In Re Rheuban
I.
INTRODUCTION
On June 6th, 1990, I conducted a hearing (the “Trustee Hearing”) on the motion of the official committee of unsecured creditors in this Chapter 11 case (the “Committee”) for an order directing the United States Trustee to appoint a trustee to serve as the fiduciary of this bankruptcy estate in place of the then debtor in possession, Carl M. Rheuban (“Debtor”). After considering declarations, memoranda of points and authorities, testimony and extensive oral argument, I ordered the United States Trustee to appoint a trustee.
In preparing for the Trustee Hearing, I reviewed the Schedules and Statement of Financial Affairs filed and executed under penalty of perjury by Debtor. In response to question 15 in his Statement of Financial Affairs, Debtor disclosed that he had transferred within the year immediately preceding April 26th, 1990, the date the Debtor voluntarily commenced his chapter 11 case, more than two million dollars to eight different legal professionals. As the Debtor is an individual who has “nominal” cash on hand and less than one thousand dollars in deposits of money, (Debtor’s Schedule B-2, items a and b), I became concerned with the reasonableness of the transfers to the various legal professionals employed by Debtor prior to filing this ease.
My concern was deepened by Debtor’s failure to disclose the amount of compensation paid to one legal professional, Rogers & Wells, and his disclosure of the large amounts of compensation paid to two other professionals: $400,000 to Levene & Eisen-berg (“L & E”) 1 and approximately one million five hundred thousand dollars to O'Neill & Lysaght (“Q & L”).
In addition to appointing a trustee in the Rheuban case, I directed counsel for the Committee to prepare orders requiring the legal professionals who had received compensation from Debtor within the year immediately preceding the commencement of this bankruptcy case to show cause why the compensation they had received should not be disgorged as being unreasonable under
In open court at the Trustee Hearing, I set the hearing date on the
On July 30, 1990, the Clerk of this Court entered my “Memorandum of Decision Re Reasonableness of Compensation Paid to O’Neill & Lysaght” (the “Memorandum”). Within ten (10) days of July 30, 1990, O & L filed its “Ex Parte Motion For An Order: (1) Granting Extension of Time for Filing of Appeal of July 30, 1990 Order; and (2) Staying the Enforcement of the July 30, 1990 Order until Ten Days After Hearing on the Concurrently-Filed Motion for Re
This Revised Memorandum modifies and supplants the Memorandum and constitutes my findings of fact, conclusions of law, and order regarding the Modification Motion. In the interest of clarity and completeness, the Revised Memorandum incorporates a substantial portion of the Memorandum which is unaffected by my ruling on the Modification Motion,
II.
ISSUES
In this memorandum, I address only the issues raised by the “Response of O’Neill & Lysaght to Order to Show Cause Re Payment of Pees” (the “0 & L Response”), the declarations submitted in support of the 0 & L Response, the Committee’s rejoinder to the 0 & L Response, 0 & L’s reply to the Committee’s rejoinder, the Emergency Motion, the Modification Motion, and the supplemental material submitted by 0 & L for in camera inspection by me. See Section IV, D, 1 infra. I will address the responses of the other legal professionals compensated by Debtor separately.
0 & L makes four arguments in response to the OSC:
(1) The services provided by 0 & L to Debtor are not subject to my examination under
(2) Assuming that 0 & L’s compensation was within the scope of
(3) 0 & L has a right to a jury trial on all issues of fact in a
(4)0 & L’s compensation agreement with Debtor and compensation received by 0 & L under the agreement are reasonable.
III.
FACTS
Debtor was the controlling person of First Network Savings Bank (“FNSB”), a troubled savings and loan association. FNSB is currently in receivership under the control of the Resolution Trust Corporation (“RTC”). Debtor was and is under investigation by the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, the Federal Bureau of Investigation, the California Department of Savings and Loans and the United States Attorney. These investigations focus upon Debtor’s business relationships with FNSB and related entities.
