In re Mayeaux

• Decision Date: 10 October 2001
• Docket Number: No. 99-61936.,99-61936.
• Parties: In re Edwin C. MAYEAUX, Debtor.
• Court: United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Eastern District of Texas

269 B.R. 614 (2001)

In re Edwin C. MAYEAUX, Debtor.

No. 99-61936.

United States Bankruptcy Court, E.D. Texas, Tyler Division.

October 10, 2001.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Lisa Lambert, Trial Attorney, Office of United States Attorney, Tyler, TX, for United States Trustee.

Edwin E. Buckner, Jr., Marshall, TX, for debtor.

MEMORANDUM OF DECISION

BILL G. PARKER, Bankruptcy Judge.

This matter is before the Court upon hearing of the Motion to Examine Transactions with Debtor's Attorney, filed by the Office of the United States Trustee in the above-referenced Chapter 13 case, which seeks to determine whether 11 U.S.C. § 329(a) imposed a duty upon the Debtor's attorney, Edwin E. Buckner, Jr. (the "Debtor's counsel") to disclose all fees which had been paid to him by the Debtor, Edwin C. Mayeaux (the "Debtor"), immediately prior to, and also subsequent to, the commencement of the above-referenced Chapter 13 case. At the conclusion of the hearing, the Court took the matter under advisement. This memorandum of decision disposes of all issues pending before the Court.¹

Background

On or about August 2, 1999, attorney Edwin Buckner, Jr. was contacted by Edwin C. Mayeaux regarding possible legal representation concerning improprieties allegedly committed by Mr. Mayeaux arising from his role as a financial and investment advisor to a Ms. Dottie Rush. As a lawyer involved in a general civil and criminal practice, though with a significant involvement in bankruptcy cases, the Debtor's counsel accepted this engagement and then, according to his testimony, he became immediately engaged in multiple-hour conferences with the Debtor on numerous successive dates, during which he provided advice and counseling services to the Debtor, as well as engaging in a review and reproduction of a massive amount of documents related to Ms. Rush's business interests, the return of which had already been demanded by Ms. Rush.²

Following repeated demands by Ms. Rush's attorney for the return of the documents and despite the Debtor's altruistic hopes of resolving the dispute without litigation, within a month of Debtor's counsel's retention, Ms. Rush had filed a petition against the Debtor in state district court in Gregg County and she obtained the entry of a temporary restraining order against the Debtor. Debtor's counsel filed and served an answer to Rush's original petition and a hearing to consider the entry of a temporary injunction was scheduled for September 10, 1999, though it was delayed one week to September 17. Thereafter, Debtor's counsel informed the Debtor that the civil litigation costs in his estimation would exceed $50,000.00, with a greater amount to be required in the event of a criminal indictment. According to Debtor's counsel, the Debtor subsequently decided to avoid trial of the state court lawsuit because of the expense and potential damage to his reputation, and instead gave instructions to seek the protection of this Court prior to the temporary injunction hearing. A voluntary petition for relief under Chapter 13 of the Bankruptcy Code was executed by the Debtor on September 10 and filed on September 14, 1999.³

As required by Fed. R. Bankr.P.2016, Debtor's counsel filed a "Rule 2016(b) — Statement of Attorney Compensation" in which he represented that compensation paid to me within one year before the filing of the petition in bankruptcy, or agreed to be paid to me, for services rendered or to be rendered on behalf of the debtor in contemplation or in connection with the bankruptcy case is as follows . . .

                For legal services, I have
                  agreed to accept              $2,160.00
                Prior to the filing of this
                  statement, I have received    $    0.00
                Balance Due                     $2,160.00
                

The statement also included the following representation:

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 to the debtor in determining whether to file a petition in bankruptcy;

b. Preparation and filing of any petition, schedules, statement of affairs, and plan which may be required;

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

d. Representation of the debtor in adversary proceedings and other contested bankruptcy matters;

e. Other provisions:

Debtor has agreed to pay the balance of attorney\'s fees and court costs through the plan as specified therein. Debtor has agreed to pay to his attorney $125.00 per hour plus expenses for legal services provided in any adversary, contested, stay, valuation, tax, and/or other litigation in this case and in other Court (sic).

