GREGORY R. SCHAAF, Bankruptcy Judge.
This matter is before the Court on a Motion to Compel Attorney Richard Kenniston to Turn Over Funds, or, in the Alternative, Motion for Sanctions; and Motion to Shorten Notice filed by the Chapter 13 Trustee (the "Sanctions Motion"). [ECF No. 84.] A hearing was held on January 18, 2018, and the request for turnover of funds by the Chapter 13 Trustee ("Trustee") was granted by an Order entered January 19, 2018. [ECF No. 90.] The request for sanctions was continued to allow the Trustee time to conduct discovery and give Kenniston additional time to respond. [Id.]
The continued hearing on the Sanctions Motion was held on February 22, 2018. The Court also considered a Motion for Continuance filed by Kenniston the night before the hearing. [ECF Nos. 95-97, 100, 108-09.] Despite initial reservations, Kenniston's Motion for Continuance was granted by the Sanctions Order and Order Setting Evidentiary Hearing on March 2, 2018, to allow him to obtain an attorney and mount a defense. [ECF No. 124 (the "March 2 Order").] The March 2 Order also set the final evidentiary hearing on the Sanctions Motion for April 10, 2018.
The April 10 hearing was held, although Kenniston did not appear, and this matter is ripe for decision. Kenniston is in contempt of court orders and has failed to perform his obligations to his client and this Court. Therefore, sanctions are warranted.
Richard Kenniston filed the Debtor's chapter 13 petition on September 29, 2015. [ECF No. 1.] Kenniston was replaced as counsel for the Debtor by Tammy E. Howard earlier this year. [ECF Nos. 103 and 124.] The Debtor's plan was confirmed on January 6, 2016. [ECF No. 76.]
Kenniston has a small business checking account at Citizens Guaranty Bank in the name of "Richard G Kenniston (DBA) Law Offic [sic] of Richard Kenniston," with an account number ending in 590 (the "Business Account"). [ECF 136, Exhs. 3-4, 7.] Kenniston also has a savings account at Park Community Credit Union in the name of "Richard G. Kenniston," with an account number ending in 4251 (the "Savings Account"). [ECF No. 136, Exhs. 1-2.] Kenniston acknowledged these accounts are for business and personal use, respectively, at the February 22 hearing. He also admitted he did not have an escrow account as required by the Kentucky Rules of Professional Conduct.
Kenniston made a deposit of $4,486.52 in his Business Account on October 31, 2017 (the "October 31 Deposit"). [ECF No. 136, Exh. 3.] The October 31 Deposit included the personal check of the Debtor
The October 31 Deposit also included a check in the amount of $250.00 that the Debtor's husband delivered to Kenniston for handling the chapter 13 plan payoff (the "Payoff Fee"). [ECF Nos. 100, Exh. 2 and ECF 136, Exh. 3.] Kenniston did not file a fee disclosure or an application for approval of those fees, so he was ordered to turn over the Payoff Fee to the Trustee in the March 2 Order.
The next day, November 1, 2017, Kenniston wrote a check to "Cash" on his Business Account for $3,000.00. [ECF No. 136, Exh. 4.] The Business Account had a balance of $1,331.26 after the check was cashed and other debits and credits were considered. [Id.] Kenniston deposited $2,700.00 of the cash withdrawal in his Savings Account on the same day, November 1, 2017, and withdrew the same amount on November 2, 2017. [ECF No. 136, Exhs. 1 and 2.] The Savings Account held $13.29 before the deposit and after the withdrawal.
The Trustee determined that Kenniston did not deliver the Payoff Funds in early 2018. Therefore, she filed the Sanctions Motion on January 11, 2018, seeking turnover of the Payoff Funds and an accounting of Kenniston's receipt and disposition of the funds. [ECF No. 84.] The Sanctions Motion also sought additional disclosure, including information on legal fees received. [Id.] The Trustee supplemented the Sanctions Motion with an Affidavit in support. [ECF No. 87.]
