Overzealous Multiplication

August 2015 Articles American Bankruptcy Institute Ethics and Professional Compensation Committee Newsletter

In light of the Third Circuit’s recent decision in In re Prosser, bankruptcy practitioners in the Third Circuit (which includes the highly trafficked District of Delaware) should have a heightened awareness of the line between zealous advocacy and abusive and vexatious conduct. If an attorney crosses this line through filings that “multiply” the bankruptcy proceedings, he or she, like debtor’s counsel in Prosser, may be subject to sanctions under 28 U.S.C. § 1927.

In Prosser, the chapter 7 trustee commenced an adversary seeking a denial of the debtor’s discharge based on testimony given by the debtor’s former personal assistant earlier in the main case. Trying to discredit the former assistant’s earlier testimony, debtor’s counsel deposed the former assistant. While being deposed, the former assistant testified that he had made an arrangement with the trustee’s counsel to pay for his legal fees in a separate but related chapter 11 case, and that he had dinner with the trustee long before he gave his initial testimony.

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