Opinion ID: 835955
Heading Depth: 1
Heading Rank: 1

Heading: korgan matter

Text: In 1985, the accused filed a Chapter 13 bankruptcy proceeding for the Korgans, and the bankruptcy court confirmed a Chapter 13 plan. [2] Later, the Korgans purchased a house from the Walslebens. The purchase contract required the Korgans to pay the property taxes and provided that, if they failed to do so, such failure would constitute a default permitting the Walslebens to foreclose. The Korgans became delinquent in their payment of property taxes on the house. In May 1990, the Walslebens' lawyer, Bassett, demanded that the Korgans pay the taxes. In response, the accused wrote a letter to Bassett in behalf of the Korgans, stating, in part: [T]he property is in no jeopardy of foreclosure by the taxing authorities because as you know foreclosure occurs when more than three years of taxes are delinquent and that further the Korgans are in a chapter 13 bankruptcy a situation that would forestall any action by both your clients and the county.  (Emphasis added.) When the accused wrote that letter, he was aware of a bankruptcy opinion from the United States District Court for the District of Oregon that held, contrary to the accused's statement, that the bankruptcy estate ceases to exist after plan confirmation and, thus, the automatic stay that attaches upon the commencement of bankruptcy proceedings no longer applies as to the estate. In re Mason, 51 B.R. 548 (D.Or.1985). The accused also was aware, however, that other federal bankruptcy cases had been critical of Mason. Bassett reviewed the Korgans' bankruptcy court file and concluded that the stay did not apply to the property in question. The Walslebens then filed an action in state court against the Korgans seeking strict foreclosure. In response, the Korgans filed another Chapter 13 bankruptcy petition, which prevented the state court from entering a foreclosure decree. The Walslebens then moved for relief from the automatic stay imposed as part of the second Chapter 13 proceeding. The bankruptcy court granted the motion and entered an order lifting the stay as to the Walslebens' state foreclosure action. In 1991, the state court entered an interlocutory judgment of strict foreclosure in the Walslebens' favor, and, later that year, the Korgans were evicted from the property. In the meantime, the accused, acting in the Korgans' behalf, filed an appeal from the bankruptcy court's order with the Ninth Circuit Bankruptcy Appellate Panel (BAP). In 1992, however, the Walslebens sold the property in question to Hill, a family friend of the Walslebens. The Walslebens then moved to dismiss the appeal as moot, in light of the sale of the property to Hill. The accused countered that the sale was fraudulent and that it was calculated to provoke the BAP to dismiss the appeal. The BAP agreed with the Walslebens and dismissed the appeal. The accused then appealed that decision to the Ninth Circuit, which affirmed the BAP's dismissal. In 1993, the Korgans filed an adversary proceeding for injunctive and declaratory relief against the Walslebens in bankruptcy court. That action sought to annul the sale of the property to Hill and to reinstate the bankruptcy stay. The complaint alleged that the sale was a sham transaction and, therefore, a fraud on the bankruptcy court. The Walslebens, however, successfully moved to dismiss the adversary proceeding. In particular, the bankruptcy court held that (1) the automatic stay, once lifted, could not be reinstated; (2) the accused's claims in the adversary proceeding were untimely under the applicable procedural rules; and (3) the bankruptcy trial court could not undo the effect of the BAP's dismissal of the appeal. The Bar instituted disciplinary proceedings against the accused, alleging that he had filed various pleadings, motions, and appeals in state and federal court that had violated DR 7-102(A)(1) and DR 7-102(A)(2). After a hearing, the trial panel rejected the Bar's allegation that the accused had violated DR 7-102(A)(1), finding that the accused had been motivated to protect the Korgans' property, rather than to harass or maliciously injure Bassett or the Walslebens. The trial panel also concluded that the accused's litigation filings in the Korgans' behalf did not violate DR 7-102(A)(2): [T]he Accused's conduct in carrying out the protracted litigation in the Walsleben matter both in state court and in the bankruptcy court, had some basis in existing law. The Bar's own witness    Snyder testified that the bankruptcy procedure through BAP and the 9th Circuit Court of Appeals was warranted. We find that the Accused's attempt to reinstate the stay [in the adversary proceeding] based upon fraud following denial by the 9th Circuit was theoretically warranted by existing law as an attack upon a judgment because of fraud on the court. The trial panel, however, concluded that the accused had violated DR 7-102(A)(2) by stating in his letter to Bassett that the Korgans' property was protected from foreclosure by the automatic stay in the bankruptcy proceeding. The trial panel, citing Mason, concluded that existing law held that the property was afforded no such protection. DR 7-102(A)(2) provides that, in representing a client, a lawyer shall not [k]nowingly advance a claim or defense that is unwarranted under existing law except that the lawyer may advance such claim or defense if it can be supported by good faith argument for an extension, modification or reversal of existing law. The Bar argues that, under Mason, the accused's assertion in his letter to Bassett that the automatic stay in the Korgans' bankruptcy proceeding protected the propertywas unwarranted. In Mason, the issue was whether the automatic stay provided for in 11 USC section 362(a), which