Bart A. Houston v. Kenneth A. Welt

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 15-11183
Non-Argument Calendar
________________________
D.C. Docket Nos. 0:14-cv-60239-KAM; 12-bkc-13989-JKO
In Re: PETER G. HERMAN,
Debtor.
_____________________________________________________
BART A. HOUSTON,
Plaintiff-Appellant,
versus
KENNETH A. WELT,
Defendant-Appellee.
________________________
Appeal from the United States District Court
for the Southern District of Florida
________________________
(December 28, 2015)
Case: 15-11183 Date Filed: 12/28/2015 Page: 1 of 8

-- 1 of 8 --

2
Before WILLIAM PRYOR, MARTIN and JULIE CARNES, Circuit Judges.
PER CURIAM:
Attorney Bart Houston appeals the district court’s affirmance of a
bankruptcy court order imposing sanctions on him. Houston formerly served as
counsel for Chapter 7 bankruptcy debtor Peter Herman. The bankruptcy court
sanctioned Houston for filing false statements of compensation in violation of 11
U.S.C. § 329 and Federal Rules of Bankruptcy Procedure 2014, 2016, and 2017,
and for suborning false testimony in connection with Herman’s Chapter 7
proceedings. We affirm.
Herman paid Houston a total of $35,000 in his bankruptcy case. This money
was wired into the trust account of Houston’s former law firm, Kopelowitz
Ostrow, days before Herman filed his bankruptcy petition. On Houston’s advice,
Herman represented on his statement of financial affairs (“SOFA”) that he had
paid $15,000 to Kopelowitz Ostrow for services related to debt consolidation and
preparation for bankruptcy. On his own required disclosure, Houston stated that he
had agreed to be paid $20,000 for services in connection with Herman’s
bankruptcy. The bankruptcy court sanctioned Houston after learning both of this
discrepancy and that Houston had separately taken over $17,000 of the fees paid
by Herman from the trust account for Houston’s personal use, which neither
Herman nor anyone at Kopelowitz Ostrow knew about.
Case: 15-11183 Date Filed: 12/28/2015 Page: 2 of 8

-- 2 of 8 --

3
Houston makes three arguments on appeal. He first argues that the
bankruptcy court abused its discretion by sanctioning him for making false
statements and suborning false testimony. He also argues that the bankruptcy court
abused its discretion in imposing these sanctions under its “inherent powers”
without finding that he acted in bad faith. He finally argues that the sanctions are
excessive.
I.
We sit as a second court of review in a bankruptcy case and employ the
same standards of review as the district court. Brown v. Gore (In re Brown), 742
F.3d 1309, 1315 (11th Cir. 2014). If the district court affirms a bankruptcy court’s
order as it did here, we review the bankruptcy court’s decision. Id. We review the
bankruptcy court’s factfindings for clear error and its legal conclusions de novo.
Id. We review the imposition of sanctions for abuse of discretion, and we will
affirm unless we find the lower court made a clear error of judgment or applied the
wrong legal standard. Gwynn v. Walker (In re Walker), 532 F.3d 1304, 1308 (11th
Cir. 2008) (per curiam). We may affirm on any legal ground the record supports.
Id.
A.
Houston first argues that the bankruptcy court abused its discretion by
sanctioning him for filing false statements of compensation. Houston maintains
Case: 15-11183 Date Filed: 12/28/2015 Page: 3 of 8

-- 3 of 8 --

4
that his own financial disclosure accurately reflected that he was paid $20,000 for
legal services in Herman’s Chapter 7 bankruptcy case. He contends that the
remaining $15,000 paid to Kopelowitz Ostrow was for legal services rendered
before Herman’s decision to petition for bankruptcy and was not related to the
bankruptcy case.
An attorney representing a debtor in a bankruptcy case is required by the
Bankruptcy Code to file “a statement of the compensation paid or agreed to be
paid” for services rendered “in contemplation of or in connection with the case,” if
the payment or agreement was made within one year before the date the
bankruptcy petition was filed. 11 U.S.C. § 329(a). The bankruptcy court “may
issue any order, process, or judgment that is necessary or appropriate to carry out
the provisions of [the Bankruptcy Code].” Id. § 105(a). A bankruptcy court may
impose sanctions under this § 105(a) authority if a party violates a court order or
rule. Ginsberg v. Evergreen Sec., Ltd. (In re Evergreen Sec., Ltd.), 570 F.3d 1257,
1273 (11th Cir. 2009). The local rules of the bankruptcy court in this case also
allow the court to suspend an attorney from practice before the court, or reprimand
or “otherwise discipline[]” the attorney “for good cause shown.” Bankr. S.D. Fla.
R. 2090-2(B)(1).
The bankruptcy court did not abuse its discretion in finding that Houston
filed a false statement of compensation. This finding is supported by Herman’s
Case: 15-11183 Date Filed: 12/28/2015 Page: 4 of 8