A hearing on the Sanctions Motion was held on January 18, 2018. [ECF No. 89.] Kenniston did not contact the Trustee, respond in the record or appear at the hearing. Based on the record and the information provided at the hearing, Kenniston was ordered to immediately turnover the Payoff Funds to the Trustee (the "Turnover Order"). [ECF No. 90.] Kenniston was further ordered, on or before January 30, 2018, to: (1) file an affidavit of compliance; (2) file an accounting of his receipt and disposition of the Payoff Funds; (3) produce all records related to the Payoff Funds; and (4) disclose any and all compensation received from the Debtor since the petition date. [Id.]
The Turnover Order set the Sanctions Motion for a final hearing on February 22, 2018. The Trustee was instructed to supplement the record and Kenniston was given the opportunity to file a written response at least three days before the hearing. [Id.] Kenniston filed an Affidavit of Compliance that showed he waited until February 2, 2018, to send the Payoff Funds to the Trustee, almost two weeks after the Turnover Order was entered. [ECF No. 95.] On February 7, 2018, the Trustee filed a status report indicating that she had received the Payoff Funds on February 5, 2018, but she had not received any records from Kenniston as required by the Turnover Order. [ECF No. 96.]
The Trustee supplemented the record with additional briefing in support of her request for sanctions on February 8 and 11, 2018. [ECF Nos. 97 and 100.] The supplements indicate Kenniston traveled outside the country almost immediately after depositing and withdrawing the Payoff Funds and he filed a new joint bankruptcy petition with his wife in late November 2017. [ECF No. 97, at 2-3.]
Kenniston waited until the afternoon before the February 22 hearing to file his Response, ignoring the obligation to file it at least three days before the hearing. [ECF No. 108.] He also did not file his Motion for Continuance until 9:31 p.m. the night before the hearing. [ECF No. 109.]
The hearing on February 22, 2018, was attended by Kenniston, the Trustee, the United States Trustee, and Howard. In his Response and at the February 22 hearing, Kenniston admitted he deposited the Payoff Funds in his Business Account because he does not have an escrow account for client funds. [ECF No. 108; ECF No. 128 at 5:15-18.] Kenniston also acknowledged that his Savings Account is used for personal expenses. [ECF No. 128 at 5:1-11.]
Kenniston's only dispute with the Trustee's characterization of events is that he did not use the funds for his vacation because the trip was planned since early 2017 and his mother paid for the trip. [ECF No. 108.] Kenniston instead blamed his problems on the "disarray" caused by the vacation and the need to relocate after his lease was not renewed. [Id.] The Response indicates that, after he returned from his vacation, "the Denny matter was lost in the shuffle . . ." [Id.]
Kenniston admitted he compounded his problems when he did not act after the Sanctions Motion was filed. [ECF No. 108.] His only explanation for this delay was "paralysis and embarrassment over the situation" and the overextension of his practice. [Id.] The March 2 Order continued the final hearing to April 10 so Kenniston could obtain replacement counsel and mount a defense. [ECF No. 128, 12:3-14.]
The record does not contain a notice of appearance of an attorney for Kenniston, even though that was a basis for the continuance. Kenniston was not present when the April 10 hearing began at 9:00 a.m. The United States Trustee had asked for limited expedited relief in other cases involving Kenniston, so those matters were heard first in an attempt to give Kenniston additional time to appear. Kenniston ultimately did not attend the hearing, which ended shortly after 9:30 a.m., or file any other information in the record after the February 22 hearing.
The Trustee filed the Trustee's Witness and Exhibit List, attaching seven exhibits. [ECF No. 136.] The Trustee withdrew Exhibits 5 and 6 [ECF No. 140] and only sought admission of Exhibits 1-4 and 7. No party objected to admission of the Trustee's exhibits, which are admissible as certified business records and part of the record in this case. Therefore, the exhibits are admitted.
The record in this case confirms by clear and convincing evidence that Kenniston intentionally misappropriated the Payoff Funds for his own use without just cause and against his client's instructions. The Payoff Funds were delivered via check at a meeting with the Debtor, her spouse, and Kenniston on October 30, 2017. The check indicates it is for "Chapter 13 Payoff" and Kenniston admitted he knew the funds were intended to pay off the Debtor's chapter 13 plan. [ECF No. 108.]
Despite his obligation to deliver the Payoff Funds to the Trustee, Kenniston admitted the Payoff Funds were used for his own business and living expenses. [ECF No. 128 at 5:1-11.] This alone is sufficient to find Kenniston in contempt.
