Opinion
Case No. 99-13179-MAM-13
November 2, 1999
Herman D. Padgett, Mobile, Alabama, Attorney for the Debtors
Jesse S. Vogtle, Birmingham, Alabama, Attorney for Green Tree Financial Corporation
ORDER DENYING GREEN TREE FINANCIAL CORPORATION'S MOTION FOR PAYMENT OF FEES BY COUNSEL FOR DEBTOR
There are no matters this Court finds more distasteful to deal with than ethics issues and fee issues because they often involve allegations of attorneys behaving badly or at least inconsiderately or carelessly. This matter concerns these issues. Green Tree Financial Corporation seeks to have $850 of attorneys fees paid to it by Herman Padgett. The fees would typically be charged to Mr. Padgett's clients. Green Tree alleges that the fees should have been only $50 if Mr. Padgett had returned telephone calls or responded to a letter of counsel. Therefore Mr. Padgett's office cost his clients $800 which should not be assessed against the debtors, but against their counsel.
The Court has jurisdiction to hear this matter pursuant to 28 U.S.C. § 157 and 1334 and the Order of Reference of the District Court. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2) and the Court has the authority to enter a final order. For the reasons indicated below, the Court is denying Green Tree's motion.
FACTS
Green Tree has a lien on a 1995 truck owned by the debtors. Mr. Sullivan drives the truck for a living. The debtors' schedules listed the value of the truck at $30,770. The Green Tree lien is $39,649.00 according to the schedules. The debtors filed a chapter 13 plan which proposed to pay Green Tree $661 per month in order to pay $39,649 at 0% interest during the 60-month life of the plan.
Green Tree objected to this treatment. It alleged in its timely objection to the plan that its debt was $29,895.45 and that it was owed interest on the debt at 14.5% during the life of the plan. This would require a payment of $931.76 per month.
GREEN TREE'S POSITION
Green Tree filed its plan objection on October 12, 1999. The confirmation hearing for the plan was October 14, 1999. Mr. Vogtle called Mr. Padgett to attempt to resolve the matter on October 12, 1999, or before. He was told that the attorneys at the firm were busy at that time and that someone would call him back. No one ever returned his call that he is aware of nor did he receive any voice mail messages. Mr. Vogtle does not have a beeper number. His telephone number is a number at his law firm of Balch Bingham. It is answered from 8:00 a.m. to 6:00 p.m., and messages before or after hours or when he is unavailable are forwarded to his voice mail. He wrote and faxed a letter to Mr. Padgett on October 12, 1999, which indicated his great frustration. He stated that he was unable to get any response to his call and, if he did not hear from Mr. Padgett, he would bring the matter to the Court's attention. Mr. Vogtle hired Mobile counsel to appear at the confirmation hearing for Green Tree when he received no answer. Mr. Jeffery Hartley appeared at the chapter 13 confirmation hearing and an associate of
Mr. Padgett's agreed to modify the plan to comply with the objection without a hearing by the Court.
DEBTORS' COUNSEL'S POSITION
Mr. Padgett stated that he received a message slip from the office manager indicating that Mr. Vogtle had called. Since his new associate, Ms. Elizabeth Wilson, was going to be handling the confirmation hearing, he passed the message to her. The October 14, 1999 confirmation docket was to be Ms. Wilson's first one. She returned the call to Mr. Vogtle. The telephone number she used was one which relayed messages to a beeper. She put her number in the beeper to get a return call. She believes she made this call on October 12, 1999 at 4:00 p.m. or so. She called again later that evening. She does not recall receiving the letter of Mr. Vogtle from Mr. Padgett at any time.
Mr. Gary Alidor testified as an expert witness for Mr. Padgett. He indicated that he cannot recall ever resolving a chapter 13 plan confirmation objection over the telephone. Typically, objections are resolved at the confirmation hearing because all of the necessary parties are there-the debtors' and creditors' lawyers, and the parties. If one creditor is offered a larger payment, then this may lower the payments to another creditor, so that more parties will be needed than the debtor's and one creditor's attorneys. Mr. Alidor called the process a "tug of war" among the parties. Mr. Alidor agreed that oversecured creditors are entitled to interest and attorneys fees on their debts. He also indicated that if he had received Mr. Vogtle's letter of October 12, 1999, he would have returned the call himself, even if an associate was handling the file. Mr. Vogtle's fees for handling the Green Tree matter were $400 due to the contest. Mr. Hartley's fees as local counsel were $450.
