United States District Court, N.D. Alabama, Eastern Division
MEMORANDUM OPINION
ABDUL
K. KALLON UNITED STATES DISTRICT JUDGE
Law
Solutions of Chicago LLC, UpRight Law PLLC, and Mariellen
Morrison (collectively referred to as “UpRight”)
appeal from the bankruptcy court's order imposing
non-monetary and monetary sanctions against them. Doc. 1. In
a nutshell, the bankruptcy court sanctioned UpRight based on
its finding that UpRight breached a settlement agreement
UpRight entered into with J. Thomas Corbett, the Bankruptcy
Administrator for the Northern District of Alabama, and, by
doing so, violated the court's order approving the
settlement agreement, Rule 9011 of the Federal Rules of
Bankruptcy Procedure, and §§ 526(a)-(b) and
707(b)(4). See doc. 34-11. UpRight contends that the
court abused its discretion and failed to afford UpRight due
process before sanctioning them. The appeal is fully briefed,
docs. 34, 35, 36, and ripe for review. For the reasons
detailed below, the order of the bankruptcy court is due to
be affirmed.
I.
STANDARD OF REVIEW
The
district court sits as an appellate court in reviewing final
decisions of a bankruptcy court. 28 U.S.C. § 158(a)(1).
Accordingly, the district court reviews the bankruptcy
court's findings of fact under the clearly erroneous
standard, while the bankruptcy court's legal conclusions
are subject to de novo review. See, e.g. Educ. Credit
Mgm't Corp. v. Mosley, 494 F.3d 1320, 1324 (11th
Cir. 2007). See also Fed. R. Bankr. P. 7052
(incorporating Fed.R.Civ.P. 52); Fed.R.Bankr.P. 8013.
“The factual findings of the bankruptcy court are not
clearly erroneous unless, in the light of all the evidence,
‘[the district court is] left with the definite and
firm conviction that a mistake has been made.'”
In re TOUSA, Inc., 680 F.3d 1298, 1310 (11th Cir.
2012) (citations omitted).
The
court reviews the bankruptcy court's imposition of
sanctions for abuse of discretion. In re Ocean Warrior,
Inc., 835 F.3d 1310, 1315 (11th Cir. 2016) (citation
omitted). “‘The application of an
abuse-of-discretion review recognizes the range of possible
conclusions the [bankruptcy] judge may reach.'”
Norelus v. Denny's, Inc., 628 F.3d 1270, 1280
(11th Cir. 2010) (quoting United States v. Frazier,
387 F.3d 1244, 259 (11th Cir. 2004) (en banc)). When
reviewing for an abuse of discretion, the district court
“must affirm unless [it] find[s] that the [bankruptcy]
court has made a clear error of judgment, or has applied the
wrong legal standard.'” Id. The court may
affirm the bankruptcy court “on any legal ground the
record supports.” Gwynn v. Walker (In re
Walker), 532 F.3d 1304, 1308 (11th Cir. 2008) (per
curiam).
II.
PROCEDURAL HISTORY AND FACTUAL BACKGROUND
UpRight
and Corbett entered into a Settlement Agreement, effective
September 16, 2016, that resolved adversary proceedings in
two bankruptcy cases, and other related disputes between the
parties. Doc. 34-1 at 10-17. Under the terms of the
Agreement, UpRight agreed to pay $50, 000 to the bankruptcy
trustees in the two underlying cases, and to a six-month bar
on filing new cases in this District for clients who retained
UpRight during this period. Id. at 11-12. Relevant
to the sanctions at issue, the Agreement mandated also that
“[f]or those clients who retained UpRight prior to
March 21, 2016, UpRight shall provide the services referred
to in Paragraph 9 of UpRight's standard client retention
agreement without additional charge for attorney's fees,
” with the exception of fees incurred for pursuing or
defending adversary proceedings. Id. at 12-13. After
a hearing, the bankruptcy court issued an Agreed Order
approving the Agreement. Id. at 44-45.
Thereafter,
UpRight filed six cases for debtors who had retained UpRight
prior to March 21, 2016 (the “Post-Settlement
Cases”). Doc. 34-11 at 17. Corbett discovered
subsequently that the Rule 2016(b) attorney disclosure
statements UpRight filed in those cases reflected “an
extensive list of services excluded from the base attorney
fee of $1, 250.00, ” including services the Agreement
required UpRight to provide without any additional fees.
