Opinion
BK 00-73045-CMS-13.
April 25, 2007
MEMORANDUM OF DECISION
This matter came before the court on law firm Dionne Dionne's application for approval of a $31,047.25 fee for services rendered as bankruptcy counsel in the Chapter 13 case of the late Gregory Donald Davis; and on an objection to payment of the fee filed on behalf of the Bankruptcy Administrator's Office (BA). The court has considered the documentary and testimonial evidence in the context of applicable law. The court finds the firm's application must be APPROVED in part; but DENIED in part. Likewise, the BA's objection must be SUSTAINED in part; but OVERRULED in part.
FINDINGS OF FACT
Debtor Gregory Donald Davis (Davis) filed this Chapter 13 bankruptcy petition on December 4, 2000. Davis, a well-known local businessman, was the majority shareholder in DePalma's Italian Cafes of Tuscaloosa, Inc., and operated the popular downtown restaurant. However, his schedules showed that he had also been involved in several other business ventures which had not been as successful as DePalma's. By late 2000, former associates, as well as financial institutions, had filed lawsuits and asserted various claims against Davis in connection with these unsuccessful ventures.
Davis had retained the law firm of Dionne Dionne, comprised of partners Melinda Murphy Dionne; and her husband Donald L. Dionne, as his bankruptcy counsel. The Dionnes later testified that the Davis bankruptcy was primarily Mrs. Dionne's case. They filed their application for Bankruptcy Court approval to be employed as attorneys for Davis on December 6, 2000. As is usual, Davis signed the application. (BK Doc. 3).
The application stated that the debtor had paid the Dionnes an $8,500.00 retainer fee, of which $185.00 would be used to pay initial court costs. Davis' Statement of Financial Affairs said that he had paid the Dionnes $10,000.00 — $5,000.00 on November 5, 2000; and $5,000.00 on December 4, 2000. Of the total, $1,500.00 had already been applied to attorney's fees for prepetition bankruptcy planning. Although the application itself failed to disclose this prepetition activity, the figures are consistent with the $8,315.00 retainer balance being held by the Dionnes after payment of court costs.
The fee application asked the court to approve a $150.00 hourly fee for Mrs. Dionne; and a $125.00-per-hour rate for Mr. Dionne; and paralegal services at $30.00 per hour. The Dionnes further requested the court's authorization of a payment schedule allowing Davis to pay them 75% of their hourly charges on a monthly basis, along with 100% of out-of-pocket expenses. They also proposed to file itemized fee applications each 90 days. Based on this proposed schedule, the Dionnes further agreed that if the court later disapproved any of the fees drawn at the 90-day accountings, the firm would refund any overpayments to the Davis bankruptcy estate.
The court entered an order on January 2, 2001 (BK Doc. 4) approving payment at the hourly rates set out in the application and further providing:
3. The law firm may be paid seventy-five percent (75%) of its attorney fees and one hundred percent (100%) of out-of-pocket expenses monthly subject to review and approval of the Court upon submission of a fee application. Initial monthly fees are to be withdrawn from the retainer given the attorney by the debtor-in-possession at commencement of the case and held in trust by the attorney. Applications for compensation are to be filed every 90 days.
