Halbert v. Yousif
| Decision Date | 02 July 1998 |
| Docket Number | No. 97-CV-75047,97-CV-75048.,97-CV-75047 |
| Citation | 225 BR 336 |
| Parties | Todd M. HALBERT, Appellant, v. Sami YOUSIF and Sana Yousif, and Florence Tanners, Inc., Appellees. |
| Court | U.S. District Court — Western District of Michigan |
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Louis P. Rochkind, Detroit, MI, for Appellant.
John Hertzberg, Southfield, MI, for Appellees.
On this appeal from a decision of the Eastern District of Michigan Bankruptcy Court, the Appellant, Todd M. Halbert, claims that the court below erred in holding that he had repeatedly violated his fiduciary duties as the attorney for the Appellees, Sami Yousif, Sana Yousif and Florence Tanners, Inc., during his representation of their legal interests in their Chapter 11 bankruptcy proceedings. The Bankruptcy Court determined, inter alia, that (1) he had breached his legal and ethical duty to fully and accurately disclose his financial arrangements with the Appellees, and (2) his appointment to represent the Appellees in the bankruptcy proceedings was invalid because of his failure to publicly disclose those facts which rendered him financially interested in the bankruptcy estates. Because of these deficiencies, the Bankruptcy Court sanctioned Halbert by completely denying his fee applications, a decision that he also challenges.
For the reasons that have been stated below, the decision of the Bankruptcy Court is affirmed in part, vacated in part, and remanded.
Appellees, Sami and Sana Yousif, are husband and wife. During the time period that is pertinent to this dispute, Sami Yousif was the sole shareholder and president of a retail store, Florence Tanners, Inc. (Tanners), also an Appellee in this cause of action. Tanners sells leather and fur coats to the general public. Halbert is an attorney who represented Tanners for approximately three years before it filed for protection under Chapter 11 of the Bankruptcy Code on December 9, 1994. Tanners' bankruptcy petition was filed because (1) it had entered into several unprofitable shopping leases, and (2) Sami Yousif feared that the bank, which had handled his business account, would not renew its annual line of credit. Because the Yousifs were the guarantors of a certain bank debt and a number of shopping leases, they also filed a bankruptcy petition under Chapter 11.1
A reorganization plan was confirmed on September 18, 1995 for each Chapter 11 case. The Tanners's reorganization resulted in a discharge of 75% of its unsecured debts as well as a release of all of its guaranteed debts, amounting to an extinguishment of $2,443,000. The Yousifs' reorganization brought about the discharge of $686,000 in debts, which represented a discharge of 70% of their unsecured debts as well as a release of approximately $413,000 of their guaranteed debt.
Although the Appellees acknowledge that Halbert obtained good results for them in the Bankruptcy Court, they have challenged the fiduciary propriety of his conduct and the amount of fees that he has requested for his services.2 Halbert filed a motion for a summary judgment on his fee applications, to which the Appellees responded in opposition along with a counter motion for a summary judgment.
At the completion of the oral argument, the Bankruptcy Court concluded that Halbert had violated his fiduciary duties to the Appellees. In re Florence Tanners, Inc., 209 B.R. 439 (Bankr.E.D.Mich.1997). According to the Bankruptcy Court, he had repeatedly failed to comply with the disclosure requirements of 11 U.S.C. § 329(a) and corresponding Fed. R. Bankr.P.2016(b). Id. at 441-44.
These provisions require an attorney to disclose all fee payments and agreements made after one year before the bankruptcy filing, for services in contemplation of, or in connection with, the bankruptcy filings. Such disclosures must be made within 15 days of the filing, or within 15 days of a payment or agreement not previously disclosed. Each payment and each agreement must be separately disclosed.
Id. at 442 (citation omitted).
Specifically, the Bankruptcy Court determined that Halbert, in executing the form upon which the challenged financial disclosure was made, (1) gave the "impression" that (a) he had only charged his clients a flat $25,000 fee, whereas his legal services were being compensated on an hourly basis, and (b) he had been paid another $26,600 fee although this amount was actually a retainer, (2) had failed to disclose his fee agreement with the Appellees for pre-petition services in contemplation of their bankruptcy petitions,3 (3) gave the misimpression that the $26,600 retainer was the only payment that he had received from the Appellees for his legal services during the year immediately preceding the filing of the bankruptcy petition, and (4) failed to disclose the post-petition payments that he had received during the bankruptcy proceedings, which violated his supplemental disclosure obligation even if the confirmation plan made those fees not subject to prior Court review and approval. Id. at 442-44.
