Court Opinion

ID: 9353832
Source: CourtListenerOpinion
Date Created: 2023-01-12 21:01:21.610878+00
Date Added: 2024-06-11T17:12:05.423629
License: Public Domain

USCA4 Appeal: 21-1632     Doc: 37           Filed: 01/11/2023   Pg: 1 of 12

                                              PUBLISHED

                              UNITED STATES COURT OF APPEALS
                                  FOR THE FOURTH CIRCUIT

                                               No. 21-1632

        U. S. TRUSTEE,

                    Plaintiff – Appellee,

        v.

        DARREN THOMAS DELAFIELD,

                    Defendant – Appellant,

        and

        UPRIGHT LAW, LLC; LAW SOLUTIONS CHICAGO, LLC; JASON ROYCE ALLEN;
        KEVIN CHERN; EDMUND SCANLAN; SPERRO, LLC; JOHN CARTER MORGAN,
        JR., PLLC; JOHN C. MORGAN,

                    Defendants,

        ANDRIAN SHANNON WILLIAMS; TIMOTHY JAMES WILLIAMS, JR.,

                    Respondents.

        Appeal from the United States District Court for the Western District of Virginia, at
        Roanoke. Michael F. Urbanski, Chief District Judge. (7:20-cv-00714-MFU)

        Argued: October 25, 2022                                     Decided: January 11, 2023

        Before KING and QUATTLEBAUM, Circuit Judges, and M. Hannah LAUCK, United
        States District Judge for the Eastern District of Virginia, sitting by designation.
USCA4 Appeal: 21-1632      Doc: 37        Filed: 01/11/2023     Pg: 2 of 12

        Affirmed by published opinion. Judge Quattlebaum wrote the opinion, in which Judge
        King and Judge Lauck join. Judge King wrote a concurring opinion.

        ARGUED: Darren Thomas Delafield, LAW OFFICE OF DARREN DELAFIELD, PC,
        Roanoke, Virginia, for Appellant. Sumi Kay Sakata, UNITED STATES DEPARTMENT
        OF JUSTICE, Washington, D.C., for Appellee. ON BRIEF: Ramona D. Elliott, Deputy
        Director/General Counsel, P. Matthew Sutko, Associate General Counsel, Executive
        Office for United States Trustees, UNITED STATES DEPARTMENT OF JUSTICE,
        Washington, D.C.; John P. Fitzgerald III, Acting United States Trustee, Region 4, Margaret
        K. Garber, Assistant United States Trustee, W. Joel Charboneau, OFFICE OF THE
        UNITED STATES TRUSTEE, Roanoke, Virginia, for Appellee.

                                                    2
USCA4 Appeal: 21-1632        Doc: 37        Filed: 01/11/2023    Pg: 3 of 12

        QUATTLEBAUM, Circuit Judge:

                  A bankruptcy court imposed sanctions against Darren Thomas Delafield. After the

        district court affirmed those sanctions, Delafield appealed, asserting the sanctions order

        violated his due process rights. To be sure, a lawyer facing suspension or disbarment is

        entitled to notice of the charges for which such discipline is sought and an opportunity to

        be heard on those issues. Nell v. United States, 450 F.2d 1090, 1093 (4th Cir. 1971). But

        our review of the record reveals that Delafield was afforded sufficient process. Thus, we

        affirm.

                                                     I.

                  The sanctions arose from an adversary proceeding in the bankruptcy court brought

        by the United States Trustee against Delafield, UpRight Law LLC, Sperro LLC and other

        defendants. J.A. 1. UpRight is a Chicago-based bankruptcy legal services company that

        operates through a nationwide network of “local partners.” J.A. 679–80. After Delafield

        signed a partnership agreement with UpRight, he filed more than 30 bankruptcy cases as a

        partner. J.A. 682–83.

                  The United States Trustee’s complaint sought sanctions for Delafield’s

        representation of UpRight clients Timothy and Andrian Williams. J.A. 691. The Trustee

        alleged the Williamses participated in Upright’s New Car Custody Program (“NCCP”).

