In re Babies
| Decision Date | 30 September 2004 |
| Docket Number | No. 03-82383.,03-82383. |
| Citation | 315 B.R. 785 |
| Parties | In re Loveless BABIES, Jr., and Alma Bernice Babies, Debtors. |
| Court | U.S. Bankruptcy Court — Northern District of Georgia |
J. Eugene Wilson, East Point, GA, American Bankruptcy Counselors, Law Offices of Donald M. Leibsker, Richard D. Grossman, The Law Group, Ltd., Chicago, IL, for Debtors.
Loveless and Alma Babies (the "Debtors") retained two lawyers practicing bankruptcy law in Chicago, Illinois, with regard to the filing of their joint chapter 7 case in Atlanta. Debtors were referred to these lawyers by a credit counseling service that they contacted, one of many such entities that refer potential bankruptcy clients to the lawyers, often for compensation.
The two attorneys, Donald Leibsker (and his law firm, American Bankruptcy Counselors ("ABC")) and Richard D. Grossman (and his law firm, the Law Group, Ltd.) (collectively, the "Chicago Attorneys"), are licensed to practice in the State of Illinois and are admitted to the bar of the United States District Court for the Northern District of Illinois but are not members of the State Bar of Georgia or of the United States District Court for the Northern District of Georgia. After obtaining information from Debtors and preparing a draft of papers for the bankruptcy filing, the Chicago Attorneys arranged for Debtors to meet with Mr. J. Eugene Wilson, a member of the State Bar of Georgia and of this Court, who filed the case for the Debtors and appeared as their sole counsel of record.
In connection with proceedings not material here, the Court discovered that Debtors had paid a $1,000 fee for legal services in connection with this case that was shared by the Chicago Attorneys and Mr. Wilson. The Court sua sponte ordered that the lawyers appear at hearings to address the Court's concerns about whether they had adequately disclosed the particulars of their fee sharing agreement as required by Rule 2016 of the Federal Rules of Bankruptcy Procedure, whether the Chicago Attorneys had engaged in the unauthorized practice of law in this State and had practiced law in this Court without being admitted to its bar, whether their sharing of compensation was proper, and whether all or any part of their fee should be disgorged under 11 U.S.C. § 329.
Under the facts of this case, the Court concludes that, unless the Chicago Attorneys are admitted to practice in this Court pro hac vice, they are engaging in the unauthorized practice of law in Georgia and the unauthorized practice of law in this Court such that they could not lawfully provide legal services to Debtors or share fees with local counsel. Because the Chicago Attorneys have evidenced a good faith intention to practice in compliance with applicable legal and professional standards and because they are qualified for pro hac vice admission, the Court will deem them admitted in this case. Consequently, no sanctions or further disciplinary proceedings are necessary, and the Court will not require disgorgement of the otherwise reasonable fee paid by Debtors who obtained an acceptable result in this case.
The facts are not disputed. Faced with financial difficulties, Mr. Babies contacted a credit counseling service. The credit counseling service advised Mr. Babies that he should consider filing bankruptcy and referred him to ABC, Mr. Leibsker's firm. The Chicago Attorneys do not recall the particulars of the referral, but they admit that they pay a fee for at least half of their referrals. They often pay a fee to the referring entity whether or not the referred person calls or becomes a client.
Mr. Babies called ABC and received a form questionnaire to complete and return. The Chicago Attorneys represent that Debtors signed a standard "American Bankruptcy Counselors/Client Agreement" (the "Client Agreement") and returned the questionnaire. The Chicago Attorneys then prepared the petition, schedules, and statement of affairs, sent the papers to Mr. Wilson, and advised the Debtors to call Mr. Wilson. Mr. Wilson met with the Debtors, reviewed the bankruptcy papers, requested some revisions that the Chicago Attorneys made, and filed the revised petition and papers that the Debtors had signed.
