448 B.R. 28
Bankr. D. Idaho2011Background
- Trustee seeks turnover of a $5,701 security retainer and disgorgement of a $4,700 prepetition payment to the Debtors' prior counsel.
- Chapter 13 case dismissed; Debtors paid $7,500 to Himberger Law Offices, including a $5,000 prepayments for anticipated services.
- Debtors substituted with Law Firm, which received a $4,700 unearned portion later transferred to its trust account.
- In Chapter 7, Debtors paid $7,500 to Law Firm; Fee Agreement stated $5,701 would remain in trust for post-petition fees.
- Law Firm filed a 2016(b) statement acknowledging $1,500 prepetition fee but failed to disclose the $5,701 retainer.
- Trustee argues the $5,701 is estate property and subject to turnover; Debtors/Law Firm oppose turnover/disgorgement on disclosure grounds.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the retainer funds are estate property | Trustee contends $5,701 is a security retainer belonging to the estate. | Law Firm/Debtors argue it is their property, not estate property, until earned. | The retainer is estate property. |
| Whether the right to terminate the Law Firm is property of the estate | Trustee claims the right to terminate could access unearned retainer. | Clients have a personal right to discharge counsel, not a property right of the estate. | Right to terminate is not property of the estate. |
| Whether the retainer can be used to pay post-petition fees without §327/330 relief | Retainer funds could be drawn to pay post-petition fees. | Post-petition fees require §327/§330 approval; otherwise impermissible. | Lamie framework precludes payment from the estate absent §327/§330; turnover required. |
| Whether state lien law can override Lamie/§327-§330 in chapter 7 | Attorney could assert a possessory lien to receive post-petition fees from retainer. | State lien law cannot override federal bankruptcy protections in this context. | Lamie precludes such liens for post-petition services in chapter 7 without §327 employment. |
| Whether nondisclosure of §329(a) and Rule 2016(b) disclosures warrants sanctions | Non-disclosure could justify disgorgement of $5,701 (and $4,700). | Non-disclosure in prior case; here, sanctions are limited to turnover; no extra disgorgement. | Non-disclosure warrants potential sanctions, but Court orders turnover only; no additional disgorgement. |
Key Cases Cited
- Lamie v. United States Trustee, 540 U.S. 526 (U.S. 2004) (retainer exception limits to employment under §327 and §330; not applicable to security retainers)
- Park-Helena Corp. v. Capital Finance, Corp., 63 F.3d 877 (9th Cir. 1995) (§329(a) requires broad disclosure of compensation arrangements)
- CK Liquidation, Corp. v. Gencor, 343 B.R. 376 (Bankr. D. Kan. 2006) (overview of security retainers and §330/§327 implications in practice)