In re Kim Petersen Blanca Estela Gaytan Enrique Aguilar-Lara Jose Vargas
| Decision Date | 23 August 2018 |
| Docket Number | Case No. 17-02064-als7,Case No. 17-01612-als7,Case No. 17-01831-als7,Case No. 17-01869-als7 |
| Parties | In re: Kim Petersen Blanca Estela Gaytan Enrique Aguilar-Lara Jose Vargas and Bertha Vargas Debtor(s). |
| Court | U.S. Bankruptcy Court — Southern District of Iowa |
The above captioned cases involve Iowa residents that were clients of the VandenBosch Law Firm ("Law Firm") located in Omaha, Nebraska. Actions taken by counsel involving these clients resulted in the Office of United States Trustee ("UST") filing Motions for Examination of Fees and for Refund of Fees and/or Civil Penalty and the Court's Order to Show Cause.
Antonio VandenBosch is an attorney licensed to practice in Nebraska and is the owner and manager of the firm that bears his name. Attorneys David Reed and Josh Sleper also worked at the firm. VandenBosch routinely represented clients in chapter 7 cases in Nebraska. Sleper was the only attorney at the firm licensed to practice in Iowa. Word of mouth referrals and radio advertising have resulted in the Law Firm being well known in Spanish speaking communities in the area.
Valentina Saavedra has focused ten years of her paralegal practice on consumer law. She is certified as a virtual bankruptcy paralegal and speaks fluent Spanish. The Law Firm has routinely hired her on a contract basis to assist with the preparation and filing of bankruptcy documents and to assist with its Spanish-speaking clients. Saavedra served as a paralegal in all of the cases relevant to this Decision.
The record details the standard procedure followed for all bankruptcy files involving Saavedra and the Law Firm. An attorney meets with the clients to review their financial condition and discuss whether filing bankruptcy is a suitable option. Clients supply the attorney the information necessary to complete the schedules which the Law Firm then provides to Saavedra. She prepares the schedules, follows up with the clients to obtain any additional information needed, reviews the documents with the clients, makes any necessary revisions and obtains the required signatures. Once these tasks are completed, the attorney responsible for the file does a final review of the documents and authorizes the case to be filed. Saavedra provides no legal advice, but she does explain the procedures and the schedules to the clients. If specific legal questions need to be addressed she contacts the assigned attorney.
Sometime in late spring or early summer of 2017, Sleper informed the Law Firm that he was going to leave for a government immigration job. The timeframe for these plans was fluid because his offer was conditional on the completion of background checks. At that time Sleper was representing two Iowa residents related to their anticipated bankruptcy filings: Kim Petersen and Blanca Gaytan1. Aguilar-Lara, also an Iowa resident, executed a retainer agreement for bankruptcy representation before Sleper left. The Law Firm's representation of the Vargases appears to be the subject of a retainer agreement that was executed after Sleper had departed.2 None of these bankruptcies had been filed before Sleper left the Law Firm ("Iowa cases").
Realizing that the Law Firm would need an attorney licensed in Iowa to assist in filing the Iowa cases, Reed called Larry Melcher a Council Bluffs lawyer that practiced in bankruptcy.3 The exact details of the conversation and what was agreed to between the attorneys during their telephone conversation is less than clear. The arrangement was not reduced to writing and their recollections of key terms differ. The Law Firm explains that Reed asked Melcher if he would file the cases and attend the 341 meeting in exchange for hourly compensation, which he estimated to be approximately $400 per case. Melcher, on the other hand, believed he wouldreceive $400 for attending Petersen's 341 meeting and the other 3 cases would be directly referred to him for filing. Melcher states he has received no payment for his involvement in the Iowa cases from any source. The Law Firm states that it has received no invoices from Melcher requesting payment.
The UST filed identical motions in each of the Iowa cases that raise three issues related to the actions of the Law Firm and Melcher: (1) that counsel violated the disclosure requirements under Bankruptcy Rule 2016 related to fee sharing; (2) that the fees paid to counsel were excessive because the amount charged was not commensurate to the value of services provided; and (3) that counsel's conduct was in violation of 11 U.S.C. 526(c). The relief requested asks the Court to order disgorgement of all fees paid, impose civil penalties and to address the Law Firm's unauthorized practice of law. Melcher filed a response to the Motions. The Court issued an Order to Show Cause against the Law Firm related to its involvement in the Iowa cases. An evidentiary hearing was conducted and upon receipt of the transcript the matters were deemed fully submitted.
