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UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF LOUISIANA

IN THE MATTER OF: CASE NO. 07-11862

SECTION “A”
RON WILSON, SR.
LARHONDA WILSON CHAPTER 13
DEBTORS

THE BOLES LAW FIRM, APC’S RESPONSE


TO
THE UNITED STATES TRUSTEE’S MOTION FOR SANCTIONS
AGAINST
LENDER PROCESSING SERVICES, INC., AND THE BOLES LAW FIRM

To The Honorable Elizabeth W. Magner, United States Bankruptcy Judge:

The Boles Law Firm, APC, (“Boles”) files this Response to the United States Trustee’s

(“UST”) Motion for Sanctions Against Lender Processing Services, Inc., and The Boles Law

Firm (“Motion for Sanctions”)1 , and respectfully states the following:

I. Summary of Argument.

It is alleged by the UST that one attorney, D. Clay Wirtz, (“Wirtz”) then employed by

Boles misrepresented relevant facts to this Court. If this Court finds the allegations of the UST

are without merit, there can be no sanctions issued against Boles for the conduct of Wirtz. If this

Court finds the allegations of the UST have merit, this Court potentially has the power to

sanction Boles for the conduct of Wirtz.

Regardless of the findings by this Court on the allegations of the UST raised in its Motion

for Sanctions, Boles has, since September, 2008, taken remedial steps to ensure that such

behavior is not repeated by it or its attorneys in this Court or anywhere else and has spent

______________________________________________________________________________
1
Boles does not address and takes no position regarding the portion of the UST’s Motion for
sanctions against Lender Processing Services, Inc.

BOLES’ RESPONSE TO UST MOTION FOR SANCTIONS


numerous hours and resources responding to discovery issued by the UST. These remedial

actions, the time spent responding to the UST’s discovery and now this Motion for Sanctions,

Boles’ record in other proceedings in this Court, Boles’ clean hands in this matter since

September, 2008, and the loss of a client demonstrate to this Court that Boles is serious when it

comes to requiring truthfulness in the representations made by its attorneys and staff and that

Boles has already been adequately penalized economically and in reputation.

Therefore, even if it is determined by this Court that the allegations of the UST are true

by clear and convincing evidence, Boles should not be sanctioned any further under this Court’s

inherent powers or under 11 U.S.C. 105(a).

II. Sanctions Under The Court’s Inherent Powers And Under 11 U.S.C. 105(a).

A. Sanctions Under A Court’s Inherent Powers.

Bankruptcy courts have the inherent power to issue sanctions against litigants for their

bad-faith conduct. In re Case 937 F.2d 1014 at 1023 (5th Cir. 1991) (extending to bankruptcy

courts the holding of Chambers v. NASCO, Inc., 501 U.S. 32, 111 S.Ct. 2123 (1991) which held

that district courts have the inherent power to assess sanctions for bad faith litigation). The

imposition of sanctions pursuant to the courts inherent power requires a specific finding of bad

faith. Goldin v. Bartholow, 166 F.3d 710 at 722 (5th Cir. 1999); Crowe v. Smith, 261 F.3d 558 at

563 (5th Cir. 2001).

B. Sanctions Under 11 U.S.C. 105(a).

11 U.S.C. 105(a) provides that

“[a] court may issue any order, process, or judgment that is necessary or
appropriate to carry out the provisions of this title. No provision of this title
providing for the raising of an issue by a party in interest shall be construed to
preclude the court from, sua sponte, taking any action or making any
determination necessary or appropriate to enforce or implement court orders or
rules, or to prevent an abuse of process.”

BOLES’ RESPONSE TO UST MOTION FOR SANCTIONS


It has been held by this court that because the Fifth Circuit has not explicitly ruled on the

issue, it is not necessary that a bankruptcy court make a bad faith finding before exercising its

sanctioning authority under section 105. In re Stewart, ___ F.Supp.2d ___, 2009 WL 2448054,

*13 (E.D.La. 2009).

However, a bankruptcy court in the southern district of Texas has held that, like sanctions

issued pursuant to a court’s inherent authority, sanctions issued pursuant to section 105(a)

require a specific finding of bad faith. In re Parsley, 384 B.R. 138 at 177-179 (Bankr. S.D.Tex.

2008). That court’s reasoning is based on the holdings of several circuit courts that state that the

limits on a bankruptcy court’s power to sanction under its inherent powers and 11 U.S.C. 105(a)

are essentially coterminous. Caldwell v. Unified Capital Corp. (In re Rainbow Magazine, Inc.)

77 F.3d 278 at 284 (9th Cir. 1996) (“By providing that bankruptcy courts could issue orders

necessary ‘to prevent an abuse of process’, Congress impliedly recognized that bankruptcy

courts have the inherent power to sanction that Chambers recognized exists within Article III

courts.”); In re Courtesy Inns, Ltd., (Jones v. Bank of Santa Fe), 40 F.3d 1084 at 1089 (10th Cir.

