Noel Bisges v. Nancy Gargula , 770 F.3d 719 ( 2014 )


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  •                United States Court of Appeals
    For the Eighth Circuit
    ___________________________
    No. 13-3039
    ___________________________
    In re: Anne Elizabeth Clink
    lllllllllllllllllllllDebtor
    ------------------------------
    Noel Bisges
    lllllllllllllllllllllAppellant
    v.
    Nancy J. Gargula, United States Trustee
    lllllllllllllllllllllAppellee
    ____________
    Appeal from United States District Court
    for the Western District of Missouri - Jefferson City
    ____________
    Submitted: September 8, 2014
    Filed: October 21, 2014
    ____________
    Before RILEY, Chief Judge, SMITH and KELLY, Circuit Judges.
    ____________
    KELLY, Circuit Judge.
    Noel Bisges appeals the decision of the district court1 upholding the bankruptcy
    court’s2 denial of Bisges’s motion to dismiss and the imposition of sanctions against
    him. We have jurisdiction under 28 U.S.C. § 158(d). We conclude that the
    bankruptcy court did not abuse its discretion in denying Bisges’s motion or imposing
    sanctions, and we affirm the judgment.
    I. Background
    Bisges represented Anne Clink in her Chapter 7 bankruptcy case. After the
    case was closed, United States Trustee Nancy Gargula moved to reopen the case
    because she learned that Clink possibly had failed to disclose in her bankruptcy
    petition that she owned horses. Clink explained that Bisges had told her not to
    disclose the horses. Clink paid the trustee $1,000 to settle the matter. Gargula then
    moved for disgorgement of fees paid to Bisges and sanctions under 11 U.S.C.
    §§ 105(a) and 526(c)(1).
    Bisges moved to dismiss, as a spoliation sanction, Gargula’s motion for
    disgorgement and sanctions because, he argued, Gargula had destroyed the only
    recording of Clink’s meeting with her creditors that took place during her bankruptcy
    proceedings under 11 U.S.C. § 341. He asserted that his right to due process had
    been violated and that, “[o]ther than dismissal of the claims, there is no sanction that
    can cure the significant harm caused by the spoliation of this evidence.”
    The bankruptcy court noted that Gargula “knew or should have known that the
    recording was potentially relevant and should have been preserved.” But because the
    1
    The Honorable Howard F. Sachs, United States District Judge for the Western
    District of Missouri.
    2
    The Honorable Dennis R. Dow, United States Bankruptcy Judge for the
    Western District of Missouri.
    -2-
    bankruptcy court found no evidence of bad faith by Gargula, it denied Bisges’s
    motion and declined to sanction Gargula with dismissal of her motions. The
    bankruptcy court granted Gargula’s motions and ordered Bisges to disgorge $1,411
    in fees that Clink had paid him. The court also sanctioned Bisges under 11 U.S.C.
    § 105(a) for violating §§ 526(a)(2) and 707(b)(4) and referred him to the district court
    for violating a disciplinary rule.
    The district court adopted the opinion of the bankruptcy court and upheld its
    findings of fact as not clearly erroneous, noting that Bisges had shown “a censurable
    disregard for the applicable legal rules and procedures” in his handling of Clink’s
    bankruptcy case.
    II. Discussion
    Bisges does not appeal the disgorgement of attorney’s fees or his referral to the
    district court for violating a disciplinary rule. He appeals only the denial of his
    motion to dismiss and the sanctions that the bankruptcy court imposed.
    As the second reviewing court, we review the bankruptcy court’s decision and
    apply the same standard of review as the district court: Factual findings are reviewed
    for clear error, and legal conclusions are reviewed de novo. Tri-State Fin., LLC v.
    Lovald, 
    525 F.3d 649
    , 653 (8th Cir. 2008). Decisions to impose or deny sanctions are
    reviewed for abuse of discretion. In re Kujawa, 
    270 F.3d 578
    , 581 (8th Cir. 2001).
    Bisges first argues that the bankruptcy court erroneously required a finding of
    bad faith to sanction Gargula for destroying evidence. But as we recently noted,
    “[p]rejudice, bad faith, and evidence of an effort to suppress the truth are all required
    to impose a sanction of dismissal based upon spoliation.” Sentis Group, Inc. v. Shell
    Oil Co., 
    763 F.3d 919
    , 924 n.1 (8th Cir. 2014). The bankruptcy court concluded,
