IN RE HILL

ne of the parties, or on both of them because there are circumstances in which one of the courses of action is more appropriate than the other two. . . . Conversely, sanctions should fall on the client rather than on counsel when the attorney has relied reasonably on the client's misrepresentations or the client's failure to disclose relevant facts-but the reliance by the attorney must be reasonable under the circumstances.

5A, Wright Miller, Federal Practice and Procedure

at § 1336.2 (2010) (footnotes omitted). See also, 10 Collier on Bankruptcy at ¶ 9011.08[3][a] (2009) (represented party may be sanctioned under Fed.R.Bankr.P. 9011, depending on the client's involvement in the management of the litigation and the decisions that resulted in violation of the rule); Fed.R.Bankr.P. 9011(c)(2) (nature of sanctions).

The evidence showed extensive involvement by Countrywide in the preparation of the Motion to Quash. The fact that two of the Countrywide personnel who were most closely involved are attorneys themselves, Smith and Townsend, further bolsters the Court's conclusion in this regard. See, e.g., Continental Ins. Co. v. Construction Indus. Servs. Corp., 149 F.R.D. 451 (E.D.N.Y. 1993) ( Rule 11 imposes affirmative duty of reasonable inquiry on represented corporation employing members of bar). Having found the existence of sanctionable conduct, the Court is next faced with the question of what is an appropriate sanction.

The touchstone of the Court's consideration is found in Fed.R.Bankr.P. 9011(c)(2), which provides that a sanction imposed for violation of the Rule shall be limited to what is sufficient to deter repetition of such conduct or comparable conduct by others similarly situated. Under the specific facts of this case the Court does not believe a monetary sanction is necessary to achieve that goal. Any monetary sanction the Court might reasonably impose would have minimal further effect on Countrywide, given the costs in attorney fees and settlement payments it has already incurred. The Court is inclined to be lieve that inclusion of the false statement here was the result of reckless disregard rather than an intentional deception. While that does not shield Countrywide from sanctions, it does factor into the calculus of an appropriate sanction. The Court thus intends that the findings made and published regarding this aspect of the case be viewed as a public censure of Countrywide and concludes that is a sufficient sanction against it for violation of Rule 9011. Countrywide is on notice that further instances of this type of misconduct coming before the Court will not so leniently be dealt with.

(5) Goldbeck McCafferty and McKeever and Leslie Puida knowingly and willfully, or with reckless disregard and/or indifference to the applicable facts, violating the discharge injunction granted to the debtor by making numerous and sustained attempts to collect on debt they knew to be discharged or should have known was discharged.

Many of the points addressed in the discussion of Item 2 of the Rule are equally applicable here and will not be repeated. The Court does note that on two occasions Judge Deller did inform local counsel for Countrywide that he had addressed the issue involving the effect of the Cure Order on mortgagees in previous cases. He rather strongly suggested that Countrywide and its attorneys review those cases because, based on the information being presented to him, he perceived that those decisions undermined Countrywide's position in defending the Debtor's Motion to Enforce. Nothing was offered at trial to show that Countrywide's local counsel ever passed Judge Deller's comments on to Puida or to anyone else at GMM. If he had done so, it would be appropriate to expect Puida and GMM to have reviewed those cases and require them to account for any decision to continue to maintain the same legal position in the face of the cases. Since, according to her testimony, the Court must find that local counsel did not relay Judge Deller's comments, Puida and GMM will not be held to that standard.

It was disconcerting to hear at trial that even as of that late date, after being made aware of Judge Deller's comments, Puida still had not read the cases to which Judge Deller referred, i.e., Szalinski and Miller. See 12/9 Tr at 337. The Court would have thought that after she finally learned that Judge Deller specifically mentioned the relevancy of these cases not just once, but twice, she would want to read them for her own professional edification, if for nothing else. Although disappointing to the Court, this failure is not a factor that has been considered in the decision whether to impose sanctions under the Rule.

Furthermore, although Puida and McKeever both testified at trial that the revelation about the Payment Change Letters did not affect their evaluation as to whether it was still appropriate to continue their collection efforts (because of the alternative Section 1322(b)(5) theory), their testimony in this regard was not entirely consistent. In particular, McKeever acknowledged that as of October 26, 2007, the Payment Change Letters were the key to their theory of delinquency in the Hill case (not the Section 1322(b)(5) theory), and that it was "startling" when he learned the news about the Letters from Puida. See 12/8 Tr. at 122, 135.

The following exchange then took place between McKeever and Counsel for the UST at which time McKeever never mentioned the Section 1322(b)(5) theory even though one would naturally have expected him to do so at this point in the proceeding:

Counsel. I am referring to, as you sat there in November 2007, when you learned these payment change letters had-were not sent out, there was no notice, that it was required under the rules, correct? McKeever. Yes. Counsel. So you understood without notice you couldn't ask for those increases anymore? At that time, you understood that? McKeever. Yes. Counsel. So you understood at that time, you could no longer collect this debt, this delinquency from Ms. Hill? McKeever. Well, I understood at that time that we were having negotiations with Mr. Steidl. He didn't raise the issue that it would not be collectable, and he was negotiating a number. 12/8 Tr. at 143-44. Subsequently, McKeever did seem to soften this testimony somewhat by again pointing to Section 1322(b)(5) as an alternative theory ( Id. at 145). Nevertheless, it is difficult to draw any other conclusion from the quoted testimony but that GMM continued the collection efforts even after the original basis for doing so had collapsed primarily because of Mr. Steidl's non-reaction to the news about the Payment Change Letters. Of course, that presumes that Mr. Steidl was in fact told about the Letters, something that is addressed in the next section of this Opinion and resolved unfavorably to the position of GMM and Puida in that the Court concludes Mr. Steidl was not told about the Payment Change Letters.

It should be apparent from the discussion above that the Court does harbor some doubts as to whether GMM and Puida actually thought they possessed a solid, legal basis to continue to pursue collection efforts against Hill once they learned the Payment Change Letters had not been sent. Nevertheless, these doubts do not rise to the level where the Court is prepared to find that the UST has met her burden of proof as to Item 5 of the Rule. (6) Goldbeck McCafferty and McKeever and Leslie Puida intentionally, or with reckless disregard and/or indifference to the applicable facts, failed to disclose to the debtor's attorney that three Payment Change Letters had never actually been sent, all in an improper attempt to collect on questionable debt while attempting to resolve a matter that was pending before this Court.

