Alcala, In re, 89-15372

• Decision Date: 01 November 1990
• Docket Number: No. 89-15372,89-15372
• Parties: Bankr. L. Rep. P 73,723 In re Gilbert ALCALA, Darlene Alcala, Debtors. Richard A. CANATELLA, Plaintiff-Appellant, v. Edward F. TOWERS, Trustee, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 99

918 F.2d 99

Bankr. L. Rep. P 73,723

In re Gilbert ALCALA, Darlene Alcala, Debtors.

Richard A. CANATELLA, Plaintiff-Appellant, v. Edward F. TOWERS, Trustee, Defendant-Appellee.

No. 89-15372.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted April 20, 1990.

Decided Nov. 1, 1990.

Richard A. Canatella, San Francisco, Cal., for debtors, plaintiff-appellant.

Michael St. James, Rosenblum, Parish & Bacigalupi, San Francisco, Cal., for defendant-appellee.

Appeal from the United States District Court for the Northern District of California.

Before LIVELY, ^* FLETCHER and REINHARDT, Circuit Judges.

LIVELY, Circuit Judge:

This case concerns an attempt by an attorney for Chapter 7 debtors in bankruptcy, who was never employed by the trustee, to collect a fee for alleged post-petition services to the bankruptcy estate. The bankruptcy court denied the request for an attorney fee, and the district court affirmed. We agree that the attorney is not entitled to be paid from estate assets, and affirm the judgment of the district court.

I.

Attorney Richard A. Canatella prepared and filed a petition in bankruptcy on behalf of Gilbert Alcala and Darlene Alcala (the debtors) on September 19, 1983. The "Schedules of Assets and Liabilities" filed with the petition listed personal property, consisting of household goods, supplies, and furnishings, wearing apparel, jewelry, etc. with a total value of $7,500. The schedules listed no contingent or unliquidated claims. The debtors' "Statement of Affairs" listed two lawsuits to which the debtors were parties at the time they filed the petition in bankruptcy. One listing disclosed that Gilbert Alcala was a defendant in a state court action that apparently had no connection with the present case. The other listed case was pending in the Bankruptcy Division of the U.S. District Court for the Northern District of California, and was described as "Frink, et al. v. Walsh, et al." with no indication of what the debtors' involvement was in the case.

After Edward F. Towers had been appointed trustee in bankruptcy of the debtors, Canatella made two motions on behalf of the debtors requesting the trustee to abandon certain property of the estate. These motions, dated November 2 and December 19, 1983, requested the abandonment of the debtors' cross-claims and third-party claims against various parties in the adversary action pending in bankruptcy court as Frink v. Walsh. The motions for abandonment described the debtors' claims as seeking to enforce a written contract for the payment of money and for the cancellation of certain deeds of trust. The motions, signed by Canatella, described the claims as "inconsequential, or nonexistent" and stated that they should be abandoned so the debtors could proceed to prosecute them. Neither the motions nor pleadings in Frink v. Walsh that were attached as exhibits referred to a claim against Bank of America NT & SA (the Bank). The pleadings contained claims by the debtors only against Robert Frink and various Frink entities.

The trustee consented to the abandonment of the Frink v. Walsh claims and the bankruptcy court entered an order approving abandonment on February 10, 1984. The order stated that it appeared the claims had "no value to the estate, or at best only inconsequential value to the estate."

Meanwhile, on January 20, 1984, and unbeknownst to the trustee, Canatella filed a complaint on behalf of the debtors in a California state court against Robert Frink, the Frink entities and others. The claims were similar to those the debtors had asserted in their pleadings in the adversary proceedings. Again, the Bank was not a party and no allegations were made that would state a claim against the Bank.

On May 23, 1984, the debtors, through Canatella, filed an amended complaint in the state court action against Frink. The amended complaint sought damages from the Bank for breach of contract, breach of covenant of good faith and fair dealing, fraud and interference with a business relationship. The claims against the Bank, as alleged, arose before the debtors filed their original petition in bankruptcy. Subsequently, the debtors filed a second amended complaint expanding their claims.

