In re Waldo

Decision Date27 October 2009
Docket NumberNo. 08-35781.,No. 09-30974.,No. 09-30991.,No. 09-30969.,No. 09-30988.,No. 08-35658.,No. 09-30990.,09-30969.,09-30974.,09-30988.,09-30990.,09-30991.,08-35781.,08-35658.
Citation417 B.R. 854
PartiesIn re Wayne Adam WALDO, Lisa Marie Waldo, Debtors. Scott Delaney Johnson, Mary Margaret Johnson, Debtors. Judith Mikulen, Debtor. Clayton Gadson Cooley, Debtor. Crystal Michelle Jones, Debtor. William Ray Joines, II, Debtor. William Edgar Scharff, Jr., Michelle Angelique Scharff, Debtors.
CourtU.S. Bankruptcy Court — Eastern District of Tennessee
417 B.R. 854
In re Wayne Adam WALDO, Lisa Marie Waldo, Debtors.
Scott Delaney Johnson, Mary Margaret Johnson, Debtors.
Judith Mikulen, Debtor.
Clayton Gadson Cooley, Debtor.
Crystal Michelle Jones, Debtor.
William Ray Joines, II, Debtor.
William Edgar Scharff, Jr., Michelle Angelique Scharff, Debtors.
No. 09-30969.
No. 09-30974.
No. 09-30988.
No. 09-30990.
No. 09-30991.
No. 08-35781.
No. 08-35658.
United States Bankruptcy Court, E.D. Tennessee.
October 27, 2009.

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Richard F. Clippard, Esq., United States Trustee, Patricia C. Foster, Esq., Knoxville, TN, United States Trustee.

Clark & Washington, P.C., Steven F. Crawford, Esq., Knoxville, TN, Richard H. Thomson, Esq., Atlanta, GA, for Respondents.

MEMORANDUM ON MOTIONS TO REQUIRE DISGORGEMENT OF FEES AND TO COMPEL AMENDMENT TO BANKRUPTCY RULE 2016(b) ATTORNEY COMPENSATION DISCLOSURE STATEMENTS AND SCHEDULE F, AND MOTION FOR SANCTIONS FOR VIOLATIONS OF 11 U.S.C. § 362(a)(6) AND § 524(a)(2)

RICHARD STAIR, Jr., Bankruptcy Judge.


Before the court are seven contested matters initiated by a motion filed by the

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United States Trustee in each of these Chapter 7 cases. Because the motions raise identical issues regarding the conduct of the Debtors' attorneys, they were consolidated for trial pursuant to the Agreed Pretrial Order entered by the court on May 19, 2009, as amended on June 26, 2009. Each motion constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (O) (2006).

Facts and documents essential to the resolution of all issues are contained in the Joint Stipulations filed by the parties in each case on July 16, 2009, as amended by the Amended Joint Stipulations filed in case numbers 09-30974 and 08-35658 on July 20, 2009. The Brief of the United States Trustee in Support of Motion to Require Disgorgement of Fees was filed by the United States Trustee (U.S. Trustee) in each case on July 20, 2009, and the Brief For Respondents filed by the law firm of Clark & Washington, P.C., (Clark & Washington) and Steven F. Crawford, Esquire (Mr. Crawford) was filed in each case on July 20, 2009.1

I

The undisputed facts and issues raised by the United States Trustee in each of these bankruptcy cases are discussed in detail below:

Wayne Adam Waldo and Lisa Marie Waldo

On February 5, 2009, the Debtors in case number 09-30969, Wayne Adam Waldo and Lisa Marie Waldo (collectively, Waldos), retained Clark & Washington and Mr. Crawford, the managing attorney of its Knoxville office, to represent them in the filing of their Chapter 7 bankruptcy case. WALDO STIPS. at ¶¶ 1, 14. In association with this representation, the Waldos executed a Chapter 7 Attorney-Client Agreement For Routine Cases Under 11 U.S.C. Chapter 7 (Waldo Engagement Contract) on February 5, 2009, outlining their duties, as well as those of Mr. Crawford and Clark & Washington, whereby they agreed, inter alia, to pay Mr. Crawford and Clark & Washington a flat fee in the amount of $1,250.00 for legal services related to the filing of their bankruptcy case, to be performed both pre-petition and post-petition, plus the $299.00 filing fee. WALDO STIPS. at ¶ 6; WALDO STIP. EX. D. Additionally, the Waldo Engagement Contract contains the following Acknowledgment executed by the Waldos:

I further acknowledge and agree that this retainer contract contemplates payment for services rendered pre-Petition as well as services to be rendered post-Petition. The initial payment represents fees earned pre-Petition and the future payments are to be applied as contemporaneous compensation for post-Petition services.

WALDO STIP. EX. D. The Waldos were not informed by Clark & Washington and/or Mr. Crawford that, to the extent not paid prior to the filing of their petition, their attorneys' fees were dischargeable. WALDO STIPS. at ¶ 13.

