38-36 Greenville Ave LLC v.
21-2164
| 3rd Cir. | Apr 19, 2022Background
- 38-36 Greenville Ave LLC (single-member LLC owned by Lingyan Quan) filed Chapter 11; KKT (Kevin Kerveng Tung, P.C.) served as debtor’s counsel and disclosed a $3,000 retainer.
- Debtor filed Chapter 11 chiefly to obtain a stay of enforcement of a state-court judgment; case stalled and was converted to Chapter 7; trustee moved to sell the sole real property.
- KKT received $19,400 in post-petition payments from Quan’s personal account without Bankruptcy Court approval and did not disclose those payments in monthly reports.
- Over 18 months after filing, KKT submitted a fee application seeking $31,819 and reimbursement to repay Quan; trustee and creditors objected based on the undisclosed, unauthorized payments and disclosure violations.
- Bankruptcy Court found KKT and Tung intentionally omitted required disclosures, violated Rule 2014/2016 and duty of candor, denied the fee application, ordered disgorgement of the payments, and referred Tung for possible discipline; District Court and this Court affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a bankruptcy court (non-Article III) may order disgorgement of post-petition, unauthorized payments | KKT: Stern v. Marshall bars non-Article III adjudication of such claims; payments were non-core and third-party | Trustee/Bk Ct: Fee disputes and §329/§541 issues are core bankruptcy matters; equitable disgorgement is within bankruptcy jurisdiction | Court: Stern inapplicable; disgorgement falls within core bankruptcy authority and is reviewable by the bankruptcy court |
| Whether denial of fees and disgorgement was an abuse of discretion | KKT: Fee Order was excessive and arbitrary | Trustee/Bk Ct: KKT willfully violated disclosure rules and duty of candor, justifying denial and disgorgement | Court: No abuse; sanctions and disgorgement justified by repeated disclosure violations and lack of candor |
| Whether the District Court erred in striking KKT’s supplemental letter alleging judicial bias (photo evidence) | KKT: Photo shows improper relationship/bias | Opposing parties: Allegation irrelevant and meritless | Court: Striking was proper; the bias claim was irrelevant and without merit |
Key Cases Cited
- Stern v. Marshall, 564 U.S. 462 (2011) (limits on non-Article III bankruptcy adjudication)
- In re One2One Commc’ns, LLC, 805 F.3d 428 (3d Cir. 2015) (interpreting Stern’s scope for bankruptcy courts)
- In re Lazy Days’ RV Ctr., Inc., 724 F.3d 418 (3d Cir. 2013) (fee claims tied to bankruptcy are core)
- In re Frazin, 732 F.3d 313 (5th Cir. 2013) (treating fee awards as within bankruptcy court jurisdiction)
- In re Lewis, 113 F.3d 1040 (9th Cir. 1997) (bankruptcy court may order disgorgement of attorney payments)
- In re Walters, 868 F.2d 665 (4th Cir. 1989) (payments to debtor’s counsel reviewable by bankruptcy court)
- In re Bressman, 327 F.3d 229 (3d Cir. 2003) (disgorgement appropriate when counsel ignores reporting and approval duties)
- In re Downs, 103 F.3d 472 (6th Cir. 1996) (bankruptcy court may deny compensation for willful nondisclosure)
- Meditz v. City of Newark, 658 F.3d 364 (3d Cir. 2011) (abuse-of-discretion standard for striking filings)
- In re Glob. Indus. Techs., Inc., 645 F.3d 201 (3d Cir. 2011) (standard of review for bankruptcy appeals)