In re Egwim, A-01-71246-PWB.

• Decision Date: 31 March 2003
• Docket Number: No. A-01-71246-PWB.,A-01-71246-PWB.
• Citation: 291 B.R. 559
• Parties: In the Matter of Chidi EGWIM and Anita Egwim, Debtors.
• Court: U.S. Bankruptcy Court — Northern District of Georgia

291 B.R. 559

In the Matter of Chidi EGWIM and Anita Egwim, Debtors.

No. A-01-71246-PWB.

United States Bankruptcy Court, N.D. Georgia, Atlanta Division.

March 31, 2003.

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MEMORANDUM OPINION

PAUL W. BONAPFEL, Bankruptcy Judge.

This Opinion considers three issues with regard to a lawyer's responsibilities in representing an individual in a chapter 7 case:

1. May a lawyer limit the scope of representation of a chapter 7 debtor by excluding certain matters?

2. Regardless of the arrangements between the debtor and the lawyer, what are the lawyer's duties until the Court grants permission to withdraw?

3. Under what circumstances does the Court grant leave to withdraw when the reason is the debtor's payment of attorney's fees?

Because it is important that lawyers representing chapter 7 debtors in this Court understand the Court's expectations with regard to their professional responsibilities, this Opinion discusses these issues at length. The Court's conclusions are summarized as follows. First, the general rule is that, absent special circumstances, an attorney representing a chapter 7 debtor may not limit the scope of the representation; therefore, the attorney must represent the debtor in all aspects of the bankruptcy case, including any contested matters or adversary proceedings that involve the debtor's interests. Second, regardless of the reason for withdrawal, the lawyer is required to represent the debtor unless and until the attorney withdraws in accordance with Rule 9010-2 of the Local Rules of this Court ("BLR"), which requires leave of Court to withdraw unless the debtor consents.¹ Third, when the reason is payment of fees, leave to withdraw is properly granted only if the attorney demonstrates that, taking into account considerations of fairness, reasonableness, and proper protection of the debtor's rights based on the circumstances of the case, continued representation imposes an unreasonable burden on counsel that justifies withdrawal.

In this case, the Debtors were represented by counsel when they filed their chapter 7 petition, but appeared pro se in two proceedings. The first pro se appearance was in an adversary proceeding filed by a creditor objecting to their discharge and the dischargeability of its debt; the second was at a hearing on a mortgage lender's motion for relief from the stay at which it appeared that reaffirmation and retention of the property might be appropriate.

The Court sua sponte issued an Order for counsel to show cause why sanctions should not be imposed for failure to represent the Debtors. At the hearing, counsel asserted that representation of the Debtors with regard to these matters was not required because the limited scope of counsel's engagement did not include them and Debtors had not paid additional fees for such additional services.

Counsel's approach does not appear to be uncommon; the Court perceives that many lawyers representing chapter 7 debtors in this Court follow similar practices. Because counsel in this case appears to have proceeded in the good faith belief that counsel's conduct was proper and because there has been no showing of any adverse consequences to the Debtors, the Court determined at the hearing that no sanctions or other discipline are appropriate or necessary in this case, and the Court accepted counsel's explanation as a fully satisfactory resolution of the questions raised by the show cause order in the circumstances of this case. Although the Court thus did not require counsel to proceed further and makes no findings or conclusions with regard to counsel's representation in this matter, it is appropriate to explain the requirements of professional conduct for lawyers for chapter 7 debtors that appear to be violated when a represented chapter 7 debtor appears pro se in a bankruptcy case or related adversary proceeding and which this Court has the duty to enforce through disgorgement of fees, appropriate sanctions, or other discipline.²

I. STATEMENT OF FACTS

On August 31, 2001, counsel for Debtors filed a chapter 7 petition on their behalf. Counsel never requested permission to withdraw and thus remained counsel of record for Debtors.

