In re D & H Machine Service, Inc.
MEMORANDUM ON FIRST APPLICATION OF HODGES, DOUGHTY & CARSON, PLLC, FOR COMPENSATION AND REIMBURSEMENT OF EXPENSES
SUZANNE H. BAUKNIGHT UNITED STATES BANKRUPTCY JUDGE
Debtor filed this Chapter 11 case on February 9, 2016. On May 27, 2016, Debt- or’s counsel filed the First Application of Hodges, Doughty & Carson, PLLC,- for Compensation and Reimbursement of Expenses (“First Application”) [Doc. 62], seeking total compensation in the amount of $26,659.33, representing fees of $25,873.50 and expenses of $785.83, for the period of January 27, 2016, through April 30, 2016. Notice and the opportunity for hearing were provided pursuant to Rule 2002(a) of the Federal Rules of Bankruptcy Procedure and E.D. Term. LBR 9013-1(h). Notwithstanding that no objection was filed, .on July 13, 2016, the Court set a hearing on the First Application [Doc. 71] in order to undertake its “fundamental, independent duty to review fee applications for reasonableness.” In re Parsons, No. 02-65780,
The Court held a hearing on the First Application and the Amended Application on July 28, 2016, at which the United States Trustee raised concerns about the failure of Hodges, Doughty & Carson, PLLC (“HD & C”) to disclose in either the Application to Employ Counsel, filed on February 9, 2016 [Doc. 9]; the Amended Application to Employ Counsel, filed on February 11, 2016 [Doc. 18]; or [¶] & C’s Disclosure of Compensation of Attorney for Debtor(s), filed on March 3, 2016 [Doc. 45] that pre-petition legal fees and expenses had been incurred. Because of the Court’s independent concern about the pre-petition fees sought by [¶] & C and the United States Trustee’s concerns about non-disclosure, the Court asked for briefing. The matter is now ripe for adjudication.
I. ISSUES
The Court specifically asked for briefing on whether pre-petition fees may be awarded post-petition when the service provider took a retainer pre-petition and
As a result, the focus of the briefing was the opposing viewpoints for the question of whether a law firm that performs pre-petition bankruptcy-related services for the debtor is disinterested under § 327 as that term is defined by § 101(14) because the firm is a pre-petition creditor as defined by § 101(10). A strict interpretation of these Code sections results in an unquestionably harsh result that “would virtually eliminate any possibility of legal assistance for a debtor in possession, except under a cash-and-carry arrangement or on a pro bono basis.” In re Martin,
Although the Court has surveyed the law on both sides of this issue (and summarizes it below), the circumstances of the instant fee application do not require the Court to pick a side in this particular legal argument. The Court reaches this conclusion on a finding that § 329 is dispositive to the determination of whether to grant the request for pre-petition bankruptcy-related fees sought by [¶] & C. Because [¶] & C failed to disclose the fees related to the pre-petition services it performed for Debtor, whether or not bankruptcy-related, and because such non-disclosure is a violation of § 329, the Court will deny [¶] & C’s application for pre-petition fees as a sanction.
II. PRE-PETITION SERVICES OWING WHEN THE PETITION IS FILED
The parties and the Court having spent significant time to survey the landscape of cases concerning the pre-petition fee issue, notwithstanding that it is not ruling on that issue, the Court will address the differing positions to provide guidance for [¶] & C and other debtors’ counsel appearing before this Court.
The starting point, of course, is the Code. Section 327 authorizes employment of professional persons with the court’s approval if such professionals “do not hold or represent an interest adverse to the estate ... and are disinterested persons.” 11 U.S.C. § 327(a). “Disinterested person” is defined by § 101(14) as a person who “is not a creditor,, an equity security holder, or an insider.” Section 101(10)(A) defines “creditor” as an “entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor.” Also pertinent is § 1107(b), which provides: “Notwithstanding section 327(a) of this title, a person is not disqualified for employment under section 327 of this title by a debtor in possession solely because of such person’s employment by or representation of the debtor before the commencement of the case.”
