December 6, 2011
Yesterday, the 7th Circuit issued an opinion addressing the unauthorized practice of law by a corporate officer on behalf of a corporation. In
In re IFC Credit Corp., ___ F.3d ___ (7th Cir. 2011), Case No. 111-2172, the main question the Court set out to answer was whether a bankruptcy petition signed by a corporation's president rendered the bankruptcy proceedings void. The Court's answer agreed with Indiana law on this issue.
less..
IN this case, a lawyer helped a corporation prepare a bankruptcy filing, but the actual bankruptcy petition was signed by the corporation's president, a nonattorney, rather than its lawyer. The company's lawyer filed an amended petition the next day.
Before the bankruptcy petition was filed, the company had been made a defendant in a lawsuit. Once the company declared bankruptcy, the plaintiff refiled its complaint as a claim in the bankruptcy proceeding. However, the plaintiff also argued that the bankruptcy court did not have subject matter jurisdiction over the claim because the original bankruptcy petition was signed by a nonattorney and, therefore, was void. The bankruptcy and district courts rejected that argument and the plaintiff appealed.
On appeal, the Court noted that some states held that any document filed by a nonattorney in a representative capacity was void and a nullity. If this were so, then the filing the next day could not have cured the defect. However, the Court did not like this result.
But we can't think why the rule barring corporations from litigating without counsel should be deemed a rule of subject-matter jurisdiction. ... [S]ubject-matter jurisdiction is (with an exception noted below) about the competence of the tribunal—-"competence" in the sense of legal empowerment to decide a case—-rather than about the mistakes that litigants and sometimes judges make in a case that is within the tribunal's competence.
...
The primary distinction is thus between classes of case that the Constitution or legislation declares off limits to the federal courts and errors in the conduct of cases that are within limits. IFC's bankruptcy is the type of proceeding that Congress has authorized federal courts to handle, while the rule barring lay representation of a corporation concerns the conduct of cases that are within that authority.
The[] consequences of an absence of subject-matter jurisdiction are not appropriate punishments for pro se litigation by a corporation. Requiring a do-over of a lawsuit is costly to everyone yet can actually benefit the plaintiff—-the usual author of the jurisdictional mistake-—because dismissal without prejudice allows a complete do-over if the plaintiff can refile his case without running afoul of the jurisdictional obstacle that wrecked his original claim. That could be a particularly costly consequence if the jurisdictional defect were discovered late in a protracted bankruptcy, as it was here; deeming a pro se filing by a corporation a defect of subjectmatter jurisdiction would require IFC to file a new bankruptcy proceeding more than two years after the original and amended petitions.
Thus, rather than requiring dismissal in this type of situation, the Court vested district courts with the discretion to dismiss cases when the initial pleading is signed by a nonattorney acting in a representative capacity.
Out of curiosity, I looked to see what Indiana's courts had to say on this subject and found out that they agree with the 7th Circuit.
See Watson v. Auto Advisors, Inc., 822 N.E.2d 1017 (Ind. Ct. App. 2005). WARNING - I didn't bother Shepardizing this issue.
Lesson:
A corporation's initial pleading is not jurisdictionally defective if it is signed by a nonattorney, but the district court may dismiss the action.
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