Fraudulent Transfer Leads To Five-Year Suspension From Local Bankruptcy Practice For Attorney In Younge

Orange County, California, attorney Michael Anthony Younge represented his client, Surat Singh, in about a dozen transactions since 1994. A decade later, in 2004, Singh purchased a residential property in Newport Beach by way of a loan that was serviced by Bayview Loan Services, LLC. At some point, Singh’s financial situation deteriorated, and in 2017 Younge commenced a Chapter 7 bankruptcy case for Singh and soon thereafter brought an adversary proceeding against Bayview alleging fraud, cancellation of foreclosure instruments and similar causes of action. Three months later, the U.S. Bankruptcy Court for the Central District of California dismissed that action without leave to amend.

Almost a year after Singh’s original bankruptcy filing, being June 25, 2018, the bankruptcy court dismissed Singh’s Chapter 7 case, and additionally imposed a bar to him re-filing for bankruptcy for 180 days. That same month, the bankruptcy court also relieved Bayview from the bankruptcy automatic stay so that Bayview could schedule a foreclosure sale of the Newport Beach property on July 23, 2018. To try to stop the foreclosure, Younge filed two motions for temporary restraining orders on July 6 and July 18, respectively, but the bankruptcy court denied the TROs against Bayview very quickly, on July 9 and July 19.

So far, so good. Financially-distressed debtors who are about to lose their home often file for bankruptcy protection to try to save it, and the bankruptcy litigation inevitably gets frantic as the day of sale comes near. Sometimes debtors’ attorneys become a little aggressive in trying to get relief, but that’s their job and the bankruptcy courts just swat them away like so many gnats. Up to this point, however, nothing unduly noteworthy has happened. But that is about to change dramatically.

It is here that a new character enters the scene, in the form of Younge’s wife, Amany Simmonds, who herself had been the debtor in in five bankruptcy cases, the first four in 2011 and 2012, and the last in 2015. Simmonds was employed by Younge as his legal assistant starting in 2015.

Recall that the last request for a TRO filed by Younge was on July 18, and the bankruptcy court denied that request on July 19. The very next day, July 20, 2018, Singh executed a quitclaim deed by which, for no consideration whatsoever, he transferred the property to Simmonds. No notice was, of course, provided to the bankruptcy court and because Singh no longer held title to the property the planned July 23 sale did not take place.

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According to Younge, he did not know about the transfer, assist with the transfer, receive any compensation for the transfer, or, really, have anything else to do with it. Younge did find out about it a couple of days later, and called Singh to confront him about it.

Meanwhile, on August 9, Bayview filed another motion for relief with the bankruptcy court to lift the automatic stay, presumably this time so that it could also proceed against Simmonds. At the hearing ten days later, on August 19, Younge appeared on behalf of Singh and basically regurgitated the very same arguments that he had lost on before. The bankruptcy court granted Bayview’s motion, and also set a hearing for August 29, which ordered Simmonds to appear and explain to the bankruptcy court the reasons for the Newport Beach property’s transfer.

The day before the hearing, on August 28, Younge filed a declaration on behalf of Simmonds, wherein Simmons said that she had known Singh for three years, knew that Singh was in litigation with his banks, and also knew that Singh was in bad health. She also stated that she ultimately desired to help Singh by joining in the litigation against the banks as a co-plaintiff. Simmonds admitted that the knew that the quitclaim deed transfer might affect the July 23 sale, but thought that the delay would be only temporary because Singh’s bankruptcy case was scheduled to be dismissed on July 31 anyway.

At the hearing the following day, August 29, Younge appeared on behalf of Simmonds and made arguments that were consistent with Simmond’s declaration, though adding that Simmonds was his wife and legal assistant, and it was all Singh’s idea to transfer the title to the Newport Beach property to her. To say that none of this was well-received by the bankruptcy court would be something of an understatement, as the bankruptcy judge commented that the transfer of that property was “outrageous” and “beyond the pale”. But these words were not all, as the bankruptcy judge at the hearing instructed the U.S. Trustee to draft an order to Younge to show cause why he should not be referred to the court’s Disciplinary Panel.

On December 12, 2018, the bankruptcy court ordered that Younge be referred to the court’s Disciplinary Panel, based on the following findings of fact:

(1) The sole purpose of the Singh property transfer to Simmonds was to frustrate Bayview’s July 23 foreclosure sale;

(2) Younge filed Simmond’s declaration without a reasonably inquiry into the facts and to further cause unnecessary delay;

(3) Younge’s claims that he was unaware that the property would be transferred were credible and believable;

(4) Younge failed to supervise Simmonds in relation to the property transfer;

(5) Younge repeatedly attempted to relitigate the same arguments that he had repeatedly lost on; and

(6) Younge’s actions did ultimately cause a delay in the litigation and increased cost to Bayview.

