In re Milner, Case No. 19-11539-SAH

Decision Date12 December 2019
Docket NumberCase No. 19-11539-SAH
Parties IN RE: Gina Marie MILNER, Debtor.
CourtUnited States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Western District of Oklahoma

612 B.R. 415

IN RE: Gina Marie MILNER, Debtor.

Case No. 19-11539-SAH

United States Bankruptcy Court, W.D. Oklahoma.

Signed December 12, 2019


612 B.R. 419

B. David Sisson, Norman, OK, for Debtor.

ORDER ON MOTION FOR REVIEW OF ATTORNEY'S COMPENSATION PURSUANT TO SECTION 329 AND CONDUCT AS A "DEBT RELIEF AGENCY" UNDER SECTION 526 AND NOTICE OF OPPORTUNITY FOR HEARING

Sarah A. Hall,United States Bankruptcy Judge

On October 2, 2019, the following matters came on for hearing before the Court:

1. Motion for Review of Attorney's Compensation Pursuant to Section 329 and Conduct as a "Debt Relief Agency" under Section 526 and Notice of Opportunity for Hearing [Doc. 15], filed by the United States Trustee (the "UST") on August 2, 2019 (the "Motion"); and

2. Corrected Objection to Motion for Review at Docket No. 15 and Brief in Opposition [Doc. 24], filed by B. David Sisson, Esq. ("Sisson") on August 21, 2019 (the "Objection").

The UST appeared by and through Charles Snyder; Sisson appeared by and through Daniel E. Garrison, who is a principal in Fresh Start, a financing and collection management service for attorneys (defined below). After the hearing, the Court directed the UST and Sisson to file written closing arguments on or before November 4, 2019. The UST filed its closing argument on November 4, 2019 [Doc. 35], and Sisson filed his closing argument on November 4, 2019 [Doc. 36].

BACKGROUND

In this matter, the UST asks the Court to review the compensation received or to be received by Sisson from the chapter 7 consumer debtor pursuant to 11 U.S.C. § 329 and his conduct as a debt relief

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agency pursuant to 11 U.S.C. § 526.1 Sisson has been a bankruptcy practitioner in the Western District of Oklahoma since 1992 -1993, handling over 2,500 consumer cases in that time. He is board certified and a member of a variety of bankruptcy related organizations. The Court is very familiar with Sisson and his work history as a bankruptcy practitioner.

The Court is also well aware of the desperate need of individual consumer debtors to obtain the advice and assistance of qualified counsel in filing for chapter 7 or 13 relief, but such advice and assistance is often beyond their means due to their unfortunate financial circumstances. Judge Kevin Anderson of the United States Bankruptcy Court for the District of Utah provides a thorough summary and analysis of the hardships facing consumer debtors in finding and retaining counsel to file their chapter 7 cases. In re Hazlett, 2019 WL 1567751 (Bankr. D. Utah 2019). The hurdles are, in large part, created by the Bankruptcy Code itself which debtors' counsel have tried to work around with little success:

In an effort to work around the conundrum of providing consumer debtors with competent legal representation while offering an affordable payment system, debtors' counsel have employed a number of processes with unsatisfactory results. These include debtors issuing post-dated checks, paying legal fees with a credit card, withdrawing funds from a retirement plan, or taking out a home equity loan. Each of these options can be problematic for the attorney and ill-advised for the debtor.

This outcome is ironic given that the Bankruptcy Code and Rules governing attorney's fees, coupled with the applicable ethical canons, are intended to protect debtors. Yet, these high-minded requirements and restrictions often result in greater prejudice to debtors who do not receive a discharge (or worse are denied a discharge under § 727) simply because they are too poor to pay a retainer up front to procure the needed legal representation.

Hazlett, 2019 WL 1567751, *6. While the policy and social issues are certainly compelling, this Court's role is to focus on the specific facts and applicable law in the case before it, and not to render a decision based on policy, which is instead within Congress' purview.

