In re: LaToya L. Steward, Debtor, James C. Robinson, Critique Services, LLC, Appellant, Elbert A. Walton, Jr.; Debra Lynne Wilson v. LaToya L. Steward, Debtor, Appellee, E. Rebecca Case, U.S. Trustee
No. 15-1857, No. 15-1988
United States Court of Appeals For the Eighth Circuit
July 7, 2016
Submitted: January 12, 2016
Before LOKEN, GRUENDER, and KELLY, Circuit Judges.
KELLY, Circuit Judge.
Attorney James Robinson, Attorney Elbert Walton, and Critique Services, LLC, appeal from the judgment of the district court1 affirming the judgment of the bankruptcy court2 on LaToya Steward‘s motion to disgorge attorney‘s fees. Upon careful review of all issues raised, we affirm.
The issues in this case arose out of an extensive and chaotic procedural history, recounted here in the necessary detail. LaToya Steward filed a petition for Chapter 7 bankruptcy on June 17, 2011. She was represented by James C. Robinson, d/b/a Critique Services, LLC. Steward received a discharge on November 21, 2011, but before the discharge she reaffirmed a debt of $10,966.60 to Ford Motor Credit Company. Steward sought to rescind the reaffirmation agreement, but Robinson apparently abandoned his representation and did not assist her in doing so. On November 16, 2012, Steward filed a pro se motion to reopen her bankruptcy proceedings in order to discharge her debt to Ford. On December 4, 2012, Steward filed an adversary complaint against Ford, in which she asserted that Robinson‘s poor representation had caused her to miss the deadline to rescind the reaffirmation agreement. At a hearing on this complaint, the bankruptcy court advised Steward that she should amend her complaint, and on April 5, 2013, Steward filed an amended complaint against Robinson and Critique Services. On April 8, 2013, the bankruptcy court entered an order deeming Steward‘s complaint to be a motion to disgorge attorney‘s fees based on Robinson‘s inadequate representation, and set a hearing for May 8, 2013. On May 7, 2013, Elbert Walton entered his appearance on behalf of Robinson, d/b/a Critique Services,3 and filed an untimely response to Steward‘s motion.
The hearing was eventually reset as a status conference for September 18, 2013. As the case progressed in advance of the September 18 hearing, the parties—Steward now represented by counsel—had extensive discovery disputes. Robinson moved to quash Steward‘s requests for discovery, and the bankruptcy court denied the motion as frivolous. Status conferences on the discovery issues were held on August 14, September 4, and September 11. Steward was eventually forced to file a motion to compel. After the September 18 status conference, the bankruptcy court noted Robinson‘s “willful noncompliance” with his discovery obligations,4 granted Steward‘s motion to compel, ordered Robinson to pay the attorney‘s fees incurred in litigating the motion to compel, and warned both Robinson and Walton that further obfuscation would be met with sanctions. The court also ordered Robinson to provide information about his affiliation with Critique Services (i.e., whether Critique Services had a corporate identity independent of Robinson or whether it was simply Robinson‘s corporate alter ego).
In the days following the September 18 status conference, Robinson filed multiple motions, including a motion to recuse the bankruptcy judge, a motion for judgment on the pleadings, a motion to set aside the
On November 13, 2013, the bankruptcy court entered a second order on sanctions. The court ended the accrual of the daily monetary sanction, ordered payment of the accrued sanctions, and found Robinson in contempt of court pursuant to
Early in 2014, the parties engaged in settlement negotiations. However, on March 22, 2014, Steward notified the court that attempts to settle the case had failed. On April 3, the bankruptcy court entered a notice advising Robinson that the discovery deadline was April 11, 2014, and that if Robinson did not meet his discovery obligations by that date the court would impose further sanctions. The court also advised Walton that it was considering imposing sanctions against him, for facilitating Robinson‘s obstreperous behavior and participating in such behavior himself, and set a deadline for him to file a brief on the matter. On April 10, Walton filed a motion to withdraw and Robinson filed a notice of dismissal of counsel. The bankruptcy court did not allow Walton to end his representation of Robinson, believing this to be an attempt to delay the case and avoid consequences for their joint ongoing refusal to comply with the court‘s orders.