It is admitted by Puida that Countrywide personnel informed her that the Letters had never actually been sent, although there is some dispute about exactly when that discussion happened. ( See 12/9 Tr. at 77-84; 390, 393). The relevant issue underlying this element of the Rule is whether Puida, in turn, then informed the Debtor's attorney about the Letters. There is absolutely no documentary evidence memorializing such an event so the Court is forced to reach a finding of fact based primarily on the testimony of Puida and Mr. Steidl — the only two people who know for sure whether Puida ever said anything, as well as whatever circumstantial evidence may be available.

There was a stark and seemingly irreconcilable disagreement at the trial in the testimony on this point. Puida testified that after she learned about the Payment Change Letters from Hook she spoke with McKeever, who told her to immediately call Mr. Steidl. (12/9 Tr. at 395). She said at first she was unable to reach him but she finally contacted him by telephone at which time she told him the Payment Change Letters were recent creations. She was unable to give the date when this occurred, other than to say she thought it was after October 30^th, shortly after her conversation with Hook. ( Id. at 398). She could not say what time of day the call took place and made no memorandum of any type to document it. ( Id.) Puida claimed the call in question was made "proactively" for the specific purpose of telling Mr. Steidl about the Payment Change Letters. ( Id. at 402-03). She testified that in a previous conversation with Mr. Steidl he had indicated to her that he could not find the Letters in his files. When she made this proactive call she referred to that prior conversation and then explained to him why the Letters were not in his file. Puida summarized thecontent of the discussion as follows:

At trial the Court inquired whether there were any telephone records to show that such a telephone call from Puida to Steidl occurred during the week from October 30-November 6 and was told by Puida's counsel that "[w]e didn't pull any phone records. That wasn't part of the discovery." Puida testified that the call was made from her office. (12/9 at 401).

I had told him that the letters hadn't been sent, that they were merely meant to show payment changes that had occurred on those dates. And he said okay. He wasn't giving me an argument or anything about them. And that was all there was to that conversation. Then we continued to try and resolve the motion.

(12/9 Tr. at 412).

Mr. Steidl's testimony was that he received a fax from Puida's office on October 25, 2007, which included the Payment Change Letters as attachments, coinciding with the opening of settlement discussions in the case. (12/7 Tr. at 158). He believed the Letters were real and checked his file carefully but could not find them. He forwarded copies of the Letters to the Debtor on October 26^th, informing her that Countrywide had just provided them to him but he did not have them in his file, and asking whether she had them. The Debtor said she did not have the Letters in her documents, nor did the Chapter 13 Trustee possess them after he checked with her office. Mr. Steidl testified he believed the Letters to be real and never informed Puida that he did not have them in his file.

Mr. Steidl was adamant that Puida never told him that the Letters were not what they purported to be. He was able to pinpoint to within 5 minutes of when he first became aware that there might be a question about the legitimacy of the Payment Change Letters. He testified that happened between 8:20 a.m. and 8:25 a.m. on December 20, 2007 while his wife and law partner, Julie Steidl, was in a separate room at the firm's offices reviewing the Debtor's file in preparation for a hearing later that day on the Motion to Enforce.

At that time Ms. Steidl happened to notice that the earliest of the three Payment Change Letters might predate the firm's move to its current address, which piqued her interest because it showed the current address on the letter. She called out to her husband asking what date they had moved to the new address. Mr. Steidl testified that his exact words in response were "[w]hat the hell difference does that make?" After Ms. Steidl said "just tell me," Mr. Steidl informed her that the firm had not moved to the current address until October 24, 2003 and it had not received any mail at that address prior to that date. Ms. Steidl then pointed out to him that the first letter was dated September 22, 2003, yet showed that it had been sent to the firm at the current address. Mr. Steidl responded that this discrepancy was "really interesting" and asked Ms. Steidl to inquire about it at the hearing.

There was general agreement that Ms. Steidl did make an inquiry to Puida about the Payment Change Letters when they met each other just prior to the hearing, although there was some conflict in the testimony as to exactly what was said. It is, of course, a matter of record that Ms. Steidl raised the question about the Letters at the December 20^th hearing and it was clear to the Court at that time that she was truly perplexed about them.

The Court is left to determine what really happened regarding the communications between Puida and the Debtor's attorneys. Based on its evaluation of the evidence presented, the Court concludes GMM and Puida did not inform the Debtor's attorney about the true nature of the three Payment Change Letters prior to December 20, 2007. Because of the obvious gravity of this finding as to those parties, the Court will provide some detail to explain how it arrived at this conclusion.

As a starting point, the Court finds that Puida and GMM bear the burden of proof on the issue of whether the Debtor's counsel was informed about the true status of the Payment Change Letters. They acknowledge that they originally provided the false and misleading Letters to the Debtor's counsel during the course of the bankruptcy court litigation even though they did not realize the true nature of the Letters at the time. They further fully acknowledge that at some point thereafter they were made aware of the true nature of the Letters. As a means of ameliorating what had been done, they contend that the Debtor's counsel was informed about the Letters. This position is in the nature of an affirmative defense, and in accordance with the well-recognized general rule, the party asserting such a defense bears the burden of proof on it. See, Taylor v. Sturgell, 553 U.S. 880, 907 (2008), Martinelli v. Bridgeport Roman Catholic Diocesan Corp., 196 F.3d 409, 428 (2d Cir. 1999) (law places the burden of proof on the party that asserts a contention and seeks to benefit from it). Furthermore, evidence as to whether Puida informed Mr. Steidl about the Letters, if in fact it exists, is something that would be within the control of Puida and GMM rather than the UST, which provides another reason to place the burden of proof as to this issue on them. United States v. Santee Sioux, 254 F.3d 728, 733 (8^th Cir. 2001) (when the true facts relating to a disputed issue lie peculiarly within the knowledge of one party it is fair to assign the burden of proof to that party). With that conclusion as to the burden of proof in mind, the Court turns to a closer review of the evidence.