        UpRight operated the NCCP through a partnership with Sperro, a separate company in the

        repossession industry. J.A. 7–9. Through the program, UpRight purported to assist clients

        that needed to surrender possession of their cars by offering Sperro’s services. But in

                                                      3
USCA4 Appeal: 21-1632       Doc: 37         Filed: 01/11/2023      Pg: 4 of 12

        practice, UpRight actually just funneled bankruptcy clients to Sperro. Then, Sperro, for no

        legitimate reason other than to generate profits for itself, took custody of debtors’ cars and

        towed them to lots in Nevada, Mississippi or Indiana—where mechanic’s liens or storage

        liens can trump first liens in certain circumstances. 1 J.A. 687.

               Sperro earned money in one of two ways. First, it charged “excessive hookup,

        towing and storage fees that[, according to the bankruptcy court,] were completely

        unnecessary.” J.A. 687. Second, sometimes creditors abandoned their interests in the car

        rather than pay the excessive fees to recover the car. In those situations, Sperro auctioned

        the car and retained the proceeds. Id.

               In exchange for funneling bankruptcy clients into the NCCP, Sperro paid UpRight’s

        clients’ attorney’s and filing fees. So UpRight’s fees were paid by a company that

        fraudulently generated towing charges and paid them by forcing the sale of cars at the

        expense of the lenders who held the first liens.

               1
                 To understand first liens on vehicles, assume John Smith wants to buy a car. The
        car costs $10,000 but Smith only has $5,000. Smith borrows $5,000 from ABC Finance.
        So, Smith uses his $5,000 and the $5,000 he borrowed from ABC Finance to buy the car.
        Smith agrees to pay back ABC Finance over time. ABC Finance can complete paperwork
        that gives it a “first lien” on the car that Smith buys. That allows ABC Finance, if Smith
        does not repay the loan, to repossess the car and sell it to recover the money it loaned.

               As for mechanic’s and storage liens, assume the car that ABC Finance loaned Smith
        money to buy breaks down and needs to be towed. XYZ Towing agrees to tow it. But, if
        Smith cannot pay the tow bill, XYZ Towing can assert a lien to cover the costs of what it
        is owed for towing the car. That allows it to force the car to be sold to pay the towing bill.
        But even though XYZ Towing can force a sale of the car, ABC Finance, which has the first
        lien, gets paid first. And many times, the vehicle is not worth enough to pay back ABC
        Finance, much less XYZ Towing. But in Nevada, Mississippi or Indiana, things work
        differently. In those states, mechanic’s and storage liens, depending on the circumstances,
        can force the sale of the car without a judicial determination that first liens are paid first.
                                                      4
USCA4 Appeal: 21-1632       Doc: 37         Filed: 01/11/2023      Pg: 5 of 12

               The United States Trustee’s complaint alleged Delafield learned about the NCCP

        through an email from UpRight. J.A. 7. The email provided that for debtors to qualify for

        the program, they must want to file for Chapter 7 bankruptcy and have a vehicle,

        motorcycle, boat, truck or other property—with no equity and a value more than $5,000—

        that they are willing to surrender. Id. The email also stated that “[i]mmediately upon

        placing the vehicle in Sperro’s custody, Sperro will remit the entire legal fee plus filing fee

        to UpRight Law on client’s behalf.” Id.

               The complaint alleged that Delafield filed the Williamses’ Chapter 7 bankruptcy

        petition after he learned of the NCCP and their participation in the program. J.A. 7, 15, 17–

        18. It asserted that when asked about the NCCP at the Williamses’ meeting of creditors,

        Delafield explained that Sperro paid the Williamses’ legal fees, denied knowledge of why

        it did so and deflected questions about the NCCP. J.A. 16.

               The complaint alleged that Delafield’s participation in the NCCP amounted to

        unethical and illegal conduct. J.A. 19. It cited the provisions of the Bankruptcy Code

        Delafield allegedly violated. J.A. 18–22. And among other sanctions, it sought a minimum

        of $5,000 in civil penalties from Delafield and an order prohibiting him from practicing

        before the bankruptcy court. J.A. 21.

