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Parties Involved:
Wayne Aufrecht
Appellee
Nelson Rivers
Appellant

Document Text:

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 19-30910

In the Matter of: Larry Galloway, Et Al

Debtors

NELSON RIVERS,

Appellant

v.

WAYNE AUFRECHT,

Appellee

Appeal from the United States District Court

for the Eastern District of Louisiana

USDC No. 2:18-CV-2288

Before JONES, ELROD, and HIGGINSON, Circuit Judges.

EDITH H. JONES, Circuit Judge:*

Nelson Rivers, a retired attorney, appeals the district court’s imposition 

of a sanction in the amount of $3,500 and a fee disgorgement order exceeding 

$16,000 levied in connection with the winding up of his bankruptcy practice. 

For the following reasons, we vacate a portion of the awards, albeit with a 

* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not 

be published and is not precedent except under the limited circumstances set forth in 5TH 

CIR. R. 47.5.4.

United States Court of Appeals

Fifth Circuit

FILED

May 8, 2020

Lyle W. Cayce

Clerk

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No. 19-30910

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caution to other attorneys handling consumer bankruptcy cases in the Eastern 

District of Louisiana. Our standard of review in this bankruptcy appeal 

mirrors that of the district court and entails clear error for factual findings and 

de novo review of the bankruptcy court’s legal conclusions. In re Morrison, 

555 F.3d 473, 480 (5th Cir. 2009).

Complete details of the proceedings before the bankruptcy court are 

unnecessary to recount. Rivers left the practice of law abruptly in the summer 

of 2017 and transferred some of his practice’s assets to another practitioner 

while apparently delegating to other practitioners, who accepted, as a matter 

of professional courtesy, various responsibilities in connection with his stillpending cases.

A difficulty arose when the United States Trustee filed a motion to 

dismiss the Chapter 13 case of a couple whom Rivers represented, In re 

Galloway, No. 15-12646 (Bankr. E.D. La.), because the couple had stopped 

making their monthly Chapter 13 payments while in the hospital. A hearing 

was scheduled, but before that hearing, the couple cured their arrearages. 

When Rivers failed to appear for the hearing, the court convened a show-cause 

hearing to determine what had happened.

Eventually, the court rendered an opinion that found Rivers guilty of 

violating numerous provisions of the Louisiana Rules of Professional Conduct

as well as local rules and procedures. The judge assessed a $3,500 sanction 

against Rivers and in favor of Aufrecht, the attorney who had acceded to much 

of the practice. As the basis of that sanction, the court found that Rivers 

knowingly made a false statement about the nature of their agreement, 

unnecessarily forcing Aufrecht to appear in court to explain. Based on 

11 U.S.C. § 329(b)(1), the judge required Rivers to disgorge $6,300 in 

“unearned” fees (at $350 each) for eighteen Section 341 meetings, in sixteen of 

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which he had allowed other counsel, without compensation, to be present with 

his clients.1 Finally, the judge also required disgorgement of other fees, 

totaling $10,065 and mostly consisting of the no-look fees usually authorized 

in the Eastern District.

On appeal, the district court affirmed the sanction award, issued under 

the court’s inherent authority, while acknowledging both some ambiguity in 

the statements and surrounding circumstances and, more important, that the 

bankruptcy court failed to find expressly that Rivers acted in bad faith. The 

court reversed all other findings of ethical lapses. The court affirmed the 

bankruptcy court’s $6,300 disgorgement award for “violat[ing]” local rules 

governing counsel’s duties in no-look fee cases by not appearing in person at 

Section 341 meetings.2 The district court did not, however, question, and so 

affirmed, the bankruptcy court’s findings relating to the disgorgement of other

unearned bankruptcy fees because Rivers had not challenged them on appeal.

Rivers has now appealed to this court. During the course of the appeal, 

Rivers himself reported to the Louisiana Office of Disciplinary Counsel, was 

investigated for matters that have arisen here, and was cleared of any ethical 

wrongdoing. This court has carefully reviewed the briefs, court opinions, and 

the underlying record in this case. Having done so, we vacate the sanction 

order and the disgorgement order for his failure to attend Section 341 

meetings.

First, in the absence of a finding of bad faith by clear and convincing 

evidence, a federal court is not empowered to impose sanctions for attorney 

1 At two meetings, no attorney appeared.

2 No-look fee rules permit attorneys in routine consumer bankruptcy cases to charge 

a base fee for their services without the necessity of holding specific fee-approval hearings so 

long as they comply with basic duties to their clients.

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misconduct under its inherent authority. In re Moore, 739 F.3d 724, 729–30 

(5th Cir. 2014). The bankruptcy court’s finding, affirmed by the district court, 

that Rivers made a “knowing” misstatement of fact concerning the disposition 

of his practice to Aufrecht, passes muster under the clear error standard. But 

it was incorrect to infer, as the district court did, that the misstatement was 

tantamount to clear and convincing evidence of bad faith. The standards of 

proof are not the same. The misstatement, as even the district court noted, 

was somewhat ambiguous. Viewed in totality, including all of Rivers’s 

explanations about how he handled ongoing cases post-retirement, the record 

does not support the higher standard of proof. We also note that Aufrecht, who 

intervened in this court only for a reaffirmation that he did nothing wrong, 

makes no claim to recover the $3,500 sanction.

As for the disgorgement orders, issued pursuant to 11 U.S.C. § 329(b), 

we do not commend any “local practice” whereby counsel substitute for each 

other at bankruptcy clients’ Section 341 meetings. The lower courts correctly 

noted that these hearings are critical to the accuracy and integrity of 

bankruptcy law. The hearings offer the first and often only opportunity for 

creditors or the United States Trustee to question debtors under oath about 

matters relevant to their cases. A lawyer is presumed to know the particulars 

of each client’s case and owes the client the obligation of being personally 

present at the hearing (or present through others in his office) to protect the 

client’s interests. The judge was not wrong to criticize Rivers’s conduct in 

availing himself of the professional courtesy of lawyers who had no pre-existing 

relationship to the clients.

That said, the disgorgement order relating to the Section 341 meetings 

here was unnecessarily ex post facto. The local rules specify the duties of 

“counsel” toward a client in no-look fee cases; the local rules do not say that the 

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duty is personal and non-delegable in order to justify the no-look fee. See 

Bankr. E.D. La. R. 4002-1(D); Bankr. E.D. La. Gen. Order No. 2011-1. Rivers 

took a chance that no adversities would befall his clients in the Section 341 

meetings, and he apparently was fortunate. In light of the ambiguity of the 

local rules, the lack of unforeseen consequences from his use of substitute 

counsel, and not a word from the volunteer counsel about compensation, we 

hold no harm/no foul. Notwithstanding our vacatur of the disgorgement of fees 

for Rivers’s failure to attend 341 meetings, consumer bankruptcy attorneys 

should take note that the courts may reasonably impose personal, nondelegable duties on counsel who seek no-look fees, and indeed they may 

interpret, for the future, the rules of the Eastern District of Louisiana, to so 

require.

Rivers’s argument against the disgorgement of other fees “was not 

presented to the district court and is waived,” Kirschbaum v. Reliant Energy, 

Inc., 526 F.3d 243, 257 (5th Cir. 2008).

The judgment of the district court, affirming the bankruptcy court, is 

REVERSED IN PART and AFFIRMED IN PART; the sanction of $3,500

and the disgorgement order of $6,300 are VACATED.

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