On the most basic level, the Court simply found Mr. Steidl to be a more credible witness than Puida regarding this point. He was very clear that he had never been told about the Letters and he gave a detailed and believable explanation as to how he became aware for the first timeon the morning of December 20^th that there might be a question as to their authenticity. He testified to a previous, good-working relationship with Puida. No apparent motive has been demonstrated for him to be untruthful on the question of whether he was ever informed by her about the Letters.

On the other hand, although consistently maintaining that she did in fact inform Mr. Steidll about the Payment Change Letters, Puida's testimony was vague on when the supposed conversation took place and the circumstances surrounding it. She has long been on notice as to the importance of the conversation she supposedly had with Mr. Steidl wherein the nature of the Letters was disclosed to him. But at trial, she still could not provide the date or even a time of day, on which the conversation took place beyond a very rough approximation.

Puida's general credibility as a witness was damaged by other, more peripheral areas of her testimony as well. For instance, the Court did not find her testimony to be credible on the topic of why, in another case in this Court in which it represented Countrywide, GMM made a business decision to fully assume responsibility to pay a sanction itself without informing Countrywide of that or of any other circumstances surrounding the issue. See 12/09 Tr. at 284-315.

The Court also found Puida's credibility lacking in regard

s to her response to questions going to the "heightened importance," in late October through December of 2007, of the Hill case to both Countrywide and GMM once the Chapter 13 Trustee and UST proceedings were started. It is obvious to the Court, based on all the evidence presented, that the Hill case became an extremely important matter to all associated with Countrywide. At that point, under the circumstances, there was nothing wrong with such a realization. However, rather than freely concedethe point, Puida only grudgingly acknowledged the obvious after continued prodding. See 12/9 Tr. at 353-354.

The Court is also troubled by the representation Puida made to Countrywide on October 26^th that she had "resent" materials, including the Letter, to Mr. Steidl. There was no evidence that the materials had ever previously been sent to Mr. Steidl and in fact the facsimile from Puida to Mr. Steidl which accompanied the materials said nothing about being a "resend." The Court is then left to conclude that Puida was not being candid about this, further damaging her credibility with the Court.

Finding a lack of credibility as to the foregoing matters, the Court assesses Puida's overall credibility in light thereof. See Bennun v. Rutgers State Univ., 941 F.2d 154, 179 (3d Cir. 1991) (when court is the finder of fact it may apply the principle of falsus in uno, falsus in omnibus). Further undermining her credibility, Puida's trial testimony concerning the purported conversation with Mr. Steidl conflicted with statements she made to the Court at the December 20^th hearing. At that earlier hearing she stated as follows in response to a question from the Court as to when she had told Mr. Steidl that the Payment Change Letters, on their face, were not what they appeared to be:

Your Honor, I wouldn't be able to give you an exact date. I had a conversation with Mr Steidl where he indicated that he had never received the letter. He had checked his file, and I told him, well, you wouldn't have, because this was — these were not sent out.

Tr. of 12/20/07 Hrg. at 11-12, Ex. DU. The Court understood this to be a reference to the contents of a single conversation wherein Mr. Steidl commented about not having received the Letters and Puida responded to explain why. However, at trial Puida testified to two separate conversations. Shestated that Mr. Steidl had told her during a prior conversation that he did not have the Letters, and then, when at some later time after she learned from Hook that the Letters were not real, she called Mr. Steidl for the specific purpose of telling him about them. 12/9 Tr. at 402-03.

When confronted with this apparent discrepancy at trial, Puida testified that she should have been "more precise" at the December 20th hearing, but she had really meant that there had been two conversations separated in time. The Court does not find this explanation to be credible. There was absolutely nothing in the statement by Puida at the December 20^th hearing that would indicate that the crucial event of her learning the truth about the Letters from Hook intervened between Mr. Steidl's comment that he did not have the Letters in the file and her telling him that they had never been sent.

Lest it be thought that Puida was not on notice at the December 20^th hearing that her statements to the Court on this issue were very important and therefore needed to be "precise," the Court notes that its question to her, which elicited the quoted response, included the following: "I want you to be totally candid with me, because I'm going to ask these questions of Mr. Steidl as well at some point."

There are other factors that lead the Court to reach the conclusion that Puida did not inform Mr. Steidl that the Letters were other than what they appeared to be. One is the complete lack of documentation to provide any evidence of the purported conversation. An attorney, who by her own admission held out false letters to opposing counsel as being real (12/9 Tr. at 374), even if innocently so, and then subsequently becomes aware of their falsity, is in an ethically tenuous position. In such circumstances the attorney has an obligation to correct matters by informing opposing counsel. See Fed.R.Bankr.P. 7026, incorporating Fed.R.Civ.P. 26(e)(1)(A) (requirement to correct a response to a discovery request later learned to be incorrect); Fed.R.Bankr.P. 7037, incorporating Fed.R.Civ.P. 37(c)(1) (sanctions for failure to provide corrective information); Pa. Rules of Professional Conduct 4.1 (lawyer may not knowingly make false statement of material fact to a third person).

Given the level of seriousness involved, the Court believes that most attorneys facing a similar situation would make the correction to opposing counsel in writing, or confirm it in a writing following a phone call if speed was of the essence. Or, at the very least, place a note or memo in the file to provide some evidence that the correction had been made. Similarly, there is no documentary evidence of any kind to memorialize the purported meeting between Puida and McKeever during which she allegedly informed him about the Letters. The evidence does show that the Hill case was a high-priority matter by the end of October 2007 and that Puida and McKeever were extensively communicating with each other about it by e-mail. Despite that, there is no reference in any of these communications about Puida learning the truth about the Letters or telling McKeever that she had told Mr. Steidl about them. The inability of Puida or GMM to produce any documentary evidence in this regard is another negative factor in weighing their credibility.

Countrywide's case also featured a lack of documentation demonstrating that Hook had in fact called Puida to tell her the Letters were false. Hook herself acknowledged this was a significant event which should have been documented in the Countrywide AS400 system. Had Puida denied ever being told about the Letters by Hook, the Court would have likely weighed that lack of documentation by Countrywide in the credibility balance. However, since Puida admitted that Hook did tell her, the lack of documentation by Countrywide is of little moment.

