In re Burke
| Decision Date | 07 December 1992 |
| Docket Number | Bankruptcy No. 88-03903-W. |
| Parties | In re Alfred E. BURKE and Virginia J. Burke, Debtors. |
| Court | United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Northern District of Oklahoma |
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Lonnie D. Eck, Tulsa, Okl., for trustee.
Arens and Alexander, Fayetteville, Ark., for debtors.
The Trustee in this case moved for review of debtors' transactions with their attorneys and for return of payments made by debtors to their attorneys. Said attorneys objected to the Trustee's motion(s), and in turn made application for allowance of their fees and expenses. After hearing, these matters were taken under advisement. Upon consideration of evidence introduced and received, and of the record herein, the Court, pursuant to F.R.B.P. 7052 and 9014, finds, concludes, and orders as follows. Details of procedural history are included among "Findings of Fact."
Alfred E. Burke and Virginia J. Burke are husband and wife ("Mr. Burke;" "Mrs. Burke;" "the Burkes;" "debtors"). Mr. Burke has been a farmer since 1952. The details of Mr. Burke's operations before mid-1987 are obscure. He appears to have leased some realty from one Bob Edmiston, and apparently did not entirely satisfy his landlord's demands for rent. In 1985 and 1986, Mr. Burke borrowed heavily from Farmers' Home Administration ("FmHA") as "operating loans" to pay for "equipment and cattle," schedule A-2. Like many farmers, Mr. Burke relied heavily on non-farming sidelines. Mr. Burke hauled trash in a truck, which earned him $24,502 in 1986, and $38,440 in 1987.
In 1987, the Burkes took over a dairy farm in Mayes County, near Pryor, Oklahoma. The Burkes leased the farm itself, a 640-acre tract with farm buildings including dairy barn and dwelling, from Dean and Deborah Ringling ("the Ringlings"). The Burkes leased a nearby tract of 297 acres from Velma Brown ("Mrs. Brown"). These leases would expire in April and June of 1990. The Burkes purchased fee simple title to another tract of approximately 360 acres, borrowing the purchase price from First Alabama Real Estate Financing Inc. in Montgomery, Alabama ("First Alabama"). The Burkes purchased the Ringlings' dairy herd of 125 Holstein cows on credit for $50,000; and borrowed substantial sums from Citizens Security Bank, as further "operating loans" for "cows and equipment," schedule A-2.
Most of the Burkes' property, real and personal, was collateral for secured debts. First Alabama had a mortgage on their real estate held in fee; their cattle, machinery and equipment were subject to various security interests in favor of FmHA, Citizens Security Bank, CMC Trailer, John Deere, Navistar Financial Corp., and Mid America Dairymen, Inc. Their only unencumbered asset of substantial value appears to have been Mr. Burke's trash-hauling truck.
When Mr. Burke was occupied hauling trash, Mrs. Burke supervised the farm, sometimes with the help of her daughter.
The enterprise did not prosper. By late 1988, the Burkes were under severe financial and legal pressure. They were raising cash by the desperate expedient of selling some of their cattle, without regard to whose collateral the animals might be, and without accounting for the proceeds. They had lost some farm equipment to attachment by their former landlord, Bob Edmiston. They had suffered adverse judgment in at least one lawsuit, Northwestern Oklahoma Dairy Supply v. Burke. They were defendants in at least three pending civil suits, namely Lincoln Co. Center v. Burke, No. C-88-355 in the District Court of Lincoln County, Oklahoma; and Western Feed Mills v. Burke, No. C-88-403, and American Family Life Assurance Co. v. Burke, No. C-88-449, in the District Court of Mayes County, Oklahoma. The lawsuits by Lincoln Co. Center and Western Feed Mills involved the Burkes' purchase of cattle feed with rubber checks; and the Burkes feared that these plaintiffs might also bring criminal charges against them.
