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Lawyer Sanctioned for Not Telling Court the Truth

Lawyer Sanctioned for Not Telling Court the Truth

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Published by Stephen Carr
Principal of McCarthy & Holthus, LLP was sanctioned 25k - Court not told client did not own note.
Principal of McCarthy & Holthus, LLP was sanctioned 25k - Court not told client did not own note.

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Published by: Stephen Carr on Jan 08, 2012
Copyright:Attribution Non-commercial


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 U.S. Bankruptcy Court OpinionsX
IN RE LEE (C.D.Cal. 1-26-2009)408 B.R. 893In re Donghun LEE, Debtor.No. LA08-27937SB.United States Bankruptcy Court, C.D. California.January 26, 2009West Page 894[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT ANOFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.]West Page 895Young K. Chang, Los Angeles, CA, for Debtor.West Page 896Carolyn A. Dye, Law Offices of Carolyn Dye, Los Angeles, CA, forTrustee. 
SAMUEL BUFFORD, Bankruptcy Judge 
I. Introduction
Counsel in this matter knowingly allowed a relief from staymotion to go to trial in this case on the evidence that movant
owned the underlying promissory note without (a) informing thecourt that movant had sold the underlying promissory note to aparty not before the court, and (b) that, contrary to theevidence submitted, the copy of the note filed with the motionwas not a true and correct copy. Pursuant to the court's order toshow cause, the court imposes sanctions based on its finding thatthis conduct violates Rule 9011.[fn1] 
II. Relevant Facts
More than a year before the filing of this chapter 7 case, HSBCMortgage Corp. (USA) made a loan to debtor Donghun Lee secured bya deed of trust on Lee's residence in Cerritos, California.[fn2]HSBCis the original payee on the note.At the time that the loan was made, the deed of trust namedMERS, "a separate corporation acting solely as a nominee forLender and Lender's successors and assigns," as the beneficiaryunder the deed of trust.[fn3]Prior to the filing of this case, MERStransferred the deed of trust to HSBC. Thus, MERS no longer hasan interest in this transaction.At some time before this case was filed, HSBC sold the originalnote to Freddie Mac. There is no evidence whether Freddie Macstill owns the note or if it has sold the note to someone else.However, at that time Freddie Mac was known to be in the businessof securitization of mortgages: thus it most likely sold theoriginal note to a trust which was subsequently securitized.The current owner of the note has not joined in the motion andis not before the court. Indeed, HSBC does not even know who thecurrent owner is. However, HSBC still has possession of theoriginal note.The original note has an indorsement signed by HSBC thatstates, "Pay to the order of without recourse." However, the copyof the note attached to the motion for relief from stay omitsthis indorsement. HSBC continues to service the original note,collects the payments from the borrower, and remits them toFreddie Mac.After this case was filed, HSBC filed a motion for relief fromstay in order to proceed with prepetition foreclosure proceedingsthat were stayed by the filing of the bankruptcy case. The motionincluded a declaration under penalty of perjury from KimberlyGraves, vice president and "bankruptcy/foreclosure manager" ofHSBC, providing factual background for the motion. Thedeclaration attached a copy of the note and deed of trust whichWest Page 897Ms. Graves falsely stated was "true and correct." Thedeclaration also falsely stated that HSBC was the owner of thenote, even though it had previously sold the note. The motion didnot disclose the sale of the note or the indorsement thereon.Thomas J. Holthus and Ja Vonne M. Phillips ("Counsel") ofMcCarthy and Holthus, LLP ("the Firm") filed and prosecuted themotion on behalf of HSBC. Ja Vonne Phillips signed the motion on
behalf of the firm.Pursuant to Local Rule 9013-1(a)(13)(A), the court issued anorder requiring that HSBC bring to court each declarant for whoma declaration was submitted in support of its motion, for thepurpose of presenting testimony to support the motion. Ms. Gravestestified at trial and brought the original note to court.Upon review of the original note at trial, the court noticedthe blank indorsement on the original note, which was notincluded in the copy attached to the moving papers. Upon callingthis discrepancy to the attention of Mr. Holthus, he questionedMs. Graves about the discrepancy. Ms. Graves testified that thenote attached to the motion reflected the note when it wasscanned into the HSBC computer system at the closing of the loantransaction, and the indorsement was added at a later time.Ms. Graves further testified that the indorsement was placed onthe note when HSBC sold the note to Freddie Mac. She testifiedthat HSBC had no knowledge of who currently owns the note, butthat HSBC continues to collect the payments on the note.Mr. Holthus stated on the record that he knew that HSBC hadsold the note. Counsel also related that it was "very muchfamiliar" with the court's past decisions, including
In re Hwang,
396 B.R. 757(Bankr.C.D.Cal. 2008) and
In re Vargas,
396 B.R. 511(Bankr.C.D.Cal. 2008), but did not agree with the decisions.Notwithstanding these statements, neither HSBC nor Counsel havesubmitted or advocated any nonfrivolous arguments for extension,modification or reversal of existing law as stated in theseopinions.Ms. Graves also testified as to HSBC's computer records ofpayments on the note by the debtor. Pursuant to
In re Vinhnee,
336 B.R. 437(9th Cir. BAP 2005), the court found that Ms. Graveswas not competent to testify regarding the accuracy of thepayment records and denied admission of this evidence.At the conclusion of the testimony, the court denied the motionfor relief from stay on three grounds. First, HSBC was not thereal party in interest pursuant to
Second, the joinder ofthe owner of the promissory note is required by
Third,HSBC, the Firm, and Counsel did not disclose in the moving papersthat the original note had been sold; therefore, the presentationof false evidence supported the denial of the motion. 
III. Order to Show Cause
After the hearing, the court issued its order to show cause resanctions based on the following:(1) The Graves declaration falsely states that HSBC is theowner of the original note.(2) The Graves declaration falsely states that the noteattached to the motion is a true and correct copy of the originalnote.

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Valerie Lopez added this note
Thank you! My case is exactly like this case. Only for me as oppose for sanctioning obvious fraud on court by Pite Duncan LLP, the judge allowed the obvious misconduct - I had securitizaiton research report from Neil Garfield with Title Report and Freddie Mac Documents from Authenticated Website - a letter sent to me in error by a Wells Fargo employee confirming last known buyer was Freddie Mac .
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