SE Property Holdings, LLC v. David Stewart (In re- Stewart)

Case Type:
Case Status:
WO-18-068 (10th Circuit, Jun 04,2019) Published
The bankruptcy court did not abuse its discretion by imposing a $25,000 saction against an attorney for failure to disclose compensation received as required by 11 USC 329 and Fed. R. Bankr. P. 2016(b) in lieu of ordering disgorgement of all fees paid.
Procedural context:
Creditor filed motion for accounting of debtor attorney's compensation and a motion for disgorgement of all attorney's fees paid in the amount of approximately $350,000. The bankruptcy court denied the motion in part, ordering the attorney to pay $25,000 as a sanction instead. The creditor appealed to the Bankruptcy Appellate Panel.
Chapter 7 debtors retained attorney as counsel to represent them in their bankruptcy case and related adversary proceedings. At a hearing on the settlement of the adversary proceeding, it was disclosed that nondebtor entities controlled by the debtors had received a large cash settlement, and also revealed that debtor's counsel had not disclosed the terms of his compensation or fees paid as required by Section 329 and Rule 2016. The attorney thereafter made the required disclosures, including disclosure that he would be paid from the proceeds of the settlement, which he contended were not property of the estate. The bankruptcy court concluded this was adequate disclosure, but nevertheless imposed a $25,000 sanction for the earlier failure to disclose. In affirming the bankruptcy court, the BAP rejected the creditor's argument that the imposition of a disgorgement order must be commensurate with the egregiousness of the conduct. Rather than endorsing such a single-factor approach, the BAP reaffirmed that the bankruptcy court holds wide discretion in the imposition of sanctions, and may draw on a variety of relevant factors, including factors from courts outside the Tenth Circuit (as no Tenth Circuit authority expressly sets forth the relevant factors to consider).
Somers, Mosier, and Marker

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