FRAUD ON THE COURT: February 2009

UNITED STATES COURT OF APPEALS ELEVENTH CIRCUIT
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CASE NO.: 08-11286-J
DISTRICT COURT CASE NO.: 07-cv-60770-ALTONAGA/TURNOFF
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BARON’S STORES, INC., NORMAN LANSON,
AND MERYL LANSON,

Appellants,

vs.

RONALD C. KOPPLOW, ESQ., KOPPLOW & FLYNN, P.A.,
MARC COOPER, ESQ., COOPER & WOLFE, P.A.,
SONYA SALKIN, ESQ., AND MALNIK & SALKIN, P.A.

Appellees.
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APPELLANTS PETITION FOR REHEARING EN BANC
OF JANUARY 15, 2009 ORDER OF AFFIRMANCE

IV. STATEMENT OF COUNSEL AS TO THE FOLLOWING ISSUE(S) ASSERTED TO MERIT EN BANC CONSIDERATION

I express a belief, based on a reasoned and studied professional judgment, that the Panel decision is contrary to the following decision(s) of this Court (Eleventh Circuit) and contrary to the decisions of the United States Supreme Court, and that consideration by the full court is necessary to secure and maintain uniformity of this court’s decisions and the integrity of the judicial process.

In re Prince, 40 F.3d, 356(11th Cir. 1994)
In re Jennings, 199 Fed.Appx. 845, 2006 WL 2826947 (C.A. 11th Cir.) ;
In re Walker, 515 F.3d, 1204 (C.A. 11th Cir. 2008);
Travelers Indemnity Company v. Gore 761 F.2d 1549 (11th Cir. 1985) Hazel-Atlas Glass Co. v. Hartford-Empire Company, 322 U.S. 238, (1944).

Appellants, Baron’s Stores, Inc., Norman Lanson, Pro Se and Meryl Lanson, Pro Se, respectfully assert that an En Banc Rehearing of the Court’s January 15, 2009 Order is warranted. In addition, the underlying bankruptcy proceeding and the ultimate decision of the Panel involves a question of exceptional pubic importance, and likewise warrants consideration by the full court:
By: _______________________________________
Arthur Morburger, Counsel for Baron’s Stores, Inc.

This Court’s decision fails to address the Appellees (all attorneys and therefore Officers of the Court) perjured affidavits, signed by all the Appellees/Attorneys who swore, under oath, in their boilerplate Affidavits, that they had no connections or adverse interest to any of the parties when, in fact, they had more than sixty (60) undisclosed connections and/or conflicts of interest to parties involved in the bankruptcy proceeding. Ignoring the attorneys perjured Affidavits sends a “clear message” that it is okay for attorneys, who are officers of the court, to lie to the court, under oath, and it is okay for these officers of the court to ignore the mandatory disclosure requirements under Bankruptcy Rule 2014. The result of attorneys/officers of the court ignoring the mandatory bankruptcy rules and “lying under oath” caused a fifty-two year old company’s demise, caused more than two hundred people to lose their jobs, benefits, and security, caused the devastating financial loss to the sole shareholders, caused the creditors of the estate extreme damage as they were paid between 4 and 8 cents on the dollar, while the attorneys/officer of the court were rewarded with millions of dollars in ill gotten fees. The dishonest attorneys who lied to the court, under oath, benefited by being monetarily rewarded for their criminal acts of perjury, and for their breach of fiduciary duties to their clients and to the court; This very rule, enacted by Congress, was specifically designed to protect the public from such a “travesty of justice” in that which occurred here in the In re Baron’s proceedings.
The Panel’s decision also conflicts with the authoritative decisions of every other United States Court of Appeals that has addressed the issue of mandatory disclosure, under the penalty of perjury, pursuant to Bankruptcy Rule 2014.

