In Re Lynn Marie Buck

• Citation: 432 B.R. 13
• Decision Date: 09 July 2010
• Docket Number: 08-43919-HJB.,No. 08-43918-HJB,08-43918-HJB
• Parties: In re Lynn Marie BUCK, Debtor.In re Janice Maureen Groccia, Debtor.
• Court: United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Massachusetts

432 B.R. 13

In re Lynn Marie BUCK, Debtor.

In re Janice Maureen Groccia, Debtor.

Nos. 08-43918-HJB, 08-43919-HJB.

United States Bankruptcy Court,

D. Massachusetts,

Central Division.

July 9, 2010.

COPYRIGHT MATERIAL OMITTED

L. Jed Berliner, Berliner Law Firm, Springfield, MA, for Lynn Marie Buck.

Richard King, Assistant U.S. Trustee, Office of U.S., Worcester, MA, David M. Nickless, Nickless & Philips, PC, Fitchburg, MA, Trustee.

MEMORANDUM OF DECISION

HENRY J. BOROFF, Bankruptcy Judge.

Before this Court are Applications for Approval of Debtor's Counsel's Fees and Expenses (together, the “Fee Applications”) filed by Attorney L. Jed Berliner (“Attorney Berliner”) in these separate, but interrelated, Chapter 7 cases. While orders of disallowance and disgorgement are the inevitable outcomes here, the Court takes the opportunity by this Memorandum to express its particular dismay with respect to the type of conduct by debtors' counsel here described.

I. FACTS AND TRAVEL OF THE CASES

On November 28, 2008 (the “Petition Date”), Attorney Berliner filed bankruptcy petitions on behalf of Janice Maureen Groccia (“Groccia”) and Lynn Marie Buck (“Buck”) (together, the “Debtors”) under Chapter 13 of the Bankruptcy Code. The Debtors are mother and daughter, respectively. As of the Petition Date, they lived together and owned their home in Sterling, Massachusetts as joint tenants.¹

In their bankruptcy Schedules, the Debtors estimated the value of their residence at $220,000 and reported that it was encumbered by a first mortgage of approximately $186,000, leaving equity of about $34,000. The mortgage obligation was current as of the Petition Date.² They also owned together a 2004 Hyundai Santa Fe automobile with a total reported value of $6,870; a 2002 Nissan Altima with a reported value of $7,360; and a joint checking account in the amount of $2,085.07. Otherwise, the assets of Buck were negligible and fully exempt under § 522(d) of the Bankruptcy Code; and, while Groccia appeared to have relatively more valuable assets by dint of certain retirement accounts and pensions, her assets were represented to be similarly exempt or excluded from the bankruptcy estate. All in all, the picture presented by the Debtors' Schedules was of debtors whose assets would realize no dividend for unsecured creditors in a Chapter 7 liquidation case.

As is true with most consumer debtors, the Debtors' financial difficulties likely arose from many places, but notable is that Groccia was a seventy-two year old widow whose sole source of income was Social Security payments, supplemented by the aforesaid retirement funds; and that her daughter, Buck, suffered from debilitating head injuries. Nor was there a hopeful picture presented by the Debtors' Schedules I and J. Groccia's Schedule I reflected gross monthly income totaling $2,342.29; while Buck's Schedule I reflected gross monthly income totaling $802.96, not including contributions made by her mother. Each Schedule J reflected monthly “net income” of $130.00; however, those calculations arose from highly unusual entries in their respective Schedules J: the Debtors estimated the following monthly costs of their combined existence: $100 for food, $0 for clothing, $3 for laundry and dry cleaning, $5 for medical and dental expenses, $13 for transportation expenses, and $0 for recreation.

Those Schedule J numbers were not all that were objectively odd. Perusal of the proposed Chapter 13 plan filed by Groccia revealed that over 36 months, she would pay the monthly amount of $130.00 to the Chapter 13 trustee to be distributed as follows over the life of the plan: 1) a 0.5217% dividend on the claims of her unsecured creditors-a grand total of $252.98 over the 36 months of the plan; 2) the sum of $3,959.00 to Attorney Berliner; and 3) the sum of $468.00 to the Chapter 13 trustee (of which this Court calculates the sum of $439.88 was attributable to commissions on account of payments made to her attorney). Accordingly, of the total sum of $4,680.00 to be paid under her plan, Groccia would pay as attorney's fees or on account of attorney's fees the sum of $4,398.88 or almost 94% of all distributions.

The Chapter 13 plan filed by Buck presented a similar picture. Over the 36 months of Buck's proposed plan, she would also pay the monthly amount of $130.00 to the Chapter 13 trustee to be distributed over the life of the plan as follows: 1) a 1.2493% dividend on the claims of her unsecured creditors-a grand total of $253.01 over the 36 months of the plan; 2) the sum of $3,959.00 to Attorney Berliner; and 3) the sum of $468.00 to the Chapter 13 trustee (of which this Court calculates the sum of $439.88 is attributable to her attorney's request for compensation). Accordingly, of the total sum of $4,680.00 paid under her plan, Buck would also pay as attorney's fees or on account of attorney's fees the sum of $4,398.88 or almost 94% of all distributions.