Preconfirmation disputes with Davis' former business associates arose immediately. The court will summarize the early record of the Davis Chapter 13 as briefly as possible:
January 19, 2001 — Wings on Campus, Inc. (Wings) filed a motion to require the debtor to assume or reject a lease. (BK Doc. 5)
March 9, 2001 — A.F. Financing Group, LLC (A.F. Financing) objected to the confirmation of the debtor's plan. (BK Doc. 15)
March 9, 2001 — A.F. Financing also filed a motion to lift the automatic stay to allow it to proceed in Tuscaloosa County Circuit Court on a pending lawsuit against Davis. (BK Doc. 16) May 29, 2001 — The Provident Bank filed a motion to lift the automatic stay to allow it to foreclose on the debtor's home. (BK Doc. 22)
August 13, 2001 — The debtor filed an amended plan. (BK Doc. 29)
August 13, 2001 — The debtor objected to a $266,143.97 claim filed by Wings. (BK Doc. 30)
August 23, 2001 — A.F. Financing objected to the debtor's amended plan. (BK Doc. 32)
October 17, 2001 — The debtor filed a request for a protective order to prevent creditors from disseminating documents they may have received in preconfirmation litigation. (BK Doc. 38/Original NIBS Doc. 37) December 10, 2001 — Davis filed another amended plan and amended schedules. (BK Doc. 43/NIBS Doc. 42)
As of July 1, 2004, the U.S. Bankruptcy Courts for the Northern District of Alabama converted to an electronic filing and record system. In the course of conversion, some older cases had to be renumbered resulting in a new electronic document numbers coupled with the former paper docket (NIBS) numbers. The paper documents filed prior to that date are not available on line.
December 19, 2001 — A.F. Financing objected to the second amended plan. (BK Doc. 46/NIBS Doc. 45)
January 28, 2002 — The Dionnes filed Adversary Proceeding 02-70012 against Wings, seeking to avoid its lien against Davis. The parties agreed to settle this lawsuit by an order conditionally setting aside the lien, allowing Wings' as a general unsecured claim at a reduced amount — but only on the condition that "in the event the debtor fails to complete the payments required under his plan, this Order shall become null and void." (BK Doc. 69/NIBS Doc. 67)
February 5, 2002 — The court entered a consent order conditionally reducing the Wings claim from $266,143.97 to $113,393.97 under this agreement. (BK Doc. 53/NIBS Doc. 52)
April 9, 2002 — The court entered an order confirming Davis' second amended plan (BK Doc. 58/NIBS Doc. 56). By the time the case was confirmed, the 2001 bar dates for both governmental and non-governmental claims had long passed.
In addition to setting Davis' monthly payments to the trustee, the confirmation order also provided that:
. . . in addition to the debtor's monthly payment to the trustee, the debtor shall market the real estate in Baldwin County, Alabama. Any net proceeds realized from any sale of said property shall be paid to the Chapter 13 Trustee for the benefit of timely filed unsecured creditors. . . .
Fifteen months after the court's approval of employment in this case, Dionne Dionne had filed no fee applications, despite the court's requirement for filing every 90 days. Bankruptcy Document 221 is labeled "Amended Accounting Gregg Davis Bankr. No. 00-73045." (The document was not filed by the law firm until December 5, 2006, the day before the hearing on the BA's objection to the Dionnes' fee application.) BK Doc. 221 showed that the Dionnes made two draws against the retainer between December 4, 2000 and April 9, 2002; one on February 28, 2001 for $2,056.25; and the second on September 25, 2001, for $3,200.00.
December 21, 2003 — Tragically, confirmation of the plan did not solve all of Davis' problems. On December 21, 2003, he allegedly committed suicide, setting his house on fire in the process. The fire completely destroyed his dwelling in the downtown historic district.
February 24, 2004 — Tuscaloosa attorney Dan M. Gibson was named administrator of the Davis decedent's estate in letters testamentary issued by the Tuscaloosa County Probate Judge's Office. Mr. Dionne testified he met with Gibson, and they determined that the Davis case would continue as a Chapter 13, rather than being either dismissed or converted to a Chapter 7 liquidation. Mrs. Dionne testified that dismissal would have revived the Wings' lien and would have cost the estate the benefit it received because the IRS failed to file a claim by the bar date. Converting to Chapter 7, she said would create a new bar date resulting in possible filing of an IRS claim, as well as revival of the Wings claim. She testified both obligations could be discharged after payout of the ongoing Chapter 13.
Early 2004 — Consequences of the death impacted activity in the Chapter 13 case. Davis' death and the fire resulted in a dispute with the insurance company and the mortgage company. The death also caused a dispute between his estate and the other DePalma's shareholders about their rights to purchase his shares in the restaurant. (That dispute is still pending before this court in AP 05-70041.)