Only one circuit court of appeals has addressed the question of whether debtor’s counsel loses disinterestedness as a creditor when counsel is owed on the petition date for pre-petition bankruptcy-related services. Although the First Circuit squarely stated its position on this issue, such was dictum, in its decision in In re Martin, in which the exact question before the court was the propriety of a lawyer taking security for payment of attorneys’ fees to be incurred while representing the client in connection with the bankruptcy proceedings.
Debtors’ counsel in In re Martin,
The First Circuit vacated the bankruptcy court’s finding that the mortgage-retainer was impermissible per se as an interest adverse to the bankruptcy estate under § 327(a). Id. at 183. In so holding, the court addressed the question of whether unpaid pre-petition fees create a problem under § 327(a):
We turn, then, to a fuller consideration of § 327(a). At first blush, this statute would seem to foreclose the employment of an attorney who is in any respect a “creditor.” But, such a literalistic reading defies common sense and must be discarded as grossly overbroad. After all, any attorney who may be retained or appointed to render professional services to a debtor in possession becomes a creditor of the estate just as soon as any compensable time is spent on account. Thus, to interpret the law in such an inelastic way would virtually eliminate any possibility of legal assistance for a debtor in possession, except under a cash-and-carry arrangement or on a pro bono basis. It stands to reason that the statutory mosaic must, at the least, be read to exclude as a “creditor” a lawyer, not previously owed back fees or other indebtedness, who is authorized by the court to represent a debtor in connection with reorganization proceedings — notwithstanding that the lawyer will almost instantaneously become a creditor of the estate with regard to the charges endemic to current and future representation.
Id. at 180 (citations omitted).
For this dictum proposition, the In re Martin court relied in part on a decision by the Bankruptcy Court for the District of Utah, In re Roberts,
In the opinion of this Court, a law firm serving as general counsel for a debtor in possession, which is owed on the date of filing a pre-petition debt for legal fees or costs incurred solely for services rendered in contemplation of and in connection with the bankruptcy case, does not because of this debt hold an interest adverse to the estate nor does it lack disinterestedness in violation of Section 327(a) of the Code. In thissituation, these pre-petition fees and costs are recoverable as part of the fees allowed, generally, under Sections 327, 329, and 330 of the Code and Bankruptcy Rule 2014. It would be a disservice to the principles of bankruptcy policy to chill exploration of alternatives to bankruptcy by the debtor’s counsel by denying its request for fees under these circumstances.
Id. at 849.
In another case relying on In re Martin, the bankruptcy court for the Southern District of Ohio ruled against a debtor’s attorney, holding that a lawyer’s “status as a creditor holding a prepetition security interest in Debtors’ assets, taken as security for the payment of fees for prepetition nonbankruptcy work, disqualifies him from appointment under § 327 and from continuing as Debtors’ unappointed Chapter 12 counsel.” In re Watson,
Although the proclamations of these three courts are dicta, other courts have disagreed when squarely faced with the issue. In 2004, the Bankruptcy Court for the Middle District of Pennsylvania sua sponte
A less drastic approach would require the law firm to obtain from its client its fees and costs in a contemporaneous exchange for its services unrelated to the bankruptcy case. This could be accomplished in a number of ways. For example, the law firm could obtain a pre-service retainer to cover work unrelated to the bankruptcy case and deduct from this retainer the sums owed as they come due. This deduction could take place either as the legal work is accom-' plished or at the end of regular billing periods.
It is the opinion of this Court that, even without • obtaining such a pre-ser-vice retainer, a law firm that bills regularly and is paid in the ordinary course of its business and the business of the debtor, would obtain its fees as part of a contemporaneous exchange.
