United States District Court, E.D. Missouri, Eastern Division
RODNEY W. SIPPEL, District Judge.
Appellants in this matter were sanctioned by the bankruptcy court in the underlying bankruptcy case. Appellants have filed an appeal in this Court seeking to overturn the bankruptcy court's judgment and sanctions. After a review of the briefs and the record in this matter I find that the bankruptcy court had the authority and sound reasons for imposing its judgment and sanctions against Appellants. As a result, I will affirm the bankruptcy court's judgment and order.
The events underlying this appeal are clearly and extensively recorded in the bankruptcy court's Amended Memorandum Opinion and Order dated June 11, 2014. An abbreviated version of events which is taken from that order and from the record before the bankruptcy court submitted in this appeal reveals the following:
Appellant James C. Robinson is a longtime practitioner in the United States Bankruptcy Court for the Eastern District of Missouri. Robinson has an affiliation with Appellant Critique Services L.L.C. (Critique). Robinson/Critique's bankruptcy practice is based on the low-cost/high volume representation of individuals before the bankruptcy court. Robinson has represented in bankruptcy court documents that he does business as/practices law as Critique. However, it is unclear from the record before the bankruptcy court whether Critique is a legal or fictional entity. It is also unclear who owns or has an ownership interest in Critique, what services Critique provides to Robinson's clients, and what other attorneys, if any, are employed by Critique. In the proceedings in this case, the bankruptcy court relied on Robinson's representations that Critique was the d/b/a of Robinson. The issue of the legal nature and identity of Critique was important in the bankruptcy court proceedings because Critique employees helped Appellee/Debtor Latoya Steward prepare her bankruptcy filings and received fees from Steward. The bankruptcy court stated in its sanctions order at issue that the monetary sanctions he imposed on Robinson and Critique are imposed jointly and severally upon these parties in the event that they are not the same entity as has been represented by Robinson.
Appellee Steward is the debtor in the underlying bankruptcy case. In 2010, she engaged Robinson to represent her in filing for bankruptcy relief under Chapter 7 of the United States Bankruptcy Code. To initiate her bankruptcy case, Steward made several visits to Critique's office and met with Critique staff members to pay fees and complete paperwork. The bankruptcy court found in its Amended Memorandum and Opinion and Order, dated June 11, 2015, that Critique staff members solicited Steward to include false information in her petition papers (a false address and fictional dependents). Robinson was made aware of at least some of these false representations but failed to correct them. Steward's petition was filed with the bankruptcy court on June 17, 2011. Steward signed her petition papers at the pages tabbed by Critique for signature. However, she did not read her petition papers and did not discover the false statements in her papers until she reviewed her papers with new counsel in 2013.
The bankruptcy court found that Robinson and Critique were highly unprofessional in their representation of Steward in addition to soliciting and including false information in her petition papers: (1) Robinson and Critique failed to communicate with Steward; (2) they improperly maintained her file; and (3) they abandoned Steward in her efforts to rescind a reaffirmation agreement that she had entered with Ford Motor Credit.
As a direct result of not rescinding the reaffirmation agreement, Steward surrendered her vehicle and remained obligated on the debt to Ford Motor Credit.
On December 4, 2012, Steward filed a pro se complaint against Ford Motor Credit in an adversary proceeding in her bankruptcy case. She claimed her debt should be discharged based on Robinson and Critique's failure to represent her in her effort to rescind the reaffirmation agreement. Robinson received an electronic notice of this action. Ford Motor Credit moved to dismiss arguing that the professional negligence of Robinson and Critique could not be the grounds for Steward's debt to Ford Motor Credit to be discharged. At the hearing of the motion, Steward made an oral motion to substitute Robinson and Critique for Ford Motor Credit. The bankruptcy court ultimately entered an order granting the motion to dismiss, denying Steward's motion to substitute parties, but granting Steward fourteen days to file whatever pleadings she deemed appropriate against Robinson and Critique.
Steward filed an amended complaint in the adversary proceeding against Robinson and Critique seeking a refund of the attorney fees she paid to them and other damages for their failure to represent her. The bankruptcy court, liberally construing Steward's pro se filing, determined that this request was one for a disgorgement of fees which is a claim that should be made in the main bankruptcy case pursuant to 11 U.S.C. § 329(b) and not in an adversary proceedings. Accordingly, the amended complaint was re-docketed as a motion to disgorge fees in the main bankruptcy case.
It is the actions of Appellants in the disgorgement of fees litigation which gave rise to the sanctions imposed on them and the basis of this appeal.
On April 8, 2013, the bankruptcy court provided Robinson and Critique with notice of a hearing of Steward's motion to disgorge set on May 8, 2013. Pursuant to Local Bankruptcy Rule (L.B.R.) 9013-13, Robinson and Critique were required to file a response to the motion within seven days. They failed to do so. On May 7, 2013, one day before the hearing, Appellant Elbert Walton entered his appearance on behalf of "James Robinson d/b/a Critique Services, L.L.C." On the same day Walton filed an untimely response to the motion to disgorge and mailed a copy to Steward, which meant that she would not receive a copy of the response before the hearing.
The May 8, 2013 hearing was continued to May 15, 2013 because Steward was late for the hearing. Steward, Robinson, and Walton appeared at the May 15, 2015 hearing. The hearing was continued again because Steward had just received Robinson and Critique's response to her motion and it became apparent that the parties had not attempted to communicate in advance of the hearing as is required by L.B.R. 2093(B) and the parties had not prepared a joint stipulation of uncontested facts. The hearing was continued to June 26, 2013.