April 16, 2004 — The Dionnes made a third draw of $3,000.00 from Davis' retainer. (BK Doc. 221) Still, no 90-day or other application seeking approval of the draws had been filed, more than two years after the order approving employment. BK. Doc. 221 showed that the original $8,315.00 retainer had been reduced to $58.75.
During this period, the Dionnes later testified they were experiencing problems of their own. Mrs. Dionne stated she suffered a series of significant health problems beginning in March of 2002; and continuing until the spring of 2006. Mr. Dionne had to take over all the firm's cases, including the Davis case, which had primarily been Mrs. Dionne's case.
Mr. Dionne testified that he was aware of the employment order and they discussed a fee application early on. Then, after Mrs. Dionne became ill, he said he had just tried to keep his head above water. But, he said, he had the "gnawing feeling" that something needed to be done. Additionally, the Dionnes said the firm's records suffered water damage two or three times before a move to a new office. Then, they testified, a computer crash destroyed other electronically recorded data. This testimony was offered as an explanation for deficiencies in their handling of the August 4, 2006 application, and other inconsistencies in documents.
January 13, 2005 — Document 221 reflects deposits made into the Dionnes' trust account after Davis' death. On January 13, 2005, $12,715.00 was deposited from the sale of personal property. BK Doc. 97 is the Bankruptcy Court's order approving the sale of personal property. Paragraph 3 of the order provided: "the proceeds from the sale shall be paid to and held by Dionne Dionne, attorneys for the Debtor, pending further Orders of this Court." Mr. Dionne prepared the order on the sale for the court's signature. No order was ever entered authorizing any distribution from these sales proceeds.
January 21, 2005 — BK. Doc. 221 reflected that another $9,200.00 was deposited into the Dionnes' account on January 21, 2005. An additional $67,297.25 was deposited on February 17, 2005. These funds were generated by sale of the vacant residential lot on Queen City Avenue where Davis' home once stood. BK Doc. 98 is the Bankruptcy Court's order approving sale of this real estate. Paragraph 4 of this order provided: "The remaining proceeds from the sale shall be paid to and held by Dionne Dionne, attorneys for the Debtor, pending further Orders of this Court." Mr. Dionne also prepared this order for the court's execution. No additional order was ever entered authorizing any distribution to Dionne and Dionne from these sales proceeds.
June 16, 2005 — The Dionnes made their fourth withdrawal of $3,594.33; and then, on July 1, 2005, a fifth withdrawal of $2,107.50. (BK Doc. 221) The retainer approved by the court had already been exhausted, so the only funds available to the Dionnes' for these payments were the proceeds of the January 2005 sales of personal property and real estate in the Davis estate.
July 25, 2005 — Another $47,716.83 was deposited into the Dionne Dionne trust account on Davis' behalf. (BK Doc. 221) These funds were proceeds from sale of the Baldwin County real estate referred to in Davis' April 9, 2002 confirmation order. The confirmation order, prior to Davis' death, had specifically directed the sale of this property, and turnover of the proceeds to Chapter 13 Trustee Cottingham. These funds were never transferred to the Chapter 13 Trustee C. David Cottingham.
BK Doc. 141 is another court order authorizing this sale. Paragraph 2C provided: "the Remainder of the proceeds to Donald L. Dionne, Attorney for Debtor, to be held pending further Orders of this Court." Mr. Dionne prepared this order. No orders were ever entered authorizing any disbursement to Dionne and Dionne from these funds.
August 25, 2005 — The Dionnes made their sixth withdrawal in the amount of $5,000.00.
September 25, 2005 — The Dionnes made their seventh withdrawal in the amount of $2,000.00 on September 25, 2005; and then, on October 6, 2005, took an eighth draw of $1,500.00. Again, the only possible source of funds for these withdrawals were proceeds of sales of personalty and real estate from the decedent's estate. No 90-day fee application had been filed since the commencement of the case in 2000. No order has been entered authorizing the use of funds from the sale of personalty and realty.
