In re Nana Daly's Pub, Ltd.
| Citation | 67 BR 782 |
| Decision Date | 02 December 1986 |
| Docket Number | Bankruptcy No. 184-41772-260. |
| Parties | In re NANA DALY'S PUB, LTD., Debtor. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Eastern District of New York |
Weiner & Silverman by Bruce Weiner, New York City, for debtor.
Barry R. Feerst, New York City, for Susan von Ohlen.
DECISION AND ORDER IN SUPPORT OF CERTIFICATE OF CONTEMPT
Nana Daly's Pub, Ltd. (hereinafter "debtor" or "Nana Daly's") filed a voluntary petition for relief under Chapter 11 on November 21, 1984. Susan von Ohlen (hereinafter "von Ohlen") represented the debtor until she was substituted by Weiner & Silverman, Esqs. on February 18, 1986.
This opinion follows a motion brought by the debtor and its new counsel who replaced von Ohlen. The motion sought an order to punish her for contempt for failure to obey an order of this court dated October 1, 1986. It directed her to repay the debtor $6,150 in legal fees she received after the bankruptcy petition petition was filed, without application to this court and without its permission. The court granted the motion to the extent that it issued a Certificate of Contempt to the District Court. The District Court now has for consideration whether or not she should be punished for contempt as well as the extent of her punishment. This follows a practice adopted by the Bankruptcy Judges of this District based upon their opinion that until otherwise decided by the District Court and subject to any further decision by a court of higher appellate jurisdiction, they do not have the power to punish for contempt. See, e.g., Matter of Kalpana Electronics, Inc., 58 B.R. 326 (Bkrtcy.E.D.N.Y.1986).
In passing upon the issue presented to it, this court reviewed the following factors as well as the pertinent history of this case which it recites to assist the reviewing court in its ultimate determination.
At the time of the filing of the bankruptcy petition and prior thereto since October, 1980, the debtor had been engaged in the business of owning and operating a bar and grill in Brooklyn. James Carlton was its principal officer, stockholder and director. His wife Mary assisted him in the business; she was authorized to sign checks on the debtor's bank account and was also familiar with its books and records. The property in which the debtor's premises was located was owned by James Carlton and the debtor occupied it under an oral month-to-month lease at $2,750 per month.
Shortly prior to the filing of the bankruptcy petition the State of New York closed the premises for failure to pay sales and other taxes amounting to about $57,000 and took steps to sell the assets of the business to satisfy its claim. Notice of the impending sale came to the attention of one Marvin Pollack (hereinafter "Pollack") who apparently is engaged in the business, inter alia, of informing delinquent tax payers of the advantages offered by the bankruptcy laws and its provisions which can prevent such a sale while enabling the debtor-taxpayer to reorganize.
Pollack sent the Carltons a letter concerning Nana Daly's problem. His letterhead bore the words "Counsellor at Tax" below his name. He described himself as a tax consultant and offered his services with the view of saving their business. The Carltons accepted his offer of help. (S.M.P. 6/4/86 at p. 31).
Pollack arranged to have them meet him on November 19, 1984. He introduced them to von Ohlen whom he identified as an attorney and also his wife. (During the course of this case both of them admitted that they were not married at that time nor have they ever been married). Pollack suggested that von Ohlen could help the debtor with its legal problems. Later that same day the Carltons met with them at which time the Carltons signed many papers relating to the debtor, most of which were retainers. (S.M.P. 6/4/86 at p. 32).
At about this time, the Carltons paid von Ohlen $4,150 on account of her legal fee. They also paid Pollack $750 as his retainer for his non-legal services. The monies paid to both were borrowed by the Carltons from their daughter inasmuch as the debtor had no such sums available.
Thereafter von Ohlen prepared the Chapter 11 petition which she filed in this court on November 21, 1984. Both she and Pollack, accompanied by the Carltons, then went to the Manhattan office of the State Tax Department. After providing it with proof of the filing of the petition, they received the keys to the debtor's premises thereby allowing it to reopen and commence business. (S.M.P. 6/4/86 at p. 37).
As permitted by the Bankruptcy Rules and the Bankruptcy Code, von Ohlen obtained an extension of time to file a full set of Schedules of Assets and Liabilities, Statement of Affairs and Statement of Executory Contracts. They were all filed on December 27, 1984 as required by the court's order of extension.
