Opinion
Bankruptcy No. 00-11773F.
September 29, 2006.
MEMORANDUM
The debtor, Josephine Gimelson, has objected to an unsecured proof of claim filed by David J. Juall, Esquire in the amount of $11,000. Mr. Juall represented the debtor prior to her bankruptcy filing in state court actions brought against her by the debtor's former divorce attorney, Mr. Samuel Litzenberger. Although Mr. Juall received some payments from the debtor, he contends that he was not paid in full for his legal services.
Mrs. Gimelson's objection avers that Mr. Juall did not earn any fees beyond those already paid; furthermore, she maintains that his representation of her was negligent. By order dated May 31, 2006, I precluded the debtor from raising the negligence contention, because she failed to file a certificate of merit as required in malpractice actions by state law. See Pa. R. Civ. P. 1042.3(a)(1)-(3).
An evidentiary hearing on the debtor's objection to claim was held and this matter is now ripe for adjudication.
I.
Much of the background to this dispute can be found in the District Court's reported decision involving the debtor's objection to the proof of claim filed by Mr. Litizenberger: In re Gimelson, 2004 WL 2713059 (E.D. Pa. 2004). I shall summarize that background.
In November 1991, Mrs. Gimelson engaged Mr. Litzenberger to represent her in a divorce action. In so doing, she signed a confession of judgment note and a retainer agreement. In September 1994, Mr. Litzenberger withdrew as Mrs. Gimelson's counsel prior to the conclusion of the divorce proceedings. Mrs. Gimelson then hired attorney Kathleen Fitzgerald. See Objection to Claim, ¶ 1.
Mr. Litzenberger subsequently confessed judgment against Mrs. Gimelson, and also began arbitration proceedings to recover amounts he claimed were due. He ultimately obtained three judgments against her. Furthermore, he brought suit in state court alleging that the debtor fraudulently conveyed her residence to her children. Mrs. Gimelson engaged Mr. Juall in 1996 to defend her in these various matters.
In her brief in support of her objection, Mrs. Gimelson states that Ms. Fitzgerald "stopped private practice and was unable to continue representing me." See Amended and Corrected Brief, p. 2.
At the primary consultation with Mr. Juall, on December 11, 1996, Mrs. Gimelson paid him a $5,000 retainer. Hearing at 2:20, 2:55; see Ex. J-1. An agreement of representation may have been signed at that time: Mr. Juall testified that one was, but none was produced by either party. Hearing at 2:53, 3:46-47, 4:13. Mr. Juall's billing ledger for Mrs. Gimelson reflects that he charged an hourly rate of $125 throughout his representation of Mrs. Gimelson. See Ex. J-1. Mr. Juall sent invoices to the debtor approximately once every month. See id.
The $5,000 retainer was exhausted sometime in March 1997. See Ex. J-1. Despite additional payments totaling $5,100, over the more than two year course of the representation, Ex. J-1, Mrs. Gimelson did not pay all her invoices from Mr. Juall. Her last payment for $500 was deposited by Mr. Juall on May 1, 1998. The last invoice reflecting new billing covered August 1999. Id. Mr. Juall's client ledger reflects unpaid invoices totaling $13,670.50.
At the hearing on this objection, Mrs. Gimelson questioned Mr. Juall regarding credit for a payment of $600 that she tendered in June of 1997, which she believed was not reflected on the June invoice. Hearing at 3:09-:13; see Exs. D-2, D-3. Mr. Juall testified that she was looking at the May invoice, issued at the beginning of June. Id. He further explained that the $600 payment appeared on the invoice issued the following month,id., and this payment appears on the billing ledger as well.See Ex. J-1. Thus, there is no evidence that Mrs. Gimelson was not properly credited with all payments made by her to Mr. Juall during the course of the representation.