COURSE OF PROCEEDING
On March 11, 2005, Meryl M. Lanson filed an Emergency Motion to Reopen Baron’s bankruptcy, Case No. 97-25645-PGH-BKC, for “fraud on the court” pursuant to Bankruptcy Rule 2014. In their initial retention Affidavits to be appointed counsel in the bankruptcy proceedings, attorneys, Marc Cooper, Ronald C. Kopplow and Sonya Salkin, swore under oath, that they did not have any connections and/or conflicts of interest to the estate. Later, Appellants discovered over sixty undisclosed connections and/or conflicts of interest of the three attorneys. On April 7, 2005, the Bankruptcy Court granted Appellants Emergency Motion to Reopen for the purpose of adjudicating the merits of Appellants claim that the Attorneys, not only perpetrated a fraud upon the Court, but violated the mandatory bankruptcy rule 2014.
On November 30, 2005, the Bankruptcy Court entered an Order Denying the Appellees/Attorney’s Motion for Summary Judgment. Within that Order, on Page 11, the Court stated:
“The Bankruptcy Court concluded that the disclosure obligation mandated by the Bankruptcy Code and Rules “implicates a public policy interest justifying relief…under Rule 60(b)(6). Id. at 188 (quoting In re Southmark Corp., 181 B.R. 291, 295 (Bankr. N.D. Tex. 1995)). The Bankruptcy Court observed that it was alleged that the professionals failed to disclose conflicts of interest that would have barred their retention. Id. at 188. The Bankruptcy Court found that if this were true, it would constitute “fraud on the court” warranting relief even though more than a year had passed since the professionals were retained and their fees approved. Id. As a result, the Bankruptcy Court found it appropriate to consider the sanctions motions. Id. In this case, Debtor has alleged that the Attorneys failed to make appropriate disclosures under Bankruptcy Rule 2014. If these allegations are true this inadequate disclosure by the Attorneys may constitute “fraud on the Court,” which must be addressed.”

The Bankruptcy Court, on Page 14 of this same Order, stated

“Additionally, all professionals whose employment must be approved by the Court are required to make disclosure under Bankruptcy Rule 2014. Bankruptcy Rule 2014(a) requires that the application to employ must be accompanied by verified statement of the person to be employed that discloses the connections between that person and the universe of parties in the case. Bankruptcy Rule 2014(a). The professional cannot pick and choose which connections to disclose. Id. at 511 (citing In re Hot Tin Roof, Inc., 205 B.R. 1000, 1003 (B.A.P., 1st Cir. 1997)). It is the responsibility of the professional to disclose all relevant connections.”

The Bankruptcy Court ultimately ruled that the attorneys did not perpetrate a fraud upon the Court stating that the attorneys did not possess subjective intent citing Davenport Recycling Assocs. v. C.I.R., 220 F.3d 1255, 1262 (11th Cir. 2000). On January 7, 2008, the District Court affirmed the Bankruptcy Court’s ruling. On January 15, 2009, this Court issued its Affirmance Order stating:
“our law requires the demonstration of a plan or scheme…designed to improperly influence the court, which indicates that scienter is required” without citation to any of the Eleventh Circuit cases on which the Court relied upon.