Debtor first came to 0 & L for legal services on or about January 14th, 1990. O & L is an eleven lawyer firm that specializes in civil business litigation and criminal defense work. According to the declarations of Bryan O’Neill, (the “O’Neill Declarations”) a principal in O & L, 60% of O & L’s practice is “traditional commercial litigation” and 40% is “white collar criminal defense.”
On January 19th, 1990, O & L and Debt- or entered into an employment agreement (the “First Agreement”). The First Agreement provides that “the guideline for the fair value of those services is the hourly rate of each lawyer and support person.” Debtor gave O & L a $25,000 advance fee payment that was deposited in a client trust fund account.
On February 23rd, 1990, Debtor and O & L entered into a second employment agreement (the “Agreement”) that superseded the First Agreement. According to the O’Neill Declarations and the copy of the Agreement attached to it as Exhibit B, Debtor and O & L, inter alia, agreed to the following:
a. O & L would represent Debtor in connection with the investigation and litigation of “possible criminal and regulatory matters arising out of [Debt-or’s] business relationship with [FNSB];”
b. Debtor would compensate 0 & L for the above described legal services by paying 0 & L 1.5 million dollars (the “Fee”). In addition to providing legal services, 0 & L would pay independent costs including court fees, investigator fees, expert fees, and the hiring of “persons possessing special skills or expertise, [who are] not employees of this firm;”
c. The Fee was a “flat non-refundable fee.” According to the O’Neill Decla- . rations, this means that 0 & L is obliged to provide all the legal services it contracted to provide to Debtor whether or not the value of those services exceeded the Fee. Further, 0 & L “specifically advised Mr. Rheuban that there would be no ‘winks’ or ‘nods’ and that under no circumstances would [Rheuban] be entitled to the return of any portion of the [Fee];”
d. The Fee was to be paid by Debtor by assigning his complete interest as the 100% stockholder of Pilgrim Life Insurance Company (“Pilgrim”) to 0 & L and his personal partnership interests in three real estate limited partnerships. Debtor was to liquidate immediately his interest in Pilgrim and turn over the proceeds to 0 & L; and
e. 0 & L reserved the right to withdraw from representing Debtor if he did not pay the Fee or if continuing 0 & L’s representation of Debtor was not in the best interest of 0 & L or Debtor.
According to the O’Neill Declarations, 0 & L received from Debtor an assignment of his interests in the Pilgrim stock and the real property limited partnerships. On April 25th, 1990, the day before Debtor voluntarily commenced this chapter 11 bankruptcy case, 0 & L received $763,-754.69 in cashier’s checks from Debtor. That same day, 0 & L transferred $400,000 in cash to L & E in exchange for L & E transferring to O & L real estate located at 312 Texas Street, San Francisco, California (the “Texas Street Property”). Earlier, Debtor had transferred the Texas Street Property to L & E as, what L & E described, an “earned upon receipt” retainer to compensate L & E acting as special bankruptcy counsel to Debtor and entities related to Debtor, including Hathaway. See In re Hathaway Ranch Partnership, 116- B.R. 208 (Bankr.C.D.Cal.1990). According to O & L, O & L transferred $400,-000 in cash to L & E for the Texas Street Property upon the advice and at the request of L & E. O & L did not explain why it would agree to such a request if the Fee was truly its property and if O & L was free to do with the Fee as it wished without any “winks” or “nods” between Debtor and O & L.
Although O & L has kept detailed time records of the services it has provided Debtor, O & L did not submit any time records in support of the O & L Response. The only description of legal services O & L provided in response to the OSC is set forth in four short paragraphs of the O’Neill Declarations. These services included “interfacing” with the United States Attorney’s office, consulting with Debtor regarding documents demanded by the California Department of Savings & Loan and FNSB’s attorneys, and attending hearings conducted by state regulators and the Attorney General of California.
