Pierce, In re
| Decision Date | 19 February 1987 |
| Docket Number | No. 86-5148,86-5148 |
| Citation | 809 F.2d 1356 |
| Parties | Bankr. L. Rep. P 71,586 In re Kevin PIERCE, Individually and as a partner of Pierce Farms, Debtor. In re Wayne PIERCE, individually and as a partner of Pierce Farms, Debtor. In re Michael PIERCE, individually and as a partner of Pierce Farms, Debtor. Lyle PIERCE, individually and as a partner of Pierce Farms, v. AETNA LIFE INSURANCE COMPANY, Creditors Committee, Creditors Schmalz, Fitzsimmons & Cassavan, Farmers Home Administration & Commodity Credit Corporation, General Motors Acceptance Corp., Wayne Drewes, Ch. 7 Trustee, National Farmers Union Property & Casualty Company. Neil A. McEWEN, Appellant, v. William P. WESTPHAL, U.S. Trustee and Wayne Drewes, Bankruptcy Trustee, Appellees. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Neil A. McEwen, Thief River Falls, Minn., for appellant.
William P. Westphal, Sr., Minneapolis, Minn. and Kip M. Kaler, Fargo, N.D., for appellees.
Before LAY, Chief Judge, and WOLLMAN and MAGILL, Circuit Judges.
Attorney Neil A. McEwen appeals from an order of the district court 1 affirming an order of the bankruptcy court which denied compensation to McEwen for services rendered in representing certain debtors in their bankruptcy cases and in a state court proceeding. 2 We affirm.
A. Facts.
On January 6, 1984, McEwen filed on behalf of the debtors, separate voluntary petitions in bankruptcy under Chapter 11 of the Bankruptcy Code. 3
Prior to filing the Chapter 11 petitions, McEwen represented the debtors in Minnesota state court to recover on a crop insurance policy. 4 In connection with this case, McEwen entered into a contingent fee arrangement with the debtors, which provided that he would receive one-third of the amount recovered, or, in the event of an appeal, one-half of the recovery, plus costs and disbursements.
On July 12, 1983, the state court entered judgment in favor of the debtors in the amount of $41,088. McEwen subsequently appealed this judgment. All of McEwen's work on this case, except for oral argument on appeal, was completed before January 6, 1984, the day the bankruptcy petitions were filed.
McEwen argued the case before the Minnesota Court of Appeals on April 11, 1984, the date set by the bankruptcy trustee for the first meeting of creditors on the Chapter 11 bankruptcy cases. Because of this conflict, McEwen sent an associate to represent the debtors at the creditors' meeting. On May 22, 1984, the appeals court reversed the trial court's decision in part, and increased the debtors' recovery to $45,848. Pierce v. National Farmers Union Property & Casualty Co., 351 N.W.2d 366 (Minn.Ct.App.1984). 5 McEwen spent $2,198.82 in costs and disbursements in the litigation.
At a hearing on October 10, 1984, almost five months after the first creditors' meeting, the bankruptcy court noted that an order appointing McEwen as counsel for the debtors in the bankruptcy cases had not been filed. McEwen disputed this, apparently believing that an order had been filed at the first creditors' meeting from which he was absent. On October 11, 1984, the debtors, through McEwen, filed an application for McEwen's appointment. The application was considered by the court at a hearing on October 11, at which all parties were represented. At the same hearing, the court discussed whether McEwen had to file an application for special purpose on the state court suit, which had been completed by this time. Although McEwen had not previously filed this application, he did so on or after October 11.
On November 2, 1984, the court approved the application for McEwen's appointment as attorney for the debtors in the bankruptcy cases. 6 The court, however, never approved the application for special purpose.
McEwen began to prepare the debtors' petitions in mid-December of 1983. In order to secure payments for his work on the bankruptcy cases, McEwen obtained an $8,000 mortgage on real estate owned by debtor Lyle Pierce and his wife Elaine, who was not a party in the bankruptcy cases. McEwen recorded the mortgage on January 6, 1984, immediately before he filed the debtors' petitions. McEwen, however, did not disclose the mortgage in his application for employment filed on October 11, nor did he disclose it in his statement of attorney filed with the petitions. 7
From December 1984 through May 1985, the creditors made a series of motions for relief from stay and motions to dismiss, all of which were denied. Soon thereafter, the debtors were allowed to convert their cases to Chapter 7 cases.
On June 19, 1985, McEwen submitted two applications to the bankruptcy court for attorneys' fees--one for $33,352.00 for work on the bankruptcy cases, and the other for $28,201.02 for work on the state case. The Chapter 7 trustee objected to all of these fees. The United States Trustee objected to the bankruptcy-related fees on the ground that they were excessive. 8
On October 11, 1985, the bankruptcy court issued an order denying most of McEwen's claims for compensation. As to the state court fees, the court held that McEwen was not entitled to compensation because the costs of that litigation were not administrative expenses of the estate. In re Pierce, 53 B.R. 825, 827 (Bankr.D.Minn.1985). Although McEwen also argued that he was entitled to his state fees because he had an attorney's lien in the proceeds of the state court judgment, the court held that because McEwen failed to perfect the lien pursuant to Minn.Stat. Sec. 481.13, the trustee could avoid it under 11 U.S.C. Sec. 545(2). Id. at 827-28.
