In re Damon

• Decision Date: 17 May 1984
• Docket Number: Bankruptcy No. 82 B 11814.
• Parties: In re Roosevelt DAMON, Jr., and Elaine Damon, Debtors.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York

40 B.R. 367 (1984)

In re Roosevelt DAMON, Jr., and Elaine Damon, Debtors.

Bankruptcy No. 82 B 11814.

United States Bankruptcy Court, S.D. New York.

May 17, 1984.

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The Office of the United States Trustee for the Southern District of New York by Cornelius Blackshear, U.S. Trustee and Harold Jones, Asst. U.S. Trustee, New York City, for trustee.

S. Simpson Gray, P.C., pro se.

HOWARD C. BUSCHMAN III, Bankruptcy Judge.

The United States Trustee for the Southern District of New York ("U.S. Trustee") seeks an order pursuant to 28 U.S.C. § 1481 holding the Law Clinics of S. Simpson Gray, P.C. (the "Law Clinics") in contempt for allegedly violating this Court's Order of September 29, 1983, directing its predecessor, the Law Clinics of Mott & Gray ("Mott & Gray") not to collect an additional $700 in counsel fees unless he obtained, after notice to the interested parties and a hearing, this Court's permission to do so.

The Law Clinics seeks leave to reargue this Court's denial, for failure of the Law Clinics to appear on December 29, 1983, of its motion for additional counsel fees in the pending proceeding.

The U.S. Trustee cross-moves, pursuant to 11 U.S.C. § 350(b) (1978) for an order re-opening the first Chapter 13 proceeding brought by Elaine and Roosevelt Damon (hereinafter the "Debtors" or "Damons"), which was previously dismissed by Order dated July 29, 1982, for the limited purpose of seeking a review of the fee arrangement between the Debtors and Mott & Gray and directing the Law Clinics to remit to the Debtors the fees paid by them in connection with the earlier proceeding and in connection with the currently pending proceeding.

I

A. The First Chapter 13 Case

In February, 1982, Ninth Federal Savings and Loan, mortgagee, sought to foreclose on the Damon's family home at 3309 Fenton Avenue, Bronx, New York. The Damons received a pamphlet from Mott & Gray, apparently pursuant to a practice of sending unsolicited pamphlets to home owners upon learning of their predicament from published notices of foreclosure or foreclosure sale. After an initial consultation with S. Simpson Gray ("Gray"),¹ they retained Mott & Gray and, on February 16, 1982, filed a joint petition and statement pursuant to Chapter 13 of the Bankruptcy Code, 11 U.S.C. § 1301, f.f. (1978).

Annexed thereto was a statement purportedly signed by Gray as attorney for the Debtors and filed pursuant to former Bankruptcy Rule of Procedure 219(b). Therein it is stated that the Debtors agreed to pay Mott & Gray a fee of $560 of which $400 previously had been paid. According to the Chapter 13 statement, the remaining $160 was to be paid pursuant to the Debtors' Chapter 13 plan.

Within two months of the filing of the petition, the mortgagee objected to confirmation. It claimed, inter alia, that the plan failed to satisfy § 1322(b)(2) of the Code in that it did not provide for payment of the present value (computed at a 12% interest rate) of the full amount of arrearages due on the mortgage, including legal fees and late charges. The Debtors amended their schedules on April 27, 1982, for a second time to include a previously omitted priority tax claim. The plan was amended accordingly to reflect the increase in the Debtors' monthly payments and, further amended to provide a $900 priority payment to Mott & Gray. The amended schedules continued to state, however, that the Debtors had agreed to pay their attorney the sum of $560, of which $400 had been paid.

Gray thereupon sought the permission of this Court for the Debtors to pay an unstated amount of additional fees as part of an omnibus motion filed on May 8, 1982. In support, he alleged that it was not contemplated that the initial fee arrangement would embrace adversary proceedings. Time records and other supporting information were not supplied. The motion also sought an order vacating and setting aside a post-petition foreclosure of the mortgagee's lien on the Debtors' property and dismissal of the objections to confirmation asserted by the mortgagee. In response thereto, the mortgagee conceded the invalidity of the foreclosure sale and asserted a cross-motion to dismiss the proceeding.

No disposition of these various motions appears in the file. Significantly, there is no order approving the request for additional fees. The Court, per Judge Ryan, apparently after a hearing held July 15, 1982, entered an order dated July 29, 1982, granting a motion by the mortgagee to dismiss the proceeding and plan.²

During the course of this proceeding, Mott & Gray, on March 20, 1982, billed the Debtors additional fees of $125 for amending the petition. On April 20, 1982, the Debtors paid Mott & Gray $350. Since Gray testified that he charges $350 for a court appearance, it would appear that this payment was for such an appearance by Gray or an attorney from his firm.