-- 4 of 8 --

5
testimony that he regarded the $35,000 paid to Kopelowitz Ostrow as the full fee to
Houston for both the pre-petition legal advice in contemplation of Herman’s
bankruptcy and the representation in his bankruptcy case. The fact that Herman
paid the $35,000 in legal fees as a lump-sum payment further supports the
bankruptcy court’s determination that the entire payment was made “in
connection” to Herman’s bankruptcy and should have been reported by Houston.
Given this violation of the Bankruptcy Code, the bankruptcy court was within its
power under § 105(a) and its own local rules to impose a suspension or monetary
sanction.
B.
Houston also argues that the bankruptcy court abused its discretion by
sanctioning him for suborning false testimony from Herman. He alleges that the
disclosures on Herman’s SOFA were accurate, so he did not suborn false testimony
based on Herman’s SOFA filing or Herman’s later testimony that $15,000 of the
$35,000 fee was allocated to legal services rendered before his bankruptcy petition
with the remaining $20,000 allocated to his bankruptcy case.
Under Rule 4-3.3(a)(4) of the Rules Regulating the Florida Bar, “[a] lawyer
may not offer testimony that the lawyer knows to be false.” Fla. Bar R. 4-
3.3(a)(4). This includes testimony made by the lawyer’s client. See id. Where a
lawyer knows that his client has offered false testimony, the lawyer is obligated to
Case: 15-11183 Date Filed: 12/28/2015 Page: 5 of 8

-- 5 of 8 --

6
“take reasonable remedial measures including, if necessary, disclosure to the
tribunal.” Id.
The bankruptcy court did not abuse its discretion in finding that Herman had
unwittingly given false testimony, which Houston suborned. The court found that
Herman’s testimony about the allocation of the legal fees was in fact false because
the funds were never disbursed to Kopelowitz Ostrow for services rendered to
Herman. However, Herman did not know this testimony was false—it was false
only because Houston used over $17,000 of those fees for his personal use and
Herman did not know of and had no reason to know of these actions. Houston
knew of his own actions, yet allowed Herman to give false testimony at his
bankruptcy trial and did not attempt to correct those false statements.
II.
Houston next argues that the bankruptcy court abused its discretion because
it relied upon its “inherent powers” to sanction his conduct without finding that he
acted in bad faith. “Federal courts, including bankruptcy courts, have the inherent
power to impose sanctions on parties and lawyers.” In re Walker, 532 F.3d at
1309. A court must find bad faith to impose sanctions under its inherent powers.
Id.
The bankruptcy court did not abuse its discretion in sanctioning Houston.
Houston is correct that the bankruptcy court did not make an explicit finding of
Case: 15-11183 Date Filed: 12/28/2015 Page: 6 of 8

-- 6 of 8 --

7
bad faith. The court’s order sanctioning Houston stated that the sanctions were
imposed “under [its] inherent power to regulate the conduct of lawyers who appear
before it,” which would require a showing of bad faith, but the court also explicitly
relied on its authority to sanction an attorney under § 105(a) for violating a court
order or rule. The court spelled out the specific rules that Houston had violated,
which empowered it to sanction Houston under § 105(a). See Evergreen, 570 F.3d
at 1273.
III.
Houston finally argues that the sanctions imposed on him were excessive.
He asserts that he should not have been responsible for the attorney’s fees incurred
during the investigation of his misdeeds, because that investigation was focused on
matters for which Houston was not sanctioned. He asserts that his suspension was
similarly excessive because it was indefinite and did not clearly describe what type
of “rehabilitation” Houston must show to have the sanction lifted.
The bankruptcy court did not abuse its discretion by requiring Houston to
pay for the investigation against him. Herman’s bankruptcy proceedings raised
serious questions about the accuracy of Herman’s SOFA and Houston’s financial
disclosures. That the investigation uncovered that Houston’s misdeeds went
beyond those for which he was sanctioned gives us no pause, to the extent that the
investigation uncovered his acts of embezzlement. Neither was Houston’s
Case: 15-11183 Date Filed: 12/28/2015 Page: 7 of 8

-- 7 of 8 --

8
suspension an abuse of discretion, because the bankruptcy court is empowered to
suspend Houston from practicing before it for “good cause,” which was present
here. See Bankr. S.D. Fla. R. 2090-2(B)(1).
After careful review of the record and consideration of the parties’ briefs, we
affirm.
AFFIRMED.
Case: 15-11183 Date Filed: 12/28/2015 Page: 8 of 8

-- 8 of 8 --