Opinion
Bankruptcy Court Case No. SG02-07643, District Court Case No. 1:03-CV-160
September 30, 2003
OPINION
Roger Cotner ("Appellant"), has appealed the United States Bankruptcy Court's January 16, 2003, order denying Appellant's motion for reconsideration of the order granting the United States Trustee's ("Appellee") motion requesting review and disgorgement of attorney compensation under 11 U.S.C. § 329(b) and Bankruptcy Rule 2017. For the reasons set forth below, the Court affirms the order.
Facts and Procedural History
Appellant represented Debtors Sam and Yvonne Wilson ("Debtors") in preparing and filing their petition for relief under Chapter 7 of the Bankruptcy Code. Debtors filed their Chapter 7 petition on July 9, 2002. Along with their petition, Debtors filed their schedules and statement of affairs and a mailing matrix, as required by 11 U.S.C. § 521 and Rule 1007 of the Federal Rules of Bankruptcy Procedure. At the time they were filed, the debtor's schedules and mailing matrix listed approximately sixteen creditors and/or agents for creditors without providing their correct addresses. Instead, Appellant's address was listed as the mailing addresses for those creditors or agents.
Prior to filing the petition, schedules, and matrix, Appellant requested on several occasions information from Debtors needed to complete those documents, including creditor addresses which the Debtors had failed to provide. On July 5, 2002, the Debtors met with Appellant to sign their bankruptcy petition. The Debtors had delayed filing their bankruptcy petition because they could not come up with the money to fund Appellant's retainer. However, the Debtors scheduled the July 5 meeting because they were facing a garnishment. In addition to signing their petition, the Debtors entered into a fee agreement, pursuant to which they were to pay Appellant a fee of $550 and to advance the $200 filing fee. Because the Debtors had still not furnished the missing creditor addresses to Appellant, Appellant inserted his address for the creditors and/or collection agencies for whom the Debtors had not provided addresses.
On July 22, 2002, after Appellant filed the bankruptcy petition and schedules, Appellant wrote to the Debtors indicating that he had received notices from the bankruptcy court for the creditors listed with Appellant's address. Appellant again requested that the Debtors provide the missing creditor addresses. On August 8, 2002, the first meeting of creditors was held. The fact that Appellant's address had been used for several creditors was raised as an issue at the meeting.
On September 11, 2002, Appellee filed three motions: (1) a motion to dismiss pursuant to 11 U.S.C. § 707(a) or (b); (2) a motion for an order requiring Appellant to file an answer to the motion to dismiss and requiring the Debtors to answer Appellee's interrogatories and request for documents; and (3) a motion requesting review and disgorgement of attorney compensation under 11 U.S.C. § 329(b) and Rule 2017. In his motion to dismiss, Appellee asserted that the Debtors' failure to list correct addresses for the creditors constituted a denial of due process and that the case should therefore be dismissed pursuant to 11 U.S.C. § 707(a) for cause, or alternatively pursuant to 11 U.S.C. § 707(b) as a substantial abuse of the provisions of Chapter 7. After the motions were filed, Appellant twice requested the missing creditor addresses from the Debtors, but it appears that the Debtors provided an address for only one creditor. On October 24, 2002, Appellant filed a motion to withdraw as attorney for the Debtors and a response to Appellee's motion for review and disgorgement of fees. Appellant did not file responses to the motion to dismiss or the motion for discovery.
The bankruptcy court held a hearing on the motion to dismiss and the motion for review and disgorgement of fees on October 28, 2002. Although Appellant was present at the hearing, the Debtors were not represented because they had discharged Appellant as their attorney. Appellant was represented by his own counsel, William Napieralski, with regard to the motion for review and disgorgement of fees. At the conclusion of the hearing, the bankruptcy court granted the motion to dismiss the case and granted the motion for disgorgement. The bankruptcy court retained jurisdiction to enforce its order requiring Appellant to return the fee to the Debtors. The orders dismissing the case and requiring Appellant to refund the fee were entered on November 4, 2002.