    though it did not make findings, that the record would not support an inference of bad
    -3-
    faith on the part of Gargula. Though he argued that he suffered prejudice, Bisges
    agreed with the bankruptcy court that there was insufficient evidence of bad faith by
    Gargula. Without that finding, sanctioning Gargula with dismissal of her motion
    would have been improper.
    Bisges alternatively argues that the bankruptcy court should have considered
    lesser sanctions. But the bankruptcy court noted at the hearing on the motion to
    dismiss that Bisges had “disclaim[ed] any suggestion” that the bankruptcy court
    “should consider any lesser sanction.” Bisges also had asserted in his memorandum
    in support of his motion to dismiss that “the only solution to the U.S. Trustee’s
    spoliation of this important evidence is dismissal.” Because Bisges has never before
    this appeal argued for lesser sanctions and instead expressly has declined to make the
    argument, he has waived it. See First Bank Investors’ Trust v. Tarkio Coll., 
    129 F.3d 471
    , 478 (8th Cir. 1997).
    Bisges next argues that the bankruptcy court improperly sanctioned him under
    11 U.S.C. § 526(a)(2). Section 526(a)(2) instructs that a “debt relief agency” shall
    not:
    make any statement, or counsel or advise any assisted person or
    prospective assisted person to make a statement in a document filed in
    a case or proceeding under this title, that is untrue or misleading, or that
    upon the exercise of reasonable care, should have been known by such
    agency to be untrue or misleading[.]
    Just before she filed for bankruptcy, Clink had written her mother a $3,000 check as
    part of a $5,000 repayment on a loan that Clink’s mother had made to her. Bisges
    told Clink in an email that she should not send the check but that if she did, she
    should “make sure it cannot be traced & stick with the story, it [sic] did not happen.”
    Bisges admitted during the hearing on Gargula’s motion for sanctions that “out of
    frustration” he had advised Clink to lie about the payment. Clink paid her mother,
    -4-
    but because of Bisges’s email, she immediately asked her mother to return it. Bisges
    argues that, although he told Clink not to disclose the loan in her bankruptcy petition,
    Clink never actually made a false statement “in a document filed in” her bankruptcy
    case. Thus, Bisges asserts, he did not violate § 526(a)(2).
    Gargula points out that in the Statement of Financial Affairs attached to Clink’s
    bankruptcy petition, Bisges checked a box signaling that no payment to creditors had
    been made within one year of the start of Clink’s bankruptcy case, yet Clink’s
    payment to her mother (a creditor) had occurred only weeks before the petition was
    filed. Also attached to Clink’s petition was a Schedule F form, which requires
    disclosure of all unsecured, nonpriority creditors. Though Clink’s mother qualified
    as such a creditor, based on the $5,000 loan she had made to her daughter, the
    Schedule F form does not list her. Those two documents, Gargula asserts, include
    intentionally fraudulent statements made during Clink’s bankruptcy case, and because
    Bisges filed the petition on Clink’s behalf, he violated § 526(a)(2). Gargula further
    argues that even without those documents, the statute’s purpose is to punish lawyers
    who advise their clients to lie, regardless of whether the client takes the advice.
    Bisges fails to cite any cases to support his proposition that an actual false or
    misleading statement is required to support sanctions under § 526(a)(2). He instead
    analogizes § 526 to 26 U.S.C. § 7206(2), a provision of the tax code that makes a
    felon anyone who “counsels[] or advises the preparation or presentation under . . . the
    internal revenue laws[] of a return” or other document that “is fraudulent or is false
    as to any material matter.” We have ruled that § 7206(2) requires that a false return
    actually be prepared before the attorney may be sanctioned; he is not sanctionable
    merely by advising his client to lie. See United States v. McLain, 
    646 F.3d 599
    ,
    604–05 (8th Cir. 2011).
    We think Gargula has the better argument. Section 526(a)(2) is violated when
    a debt-relief agency “counsel[s] or advise[s] any assisted person” to make a
    -5-
    fraudulent or misleading statement in a document in a bankruptcy case. The statute
