In Re: Jeffery Lee and Ida Mae Taulbee
Filing
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MEMORANDUM OPINION & ORDER. 1. The Bankruptcy Court's November 19, 2020, Order imposing civil contempt sanctions [ECF No. 104] is AFFIRMED. 2. The Bankruptcy Court's Order imposing sanctions [ECF No. 175] is REVERSED. 3. The matter is REMANDED to the United States Bankruptcy Court for the Eastern District of Kentucky for further proceedings consistent with this Memorandum Opinion and Order. Signed by Judge Danny C. Reeves on 9/14/20.(JLM)cc: COR,USBC
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION
(at Lexington)
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In re:
JEFFERY LEE TAULBEE and
IDA MAE TAULBEE,
Debtors.
__________________________________
C. DARLENE JOHNSON,
Appellant,
V.
BEVERLY M. BURDEN, CHAPTER
13 TRUSTEE, et al.,
Appellees.
Civil Action No. 5: 20-162-DCR
(Bankruptcy No. 15-52073)
MEMORANDUM OPINION
AND ORDER
*** *** *** ***
Appellant Darlene Johnson is an attorney, formerly engaged in representing clients
before the United States Bankruptcy Court for the Eastern District of Kentucky. Two such
clients were Jeffery and Ida Taulbee, whom Johnson represented in a Chapter 13 bankruptcy.
The bankruptcy court found that, in the course of the proceeding, Johnson made “multiple
substantive and procedural errors as counsel” and “multiple intentional misrepresentations to
the Court.” [ECF No. 175, at p. 20]1 And the bankruptcy court found that this misconduct
“was not reasonable under the circumstances.” [Id.] The bankruptcy court’s findings were
1
References to the bankruptcy court record will be referenced as “[ECF No.]”.
References to docket entries in this Court will be referenced as “[Record No.]”.
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accompanied by sanctions: a permanent prohibition on practice before the United States
Bankruptcy Court of the Eastern District of Kentucky (with reciprocal sanctions
recommended) and a permanent injunction on participation in bankruptcy cases. [Id. at 20–
21]
Johnson filed this appeal from the bankruptcy court’s judgment and a previous order
holding her in contempt of court. [Record No. 1] This Court has jurisdiction to hear Johnson’s
appeal. 28 U.S.C. § 158(a)(1). The parties have fully briefed the matter and the Court finds
that its decision would not be “significantly aided” by oral argument. Fed. R. Bankr. P.
8019(b)(3). Having considered the parties’ respective positions, the bankruptcy court’s
contempt finding will be affirmed; however, its imposition of sanctions will be reversed. The
matter will be remanded for further consideration consistent with this opinion.
I.
The imposed sanctions arise from Johnson’s representation of the Taulbees in a chapter
13 bankruptcy proceeding. When the Taulbees became unable to make plan payments in fall
2018, Johnson offered to convert their case to a chapter 7 case for a $500.00 fee. [ECF No.
156, at p. 1] The Taulbees paid Johnson the fee, but their case was never converted. [ECF
No. 175, at p. 2] The trustee, Appellee Beverly Burden, moved to dismiss the Taulbees’ case
due to their failure to make payments. [ECF No. 51] Johnson and Burden reached an
agreement that resolved the motion to dismiss by giving the Taulbees’ ninety days to make
any late payments and placing them on a one-year probation period. [ECF No. 53] Johnson
made this agreement despite her knowledge that the Taulbees were unable to make any
payments. [ECF No. 175, at p. 2]
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When the Taulbees failed to make the required payments, the bankruptcy court
dismissed their case on January 29, 2019. [ECF No. 59] It was closed on April 3, 2019. [ECF
No. 66] Johnson filed a motion to reopen the Taulbees’ case to convert it, and paid the required
filing fee, but took no further action. [ECF Nos. 67 and 73–75] The case was again closed on
June 3, 2019. [ECF No. 76] Johnson then made a second motion to reopen the case on August
30, 2019. However, because the required fee was not paid, the motion was denied. [ECF Nos.
