Smith v. Meredith (In re Smith)

• Decision Date: 23 February 2022
• Docket Number: Number 15-41863-EJC
• Citation: 637 B.R. 758
• Parties: IN RE: Joseph E. SMITH and Dena D. Smith, Debtors. Joseph E. Smith and Dena D. Smith, Movants, v. O. Byron Meredith, III, Chapter 13 Trustee Respondent.
• Court: U.S. Bankruptcy Court — Southern District of Georgia

637 B.R. 758

IN RE: Joseph E. SMITH and Dena D. Smith, Debtors.

Joseph E. Smith and Dena D. Smith, Movants,
v.
O. Byron Meredith, III, Chapter 13 Trustee Respondent.

Number 15-41863-EJC

United States Bankruptcy Court, S.D. Georgia, Savannah Division.

Signed February 23, 2022

637 B.R. 761

William F. Heitmann, III, Heitmann & Associates, LLC, Pooler, GA, for Special Counsel.

O. Byron Meredith, III, Savannah, GA, Trustee, Pro Se.

Sabari Pillai, Savannah, GA, for Trustee.

Contested Matter

OPINION ON APPLICATION TO EMPLOY, MOTION TO APPROVE PERSONAL INJURY SETTLEMENT NUNC PRO TUNC, MOTION FOR TURNOVER, AND MOTION FOR SANCTIONS

Edward J. Coleman, III, Chief Judge

Before the Court are the Motion to Appoint Attorney for Settlement of Personal Injury Claim (the "Application to Employ") (dckt. 73) and the Motion for Approval of Settlement of Personal Injury Claim Nunc Pro Tunc (the "Motion to Approve Settlement") (dckt. 77) filed by Joseph E. Smith and Dena D. Smith, the Debtors in this Chapter 13 case. The Chapter 13 Trustee, O. Byron Meredith, III, opposes both the Application to Employ and, to a limited extent, the Motion to Approve Settlement (dckt. 82, 87) and has filed a Motion for Turnover (dckt. 111) and a Motion for Sanctions (dckt. 112), which are also pending before the Court.

The Debtors filed this case on November 10, 2015, and their Chapter 13 plan was confirmed on April 11, 2016. Days later, on April 26, 2016, both Debtors and their adult son were injured in a car accident. They and their son subsequently hired William F. Heitmann, III, to represent them in their personal injury claims arising from the accident. Upon obtaining a settlement of Mr. Smith's claim, on July 17, 2017, Mr. Heitmann sought the Court's approval of that settlement and of his employment

637 B.R. 762

by Mr. Smith in connection therewith, both of which were granted by the Court. Over one year later, on August 24, 2018, Mr. Heitmann settled Mrs. Smith's personal injury claim for $45,000.00. Without filing an employment application or a motion to approve the settlement, Mr. Heitmann disbursed the settlement proceeds, including remitting net proceeds of $32,500.00 to Mrs. Smith and paying himself fees and expenses in the amount of $11,414.71.

Acting through their bankruptcy counsel, and nearly three years after Mr. Heitmann's disbursements in 2018, the Debtors filed the instant Application to Employ Mr. Heitmann to represent Mrs. Smith on May 12, 2021, and filed the instant Motion to Approve Settlement on May 26, 2021. In this manner, the Debtors seek to accomplish after the fact what might have been done three years ago. More specifically, the Debtors ask the Court to: (1) approve the services of a lawyer whose work has already been done; (2) authorize the payment of fees to that lawyer when he has already paid himself; (3) bless a personal injury settlement that has already been consummated; and (4) countenance the disbursement of net proceeds to the Debtors who have already received and spent that money, including a substantial amount of non-exempt proceeds.

The Chapter 13 Trustee objected to most of the Debtors’ requested relief and, following a September 23, 2021 evidentiary hearing, filed the instant Motion for Turnover and Motion for Sanctions against Mr. Heitmann. In the process, the parties have framed the issues in an awkward and cumbersome set of motions and counter-motions. The real issue in this case is what to do about estate assets that have been disbursed without Court approval and arguably to the prejudice of creditors, and from whom such assets shall be recovered, if at all.

