Critique Servs., LLC v. Reed (In Re Reed)
888 F.3d 930
8th Cir.2018Background
- Briggs, an attorney, agreed to represent ~100 clients of suspended attorney Robinson in Eastern District of Missouri bankruptcy cases; trustees sought documents to determine whether Robinson must disgorge fees.
- The bankruptcy court issued an order compelling turnover under 11 U.S.C. § 542(e) and show-cause orders relating to possible disgorgement under § 329. The order required Briggs to seek documents from Critique Services, Robinson, and third parties and to file an affidavit if stonewalled.
- The court found Briggs made only minimal efforts (a lunch meeting and a form letter) and never filed the promised affidavit; trustees still had not received the requested materials.
- The bankruptcy court held Briggs in contempt for failing to comply with the turnover order and sanctioned him also for making misleading statements about his relationship with Critique/Diltz; sanctions included a six-month ban from representing new bankruptcy clients in the court, CLE requirements, and a permanent prohibition on professional involvement with Critique and affiliates.
- The district court affirmed the sanctions and denied Briggs’s attempts to seek reinstatement from chief judges; Briggs appealed to the Eighth Circuit, which affirmed.
Issues
| Issue | Briggs's Argument | Court's / Trustee's Argument | Held |
|---|---|---|---|
| Constitutional authority to sanction (Article I vs Article III) | Bankruptcy court lacked Article III authority (invoking Stern) to enter sanctions on these matters | Orders arose "in" bankruptcy and enforcement/sanctioning authority is within bankruptcy judges’ core powers and inherent powers | Held: Bankruptcy court had authority; Stern does not control here because matters stemmed from bankruptcy process |
| Contempt for failure to comply with turnover order | Briggs lacked possession/access to documents, so could not comply and cannot be held in contempt | Turnover order required Briggs to seek documents from third parties and make efforts; record showed no serious efforts or affidavit as permitted | Held: Clear-and-convincing evidence supports contempt; court did not abuse discretion in finding contempt |
| Sanctions for allegedly misleading statements; and due process (need for evidentiary hearing) | No evidence of misleading statements; if disputed facts existed, an evidentiary hearing was required before sanctioning for deceit | Court relied on Briggs’s hearing statements and surrounding record to find misrepresentations; but an evidentiary hearing is required when facts are disputed | Held: Court erred in sanctioning for deliberate deception without an evidentiary hearing on disputed facts, but error was harmless because contempt independently justified sanctions |
| Reinstatement procedure and venue | Briggs sought reinstatement from chief judges relying on local rules and district disciplinary rules | Local Rule 2094(B) and Rule VII did not apply because suspension was by the bankruptcy court; chief judges correctly ruled Briggs should seek reinstatement from the sanctioning bankruptcy judge | Held: Denial of relief was proper for procedural reasons; Briggs must file reinstatement with the sanctioning judge and may appeal that ruling under 28 U.S.C. § 158 |
Key Cases Cited
- Stern v. Marshall, 564 U.S. 462 (2011) (bankruptcy adjudication of certain common-law claims implicates Article III limits)
- Law v. Siegel, 134 S. Ct. 1188 (2014) (bankruptcy courts have inherent powers to sanction abusive litigation practices)
- Marrama v. Citizens Bank of Mass., 549 U.S. 365 (2007) (recognition of bankruptcy courts’ inherent sanctioning authority)
- Robinson v. Steward (In re Steward), 828 F.3d 672 (8th Cir. 2016) (discussing bankruptcy-court authority over practitioner discipline)
- In re Phillips (Briggs v. LaBarge), 433 F.3d 1068 (8th Cir. 2006) (Briggs’s prior Rule 9011 violation discipline discussed)
- Schlaifer Nance & Co. v. Estate of Warhol, 194 F.3d 323 (2d Cir. 1999) (an evidentiary hearing is not required when sanctions are based on an established record)
- Weisman v. Alleco, Inc., 925 F.2d 77 (4th Cir. 1991) (affirming that any one valid ground among several is sufficient to support sanctions)