Olson v. Anderson (In re Anderson), BAP No. WW-14-1262-JuKiF
| Decision Date | 07 October 2015 |
| Docket Number | BAP No. WW-14-1262-JuKiF |
| Parties | In re: CINDY SHANNON ANDERSON, Debtor. MARK G. OLSON, Appellant, v. CINDY SHANNON ANDERSON; DON THACKER, Chapter 7 Trustee, Appellees. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
NOT FOR PUBLICATION
MEMORANDUM*Argued and Submitted on September 25, 2015 at Seattle, Washington
Appeal from the United States Bankruptcy Court for the Western District of Washington
Appearances: Chris Graver of Keller Rohrback LLP argued for appellant Mark G. Olson; Thomas W. Stilley of Sussman Shank LLP argued for appellee Don Thacker, Chapter 7 Trustee.
Before: JURY, KIRSCHER, and FARIS, Bankruptcy Judges.
Appellee chapter 71 trustee, Don Thacker (Trustee), employed appellant attorney, Mark G. Olson (Olson), to pursue a personal injury claim (PI claim) held by debtor, Cindy S. Anderson (Debtor). More than three years later, Olson settled the PI claim for $41,000 without Trustee's knowledge or consent. Olson paid himself a portion of the settlement proceeds and disbursed the rest to Debtor. These actions were in direct contravention of the express terms of Olson's employment agreement with Trustee, which required Trustee's approval of any settlement, and the bankruptcy court's employment order, which required Olson to obtain court approval of his fees. Moreover, Olson disbursed property of the bankruptcy estate to Debtor who had not yet claimed an exemption in the PI Claim. Debtor spent most of the money by the time Trustee learned about the settlement.
Trustee asked Olson and Debtor to turn over the settlement proceeds. Trustee settled with Debtor, but Olson refused the request. Trustee filed a motion seeking turnover of the settlement proceeds, followed by a separate motion for sanctions against Olson under Rule 9011 and 28 U.S.C. § 1927. After a hearing, the bankruptcy court entered an order granting Trustee's motions for turnover and for sanctions, but deferred deciding the amount of the sanctions until Trustee's attorneysfiled their fee application.2 The order regarding the sanctions became final when the court subsequently entered an order fixing the amount of the sanctions as $13,696 in fees and $639.02 in costs, which amounts represented fees and costs incurred by Trustee's counsel (Sanctions Order). Olson appeals from the Sanctions Order. We AFFIRM.
The material facts are undisputed. Debtor filed a chapter 7 bankruptcy petition on April 30, 2009. Debtor neither disclosed nor exempted the PI Claim in her schedules. On June 15, 2009, Debtor amended her Schedule B to include the PI Claim as an asset but she did not assert an exemption in it.
In June 2009, Debtor hired Olson to represent her in connection with the PI claim. Since her injuries were sustained at a hotel and casino in Nevada, Olson associated with a Nevada attorney, Justin Wilson.
On June 29, 2009, Trustee and Olson entered into an Attorney-Client Fee Agreement (Fee Agreement), under which Olson agreed to pursue the PI claim on behalf of the bankruptcyestate. Under the agreement, Olson was entitled to a forty percent contingency fee if the matter was settled prior to trial, forty-five percent if the case went to trial, and fifty percent if there was an appeal. The terms of the agreement required Trustee's approval prior to any settlement: "Neither [Olson] nor [Trustee] shall settle or compromise any aspect of a lawsuit without agreement between client and attorney."
On August 28, 2009, Trustee filed an application to employ Olson. Olson signed a Declaration of Disinterestedness, in which he declared under penalty of perjury that he had read and was familiar with Bankr. Local Rule 2016-1 regarding compensation of professionals. On the same day, the bankruptcy court entered an order approving Olson's employment. The employment order provided that any compensation to Olson was subject to court approval.
On November 2, 2009, Debtor received her § 727 discharge, but her case remained open.
On August 9, 2010, Olson, in connection with co-counsel Justin Wilson, filed a personal injury lawsuit on behalf of Debtor against the Nevada hotel and casino.