Also on April 10, 2014, Steward filed a motion for approval of a settlement agreement. Steward also filed a notice stating that she believed she could no longer accept discovery from Robinson, given their settlement. On April 11, the bankruptcy court ordered Steward to accept discovery should Robinson attempt to provide it, on the basis that providing such discovery would allow Robinson to purge the sanctions he had accrued. That same day, Robinson filed a second motion to recuse the bankruptcy judge. Walton also filed a motion to substitute counsel based on an alleged conflict of interest with Critique Services. The bankruptcy court denied both motions on April 14, 2014.
Walton then sued the bankruptcy judge in his personal capacity, raising various claims of tortious interference. The suit was dismissed. On April 21, 2014, the bankruptcy court entered a notice directed to both Robinson and Walton, advising them that the court intended to impose sanctions based on false statements made over the course of the litigation and giving them an opportunity to respond. On April 22, Walton filed a third motion to recuse the bankruptcy judge on behalf of both Robinson and himself. The bankruptcy court denied that motion on April 23. Finally, on April 28, 2014, the bankruptcy court denied Steward‘s motion for approval of the settlement without prejudice, based on the fact that such a motion must be filed by the Chapter 7 Trustee rather
On June 10, 2014, the bankruptcy court entered judgment in favor of Steward. The court found Robinson in contempt, struck Robinson‘s claims and defenses, made final $30,000 in accrued monetary sanctions, ordered that Walton be jointly and severally liable for the $30,000 in sanctions, and imposed additional sanctions on Robinson and Walton in the amount of $19,720 for attorney‘s fees incurred by Steward‘s counsel in litigating discovery. The court also sanctioned Robinson and Walton for making false statements to the court by suspending them from practice before the United States Bankruptcy Court for the Eastern District of Missouri, and ordered that Robinson and Walton‘s actions be referred to the U.S. District Court for the Eastern District of Missouri, the Office of the U.S. Trustee, and the Office of Chief Disciplinary Counsel of the Missouri Supreme Court for any appropriate investigation and disciplinary action. Finally, the court awarded Steward a refund of the $495 in fees she paid to Robinson, but denied relief as to damages related to the reaffirmation of Steward‘s debt to Ford.
Robinson, Walton, and Critique Services (now acting as an independent party and represented by separate counsel) appealed to the district court. On March 31, 2015, the district court affirmed the bankruptcy court‘s judgment in all respects. Robinson, Walton, and Critique Services (collectively, Appellants) timely appealed, raising numerous issues, with varying degrees of merit, before us.5 We address each issue in turn.
II. Steward‘s Standing to Bring Motion to Disgorge
Appellants first argue that Steward did not have standing to bring a motion to disgorge attorney‘s fees, because that claim properly belonged to the Chapter 7 Trustee.6 A bankruptcy estate includes all of a debtor‘s legal and equitable interests as of the time of the commencement of the case.
Assuming that Steward‘s claim was property of her Chapter 7 bankruptcy estate, we find no clear error in the district court‘s conclusion that the Trustee abandoned this property. On July 26, 2011, before Steward filed her motion for disgorgement, the Chapter 7 Trustee certified
Though no explicit order of abandonment was entered in this case, there is sufficient evidence in the record from which the district court could have concluded that the requirements of abandonment were met. See
III. Recusal
Appellants next argue that the bankruptcy court should have granted one of their three motions to recuse Bankruptcy Judge Rendlen from this case. They argue that Judge Rendlen‘s impartiality in this case “might reasonably be questioned,” based on his service as United States Trustee for the Eastern District of Missouri from June 2003 to May 2006. During that time, the Trustee‘s Office pursued two adversary proceedings against Critique Services. Appellants assert that Judge Rendlen was aware of facts outside the record about Critique Services, and demonstrated bias by making various negative remarks about Robinson, Walton, and Critique Services. The district court, however, found that nothing in the record supported a finding that Judge Rendlen‘s impartiality “might reasonably be questioned by an objective, neutral observer,” and upheld his denial of the motions to recuse. We review the lower courts’ decisions on recusal for abuse of discretion. Moran v. Clarke, 296 F.3d 638, 648 (8th Cir. 2002).
