441 B.R. 724
Bankr. D. Conn.2010Background
- Debtor retained Attorney Anderson on February 19, 2009 for bankruptcy representation and paid a $1,500 initial fee after an agreement to cover the first meeting of creditors.
- Debtor filed Chapter 7 on April 22, 2009, disclosing assets including stock in Manulife Financial and exemptions claimed for the Account, Buick, and Galant.
- Disclosure of Compensation (Rule 2016(b)) stated the $1,500 fee as full compensation with no balance due; amendment duties were described in the retainer as potential additional fees.
- Trustee later objected to exemptions (stock and account) and demanded turnover; amended schedules were filed July 10, 2009, and a $226 amendment fee was paid to Anderson on July 21, 2009 but not disclosed.
- Trustee sought turnover and asserted non-exempt equity; at hearings in July 2009 and September 2009, Anderson did not appear and the Exemption Order was entered sustaining objections in her absence.
- The court issued an Order to Show Cause on September 8, 2010, requiring Anderson to appear to show why fees should not be disgorged; OTSC hearing occurred October 12, 2010, with Debtor alleging inadequate representation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the amendment fee must be disgorged under Rule 2016(b). | Debtor seeks disgorgement of the amendment fee as undisclosed or misrepresented compensation. | Attorney Anderson argues fees were earned and within scope; disclosure failures are not dispositive of overall fees. | Amendment fee must be disgorged due to failure to amend the disclosure. |
| Whether additional disgorgement beyond the amendment fee is warranted. | Debtor should recover further amounts representing overcharges for initial and subsequent consultations. | Disgorgement beyond the amendment is not warranted without further proceedings or evidence of improper charging. | Court approves no further disgorgement beyond the amendment fee, after considering potential value of services and need for further proceedings. |
| Whether Rule 2016(b) disclosures require broad representation to occur in all matters including exemption objections. | Disclosure ties to the lawyer’s representation; nondischargeability-related work may be outside disclosed scope yet connected to the case. | Disclosure did not clearly bind Anderson to handle all exemption issues; the Retainer limited scope and duties. | No determination on scope; court declines further ruling and bases decision on disclosed and undisputed facts. |
Key Cases Cited
- In re Laferriere, 286 B.R. 520 (Bankr. D. Vt. 2002) (disgorgement and disclosure duties under Rule 2016(b))
- Matter of Futuronics Corp., 655 F.2d 463 (2d Cir. 1981) (disclosure violations can justify denial or disgorgement of fees)
- Matter of Kero-Sun, Inc., 58 B.R. 770 (Bankr. Conn. 1986) (attorney disclosure failures warrant disgorgement)
- Matter of Prudhomme, 43 F.3d 1000 (5th Cir. 1995) (court authority to disgorge for nondisclosure)
- In re Arlan's Dept. Stores, Inc., 615 F.2d 925 (2d Cir. 1979) (disgorgement as sanction for failure to disclose fees)
- In re Wood, 408 B.R. 841 (Bankr. D. Kan. 2009) (reasonableness standard for attorney fees in bankruptcy)
- In re McTyeire v. Hunt, 357 B.R. 898 (Bankr. M.D. Ga. 2006) (complete disclosure required for fee applications)
- In re McMullen v. Schultz, 428 B.R. 4 (D. Mass. 2010) (continuing duty of disclosure under bankruptcy fees regime)