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In re Taylor
United States Court of Appeals for the Third Circuit
655 F.3d 274 (2011)
Niles and Angela Taylor (debtors) had a mortgage with HSBC bank (creditor). Believing the Taylors lived in a flood zone, HSBC obtained flood insurance for $180 monthly added to their usual payments. The Taylors disputed HSBC’s position and continued making their regular payments. HSBC records showed increasing delinquency each month. The Taylors filed bankruptcy, and HSBC’s proof of claim misstated payment amounts and undervalued their home. HSBC hired the law firm Udren to obtain relief from the automatic stay and foreclose. Partner Mark Udren was uninvolved, while managing attorney Lorraine Doyle signed pleadings. HSBC did not communicate directly with foreclosure firms, using a computerized system called NewTrak that assigned cases and sent relevant data without human involvement. Non-attorney employees prepared a motion stating the Taylors failed to make three payments, had an unexplained “suspense balance,” and lacked equity. Doyle proofread the motion without verifying the data other than checking screen prints from NewTrak, which lacked information about the flood-insurance dispute or the Taylors’ equity. The Taylors responded with copies of their checks and raised the insurance dispute. Doyle responded that all the figures were accurate despite the proof of claim still misstating payment amounts. Junior associate David Fitzgibbon tried to admit requests for admissions as evidence knowing they said the Taylors missed payments. The bankruptcy judge refused, noting the attorneys ignored conflicting evidence, and ordered the firm to obtain an accounting of the Taylors’ payments from HSBC. Fitzgibbon failed despite repeated NewTrak requests and admitted he could not contact HSBC to verify information already represented as true. The judge found the firm mechanically filed a motion claiming the Taylors incurred a $4,367 post-petition delinquency over at most a $540 dispute and sanctioned Doyle, Udren, the firm, and HSBC. The district court reversed, and the bankruptcy trustee appealed.
Rule of Law
Holding and Reasoning (Fuentes, J.)
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