May 31, 2006 — Dionne Dionne filed a motion to disburse funds to Dan M. Gibson, the administrator of the estate of Gregory Donald Davis (BK Doc. 153), apparently setting in motion the chain of events that ended in trial of this contested matter. Gibson testified at the hearing that this was the first time that he was made aware that Dionne Dionne had been paying their fees out of the estate funds. June 30, 2006 — The Dionnes made their ninth withdrawal in the amount of $2,000.00, despite no fee application filed, and no order entered authorizing the use of estate proceeds.
July 7, 2006 — The order granting Dionne Dionne's motion to distribute funds to Gibson was entered. (BK Doc. 161). BK Doc. 221 indicated that a $94,375.13 check, dated August 1, 2006, was prepared for the estate administrator. This check never reached Gibson. Mr. Dionne testified that the check was inadvertently left in a file provided to accountants, and that he only found it after the files were returned to the law office. The check was voided.
August 4, 2006 — The Dionnes filed their first application for compensation. (BK Doc. 164) This application covered the more than five-year period from December 4, 2000 through July 27, 2006. They requested a total fee of $31,047.25 and expenses of $300.88. The request was computed to incorporate the annual increases in the Dionnes' hourly rates in the years since the original order of employment was entered. The total fee sought exceeded the draws the firm had already taken against the Davis account.
August 29, 2006 — Even after the order authorizing distribution to Gibson, Dionne Dionne wrote themselves a check for $1,200.00 on August 29, 2006. It was their tenth and final withdrawal. At this point, Dionne Dionne had paid themselves $25,658.08. Mr. Dionne stated he also made two $1,570.00 monthly payments to the Chapter 13 Trustee on September 1 and September 8, 2006, because Gibson was not yet in possession of the funds to do so.
September 7, 2006 — The BA filed his original objection to the fee application. (BK Doc. 167)
As of September 8, 2006 — Bankruptcy Administrator's Exhibit 13 is a copy of another accounting prepared by Dionne Dionne covering the period January 13, 2005 through September 8, 2006. It is not consistent with the accounting eventually provided as BK Doc. 221. Document 221 listed the payments to Dionne Dionne on September 25, 2005, for $2,000.00; and October 6, 2005, for $1,500.00. Neither of these had been reflected in the accounting previously provided to the Bankruptcy Administrator's Office, and admitted as BA's Exhibit 13. Exhibit 13 did show a $4,569.49 payment to Dionne Dionne on July 27, 2006. However, there is no notation of this payment in their amended accounting filed as BK Doc. 221.
Mr. Dionne explained at hearing that the inconsistent number on BA Exhibit 13 was only an estimated, "backed into" figure to account for fees which had been or would be paid. In other words, he said that, while a check number was listed, there was no actual check or payment for $4,569.49 on July 27, 2006.
September 14, 2006 — BK Doc. 221 listed a $90,106.89 check dated September 14, 2006 that did reach Gibson. It represented the balance left of the $94,375.13 after deduction of the August 29, 2006 attorney's fee draw, and the two plan payments made in early September.
September 25, 2006 — The Dionnes also remitted another $2,000.00 to Gibson to compensate for a computational error that deducted only $6,315.00 for the original retainer, instead of the $8,315.00 actually paid, from the balance distributed to the estate. The Dionnes returned the funds after the error was pointed out to them.
December 5, 2006 — The day before the hearing on their fee application, the Dionnes filed the amended accounting (BK Doc. 221). The amendment fully reflected the 10 distributions to them for attorneys fees and costs since the Davis Chapter 13 case was filed. They also filed a motion (BK Doc. 222) asking the court to amend the original order of employment nunc pro tunc to retroactively authorize the annually increased hourly rates they had claimed in the August 4, 2006 application for compensation and expenses.