    says nothing about whether the document containing that statement also must then be
    filed. Section 7206(2), however, punishes anyone who “counsels[] or advises the
    preparation or presentation” of a tax return or other document (emphasis added). In
    other words, § 7206(2) targets the improper counseling of the completed act
    (preparing or presenting a false return), whereas § 526(a)(2) targets making a false
    statement or advising an assisted person to make a false statement in a bankruptcy
    document.
    The bankruptcy judge found that Bisges advised Clink to omit from her
    bankruptcy petition the payment to her mother. That Clink did not then file a
    document with the fraudulent omission is of no matter. Bisges admitted that he gave
    the advice, and that action expressly is prohibited by § 526(a)(2).
    Bisges last argues that the bankruptcy court improperly sanctioned him under
    11 U.S.C. § 707(b)(4). Sections 707(b)(4)(C) and (D) state that a signed petition,
    pleading, or motion certifies that the attorney has filed the document in good faith and
    that he “has no knowledge . . . that the information in the schedules filed with such
    petition is incorrect.” Gargula alleged that Bisges violated this provision in at least
    two ways: by (1) failing to disclose in Clink’s Schedule B, listing her personal
    property, that she owned horses, and (2) failing to obtain Clink’s signature on the
    amended bankruptcy petition that Bisges filed with the court.
    There was much testimony at the hearing about whether Bisges knew Clink
    still owned the horses. Clink testified that she had discussed her ownership of the
    horses with Bisges several times and that he had told her she did not need to list them
    because “no one lists horses.” After completing a draft bankruptcy petition, Bisges
    asked Clink to review the petition and list any questions or errors. Clink reviewed
    the draft petition and faxed it back to Bisges. She testified that she had written
    “Animals?” on the draft petition because animals she owned, including the horses,
    -6-
    were not included on the draft Schedule B form attached to the draft petition. Bisges
    said that the fax he received from Clink did not have the hand-written notation, but
    he admitted that he knew Clink previously had owned horses. The final Schedule B
    attached to Clink’s bankruptcy petition does not list the horses.
    The bankruptcy judge credited Clink’s testimony and determined that Bisges
    violated § 707(b)(4) by failing to list the horses on the Schedule B attached to Clink’s
    bankruptcy petition. The bankruptcy court found that either Bisges knew of the
    horses and advised Clink not to list them, or he unreasonably failed to ask Clink
    about any animal ownership. Based on the testimony from the hearing, we cannot
    conclude that the bankruptcy judge’s factual findings are clearly erroneous, and we
    could affirm the sanctions under § 707(b)(4) on that basis alone.
    The bankruptcy court also concluded that Bisges violated § 707(b)(4)(C) by
    attaching to the bankruptcy petition schedules that significantly differed from the
    schedules that Clink had signed. Bisges admitted that he made some of the changes
    Clink had suggested on the draft petition, but he did not have her review and sign the
    petition filed with the bankruptcy court. Nor did he have her sign an amended
    petition he later filed that included different schedules listing new creditors and
    assets. So even if Bisges did not know that Clink still owned horses, the bankruptcy
    judge concluded, he admitted that he filed various documents without Clink’s
    signature in violation of § 707(b)(4). Again, we see no clear error in the bankruptcy
    judge’s findings, and we affirm the sanctions against Bisges under § 707(b)(4) on this
    basis, as well.
    III. Conclusion
    Because there was no finding that Gargula destroyed evidence in bad faith, the
    bankruptcy judge did not abuse its discretion in denying Bisges’s motion to dismiss.
    Nor did the bankruptcy judge erroneously conclude that Bisges was subject to
    -7-
    sanctions for his conduct during Clink’s bankruptcy proceedings. We thus affirm the
    judgment of the bankruptcy court.
    ______________________________
    -8-
    

Document Info

Docket Number: 13-3039

Citation Numbers: 770 F.3d 719

Filed Date: 10/21/2014

Precedential Status: Precedential

Modified Date: 1/13/2023