In re Dixon
| Decision Date | 21 April 1992 |
| Docket Number | Bankruptcy No. 387-33941 RCM-11,Adv. No. 387-3971. |
| Citation | 143 BR 671 |
| Parties | In re Don Ray DIXON and Dana Dene Dixon, Debtors. Dale WOOTTON, Trustee of Don Ray Dixon and Dana Dene Dixon, Plaintiff, v. William H. RAVKIND, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Texas |
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The Trustee Dale Wootton ("Plaintiff") seeks to recover $300,000 from William H. Ravkind ("Defendant"), the attorney who performed primarily criminal defense services for the Debtor Don Ray Dixon ("Dixon"). The suit sought to recover the fees as a fraudulent conveyance. Defendant has answered, and the matter was tried on March 18, 1992.
Plaintiff's cause of action is based on transfers of money and art paid an attorney, within one year of bankruptcy, for representation of Dixon in criminal investigations, trials, and appeals. While the transfers did occur within one year of the filing of the Chapter 11 bankruptcy petition of Dixon and Dana Dene Dixon (the "Debtors"), the more appropriate standard for review of those transactions is not under § 548, but rather under § 329 of the Bankruptcy Code (the "Code").1 Services performed during the pendency of a case payable from property of the bankruptcy estate are reviewable under § 330 of the Code. See the discussion of fraudulent conveyance hereafter.
The Court is not limited in fashioning the appropriate relief. Bankruptcy Rule ("BR") 2017 entitles the Court sua sponte to challenge the excessiveness of any fees received by an attorney paid in contemplation of a debtor's bankruptcy filing, which it hereby does. The Court, after reviewing the pleadings and other evidence, determines that all but $35,000 of the payments received by Defendant were unauthorized and improper, and are subject to disgorgement under 11 U.S.C. §§ 329 and 330, and BR 2017, and alternatively, under 11 U.S.C. § 548(a)(2).2
On April 22, 1987, the Debtors filed a voluntary Chapter 11 petition in California, which was then transferred to the Northern District of Texas. This adversary proceeding was filed October 14, 1987. By reason of a substitution of trustees and various other problems, the case was not tried until March 1992. Defendant was aware from September 1987 that his fee payment was being attacked.
Plaintiff is the duly appointed, qualified, and acting Trustee for the bankruptcy estate.
Defendant is a well-known attorney who specializes in the defense of federal white collar criminal charges.
Dixon had served as Chief Executive Officer of Dondi Financial Corporation, which, in turn, owned Vernon Savings and Loan Association.
In November 1986, Dixon was prominently described in the national media as being an alleged central figure in what is commonly called the savings and loan scandal. He had already received at least three letters from different United States Attorneys advising him that he was the target of a criminal investigation.
In November 1986, Dixon agreed to employ Defendant to represent him in all criminal matters which might arise out of his connection with Dondi Financial and Vernon Savings, for a flat fee of $450,000.
By modifications to that contract in December 1986, Defendant received $200,000 in cash and certain objects of art valued at $100,000, as payment in full.
At the time the fee agreement between Defendant and Dixon was entered into, no criminal charges were yet pending against Dixon. The professional services to be provided by Defendant were prospective in nature, and the transfer of funds to Defendant was not to secure a present or antecedent debt owed to Defendant by Dixon.
On June 13, 1990, more than three years after the filing of Debtors' voluntary Chapter 11 bankruptcy case, Dixon was indicted in the Northern District of Texas in CR3-90-149-G. Dixon has been indicted a second time on February 26, 1992, in 392-CR-089T.
Defendant defended Dixon in the first criminal trial, which ran from October 17, 1990 to December 20, 1990, and is currently on appeal.
Defendant credibly testified that he spent over 1,000 hours, post-petition in preparation for the Dixon trial. There were over 500,000 exhibits to be examined by Defendant, on Dixon's behalf, by the time of the criminal trial. The reasonable value for Defendant's services performed post-petition exceeded the amount he was paid. Pre-petition, Defendant was engaged in preparing for the defense of the criminal case, and participated in civil discovery with the FDIC.
Defendant did not keep time records nor did he place any part of the $200,000 cash or the $100,000 in art into a trust or escrow, but, upon receipt, treated the monetary transfer the same as his ordinary income. He deposited the cash in his operating account and disposed of same in his business. He disposed of the majority of the art that he received.
