In re Waters

• Decision Date: 26 October 2021
• Docket Number: C/A No. 19-05230-JW
• Parties: IN RE: Richard Michael WATERS and Robin Louise Waters, Debtors.
• Court: United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — District of South Carolina

634 B.R. 478

IN RE: Richard Michael WATERS and Robin Louise Waters, Debtors.

C/A No. 19-05230-JW

United States Bankruptcy Court, D. South Carolina.

Signed October 26, 2021

David Hart Breen, Breen Law Firm, Myrtle Beach, SC, for Debtor.

ORDER

John E. Waites, US Bankruptcy Judge

This matter comes before the Court for a review of the disclosure regarding attorney compensation and the reasonableness and sharing of compensation paid to David Breen and the Breen Law Firm (collectively, "David Breen"), counsel for Richard Michael Waters and Robin Louise Waters (collectively, the "Debtors"), and Matthew Breen and Lowcountry Law LLC (collectively, "Matthew Breen"), who also represented Robin Louise Waters ("Debtor-Plaintiff"), in connection with the following four adversary proceedings related to the above captioned bankruptcy case: Waters v. Beach Anesthesia, LLC, Adv. Pro. No. 19-80085 ("the Beach Anesthesia Adversary"); Waters v. Carolina Regional Surgery Center, Ltd., Adv. Pro. No. 19-80089 ("the 1st Carolina Regional Adversary"); Waters v. Carolina Regional Surgery Center, Ltd., Adv. Pro. No. 19-80103 (together with the 1st Carolina Regional Adversary, "the Carolina Regional Adversaries," and separately, the "2nd Carolina Regional Adversary"); Waters v. McLeod Loris Seacoast Hosp., Adv. Pro. No. 19-80090 ("the McLeod Adversary") (collectively, "the Adversary Proceedings"). The 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).

INTRODUCTION

The Court selected these Adversary Proceedings for review following the entry of an order in another case and its related adversary proceedings filed by David Breen and Matthew Breen, In re Defeo, which identified certain compensation disclosure violations by David Breen and Matthew Breen, as attorneys for the debtor and "debt relief agencies," under 11 U.S.C. §§ 329, 526, 527 and 528 and Fed. R. Bankr. P. 2016 and 2017, and required them to "self-report all adversary proceedings in which they serve or have served as co-counsel under agreements similar to those in these proceedings within the last three years and provide the relevant fee disclosures and agreements if not otherwise filed in the applicable cases." In re Defeo, C/A No. 20-03738, slip op. (Bankr. D.S.C. March 25, 2021) ("March 25, 2021 Order").¹ Thereafter, the Court expanded its review of the disclosures and compensation in this case and others that David Breen and Matthew Breen self-reported as required by the Court's order.² Of those adversary proceedings reported by David Breen and Matthew Breen in response to the March 25, 2021 Order, eleven were identified by the Court as possibly having similar compensation disclosure issues. Pursuant to § 329 of the Bankruptcy Code, the Court, acting sua sponte, also requested the billing records for those adversary proceedings reported by David Breen and Matthew Breen. As a result of this review, the Court observed a pattern of practice by David Breen and Matthew Breen of bringing frequent adversary proceedings alleging minor creditor communications as violations of the automatic stay. These creditor communications were often received by debtors early after case filing and appear to be motivated to a great degree towards generating attorney's fees for debtor's counsel. Similar strategies and patterns of practice have been criticized by courts in other districts as creating a "cottage industry" by the debtors' bar to collect fees.³

Following a review of those records, the Court entered an order on June 11, 2021, requiring David Breen and Matthew Breen to appear at a hearing on June 29, 2021, to address the Court's detailed concerns regarding the reasonableness of the compensation paid to David Breen and Matthew Breen and their disclosures regarding attorney compensation. During the hearing on June 29, 2021, which was conducted in person, David Breen and Matthew Breen had the opportunity to present additional evidence and argument supporting the reasonableness of the fees that they received related to the Adversary Proceedings and to address their disclosure of compensation issues. At this time, the Court has elected to address the four Adversary Proceedings related to In re Waters and has suspended further review of compensation and disclosure in the remaining seven adversary proceedings.⁴

Based on the arguments and evidence presented and the Court's records, the Court makes the following findings of fact and conclusions of law.⁵

FINDINGS OF FACT

1. On October 4, 2019, Debtors, with the assistance of David Breen, filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code. Along with the petition, David Breen filed a Disclosure of Compensation, in which he indicated that he agreed to accept $3,700⁶ for services in connection with the bankruptcy case. The Disclosure provided that in return for the $3,700 fee, he had "agreed to render legal service for all aspects of the bankruptcy case, including:... [r]epresentation of the debtor[s] in adversary proceedings and other contested bankruptcy matters." The Disclosure of Compensation filed with the petition appears to be based on a representation agreement between David Breen and the Debtors dated months earlier on May 30, 2019, an agreement produced by David Breen in connection with an Amended Compensation Disclosure statement filed on March 29, 2021.

