In re: Gloyd Green and Gail Holland, NV-15-1318-DoKiL

Background

Debtors Gloyd Green and Gail Holland ("Greens") paid counsel Christopher Burke a $32,000 retainer pre-bankruptcy; $7,500 of that retainer originated as a loan from Gail’s mother, Theresa Holland.
At the § 341 meeting and in filings, the Greens characterized the retainer as paid by the Greens and listed Theresa as a $7,500 creditor, but did not disclose Theresa as the source of the retainer funds.
Creditors (Holt, Howard III, and their counsel and co-defendants) moved to disqualify Burke and disgorge the retainer, arguing the undisclosed third‑party source (Theresa) should have been disclosed under § 329(a) and related rules.
Burke threatened a Rule 9011 sanctions motion if the Disgorgement Motion was not withdrawn; the creditors did not withdraw and later replied acknowledging the funds were transmitted indirectly from Theresa and arguing disclosure was still required.
The bankruptcy court denied the Disgorgement Motion and later denied the Greens’ Rule 9011 motion seeking sanctions against the creditors for filing and failing to withdraw that motion; Greens appealed the denial of sanctions.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether bankruptcy court abused discretion by denying Rule 9011 sanctions for filing/discouraging Disgorgement Motion	Greens: Disgorgement Motion was frivolous and defendants should have withdrawn it after learning of indirect payment; filing warranted sanctions	Appellees: Argued disclosure of an indirect third‑party source is a nonfrivolous legal position; investigation was objectively reasonable	Court: No abuse of discretion; denial affirmed — the Disgorgement Motion presented a reasonably arguable legal question and was not clearly frivolous
Whether lack of affidavit evidence in the Draft Sanctions Motion doomed sanctions as a matter of law	Greens: Bankruptcy court erroneously treated absence of declarations in draft sanctions threat as dispositive	Appellees: Court properly considered evidentiary posture as one factor among many	Held: Court did not rule draft’s lack of exhibits fatal as a matter of law; it merely considered evidentiary support in assessing reasonableness
Whether an indirect transfer from a third party must be disclosed under § 329(a) as a matter of law	Greens: Indirect transfer was not a proper basis for Disgorgement Motion; defendants’ position was frivolous	Appellees: § 329(a)/Rule 2016 require broad disclosure; indirect third‑party funding can be a disclosable “source”	Held: No controlling Ninth Circuit precedent forbids plaintiffs’ view; defendants’ argument was legally nonfrivolous, so sanctions inappropriate
Whether specific appellees who did not present the Rule 9011 argument should be sanctioned	Greens: Additional appellees participated in and failed to withdraw frivolous motion	Appellees: Some did not directly present the Rule 9011 posture	Held: Bankruptcy court did not decide individual culpability because it found no sanctionable conduct; BAP declines to rule on that unresolved issue

Key Cases Cited

United States v. Hinkson, 585 F.3d 1247 (9th Cir. 2009) (two‑part abuse‑of‑discretion test for appellate review)
Classic Auto Refinishing, Inc. v. Marino (In re Marino), 37 F.3d 1354 (9th Cir. 1994) (standard of review for Rule 9011 sanctions in bankruptcy context)
Operating Eng’rs Pension Trust v. A‑C Co., 859 F.2d 1336 (9th Cir. 1988) (sanctions reserved for frivolous or objectively unreasonable positions)
Larez v. Holcomb, 16 F.3d 1513 (9th Cir. 1994) (objective reasonableness inquiry for sanctions)
Strom v. United States, 641 F.3d 1051 (9th Cir. 2011) (Rule 11/9011 principles on sanctions and objective inquiry)
Neben & Starrett, Inc. v. Chartwell Fin. Corp. (In re Park‑Helena Corp.), 63 F.3d 877 (9th Cir. 1995) (broad duty of full disclosure under § 329 and factual case‑by‑case disclosure analysis)
In re Blue Pine Group, Inc., 448 B.R. 267 (Bankr. D. Nev. 2010) (discussing Rule 9011 and sanctions standards)
In re Plaza Hotel Corp., 111 B.R. 882 (Bankr. E.D. Cal. 1990) (emphasizing duty of complete disclosure)