In re Clara CLARK; Michael Karsch; Lena Falls; Mary Carr; Hattie M. McClinton; Leon J. Herron, Debtors. Elbert A. Walton, Appellant, v. John V. LaBarge, Jr., Trustee/Appellee.
No. 99-3395
United States Court of Appeals, Eighth Circuit
Aug. 21, 2000
Rehearing and Rehearing En Banc Denied Oct. 18, 2000
223 F.3d 859
Submitted: April 14, 2000.
Diana S. Daugherty, St. Louis, MO, argued, for Appellee.
Before: WOLLMAN, Chief Judge, BEAM, Circuit Judge, and FRANK,1 District Judge.
WOLLMAN, Chief Judge.
Elbert A. Walton, Jr. appeals from the district court‘s2 order affirming the bankruptcy court‘s3 opinion that denied Walton attorney fees, required him to disgorge fees he had previously received, and ordered him to pay costs to the United States Trustee4 who investigated his conduct in six Chapter 13 bankruptcy cases. We affirm.
I.
The facts below are from the bankruptcy court‘s December 21, 1998, amended memorandum opinion (Bankruptcy Opinion). Generally, debtors represented by attorney Walton became his clients after meeting with his paralegal, MacArthur Jackson, who worked from the same office space both as an employee of Walton‘s practice, Metropolitan St. Louis Legal Services Corporation, P.C., and as an independent financial consultant. The debtors, considering Jackson to be Walton‘s “right hand person,” paid approximately $350 to Jackson for services and filing fees related to their Chapter 13 cases, which included advice and the preparation of necessary filings such as the bankruptcy petition and Chapter 13 plan. Jackson would then explain that although he was preparing the documents, in court they would need to be represented by a lawyer. He then would refer them to Walton or simply indicate that Walton would represent them. In most of these cases, the debtors first met Walton in court. Walton is “one of the more frequent bankruptcy petition filers” in the district.
Local rules and practice in the bankruptcy courts of the Eastern District of Missouri provide that a Chapter 13 debtor‘s attorney may choose to receive compensation through one of two methods. The method at issue here is the election of a flat fee of $1250.00, which Walton requested for his representation in the six cases underlying this appeal. During the debtors’ July 1998 plan confirmation hearings, the bankruptcy court took up the matter of inconsistencies in reported payments of attorney fees and incorrect or incomplete fee disclosures, which were the basis for the Trustee‘s objections to the plans’ confirmation. Walton had filed multiple documents in an attempt to overcome the Trustee‘s objections, but the court, evidently not reassured by Walton‘s actions, scheduled further hearings.
At least nine persons were subpoenaed for the subsequent hearings held on September 8, October 2, and October 21 of 1998: Walton, Jackson, a former associate of Walton, and the six debtors. Four of
The Bankruptcy Opinion gives the following overview of the September/October hearings: “At trial, Mr. Walton, Mr. Jackson and four of the six debtors appeared having an opportunity to support or respond to the Trustee‘s allegations.... When confronted with the multiplicity of inconsistencies in the documents filed in these cases, Mr. Walton frequently deferred responsibility to the former associate....” Bankruptcy Opinion at 4, 5. The bankruptcy court also rendered findings of fact specific to each debtor‘s case, reciting a litany of problems that included: inconsistencies in Walton‘s filings about payments and in response to the Trustee‘s objections; execution of blank forms; unauthorized or forged signatures of both Walton and debtors; and Walton‘s ignorance of the cases for which he was responsible. The court concluded that Walton had failed to properly represent the debtors or perform the legal services contemplated by the fee, and that he had done so in bad faith. The court ordered that attorney fees Walton sought in these cases be denied, that fees already paid be disgorged, and that costs and expenses be awarded to the Trustee as a sanction against Walton. The court then referred the six cases to the district court for disciplinary investigation.
Walton appeals from the decisions of the courts below, arguing that the bankruptcy court‘s factual findings are clearly erroneous, that the court erroneously applied the law regarding fees and sanctions, and that he did not receive adequate notice and a hearing about the possibility of such a fee denial and sanctions.
II.
As the second reviewing court, we apply the same standards of review that the district court applied. See Snyder v. Dewoskin (In re Mahendra), 131 F.3d 750, 754 (8th Cir. 1997). We review the bankruptcy court‘s factual findings for clear error and its conclusions of law de novo, see Ross v. Dakota Rail, Inc. (In re Dakota Rail, Inc.), 946 F.2d 82, 84 (8th Cir. 1991), and a decision regarding attorney fees for an abuse of discretion, see Grunewaldt v. Mutual Life Ins. Co. (In re Coones Ranch, Inc.), 7 F.3d 740, 744 (8th Cir. 1993).