At the time of Mr. Juall's retention, Ms. Fitzgerald had already filed in state court "[Mrs. Gimelson's] Petition to Strike Off/Open Confessed Judgment and Stay of Execution Pursuant to 2959(b) and Defendant's Counterclaims Against Plaintiff."See Ex. D-5 (dated June 28, 1996). This pleading also raised counterclaims against Mr. Litzenberger alleging unfair or deceptive acts or practices under Pennsylvania's UTPCPL, breach of contract, fraud and misrepresentation, and violation of 42 U.S.C. § 1983 and the 14th Amendment to the United States Constitution. Id.
In February 1995, Mr. Litzenberger had requested arbitration with the American Arbitration Association to resolve the parties' dispute over unpaid legal fees. See In re Gimelson. On June 28, 1995, an arbitration award was issued in his favor for approximately $85,000 plus costs and fees. Id.; see Ex. D-5, ¶ 13. In August 1995, Mr. Litzenberger filed a petition to confirm the arbitration award and enter judgment on the award in the Court of Common Pleas, Bucks County. Id. He also appealed the January 9, 1998 denial of this petition to the Pennsylvania Superior Court. Ex. J-7; see Ex. J-6. The Superior Court vacated and remanded the Common Pleas Court's decision.Litzenberger v. Gimelson, 736 A.2d 121 (table) (Pa.Sup.Ct. Dec. 9, 1998).
On December 5, 1994, Mr. Litzenberger recorded the confession of judgment note with the Court of Common Pleas, Bucks County.See In re Gimelson. On January 7, 1998, the Court of Common Pleas granted Mrs. Gimelson's petition to open the confessed judgment. Ex. J-7. Mr. Litzenberger also filed a petition to confirm a June 1995 arbitration award and enter judgment on the award in the Court of Common Pleas, Bucks County. After considerable litigation, including at least one appeal from a ruling favorable to Mrs. Gimelson, see Litzenberger v. Gimelson, 736 A.2d 21 (Pa.Super. 1998) (Table), the Court of Common Pleas ultimately entered judgment in favor of Mr. Litzenberger by order dated June 28, 1999, in conformity with a Pennsylvania Superior Court order upholding the first arbitration award. See In re Gimelson. There was later an additional arbitration award, ultimately yielding three judgments against Ms. Gimelson in favor of Mr. Litzenberger. See id.
Thus, during the time of Mr. Juall's representation, the debtor had some success in defending against Mr. Litzenberger's various claims against her, but some of that success was overturned on appeal. Hearing at 2:57-:58, 3:16-:17; see exs. J-6 (Litzenberger v. Gimelson, 71 Bucks Co. L. Rep. (C.C.P., Jan. 9, 1998)) and J-7 (Litzenberger v. Gimelson, No. 94-9007-18-1 (C.C.P., May 11, 1998)). The fraudulent conveyance matter was not resolved at the time Mr. Juall's representation ended. Hearing at 3:16. Mr. Juall ceased representing her prior to any appellate review of lower court decisions favorable to Mrs. Gimelson.
I do not conclude, as Mr. Juall contends, that the ultimate outcome of those appeals would have been different had he continued to represent the debtor. The outcome may have been the same. However, I also do not agree with the debtor that the value of Mr. Juall's services was nil because of those appellate decisions. Mr. Juall was not retained on a contingent fee basis. He provided adequate representation to the debtor.
Sometime in 1999, Mr. Juall was granted permission to withdraw from his representation of Mrs. Gimelson because of the unpaid invoices. Hearing at 2:53, 2:54, 3:50. He testified that he had asked Mrs. Gimelson to either pay him the past due amount for the state court work he had already performed, give him a new retainer to represent her on the appeals, or obtain new counsel. Hearing at 2:54. Ultimately, he transferred all of his files to replacement counsel. Id. at 2:55.
