Zimmerman, Rosenfeld, Gersh Llp v. Larson

• Decision Date: 17 August 2005
• Docket Number: No. B177971.,B177971.
• Court: California Court of Appeals Court of Appeals
• Parties: ZIMMERMAN, ROSENFELD, GERSH & LEEDS LLP, Plaintiff and Appellant, v. Glen LARSON, Defendant and Respondent.

33 Cal.Rptr.3d 111

131 Cal.App.4th 1466

ZIMMERMAN, ROSENFELD, GERSH & LEEDS LLP, Plaintiff and Appellant, v. Glen LARSON, Defendant and Respondent.

No. B177971.

Court of Appeal, Second District, Division Four.

August 17, 2005.

Zimmerman, Rosenfeld, Gersh & Leeds, Gary L. Zimmerman, and Rochelle A. Herzog, Beverly Hills, for Plaintiff and Appellant.

Sievert, Young & Donahoe, Richard D. Sievert, and Mark T. Young, Encino, for Defendant and Respondent.

CURRY, J.

Appellant, the law firm of Zimmerman, Rosenfeld, Gersh & Leeds (ZRG & L), brought suit against its former client, respondent Glen Larson, seeking payment of fees incurred in its representation of Larson in a divorce action. While the dissolution proceedings were pending in family court, Larson sought federal bankruptcy protection and obtained a confirmed plan of reorganization under chapter 11 after ZRG & L's representation ceased. The trial court granted Larson's motion for summary judgment in the attorney fees action on the ground that the firm had failed to disclose its agreement or a statement of compensation to the bankruptcy court for approval as required by Title 11 United States Code¹ section 1129.

Our review of the record indicates that Larson did not present sufficient evidence to establish ZRG & L was required to comply with section 1129. We affirm nevertheless, because (1) the debt owed to ZRG & L, having arisen prior to the confirmation of the reorganization plan, was extinguished except to the extent it was dealt with in the plan; and (2) ZRG & L did not dispute for purposes of the summary judgment motion that the plan provided for payment to ZRG & L only if Larson's home sold for more than a certain amount or that the home sold for less than the amount specified.

FACTUAL AND PROCEDURAL BACKGROUND

Complaint

In August 2003, ZRG & L brought suit to obtain payment of fees incurred in its representation of Larson in his marital dissolution action. The complaint alleged that approximately $243,000 was due and owing under a variety of legal theories, including breach of contract and quantum meruit. The complaint specifically alleged that Larson entered into a written contract with ZRG & L in August 1998; that he became indebted to ZRG & L within the previous two years; that an account had been stated within the previous four years; that money was owed on an open book account; and that Larson owed ZRG & L for the reasonable value of its services. The complaint did not mention the bankruptcy proceedings or the reorganization plan.

Motion for Summary Judgment

Larson answered and moved for summary judgment. The grounds for summary judgment were (1) that the action was precluded by a confirmed reorganization plan under section 1141² and (2) barred by ZRG & L's failure to obtain bankruptcy court approval of its fees under sections 327 through 330.³

The statement of undisputed facts (SOF) in support of summary judgment sets forth the following facts. In August 1998, Larson's wife Janet Larson⁴ filed a petition for dissolution of their marriage. ZRG & L agreed to represent Larson in the divorce proceedings. Approximately one year later, in May 1999, Larson filed a petition for bankruptcy. ZRG & L "was aware that Larson had filed a petition for bankruptcy relief" and "was aware that Larson had filed a bankruptcy petition on May 11, 1999." Larson and Janet entered into a marital settlement agreement (MSA) in November 2001. In May 2002, ZRG & L substituted out of the dissolution action, prior to entry of the final decree of divorce. During the course of its representation of Larson, ZRG & L billed approximately $400,000. The amounts sought in its complaint "are for legal fees incurred on or before May 20, 2002." In other words, "ZRG & L is seeking fees for the period of time in which Larson was a debtor subject to the jurisdiction of the bankruptcy court."

The SOF went on to state that on November 20, 2002, "the bankruptcy court entered an order confirming Larson's bankruptcy reorganization plan," which became final. According to the SOF the reorganization plan "provided for payment to ZRG & L only if Larson's home sold for more than a specified minimum" and "Larson's home sold for less than the amount which would allow any payment to ZRG & L."⁵ Further, "[a]t no time during Larson's bankruptcy did ZRG & L seek the bankruptcy court's approval of the terms of its fee agreement with Larson" and "[a]t no time during Larson's bankruptcy did ZRG & L seek the bankruptcy court's approval of the reasonableness of the fees billed to Larson."