Though their positions on the basis for recusal have shifted as this case has progressed, Appellants now argue only that Judge Rendlen should have recused himself under
avoid the risk that the party might hold its application as an option in the event the trial court rules against it,” which appears to be what happened here. Id.
Even if the motions to recuse were timely, Appellants have not demonstrated that Judge Rendlen‘s impartiality might reasonably be questioned. “A party introducing a motion to recuse carries a heavy burden of proof; a judge is presumed to be impartial and the party seeking disqualification bears the substantial burden of proving otherwise.” Fletcher, 323 F.3d at 664 (quoting Pope v. Fed. Express Corp., 974 F.2d 982, 985 (8th Cir. 1992)). Moreover, a party is not entitled to recusal merely because a judge is “exceedingly ill disposed” toward them, where the judge‘s “knowledge and the opinion it produced were properly and necessarily acquired in the course of the proceedings . . . .” Liteky v. United States, 510 U.S. 540, 551 (1994). Appellants have supplied no evidence from which we could conclude that Judge Rendlen was not impartial. The only information in the record supporting such a conclusion comes from the allegations in Appellants’ motions. And Judge Rendlen‘s orders contravene those allegations: In the orders denying the motions to recuse, Judge Rendlen explained that he was not personally involved with the United States Trustee‘s investigations into Critique Services and was exposed to no information relevant to Steward‘s motion to disgorge attorney‘s fees. On this record, we cannot find that Appellants “[bore] the substantial burden” of proving that Judge Rendlen was not impartial. Neither the bankruptcy court nor the district court abused its discretion in denying Appellants’ multiple motions for recusal.
IV. Construing Steward‘s Complaint as Motion to Disgorge
Appellants assert that the bankruptcy court erred in docketing Steward‘s pro se complaint as a motion to disgorge attorney‘s fees. But pro se pleadings are to be construed more liberally than those prepared by counsel. See Wishnatsky v. Rovner, 433 F.3d 608, 610 (8th Cir. 2006) (citing Haines v. Kerner, 404 U.S. 519, 520 (1972)). In the case, as the district court correctly determined, the bankruptcy court properly exercised its authority to construe Steward‘s pro se complaint as a motion to disgorge and to order that the improperly docketed pleading be docketed correctly.
V. Critique Services’ Status and Participation in the Litigation
Appellants make three related arguments regarding Critique Services’ status as a litigant in this case. First, Critique Services argues that it was never properly served as an independent party, and so the bankruptcy court did not have jurisdiction to compel it to comply with discovery requests. Second, Critique Services argues that because no discovery requests were directed to it, the bankruptcy court erred in imposing sanctions for failure to participate in discovery. Finally, Robinson and Walton argue that they cannot be held accountable for Critique Services’ failure to provide discovery, because they had no control over Critique Services’ actions. We review the lower courts’ factual findings for clear error and legal conclusions de novo. Reynolds, 425 F.3d at 531.
Appellants did not make the first two arguments before the bankruptcy court, raising them for the first time before the district court. Noting this failure, the district court nevertheless addressed the substance of Appellants’ arguments, ultimately concluding that Critique Services had been properly served and that discovery requests were properly directed to it. We agree. Appellants’ continued refusal to disclose the nature of Robinson‘s affiliation with Critique Services was a significant barrier to the progress of the litigation before the bankruptcy court. If Critique Services had genuinely wanted to act as an independent party, it could at any time have made its intention clear by complying with the bankruptcy court‘s order to explain or clarify its relationship with Robinson. We find no error in the district court‘s finding that the bankruptcy court correctly determined that Robinson and Critique Services were properly treated as a single entity, or its conclusion that Critique Services waived its challenge to the bankruptcy court‘s jurisdiction through its conduct in the litigation. See Yeldell v. Tutt, 913 F.2d 533, 539 (8th Cir. 1990). Appellants raise the third argument for the first time in this court, and we decline to consider it. Ames v. Nationwide Mut. Ins. Co., 760 F.3d 763, 770 (8th Cir. 2014), cert. denied, 135 S. Ct. 947 (2015) (we do not generally consider issues raised for the first time
VI. Mootness
Appellants assert that the bankruptcy court should have dismissed Steward‘s claim sua sponte for lack of subject matter jurisdiction after Appellants directed a payment of $199 to Steward‘s counsel in October 2013. They argue that this payment was the amount of the attorney‘s fee that Steward had paid to Robinson and Critique Services, and that its refund mooted her claim for disgorgement of attorney‘s fees. Because mootness is jurisdictional, we consider this issue despite Appellants’ failure to raise it before the bankruptcy court. Ali v. Cangemi, 419 F.3d 722, 724 (8th Cir. 2005).