In weighing Puida's credibility, it is also instructive to compare the lack of documentary evidence to support the GMM/Puida position with the available documentary evidence from Mr. Steidl. The evidence clearly established that it was his regular practice to communicate with the Debtor via letter. When he received the Payment Change Letters from Puida on October 25^th he promptly forwarded them to the Debtor the next day and specifically noted in his accompanyingletter to the Debtor that he did not have copies of them in his file. He asked the Debtor to look to see if she had copies of the Letters. According to Puida's testimony, Mr. Steidl would have been told by her about the true nature of the Letters fairly soon thereafter but there is nothing in any of his subsequent Letters to the Debtor to that effect. It would seem natural that an attorney who had bothered to inform his client in the first instance about not having the Letters in his possession would likewise inform that client if and when he discovered the reason why they were not in his possession (and thus, would not be in hers either). The lack of any such communication from Mr. Steidl to the Debtor further confirms the Court's conclusion that prior to December 20^th, Mr. Steidl was not told the truth about the Letters.

Not only is there a lack of documentary evidence to support the contention that Puida informed Mr. Steidl, there was no supporting oral testimony from anyone else other than McKeever. He testified that Puida told him she had spoken with Mr. Steidl about the Payment Change Letters, but he was very vague as to when this conversation took place. (12/8 Tr at 157-58). On the other hand, Hook testified that Puida never told her that she had communicated with Mr. Steidl and informed him of the true nature of the Letters (12/9 Tr. at 129). McKeever acknowledged that he does not know if anyone at Countrywide was ever told that Puida had spoken with Mr. Steidl about the Letters. (12/8 Tr. at 160). Ms. Steidl testified that when she asked Puida about the Letters prior to the December 20^th hearing, Puida did not tell her that she had told Mr. Steidl about them. ( Id. at 19).

Another factor that contributed to the Court's conclusion is the lack of any evidence showing a change in attitude or approach on the part of the Debtor and her attorney after the disclosure was supposedly made. Countrywide, acting through Puida and GMM, continued to pursue a settlement on the basis that the Debtor had been given notice of the changes in her mortgage payments and Mr. Steidl continued to respond in a manner which seemed to acknowledge that notice had been given, only questioning the amount of the changes. Even though at trial both the Respondents and Mr. Steidl expressed the view that there still might have been a basis for Countrywide's claim even in the absence of proper notice of payment changes having been given, it was clear that the appearance that notice had been given was a significant factor in how the Parties viewed the case. See 12/7 Tr at 204, 231 (Mr. Steidl testimony as to importance of the Letters in his negotiations); 12/8 Tr at 135 (McKeever testimony as to significance of Letters). A bombshell going off during settlement negotiations to the effect that the Letters were actually "phonies" would be expected to leave some evidence behind — an expression of outrage from Debtor's counsel at having been misled, a sudden change in settlement posture — but the Court sees none in this record. The most logical explanation for the absence of any such evidence is that the bombshell never went off.

In reaching its decision on this Item of the Rule, the Court is also mindful of the possible motives of the Parties. There is no obvious reason for Mr. Steidl to be untruthful in his testimony that Puida never informed him about the Letters. Both he and Ms. Steidl testified to a good, prior working relationship with Puida, so personal animus is ruled out. Mr. Steidl candidly testified that one of his major concerns upon being presented with the Letters by Puida was that he had somehow erred by not amending the Debtor's Chapter 13 plan to increase the monthly payments to reflect the changes noted in the Letters. He thought that this perceived error on his part would make him responsible for the shortfall that Countrywide was seeking. A revelation that the Letters were false would thus, in a sense, have been welcome news for him. Certainly there would be no reason for him to hide such news from the Debtor or to provide false testimony denying he had been told about the Letters.

On the other hand, there are a number of possible motives for Puida and GMM to fail to make the disclosure. Perhaps they thought that making the disclosure would diminish the prospects of settling the case — at a time when they were under intense pressure from one of their largest clients to settle in order to bolster the lack of standing argument being made in the Chapter 13 Trustee and UST matter. Possibly, because matters had progressed so far, and due to their "good, working relationship" with Mr. Steidl they believed the matter would be settled and were just uncomfortable with the prospect of having to explain and apologize to Debtor's counsel, finding it easier to avoid that unpleasant task altogether by not mentioning the Letters. Conceivably, once the matter heated up in late October, Puida realized that copies of the Letters and the payment history had never been previously forwarded to Mr. Steidl in September when GMM received them from Countrywide. Or perhaps, to avoid the embarrassment of admitting that failure to GMM's client, Puida instead misrepresented to Countrywide that she had to "resend" the materials — with the deceptionescalating from there.

In his closing argument, Counsel for the UST also commented on possible "incentives" that Puida and GMM would have had not to tell Mr. Steidl about the Letters. In addition to the potential motives mentioned in this Opinion by the Court, Counsel pointed out that a disclosure to Mr. Steidl would have introduced an unwanted element of uncertainty into the settlement discussions because Puida/GMM could not have known how Mr. Steidl might react to such news — for example, he might inform the Court. Counsel also pointed out that the timing of the revelation about the Letter could not have been worse for Countrywide, given the nearly contemporaneous filings by the Chapter 13 Trustee and the UST concerning Countrywide and suggested that as another possible reason why Puida/GMM would choose not to inform Mr. Steidl. The Court certainly views these as other plausible motives underlying the failure to disclose.

This last scenario would explain the curious omission from Puida's October 26^th 2:05 P.M. e-mail to Countrywide of the report in the 1:03 P.M. email to McKeever that Steidl stated he did not have the Letters in his file.

To make a finding under Item 6 of the Rule, proof of a motive is not specifically required. Therefore, the Court need not consider the actual motive(s) of GMM and Puida in failing to address the issue with Mr. Steidl. Nevertheless, possible motives clearly exist.

For all of the above reasons, the Court must reluctantly conclude that GMM and Puida failed to disclose the true nature of the Payment Change Letters to Mr. Steidl. The Court must further conclude that they did so intentionally, or with reckless disregard, because an alternative explanation of failure based on mere negligence or inadvertence is simply not plausible.

(7) Goldbeck McCafferty and McKeever and Leslie Puida intentionally, or with reckless disregard and/or indifference to the applicable facts, made inaccurate oral statements in response to the Court's inquiry regarding when Leslie Puida told the Debtor's attorney that the three Payment Change Letters were not what they purported to be, but instead were memoranda created years after the event.

