In re Andreas
| Decision Date | 23 August 2007 |
| Docket Number | No. 03 B 39826.,No. 04 B 37642.,03 B 39826.,04 B 37642. |
| Citation | 373 B.R. 864 |
| Parties | In re Kimberle A. ANDREAS, Debtor. In re Irene Cegin, Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Carolyn A. Suzzi, Esq., Office of Glenn Stearns, Naperville, IL, Chapter 13 Standing Trustee.
Ronald J. Broida, Esq. & Joseph K. Nichele, Esq., Naperville, IL, for Respondent.
These matters come before the Court on the motions of Glenn B. Stearns, the Chapter 13 Standing Trustee (the "Trustee") for both Kimberle A. Andreas and Irene Cegin (collectively the "Debtors"), against Susan G. Castagnoli ("Ms.Castagnoli"), as attorney for the Debtors, for relief under 11 U.S.C. §§ 329 and 330 and Federal Rules of Bankruptcy Procedure 2017, 9020, and 9024 to examine the attorney's fees received by Ms. Castagnoli in these cases; for disgorgement of those fees; to find Ms. Castagnoli in contempt of Court for receiving unauthorized fees incidental to refinancing transactions; for the award of costs and attorney's fees incurred by the Trustee in these matters; and for fines to be imposed upon Ms. Castagnoli.
For the reasons set forth herein, the Court grants the Trustee's motions in part and overrules the objections asserted by Ms. Castagnoli. The Court finds that Ms. Castagnoli received excessive and unauthorized fees in the cases of Kimberle A. Andreas and Irene Cegin in the sums of $3,500.00 and $5,262.21, respectively. The Court orders those amounts disgorged by Ms. Castagnoli and repaid forthwith to the Debtors. The Court further finds Ms. Castagnoli in civil contempt of the Court's orders allowing Ms. Castagnoli fees of only $2,700.00 in each case., In addition, the Trustee shall be awarded his taxable costs and reasonable attorney's fees. The Trustee shall submit applications for these fees and costs within thirty days hereof. Ms. Castagnoli may file any objections thereto within fourteen days thereafter. The Court will thereafter set a status hearing on the requested costs and attorney's fees as well as the Trustee's request for the imposition of fines upon Ms. Castagnoli.
As a result of Ms. Castagnoli's misconduct found here, the Court refers these matters to the United States Attorney for the Northern District of Illinois pursuant to 18 U.S.C. § 3057, to the Chief Judge of the United States District Court for the Northern District of Illinois pursuant to LR83.28 of the Local Rules of the United States District Court for the Northern District of Illinois for referral to the Executive Committee, and to the Attorney Registration and Disciplinary Commission of the Supreme Court of the State of Illinois pursuant to Illinois Supreme Court Rule 751 et seq. for such disciplinary action and further investigation as they deem appropriate.
The Court has jurisdiction to entertain these matters pursuant to 28 U.S.C. § 1334 and Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. They constitute core proceedings under 28 U.S.C. § 157(b)(2)(A) and (0).
These cases involve similar facts and common issues of law and have been consolidated for trial. Most of the material facts are undisputed. A brief summary of the relevant portions of the case dockets places the matters at bar in context.
Ms. Andreas testified at the trial held in these matters. The Court finds her testimony credible. She met with Ms. Castagnoli at her law office in September of 2003 and retained her to file a Chapter 13 bankruptcy case because Ms. Andreas was struggling financially. Ms. Andreas was facing foreclosure on her home as a single mother with two minor children to support. She was owed over $30,000.00 in back child support, suffered a pay cut from a job change, and was fighting to survive cancer. Ms. Andreas reviewed and signed the flat fee arrangement using the Model Retention Agreement wherein Ms. Castagnoli agreed to perform all services in connection with the case through case closing for the total fee of $2,700.00, plus costs and expenses. (Trustee Ex. No. 1.) Ms. Andreas testified that she did not hire Ms. Castagnoli for any other legal work.
Ms. Andreas' petition and plan were filed on September 29, 2003. The plan was subsequently confirmed on November 21, 2003. Ms. Castagnoli applied for allowance of the agreed $2,700.00 fee which the Court approved on December 16, 2003. Significantly, Ms. Castagnoli did not request or apply for any additional fees.