Further, the evidence supporting this conclusion is overwhelming even without Kenniston's blunt admission. Kenniston's written response says he "never saw Ms. Griffin attempting to pay off her Ch. 13 as a money making venture." [ECF No. 108.] The timing of the activity in Kenniston's bank accounts prove the fallacy of this statement.
Kenniston deposited the Payoff Funds into his Business Account on October 31, 2017, creating a balance of $4,613.95. [ECF No. 136, Exh. 3.] The very next day, Kenniston wrote a check to Cash for $3,000.00. Also on November 1, Kenniston deposited $2,700.00 in his Savings Account. Kenniston's acknowledgment that his practice was overextended [ECF No. 108] and the lack of any contrary evidence makes it reasonable to conclude the funds in the Savings Account deposit were part of the $3,000.00 withdrawal from the Business Account. Kenniston also admitted that the Payoff Funds went to the Savings Account. [ECF No. 128 at 4:18-25.] Kenniston then admitted the Savings Account is used for personal expenses, so there was no reason client funds should ever have gone in this account. [Id. at 6:18-19.]
Regardless, Kenniston withdrew the $2,700.00 deposit from the Savings Account the next day, leaving less than $14.00 in the account, on November 2, 2017. Also, his Business Account was left with only $1,331.26 after the November 1 withdrawal (after other debits and credits were taken). The Business Account never exceeded this amount in November, except for three days later in the month after Kenniston had tendered a large check for deposit.
The deposit ticket for the large check has the notation, "*put hold on check," and the entry was reversed a few days later. Therefore, it is fair to infer Kenniston never had access to the funds. Even if Kenniston had access to these funds and made the payoff at that time, the conclusion that Kenniston misappropriated his client's funds would not change. A lawyer cannot use a client's funds for his own purposes and against the client's instructions even for a few days, hours or minutes.
The rapid depletion of the bank accounts to amounts below the payoff amount prove Kenniston could never have reasonably believed he would deliver the Payoff Funds to the Trustee. Also, the extremely short time frame between receipt and withdrawal of the Payoff Funds indicates a deliberate, but ineffective, attempt to confuse his financial records. Kenniston's admission that his "practice became overextended some months ago" confirms he needed funds in his business and personal life. [ECF No. 108.]
Kenniston attempts to discredit the Trustee's suggestion that he took the Payoff Funds because he went on a vacation immediately after the funds were withdrawn from his accounts. Kenniston admitted he left for a cruise on November 3, 2017, but suggested he did not need the Debtor's funds because his mother paid for the trip. Kenniston also provided copies of emails from his mother that confirm planning for the trip began the prior February.
This argument does nothing to absolve Kenniston of his wrongdoing. It is easy to believe Kenniston still needed some money for incidental expenses on his trip, even if his mother paid for the cruise. Further, it is more likely he would take the funds when the cruise was imminent, so the length of time to plan the vacation has little impact. Ultimately, it does not matter whether Kenniston used the Payoff Funds for his vacation or to pay other business or personal expenses. Kenniston still took money that belonged to the Debtor and did not pay off her bankruptcy case.
Kenniston then argued that he thought he cut a check from "his account," so he believed the matter was dealt with when he returned from the vacation. This excuse lacks any credibility after a review of the facts. The bank records show there was never enough money in the Business Account to support a check in the amount of the Payoff Funds after Kenniston withdrew $3,000.00 the day after the October 31 Deposit. Kenniston would have written a cold check, which is a criminal offense in Kentucky.
Also, the majority of the Payoff Funds ended up in his Savings Account. Not only was there never enough money in the Savings Account to make the payoff, checks are not written on bank savings accounts. This is confirmed by Kenniston's admission that he had to obtain a certified check when he finally delivered the Payoff Funds to the Trustee from funds in the Savings Account. [ECF No. 95; ECF No. 128 at 4:15-21.] Therefore, Kenniston's allegation that he thought he wrote a check is not remotely believable.
