577 B.R. 605
Bankr. S.D. Ga.2017Background
- Debtor J. Timothy Shelnut retained McCallar Law Firm (MLF) in a Chapter 11 case; MLF sought $44,502.89 in fees (rates: McCallar $400/hr; Caron $300/hr).
- MLF disclosed a $10,000 retainer prepetition but received two post-petition checks totaling $6,500 drawn on Four Seasons Financial Partners, Inc. (Four Seasons), a corporation owned by Debtor.
- MLF did not timely amend its § 329/Rule 2016 disclosures to reflect that the $6,500 came from Four Seasons rather than Debtor’s personal account.
- Creditor Virginia Pannill and the U.S. Trustee objected, arguing (inter alia) nondisclosure, conflict of interest (Four Seasons as non-debtor affiliate), bad-faith filing, non-appealable fees, duplication of work, and unreasonable rates/time.
- A chapter 11 trustee was ultimately appointed and given control over Four Seasons’ accounts; parties settled the appeal and trustee appointment issues.
- The Court found MLF’s undisclosed receipt of $6,500 violated disclosure rules and ordered disgorgement of that amount, but otherwise allowed fees after assessing conflicts, bad-faith, appealability, duplication, and reasonableness.
Issues
| Issue | Pannill / UST Argument | MLF Argument | Held |
|---|---|---|---|
| Failure to disclose post-petition payments (§329 / Rule 2016) | MLF received $6,500 from Four Seasons and failed to amend disclosures; sanction/disgorgement warranted | Payments were loan-repayments from Debtor; MLF never agreed to accept Four Seasons funds | Court: nondisclosure proven; disgorge $6,500 for failure to supplement disclosures |
| Conflict of interest / disinterestedness (§328(c)) | Payments from affiliate create adverse interest and possible avoidable transfers; fees should be denied for period after first undisclosed payment | Funds were effectively Debtor’s (loan repayments); even if affiliate paid, trustee can investigate; no disqualifying prejudice | Court: potential adverse interest existed but prejudice avoided because trustee appointed; disgorgement on disclosure grounds only, not full denial |
| Bad-faith bankruptcy filing | Debtor filed to avoid state-court contempt order; fees should be denied | Court previously abstained but did not find general bad faith; parties resolved dispute | Court: no broad bad-faith finding; fees not disallowed on this ground |
| Duplication / reasonableness of hours and appealability of stay-relief order | Fees for appeal and attendance by two senior attorneys were unnecessary/too high | Both attorneys allocated tasks; hearings were lengthy and contested; rates and hours reasonable; stay-relief order was appealable | Court: stay-relief order is appealable; no unnecessary duplication found; hourly rates ($400/$300) and time are reasonable; no further reduction |
Key Cases Cited
- In re Kisseberth, 273 F.3d 714 (6th Cir. 2001) (attorney must supplement disclosures when paid by non-debtor)
- In re Prince, 40 F.3d 356 (11th Cir. 1994) (disqualification or denial of fees may follow when professional holds interest adverse to estate)
- Old W. Annuity & Life Ins. Co. v. Apollo Group, 605 F.3d 856 (11th Cir. 2010) (orders granting relief from stay are appealable)
- Blum v. Stenson, 465 U.S. 886 (1984) (lodestar standard considerations for reasonable hourly rates)
- Norman v. Hous. Auth. of Montgomery, 836 F.2d 1292 (11th Cir. 1988) (lodestar method governs fee awards)
- In re W.T. Mayfield Sons Trucking Co., 225 B.R. 818 (Bankr. N.D. Ga. 1998) (undisclosed subsidiary payments to debtor’s counsel can be avoidable/subject to disgorgement)