Id. at 633-34 (quoting In re Roberts,
Another decision in which a bankruptcy court refused to award fees for pre-petition, case-related services is Kun v. Mansdorf (In re Woodcraft Studios, Inc.),
If you represent somebody before the filing, either you have a retainer, which apparently you obtained some sort of a retainer, $5,000, what attorneys do is they draw down on those fees that were incurred pre-petition, advise the Court that from, say, a $5,000 retainer, I provided services of $3,950. I’ve deducted that, and I have a remaining retainer of $1,050. You- didn’t do that' here, so you were not disinterested. You had fees that were owed pre-petition. You didn’t draw down on the retainer; you didn’t waive those fees; and you didn’t even bring it to the Court’s attention. There’s a total failure of candor to the tribunal. You know, on that basis alone, I can deny your fee application in total.
Id. at 5-6,
In In re Madera Roofing, Inc., No. 13-16954-B-11,
Indeed, several other courts also have expressly acknowledged the typical practice for counsel to draw down on a pre-petition retainer to pay pre-petition case-related fees or, alternatively, to waive the pre-petition fees in order to avoid being considered a pre-petition “creditor” and, thus, not “disinterested” under the Code. See, e.g., In re Fresh Choice, LLC, No. 12-46157 RLE,
Courts that fall on the side of requiring either waiver of pre-petition fees or drawing down of a pre-petition retainer to pay for pre-petition, case-related services are strictly construing the Code. The Sixth Circuit Court of Appeals has not ruled on the issue; however, as the bankruptcy court for the Eastern District of Kentucky recently noted:
The requirements of § 327(a) are strictly construed in the Sixth Circuit. A “professional seeking to be hired ‘can have neither an “adverse interest” nor be an “interested person.” ’ ” In re BBQ Res., Inc.,237 B.R. 639 , 642 (Bankr. E.D.Ky.1999) (Howard, J.) (quoting Michel v. Federated Dep% Stores, Inc. (In re Federated Dep’t Stores, Inc.),44 F.3d 1310 , 1319 (6th Cir.1995)). The Court cannot use its equitable powers to approve the employment of a professional who is not disinterested, even if it determines that employment is in the best interest of all parties and even if such employment is the most efficient and economical way to proceed with administration of the case. Michel v. Eagle-Picher Indus., Inc. (In re Eagle-Picher Indus., Inc.),999 F.2d 969 (6th Cir. 1993); Childress v. Middleton Arms, L.P. (In re Middleton Arms, Ltd. P’ship),934 F.2d 723 (6th Cir.1991).
In re Licking River Mining, LLC, No. 14-10201,
Section 327(a) clearly states, however, that the court cannot approve the employment of a person who is not disinterested, even if the person does not have an adverse interest. This Court has held that bankruptcy courts “cannot use equitable principles to disregard unambiguous statutory language.” In re C-L Cartage Co., Inc.,899 F.2d 1490 , 1494 (6th Cir.1990). Therefore, the District Court was correct in reversing the Bankruptcy Court. The equitable powers of section 105(a) may only be used in furtherance of the goals of the Code. By forbidding employment of all interested persons, section 327 prevents individual bankruptcy courts from having to make determinations as to the best interest of the debtors in these situations.
The Middleton Arms court also made clear that “the section 1107(b) exception does not apply to all interested persons, but only to those who fail to be disinterested solely because of prior employment.” Id. Thus, based on prior Sixth Circuit precedent on related issues, it appears that the court might strictly construe § 327 in a way that would require either waiver of pre-petition ease-related fees or application of a retainer as payment for pre-petition case-related fees in order for debtors’ counsel to avoid being treated as a “creditor” under the Code.
[¶] & C argues that a pre-petition draw on the pre-petition retainer to credit case-related pre-petition services puts the firm at risk of having to litigate its disinterestedness because of a possible preference claim. The Third Circuit case that is oft cited for the proposition that bankruptcy courts may not authorize appointment of counsel without first determining whether a preference exists is In re Pillowtex, Inc.,
Considering all of this, debtors’ counsel appearing before this Court who take the route of billing the client for pre-petition preparation prior to filing the case and drawing down the pre-petition fees from any retainer funds held in escrow — while disclosing such to the Court — will most likely pass scrutiny by this Court.
III. DISCLOSURE OF PRE-PETITION SERVICES UNDER § 329
Whether or not a retainer is provided and drawn from for pre-petition, case-related services, counsel absolutely must disclose to the Court the amount (or estimated amount) of any pre-petition services provided and the status of the fees charged or to be charged for such services. Here, this Court need not reach the controversial question of whether professionals are required to draw down from pre-petition retainers for pre-petition, case-related services or waive fees for such services when filing a petition for their clients in order to be appointed and paid as debtors’ counsel in a bankruptcy case. This is so because [¶] & C violated the disclosure requirements of § 329 and Rule 2016 by failing to disclose that it had performed thirteen days of pre-petition services for which it intended to seek payment post-petition.
Section 329 of the Bankruptcy Code provides:
(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.
11 U.S.C. § 329(a) (emphasis added). Federal Rule of Bankruptcy Procedure 2016(b), which implements § 329(a), specifies:
Every attorney for a debtor, whether or not the attorney applies for compensation, shall file and transmit to the United States trustee within 14 days after the order for relief, or at another time as the court may direct, the statement-required by § 329 of the Code including whether the attorney has shared or agreed to share the compensation with any other entity. The statement shall include the particulars of any such sharing or agreement to share by the attorney, but the details of any agreement for the sharing of the compensation with a member or regular associate of the attorney’s law firm shall not be required. A supplemental statement shall be filed and transmitted to the United States trustee within 14 days after any payment or agreement not previously disclosed.
As explained by the Sixth Circuit Court of Appeals in Henderson v. Kisse-
The bankruptcy court in Kisseberth explained that Congress’s inclusion of § 329 expressed “an intent that all fees incurred by an attorney in connection with a bankruptcy -case be disclosed, regardless of whether or not such fees were actually paid at the time the Compensation Statement was filed with the bankruptcy court.” Id. at *6. The statutory text requiring disclosure of any compensation “agreed to be paid ... for services rendered” would be superfluous if not read to require disclosure of fees agreed to be paid for pre-petition services rendered even if, as [¶] & C argues, such fees would not be paid until approved by the Court following a post-petition appointment and application for compensation. See id. In affirming the bankruptcy court, the district court held:
On consideration of the importance of the fee disclosure requirement, the extent to which that requirement was almost totally disregarded by an experienced bankruptcy practitioner, and the need to compel future compliance on his part, and the part of all counsel appearing in Bankruptcy Court, I conclude that Chief Judge Speer’s disgorgement decision is neither clearly erroneous nor an abuse of discretion.
In re Kisseberth,
In another case in which counsel failed to disclose his fee agreement with debtors for pre-petition services in contemplation of their bankruptcy petitions, even though such fees had been waived, and additionally failed to disclose merchandise transfers from debtors to counsel during the preference period, the Eastern District of Michigan observed that “Rule 2014(a) requires mandatory disclosure [and] imposes upon those professionals who are appointed under § 327(a) a duty to fully and completely disclose any and all connections with debtors, and precludes them from exercising any discretion in deciding which connections merit disclosure. Significantly, negligence regarding disclosure is no excuse.” Halbert v. Yousif,
Notably, debtors’ counsel in In re Martin, which [¶] & C asks the Court to follow, filed an application for employment that “made a clean breast of the terms and conditions of the retainer and other accoutrements of the fee arrangement as required by Bankruptcy Rule 2016(b),” including the details about the mortgage that secured future fees.
As explained by the Sixth Circuit,
The provisions of the Bankruptcy Code and the Bankruptcy Rules that regulate attorney fees are designed to protect both creditors and the debtor against overreaching attorneys. In re Walters,868 F.2d 665 , 668 (4th Cir. 1989). To ensure such protection, bankruptcy courts have broad and inherent authority to deny any and all compensation where an attorney fails to satisfy the requirements of the Code and Rules. In re Downs,103 F.3d 472 , 479 (6th Cir.1996) (denying all compensation to an attorney who disregarded his obligation to disclose his fee arrangement under § 329 and Rule 2016); Matter of Prudhomme,43 F.3d 1000 , 1003 (5th Cir.1995) (concluding that a bankruptcy court may order disgorgement as a sanction against the debtor’s counsel for failing to disclose fees). Disgorgement may be proper even though the failure to disclose resulted ... from negligence or inadvertence. In re Park-Helena Corp.,63 F.3d 877 , 882 (9th Cir.1995) (“Even a negligent or inadvertent failure to disclose fully relevant information [in a Rule 2016 statement] may result in a denial of all requested fees.”).
In re Kisseberth,
Here, [¶] & C filed its initial application for employment as Debtor’s counsel on the day that the petition was filed. The application itself contained the following information:
5. Debtor has provided a retainer for the representation of the Debtor for legal services and expenses incurred on behalf of the Affiant and their firm and counsel has $20,000 held in retainer account as of the date of the Petition. The Debtor has agreed to make continual additions to its retainer such that if fees and expenses incurred exceed 2/3 the amount of the retainer, it will be immediately replenished to the full amount of $20,000.
6. Counsel has previously represented the Debtor with respect to representation regarding post-judgment collection defenses and has been paid a retainer in the amount of $2,000.00 on December 21, 2015, prior to performing those legal services and there is no outstanding bal-anee due to Counsel regarding this representation.
Application to Employ Counsel [Doc. 9] (“Employment Application”), p. 2.
1. Dean B. Fanner is a duly licensed attorney in the State of Tennessee and authorized to practice before the Supreme Court and all other courts of the state.
2. Affiant has reviewed the legal work required on behalf of the above bankruptcy estate and is well qualified to perform the services.
3. Affiant and the members of his law firm, Hodges, Doughty & Carson, PLLC, (the “Firm”) are familiar with the requirements of 11 U.S.C. § 101(14) that they be disinterested persons, and Affiant and the members of his law firm do not hold or represent any interest adverse to the estate as defined therein.
4. The Affiant was retained for the purpose of reviewing financial matters and for potential reorganization and, if necessary, filing a Chapter 11 bankruptcy on behalf of the above-captioned Debtor. The Affiant has in trust the amount of $20,000 initially to represent the Debtor.
5. The undersigned does not know of any adverse interest related to these entities and the Debtor, such that the Firm would not be disinterested pursuant to 11 U.S.C. § 101(14).
6. Affiant and his law firm practice in the Knoxville community at 617 Main Street, Knoxville, Tennessee 37902.
Twenty-five days later, on March 3, [¶] & C filed its Rule 2016 Disclosure of Compensation of Attorney for Debtor(s) (“Disclosure”) [Doc. 45], shown below.
DISC LOSURE OF C OMEENSATÍON OF ATTORNEY FOR DEBTORfS)
[[Image here]]
More significantly, the Disclosure is not accurate in that it shows only “N/A” concerning the agreement with Debtor, the retainer or other amount received, and the balance due. This Court finds inadequate the reference in section 6 to the Employment Application and Affidavit, especially since neither the Affidavit nor the Employment Application reveal the pre-petition services
[¶] & C further argues that “it was not a creditor at the time of the petition, that it did not lack disinterestedness, and that it did not hold an adverse interest to the Bankruptcy Estate for rendering pre-petition legal services in connection with and in preparation of filing the bankruptcy petition.” [Doc. 107 at p. 7.] Such is for the Court to decide, not [¶] & C. Full disclosure is the only way that the Court can make such a decision. See In re Roberts,
As stated by the Ninth Circuit in In re Park-Helena Corp.,
The Court here will exercise its discretion and deny [¶] & C’s request in its First Application for those services provided pre-petition. The Court does so as a sanction for [¶] & C’s failure to disclose the pre-petition fees as required by § 329 and Rule 2016. Accordingly, the pre-petition fees incurred from January 27, 2016, through February 8, 2016, are disallowed, reducing the total amount of the application by $5,938.00.