On February 10, 2000, Mrs. Gimelson filed a petition under chapter 7 of the Bankruptcy Code in this court. On her Schedule F, she included a claim of $16,855.14 due to Mr. Juall. She did not mark the claim as contingent, unliquidated or disputed. Interestingly, on her Schedule B, she listed "potential causes of action" against several individuals and entities, including former attorneys; Mr. Juall was not among those mentioned as possible obligees.
I take judicial notice, under Fed.R.Evid. 201 (incorporated into bankruptcy cases by Fed.R.Bankr.P. 9017), of the bankruptcy schedules filed. See generally In re Indian Palms Associates, Ltd., 61 F.3d 197 (3d Cir. 1995).
Mr. Juall filed a timely proof of claim dated November 30, 2000 asserting $11,000 owed for "services performed." Ex. J-2. He attached no documentation to the proof of claim. See id. Mr. Juall explained that though his billing ledger reflects a balance due of $13,670.50, he did not consult the ledger when filing his proof of claim, but knew he was owed at least $11,000. Hearing at 3:00-:02, 3:18. Mrs. Gimelson filed her objection to Mr. Juall's proof of claim on February 24, 2006.
At the hearing on her objection, Mrs. Gimelson's daughter, Elizabeth, testified that she paid a sanction into court because Mr. Juall missed a court hearing. Hearing at 2:23-:24. She also testified that Mr. Juall did not prepare her for a deposition.Id. at 2:24. However, Mr. Juall credibly testified that he separately represented Elizabeth and Brian Gimelson, the debtor's son, along with the debtor, in the fraudulent transfer action that Mr. Litzenberger brought against all of them. Hearing at 3:03-:04; see also Ex. J-8 (notice of judgment in civil case, David Juall v. Elizabeth Gimelson, in the amount of $8,000). Brian did not appear for a deposition and so was sanctioned $250 by the court. Hearing at 3:04-:05; see Ex. D-1 (reciting sanction amount). Mr. Juall billed Elizabeth and Brian separately from their mother. Hearing at 3:28. The ledger sheet does not reflect that Mr. Juall is now seeking payment from the debtor for services rendered to her children.
Mrs. Gimelson entered into evidence two letters written by her to Mr. Juall regarding her outstanding bill. In her letter of February 19, 1998, she acknowledged the "sizable balance" and explained that she had hoped to have Mr. Litzenberger pay for all court and counsel fees. Ex. D-4. She additionally commented "I deeply appreciate all of the hard work you have done so far in my case. . . ." Id.
Less than a month later, by letter dated March 10, 1998, Mrs. Gimelson did complain about a "spiraling balance [that] seems to be going ad infinitum." Ex. D-6. However, she again acknowledged her inability to pay Mr. Juall's fee, relating that she had asked him to cap his fee, and had offered to pay $500 a month or to pay him upon settlement of the case. Id.
Mrs. Gimelson also made reference at the hearing to Mr. Juall's failure to introduce letters in a state court hearing concerning her allegations of sexual harassment against Mr. Litzenberger, or to allow Mrs. Lynn Guan, a former client of Mr. Litzenberger, to testify to such conduct. I sustained all objections to this line of questioning since it was intended to support Mrs. Gimelson's malpractice claim. Without expert testimony demonstrating that these allegations, if proven, would have warranted a denial of Mr. Litzenberger's claims against the debtor, and that Mr. Juall was negligent in not prosecuting those allegations, there would be no basis to conclude that the allegations of misconduct by Mr. Litzenberger would be relevant to Mr. Juall's fee claim against the debtor.See generally Vallinoto v. DiSandro, 688 A.2d 830 (R.I. 1997).
In her March 10, 1998 letter, Ex. D-6, Ms. Gimelson notes without complaint that Mr. Juall explained to her that a state court hearing held on October 17 [1997] "was not the forum" for consideration of such allegations. Id., at 3.
II.
A creditor's claim, filed pursuant to 11 U.S.C. § 501(a), is deemed allowed unless a party in interest objects. 11 U.S.C. § 502(a). Upon objection, the court, after notice and hearing, determines the claim amount as of the date of the filing of the petition. 11 U.S.C. § 502(b). Here, the claim is fixed as of February 10, 2000.