generally protects the property in a bankruptcy estate from creditors' claims, protects post-confirmation wages from garnishment to satisfy a post-confirmation debt. The court concluded that the stay did not apply to wages earned post-confirmation because the bankruptcy estate ceased to exist post-confirmation. The wages therefore could be garnished without violating the stay. 51 B.R. at 550. In other words, the post-confirmation wages belonged to the debtor, not to the estate that had been protected by the stay, and so those wages could be garnished. As the Bar contends, that holding is contrary to the position that the accused asserted in his letter to Bassett. The accused, however, correctly maintains that several courts had rejected Mason before the accused wrote to Bassett. One case in particular concluded that Mason was premised upon [a] mistaken belief that confirmation was relevant to determining whether property was within the scope of the estate. In re Aneiro, 72 B.R. 424, 428-29 (Bankr.S.D.Cal.1987); accord In re Root, 61 B.R. 984, 985 (Bankr.D.Colo.1986) (strongly disagree[ing] with Mason's conclusion that confirmation of Chapter 13 plan vests all property of estate in debtor, rather than in estate). Another, more detailed, opinion, In re Schewe, 94 B.R. 938 (Bankr.W.D.Mich.1989), also disagreed with Mason, concluding that the automatic stay in a Chapter 13 proceeding protects a debtor's possessory interest in residential real property both prior to and subsequent to confirmation of a Chapter 13 plan. 94 B.R. at 946. Schewe concluded that the majority of the cases which hold the automatic stay does not apply in Chapter 13 cases postconfirmation involve alimony, maintenance[,] and support issues. Id. at 945. The court further asserted that such circumstances factually are different from circumstances in which a debtor is a wage earner, [and] the continued further occupancy of his residential premises may be essential to earning his income and carrying out the terms of the debtor's confirmed plan. Id. The cases cited above, each disagreeing with Mason, represented part of the existing law when the accused wrote the letter to Bassett. Those cases demonstrate that, at the time when the accused wrote to Bassett, Mason had not received universal acceptance among bankruptcy courts. That fact undercuts the Bar's allegation that the accused violated DR 7-102(A)(2), because existing law included the opinions of courts that disputed Mason's legal conclusions. [3] Further, one of those cases, Schewe, stands as authority that real property should be treated as subject to the stay. We conclude that the accused did not advance a claim or defense that was unwarranted under existing law and, therefore, did not violate DR 7-102(A)(2) when he made his assertions in the letter to Bassett. The Bar also argues that the accused violated DR 7-102(A)(2) when he filed the adversary proceeding in bankruptcy court in 1993 after the Ninth Circuit dismissed his appeal. The complaint in the adversary proceeding was based upon the theory that the Walslebens had transferred the property to a straw man, Hill, to render moot any proceedings regarding that property. The accused testified that he could not believe that there could be a bona fide sale of this property with so much litigation attached to it. In light of that litigation, the accused thought that it did not make any financial sense for anybody to buy it. From the accused's point of view, several facts reasonably caused him to suspect that the transaction was not completely at arm's length: (1) the purchaser, Hill, was a family friend of the Walslebens; (2) the accused believed that the selling price was below market value; and (3) opposing counsel had prepared the transaction documents. Although the accused already had raised that issue in the dispute about whether the bankruptcy appeal was moot, he pressed it again in the adversary proceeding, because that was a forum in which the accused could conduct discovery to attempt to prove his contention that the transaction was a sham. The substantive merits of the bankruptcy adversary proceeding are difficult to assess, and the Bar's brief on that issue does not address the merits in terms of then-existing bankruptcy law. The Bar appears to argue that the adversary proceeding was simply too much and that the accused was overly zealous in filing that action. The Bar, however, does not analyze the claims that the accused made in the adversary proceeding to determine whether they were legally unwarranted under DR 7-102(A)(2). The only authority that the Bar cites on that issue is In re White, 311 Or. 573, 815 P.2d 1257 (1991), for the proposition that filing duplicative actions violates DR 7-102(A)(2). As noted above, the Bar bears the burden of showing by clear and convincing evidence that the accused violated DR 7-102(A)(2) based upon conduct that was unwarranted under existing law. Here, the legal context was bankruptcy law. The Bar has failed to make a sufficient argument, supported by relevant bankruptcy authorities, to support its contention under DR 7-102(A)(2) that the adversary proceeding legally was unwarranted and that no argument could be made for an extension, modification, or reversal of existing law. Instead, the tenor of the Bar's argument on review appears more appropriately addressed to a harassment claim under DR 7-102(A)(1), a claim that it explicitly abandoned on review. That argument fails as a challenge to the legal validity of the accused's conduct under DR 7-102(A)(2) in the bankruptcy law context. We conclude that the Bar has not established that the accused violated DR 7-102(A)(2) in the adversary proceeding. For the foregoing reasons, we conclude that the accused did not violate DR 7-102(A)(2).