In re Slabbinck
| Decision Date | 01 November 2012 |
| Docket Number | No. 12–48448.,12–48448. |
| Citation | 482 B.R. 576 |
| Parties | In re Remi Leonard SLABBINCK and Susan Loucille Slabbinck, Debtors. |
| Court | U.S. Bankruptcy Court — Eastern District of Michigan |
OPINION TEXT STARTS HERE
William R. Orlow, Pleasant Ridge, MI, for Debtors.
Wendy Turner Lewis, Detroit, MI, Trustee.
This opinion deals with a motion filed by the United States Trustee (“UST”) under § 329 of the Bankruptcy Code, seeking cancellation of an agreement to pay a fee to a Chapter 7 debtor's attorney and disgorgement of a fee paid to that attorney. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), over which the Court has jurisdiction pursuant to 28 U.S.C. §§ 1334(a) and 157(a).
The following facts are not in dispute.
On April 2, 2012, the Debtors filed this Chapter 7 case. Prior to filing the petition, the Debtors met with and hired the B.O.C. Law Group, P.C. (“BOC”). BOC is a law firm that specializes in representing individual debtors in bankruptcy cases. The Debtors signed two separate agreements with BOC. The first agreement is titled “Chapter 7 Fee Agreement” (“Pre–Petition Agreement”) (docket entry no. 23, Ex. 1). The second agreement is titled “Post–Petition Chapter 7 Fee Agreement” (“Post–Petition Agreement”) (docket entry no. 23, Ex. 2).
The Debtors signed the Pre–Petition Agreement on March 1, 2012. The Pre–Petition Agreement states that the Debtors agree to employ BOC “TO REPRESENT CLIENT(S) IN FILING A VOLUNTARY CHAPTER 7 BANKRUPTCY PETITION.” The Pre–Petition Agreement then describes the pre-petition services that BOC agrees to provide to the Debtors, including “CONSULTATION AND ADVICE” and preparation of the bankruptcy petition and certain other documents necessary for the filing of a bankruptcy case. The Pre–Petition Agreement states that the fee for these pre-petition services is $1,000.00. The Pre–Petition Agreement contains a separate paragraph informing the Debtors that BOC will not represent the Debtors once the bankruptcy case is filed, unless a new agreement is signed.
CLIENT EXPRESSLY UNDERSTANDS THAT [BOC] WILL NOT REPRESENT CLIENT AFTER FILING THE BANKRUPTCY PETITION UNLESS A SEPARATE POST–PETITION FEE AGREEMENT IS SIGNED. CLIENT WILL BE PROVIDED WITH A COPY OF THE SAME AND CLIENT ACKNOWLEDGES HIS/HER/THEIR INTENTIONS TO EMPLOY [BOC] FOR POST–PETITION COMPLETION OF THE CHAPTER 7 BANKRUPTCY FOR A FEE OF $2000.00.
According to the Debtors' affidavit (docket entry no. 23, Ex. 3), the Debtors “understood” that the $1,000.00 that they paid under the Pre–Petition Agreement was for services rendered to them by BOC prior to filing their bankruptcy case. They “further understood” that they would be “required to retain legal counsel subsequent to the filing of their Bankruptcy Petition to receive legal services for any necessary work required post-petition.” The Debtors state in their affidavit that they paid BOC $1,000.00 on March 16, 2012, satisfying in full their obligation under the Pre–Petition Agreement. The Debtors go on to explain in their affidavit that “although they were in no way obligated to do so, Debtors knowingly and voluntarily decided to retain B.O.C. Law Group, P.C. to perform all necessary post-petition services on behalf of the Debtors.”
