In re Mills
| Decision Date | 24 July 2018 |
| Docket Number | Case No. 15-11766 |
| Parties | In re TED ALLEN MILLS and RHONDA JEAN MILLS, Debtors. |
| Court | United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Western District of Tennessee |
The following is SO ORDERED:
At issue in this matter is whether Benjamin S. Dempsey, Esquire ("Dempsey"), should be sanctioned and disciplined for deficient conduct related to his representation of the debtors in this case. The United States Trustee ("UST") asserts that Dempsey violated numerous Tennessee Rules of Professional Conduct and various sections of the Bankruptcy Code and Rules with respect to the handling of life insurance proceeds Rhonda Jean Mills ("Ms. Mills") became entitled to during the pendency of the case. For the reasons set forth herein, the Court finds that Dempsey violated the Tennessee Rules of Professional Conduct and, as such, is subject to sanctions in the form of a suspension from the practice of law in this Court.
The Court conducted an evidentiary show cause hearing on May 23, 2018. The Court heard the testimony of Ms. Mills, chapter 7 trustee Marianna Williams ("Wiliams"), and Dempsey. The Court entered five exhibits at the evidentiary hearing. In addition to the proof tendered, the Court also took judicial notice, pursuant to Federal Rule of Evidence 201, of all documents of record filed in the Debtors' bankruptcy case and the sworn testimony of Ms. Mills at a Federal Rule of Bankruptcy Procedure 2004 examination on July 17, 2017.
This proceeding arises in a case referred to this Court by the Standing Order of Reference, Misc. Order No. 84-30 in the United States District Court for the Western District of Tennessee, Western and Eastern Divisions, and is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) and 11 U.S.C. § 105. This Court has jurisdiction over core proceedings pursuant to 28 U.S.C. §§ 157(b)(1) and 1334. Additionally, in accordance with Wellness Int'l Network, Ltd. v. Sharif, 135 S. Ct. 1932, 1939 (2015), the parties have consented to the Court's entry of a final order in this matter. This memorandum opinion shall serve as the Court's findings of facts and conclusions of law. Fed. R. Bankr. P. 7052 and 9014.
A. FACTS
The debtors in this case, Ted and Rhonda Mills (collectively "Debtors"), filed their joint chapter 7 petition for bankruptcy relief on August 4, 2015. The Debtors were originally represented by attorney Paul Hutcherson ("Hutcherson"). The Debtors made two payments to Hutcherson. One in the amount of $750.00 and one in the amount of a $425.00. (Tr. of July 17, 2017 Rule 2004 Examination of Rhonda Mills at 11-12, Coll. Ex. 1;1 see also ECF No. 76-2.) The two payments included Hutcherson's attorney's fee, the$50 fee for pre-petition credit counseling and the $335.00 chapter 7 filing fee. (Id.) Williams was appointed as the chapter 7 Trustee the same day it was filed.
Ten days after the case was filed, Ted Mills passed away. Hutcherson filed a Suggestion of Death on August 26, 2015. On September 1, 2015, Hutcherson sent a letter to attorney Michael Tabor in which he stated that Ted Mills had been insured under two life insurance policies at the time of his death.2 Both policies named Ms. Mills as the sole beneficiary. The policies were valued at $7,000.00 and $10,000.00 respectively.3 According to Hutcherson's letter, Ms. Mills planned to use the proceeds to pay the funeral expenses and purchase a headstone for Ted Mills. Michael Tabor forwarded the letter to Williams in her capacity as the chapter 7 trustee in this case.
USAble Life Insurance Company disbursed a check to Ms. Mills in the amount of $10,000.00 on September 30, 2015 ("USAble Proceeds"). (Coll. Ex. 1 at D.) Ms. Mills then delivered the check to her attorney's office in Dresden, Tennessee. Although Hutcherson was still the Debtors' attorney of record at this time, the USAble Proceeds were deposited in an account at BancorpSouth Bank titled in Dempsey's name. (Tr. Ex. 2 at 3.) The funds were deposited on October 14, 2015, in account number XXXX-072-3 ("Account 72-3") which was titled "BENJAMIN S DEMPSEY DBA DEMPSEY LAW OFFICE POD, PO BOX 712, DRESDEN TN 38225-0712."4 (Id.) The bank statements for this account do not indicate that this account was an escrow or an IOLTA account and the proof introduced at the hearing in this case indicated it was not.5 (See Tr. Ex. 2.)Mills did not meet with Hutcherson or Dempsey at the time of delivering the check to the Dresden office.
It was Ms. Mills' understanding that Dempsey would hold the funds until such time as the chapter 7 trustee told him how much was needed to pay the claims against the estate. (Coll. Ex. 1 at 21.) Once all claims were paid, Ms. Mills understood that she would receive any remaining funds. (Id.)