LAW
Green Tree terms this motion one for payment of fees pursuant to Section 506(b) of the Bankruptcy Code. It seeks to have its fees paid by debtor's counsel. Section 506(b) states "To the extent that an allowed secured claim is secured by property . . . which . . . is greater than the amount of such claim, there shall be allowed to the holder of such claim . . . any reasonable fees . . . provided for under the agreement under which such claim arose." Section 506(b) allows the fees to be added to the debt owed to the creditor by the debtor; it does not allow them to be taxed to debtor's counsel. The motion is more properly termed a motion for sanctions based upon debtor's counsel's violation of ethical standards governing attorneys or based upon Fed.R.Bankr.P. 9011. A bankruptcy court has the inherent power to sanction attorneys appearing before it for unethical conduct. In Re Malmen, 140 B.R. 819 (Bankr.M.D.Fla. 1992).
Rule 9011 requires that the attorney sign a pleading which is inappropriate. Fed.R.Bankr.P. 9011(a)-(b). That is not the type of conduct complained of here. Mr. Vogtle asserts that Mr. Padgett did not respond to a telephone call or a letter which would have reduced fees. Therefore, the violation must be a violation of an ethical rule.
Local Rule 2090-1 of the Southern District of Alabama Bankruptcy Court incorporates the Alabama Professional Conduct Rules. Rule 3.2 of those Rules, entitled "Expediting Litigation," states that "A lawyer shall make reasonable efforts to expedite litigation consistent with the interests of the client." The Comment to the rule explains: Dilatory practices bring the administration of justice into disrepute. Delay should not be indulged merely for the convenience of the advocates, or for the purpose of frustrating an opposing party's attempt to obtain rightful redress or repose. It is not a justification that similar conduct is often tolerated by the bench and bar. The question is whether a competent lawyer acting in good faith would regard the course of action as having some substantial purpose other than delay. Realizing financial or other benefit from otherwise improper delay in litigation is not a legitimate interest of the client.
To sanction an attorney for any violation of the Rules of Professional Conduct, the movant must prove that counsel's conduct was unreasonable under the circumstances. Malmen, 140 B.R. at 824. As stated by Judge Baynes in the Malmen decision:
This Court recognizes the imposition of sanctions in any form must be made with some reservation taking into consideration the goal of deterring inappropriate behavior while at the same time encouraging diligent advocacy.
Malmen, 140 B.R. at 826.
The conduct of Mr. Padgett does not rise to the standard of an ethical violation. He followed a procedure which was reasonable. The message of Mr. Vogtle was taken by the receptionist or office manager; it was passed to the attorney handling the file at the confirmation hearing; and she attempted to respond (although to a wrong number). It is less clear that Mr. Vogtle's letter was read by either attorney, but that is not sufficient to prove an ethical violation. The fact that it was one of the first days of work for Ms. Wilson in Mr. Padgett's office makes the mistakes more understandable. She personally did not know Mr. Vogtle or his telephone number.
The Court does not take questions of ethics lightly. Obviously, as the Southern District of Alabama's Local Rules show, the Court considers ethical conduct to be a requirement of attorneys practicing in the Court. However, the Court cannot sanction lawyers too quickly.
There are often mitigating circumstances, and the finding of sanctionable conduct is a serious matter.
The Court does expect all counsel to treat each other and clients with courtesy and respect. Respect and courtesy dictate that attorneys calls be responded to if at all possible. The Court knows that the chapter 13 confirmation procedure it uses puts a heavy burden on debtors' and creditors' counsel in the days prior to a docket. This burden is made worse by the chapter 13 motion docket which is held the day before the confirmation hearings. Judges Shulman and Mahoney routinely have 50-100 matters on each of their motion dockets and 50-100 confirmation hearings on each of their confirmation dockets. This number of matters generates numerous calls and letters.
Green Tree has a right to add reasonable attorneys fees and costs to its debt when it is oversecured. It is oversecured in this case. The Court finds that the $850 in fees are reasonable. Mr. Vogtle and Mr. Hartley both did work necessary to conclude this matter for Green Tree. The fees may be added to the Sullivans' debt.
The Sullivans are the parties who would have a claim if Mr. Padgett's work was not worth the $1, 300 charged by him to handle their case. The Court has jurisdiction over this issue pursuant to 11 U.S.C. § 329-330.
The motion of Mr. Vogtle must be denied. Green Tree has a right to seek fees only from the debtors pursuant to 11 U.S.C. § 506(b). If the motion is termed a motion for sanctions or for violation of the Alabama Professional Conduct Rules, then the motion must also be denied because movant did not meet the burden of proof. Mr. Padgett acted within the ethical rules. His firm's conduct was discourteous and careless, but it was not so improper as to be sanctionable.
THEREFORE IT IS ORDERED that the Motion of Green Tree Financial is DENIED.