In re Lee
| Decision Date | 08 July 2013 |
| Docket Number | No. 09–20663–JNF.,09–20663–JNF. |
| Citation | 495 B.R. 107 |
| Parties | In re Brian P. LEE and Valerie A. Lee, Debtors. |
| Court | U.S. Bankruptcy Court — District of Massachusetts |
OPINION TEXT STARTS HERE
Allan R. Curhan, Allan R Curhan & Assoc., Plymouth, MA, for Debtors.
Kathleen R. Cruickshank, Murphy & King P.C., Boston, MA, for Trustee.
The matters before the Court for determination are: 1) the “Motion of Chapter 7 Trustee for Review of Fees of Counsel to Debtors and Special Counsel to Debtors Pursuant to 11 U.S.C. § 329(b)” (the “Fee Review Motion”); 2) the Application of Joseph K. Curran, Jr. for Compensation as Special Counsel to the Debtors (the “Fee Application”); and 3) the Trustee's Objection to Claim of Exemption (the “Exemption Objection”). The Debtors were represented by Attorney Allan R. Curhan, Esq. in their Chapter 13 case. Following the conversion of their Chapter 13 case to a case under Chapter 7, they continued to be, and currently are, represented by him. Joseph K. Curran, Jr., Esq., served as their Special Counsel. He is represented by Warren Agin, Esq. The Debtors, through Attorney Curhan, filed an Objection to the Trustee's Fee Review Motion; Attorney Curran filed a lengthy Response to the Trustee's Fee Review Motion, as well as an affidavit. The Debtors also filed a Response to the Exemption Objection.
The Court held two hearings with respect to the matters. The Court held the first hearing on June 5, 2013 on the Exemption Objection and the second hearing on June 20, 2013 with respect to the three matters outlined above. At the first hearing on the Exemption Objection, counsel to the Debtors requested that the Court review a letter written by the Debtors. No party objected to the submission of the letter dated June 5, 2013. Accordingly, the Court has reviewed the letter and admitted it as evidence.
Following the first hearing on the Exemption Objection, the Trustee filed the Fee Review Motion. At the second hearing, the Court granted all parties an opportunity to present evidence. All of the parties expressly declined the opportunity to present evidence. Thus, the Court makes the following findings of fact from the record of proceedings in this case, from the representations of counsel made at the hearings, and the Debtors' letter to the Court. SeeFed. R. Bankr.P. 7052 and Fed. R. Bankr.P. 9014. The facts necessary to resolve the Exemption Objection, the Fee Application and the Fee Review Motion are not in material dispute. Accordingly, the Court shall treat the matters as ripe for determination. Cf.Fed. R. Bankr.P. 7056.
The matters before the Court shed light on the consequences of the Debtors' failure to timely list and describe a personal injury claim on their Schedule B–Personal Property, as well as their failure to amend their Schedules when it should have been apparent that a valuable asset had been omitted from Schedule B and a legitimate exemption had not been claimed by the Debtors on Schedule C–Property Claimed as Exempt. Because of these omissions, the Court must examine the appropriate remedies where the Debtors' bankruptcy attorney failed to adequately represent them, and their Special Counsel exhibited ignorance of the requirements of bankruptcy law, as well as procedural rules governing his authority to disburse proceeds from a settlement of Mr. Lee's personal injury claim to satisfy his fees and costs and to pay creditors with liens on the settlement proceeds. Due to the failures of Debtors' counsel and Special Counsel to obtain requisite authority from this Court, the Debtors' bankruptcy estate has incurred fees that it otherwise would not have had to incur and has been prejudiced.
On November 4, 2009, the Debtors filed a petition for relief under Chapter 13 of the United States Bankruptcy Code, together with Schedules of assets and liabilities, a Statement of Financial Affairs, a Disclosure of Compensation of Attorney for Debtor filed pursuant to 11 U.S.C. 329(a) and Fed. R. Bankr.P.2016(b), and a Chapter 13 Agreement between the Debtors and Attorney Curhan.1 The Rule 2016(b) Disclosure reflects that Attorney Curhan was to be paid $2,500 in total and that prior to the filing he had received $1,500. Attorney Curhan represented at the June 20, 2013 hearing that he received a total of $2,500 in fees for his representation of the Debtors in this case.
