SECTION “A”
RON WILSON, SR.
LARHONDA WILSON CHAPTER 13
DEBTORS
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
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
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.
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
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
II. Sanctions Under The Court’s Inherent Powers And Under 11 U.S.C. 105(a).
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
“[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.”
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,
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
C. Bad Faith.
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
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
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).
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.
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).
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
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
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.
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.
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.
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.
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
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,
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
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
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).
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
2. Grant to The Boles Law Firm, APC, such additional general relief to which The Boles
Respectfully Submitted: