In re Campbell, No. 94-14704.

• Decision Date: 22 February 2001
• Docket Number: No. 94-14704.
• Parties: In re William D. CAMPBELL, Debtor.
• Court: United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Northern District of Ohio

259 B.R. 615 (2001)

In re William D. CAMPBELL, Debtor.

No. 94-14704.

United States Bankruptcy Court, N.D. Ohio, Eastern Division.

February 22, 2001.

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Sheldon Stein, Cleveland, for William D. Campbell.

Dean Wyman, Office of the U.S. Trustee, Cleveland, for the United States Trustee.

Joanne Brown, Virgil Brown, Jr., Cleveland, for Joanne Brown.

MEMORANDUM OF OPINION

PAT E. MORGENSTERN-CLARREN, Bankruptcy Judge.

This attorney fee dispute arises out of Chapter 13 Debtor William Campbell's attempts to refinance his home mortgage loan after confirmation of his plan of reorganization and while his case was still pending. The United States Trustee filed a motion to review fees paid post-confirmation by the Debtor to Attorney Joanne Brown, to cancel the fee agreement between them, and to order a refund of fees. The Debtor joins in the motion. The movants contend that Ms. Brown received $700 in fees in connection with the attempted refinancing without a court order or adequate disclosure and that she is improperly attempting to collect an additional $800 through a state court lawsuit. (Docket 65, 68, 82).

Ms. Brown responds with several points. With respect to some of the fees, she claims that she did not need court authority because they were not for legal services at all or, if they were for legal services, they were not for services connected to the bankruptcy case. With respect to others, Ms. Brown alleges that she did make adequate disclosure. Finally, in the event that her position is not accepted, she disputes the amount of fees paid and argues that disgorgement is too severe a sanction. (Docket 81).

The Court held an evidentiary hearing on January 16 and 17, 2001. For the reasons stated below, the Court finds that all fees were for legal services related to the bankruptcy, that Ms. Brown did not adequately disclose the fees, and that disgorgement is the appropriate remedy.

JURISDICTION

The Court has jurisdiction under 28 U.S.C. § 1334 and General Order No. 84 entered on July 16, 1984 by the United States District Court for the Northern District of Ohio. This dispute is a core proceeding under 28 U.S.C. § 157(b)(2) because it arises in a bankruptcy case and involves the application of Title 11 and the Bankruptcy Rules. See Michigan Employment Sec. Comm'n v. Wolverine Radio Co. (In re Wolverine Radio Co.), 930 F.2d 1132, 1144 (6th Cir.1991) (citations omitted) (determining that core proceedings include proceedings arising under title 11 and proceedings arising in title 11 cases and noting that "the phrase `arising under title 11' describes those proceedings that involve a cause of action created or determined by a statutory provision of title 11 . . . and `arising in' proceedings are those that, by their very nature, could arise only in bankruptcy cases."). See also In re Bressman, 214 B.R. 131, 132 (Bankr. D.N.J.1997) ("Issues relating to the debtor's retention and compensation of bankruptcy counsel pursuant to §§ 328, 329, 330 and 331 of the Bankruptcy Code are `core' proceedings as defined by Congress in 28 U.S.C. § 157."); In re Telemaintenance, Inc., 157 B.R. 352, 354 (Bankr. N.D.Ohio 1993) (review of attorney compensation under § 329 is a core proceeding under 28 U.S.C. § 157(b)(2)(A)).

FACTS

The parties agree about very little in this case, from the underlying facts to the applicable law. This recitation of the facts reflects the Court's findings of fact after considering all of the evidence. In weighing the evidence and determining the credibility of the witnesses, the Court considered the witness' demeanor, the substance of the testimony, and the context in which the statements were made. FED. R. BANKR. P. 7052, incorporating FED. R. CIV. P. 52; FED. R. BANKR. P. 9014.

A. Background

At the time the Debtor filed his Chapter 13 case, he owed money on a note to First Nationwide Mortgage Corporation, which note was secured by a mortgage on the Debtor's house. The Debtor's Chapter 13 plan required him to make regular monthly payments to First Nationwide and additionally to make monthly payments to the Chapter 13 Trustee to satisfy pre-petition obligations. The order confirming the plan also included these provisions:

1. Alan Silver, then counsel to the Debtor, was authorized to receive $600 in fees for his services;

2. The Debtor was prohibited from incurring additional debt exceeding $500 in the aggregate without Court approval; and

3. The Debtor was prohibited from transferring any interest in real property without Court approval.

(Docket 22).¹

Like many others in similar situations, the Debtor later sought to refinance his existing home mortgage loan with a new lender to consolidate his debts. He intended to use the new loan proceeds to pay in full the balances due on the First Nationwide loan and the Chapter 13 plan (and receive his Chapter 13 discharge earlier than he otherwise would) with the hope that his one new monthly payment would be less than the existing payments. To accomplish this, the Debtor, through Mr. Silver, filed a motion to approve a new loan with AMRESCO Residential Mortgage Corporation, as he was required to do under the confirmation order before incurring significant new debt or transferring real estate.