On June 17, 2013, counsel entered an appearance for Steward. Counsel also filed a motion to convert the June 26, 2013 hearing into a status conference. That motion was granted and the status conference was ultimately continued to August 14, 2013.
On June 26, 2013, Steward served interrogatories and requests for production on Robinson d/b/a Critique. The discovery sought, among other information, to clarify and identify the relationship between Robinson and Critique.
On July 10, 2013, Steward recanted her prior statements made in her bankruptcy documents which were compiled and submitted by Robinson and Critique. She filed amended documents with the bankruptcy court which included a summary of the factual corrections.
On July 20, 2013, Appellants filed a motion to quash Steward's discovery requests. The motion wrongly asserted that discovery was not permitted in a contested bankruptcy matter. The bankruptcy court denied the motion on July 31, 2013 as frivolous and vexatious.
Appellants' responses to the discovery requests were due no later than July 26, 2013. Appellants did not file any responses, objections, or request a protective order. On August 14, 2013, Walton appeared before the bankruptcy court for Robinson and Critique at the discovery status conference. He stated that the responses to the discovery were complete and would be provided the next day. Walton indicated that everything would be produced with the exception of some personal financial information. Another status conference was set on September 4, 2013.
Appellants did not provide discovery responses until the evening of September 3, 2013 which did not allow Steward's counsel to review the responses before the hearing set on September 4, 2013. As a result, the status conference was continued to September 11, 2013 to allow counsel to review the responses.
At the September 11, 2013, it became apparent that the discovery responses were grossly insufficient. Walton's representation at the August 14, 2013 hearing that the responses were complete had been misleading. For the most part, the responses were refusals to respond based on untimely, non-specific objections. Those objections were asserted based on scope, vagueness, relevancy, work product or harassment. Walton's demeanor at the September 11th hearing was combative, argumentative, and disrespectful to both the bankruptcy court and to Steward. He blamed Robinson for not providing him with discovery, he accused Steward of perjury, and he declined to produce anything further subject to his discovery objections absent a motion to compel filed by Steward. This last position was baseless because Appellants had already waived their right to object to the discovery by failing to file objections in a timely fashion as required by the Federal Rules of Civil Procedure.
The bankruptcy court patiently handled Walton's disrespectful manner and continued the matter to September 18, 2013 to allow Steward to file a motion to compel. On September 16, 2013, Steward filed her motion to compel and moved to expedite the hearing of the motion to be held on September 18, 2013 at the status conference. Appellants consented to the motion to expedite and filed a response to the motion to compel on the morning of the September 18th hearing.
The September 18th hearing mirrored the bad conduct evidenced at the September 11th hearing. Walton was disrespectful to the bankruptcy court, attempted to disparage Steward, asserted legally frivolous positions, and revealed that he, Robinson, and Critique improperly withheld discovery and forced Steward to file a motion to compel to obtain the discovery which had been withheld in bad faith. The bankruptcy court ruled that Appellants had waived any objections to discovery. The court granted the motion to compel and ordered Appellants to provide all the information sought in discovery within seven days. The court allowed Appellants to file any financial information under seal.
In addition, the bankruptcy court ordered Robinson and Critique to pay Steward's counsel $1, 710.00 in attorney's fees related to the prosecution of the motion to compel. The bankruptcy court also imposed a sanction of $1, 000.00 a day for each day Robinson and Critique fail to fully comply with discovery after the seven day deadline. Finally, the bankruptcy court's order addressed Walton. The court noted Walton's unprofessional and disrespectful demeanor in the courtroom in his last several appearances and notified Walton that if he exhibited similar behavior in the future, Walton would be personally fined $100.00 for each act of disrespectful behavior. The bankruptcy court ended the order with the statement, "In the future, Mr. Walton should bring to this Court either a professional, respectable demeanor or his checkbook." [App. Vol. II at 333]
Instead of producing discovery, Appellants assailed the bankruptcy court with a slew of motions over the next several days. They included:
- a motion to recuse;
- a motion for judgment on the pleadings;
- a motion to set aside the order compelling discovery;
- a motion to dismiss;
- and an amended motion to dismiss.
In the motion to recuse Walton referred several times to Critique as Robinson's d/b/a and as the law firm through which Robinson does business. The bankruptcy court denied all of these motions because they were without merit. A status conference was set on October 1, 2013.
At the October 1, 2013 status conference, it was revealed that no further discovery had been provided since the order to compel has been granted. Moreover, Walton stated for the first time that Robinson and Critique would not comply with the court's orders, but instead, would seek leave to appeal and would file a petition for a writ of mandamus. On October 2, 2013, the bankruptcy court entered an order, in a second attempt to obtain compliance with the court's previous order, which sanctioned Robinson and Critique $1, 000.00 per day for each day of noncompliance going forward thereafter, and gave notice that, after thirty days, the bankruptcy court may impose further sanctions. The order also provided that the sanctions would not accrue on any day that there was a pending request for leave to file an appeal or a pending appeal.
Appellants filed a notice of appeal on October 2, 2013 and filed a motion with the Bankruptcy Appellate Panel (B.A.P.) for leave to file three interlocutory appeals. Appellants also filed a motion to stay in the bankruptcy court. The motion to stay was denied on October 4, 2013. On October 8, 2013, the B.A.P. denied the motion for leave to file interlocutory appeals. On October 9, 2013, the $1, 000.00 per day sanctions began to accrue.
On November 1, 2013, Appellants filed a motion for a writ of mandamus in the United States District Court for the Eastern District of Missouri ...