IV. POST-PETITION FEES AND EXPENSES
As for the remainder of [¶] & C’s fee application, the Court is authorized to award “reasonable compensation for actual, necessary services rendered” pursuant to 11 U.S.C. § 330(a)(1). When making a determination if requested fees are reasonable, the Court considers, inter alia, “whether the services were necessary to the administration of, or beneficial at the time.at which the service was rendered toward the completion of, a case,” 11 U.S.C. § 330(a)(3)(C), and compensation is disallowed for “services that were not reasonably likely to benefit the debtor’s estate or necessary to the administration of the estate.” 11 U.S.C. § 330(a)(4)(A)(ii). After consideration of the attachment to the First Application reflecting post-petition services rendered and for the reasons set forth below, the application is granted and fees are awarded to the extent allowed in accordance with the following determinations.
The Court first determines that the following entries are clerical in nature and not compensable as reasonable and necessary under § 330(a)(1):
02/09/16 EL Prepare First Day Motions for Hearing (0.60)
02/10/16 EL Draft fax cover to Aquachem enclosing First Day Motions (0.10)
03/03/16 EL Filing of completion statements and schedules (0,90)
03/10/16 DBF Review Order Employment of Counsel (0.10)
03/10/16 DBF Notice of Appearance from State Attorney General (0.10)
As such, the 1.6 hours billed by the paralegal at her $95.00 hourly rate ($152.00) and the 0.20 hours billed by Mr. Farmer at his $300.00 hourly rate ($60.00) are disallowed.
The Court also finds that the following entries are excessive based on the length as well as the formulaic nature of each document and/or service and shall be reduced from the time reflected in the entry yme reflected in the end column:
02/09/16 DBF Review Notice from US Bankruptcy Court regarding additional information required statements and schedules (0.30) 0,10
02/10/16 EL Review Order Directing Filing of Case Management Summary (0.30) 0.10
02/10/16 EL Draft Certificate of Service of all 1st day Motions to Suntrust registered agent (0.30) 0,10
02/11/16 EL Draft Amended Application to Employ HDC to include Passive Notice (0.80) 0.10
02/11/16 EL Review LBR 9013-3 for service issues on Motions (0.40) 0.10
02/11/16 EL Review Bankruptcy Rule 1007 regarding service hearing (0,40) CfQ ÍD P O o ^ H-i o o p
02/18/16 EL Begin draft Case Management Summary (0,80) o CD o
02/22/16 EL Revise Case Management Summary (0.30) 0.20
02/22/16 DBF Revised case management summary (0,40) 0.30
03/08/16 DBF Review Statements of Schedules on revised form (0.40) 0.20
Accordingly, the fees shall be further reduced by $199.50, representing 2.1 hours reduced from the paralegal’s time at her $95.00 hourly rate, and $150.00, representing 0.50 hours reduced from Mr. Farmer’s time at his $300.00 hourly rate.
The Court additionally finds that the following entries consist of “lumped” services
04/14/16 DBF Review appellate briefs and preparation for meeting with counsel regarding determination of claim (1.50 hrs)
04/19/16 DBF Review Court Order in Chancery Court regarding potential proceeding and plan draft for reorganization (0.80 hrs)
04/20/16 BCW Receipt and review of order and memorandum opinion and begin review of law (0.40 hrs)
The fees shall again be reduced by $690.00, representing the 2.30 hours billed by Mr. Farmer at his $300.00 hourly rate, and by $80.00, representing the 0.40 hours billed by Mr. Williams at his $200.00 hourly rate.
Finally, the Court shall disallow the $210.00 in fees billed by Mr. Farmer on April 22, 2016, for 0.70 hours to “Review issues relative to drafting statements and schedules,” because the statements and schedules were filed on March 3, 2016, and have not been amended. The Court will likewise disallow the $60.00 in fees billed by Mr. Farmer on February 11, 2016, for 0.20 of an hour to “Review Application to Employ HDC” at his $300.00 hourly rate. This entry refers to an amended application to employ [¶] & C, which was filed
Y. CONCLUSION
In summary, for the reasons stated herein, after deducting $5,938.00 for pre-petition, non-disclosed services and the additional $1,601.50 for clerical, excessive, and lumped billing entries, the Court determines that the Amended Application shall be granted in part, and [¶] & C shall be allowed fees in the amount of $18,334.00 and expenses in the amount of $785.83. An Order consistent with this memorandum opinion shall be entered.