A lawyer that takes money from a client at least violates his fiduciary duties and the Kentucky Rules of Professional Conduct. See infra. The actions are particularly egregious in this case because the Debtor was in the midst of her own financial difficulties (as evidenced by her need to file bankruptcy). Although the violation is the same, a lawyer that takes advantage of a financially vulnerable client probably deserves a Dante-esque punishment. This Court, however, may only use its contempt powers to protect Kenniston's clients, the public, and the integrity of this Court.
There is no doubt this Debtor suffered harm by Kenniston's actions. The Debtor was faced with the uncertainty of payment after Kenniston refused to immediately turn over the Payoff Funds. At least two payments were deducted from the Debtor's pay after she delivered the Payoff Funds. [ECF Nos. 31 and 97.] Further, the Debtor was forced to incur additional legal fees of $550.00 for replacement counsel. [ECF No. 117.]
Kenniston's failure to follow his client's instructions is exacerbated by his failure to comply, and timely comply, with court orders. Kenniston was ordered to immediately deliver the Payoff Funds to the Trustee, but it took Kenniston 13 days to deliver the funds. [ECF No. 90, 95 and 96.] It was also determined at the February 22 hearing that Kenniston did not turn over the Savings Account statements to the Trustee, possibly hoping to avoid the conclusions drawn in this opinion. [ECF No. 90; see also ECF No. 128 at 6:3-19 (Kenniston admitted another account was involved that he had not disclosed).]
Kenniston also received funds from the Debtor's husband for the Payoff Fee. Kenniston did not disclose the Payoff Fee and it is clear it was not earned. Therefore, the March 2 Order told Kenniston to turn over the Payoff Fee to the Trustee for application to legal fees of replacement counsel.
The Trustee's Status Report regarding this obligation shows that, once again, Kenniston has not satisfied a court order. [ECF No. 135.] The Trustee's Status Report also indicates that the Payoff Funds were sufficient to pay the balance due to the replacement counsel [Id.], but the Debtor still had to pay an additional $550.00 total for replacement counsel fees. [ECF No. 117.] Therefore, the Trustee will refund the Payoff Fee to the Debtor when it is received.
Kenniston has failed to represent the Debtor in the manner required by the Kentucky Rules of Professional Conduct. See, e.g., KY SCR §§ 3.130(1.1) (competent representation required); 3.130(1.3) (diligent representation required). Kenniston admitted that he does not have an escrow account, which also violates the Kentucky Rules of Professional Conduct. KY SCR § 3.130(1.15); see also Ky. Bar Ass'n v. Greene, 386 S.W.3d 717, 722 (Ky. 2012) (lawyer reprimanded for improper use of accounts). Federal courts expect lawyers to comply with state rules of conduct and may sanction violations. Hornick v. American Commercial Barge Line, Case No. 5:07CV-140R, 2008 WL 2168893 (W.D. Ky. May 23, 2008) (federal courts in Kentucky apply the rules adopted by the Kentucky Supreme Court governing professional conduct).
A court generally takes notice of recurring problems involving a specific attorney over time. Usually, procedural errors are isolated gaffes that do not require more than the occasional order to show cause or an admonition to pay closer attention. But in rare instances, errors gradually increase and warnings are not enough to rectify the problem. Sanctions, sometimes severe, become necessary to protect the client and the integrity of the system.
Kenniston has been on the Court's radar for some time. His many procedural and substantive problems are addressed in four sanctions orders, and the related orders to show cause, in the following two bankruptcy cases: (1) In re Anthony Meran Ball, Case No. 16-60245 ("Ball I"); and (2) In re Anthony Meran Ball, Case No. 17-61567 ("Ball II") (collectively, the "Ball Cases"). The four orders, entered between December 21, 2016 and December 21, 2017, showed the gradual increase in sanctions that ultimately led to Kenniston's suspension in this Court for a period of 6 months. [See Ball I, ECF Nos. 137, 265, and 284, attached as Exhibits 1, 2, and 3, respectively; Ball II, ECF No. 32, attached as Exhibit 4.]
Kenniston admitted he had committed errors and "the Court had been more than fair with him" [Ball II, ECF No. 17] before the most recent imposition of sanctions on December 21, 2017. [Id., ECF No. 32.] Kenniston once again expressed regret and remorse, and promised that he was taking action to address his issues. [Id.] At that time, the problems in this case were not yet known.
