In re Holmes, Bankruptcy No. 01-16818.

• Decision Date: 02 February 2004
• Docket Number: Adv. Proc. No. 02-1225.,Bankruptcy No. 01-16818.
• Parties: In re Waver C. HOLMES, Darlene C. Holmes. R. Michael Bolen, United States Trustee, Plaintiff, v. Denvil F. Crowe, Defendant.
• Court: U.S. District Court — Northern District of Mississippi

304 B.R. 292

In re Waver C. HOLMES, Darlene C. Holmes.

R. Michael Bolen, United States Trustee, Plaintiff, v. Denvil F. Crowe, Defendant.

Bankruptcy No. 01-16818.

Adv. Proc. No. 02-1225.

United States District Court, N.D. Mississippi.

February 2, 2004.

John L. Daugherty, Office of General Counsel, Washington, DC, for R. Michael Bolen.

Robert Q. Whitwell, Farese, Farese & Farese, Ashland, MS, for Denvil F. Crowe.

OPINION

DAVID W. HOUSTON, III, Bankruptcy Judge.

On consideration before the court is a motion for partial summary judgment filed by the plaintiff, R. Michael Bolen, United States Trustee (UST); a response thereto having been filed by the defendant, Denvil F. Crowe (Crowe); and the court, having heard and considered same, hereby finds as follows, to-wit:

I.

The court has jurisdiction of the parties to and the subject matter of this adversary proceeding pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157, in addition to the General Order of Reference entered by the United States District Court for the Northern District of Mississippi on July 27, 1984. This is a core proceeding as defined in 28 U.S.C. § 157(b)(2)(A).

II.

The UST has filed an identical cause of action against Crowe in thirty-six bankruptcy cases in which Crowe was employed by and served as the attorney for the debtor(s). As a part of the complaint, the UST has asserted that Crowe in thirty-five of the thirty-six cases improperly induced his debtor clients to execute a living will/durable power of attorney for a separate fee of $250.00, in addition to the $1,500.00 fee paid for the bankruptcy representation. The UST contends that, since this additional fee was inextricably tied to the bankruptcy filing, that it should have been revealed by Crowe in his disclosure of compensation which is required by § 329 of the Bankruptcy Code and by Rule 2016(b) of the Federal Rules of Bankruptcy Procedure. The UST alleges that Crowe exploited his financially distressed clients by "cross-marketing" the living wills/durable powers of attorney on occasions when the clients were particularly vulnerable. (These "form" documents are actually entitled "Advance Health Care Directive" and "Durable General Power of Attorney." Substantively, they appear to be identical for each debtor.)

Crowe contends, to the contrary, that none of his clients were required to purchase a living will/durable power of attorney but that this was an option explained to each of them after the bankruptcy consultation had been concluded. He denies that these documents were connected to the bankruptcy cases.

In another part of the complaint, the UST has asserted that Crowe "split-fees" with his non-attorney employees by paying them $5.00 bonuses as incentives for the following events:

a. When the clients paid at least $300.00 and executed their retainer agreements.

b. When the clients completed and returned their bankruptcy questionnaires.

c. When the clients signed the living wills/durable powers of attorney.

In his memorandum of law, the UST summarized the counts in his complaint on which he is seeking summary judgment as follows, to-wit:

a. Count I: In thirty-five of the thirty-six cases, Crowe failed to disclose the $250.00 fee and his fee-sharing arrangements in violation of 11 U.S.C. § 329, and in all thirty-six cases, Crowe failed to disclose the fee-sharing arrangements in violation of Rule 2016, Federal Rules of Bankruptcy Procedure.

b. Count III: In all thirty-six cases, Crowe shared compensation with his non-attorney staff in violation of 11 U.S.C. § 504.

c. Count IV: In all thirty-six cases, Crowe shared compensation with his non-attorney staff in violation of the Mississippi Rules of Professional Conduct.

As such, insofar as the subject motion is concerned, there are actually only two questions to address:

a. Did Crowe improperly charge and fail to disclose the additional fee of $250.00 for the living wills/durable powers of attorney in connection with his bankruptcy representation of his debtor clients?

b. Did Crowe improperly engage in "fee-splitting" or "fee sharing" with his non-attorney staff members by paying the $5.00 incentive bonuses?

III.

