570 B.R. 21
Bankr. D. Vt.2017Background
- Debtors filed a Chapter 13 petition on May 20, 2015; they had multiple prior bankruptcy filings and the case later converted to Chapter 7.
- Attorney Jacob Durell began representing the Debtors after the petition, and a May 4, 2015 Legal Services Agreement referenced bankruptcy-related work.
- Durell received $20,500 in fees (mostly paid by the Debtors’ son) but did not file § 329/Rule 2016(b) fee disclosures until February 2, 2016.
- The U.S. Trustee moved to disgorge all fees as excessive and for failure to disclose; Durell conceded nondisclosure, denied excessiveness, and challenged § 329 as overbroad and vague.
- The court found the fees were not excessive but that Durell violated disclosure rules; it ordered disgorgement of one-half of fees ($10,250), allocated pro rata to payors.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Constitutionality of § 329 (overbreadth/vagueness) | §329 is overbroad and vague, infringes free speech and right to counsel | §329 is a disclosure rule regulating commercial speech and is rationally related to legitimate interests; not vague | §329 is neither overbroad nor unconstitutionally vague; upheld |
| Whether fees were excessive under § 329(b) | U.S. Trustee: $20,500 excessive given services; seeks full disgorgement | Durell: substantial time, below-market rate, competent work, client satisfaction | Fees were reasonable; excessiveness claim denied |
| Scope of disclosure: "in contemplation of" or "in connection with" bankruptcy | U.S. Trustee: fees from May 4 and after were subject to disclosure | Durell: many services were non-bankruptcy and need not be disclosed | Court: services from May 4 (agreement) through filing were in contemplation; services after filing and related foreclosure work were in connection with case; all fees subject to disclosure |
| Disclosure of third-party payments & sanction amount | U.S. Trustee: third-party payments must be disclosed; seeks full disgorgement for repeated nondisclosure | Durell: third-party payments outside estate; mitigating circumstances merit limited or no disgorgement | All payments (including third-party) required disclosure; court ordered partial disgorgement—one-half of fees—balancing misconduct against mitigating factors |
Key Cases Cited
- Milavetz, Gallop & Milavetz, P.A. v. United States, 559 U.S. 229 (2010) (attorney bankruptcy disclosures are commercial speech and subject to regulation)
- Conn. Bar Ass'n v. United States, 620 F.3d 81 (2d Cir. 2010) (disclosure rules treated as commercial-speech rational-basis regulation)
- Virginia v. Hicks, 539 U.S. 113 (2003) (overbreadth doctrine standards)
- Vill. of Schaumburg v. Citizens for a Better Env't, 444 U.S. 620 (1980) (overbreadth requires substantial restriction of protected speech)
- In re Prudhomme, 43 F.3d 1000 (5th Cir. 1995) (full disgorgement appropriate where nondisclosure accompanied by poor or harmful performance)
- Vasbinder v. Scott, 976 F.2d 118 (2d Cir. 1992) (sanctions should be tailored to punish and deter but not be greater than necessary)