In addition to the 6-month suspension, the sanctions order in Ball II ordered Kenniston to transition his files to new counsel and turnover the fees collected in that case to replacement counsel. [Ball II, ECF No. 32.] The Trustee was directed to cease distribution of fees in any active chapter 13 case, but Kenniston was allowed to request payment of fees earned prior to the time he was suspended. [Id.] Kenniston also could seek termination of the suspension upon proof he attended training classes and would not repeat his prior mistakes. [Id.]
Despite all of his problems and promises, the record in Ball II shows he did not timely transition his files or deliver the legal fees to replacement counsel. [Ball II, ECF No. 44.] Kenniston was ordered to appear on February 22, 2018 and show cause for his failure to comply with the December 21 Order. [Ball II, ECF No. 45.] The hearing coincided with the continued hearing on the Trustee's request for sanctions in the present matter. [Id.]
Kenniston admitted he did not have the funds to make the payment, which supports the prior conclusion that Kenniston misused the Debtor's funds. Kenniston also admitted he took no steps to let his clients know he could no longer practice in bankruptcy court, such as a simple letter to his clients. [ECF No. 128 at 16:12-18.] A subsequent contempt order gave Kenniston additional time to repay the legal fee in installments, which he did not do. [Ball II, ECF Nos. 65, 73.]
It is abundantly clear from this record that Kenniston willfully disobeys orders from this Court and willfully disregards his obligations to this Court and his clients. His excuses and promises of change lack honesty and candor.
The United States Trustee filed the Motion of the United States Trustee for Sanctions, Disgorgement of Fees, and Entry of an Order to Show Cause Against Richard Kenniston in this case and in ten other cases. [See, e.g., ECF No. 137 (there is also an eleventh client alleging Kenniston did not file a bankruptcy case as promised).] The United States Trustee asked to administratively consolidate the cases and for an expedited preliminary hearing to coincide with the April 10 hearing. No one objected to the request, so a preliminary hearing was held and the matters were administratively consolidated under this case. [ECF Nos. 146 and 147.]
The United States Trustee sanctions motion describes numerous examples of wrongdoing by Kenniston as an attorney in each of the cases. The problems described suggest the matters dealt with in this case and the Ball cases are just the tip of the iceberg. But Kenniston has not had the opportunity to defend himself against the new allegations, so they are not considered for the contempt findings in this case or the sanctions imposed. But Kenniston is again put on notice that additional severe sanctions are possible, including a permanent prohibition on practicing law before this Court and the possibility of reciprocal sanctions in other courts. [See also ECF No. 148 (order to show cause and setting evidentiary hearing on the United States Trustee's sanctions motion).]
The final sanctions order in Ball I entered on August 21, 2017, provided: "Kenniston is put on notice that he is on probation for six months. During his probation, this Court may consider the problems in this case when addressing any problems attributable to Kenniston in other cases, and may impose additional, more severe sanctions, including prohibition from accepting more cases." [Ball I, ECF No. 284.] Despite this admonition, Kenniston took money intended to pay off his client's chapter 13 plan during the probationary period.
Based on this opinion and the record, which includes Kenniston's frank admissions of wrongful conduct, there is sufficient evidence to hold Kenniston in contempt for violating court orders and his duties to this Court and his clients. 11 U.S.C. § 105. A court has inherent authority and authority under § 105(a) to sanction and discipline attorneys who appear before it. Grossman v. Wehrle (In re Royal Manor Mgmt., Inc.), 652 F. Appx. 330, 342 (6th Cir. 2016), cert denied sub nom. Grossman v. Wehrle, 137 S.Ct. 831, 197, L. Ed. 2d 69 (2017), reh'g denied, 137 S.Ct. 1367, 197 L. Ed. 2d. 546 (2017). Severe sanctions are warranted, but the sanctions herein are still narrowly tailored to be compensatory and corrective, and not punitive.
The nature and causes of Kenniston's actions make it very likely he is not properly caring for his clients in other federal and state courts where he practices. Therefore, this order is disseminated to other parties for appropriate action. Further, it is expected that the Office of the United States Trustee and the Chapter 13 Trustee will take any other action if appropriate based on their statutory and ethical obligations.