The chapter 7 debtor here has standing to object to the proof of claim because the chapter 7 trustee has reported in this case that all creditors will be paid in full and that a substantial surplus will be paid to the debtor pursuant to 11 U.S.C. § 726(a)(6). Thus, to the extent that the debtor prevails in her objection, her surplus will increase. See, e.g., In re Cult Awareness Network, Inc., 151 F.3d 605, 608 (7th Cir. 1998); Willemain v. Kivitz, 764 F.2d 1019, 1022 (4th Cir. 1985); Kapp v. Naturelle, Inc., 611 F.2d 703, 706-707 (8th Cir. 1979); In re Jorczak, 314 B.R. 474, 479 (Bankr. D. Conn. 2004).
The Third Circuit Court of Appeals has provided instruction upon the appropriate allocation of the evidentiary burdens in proof of claim litigation:
The burden of proof for claims brought in the bankruptcy court under 11 U.S.C.A. § 502(a) rests on different parties at different times. Initially, the claimant must allege facts sufficient to support the claim. If the averments in his filed claim meet this standard of sufficiency, it is "prima facie" valid. In other words, a claim that alleges facts sufficient to support a legal liability to the claimant satisfies the claimant's initial obligation to go forward. The burden of going forward then shifts to the objector to produce evidence sufficient to negate the prima facie validity of the filed claim. It is often said that the objector must produce evidence equal in force to the prima facie case. In practice, the objector must produce evidence which, if believed, would refute at least one of the allegations that is essential to the claim's legal sufficiency. If the objector produces sufficient evidence to negate one or more of the sworn facts in the proof of claim, the burden reverts to the claimant to prove the validity of the claim by a preponderance of the evidence. The burden of persuasion is always on the claimant.
In re Allegheny Int'l, Inc., 954 F.2d 167, 173-74 (3d Cir. 1992) (citations omitted).
"A proof of claim executed and filed in accordance with [the Bankruptcy Rules] shall constitute prima facie evidence of the validity and amount of the claim." Fed.R.Bankr.P. 3001(f). When a claim is based on a writing, the claimant shall attach the original or a duplicate to the filed proof of claim, or explain its loss or destruction. Fed.R.Bankr.P. 3001(c). Failure to attach a contract to a proof of claim does not defeat the claim; it merely eliminates the entitlement to prima facie validity. In re Campbell, 336 B.R. 430, 432 (B.A.P. 9th Cir. 2005); In re Moreno, 341 B.R. 813, 817 (Bankr. S.D. Fla. 2006);In re Burkett, 329 B.R. 820, 829 (Bankr. S.D. Ohio 2005).
Here, while Mr. Juall did not offer the initial retention agreement in evidence, it is undisputed that the debtor did engage his legal services. Moreover, the admission in her schedules regarding his claim adds prima facie support.
Accordingly, in this dispute the debtor has an initial burden of production to demonstrate that Mr. Juall's prima facie proof of claim is improper. If she meets this initial burden of production, the burden of persuasion as to the validity of the proof of claim by a preponderance of the evidence will turn to Mr. Juall. See In re Koch, 83 B.R. at 903.
I note that in meeting this burden, Mrs. Gimelson must produce actual evidence, not merely allegations. See In re White, 168 B.R. 825, 829 (Bankr. D. Conn. 1994) ("The objecting party may not rebut the prima facie case merely by stating that the amount of taxes claimed by the Service is not correct; the objecting party must produce some evidence to support that statement.").