1994) (“We believe, and ho ld, that Section 105 intended to imbue the bankruptcy courts with the

inherent power recognized by the Supreme Court in Chambers”).

C. Bad Faith.

“Bad faith is characterized as an attempt to abuse the judicial process.” In re Parsley,

384 B.R. 138 at 179, (Bankr. S.D.Tex. 2008), citing In re Gorshtein, 285 B.R. 118 at 124

(Bankr. S.D.N.Y. 2002) (citing In re Spectee Group, Inc., 185 B.R. 146 at 155 (Bankr. S.D.N.Y.

1995)), or a finding that fraud has been practiced upon the Court, or that the very temple of

justice has been defiled. In re Parsley, 384 B.R. 138 at 179, (Bankr. S.D.Tex. 2008), citing

BOLES’ RESPONSE TO UST MOTION FOR SANCTIONS


Chambers, 501 U.S. 32 at 46, 111 S.Ct. 2123 (1991).

D. Standard Of Evidence.

Although the Fifth Circuit has not specifically ruled on which standard of evidence is

applicable for the imposition of sanctions less severe than attorney suspension or disbarment,

lower courts in this circuit have held that a clear and convincing evidence standard is proper. In

re Parsley, 384 B.R. 138 at 179, (Bankr. S.D.Tex. 2008), citing Barry v. Sommers (In re

Cochener), 382 B.R. 311 at 328 (S.D. Tex. 2007).

E. Imposition Of Sanctions.

Because of their very potency, inherent powers must be exercised with restraint and

discretion and the threshold for imposing sanction under the court’s inherent powers is extremely

high. Chambers, 501 U.S. 32 at 44, 111 S.Ct. 2123 (1991). Similar restraint and discretion

should likewise apply under 11 U.S.C. 105(a). The court must impose the least onerous sanction

that addresses the situation. In re Hughes, 360 B.R. 202 at 209 (Bankr. N.D.Tex. 2007).

F. Imputation Of Attorney Conduct To Employing Law Firm.

A law firm is responsible for its employed attorneys’ conduct and any conduct of that

employee attorney is imputed to the law firm. In re Parsley, 384 B.R. 138 at 182, (Bankr.

S.D.Tex. 2008) citing Religious Tech. Or. v. Liebreich, 98 Fed.Appx. 979 (5th Cir. 2004).

III. Argument.

A. This Court’s Power To Sanction.

The UST’s Motion for sanctions against Boles is based on the allegations that Wirtz

misrepresented relevant facts to this Court during testimony at an Order to Show Cause hearing.

The UST asks this Court to impute the alleged offending actions of Wirtz to Boles and sanction

Boles accordingly under this Court’s inherent powers and also under 11 U.S.C. 105(a).

BOLES’ RESPONSE TO UST MOTION FOR SANCTIONS


In order for this Court to issue sanctions against Boles based on its inherent powers, this

Court must make a finding that Wirtz did in fact misrepresent relevant facts to this Court and that

this misrepresentation was done in bad faith. In order for this Court to issue sanctions against

Boles based on 11 U.S.C. 105(a), this Court must make the same finding that Wirtz did

misrepresent relevant facts, although the Fifth Circuit has not delineated what finding a

bankruptcy court must make regarding the conduct of Wirtz. Presumably it is at most a bad faith

finding as one lower court has held, but could be a lower finding as this Court has held.

Lower courts have held, although the Fifth Circuit has not weighed in, that the clear and

convincing evidence standard applies to the consideration of sanctions under the inherent powers

of this Court and under 11 U.S.C. 105(a).

Whatever Wirtz’s conduct is determined to be, this conduct is imputed to Boles as set

forth above.

If the allegations of the UST are true by clear and convincing evidence, it must then be

determined if such conduct was done in bad faith. If the misrepresentation was knowingly

committed, such conduct would rise to the level of bad faith as that conduct is clearly an attempt

to abuse the judicial process. See In re Parsley, 384 B.R. 138 at 180, (Bankr. S.D.Tex. 2008).

But if the misrepresentations were not knowingly committed, then such conduct should not be

considered as rising to the level of bad faith. If the conduct is determined to be in bad faith, this

Court could sanction Boles under its inherent powers and/or 11 U.S.C. 105(a). If the conduct is

determined not to rise to the level of bad faith, this Court could not sanction Boles under its

inherent powers, but could possibly sanction Boles under 11 U.S.C. 105(a) if a lesser standard of

conduct is all that is required (as it has been held in this Court, but not by a sister bankruptcy

BOLES’ RESPONSE TO UST MOTION FOR SANCTIONS


court in this circuit).

B. Why Sanctions Against Boles Are Unnecessary.

This Court, in considering the appropriate sanctions against Boles, should impose the

least onerous sanction that addresses the situation. In its consideration, this Court should weigh

the severity of the offending conduct against the following five factors: (1) the remedial actions

that Boles has taken since the August 21, 2008 Show-Cause hearing; (2) the burden this

protracted litigation has placed on Boles; (3) Boles’ record in this Court on other matters since

September, 2008; (4) Boles’ clean hands and cooperation with all involved in this matter; and (5)

the loss to Boles of a client. Based on these five factors weighed against the offending conduct,

this Court should determine that no further sanctions against Boles are warranted.

i. Remedial Measures Taken By Boles.

The remedial measures Boles has taken include: (1) terminating the employment Wirtz

shortly after the August 21, 2008, show cause hearing; (2) instituting a policy that instructs its

clients to send to Boles all funds (that are less than full reinstatement funds) received from a

debtor after a motion for relief is referred for holding in Boles’ file pending the resolution of the

motion for relief (in order to keep all of the funds in one place); (3) filing with this Court (and

other Louisiana bankruptcy courts wherein it practices) Exhibits showing copies of post-petition

payments that have been received by either Boles or its client after the motion for relief referral

is sent, which funds are being held in Boles’ file; and (4) changing its motion for relief to include

a paragraph that sets forth every payment credited by Boles’ client or held in the file by Boles

applicable to the debtor’s account. Additionally, no other employee at Boles that handled this

file regarding the 2nd Motion to Lift Stay filed on March 10, 2008, is any longer employed by

Boles.

BOLES’ RESPONSE TO UST MOTION FOR SANCTIONS


ii. The Burden Of This Protracted Litigation On Boles.

This Court is well aware of the time spent by Boles responding to the discovery issued by

the UST, which included (1) several hearings on whether the UST’s discovery was even proper;

(2) the preparation of discovery responses, an expansive privilege log and the documents for

production to the UST; (3) the response to and the hearing on the UST’s Motion to Compel

discovery; and (4) now the response to and the hearing(s) on this UST Motion for Sanctions.

Such time spent and resources used in this matter have taken that time and those resources away

from the remaining practice of Boles and its attorneys. For a law firm of just three attorneys, this

is significant.

iii. Boles’ Record Before This Court Since September, 2008.

Boles’ appearances in other representations before this Court since September, 2008 have

been uneventful (save for the contestation by a debtor of one motion for relief wherein this Court

ordered a creditor to work with the debtor to enter into a loan modification agreement ; and an

order to show cause to representatives of Boles, and two other law firms to determine which firm

currently represented a creditor). There have been no allegations of lack of candor or any other

impropriety by any person against Boles since September, 2008. This shows that the remedial

actions taken by Boles are working to deter any conduct similar to the allegations of the UST

Motion and to improve the presentation of the evidence and arguments of Boles’ clients to this

Court.

iv. Boles’ Clean Hands.

Further, Boles has come forward with clean hands in this matter since September, 2008,

and has cooperated as best it could with this Court, the UST and its former client. In responding

BOLES’ RESPONSE TO UST MOTION FOR SANCTIONS


to the UST’s discovery requests, Boles was placed in the unenviable task of trying to please all

involved (wanting to produce all requested documents to the UST but unable to do so because of

certain privileges asserted by its former client). In any event, Boles has since September 2008,

and still is, cooperating fully.

v. Boles’ Loss Of A Client.

Additionally, Boles no longer represents the purchaser of the majority of Option One

Mortgage Corporation’s loan portfolio (except in a very limited capacity and only for restarts of

old foreclosure files open with Boles prior to September, 2008). This loss of a client has had an

adverse impact on the financial interests of Boles.

IV. Conclusion.

In determining the proper sanction, this Court must impose the least onerous sanction that

addresses the situation. In this case, the situation is alleged to be the misrepresentation of

relevant facts to this Court in open testimony by a former employee of Boles.

In response to these allegations, Boles submits that it has not stood idly by since

September, 2008. Despite being embroiled in this litigation for two years now and the loss a

client as a result, Boles has been active in requiring candor and truthfulness from its attorneys

and staff and in amending its internal policies and procedures to better present evidence and

arguments to this Court. Additionally, Boles has come forward with clean hands in this matter

truthfully presenting all representations to this Court and the others involved.

Because of the seriousness with which Boles has dealt with the issues involved in this

case, this Court should not sanction Boles under its inherent powers or under 11 U.S.C. 105(a).

BOLES’ RESPONSE TO UST MOTION FOR SANCTIONS


WHEREFORE, The Boles Law Firm, APC, reque sts that this Court:

1. Deny the Motion for Sanctions against The Boles Law Firm, APC, filed by the United

States Trustee, including the United States Trustee’s request for attorney’s fees and costs, and

enter an order to that effect.

2. Grant to The Boles Law Firm, APC, such additional general relief to which The Boles

Law Firm, APC, may be justly entitled under law.

Respectfully Submitted:

/s/ Jacob S. Edwards


Jacob S. Edwards, Esq. (La. Bar Roll #30492)
The Boles Law Firm, APC
1818 Avenue of America
Monroe, Louisiana 71201
(318)388-4050 (telephone)
(318)329-9150 (facsimile)
COUNSEL FOR THE BOLES LAW FIRM, APC

BOLES’ RESPONSE TO UST MOTION FOR SANCTIONS