Appellants have failed to show that Steward‘s claim was moot. A case is not moot so long as the parties retain any “concrete interest, however small, in the outcome of the litigation.” Chafin v. Chafin, 133 S. Ct. 1017, 1023 (2013) (quoting Knox v. Serv. Employees Int‘l Union, Local 1000, 132 S. Ct. 2277, 2287 (2012)). Here, Steward‘s motion to disgorge sought significantly more than a mere refund of the $199 fee she had paid to Robinson and Critique Services. The bankruptcy court ultimately found that Steward was entitled to disgorgement of $495, a finding that appears to be uncontested by Appellants and was not clearly erroneous. Moreover, the record does not show that it was Robinson and Critique who in fact made the $199 payment to Steward. And Steward‘s counsel indicated that Steward would not accept this amount in settlement of the issues raised by the motion to disgorge. Even if we considered the payment of $199 a partial refund, Steward claimed more than that in damages. She therefore retained a concrete interest in the outcome of the litigation, and the bankruptcy court retained the power to grant effectual relief. See Chafin, 133 S. Ct. at 1023. The district court correctly concluded that Steward‘s claim was not mooted by the alleged refund of $199 in attorney‘s fees.
VII. Denial of Motion to Approve Settlement
Next, Appellants argue that the bankruptcy court abused its discretion in denying Steward‘s motion to approve the parties’ settlement agreement. Appellants did not raise this argument before the district court. We therefore do not reach the question of whether the bankruptcy court abused its discretion in rejecting the settlement, see Ames, 760 F.3d at 770, and note only in passing that the bankruptcy court rejected the settlement without prejudice based on the parties’ failure to meet a procedural requirement,9 an action highly unlikely to constitute an abuse of discretion. See
Appellants did, however, raise a related issue before the district court, arguing that the bankruptcy court erred by ordering Steward to accept discovery and by sanctioning Appellants for their failure to meet their discovery obligations after the parties had ostensibly reached an agreement that did not require the discovery process to continue. They argue that when the parties settled, the bankruptcy court no longer had authority to impose sanctions based on their refusal to comply with the court‘s prior orders. This issue is easily resolved based on the fact that, as the district court correctly determined, the case was never actually settled. See In re Petters Co., 455 B.R. 166, 172 (B.A.P. 8th Cir. 2011) (settlement is contingent on the bankruptcy court‘s approval). Though Steward had filed a motion for approval of the parties’ settlement agreement, the bankruptcy court denied that motion without prejudice based on
VIII. Unclean Hands
In their final, and perhaps most frivolous, effort to argue that Steward‘s claim for disgorgement should have been dismissed, Appellants assert that the bankruptcy court should have applied the doctrine of unclean hands to her claim. The doctrine of unclean hands is equitable, intended “to serve the interests of public policy and protect the integrity of the courts.” Pony Express Cmty. Bank v. Campbell, 206 S.W.3d 399, 402 (Mo. Ct. App. 2006). The doctrine is applied when its application would “promote[] right and justice . . . considering all of the facts and circumstances of a particular case.” Id. (quoting Sangamon Assoc. Ltd. v. Carpenter 1985 Family P‘ship Ltd., 165 S.W.3d 141, 145–46 (Mo. 2005) (en banc)). It is not intended to “aid wrongdoers who attempt to use it as a shield for their own misconduct.” Id. (quoting Nelson v. Emmert, 105 S.W.3d 563, 569 (Mo. App. 2003)).