If the burden shifts to Mr. Juall, I note that to the extent that a fee demand is not contractually fixed, in general, when determining the amount of reasonable attorney's fees a court may apply the lodestar test in accordance with Pennsylvania law.See Signora v. Liberty Travel, Inc., 886 A.2d 284, 293 (Pa.Super. 2005); Milkman v. American Travellers Life Ins. Co., 2002 WL 778272, at *26 (Pa. Com. Pl. 2002). The lodestar method involves the multiplication of a prevailing market hourly rate, given the experience of the professional and the nature of the professional services provided, with the number of hours reasonably expended in providing those services. See, e.g., In re Busy Beaver Bldg. Centers, Inc., 19 F.3d 833, 849 n. 21 (3d Cir. 1994); see also Pennsylvania Envtl. Defense Foundation v. Canon-McMillan Sch. Dist., 152 F.3d 228, 231-32 (3d Cir. 1998).
The Pennsylvania Rules of Professional Conduct also instruct that the factors to be considered in determining the propriety of a fee include whether the fee is fixed or contingent; the time and labor required; the customary fee in the locality for similar services; the amount involved and result obtained; the time limitations imposed by the client or the circumstances; the nature and length of the professional relationship with the client; and the experience, reputation and ability of the lawyer. Pa. St. R.P.C. Rule 1.5.
III. A.
Mr. Juall filed a proof of claim alleging $11,000 due for attorney services rendered. I just noted, although he did not attach a copy of the retention agreement entered into with Mrs. Gimelson, her scheduling of the claim as undisputed, liquidated and not contingent, and in an amount greater than he claimed, provides prima facie support for the claim. The burden thus shifts to Mrs. Gimelson to produce evidence sufficient to negate the prima facie validity of the filed claim, i.e., that Mr. Juall is not owed any more than she already paid.
Mrs. Gimelson bases her objection on several grounds. She alleged that Mr. Juall did not earn all of his fee because Ms. Fitzgerald did much of the preliminary work and because the judgments of Mr. Litzenburger were subsequently reinstated on appeal. She further alleged that Mr. Juall double-billed herself and her children, and that he did not prepare her children sufficiently for certain depositions. She also complained that Mr. Juall did not submit to the state court letters she obtained regarding improprieties alleged against Mr. Litzenberger. Finally, she stated that Mr. Juall did not have "standing" to make his claim.
Taking the last allegation first, it is apparent that Mrs. Gimelson is confused over the meaning of the legal term "standing." The term is defined generally as "[a] party's right to make a legal claim or seek judicial enforcement of a duty or right." Black's Law Dictionary (Garner, 7th ed.); see also Mabry v. Windsor Service Inc., 18 Pa. D. C.4th 553, 560 (Pa. C.P. 1993) ("[T]he core of the concept of standing is that a person who is not adversely affected in any way by the matter he seeks to challenge is not aggrieved thereby and has no right to obtain a judicial resolution of his challenge.").
Section 501(a) permits any creditor of a debtor to file a proof of claim. And sections 101(5) and (10) define a creditor as anyone who may have a right to payment from the debtor, whether that right is disputed, liquidated, contingent or unmatured.See generally In re O'Donnell, 326 B.R. 901 (Table), 2005 WL 1279268 (B.A.P. 6th Cir. 2005).
That Mrs. Gimelson believes Mr. Juall is not entitled to any payment simply disputes his claim; it does not abrogate his standing to file a claim in this case. Clearly, Mr. Juall is aggrieved by the alleged non-payment of his legal fee by Mrs. Gimelson, therefore he has standing to file a proof of claim in this bankruptcy case. See In re Viencek, 273 B.R. 354, 358 (Bankr. N.D.N.Y. 2002).
As for not introducing certain letters as evidence in the state court hearing, as stated above this allegation sounds in malpractice, a ground I precluded Mrs. Gimelson from pursuing due to her failure to file a certificate of merit as required by the Pennsylvania Rules of Procedure. See Lentino v. Fringe Employee Plans, Inc., 611 F.2d 474, 480 (3d Cir. 1979) ("The standard of care in Pennsylvania malpractice cases is measured by the skill generally possessed and employed by practitioners of the profession. . . . Expert testimony is required to establish the relevant standard and whether the defendant complied with that standard.").