The underlying issue involved in deciding this aspect of the Rule concerns Puida's statements to the Court at the December 20, 2007 hearing when questions regarding the Payment Change Letters were raised by Ms. Steidl. It is beyond dispute even by GMM and Puida, that a number of statements made by Puida at that hearing were factually untrue:

• "Your Honor, regarding the letters, they were never held out to be letters that were sent notifying anyone of payment changes." (12/20/2007 Tr. at 9: 24-10:1).

• "The letters again were never offered as being something that was sent out to debtor's counsel or to the Trustee." ( Id. at 19:16-18).

• "Throughout my discussions with Mr. Steidl when we were trying to resolve this matter." (Id. at 10: 24-25 (stated in response to a question from the Court as to when she had disclosed that the Letters were not what they appeared to be)).

The first and second of these statements are demonstrably false based on Puida's own trial testimony. She testified at trial that the Letters were initially held out as having been sent as indicated, something she herself believed to be true at the time. ( See 12/9 Tr. at 374-75). Further confirmation of the falsity of these two statements comes from the cover sheet which Puida sent to Mr. Steidl accompanying the Payment Change Letters which clearly implies they were "real" and meant to be viewed in that way. ( See, UST Ex. BZ)

The third statement in the above list is false because Puida testified at trial that there was but a single conversation during which she supposedly told Mr. Steidl about the Letters, whereas the statement made on December 20^th clearly indicates repeated representations of this type were made "throughout" the extended settlement negotiations with Mr. Steidl. ( See 12/10 Tr. at 12-13). Additionally, based on the Court's finding above to the effect that Mr. Steidl was not informed of the true nature of the Letters until December 20^th, at least one other statement made by Puida at the December 20, 2007 hearing was not true. This misrepresentation occurred when Puida stated:

"I had a conversation with Mr. Steidl where he indicated that he had never received the letter. He had checked his file and I had told him, well, you wouldn't have, because this was — these were not sent out."

( See 12/20/2007 Tr. at 12:1-4)

Taking the falsity of Puida's statements as given, the question for the Court here under the Rule is whether those statements were made deliberately or with reckless disregard. At trial, Puida would only acknowledge that she "should have been more precise" in her statements at the December 20^th hearing. (12/10 Tr. at 407). She further said she only came to that realization after she saw a copy of the transcript from the hearing. ( Id. at 409). In other words, it appears that Puida seeks a conclusion that she may have acted carelessly, but innocently, in responding to the Court, with no intent to deceive. After careful consideration the Court rejects such a conclusion.

As pointed out above, at the December 20^th hearing the Court was very direct with Puida and instructed her that she should answer carefully and candidly because it was clear even then that the subject of the Payment Change Letters was significant and the Court would inevitably at some point be asking the same questions of Mr. Steidl. Moreover, the subject of the Letters had come up twice previously on the same date of the hearing — once by Puida herself at a meeting at the office of Countrywide's counsel and once when Puida and Ms. Steidl spoke in the hallway. This was not, then, a situation where Puida was somehow caught off guard with a totally unanticipated line of questions, or where she was in any way misled by the Court as to the significance that would be placed on her answers to its questions. Furthermore, since the alleged conversation(s) occurred relatively close in time to the December 20^th hearing, it is fair to conclude that Puida's memory of the events would be more clear and distinct then her memory months or even years later at trial.

Puida's contention that she only realized the inaccuracy of her statements after she saw the transcript from the hearing also rings hollow. The transcript from the hearing was requested bythe UST the very next day and the completed transcript was docketed on January 7, 2008. See Document No. 107. The filing receipt for the transcript shows that electronic notice of the filing was sent to Puida. Once Puida read the transcript and realized she had made false statements to the Court, she was under a duty to take remedial action by informing the Court as to any misstatements. See Pa. Rules of Professional Conduct 3.3(a)(1) (lawyer shall not knowingly make a false statement of material fact to a tribunal or fail to correct a false statement of material fact previously made by the lawyer). Had Puida been acting in good faith the Court would have expected a prompt correction once she reviewed the transcript, but that was not forthcoming.

When this point was raised at trial, Puida responded that she did not read the transcript until she was being represented by counsel in this matter and acted on advice of counsel in not advising the Court about the misrepresentations at the December 20^th hearing. (12/9 Tr at 409-10). The Court rejects this excuse for several reasons.

First, no attorney even sought to enter an appearance on behalf of Puida and GMM until July 14, 2008 (shortly after the UST filed its Motion for Rule to Show Cause on June 23, 2008), which was more than six months after the transcript was filed. The Court finds it difficult to believe that Puida did not read the transcript of the December 20th hearing until after she was being represented by counsel in this matter. The hearing was a dramatic event that received considerable notoriety and Puida was at the center of the firestorm. The Court believes she must have read the transcript as soon as it became available. Second, even assuming she did not read the transcript until after she was being represented by counsel who advised her not to take remedial action, the Court does not believe that can excuse her obligation to do so as an officer of the Court under the PA Rules of Professional Conduct.

For the above reasons, the Court concludes that Puida intentionally, or at least with reckless disregard, made inaccurate statements at the December 20^th hearing.

(B) Beyond the Rule to Show Cause: Attorney Misconduct Arising During the Trial

In addition to the particular points raised in the Rule, several other areas of potential misconduct came to the Court's attention during the trial that now require comment. One involved the deposition testimony of Charles Townsend, Assistant General Counsel of Countrywide, that was read into the record by the UST during her case.

In this testimony Counsel for the UST questioned Townsend closely about his role, if any, in attempting to settle the Hill matter, particularly during the period of late October 2007, when there was a flurry of activity in that regard following the filings by the Chapter 13 Trustee and the UST. Townsend testified that he "did not have a role in that litigation" (meaning the current matter) and "had no role in the motion to enforce discharge litigation." 12/9 Tr. at 230-31. When asked specifically about any involvement in settlement negotiations in Hill during the October 24-26th period, Townsend responded that he "had no participation in negotiations or parameters." He further testified that despite his position with Countrywide, he did not need to be informed of, or approve, any settlement in the Hill matter. Id. at 252-53.

