Where a sanctioned lawyer argued that he was not given sufficient notice of the charges and penalties, but the complaint provided detailed and specific allegations of misconduct, identified the provisions of the Bankruptcy Code that the lawyer allegedly violated and outlined the exact sanctions that were ultimately imposed, his due process argument failed.
The United States trustee filed an adversary proceeding against Darren Thomas Delafield, UpRight Law LLC, Sperro LLC and other defendants. UpRight is a Chicago-based bankruptcy legal services company that operates through a nationwide network of “local partners.” After Delafield signed a partnership agreement with UpRight, he filed more than 30 bankruptcy cases as a partner.
The trustee’s complaint sought sanctions for Delafield’s representation of UpRight clients Timothy and Andrian Williams. The trustee alleged the Williamses participated in Upright’s new car custody program, or NCCP. The complaint alleged that Delafield’s participation in the NCCP amounted to unethical and illegal conduct. It cited the provisions of the Bankruptcy Code Delafield allegedly violated. And among other sanctions, it sought a minimum of $5,000 in civil penalties from Delafield and an order prohibiting him from practicing before the bankruptcy court
After a four-day trial, the bankruptcy court imposed sanctions against Delafield. The district court affirmed those sanctions.
Delafield asserts that the bankruptcy court imposed sanctions “for which no advance notice was given, and for which an incomplete hearing was held.” He contends the bankruptcy court sanctioned him for violating the Virginia Rules of Professional Responsibility, which were not identified in the complaint, and for attempting to convince the Williamses to waive any conflict of interest, which is post-complaint conduct that was never added through an amended complaint. He also argues that, as a “shotgun” pleading, the complaint provided him insufficient detail to allow him to prepare a defense.
Under Nell v. United States, 450 F.2d 1090 (4th Cir. 1971), Delafield was entitled to “notice and an opportunity to prepare a defense.” But unlike the lawyer there, Delafield received both notice and the opportunity to prepare.
The trustee’s complaint provided detailed and specific allegations of misconduct against Delafield, his law firm and his fellow partners related to the NCCP. The complaint also specified the provisions of the Bankruptcy Code that the trustee alleged Delafield violated. And it accused Delafield of illegal and unethical conduct regarding the NCCP. Finally, the complaint identified the exact sanctions that were ultimately imposed against Delafield: a $5,000 fine and disbarment.
True, as Delafield notes, the complaint did not cite to the Virginia Rules of Professional Conduct that Delafield was ultimately found to have violated. But this omission did not violate Delafield’s due process rights. The complaint adequately notified Delafield of the conduct for which he was being accused and the sanctions that were being sought.
Additionally, Delafield was afforded the opportunity to conduct discovery before trial. Then, at trial, Delafield presented evidence, cross-examined witnesses called by the trustee and made arguments before the bankruptcy court.
This court is unconvinced by Delafield’s claim that the bankruptcy court should have ignored his post-complaint conduct in seeking conflict of interest waivers from the Williamses. The bankruptcy court explained that it admitted and considered evidence of Delafield’s post-complaint misconduct to rebut his arguments that he had taken corrective action after his initial misconduct concerning the NCCP.
It found that obtaining waivers allowed Delafield to assert the attorney client privilege to conceal information about the NCCP. Thus, the post-complaint conduct showed that, instead of correcting matters, Delafield continued his misconduct related to the NCCP. Finally, Delafield was given the opportunity to respond to the post-complaint conduct issues through his direct testimony and post-complaint briefing.
King, J., concurring:
I write separately to emphasize a salient point: a legal precedent’s vitality is not determined solely by its age. More than 50 years later, the principles enunciated in Nell not only remain controlling, they make good sense. Surprisingly, in all the proceedings underlying this appeal, the Nell decision was relegated to obscurity — neither the lawyers nor the courts acknowledged its existence. By Judge Quattlebaum’s opinion, we correct that oversight. Perhaps this correction can serve as an important reminder: decades-old precedent can be pertinent and controlling.
US Trustee v. Delafield, Case No. 21-1632, Jan. 11, 2023. 4th Cir. (Quattlebaum), from WDVA at Roanoke (Urbanski). Darren Thomas Delafield for Appellant. Sumi Kay Sakata for Appellee. VLW 023-2-012. 12 pp.