By: Jonathan Grasso
St. John's Law Student
American Bankruptcy Institute Law Review Staff
 
In Walden v. Walker (In re Walker),[1] the Eleventh Circuit Court of Appeals held that the bankruptcy court has the power to remove a trustee sua sponte.  In Walker, the elected Chapter 7 trustee filed a verified statement claiming she had no significant connection with any party of interest and testified that she had no relationship with the second largest creditor. [2]  The debtor moved for removal and the trustee responded by asserting that a debtor in an insolvent estate had no pecuniary interest and thus was not a party in interest and lacked standing to challenge the trustee’s appointment.[3]  The court found that she had lied under oath concerning her relationship with the creditor and removed her as trustee. [4]  On appeal, the Eleventh Circuit held that bankruptcy judges possess the power to remove a trustee for lying under oath, sua sponte, after notice and a hearing.[5]

By: Heather Navo
St. John’s Law Student
American Bankruptcy Institute Law Review Staff
 
Although the Ninth Circuit barely addresses the unbundling of consumer bankruptcy services in Hale v. U.S. Trustee,[1] one of the first appellate cases on the point,[2] the court appears to require that an attorney provide, at a minimum, those services “critical and necessary” to the bankruptcy case.[3]   Tom Hale, like any other bankruptcy attorney, charged debtors to analyze their financial situation and prepare their petitions.[4]  However, unlike most other attorneys, Hale charged debtors for doing just that and nothing more; Hale referred to this practice as the “unbundling of legal services to pro se debtors.”[5]  The bankruptcy court deemed Hale’s fee disclosure inadequate, and ordered sua sponte that Hale submit an itemization to determine whether the amount was reasonable under section 329.[6]  However, after numerous opportunities, Hale never fully complied with the court’s order, but instead filed a Motion to Recuse, Vacate and Jury Trial Demand on the issue of his fee.[7]  The court scheduled a hearing, but Hale did not attend; the court set response dates, but Hale never filed a reply brief.[8]  Finally, the bankruptcy court published a decision denying both Hale’s motion for recusal as well as Hale’s request for a jury trial, finding that an attorney has no Seventh Amendment right to a jury trial regarding the reasonableness of his fees.[9]  Moreover, the court ordered Hale, a repeat “unbundler”,[10] to disgorge his fees and further penalized him with both monetary and non-monetary sanctions.[11]  On appeal, the Ninth Circuit affirmed both the jury trial determination and the imposition of sanctions.[12]  Although the appellate court’s discussion of the unbundled service is brief and intertwined with its review of the sanction award, the court appears to adopt the view that an attorney cannot limit consumer debtors to merely pre-petition advice and preparation of the petition and related papers.[13]  The attorney must sign the petition or be subject to sanctions under the bankruptcy court’s inherent power to sanction vexatious conduct, may not exclude critical and necessary services, adequately advise the client of any limitations on services and obtain the client’s informed consent to those limitations.[14]