The bankruptcy court thus concluded that Younge had violated Federal Rule of Bankruptcy 9011 (the bankruptcy equivalent of FRCP Rule 11) and California Rule of Professional Conduct 3-110(A), and recommended that Younge be prohibited from further practice before the bankruptcy court.

The Panel consisted of three bankruptcy judges who were randomly selected within the district, and it held a hearing at which Younge appeared on March 25, 2019. Younge admitted at the hearing that he was then already on probation with the State Bar of California for having failed to properly supervise Simmonds.

On June 27, 2019, the Panel entered its decision which adopted the bankruptcy court’s findings in all except one particular: The Panel did not find Younge’s claim that he did not know about the transfer to be credible, and further concluded that Younge knew about and participated in the transfer at the time that it was made. The Panel then unanimously suspended Younge from practicing before the bankruptcy court for a minimum of five years, after which Younge could be reinstated to practice after showing that he had completed five hours of continuing legal education on the topic of legal ethics. Younge appealed the Panel’s decision to the U.S. District Court for the Central District of California, which entered the opinion which I shall next relate.

The first issue addressed by the court was Younge’s contention that he did not Bankruptcy Rule 9011(b), which related to his making a filing or advocating a position that was not reasonable under the circumstances. Here, the courts apply an objective standard as whether a competent attorney would have made the same argument in practice before the court. Younge argued that the bankruptcy court had found that he was not involved in the Singh-Simmonds transfer, that he thought about the effect that the transfer might have on future litigation, and that in the end he thought the transfer was reasonable considering that Singh was severely ill and needed somebody else in the person of Simmonds to continue litigating on his behalf.

These arguments flopped and largely for the reason that Singh by that time had already lost over and over in litigating against Bayview, and Singh simply did not by that time have any position to protect in future litigation. The District Court also pointed out that Younge was not being held to violate Bankruptcy Rule 9011 because of the transfer, but because he kept arguing Singh’s position that had previously been resolved on multiple occasions. It also did not help that the Panel had determined that Younge actually knew of and was involved with the Singh-Simmonds at the time that it took place, based on his close marital and working relationship with Simmonds, even though he continued to deny it.

The District Court also noted that even if Younge wasn’t involved with the Singh-Simmonds transfer, he still drove up Bayview’s costs by opposing their motion for relief with the very same arguments which has been previously adjudicated against Singh. Moreover, even after learning of the transfer, Younge did nothing to try to unwind the improper transfer and assist Bayview in getting its sale back on track, but instead continued to try to block that sale. Thus, the District Court affirmed the Panel’s finding that Younge had violated Bankruptcy Rule 9011.

Next up was the charge that Younge had failed to properly supervise Simmonds, which implicates California Rule of Professional Conduct 3-110(A). That rule requires that an attorney “shall not intentionally, recklessly, or repeatedly fail to perform legal services with competence,” and that has been extended to include an attorney’s duty to supervise the work of non-attorney assistants.

Younge argued that he could not be ethically sanctioned for failure to supervise Simmonds, simply because he didn’t know that the transfer was even taking place. The District Court agreed, essentially ruling that Younge could not be sanctioned for failing to supervise Simmonds if he did not know about the transfer, and if he did know about the transfer then there was no evidence that he had failed to supervise Simmonds properly. Therefore, the Panel had abused its discretion in finding that Younge had failed to adequately supervise Simmonds, and the matter would be remanded back to the Panel to determine if there were any other grounds upon which the Panel could base a violation of CRPC 3-110(A).

We finally come to Younge’s argument that a five-year suspension from practice before the bankruptcy court was excessive under the circumstances. The U.S. Trustee here argued that the suspension was for the bankruptcy court only, and that Younge could presumably continue to practice before other courts. The District Court thus allowed the five-year suspension to stand, subject to whatever might happen on remand of the CPRC-3-110(A) issue, and concluded with the following statement:

“As reprehensible as is the conduct of a debtor who abuses the process, the assisting in this course of action by an attorney, represents a far more serious problem, because an attorney is involved in many cases other than merely the debtor’s. [] Regardless of what legal rules apply to Younge’s conduct, it was clearly unethical and unacceptable, especially for an experienced attorney like him. Younge has only himself to blame for the predicament he now faces; not Simmonds, Singh, Bayview, or the bankruptcy court.” [Internal quote marks and citations omitted.]