In September 1988, the Burkes sold their trash-hauling operation to Mr. Burke's nephew for $28,500.00. Whether the Burkes sold a "route," or a trash-hauling truck, or some combination thereof, is not clear. Then, or soon thereafter, the Burkes consulted attorneys in Fayetteville, Arkansas. On October 3, 1988, the Burkes signed a letter of engagement, addressed to John F. Arens of the law firm of Arens and Alexander ("A & A"), which read as follows:
A & A's ex. # 1, hrg 11/30/89. The $20,000 "non-refundable retainer" was paid to A & A from the proceeds of the sale of Mr. Burke's trash route and/or truck.
On December 20, 1988, the Burkes filed their voluntary petition for relief under 11 U.S.C. Chapter 12 in this Court. Their case came under the supervision of Lonnie D. Eck, Standing Chapter 12 Trustee in this District ("the Trustee").
The Burkes' petition was signed by David G. Nixon ("Nixon") for the law firm of A & A. Nixon signed most of the pleadings later filed, and made most of the court appearances, on behalf of the Burkes. Neither Nixon individually nor the law firm of A & A requested this Court's approval of their employment as attorneys for the Burkes pursuant to 11 U.S.C. § 327(a). On January 30, 1989, one Terry A. Zelinski of the law firm of A & A made her individual application for permission to practice pro hac vice before this Court, which said application was granted on February 2, 1989. Neither Nixon individually nor the law firm of A & A made any such application.
With the petition, Nixon for A & A filed a "Disclosure of Compensation Paid or Promised to Attorney for the Debtor" pursuant to 11 U.S.C. § 329(a) and Bankruptcy Rule 2016(b). This document declared that debtors had "Paid $7,500.00" from "Sale of unencumbered assets" and had "Promised $-0-." The statute requires disclosure of compensation for services "rendered in contemplation of or in connection with the case;" but A & A's pre-printed form of disclosure purported to disclose compensation only for services "rendered or to be rendered in this case" (emphases added).
Schedules and statements which are not filed with the bankruptcy petition are due within 15 days thereafter, Bankruptcy Rule 1007(c). Debtors filed their statement of financial affairs and schedules on January 17, 1989. Amendments and supplements thereto were filed as late as February 24, 1989. These documents showed priority debts for wages and taxes, mostly the latter, of $2,695.77; a debt to First Alabama for $442,765.78, secured by tract 3 valued at only $250,000; other debts totalling about $280,000 secured by collateral whose value was not stated; and general unsecured debts of $137,753.08. Debtors reported personal property consisting of cattle valued at $164,425.00; machinery and equipment valued at $116,820.00; and miscellaneous other items valued at approximately $34,000, including cash on hand of only $100.00 and deposits of zero. Debtors claimed exemption of items valued at $21,950. In summary, debtors reported debts totalling $864,818.58 and assets totalling $565,285.00, for a negative net worth of almost $300,000.00. Debtors also reported current income of $24,000 per month and expenses of $1,942.91 per month.
Although A & A's disclosure of compensation reported receipt of only $7,500 from debtors, debtors' own Statement of Financial Affairs # 20.b. reported payment of $20,000.00 to A & A.
Case administration proceeded for some time in a routine manner. On January 31, 1989, a meeting of creditors was held, without remarkable incident. On the same day, debtors commenced an adversary proceeding to recover some items of property from allegedly overzealous creditors. On February 14, 1989, debtors moved for valuation of secured claims, a necessary preliminary to construction of a Ch. 12 plan. On February 22, debtors moved to assume their lease with Mrs. Brown, to reject their lease with Ringling, and for permission to negotiate with FmHA (in the nature of a comfort order, as requested by FmHA itself). Various creditors entered appearances and made motions and objections of no special urgency.
Meanwhile, debtors' cattle were dying of starvation and exposure. On about February 20, Mrs. Brown complained to the sheriff about the condition of her neighbors' cattle. On February 22, FmHA's agent Stephen D. Gregory visited debtors' farm. He saw a dozen cows and calves dead or dying. The rest stood outdoors in frozen mud, "emaciated and starving," affidavit of Gregory attached to pleading # 31. Gregory fetched a veterinarian, Dr. Fell. Fell determined that the animals still living were "extremely emaciated and weak . . . in a severe state of emaciation and malnutrition," statement of Dr. Fell attached to pleading # 31. He saw calves eating their own excrement. Others nibbled...
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