Just prior to filing the first amended complaint Canatella and the debtors entered into a "Legal Service Contract" by which the debtors retained Canatella to represent them "in the matter involving Gilbert Alcala v. Bank of America, et al." The contract established an agreed rate of compensation for legal services with a 35 percent contingency provision and granted Canatella a lien on the debtors' claims against the Bank and any cause of action filed thereon.

II.

A.

Canatella did not inform the trustee of the claims against the Bank at the time he filed the first or second amended complaint. Upon learning of the claims, the trustee employed special counsel pursuant to section 327 of the Bankruptcy Code, 11 U.S.C. Sec. 327 (1982), to pursue the claims as assets of the estate. After negotiations the Bank agreed to pay $33,000 in settlement of all the claims. The trustee presented the settlement proposal to the bankruptcy court. The debtors, represented by Canatella, objected to the proposed settlement. In addition to their objections to the settlement, the debtors filed a motion to confirm the claims against the Bank as abandoned property of the estate.

The bankruptcy court filed findings of fact and conclusions of law finding the settlement "fair and reasonable," and entered two orders--one approved the compromise settlement and the other denied the motion to declare the claims against the Bank abandoned property. The court found that the causes of action asserted against the Bank in the two amended complaints were the property of the estate and had not been abandoned by the estate.

The debtors appealed both orders and the district court affirmed. The debtors then appealed to this court, which affirmed the district court in an unpublished memorandum decision. Noting that the claims against the Bank were based on events that allegedly occurred prior to the filing of the petition in bankruptcy, this court stated: "Therefore, the causes of action accrued pre-petition and are part of the estate vested in the trustee." In re Gilbert and Darlene Alcala, 845 F.2d 1029 (9th Cir.1988).

B.

Canatella opened the next chapter in this litigation by filing a pleading styled "Motion for Order Enforcing Lien on Proceeds of Court Approved Settlement of Bank of America Litigation and Directing Trustee to Pay Debtors' Attorney Amounts Determined." Canatella also filed a declaration containing a copy of his contract with the debtors and a 45-page exhibit detailing time spent and expenses incurred purportedly in pursuit of the claims against the Bank, with a statement due for services in the amount of $68,242.84. After a hearing the bankruptcy court denied the motion for order enforcing lien, noting that "Mr. Canatela [sic] was never retained by the estate but, rather, represented the debtors and not the Trustee, and that Mr. Canatela represented interests adverse to the estate."

Canatella appealed to the district court, which affirmed denial of the motion on several grounds. The court found the motion procedurally defective as an application for compensation because notice was not given to creditors as required by Bankruptcy Rule 2002, and defective as an attempt to enforce a lien because it was not brought as an adversary proceeding under Part VII of the Bankruptcy Rules. The district court also found the motion substantively defective under Bankruptcy Code section 329 because Canatella represented interests adverse to the trustee and the estate.

III.

Canatella's arguments on appeal are confusing and appear, in part at least, to be based on false assumptions about the record. He appears to claim that the trustee approved abandonment of the claims against the Bank along with the Frink claims. The record totally refutes this contention. The order approving abandonment of the Frink claims was entered before the Bank was made a party to the Frink action and before the trustee knew of the existence of any claims against the Bank.

Canatella also appears to contend that the claims against the Bank somehow were not part of the bankruptcy estate, relating this assertion to the fact that he was claiming an attorney fee on the basis of a post-petition contract with the debtors. This position either overlooks or refuses to recognize the holding of this court in his first appeal: "The events from which their [the debtors'] damages arose, certain alleged breaches of contract and fraud, occurred before their Chapter 7 petition was filed. Therefore, the causes of action accrued pre-petition and are part of the estate vested in the trustee." In re Gilbert and Darlene Alcala, supra, at 2 [845 F.2d 1029 (table) ].

Canatella also argues that the district court's findings of procedural defects are erroneous as a matter of law because he is not seeking compensation under sections 327-330 of the Bankruptcy Code as an attorney appointed by the trustee. Rather, he asserts, he has a lien under California law that is enforceable from the proceeds of the lawsuit against the Bank even though they have become estate assets. He cites authority to the effect that bankruptcy courts will enforce a...