In re: DA & AR Hospice Care, Inc.

FILED
OCT 20 2023
NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT
In re: BAP No. CC-22-1128-FLC
DA & AR HOSPICE CARE, INC.,
Debtor. Bk. No. 2:21-bk-19219-ER
MICHAEL EUGENE REZNICK,
Appellant,
v. MEMORANDUM*
UST- UNITED STATES TRUSTEE, LOS
ANGELES; YVETTE HARGROVE-
BROWN; DA & AR HOSPICE CARE,
INC.,
Appellees.
Appeal from the United States Bankruptcy Court
for the Central District of California
Ernest M. Robles, Bankruptcy Judge, Presiding
Before: FARIS, LAFFERTY, and CORBIT, Bankruptcy Judges.
INTRODUCTION
Attorney Michael Eugene Reznick filed a chapter 111 petition on
*
This disposition is not appropriate for publication. Although it may be cited for
whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
value, see 9th Cir. BAP Rule 8024-1.
1
Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1532, and all “Rule” references are to the Federal
Rules of Bankruptcy Procedure.
behalf of DA & AR Hospice Care, Inc. (the “Hospice”). The bankruptcy
court found that Mr. Reznick was not retained by the Hospice, did not have
authority to act on behalf of the Hospice, and knew that he had no basis to
file the petition. It referred him to a disciplinary panel for fraud on the
court and violation of Rule 9011. Mr. Reznick appeals, maintaining that the
Hospice’s medical director authorized him to initiate the bankruptcy case.
All of Mr. Reznick’s arguments are meritless, and many of them have
nothing to do with the matter on appeal. We AFFIRM.
FACTS2
A. Prepetition events
The bankruptcy petition was preceded by a murky dispute over
ownership and control of the Hospice and its affiliated businesses.
Ailene Rivera was an officer and sat on the boards of directors of the
Hospice and its affiliated company, NobleQuest Health Foundation, Inc.
(“NobleQuest”). Mr. Reznick was NobleQuest’s attorney. In September
2021, on Mr. Reznick’s recommendation, Ms. Rivera was placed on
administrative leave and referred to a special litigation committee for
investigation into allegations of wrongdoing.
In October 2021, the Hospice and others (represented by Mr. Reznick)
sued Ms. Rivera for fraud and embezzlement in the Los Angeles superior
2
We exercise our discretion to take judicial notice of documents electronically
filed in the underlying bankruptcy case and related cases. See Atwood v. Chase Manhattan
Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).
2
court. The complaint alleged that Dr. Jose De La Llana was the CEO,
medical director, and controlling shareholder of the Hospice and other
associated companies. But the complaint also contained a contradictory
allegation that Dr. Daniel Rose’s trust owned and controlled the Hospice.
In early December 2021, Mr. Reznick filed a chapter 11 petition on
behalf of NobleQuest. The bankruptcy case was dismissed later that month
for the debtor’s failure to file schedules and other documents.
B. The Hospice’s bankruptcy case
1. The chapter 11 petition
In mid-December 2021, the Hospice filed a skeletal bankruptcy
petition under chapter 11 subchapter V. Mr. Reznick signed the petition as
the Hospice’s attorney. Dr. Yvette Hargrove-Brown signed the petition on
behalf of the Hospice, purportedly as its president.
The petition contained a list of creditors but otherwise did not
include schedules or any other required documents. The bankruptcy court
issued a deficiency notice ordering the Hospice to file the missing
documents within fourteen days.
The Hospice did not file the required schedules and documents by
the deadline. The bankruptcy court ordered the Hospice to file the missing
documents by January 19, 2022 or face dismissal.
2. The § 341(a) meeting of creditors
Prior to the deadline, Mr. Reznick and Dr. Hargrove-Brown appeared
at the § 341(a) meeting of creditors on behalf of the Hospice. The meeting
3
did not go well.
Mr. Reznick admitted that he did not file a list of related cases,
including the bankruptcy case he filed for NobleQuest. He acknowledged
that he did not submit information required by the U.S. Trustee but
explained that “there’s nothing to – nothing meaningful I should say to
provide other than we have no clue.”
Dr. Hargrove-Brown stated that she was recently appointed as the
CEO/president of both the Hospice and NobleQuest. But she could not
answer basic questions about the Hospice, such as the number of board
members or their names, whether the Hospice operated an in-patient
facility or provided in-home care, the number of its employees and
patients, the nature and amount of the Hospice’s creditors’ claims, or the
Hospice’s monthly income or expenses, business licenses, cash flow, assets,
or liabilities. She even admitted that she did not know the actual location of
the Hospice and had never been into the Hospice’s facilities. She said that
Dr. Rose owned the Hospice but neither she nor Mr. Reznick could confirm
that fact or his ownership percentage. Neither Dr. Hargrove-Brown nor
Mr. Reznick could confirm whether the Hospice was insolvent.
