In re Carlson
| Citation | 211 BR 275 |
| Decision Date | 24 April 1997 |
| Docket Number | Bankruptcy No. 96 B 09606. |
| Parties | In re Dennis E. CARLSON, Debtor. |
| Court | United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois |
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Mitchell E. Jones, Rooks, Pitts and Poust, Chicago, IL, for Debtor.
Steven S. Potts, Law Office of Andrew J. Maxwell, Chicago, IL, Chapter 7 Trustee.
The contested proceeding discussed here relates to the bankruptcy case originally filed by Dennis E. Carlson ("Debtor" or "Carlson") under Chapter 11 of the Bankruptcy Code, 11 U.S.C., et seq., on April 16, 1996. On June 24, 1996, the case was converted to one under Chapter 7, and William A. Brandt Jr. was appointed as Chapter 7 Trustee ("Trustee").
Carlson is an Illinois attorney who does personal injury work. When he filed in bankruptcy, he represented a number of clients with personal injury claims or suits, with whom Carlson had entered into contingent fee agreements pre-bankruptcy. Prior to filing in bankruptcy, Mr. Carlson appears to have sought to assign some or all of his cases to another attorney and/or merge his practice with the other attorney.
On September 30, 1996, an order was entered ("September 30 Order") authorizing a Rule 2004 Examination of the Debtor. The Order required Debtor to prepare and provide to the Trustee and two interested creditors a list of any and all cases and matters in which Debtor was acting as attorney for any party as of June 24, 1996, all cases and matters which Debtor purported to transfer or assign to the other attorney, William E. Hourigan ("Hourigan"), and copies of all written agreement referring to a purported merger of Debtor's law practice with Hourigan's. The September 30 Order further provided, however, that the Trustee and the creditors were prohibited from contacting any and all clients or parties identified by Debtor or redisclosing such information to others without further order of court.
The Trustee filed the instant Motion for Turnover and Other Relief on December 31, 1996, based on Debtor's Rule 2004 testimony, wherein Debtor alluded to one or more fees received post-petition which fees the Trustee asserts may have been for services rendered pre-petition. Trustee argues that Debtor's pre-petition right to payment for legal services rendered prior to conversion of the bankruptcy case to one under Chapter 7 constitutes an asset of the bankruptcy estate and should be accounted for and turned over to the Trustee pursuant to 11 U.S.C. § 542(a).
The Trustee further alleges that Debtor failed to disclose all matters required by the September 30 Order, and therefore requests that the paragraph of the September 30 Order prohibiting Trustee from contacting Debtor's clients be vacated.
Debtor was granted time to file a response to Trustee's motion. In the meantime, in an order entered by Chief Judge Schwartz, then sitting in the absence of the undersigned, Debtor was ordered to deliver to and account to Trustee for any and all fee payments Debtor received subsequent to the date of the conversion into Chapter 7 for legal services rendered or costs expended by him on behalf of pre-conversion clients. See Order entered January 29, 1997. That Order was subsequently amended to suspend the requirement that Debtor physically deliver the subject funds to the Trustee, though information concerning such fees was still required from Debtor. See Order entered February 10, 1997.
On February 10, 1997, Debtor filed a response to Trustee's present Motion and moved to strike "purported facts alleged in Trustee Brandt's purported motion, which is an untimely filed adversary complaint. . . ." However, Debtor failed to state which facts he wants stricken or any grounds for striking any facts. Debtor also argued that Trustee's request that paragraph four of the September 30 Order be vacated is without basis, unsupported, and should actually be set out in a separate motion. Debtor also argued that Trustee Brandt's motion is inadequately stated, contended, factually proved or supported in law and not timely made. Moreover, according to Debtor, the motion should have been in the form of an adversary complaint "that can be the object of an attack by motion to strike or for summary judgment or other attack appropriate for such a complaint." In addition, Debtor argued that Trustee's "request to file a purported lien" would jeopardize his post-petition law practice.
Finally, Debtor argued that under Illinois law contingent fees of attorneys are not property or assets of the attorneys until collected. Thus, unless the contingent fees were collected at the time the bankruptcy petition was filed, he contended that such fees cannot be part of the bankruptcy estate. Debtor also argued that he did not receive any post-confirmation funds for pre-confirmation legal services and that his failure to disclose the identity of his clients as earlier ordered was due to exigent circumstances.
