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Third Circuit Sanctions Firm For Failure To Strictly Comply With Fee Disclosure Requirements

David Blansky

In a decision rendered in In re Aquilino on April 25, 2025, by the U.S. Court of Appeals for the Third Circuit (Third Circuit) reinforced strict compliance with fee disclosure requirements under 11 U.S.C. § 329(a) and Bankruptcy Rule 2016(b). A copy of the decision can be found here.

Case Background

Robin and Louie Joseph Aquilino filed for Chapter 7 bankruptcy in April 2020 and retained the law firm Spector Gadon Rosen & Vinci P.C. (SGRV) as their counsel. Initially, the Aquilinos agreed to a flat fee of $3,500 plus a $335 filing fee, which was properly disclosed to the Bankruptcy Court. However, as the case became more complex, SGRV billed the Aquilinos for additional post-petition services, resulting in a fee agreement of $113,000, which was not disclosed as required by bankruptcy law.

Court Rulings

  1. Bankruptcy Court Decision – The Bankruptcy Court for the District of New Jersey found that SGRV violated disclosure requirements and sanctioned the firm by ordering disgorgement of collected fees and cancellation of the remaining fee agreement.
  2. District Court Reversal – SGRV appealed, and the United States District Court for the District of New Jersey reversed the Bankruptcy Court’s decision, ruling that SGRV was entitled to a jury trial under the Seventh Amendment.
  3. Third Circuit Ruling – The Third Circuit reviewed the case and determined that the Bankruptcy Court had core jurisdiction over the fee disclosure issue under 28 U.S.C. § 157(b)(1). The court held that the Seventh Amendment did not entitle SGRV to a jury trial because the sanctions were equitable in nature, designed to restore the status quo rather than impose legal claims. The Third Circuit reversed the District Court’s ruling and reinstated the Bankruptcy Court’s sanctions order.

Significance

This case underscores the importance of transparency in bankruptcy proceedings, particularly regarding attorney fee disclosures. It reinforces that failure to disclose post-petition fee agreements can result in severe sanctions, including full disgorgement of fees.

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