3. Dismissal for failure to file schedule and other documents
The Hospice did not comply with the bankruptcy court’s order to file
schedules and other missing documents by the January 19 deadline. On
January 25, the bankruptcy court dismissed the chapter 11 case. No one
appealed that order.
4
C. The U.S. Trustee’s application for an order to show cause
The U.S. Trustee then filed an application for issuance of an order to
show cause (“OSC Application”) directing Mr. Reznick and Dr. Hargrove-
Brown to explain (1) why the bankruptcy petition was not filed in bad
faith; (2) why Mr. Reznick should not be required to disgorge all fees;
(3) why Mr. Reznick should not be referred to the bankruptcy court
disciplinary panel for filing a fraudulent bankruptcy case; and (4) why
Dr. Hargrove-Brown should not be ordered to pay the subchapter V
trustee’s fees and barred from future bankruptcy filings.
The U.S. Trustee based the OSC Application on three points. First, the
U.S. Trustee noted that the Hospice, Dr. Hargrove-Brown, and Mr. Reznick
were involved in a total of at least six other bankruptcy cases filed in late
2021 by medical businesses, including the recent NobleQuest filing, all of
which were unsuccessful.
Second, the U.S. Trustee described the inability of Dr. Hargrove-
Brown and Mr. Reznick to provide basic facts at the meeting of creditors
and their failure to provide the U.S. Trustee with the requested information
and documents.
Third, the U.S. Trustee said that, shortly after Mr. Reznick filed the
Hospice’s petition, Ms. Rivera contacted the U.S. Trustee and alleged that
the bankruptcy case was filed in bad faith and without authorization.
Ms. Rivera provided the Hospice’s business records and corporate
documents and a declaration signed under penalty of perjury.
5
In her declaration, Ms. Rivera asserted that she was the president of
the Hospice and owned fifty percent of its stock; Rosalie Manuel and Paul
Laurel owned the remaining fifty percent. She said that the Hospice and its
related entities were the targets of takeovers by certain individuals,
including Mr. Reznick, Dr. De La Llana, Miteshkumar Patel, Carlos
Escobar, and Daniel Callahan. She claimed that they used false corporate
filings to remove her as officer of the companies. Ms. Rivera declared that,
in December 2021, Dr. Hargrove-Brown appeared at the companies’ offices
claiming to be new management, but she was not an officer or employee of
the Hospice and had no authority to file the bankruptcy petition.
The U.S. Trustee argued that the court should require Mr. Reznick to
show cause why he should not be referred to the disciplinary panel
pursuant to Local Bankruptcy Rule 2090-2(b) for initiating fraudulent
bankruptcy cases. He also cited Rule 9011 as a basis to impose sanctions.
Finally, the U.S. Trustee urged the court to require Dr. Hargrove-Brown to
show cause why she should not pay the case trustee’s fees and be barred
from future bankruptcy filings.
The bankruptcy court granted the OSC Application and issued the
order to show cause (“OSC”).
D. The OSC proceedings
1. Mr. Reznick’s and Dr. Hargrove-Brown’s responses
In response to the OSC, Mr. Reznick filed a declaration in which he
asserted that the U.S. Trustee had been “duped” by Ms. Rivera, a “criminal
6
mastermind.” He asserted that, as a physical therapist, Ms. Rivera could
not own, control, or operate a medical corporation. Rather, he maintained
that Dr. De La Llana owned the Hospice and was its medical director.
Mr. Reznick stated that Ms. Rivera and others had engaged in an
embezzlement scheme against NobleQuest, the Hospice, and an affiliated
company called Care Plus, Inc. He said that he filed the superior court
complaint against Ms. Rivera, and JPMorgan Chase Bank froze the
Hospice’s bank accounts; as a result, the Hospice had to file for bankruptcy
protection.
Mr. Reznick maintained that the Hospice was insolvent on the
petition date and that he did not act fraudulently or in bad faith. He
claimed that he told the U.S. Trustee that he intended to file an amended
petition and schedules. He said that the U.S. Trustee ignored his requests to
reschedule the § 341(a) meeting, evidencing bad faith by the U.S. Trustee.