Attached as Exhibit C to the first O’Neill Declaration is a one-page “Accounting of Cash Receipts and Disbursements as of June 25th, 1990: Carl Rheuban” (the “Accounting”). The Accounting reveals that 0 & L has disbursed $66,850 in costs and $114,148.75 in fees. O & L did not disclose in the 0 & L Response, the Accounting, or the O’Neill Declarations its time records regarding Debtor, the necessity for and purpose of disbursing cash to accountants and investigators, or a breakdown of so-called “internal costs” totalling $7,319.
After issuance of the Memorandum, O & L submitted to me for in camera review detailed billing records and time sheets regarding services provided by O & L to Debtor from the beginning of their relationship through the date that the OSC was served upon O & L.
Further, 0 & L apparently continues to represent Debtor, including representation at
IV.
ANALYSIS
A.
The Scope of
§ 329 . Debtor’s transactions with attorneys.
(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, to-
il) the estate, if the property transferred—
(A) would have been property of the estate; or
(B) was to be paid by or on behalf of the debtor under a plan under chapter 11, 12, or 13 of this title; or
(2) the entity that made such payment.
Bankruptcy Rule 2017(a) provides:
(a) Payment or Transfer to Attorney Before Commencement of Case. On motion by any party in interest or on the court’s own initiative, the court after notice and a hearing may determine whether any payment of money or any transfer of property by the debtor, made directly or indirectly and in contemplation of the filing of a petition under the Code by or against the debtor, to an attorney for services rendered or to be rendered is excessive.
Subsection (a) of
Subsection (b) of
Due to the similarities of the language of
The policy implemented by
“The manifest purpose of the provision is to safeguard the assets of those who are acting in contemplation of bankruptcy, so that these assets may be brought quickly and without unnecessary expense into the hands of the trustee, and to provide a restraint upon opportunities to make an unreasonable disposition of property through arrangement for excessive payments for prospective legal services, [citing Wood and Henderson ] We said in the case of Wood and Henderson that the statute ‘recognizes the temptation of a failing debtor to deal too liberally with his property in enabling counsel to protect him in the view of financial reverses in probable failure. It recognizes the right of such a debtor to have the aid and advice of counsel, and, in contemplation of bankruptcy proceedings which will strip him of his property, to make provisions for reasonable compensation to his counsel.” (emphasis added).
In enacting
In considering the plain language of
a. Subsection (b) of
b. the adjective “such” refers to compensation paid for services rendered by an attorney “in a case under this title, or in connection with such a case” and does not refer to compensation paid for services rendered or to be rendered “in contemplation of or connection with the case”, and
c. 0 & L did not render and is not rendering services in this bankruptcy case or in connection with this bankruptcy case.
First, 0 & L’s construction of
Even if O & L’s statutory construction argument had any merit, it is irrelevant if the legal services O & L has rendered or will render to Debtor have any connection with this bankruptcy case, as opposed to being rendered in contemplation of this bankruptcy case. I find and conclude that O & L’s legal services to Debtor were rendered both in contemplation of this bankruptcy case and in connection with this case.
1. In Connection with the Case.
The Agreement provides that O & L is to provide legal services to Debtor with regard to criminal and regulatory matters arising out of Debtor’s business relationship to FNSB. Debtor was a 100% shareholder in FNSB and a controlling person in its operations. It cannot be disputed that regulatory and criminal proceedings focused on Debtor’s relationship with FNSB is currently having and will continue to have a substantial impact on this bankruptcy case. The clearest example of this is Debtor’s refusal to respond to any questions regarding his business affairs at the
In the Agreement, O & L agreed to represent Debtor in “possible criminal and regulatory matters arising out of [Debt- or’s] business relationship with [FNSB].” (Emphasis added). The O’Neill Declarations reveal that the services rendered by O & L to Debtor concerned Debtor’s serious financial problems that have resulted in the investigations commenced by federal and state agencies. O & L’s representation of Debtor, in criminal or civil matters, is directly related to the financial and business affairs of Debtor. From these facts, the only reasonable inference I can draw is that O & L’s services were and are being rendered in connection with Debtor’s attempt to reorganize his business affairs in this chapter 11 bankruptcy case.
The phrase “in connection with” was not used in former § 60(d). The phrase “in any way related” was used, however, in former Rule 220(b) and is also
I can find no rational basis for imposing such a temporal restriction on the phrase “in connection with.” Rather, I believe this phrase was added to
The subjective nature of the “in contemplation of” test is made clear by the Court in Conrad, Rubin & Lesser v. Pender;
"... the controlling question is with respect to the state of mind of the debtor and whether the thought of bankruptcy was the impelling cause of the transaction. [Citation] If the payment or transfer was thus motivated, it may be reexamined and its reasonableness be determined.”289 U.S. at 477 ,53 S.Ct. at 705 .
Thus I conclude that the “in connection with” language used in
Of course it is possible that there are services that an attorney could render to a debtor within the time period set by
2. In Contemplation Of.
As discussed in Section IV, A, 1 above, this portion of
It is often difficult to obtain reliable and direct evidence of a person’s intent.
Cf., In re Adeeb,
“Throughout O & L’s representation of Mr. Rheuban, we have relied exclusively on bankruptcy counsel, and specificallyLevene & Eisenberg (“L & E”), through Joseph A. Eisenberg, to advise us concerning all actions we have taken in connection with the receipt of the [Fee].” First O’Neill Declaration, page 23, paragraph 13, lines 5-9 (emphasis added).
The testimony in the O’Neill Declarations establishes that Debtor was contemplating bankruptcy when he met with 0 & L, entered into the Agreement, and paid the Fee. It makes no difference if Debtor was contemplating the avoidance of bankruptcy in hiring L & E and 0 & L.
Conrad, Rubin & Lesser v. Pender,
B. The Propriety of Using an Order to Show Cause Under § 829 and Bankruptcy Rule 2017(a).
0 & L argues in Footnote 1 of the 0 & L Response that it is not “constitutionally permissible” for this court to examine the Fee and the Agreement under
The Court did speak directly on this point, however, in
In re Wood and Henderson,
The
Wood and Henderson
court also makes it clear why proceedings under former § 60(d) and current
The Court reaffirmed its position that a bankruptcy court may act under
It is curious that O & L complains of the summary nature of this court’s examination of the Fee and Agreement when its counsel requested that the court accelerate the hearing on the OSC with regard to O & L. O & L’s request to hasten the hearing and then complaining of its summary nature undercuts any persuasiveness in its arguments.
C.
Right to a Jury Trial Under
O’Neill’s response to the order to show cause includes a footnote which asserts a
1. Sources of Law for Right to Jury Trial
The right to jury trial in federal court must be derived from one of two sources: first, a statute; or second, the seventh amendment.
Granfinanciera, S.A. v. Nordberg,
The seventh amendment provides: “In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved....”
5
The Court has interpreted the phrase “Suits at common law” to refer to “suits in which legal rights were to be ascertained and determined, in contradistinction to those where equitable rights alone were recognized, and equitable remedies were administered.”
Granfinanciera, S.A. v. Nordberg,
A. Statutory Basis
The provisions of the Code and the Bankruptcy Rules which confer jurisdiction and govern the manner in which the court may review compensation to attorneys,
B. Seventh Amendment
Prior to the Act of 1898, a statute similar to
In
Wood and Henderson,
the trustee filed a petition under section 60(d) for the reexamination of payments made to attorneys for their services. The responding party apparently demanded a trial by jury
“Section 60(d) is sui generis, and does not contemplate the bringing of plenary suits or the recovery of preferential transfers in another jurisdiction. It recognizes the temptation of a failing debtor to deal too liberally with his property in employing counsel to protect him in view of his financial reverses and probable failure ... And in view of the circumstances the act makes provision that the bankruptcy court administering the estate may, if the trustee or any creditor question the transaction, reexamine it with a view to a determination of its reasonableness”210 U.S. at 253 ; see also In re Lewin,103 F. 850 (DC Vt. 1900).
