Lewis, In re, 95-56465
| Decision Date | 12 May 1997 |
| Docket Number | No. 95-56465,95-56465 |
| Citation | 113 F.3d 1040 |
| Parties | 37 Collier Bankr.Cas.2d 1596, 30 Bankr.Ct.Dec. 1041, Bankr. L. Rep. P 77,372, 97 Cal. Daily Op. Serv. 3533, 97 Daily Journal D.A.R. 6045 In re Eric Alden LEWIS, Debtor. LAW OFFICES OF NICHOLAS A. FRANKE, Appellant, v. Marcy J.K. TIFFANY, U.S. Trustee, Central District of California; Eric Alden Lewis; Duke Salisbury, Chapter 11 Trustee, Chapter 11/7; Robert O. Ruder; First Professional Bank, Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Nicholas A. Franke, Los Angeles, California, for appellant.
Paul W. Bridenhagen, Washington, D.C., for appellees.
Appeal from the United States District Court for the Central District of California, Richard A. Paez, District Judge, Presiding. D.C. No. CV-94-01929-RAP.
Before: PREGERSON, REINHARDT and WIGGINS, Circuit Judges.
The Law Offices of Nicholas A. Franke ("Franke") appeals from the bankruptcy court's order mandating the disgorgement of approximately $37,000 received for services to be provided in a bankruptcy proceeding. The district court affirmed. We have jurisdiction under 28 U.S.C. § 158(d), and we affirm.
Faced with mounting financial difficulties, Dr. Eric Alden Lewis ("Lewis") sought legal assistance from Franke, which agreed to represent Lewis in bankruptcy proceedings for a retainer of $40,000. Lewis made a $10,000 payment and agreed to pay the balance. On November 20, 1992, Lewis filed a voluntary petition under chapter 11 of the Bankruptcy Code.
Franke claims that it submitted an employment application for Lewis's case on December 10, 1992 to the Office of the United States Trustee ("U.S. Trustee") pursuant to the Central District's Local Bankruptcy Rules. The U.S. Trustee reviews applications for employment and then files them with the bankruptcy court, making comments or objections where appropriate. Franke cannot, however, provide any evidence to substantiate its claim that it submitted an employment application in December 1992. The U.S. Trustee has no record of receiving Franke's application, and no application was filed with the bankruptcy court.
At the time he filed his bankruptcy petition, Lewis was employed as a cosmetic surgeon by Eric A. Lewis, M.D., Inc. ("Medical Corporation"). Lewis was the only surgeon employed by the Medical Corporation. After Lewis filed for bankruptcy, the Medical Corporation made the following payments to Franke, discharging Lewis's remaining $30,000 obligation:
Date Amount
12/9/92 $ 5,000
12/15/92 $ 5,000
1/25/93 $10,000
4/18/93 $ 3,000
6/9/93 $ 7,000
According to Franke and Lewis, these payments made on Lewis's behalf represented Lewis's compensation for services performed for the Medical Corporation.
On January 10, 1993, Franke filed with the bankruptcy court a Rule 2016(b) statement disclosing its receipt of $20,000 in compensation for services rendered. The disclosure statement also indicated that Lewis owed an additional $20,000.
When Franke was unable to locate an approved employment application on the bankruptcy court's docket sheet during a review several months later, Franke learned that its employment application had not been submitted to the bankruptcy court. Franke then submitted a new employment application on July 10, 1993 seeking employment retroactive to the date of the petition. In this application, Franke indicated that it had received a $40,000 pre-petition retainer. The U.S. Trustee objected to Franke's application, expressing concern about the $40,000 retainer. Specifically, the U.S. Trustee noted that despite several months of proceedings Franke had failed to account for any draw from the retainer.
Before the hearing on Franke's application, the bankruptcy court granted the U.S. Trustee's motion to appoint a Chapter 11 Trustee for Lewis's bankruptcy estate. Then, at a subsequent hearing, the bankruptcy court tentatively approved Franke's application in part despite objections from the Chapter 11 Trustee as well as various creditors. However, the bankruptcy court ordered Franke to remit to the Chapter 11 Trustee any funds held on Lewis's account until the proper disposition of those funds could be made. Also, because of lingering uncertainty about the source of the funds Franke had received and the timing of those payments, the bankruptcy court ordered Franke to provide an accounting of all funds it had received on Lewis's behalf.