Based on these record facts, the court has prepared the following chart showing the dates each draw was made and the time periods for the draws: DATE OF DRAW TIME PERIODS FEES EXPENSES AMOUNT (Based on 75% — DRAWN at original rates) $ 590.63 $ 0.00 $ 1,200.00 - $ 2,000.00
1. 2/28/2001 12/4/2001 — 2/28/2001 $ 4,915.31 $ 55.00 $ 2,056.25 2. 9/25/2001 3/1/2001 — 9/25/2001 $ 3,341.25 $ 42.38 $ 3,200.00 3. 4/16/2004 9/26/2001 — 4/16/2004 $ 4,202.81 $ 54.22 $ 3,000.00 4. 6/16/2005 4/17/2004 — 6/16/2005 $ 4,126.88 $142.92 $ 3,594.33 5. 7/1/2005 6/17/2005 — 7/1/2005 $ 0.00 $ 0.00 $ 2,107.50 6. 8/25/2005 7/2/2005 — 8/25/2005 $ 0.00 $ 0.00 $ 5,000.00 7. 9/25/2005 8/26/2005 — 9/25/2005 $ 147.19 $ 5.19 $ 2,000.00 8. 10/6/2005 9/26/2005 — 10/6/2005 $ 0.00 $ 0.00 $ 1,500.00 9. 6/30/2006 10/7/2005 — 6/30/2006 $ 1,059.38 $ 1.17 $ 2,000.00 10. 8/29/2006 7/1/2006 — 8/29/2006 Error in retainer fee — Returned to Davis Estate 9/25/06 Total $18,383.45 $300.88 $23,658.08 After multiple pleadings had been filed on behalf of various parties-in-interest, the court held a full hearing on December 6, 2006 and took these issues under submission for decision.CONCLUSIONS OF LAW
The Bankruptcy Court has jurisdiction of the late Gregory Donald Davis' Chapter 13 case pursuant to 28 U.S.C. § 1334(a). The court has jurisdiction of this contested matter, a core bankruptcy proceeding, under 28 U.S.C. § 1334(b). Jurisdiction is referred to bankruptcy courts by the General Order of Reference of the United States District Courts for the Northern District of Alabama, Signed July 16, 1984, As Amended July 17, 1984.
I. Courts have crafted different remedies for attorneys proven to have violated bankruptcy disclosure rules.
The BA, in his original and amended objections to the Dionnes' fee application (BK Docs. 167 and 218) has requested the court to disallow all fees for Dionne Dionne in this case; and that the court order the Dionnes to disgorge all of the fees already drawn.
One main issue underlying the bankruptcy administrator's objection is the Dionnes' failure to amend their disclosure statement in this case as required by 11 U.S.C. § 329 and Fed.R.Bankr.P. 2016(b). The Dionnes, on the other hand, have argued that no amendment was required.
11 U.S.C. § 329 provides the statutory base for Rule 2016(b). Section 329 states the following:
(a) Any attorney representing a debtor in a case under this title, or in connection with such a case, whether or not such attorney applies for compensation under this title, shall file with the court a statement of the compensation paid or agreed to be paid, if such payment or agreement was made after one year before the date of the filing of the petition, for services rendered or to be rendered in contemplation of or in connection with the case by such attorney, and the source of such compensation.
(b) If such compensation exceeds the reasonable value of any such services, the court may cancel any such agreement, or order the return of any such payment, to the extent excessive, to —
(1) the estate if the property transferred —
(A) would have been property of the estate; or
(B) was to be paid by or on behalf of the debtor under a plan under chapter 11, 12, or 13 of this title; or
(2) the entity that made such payment.
Rule 2016(b) governs procedure for disclosure of compensation paid or promised to debtor's attorneys. It provides as follows:
(b) Disclosure of Compensation Paid or Promised to Attorney for Debtor. Every attorney for a debtor, whether or not the attorney applies for compensation, shall file and transmit to the United States trustee within 15 days after the order for relief, or at another time as the court may direct, the statement required by § 329 of the Code including whether the attorney has shared or agreed to share the compensation with any other entity. The statement shall include the particulars of any such sharing or agreement to share by the attorney, but the details of any agreement for the sharing of the compensation with a member or regular associate of the attorney's law firm shall not be required. A supplemental statement shall be filed and transmitted to the United States trustee within 15 days after any payment or agreement not previously disclosed.