Based on the foregoing and the record in this case, it is ORDERED that the Sanctions Motion [ECF No. 84] is GRANTED. Kenniston is found in contempt and the following sanctions will apply:
This matter is before the Court on an Order to Show Cause [ECF No. 129] for failure to comply with a Deficiency Order [ECF No. 124]. Show cause orders are generally entered to remind a party that a required action was not completed. In this case, a $30.00 fee was not paid when the Debtor filed a Supplemental Mailing Matrix [ECF No. 112]. The Order to Show Cause did not trigger action, which could have avoided a show cause hearing.
This should be, but is not, surprising. This case came on for hearing last month for the third request to reinstate the case. Counsel of record did not appear, instead asking another attorney to appear for him. Despite the prior dismissals, relief was granted with a comment that the matter should not have reached that point.
This chapter 13 case was filed on March 7, 2016, but it is not yet confirmed. There are 129 docket entries so far, which is a large number for a case that has not generated any substantive issues for decision. The multiple docket entries are caused in large part by errors that appear primarily attributable to counsel:
WHEREFORE, it is hereby ORDERED that the Debtor's counsel immediately pay more attention to this case and any other case he has before this Court.
It is further ORDERED that:
On December 21, 2016, it was ordered "that the Debtor's counsel immediately pay more attention to this case and any other case he has before this Court." [See Order, ECF No. 137 ("December 21 Order").] The December 21 Order lists numerous problems in this case that are easily attributable to the Debtor's attorney, Richard Kenniston. The discussion at the December 21, 2016 hearing and the December 21 Order were intended as a wake-up call, which apparently did not work.
The facts in the December 21 Order are the starting point and are incorporated herein. In addition, the December 21 Order also required that Kenniston "use his best efforts to present a confirmable plan at least eight days before the January 18, 2017, confirmation hearing." The discussion herein will confirm Kenniston has not used his best efforts, or, if he did, his efforts are substantially deficient.
The Debtor filed an amended plan within the time required [ECF No. 151], but the plan was not confirmable. The Chapter 13 Trustee filed her Sixth Amended Trustee's Report and Recommendation as to Confirmation per Amended Plan (Doc. No. 151), which set out the issues. [ECF No. 154.] The first problem is highlighted by the title of the Trustee's report: this is the sixth try and the Debtor still has problems. This chapter 13 case was filed on March 7, 2016, but it was not confirmed almost one year later.
Next, Schedule J showed $228 available to fund the plan, yet the sixth amended plan only proposed a payment of $155.04. [Id.] Also, the plan was still not feasible because the total pool would not pay secured, priority and administrative claims in full. [Id.] The Debtor's plan again failed to comply with common bankruptcy code provisions, even though the Trustee had raised these issues previously.
Following the Sixth Recommendation, the Debtor filed another amended plan. [ECF No. 169.] The payment issue was corrected, but the Debtor's plan was still not feasible. [ECF No. 175.] The Debtor filed another amended plan on February 17, 2017. [ECF No. 177.] On February 21, 2017, the Trustee filed an Eighth Amended Trustee's Report and Recommendation as to Confirmation per Amended Plan (Doc. No. 177) noting only that the Debtor was delinquent in his payments. [ECF No. 187.] At last, the Debtor had fixed the feasibility problem.
Despite the delinquent payments, the Debtor's plan was confirmed on February 22, 2017 [ECF No. 188], because he agreed to a 90-day probation order.
At the time of confirmation, an order was prepared that recognized the additional problems described above and the issues noted hereafter that had accrued up to that date. Nothing was done because it appeared matters were resolved by confirmation. The record since February 22, 2017, shows that is not the case. In addition to the problems noted in the December 21 Order and herein, the following additional deficiencies attributable to Kenniston are noted:
Kenniston's lack of care and concern for accuracy and the law and procedure are also evident in the adversary proceeding filed on March 20, 2017. [Ball v. United Cumberland Bank, Adv No. 17-6026.] A notice of deficiency immediately followed the Complaint because the Complaint did not contain the statement regarding consent to entry of final orders or judgment by the Bankruptcy Court. [Id. at ECF No. 2; see also FED. R. BANKR. P. 7008.] Further, the amended Complaint was dismissed for failure to state a claim, although the Debtor was allowed 14 days to amend. [Id. at ECF No. 14.]
