Bankruptcy lawyers' negligence blamed for loss of homes and business. Defense. Sacramento County.

Facts and Background

• Facts and Background:

  This is a legal malpractice action with the underlying action being a Chapter 13 bankruptcy proceeding that occurred in 2012 and 2013. Plaintiffs, Gregory and Jody Vander Zanden, sued Laub and Laub and Joe Laub for legal malpractice, breach of fiduciary duty, breach of contract, misrepresentation and infliction of emotional distress relating to the mishandling of plaintiffs' Chapter 13 bankruptcy.

  The Court found the above named defendants fell below the standard of care but found that causation was cut off as plaintiffs' misconduct barred plaintiffs' claims.

  Plaintiffs sued Melvin Laub under a theory of ostensible partnership, claiming Melvin Laub was liable for all claims on the basis that Melvin Laub was an "ostensible partner" and included on firm advertisements, commercials, websites, phone book ads. The Court disagreed, finding that there were insufficient facts to show plaintiffs reasonably believed Melvin was a partner of the law firm during the time of their representation.

  In or around August 2011, plaintiffs came across a flyer for a home loan consulting company. At the time, plaintiffs had homes in San Jose and South Lake Tahoe. The two mortgages on the San Jose home totaled approximately $2,400 per month and the two mortgages on the Tahoe property totaled approximately $3,300 per month. The flyer offered to save consumers thousands of dollars to restructure their home mortgages. The loan company told plaintiffs to stop paying their home loans in exchange for services to restructure their loans. The company was a scam. Plaintiffs received notices from the bank about foreclosure. Plaintiffs went back to the loan company to consult and later realized the company was no longer in existence and that they had been defrauded.

  However, by this time, plaintiffs' mortgages were in default. Plaintiffs contacted defendant firm Laub and Laub to file a Chapter 13 bankruptcy to stop the foreclosures and protect their properties. In or around March 2012, plaintiffs met with defendant Joe Laub and a Chapter 13 bankruptcy was filed. On March 28, 2012, Laub & Laub filed a Chapter 13 bankruptcy petition for the Vander Zandens. The firm knew that this filing was a "skeleton petition," an incomplete filing that would have the immediate effect of preventing foreclosure on listed assets even though it would need to be supplemented. Although the Vander Zandens owned Bay Area Glass, a sole Proprietorship, that company was not listed on the bankruptcy petition. Mr. Vander Zanden's truck, which he used in his business, also was not listed. On the same day the petition was filed, the bankruptcy court filed a notice that the filing was incomplete with a list of documents that would need to be received by April 11, 2012 or else the case would be dismissed.

  On April 26, 2012, a Section 341 Creditors meeting was held. Plaintiffs were required to attend. Plaintiffs testified that defendant law firm did not tell plaintiffs about the meeting. On May 1, 2012, the bankruptcy trustee filed a motion to dismiss. The defendant law firm did not file an Opposition and the case was dismissed. On June 11, 2012, defendant law firm filed a Second Petition on behalf of plaintiffs. This petition too was incomplete for lack of supporting documents and subject to dismissal. Defendants did not file a motion to extend the stay. Defendant law firm filed a motion to confirm the Plan. The Trustee noted that insufficient documentation existed to confirm the Plan and determine whether plaintiffs' business was solvent. The Trustee asked the Court to deny the Plan and dismiss the case.

  In the fall of 2012, the bank holding the note on the San Jose property foreclosed on the property and plaintiffs lost their home. Similarly, in February 2013, the bank foreclosed on the Lake Tahoe vacation home.

  Plaintiffs sought $2.7 million in damages. Plaintiffs alleged that as a result of defendants' mishandling of the bankruptcy they lost their homes in San Jose and Lake Tahoe, collectively valued at $765,000 in recoverable equity. Plaintiffs further alleged the mishandling of the bankruptcy caused Mr. Vander Zanden to lose his commercial glass business on the basis that the mishandling negatively impacted his creditor scored and precluded him from obtaining future contracts. Plaintiffs allege business losses of approximately $1.7 million.

• Plaintiff's Contentions:

  Plaintiffs argued that defendants Joey Laub and Laub and Laub, Attorneys at Law, fell below the standard of care in handling plaintiffs' Chapter 13 bankruptcy. Plaintiffs contended that defendants' malpractice caused plaintiffs to lose their homes to foreclosure, and the failure of their business.

  Plaintiffs denied that they were gambling, asserting that they were entertaining clients for business purposes at the casinos. Plaintiffs also disputed the claim that they had not disclosed relevant bank accounts, noting that the defendants were paid from the account they claimed was not disclosed.

• Defendant's Contentions:

  Defendants defended the suit on the basis that plaintiffs' own misconduct cut off causation and that there were no recoverable damages. The Court ultimately agreed that causation was cut off by plaintiffs' own misconduct in that plaintiffs failed to disclose all relevant bank records to their attorneys during the bankruptcy showing that plaintiffs were receiving over $80,000 a month in income from their business. Bank records further showed that plaintiffs were gambling regularly during the bankruptcy, at times spending in excess of $15,000 per month at casinos.

  Defendants defended the case against Melvin Laub on the basis that there were insufficient facts to demonstrate Melvin Laub was an ostensible partner of the firm. The Court agreed.