In re: 5900 ASSOCIATES, INC., Debtor. FRED J. DERY, Trustee, Plaintiff-Appellant, v. CUMBERLAND CASUALTY & SURETY CO., Defendant-Appellee.
No. 05-1838
UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT
Decided and Filed: November 7, 2006
RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit Rule 206. File Name: 06a0413p.06. Appeal from the United States District Court for the Eastern District of Michigan at Detroit. No. 04-74770—Paul D. Borman, District Judge. Submitted: May 30, 2006. Before: KEITH and BATCHELDER, Circuit Judges; ALDRICH, District Judge.*
COUNSEL
OPINION
ALICE M. BATCHELDER, Circuit Judge. Fred J. Dery, the trustee of the bankruptcy estate of 5900 Associates, Inc., seeks to set aside the debtor‘s transfer of property to Cumberland Casualty & Surety Co. (“Cumberland“) as a fraudulent transfer under
Attorney Todd Halbert began representing the debtor‘s principal in 1996. He handled matters related to at least three separate entities and three parcels of real property, only one of which was owned by the debtor. Nonetheless, the debtor received all of Halbert‘s legal bills. In 1997, the debtor filed a voluntary Chapter 11 petition. Although the bankruptcy court authorized Halbert‘s representation of the debtor, Halbert never submitted a fee application. The bankruptcy was dismissed in June 1997. At that point, Halbert‘s fees totaled $101,119.81, of which, Halbert testified, the debtor owed him approximately $39,000 for services rendered in the bankruptcy. Halbert said that he later billed the debtor an additional $65,000 as a premium for results he had achieved in state court litigation. The bankruptcy court found, and the record supports the finding, that at a minimum, $55,000 of those fees were for services related to the bankruptcy. After dismissal of its Chapter 11 petition, the debtor executed a promissory note in favor of Halbert for $166,119.81. Some six years later, the instant bankruptcy proceeding was instituted.
The parties agree that if the portion of Halbert‘s fees allocable to the prior bankruptcy is unenforceable, the trustee has no redress under
We review the bankruptcy court‘s decision directly, according no deference to the district court. Brady-Morris v. Schilling (In re Knight Trust), 303 F.3d 671, 676 (6th Cir. 2002). The bankruptcy court‘s findings of fact are reviewed for clear error, and questions of law are reviewed de novo. Stamper v. United States (In re Gardner), 360 F.3d 551, 557 (6th Cir. 2004). In this case, both the bankruptcy court and the district court held that the portion of Halbert‘s claim for fees allocable to the debtor‘s first bankruptcy was unenforceable.
We agree with the bankruptcy court and the district court that Halbert was required to seek the court‘s approval of attorney‘s fees incurred during the prior proceeding. Under
The payment of attorneys who are appointed pursuant to
(a) Any attorney representing a debtor in a case under this title, or in connection with such a case, whether or not such attorney applies for compensation under this title, shall file with the court a statement of the compensation paid or agreed to be paid, if such payment or agreement was made after one year before the date of the filing of the petition, for services rendered or to be rendered in contemplation of or in connection with the case by such attorney, and the source of such compensation.
(b) If such compensation exceeds the reasonable value of any such services, the court may cancel any such agreement, or order the return of any such payment, to the extent excessive . . . .
The trustee claims that
Nor are we convinced by the trustee‘s assertion that
Having dealt with the trustee‘s first two contentions, we arrive at the crux of the matter: whether the bankruptcy court retains jurisdiction to approve attorney‘s fees under
A number of courts have held that the bankruptcy court may retain jurisdiction over matters related to the bankruptcy even after the underlying case has been adjudicated or dismissed. The Third Circuit has held that a bankruptcy court retained jurisdiction, following discharge, to decide whether foreclosure against the debtor‘s property was an unfair and deceptive trade practice. Smith v. Commercial Banking Corp. (In re Smith), 866 F.2d 576, 578 (3d Cir. 1989). The court wrote, “[a]s a general rule, the dismissal of a bankruptcy case should result in the dismissal of ‘related proceedings’ because the court‘s jurisdiction of the latter depends, in the first instance, upon the nexus between the underlying bankruptcy case and the related proceedings.” Id. at 580. The court then found that the general rule “is not without exception” where the related proceedings satisfy the test applicable to pendant jurisdiction. Id. See also Fidelity & Deposit Co. v. Morris (In re Morris), 950 F.2d 1531, 1534 (11th Cir. 1992) (“dismissal of an underlying bankruptcy case does not automatically strip a federal court of jurisdiction over an adversary proceeding which was related to the bankruptcy case.“); Shop Television Network, Inc. v. Chodos (In re Shop Television Network, Inc.), No. 94-56225, 79 F.3d 1154, 1996 WL 102580 (9th Cir. March 6, 1996) (unpublished decision) (bankruptcy court‘s explicit retention of jurisdiction over attorney‘s fees after dismissal of the underlying case affirmed).
We find the case for retained jurisdiction over fees to be clear. Unlike the post-discharge matter described in Smith, a bankruptcy court‘s decision on attorney‘s fees is not a “related proceeding[].” Smith, 866 F.2d at 578. It is part of the original proceeding. The Bankruptcy Code assigns to courts a comprehensive duty to review fees in a particular case, and