Mr. Reznick attached the following documents in support of his
declaration: (1) California Secretary of State filings showing that Dr. De La
Llana was the CEO, secretary, CFO, director, agent, and medical director of
the Hospice; (2) NobleQuest board minutes from September 2, 2021 noting
his allegation of Ms. Rivera’s misappropriation of funds; (3) an October 15,
2021 retainer letter from Mr. Reznick to Dr. De La Llana concerning the
scope of Mr. Reznick’s representation of NobleQuest; (4) the superior court
complaint against Ms. Rivera; and (5) an e-mail transmitting the superior
court complaint to the U.S. Trustee.
7
Dr. Hargrove-Brown, represented by counsel, stated in her
declaration that she was “Global Administrator” for Clinica Medica
General Medical Center, Inc. (“CMG”). She said that, in September 2021,
she joined the board of directors for NobleQuest and was appointed CEO.
She stated that Mr. Reznick contacted her in early December 2021 to
file a bankruptcy petition on behalf of NobleQuest (which was in the
process of merging with CMG). Later that month, he had her sign another
bankruptcy petition on behalf of the Hospice.
2. Responses to the declarations
The U.S. Trustee responded to Mr. Reznick’s and Dr. Hargrove-
Brown’s declarations. He contended that neither respondent presented any
evidence showing that the bankruptcy petition was filed in good faith. He
pointed out that the scant information provided in the petition was
unsupported and did not appear to be truthful. Furthermore, he argued
that Mr. Reznick represented two of the Hospice’s creditors, which created
a conflict of interest.
The Hospice (no longer represented by Mr. Reznick) argued that
Mr. Reznick and Dr. Hargrove-Brown “neither owned nor had any
authority” to file the petition and that “[t]he fraudulent filing was an ill-
conceived hostile takeover attempt of the Hospice by Respondents.”3
3 The Hospice stated that it was incorporated in California in 2014 by Lusine
Harutyunyian. Ms. Harutyunyian initially owned 100% of the Hospice, but in 2017 she
transferred her interest to four individuals with a 25% share each. In 2020, two of those
individuals sold their shares to Ms. Rivera, such that Ms. Rivera owns 50%.
8
3. Further responses
Dr. Hargrove-Brown then changed her tune. In a supplemental
declaration and exhibits that she filed pro se, she said that, based on the
documents filed by the U.S. Trustee, she believed that “my understanding
of what may have transpired is different than what I was led to believe.”
Dr. Hargrove-Brown said that she was told that the NobleQuest
board had elected her its new CEO as a part of CMG’s merger with
NobleQuest and its affiliated companies. She was led to believe that
Dr. Rose owned the Hospice. When she signed the Hospice’s bankruptcy
petition, she believed that she was its president and was authorized to do
so. She later learned that there was a dispute over NobleQuest’s ownership
and that “Mr. Reznick did not have the information he indicated that he
did in the Retainer Agreement.” She stated that she never had a chance to
review her first declaration before it was filed. She concluded that, “[a]t
this point, I am not sure who or what to believe.”
Dr. Hargrove-Brown attached exhibits to support her statements.
Among the exhibits was a lengthy April 2022 e-mail from Mr. Reznick to
Mr. Patel and others, in which Mr. Reznick admitted that he did not have
information about basic facts related to the Hospice. He stated:
Everything I am doing right now is tied in some way to
the Bankruptcy OSC involving [the Hospice], a company I have
been told but have been unable to prove is apparently related
in some way to NobleQuest, the nonprofit I do represent . . . [,]
and Care Plus, Inc. a company that I was informed in October
9
2021 was owned or controlled by Jose De La Lallana [sic] . . . .
I was subsequently informed by Daniel Callahan . . . that
Daniel Rose, M.D., or one of his many related entities . . . now
owns or controls the Debtor, but I have never confirmed this.
I have also asked repeatedly from [Mr. Callahan] and
alleged members of “new” management, including Hargrove-
Brown . . . to provide me with any documentation whatsoever
that proves the legitimacy of your or our team’s management
and control of any of these entities.
Please be advised that beyond the [special litigation
committee notice] that I prepared nearly a year ago, I have
nothing to disprove that Ailene Rivera is not in fact the
legitimate owner of these medical practices but for the fact
that she is not a licensed California physicianbed [sic] by
[Dr. De La Llana]. I asked for anything from [Mr. Callahan],
Kelli [Williams], or anyone else connected with the underlying
matters to find something to show legitimacy.
The United States Department of Justice and US Trustee
are accusing me of filing a fraudulent bankruptcy petition and I
have no documentation to prove otherwise . . . .