The Statement of Affairs recited that James Carlton had personally agreed, on behalf of the debtor, to pay von Ohlen a retainer of $10,000 "from funds not of the debtor." (Emphasis in original). (Statement of Affairs dated 12/27/84, Answer to question 20).
On January 3, 1985 von Ohlen filed with this court a Statement under Bankruptcy Rule 2016(b), as required by that Rule and pursuant to § 329 of the Bankruptcy Code. The Statement disclosed that she had received the $4,150 set forth above on account of a total retainer of $10,000. The Statement further specifically provided that "any additional fees or disbursements shall be paid by the debtor and/or James Carlton and Mary Carlton, individually and personally, pursuant to an Application for Allowances to be submitted by Susan von Ohlen, Esq. to the Bankruptcy Court, and the same being approved by the Bankruptcy Court." (Emphasis added). (Statement under Rule 2016(b), paragraph 3).
As noted, on February 18, 1986, this court signed an order that relieved von Ohlen as the attorney for the debtor at the debtor's request. The application was not opposed by von Ohlen. Weiner & Silverman, Esqs. were substituted in her place.
On June 4, 1986 at the request of the debtor, Weiner & Silverman moved before this court to examine into fees von Ohlen had received from the debtor after the filing of the Chapter 11 petition without authority of this court and for an order directing her to repay the same to the debtor. James Carlton permitted his wife Mary to testify at the hearing by reason of her familiarity with such payments. She testified that they were made by checks drawn on the debtor's bank account. Her testimony revealed that because of demands made by von Ohlen, the following payments were made to her after the Chapter 11 petition was filed on November 21, 1984, representing fees for legal services:
$2,925 on January 7, 1985 $2,925 on February 18, 1985 (S.M.P. 6/4/86 at p.p. 49-51) $300 on July 23, 1985 (S.M.P. 6/4/86 at p.p. 64, 74)
Thus, a total of $6,150 in post-petition payments was paid to von Ohlen by the debtor.
It is to be noted that for the month of January, 1985 during which the first $2,925 payment was made on January 7, 1985, the debtor's operating report filed in this court shows a loss of $1,412.91 and unpaid tax liabilities of $6,138.26. For February, 1985 the report showed a loss of $8,478 during the time the second $2,925 payment was made on February 18, 1985. Finally, for the month of July, 1985 which covered the $300 payment made on July 23, 1985, the report reflected a loss in operations of $8,478.
No notice of a hearing to consider any of the foregoing payments was given nor was any application made to this court for its approval of the same, as required by the Bankruptcy Code as hereinafter discussed.
At the hearing of the motion held on June 4, 1986, von Ohlen admitted receiving all of the foregoing payments without the necessary notice and hearings and without any applications for the same. She acknowledged that the $6,150 in payments must be returned to the debtor but requested two months to do so. Accordingly, this court gave her 60 days to August 4, 1986.1 The court's oral direction was embodied in its order of June 17, 1986. No appeal was taken from that order.
On August 1, 1986, von Ohlen moved this court for an extension of time to make the August 4th payment, requesting a moratorium of six months. This court considered her request at a hearing held on August 13, 1986 when it extended the time of payment to September 24, 1986. An order to that effect was entered by this court on August 21, 1986. At the debtor's request, the order provided that von Ohlen pay interest on the $6,150 at 6% per annum from August 4, 1986, the date on which payment had originally been set by this court. The order further provided for a hearing before it on September 24, 1986 in the event she did not make the payment by then as ordered, to determine whether she should be punished for contempt. No appeal from the order of August 21, 1986 was taken.
At the September 24th hearing, von Ohlen again failed to make the required payment. Instead she submitted an affidavit wherein she sought to justify the value of the services she had rendered in the sum of $4,150 before the Chapter 11 petition was filed, as well as the $6,150 received post-petition. The court treated her affidavit as a request for additional time inasmuch as she failed to address the issue before the court, namely, the repayment of the $6,150 she admittedly received improperly.
Accordingly, and on October 1, 1986, this court entered an order which charitably granted her an extension to October 15, 1986 to make the payment. The order also provided that in the event of a default in payment by that day, a hearing would be held on October 16, 1986 to determine whether this court should issue a certificate to punish her for contempt and whether sanctions should be imposed upon her in favor of the debtor to compensate it for its expenses incurred in seeking the repayment of the unauthorized fees. No appeal was taken from...
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