Darren Thomas Delafield v. Gerard R. Vetter, Acting United States Trustee

In Watts v. Indiana, 338 U.S. 49 (1949), Supreme Court Justice Jackson writes “[A]ny lawyer worth his salt will tell the suspect in no uncertain terms to make no statement to police under any circumstances.” In this case, the bankruptcy court made a finding of bad faith and imposed a sanction on attorney Delafield for advising his clients to remain silent by asserting attorney-client privilege in response to a subpoena issued to his clients by the United States Trustee’s (UST) office, a branch of the Department of Justice. The first question is: Did the Bankruptcy Court abuse its discretion by sanctioning Delafield for bad faith for asserting attorney-client privilege for his clients, when the privilege belongs to the clients, the clients directed Delafield to assert the privilege, the file contained evidence potentially harmful to the clients, and the UST asserted the debtors had participated in a criminal scheme?

In Knupfer u. Lindblade (In re Dyer), 322 F.3d 1178, 1193 (9th Cir. 2003), Adell v. John Richards Homes Bldg. Co., L.L.C., 552 F. App’x 401, 415 (6th Cir. 2013), and PHHMortg. Corp. v. Sensenich (In re Gravel), 6 F.4th 503 (2nd Cir. 2021), the Court of Appeals held that § 105(a) grants bankruptcy courts the authority to award mild non­ compensatory punitive damages, it does not provide a basis for awarding serious non-compensatory punitive damages. In this case, the UST argued a sanction should be imposed on Delafield to vindicate the authority of the court. The bankruptcy court stated it imposed a sanction on Delafield so that