The Bankruptcy Code states in relevant part:
11 U.S.C. §329 (2018); See also Fed. Rule of Bank. Pro. 2017 (2018). The disclosure requirements imposed by section 329 are "mandatory, not permissive." In re Sandpoint Cattle Co., LLC, 556 B.R. 408, 421 (Bankr. D. Neb. 2016) (citation omitted). Id. quoting In re Rio Valley Motors Co., LLC, 2007 WL 2492685, at *2 (Bankr. D.N.M. Aug. 29, 2007) (quoting Jensen v. U.S. Trustee (In re Smitty's Truck Stop, Inc.), 210 B.R. 844, 848 (10th Cir. BAP 1997)).
Disclosure of compensation required under 11 U.S.C. §329 is accomplished as follows:
Every attorney for a debtor, whether or not the attorney applies for compensation, shall file and transmit to the United States trustee within 14 days after the order for relief, or at another time as the court may direct, the statement required by § 329 of the Code including whether the attorney has shared or agreed to share the compensation with any other entity. The statement shall include the particulars of any such sharing or agreement to share by the attorney, but the details of any agreement for the sharing of the compensation with a member or regular associate of the attorney's law firm shall not be required. A supplemental statement shall be filed and transmitted to the United States trustee within 14 days after any payment or agreement not previously disclosed.
Fed. Rule of Bank. Pro. 2016(b) (2018). The required information is generally conveyed on Official Form 2030 filed with the petition and schedules. These Forms were filed in each of the Iowa cases and correctly stated the amount of the fees paid to the Law Firm4 but contained other serious errors. Melcher's name appears over the Law Firm's information making it appear that: (1) he is somehow associated with that office, which he is not; and (2) that he received payment of fees which he did not. No supplemental or amended fee disclosures were filed in any of the Iowa cases.
In re Midland Props. II, LLC, No. BK16-80487, 2016 Bankr. LEXIS 2438, at *25 (Bankr. D. Neb. June 29, 2016) citing In re Miller Auto. Group, Inc., 521 B.R. 323, 333 (Bankr. W.D. Mo. 2014). No showing of harm is required for this remedy to be imposed. In re Johnson, No. 05-30023, 2006 WL 3242692 at *11 (Bankr. D.S.D. Nov. 7, 2006), citing Briggs v. LaBarge (In re McGregory), 340 B.R. 915, 922-23 (B.A.P 8th Cir. 2006). Further, disgorgement is not limited to circumstances of willful misconduct by an attorney:
While a more 'technical breach' of the attorney's obligations under the Bankruptcy Code and the Bankruptcy Rules may not warrant denial of all compensation, it is clear that a finding of willfulness is not required; '[d]isgorgement may be proper even though the failure to [comply with the Code and Rules] resulted ... from negligence or inadvertence.'
In re Chatkhan, 496 B.R.687, 695 (Bankr. E.D.N.Y. 2012) (quoting Vergos v. Mendes & Gonzales PLLC (In re McCrary & Dunlap Const. Co., LLC), 79 Fed. Appx. 770, 779 (6th Cir. 2003). The case law is clear that disgorgement of fees is appropriate upon any failure to accurately disclose compensation and the sharing of compensation. See Schroeder v. Rouse (In re Redding), 263 B.R. 874, 880 (B.A.P. 8th Cir. 2001).
The Law Firm admits that the Official Forms 2030 filed in the Iowa cases are not correct. All fees paid to the Law Firm by the clients in the Iowa cases shall be disgorged and refunded to those individuals within 30 days5 from the date this order is entered on the docket.6
Bankruptcy courts have the inherent authority to discipline and sanction attorneys who appear before it to prevent an abuse of the bankruptcy process. Needler v. Casamatta (In re Miller Auto. Grp. Inc.), 536 B.R. 828, 835 (B.A.P. 8th Cir. 2015); In re Burnett, 450 B.R. 116, 132 (Bankr. E.D.Ark. 2011). Fed. R. Bankr. P. 9011; 11 U.S.C.S. § 105.
Rule 9011 requires that filings be signed by the...
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