Fee disputes, particularly those in which total disgorgement or sanctions are in issue, are extremely unpleasant for all parties; and, generally, totally unnecessary. They seldom arise when all parties have diligently complied with the Bankruptcy Code, the bankruptcy rules, and the specific orders of the courts within individual cases.
In Mapother Mapother, P.S.C. v. Cooper (In re Downs), 103 F.3d 472, 480 (6th Cir. 1996), the court held that: "Section 329 and Rule 2016 are fundamentally rooted in the fiduciary relationship between attorneys and the courts. Thus, the fulfillment of the duties imposed under these provisions are crucial to the administration and disposition of proceedings before the bankruptcy courts."
The protections of the Bankruptcy Code carry with them the duty of transparency for all parties — debtors; creditors; trustees; and their attorneys, as officers of the court. Disclosure is the foundation stone for all. Courts have applied various remedies, some of them drastic, when disclosure problems are proven.
Some courts have found that a bankruptcy court's failure to require complete disgorgement of all fees paid, after proven violations, constitutes an abuse of discretion. See Futuronics Corporation v. Arutt, Nachamie Benjamin (In re Futuronics Corporation), 655 F.2d 463 (2nd Cir. 1981); cert. denied, 455 U.S. 941, (1981) (bankruptcy court abused its discretion in allowing any compensation to attorney); Mapother Mapother, P.S.C. v. Cooper (In re Downs), 103 F.3d 472 (6th Cir. 1996) (bankruptcy court abused its discretion in allowing attorney to retain any fees); Vergos v. Mendes Gonzales, PLLC (In re McCrary and Dunlap Construction Company, LLC), 263 B.R. 574 (M.D. Tenn. 2001) (district court found bankruptcy court abused its discretion in failing to require full disgorgement of fees); andIn re Laferriere, 286 B.R. 520 (Bankr. D. Vt. 2002) (bankruptcy court required full disgorgement of all compensation).
Yet other decisions have found that bankruptcy courts were within their discretion when they ordered either complete or partial disgorgement of fees after a Rule 2016 violation. See Henderson v. Kisseberth (In re Kisseberth), 273 F.3d 714 (6th Cir. 2001) (order directing attorney to disgorge $9,600.00 of the $11,887.98 he had been paid, as well as to forfeit $3,212.02 in unpaid fees, was not an abuse of discretion); Law Offices of Nicholas A. Franke v. J.K, Tiffany (In re Lewis), 113 F.3d 1040 (9th Cir. 1997) (disgorgement order was not abuse of discretion);Miller v. United States Trustee (In re Independent Engineering Co., Inc.), 232 B.R. 529 (1st Cir. BAP 1999) (no abuse of discretion for bankruptcy court to disqualify attorney and require complete disgorgement of all fees), aff' d by 197 F.3d 13 (1st Cir. 1999); In re Tri-State Plant Food, Inc., 273 B.R. 250 (Bankr. M.D. Ala 2002) (attorneys ordered to pay into court all fees previously collected from debtor, court to determine appropriate sanctions when fee application is filed); and In re Kero-Sun, Inc., 58 B.R. 770 (Bankr. D. Conn. 1986) (law firm sanctioned and ordered to forfeit $75,000.00).
II. The court must order the Dionnes to disgorge part of the fees they have withdrawn, and will approve the application at a reduced amount.
In the absence of complete and full disclosure, financial transactions between debtors and their attorneys are completely unknown. In this case, after the Chapter 13 debtor's death, no one other than the Dionnes knew of the distributions of estate funds after the original retainer ran out.