After filing their Chapter 7 petition on April 2, 2012, the Debtors met again with BOC and signed the Post–Petition Agreement on April 4, 2012. The Post–Petition Agreement states that the Debtors agree to employ BOC “to represent [them] in completing a Chapter 7 Bankruptcy, Case number: 12–48448–PJS.” The Post–Petition Agreement then describes the post-petition services that BOC agrees to provide to the Debtors in connection with the completion of their bankruptcy case, including the preparation and filing of schedules, statement of financial affairs and other documents, and attendance at the § 341 meeting of creditors. The Post–Petition Agreement states that the fee for these post-petition services is $2,000.00, to be paid at the rate of $166.67 per month beginning on April 13, 2012. In their affidavit, the Debtors state that they “knowingly and voluntarily executed” the Post–Petition Agreement, they are satisfied with BOC's representation of them in their bankruptcy case, and they “wish to continuepaying” BOC for services rendered to them postpetition under the Post–Petition Agreement.
On April 16, 2012, BOC filed a Fed. R. Bankr.P.2016(b) statement (docket entry no. 13). The Rule 2016(b) statement describes the “compensation paid or agreed to be paid” by the Debtors as follows:
On June 7, 2012, the UST filed a motion (docket entry no. 21) seeking an order requiring BOC to disgorge any amounts paid by the Debtors under either the Pre–Petition Agreement or Post–Petition Agreement. On June 28, 2012, BOC filed a response (docket entry no. 23) accompanied by the Debtors' affidavit, and then filed a brief (docket entry no. 29) on July 17, 2012.
The Court held a hearing on August 9, 2012. At the hearing, BOC provided the Court and the UST with a copy of its Itemized Record of Services. The Itemized Record of Services shows that BOC provided seven hours of pre-petition services, totaling $1,237.50, the fee for which was reduced to $1,000.00 pursuant to the Pre–Petition Agreement. It further shows that BOC provided 10.7 hours of post-petition services, totaling $2,062.50, the fee for which was reduced to $2,000.00 pursuant to the Post–Petition Agreement.
The UST's motion is brought under § 329 of the Bankruptcy Code. Section 329(a) requires that any attorney representing a debtor in a bankruptcy case must
file with the court a statement of the compensation paid or agreed to be paid, if such payment or agreement was made after one year before the date of the filing of the petition, for services rendered or to be rendered in contemplation of or in connection with the case by such attorney, and the source of such compensation.
Section 329(b) provides that if the compensation paid or agreed to be paid “exceeds the reasonable value” of the services rendered or to be rendered, “the court may cancel any such agreement, or order the return of any such payment, to the extent excessive[.]”
The UST makes two basic arguments in support of its request for relief under § 329. First, the UST argues that the Pre–Petition Agreement and the Post–Petition Agreement in substance constitute one agreement between the Debtors and BOC for BOC to represent the Debtors in their Chapter 7 case. According to the UST, taken together, these agreements create a pre-petition debt that is dischargeable in the Debtors' Chapter 7 case under controlling precedent in the Sixth Circuit, Rittenhouse v. Eisen, 404 F.3d 395, 396 (6th Cir.2005). In the UST's view, the creation of two separate documents, the Pre–Petition Agreement and the Post–Petition Agreement, is a fiction intended as a “workaround” of the holding of Rittenhouse. Second, the UST argues that, if the Court treats the Pre–Petition Agreement and Post–Petition Agreement separately, then the Court should still grant the UST's motion because BOC's breaking up of the services that it agreed to render to the Debtors between pre-petition services and post-petition services is an impermissible “unbundling” of the legal services essential to the representation of a debtor in a Chapter 7 bankruptcy case.
BOC concedes that Rittenhouse holds that a pre-petition agreement to pay attorney fees is not one of the exceptions to a Chapter 7 discharge under § 523 of the Bankruptcy Code. But BOC argues that Rittenhouse does not apply to a post-petition agreement to pay attorney fees, and that the Post–Petition Agreement in this case is unaffected by Rittenhouse. BOC further argues that there is nothing in the law prohibiting it from unbundling the legal services that it renders to an individual pre-petition, and being compensated for those services pre-petition, from the legal services that it renders to such individual post-petition, and being compensated for those services post-petition under a post-petition agreement for payment.
Dischargeability of attorney fees
In In re Gourlay, No. 12–46096, 483 B.R. 496, 2012 WL 4791034 (Bankr.E.D.Mich. Oct. 9, 2012), the Court recently applied Rittenhouse to a UST motion under § 329. In that case, there was only one fee agreement between...
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