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In Re Taylor Opinion of 15 Apr 2009

In Re Taylor Opinion of 15 Apr 2009

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This is the 15 Apr 2009 Opinion of U.S. Bankruptcy Judge Diane Weiss SIGMUND, of the U.S. Bankruptcy Court for the Eastern District of Pennsylvania relating to the U.S. Trustee's investigatioin into Fidelity/LPS and its network law firms in the In Re Taylor case. The opinion gives a very detail description of the Court's findings relating to the operations of Fidelity/LPS and its NewTrak software.
This is the 15 Apr 2009 Opinion of U.S. Bankruptcy Judge Diane Weiss SIGMUND, of the U.S. Bankruptcy Court for the Eastern District of Pennsylvania relating to the U.S. Trustee's investigatioin into Fidelity/LPS and its network law firms in the In Re Taylor case. The opinion gives a very detail description of the Court's findings relating to the operations of Fidelity/LPS and its NewTrak software.

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Published by: William A. Roper Jr. on Nov 02, 2010
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07/13/2013

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Case 07-15385-sr Doc 193 Filed 04/15/09 Entered 04/15/09 10:08:15 Desc MainDocument Page 1 of 58
UNITED STATES BANKRUPTCY
COURT
FOR
THE
EASTERN DISTRICT
OF
PENNSYLVANIA
In re Chapter
\3
NILES C. TAYLOR and
ANGELA!
.TAYLOR,Bankruptcy
No
.07-15385DWSDebtors.
QPINION
BY: DIANE WEISS SIGMUND, United States Bankruptcy Judge
On
June 9,2008 I entered an order to show cause (the"June 9 Order") in response to certain practices
of
HSBC Mortgage Corp. ("HSBC") and its attorneys and agents,the propriety
of
which I questioned and which ultimately became the subject
offour
lengthyevidentiary hearings as described below. The United States Trustee (the"UST") was invitedto participate.In connection with this inquiry, the UST sought discovery
of
Lender ProcessingServices,Inc.,
fYkIa
Fidelity National Infonnation Services, Inc.'("LPS" or"Fidelity"). LPS describes itself as
"a
leading provider ofintegrated technology and outsourced services
I
On
July
2,
2008,
LPS
was
spun-off
from
Fidelity through a
tax
free
distribution
of
all
of
its
shares
to
Fidelity shareholders.
Form 10-Q
for
Lender Processing Services, lnc.http:lbiz.yaboo.comie/
080813I1ps
1O.q
.html.
 
Case 07-15385-sr Doc 193 Filed 04/15/09 Entered 04/15/09 10:08:15 Desc MainDocument Page 2 of 58
to the lending industry, with market-leading positions in mortgage processing and defaultmanagement services in the U.S.'"
ll!.
In this case, it served as the intennediary betweenHSBC and its law finns, the Udren Law Office (the "Udren
Finn")
and Moss CodilisLLP ("Moss"). The
UST's
discovery requests were opposed by LPS on confidentialitygrounds and resulted in the
(I)
Motion
of
the Acting United States Trustee for Rule 2004Examination (the
"UST
Motion")
of
Lender Processing Services, Inc.,
fi'kJa
FidelityNational Infonnation Services,Inc.,' (2) the
UST's
Motion for Relief from Order Entered onOctober
23,2008
("Second Vacate Motion") and (3) LPS' Objection to the Second VacateMotion and Subpoena Issued on February 20, 2008 ("Protection Motion"). Notwithstandingthese contested matters, LPS had produced almost all
of
the Fidelity documents requestedby the UST in the UST Motion but pursuant to a non-disclosure requirement memorializedin an order dated October
21
,2008 (the "Confidentiality Order") from which the UST sought to be freed. LPS did not oppose the use
of
its documents in this bankruptcy casewith appropriate safeguards but objected to the
UST's
intention to share them with othermembers
of
the Office
of
the United States Trustee in other jurisdictions.,
LPS
represents that
39
of
the
50
largest banks in the United States based on 2007 ratings
use
its
services,
Its
tecMology
solutions
include its
mortgage
processing
system
(the
"MSP")
which
processes
over
50%
of
all residential
mortgages loans
by
dollar
volume.
Its
outsourcing
services
include
"the
defaultmanagement
services,
which
are
used
by
mortgage lenders
and
servicers
toreduce
the
expense
of
managing defaulted
loans ....
")
The
UST
acknowledged
that
she
did
not
seek
to
actually examine
a
representative
of
Fidelity
but rather
sought unrestricted
use
of
the
requested
documents
and
a
records
custodian
toauthenticatesame.
Fidelity
agreed to
certify
their
authenticity
so as
to
obviate
a
records
deposition.
What
was
at issue then
was
the production
of
documents pursuant
to Rule
2004(c).
-2-
 
Case 07-15385-sr Doc 193 Filed 04/15/09 Entered 04/15/09 10:08:15 Desc MainDocument Page 3 of 58
The
UST
Motion, Second Vacate Motion and Protection Motion have now beensettled by an agreement between LPS and the UST as further explained below. LPS and theUST have submitted a consent order that reflects their agreement that the ConfidentialityOrder be vacated and replaced with "Order Directing Filing
of
Documents Under Seal"("Order Re: Protected Documents").Still remaining to be addressed
is
the June
9
Order which contemplated that sanctionscould be issued depending on the outcome
of
he investigation it commenced. Regrettably
I
have found certain practices and procedures employed by HSBC, its agents and attorneysto implicate the integrity
of
these proceedings as more specifically described below.
I
havealso found that these same practices and procedures have created an environment whereRule
9011
duties have been subordinated to efficiency and cost-savings so as to require
sanctions,
and
sanctions
are
appropriately
imposed.
BACKGROUND
The
June
9
Order
The June
9
Order emanated from a routine Claim Objeclion hearing held on June
5,2008.
4
The hearing had previously been continued thirty days from its first listing to allowHSBC to produce documentation requested by Debtors in support
of
HSBC's
disputedclaim. At the continued hearing, David Fitzgibbon, Esquire ("Fitzgibbon")
of
the Udren
The
Claim Objection
was
settled
on
August
14,
2008,
Doc.No.
71, but
the court's inquiry
into
the
processissues
raised by the
June
9
Order
was
only
concluded
with
the
evidentiary
hearing
on
December
4,2008
.
-3-

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