In Re Harwell
439 B.R. 455
| Bankr. W.D. Mich. | 2010Background
- Debtor Elizabeth Harwell filed Chapter 7 and was discharged January 4, 2010; case closed January 26, 2010.
- Debtor filed a motion alleging inadequate representation by Legal Helpers, PC, and sought disgorgement of fees under 11 U.S.C. § 329 and related rules.
- Firm allegedly did not attend the 341 meeting or properly communicate; a substitute attorney attended the hearing.
- 2016 Disclosure Statement and the retainer agreement suggested the engagement was limited to bankruptcy matters, not state court collection actions.
- Disclosures revealed fee sharing with an external attorney (Pleznac) and an undisclosed $150 'service fee' not clearly explained.
- Court ultimately held that disclosures were incomplete and ordered disgorgement of $500 after weighing sanctions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did Legal Helpers disclose compensation and fee sharing as required? | Harwell argues disclosure was incomplete. | Legal Helpers contends disclosures complied or were substantially complete. | Disclosures were inadequate; required to disgorge funds (partial). |
| Is fee sharing with an outside attorney improper under 11 U.S.C. § 329 and Rule 2016? | Fee sharing violated 2016 disclosure expectations and § 329. | Fee sharing was not properly disclosed; outside arrangement permitted by practice but not disclosed. | Fee sharing undisclosed; sanctions warranted. |
| Should the debtor receive disgorgement or other relief for inadequate representation in bankruptcy | Harwell seeks disgorgement due to substandard representation. | Firm provided help with schedules and discharge; severe disgorgement unnecessary. | Court orders disgorgement of $500 as partial sanction. |
Key Cases Cited
- In re Kisseberth, 273 F.3d 714 (6th Cir. 2001) (court may disallow or disgorge fees for noncompliance with disclosure)
- In re Woodward East Project, Inc., 195 B.R. 372 (Bankr.E.D.Mich. 1996) (avoid guessing fee value when attorney has not disclosed)
- In re Waldo, 417 B.R. 854 (Bankr.E.D.Tenn. 2009) (inadequate disclosure can justify fee-related sanctions)
- In re Downs, 103 F.3d 472 (5th Cir. 1996) (sanctions framework for partial disgorgement)
- In re Johnson, 411 B.R. 296 (Bankr.E.D.La. 2008) ( Bankruptcy Rule 2016 disclosure requirements apply to Chapter 7)