               Ultimately, the bankruptcy court held a four-day trial. 2 J.A. 669. In addition to

        information about the NCCP, the United States Trustee introduced evidence about

               2
                  The trial involved claims against Delafield, UpRight and other individual
        defendants. While Sperro was a named defendant, it did not file a response or appear in the
        action. J.A. 669.
                                                      5
USCA4 Appeal: 21-1632      Doc: 37         Filed: 01/11/2023     Pg: 6 of 12

        UpRight’s practices for onboarding clients. When a potential client reached out to UpRight,

        its “client consultants” were encouraged to use hard sell tactics, as documented in

        UpRight’s “Sales Play Book.” J.A. 673–74. For example, the Sales Play Book

        recommended the following responses if a potential client said “I need to talk to my

        Wife/Husband”: “I agree, and you should, but if your husband/wife is anything like mine,

        he/she never tells me no when I really need or love something, and I never tell him/her no”

        or “[b]etter to ask for forgiveness than ask for permission, so let’s get you going right

        away.” J.A. 673. The Sales Play Book also advised consultants to make “now or never”

        offers. J.A. 673. The complaint alleged—and the bankruptcy court confirmed—that

        nonlawyer client consultants provided potential clients with legal advice, despite

        UpRight’s instruction that they should not do so. J.A. 9, 674.

               The United States Trustee also introduced evidence about Delafield’s conduct once

        a conflict of interest arose between the Williamses and UpRight. The conflict arose when

        the United States Trustee issued subpoenas to the Williamses. J.A. 697. The United States

        Trustee introduced evidence that UpRight, through another of its attorneys, “used heavy

        handed tactics, including text messages, to try and get the Williamses to sign conflict

        waivers.” J.A. 697. These waivers could have allowed UpRight to assert the attorney-client

        privilege on behalf of the Williamses and shielded UpRight’s files from discovery. J.A.

        697. The United States Trustee introduced evidence that Mr. Williams called the Trustee

        and advised he “did not want to sign [a conflict waiver];” that Upright also sent the

        Williamses a conflict waiver letter suggesting that the Williamses’ discharge might be at

                                                     6
USCA4 Appeal: 21-1632      Doc: 37          Filed: 01/11/2023     Pg: 7 of 12

        issue; and that Mr. Williams said Delafield told him that “if [he] did not sign the [conflict]

        waiver that he would be solely looking out for himself only.” J.A. 698.

               Following the trial, the bankruptcy court ordered Delafield to pay $5,000 to the

        Williamses and revoked his privileges to practice before the bankruptcy court for one year.

        J.A. 669, 726. The bankruptcy court sanctioned Delafield for his relationship to UpRight’s

        NCCP and its client onboarding practices. The bankruptcy court determined that the

        purpose of the NCCP was to “prime secured lenders” and “hold their collateral hostage,”

        with UpRight and Sperro benefitting from the lenders’ losses. J.A. 687. The court further

        found that UpRight’s client consultants “engaged in numerous instances of providing

        impermissible legal advice to potential clients, albeit alleged violations of Upright’s

        policies, and some of it was just outright wrong, such as advising clients to hide collateral

        or leave certain debts off their schedules.” J.A. 725. The court noted consultants’

        “overreaching conduct is not surprising[,]” given the “pressure to hit sales and commission

        targets.” Id.

               The bankruptcy court also found that Delafield violated Virginia Rules of

        Professional Conduct 5.1 and 5.3. J.A. 723–24. The court recognized that Delafield did not

        design or implement the NCCP program. Nor did he himself engage in UpRight’s unsavory

        onboarding practices. But the court held that under Rule 5.1(c)(1), a lawyer is responsible

        for another lawyer’s conduct if he “orders or, with knowledge of the specific conduct,

        ratifies the conduct involved[.]” Va. Rule of Prof. Conduct 5.1(c)(1). Because Delafield

        filed the Williamses’ case with knowledge that they had participated in the NCCP and

                                                      7
USCA4 Appeal: 21-1632      Doc: 37          Filed: 01/11/2023     Pg: 8 of 12

        knowledge of how the NCCP worked, the bankruptcy court found that he ratified the

        conduct in violation of Rule 5.1(c)(1). J.A. 724.

               Further, the bankruptcy court noted that Delafield “professed ignorance about much

        of what the sales people did 3 and how the cases were handled in Chicago.” J.A. 725–26.

        Despite that, citing Rule 5.3, 4 the court concluded that Delafield “should have known more

        about all of these matters.” J.A. 726.