Not only are proceedings under
“This is not a suit such as is mentioned in [the applicable jurisdictional statute], but is an administrative proceeding, of which the bankruptcy court has express jurisdiction, given by this clause ‘d’ of section 60, if it would not have any by the general grant of jurisdiction over bankrupts and their estates, and of their attorneys in the proceedings, as officers of the court.” Wood and Henderson, 210 U.S. [at] 254, 28 S.Ct. [at] 621, (quoting In re Lewin,103 F. 850 (DC Vt.1900) (emphasis added)).
Based on the conclusion that there was no analog to § 60(d) prior to the Act, and that such proceedings were not suits within the meaning of the seventh amendment, the Court held that there was no right to trial by jury.
Wood and Henderson,
Similarly, in
In re Buchanan,
Based on the foregoing, I conclude that the seventh amendment does not entitle O & L to a jury trial because the nature of the “suit” is not legal. However, assuming for the sake of argument that
2. Public Rights Doctrine
In cases where “public rights” are concerned Congress may assign the adjudication to an administrative forum without violating the mandate of the seventh amendment. Traditionally, “public rights” involved only cases in which the United States government sued in its sovereign capacity to enforce rights created by statutes within the power of Congress to enact.
Atlas Roofing Co., Inc. v. Occupational Safety and Health Review Commission et al.,
In
NLRB v. Jones & Laughlin Steel Corp.,
“The instant case is not a suit at common law or in the nature of such a suit. The proceeding is unknown to the common law. It is a statutory proceeding. Reinstatement of the employee and payment for time lost are requirements [administratively] imposed for violation of the statute and are remedies appropriate to its enforcement. The contention under the seventh amendment is without merit.” Id,., at 48-49,57 S.Ct. at 629 (emphasis added).
Similarly, a hearing under
In
Block v. Hirsh,
“The statute is objected to on the further ground that landlords and tenants are deprived by it of a trial by jury on the right to possession of land. If the power of the Commission established by the statute to regulate the relation is established, as we think it is, by what we have said, this objection amounts to little. To regulate the relation and to decide the facts affecting it are hardly separable.” Id., at 158,41 S.Ct. at 460 (emphasis added).
One could argue that the cases cited above are distinguishable as they involve the United States acting in its sovereign capacity. A careful reading of these cases leads me to conclude that the public rights doctrine extends beyond instances in which the United States is suing in its sovereign capacity.
See Thomas v. Union Carbide Agriculture Products Co.,
In Thomas v. Union Carbide Agriculture Products Co., the Court considered the constitutionality of the adjudicative scheme established by Congress under the Federal Insecticide, Fungicide, and Roden-ticide Act (the “FIFRA”). The FIFRA required manufacturers of pesticides, as a precondition for registering a product, to submit research data to the Environmental Protection Agency (“EPA”) concerning the pesticide’s health, safety, and environmental effects, and authorized the EPA to use previously submitted data in considering an application for registration of a similar product by another registrant (“follow-on” registrant). Such consideration of previously submitted data by the EPA was permissible under the FIFRA only if the follow-on registrant offered to compensate the original registrant for use of the data. The FIFRA also provided for binding arbitration if the registrants failed to agree on the amount of compensation and the arbitrator’s decision was subject to judicial review by an Article III court only for fraud, misrepresentation, or other misconduct. An aggrieved registrant challenged the constitutionality of the arbitration provisions, arguing that it violated Article III.
The Court upheld the FIFRA provision holding,
inter alia
that: (1) Article III does not prohibit Congress from selecting binding arbitration with limited judicial review as the mechanism for resolving disputes under the FIFRA; (2) the Constitution does not require every federal question arising under the federal law to be tried in an Article III court; (3) the holding in
Northern Pipeline Construction Co. v. Marathon Pipe Line Co.,
Based on the foregoing survey of constitutional law, I conclude that the public rights doctrine empowers me to conduct the instant proceeding without encroaching on 0 & L’s constitutional right to a trial by jury, assuming 0 & L has such a right. My duty under
The facts in this case reveal that this proceeding concerns a public right. I am not determining the liability of one individual to another. Rather, I am implementing the will of Congress in determining the reasonableness of the Agreement and the Fee. The purpose of
D.
Reasonableness of the Agreement and the Fee Under
According to one of the authorities cited in the 0 & L Response, 0 & L has the burden of proof on all issues arising under
According to this well-established body of law, I will consider the reasonableness of the Agreement and the Fee by applying the “lodestar approach.” In applying this approach, it is necessary to know “both the number of hours reasonably spent and the reasonable hourly rate for the professional who provided the services in order to ascertain the appropriate compensation. The determination of the reasonable hourly rate ... must take into account ‘the cost of comparable services other than in a [bankruptcy] case.’ ”
In re Gianulias,
In
In re Yermakov,
the Ninth Circuit considered a contingency fee agreement made by a debtor with an attorney prior to the commencement of the debtor’s bankruptcy case. The attorney eventually sought approval and allowance of his compensation pursuant to the contingency fee agreement. The trustee in the bankruptcy case objected, arguing that the attorney’s compensation should be determined according to the lodestar approach. The Ninth Circuit agreed and concluded that the attorney’s fee award should be calculated by the trial court by considering the hours of service provided by the attorney, the rate normally charged by the attorney in comparable cases in which an hourly fee basis is used, and the prevailing rate for such work in the area.
In re Yermakov,
Although the O’Neill Declarations disclose that O & L maintains records of time spent by its attorneys in representing it client, including Debtor, and has established hourly rates for such services, O & L refused to provide that data to the court with the O & L Response, although it was
0 & L’s apparent position is that the Agreement is per se reasonable without consideration of the lodestar approach mandated by the Ninth Circuit. This position is contrary to the teaching of the Ninth Circuit in In re Yermakov. It is also unsupported by the three reasons stated in the 0 & L Response, the O’Neill Declarations and the three declarations submitted in support of the 0 & L Response by attorneys with practices in Los Angeles similar to 0 & L’s.
0 & L first argues that the Agreement is reasonable because it is the general practice of all district judges in the Central District of California to refuse to permit an attorney to withdraw from criminal representation once an appearance has been made. Yet 0 & L concedes that it has not made an appearance in any district court action on behalf of Debtor as of yet. Further, 0 & L has the reserved the right to withdraw from representing Debtor in the Agreement.
Second, 0 & L argues that the Agreement is reasonable because compensation by an hourly rate would not adequately compensate an experienced, knowledgeable and skillful white collar criminal defense lawyer for his expertise and effectiveness in negotiating early favorable resolutions for his client. Stripped to its essentials, this argument states that a white collar criminal defense lawyer won’t work hard to settle a case quickly unless he is paid a huge advance fee that he can treat as his own property and that possibly exceeds his hourly rate. A white collar criminal defense lawyer is required to do the best job he can for his client, as is every lawyer. If the best representation a lawyer can provide to his client includes a quick settlement or resolution of the client’s problems, then the attorney must strive for that resolution. To require a client to pay more than a reasonable hourly rate in order to have the incentive to do what is already one’s duty is clearly not reasonable under
Finally, 0 & L argues that white collar criminal lawyers usually have a single relationship with their clients. Therefore, there is no payment history to gauge the ability or willingness of the client to pay fees on an ongoing basis. This argument is unavailing because it describes the situation of nearly every attorney who represents a debtor in possession in a bankruptcy case. Nevertheless, the Ninth Circuit requires that compensation for counsel for debtors in possession be measured against the lodestar approach.
Based upon the foregoing, I find and conclude that the Agreement is not reasonable per se.
0 & L argues that my conclusion may deny debtor and others similarly situated the right to be represented by the criminal defense counsel of their choice. The Court has made it clear that the Sixth Amendment only guarantees defendants in criminal cases the right to adequate representation, not representation by a particular attorney whom the defendant cannot afford.