In his memorandum of points and authorities, Larson primarily contended that summary judgment should be granted because any debts that arose postpetition and preconfirmation were wiped out by the plan of reorganization and the order confirming it. Secondarily, Larson contended that the action was barred by ZRG & L's failure to comply with sections 327 through 330, specifically arguing that court approval was required for Larson, as debtor-in-possession, to hire the firm and that its fees should have been submitted to the court for reasonableness review.

Reorganization Plan

Larson's chapter 11 reorganization plan, attached as an exhibit to the SOF, generally divided his creditors and obligations into four categories: (1) administrative creditors, such as his bankruptcy lawyers; (2) entities to whom taxes were owed, namely the Internal Revenue Service (IRS) and Franchise Tax Board; (3) class one and two secured creditors who held liens on the Larsons' real property; and (4) class three unsecured creditors. The plan provided that Larson's cash on hand (approximately $1 million) would be used to satisfy "all administrative claims, including professional fees," arrearages owed to the lienholder on his home, unsecured creditors who elected to receive 80 percent of their allowed claims, cash payments owed Janet under the MSA, and a portion of Larson's tax obligations.

The reorganization plan specifically described ZRG & L, along with another attorney and an accounting firm that had apparently also performed professional services for Larson, as "Non-Estate Professionals" who were "not entitled to be paid as administrative claimants." It stated that up to $350,000 would be applied from the proceeds of the sale of Larson's home to paying debt owed to ZRG & L and the accounting firm.⁶ This distribution was contingent on there being proceeds left after funds went for the expenses of the sale, paying off the mortgage and real estate taxes and taxes on capital gains, general unsecured creditors, the IRS, and Franchise Tax Board, and after $500,000 was reserved to permit Larson to purchase another home.

Opposition

In its opposition, ZRG & L did not dispute the facts set forth in the SOF. It instead presented new evidence that Larson did not owe the firm any money as of the date he filed his bankruptcy petition. There was, at that time, a credit balance in his client trust account. ZRG & L set forth as "disputed" material facts the following: "[ZRG & L] is seeking fees for services performed after LARSON filed his petition for relief under the bankruptcy code"; "[a]t the time LARSON filed his petition for relief under the bankruptcy code [ZRG & L] was not a creditor of LARSON"; "[t]he services [ZRG & L] preformed [sic] for LARSON were not in connection to his bankruptcy matter"; and "[ZRG & L] was not required to seek approval of their fees from the bankruptcy court."

In addition, rather than simply debate the legal points in its memorandum of points and authorities, ZRG & L also submitted the declaration of a bankruptcy law expert. The expert expressed the opinion that ZRG & L's lawsuit was not precluded by Larson's reorganization plan because the firm was not technically one of his creditors under section 101(10), which defines creditor to mean an "entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor," and section 301, which provides that "[t]he commencement of a voluntary case under a chapter of this title constitutes an order for relief under such chapter." (Italics added.) Although the expert conceded that the plan authorized Larson to use some of the proceeds from the sale of his house to pay "Non-Estate Professionals" such as ZRG & L, "[t]he fact that [the firm was] designated as a `non-estate professional' clearly indicates ZRG & L was not employed by the bankruptcy estate, nor performing services for the estate." Moreover, according to the expert, "ZRG & L did not perform any services for the bankruptcy estate, was not employed by the Debtor in connection with the bankruptcy case nor the estate, and did not seek any compensation from the estate. Thus, the [reorganization plan] did not apply to ZRG & L."

In its opposition memorandum, ZRG & L argued (1) that Larson did not obtain a discharge of his debt to the firm because the debt was not in existence at the time Larson filed his bankruptcy petition and was not covered by the discharge or the plan and (2) that the firm did not have to seek approval from the bankruptcy court to represent Larson in the dissolution proceeding and/or bill for its services.

Reply

Larson stated in his reply that he did not dispute that ZRG & L was seeking fees incurred after he filed his bankruptcy petition. He disagreed that the firm was not a creditor on the date he filed the bankruptcy petition, but contended that resolution of that dispute was unnecessary because postpetition, preconfirmation claims were also discharged by confirmation of the reorganization plan.

In his reply, Larson contended for the first time that ZRG & L was required to file a disclosure statement under section 329 because it provided legal services to the debtor "in connection with" his bankruptcy case. The reply pointed to provisions in the reorganization plan, attached as an exhibit to the moving papers, which allegedly acknowledged...