Equitable Enforcement of Bankruptcy Fee-Disclosure Requirements and Core Jurisdiction Affirmed in In re Aquilino

Introduction

In In re: Louie Joseph Aquilino and Robin Aquilino, Nos. 24-1781, 24-1782 (3d Cir. Apr. 24, 2025), the Third Circuit settled two important questions in bankruptcy practice:

Whether a bankruptcy court has “core” jurisdiction under 28 U.S.C. § 157(b)(2) to sanction a debtor’s attorney for failing to disclose post-petition fee agreements under 11 U.S.C. § 329(a) and Federal Rule of Bankruptcy Procedure 2016(b), even in a Chapter 7 case where attorney’s fees are paid outside the estate.
Whether the Seventh Amendment’s jury-trial guarantee attaches to a § 329(a) proceeding seeking disgorgement of un-disclosed fees.

This opinion arises from litigation between the Aquilinos, Chapter 7 debtors in New Jersey, and their pre-petition counsel, Spector Gadon Rosen & Vinci P.C. The firm failed to supplement its fee-disclosure form when it entered a large post-petition fee agreement (“the Letter Agreement”), and the Bankruptcy Court sanctioned it by disgorging all fees and canceling its unpaid fee contract. The District Court reversed on Seventh Amendment grounds. The Third Circuit reversed that decision, reinstated the sanctions order, and clarified the equitable nature of § 329(a) proceedings.

Summary of the Judgment

The Third Circuit’s unanimous opinion, authored by Judge Krause, holds that:

Core jurisdiction: A bankruptcy court may “hear and determine” § 329(a)/Rule 2016(b) fee-disclosure proceedings because they “arise under” the Bankruptcy Code. Section 329(a) creates both the right (mandatory disclosure) and the remedy (disgorgement and fee cancellation).
Seventh Amendment: Disgorgement of undisclosed fees and cancellation of fee contracts are equitable remedies designed to restore the status quo, not legal penalties triggering a jury trial.
Abuse of discretion: The Bankruptcy Court did not abuse its discretion in ordering total fee disgorgement and contract cancellation. The court considered all relevant factors—including the debtors’ own conduct—and applied equitable principles to avoid unfair windfalls.

By these holdings, the Third Circuit reversed the District Court’s Seventh Amendment ruling and reinstated the Bankruptcy Court’s sanctions order against Spector Gadon.

Analysis

Precedents Cited

The Court’s analysis built upon a line of Supreme Court and appellate decisions interpreting § 329(a) and Rule 2016(b):

11 U.S.C. § 329(a) (1978): Mandates that “any attorney representing a debtor in a case under this title shall file with the court a statement of the compensation paid or agreed to be paid” for services in contemplation of, or in connection with, the bankruptcy. This statutory text both establishes the disclosure duty and empowers courts to examine fee reasonableness.
Fed. R. Bankr. P. 2016(b): Requires attorneys to supplement their disclosure “within 14 days after any payment or agreement not previously disclosed.” This rule makes the § 329(a) duty continuing and self-executing.
In re Park-Helena Corp., 63 F.3d 877 (9th Cir. 1995): Affirmed equitable sanctions (disgorgement and fee‐contract cancellation) for § 329(a) violations, even absent proof of bad faith.
In re Stewart, 970 F.3d 1255 (10th Cir. 2020) and In re Dordevic, 62 F.4th 340 (7th Cir. 2023): Reaffirmed that § 329(a)/Rule 2016(b) embody a “plain and simple” disclosure rule and that failure to disclose any post-petition compensation calls for equitable relief.
Lamie v. U.S. Tr., 540 U.S. 526 (2004): Clarified that Chapter 7 debtors’ attorneys do not draw fees from the estate under §§ 327/330, underscoring why § 329(a) prevents “side deals” outside court scrutiny.
Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989): Distinguished legal claims (jury-trial right) from equitable claims (no jury). Guided the Seventh Amendment analysis here.