Frankly, the answer I have been given by Hargrove
Brown, [Mr. Callahan] and Kelli Williams, namely, that
“Ailene Rivera took all the corporate records we have and we
don’t have a single document” doesn’t pass the smell test.
Needless to say, I cannot fight this battle on my own but
if need be I will. Of course, that will make me adverse to you
and Hargrove Brown and everyone else in this sh*t storm of a
case. I trust that nobody wants that to happen and perhaps we
can get some cooperation with your help before the deadlines.
10
...
Please be further advised that without some genuine
showing of legitimacy in my opposition, as opposed to the
bullsh*t I have received in the past, the OSC will likely be
granted and I will need to appear before the disciplinary
committee to justify what I did . . . . In the meantime, the
California and likely New York and Illinois Bars will suspend
my law licenses pending the committee’s investigation and
report. I will be out of business.
Regrettably all of my requests for information
concerning the companies – since October 2021 – have thus
far fallen on deaf ears, with the same lame refrain, that
nobody has a single document because Ailene Rivera
embezzled everything.
More importantly I do not know who is running the
show right now to get the kind of answers I need before filing
anything else concerning the companies that you and
[Mr. Callahan] are connected with that are also connected with
the OSC. I don’t know who if anyone is telling the truth out
there and don’t understand why we need to play “hide the
ball”? . . .
...
In summary, the bottom line is that I cannot go into court
with the scant evidence we now have against Ailene Rivera.
We will be laughed out of court and it will be binding on us for
any future proceeding, including the pending OSC in the
[Hospice bankruptcy case].
We will need to explain what happened with Ailene
without any further bullsh*t. We need to deal with the facts
we have, even the bad facts. I can fix or spin what I know, but
11
not what is concealed from me. Right now all I have is thin
air and I need help from everyone because Ailene looks to me
and the judge and Department of Justice and Chase [Bank] like
the one who is wearing the “white hat,” while we all look like
common criminals.
(Emphases and asterisks added.)
4. The memorandum decision and order
After a hearing, the bankruptcy court issued its memorandum
decision finding that Mr. Reznick committed fraud on the court and
referring him to the bankruptcy court disciplinary panel.
The bankruptcy court found that, “[a]t the time Reznick filed the
petition, he did not have an objectively reasonable basis for concluding that
Hargrove-Brown, as opposed to Rivera, was the authorized representative
of the Hospice.” It considered Dr. Hargrove-Brown’s declaration and
extensively referenced the e-mail in which Mr. Reznick
acknowledges that he lacked any information to substantiate
his allegation that Rivera was not the legitimate owner of the
Hospice; that he had conducted no due diligence to confirm the
claim . . . that Rose, as opposed to Rivera, owned the Hospice;
that he had no documentation to demonstrate that the instant
bankruptcy filing was not fraudulent; and that he feared that
the filing of the petition could ultimately lead to the suspension
of his law license.
It similarly found that he “lacked any objectively reasonable basis to
conclude that he was authorized to [file the petition]. In an attempt to
distract attention from his own wrongful conduct, Reznick’s response to
12
the OSC consists not of concrete evidence but rather further
uncorroborated allegations against Rivera.”
The bankruptcy court found that, on the petition date, Ms. Rivera
was the president of the Hospice and a 50% shareholder. It found that she
and the other officers did not authorize Mr. Reznick to represent the
Hospice or file the bankruptcy petition. It noted that Mr. Reznick never
produced an executed retainer agreement showing that he was authorized
to represent the Hospice.
The bankruptcy court concluded that, “[b]y signing the petition on
behalf of the Hospice, Reznick was representing to the Court that he had
authority to cause the Hospice to seek bankruptcy protection. That
representation constituted a fraud on the court” and violated Rule 9011.
Accordingly, his conduct was “sufficiently serious” to warrant referral to
the bankruptcy court’s disciplinary panel. It declined to order Mr. Reznick
to disgorge his fees, because he did not receive any fees for representing
the Hospice. Additionally, the bankruptcy court imposed prefiling
restrictions on Dr. Hargrove-Brown.
The bankruptcy court entered its order (“OSC Order”) that
recommended that Mr. Reznick’s privilege to practice in the bankruptcy
court in the Central District of California be revoked for at least three years.
It further recommended that he only be allowed to apply for reinstatement
once he fulfilled certain requirements.
Mr. Reznick timely appealed the OSC Order. Dr. Hargrove-Brown
13
did not appeal the ruling.4
E. The disciplinary panel proceedings
Later, a three-judge disciplinary panel issued its memorandum
decision and agreed with the bankruptcy court that Mr. Reznick had
committed fraud upon the bankruptcy court and had violated Rule 9011. It
determined that the bankruptcy court’s recommendation for discipline was
appropriate and adopted it in full. Mr. Reznick did not appeal the
disciplinary panel’s order, and it is final.
