469 B.R. 383
Bankr. M.D. Fla.2012Background
- Clark & Washington previously used postdated checks as a prepetition retainer for postpetition services, which this court barred.
- The U.S. Trustee sought ruling on whether Clark & Washington's two-contract approach is permissible after the prior ruling.
- The original postdated-fee arrangement created prepetition claims and violated the automatic stay or discharge injunction when checks were deposited postpetition.
- Clark & Washington adopted a two-contract regime: a prepetition agreement signed before filing and a postpetition agreement signed after filing with automatic postpetition payments.
- The firm modified the procedure to include a cooling-off period, disclosures, and three postpetition service options, with promises of updated Rule 2016 disclosures.
- The court concludes the modified two-contract procedure does not violate the prior ruling or applicable law, subject to specified modifications and disclosures.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the modified two-contract procedure comply with the prior ruling? | The Trustee argues the changes do not fully address the risk of gap representation and disclosure inadequacy. | Clark & Washington argues the modifications cure concerns and align with law. | Yes, with required disclosures and process protections. |
| Are the disclosures in the modified procedure adequate? | Disclosures were insufficient and must be moved to a cover page and acknowledged by clients. | Modifications, including clearer disclosures and acknowledgment, are sufficient. | Disclosures are adequate with specified enhancements. |
| Is the two-contract approach unnecessarily duplicative given other options? | Other approaches exist to provide modest-means clients representation. | The option structure remains a valid choice among alternatives. | Not precluded; acceptable given the lack of identified better alternatives. |
Key Cases Cited
- Bethea v. Robert J. Adams & Assocs., 352 F.3d 1125 (7th Cir. 2003) (debtor may tender a smaller prepetition retainer and hire postpetition counsel)
- Lamie v. Trustee, 540 U.S. 526 (2004) (debtor may use postpetition funds to pay for postpetition services)