The Debtor did amend the Complaint, and then he amended it again (for a total of four complaints filed). [Id. at ECF Nos. 15 and 17.] The final amended Complaint was dismissed with prejudice because it did not state a claim. [Id. at ECF Nos. 27-28.] The related memorandum opinion noted many technical issues that more careful drafting could have avoided. [Id.]
The items addressed in this Order show Kenniston is not paying more attention. Mistakes happen and typographical mistakes or the occasional lapse of attention are ignored all the time.
The information set out in this Order alone, whether or not the December 21 Order is considered, suggest sanctions are required. Kenniston will have an opportunity to raise defenses and argue for mitigation or elimination of any proposed sanctions or other possibly severe sanctions that are determined after a hearing.
WHEREFORE, it is hereby ORDERED that Richard Kenniston shall appear
On July 21, 2017, Richard Kenniston, attorney for the Debtor, was ordered to show cause why sanctions are not required for the reasons cited in the Order, which included a detailed history of excessive procedural deficiencies [ECF No. 265]. Kenniston filed a Response to the Order to Show Cause [ECF No. 279
Kenniston did not present evidence, primarily standing on his Response. He also addressed questions from the Court regarding errors in filings after the July 21 Order and other problems. The record in this case and the oral record of the August 16 hearing support the imposition of sanctions. Further findings are not required because Kenniston ultimately consented to the sanctions imposed by this Order.
Based on his comments at the August 16 hearing and in his Response, Kenniston will not be prohibited from filing new bankruptcy cases. Kenniston is put on notice that he is on probation for six months. During his probation, this Court may consider the problems in this case when addressing any problems attributable to Kenniston in other cases, and may impose additional, more severe sanctions, including prohibition from accepting more cases.
It is therefore ORDERED that the following sanctions shall apply:
Richard Kenniston represented the Debtor Anthony Meran Ball in two bankruptcies: (1) Case No. 16-60245, which was dismissed for failure to make plan payments; and (2) Case No. 17-61567, which is currently pending. Sanctions against Kenniston are warranted for the reasons hereafter provided.
The Debtor's first chapter 13 bankruptcy, Case No. 16-60245, was filed on March 7, 2016. The case was rife with an extraordinary amount of procedural deficiencies attributable to Debtor's counsel. Following a show cause hearing on December 21, 2016, Kenniston was warned that further errors could result in dismissal of the case and/or imposition of monetary or other sanctions, including disgorgement of fees and limitations on his practice before this Court. [Case No. 16-60245, ECF No. 137.] Kenniston was also notified that if "unreasonable delays and errors are encountered in other cases involving Debtor's counsel before this Court in the next 12 months, then the Debtor's counsel is at risk of similar sanctions." [Id.]
Kenniston continued to commit errors and another Order to show cause was entered on July 21, 2017. [Id., ECF No. 265 ("July 21 Order").] Kenniston filed a response that suggested he had learned from his mistakes and a hearing was held on August 16, 2017. [Id., ECF Nos. 279, 282.] Based on the arguments at the hearing and Kenniston's response, Kenniston was ordered on August 21, 2017, to (i) work with the Debtor to locate new counsel and transition his files within 30 days; and (ii) refund all legal fees received by delivering them to replacement counsel as a retainer for any future work performed. [Id., ECF No. 284 ("August 21 Order").] Kenniston was also placed on notice that, for the next six months, "the Court may consider the problems in this case [Case No. 16-60245] when addressing any problems attributable to Kenniston in other cases, and may impose additional, more severe sanctions, including prohibition from accepting more cases." [Id.]
The August 21 Order indicated that Kenniston continued to commit errors after the July 21 Order to show cause was entered. [See Id. ("He also addressed questions from the Court regarding errors in filings after the July 21 Order and other problems.").] The problems after July 21 were omitted from the August 21 Order because Kenniston agreed to the imposition of sanctions, but they are provided below to supplement the written record:
A month after entry of the August 21 Order, the Trustee filed a Report of Inadequate Plan Payments that stated the Debtor failed to comply with a Probation Order entered in March 2017. [Case No. 16-60245, ECF No. 287.] Therefore, the prior case was dismissed on September 20, 2017. [Id., ECF No. 289.] There is no evidence in the record of that case that new counsel was obtained.