The attorneys' disclosure statement filed pursuant to Rule 2016 disclosed that the $1,000 attorneys' fee was to be shared and that all of the attorneys had agreed that each "will remain responsible for completion of the legal work involved in this matter and responsible for the legal work of each." All three lawyers signed the Rule 2016 disclosure statement, but Debtors did not; the Chicago Attorneys contend this was an oversight and point out that the Client Agreement contemplated that, after ABC prepared the bankruptcy papers, Debtors would meet with a local lawyer to advise them as to local law, review the papers, file the case, attend the § 341 meeting, and represent them with regard to certain matters in the case.
Neither the Rule 2016 disclosure statement nor the Client Agreement reflects which lawyers get how much of the fee. The Rule 2016 disclosure statement shows that Mr. Grossman and his firm will share in the fee; the Client Agreement does not mention him, however, and neither document describes the services that he and his firm are to provide. Documents exchanged between Mr. Wilson and Mr. Leibsker show that Mr. Wilson got $250 and the Chicago Attorneys got $750. The record does not reflect how the Chicago Attorneys divided their $750. The division of fees takes place without regard to the amount of work that each of the three lawyers performs.
In one paragraph of the Rule 2016 disclosure statement, the three attorneys represent that they have agreed, in exchange for the $1,000 fee, to "render legal services for all aspects of the bankruptcy case." Another paragraph, however, states that the fee does not include "representation of the debtor in adversary proceedings and other contested bankruptcy matters." In addition to the fact that these two paragraphs are inherently contradictory, the undertaking in the former paragraph to render legal services for "all aspects of the bankruptcy case" for the $1,000 fee conflicts with terms of the Client Agreement that expressly limit the scope of the representation by excluding services such as defense of any complaint to deny a discharge, prosecuting any complaint to determine dischargeability of a debt, converting a case from chapter 7 to 13 or from chapter 13 to 7, representation concerning any reaffirmation matters that are not resolved at the conclusion of the § 341 meeting, filing of motions to avoid liens, and amendments to add a creditor. These excluded services required an additional fee. The Chicago Attorneys candidly acknowledge that they did not discuss with Debtors the implications of limitation of scope of the representation.
Although not the focus of this Opinion, the Court notes that the foregoing facts give rise to several concerns relating to the limitation on the scope of services that the attorneys were obligated to provide. First, the attempted limitation of services as set forth in the Client Agreement is clearly not permissible in these circumstances under standards of professional conduct applicable in this and other courts. Among other things, the limitation is not permissible because the attorneys did not consult with Debtors about it and because it excluded legal services that are essential to the objectives of the representation. In re Egwim, 291 B.R. 559, 569-573 (Bankr.N.D.Ga.2003); see, e.g., In re Castorena, 270 B.R. 504, 523-30 (Bankr.D.Idaho 2001). The most glaring example is the exclusion of services concerning reaffirmation agreements not made by the time of conclusion of the § 341 meeting. In view of Debtors' stated intention to reaffirm two car loans and their residential mortgage and the fact that they could not reaffirm these debts without their attorney's review as required by 11 U.S.C. § 524(c)(3), the lawyers could not properly limit legal services with regard to these reaffirmations that clearly were a critical objective of the representation. Second, the limitation of services is not properly disclosed in accordance with Rule 2016. Third, it is arguable that a court could construe the disclosure statement against the attorneys who drafted it and hold that the attorneys were obligated to provide all services in the bankruptcy case for $1,000 including even, for example, litigation of a discharge or dischargeability matter. Nothing would require the attorneys to agree to such an undertaking; the agreement could of course provide for additional fees for certain described services or for any services that are not described. Egwim, supra, at 573. Fortunately, such issues did not arise in this case because Debtors received their discharges as a matter of course and there were no complaints seeking a dischargeability determination.
The Chicago attorneys contend that they do not have to be admitted to the State Bar of Georgia or to the bar of this Court in order to provide legal services to the Debtors in connection with this case because they associated with local counsel who is so admitted. They also justify their activities on the theory that they are engaged in a fee-sharing arrangement with local counsel that is permissible for all of them under the professional standards applicable in their respective jurisdictions. The Court concludes that, under the circumstances of this case, the only way for the Chicago Attorneys to lawfully represent Debtors in connection with this case and receive compensation for such services is to be admitted to the bar of this Court pro hac vice.
A person must be a member of the State Bar of Georgia in order to lawfully...
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