578 B.R. 570
Bankr. S.D. Tex.2017Background
- Debtor Vicki G. Wright (Plaintiff) filed Chapter 13; counsel Grissom was approved as special counsel but did not disclose written fee‑sharing agreements with local attorneys Csabi and Rodriguez.
- Grissom obtained $223,085.10 in settlement proceeds during the bankruptcy; the court later approved $90,000 in fees and ordered turnover of the remainder to the Chapter 13 trustee.
- Despite court orders, on April 12, 2016 Grissom wired $73,333.00 each to Csabi and Rodriguez from his IOLTA; Csabi later returned his share to the court registry, Rodriguez has not.
- Plaintiff sued for disgorgement, turnover, and violations of Bankruptcy Code §§ 327, 329, 362, 504 and Bankruptcy Rules 2014, 2016; trial was bifurcated to decide liability only.
- The court found Defendants failed to disclose the fee arrangements, unlawfully split estate fees without court approval, and willfully exercised control over estate property in violation of the automatic stay.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether counsel properly disclosed employment and fee‑sharing under §327/Rule 2014 | Grissom, Csabi, Rodriguez failed to disclose fee‑sharing and extra counsel employment | Defendants argued debtor knew or filings cured prior nondisclosure | Court: nondisclosure violated §327, Rule 2014, BLR 2014‑1; employment of Csabi and Rodriguez was not approved |
| Whether §329/Rule 2016 disclosure requirements were met | Fees and sharing must be fully disclosed; failure undermines bankruptcy integrity | Defendants relied on claimant knowledge or good faith | Court: Defendants violated §329 and Rule 2016 by not disclosing compensation and sharing particulars |
| Whether fee‑splitting violated §504(a) | Unapproved sharing of administrative compensation is prohibited | Defendants contended state bar rules or belief of entitlement | Court: Fee splits occurred and no statutory exceptions applied; §504(a) violated |
| Whether transfers and retention of settlement funds violated the automatic stay (§362) | Wire transfers and retention of funds were acts to obtain/ control estate property after petition | Defendants claimed good‑faith belief they owned funds | Court: Acts were intentional and with knowledge of the bankruptcy; willful violations of §362(a) established |
Key Cases Cited
- Stern v. Marshall, 564 U.S. 462 (2011) (limits on bankruptcy court constitutional authority over certain non‑core claims)
- Wellness Int’l Network v. Sharif, 575 U.S. 665 (2015) (parties may consent to bankruptcy adjudication of certain claims)
- In re W. Delta Oil Co., Inc., 432 F.3d 347 (5th Cir. 2005) (Rule 2014 requires continuing full disclosure; failure justifies revocation/denial of compensation)
- In re Anderson, 936 F.2d 199 (5th Cir. 1991) (§504 prohibits fee‑splitting without court approval)
- In re Chesnut, 422 F.3d 298 (5th Cir. 2005) (willfulness for §362 violations requires knowledge and intentional act; good‑faith belief irrelevant)
- In re Dorsey, 870 F.3d 359 (5th Cir. 2017) (untimely appeal deprives appellate courts of jurisdiction; prior bankruptcy orders final)