In May 2023, the United States District Court for the Central District
of California also conducted a reciprocal disciplinary review and issued a
similar suspension for three years. 5
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(2)(A). Subject to our discussion below, we have jurisdiction under
28 U.S.C. § 158.
ISSUE
Whether the bankruptcy court erred when it (1) found that
Mr. Reznick had committed fraud on the court and violated Rule 9011 and
4 After briefing was completed, Mr. Reznick’s law firm, Law Offices of Michael E.
Reznick, sought permission to file an amicus brief in this appeal. The motions panel saw
no reason to allow Mr. Reznick a second bite at the apple and denied the motion. We do
not consider any of the arguments raised therein.
5
Mr. Reznick included in his excepts of record his response to the district court’s
order to show cause. As discussed below, we will not consider any of this new evidence
that was not before the bankruptcy court in the first instance.
14
(2) referred the matter to the bankruptcy court’s disciplinary panel.
STANDARDS OF REVIEW
We review for an abuse of discretion the bankruptcy court’s
imposition of sanctions, including referral to a disciplinary panel, under
both Rule 9011 and under its inherent sanctioning authority. See Cuevas v.
Chandler (In re Cuevas), BAP Nos. CC-15-1032-KuKiTa, CC-15-1353-KuKiTa,
2016 WL 5845670, at *3 (9th Cir. BAP Oct. 5, 2016); see also Shalaby v.
Mansdorf (In re Nakhuda), 544 B.R. 886, 898 (9th Cir. BAP 2016), aff’d, 703 F.
App’x 621 (9th Cir. 2017).
To determine whether the bankruptcy court has abused its discretion,
we conduct a two-step inquiry: (1) we review de novo whether the
bankruptcy court “identified the correct legal rule to apply to the relief
requested” and (2) if it did, we consider whether the bankruptcy court’s
application of the legal standard was illogical, implausible, or without
support in inferences that may be drawn from the facts in the record.
United States v. Hinkson, 585 F.3d 1247, 1263 (9th Cir. 2009) (en banc).
“We review our own jurisdiction de novo. Whether a bankruptcy
court’s decision is final, under 28 U.S.C. § 158(d)[,] is a question of law
reviewed de novo.” Silver Sage Partners, Ltd. v. City of Desert Hot Springs (In
re City of Desert Hot Springs), 339 F.3d 782, 787 (9th Cir. 2003) (citations
omitted). “De novo review requires that we consider a matter anew, as if
no decision had been made previously.” Francis v. Wallace (In re Francis),
505 B.R. 914, 917 (9th Cir. BAP 2014).
15
DISCUSSION
A. This Panel has jurisdiction to decide this appeal.
The U.S. Trustee argues that the bankruptcy court’s OSC Order was
not a final order and that this appeal is moot. While we agree in part with
the U.S. Trustee, we hold that we have jurisdiction over this appeal.
1. The OSC Order is a final, appealable order.
The Trustee argues that the OSC Order only referred Mr. Reznick for
“possible discipline,” so it was not a final, appealable order. However, he
also admits that the OSC Order “might be final nonetheless because the
bankruptcy court made a finding of specific misconduct.”
The Ninth Circuit has adopted “a pragmatic or flexible approach to
finality in bankruptcy cases. . . . The test for finality in bankruptcy typically
asks two questions: (1) whether the bankruptcy court’s order fully and
finally determined the discrete issue or issues it addressed; and (2) whether
it resolves and seriously affects substantive rights.” Jue v. Liu (In re Liu), 611
B.R. 864, 870 (9th Cir. BAP 2020) (cleaned up).
The bankruptcy court’s OSC Order is final, in that it fully addressed
the issues raised by the OSC (i.e., Mr. Reznick’s alleged misconduct), left
nothing more for the bankruptcy court to do, and seriously affected
Mr. Reznick’s substantive rights. Although the final determination of the
appropriate punishment was left to the disciplinary panel, that separate
proceeding did not affect the finality of the bankruptcy court’s OSC Order.
Alternatively, even if the OSC Order was not final, we would exercise
16
our discretion to hear the appeal. 28 U.S.C. § 158(a), (b)(1); In re City of
Desert Hot Springs, 339 F.3d at 787 (“It is within the discretion of the district
court and the BAP . . . to hear interlocutory appeals.”).