On June 15, 2010, more than seven months after the petition date, the Debtors amended their Schedule B–Personal Property to add a personal injury claim (the “Personal Injury Claim”) which was the subject of a pending state court proceeding in Plymouth Superior Court, Department of the Trial Court, namely Brian P. Lee v. Caroline B. Pina, Gail C. Baldwin and George L. Baldwin, Docket No. 2008–01275CV2. The Debtors described the claim as and indicated that its value was unknown. The Personal Injury Claim arose out of an accident involving the Debtor, Mr. Lee, on August 29, 2007, while he was engaged in a construction and renovation project for his employer prior to the commencement of the Chapter 13 case. The Debtors did not file an Amended Schedule C claiming the Personal Injury Claim as exempt at that time.
On August 18, 2010, approximately ten months after the commencement of the their Chapter 13 case, the Debtors, through Attorney Curhan, filed an “Application to Employ Special Counsel and Affidavit in Support of Application” (the “Application”). The Application did not contain any references to 11 U.S.C. §§ 327 or 328. Pursuant to the Application, the Debtors sought to employ Attorney Curran of Curran & Desharnais, P.C. as their Special Counsel to represent Mr. Lee in the state court proceeding with respect to his complaint, which was filed in 2008, to recover damages relating to his personal injuries, namely severe damage to a ligament and tendons in his left ankle. The Application described the services to be performed, including representation of the Debtor, Mr. Lee, in the state court action, preparation of the action for trial, and, if necessary, representation of Mr. Lee at a trial before a jury, for a contingent fee of 33.3%. At the time the Application was filed, the trial was scheduled for August 26, 2010. Neither the Debtors in the Application nor Special Counsel in his affidavit indicated that the Personal Injury Claim was subject to any type of arbitration or that Mr. Lee would seek to arbitrate his claim.
Special Counsel attached to the Application the “Agreement to Perform Legal Services” executed by the Debtor and Special Counsel. The Application, which is dated August 18, 2010, was filed approximately two years after the Agreement was executed. The Application was approved by the Court on November 10, 2010.
Mr. Lee's Personal Injury Claim was the subject of binding arbitration. On or about January 14, 2011, the Plymouth Superior Court granted Mr. Lee's “Petition for Approval of Third Party Settlement,” filed on his behalf by Attorney Curran, and confirmed an arbitration award in the sum of $52,648 (the “Award”). Attorney Curran submitted an affidavit in support of emergency consideration of the Petition in which he referenced a stipulation between the Debtors and U.S. Bank, N.A., which this Court had approved in October of 2010, pursuant to which the Debtors and their mortgagee agreed that if the Debtors defaulted in their payment obligations, upon the filing of an affidavit of default, U.S. Bank would be free to exercise its right to foreclose the mortgage on the Debtors' home.
The proceeds of the Award were paid to Attorney Curran. Attorney Curran submitted a “Memorandum of Settlement and Disbursements” to the Superior Court in which he set forth the allocation of the Award pursuant to Mass. Gen. Laws Ch. 152, § 15 as follows:
+--------------------------------------------------------------------------+
¦ ¦1. Plaintiff ¦$14,034.45 ¦
+--------+------------------------+----------------------------------------¦
¦ ¦2. GUARD Insurance Group¦$15,258.67 ¦
+--------+------------------------+----------------------------------------¦
¦ ¦3. Attorney's Fee ¦$17,549.33 ¦
+--------+------------------------+----------------------------------------¦
¦ ¦4. Attorney's Costs ¦$ 5,778.54 ¦
+--------+------------------------+----------------------------------------¦
¦ ¦TOTAL ¦$52,648.00 [sic] 2 ¦
+--------------------------------------------------------------------------+
Attorney Curran disbursed the funds without filing an application for compensation in accordance with 11 U.S.C. § 330 or Fed. R. Bankr.P.2016 and without obtaining authority from this Court to make disbursements.
Neither Attorney Curhan nor Attorney Curran informed the Chapter 13 Trustee or the Court of the existence of the Award, although Attorney Curran represented in his affidavit that he contacted the Chapter 13 Trustee prior to the arbitration proceeding “to discuss the claim and to ascertain the Trustee's intentions regarding the claim.” Moreover, although the Debtors amended their Chapter 13 plan at least four times, they did not amend their Chapter 13 Plan after January 11, 2011, to account for the Award even though the Debtors had received $14,034.45 in settlement proceeds and had not claimed an exemption with respect to the Personal Injury Claim on Schedule C. Around the time the Debtors received the Award, the Court entered an order confirming their Fourth Amended Chapter 13 Plan. The Plan did not reference the Personal Injury Claim, the state court proceeding, or the Award as an asset of the Debtors in the liquidation analysis section of their Plan.
In his affidavit, Attorney Curran stated that prior to proceeding with...
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