In re Cervantes
| Decision Date | 14 April 2020 |
| Docket Number | Case No. 18-10306-B-13 |
| Citation | 617 B.R. 141 |
| Parties | IN RE Alejandro CERVANTES, Debtor. |
| Court | U.S. Bankruptcy Court — Eastern District of California |
Thomas O. Gillis, pro se;
Michael H. Meyer, Chapter 13 Trustee;
Marta E. Villacorta, Esq., Assistant United States Trustee for Tracy Hope Davis, United States Trustee
RULING ON ORDER TO SHOW CAUSE WHY FEES SHOULD NOT BE DEEMED EXCESSIVE UNDER 11 U.S.C. § 329(b)
When debtor's counsel opts to accept a "flat fee" to handle a Chapter 13 case, they assume the risk that they may be under-compensated. The path to additional compensation is narrow but not impassable: convince the court that substantial and unanticipated post-confirmation work was necessary. See Local Rule of Practice 2016-1(c)(3). Counsel here took the wrong path. After assessing the credibility of witnesses and weighing the arguments, the court holds that "flat fee" means what it says. Counsel is ordered to disgorge an excessive fee.
Alejandro Cervantes was having trouble making his Chapter 13 plan payments. In May 2019, Alejandro's income was reduced because he was temporarily disabled.1 He contacted his attorney, Thomas O. Gillis ("Gillis"). He spoke with Gillis's employee who said they could put his missed payments to the end of the plan or otherwise "take care of it." Satisfied with the response, Alejandro thought the problem was solved. He was wrong.
Several months later, the Chapter 13 Trustee, Michael H. Meyer ("Trustee"), sent Alejandro a notice that his plan was in default and his case could be dismissed.2 Alejandro again contacted Gillis's office. The employee he spoke with could not explain why Alejandro's plan was not modified or why the problem was otherwise not straightened out. The employee suggested that Alejandro drive to Gillis's Modesto office — 95 miles each way — and discuss his predicament. Alejandro did.
When he got there, Alejandro was greeted by Gillis's employee, Kathy Alcaraz. Alejandro met with Gillis for about an hour. Though disputed, Alejandro remembers Gillis telling him that he would need $300.00 cash to file and seek court approval for a modified plan. Alejandro refused to pay, reminding Gillis he had already been paid a flat fee of $4,000.00 for the Chapter 13 case ($2,000.00 before filing and the remainder through plan payments). Alejandro returned home.
Meanwhile, Trustee filed a Motion to Dismiss Alejandro's case on February 6, 2020. Alejandro and Gillis were served with the motion. Docs. #58-62 and 70. Trustee contended Alejandro was in default under the plan by failing to pay over $3,200.00. The hearing was 20 days later. Alejandro and the Trustee appeared. Alejandro testified to the above facts under oath in response to questions from the court and the Trustee. Doc. #72. Gillis did not appear.
On March 2, 2020 the court issued an Order to Show Cause directing Gillis to appear on March 16, 2020 and show cause why the court should not find the $4,000.00 presumptive flat fee Gillis had received from Alejandro excessive under 11 U.S.C. § 329(b).3 The order also directed Gillis to show cause why he should not be ordered to disgorge $600.00 to Trustee for violating LBR 2016-1(b), which precludes a debtor's attorney from accepting or demanding payment for services or cost reimbursement without obtaining a specific court order.4 Finally, the order also referenced Gillis's failure to promptly disclose any payment or agreement not previously disclosed under Rule 2016(b). When Gillis filed this case for Alejandro, they both signed a "Rights and Responsibilities" form and filed it with the bankruptcy schedules. This form provided, among other things, what services Gillis would perform for the $4,000.00 flat fee.
Gillis timely responded to the Order to Show Cause. First, he argues Trustee's vendetta against him is designed to "poison the well" against his claims for attorney's fees in this and other chapter 13 cases. Second, Gillis contends Alejandro's testimony at the dismissal hearing was uncertain about the particulars of the alleged demand for further fees. Gillis says he never asked Alejandro for $300.00 "to file a motion." Third, Gillis says he had thorough notes of his December 2019 meeting with Alejandro kept in a "post-petition file" that is now missing despite his staff's perquisition. Finally, Gillis offers the court a possible resolution to avoid "a full ‘he said, she said’ hearing:" he will disgorge $600.00 to Alejandro. But the court's findings cannot include language that Gillis asked for a post-petition fee.