FACTS

Sisson's Fees for Bankruptcy Services

1. Sisson testified that he usually requires a flat fee of $1,800.00 (exclusive of filing fees) to be pre-paid by a debtor prior to filing the bankruptcy petition. (Sisson testimony). Sisson's flat fees include the cost of credit counseling and the financial management course, a credit report and postage. (Sisson testimony). His services routinely exclude "[r]epresentation of the debtor in any dischargeability actions, judicial lien avoidance, reaffirmation agreements, relief from stay actions or any other adversary proceeding or contested matters." (UST Ex. 3, p. 12 and Ex. 6).

2. The Court questioned Sisson about a $1,500.00 flat fee which it found to be prevalent in his chapter 7 consumer cases. Per Sisson, the $1,500.00 flat fee is a discounted rate only offered to people who can pre-pay and provide all of the necessary documentation within 30 days. Debtors who pay on a "lay-away" basis and

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provide documents in piece-meal fashion are not eligible for this rate. Sisson claims 25% of his cases fall within the $1,500.00 retainer model. (Sisson testimony).

3. The Court reviewed all of the individual chapter 7 cases filed by Sisson from January 1, 2019 to April 30, 2019 (the month this case was filed and the three preceding months), of which the Court can take judicial notice.2 An analysis of those case filings reveals the following regarding the flat fee rates charged by Sisson:

Flat Fee Paid to Sisson Number of Cases Percentage of Cases
$1,200.00 1 2.6%
$1,500.00 31 79.5%
$1,800.00 2 5.1%
$2,700.00 4 10.2%
$2,835.00 1 2.6%

Based on the four-month sample during the relevant time period, Sisson received a flat $1,500.00 for the bulk of his individual chapter 7 cases, contrary to Sisson's testimony at the hearing .

4. Additionally, the $1,500.00 flat fee was offered and used in three cases (7.7% of such cases) where the bankruptcy filing was a "bare bones" filing without schedules, statement of financial affairs, and the like. In contrast, in the two cases where a $1,800.00 flat rate was charged by Sisson (100%), the bankruptcy petition was not "bare bones" but included the schedules, statement of financial affairs, and other related documents.

The Bifurcated Contract Model

5. In an effort to be able to provide assistance to consumer debtors financially unable to pay his up-front retainer and the bankruptcy filing fee, Sisson turned to the use of bifurcated contracts – one contract for pre-petition services executed pre-petition and one contract for post-petition services executed post-petition. He claims the practice of using bifurcated contracts was used only as a last resort, designed to address debtor emergencies. (Sisson testimony).

6. Sisson offers the bifurcated contract model to those clients that cannot raise the funds necessary to pay his fees up front and need bankruptcy relief immediately as they generally have waited too long to seek legal help. This model requires the payment of additional fees but allows the fees to be paid over time while exposing Sisson to a risk of non-payment; it also offers a solution to clients who otherwise could not afford to engage counsel and pay their fees immediately or over-time but in full pre-petition. (Sisson testimony).

7. Under the bifurcated contract model, after the bankruptcy petition is filed, a debtor can either (i) proceed pro se , (ii) hire a different lawyer or law firm, or (iii) enter into a post-petition contract with Sisson to complete the bankruptcy case at a cost of an additional $2,400.00 payable

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$200.00 per month for 12 months. (Sisson testimony; UST Ex. 8, ¶ 4). Per Sisson, he does not charge interest on the attorney fees due post-petition. (Sisson testimony).

Sisson and Fresh Start

8. In July 2018, Sisson entered into a Line of Credit and Accounts Receivable Management Agreement (the "Line of Credit Agreement ") pursuant to which Fresh Start Funding, Inc. ("Fresh Start") would extend a $100,000.00 line of credit to Sisson ("Line of Credit"). (Sisson testimony; UST Ex. 7).

9. Pursuant to the Line of Credit Agreement, when one of Sisson's...

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