Appellant was not required to refund the filing fee to the Debtors.
Appellant filed a motion for reconsideration of the order requiring disgorgement on November 14, 2002. Following a hearing held on January 13, 2003, the bankruptcy court denied Appellant's motion for reconsideration. The order denying the motion for reconsideration was entered on January 16, 2003, and Appellant filed a timely notice of appeal on January 27, 2003.
Standard of Review
In reviewing the decisions of a bankruptcy court, a district court applies a clearly erroneous standard to the bankruptcy court's findings of fact and a de novo standard of review to its conclusions of law. Trident Assoc. Ltd. Partnership v. Metropolitan Life Ins. Co. (In re Trident Assoc. Ltd. Partnership), 52 F.3d 127.130 (6th Cir. 1995): Holly's. Inc. v. City of Kentwood (In re Holly's. Inc.), 178B.R. 711, 713 (W.D. Mich. 1995). A bankruptcy court's decision to impose a sanction may "not be disturbed unless a clear abuse of discretion is found." Mapother Mapother. P.S.C. v. Cooper (In re Downs), 103 F.3d 472, 478 (6th Cir. 1996). A reviewing court "will find an abuse of discretion only upon a `definite and firm conviction that the trial court committed a clear error of judgment.'" Henderson v. Kisseberth (In re Kisseberth), 273 F.3d 714, 720 (6th Cir. 2001) (quoting Logan v. Davton Hudson Corp., 865 F.2d 789, 790 (6th Cir. 1989)).
Discussion
Appellant argues that the bankruptcy court improperly held that Appellant, as the attorney for the Debtors, was responsible for providing the correct addresses for creditors. The Court disagrees. Appellant is correct that the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure state that the debtor is responsible for providing the names and addresses of creditors. Under § 521 of the Bankruptcy Code, a debtor's duties include "fil[ing] a list of creditors, and unless the court orders otherwise, a schedule of assets and liabilities, a schedule of current income and current expenditures, and a statement of the debtor's financial affairs." 11 U.S.C. § 521(1). Similarly, Rule 1007 states that "[i]n a voluntary case, the debtor shall file with the petition a list containing the name and address of each creditor unless the petition is accompanied by a schedule of liabilities." F.R.Bankr.P. 1007(a). However, while the debtor is responsible for providing the names and addresses of creditors, nothing in the Bankruptcy Code or Bankruptcy Rules allows an attorney for a debtor to file schedules or other documents containing information which the attorney knows to be inaccurate. In fact, as one court has stated: "Counsel is obligated both ethically and as an officer of the court not to file schedules and other disclosure documents that the counsel believes inaccurate." Office of the United States Tr. v. Bresset (In re Engel), 246 B.R. 784, 793 (Bankr. M.D. Pa. 2000). There is no dispute in this case that Appellant knew that the schedules contained inaccurate information because the addresses listed for several creditors were incorrect.
The requirement of accurate creditor addresses is of central importance in a bankruptcy case. "`The purpose of requiring a debtor to list creditors with their proper mailing addresses is to afford those creditors basic due process notice.'" In re O'Shaughness,, 252 B.R. 722, 729 (Bankr. N.D. Ill. 2000) (quoting In re Glenwood Med. Group. Ltd., 211 B.R. 282, 285 (Bankr. N.D. Ill. 1997)). Because the creditor's address is used to notify the creditor of the filing of the bankruptcy petition, a creditor whose address is inaccurate or not listed at all will not receive notice of the entry of the order for relief, notice of the time for filing objections, or notice of the meeting of creditors, at which they are allowed an opportunity to examine the debtor. 11 U.S.C. § 341-43, 523(a), 727(b); F.R.Bankr.P. 2002(f). See also Credit Prod. Ass'n v. Schicke In re Schicke, 290 B.R. 792, 799-800 (B.A.P. 10th Cir. 2003) ("It is from [the schedule of liabilities] that the clerk of the bankruptcy court derives the names and addresses of creditors to whom a Notice of Commencement of Case, which includes the deadline to file § 523(a) complaints, is mailed as required under § 342(a) and F.R.Bankr.P. 2002(f)(1) and (5)." (footnote omitted)). Thus, "[a]s a fundamental matter of due process lists or schedules of creditors serve no useful purpose unless they include the addresses last known to the debtor to which notices may be sent." In re Linzer, 264 B.R. 243, 250-51 (Bankr. E.D.N.Y. 2001). Given the importance of accurate addresses, the bankruptcy court did not err in concluding that an attorney such as Appellant should be held responsible for filing inaccurate schedules where the attorney knows that the schedules contain inaccurate information.