Caplin & Drysdale v. United States,
Also, requiring specific evidence as to the reasonableness of O’Neill’s Fee would not violate either the attorney-client or attorney work product privileges. First, fee information is generally not privileged,
FSLIC v. Kimberleigh Ferm, et. al.,
It should be noted that it is not clear to what extent the services rendered by 0 & L to Debtor were criminal in nature. Despite the nature of the services, however,
There is an independent and alternative basis for my conclusion that 0 & L must disgorge much of the Fee to the trustee in this case. 0 & L refused or failed to make a timely disclosure of the Fee and Agreement as required by
If 0 & L was providing services that only benefited Debtor yet were connected to the case, 0 & L was required to file a Bankruptcy Rule 2016(b) statement. To the extent 0 & L intended to provide legal services to Debtor as a debtor in possession, even if it did not intend to seek compensation from the bankruptcy estate, it was necessary for 0 & L to obtain the approval of this court according to the straightforward language of
In re Land,
1. Reasonableness of compensation pursuant to In Camera Review of 0 & L’s billing records.
Pursuant to the Modification Motion and 0 & L’s submission of detailed
Based on my review I find that the $107,281.75 that 0 & L received for the pertinent time period is reasonable when measured against the services rendered to Debtor. I also find that the $66,293 of costs advanced by 0 & L for the benefit of Debtor is reasonable.
VI.
CONCLUSION
I have the power to examine the reasonableness of the Agreement and Fee through an order to show cause after reasonable notice and a hearing. 0 & L is not entitled to a trial by jury and has failed to carry its burden to establish that the Agreement and the Fee are reasonable. I therefore order 0 & L to disgorge $190,-179.94 14 in cash and all non-cash assets transferred to it by Debtor, including the Texas Street Property, to Lawrence Diam-ant, the trustee in this chapter 11 bankruptcy case, by November 30, 1990.
Notes
. By the time of the Trustee Hearing, I had conducted a hearing on L & E’s application for an order approving its employment as special bankruptcy counsel for Hathaway Ranch Partnership, a California limited partnership and a debtor in possession in a related chapter 11 bankruptcy case. Debtor was the general partner in an entity known as CRS Associates, a California limited partnership, which in turn was the general partner in Hathaway. For many reasons that I expressed in detail in
In re Hathaway Ranch Partnership,
. Former Rule 219(b) provided:
"(b) Disclosure of Compensation Paid or Promised to Attorney for Bankrupt. Every attorney for a bankrupt, whether or not he applies for compensation, shall file with the court on or before the first date set for the first meeting of creditors, or at such other time as the court may direct, a statement setting forth the compensation paid or promised him for the services rendered or to be rendered in connection with the case, the source of the compensation so paid or promised, and whether the attorney has shared or agreed to share such compensation with any other person. 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 his law firm shall not be required.”
. Former Rule 220 provided that:
"(a) Payment or Transfer to Attorney in Contemplation of Bankruptcy. — On motion by any party in interest or on the court's own initiative, the court may examine any payment of money or any transfer of property by the bankrupt, made directly or indirectly and in contemplation of the filing of a petition by or against him, to an attorney for services rendered or to be rendered.
"(b) Payment or Transfer to Attorney, or Agreement Therefor, After Bankruptcy. — On motion by the bankrupt or on the court’s own initiative, the court may examine any payment of money or any transfer of property, or any agreement therefor, by the bankrupt to an attorney after bankruptcy, whether the payment or transfer is made or is to be made directly or indirectly, if the payment, transfer, or agreement therefor is for services in any way related to the bankruptcy.
"(c) Invalidation of Unreasonable Payment, Transfer, or Obligation. — Any payment, transfer, or obligation examined under subdivision (a) or (b) of this rule shall be held valid only to the extent of a reasonable amount as determined by the court. The amount of any excess found to have been paid or transferred under subdivision (a) or (b) may be recovered for the benefit of the estate or the bankrupt, as their interests may appear, and any obligation found to be excessive may be cancelled to the extent of the excess."