77 and 78] During the course of these proceedings, Johnson agreed to retire from bankruptcy
practice pursuant to an order in another case. In re Bellamy, Case No. 14-51404, ECF No. 78
(July 22, 2019). The agreed order arose out of a motion for sanctions in the Bellamy case. Id.
Her retirement was set to begin in August 2019. [ECF No. 156, at p. 3]
Ida Taulbee visited Johnson in August 2019, before the second motion to reopen was
filed, and again after it was denied. [Id. at 4] Taulbee claims Johnson informed her of her
retirement in October 2019, but Johnson claimed Taulbee was aware of her plans in August
2019. [Id.] Regardless, the conversion fee was not refunded, and the Taulbees were not
transitioned to another attorney. Johnson assisted the Taulbees with a third motion to reopen
filed with the bankruptcy court. [ECF No. 81] The filing was deemed deficient, but Johnson
was unaware of the court’s determination because she had stopped checking her CM/ECFregistered e-mail address. [ECF Nos. 82 and 188] And when Ida Taulbee contacted Johnson
for assistance, she gave her two draft motions, which were never filed. [ECF No. 156, at pp.
7–8] Taulbee alleges the motions were intended to be filed, while Johnson alleges they were
merely templates. [Id.]
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Because the deficiency was never addressed, the bankruptcy court issued an order
directing Johnson to “show cause why sanctions should not issue for counsel’s failure to timely
correct the deficiency” and setting a hearing for November 7, 2019. [ECF No. 85] Burden
moved to reopen the case on October 25, 2019, and paid the required filing fee. [ECF No. 87]
Johnson, however, did not appear at the scheduled hearing, and the Taulbees went
unrepresented. Johnson’s attorney, Cary B. Howard, Jr., appeared on her behalf, explaining
that Johnson could not appear due to conflicting hearings in the Perry County Circuit Court.
[ECF No. 189, at p. 5–6]
Due to her failure to appear, the bankruptcy court held Johnson in contempt and
imposed civil contempt sanctions on November 12, 2019. [ECF No. 104] The bankruptcy
court instructed Johnson to respond and set another show cause hearing, warning of further
monetary sanctions. [Id.] Johnson’s responded, explaining that she was unable to appear due
to a conflict in the Perry County Circuit Court and added that her failures in the Taulbee case
stemmed from issues in her personal life. [ECF No. 120] Following the hearing, the
bankruptcy court directed Johnson to reimburse Burden for the reopening fee and scheduled
an evidentiary hearing. [ECF No. 129] After considerable delay, Johnson reimbursed Burden
in January 2020. [ECF No. 162]
The parties stipulated to a number of facts prior to the evidentiary hearing. [ECF No.
156] The bankruptcy court heard additional evidence and requested Johnson’s attorney and
Burden to recommend appropriate consequences. [ECF No. 188] The facts above were
confirmed at the hearing, with one notable exception. After Johnson testified that her failure
to appear was due to a calendar error, the bankruptcy court found that Johnson had
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misrepresented to the bankruptcy court, on multiple occasions, that she was in Perry County
Circuit Court on November 7, 2019, when she was not. [ECF No. 175 at pp. 11–13] The
bankruptcy court’s order imposing sanctions issued on April 2, 2020. [ECF No. 175] This
timely appeal followed. [Record No. 1]
II.
Johnson challenges two actions taken by the bankruptcy court: (1) its November 12,
2019, order holding her in contempt of court for failing to appear at a hearing; and (2) its April
2, 2020, order permanently disbarring her from practice before the bankruptcy court and
recommending reciprocal sanctions. Her appeals raise unique issues that will be considered
separately.
This Court reviews a bankruptcy court’s findings of fact under the clearly erroneous
standard. In re DSC, Ltd., 486 F.3d 940, 944 (6th Cir. 2007). Absent the “most cogent
evidence of mistake or miscarriage of justice,” a finding of fact will not be disturbed. In re
Edward M. Johnson Assoc., Inc. 845 F.2d 1395, 1401 (6th Cir. 1988) (internal quotations
omitted). As the bankruptcy court committed no such error, the findings of the bankruptcy
court will be accepted.
