Overview

In the Matter of Katz is a comprehensive Review Department decision addressing serious attorney misconduct involving dishonesty, abuse of the bankruptcy process, willful disobedience of court orders, and moral turpitude. The case is notable for the Review Department’s decision to substantially increase discipline beyond the hearing judge’s recommendation, ultimately imposing a lengthy actual suspension and significant restitution obligations.

Factual Background

Respondent Murray Donald Katz was admitted to the California State Bar in 1953 and maintained a small business-focused practice. For several years, he acted as the personal and corporate attorney for a businessman, James Zetz, and related entities. Respondent had extensive knowledge of Zetz’s finances, business operations, and insolvency issues.

In 1986, respondent assisted Zetz in purchasing Hi Line Paint Manufacturing Company, a business known to be in poor financial condition. To induce favorable sale terms, Zetz provided the sellers with a financial statement grossly overstating his net worth. Respondent endorsed the accuracy of this statement and affirmatively represented that another Zetz-owned company was a successful business, despite knowing those representations were false or misleading.

After Hi Line failed, Zetz and respondent became involved in bankruptcy proceedings. Respondent filed and maintained a Chapter 11 petition for Hi Line even though the company was insolvent, had no equity in its only assets, lacked any realistic prospect of rehabilitation, and could not make required adequate protection payments. The bankruptcy court later found the filing to be in bad faith and an abuse of the bankruptcy process.

During the bankruptcy proceedings, the court appointed an examiner and ordered respondent and his client to produce business records. Respondent repeatedly failed to comply with multiple court orders, including knowingly withholding records in his possession and giving at least one box of documents to his client instead of the examiner. He also repeatedly failed to appear at required hearings and court-ordered meetings.

As a result of respondent’s conduct, creditors obtained sanctions and judgments in the bankruptcy court, including a nondischargeable fraud judgment and monetary sanctions for bad-faith filings and discovery violations.

Rules and Statutes Violated

The Review Department found respondent culpable of violating multiple provisions of the Business and Professions Code, including:

• Section 6068(d) (duty of truthfulness to courts and others);
• Section 6068(c) (duty to maintain only just causes);
• Section 6068(b) (duty to maintain respect for courts);
• Section 6103 (willful disobedience of court orders); and
• Section 6106 (acts involving moral turpitude, dishonesty, or corruption).

Moral Turpitude and Abuse of Process

The Review Department emphasized that respondent’s endorsement of a false financial statement and misrepresentations to third parties constituted deliberate dishonesty. It further held that knowingly filing and maintaining a meritless Chapter 11 case in bad faith was itself an act involving moral turpitude. An attorney’s obligation to conduct reasonable inquiry before filing pleadings cannot be avoided by claiming ignorance of facts that should have been known.

Respondent’s willful refusal to comply with bankruptcy court orders and repeated failures to appear were found to seriously harm the administration of justice and undermine respect for the courts.

Aggravation and Mitigation

Significant aggravation was present. Respondent had a prior record of discipline for writing insufficient funds checks and committed the current misconduct while on disciplinary probation. Additional aggravating factors included multiple acts of misconduct, harm to the public and the judicial process, indifference to restitution, lack of candor, and lack of insight into the wrongfulness of his conduct.

Respondent offered character testimony in mitigation, but the Review Department declined to find mitigation because the evidence did not reflect a broad cross-section of the community and did not demonstrate awareness of the full scope of misconduct.

Discipline Analysis

The hearing judge had recommended a relatively short actual suspension. On review, the Review Department concluded that recommendation was inadequate given the seriousness of the misconduct, the presence of moral turpitude, and substantial aggravation. Applying the Standards for Attorney Sanctions and Supreme Court precedent, the court determined that a lengthy actual suspension and restitution were necessary to protect the public and preserve confidence in the profession.

Sanctions

Tags

bankruptcy abuse, moral turpitude, dishonesty, failure to obey court orders, prior discipline, restitution

Attorneys facing State Bar investigations involving dishonesty, bankruptcy-related misconduct, or court-order violations should seek experienced counsel early. East Bay Law P.C. represents attorneys in State Bar Court proceedings, reviews, and reinstatement matters.