In re Dees Logging, Inc.

• Decision Date: 19 August 1993
• Docket Number: Bankruptcy No. 92-60398.
• Parties: In re DEES LOGGING, INC., Debtor.
• Court: United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Southern District of Georgia

158 B.R. 302 (1993)

In re DEES LOGGING, INC., Debtor.

Bankruptcy No. 92-60398.

United States Bankruptcy Court, S.D. Georgia, Statesboro Division.

August 19, 1993.

COPYRIGHT MATERIAL OMITTED

Sarah M. Tipton-Downie, Vidalia, GA, for debtor.

Columbus Gilmore, Atty.-Advisor, Office of the U.S. Trustee, Savannah, GA, for the U.S. Trustee.

MEMORANDUM AND ORDER ON APPLICATION FOR ORDER AUTHORIZING EMPLOYMENT OF COUNSEL, APPLICATION FOR ALLOWANCE OF COMPENSATION, AUTHORITY TO DRAW AGAINST RETAINER AND U.S. TRUSTEE'S MOTION FOR DISGORGEMENT OF ATTORNEY FEES

JOHN S. DALIS, Bankruptcy Judge.

Debtor seeks retroactive employment of counsel and approval of attorney fees. The United States Trustee seeks its quarterly fees from the monies paid to counsel by the debtor. Having heard and fully considered the evidence, I enter the following Order in favor of debtor's counsel.

FINDINGS OF FACT

Dees Logging, Inc. filed a chapter 11 petition on July 28, 1992. Prior to the filing of the bankruptcy petition, the debtor paid $1,600.00 to attorney Sarah M. Tipton-Downie. Of these monies, Six Hundred and No/100 ($600.00) Dollars was paid to the clerk for the filing fee and the balance of $1,000.00 was retained by Ms. Tipton-Downie for services to be rendered in connection with the case. The debtor agreed to compensate her at the rate of $75.00 per hour. The chapter 11 case was involuntarily converted to a chapter 7 case on January 21, 1993.

Subsequent to the conversion, the United States Trustee filed a chapter 7 proof of claim for $750.00 arising from unpaid quarterly fees due under 28 U.S.C. § 1930. Based on the Bankruptcy Rule 2016(b) Statement of Attorney Compensation filed by Ms. Tipton-Downie in the chapter 11 case, the U.S. Trustee determined that she had been given a sum of money by the debtor. Because no authorization of employment or authorization to draw on that fund had yet been obtained, on March 18, 1993 the U.S. Trustee moved to have that fund declared property of the estate and to have that fund used to satisfy his claim.

After the U.S. Trustee's motion was filed, on April 1, 1993 Ms. Tipton-Downie sought allowance to draw against the fund for the 35.25 hours of work that she had performed in this case both as a chapter 11 and chapter 7 case and additionally sought approval of the $600.00 filing fee as an actual and necessary expense. The trustee objected to this motion on the grounds that no application for employment had been filed and that his motion for disgorgement of attorney fees was pending. Subsequently, on April 13, 1993 the debtor filed its application to employ Ms. Tipton-Downie as its attorney nunc pro tunc to July 2, 1992.

CONCLUSIONS OF LAW

First, debtor's application to employ Ms. Tipton-Downie nunc pro tunc as its counsel must be resolved. The U.S. Trustee objects to this request on the basis that services rendered by a professional to the bankruptcy estate require advance approval by the court and that in the absence of such approval professionals perform such services at their peril. The U.S. Trustee contends that retroactive approval of employment should only be granted in exceptional circumstances and that such circumstances are not present here.

Retroactive appointment and approval of attorney fees are allowed. The court has at all times the right and duty to regulate the identity of and compensation of professionals who render services to a debtor in this court. In re Morgan, Chapter 11 Case No. 89-40074, slip op. at 5 (Bankr.S.D.Ga. Aug. 11, 1989) (Davis B.J., citing In re Arkansas Co., Inc., 798 F.2d 645 (3rd Cir.1986); Fanelli v. Hensley (In re Triangle Chemicals, Inc.), 697 F.2d 1280 (5th Cir.1983); Cohen v. United States (In re Laurent Watch Co.), 539 F.2d 1231 (9th Cir.1976); Stolkin v. Nachman, 472 F.2d 222 (7th Cir.1973)). See also In re Concrete Products, Inc., Chapter 11 Case No. 88-20540, slip op. at 46 (Bankr.S.D. Ga. February 7, 1992) (Davis, B.J.). If an attorney does fail to obtain timely approval of employment and is later found to be disqualified for cause shown, that attorney may be wholly uncompensated for any services rendered. In the absence of advance court approval, an attorney is performing services at his or her own risk. However, the court does have the discretion to approve an attorney's employment and allow for retroactive compensation.

