent attorney admitted to practice before the involved court. Fed.Rules Bankr.Proc.Rule 9011, 11 U.S.C.A.

[7]

KeyCite Citing References for this Headnote

51 Bankruptcy
   51II Courts; Proceedings in General
     51II(C) Costs and Fees
       51k2182 Grounds and Circumstances
         51k2187 k. Frivolity or Bad Faith; Sanctions. Most Cited Cases

Mortgage lender, law firm that represented mortgage lender, and individual lawyer in firm each violated Bankruptcy Rule 9011 in opposing Chapter 13 debtors' request to set aside stipulation for relief from automatic stay, where all parties acknowledged that, due to mutual mistake committed at time stipulation was signed, stipulation erroneously identified the real property as to which stay was to be lifted, not as real property that debtors intended to surrender, but as the separate residential property that they intended to retain; fact that neither the lender nor its counsel signed any pleading opposing debtors' request for relief from stipulation was not fatal to finding that Rule 9011 was violated, since their opposition to debtors' request was itself a ?presentation? within meaning of Rule 9011. Fed.Rules Bankr.Proc.Rule 9011, 11 U.S.C.A.

[8]

KeyCite Citing References for this Headnote

51 Bankruptcy
   51II Courts; Proceedings in General
     51II(C) Costs and Fees
       51k2182 Grounds and Circumstances
         51k2187 k. Frivolity or Bad Faith; Sanctions. Most Cited Cases

Rule 9011 requires a lawyer to exercise independent judgment with respect to claims that client wishes to bring and to decline to pursue claims that are frivolous. Fed.Rules Bankr.Proc.Rule 9011, 11 U.S.C.A.

[9] boomark / email).