Sundquist v. Bank of America, N.A. (In re Sundquist)
576 B.R. 858
Bankr. E.D. Cal.2017Background
- Debtors Erik and Renée Sundquist filed Chapter 13 in 2010; the case was later dismissed and state litigation followed, which the California Court of Appeal partly reversed and directed stay-based claims to federal court.
- Dennise Henderson represented the Sundquists at various times, re-entered in 2014 to prosecute a § 362(k)(1) automatic-stay action, and later filed a back-dated/defective contingency-fee agreement and late § 329 disclosures.
- At bench trial Henderson’s performance was poor; the court nevertheless awarded the Sundquists substantial actual and punitive damages and treated attorney fees as part of § 362(k)(1) actual damages.
- Henderson reported lodestar hours (207.56 at $300/hr) and claimed a contingency fee; the court fixed reasonable attorney compensation at $70,000 under § 329(b), cancelled the contingency agreement, and enjoined the Sundquists to pay $70,000 to Henderson.
- Henderson filed a notice of lien on the judgment and threatened state-court actions to obtain fees “far exceed[ing]” $70,000, prompting the Sundquists’ motion to expunge the lien.
- The bankruptcy court held federal jurisdiction over the fee dispute (despite dismissal/closing of the case), rejected state-law quantum meruit as a means to evade § 329(b), found Henderson’s disclosures defective, but declined to reduce the $70,000 award to zero.
Issues
| Issue | Plaintiff's Argument (Henderson) | Defendant's Argument (Sundquists/Bank) | Held |
|---|---|---|---|
| Federal jurisdiction over fee dispute after case dismissal | Bankruptcy court lost power; state court should decide attorney-fee lien | Bankruptcy court retained jurisdiction (arising under/arising in/related to and equitable powers) | Court retained § 1334 jurisdiction and declined to abstain |
| Validity/enforceability of contingency agreement given § 329(b) | Contingency/quasi-quantum meruit should control and may exceed $70,000 | § 329(b) authorizes cancellation/limitation to reasonable value; contingency vulnerable | Court cancelled contingency agreement and limited fees to $70,000 under § 329(b) |
| Availability of quantum meruit/state-law remedy after federal denial | State quantum meruit (reasonable fee) can yield greater recovery | Federal preemption and Park-Helena bars circumventing bankruptcy fee controls; state remedy unavailable to evade § 329 | Court held quantum meruit cannot circumvent § 329; found reasonable fee equals $70,000 |
| Lien and interference with settlement (motion to expunge lien) | Lien secures contractual entitlement to contingency or larger fee; threatens UFTA suits | Lien is unnecessary given mandatory injunction awarding $70,000 and used as a hold-up; should be expunged | Court expunged the lien; left injunction requiring payment of $70,000 intact |
Key Cases Cited
- Manoa Finance Co. v. Burgess, 853 F.2d 687 (9th Cir. 1988) (lodestar presumption of reasonableness in bankruptcy fee awards)
- Sasson v. Sokoloff (In re Sasson), 424 F.3d 864 (9th Cir. 2005) (broad scope of § 1334 bankruptcy jurisdiction)
- Jastrem v. Am. Law Ctr., PC (In re Jastrem), 253 F.3d 438 (9th Cir. 2001) (§ 329(b) review guided by § 330(a)(3) factors)
- Schwartz-Tallard v. America’s Servicing Co. (In re Schwartz-Tallard), 803 F.3d 1095 (9th Cir. 2015) (fees awarded under § 362(k)(1) limited to reasonable fees; court may eliminate excessive fees)
- Park-Helena v. Neben & Starrett (In re Park-Helena), 63 F.3d 877 (9th Cir. 1995) (failure to make full, candid § 329 disclosures may justify denial of fees)
- Occidental Fin. Group, Inc. v. Law Offices of Ivan W. Halperin (In re Occidental Fin. Grp.), 40 F.3d 1059 (9th Cir. 1994) (bankruptcy ruling on fees precludes state-law circumvention)
- Walters v. Burd (In re Walters), 868 F.2d 665 (4th Cir. 1989) (state-court work may be “in connection with” bankruptcy and subject to § 329 control)