As for the double-billing of herself and her children, Mrs. Gimelson made no specific allegations such that it is unclear what services Mr. Juall needed to substantiate to the court. See In re White, 168 B.R. 825; In re Campbell, 336 B.R. at 435 ("The declarations' vague assertions and legal conclusions do not actually contest liability or the amount of the claims."); see also Hamilton v. GTE Directories Corp., 132 F.3d 39 (9th Cir. 1997) (plaintiff's "only evidence of pretext [was] the vague assertions in his own unadorned declaration, which mirrors the complaint," held not enough to support employment discrimination charge). For example, she did not submit the bills sent to her children for comparison to her bills.
Mrs. Gimelson's allegation that Mr. Juall did not earn his fee because Ms. Fitzgerald did the preliminary work similarly is insufficient to defeat his claim. It is not clear, aside from the submission into evidence of the petition filed by Ms. Fitzgerald, what services she performed. And it is clear that Mr. Juall actively represented the debtor in connection with that state court petition and in other matters involving Mr. Litzenberger's state court claims against her.
There is no evidentiary basis to conclude that Mr. Juall duplicated services previously provided by Ms. Fitzgerald. A December 16, 1996 billing entry of Mr. Juall reveals work performed on state court preliminary objections, but in connection with the fraudulent transfer action, not the confessed judgment matter that Ms. Fitzgerald had addressed in her pleading.
Finally, Mrs. Gimelson alleged that Mr. Juall did not earn his fee because the judgments he had set aside were reinstated on appeal. However, during Mr. Juall's initial representation, Mrs. Gimelson prevailed over Mr. Litzenberger. Mr. Juall did not represent her through the completion of the appeals process. And he did not agree to represent her on a contingent basis.
B.
Therefore, I do not believe that the debtor met her initial burden of production to call into question Mr. Juall's proof of claim, which claim was in an amount less than the amount scheduled by the debtor and less than the amount due and owing on his business records. However, if the burden had shifted, I conclude that Mr. Juall's testimony and admitted documents met his burden of persuasion.
His hourly rate of $125, given the complicated nature of the engagement and his experience, was very reasonable. While his billing ledger is not as itemized as would be ideal, the ledger is sufficiently detailed for me to determine that the amount of time spent given the litigation involved, see generally In re Gimelson, was also reasonable.
Were there unreasonable time spent by Mr. Juall, such excessive services would not be compensative by my allowing his claim in the amount of $11,000, rather than the $13,670.50 reflected on the billing ledger.
I note also that Mrs. Gimelson made little complaint about the amount of
Mr. Juall's fees during the time of his representation of her, but rather made eight installment payments from December 1996 to May 1998 on the account and urged him to continue representing her. See In re Desert Village L.P., 337 B.R. 317, 320 (Bankr. N.D. Ohio 2006) (noting in part that good relationship between debtor and attorney for a number of years did not support claim of malpractice). Additionally, she scheduled Mr. Juall's claim in a higher amount than he claimed, and did not schedule the claim as disputed, while listing potential disputes over other attorneys' claims. See In re Schmitt, 337 B.R. at 596 (overruling objection to claim where debtor had scheduled claim in same amount and not as disputed, and claimant law firm had provided necessary services and billed reasonable amounts); In re Desert Village L.P., 337 B.R. at 320 (noting evidentiary weight of debtor scheduling claim as undisputed).
In light of the above, and being aware of the relative burdens of proof, I conclude that Mr. Juall's claim should be allowed in the amount claimed of $11,000, as a general unsecured creditor.
ORDER
AND NOW, this 29th day of September 2006, the debtor having filed an objection to proof of claim number #3 submitted by David J. Juall, Esq.,
It is hereby ordered that the debtor's objection is denied and the claim is allowed as unsecured in the amount of $11,000.