               In addition to UpRight’s conduct, the bankruptcy court cited Delafield’s individual

        actions in the Williamses’ case as a basis for sanctions. Namely, the court found that he

        “attempted to deflect any questions regarding [the NCCP] by the Trustee and [creditor’s]

        counsel to an unidentified ‘senior attorney’ at UpRight for further explanation, professing

        ignorance as to the relationship between Sperro and UpRight.” J.A. 692. The court found

        such statements were “less than forthcoming.” J.A. 723. It also found that Delafield filed

        an amendment to the Williamses’ bankruptcy petition without obtaining a wet signature or

        their permission. J.A. 723. And the court found that Delafield acted inappropriately “when

        it appeared he had a conflict of interest when the [NCCP] came to light . . . .” J.A. 723.

               3
                For example, one UpRight salesperson advised the Williamses to keep their car
        hidden from their creditor until Sperro could pick it up. J.A. 690.
               4
                Rule 5.3(a) requires a “partner or lawyer who individually or together with other
        lawyers possesses managerial authority in a law firm shall make reasonable efforts to
        ensure that the firm has in effect measures giving reasonable assurance that the person’s
        conduct is compatible with the professional obligations of the lawyer.”
                                                     8
USCA4 Appeal: 21-1632      Doc: 37          Filed: 01/11/2023     Pg: 9 of 12

                                                     II.

               Delafield claims the bankruptcy court’s sanctions order, which the district court

        affirmed, violated his due process rights. 5 Whether a litigant was afforded due process is a

        legal question that is reviewed de novo. Kirk v. Comm’r of Soc. Sec. Admin., 987 F.3d 314,

        320 (4th Cir. 2021). Delafield asserts that the bankruptcy court imposed sanctions “for

        which no advance notice was given, and for which an incomplete hearing was held.”

        Appellant Op. Br. 32. In advancing this argument, he contends the United States Trustee’s

        complaint was deficient. More specifically, he argues that the bankruptcy court sanctioned

        him for violating the Virginia Rules of Professional Responsibility, which were not

        identified in the complaint, and for attempting to convince the Williamses to waive any

        conflict of interest, which is post-complaint conduct that was never added through an

        amended complaint. He also argues that, as a “shotgun” pleading, the complaint provided

        him insufficient detail to allow him to prepare a defense. Appellant Op. Br. 35–36.

               Delafield’s arguments on appeal implicate our decision in Nell v. United States, 450

        F.2d 1090 (4th Cir. 1971). There, the complaint against a lawyer who was suspended only

        provided notice “that a proceeding of some kind was to be held” and that there were

        concerns of lawyer misconduct. Id. at 1093. Also, the only relief sought in that complaint

               5
                 Delafield also complains that the order is not supported by the record. “In
        reviewing the judgment of a district court sitting in review of a bankruptcy court, . . . we
        review the bankruptcy court’s legal conclusions de novo, its factual findings for clear error,
        and any discretionary decisions for abuse of discretion.” Copley v. United States, 959 F.3d
        118, 121 (4th Cir. 2020). Our review of the record reveals no error in the bankruptcy court’s
        factual findings, nor do we find that the bankruptcy court abused its discretion in
        sanctioning Delafield.

                                                      9
USCA4 Appeal: 21-1632      Doc: 37          Filed: 01/11/2023     Pg: 10 of 12

        was reopening of the judgment in the underlying case. Id. It did not indicate that the

        proceedings would be expanded to include disciplinary proceedings. Id. Thus, the lawyer

        in Nell was unaware he was facing suspension until the hearing actually occurred. Id. We

        explained that due process “requires that disbarment or suspension proceedings be

        preceded by adequate notice and an opportunity to prepare a defense.” Id. And we held the

        lawyer in Nell was not afforded sufficient due process. Id.