ANALYSIS

While attorneys are required to be zealous advocates for their clients, there still comes a point where the game is obviously over and any more fighting crosses the line into the improper. Younge went well over that line by continuing to file motions that urged the same arguments which had already been rejected by the bankruptcy court, and for that alone he earned a five-year loss of any ability to practice in the bankruptcy court of his district.

The more important issue, however, goes to the ethical implications of assisting a client with a fraudulent transfer to try to defeat creditors. While the record here is at best confused as to whether Younge had any involvement in that transfer (the bankruptcy court said no but the Panel said yes, although the latter’s finding seem largely based on speculation), there is one thing that is crystal clear from this opinion: An attorney who knowingly assists a client in committing a fraudulent transfer has committed an ethical violation. The bankruptcy court, the Panel, and the District Court were all in solid agreement on that point.

Sometimes, if not frequently, however, financially-distressed clients will do stupid things like make these last-second quitclaim transfers without any consideration and without telling their attorney until after the fact. In that circumstance, the duty of the attorney and the attorney’s relationship to the client changes both instantly and dramatically. An attorney is not merely the zealous advocate for his or her client, but also an officer of the court. The duties owed by the attorney are not just to the client, but also to the court, and the attorney at that point may be required to immediately advise the court of the client’s wrongdoing, particularly in a jurisdiction like California where the making of a fraudulent transfer is also a crime. At the very least, the attorney will need to ask the client to unwind the transfer, and if the client does not do so then the attorney may need to attempt to withdraw from the representation.

Arguably, this was Younge’s second mistake, being to simply continue to represent Singh (and now Simmonds too). In retrospect, the smartest thing that Younge could have done in this circumstance would be to say “I’m outta here” and file a motion to withdraw. If Younge would have just done that, he’d probably still be happily practicing before the bankruptcy court. However, it obviously complicated things that the transferee was Simmonds and she would then have been left unrepresented to face the bankruptcy court. Which then raises two more important points:

First, for the attorney, having one’s spouse participate as a counterparty in a fraudulent transfer is really just about as bad as if the attorney himself or herself had been the counterparty.

Second, having an attorney’s spouse (or other family) work as their legal assistant usually isn’t that hot of an idea to begin with for a number of compelling reasons mostly beyond the scope of this article, but including that the attorney may need to terminate the legal assistant if they do something really stupid like get talked into a fraudulent transfer by a client.

The problem here ultimately stems back to the fact that Singh had lost, all of Younge’s arguments had been adjudicated in Bayview’s favor, and the sale of the Newport Beach property by Bayview was simply a certainty, but Younge just couldn’t let go and realize that it was all over. Instead, his decision to keep fighting even after the game had ended ultimately resulted in the consequences which followed. Since Younge was still fighting for Singh, Simmonds thought that she should also be helping out, and thus when Singh came up with the idea of the fraudulent transfer, Simmonds didn’t see any problem with it. Had Younge made clear to Simmonds that the case was simply over and nothing further could be done to stop the Bayview sale, then maybe Simmonds doesn’t agree to take the deed from Singh, and this whole mess never happens. Again, it is simply the professional responsibility of an attorney to know when to finally throw in the towel. Younge missed that point, and that was his real error here.

While I simply don’t know for myself and take no position on whether Younge knew of the Singh-Simmonds transfer and assisted with it (I am rather doubtful that he did), I will say this: If Younge did know and assist with the transfer in this situation, then he deserves every last minute of the suspension that he received, and that should probably translate into corresponding sanctions by the State Bar as well. Setting up one’s legal assistant or any other person as the transferee in a blatant fraudulent transfer to stop an imminent judicial sale of property is indeed very serious, and there can be no valid excuse for such behavior by any attorney.

Having said all that, it does strike me that a five-year suspension from practice before the bankruptcy court was excessive; however, it must be remembered that such sanctions are not only intended to punish the attorney but also deter other putative violators from similar conduct. A five-year suspension sends a message to the entire bar of the bankruptcy court to not think of being even remotely involved with the fraudulent transfer as had occurred here, and that the courts will not tolerate somebody who repeatedly continues to urge a position once it has been flatly rejected by the court.

Again, part of being an attorney is just knowing when to stop.

Hat Tip to Beverly Hills attorney Howard Fisher for letting me know of this opinion.

CITE AS

In re Disciplinary Proceeding of Younge, 2020 WL 5548742 (C.D.Cal., Sept. 15, 2020).

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