Bisges v. Gargula (In re Clink), 2014 U.S. App. LEXIS 20177 (8th Cir. Oct. 21, 2014):

I. Background

Bisges represented Anne Clink in her [*2]  Chapter 7 bankruptcy case. After the case was closed, United States Trustee Nancy Gargula moved to reopen the case because she learned that Clink possibly had failed to disclose in her bankruptcy petition that she owned horses. Clink explained that Bisges had told her not to disclose the horses. Clink paid the trustee $1,000 to settle the matter. Gargula then moved for disgorgement of fees paid to Bisges and sanctions under 11 U.S.C. §§ 105(a) and 526(c)(1).

Bisges moved to dismiss, as a spoliation sanction, Gargula's motion for disgorgement and sanctions because, he argued, Gargula had destroyed the only recording of Clink's meeting with her creditors that took place during her bankruptcy proceedings under 11 U.S.C. § 341. He asserted that his right to due process had been violated and that, "[o]ther than dismissal of the claims, there is no sanction that can cure the significant harm caused by the spoliation of this evidence."

The bankruptcy court noted that Gargula "knew or should have known that the recording was potentially relevant and should have been preserved." But because the bankruptcy court found no evidence of bad faith by Gargula, it denied Bisges's motion and declined to sanction Gargula with dismissal of her motions. [*3]  The bankruptcy court granted Gargula's motions and ordered Bisges to disgorge $1,411 in fees that Clink had paid him. The court also sanctioned Bisges under 11 U.S.C. § 105(a) for violating §§ 526(a)(2) and 707(b)(4) and referred him to the district court for violating a disciplinary rule.

The district court adopted the opinion of the bankruptcy court and upheld its findings of fact as not clearly erroneous, noting that Bisges had shown "a censurable disregard for the applicable legal rules and procedures" in his handling of Clink's bankruptcy case.

II. Discussion

Bisges does not appeal the disgorgement of attorney's fees or his referral to the district court for violating a disciplinary rule. He appeals only the denial of his motion to dismiss and the sanctions that the bankruptcy court imposed.

As the second reviewing court, we review the bankruptcy court's decision and apply the same standard of review as the district court: Factual findings are reviewed for clear error, and legal conclusions are reviewed de novo. Tri-State Fin., LLC v. Lovald, 525 F.3d 649, 653 (8th Cir. 2008). Decisions to impose or deny sanctions are reviewed for abuse of discretion. In re Kujawa, 270 F.3d 578, 581 (8th Cir. 2001).

Bisges first argues that the bankruptcy court erroneously required a finding of bad faith to sanction Gargula for destroying evidence. [*4]  But as we recently noted, "[p]rejudice, bad faith, and evidence of an effort to suppress the truth are all required to impose a sanction of dismissal based upon spoliation." Sentis Group, Inc. v. Shell Oil Co., 763 F.3d 919, 924 n.1 (8th Cir. 2014). The bankruptcy court concluded, though it did not make findings, that the record would not support an inference of bad faith on the part of Gargula. Though he argued that he suffered prejudice, Bisges agreed with the bankruptcy court that there was insufficient evidence of bad faith by Gargula. Without that finding, sanctioning Gargula with dismissal of her motion would have been improper.

Bisges alternatively argues that the bankruptcy court should have considered lesser sanctions. But the bankruptcy court noted at the hearing on the motion to dismiss that Bisges had "disclaim[ed] any suggestion" that the bankruptcy court "should consider any lesser sanction." Bisges also had asserted in his memorandum in support of his motion to dismiss that "the only solution to the U.S. Trustee's spoliation of this important evidence is dismissal." Because Bisges has never before this appeal argued for lesser sanctions and instead expressly has declined to make the argument, he has waived it. See First Bank Investors' Trust v. Tarkio Coll., 129 F.3d 471, 478 (8th Cir. 1997).