The Bankruptcy Court also held that Halbert had violated the disclosure requirements of Fed. R. Bankr.P.2014(a) in connection with his appointment to represent the Appellees when he failed to disclose the pre-petition payments that had been made to him by Tanners, which occurred in the form of merchandise transfers. Id. at 444-49. The Court concluded that these transfers were potentially preferential, which could have put Halbert in a position "materially adverse to the interests of the estate" under 11 U.S.C. § 101(14)(E), and that he should have disclosed them in his affidavit of disinterestedness.4 Id. at 446. It wrote: "as a matter of law, the Court concludes that debtor's counsel must disclose in the attorney's affidavit of disinterestedness each payment received from the debtor within 90 days before the bankruptcy filing." Id. at 448.
The Bankruptcy Court also found that Halbert had obtained fees without official approval, in violation of 11 U.S.C. § 330, when he removed funds from the retainer that had been paid to him by Tanners. Id. at 449-50. Additionally, it opined that Halbert had violated Article 11.2 of the confirmed plan when he obtained other payments from the Appellees based on conversations with Yousif because Article 11.2 provided that Halbert should submit a written statement for services performed. Id. at 450.
Thereafter, the Bankruptcy Court issued a second opinion in which it denied Halbert's motions for summary judgment, granted the Yousifs' and Tanners' summary judgment motions, and denied in full Halbert's fee applications.5 In re Florence Tanners, Inc., 213 B.R. 129 (Bankr.E.D.Mich.1997).
The disrespect that Halbert has demonstrated for the disclosure requirements of the law, for this Court\'s orders, and for proper fee processes is extraordinary and unprecedented in the Court\'s experience. In every bankruptcy case, debtor\'s counsel must understand that matters of disclosure and payment of fees affect the administration of justice in bankruptcy cases in fundamental ways, and therefore must be addressed with the greatest seriousness, caution, and deliberation. The only proper response to the concerns raised here is denial of Halbert\'s fees.
Id. at 132. The opinion also noted that Halbert's failure to disclose potentially preferential pre-petition transfers of merchandise was in itself a sufficient ground to deny fees. Id. at 132. Finally, inasmuch as the receipt of the merchandise from Tanners created a conflict of interest for Halbert, the Court found that a denial of fees was a mandatory sanction because only disinterested attorneys may be appointed to serve a bankruptcy estate. Id. at 133. Consequently it denied both of his fee applications.
The appeals by Halbert of the Yousifs' and Tanners' cases have been consolidated by this Court for the purpose of this proceeding. Since the decisions by the Bankruptcy Court were rendered on competing summary judgment motions, a de novo standard of review will be utilized. See Northeast Ohio Coalition for the Homeless v. City of Cleveland, 105 F.3d 1107, 1109 (6th Cir.), cert. denied, ___ U.S. ___, 118 S.Ct. 335, 139 L.Ed.2d 260 (1997). The familiar summary judgment standards of Fed.R.Civ.P. 56(c), which are applicable to this contested bankruptcy proceeding pursuant to Fed. R. Bankr.P. 7056, will be adopted by this Court in its review of the issues that have been raised on appeal.
The Bankruptcy Court correctly concluded that (1) Halbert unlawfully withdrew funds from a $26,600 retainer fee that he had obtained from Tanners, and (2) prior to the confirmation of the Tanners bankruptcy plan, he withdrew funds from it on four occasions until it was fully depleted without filing supplemental disclosures or seeking Court approval. In re Florence Tanners, 209 B.R. at 443, 444, 449. The Bankruptcy Court also properly held that his conduct violated Rule 2016(b) and 11 U.S.C. § 330, which governs the terms under which professionals appointed pursuant to § 327(a) may be compensated.6 Id. at 444, 449.
Halbert does not contest the factual findings of the Bankruptcy Court on this issue, but argues that the sanction of denying all of the fees that he requested in the Yousif and Tanners bankruptcies constitutes an abuse of discretion. Halbert's argument lacks merit because he incorrectly limits his misconduct to his misappropriation of the Tanners' retainer fee. Upon review of the record, this Court concludes that the Bankruptcy Court correctly determined that Halbert violated several other fiduciary obligations that had been imposed upon him by bankruptcy law. Based on these acts of misconduct, the Bankruptcy Court assessed the totality of Halbert's violations and concluded that "the only proper response" to those deficiencies was to deny his fee applications. See In re Florence Tanners, 213 B.R. at 130-32;...
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