Former Section 60(d) provided:
"(d) If a debtor shall, directly or indirectly, in contemplation of the filing of a petition by or against him, pay money or transfer property to an attorney at law, for services rendered or to be rendered, the transaction may be examined by the court on its own motion or shall be examined by the court on petition of the trustee or any creditor and shall be held valid only to the extent of a reasonable amount to be determined by the court, and the excess may be recovered by the trustee for the benefit of the estate.
"If, whether before or after filing, a debtor shall agree orally or in writing to pay money or transfer property to an attorney at law after the filing, the transaction may be examined by the court on its own motion or shall be examined by the court on petition of the bankrupt made prior to discharge and shall be held valid only to the extent of a reasonable amount to be determined by the court, and any excess obligation shall be canceled, or if excess payment or transfer has been made, returned to the bankrupt.”
. Local Bankruptcy Rule ("LBR") 103(12) provides that a party demanding a jury trial shall set forth such request at the end of the pleading, and the caption of such pleading shall contain a "DEMAND FOR JURY TRIAL." LBR 106(1) provides that failure to conform with the Local Bankruptcy Rules shall subject the offending party or counsel to such penalties as the Court may deem proper, including,
inter alia,
the deemed waiver of rights.
Cf., Hughes-Bechtol, Inc., v. Air Enterprises, Inc.,
. The seventh amendment codified existing law. It did not purport to require a jury trial where none was required before.
Atlas Roofing Co., Inc. v. Occupational Safety and Health Review Commission et al.,
.The United States Supreme Court has also created an exception to the jury trial right in the arena of "public rights." I will discuss the applicability of this doctrine in section IV, C, of this opinion.
.
But see Granfinanciera,
S.A
v. Nordberg,
. In supplemental declarations submitted after the hearing in this matter, 0 & L has provided detailed billing records.
. Rule 2016(b):
(b) Disclosure of Compensation Paid or Promised to Attorney for Debtor. Every attorney for a debtor, whether or not the attorney applies for compensation, shall file with the court within 15 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 within 15 days after any payment or agreement not previously disclosed.
.
(a) Except as otherwise provided in this section, the trustee, with the court’s approval, may employ one or more attorneys, accountants, appraisers, auctioneers, or other professional persons, that do not hold or represent an interest adverse to the estate, and that are disinterested persons, to represent or assist the trustee in carrying out the trustee’s duties under this title.
. § 1107. Rights, powers, and duties of debt- or in possession.
(a) Subject to any limitations on a trustee serving in a case under this chapter, and to such limitations or conditions as the court prescribes, a debtor in possession shall have all the rights, other than the right to compensation under section 330 of this title, and powers, and shall perform all the functions and duties, except the duties specified in sections 1106(a)(2), (3), and (4) of this title, of a trustee serving in a case under this chapter.
. § 1101. Definitions of this chapter. In this chapter—
(1) “debtor in possession” means debtor except when a person that has qualified under section 322 of this title is serving as trustee in the case.
. Because of O & L’s failure to submit an application for an order authorizing its employment by Debtor pursuant to
. In the Memorandum, I ordered O & L to turn over all of the cash and non-cash assets that constituted the Fee. In the Modification Motion, O & L argued that this was inappropriate because it would require it to turn over both the Texas Street property and the $400,000 that it transferred to L & E. I agree and hereby modify the Memorandum by reducing the amount of cash that O & L must turn over by $400,000, the value I ascribe to the Texas Street Property pursuant to the evidence submitted to me. Therefore, based upon my findings concerning the reasonableness of the compensation received by O & L and my modification of the Memorandum, I order O & L to disgorge $190,-179.94, i.e., $763,754.69 (total cash received by O & L) — [$400,000 (cash transferred to L & E) + $173,574.75 reasonable fees and advancement of cost] = $190,179.94.