In re Bennett, Bankruptcy No. 585-50129-7.
| Citation | 133 BR 374 |
| Decision Date | 26 November 1991 |
| Docket Number | Bankruptcy No. 585-50129-7. |
| Parties | In re James R. BENNETT and wife, Sandra Annette Bennett, Debtors. |
| Court | United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Northern District of Texas |
Floyd D. Holder, Law Offices of Floyd Holder, Lubbock, Tex., Trustee-in-Bankruptcy.
Thomas P. Stamps, Atlanta, Ga., for debtors.
Floyd Holder, Trustee-in-Bankruptcy (Trustee) in the James R. Bennett and wife, Sandra Annette Bennett (Debtors) case, seeks disgorgement of attorney fees from Debtors' attorney, Thomas Paty Stamps (Stamps), in the amount of $20,653.17 pursuant to 11 U.S.C. § 329(b)(1). Debtors and Stamps object to Trustee's motion and raise as defenses: that this issue should have been brought as an adversary proceeding and not as a motion; statute of limitations defenses under 11 U.S.C. §§ 549(d) and 550(e); that the Trustee has only a right to a single satisfaction under 11 U.S.C. § 550(c); that the fees paid were not property of the estate; and that the compensation paid is less than the reasonable value of the services performed.1
The services of a debtor's attorney must benefit the estate if they are to be paid out of nonexempt estate property. The court has authority to recover attorney fees which are excessive and which were paid from estate property. The evidence is clear that Debtors paid their attorney at least $20,653.17 out of funds which were property of the bankruptcy estate. Payments were made without court authority. Debtors' counsel submitted no fee application for court approval; nor did he file a statement as required by § 329(a) and Fed. R.Bankr.P. 2016(b). The work performed by Debtors' counsel did not benefit the bankruptcy estate. Therefore, Stamps' fees are not compensable out of estate property. The fees Stamps received are property of the estate and must be returned to the Trustee. This does not mean that Debtors' counsel is not entitled to a fee for the work performed for Debtors or that the fees are excessive. However, it does mean that Stamps must look to Debtors' exempt or postpetition property for payment. Trustee's motion is properly before the court and the parties are subject to its jurisdiction.2 The statute of limitations arguments are without merit. 11 U.S.C. § 550(e) does not apply to the facts of this case and the Debtors and Stamps are equitably estopped from claiming a § 549(d) defense. The money transferred to Stamps by Debtors is property of the estate and must be returned. The § 550(c) defense is not applicable to the facts of this case because § 550(c) applies to multiple recoveries from multiple transferees. In this case Debtors were the transferor and Stamps was the only transferee.
On April 29, 1985 Debtors filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code and received a discharge on August 23, 1985. In their bankruptcy petition, item (t) of Schedule B-2 instructed Debtors to list all They responded "none." Question (o) of the same schedule required Debtors to list "government and corporate bonds and other negotiable and nonnegotiable instruments." They responded "none." On November 21, 1988 the Debtors filed an amendment to their schedules in which they acknowledged that prior to bankruptcy they had property which was not reflected in prior schedules. Included in this amendment was, inter alia:
On November 21, 1988, Debtors amended their exemptions to claim, as exempt, the American Cotton Growers (ACG) bonds at a value of $1.00 and their "Equity/Patronage/Non-Patronage Distribution Shares" in ACG at a value of $8,297.00. As a result of ACG's sale of its Denim Mill, Debtors received five payments between November 5, 1987 and August 22, 1989 totaling $101,740.20. Trustee sought a judgment against Debtors and revocation of their discharge because of these and other irregularities. This court found that Debtors acquired property of the estate post-petition and knowingly and fraudulently failed to report the acquisition of that property to the Trustee and knowingly and fraudulently failed to deliver such property to the Trustee. The court granted Trustee's motion to revoke Debtors' discharge. See Holder v. Bennett (In re Bennett), 126 B.R. 869 (Bankr.N.D.Tex.1991). Trustee did not learn that Stamps had been compensated by Debtors until January, 1991 when he reviewed Debtors bank statements and found a check issued to Stamps. The funds deposited into that bank account were traced to the ACG payments paid Debtors.