2. This appeal is not moot.
The U.S. Trustee contends that this appeal is moot, because there is
no longer a live controversy: the bankruptcy court did not impose any
sanction and merely referred Mr. Reznick to the disciplinary panel;
conversely, the disciplinary panel imposed the sanction, and Mr. Reznick
did not appeal. Although the U.S. Trustee is correct that Mr. Reznick’s
appeal of the suspension is not properly before us, we disagree that we
could not grant him any effective relief.
“We cannot exercise jurisdiction over a moot appeal.” Ellis v. Yu (In re
Ellis), 523 B.R. 673, 677 (9th Cir. BAP 2014). “The test for mootness of an
appeal is whether the appellate court can give the appellant any effective
relief in the event that it decides the matter on the merits in his favor. If it
can grant such relief, the matter is not moot.” Pilate v. Burrell (In re Burrell),
415 F.3d 994, 998 (9th Cir. 2005) (cleaned up).
Mr. Reznick is confused about which court ordered his three-year
suspension. He asks that we “vacate the bankruptcy court’s June 27, 2022
order suspending him from practicing in the bankruptcy court for a period
of three years.” He later changes tack, arguing instead that the disciplinary
panel’s ruling was “ancillary” to the bankruptcy court’s ruling and that a
reversal of the OSC Order would necessarily undo the disciplinary panel’s
17
ruling.
The U.S. Trustee is correct that we cannot overturn the three-year
suspension. However, the bankruptcy court also found that Mr. Reznick
committed fraud on the court. If we were to reverse the bankruptcy court’s
decision, the suspension would stand, but the court’s fraud finding would
not. The existence of that finding might affect Mr. Reznick, including his
bar licenses or malpractice insurance. See Ellis v. Bhd. of Ry., Airline & S.S.
Clerks, Freight Handlers, Exp. & Station Emps., 466 U.S. 435, 442 (1984) (“But
as long as the parties have a concrete interest, however small, in the
outcome of the litigation, the case is not moot.”). Thus, we could grant him
some effective relief, even though it is not the primary relief he seeks. 6
Therefore, we have jurisdiction to decide this appeal.
B. The bankruptcy court did not err in referring Mr. Reznick to the
disciplinary panel for committing fraud on the court.
Mr. Reznick focuses his appeal on largely irrelevant arguments
attacking Ms. Rivera’s purported ownership of the Hospice. He also tries to
raise new facts and arguments on appeal that he claims (incorrectly) that he
could not raise in the bankruptcy court. We are not persuaded by any of
these arguments.
6
Because the disciplinary panel also determined that Mr. Reznick committed
fraud on the court and we cannot disturb the disciplinary panel’s order, a decision
overturning the fraud finding in the bankruptcy court might have no appreciable effect.
But there is still at least a possibility that a reversal of the bankruptcy court’s decision
might grant Mr. Reznick some relief.
18
1. The bankruptcy court’s finding of fraud on the court is
adequately supported by the record.
The bankruptcy court determined that Mr. Reznick committed fraud
on the court when he filed the bankruptcy petition on behalf of the Hospice
and continued to advocate for the petition’s viability. When considering
fraud on the court, we must determine “whether it harmed the integrity of
the judicial process. Fraud on the court must be an intentional, material
misrepresentation. Thus, fraud on the court must involve an
unconscionable plan or scheme which is designed to improperly influence
the court in its decision.” United States v. Sierra Pac. Indus., Inc., 862 F.3d
1157, 1167-68 (9th Cir. 2017) (cleaned up); see also Fink v. Gomez, 239 F.3d
989, 991 (9th Cir. 2001) (“[A] court certainly may assess sanctions against
counsel who willfully abuse judicial processes.” (cleaned up)).
Mr. Reznick completely ignores the bankruptcy court’s finding that
he knew that he did not have authority to file the bankruptcy petition. As
the bankruptcy court noted, Mr. Reznick admitted in the April 4, 2022 e-
mail that he could not prove the ownership of the Hospice or disprove
Ms. Rivera’s ownership claims. He characterized the information he had
been given as “bullsh*t” that “did not pass the smell test.” He begged
Mr. Patel and others for proof of corporate “legitimacy” and noted that his
previous requests had gone unanswered. The bankruptcy court also found
that Mr. Reznick could not produce a signed retainer agreement. In
addition, we note that Mr. Reznick never offered a declaration from Dr. De
19
La Llana, the person who supposedly authorized the bankruptcy filing.