II. STATEMENT OF FACTS
Appellees/Attorneys, Kopplow and Cooper, represented Appellants’ Baron’s Stores, Inc. and its sole shareholders, Norman Lanson, individually, and Meryl Lanson, individually, in an accounting malpractice lawsuit. Appellees/Attorneys, Kopplow and Cooper, filed the lawsuit only in the name of the corporation, Baron’s, and failed to file the lawsuit, within the statute of limitations, on behalf of their individual clients, Appellants, Norman Lanson and Meryl Lanson. When Appellees/Attorneys, Kopplow and Cooper, realized that they committed malpractice by failing to file suit on behalf of their individual clients within the statute of limitations, they recommended that their clients, Norman Lanson and Meryl Lanson, consult with Sonya Salkin, a bankruptcy attorney and a Region 21 Panel Trustee, to pursue bankruptcy on behalf of Baron’s. In order to simultaneously continue to hide their malpractice, and at the same time maintain control of the bankruptcy, Kopplow and Cooper failed to disclose their more than sixty connections and/or conflicts of interest in violation of mandatory Bankruptcy Rule 2014. In addition, and of most critical importance, Appellees/Attorneys lied, under oath, thereby committing perjury, when they signed an Affidavit filed directly with the Court claiming no connections whatsoever to any party involved in the bankruptcy proceedings. Salkin was consulted with and ultimately retained by the Appellants, the Lansons, to protect their most valuable asset, Baron’s Stores, Inc., and to maximize the recovery on behalf of themselves and their wholly owned corporation. Salkin also violated the mandatory disclosure rules when she, too, swore under oath that she did not have any connections to anyone in the bankruptcy proceedings. These are blatant misrepresentations that are reflected in the record. In reliance on Appellees/Attorneys sworn affidavits that they had no connections and/or conflicts of interest, the Bankruptcy Court appointed them as attorneys in the bankruptcy proceeding. In Appellants Initial Brief, on Page 23, Appellants requested equitable remedies under the manifest injustice that occurred in the bankruptcy proceedings. Appellants also requested the Eleventh Circuit to fashion an equitable remedy to rectify the injustice that occurred due to the non-disclosure in violation of the mandatory requirements under Bankruptcy Rule 2014.
III. ARGUMENT AND AUTHORITIES
This Panel’s decision fails to address the Appellees/Attorneys blatant violation of Bankruptcy Rule 2014, the mandatory disclosure requirements, and by this Court’s failure to address this violation, conflicts with three (3) prior decisions of this Circuit.
In re Prince, 40 F.3d, 356 (11th Cir. 1994) the Court dealt with the exact same issue, the mandatory disclosure requirements for professionals under Rule 2014, and found as follows:
“Whether Sirote firm inadvertently or intentionally neglected to inform the court of its conflicts is of no import. If the actions of the Sirote firm in this case had been performed by a sole practitioner, disbarment proceedings would undoubtedly have ensued. Law firms, no matter their size, must ensure that their representations do not result in irreconcilable, intolerable conflicts that can only result in harm to their clients, as in this case. In this instance, Sirote was in the unfortunate position of having to serve too many masters. Where a claimant, who represented members of the investing public, was serving more than one master or was subject to conflicting interests, he should be denied compensation It is no answer to say that fraud or unfairness were [sic] not shown to have resulted.” Woods v. City Nat’l Bank & Tr. Co., 312 U.S. at 268, 61 S.Ct. at 497 (1941). The conflicts Sirote firm operated under pushed the limits of discretion to the extreme. Because Sirote firm could not have adequately and impartially served its client under the circumstances of this case, the bankruptcy court’s award of fees was improper. (Emphasis added)

While a bankruptcy judge’s discretion in deciding compensation cases under section 328 enjoys great bounds, it is not unlimited. A finding that Sirote firm qualifies for fees in this case would render the impartiality requirements of the Bankruptcy Code meaningless. While a complete denial of fees may be extreme in some instances, this case requires nothing less. “This sanction serves to deter future wrongdoing by those punished and also to warn others who might consider similar defalcations.” Gray, 30 F.3d at 1323. Accordingly, we find that the district court’s affirmance of the bankruptcy court’s award of fees constitutes an abuse of discretion. See Neville v. Eufaula Bank & Trust Co. (In re U.S. Golf Corp.), 639 F.2d 1197, 1201 (5th Cir.1981).

For the foregoing reasons, we find that the law firm of Sirote & Permutt, PC. is not entitled to compensation for its work in representing Prince in his bankruptcy proceedings because the firm operated under intolerable conflicts of interest which unduly prejudiced the Debtor in violation of the Bankruptcy Code.