Questions of law are reviewed de novo on appeal. In re Gardner, 360 F.3d 551, 557
(6th Cir. 2004). That includes “whether a bankruptcy court has committed a due process
violation.” In re Haffey, 576 B.R. 540, 543 (B.A.P. 6th Cir. 2017) (citations omitted). And
the imposition of sanctions is reviewed for abuse of discretion, which “occurs where the
reviewing court has ‘a definite and firm conviction that the court below committed a clear error
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of judgment.’” In re Wingerter, 594 F.3d 931, 936 (6th Cir. 2010) (quoting In re Waterman &
Assocs., Inc., 227 F.3d 604, 607–08 (6th Cir. 2000)).
III.
A. The November 12, 2019, Contempt Order
Johnson argues that the bankruptcy court abused its discretion in holding her in
contempt. [Record No. 4 at pp. 38–40] Her main dispute is factual, as she attempts to explain
her failure to appear at the November 7, 2019, hearing. But the bankruptcy court based its
decision to hold Johnson in contempt on what it found to be a “disingenuous” explanation for
her failure to appear and her “cavalier attitude.” [ECF Record No. 104, at pp. 6–7] These
findings were not clearly erroneous, and the bankruptcy court did not abuse its discretion in
holding Johnson in contempt to encourage future compliance with its orders. Accordingly,
this order will be affirmed.
B. The April 2, 2020, Disbarment Order
Johnson also challenges the bankruptcy court’s decision to “permanently prohibit[]”
her from practice in the bankruptcy court, recommend reciprocal sanctions, and “permanently
enjoin[]” her from participation in bankruptcy cases. [ECF No. 175 at pp. 20–21] Her
arguments focus on whether the bankruptcy court was correct to disbar her. [Record No. 4, at
pp. 29–38] She also raises a due process challenge to the sanctions imposed. [Id. at pp. 27–
29]
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Disbarment is “very serious business.”2 Theard v. United States, 354 U.S. 278, 282
(1957); see also In re Medrano, 856 F.2d 101, 102 (5th Cir. 1992) (labeling disbarment as an
“extreme sanction”). Federal courts, including bankruptcy courts, have the “inherent authority
to suspend or disbar lawyers.” In re Snyder, 472 U.S. 634, 643 (1995). When a court decides
to take this rare step, it “involves ‘adversary proceedings of a quasi-criminal nature.’” In re
Cook, 551 F.3d 542, 549 (6th Cir. 2009) (quoting In re Ruffalo, 390 U.S. 544, 551 (1968)).
Before being disbarred, attorneys are entitled to procedural due process rights. Id.
Courts have recognized two key due process requirements in disbarment proceedings.
First, the attorney must be given “fair notice of the charge.” Id. (quoting In re Ruffalo, 390
U.S. at 550). Fair notice includes “the statutory, rule and ethical violations implicated by the
alleged conduct, and the possible sanctions that could be imposed . . . if the . . . allegations
proved to be true.” In re Dobbs, 535 B.R. 675, 681 (Bankr. N.D. Miss. 2015). Second, “courts
must provide ‘ample opportunity . . . to show cause why an accused practitioner should not be
disbarred.’” Id. (quoting Theard, 354 U.S. at 282); see also In re Baumgartner, 123 F. App’x
200, 202–03 (6th Cir. 2005). The proceedings below fell short of both requirements. Johnson
did not have fair notice of the specific charges against her, or that they could lead to
disbarment. While Johnson had the opportunity to show cause why she should not be
sanctioned, without knowledge that disbarment was a possible sanction, she lacked the
2
Recommendations for reciprocal sanctions have further, serious consequences. See,
e.g., April 9, 2020, Order, In re Charlotte Darlene Johnson (disbarring Johnson from practice
in the United States District Court for the Eastern District of Kentucky, consistent with the
bankruptcy court’s order).
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opportunity to show cause why she should not be disbarred. Accordingly, the bankruptcy court
did not satisfy Johnson’s procedural due process rights.