At the time of their employment, the Dionnes disclosed that they had received an $8,500.00 retainer fee of which $185.00 was used to pay court costs, thus leaving $8,315.00 as a retainer balance. Even then, they failed to disclose in their application that Davis had actually already paid them a total $10,000.00 — $5,000.00 on November 5, 2000; and $5,000.00 on December 4, 2000. Further, they did not disclose that $1,500.00 of this money had been applied to their fees for prebankruptcy planning. The application disclosed only the remaining $8,500.00 before payment of court costs. The $10,000.00 payment and how it was applied was stated in the answer to question 9 on Davis' statement of financial affairs, but it was not disclosed as required by the rules.
On January 2, 2001, the court's order authorized monthly draws of 75% of fees earned against the $8,315.00 retainer, pending subsequent court approval of formal applications to be filed every 90 days. In spite of this, the Dionnes failed to file any quarterly fee applications, as they had proposed and as the court had directed, until approximately five and a half years later. Then the August 4, 2006, application charged the estate at unauthorized rates for more than five years of billings, much of it already paid.
More specifically, the January, 2001 order provided that Dionne Dionne could draw against the retainer at an hourly rate "not to exceed $150.00 per hour, for Melinda Murphy Dionne and $125.00 per hour for Donald L. Dionne, and $30.00 per hour for services rendered by any paralegal unless increased during the pendency of this case and approved by this Court." During the five-and-a-half-year pendency of the case, the firm did not seek court approval for its annual fee increases, and "this court" did not approve them.
The Dionnes' original application did not provide for fee payments from any source other than the original retainer and/or Davis. The 2000 application, which was signed by Davis, stated "the Debtor proposes to pay to Melinda Murphy Dionne and her Firm, Dionne Dionne . . ." The only funds Davis actually paid was the $8,315.00 retainer balance after payment of filing fees. The order approving employment provided "initial monthly fees are to be withdrawn from the retainer given the attorney by the debtor-in-possession at the commencement of the case . . . ". The "retainer given the attorney by the debtor-in-possession" was exhausted shortly following his death. This court has never approved payment from any other source.
Nevertheless, the Dionnes drew another $17,343.08 after the initial $8,315.00 had been depleted. There was no amendment to their Rule 2016 disclosure as to where these funds were to be paid from. Since the draws came after Davis' death, they could only have been drawn from estate sales proceeds, which, pursuant to this court's orders, could only be used "upon further orders of the court." (BK Docs. 97, 98, and 141) There were no "further orders."
The court finds that the Dionnes were required to amend their Rule 2016(b) disclosure when they began receiving payments from a source other than the $8,315.00 retainer fee. Even if the Dionnes were correct in their assertion that no further amendments to their Rule 2016 statement were required, it would not resolve their violations of the order of employment requiring quarterly fee applications and the three orders approving the sales of assets.
The Dionnes knew that quarterly fee applications were required pursuant to their terms of employment and they did not file a single application for compensation for five and a half years. They knew the order of employment set their hourly rates at $150.00 per hour and $125.00 per hour, and that pay at higher rates was not in compliance with the order. This order was entered January 2, 2001, based on rates the Dionnes assert were in effect only through December 31, 2000. The very next month they began computing their fees on increased hourly rates with no application to the court for modification.
Mr. Dionne also prepared all three orders approving sale of personal property and real estate following his client's death, and Gibson's appointment as estate administrator. Dionne clearly knew that those funds were not to be disbursed unless there was another court order entered authorizing their disbursement.
In fact, he testified that he filed the motion to disburse funds to Gibson because he needed a court order approving distribution before paying them over. At that point, Dionne Dionne had already made five distributions to themselves from these funds without a court order; and then made two more distributions to themselves after their motion to allow distribution to Gibson.
On the day before the hearing on the 2006 fee applications, Dionne Dionne filed a motion to amend the 2001 order of employment nunc pro tunc to reflect five subsequent annual rate increases beginning with calendar year 2001, and running through 2006. The original application to employ was filed on December 6, 2000, and the court's order approving the application was entered on the court docket January 2, 2001. The Dionnes' fee application (BK Doc. 164) shows that they were applying the first increase in annual rates on January 5, 2001. They made their first draw from the retainer fee February 28, 2001.
