Amber Dawn Rosema and Brandon Michael Rosema, 641 B.R. 896

Background

Two consumer bankruptcy attorneys used Fresh Start Funding (FSF) financing and standardized FSF fee forms to "bifurcate" flat fees into pre‑ and postpetition contracts across 15 chapter 7 cases, while certifying execution of the court’s Rights & Responsibilities Agreement (RRA).
Rule 2016/Local Rule disclosures filed were inconsistent, unsigned or withdrawn, omitted key FSF financing terms (advances, holdbacks, FSF’s 25% fee, collection control, access to client documents), and did not disclose amounts actually received.
The U.S. Trustee (UST) intervened, produced FSF LOCARMA and agreements, and alleged the bifurcation/financing model: (a) created misleading disclosures, (b) unlawfully shifted prepetition obligations postpetition, (c) produced unreasonable fees under 11 U.S.C. § 329(b), and (d) violated debt‑relief agency disclosure rules (§§ 526–528).
The court consolidated OSCs in 15 cases, litigated pro hac vice admission and disqualification issues for FSF‑connected counsel, and considered Hughes‑type orders to restrain collections; extensive discovery and hearings followed.
The parties reached a joint settlement: attorneys admitted disclosures were "insufficient and misleading," agreed to disgorge specified amounts, self‑report to disciplinary authorities, waive claims against FSF, and require FSF to cease collections/credit reporting; the court approved the settlement but issued a written opinion criticizing the practices.

Issues

Issue	UST's Argument	Attorneys' Argument	Held
Legality of bifurcated fee agreements and FSF financing under RRA/local rules	Bifurcation and FSF forms unbundle services contrary to executed RRA and local rule; FSF forms and practices are misleading and can violate § 528	Bifurcation and financing are permissible; fees were below local "no‑look" threshold and presumptively reasonable; disclosures sufficient	Court: bifurcation not per se prohibited, but here unbundling violated RRA/local rule; disclosures were inadequate; settlement approved admitting violations
Reasonableness of fees under § 329(b) (including FSF’s financing premium)	Total fees (and FSF’s 25% finance fee) were unreasonable and essentially shifted dischargeable prepetition debt into non‑dischargeable postpetition obligation	Fees reasonable under lodestar/no‑look; financing fee is not fee‑sharing and is reasonable for services provided	Court found fees unreasonable in most cases given the facts and awarded/approved disgorgement as part of settlement
Sufficiency and candor of Rule 2016(b)/§ 329 disclosures; sanctions/disgorgement	Disclosures were misleading/incomplete about payment terms, FSF advances/holdbacks, collection control, and amounts received; sanctions and disgorgement appropriate	Errors were ministerial or made in good faith; no willful deception; no sanctionable conduct	Court found disclosures insufficient and misleading; accepted settlement imposing disgorgement and disciplinary self‑reporting; warned of sanctions for similar conduct
Disqualification of FSF‑connected counsel (Garrison) for pecuniary conflict	Garrison’s FSF ownership/roles create nonwaivable pecuniary conflict under MRPC 1.8/4.1‑8; disqualification required	Garrison had no disqualifying pecuniary interest; any conflicts were waivable and parties consented; pro hac admission permissible	After evidentiary hearing, court denied UST motion to reconsider disqualification (admission allowed) but criticized the multiple conflicts and required pro hac admission; court later noted it might have disqualified counsel had FSF’s indemnity been different

Key Cases Cited

In re Milner, 612 B.R. 415 (Bankr. W.D. Okla. 2019) (voided nearly identical FSF form agreements as misleading and noncompliant with debt‑relief agency rules)
In re Allen, 628 B.R. 641 (B.A.P. 8th Cir. 2021) (upheld reduction of bifurcated fees as reasonable exercise of court’s discretion)
In re Brown, 631 B.R. 77 (Bankr. S.D. Fla. 2021) (set standards for permissible bifurcation and required sufficient prefiling investigation and disclosure)
In re Siegle, 639 B.R. 755 (Bankr. D. Minn. 2022) (found bifurcated agreements misleading and void under § 526(c)(1))
In re Prophet, 628 B.R. 788 (Bankr. D.S.C. 2021) (addressed permissibility of bifurcation under local rule; district court later remanded on different grounds)
In re Carr, 613 B.R. 427 (Bankr. E.D. Ky. 2020) (approved a narrowly tailored bifurcation where postpetition payments were properly applied and no third‑party factor was involved)
In re Patriot Co., 303 B.R. 811 (B.A.P. 8th Cir. 2004) (articulated factors for evaluating settlements in bankruptcy)