454 B.R. 537
Bankr. M.D. Fla.2011Background
- The U.S. Trustee sues Clark & Washington, P.C. in the MD Florida bankruptcy court over a fee arrangement using postdated checks.
- Clark & Washington deposits postdated checks for postpetition services, while some dates occur after petition and discharge dates.
- The Chapter 7 Agreement provides a small prepetition flat fee and a $1,000 postpetition retainer paid with postdated checks.
- Disclosures warn clients to consult independent counsel about postdated payments; the fee structure potentially creates a conflict of interest under Florida Bar rules.
- The UST alleges violations of: automatic stay (362), discharge injunction (524), and a client–firm conflict of interest; Clark & Washington seeks summary judgment on all counts.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Do postdated checks create prepetition claims? | UST: yes, checks are rights to payment arising prepetition. | Clark & Washington: no, payments relate to postpetition services and not prepetition claims. | Yes; postdated checks give rise to prepetition claims. |
| Do deposits/collection efforts after petition or discharge violate automatic stay or discharge injunction? | UST: deposits/collection letters postpetition violate stay; post-discharge efforts violate 524 injunction. | Clark & Washington: argues no violation as fees are postpetition; abstention or permissive collection may apply. | Yes; deposits and collection after petition violate automatic stay, and post-discharge efforts violate discharge injunction. |
| Does the fee arrangement create an impermissible conflict of interest? | UST: arrangement constitutes a business transaction adverse to clients not properly disclosed. | Clark & Washington: disclosure suffices and clients can seek independent counsel. | Yes; the arrangement creates a conflict of interest. |
Key Cases Cited
- In re Waldo, 417 B.R. 854 (Bankr. E.D. Tenn. 2009) (prepetition fees paid by postdated checks can be dischargeable; reasoning supports prepetition nature of fees in similar arrangements)
- In re Griffin, 313 B.R. 757 (Bankr. N.D. Ill. 2004) (discusses executory contracts in bankruptcy and related treatment of prepetition rights)
- In re Chandlier, 292 B.R. 583 (Bankr. W.D. Mich. 2003) (approaches to fee arrangements and prepetition claims in bankruptcy)
- Bethea v. Robert J. Adams & Assocs., 352 F.3d 1125 (7th Cir. 2003) (cases addressing fee arrangements and prepetition obligations in bankruptcy context)
- In re Waldo (related discussion in opinion), 417 B.R. 854 (Bankr. E.D. Tenn. 2009) (major authority opposing minority view on prepetition vs postpetition fee rights)