               Under Nell, Delafield was entitled to “notice and an opportunity to prepare a

        defense.” Id. But unlike the lawyer there, Delafield received both notice and the

        opportunity to prepare. The United States Trustee’s complaint provided detailed and

        specific allegations of misconduct against Delafield, his law firm and his fellow partners

        related to the NCCP. The complaint also specified the provisions of the Bankruptcy Code

        that the Trustee alleged Delafield violated. And it accused Delafield of illegal and unethical

        conduct regarding the NCCP. Finally, the complaint identified the exact sanctions that were

        ultimately imposed against Delafield: a $5,000 fine and disbarment. True, as Delafield

        notes, the complaint did not cite to the Virginia Rules of Professional Conduct that

        Delafield was ultimately found to have violated. Identifying such rules is certainly

        preferred in an action seeking suspension or disbarment. But this omission did not violate

        Delafield’s due process rights. The complaint adequately notified Delafield of the conduct

        for which he was being accused and the sanctions that were being sought.

               Additionally, Delafield received an opportunity to prepare and present a defense.

        He was afforded the opportunity to conduct discovery before trial. Then, at trial, Delafield

                                                     10
USCA4 Appeal: 21-1632      Doc: 37         Filed: 01/11/2023     Pg: 11 of 12

        presented evidence, cross-examined witnesses called by the United States Trustee and

        made arguments before the bankruptcy court.

               We are also unconvinced by Delafield’s claim that the bankruptcy court should have

        ignored his post-complaint conduct in seeking conflict of interest waivers from the

        Williamses. The bankruptcy court found the evidence related to the NCCP. The court

        explained that it admitted and considered evidence of Delafield’s post-complaint

        misconduct to rebut his arguments that he had taken corrective action after his initial

        misconduct concerning the NCCP. J.A. 492–93. It found that obtaining waivers allowed

        Delafield to assert the attorney client privilege to conceal information about the NCCP. Id.

        Thus, the post-complaint conduct showed that, instead of correcting matters, Delafield

        continued his misconduct related to the NCCP. Finally, Delafield was given the

        opportunity to respond to the post-complaint conduct issues through his direct testimony

        and post-complaint briefing. 6

               For the foregoing reasons, we conclude that Delafield was afforded adequate due

        process and we affirm the district court’s order.

                                                                                       AFFIRMED

               6
                 Delafield also asserts that the $5,000 sanction imposed was criminal in nature, and
        that he was not given notice that any criminal sanction was to be sought. However, we find
        this argument unpersuasive, given that the sanction was designed to promote deterrence
        and compensate the Williamses. See In re Dyer, 322 F.3d 1178, 1192 (9th Cir. 2003)
        (holding penalties designed to coerce compliance are civil in nature). The bankruptcy court
        noted that Delafield had “a past disciplinary history . . . specifically designed to correct
        past practice deficiencies” and that it believed “lesser discipline would not be effective”
        here. J.A. 726.
                                                     11
USCA4 Appeal: 21-1632       Doc: 37          Filed: 01/11/2023      Pg: 12 of 12

        KING, Circuit Judge, concurring:

               I unreservedly concur in Judge Quattlebaum’s excellent opinion, which correctly

        disposes of the issues presented here. I write separately to emphasize a salient point: a

        legal precedent’s vitality is not determined solely by its age. Put most simply, even “old

        law” — here, our 1971 decision in Nell v. United States, 450 F.2d 1090 (4th Cir. 1971) —

        can be good law.

               More than 50 years later, the principles enunciated in Nell not only remain

        controlling, they make good sense. Writing for our Court, Chief Judge Haynsworth

        explained that, in connection with lawyer sanctions, “[d]ue process . . . requires that [such]

        proceedings be preceded by adequate notice and an opportunity to prepare a defense.” See

        Nell, 450 F.2d at 1093. Those venerable principles constitute the heart of “due process” in

        our American legal system.

               Against this backdrop, my friend Judge Quattlebaum’s opinion aptly recognizes that

        the Nell principles are applicable in situations like this. Surprisingly, in all the proceedings

        underlying this appeal, the Nell decision was relegated to obscurity — neither the lawyers

        nor the courts acknowledged its existence. * By Judge Quattlebaum’s opinion, we correct

        that oversight. Perhaps this correction can serve as an important reminder: decades-old

        precedent can be pertinent and controlling.

               With great respect, I am honored to concur.

               *
                 The Nell decision was not mentioned in the lower courts or in the appellate briefs.
        It was, however, pointed out to the appellate lawyers by our panel prior to oral argument.

                                                      12