Compliance with the court's order of employment would have required the first fee application in June of 2001. Any discrepancies in hourly rates could have brought to the court's attention and adjusted at that time. The same is true when they made the September 25, 2001 withdrawal from the retainer fee. The next withdrawal from the retainer fee was not until April 16, 2004, after Davis' death.
Again, compliance with the order of employment and the filing of a fee application would have brought the hourly rates to the court's attention for possible adjustments. The same is true for the five withdrawals in 2005. Not only would the hourly rates have been before the court, but it also would have been brought to everyone's attention that fees were now being paid from a source other than the originally approved retainer fee.
If the issue of adjustment in hourly rates had been brought to the court's attention in a timely fashion through the 90-day fee applications or otherwise by motion, the court would have looked favorably upon reasonable annual adjustments. Instead, the Dionnes waited almost six years to request the adjustments. In view of the facts of this case, the court does not find that the evidence shows a substantial justification for such a delay.
The court attributes no improper motives or intentions to deceive to the Dionnes, but the omissions in this case are serious and cannot be taken lightly. Mr. Dionne is a Chapter 7 panel trustee, as well as a representative of private clients. Mr. and Mrs. Dionne know full well the responsibilities required of fiduciaries dealing with other people's money. The BA has asked that all fees received by the Dionnes be disgorged and paid over to Davis' estate. However, the court cannot find the unhappy facts of this case rise to that level.
The Dionnes did provide good legal representation to the debtor. They got his plan confirmed with a 70% distribution to unsecured creditors. Wings' claim was significantly reduced, and its recorded lien was avoided, contingent upon completion of the debtor's plan. Then Davis' death created a whole new set of issues. The Dionnes and representatives of the Davis estate then decided to continue paying out the Chapter 13 case, rather than either dismissing it or converting it to Chapter 7. A potential unfiled tax claim could be discharged in the Chapter 13 case if the plan was paid out. Dismissal would revive the full Wings claim, and the avoided lien would be revived. Conversion to Chapter 7 would create a new bar date for filing claims which might result in a tax claim.
The BA had also objected to the reasonableness of some time entries on the August 4, 2006 application. On December 5, 2006, the day before the hearing, the Dionnes had also filed an amended application making some agreed reductions addressed in the bankruptcy administrator objections to the reasonableness of certain time entries. These agreed reductions would reduce the total fee request by approximately $2,802.00 if computed based on the original and only hourly rates approved by the court in 2001.
The court finds that 100% of the fees for services rendered as originally requested in BK Doc. 164 at the court approved hourly rates would total $24,511.25. Subtracting $2,802.00 would leave a total fee request (at the originally approved rates) of $21,709.25. The court approves the first $8,315.00 in requested fees to be paid at 100%. The balance of $13,394.25 is reduced by 25% to $10,045.69. The 25% reduction is a sanction for counsels' failure to comply with the disclosure requirements of 11 U.S.C. § 329 and Fed.R.Bankr.P. 2016, based on counsel's continuing failure to comply with terms of the January 2, 2001 order for 90-day fee applications, and for withdrawing funds which prior court orders directed the firm to hold. Expenses in the amount of $300.88 are to be allowed.
Attorneys' fees are allowed in the amount of $18,360.69 and expenses are allowed in the amount of $300.88 for a total award of $18,661.57.
CONCLUSION
To the extent stated in this memorandum, the applicant's request for payment of attorney's fees is APPROVED in part, and DISALLOWED in part; and the BA's objection is SUSTAINED in part, and OVERRULED in part. The attorneys must promptly repay Daniel M. Gibson, as estate administrator for the late Gregory Donald Davis, a total $4,996.51 of the funds already withdrawn from estate proceeds.
An order, consistent with these findings pursuant to Fed.R.Bankr.P. 7052, will be entered separately.