Debtors' schedules of assets and liabilities³ reflected: a jointly owned residence, encumbered by two mortgages with combined indebtedness of approximately $145,000, the residence's scheduled value; a ten year old unencumbered vehicle with a value of $1,500; a one year old leased vehicle; various personal property of nominal value, substantially less than the available exemption; unpaid state and federal income taxes of approximately $2,000; and about $185,000 of unsecured claims. The unsecured claims included a liability of approximately $71,500 on Debtors' guarantees of a loan made by a bank and guaranteed by the Small Business Administration for equipment purchased for their bagel shop business. Other unsecured claims include $17,000 on a personal guaranty of a business lease, and about $9,000 on guarantees of other business debt; the remaining unsecured claims appear to be a student loan, various personal loans (possibly for money to put into the failing bagel shop business in an effort to keep it going or to pay living expenses because it was producing no income for the Debtors), and other consumer debts.

As required by 11 U.S.C. § 329(a) and Rule 2016(b) of the Federal Rules of Bankruptcy Procedure, counsel filed a disclosure of compensation received in connection with this case. The Rule 2016(b) statement in this case was a published form with boilerplate language describing the terms of representation and payments received or promised and with spaces for counsel to fill in blanks and add additional terms. The Rule 2016 statement states that counsel agreed to accept $475 for representation of the Debtors in the case, of which $240 had been paid prior to the filing of the statement, leaving a balance due of $235 to be paid "prior to or at the 341 hearing."

Paragraphs five and six of the statement recite the following (emphasis in italics, material inserted in the boilerplate form by counsel underlined):

5. In return for the above-disclosed fee, I have agreed to render legal service for all aspects of the bankruptcy case, including:

a) Analysis of the debtor's financial situation, and rendering advice and assistance to the debtor(s) in determining whether to file a petition under Title 11, United States Code;

b) Preparation and filing of any petition, schedule, statement of affairs, and other documents required by the court;

c) Representation of the debtor(s) at the meeting of creditors, confirmation hearing and any adjourned hearings thereof;

d) (Other provisions as needed)

Debtors have paid $240 of the $475 due for attorney fees. Debtors will pay the balance of attorney fees prior to or at the 341 Hearing.

6. By agreement with the debtor(s) the above disclosed fee does not include the following services:

Fees include only those services specifically listed. Fees do not include adversary and/or contested matters. Fees include preparation of petition and schedules; attendance at 341 Hearing; reaffirmation and/or surrender agreements as necessary; no other services provided.

Pursuant to the Federal Rules of Bankruptcy Procedure, a § 341 meeting was scheduled for October 11, 2001, and December 10, 2001 was fixed as the last day for the filing of complaints objecting to discharge or to except certain debts from discharge. The § 341 meeting was held on October 11, 2001, as scheduled. On that same day, the chapter 7 trustee filed a No Distribution Report, indicating that there were no assets available for distribution to creditors.

On December 27, 2001 — 17 days after the expiration of the December 10 deadline — the bank filed an adversary proceeding objecting to the discharge of the Debtors and, alternatively, contending that the debt owed to the bank was excepted from discharge. Counsel for Debtors was served with the summons and complaint but did not file an answer on their behalf. In the Debtors' untimely filed pro se response, Debtors stated that they "were unable to retain an attorney," and that they filed their answer late "due to a misunderstanding about existing legal representation."

On April 17, 2002, the Court held a hearing in the adversary proceeding on the bank's request for entry of default judgment and for the bank to show cause why its complaint should not be dismissed due to its untimely filing⁴ and failure to set forth a statutory basis for the relief requested. Debtors' counsel was served with notice of this hearing but did not appear. Proceeding pro se, Debtors informed the Court that their counsel had told them that counsel represented them in the main case only, and not in the adversary proceeding. The adversary proceeding was eventually dismissed; consequently, the absence of legal counsel in the adversary proceeding did not prejudice Debtors' substantive rights.

On September 25, 2002, the Court held a hearing on the motion of one of the mortgage lenders for relief from the stay. Although served with notice of the hearing, counsel for Debtors did not attend this hearing. Debtors, however, attended, and indicated that they desired to retain their residence. In view of the apparent interest of the lender and Debtors in discussing resolution of their issues through an agreement, the Court deferred ruling on the lender's motion for relief from stay. Thus, at least through the time of this hearing, the absence of representation did not result in a lifting of the stay that would have permitted the lender to foreclose.

The issue with regard to the stay motion is not whether Debtors had legal or factual bases for opposing it. As debtors in a chapter 7 case where the trustee had already filed a no distribution report indicating that the estate had no interest in the residence, Debtors probably had no grounds...