Based on Mr. Reznick’s own admissions, the bankruptcy court did
not err when it found that he had no objectively reasonable basis to
conclude on the petition date that Dr. Hargrove-Brown was authorized to
sign the petition. The bankruptcy court rejected Mr. Reznick’s efforts to
deflect from these issues by pointing to alleged wrongdoing by Ms. Rivera
and her “cronies.” 7
At oral argument, Mr. Reznick attempted to explain away his April
2022 e-mail by arguing that, when he signed the petition in December 2021,
he believed in good faith that Dr. De La Llana owned the Hospice and
could unilaterally authorize the bankruptcy petition, and he did not realize
until later that his belief might not have been true. But the e-mail
contradicts his argument: he wrote that he had been asking for information
about the Hospice since October 2021, two months before the petition date,
and that “all of my requests for information concerning the companies –
since October 2021 – have thus far fallen on deaf ears . . . .” His claim of
innocence on the petition date is a recent fabrication.
7
At oral argument, Mr. Reznick insisted that he had presented the bankruptcy
court with evidence that Dr. De La Llana owned the Hospice and could unilaterally
authorize the bankruptcy petition. Mr. Reznick repeatedly referenced the California
Secretary of State filing that he had attached as an exhibit to his declaration. However,
even if ownership was determinative, that document does not identify any owner of the
Hospice. More importantly, Mr. Reznick admitted in his April 2022 e-mail that he did
not have any proof of ownership and control of the Hospice and had not received any
corroborating information from Dr. De La Llana, Dr. Rose, and others.
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The record abundantly supports the bankruptcy court’s findings.
Thus, it did not abuse its discretion when it determined that Mr. Reznick
had committed fraud on the court and made false representations.
2. Ms. Rivera’s ownership interest in the Hospice is irrelevant.
Mr. Reznick primarily argues that the bankruptcy court erred in
finding that Ms. Rivera owned fifty percent of the Hospice. He contends
that a physical therapist such as Ms. Rivera cannot lawfully own shares in a
California professional medical corporation.
As far as we can tell, there is no dispute that Ms. Rivera is a physical
therapist who cannot own a majority ownership interest in a California
professional corporation. There is no evidence, however, that the Hospice
was formed as a professional corporation, as opposed to a simple
corporation. Further, Mr. Reznick offers no authority for the proposition
that only a “professional medical corporation” can conduct the business of
the Hospice.
But we need not definitively answer these questions, because
Ms. Rivera’s purported ownership of the Hospice is irrelevant for the
purposes of appeal. We need only decide whether Mr. Reznick had
authority to file the bankruptcy petition on behalf of the Hospice. Even if
Ms. Rivera could not or did not own the Hospice, it does not necessarily
follow that Mr. Reznick had authority to file the bankruptcy petition.
Mr. Reznick claims that Dr. De La Llana had authority, as “medical
director” of the Hospice, to file the petition. State law governs whether a
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corporation has authorized the filing of a bankruptcy petition. See Price v.
Gurney, 324 U.S. 100, 106 (1945). In California, a corporation generally acts
through its board of directors. See Cal. Corp. Code § 300(a). Mr. Reznick
has not established that a “medical director” can unilaterally decide to file
for bankruptcy on behalf of a corporation.
3. We do not consider Mr. Reznick’s new arguments and
evidence on appeal.
Mr. Reznick raises a host of new arguments and facts on appeal. He
contends that the attorney-client privilege and attorney-work product
privilege barred him from offering this evidence to the bankruptcy court.
This argument is patently frivolous, and we will not consider his new
evidence.
For the first time, Mr. Reznick claims that he had a face-to-face
meeting with Dr. De La Llana in late October 2021 at which Dr. De La
Llana “in fact expressly ‘authorized’ him to represent the Hospice.” He
says that, at this meeting, he provided Dr. De La Llana with a retainer
agreement to expand his scope of legal services,8 and Dr. De La Llana
provided him with a retainer check and proof that he was an officer and
medical director of the Hospice. Mr. Reznick also refers to events that
occurred after he filed his notice of appeal.
8The retainer agreement letter was offered in the bankruptcy court. It only
proposes to expand the scope of Mr. Reznick’s legal services to NobleQuest. It does not
mention the Hospice in any way, much less evidence the Hospice’s retention of
Mr. Reznick.
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Mr. Reznick admits he did not raise these allegations and evidence in
the bankruptcy court, and therefore we will not consider them on appeal.