Though not disclosed in his original nor in his amended Rule 2016(b) statement,⁴ Debtor's counsel actually received the sum of $7,000.00 from the Debtor prior to the filing of the bankruptcy petition.⁵ These transfers were first revealed during a cross-examination of the Debtor during a hearing to consider dismissal or conversion of the Debtor's case.⁶ The Debtor later testified at the dismissal hearing that he had paid an additional $3,000.00 to Debtor's counsel since the filing of the bankruptcy.⁷ That post-petition payment had also never been disclosed by Debtor's counsel. Debtor's counsel now claims that he was not required to disclose any of those payments to him in his Rule 2016(b) statement because those sums were not paid in connection with the bankruptcy case.

Subsequent to the filing of the present motion, Debtor's counsel agreed to some of the demands of the United States Trustee and has now provided an accounting of the previously undisclosed sum of $3,000.00 paid to him in the post-petition period.⁸ Debtor's counsel has also filed an amended fee application containing all of the pre-petition services, to be considered only in the event that the Court grants the present motion. Notwithstanding such agreements, Debtor's counsel maintains that he never engaged in any discussion with the Debtor about bankruptcy options until immediately prior to the actual filing and vociferously argues that "this Court, the United States trustee, and the Chapter 13 trustee do not have authority and/or the right to monitor, comment upon, and examine attorney's fees charged, paid and earned outside of this Court."⁹

Discussion

There are few things which a bankruptcy court finds as distasteful as its duty to examine transactions between an attorney and a bankruptcy debtor or to evaluate the reasonableness and necessity of attorney's fees. But the fulfillment of that duty is also one of the most integral parts of the bankruptcy system. As explained by the United States Bankruptcy Court for the Eastern District of Pennsylvania:

One of the surest means for the bankruptcy system to come under public disrepute is for the perception to take hold that it allows attorneys to milk the last cent out of debtors while leaving creditors nothing. Also disturbing is the prospect that attorneys may be able to extract a premium from debtors who are desperate to file in order to save an asset that is on the brink of being lost. These concerns, among others, have led Congress and the Courts to enact and enforce strict regulations on the payment of attorney\'s fees in bankruptcy. One of the cornerstones of the regulatory structure is the necessity for attorneys to fully and honestly disclose their transactions with clients. This disclosure requirement is embodied in 11 U.S.C. § 329(a) and implemented through Bankruptcy Rule 2016(b).

In re Levin, 1998 WL 732878, *2 (Bankr. E.D.Pa., Oct. 15, 1998).

11 U.S.C. § 329(a)¹⁰ and Fed. R. Bankr.P. 2016(b)¹¹ require a complete disclosure to creditors of the amounts paid to a debtor's attorney within one year of the filing of a bankruptcy case in contemplation of . . . OR. . . . in connection with . . . the bankruptcy case. (emphasis added). If a compensation payment is subject to disclosure under either test, § 329(b) of the Bankruptcy Code¹² and Fed. R. Bankr.P. 2017¹³ authorize the Court to act upon that disclosure by determining whether such payments were excessive and by ordering the return of all or any part of such payments. These disclosure and enforcement provisions are "designed to prevent bankruptcy attorneys from extracting more than their fair share from prospective debtors willing to do whatever is necessary to obtain their counsel of choice and avoid unfavorable bankruptcy proceedings." In re Investment Bankers, Inc., 4 F.3d 1556, 1565 (10th Cir.1993), cert. denied, 510 U.S. 1114, 114 S.Ct. 1061, 127 L.Ed.2d 381 (1994). "Courts have long recognized that the debtor is in a vulnerable position and is highly dependent on its attorney and therefore will be reluctant to object to the fees of the attorney. The purpose of this process is to prevent overreaching by an attorney and provide protection for creditors." Jensen v. U.S. Trustee (In re Smitty's Truck Stop, Inc.), 210 B.R. 844, 848 (10th Cir. BAP 1997). "Thus, Congress provided not only for extensive Court, trustee, and creditor scrutiny of the compensation to be paid to attorneys and professionals in general, but also for broad discretion in imposing sanctions for violations of these strictures." Schroeder v. Rouse (In re Redding), 263 B.R. 874, 878 (8th Cir. BAP 2001) (citations omitted). "Taken together, § 329 and Rule 2017 furnish the court with express power to review payments to attorneys for excessiveness and to restore the status quo when assets have improvidently been bartered for legal services." In re Campbell, 259 B.R. 615, 626 (Bankr. N.D.Ohio 2001), citing In re Martin, 817 F.2d 175, 180 (1st Cir.1987).

This process of review is absolutely dependent upon full, complete and absolute compliance with the disclosure requirements by a debtor's attorney.¹⁴Arens v. Boughton, 176 B.R. 781 (W.D.La. 1993), aff'd, 43 F.3d 1000 (5th...