Summary judgment is properly granted when pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. Bankruptcy Rule 7056; Uniform Local Bankruptcy Rule 18. The court must examine each issue in a light most favorable to the nonmoving party. Anderson v. Liberty Lobby, 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Phillips v. OKC Corp., 812 F.2d 265 (5th Cir.1987); Putman v. Insurance Co. of North America, 673 F.Supp. 171 (N.D.Miss.1987). The moving party must demonstrate to the court the basis on which it believes that summary judgment is justified. The nonmoving party must then show that a genuine issue of material fact arises as to that issue. Celotex Corporation v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Leonard v. Dixie Well Service & Supply, Inc., 828 F.2d 291 (5th Cir.1987), Putman v. Insurance Co. of North America, 673 F.Supp. 171 (N.D.Miss.1987). An issue is genuine if "there is sufficient evidence favoring the nonmoving party for a fact finder to find for that party." Phillips, 812 F.2d at 273. A fact is material if it would "affect the outcome of the lawsuit under the governing substantive law." Phillips, 812 F.2d at 272.

IV.

Did Crowe improperly charge and fail to disclose the additional fee of $250.00 for the living wills/durable powers of attorney in connection with his bankruptcy representation of his debtor clients?

Section 329 of the Bankruptcy Code provides as follows, to-wit:

(a) Any attorney representing a debtor in a case under this title, or in connection with such a case, whether or not such attorney applies for compensation under this title, shall file with the court a statement of the compensation paid or agreed to be paid, if such payment or agreement was made after one year before the date of the filing of the petition, for services rendered or to be rendered in contemplation of or in connection with the case by such attorney, and the source of such compensation.

(b) If such compensation exceeds the reasonable value of any such services, the court may cancel any such agreement, or order the return of any such payment, to the extent excessive, to —

(1) the estate, if the property transferred —

(A) would have been property of the estate; or

(B) was to be paid by or on behalf of the debtor under a plan under chapter 11, 12, or 13 of this title; or

(2) the entity that made such payment.

One of the primary purposes of the aforementioned section is to prevent overreaching by a debtor's attorney. See, Jensen v. U.S. Trustee (In re Smitty's Truck Stop), 210 B.R. 844 (10th Cir. BAP 1997); In re Dixon, 143 B.R. 671 (Bankr.N.D.Texas 1992); and In re Mayeaux, 269 B.R. 614 (Bankr.E.D.Texas 2001). The statute clearly applies to services rendered in contemplation of or in connection with the bankruptcy case. The extent to which the living wills/durable powers of attorney were connected to the debtors' bankruptcy cases is vigorously disputed in this proceeding.

Without question, Crowe received and did not disclose the separate $250.00 fee which he attributes to the preparation of the living wills/durable powers of attorney. Crowe contends, however, that his clients were not required to purchase these services, as well as, that the consultations about the need for these documents were separate and distinct from the consultations concerning the filing of the bankruptcy cases. From what the court has seen in the deposition extracts, the various affidavits that have been submitted, and the other discovery responses, there is a wide disparity in the versions of the events that occurred in Crowe's office as perceived by the UST and as perceived by Crowe. As such, the connectivity of the additional services to the filing of the bankruptcy cases is a material fact which obviously remains in dispute. It can only be resolved through the presentation of the witnesses' testimony in open court where that testimony can be subjected to cross-examination and the court's scrutiny.

Therefore, as to this issue, the court is of the opinion that the motion for partial summary judgment is not well taken. It will be overruled by a separate order to be entered contemporaneously herewith.

V.

Did Crowe improperly engage in "fee-splitting" or "fee-sharing" with his non-attorney staff members by paying the $5.00 incentive bonuses?

There is no dispute that Crowe paid his non-attorney staff $5.00 bonuses each time one of the following events occurred:

a. When the clients paid at least $300.00 and executed a retainer agreement.

b. When the clients completed and returned their bankruptcy questionnaires.

c. When the clients signed the living wills/durable powers of attorney.

Excepting the total amount of the bonuses actually paid, the factual circumstances relevant to this question are undisputed. The question is, therefore, whether Crowe's practice of paying bonuses for the aforementioned events constitutes an impermissible "fee-splitting" or "fee-sharing" arrangement proscribed by § 504 of the Bankruptcy Code, Rule 2016(b) of the Federal Rules of Bankruptcy Procedure, and Rule 5.4(a) of the Mississippi Rules of Professional Conduct.

Section 504 of the Bankruptcy Code provides as follows:

(a) Except as provided in subsection (b) of this section, a person receiving compensation or reimbursement under section 503(b)(2) or 503(b)(4) of this title may not share or agree to share —

(1) any such compensation or reimbursement with another person; or

(2) any compensation or reimbursement received by another person under such sections.

(b)(1) A member, partner, or regular associate in a professional...