It is important to note that this case does not present a situation where the attorney reasonably relied upon information furnished by the client that later turned out to be false.
Appellant also contends that he should not be held responsible for the inaccurate schedules because he requested the addresses from the Debtors on at least six occasions and the Debtors either failed or refused to provide that information. As Appellant conceded to the bankruptcy court, Appellant could have taken steps himself, such as looking in the telephone book or on the internet, to find the missing addresses. However, Appellant did no more than ask his clients for the addresses, even though he knew at the time he filed the schedules that they contained inaccurate creditor addresses. Moreover, Appellant had another option, namely, to not file the case if the Debtors persisted in failing or refusing to furnish the creditor addresses.
Although the bankruptcy court recognized this as an option, the bankruptcy court was also "trouble[d]" by a rule which would require attorneys to refuse to file bankruptcy cases where the debtor and/or attorney, in spite of diligent efforts, is unable to locate a creditor's address. (10/28/02 Hr'g Tr. at 17.) However, that situation is not present in this case because here, Appellant made no effort to locate the missing addresses.
Appellant contends that sanctions were inappropriate because he acted in good faith and his conduct did not violate any established procedure or rule. Appellant asserts that listing his address was a reasonable choice among several alternative courses of action because Appellant would be reminded of the need for proper addresses each time he received a notice from the bankruptcy court. The Court rejects this argument because the Bankruptcy Code and Rules state in explicit terms that the creditors' addresses must be provided. There is no support for Appellant's "procedure." As noted above, the most reasonable options available to Appellant were to either look for the addresses himself or refuse to file the case if the addresses could not be found.
Finally, Appellant contends that the bankruptcy court abused its discretion in ordering disgorgement of Appellant's fee because the fee was not excessive. Appellant points out that his total fee was $550 but that he only received $300 (the amount he was required to disgorge). Appellant contends that this fee was not excessive given that it covered the initial consultations, the preparation of the bankruptcy schedules, and representation at the first meeting of creditors.
Pursuant to 11 U.S.C. § 329(b), a court may order the return of any fees paid to an attorney "[i]f such compensation exceeds the reasonable value of any such services." The purpose of this provision is "to protect both creditors and the debtor against overreaching attorneys."Kisseberth, 273 F.3d at 721. The inquiry under § 329(b) is whether "the agreed fees exceed the reasonable value of the services provided."Bethea v. Robert J. Adams Assocs. (In re Bethea), 275 B.R. 284, 288-89 (Bankr. N.D. Ill. 2002). If so, return of the fees is appropriate. Id at 289.
Contrary to Appellant's argument, the bankruptcy court did not abuse its discretion in determining that Appellant's fee exceeded the reasonable value of the services provided. While Appellant did actually perform services, those services did not benefit the Debtors in any way and could have adversely affected several creditors by denying them notice or, worse, by causing them to violate the automatic stay by continuing their collection efforts after the bankruptcy was filed. Appellant prepared the schedules without taking additional steps to obtain accurate information and, as a result, the Debtors' case was dismissed and the Debtors received neither their discharge nor the benefit of the $200 filing fee and the $300 attorney fee paid to Appellant. Thus, the Debtors did not receive a windfall as a result of the disgorgement. Accordingly, the bankruptcy court properly ordered Appellant to return the fee to the Debtors.
Conclusion
For the foregoing reasons, the Court will affirm the bankruptcy court's order entered on January 13, 2003.
An Order consistent with this Opinion will be entered.