Sometimes, nonprecedential opinions have something important to say. And sometimes, opinions are fun to read.
As so it was with an April 19 opinion for the Third Circuit by Circuit Judge Kent A. Jordan. He began by alluding to “the famous first law of holes: when you’re in one, stop digging.”
Judge Jordan devoted the first eight pages of his April 19 opinion to laying out the dimensions of the hole that the chapter 11 debtor’s lawyer had dug for himself. Basically, the lawyer failed to disclose a $19,000 payment he had received from the debtor’s owner. The payment only came out when the lawyer filed an application for compensation after conversion to chapter 7.
Although the lawyer’s story changed from time to time, he claimed that the payment was a loan from the owner to be repaid after a final allowance. Whatever the circumstances, the payment should have been disclosed early and often.
Judge Jordan said that the lawyer “evaded” and made “contradictory responses” to questions by the bankruptcy judge about the undisclosed payment.
Bankruptcy Judge Stacey L. Meisel of Newark, N.J., denied the fee application with prejudice and ordered the lawyer to disgorge the payment. Given the lawyer’s “egregious” conduct, she also referred the matter to the chief district judge for an ethics investigation.
The district court affirmed. The lawyer fared no better in the circuit.
The lawyer led off by arguing that the bankruptcy court had no constitutional power to order disgorgement under Stern v. Marshall, 564 U.S. 462 (2011). He theorized that the dispute was not core because the payment came from a third party and not from the estate.
Judge Jordan dispensed with the contention by citing Third Circuit precedent, In re Lazy Days’ RV Ctr. Inc., 724 F.3d 418 (3d Cir. 2013). There, the Third Circuit said that the payment of legal fees is “based on a federal bankruptcy law provision [not a state tort claim] with no common law analogue, so the Stern line of cases is plainly inapposite.” Id. at 423.
Violation of disclosure requirements “are thus appropriately policed through equitable remedies fashioned by the Bankruptcy Court,” Judge Jordan said. He held that the “fees paid by [the owner] were to the benefit of the estate and thus were core matters within the Bankruptcy Court’s purview.”
Failing on constitutional grounds, the lawyer argued that the bankruptcy judge abused her discretion in ordering disgorgement. Responding to the argument, Judge Jordan said, “The word ‘chutzpah’ comes to mind.”
The “repeated violations” of the Code and Rules and the “lack of candor,” Judge Jordan said, “more than justified entry of the Fee [disgorgement] Order.”
Judge Jordan ended his opinion by telling bankruptcy judges that they need not fear being seen in the company of those who appear in their courts.
Claiming judicial bias, the lawyer cited a photograph of the bankruptcy judge standing with the chapter 7 trustee at a bar event. Judge Jordan said that “[i]t does not” evidence bias.
Sometimes, nonprecedential opinions have something important to say. And sometimes, opinions are fun to read.
As so it was with an April 19 opinion for the Third Circuit by Circuit Judge Kent A. Jordan. He began by alluding to “the famous first law of holes: when you’re in one, stop digging.”
Judge Jordan devoted the first eight pages of his April 19 opinion to laying out the dimensions of the hole that the chapter 11 debtor’s lawyer had dug for himself. Basically, the lawyer failed to disclose a $19,000 payment he had received from the debtor’s owner. The payment only came out when the lawyer filed an application for compensation after conversion to chapter 7.