Despite the obligation to help the Debtor find replacement counsel and transition his files in the August 21 Order, Kenniston filed a new chapter 13 bankruptcy case for the Debtor on November 26, 2017. [Case No. 17-61567, ECF No. 1.] Therefore, Kenniston was ordered to show cause why additional sanctions are not required. [Id., at ECF No. 8; Case No. 16-60245, ECF No. 294.] Kenniston was also ordered to prove he informed the Debtor of his obligations under the August 21 Order and had attempted to locate replacement counsel seven days before the hearing. [Id.] He did not comply.
Kenniston's problems continued after entry of the August 21 Order. In this case, Kenniston did not file a certificate of service of chapter 13 plan and a deficiency order was entered on November 28, 2017. [Case No. 17-61567, ECF No. 9.] The deficiency order allowed 7 days to comply, but Kenniston did not timely act. The failure to serve a proposed plan is a recurring problem in cases that Kenniston handles. [See, e.g., Case Nos. 17-51649, 17-51692, 17-51818, 17-52092, 17-60892.] Kenniston also failed to serve the proposed plan in the two personal bankruptcy cases Kenniston filed for himself and his spouse in 2017.
Kenniston filed a Response to Motion to Show Cause
Kenniston had sufficient notice and an opportunity to respond and defend himself prior to imposition of sanctions in the prior case. The first Order to show cause was entered December 8, 2016 [Case No. 16-60245, ECF No. 129] and was heard on December 21, 2016. The only immediate obligations were a deadline to file a revised plan and an order to "immediately pay more attention to this case and any other case [Kenniston] has before this Court." [Id., ECF No. 137.]
The next Order to show cause was entered on July 21, 2017, after repeated filing issues specifically addressed therein. [Id., ECF No. 265.] The hearing on the Order was held on August 16, 2017. Kenniston was provided an opportunity to present evidence, but chose to stand on his written response filed at 10:24 p.m. on the eve of the hearing. [Id., ECF No. 279.] Further, he agreed to the sanctions imposed at the hearing, resulting in the abbreviated August 21 Order.
Kenniston has had ample time to prepare for the hearing on the current Orders to show cause. The Show Cause Order in this case was entered on November 27, 2017, one day after the petition was filed. [Case No. 17-61567, ECF No. 8; see also ECF No. 13 (changing the hearing time to facilitate presentation of evidence).] The Show Cause Order in the prior case was entered December 5, 2017, and raises the same issues. [Case No. 16-60245, ECF No. 294.] Therefore, Kenniston has had over three weeks to organize a response.
Further, notice of the potential for sanctions are supported by the record. The December 21 Order and August 21 Order in the prior case both informed Kenniston more severe sanctions were possible. See supra. Despite these warnings, the record confirms Kenniston has not improved.
Based on this review, there is clear and convincing evidence that Kenniston knowingly, or with willful ignorance, violated the August 21 Order in Case No. 16-60245 when he (i) did not take steps to locate new counsel for the Debtor and (ii) filed the petition for the Debtor in this case. Further, the recitation of problems in this Order confirm Kenniston is completely unfamiliar with the United States Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, and applicable local rules of procedure, or he willfully refuses to follow them. Therefore, appropriate sanctions are required to protect the integrity of the federal bankruptcy system and the general public.
The December 21 Order started by telling Kenniston to pay more attention. The August 21 Order recognized that the earlier admonitions did not work. But the August 21 Order backed off the harsher proposed sanctions in the July 21 Order to show cause [Case No. 16-60245, ECF No. 265] based on assurances from Kenniston that were possibly sincere, but completely erroneous. Thus, it is necessary to impose harsher sanctions at this time because the prior more lenient efforts have failed to remedy the problems noted.
These sanctions are based on this Court's contempt powers and are civil in nature. 11 U.S.C. § 105. The sanctions are narrowly tailored to the goal of educating Kenniston regarding his obligations as a licensed attorney acting in a federal bankruptcy court. The sanctions will also force Kenniston to educate himself regarding bankruptcy law and his ethical obligations to clients he represents before this Court.
Based on the foregoing, it is ORDERED:
