637 B.R. 758
Bankr. S.D. Ga.2022Background
- Debtors Joseph and Dena Smith filed Chapter 13 in Nov. 2015; plan confirmed Apr. 11, 2016.
- The Smiths were injured in a car accident on Apr. 26, 2016 and retained attorney William Heitmann to pursue PI claims.
- Heitmann obtained court approval and disbursement for Joseph Smith’s settlement in 2017, but in Aug. 2018 he settled Dena Smith’s claim for $45,000, paid himself $11,414.71 (fees/expenses) and disbursed $32,500 net to Dena without court approval or the § 329/Rule 2016(b) disclosures.
- Debtors completed plan payments in Nov. 2020; no discharge was entered. In May 2021 Debtors filed nunc pro tunc Application to Employ Heitmann and Motion to Approve Settlement; Trustee objected and later moved for turnover and sanctions.
- At evidentiary hearings the court found Heitmann had notice (or should have known) of the joint bankruptcy, that Mrs. Smith’s non‑exempt recovery would be estate property under Eleventh Circuit law, and that Heitmann failed to comply with § 329/Rule 2016(b).
- Court rulings: Motion to Approve Settlement denied as moot; Application to Employ denied nunc pro tunc; Heitmann ordered to disgorge $11,414.71; Trustee’s request for additional turnover/sanctions denied without prejudice (adversary required for turnover against non‑debtor).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Motion to Approve Dena Smith’s settlement should be granted nunc pro tunc | Debtors: ask retroactive approval of the 2018 settlement | Trustee: settlement is consummated and funds already disbursed; approval is moot | Denied as moot; settlement amount not judicially reviewable now; court will not retroactively authorize Dena to retain $32,500 (nonexempt portion is estate property) |
| Whether the court should approve nunc pro tunc employment of Heitmann for Dena | Debtors: nunc pro tunc employment is appropriate to cure earlier omission | Trustee: standards for retroactive employment (professional qualified + excusable neglect) not met | Denied — attorney was qualified but Debtors/Heitmann failed to show excusable neglect; retroactive retention denied |
| Whether Heitmann must disgorge fees for failing to disclose compensation under § 329/Rule 2016(b) | Trustee: fees/costs paid to Heitmann without disclosure should be disgorged | Heitmann: mistake/no bad faith; disgorgement excessive | Ordered to disgorge $11,414.71 (fees and expenses) as sanction for violation of § 329/Rule 2016(b) |
| Whether Trustee may recover additional funds ($10,939.63) or obtain sanctions beyond disgorgement | Trustee: Heitmann’s conduct damaged estate and warrants additional turnover or sanctions to make creditors whole | Heitmann: no bad faith; disgorgement is adequate; additional recovery requires proper procedure | Denied — sanctions beyond disgorgement refused; turnover claim against non‑debtor Heitmann denied without prejudice because § 542 turnover/recovery against a non‑debtor requires an adversary proceeding; Trustee may pursue recovery via adversary or pursue Debtors by motion |
Key Cases Cited
- Waldron v. Brown, 536 F.3d 1239 (11th Cir. 2008) (post‑confirmation personal injury claims can be property of the bankruptcy estate)
- Roman Catholic Archdiocese of San Juan v. Acevedo Feliciano, 140 S. Ct. 696 (2020) (Supreme Court cautions limits on nunc pro tunc orders and rewriting history)
- Microf, LLC v. Cumbess (In re Cumbess), 960 F.3d 1325 (11th Cir. 2020) (distinguishes trustee and debtor roles; supports that § 327(e) applies to trustees)
- Law v. Siegel, 571 U.S. 415 (2014) (limits on bankruptcy court authority under equitable powers)
- SE Prop. Holdings, LLC v. Stewart, 970 F.3d 1255 (10th Cir. 2020) (full disgorgement is default sanction for § 329 nondisclosure)