This matter is before the Court pursuant to 28 U.S.C. § 1334(b), 28 U.S.C. § 157, and Local General Rule 2.33(A) of the United States District Court for the Northern District of Illinois. Venue lies properly under 28 U.S.C. § 1409. This matter constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (E).
Several threshold issues can be addressed before discussing merits of the Trustee's motion.
Debtor argued that he has not been served with a copy of his 2004 examination transcript or any other transcript, and that he is entitled to a copy of any "document, thing, pleading, affidavit or transcript submitted to the court for consideration in ruling on any matter herein," but that he has no money to pay for any such transcript. ¶ 3,4 (emphasis added). However, no such transcripts have been submitted in support of the Trustee's motion, so that issue is moot.
Debtor also argued that the form of Trustee's motion was improper because it was not part of an Adversary proceeding. Adversary proceedings are governed by Part VII of the Federal Rules of Bankruptcy Procedure. Only those matters prescribed by Fed. R. Bankr.P. 7001 are required to be presented in the form of an Adversary complaint. Such matters include proceedings to recover money or property but expressly exclude "a proceeding to compel the debtor to deliver property to the trustee." Fed. R. Bankr.P. 7001(1). Contested matters not brought by Adversary proceedings are governed by Fed. R. Bankr.P. 9014 which provides that "relief shall be requested by motion, and reasonable notice and opportunity for hearing shall be afforded the party against whom relief is sought." Moreover, while Fed. R. Bankr.P. 9014 provides that the rules in Part VII of the Bankruptcy Rules apply in contested matters or may be ordered, not all of them so apply and none have yet been ordered here to apply in considering the instant motion. Federal Rule of Bankruptcy Procedure 7012 provides grounds for a motion to strike. It is not expressly applicable to contested matters under Fed. R. Bankr.P. 9014, but Rule 9014 provides that "the court may at any stage in a particular matter direct that one or more of the other rules in Part VII shall apply," so Debtor's motion to strike Trustee's motion for failure to state a basis for relief can certainly be entertained. To reach the merits of it now, Debtor's failure to file a separate motion apart from his argument will be overlooked, but he is advised that such omission will not always be overlooked.
Finally, Debtor argues that the Trustee's request that paragraph four of the September 30 Order be vacated should have been set out in a separate motion, but has pointed to no requirement in any applicable rule that would require the Trustee to list each request for relief in a separate motion. There is no such requirement. The format for a motion in a contested matter is governed by Federal Rules of Bankruptcy Procedure 9004 and 9013. Rule 9004 provides that "each paper filed shall contain a caption setting forth the name of the court, the title of the case, the bankruptcy docket number, and a brief designation of the character of the paper." Fed. R. Bankr.P. 9004(b). Rule 9013 provides that a motion shall state the grounds therefor with particularity and set forth the relief or order sought. Trustee's motion complies with those Rules, and Debtor's Motion to strike on this basis has no merit.
The main issue presented is whether the Trustee can, under any circumstances, establish a right to portions of Debtor's contingent fees that may be received post-petition to the extent they compensate for pre-petition work.
Debtor argues under Illinois law that the Trustee has no possible right to contingent fees due to Debtor under any pre-petition contract as such fees are not and cannot as a matter of law be or become "property of the bankruptcy estate." Moreover, he asserts, even if such fees might be part of the bankruptcy estate, as a matter of fact, no such fees were earned here.
"Property of the estate" is defined broadly under § 541 to include all legal and equitable interests of the debtor in property as of the commencement of the case. 11 U.S.C. § 541(a)(1). Conversion of a case from one Bankruptcy Code Chapter to another does not change the date of case commencement. 11 U.S.C. § 348(a). "Commencement of the case" occurred on April 16, 1996, on the date of filing the original petition. See 11 U.S.C. § 301 (). Thus, Debtor's bankruptcy estate consists of all Debtor's legal and equitable interests in property as of April 16, 1996.
It is correct, as Debtor argues, that property of the estate does not include post-petition earnings. 11 U.S.C. § 541(a)(6). Still, post-petition payments for services actually performed or income actually earned pre-petition do comprise property of the bankruptcy estate. Calder v....
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