At the conclusion of Townsend's testimony, the Court was thus left with the clear impression that Townsend was not involved in any way with the Hill case and the focused efforts to get it settled. There was no documentary or other evidence to the contrary, so the Court did not evenconsider the extent of Townsend's involvement in the Hill settlement effort to be at issue. However, in the evening, at the very end of the third day of trial, Countrywide's attorney asked questions of Puida that resulted in the Court ruling Countrywide had "opened the door" for admitting into evidence certain e-mails that, up to that point, had been the subject of a privilege claim by Countrywide and thus not available to the UST or the Court.

Pursuant to a Pretrial Order, Countrywide had previously been directed to set aside the emails in a "privilege file" so that at the time of Trial, in case their privileged status became an issue, they would be immediately available. Based on the line of questioning by Countrywide's attorney, the Court directed the entirety of the emails to be turned over. Thereafter, a member of the Court's staff reviewed them prior to the start of the fourth day of trial and provided a summary to the Court of those possibly relevant to the Townsend issue. The Court ultimately ruled that eight of these e-mails should be disclosed to the UST and made available for use at trial. These e-mails were marked as Court Exhibits 1-8.

These formerly-privileged e-mails paint a far different picture of Townsend's involvement in Hill than did his testimony. For instance, Court Exhibit 6 is a series of e-mails between McKeever and Townsend from the afternoon of October 25^th. In the first one, Townsend asks McKeever to try to get the October 31^st hearing on the motion in Hill continued for a few weeks so "we can try to do a workout". He further asks McKeever to let him know about the possible continuance by the next day because if the hearing is not continued "we need to formulate a strategy for the hearing." In his reply, McKeever assures Townsend that "[w]e won't settle any of it without your input."

Court Exhibit 8 is another series of e-mails, this one from the afternoon of October 30^th. The first is an e-mail from Townsend to Puida, with copies going to several other people, including McKeever, with the simple message: "Any updates?" McKeever responded to that e-mail by reporting (erroneously) to Townsend that the matter had been resolved and Hook had received thedetails. McKeever concluded by asking whether "you or Lord Locke [Countrywide's outside counsel in the UST Rule 2004 Notice matter at the time] want to review the stip?" Townsend replies "Both of us."

Based on these e-mails, and the assumption that Townsend reviewed them and other relevant materials prior to the deposition so that his memory was well-refreshed, the only conclusion the Court can draw is that he was being deliberately misleading in his testimony as to the nature of his involvement in the Hill matter and the attempt to settle the Motion. But for the happenstance of the admission of the formerly privileged e-mails the Court may never have become aware of the deception. In addition to the obvious impropriety of Townsend providing misleading testimony, this is troubling because clearly counsel for some of the parties were aware of the content of the e-mails and had to know that Townsend was misleading the Court, but did nothing to bring it to the Court's attention.

Countrywide vigorously opposed the effort by the UST to depose Townsend on attorney-client privilege grounds, filing a motion to quash a subpoena that the UST had served. See Document No. 308. The matter was heavily litigated, being the subject of several arguments and orders by the Court and a supplemental filing by Countrywide. See Document Nos. 368, 379, 430. The Court ultimately denied Countrywide's motion and allowed the deposition to go forward with certain safeguards. For present purposes, given the obvious sensitivity of Countrywide to Townsend being deposed, the Court has no doubt that he was well prepared for the deposition.

First, as to Townsend himself, the Court concludes that something must be done in response to his misleading testimony. Townsend was not just another witness in the case. He is an attorney, an officer of the Court, who actually entered an appearance on behalf of Countrywide in thiscase. As such, the Court is not inclined to take the easy path and look the other way concerning, at best, the lack of candor of his testimony. Townsend will be required to appear before this Court to personally explain his conduct so a determination can be made as to whether sanctions should be imposed against him or this matter should be referred to the proper disciplinary authorities.

The Court considers Townsend to have appeared for Countrywide in this case even though he did not sign any pleadings or enter a formal appearance. The Amended Motion to Quash, Document No. 308, which Countrywide filed in an effort to keep Townsend from being deposed by the UST states that Townsend "had specific responsibility for representing Countrywide in connection with the Hill case." Id. at ¶ 22. At hearings on this Motion to Quash Townsend appeared and sat at counsel table with the other Countrywide attorneys, and when the Court asked for the entry of appearances of attorneys at these hearings Townsend's name was given. See Tr. of 11/26/2008 Hrg. at 6, Document No. 399, Tr. of 1/26/2009 Hrg. at 6, Document No. 439. The Court made clear at both of these hearings that it viewed Townsend as having entered an appearance as an attorney for Countrywide in the case, at one point explicitly stating that it had jurisdiction over him as a result. See Tr. of 11/26/2008 Hrg. at 10, 18, Tr. of 1/26/2009 Hrg. At 36-37. There was never any response or objection from Townsend or anyone else disputing the Court's view in that regard.

The apparent falsity of the Townsend testimony, and the failure to make any effort to correct it, implicates the professional responsibilities of other attorneys in the case as well — those who had knowledge of the previously privileged but as yet undisclosed e-mails evidencing Townsend's participation in the October 2007 events. At the very least when the deposition testimony was offered, counsel should have alerted the Court as to its inaccuracies. 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 re Ocon, 2007 WL 781233 *3 (Bankr. S.D. Fla. 2007) quoting Kupferman v. Consol. Research Mfg. Corp., 459 F.2d 1072, 1078 (2d Cir. 1972). Fraud on the court "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 compromisedby the fraudulent behavior of its officers." Hazel-Atlas Glass Co. v. Hartford Empire Co., 322 U. S. 238, 246 (1944). "The very temple of justice [is] defiled." Universal Oil Prods. v. Root Ref. Co., 328 U. S. 575, 580 (1946). "If our adversary system is to function according to design, we must assume that an attorney will observe his responsibilities to the legal system as well as to [the] client." Geders v. United States, 425 U. S. 80, 93 (1976).

The Pennsylvania Rules of Professional Conduct, Rule 3.3 provides that:

A lawyer shall not knowingly:

. . .