As payment of the $1,250.00 attorney fee, and as is routine for Clark & Washington and Mr. Crawford for collecting payment of flat fees for Chapter 7 bankruptcy cases, the Waldos provided Clark & Washington and Mr. Crawford with five $250.00 post-dated checks on February 17, 2009, drawn on their checking account with First Tennessee Bank: (a) check # 1073, dated March 13, 2009, was deposited into the

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Clark & Washington bank account on March 18, 2009; (b) check # 1074, dated April 24, 2009, was deposited into the Clark & Washington bank account on May 7, 2009; (c) check # 1075, dated May 22, 2009, was deposited into the Clark & Washington bank account on May 27, 2009; (d) check # 1076, dated June 19, 2009, was deposited into the Clark & Washington bank account on June 19, 2009; and (e) check # 1077, dated July 17, 2009, was not deposited into the Clark & Washington bank account. WALDO STIPS. at ¶¶ 2, 9-10; WALDO STIP. EX. A. None of these five post-dated checks were returned unpaid due to insufficient funds. WALDO STIPS. at ¶ 4.

The Waldos filed the Voluntary Petition commencing their Chapter 7 bankruptcy case on February 26, 2009, and received their discharge on October 1, 2009. WALDO STIPS. at ¶ 3.2 Also filed with their Voluntary Petition was the Disclosure of Compensation of Attorney for Debtor(s) signed by Mr. Crawford (Waldo Compensation Disclosure), certifying that he had agreed to accept $1,250.00 from the Waldos and that he had received the entire $1,250.00 prior to the filing of the Waldo Compensation Disclosure. WALDO STIPS. at ¶ 7; WALDO STIP. EX. C. In addition, Mr. Crawford makes the following certification in the Waldo Compensation Disclosure:

6. In return for the above-disclosed fee, I have agreed to render legal service for all aspects of the bankruptcy case, including:

Negotiations with secured creditors to reduce to market value; exemption planning; preparation and filing of reaffirmation agreements and applications as needed; preparation and filing of motions pursuant to 11 USC 522(f)(2)(A) for avoidance of liens on household goods.

7. By agreement with the debtor(s), the above-disclosed fee does not include the following service:

Representation of the debtors in any dischargeability actions, judicial lien avoidances, relief from stay actions or any other adversary proceeding.

WALDO STIP. EX. C. The parties stipulated that the Waldo Compensation Disclosure filed on February 26, 2009, did not accurately reflect the Waldos' contractual fee agreement with Clark & Washington and Mr. Crawford. WALDO STIPS. at ¶ 7.

On April 6, 2009, the United States Trustee filed a Motion to Require Disgorgement of Fees and to Compel Amendment to FRBC 2016(b) and Schedule F and Notice of Hearing (Waldo Disgorgement Motion), seeking an order requiring Mr. Crawford and Clark & Washington to amend the Waldo Compensation Disclosure to accurately reflect the fee arrangement with the Debtors, to amend Schedule F to list himself and Clark & Washington as creditors for unpaid pre-petition legal fees, and for an order requiring Mr. Crawford and Clark & Washington to disgorge all fees collected through the post-petition cashing of the post-dated checks as well as all attorneys' fees paid pre-petition.

Mr. Crawford filed a Response to Motion to Require Disgorgement of Fees and to Compel Amendment to FRBC 2016(b) and Schedule F and Notice of Hearing (Response to Waldo Disgorgement Motion) on April 22, 2009, acknowledging that the Waldo Compensation Disclosure did not reference the post-dated checks but arguing that the firm interpreted the receipt of all post-dated checks as payment in full,

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that neither he nor Clark & Washington was a pre-petition creditor of the Debtors, and that disgorgement should not be allowed because their fees were reasonable and encompassed both pre-petition and post-petition services. Additionally, Mr. Crawford filed a Disclosure of Compensation of Attorney for Debtor(s)—Amended (Amended Waldo Compensation Disclosure) on April 8, 2009, now certifying that the Debtors had agreed to pay $1,250.00 for legal services but that "none" had been paid and that the entire $1,250.00, to be paid from their earnings, was still due, "[t]o be paid at $250 per month on 3/13/09, 4/24/09, 5/22/09, 6/19/09, and 7/17/09." WALDO STIP. EX. B. With respect to the legal services included within the fee, Mr. Crawford certifies the following in the Amended Waldo Compensation Disclosure:

6. In return for the above-disclosed fee, I have agreed to render legal service for all aspects of the bankruptcy case, including:

Analysis of the debtor's financial situation and rendering advice to the debtor in determining whether to file a bankruptcy petition;

Preparation and filing of any petition, schedules, statement of affairs;

Representation of the debtor at the 341 meeting of creditors and any adjourned hearings thereof.

7. By agreement with the debtor(s), the above-disclosed fee does not include the following service:

Any contested matters in this Chapter 7 case, including Adversary Proceedings, Objections to Exemptions, or any objections to Discharge and Dischargeability. These will be charged additional attorney fees at the rate of $295 per hour.

Reaffirmation agreements $50; Redemptions $350; Amendments $104; As necessary: Judicial lien avoidances $150; Defense of misc. motions/ Relief from Stay Actions $245 per hour; Excess Creditors $50; Misc. letters $50; E-mail/faxes/creditors $15; Reopen closed case $100; Closed records .25 pp.

WALDO STIP. EX. B. The parties stipulated that the Amended Waldo Compensation Disclosure accurately reflects the Waldos' contract with Clark & Washington and Mr. Crawford, and that the $1,250.00 fee was "a flat fee for legal services related to the filing of chapter 7 bankruptcies, which is defined as a fee for all services, both pre- and post-filing, related to the bankruptcy case, except for post-petition services specifically listed[.]"...

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