Summary
denying fee application of debtors' attorney to the extent that the fees were generated by a contract attorney with respect to whom the debtors' attorney did not obtain prior court approval
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Docket No. 01-44262
March 28, 2002
Attorney(s) for Debtor, Richard R. Hubbard, Walter Andree Kewriga, Uxbridge, MA.
MEMORANDUM OF DECISION
Before the Court for determination is an Application for Fees and Expenses filed by Walter and Andree Kewriga's (the "Debtors") counsel, Richard R. Hubbard ("Hubbard"). The issue before the Court is whether Hubbard's hiring of an attorney who is not a member, partner, or regular associate of his firm for the purpose of conducting legal research and writing, without court approval, is a violation of Section 504 of the United States Bankruptcy Code (the "Code" or the "Bankruptcy Code").
"Except as provided in subsection (b) of this section, a person receiving compensation or reimbursement under section 503(b)(2) or 503(b)(4) of this title may not share or agree to share —
(1) any such compensation or reimbursement received by another person; or
(2) any compensation or reimbursement received by another person under such sections.
(b)(1) A member, partner, or regular associate in a professional association, corporation, or partnership may share compensation or reimbursement received under section 503(b)(2) or 503(b)(4) of this title with another member, partner, or regular associate in such association, corporation, or partnership, and may share in any compensation or reimbursement received under such sections by another member, partner, or regular associate in such association, corporation, or partnership." 11 U.S.C. § 504.
I. BACKGROUND
On July 2, 2001, the Debtors filed a voluntary Chapter 13 bankruptcy petition and engaged Hubbard as counsel. On August 24, 2001, Herbert E. Rivkin and Cynthia P. Rivkin (the "Rivkins") filed an Objection to the Debtors' Schedule C Claim of Exemptions and the Debtors filed a response thereto.
The Chapter 13 proceeding was subsequently converted to a Chapter 7 proceeding on February 26, 2002.
The Rivkins objected on the basis that the Debtors were not entitled to their entire homestead exemption under MASS. GEN. LAWS ch. 188, § 1 . On October 2, 2001, this Court held a hearing on the Rivkins' Objection to the Debtors' Schedule C Claim of Exemptions and on even date issued an Order requiring the parties to submit memoranda of law on the issue. Thereafter, both parties submitted memoranda of law on the aforementioned issue and on October 29, 2001, this Court entered an Order overruling the Rivkins' Objection to the Debtors' Schedule C Claim of Exemptions. Hubbard employed Gottlieb to research and write the legal memorandum on the Debtors' behalf. Gottlieb expended 13.6 hours conducting legal research and writing and as part of Hubbard's fee application, Hubbard seeks reimbursement of $1,250, representing monies paid to Gottlieb for his research and writing services. These services were provided for a fixed fee and with the Debtors' approval. According to Hubbard, by contracting the legal research to Gottlieb, the Debtors received a net savings.
"An estate of homestead to the extent of $300,000 in the land and buildings may be acquired pursuant to this chapter by an owner or owners of a home or one or all who rightfully possess the premises by lease or otherwise and who occupy or intend to occupy said home as a principal residence. Said estate shall be exempt from the laws of conveyance, descent, devise, attachment, or execution and sale for payment of debts or legacies . . ." MASS. GEN. LAWS ch. 188, § 1.
On January 14, 2002, Hubbard filed an Application for Fees and Expenses which was scheduled for hearing for February 19, 2002 and continued to March 19, 2002 50 that the Debtors' counsel, the United States Trustee, and the Chapter 13 Trustee could file legal memoranda on the appropriateness of hiring an attorney to conduct legal research without obtaining prior court approval. A hearing was held on said application on March 19, 2002 and the Court took the matter under advisement.