This Court’s opinion is also in conflict with its previous opinion in In re Jennings, 199 Fed.Appx. 845, 2006 WL 2826947 (C.A. 11th Cir.) The Eleventh Circuit affirmed the underlying order denying fees for failure to disclose under Bankruptcy Rule 2014 and affirmed disgorgement of all pre-petition fees, citing the Eleventh Circuit’s analysis in In re Prince cited above.
The Eleventh Circuit agreed that the bankruptcy court was not required to peruse the entire record to discern any connections or conflicts. The relevant disclosures must appear in the application and accompanying Affidavit filed pursuant to Rule 2014. The Eleventh Circuit also agreed with the district court, that undisclosed connections and conflicts “prejudiced the bankruptcy estate and deprived each of an unbiased independent assessments of the available and outstanding claims,” citing In re Prince, 40 F.3d at 361 (finding a conflict of interest where counsel “was in the unfortunate position of having to serve too many masters.”)
Having made these determinations, the Eleventh Circuit agreed that the bankruptcy court was well within its discretion to conclude that the professionals initial and continuing violation of the disclosure rules, coupled with its non-disinterestedness, warrants its disqualification and denial of all compensation including disgorgement of any pre-petition retainer. The Eleventh Circuit blanketly denied compensation based on the non disclosure and was not moved by the attorneys’ argument that fraud or unfairness were [sic] not shown to have resulted.”(quoting Woods v. City Nat’l Bank & Tr. Co., 312 US. 262, 268 (1941)).
The Panel’s decision, not only conflicts with this Court’s previous opinion in the In re: James Walker 515 F.3d 1204 (11th Cir. 2008) proceeding, but also emphatically affirmed a “fraud on the court” stating that “lying under oath is lying under oath.” In the In re James Walker, this Court affirmed the bankruptcy court’s sanction and removal for “fraud on the court” of a creditor-elected trustee, who was not an attorney, and whose failure to disclose was that of which was one remote connection from ten years prior to the bankruptcy proceedings. The creditor-elected trustee argued that she was not required to submit a verified statement regarding her connections. This Court made a very firm assertion when it declared “the idea that false testimony when offered to the court voluntarily is immune to the consequences of lying under oath is absurd. Lying under oath is lying under oath.” This Court’s Opinion in Walker never mentioned the requirement of scienter and never included it in its analysis affirming the bankruptcy court’s finding of “fraud on the court” which, too, did not include any analysis or finding of subjective intent or scienter. In fact, after a thorough research and review of all cases, including a request to West Law’s research attorneys, it was discovered that, to date, the only opinion found, where the Eleventh Circuit affirmed and found fraud on the court, was in the In re James Walker bankruptcy proceeding.
“Fraud on the court” requires the involvement of an attorney. This requirement is confirmed in the Eleventh Circuit case Travelers Indemnity v. Gore (cite supra) in which the Eleventh Circuit refused to find “fraud on the court” for Gore’s perjury because there was no allegation of an attorneys involvement. In addition, the Eleventh Circuit in Travelers adopted the following definition of “fraud on the court” from other circuits. “Fraud on the court” should, we believe, embrace only that species of fraud which does or attempts to, defile the court itself or is a fraud perpetrated by officers of the court so that the judicial machinery cannot perform in the usual manner its impartial task of adjudicating cases… There is no mention of scienter in this court’s previous definition of “fraud on the court” adopted from other circuits where scienter is never mentioned. The majority of circuits require an attorneys involvement because attorneys are highly educated in the law and know when a deception to the court is occurring. That explains why scienter is not required for “fraud on the court” because attorneys, as officers of the court, know better.
In S.E.C. v. ESM Group, 835 F.2d 270 (11th Cir. 1988), the Eleventh Circuit relying on Travelers refused to find fraud on the court because the attorney involved was not a direct participant in the plan to defraud. In S.E.C., scienter is never mentioned.
However, this Court retreated from its earlier position where it required the direct participation of an attorney, and for the first time, found “fraud on the court” in the Walker proceeding by affirming the bankruptcy court’s finding of “fraud on the court” of a non-lawyer. This court, in Walker, affirmed the “fraud on the court” of a non-lawyer who failed to disclose one remote connection in her voluntary Affidavit. In direct contrast, this Court never addressed the three attorneys mandatory (not voluntary) requirements under the Bankruptcy Rules in its Order, and affirmed the same bankruptcy court’s selective enforcement of the mandatory rules legislated by Congress, when it applies to attorneys; attorneys who failed to disclose more than sixty (60) connections and/or conflicts of interest, the majority of which were not remote but in fact, present and ongoing from prior to and during the bankruptcy proceedings. The Court did not cite one case to support its retreat from Walker. The only legal authority this Court cited, which was previously relied upon by the same bankruptcy court, to support its about face from Walker, is Davenport. Davenport is not applicable and is distinguishable because it was a tax court case with no mandatory disclosure requirements attached to it. Furthermore, this Court has used Davenport for the premise of an unconscionable scheme calculated to interfere with the judicial system’s ability to properly adjudicate the matters before it. The perjured Affidavits were filed for one reason - to influence the court to authorize their employment. The plan or scheme to influence the Court to authorize their employment was confirmed after the attorneys were put on notice to amend their Disclosure Affidavits, informing the court of their connections and/or conflicts of interest, and they failed to do so. What could be more unconscionable than having three attorneys, officers of the court, with combined legal experience of eighty five years, knowingly lie to the court in order to authorize employment to secure their ill-gotten fees. To reiterate, the Eleventh Circuit’s affirmance of the same bankruptcy court’s finding of “fraud on the court,” “lying under oath is lying under oath.” The distinction in Walker v. Baron’s, is that in Walker, it was one creditor elected non attorney trustee who failed to disclose one remote connection, and in Baron’s, it was three attorneys, one being a United States Panel Trustee, who collectively failed to disclose more than sixty (60) present and ongoing connections and/or conflicts of interest.
The Panel’s decision is also in conflict with other circuits court of appeals, and the United States Supreme Court case in Hazel-Atlas Glass Co. v. Hartford-Empire Company, 322 U.S. 238, (1944).
In the Seventh Circuit, U.S. v. Gellene, 182 F.3d 578 (7th Cir. 1999), the Court found, that although Gellene made some disclosure, he did not fully disclose his connections and withheld the information over a two year period which not only was in violation of Rule 2014 but resulted in a conviction of bankruptcy fraud, served a jail sentence, was fined and was disbarred. The bankruptcy court also told Mr. Gellene: “New York is different from Milwaukee…Professional things like conflicts [of interest] are taken very, very seriously. And for better or worse you’re stuck in Wisconsin.”
In the Second Circuit, Kupferman v. Consolidated Research and Manufacturing Corp., 459 F.2d 1072(2nd Cir. C.I.R. 1972) stated: “an attorney’s loyalty to the court, as an officer thereof, demands integrity and honest dealing with the Court. And when he departs from that standard in the conduct of a case he perpetrates a “fraud upon the court.”
In the U.S. Supreme Court, Hazel-Atlas Glass Co. v. Hartford-Empire Company, 322 U.S. 238, (1944) an attorney may commit fraud on the court, not only through misrepresentation, but also through omission. Also in Hazel Atlas “it is a wrong….which ….cannot complacently be tolerated consistently with the good order of society… involv[ing] two victims: the individual litigant …and the court itself, whose integrity is compromised by the fraudulent behavior of its officers.) “The very temple of justice is defiled.”
The Panel’s decision involves question of exceptional public importance which warrants consideration by the full Court.