The United States Trustee ("UST") filed a "Statement and Reservation of Rights." The statement notifies parties in interest that the UST may file any action or appropriate pleading in any of Gillis's cases or related proceedings. The UST also reserves rights to conduct discovery to determine whether Gillis's fees are more excessive than what is set forth on the Order to Show Cause.5
The hearing on the Order to Show Cause was held on March 16, 2020. Appearing were Gillis, Trustee (via telephone), and Alejandro. The court asked Gillis if he wanted to cross-examine Alejandro.6 Gillis declined, saying "it is not that big a (sic.) deal to me." No other party wished to be heard. The matter was submitted.
The United States District Court for the Eastern District of California has jurisdiction of this matter under 28 U.S.C. § 1334(b) since this is civil proceeding arising under title 11 of the United States Code. The District Court referred this matter to this court under 28 U.S.C. § 157(a). This is a "core" proceeding under 28 U.S.C. § 157(b)(2)(A) and (O).
A bankruptcy court's decision regarding the proper amount of fees to be awarded counsel is reviewed for abuse of discretion. Neben & Starrett v. Chartwell Fin. Corp. (In re Park-Helena Corp.), 63 F.3d 877, 880 (9th Cir. 1995) (cert. den. 516 U.S. 1049, 116 S.Ct. 712, 133 L.Ed.2d 667 (1996) ); Hale v. U.S. Tr., 509 F.3d 1139, 1146 (9th Cir. 2007). In employing the fee setting criteria of § 330(a), the bankruptcy judge is accorded wide discretion. In re Fin. Corp. of Am., 114 B.R. 221, 224 (9th Cir. BAP 1990).
The Bankruptcy Code's threshold for awarding fees to most professionals is § 330(a). When evaluating the reasonableness of a professional's fee, § 330(a)(3) instructs courts to consider time spent, rates charged, necessity or beneficial nature of the service, timeliness, skill of the professional and customary compensation by comparably skilled professionals outside of the bankruptcy field. But, when evaluating compensation for a debtor's attorney in a chapter 13 case, the focus is slightly different:
In a chapter 12 or chapter 13 case in which the debtor is an individual, the court may allow reasonable compensation to the debtor's attorney for representing the interests of the debtor in connection with the bankruptcy case based on a consideration of the benefit and necessity of such services to the debtor and the other factors set forth in this section.
§ 330(a)(4)(B). See also, In re Pedersen, 229 B.R. 445, 448 (Bankr. E.D. Cal. 1999).
The court can critically evaluate debtor's counsel's compensation under § 329. Subdivision (b) provides:
Rule 2017 implements § 329 and gives the court authority "on the court's own initiative" after notice and a hearing to determine whether any payment or transfer by the debtor to an attorney either before or after the petition was filed is excessive. Rule 2017(a) and (b).7 Section 330 sets the standard by which fees are evaluated under § 329. Am. Law Ctr. PC, V. Stanley (In re Jastrem), 253 F.3d 438, 443 (9th Cir. 2001) ; Law Offices of David A. Boone v. Derham-Burk (In re Eliapo), 298 B.R. 392, 401 (9th Cir. BAP 2003) (affirmed in part, reversed in part and Law Office of David A. Boone v. Derham-Burk (In re Eliapo), 468 F.3d 592 (9th Cir. 2006) ).
Review of a local rule-based sanction is for abuse of discretion. Abdul Habib Olomi v. Tukhi (In re Tukhi), 568 B.R. 107, 112 (9th Cir. BAP 2017) ; Price v. Lehtinen (In re Lehtinen), 564 F.3d 1052, 1058 (9th Cir. 2009). So is a court's interpretation and application of local rules. Kalitta Air L.L.C. v. Cent. Tex. Airborne Sys. Inc., 741 F.3d 955, 957 (9th Cir. 2013).
A trial court's findings based on its views of the evidence, even if disputed, is accorded great deference. Where there are two permissible views of the evidence, the fact finder's choice between them cannot be clearly erroneous. In re Bradford, 112 B.R. 347, 352 (9th Cir. BAP 1990) (citing Anderson v. Bessemer City, 470 U.S. 564, 574, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985) ). See also, Amadeo v. Zant, 486 U.S. 214, 108 S.Ct. 1771, 100 L.Ed.2d 249 (1988). When findings are based on determinations regarding the credibility of witnesses, an even greater deference to the trial court's findings is demanded. Only the trial judge can be aware of the variations in demeanor and tone of voice that bear so heavily on the listener's understanding of and belief in what was said. Anderson, 470 U.S. at 574, 105 S.Ct. 1504. When a trial judge's finding is based on her "decision to credit the testimony of one of two or more witnesses, each of whom has told a coherent and facially plausible story that is not contradicted by extrinsic evidence, that finding, if not internally inconsistent, can virtually...
To continue reading
Request your trial