II DISCUSSION
The sharing of compensation by attorneys is generally prohibited by bankruptcy law except under certain limited circumstances. In re Greer, 271 B.R. 426, 429 (Bankr. D. Mass. 2002), citing In re In re Matis, 73 B.R. 228, 231 (Bankr. N.D.N.Y. 1987); In re Mailer Restaurant Corp., 57 B.R. 72. 74 (Bankr. E.D.N.Y. 1985). Section 504 of the Code provides, in pertinent part, that "a person receiving compensation or reimbursement under section 503(b)(2) or 503(b)(4) of this title may not share or agree to share — (1) any such compensation or reimbursement received with another person; or (2) any compensation or reimbursement received by another person under such sections." 11 U.S.C. § 504(a). However, "[a] member, partner, or regular associate in a professional association, corporation, or partnership may share compensation or reimbursement received . . . under section 503(b)(2) or 503(b)(4) of this title with another member, partner, or regular associate in such association, corporation, or partnership . . ." 11 U.S.C. § 504(b).
It is clear, and no one is claiming otherwise, that Gottlieb does not fit into any of the categories exempting the sharing of compensation; he is not a member, partner or regular associate of Hubbard. Therefore, Hubbard was required to obtain Court approval prior to hiring Gottlieb since he is a professional person hired by the Debtors' attorney in order to provide services. Pursuant to Section 327(a) of the Code, "[e]xcept as otherwise provided in this section. the trustee, with the court's approval, may employ one or more attorneys, accountants, appraisers, auctioneers, or other professional persons, that do not hold or represent an interest adverse to the estate, and that are disinterested persons, to represent or assist the trustee in carrying out the trustee's duties under this title." 11 U.S.C. § 327(a).
Moreover, that Gottlieb was hired by Hubbard and did not seek fees directly from the estate does not render Section 327(a) inapplicable. To hold otherwise would create an exception that swallows the rule. In In re Grenoble Apartments, the court addressed this very issue and held that the detention of an attorney for conducting legal research on behalf of the debtor's attorney' requires approval by the court pursuant to Section 327(a) of the Code. United States Trustee v. Grenoble Apartments (In re Grenoble Apartments), 152 B.R. 608, 611 (S.D.S.D. 1993). The court "vent on to say that "[e]ven if the work performed [by the attorney] is not that of an attorney within the meaning of 327(a), the work qualifies as that of a professional within the meaning of that section." Id. Accordingly, Hubbard should have obtained prior Court approval to engage Gottlieb even if Gottlieb's sole purpose was to conduct legal research and writing on a limited issue.
The case law cited by Hubbard does not support his position. The case that Hubbard cites states that "neither § 327 nor the Bankruptcy Rules . . . prohibit the court from exercising its sound discretion in deciding whether to approve employment of a professional after the fact to the end that the deserving professional may be compensated by the estate for valuable services performed by it." In re Cormier, 35 B.R. 424, 425 (Bankr. D. Maine 1983). However, the Cormier court went on to say that the bankruptcy judge must ensure that compensation is not allowed to "professionals whose interest conflicted with those of the estate or whose actions were not of clear benefit to the estate." Id. at 426. This Court is unable to make such an evaluation without an application for retention and appropriate affidavits making such representations.
Although this Court is cognizant that this matter involves a small amount of money and that Hubbard's violation of the Code may have been inadvertent, it cannot disturb the integrity of the Bankruptcy Code by excepting Debtor's counsel from complying with its requirements. Accordingly, Debtors' counsel employment of Gottlieb was in violation of the Code and prior approval should have been obtained.
II. CONCLUSION
For the foregoing reasons and having reviewed the pleadings and legal memorandum of law, and heard arguments of counsel, this Court hereby Denies in part Hubbard's Application for Fees and Expenses [Docket # 27] to the extent of $1,250. which represents payment for Gottlieb's services. However, this Court will allow a nunc pro tunc motion to retain Gottlieb as a professional if the standard established in In re Jarvis is met and, if allowed, will consider any fee application he might file. SeeIn re Jarvis, 53 F.3d 416, 420-421 (1st Cir. 1995).