In re Ward
| Decision Date | 13 May 2021 |
| Docket Number | C/A No. 20-03311-HB,C/A No. 20-03176-HB |
| Court | United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — District of South Carolina |
| Parties | IN RE: James Michael Ward and Terese Marie Ward, Debtor(s). Darrell Belvin Smith, Debtor(s). |
THIS MATTER is before the Court on the Motion for Review of Attorney Conduct, Cancellation of Retainer Agreement, Return of Fees, and Other Remedies to Include Monetary Sanctions filed by the United States Trustee ("UST")1 and Objection thereto of Sam Babbs III and the Babbs Law Firm, LLC (the "Firm").2 The UST requests cancellation of the Firm's retention agreements, disallowance and return of funds paid to the Firm, and an injunction preventing Babbs and the Firm from filing cases in this Court.3 In addition to the facts stipulated by the parties4 and numerous exhibits, Richard F. Tallini and Babbs proffered testimony at the hearing and Babbs was sworn and cross-examined by the UST.
Babbs is an attorney licensed in Florida. He is the sole shareholder of the Firm, located in Florida and Virginia. Babbs and the Firm are each a "debt relief agency" as defined in 11 U.S.C. § 101(12A). The Firm recruits attorneys licensed in various states to assist with the filing and management of cases. An email solicitation to attorneys in South Carolina makes clear the Firm sought an arrangement whereby the Firm would perform most, if not all, prepetition work and local counsel would do a minimal amount, including appearing for the meeting of creditors and any other court appearances.
In December 2019, the Firm and an attorney licensed in South Carolina and admitted to practice in this Court ("SC Counsel") entered a "Counsel Agreement" whereby the Firm agreed to retain the SC Counsel as a "part-time independent contractor" to serve as "local counsel" for the Firm's clients in bankruptcy and other debt relief matters. The agreement states the Firm is "lead counsel as between them, and the client to have originated with and be primarily a client of [the Firm]." SC Counsel proffered that he is not an employee of the Firm, later stipulated that he also is not a partner or member of the Firm,5 and believed there was in-house counsel at the Firm. SC Counsel's legal fees were paid by the Firm according to a schedule attached to the Counsel Agreement, including $440.00 per Chapter 7 case and $814.00 per Chapter 13 case filed in South Carolina.
James Ward, Teresa Ward, and Darrell Smith (collectively, the "Clients") are "assisted persons" as defined by § 101(3). The Clients found the Firm after conducting an internet search for bankruptcy lawyers. The Wards entered a retainer agreement with the Firm on April 20, 2020, as did Smith on June 5, 2020. The retainer agreements repeatedly state the Clients are retaining only the Firm to provide legal services. The agreements set forth a flat fee for the Firm's services, which are described therein to include:
consultation with you regarding your financial affairs, the circumstances that led to them, the bankruptcy and non-bankruptcy alternatives to addressing your financial situation; it includes the preparation of all the documents regularly necessary to initiate and complete chapter 7/13 bankruptcy case in accordance with the applicable Bankruptcy Rules and Bankruptcy Code; it includes follow-up question[s] you may have with respect to the proceedings or the consequences [of] filing on your day-to-day financial affairs; includes consultation with respect to the importance and effect of a bankruptcy discharge; includes consultation on the reestablishment of your financial good standing following the conclusion of the bankruptcy case; it includes our attendance with you, and our participation in, a face-to-face meeting that is held in every bankruptcy case with the Chapter 7/13 trustee, and any follow-up work that may be required as a result of that meeting; it includes all correspondence and communication with creditors seeking information concerning that the underlying bankruptcy case, the assets and liabilities involved in the case, the discharge and timeline for entry of discharge, and other deadlines applicable to creditors of the case; includes all communication with your chapter 7/13 trustee concerning the administration of the bankruptcy case; and includes all matters which are typically occurring in a routine individual in action or service falls within the Flat Fee . . .