The 11 U.S.C. § 341 meeting of creditors was originally scheduled for September 8, 2015; however, Hutcherson failed to appear at the initial setting. (Id. at 14.) He also failed to appear at the second setting. For this reason, Williams continued the meeting one more time to October 20, 2015. Although Hutcherson again failed to appear, attorney Cayce Dempsey-Maddox ("Dempsey-Maddox") appeared and informed Ms. Mills that Hutcherson had "turned over his bankruptcies to [Benjamin] Dempsey."6 (Id. at 15.) This was the first time Ms. Mills learned that Hutcherson was no longer representing her in the bankruptcy case. Neither Hutcherson nor his law office ever contacted Ms. Mills to inform her that he had transferred responsibility of her case to Dempsey. (Id. at 15-16.) Prior to the § 341 meeting, neither Dempsey nor his law office ever contacted Ms. Mills to let her know that Dempsey had taken over as her attorney. (Id. at 16.) At no time during this case did Ms. Mills enter into an agreement to pay Dempsey any fees related to his role as Debtors' counsel. She never signed an employment contract with Dempsey or made any verbal commitment to pay him a separate attorney's fee. (Id. at 16, 21-22.)
Although Dempsey was allegedly taking over as the Debtors' attorney of record as of at least October 20, 2015, there seemed to be some confusion between Hutcherson and Dempsey as to who was representing the Debtors after this time. Dempsey attempted to file amended schedules for the Debtors on October 20, 2015; however, because the incorrect event code was used, the Court voided the amended schedules.7 Dempsey also attempted to file a Financial Management Course Certificate for Ms. Mils on November 18, 2015; however, because he was not the attorney of record, the Courtvoided the filing. Hutcherson then filed the certificate for Ms. Mills on November 24, 2015. It was not until November 30, 2015, that Hutcherson and Dempsey filed a consent order substituting Dempsey as the Debtors' attorney. The consent order did not state what, if any, compensation Dempsey would receive for representing the Debtors in this case. Nor did the order state whether Hutcherson would be permitted to share any of the previously-paid attorney's fee with Dempsey. Dempsey never filed a Federal Rule of Bankruptcy Procedure 2016 Disclosure of Compensation or an application for compensation in this case.
Pursuant to the amended schedules Dempsey attempted to file on October 20, 2015, as well as the debtor's testimony at the § 341 meeting, Ms. Mills claimed an exemption in the proceeds of both life insurance policies. The proceeds of the $7,000.00 policy were claimed as exempt personal property under Tennessee Code Annotated § 26-2-103. The description of the property was "Insurance Proceeds on deposit with Murphy Funeral Home, Martin, TN for deceased co-debtor husband Ted Mills' funeral expense." (Am. Schedule C, ECF No. 11 at 8.) The $10,000.00 USAble Proceeds were claimed as exempt life insurance proceeds under Tennessee Code Annotated § 56-7-203. The description of this property was "Escrow account with Dempsey Law Office at Bancorpsouth, Dresden, TN, holding co-debtor's life insurance proceeds." (Id.) Neither Hutcherson nor Dempsey ever correctly filed the amended schedules.
After learning about the insurance policies at the § 341 meeting, Williams notified the Court that she had located an asset with which to pay allowable claims. In accordance therewith, the Court notified creditors of the need to file proofs of claim. Five creditors subsequently filed claims.
Williams filed an objection to the debtor's claimed exemption in the USAble Proceeds on November 18, 2015.8 The basis for Williams' objection was as follows:
TCA § 56-7-203 exempts from the claims of creditors the net amount payable under any policy of life insurance or annuity contract upon the life of any person made for the benefit of or assigned to the spouse and/orchildren or any dependent relatives of said person. However the proceeds are not exempt from the claims of creditors of the beneficiary.
(Id.) Dempsey filed a Response to the Trustee's objection on December 14, 2015, in which he claimed the following:
Debtor asserts that this insurance money is exempt from the claims of the estate of Debtor Ted Mills and also exempt from joint claims against the estate of Ted Mills and the Bankrupt[c]y Estate of Rhonda Mills. However, the exemption would not apply to claims solely against the bankruptcy estate of Debtor Rhonda Jean Mills. See: IN RE: BILLY W. KELLEY AND DOROTHY A KELLEY, CHAPTER 7, DEBTORS, CASE NO. 04-12920. Accordingly Debtor Rhonda Jean Mills files this limited and specific exception to the Trustee's objection.
(ECF No. 29.)
Prior to the filing of Dempsey's response, he and Williams entered into negotiations to resolve the exemption issue. Once an agreement was reached, Williams emailed Dempsey to solidify the terms thereof. The November 20, 2015 email from Williams read:
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