(3) Offer evidence that the lawyer knows to be false. If a lawyer, the lawyer's client, or a witness called by the lawyer, has offered material evidence before a tribunal or in an ancillary proceeding conducted pursuant to a tribunal's adjudicative authority, such as a deposition, and the lawyer comes to know of its falsity, the lawyer shall take reasonable remedial measures, including, if necessary, disclosure to the tribunal. . . .

Pa.R.P.C. 3.3. Rule 3.3, cmt. 2 provides in part, that "[t]his Rule sets forth the special duties of lawyers as officers of the court to avoid conduct that undermines the integrity of the adjudicative process. . . . . . . . [T]he lawyer must not allow the tribunal to be misled by false statements of law or fact or evidence that the lawyer knows to be false."

Rule 3.3, cmt. 10 discusses remedial measures. It provides in part, "if the lawyer knows of the falsity of testimony elicited from the client during a deposition, the lawyer must take reasonable remedial measures. In such situations, the advocate's proper course is to remonstrate with the client confidentially, advise the client of the lawyer's duty of candor to the tribunal and seek the client's cooperation with respect to the withdrawal or correction of the false statements or evidence. If that fails, the advocate must take further remedial action. If withdrawal from the representation is not permitted or will not undo the effect of the false evidence, the advocate must make such disclosure to the tribunal as is reasonably necessary to remedy the situation . . .". See also Pa. R.P.C. 1.6

It appears to the Court that counsel, with knowledge of the misleading Townsend testimony, had a duty to take some remedial action respecting it, even though that could potentially require divulging attorney-client privileged material. For instance, in a somewhat similar circumstance, the Honorable R. Stanton Wettick, a highly-regarded judge of the Allegheny County, PA, Court of Common Pleas, stated:

An attorney who claims the [attorney/client] privilege on behalf of a client cannot do so without first reviewing the communications for which the privilege is sought. This attorney has a duty to prevent a client from offering false evidence. See Rule 3.3 of the Rules of Professional Conduct. This means, for example, that in an environmental coverage case counsel for the insured cannot permit a representative of the insured to testify that the insured first learned that certain underground water was polluted in January 1993 if this testimony is inconsistent with a communication between the insured and its counsel in 1991 which referred to a pollution problem involving this same underground water.

Mueller v. Nationwide Mut. Ins. Co., 1996 WL 910155 *10, 31 Pa. D C 4^th 23, 39-40 (Pa. Com. Pl. 1996). See also, e.g., Montgomery v. Etreppid Techs., LLC, 2009 WL 435195 (D.Nev. 2009) (discussing counsel's obligation under Rule 3.3 and stating that lawyer must not allow the tribunal to be misled by evidence the lawyer knows to be false.)

During the trial the Court also became aware of some apparently routine practices at GMM that raise issues that cannot be ignored. McKeever testified to a procedure at his firm wherebyforeclosure complaints are prepared and filed by non-attorneys and never reviewed by an attorney, even though the "signature" of an attorney appears on the document. 12/8 Tr. at 83-84. This would seem to be a violation of the Pennsylvania Rules of Civil Procedure, which provide that the signature of an attorney on a document filed with a Pennsylvania court is a certification that the document has been read by the attorney. See Pa.R.Civ.P. 1023.1(c). Even though these foreclosure actions are not being filed in this Court and thus do not expose GMM to sanctions, concern for our sister courts in this Commonwealth compel the Court to at least make publicly known what it learned during the trial. Furthermore, often these fundamentally flawed foreclosure actions, form the basis for related relief in this Court should the state court defendant subsequently file a bankruptcy petition. Therefore, the Court is concerned about the continuation of this practice by GMM.

More germane to matters directly affecting this Court was testimony that Puida permitted an attorney named Ann Swartz to "sign" a document on behalf of Puida even though she (Puida) had not reviewed the document in question, and even though Swartz is not a member of the Bar of this Court and was not admitted pro hac vice in this matter. The Court believes this sort of conduct to be deceptive and a violation of the spirit, if not the letter, of Fed.R.Bankr.P. 9010(a) and (b), 9011(a), and, Local Rule 9010-1. Due to the other more serious matters addressed herein, and Puida's testimony that this practice is no longer being followed, the Court will not impose separate sanctions for this conduct. Counsel are on notice, however, that sanctions may be appropriate in the future should the Court become aware of any further instances of this type of conduct.

CONCLUSION

For the reasons given, the Court finds that no sanctions will be imposed against Countrywide pursuant to the Rule except with respect to Item 4 of the Rule concerning the false representation made in the Motion to Quash. Countrywide clearly acted improperly in many respects in connection with its post-discharge pursuit of the Debtor, all as detailed above. However, the Court finds that the combination of the very favorable settlement which has made the Debtor whole, the negative publicity already experienced by Countrywide over this matter and the absence of any evidence to show a systemic problem existing at Countrywide respecting the points raised in the Rule, are sufficient reasons not to impose any additional sanction at this time.

Although there was a lack of evidence in this case as to any systemic problems at Countrywide, that is not tantamount to a finding that there are no such systemic problems. As indicated throughout this Opinion, the focus in this case has been on the specific facts attending the Hill case. The recent "global" settlement between Countrywide and the FTC might well be indicative of the existence of systemic issues.

As to Puida and GMM, the Court finds that no sanctions will be imposed with respect to Item 5 of the Rule directed to them but that consideration of sanctions is appropriate as to Items 6 and 7.

During Trial, the Court advised the Parties that if it found sanctionable conduct to exist it would bifurcate the matter and hold a separate hearing to consider the type and extent of sanction that should be imposed. In keeping with that approach, the Court will schedule such a hearing as to GMM and Puida.

Finally, with respect to the "other instances" of misconduct that came to light during the trial, an Order and Rule to Show Cause will be issued against Atty. Charles Townsend directing himto personally appear and show cause as to why he should not be appropriately sanctioned for providing what appears to be false, or at the least misleading, testimony while under oath. Depending on the outcome of that hearing, the Court will determine whether any other counsel involved in this matter should be required to explain their failure to take appropriate, remedial action to prevent the Court from being misled by such false or misleading testimony.

Before concluding, a few observations about lessons to be learned from this case are appropriate. The real estate "meltdown" of the past several years has brought the whole subject of mortgages and foreclosures to the forefront of public awareness. In the Court's own experience, the prospect of dealing with a mortgage lender or mortgage servicer over a delinquency, or anything else other than the ordinary payment plan, clearly inspires feelings of dread, mystery and frustration in the average borrower. If the present case is at all representative, those feelings are substantially justified.

