In Re Burnett
450 B.R. 116
Bankr. E.D. Ark.2011Background
- Debtors Charles and Denise Burnett filed a chapter 13 petition on May 14, 2009; they sought help to prevent foreclosure from Everhome Mortgage.
- Oldham Law Firm represented the Debtors but failed to timely file the case before foreclosure, resulting in loss of the home.
- Debtors paid $800 total to Oldham; $274 funded the filing fee and $526 labeled as attorney fees.
- Oldham largely relied on paralegals; Debtors did not meet with Oldham before filing; documents were mishandled, including removal of key papers.
- Court granted disgorgement of $526 and suspended Oldham from bankruptcy practice pending further conduct review; sanctions were imposed under Rule 9011 and the court’s inherent powers.
- FINDINGS established that Oldham failed to provide legal advice, enabled paralegals to practice law, and concealed errors; Debtors endured loss of home and significant harm.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether disgorgement of fees is warranted under §329(b) | Trustee argues fees were excessive and not reasonably earned. | Oldham contends fees were earned and reasonable given services. | Yes; fees disgorged in full due to inadequacy of services and overcharge. |
| Whether sanctions are appropriate under Rule 9011 and related authorities | Court should sanction for improper conduct and misrepresentation. | Oldham argues lack of willful misconduct. | Sanctions imposed; suspension pending Professional Conduct review. |
| Whether Oldham’s conduct caused the Debtors to lose their home | Failure to timely file caused foreclosure before bankruptcy filing. | Debtors allegedly desired to surrender; but evidence shows no such wish. | Court found Oldham caused loss by inadequate representation and failure to file timely. |
| Whether Oldham enabled paralegals to practice law without license | Paralegals provided substantive guidance without attorney oversight. | No admission of aiding paralegals; responsibility disputed. | Court held firm responsibility on attorney; sanctioned for systemic deficiencies. |
| Whether Debtors’ gifts and $6,000 refund were misrepresented due to counsel’s guidance | Misappropriation and misstatement occurred due to poor counsel. | Debtors relied on firm’s advice; omissions not intentional. | Omissions deemed due to inadequate representation; not fatal to sanctions. |
Key Cases Cited
- In re Clark, 223 F.3d 859 (8th Cir. 2000) (court may disallow or disgorge fees when excessive under §329(b))
- In re Redding, 247 B.R. 474 (8th Cir. BAP 2000) (fees reviewed for excessiveness under §329)
- In re Bost, 341 B.R. 666 (Bankr. E.D. Ark. 2006) (reasonableness standard for fees under §329(b))
- In re West, 398 B.R. 629 (Bankr. E.D. Ark. 2009) (burden on attorney to prove reasonableness of compensation)