Clients communicated with and received assistance and advice from numerous individuals at the Firm in Virginia who are not lawyers. From April through July 2020, no attorney was involved in the prepetition legal services provided to Clients by the Firm, including advising Clients if they should file for bankruptcy relief and which chapter would be most appropriate, reviewing and discussing the retainer agreements, conducting financial interviews, requesting and reviewing Client documents, preparing and reviewing the petitions, schedules, and statements, and sending the same to the Clients for review, and answering any of the Clients' questions. The Firm misrepresented to the Clients that these actions were supervised by an attorney. That person would be Jeff Sherman, employed by the Firm as "in-house counsel." However, in pretrial filings Babbs and the Firm stipulated to facts as follows: Sherman is not an attorney (stipulated multiple times); the "in-house counsel" who reviewed and approved Smith's bankruptcy documents is not an attorney; the only attorney who reviewed Smith's bankruptcy documents was SC Counsel; and the Wards' financial interview was conducted by the Firm's non-attorney personnel. At the hearing, entirely contradicting these stipulations, Babbs stated that Sherman is an attorney licensed in Washington D.C., Maryland, and Virginia with forty years of experience. A quick internet search conducted by the parties at the hearing determined Sherman's Virginia bar license was revoked in October 2020. Babbs seemed unaware of this fact. Even if Sherman was a licensed attorney during all relevant times, there is no evidence he supervised the Firm staff with the Clients' cases and he is not licensed in South Carolina. There is no evidence that Babbs was personally involved or otherwise supervised the work performed in the Clients' cases.
No attorney reviewed the Wards' bankruptcy documents until after they were already reviewed and signed by the Wards. An attorney first reviewed Smith's bankruptcy documents the day before they were filed. Neither the Firm, Babbs, nor SC Counsel were able to produce copies of the Clients' signed bankruptcy documents.
The Clients retained the Firm in April 2020 and June 2020, and the Wards paid the Firm's fee by May 2020 and Smith by June 2020. However, their cases were not filed for several months thereafter. The Clients repeatedly contacted the Firm seeking status updates, asking who their attorney would be, and requesting their cases be filed. There was no adequate explanation for the prolonged delays. Eventually, Smith's petition for Chapter 7 relief was filed on August 7, 2020, and the Wards' petition filed on August 20, 2020. The petitions were signed by SC Counsel and he is the attorney of record for the Clients' cases. No motion to appear pro hac vice was filed for Babbs in these cases.6 The Wards did not speak with SC Counsel until after their case was filed and Smith did not speak with SC Counsel until shortly before filing.
The "Disclosure of Compensation of Attorney for Debtor" (Official Form B 2030) pursuant to 11 U.S.C. § 329 and Fed. R. Bankr. P. 2016 ("Disclosures") filed with the Clients' petitions are signed by Babbs on behalf of the Firm. The Disclosures show the Firm agreed to accept and the Wards paid $2,295.00 and Smith paid $2,245.00 for legal services7 described therein as:
The Disclosures indicate the Firm is not sharing fees with anyone who is not a member or associate of the law firm. However, other Disclosures filed simultaneously therewith show SC Counsel received $440.00 from the Firm in each case.
The Firm has represented debtors in other cases filed in this Court.8 Prior to the filing of these cases, the Firm has been the subject of allegations in other jurisdictions similar to those in this Motion.
This Court has jurisdiction of this matter pursuant to 28 U.S.C. §§ 1334 and 157. This matter is a core proceeding under 28 U.S.C. §157(b)(2)(A) and the Court has authority to enter a final order. Venue is proper pursuant to 28 U.S.C. §§ 1408 and 1409.
Section 329(a) requires an attorney representing a debtor in a bankruptcy case to file a statement of compensation paid or agreed to be paid for legal services related to the case. Section 329(b) provides that if "such compensation exceeds the reasonable value of any such services, the court may cancel any such agreement, or order the return of any such payment, to the extent excessive, to . . . the entity that made such payment." "It is the attorney's burden to show the reasonableness of his fees." In re Busche, C/A No. 15-02559-DD, 2015 WL 6501157, at *3 (Bankr. D.S.C. Oct. 27, 2015) (). Adequate and competent legal representation in connection with a bankruptcy case requires time to be spent before the filing of the...
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