Bisges v. Garula (In re Clink)

Citation:
In re Clink, 2014 WL 5335735 (8th Cir. October 21, 2014)
Tag(s):
Ruling:
The Eighth Circuit affirmed a decision imposing sanctions against an attorney for conduct related to the preparation of a debtor's bankruptcy schedules.
Procedural context:
Appeal from a district court decision affirming a bankruptcy court ruling which (i) denied the debtor's attorney's motion to dismiss the trustee's motion for disgorgement of fees and (ii) imposed sanctions against attorney.
Facts:
Chapter 7 trustee moved to reopen case after learning that the debtor had failed to disclose the ownership of some horses. The debtor informed the trustee that her attorney had told her it was not necessary to disclose the horses, and paid the trustee $1,000 to settle the dispute. The trustee then moved for disgorgement of the fees paid to the attorney, and for sanctions. The attorney sought to dismiss the trustee's motion on the grounds that the trustee had destroyed the only record of the meeting of creditors, and dismissal of the motion was the only appropriate discovery sanction. The bankruptcy court rejected this argument given that there was no evidence of bad faith on the part of the trustee. As to the trustee's motion, the bankruptcy court found that as to a check the debtor wrote her mother prior to the bankruptcy, the attorney advised the debtor in an email "make sure it cannot be traced," while also apparently telling her it was unnecessary to list the horses because "no one lists horses." The bankruptcy court ordered disgorgement of fees, sanctioned the attorney for violating Sections 526(a)(2) and 707(b)(4), and referred him to the district court for further review. On appeal, the Eighth Circuit affirmed, finding that the attorney had counseled or advised the debtor to make a fraudulent or misleading statement in a bankruptcy case, even if the debtor did not ultimately follow the advice. Further, the court affirmed as to Section 707(a)(4) as the bankruptcy court reasonably concluded the attorney either knew of the horses and failed to list them, or unreasonably failed to ask about animal ownership.
Judge(s):
Riley, Smith, and Kelly

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