Posted on Dec 23, 2013

On Dec. 16, 2013 the 5th Circuit Court of Appeals ruled in favor of local bankruptcy attorney Reese W. Baker and Baker & Associates. The court found that a sanction of $98,775, in addition to losing all attorney fees that he had been paid for representing a debtor named Whitley in 2 bankruptcy cases, was too much because the $98,000 sanction was not attorney fees. It was money that Baker had paid himself to buy a client's properties at the foreclosure sales of the properties, after the client had been sentenced to prison for an unrelated crime.

In 2008 and again in 2009, Whitley filed chapter 13 bankruptcy with Baker as his attorney. Both cases were dismissed, and Baker was denied all attorney fees in both cases. Later, Baker had the debtor Whitley transfer title to two properties to a company that Baker owned and was his alter ego. Later Baker was the successful bidder at the foreclosure sale of the two properties.

Then the court reinstated the bankruptcy and converted the case to chapter 7, appointing Cage as trustee of the chapter 7 case. Baker never disclosed the receipt of the properties, for which he credited the debtor's account with a $20,000 payment. Cage then filed an adversary proceeding or lawsuit in bankruptcy against Baker claiming that the transfers to Baker should be canceled by the bankruptcy court.

Cage won at the bankruptcy court and on appeal to the U.S. District Court. But the 5th Circuilt held that it wasn't legally correct for Baker to lose the $98,775 in foreclosure purchases under Section 329 of the Bankruptcy Code, because that section has to do with attorney fees only.

So the 5th Circuit Court remanded the case back to the bankruptcy court to "develop the basis for and extent of any further sanction..." So it is possible that Baker will be sanctioned further for his conduct, possibly even the entire $98,775, but it will not be because of his violations of Section 329, but as a disciplinary sanction.

Read More About Houston bankruptcy lawyer loses fees but avoids $100K sanction for now...

J Thomas Black
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Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization