## Facts

- Heinrich Engel filed a Chapter 7 petition on December 3, 1996, represented by attorney Stephen Bresset.
- Engel’s schedules omitted his ownership interest in a closely held corporation, Techniques in Metals, Inc.
- The schedules valued certain real estate at $58,000 despite counsel’s awareness of an appraisal at approximately $132,000.
- An associate in Bresset’s firm prepared the schedules; Bresset reviewed them outside Engel’s presence.
- Engel signed the schedules in the presence of Bresset’s secretary and did not read them before signing.
- After the case was closed, Bresset attempted to amend the schedules to add the corporate stock; the clerk rejected the amendment as untimely because it was submitted after closure.
- The day after the rejected amendment attempt, Bresset represented Engel in the sale of the previously unscheduled stock interest for tens of thousands of dollars.
- The U.S. Trustee moved to reopen the case and later sought sanctions against Bresset under 11 U.S.C. § 105 and Fed. R. Bankr. P. 9011 for the omissions and undervaluation.

## Issues

1. Whether debtor’s counsel violated Fed. R. Bankr. P. 9011 and/or warranted sanctions under 11 U.S.C. § 105 by filing schedules that omitted a significant corporate asset and materially undervalued real property contrary to a known appraisal.
2. Whether counsel could avoid personal responsibility for inaccurate schedules by blaming preparation errors on a subordinate and characterizing the problems as oversight or valuation judgment.
3. What monetary sanctions were appropriate to compensate the U.S. Trustee for unnecessary costs and to deter similar conduct.

## Decision

- The court granted the U.S. Trustee’s motion for sanctions against Bresset.
- The court found Rule 9011 violations based on the undisclosed stock interest and the substantial undervaluation of real property despite counsel’s knowledge of a much higher appraisal.
- The court rejected Bresset’s attempt to shift responsibility to an associate, holding counsel of record responsible for the filings.
- The court imposed monetary sanctions requiring Bresset to pay the U.S. Trustee’s costs and expenses related to reopening the case and litigating sanctions, plus an additional amount intended to deter future similar conduct.

## Legal Principles

- By presenting bankruptcy papers to the court, counsel certifies that factual contentions have support after an inquiry reasonable under the circumstances. (Fed. R. Bankr. P. 9011.)
- Debtor’s counsel has a non-delegable duty to ensure bankruptcy schedules are accurate and complete; reliance on subordinates does not relieve counsel of responsibility for filings made as attorney of record.
- Omitting a significant asset from schedules, and valuing property in a manner inconsistent with known appraisal evidence without a concrete factual basis for the departure, can constitute an unreasonable inquiry and support Rule 9011 sanctions.
- Bankruptcy courts may use 11 U.S.C. § 105, together with Rule 9011, to impose sanctions that both compensate for needless administrative costs and deter conduct that compromises the integrity of the bankruptcy process.

## Conclusion

The bankruptcy court sanctioned debtor’s counsel for filing materially inaccurate Chapter 7 schedules, holding that counsel must conduct a reasonable inquiry and cannot avoid responsibility by attributing errors to subordinates or unsupported valuation assumptions; monetary sanctions were imposed to reimburse the U.S. Trustee and deter similar misconduct.


Office of the U.S. Trustee v. Bresset (In re Engel), 246 B.R. 784 (Bankr. M.D. Pa. 2000)