After a hearing, the Court granted the motion as amended. The order giving the Debtor authority to enter into this transaction was entered on August 20, 1997, but the loan never closed. (Docket 34, 36, 37, 40).

This is the point where the dispute between the Debtor and Ms. Brown begins.

B. The Relationship between the Debtor and Ms. Brown created in September 1997

The next month, the Debtor approached attorney Virgil Brown, Jr. for legal assistance in connection with the hoped-for refinancing. The Debtor testified that he sought new counsel because Mr. Silver had not completed the paperwork to close the AMRESCO loan. Because the Debtor still wanted to refinance his house, he had applied for a different loan with American Business Credit. He wanted an attorney to handle the legal work with respect to this alternative refinancing so that he could obtain his Chapter 13 discharge.

Mr. Brown was not available and referred the Debtor to Ms. Brown, his law associate. The Debtor gave Ms. Brown paperwork from American Business Credit and a statement relating to the Chapter 13 case. At that first meeting, the Debtor signed a document titled "Attorney Client Agreement" (the "Agreement"). The parties disagree as to the relationship they entered into at that time, with the Debtor believing that he had hired an attorney in his Chapter 13 case and Ms. Brown denying an attorney-client relationship.

The Agreement states in part:

I, William Campbel sic . . . request of, Joanne Brown . . . hereinafter called Attorney, that she advise and represent and prepared sic any necessary and incidental documents regarding acquiring buy-out amount for mortgage loan on residential home and amount of buy-out on Chapter 13 plan to assist in ending the plan. And any and all thing sic necessary or incidental to the above activity. In return I agree to pay Attorney an hourly fee of 00.00 or a flat estimated fee of $750.00. This fee is to be paid as follows: $300.00 down. . . .

(UST Exh. 4; emphasis in original).² Ms. Brown did not file a fee application or Bankruptcy Rule 2016 fee disclosure in connection with this Agreement.

Ms. Brown denied that the Debtor hired her under the Agreement to perform legal services. Instead, she testified that the Debtor only wanted her to find out how much money he owed to certain creditors whose names appeared on a list that he gave her, some of whom were included in the Chapter 13 plan and some of whom were not. Although she told him that he did not need an attorney to get that information, he persisted and so she agreed to help him with what she characterized as ministerial acts outside of the bankruptcy case, rather than legal acts in connection with the Chapter 13.

In a letter to the Cleveland Bar Association Grievance Committee, however, Ms. Brown stated in part that "Mr. Campbell has obtained my services as an attorney on three separate occasions. The first was September 16, 1997 at a fee of $750. . . ." (Brown Exh. 3) (emphasis added).³ Beyond that, on November 10, 1997, Ms. Brown filed a Notice of Appearance in the Chapter 13 case in which she stated that "Attorney Joanne Brown . . . has been retained as Attorney for William D. Campbell in the above captioned proceedings. Copies of all further communications, pleadings, court notices, and other papers should be served upon the undersigned as Attorney of Record." (Docket 42). Ms. Brown testified that she only entered this appearance because the Debtor asked her to get and forward to him copies of documents filed in his case, and not because she was going to represent him in the Chapter 13. The Court did not find this explanation convincing.

After considering all of the evidence, the Court finds the Debtor's testimony on this point to be credible and concludes that Ms. Brown did agree in September 1997 to act as the Debtor's lawyer in connection with the Chapter 13 case.

C. How many other agreements did Ms. Brown and the Debtor enter into?

Ms. Brown testified that she entered into a total of four written agreements with the Debtor from September 1997 forward, while the Debtor testified that he only entered into the Agreement and one additional oral agreement. The issue is relevant because Ms. Brown contends that some of the fees she received from the Debtor related to non-bankruptcy work under separate written agreements.

Normally, the question of how many agreements a lawyer entered into with a client would be easy to answer by reference to the lawyer's file and the written agreements. The easy answer is not available in this case because Ms. Brown acknowledges that she lost the Debtor's file in connection with office remodeling upheaval and...