605 B.R. 658
Bankr. D.N.J.2019Background
- Sharon Davis filed a Chapter 13 petition on December 3, 2016, represented initially by Walter D. Nealy, Esq.; the case was later dismissed on October 25, 2018 but the court retained jurisdiction to decide a fee dispute.
- Nealy filed a Rule 2016 disclosure that (incorrectly) stated a $3,500 retainer and that he would represent the debtor in adversary proceedings; the retainer agreement and later filings reflected a $3,000 retainer and limited scope (no adversary representation).
- Davis alleges Nealy required $2,000 prepetition (contradicting the Rule 2016 disclosure which showed $1,500 prepetition), colluded with the mortgage servicer, and otherwise provided deficient representation; she sought disgorgement of all fees paid.
- Nealy received approximately $3,903.07 in total from the case (net fees $3,473.07 plus $430 costs) and admitted errors and inconsistencies in his filings when questioned at the disgorgement hearing.
- The court raised, sua sponte, whether Nealy (as a "debt relief agency") complied with the BAPCPA disclosure and written-retainer requirements of 11 U.S.C. §§ 526–528 and § 527, and whether failure to comply required disgorgement of fees.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did counsel comply with §§ 526–528 and § 527 written disclosure/retainer requirements? | Davis: Nealy failed to provide the mandatory written § 527 disclosures and proper § 528 retainer documentation. | Nealy: Claimed disclosures were provided (in retainer or orally) and disputed the characterization; admitted some pleadings were mistaken. | Held: Nealy failed to provide the required written § 527 disclosures and thus violated §§ 526–528. |
| Effect of statutory noncompliance on the retainer agreement | Davis: Void the contract and disgorge all fees paid. | Nealy: Argued common-law quantum meruit should allow recovery despite statutory noncompliance. | Held: Statutory scheme controls; contract is void under § 526 and quantum meruit cannot override statutory remedy. |
| Whether misstatements about fee amount and scope warrant relief | Davis: Inconsistent filings (retainer amount; scope re: adversary work) show misconduct and justify disgorgement. | Nealy: Claimed clerical errors and relied on retainer/agreement showing actual terms. | Held: Court found the inconsistencies and admitted errors significant and probative of statutory noncompliance; supports disgorgement. |
| Remedy and amount to be disgorged | Davis: Seek full return of all amounts paid. | Nealy: Sought allowance of fees (quantum meruit) and denial of disgorgement. | Held: Granted disgorgement of all monies paid ($3,903.07 — $3,473.07 in fees and $430 costs). |
Key Cases Cited
- In re Seare, 493 B.R. 158 (Bankr. D. Nev. 2013) (attorney's failure to meet § 528 requirements led to liability for all fees)
- In re Hanawahines, 577 B.R. 573 (Bankr. D. Haw. 2017) (violation of § 526(a) voided retainer and required disgorgement)
- Milavetz, Gallop & Milavetz, P.A. v. United States, 559 U.S. 229 (2010) (definition and treatment of "debt relief agency" under BAPCPA)