The economic estimation of the loss of social capital damages to American society arising from the failed and unwarranted reorganization of Baron’s, a fifty-two year old family business, is as follows:
Baron’s was an S-corporation producing taxable income to its owners and income tax payable of $100,000.00 per year – loss of ten years income tax equals $1,000,000.00
Baron’s payroll, per year, for two hundred employees was $4,000,000.00
The share of Baron’s contribution towards FICA, rounded at about 7% per year is $280,000.00 which over ten years equals $2,800,000.00
Baron’s employees share of FICA, mitigated by re-employment of some workers, as many were unable to find re-employment, and thus received unemployment compensation, coupled with lost income tax and lost employee share of FICA is estimated over ten years to have cost the Federal Government $2,300,000.00
Baron’s paid sales tax to the State of Florida over the ten years with annual sales approximating $20,000,000.00 at 6% equals $12,000,000.00.
Baron’s, the corporate entity, and through its owners, supported non-profit organizations estimated at $20,000.00 per year over ten years equals $200,000.00.
The total estimated loss of social capital because of Baron’s demise, over the past ten years, is $18,300,000.00.
Considering the economic crisis we are in, and the bankruptcies that are being filed on a daily basis, and will continue to be, this case is an example of what happens when attorneys lie to the court, under oath, and put their self interests ahead of those they are duty bound to protect. In the Baron’s bankruptcy, the professionals received more than $2 million in ill gotten fees, out of a pot of approximately $3 million, the creditors received pennies on the dollar, two hundred people were put out of work, and the sole owners lost everything they and their family worked fifty two years to build.

CONCLUSION
For all the foregoing reasons, stated above, this Honorable Court should GRANT Appellant’s Petition for Rehearing En Banc and vacate its January 15, 2009 Order of Affirmance. In the alternative, this Honorable Court should consider the instant Petition as a Motion for Panel Rehearing and enter an Order vacating its January 15, 2009 Order consistent with the arguments made hereinabove. This Honorable Court should grant such other and further relief as this Court deems just and proper herein.

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