In December 2012, without Trustee's knowledge or consent, and without obtaining the bankruptcy court's approval, Debtor and Olson settled the lawsuit for $41,000. After receiving this amount, Olson paid himself a forty percent contingency fee of $16,4004 and expenses of $3,376.22, and distributed theremaining $21,223.78 to Debtor, again without communicating with Trustee or obtaining the bankruptcy court's approval.
In January 2013, Trustee sent an email to Olson inquiring about the status of the PI Claim. Olson informed Trustee that the claim had been settled and the proceeds used to pay his attorneys' fees with the remainder distributed to Debtor. According to Trustee, he advised Olson that he had no authority to settle the case or pay himself attorneys' fees, and that he should not have disbursed any proceeds to Debtor as she had claimed no exemption in the PI Claim. Trustee demanded that Olson and Debtor turn over the settlement proceeds, but both failed and refused to do so.
On March 14, 2013, Debtor filed an amended Schedule C, claiming for the first time that $20,200 of the settlement proceeds were exempt. Trustee objected to Debtor's claim of exemption.
On May 16, 2013, Trustee filed a motion for turnover, seeking to recover the $41,000 in settlement proceeds from Debtor and Olson. Debtor and Olson objected to the motion. On August 8, 2013, Olson filed a declaration that included the following:
Trustee disputed those statements, contending that they were without evidentiary support and not warranted by existing law in violation of Rule 9011.
In September 2013, Trustee and Debtor settled Trustee's objection to her claim of exemption for $3,883.78. Trustee later testified at the evidentiary hearing on the turnover motion that his primary motivation for the settlement was that Debtor already had spent most of the settlement proceeds and remained insolvent. The bankruptcy court entered an order approving the settlement on December 26, 2013.
On October 9, 2013, in a final effort to resolve the matter and avoid further fees and costs, Trustee served Olson's attorneys with a letter dated October 9, 2013, and a Motion for Sanctions, giving Olson twenty-one days to withdraw his objection to the turnover motion and to agree to turn over the settlement proceeds or face a motion for sanctions for his continuing unjustifiable refusal to turn over the funds.5 Trustee received no response to that letter. Before the turnover motion was heard, on November 5, 2014, Trustee filed a motion for sanctions (Sanctions Motion).
On December 17, 2013, Olson sought approval of his fees in the amount of $16,400 and costs of $3,376.22 by filing a feeapplication.
On February 3, 2014, the bankruptcy court conducted an evidentiary hearing on the turnover motion, the Sanctions Motion, and Olson's fee application.
On February 14, 2014, the bankruptcy court issued an oral ruling. The bankruptcy court acknowledged that Trustee sought turnover of the settlement proceeds under § 542(a). However, as Olson had already paid himself his fees and costs from the settlement, the court found that Trustee's motion was in effect a motion to disgorge fees.6 The bankruptcy court noted that it had broad and inherent authority to deny or order disgorgement of compensation when an attorney failed to meet the requirements of §§ 327, 329, 330, or 331 under In re Alvarado, 496 B.R. 200, 213 (N.D. Cal. 2013) (); In re New River Dry Dock, Inc., 451 B.R. 586, 592 (Bankr. S.D. Fla. 2011) ().
In deciding whether Olson was entitled to any fees, the bankruptcy court considered whether Olson's services had benefitted the estate under § 330(a)(3). The court ultimatelyconcluded that his services resulted in a loss, rather than a benefit to the estate. In reaching this conclusion, the court found that by settling the PI Claim without authority, Olson denied Trustee and the court the opportunity to evaluate the proposed settlement. Thus, it remained unknown whether the $41,000 settlement was in the best interest of the estate. The court further found that Olson's disbursement of $21,223.78 in settlement proceeds to Debtor caused prejudice to the estate by at least that amount since by the time Trustee became aware of the settlement and distribution, Debtor had spent most of the money.
When considering the Sanctions Motion, the bankruptcy court concluded that ¶¶ 7 and 8 of Olson's declaration filed in opposition to Trustee's request for turnover ignored the uncontested facts in the case and were in direct conflict with bankruptcy law, including § 330 and Rule 9019. For these reasons, the bankruptcy court found that Olson's...
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