The United States Trustee filed adversary proceedings against certain parties involved in a multi-jurisdictional law practice seeking disgorgement of attorney's fees, cancellation of fee agreements between the debtors and their attorneys, an injunction against the parties enjoining them from violating 11 U.S.C. § 526, and the imposition of civil penalties and sanctions against the parties. While the Court expressed concern about the way the multi-jurisdictional law firm conducted its business and the lack of proper oversight of its employees, the Court found the Rule 2016(b) statements were not actionable on the grounds the local partners were not sharing compensation with members of the same law firm. However, the Court found the law firm was an active participant in promoting and participating in an improper scheme called a "New Car Custody Program" to have consumers' vehicles towed out of state to facilitate the payment of the law firm's attorney's fees and filing fees by the towing company. The Court ordered disgorgement of attorney's fees received under 11 U.S.C. § 329, with the funds to be paid to the debtor's estates. Further, under its inherent authority pursuant to 11 U.S.C. § 105(a), the Court sanctioned the "local partner" attorneys by revoking their privileges to conduct and file cases in the Western District of Virginia for one year and eighteen months, respectively, and also monetarily sanctioned them $5,000.00 each. The Court also separately fined the law firm and certain of its members and affiliated persons the sum of $250,000 and revoked the law firm's privilege to conduct and file cases in this District for five years. The managing partner was fined $50,000 personally. The Court further ordered the towing defendant in default to, among other things, disgorge all funds received from residents of this district in connection with the vehicle recovery program.
Monday, February 12, 2018
Sanctions and contempt