First, Johnson was not given fair notice of the charges against her. The bankruptcy
court made clear that sanctions may be imposed for her mishandling of the Taulbees’
bankruptcy proceedings and for her failure to comply with court orders. [ECF Nos. 85 and
104] But the alleged statutory, rule, and ethical violations were not mentioned until the
bankruptcy court’s order imposing sanctions. [ECF No. 175] The bankruptcy court’s failure
to identify Johnson’s specific violations, beyond general accusations of misconduct, amounts
to amending the charges “on the basis of testimony of the accused,” which was explicitly
disapproved of in Ruffalo. 390 U.S. at 551.
The notice was further weakened by the bankruptcy court’s failure to notify her that
disbarment was a possible sanction. In its November 12, 2019, Show Cause Order, the
bankruptcy court stated: “Counsel should be aware that the Court will consider per diem fines
or other coercive monetary sanctions to ensure compliance with orders of this Court.” [ECF
No. 104, at p. 6] This statement suggests that monetary sanctions were the most severe options
the bankruptcy court would consider, not that the far more severe sanction of disbarment was
possible. The lack of clarity was compounded by the fact that the Taulbees and Burden did
not request any sanctions—the bankruptcy court entered its show cause order sua sponte. The
result was that until Johnson read the bankruptcy court’s April 2, 2020, Order, she would not
have thought that disbarment was a possible sanction.
Second, Johnson did not have an opportunity to show why she should not be disbarred.
This lack of opportunity stems from the bankruptcy court’s failure to notify Johnson that
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disbarment was under consideration, as explained above.
The parties’ behavior at the
evidentiary hearing underscores the lack of opportunity. When asked by the bankruptcy court
what relief was appropriate, Appellee Burden asked for “a very clear order that she is retired
from bankruptcy practice” and “is not involved in the practice of bankruptcy law in any way,
shape or form.” [ECF No. 188, at p. 134] Johnson’s attorney agreed, asking for a clear order
regarding actions Johnson would be permitted to take related to bankruptcy proceedings. [Id.
at p. 138] These arguments represent eight pages of a 139-page transcript, and neither the
bankruptcy court nor the parties discussed disbarment. Were she aware that disbarment was
on the table, Johnson or her counsel presumably could have offered some argument in
response. This record leads the undersigned to conclude that “ample opportunity” to challenge
disbarment was not provided. In re Cook, 551 F.3d at 549 (internal quotation omitted).
Appellee Burden argues that Johnson received due process because she was aware that
the bankruptcy court was concerned with her conduct and had the opportunity to show why
sanctions should not be imposed. [Record No. 7 at pp. 15–18] While Burden is correct that
Johnson knew some sanction was likely, her brief does not address the key elements missing
in the bankruptcy court’s proceedings: adequate notice of the specific violations Johnson
committed and of the potential for disbarment.
On remand, this Court offers a single direction: before Johnson can be disbarred, the
bankruptcy court must notify her of the charges against her and afford her the opportunity to
show cause why she should not be disbarred. This opinion does not: (1) alter the agreed-upon
practice restrictions in the Bellamy Order; (2) call into question the bankruptcy court’s finding
that Johnson committed serious misconduct; (3) limit the bankruptcy court’s authority to disbar
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an attorney after appropriate notice and opportunity; or (4) answer whether disbarment was an
appropriate sanction based on Johnson’s misconduct. But her arguments on appeal—that
disbarment is an inappropriate sanction under the relevant rules—should first be considered
by the bankruptcy court. See In re Ruffalo, 390 U.S. at 551 (“How the charge would have been
met had it been originally included in those leveled against [Appellant] . . . no one knows.”).
IV.
Accordingly, it is hereby
ORDERED as follows:
1.
The Bankruptcy Court’s November 19, 2020, Order imposing civil contempt
sanctions [ECF No. 104] is AFFIRMED.
2.
The Bankruptcy Court’s Order imposing sanctions [ECF No. 175] is
REVERSED.
3.
The matter is REMANDED to the United States Bankruptcy Court for the
Eastern District of Kentucky for further proceedings consistent with this Memorandum
Opinion and Order.
Dated: September 14, 2020.
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