The primary issue in this case is whether Debtors' attorney, Thomas Paty Stamps, should be required to disgorge the fees he received postpetition from Debtors, which were paid with nonexempt property rightfully belonging to the bankruptcy estate.
Stamps objected to the bankruptcy court obtaining jurisdiction over him in this matter by filing this motion. The bankruptcy court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of the Bankruptcy Code (Code). § 105(a). In addition, "no provision of the Code that provides for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process." Id. A bankruptcy court is obligated on its own motion, or on the motion of any interested party, to examine the compensation given or agreed to be given a debtor's attorney. In re Leff, 88 B.R. 105, 106 (Bankr.N.D.Tex.1988) (emphasis added). This court has jurisdiction to authorize payment of attorney fees pursuant to § 329 and Fed.R.Bankr.P. 2017. Attorneys are amenable to nationwide service of process pursuant to Fed.R.Bankr.P. 7004(d). In addition, Stamps established sufficient minimum contacts with Texas to justify the exercise of federal jurisdiction. Stamps provided services to Debtors who were under the jurisdiction of this court. He accepted fees from these Debtors in reference to a matter that was before this court. Stamps has no basis to argue that he did not subject himself to the jurisdiction of this court when he received attorney fees from the bankruptcy estate. See Diamond Mortgage Corp. v. Sugar, 913 F.2d 1233 (7th Cir.1990). In Waterval v. District Court, 620 P.2d 5 (Colo.1980), cert. denied, 452 U.S. 960, 101 S.Ct. 3108, 69 L.Ed.2d 971 (1981), the Colorado Supreme Court found a Virginia attorney who established an attorney-client relationship with a plaintiff in Colorado had sufficient contacts with Colorado for Colorado courts to have personal jurisdiction over him. The Code gives this court the power to control the award of attorney fees and authorizes this court to inquire into and limit compensation from any source. § 330(a); In re Kendavis Industries Int'l., Inc., 91 B.R. 742, 747 (Bankr.N.D.Tex.1988). This motion is properly before the court and the court has jurisdiction over the subject matter and the parties.
The court has authority to consider the reasonableness of attorney fees and recover any fee that it finds excessive. "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 the estate, if the property transferred would have been property of the estate. . . ." § 329(b). Bankruptcy Rule 2017 and § 329 empower the bankruptcy court to order disgorgement of any portion of an attorney's fee which it finds to be excessive. Pope v. Knostman (Matter of Lee), 884 F.2d 897 (5th Cir.1989). "The avoidance powers of the bankruptcy trustee and the power of the bankruptcy court to regulate professional services are exclusively geared toward protecting the rights of creditors via protection of the bankruptcy estate." Palmer & Palmer v. Trustee (Matter of Hargis), 887 F.2d 77, 79 (5th Cir.1989). The bankruptcy court is vested with broad equitable discretion to award or deny attorney fees. Anderson v. Anderson (In re Anderson), 936 F.2d 199, 205 (5th Cir.1991). It is clear that if the court finds Stamps' attorneys' fees excessive it may order their disgorgement.
The majority view is that attorneys are not entitled to compensation from the funds of the bankruptcy estate unless those services benefit the estate. In re Grabill Corp., 110 B.R. 356, 359 (Bankr. N.D.Ill.1990) (). "The clear weight of authority supports the proposition that reasonable compensation under § 330(a)(1) for actual, necessary services means services that benefit the debtor's estate, not the debtor." Stewart v. Law Offices of Dennis Olson, 93 B.R. 91 (N.D.Tex.1988). See also, Soteres v. Scroggins (In re Orbit Liquor Store), 439 F.2d 1351, 1354 (5th Cir.1971) (); In re Holden, 101 B.R. 573, 574-576 (Bankr.N.D.Iowa 1989); In re Leff, 88 B.R. 105, 108 (Bankr. N.D.Tex.1988); In re Howerton, 23 B.R. 58, 59 (Bankr.N.D.Tex.1982).
In re Leff defined the types of services for which a Chapter 7 debtor's counsel is entitled to receive compensation. The Leff Court said, ...
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