Ms. Andreas further testified that in 2005 Ms. Castagnoli contacted her about refinancing her home mortgage on more favorable terms and recommended a mortgage brokerage firm to assist in the process. This process took several months. During this period Ms. Castagnoli did not mention any additional fees for such services. Ms. Castagnoli filed a motion to refinance, which was approved by the Court. The refinancing closed in August of 2005. At the closing, Ms. Andreas was given a stack of documents to review and sign at Ms. Castagnoli's law office. She did not notice the additional fee of $3,500.00 allocated to Ms. Castagnoli on the closing statement. (Trustee Ex. No. 8, p. 2, line 1107.) The refinancing aided in the completion and consummation of Ms. Andreas' plan. She received her discharge in February 2006, and after the Trustee's final report had been filed and approved, the case was closed in. September 2006.
Ms. Andreas testified that representatives of the Federal Bureau of Investigation contacted her in June of 2006. To her surprise and embarrassment, Ms. Castagnoli's $3,500.00 fee referenced on the refinancing closing statement was brought to her attention for the first time, notwithstanding that she had signed that document. Ms. Andreas was adamant that the only fee she agreed to pay Ms. Castagnoli was the sum of $2,700.00 under the flat fee agreement. Ms. Andreas acknowledged at trial that Ms. Castagnoli performed the contracted legal services to her satisfaction.
Although Irene Cegin did not testify at trial, the documentary evidence shows a similar pattern of events. Ms. Cegin's Chapter 13 petition and plan were filed on October 9, 2004. Ms. Castagnoli was her attorney of record. Ms. Castagnoli utilized the flat fee arrangement with Ms. Cegin whereby she would receive a fee of $2,700.00 for all legal services rendered to Ms. Cegin through case closing. An amended plan was filed and confirmed, and the requested $2,700.00 fee was approved and allowed on February 4, 2005. Thereafter in June 2005, Ms. Cegin, through motion filed by Ms. Castagnoli, requested authority to refinance her real estate. The Court granted that motion on July 15, 2005. Ms. Castagnoli did not request or apply for any additional fees in connection with the refinancing efforts. The balance of the confirmed plan was paid off, presumably through the refinancing proceeds, and Ms. Cegin received her discharge on May 2, 2006. After the Trustee's final report was filed on July 18, 2006, the case was closed.
The instant motion in Ms. Cegin's case was filed on October 24, 2006, and the motion in Ms. Andreas' case was filed on November 10, 2006. The motions are similar and initially requested that the Court enter orders reopening both cases under 11 U.S.C. § 350(b) and Federal Rule of Bankruptcy Procedure 5010. Orders were entered reopening the cases on November 17, 2006 and December 1, 2006, respectively. Subsequently, Ms. Castagnoli filed motions to strike and dismiss the instant motions of the Trustee. Ms. Castagnoli's motions to strike were denied after argument and hearing. Ms. Castagnoli then attempted to prosecute interlocutory appeals to the District Court. This Court denied Ms. Castagnoli's motions to stay pending appeal and set the balance of the relief sought for evidentiary hearing. The motions at bar were consolidated for hearing because of the unusual and extremely serious nature of the similar allegations raised by the Trustee against Ms. Castagnoli.
The Trustee alleges that he issued plan payoff letters incidental to the Debtors' refinancing efforts and requests made by Ms. Castagnoli. Ms. Castagnoli sent to the Trustee copies of only the first pages of the closing statements issued on the refinance transactions and copies of the payoff checks for the balances of the plans per the Trustee's payoff letters. The Trustee alleges that in May 2006, he became aware that Ms. Castagnoli had obtained refinancing for another Chapter 13 debtor and, after a trial, was found to have fraudulently altered the Trustee's payoff letter as part of a scheme to collect additional unauthorized attorney's fees. See In re Olsen, No. 04 B 42333, slip op. (Bankr.N.D.Ill. Aug. 28, 2006). As a result, the Trustee commenced an investigation of other Chapter 13 cases that involved Ms. Castagnoli and refinancing, including the two cases at bar. After obtaining complete copies of the closing statements in those matters, the Trustee contends that in seventeen cases, Ms. Castagnoli received additional attorney's fees incidental to the refinancing transactions. Ms. Castagnoli did not disclose these fees to the Trustee or the Court, nor did she file any fee applications or obtain any orders approving the fees.
The Trustee further alleges that in Ms. Cegin's case the additional undisclosed and unauthorized fee paid to Ms. Castagnoli was $5,262.21, and in Ms. Andreas' case the additional undisclosed and unauthorized fee paid was $3,500.00. Moreover, by furnishing the Trustee with only the first pages of the closing statements and not the second pages, which detailed the additional fees, Ms. Castagnoli kept her receipt of the fees hidden from the Trustee and the Court in violation of the Court's orders that allowed her only $2,700.00 for all legal services rendered to the Debtors. Thus, the Trustee contends that Ms. Castagnoli's...
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