In this case, Ms. Tipton-Downie is otherwise qualified to practice in this court and would have been appointed at the beginning of this case had the application been timely filed. In addition, she has shown that no prejudice has been suffered as a result of her late application for employment. There is no compelling reason to deny a retroactive employment order. This court retains complete control over the allowance of professional fees, thereby preventing any overreaching or improper activity of counsel before or after approval of employment. See In re Morgan, Chapter 11 Case No. 89-40074, slip op. at 5, 6 (Bankr.S.D.Ga. Aug. 11, 1989) (Davis, B.J.). Accordingly, the employment of Ms. Tipton-Downie as debtor's counsel retroactive to July 28, 1992, the date of filing, is approved.

The second issue before the court is whether debtor's counsel or the U.S. Trustee is entitled to the fund of money given to counsel by the debtor pre-petition. The U.S. Trustee has filed a proof of claim in the amount of $750.00 for unpaid quarterly fees due him under 28 U.S.C. § 1930(a)(6). That section provides, in pertinent part:

In addition to the filing fee paid to the clerk, a quarterly fee shall be paid to the United States trustee ... in each case under chapter 11 of title 11 ... for each quarter (including any fraction thereof) until a plan is confirmed or the case is converted or dismissed, whichever occurs first.

The U.S. Trustee seeks to have this claim paid out of the pre-petition funds given by the debtor to its counsel. The U.S. Trustee contends that the fund remained property of the bankruptcy estate when the chapter 7 conversion order was entered and that counsel's right to these funds is not fixed until this court authorizes counsel's fee request. Consequently, according to the trustee, as property of the estate, these funds are available for payment of the quarterly fees now due.

Whether a fund paid to counsel pre-petition by a debtor in a particular case is property of the estate depends on the nature of that fund. A true "retainer" in a bankruptcy context means an engagement fee paid to and earned by the attorney for the attorney agreeing to represent the debtor in the bankruptcy proceeding or a flat fee paid to the attorney for all the services to be rendered in that case. In re Georgian Arms Properties, Chapter 11 Case No. 89-10313, slip op. at 4 (Bankr. S.D.Ga. March 1, 1990) (Dalis, B.J.). Because these retainers are deemed fully earned pre-petition, they are not property of the estate. In re Burnside Steel Foundary Co., 90 B.R. 942, 944-45 & n. 1 (Bankr.N.D.Ill.1988). Conversely, a payment which is given to secure at least partially the future payment of an unknown amount of services to be rendered on behalf of the debtor in the future is not fully earned pre-petition and remains property of the estate until awarded to the attorney by court order. In re Georgian Arms Properties, Chapter 11 Case No. 89-10313, slip op. at 5; See In re Chicago Lutheran Hospital Association, 89 B.R. 719, 734 n. 4 (Bankr.N.D.Ill.1988); In re Printing Dimensions, Inc., 153 B.R. 715, 722 (Bankr.D.Md.1993).

In determining the true nature of a "retainer" agreement,

barring a clear expression of an understanding between the debtor and debtor\'s attorney that the payment to the attorney made prior to the filing of a Chapter 11 bankruptcy petition and in contemplation of that petition is a flat fee for all services to be rendered by the attorney in connection with the bankruptcy proceeding, the funds paid will be construed by this court as a payment to secure the payment of past and future services rendered by the attorney in connection with the case, remain property of the estate, and are not earned fees and reimbursement for out-of-pocket expenses until approved by this court.

In re Georgian Arms Properties, Chapter 11 Case No. 89-10313, slip op. at 7. The Bankruptcy Rule 2016(b) Statement of Attorney Compensation filed by debtor's attorney in this case states that the debtor has paid to the attorney $1,000.00 and further provides that the debtor agrees to pay $75.00 per hour for the attorney's services. In her application for fees, debtor's counsel states that she has spent 35.25 hours working on the case since July 2, 1992 and that the reasonable value of such services is $75.00 per hour. Finally, debtor's counsel seeks to have the $1,000.00 payment credited against the compensation allowed for professional services rendered. Taken together, these factors clearly establish that the "retainer" in this case was meant to secure future payment for an unknown amount of services to be rendered in the case. Accordingly, the money given to debtor's attorney is property of the estate.

Because the fund is property of the estate until awarded by this court, the U.S. Trustee contends that the fund should be available to pay his claim for past due quarterly fees. He further asserts that his claim is entitled to a first priority under § 507 of the Bankruptcy Code which provides, in pertinent part:

(a) The following expenses and claims have priority in the following order:

(1) First, administrative expenses allowed under section 503(b) of this title, and any fees and charges assessed against the estate under chapter 123 of title 28 28 U.S.C. §§ 1911 et seq.

11 U.S.C. § 507(a)(1). While § 507...