As to the bankruptcy-related fees, the court held that McEwen did not qualify for employment under 11 U.S.C. Sec. 327(a) because he did not meet the definition of a disinterested person. Id. at 828. Accordingly, the court denied McEwen's fees for his post-petition work on the bankruptcy cases. Id. at 828-29. 9 The court did, however, award McEwen $8,000 in administrative expenses as the reasonable value of his prepetition services rendered in the bankruptcy cases. Id. at 829. 10
On March 2, 1986, the district court entered an order affirming the order of the bankruptcy court. This appeal followed.
At the outset, we note that the bankruptcy court's findings of fact are subject to the clearly erroneous standard, but its legal conclusions are subject to de novo review. In re Martin, 761 F.2d 472, 474 (8th Cir.1985).
McEwen does not appeal the bankruptcy court's denial of his state court fees on the ground that they did not qualify as administrative expenses. Rather, McEwen argues that the district court erred in holding that he had to file notice of his attorney's lien under Minn.Stat. Sec. 481.13 in order to perfect his interest. He therefore maintains that his lien was not subject to the trustee's avoidance powers under 11 U.S.C. Sec. 545(2).
Under 11 U.S.C. Sec. 545(2), the trustee in bankruptcy has the power to avoid a statutory lien on a debtor's property if the lien "is not perfected or enforceable at the time of the commencement of the case against a bona fide purchaser that purchases such property at the time of the commencement of the case, whether or not such a purchaser exists." 11 U.S.C. Sec. 545(2) (1979 & Supp.1985). This section gives the trustee the status of a hypothetical bona fide purchaser as of the date the bankruptcy petitions were filed. 4 Collier on Bankruptcy p 545.04, at 545-19 (15th ed. 1986). Thus, if a statutory attorney's lien is not perfected or enforceable, the trustee can avoid the lien under Section 545(2). See, e.g., In re Burnham, 12 B.R. 286, 291 (Bankr.N.D.Ga.1981).
The nature, extent, and validity of the statutory lien are matters governed by state law. See In re Sea Catch, Inc., 36 B.R. 226, 228-30 (Bankr.D.Alaska 1983); 4 Collier on Bankruptcy p 545.04, at 545-19. In this case, the applicable law is that of Minnesota.
The only method of obtaining an attorney's lien in Minnesota is by complying with Minn.Stat. Sec. 481.13, which has preempted the common law in this area. Village of New Brighton v. Jamison, 278 N.W.2d 321, 324 (Minn.1979); Boline v. Doty, 345 N.W.2d 285, 288 (Minn.Ct.App.1984). 11 In analyzing McEwen's claim, the bankruptcy court focused on subsection (1), which provides that, whether or not there is a contract for fees, an attorney has a lien for compensation:
Upon the cause of action from the time of the service of the summons therein, or the commencement of the proceedings, and upon the interest of the attorney's client in any money or property involved in or affected by any action or proceeding in which the attorney may have been employed, from the commencement of the action or proceeding, and, as against third parties, from the time of filing the notice of such lien claim, as provided in this section [.]
Minn. Stat. Sec. 481.13(1) (emphasis added). Subsection (4) provides that if the lien is claimed on a client's interest in personal property, notice of the lien must be filed "in the same manner as provided by law for the filing of a security interest." Id. Sec. 481.13(4). 12
Despite the seemingly clear statutory mandate, McEwen argues that notice is not required to perfect his lien. He claims that it is not the intent of the statute that a contingent fee contract on a cause of action seeking a money judgment is to be recorded under subsection (4). We cannot agree.
The plain language of subsection (1) requires that, whether or not there is a contract for compensation, notice of a lien claim upon a cause of action or upon the interest of the client in any property involved in the proceeding must be filed by the attorney in order for the lien to be effective against third parties. Minn.Stat. Sec. 481.13(1). Whether McEwen had a lien on the state cause of action, or on the money judgment because of his contingent fee contract, the...
To continue reading
Request your trial
-
In re Claussen
...F.Supp. 1010, 1015 (S.D.N.Y.1980). Statutory lien enforcement depends on its perfection status as of the petition date. In re Pierce, 809 F.2d 1356, 1361 (8th Cir.1987). South Dakota state law determines perfection of its state statutory Lien perfection is crucial because unperfected securi......
-
In re Petroleum Piping Contractors, Inc.
...a bona fide purchaser are matters governed by state law. In re Loretto Winery, Ltd., 898 F.2d 715, 718 (9th Cir.1990); In re Pierce, 809 F.2d 1356, 1359 (8th Cir. 1987). Under § 545(2), the enforceability of a statutory lien versus property of the debtor depends upon its state of perfection......
- Mercer v. City of Cedar Rapids
-
In re El San Juan Hotel Corp.
...of the engagement of professionals"); see also In re AOV Industries, Inc., 797 F.2d 1004, 1010 (D.C.Cir. 1986); In re Pierce, 809 F.2d 1356, 1363 (8th Cir.1987). An attorney submitting to the scrutiny of the bankruptcy court has a responsibility to disclose any potential conflicts of intere......
-
Representing the Debtor: Counsel Beware!
...1991); In re Intech Capital Corp., 87 Bankr. 232 (Bankr. D.Conn. 1988). 26. 11 U.S.C. §§ 327(a) and 101(14)(A). Compare In re Pierce, 809 F.2d 1356 (8th Cir. 1987) (application of strict standard) with In re Martin, 817 F.2d 175 (1st Cir. 1987) (case-by-case determination). See also In re F......