Docs. 34-1 at 48; 34-11 at 16. Based on the disclosure
statements, Corbett believed that UpRight had violated the
terms of the Agreement. Doc. 34-1 at 48. Consequently,
Corbett filed motions asking the bankruptcy court to
determine whether UpRight had breached the Agreement, filed
materially inaccurate disclosure statements, and violated
§§ 526(a)(2)-(3) and 704(b)(4)(C)-(D). Docs. 34-1
at 48-50; 34-11 at 16. In the event the court answered the
first question in the affirmative, Corbett asked the court to
set a show cause hearing regarding why the court should not
impose appropriate sanctions against UpRight, including
disgorgement of attorney's fees, civil penalties, or an
injunction under §§ 105 and 526(c)(5), or the
court's inherent authority. Docs. 34-1 at 48-50; 34-11 at
16.
In
response, UpRight filed amended attorney disclosure
statements that expanded “the scope of legal services
they would provide without additional fees in the
Post-Settlement Cases that remained open . . . .” Docs.
3-3 at 97-98; 34-1 at 85-86; 34-11 at 18-19. UpRight also
amended their retention agreements and sent letters to their
clients in the open Post-Settlement Cases stating that,
contrary to statements in their original retainer agreement,
UpRight had not and would not charge fees in addition to the
flat fee the clients paid for UpRight's services in those
cases. Docs. 3-3 at 98-100; 34-11 at 18-19.
The
bankruptcy court held a hearing on the motions on July 13,
2017. Docs. 34-1 at 83-95; 34-11 at 19. At that hearing,
Corbett argued that UpRight violated §§
526(a)(2)-(3) and 707(b)(4) by filing attorney disclosure
statements that did not comply with the terms of the
Settlement Agreement. Doc. 34-1 at 85-86. UpRight countered
that they did not violate the Agreement because they only
charged their flat fee in the Post-Settlement Cases, and they
never collected any additional fees for their services in
those cases. See Id. at 86-88. The bankruptcy court
concluded that an evidentiary hearing was necessary “to
determine the extent to which [UpRight] failed to comply with
the order approving and implementing the settlement agreement
. . . and to further determine what sanctions, if any, are
appropriate due to such noncompliance.” Id. at
98. Accordingly, the bankruptcy court ordered UpRight to
appear “and show cause, if there be any, why their
failure to comply with the settlement agreement and order
implementing the same does not warrant contempt sanctions,
which may include disgorgement of fees and expenses . . .,
and additional monetary and non-monetary sanctions, which may
include, without limitation, a bar from [UpRight] practicing
in [this District] for a period of up to two (2) years . . .
.” Id. at 99.
At the
evidentiary hearing, Corbett argued that UpRight filed
inaccurate attorney disclosure statements in the
Post-Settlement Cases because the statements conflicted with
UpRight's obligations under the Agreement. Doc. 3-3 at
71-73. Although Corbett admitted that the Agreement did not
expressly require UpRight to amend their retention agreements
or disclosure statements, he argued that UpRight should have
amended their disclosure statements to accurately reflect the
scope of services they agreed to provide to their clients for
no additional charge. See Id. at 74-76. In response,
UpRight countered that they did not intend to violate the
Agreement, and had not violated it because they did not
actually charge any additional fees for their services in
connection with the Post-Settlement Cases. Id. at
87-88, 104. When questioned about their duty, if any, to
amend their disclosure statements under Rule 2016(b), UpRight
testified that they did not believe they violated that Rule
because the statements they filed were consistent with the
retainer agreements their clients had signed. See
Id. at 110, 112. See also doc. 34-8 at 156-62.
After the evidentiary hearing, UpRight and Corbett filed
post-hearing briefs in support of their respective positions,
and responded to each other's briefs. Docs. 34-9 at 6-40;
34-10 at 6-35, 186-229.
On
April 19, 2018, the bankruptcy court issued an order finding
that UpRight intentionally filed false and misleading
attorney disclosure statements in the Post-Settlement Cases
that “wrongfully exclude[d] legal services that were to
be provided under the Settlement [Agreement] for no
additional fees, ” and that UpRight acted in bad faith.
Doc. 34-11 at 18-19, 24. Based on those findings, the
bankruptcy court imposed the following sanctions under 11
U.S.C. §§ 105(a), 526, and 707(b)(4)(B):
• An 18-month practice injunction banning UpRight from
filing any new bankruptcy cases in this District;
• A complete refund of all fees and expenses paid to
UpRight by clients whose cases UpRight had not yet filed;
• Monetary penalties of $25, 000 for each of the six
Post-Settlement Cases, or $150, 000 total; and
• Disgorgement of all attorney's fees and filing
fees in the Post-Settlement Cases.
Id. at 25-27. This appeal followed. Docs. 1, 34.
III.
ANALYSIS
UpRight
raises several points of error that boil down to one
question: did the bankruptcy court abuse its discretion by
imposing sanctions against them? To answer that question, the
court must determine whether the bankruptcy court had
authority to sanction UpRight, and, if it did, whether it
abused its discretion in exercising that authority. For the
reasons explained fully below, because the bankruptcy court
had authority to impose sanctions against UpRight, and
UpRight has not shown that the ...