See Padgett v. Wright, 587 F.3d 983, 985 n.2 (9th Cir. 2009) (we do not
consider arguments and allegations raised for the first time on appeal). We
may consider new arguments when: “(1) there are exceptional
circumstances why the issue was not raised in the trial court; (2) the new
issue arises while the appeal is pending because of a change in the law; or
(3) the issue presented is a pure question of law and the opposing party
will suffer no prejudice . . . .” Momox-Caselis v. Donohue, 987 F.3d 835, 841-
42 (9th Cir.), cert. denied, 142 S. Ct. 402 (2021). “The court will only excuse a
failure to comply with this rule when necessary to avoid a manifest
injustice.” Greger v. Barnhart, 464 F.3d 968, 973 (9th Cir. 2006) (cleaned up).
We discern no manifest injustice here. Mr. Reznick claims on appeal
that he could not reveal this information because he was prevented from
doing so by the attorney-client privilege and attorney work product
privilege. Yet, contradictorily, he asserts that he is free to break the
privilege because there is no longer a risk of harm to his client after the
superior court dismissed a lawsuit by Care Plus, Inc. against him.
Mr. Reznick’s position is untenable. He never raised the privilege
defense in the bankruptcy court, so he has waived that argument. See
Padgett, 587 F.3d at 985 n.2. Furthermore, his explanation as to why he is
now free to disclose the allegedly privileged information lacks any
credibility. Assuming the privileges applied, he may not disregard the
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privileges merely because he unilaterally determines that he and the client
will not personally face any adverse consequences. Finally, he has made no
showing that any of the basic information that was relevant to the OSC –
that he was retained by the Hospice and that he had been authorized to file
the bankruptcy petition – would have been subject to any privilege.
Thus, we will not consider any of Mr. Reznick’s new arguments or
evidence in the first instance on appeal.9
4. Mr. Reznick’s remaining arguments are meritless.
Mr. Reznick contends that the bankruptcy court erred in accepting
the U.S. Trustee’s argument that he had filed multiple other fraudulent
bankruptcy petitions. He claims that those cases were filed by a different
attorney and that he was unaware of any other related bankruptcy case.
Mr. Reznick is misguided. First, the bankruptcy court did not
attribute the many filings to him. Rather, it noted that Dr. Hargrove-Brown
had been involved in seven bankruptcy cases and that Mr. Reznick had
been counsel on two of those cases. It is patently false for Mr. Reznick to
claim that the bankruptcy court attributed all of those filings to him.
Second, as the U.S. Trustee pointed out, Mr. Reznick filed the
Hospice’s bankruptcy petition shortly after NobleQuest’s petition was
dismissed for failure to file documents. He knew that NobleQuest was
9
Even if we did consider the new allegations, we would reach the same
conclusion; the new information and exhibits do not convince us that the bankruptcy
court erred.
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“definitely” a related entity and admitted as much at the meeting of
creditors. Therefore, his continued insistence that it was proper for him not
to disclose any related cases is plainly wrong.
C. The bankruptcy court did not err in referring Mr. Reznick to the
disciplinary panel for violating Rule 9011.
Finally, we note that Mr. Reznick does not directly address the
bankruptcy court’s ruling that he violated Rule 9011. He has waived any
objection to this ruling and, in any event, we discern no error.
Rule 9011(b) provides (in summary) that when an attorney presents a
bankruptcy petition, the attorney is certifying that the attorney has
conducted a reasonable inquiry and that the petition is not being presented
for any improper purpose and has a sufficient basis in fact and law. An
attorney who presents a petition without proper authorization by the
debtor violates this rule. See, e.g., Winterton v. Humitech of N. Cal., LLC (In re
Blue Pine Grp., Inc.), 457 B.R. 64, 77 (9th Cir. BAP 2011) (affirming the
bankruptcy court’s ruling that the attorney violated Rule 9011 when he
proceeded with a frivolous bankruptcy case and “failed to undertake an
objectively reasonable inquiry into the facts and law supporting the
bankruptcy petition, relying instead on information others told him.”), aff’d
in part, vacated in part, 526 F. App’x 768 (9th Cir. 2013) (vacating sanction
amount).
Mr. Reznick signed the Hospice’s petition, thus certifying that he had
undertaken a reasonable inquiry that the petition was not filed for an
25
improper purpose and that the allegations therein had evidentiary support.
Yet, as discussed above, Mr. Reznick later admitted that he did not perform
due diligence to verify that he had authority to sign the petition, did not
know who owned or controlled the Hospice, had no evidence as to the
“legitimacy” of Mr. Patel’s and Dr. De La Llana’s representations, and
knew that the information he had been given was “bullsh*t” that did not
“pass the smell test.” His signature on the petition and continued advocacy
for the viability of the petition thus violated Rule 9011.
CONCLUSION
The bankruptcy court did not err. We AFFIRM.
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