According to the Trustee, the bankruptcy estate would have received a total of $21,185.22 of Mrs. Smith's settlement proceeds as nonexempt property of the estate if approval of the settlement had been properly sought in 2018. Although the Trustee does not oppose the terms of Mrs. Smith's settlement or, at present, seek the return of the non-exempt proceeds from the Debtors, he does object to Mr. Heitmann's retention of $11,414.71 in attorney's fees and expenses without Court approval. The Trustee requests that Mr. Heitmann be ordered to turn over that sum to the bankruptcy estate, as well as the sum of $10,939.63, representing the additional amount that the Trustee alleged was needed for general unsecured creditors to receive a 100% dividend in the case.¹ In the present posture of the case, the Trustee seeks neither turnover of the nonexempt proceeds from the Debtors nor dismissal of the case of the case for their failure to account for property of the estate. For the reasons set forth below, the Court will deny as moot

637 B.R. 763

the Motion to Approve Settlement, deny the Motion for Sanctions, and deny without prejudice the Motion for Turnover. Additionally, the Court will deny the Application to Employ and will direct Mr. Heitmann to disgorge the sum of $11,414.71.

I. Jurisdiction

This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1334(a), 28 U.S.C. § 157(a), and the Standing Order of Reference signed by then Chief Judge Anthony A. Alaimo on July 13, 1984. This is a "core proceeding" under 28 U.S.C. § 157(b)(2). The Court makes the following findings of fact and conclusions of law pursuant to Rules 9014(c) and 7052 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules").

II. Factual Background

The relevant facts in this case are undisputed. On November 10, 2015, the Debtors, represented by John E. Pytte, filed a Chapter 13 petition commencing this case. (Dckt. 1). As reflected by the claims register, creditors filed twenty-five claims in the case, for a total sum of $159,584.43, of which $53,346.16 represented general unsecured debt. Initially filed on the petition date, the Debtors’ Chapter 13 plan was subsequently amended on December 17, 2015, and again on January 13, 2016. (Dckt. 2, 19, 32). Under the terms of their second amended plan, the Debtors proposed to pay to the Chapter 13 Trustee the sum of $1,280.00 per month for a period of 60 months. (Dckt. 32, p. 1, ¶ 1). The plan further stated that "[a]llowed general unsecured claims ... will be paid a 0% dividend or a prorata [sic] share of $3,000.00, whichever is greater." (Dckt. 32, p. 2, ¶ 2(i)). The Chapter 13 Trustee moved for confirmation of the plan on the condition that "the Debtors shall guarantee a minimum to general unsecured creditors of $6,000.00, paid pro rata," which term was "incorporated into the confirmed Plan." (Dckt. 41, p. 1). On April 11, 2016, the Court confirmed the Debtors’ plan. (Dckt. 42).

Fifteen days after confirmation, on April 26, 2016, the Debtors and their adult son were injured in an automobile accident caused by a third party. (9/23/2021 Tr., pp. 27-28, 36-37).² The next day, April 27, 2016, Mr. Smith called his bankruptcy attorney, Mr. Pytte, and informed him of the accident. (9/23/2021 Tr. at pp. 8, 103-04). On that same day, an amended Schedule A/B was filed to disclose as potential assets the claims arising from the accident. (Dckt. 43). Specifically, in response to question 34, which requires the debtor to disclose "[o]ther contingent and unliquidated claims of every nature, including counterclaims of the debtor and rights to set off claims," the Debtors answered by filling in the box as follows:

Insurance proceeds - auto accidentamounts unknown and contingent

(Dckt. 43, p. 5, ¶ 34). In the space for indicating the value of the claim, the Debtors typed "Unknown." (Dckt. 43, p. 5, ¶ 34).

On May 7, 2016, the Debtors and their son hired William F. Heitmann, III, to represent them in their personal injury claims arising from the automobile accident. ³

637 B.R. 764

(9/23/2021 Tr., p. 27). While Mr. and Mrs. Smith recall telling Mr. Heitmann at that May 2016 meeting that they were in bankruptcy, Mr. Heitmann does not share that recollection. (9/23/2021 Tr. pp. 27, 84-85, 102-03). On May 16, 2017, over a year after the accident, the Debtors again amended their Schedule A/B to indicate that they were each being represented by Mr. Heitmann in a personal injury claim arising from the accident. (Dckt. 48). The Debtors’ response to question 34, as amended, appeared as follows:

Insurance proceeds - auto accidentamounts unknown and contingent

Personal Injury claim Joseph E. Smithvalue contingent and unknown, William F. Heitmann, III, Pooler, GA, representing Debtor

Personal Injury Claim Dena D. Smith arising out of automobile accident value contingent and unknown Willia [sici F. Heitmann, III attorney

(Dckt. 48, pp. 5-6, ¶ 34). In other words, the Debtors left unchanged the first box and added a separate box for each spouse's personal injury claim. Next to each of the three boxes,...