2. The Disclosure of Compensation (B2030) form and the May 30, 2019 representation agreement were, however, inconsistent because unlike the Disclosure of Compensation, the agreement expressly states that the $3,700 fee "does not include or provide for any work after the Plan is confirmed including...the prosecution or defense of any adversary action...."⁷

Beach Anesthesia Adversary

3. On October 28, 2019, on behalf of the Debtor, Robin Louise Waters ("Debtor-Plaintiff"), David Breen and Matthew Breen commenced the Beach Anesthesia Adversary by filing a Complaint against Beach Anesthesia, LLC ("Beach Anesthesia") seeking actual and punitive damages in the amount of $50,000 for a willful violation of the automatic stay under 11 U.S.C. § 362(k).⁸ The willful violation of stay was based upon allegations that Newby, Sartip & Masel, LLC, on Beach Anesthesia's behalf, mailed a single collection letter seeking $496.64 that was received by Debtor-Plaintiff after she filed her bankruptcy case.

4. In addition to the § 362(k) claim, David Breen and Matthew Breen also alleged claims for negligence and violation of the South Carolina Unfair Trade Practices Act ("SCUTPA") centered upon the same allegations giving rise to the willful violation of stay claim.

5. Three days before commencement of the Beach Anesthesia Adversary, Debtor-Plaintiff executed a separate representation agreement with David Breen. Under that agreement, Debtor-Plaintiff agreed to retain David Breen's services and to pay him "and any other attorney he deems in his sole discretion necessary to work on the case and matter" at the hourly rate of $400 per hour⁹ for work performed in the Beach Anesthesia Adversary from October 24, 2019, until the file closed. According to the representation agreement, Debtor-Plaintiff was obligated to pay the hourly rate regardless of the outcome or result of the lawsuit.

6. David Breen failed to timely file a document disclosing the new representation agreement with the Court as required by § 329 and Rule 2016(b).

7. Matthew Breen did not enter into any written compensation agreement with the Debtor-Plaintiff for his services in the Beach Anesthesia Adversary.

8. As required by chambers for payments made in actions dismissed under Fed. R. Bankr. P. 7041,¹⁰ David Breen reported by email sent to chambers on November 8, 2019, which was just eleven days after the filing of the Complaint in the Beach Anesthesia Adversary, that Beach Anesthesia agreed to pay $2,000 to the Debtor-Plaintiff "for her damages and attorney fees."

9. Neither David Breen nor Matthew Breen disclosed how much of the settlement they retained as compensation for their services as required by Rule 2016(b) of the Federal Rules of Bankruptcy Procedure.

10. Later that day, David Breen also filed a Notice of Stipulated Dismissal, signed by David Breen only, providing that the Beach Anesthesia Adversary had been resolved and was now moot. Prior to the dismissal, no certificate of service was filed, no motions were filed, no discovery was conducted, and no hearings were held in the matter.

The Carolina Regional Adversaries

11. On November 4, 2019, David Breen and Matthew Breen commenced the 1st Carolina Regional Adversary on behalf of the Debtor-Plaintiff by filing a Complaint against Carolina Regional Surgery Center, Ltd. ("Carolina Regional") seeking actual and punitive damages in the amount of $50,000 for a willful violation of the automatic stay under § 362(k).¹¹ The willful violation of stay claim was based upon allegations that Carolina Regional mailed a single collection letter to the Debtor-Plaintiff seeking $330.00 after she filed her bankruptcy case.

12. In addition to the § 362(k) claim, David Breen and Matthew Breen also alleged claims for negligence and violation of the SCUTPA centered upon the same allegations giving rise to the willful violation of stay claim.

13. On the same day as commencement of the 1st Carolina Regional Adversary, Debtor-Plaintiff executed a separate representation agreement with David Breen. Under the agreement, Debtor-Plaintiff agreed to retain David Breen's services and to pay him "and any other attorney he deems in his sole discretion necessary to work on the case and matter" at the hourly rate of $350 per hour for work performed in the Adversary from November 1, 2019, until the file closed. According to the representation agreement, Debtor-Plaintiff was obligated to pay the hourly rate regardless of the outcome or result of the lawsuit.

14. David Breen failed to timely file a document disclosing...