Shortly thereafter, Franke paid $6,636.15 to the Chapter 11 Trustee, representing the $10,000 Franke received pre-petition less $3,363.85 for pre-petition services and expenses. Franke also submitted its accounting of funds received from Lewis. Franke's accounting showed that it had received $10,000 from Lewis pre-petition and an additional $30,174 post-petition. 1
After reviewing these materials, the bankruptcy court concluded that there was no evidence that Franke had submitted an employment application in December 1992. The bankruptcy court also found that Franke had misrepresented the timing of the payments received from Lewis in its July 1993 employment application. Further, the bankruptcy court found that Franke had deliberately delayed filing its employment application for several months until it had received the entire $40,000 retainer in order to avoid the stringent controls on post-petition retainers.
Therefore, the bankruptcy court ordered Franke to disgorge the remaining retainer he held on Lewis's account. The bankruptcy court stated its reasons for this decision as follows: ... I conclude that this attorney, Mr. Franke, has conducted himself in this manner in derogation of the requirements of the Code and rules, and that the order approving his retention should be vacated and that disgorgement should be required of the balance of the $30,000 and change that he has otherwise received. I will allow the 3300 odd dollars that was applied to the prepetition portion of the services rendered to be retained. It appears that that's a reasonable amount and that should be treated as a[n 11 U.S.C. s] 329 payment. But under the circumstances, I find the course of conduct here to be in shocking disregard of the procedures under the Code and the rules that are intended to monitor and regulate the payment and disbursement of monies to professional who are officers of this Court and fiduciaries of the bankruptcy system.
...
... The balance of the sixty-six odd hundred dollars that has already been received by the trustee should be added to the segregated account, that the $30,000 of post-petition retainer monies that were received be returned to the Chapter 11 Trustee in the individual case, in addition to the hundred and seventy-four dollars that were received.... Those funds should be added to that.... They were not retainer funds, they must have been reimbursement of expenses or something, but they were not authorized by the Court.... And that all of those funds should be repaid within 60 days ... with disposition pending further Court order.
Transcript of December 1, 1993 Hearing at 12-13, 21-22.
Franke appealed. The district court affirmed the bankruptcy court's order, finding that the circumstances in this case warranted disgorgement of both pre-petition and post-petition funds. Franke now appeals to this court.
We review the bankruptcy court's decision independently of the district court's decision. In re Park-Helena Corp., 63 F.3d 877, 880 (9th Cir.1995), cert. denied 516 U.S. 1049, 116 S.Ct. 712, 133 L.Ed.2d 667 (1996). We review the bankruptcy court's findings of fact for clear error and its conclusions of law de novo. Id. The bankruptcy court's decision about the proper amount of attorney's fees to be awarded is reviewed for an abuse of discretion. Id.
Under 28 U.S.C. § 158(d), we have jurisdiction of appeals from "all final decisions, judgments, orders, and decrees" entered under 28 U.S.C. § 158(a), which in turn gives the district court jurisdiction to hear appeals "from final judgments, orders, and decrees" of the bankruptcy court. A bankruptcy court order is final and thus appealable "where it 1) resolves and seriously affects substantive rights and 2) finally determines the discrete issue to which it is addressed." In re Frontier Properties, Inc., 979 F.2d 1358, 1363 (9th Cir.1992). Although this finality rule is given additional flexibility in the bankruptcy proceedings context, traditional finality concerns nonetheless dictate that " 'we avoid having a case make two complete trips through the appellate process.' " Id. (quoting In re Vylene Enters., 968 F.2d 887, 895 (9th Cir.1992).
The district court concluded that the bankruptcy court's disgorgement order was a final order, concluding that Franke was appealing only that part of the order which ordered disgorgement. Characterizing the order as a disgorgement order under 11 U.S.C. § 329, the district court relied on In re Occidental Fin. Group, 40 F.3d 1059, 1061 (9th Cir.1994), where this court reviewed such a disgorgement order on the merits.
In comparison to In re Occidental, however, this case presents a more complicated finality problem. Although the bankruptcy court ordered Franke to disgorge the funds, the court ordered the funds held by the Chapter 11 Trustee "with disposition pending further court order." 2 A party aggrieved by the ultimate disposition of these funds could file a second appeal.
Nevertheless, the disgorgement order is sufficiently final regarding Franke's right to keep these funds. The bankruptcy court has not indicated any possibility that this money will be returned to Franke. Accordingly, although we conclude that the bankruptcy court's disgorgement order is final and thus appealable, we do so only to the extent that Franke is challenging the order to disgorge the...
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