The Chapter 13 trustee objected to confirmation of each of the foregoing plans, contending that from “an economic and legal standpoint, it does not appear to be in the Debtors' best interest to be in Chapter 13;” that “based on the Chapter 13 Agreement filed in both of these cases, [Attorney Berliner] concluded ‘Chapter 7 is appropriate’ and that fees and costs would be $2,554.00;” and “[i]t appears the only benefit for the Debtors to be in Chapter 13 is that legal fees could be spread over 36 months, however, the fees are increased to $4,000 per case.” (Tr. Obj. Plan ¶ 6). Indeed, each of the Chapter 13 Retainer Agreements prepared by Attorney Berliner and attached to each of the Chapter 13 Agreements required to be filed by Massachusetts Local Bankruptcy Rule 13-2(a)(1)(A)(ii) provided in relevant part:

A Chapter 7 filing, to discharge unsecured debt only, is appropriate in your situation but it would cost $2484, including $2000 attorney fees and costs. A Chapter 13 filing allows for immediate suspension of unsecured debt, and gives you 36 months to pay fees and costs remaining after the first payment. [ ... ]

Fees for Chapter 13 services are the greater of $4,000.00 or hourly in accordance with our usual and customary rates, currently set at $265.00 for myself and lesser for staff, plus costs. Fees also include the additional services required to obtain court approval of hourly fees when they exceed $4,000.00, and also for collection against you if necessary. I also will be paid reasonable costs plus the greater of hourly fees or 45% of (1) any asset taken from you before the bankruptcy filing which I recover for you, and (2) any recovery for a creditor's violations of bankruptcy or other consumer protection laws. You authorize me to associate with other counsel for prosecuting consumer protection laws if I believe you are best served this way. You will reimburse me for all reasonable expenses and disbursements.

This Court conducted a hearing on the Chapter 13 trustee's objections in both the Buck and Groccia cases and took the matters relating to the objections under advisement. Also on that date, the Court ordered Attorney Berliner inter alia, to file the Fee Applications. As the Chapter 13 trustee indicated was her intention, she subsequently filed motions seeking that the cases be dismissed or converted to Chapter 7. Those motions were mooted, however, as was the Chapter 13 trustee's objections to the Chapter 13 plans, when the Debtors each responded by requesting conversion of their cases to Chapter 7.³ The cases were accordingly converted, and each of the Debtors subsequently received her Chapter 7 discharge.

Notwithstanding the resolution of the objections to confirmation of the plans and the requests for dismissal or conversion, the issue of Attorney Berliner's Fee Applications remained outstanding. The Fee Applications were subsequently filed ⁴ and are now the only remaining issues under advisement in the Debtors' cases.

II. POSITIONS OF THE PARTIES ⁵

A. Attorney Berliner

Attorney Berliner contends that amendments to the Bankruptcy Code made by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ⁶ (“BAPCPA”) have created a situation by which Attorney Fee-Only Chapter 13 Plans ⁷ are the only means by which many prospective debtors can get prompt bankruptcy protection. He argues that, though many debtors qualify for relief under Chapter 7, they are unable to afford Chapter 7 attorneys' fees, which most attorneys require be paid before filing a Chapter 7 case. These potential debtors, which Attorney Berliner argues are often the poorest and most in need of immediate bankruptcy relief, experience continuous harassment from creditors, the threat of imminent foreclosure and repossession, and constant financial hardship. However, they do not have the assets or income to hire an attorney to file and prosecute a Chapter 7 case. By filing Attorney Fee-Only Chapter 13 Plans, Attorney Berliner contends, these debtors have been best able to gain the immediate benefits of the automatic stay and afford the bankruptcy counsel of their choice by paying debtors' counsel through a Chapter 13 plan. Indeed, in the Sicard and Puffer cases, Attorney Berliner has provided affidavits from 14 individuals (all of whom are or were his former clients) who state that they are satisfied with their decisions to pay their attorneys' fees through a Chapter 13 plan even though the fees are higher-because that route afforded them immediate relief that they could not have attained under Chapter 7.⁸ Also attached to a later brief filed by Attorney Berliner in the Sicard and Puffer cases was an affidavit by another attorney, Paul A. LaRoche (“LaRoche”). The LaRoche affidavit sought to lend support to the argument that many potential Chapter 7 debtors are unable to seek protection in Chapter 7, despite great financial distress, because they are unable to afford Chapter 7 attorneys' fees.⁹

B. Chapter 13 trustee

The Chapter 13 trustee presents three major arguments as to...