Here, the Debtor did everything right. Despite that, she was put through a grinding process by Countrywide even though along the way it repeatedly failed to take appropriate action to reconcile the Debtor's account. This was not a case where a single error led to a bad result. There were multiple points in the process — both during and after the bankruptcy concluded — when Countrywide and its agents missed successive opportunities for prevention or correction, which include:

• failing to properly account for payment to the prior servicer,

• failing to properly account for loan payments received by it,

• failing to timely conduct audit and escrow analyses required by RESPA and its own internal policies,

• failing to send appropriate and timely notices of payment change,

• failing to abide by bankruptcy court orders and rules,

• failing to properly respond to inquiries of the Debtor and her attorney,

• failing to respond to inquiries by the Pennsylvania Attorney General,

• failing to timely advise of false notices of payment change

• failing recognize the effect of the bankruptcy discharge order when filing a foreclosure action,

• failing to abide by admonitions of the bankruptcy judge regarding applicable law by continuing settlement negotiations based upon letters it knew appeared authentic but in reality were not.

Throughout this matter, Sharon Hill did everything she was supposed to do. She dutifully met her obligations under the Chapter 13 Plan during its five year duration. Upon receiving her discharge, she immediately assumed responsibility for her post-bankruptcy obligations and resumed — or at least attempted to resume — making her mortgage payments. When that failed, she tried to work things out with Countrywide but her entreaties were repeatedly ignored. She was "pushed back" at every opportunity for Countrywide to do the right thing and correct the wrong being done to her. Yet, Countrywide didn't discriminate, maintaining its cavalier approach throughout. It remained consistent in it's modus operandi. Not only did it ignore the Debtor's inquiries, but it ignored the inquiries from the PA Attorney General and warnings from the Debtor's personal attorney, as well.

But for Atty. Julie Steidl noticing the address change while preparing for work that morning on December 20, 2007, quite possibly she, the Debtor, and this Court, may never have knownabout the "after the fact" creation of the payment change letters or any of the other insensitive and inexcusable conduct Countrywide displayed in handling this account, from start to finish.

Most likely Countrywide would have continued to exercise its might and demand "tribute" to settle the case, despite prior admonitions from the bankruptcy court that it had no basis for its position, in amounts with no real relationship to what was owed — in this case — nothing. At some point the Debtor would have had to seriously consider, and most likely accept because of the mounting expenses her fight against Goliath was causing her to incur, capitulation. Soon, a practical, business decision most likely would require her to forego "principle" and settle the matter in an amount she could afford so as to make the obligation current, post bankruptcy, and make the problem go away. Fortunately for her, that bridge never had to be crossed. But how many other, similarly situated debtors will be so fortunate?

Although originally alleged, the Court was not presented with any evidence to support a finding for the existence of a systemic problem with loan servicing at Countrywide. Perhaps, this case was just an inexplicable aberration — where what could go wrong, did go wrong — although the Court highly doubts it. If only Countrywide, in particular, and the mortgage lender/servicer industry, in general, would take to heart just how devastating these kinds of mistakes can be to borrowers who are trying to do the right thing and honor their obligations. If such were to occur, and the lessons learned from this case lead to a correction in the way in which lenders and servicerscurrently do business when dealing with borrowers, then maybe everything Sharon Hill had to endure will not have been in vain and some good will come from it.

ORDER AND RULE TO SHOW CAUSE

AND NOW , this 5^th day of October, 2010 , for the reasons set forth in the accompanying Memorandum Opinion, it is ORDERED, ADJUDGED and DECREED that,

(1) Items 1, 2 and 3 of the Rule to Show Cause ("Rule"), Document No. 435, as directed against Countrywide Home Loans, Inc ("Countrywide"), and Item 5 of the Rule, as directed against Goldbeck, McCafferty and McKeever ("GMM") and Attorney Leslie Puida ("Puida") are VACATED.

(2) With respect to Item 4 of the Rule, as directed against Countrywide, the Court finds sufficient cause exists to sanction Countrywide pursuant to Fed.R.Bankr.P. 9011, and that a sufficient sanction so as to deter repetition of such conduct in the future or comparable conduct by others similarly situated, is a "public censure" of Countrywide and a reminder of its obligations under Fed.R.Bankr.P. 9011(b)(3) to make reasonable investigation before making factual allegations in documents filed with the Bankruptcy Court, or any other court for that matter. The Court's comments in the Memorandum Opinion and in this Order constitute that censure and reminder. Therefore, no further hearing or action is required in regard to Paragraph (4) of the Rule.

(3) With respect to Items 6 and 7 of the Rule as directed against GMM and Puida, the Court finds that sufficient cause exists to impose sanctions pursuant to the Court's inherent power its power pursuant to 11 U.S.C. § 105(a) and Fed.R.Bankr.P. 7037, incorporating Fed.R.Civ.P. 37(c)(1)(C). Therefore, a hearing is scheduled for November 22, 2010 at 2:00 P.M. , in the Erie Bankruptcy Courtroom, U.S. Courthouse, 17 South Park Row, Erie, PA, for the purpose of considering and determining appropriate sanctions, at which time Leslie M. Puida and Michael T. McKeever , in his capacity as a representative of GMM, with authority to speak for the firm, are directed to personally appear.

(4) With respect to the apparent misconduct of Attorney Charles Townsend ("Townsend") as described in the Memorandum Opinion, a Rule to Show Cause is hereby issued directing him to personally appear on the November 22, 2010 at 2:00 P.M. , in the Erie Bankruptcy Courtroom, U.S. Courthouse, 17 South Park Row, Erie, PA, to show cause why sanctions should not be imposed against him for providing false or misleading testimony under oath during his deposition in this matter, which testimony was then used at the time of trial due to Townsend's unavailability. The Court further understands that Townsend may no longer be affiliated with Countrywide. If that is correct, Countrywide and its Counsel of Record, Thomas P Connop, are directed to effect personal service of a copy of this Order and Rule to Show Cause, together with the Memorandum Opinion, on Townsend immediately after receipt of this Order and file a Certificate of Service to that effect on or before October 12, 2010.