Steward admittedly made several false statements in her initial petition for bankruptcy, including falsely stating her address and falsely claiming her three nephews as dependents. However, she voluntarily corrected these false statements in 2013, explaining that Robinson and his staff had directed her to include the false information in her petition and that she did not understand the consequences of doing so until the first meeting of creditors in 2011. The district court found that, given Robinson and Critique Services’ role in Steward‘s wrongdoing, Appellants were not entitled to benefit from the doctrine of unclean hands, and the bankruptcy court did not err in refusing to dismiss Steward‘s claim on this basis. We agree. Moreover, we note that the unclean hands doctrine is properly used to bar a claim only when the wrongful conduct at issue is the source of that claim, which is not the case here. Graham Const. Servs. v. Hammer & Steel Inc., 755 F.3d 611, 620 (8th Cir. 2014).
IX. Sanctions
Finally we reach the crux of this case: the significant sanctions imposed on Appellants by the bankruptcy court. We review the imposition of sanctions by the
Second, Appellants argue that the bankruptcy court improperly imposed penalties for criminal contempt, because they had no opportunity to purge themselves of contempt, and that the court‘s contempt order failed to comply with applicable procedural rules. Civil contempt is distinguished from criminal contempt by the presence of a purgation provision, which allows the contemnor to purge himself of contempt by complying with the court‘s orders. In re Mayex II Corp., 178 B.R. 464, 470 (Bankr. W.D. Mo. 1995). “It is well established that bankruptcy courts have the authority to exercise civil contempt power,” which is intended to coerce compliance with court orders or to compensate for damages associated with non-compliance. Id. at 469-70. In this case, the bankruptcy court explicitly indicated that the contempt sanctions imposed were civil in nature, explained exactly how Robinson and Walton might purge themselves of the sanctions, and gave them multiple opportunities to do so. In fact, this was the reason for the court‘s order requiring Steward to accept any discovery provided by Appellants even after a motion for settlement approval was filed—simply by providing discovery, Appellants could have purged themselves of contempt. The mere fact that Appellants’ failure to comply with the court‘s orders caused the contempt sanctions to ultimately come due does not render those sanctions criminal in nature. Furthermore, Appellants fail entirely to explain how the bankruptcy court‘s finding of contempt failed to comply with the procedural rules requiring notice and a hearing. The record shows that Appellants had multiple notices of the impending sanctions and multiple opportunities to respond, and appeared before the court on multiple occasions before the sanctions were made final. We agree with the district court that the bankruptcy court‘s imposition of sanctions for civil contempt was proper.
Third, Robinson and Walton argue that the bankruptcy court did not have the authority to unilaterally suspend them from practice under the local rules governing attorney discipline. The district court found that the suspension was proper under the bankruptcy court‘s inherent authority to discipline attorneys appearing before it and pursuant to the local rules authorizing exercise of that authority, and we agree. Bankruptcy courts have the authority to sanction persons appearing before them, and this authority includes the right to “control admission to [their] bar.” In re Burnett, 450 B.R. 116, 132 (Bankr. E.D. Ark. 2011) (quoting Chambers v. NASCO, Inc., 501 U.S. 32, 43 (1991)); Law v. Siegel, 134 S. Ct. 1188, 1194 (2014); In re Clark, 223 F.3d 859, 864 (8th Cir. 2000). Local Rule 12.02 for the Eastern District of Missouri states that
[a] member of the bar of this Court and any attorney appearing in any action in this Court, for good cause shown and after having been given an opportunity to be heard, may be disbarred or otherwise disciplined . . . .
and Rule IV-A of the Rules of Disciplinary Enforcement for the Eastern District of Missouri states that
[f]or misconduct defined in these Rules, and for good cause shown, and after notice and opportunity to be heard, any attorney admitted to practice before this court may be disbarred, suspended from practice before this court, reprimanded or subjected to such other disciplinary action as the circumstances may warrant.10
As the district court found, the bankruptcy court carefully and thoroughly detailed the misconduct that was the basis for Robinson and Walton‘s suspension, and provided ample notice and opportunities to be heard. We conclude, as did the district court, that the bankruptcy court‘s suspension of Robinson and Walton from practice in the Bankruptcy Court for the Eastern District of Missouri was a proper exercise of its authority and did not constitute an abuse of discretion.
X. Conclusion
For the foregoing reasons, we affirm the judgment of the district court.