Notes
. The Court approved Debtor's employment of Hodges, Doughty & Carson, PLLC by Order entered March 7, 2016 [Doc. 47]. The employment order had already authorized the employment of [¶] & C nunc pro tunc to February 9, 2016 (the petition date).
. The issue before the court in In re Roberts was whether a law firm’s fees should be approved when the firm had not disclosed conflicting involvements with individual-debtors who owned a corporate debtor that owed the firm for pre-petition legal services unrelated to the bankruptcy case.
. The United States Trustee at all times supported the fee application in its entirety. In re Lackawanna Med. Group, P.C.,
. Distinct from this case, the firm indicated that it was a secured creditor on the petition date "with the firm’s security interest being perfected by its possession of the retainer in its escrow account.” Id. at 628-29. Here, [¶] & C maintains (without citation to authority) that it is not a creditor because "until the Bankruptcy Court approves the fees, there are no fees or claims against the debtor.” [Doc. 113 at p. 3.] Notwithstanding this assertion, [¶] & C appears to be a secured creditor by virtue of the retainer because Tennessee law recognizes a possessory lien by an attorney who retains "a client’s books, papers, securities, or money” to ensure payment of a fee. In re Appalachian Star Ventures, Inc.,
.HD & C noted (in an oddly placed footnote in its initial brief) that the Lackawanna court "became misguided by relying on the Third Circuit case, United States Trustee v. Price Waterhouse
. [¶] & C argues that In re Woodcraft stands for the proposition that counsel should not set off pre-petition fees from the pre-petition retainer without court approval. [Doc. 113 at p. 3.] Such an argument ignores the clear statement by the district court that the bankruptcy judge denied all fees and ordered disgorgement of the retainer before counsel revealed that he had already spent the retainer. Id. at 5. That is, the bankruptcy court ruled against debtor’s counsel based solely on the failure to disclose the pre-petition services. [¶] & C has the same problem here, as will be addressed below.
. The Court acknowledges that current Sixth Circuit Chief Judge R. Guy Cole, Jr., when he was a bankruptcy judge, authored In re Watson, 94 B.R. Ill, 114-15 (Bankr.S.D.Ohio 1988), and, relying on In re Martin and In re Roberts, expressed (in dictum) his inclination not to apply a strict interpretation of § 327(a) to "bar any counsel from appointment who
. [¶] & C cites to Pillowtex as the source of its concern that a preference claim might be
. The Court notes that In re Kisseberth was cited by the Northern District of California in In re Woodcraft Studios, Inc.,
. Indeed, in the one case from the Eastern District of Tennessee that assumes without deciding that debt owed to counsel for case preparation services does not disqualify counsel from representing the debtor-in-possession, Judge Kelley referenced § 329 and Rule 2017, apparently meaning that such must be disclosed: "The court takes it as settled that an attorney first hired for the purpose of filing the chapter 11 petition is not disqualified from representing the debtor-in-possession on the ground that he has not been paid the entire fee he requested. 11 U.S.C. § 329; Bankr. Rule 2017.” In re Best Western Heritage Inn P’ship,
. [¶] & C filed an Amended Application to Employ two days later. Amended Application to Employ Counsel ("Amended Employment Application”) [Doc. 18], The only change in the Amended Employment Application, including Exhibit A, was the omission of the notice of hearing and the addition of 21-day passive notice under the Local Rules.
. The Court assumes without deciding that the services rendered from January 27, 2016, through February 8, 2016, were all necessary preparations for the case filing even though several entries appear to be questionable as continuing work on the "post-judgment collection defense work” disclosed in the Employment Application, especially given that the engagement letter was not prepared until February 8.
. See Gascho v. Global Fitness Holdings, LLC, 822 F,3d 269, 297 (6th Cir.2016).