A. Factual Findings
We briefly address Walton‘s primary arguments of factual error. First, Walton alleges that the court erred by failing to find that he was the victim of an errant employee, but he provides no evidence, much less clear evidence, to contradict the court‘s finding that Walton was well aware that Jackson provided legal bankruptcy assistance and collected payments. Walton admitted that Jackson functioned at least partially as an employee when he provided bankruptcy services to these debtors, and Walton himself filed pleadings with the bankruptcy court acknowledging receipt of some of the payments Jackson had collected.
Second, Walton contends that the hearings concerned only the amount that remained due for legal fees, not the propri
Third, Walton argues that because what constitutes “local practice” is nebulous and undefined, he may not be denied fees for violating it. We disagree. The explanation of services that Walton signed and filed in each case disclosing the fees paid and listing the services to be rendered is in large part patterned on the court‘s local practice standards. Walton does not dispute that he failed to perform many of the listed services, such as advising his clients. Additionally, when Walton applied for the flat fee under the court‘s local practice, he implicitly agreed to provide the services the court required. Moreover, the court did not rest its conclusion solely on violations of local practice.
B. Fee Award and Disgorgement
Walton contends that the because the debtors’ bankruptcy plans were confirmed, he should receive a fee without inquiry into its reasonableness.
We find neither an abuse of discretion nor an improper application of legal standards or procedure in the court‘s denial of fees and its order requiring disgorgement of those fees already paid. The bankruptcy court has the broad power and discretion to award or deny attorney fees, and, indeed, a duty to examine them for reasonableness. See
The bankruptcy court found that by seeking the flat fee for services Walton knew had been performed by his non-attorney employee, Walton was attempting to collect excessive payments, with the effect of over-charging the debtors as well as violating bankruptcy rules, such as
B. Sanctions
Walton also contends that the court erred in awarding a sanction against him in the amount of $4,759.00, which represented the Trustee‘s reasonable attorney fees and expenses. The court found that Walton and Jackson had “misused the bankruptcy process for their own benefit and personal gain,” and Walton has not presented evidence to convince us that this finding is clearly erroneous. Walton argues, however, that the court misapplied the law and failed to give him adequate notice and an opportunity to be heard.
The bankruptcy court awarded sanctions against Walton by exercising its authority under section 105(a) of the Bankruptcy Code, under
An individual must receive notice and an opportunity to be heard before sanctions may be imposed. See Chambers v. NASCO, Inc., 501 U.S. 32, 56-57 (1991); Jensen v. Federal Land Bank of Omaha, 882 F.2d 340, 341 (8th Cir. 1989). Rule 9011 provides for notice and a hearing before the imposition of a sanction for its violation. “[A]fter notice and a hearing,” as used in the Bankruptcy Code, is defined as “after such notice ... and such opportunity for a hearing as is appropriate in the particular circumstances....”
At the September/October hearings, Walton was prepared to discuss his organization‘s business structure; his and Jackson‘s performance of legal services; and the question of attorney fees, including the matter of incomplete and inaccurate filings. He admitted that some of the signatures of various pleadings were not his own and that he had signed others without performing services. Given these topics of discussion, we find it difficult to conclude that Walton had no notice of possible sanctions for his unethical conduct and rule violations. We need not rest our decision on this ground, however, because Walton received adequate notice, even assuming that he had not known until the hearings that sanctions were being considered.
In In re Mahendra, an attorney was informed at a hearing that the Trustee was considering asking for sanctions, and a week later the Trustee filed a motion for sanctions. See In re Mahendra, 131 F.3d at 758. The attorney was not given a hearing but had admitted the facts underlying the motion and did not respond to the Trustee‘s motion, although he later filed a general summary judgment motion. See id. at 758, 754. We concluded that because the attorney had had sufficient notice and opportunity to respond, his due process rights were not violated. See id. at 758; see also Silverman v. Mutual Trust Life Ins. Co. (In re Big Rapids Mall Assoc.), 98 F.3d 926, 929 (6th Cir. 1996) (“A hearing is not necessarily required where the court has full knowledge of the facts and is familiar with the conduct of the attorneys.“).
On October 13, 1998, the Trustee served on Walton and filed with the court the Trustee‘s summaries of position in the first five cases, requesting costs and expenses and the denial of attorney fees. These documents assuredly put Walton on notice that sanctions were being requested. The bankruptcy court noted that Walton did not respond to these summaries and requests in the two months between their filing and the issuance of the court‘s opinion. Additionally, Walton attended debtor Leon Herron‘s hearing on October 21, 1998, which was after the Trustee had filed the request for fee denial and sanctions for the other five cases that were being considered with Herron‘s. Walton had the opportunity to defend himself during the hearing in Herron‘s case and to request from the bankruptcy court further time to respond, if necessary.
III.
Walton‘s final argument, that the district court‘s referral for disciplinary investigation should have been confidential and sealed, rather than set forth in a public order, is without merit.
The judgment is affirmed.
ROGER L. WOLLMAN
CHIEF JUDGE, UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT