Law Solutions of Chicago, LLC v. J. Thomas Corbett
971 F.3d 1299
| 11th Cir. | 2020Background
- The UpRight Law Firm (internet-based referral network) and partner attorney Mariellen Morrison represented debtors in Alabama; the firm qualified as a "debt relief agency."
- After allegations (including a car-repo scheme) the Bankruptcy Administrator (BA) and UpRight settled two adversary proceedings: UpRight paid $50,000, retained an Alabama attorney in Chicago, and agreed (for clients who retained UpRight before 3/21/2016) to provide certain "Excluded Services" without additional fee; the Bankruptcy Court entered an Agreed Order approving the settlement.
- Months later the BA found six post-settlement cases where UpRight’s filed Attorney Disclosures continued to state those Excluded Services were excluded for extra fees (contrary to the settlement). BA moved to examine and sought sanctions under various bankruptcy provisions and rules.
- The Bankruptcy Court held an evidentiary hearing, found the disclosures were misleading/untrue under 11 U.S.C. §526(a)(2) (and also violated Rule 9011 and §707), and imposed $150,000 in civil penalties (six × $25,000), disgorgement of fees, and temporary filing suspensions; the District Court affirmed.
- On appeal to the Eleventh Circuit, the court affirmed, relying principally on §526(a)(2) as an independent basis for sanctions and rejecting UpRight’s jurisdictional, due-process, and excessiveness challenges.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Bankruptcy court authority to sanction (including closed cases) | BA: court has authority under bankruptcy statutes/rules to sanction conduct implementing settlement | UpRight: court lacked subject-matter jurisdiction over closed cases and cannot enforce settlement absent incorporation (Kokkonen) | Court: jurisdiction existed; Kokkonen inapplicable because independent federal bases (e.g., §526) supported sanctions; bankruptcy courts may sanction even after case closure |
| Whether sanctions were imposed without adequate notice (due process) | BA: defendants had notice from motions, hearings, cross-exam, and briefing | UpRight: show-cause order and hearing focused only on settlement noncompliance, not on §526/§707/Rule 2016 | Court: due process satisfied — BA and court provided fair notice and opportunity to respond |
| Legality of practice suspensions under §105 (obey-the-law injunction/punitive) | UpRight: suspensions were improper and punitive beyond court's §105 authority | BA: suspensions were appropriate remedial measures to enforce compliance | Court: suspension challenge is moot (period expired); court declines to rule on merits |
| Sanctions excessive and required intent | UpRight: violations were inadvertent; monetary sanctions excessive | BA: pattern/practice of misconduct warranted penalties; $25k per case consistent with prior settlement | Court: record supports finding of misleading filings and pattern/practice; $150,000 (6 × $25,000) not grossly excessive and within discretion |
Key Cases Cited
- In re Brown, 742 F.3d 1309 (11th Cir. 2014) (appellate review framework when district court affirms bankruptcy court)
- In re Hood, 727 F.3d 1360 (11th Cir. 2013) (standards of review for bankruptcy factual and legal findings)
- United States v. Frazier, 387 F.3d 1244 (11th Cir. 2004) (abuse-of-discretion review and deference discussed)
- Amlong & Amlong, P.A. v. Denny's, Inc., 500 F.3d 1230 (11th Cir. 2007) (sanctions may be affirmed if supported by any one cited source of authority)
- Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375 (1994) (when a federal court retains jurisdiction to enforce a settlement)
- In re White-Robinson, 777 F.3d 792 (5th Cir. 2015) (bankruptcy court may impose sanctions after a case is closed)
- In re Mroz, 65 F.3d 1567 (11th Cir. 1995) (due-process notice requirements for sanctions)