Legal Reasoning

The Third Circuit’s reasoning rests on three pillars:

Core jurisdiction under § 157(b)(2). The Court held that a § 329(a)/Rule 2016(b) proceeding “arises under” the Bankruptcy Code because § 329(a) expressly authorizes courts to review fee disclosures and impose sanctions. That places fee disputes squarely within the “core” category. Jurisdiction does not depend on whether the fees are paid from the estate.
Equitable nature of sanctions. Disgorgement and fee cancellation are remedies “solely to restore the status quo”—an equitable, not legal, function. They mirror historic equity powers to undo unjust enrichments, and do not carry the punitive or statutory‐damage character that would trigger a jury. As such, the Seventh Amendment does not apply.
Abuse-of-discretion analysis. The Bankruptcy Court carefully weighed Spector Gadon’s nondisclosure, the debtors’ concealment of assets, and the Code’s twin goals of creditor transparency and debtor fresh start. The total sanctions—disgorgement of all $ millions in fees and cancellation of the remaining fee contract—fell well within the court’s equitable discretion.

Impact

This decision has immediate and lasting effects on bankruptcy practice:

Strict compliance required. Attorneys representing debtors must affirmatively disclose every fee agreement and payment, pre‐ and post‐petition. Failure to supplement within 14 days is sanctionable, regardless of estate‐payment status.
Bankruptcy courts’ authority confirmed. Courts need not fear jury-trial demands in § 329(a) proceedings. They retain full power to conduct fee‐reasonableness reviews, impose equitable sanctions, and enforce transparency.
Seventh Amendment clarified. By isolating the nature of the remedy (equitable restoration, not legal penalty), the Third Circuit reinforces that many bankruptcy enforcement actions lie outside the jury domain.
Guidance for form revisions. Practitioners and the Administrative Office of the U.S. Courts should revisit Bankruptcy Form 2030 to eliminate confusion over which services an up-front fee covers and avoid inadvertent nondisclosure.

Complex Concepts Simplified

To assist non‐specialists, below are key terms and doctrines in plain language:

Chapter 7 Bankruptcy

A liquidation process for individual debtors. A trustee sells non‐exempt assets and pays creditors; debtors get a discharge of most debts.

11 U.S.C. § 329(a)

An attorney’s disclosure rule: lawyers must tell the bankruptcy court about all fees paid or agreed, from one year before filing through case end, so the court can police excessive charges.

Fed. R. Bankr. P. 2016(b)

The rule that requires attorneys to update their disclosures within two weeks of any new payment or fee agreement not already reported.

Core vs. Non-Core Jurisdiction

Core: Matters “arising under” or “arising in” bankruptcy—bankruptcy courts can decide them without a jury or district-court intervention.
Non-Core/Related: Peripheral disputes between a debtor and third parties—district courts may handle these, but can refer to bankruptcy courts for proposed findings.

Equitable vs. Legal Claims

Legal: Remedies like money damages for a wrong. The Seventh Amendment guarantees a jury if more than $20 is at stake.
Equitable: Remedies like injunctions, disgorgement, or contract cancellation. No jury right attaches.

Disgorgement & Contract Cancellation

Equity tools to unwind unfair enrichment: courts can force an attorney to give back fees and void the remaining fee agreement, returning parties to their pre-case status.

Conclusion

In re Aquilino reinforces the bankruptcy system’s twin objectives: transparency for creditors and a fresh start for debtors. By confirming core jurisdiction over fee-disclosure enforcement and classifying § 329(a) sanctions as equitable, the Third Circuit ensures that attorneys cannot evade court scrutiny through side-deals or procedural technicalities. This decision will shape fee practices in Chapter 7 cases nationwide, deter nondisclosure, and streamline fee‐review proceedings. Most significantly, it stands as a precedent that equitable relief in bankruptcy remains firmly within the judge’s domain, free from jury-trial demands.