Because Defendant kept no time records, the hours he spent pre-petition on Dixon's behalf are difficult to calculate. It appears that Defendant spent in the range of 120-130 hours maximum pre-petition. If a lodestar were used, a reasonable rate for such hours would be $250-$275 per hour, given Defendant's qualifications and abilities. This would calculate to a pre-petition lodestar fee earned in the range of $30,000-$35,000.
There was credible testimony that a reasonable attorney in Dallas County, Texas, practicing criminal law, would not have undertaken the criminal representation of Dixon for less than $300,000. This fact was substantially undisputed. However, it needs to be kept in mind that the voluntary petition was filed April 22, 1987, and Dixon's criminal indictment was not until over three years later, i.e., June 13, 1990.
At all material times, the Debtors have been insolvent within the meaning of 11 U.S.C. § 548.
When Defendant received the money and art from Dixon, he knew of Dixon's proposed bankruptcy proceeding, and he and Dixon were concerned that Dixon's assets might shortly be seized by the government as part of a Racketeer Influenced and Corrupt Organizations ("RICO") seizure.
The money and art transferred by the Debtors to Defendant were not exempt properties of Dixon.
Of the art transferred to Defendant, the following art still remains in Defendant's possession, or under his or his law firm's control. (See, Plaintiff's Exhibit ("PX") 1):
ARTIST TITLE SIZE
Oils
James Boren Summer Home for a Cowboy 22 × 29
Grant McDonald Fireflies 10 × 12
James Boren Homeward Bound 20 × 34
Bronzes
Ken Ottinger The Signal
Karl Kauba Small Indian
The present value of such art is speculative, but probably does not exceed $10,000. Other pieces of the art were sold for an unspecified amount, probably in the range of $15,000-$25,000. Defendant characterized all of the art as "cowboy art" which had limited appeal, and immediately declined in value after the date of the transfer.
The transfers to Defendant in cash and property, as a fee for Dixon's criminal representation, did not benefit the creditors of the Debtors generally, but served to deplete the assets which would later become assets of the bankruptcy estate.
While the transfer was disclosed on Debtors' schedules, Defendant failed to make a timely disclosure of the $300,000 fee, and his agreement with Dixon, as required by § 329(a) and Bankruptcy Rule 2016(b). Defendant refused and failed to file an application for an order approving his appointment when Dixon became a Debtor, as required by 11 U.S.C. § 327(e). Despite the straightforward language of § 327, no court approval was obtained to employ Defendant and pay him with bankruptcy estate funds. In addition, Defendant failed to notify the Debtors' creditors or the Court post-petition of his intention to make any distributions from any retainer as required by Local Rule 2016(b). Finally, Defendant did not obtain post-petition Court approval of his use of the funds and art received to fund Dixon's criminal defense. 11 U.S.C. § 330.
Defendant does not practice regularly in the Bankruptcy Court, and claims no expertise in bankruptcy law. He apparently relied, to some extent, on the advice of the Debtors' earlier counsel, a California attorney experienced in bankruptcy law. Defendant acted in good faith, with no intention to mislead the Bankruptcy Court.
§ 329 — Under the Code, as under prior law, compensation of attorneys employed to render services in contemplation of or in connection with bankruptcy has always been the subject of close scrutiny. The statutory provisions are unambiguous. Attorney fees are subject to review by the court, notwithstanding the terms of any fee arrangement between an attorney and a debtor. Section 329(a) of the Code requires a debtor's attorney to file, with the court, a statement of the source and amount of the compensation paid or agreed to be paid to the attorney within one year of bankruptcy, for services rendered or to be rendered in contemplation of or in connection with a case under the Code.3 Section 329(b) of the Code and BR 2017 permit a court to cancel any agreement for payment of services, or order the return of compensation paid, if the payments exceed the reasonable value of the services provided. The standard of review under § 329 is based on reasonableness. If the court determines that the pre-petition payments received by an attorney are excessive, the court may order a refund to the estate. 11 U.S.C. § 329(b). In re Leff, 88 B.R. 105 (Bankr.N.D.Tex.1988), aff'd sub nom, Stewart v. Law Offices of Dennis Olson, 93 B.R. 91 (N.D.Tex.1988), aff'd, 878 F.2d 1432 (5th Cir.1989); Matter of Kroh Bros. Development Co., 120 B.R. 997 (Bankr.W.D.Mo.1989); In re Office Products of America, 136 B.R. 964 (Bankr. W.D.Tex.1992).
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