Prior to the confirmation hearing scheduled for July 15, 1982, Mott & Gray informed the Debtors that they owed an additional $560 in fees and demanded full payment. Upon receiving the mortgagee's June 21, 1982 motion to dismiss the proceeding, Mott & Gray informed the Debtors of a charge of $350 for Gray to represent them at the hearing, making a total amount due of $910. It then repeated its demand for full payment stating:

Payment in full MUST be received prior to the scheduled hearing or Mr. Gray will not be present at the scheduled hearing, your Chapter 13 petition will be dismissed and your house will be sold.

On July 23, 1982, the Debtors transmitted $1,500 to Mott & Gray for deposit in an escrow account from which Debtors testified payments would be made to the mortgagee and Standing Trustee. No accounting for that sum has been made to the Debtors.

B. The Second Proceeding

Within a week after dismissal of the first proceeding, Mott & Gray offered to "reinstate" it for the sum of $350. Six days later Mott & Gray wrote to the Debtors informing them that "We will have to file a new petition," the fee for which would be $750. Gray's records reflect, however, that the Debtors were charged $300 on August 23. Funds from an escrow account, presumably the mortgage escrow account established on July 23, 1982, were transferred to pay that sum and the $60 filing fee. A new Chapter 13 petition was filed on September 13, 1982.

The Rule 219(b) statement submitted therewith, purportedly signed by Gray as attorney for the Debtors, averred that they had agreed to pay $500 in legal fees, all of which had been paid. In other respects, the new plan bore marked similarity to the former plan even to the degree of stating that the amount owed to the mortgagee consisted solely of the nine months arrears due at the filing of the first petition plus "additional arrears" of $2,506.40. No amount for other charges due under the mortgage or a sum reflecting interest sufficient to provide present value under § 1322(b) of the Code was stated.

The Chapter 13 Standing Trustee responded with a motion to dismiss the petition for lack of good faith on the ground that an immediate second filing constituted an abuse. The mortgagee sought the same relief urging that a lack of good faith was shown by the repeated failure to state the full amount of arrears under the mortgage and the failure to include legal fees as provided in the mortgage and interest reflecting present value. Mott & Gray opposed the motions and filed its own motion seeking permission to extend the plan to sixty months pursuant to § 1322(c) of the Code.

Before these motions came on to be heard, Mott & Gray filed an amended petition on February 8, 1983. That plan provided for the full amount claimed by the mortgagee, including present value interest, amended the Debtor's budget to include the wife's salary from her recently obtained job, restated the Debtors' agreement to pay Mott & Gray $500 in fees and that such sum had been received and claimed $700 in additional fees for Mott & Gray as a priority expense.

This Court, per Judge Ryan, on April 4, 1983 granted the motion to extend the plan to sixty months; the mortgagee, on June 9, 1983, withdrew its motion. The Standing Trustee's motion was apparently withdrawn, for he recommended confirmation of the plan at a hearing held on September 29, 1983 and the plan was so confirmed.

However helpful may have been the amended petition, it appears to have been signed, not by the debtors, but by someone at Mott & Gray. Although Mr. Damon testified at the confirmation hearing that it bore his signature, he demonstrated little familiarity with its contents, particularly the additional fee to be paid to Mott & Gray. Indeed, he was surprised by, and disputed the fee. For that reason, this Court ordered Mott & Gray

not to collect the $700. However, the Law Clinic of Mott & Gray is hereby granted permission to move this Court within a reasonable time, no more than 60 days, upon notice to the Debtor and to the trustee, and to the United States Trustee, that the Order that I have just made be vacated on the ground that a hearing should be held, and at the hearing proof will be adduced that would indicate that they are entitled to the fee.

Subsequently, Mr. and Mrs. Damon testified, unequivocally, that they had not signed the amended petition. Their testimony is highly credible. Mr. Damon observed that the signature purportedly his lacked the "Jr." that he always employs, a statement confirmed by examination of the petition filed in the first proceeding. The Damons added, moreover, that although they had received the second petition, they never actually signed it because they were unable to reach Mr. Gray and confer with him as to the differences between their original second petition and the amended version.

Not only did the Damons not sign the amended petition, Gray did not actually sign on his firm's correspondence with the Damons and affidavits and other documents filed with this Court, all of which...