Opinion
THOMAS C. NELSON (Cal. Bar No.82506), San Diego, CA, Attorney for Debtor.
ORDER TO THOMAS C. NELSON TO RESPOND AND SHOW CAUSE WHY HE SHOULD NOT BE ORDERED TO DISGORGE RETAINER OF $7, 039.00 AND BE OTHERWISE SANCTIONED
JAMES W. MEYERS, Bankruptcy Judge
Attorney Thomas C. Nelson ("Mr. Nelson") filed a Chapter 11 petition to initiate this case on July 9, 2009. The Debtor, Prize Properties, LLC, is prohibited from appearing in court without an attorney pursuant to CivLR 83.3(k).
Local Rules of Practice for the United State District Court for the Southern District of California.
On July 27, 2009, Mr. Nelson submitted an application to be employed as general counsel for the Debtor-in-possession. The Declaration submitted with the application reveals that Mr. Nelson received a pre-petition retainer of $7, 039.00 from the Debtor. On August 21, 2009, the Court issued an order denying the application. A review of the docket in this case indicates that the case remained dormant for the next four months.
A copy of the Declaration is attached hereto as Exhibit A.
A copy of this Order is attached hereto as Exhibit B.
The U.S. Trustee filed a motion to convert or dismiss the case on December 10, 2009 ("Motion"). The cause cited in the Motion included the facts that after five months in Chapter 11, the Debtor had not filed a plan and disclosure statement or any operating reports, and never obtained an order appointing counsel. Despite the denial of his application for appointment, Mr. Nelson filed a Limited Opposition to the U.S. Trustee motion, on behalf of the Debtor, asking that the case be dismissed rather than converted to Chapter 7.
The Motion was heard on January 21, 2010. Mr. Nelson did not appear at the hearing. Attorney Ajay Gupta appeared, and stated he was the to represent the Debtor at the request of Mr. Nelson. The case was converted to Chapter 7 by order entered January 29, 2010.
With the facts recited above, there is no basis to award Mr. Nelson any fee or expense application for representing the Debtor. The Court issues this Order to provide Mr. Nelson an opportunity to show cause why the Court should not order Mr. Nelson to disgorge the retainer he received in this case, and turnover the amount of $7, 039.00 to the Chapter 7 Trustee.
In addition to the details cited from this case, the Court has observed problems with other recent cases in which Mr. Nelson appeared on behalf of Chapter 11 debtors before the undersigned. As a result, the Court may impose additional sanctions against Mr. Nelson. This Order is issued pursuant to the Court's inherent authority under 11 U.S.C. § 105, as well as authority specifically granted under CivLR 83.1 and 83.5, 11 U.S.C. §§ 327, 328 and 32 9, and B.R. 2014, 2016 and 2017.
These cases include: In re Simplon Ballpark. LLC, 08-01803-JM11; In re Jules Elliot Briskin, Case No. 08-10018-JM11; In re Ahmad Hajiyousfi and Shalah Salah-Isfanhani. Case No. 09-04303-JM11; In re Marshall Shields. Case No. 09-14224-JM11; and In re Marshall Shields. Case No. 09-17085-JM7.
The Court has the authority to impose a broad range of sanctions for attorney misconduct. See, CivLR 83.1 and 83.5, In re Brooks-Hamilton , 400 B.R. 238 (9th Cir. BAP 2009); Hale v. U.S. Trustee , 509 F.3d 1139 (9th Cir. 2007); In re Lehtinen , 332 B.R. 404 (9th Cir. BAP 2005); and In re Crayton 192 B.R. 970 (9th Cir. BAP 1996). After the deadline to file a response expires, the Court will set a hearing, if necessary, to consider additional appropriate sanctions, which may include a finding of contempt, imposition of monetary sanctions, or referral of the matter to the Standing Committee on Discipline or any other disciplinary body.
Therefore, IT IS ORDERED THAT:
On or before February 25, 2010, Thomas C. Nelson shall file a Response to show cause why the Court should not:
1) Order Mr. Nelson to disgorge the $7, 039.00 received in connection with this case and turnover that amount to the Chapter 7 Trustee, and
2) Impose other appropriate sanctions.
A copy of the Response shall be served on the Chapter 7 Trustee and the U.S. Trustee.
Exhibit A-1
UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF CALIFORNIA
I, Thomas C. Nelson, declare as follows:
1. I am an attorney admitted to practice in the State of California and before this Court. My office is located at 550 West C Street, Suite 1850, San Diego, California 101.
2. I am well qualified to represent the Debtor generally in this matter, and am willing to accept the employment as Debtor's counsel on the terms set forth in the plication filed herewith.
3. I do not hold any interests adverse to the above-entitled estate and I am a disinterested person as that term is defined in 11 USC § 101 (140).
4. I received a pre-petition retainer of $7, 039.00 from the Debtor. Of that amount, $1, 039.00 was applied to payment of the filing fee for this proceeding and $2, 000.00 was applied to pre-petition counseling and preparation of the Voluntary Petition and related documents for the filing. The remaining $4, 000.00 is being held in trust to pay for post-postition services subject to this Court's approval. I have not received any other funds from the Debtor.
5. Attached hereto as Exhibit A and incorporated herein by reference is a copy of the fee agreement signed by the Debtor and myself which contains the terms upon which the Debtor has retained me as its counsel in this matter.
The above is of my personal knowledge, and I could and would competently testify thereto if called as a witness.
Signed on July 22, 2009, at San Diego, California.
I declare under penalty of perjury under the laws of the United States of America it the foregoing is true and correct.
The purpose of this letter ("Agreement") is to confirm and set for the terms for the engagement by Prize Properties, LLC., a California limited liability company ("Client") of Thomas C. Nelson ("Attorney") to represent Client in all aspects of Client's proposed Chapter 11 proceeding (the "Bankruptcy").
If you agree to the following terms, please sign where indicated and return one original of this letter to me.
1. Scope of Representation
Attorney's scope of representation will consist of preparing and filing a voluntary Chapter 11 proceeding (the "Bankruptcy") as to Client. Attorney's services thereafter will consist of appearing as Client's counsel of record in the Bankruptcy, and providing all legal services necessary and appropriate in that Bankruptcy including, but not limited to, assisting Client in preparing Schedules and Statements of Affairs, attending the 341a hearing, opposing motions (including motions for relief from stay) that may be brought, attending Court hearings, preparing and disseminating a proposed Plan of Reorganization, Disclosure Statement and any other matters related to the Bankruptcy-Attorney's representation of Client under this Agreement is limited to the Scope of Representation set forth above. Any other representation by Attorney of Client will be by a separate written agreement between them.
2. Duties of Client.
Client agrees to be truthful with Attorney, to cooperate and keep Attorney informed of any information or developments which affect Attorney's representation of Client in the Scope of Representation, and to provide documents and information on a timely basis as required for Attorney to represent Client in all aspects of the Scope of Representation set forth above. The initial documents required of Client include completed drafts of the Voluntary Petition, Schedules and Statement of Affairs for Client, and the documentation that will be required by the United States Trustee.
3. Compensation
Client agrees to pay Attorney a retainer of Seven Thousand ($7, 039.00) which will be applied as follows: $1, 039.00 for the Bankruptcy filing fee; $2, 000.00 for pre-petition counseling, and the preparing of the Voluntary Petition and other documents required for a "bare bones" filing. The remainder will be applied as Attorney's compensation in the Bankruptcy subject to the Court's approval. Client will not be liable for any additional fees in the Bankruptcy.
The Attorney's fees set forth in this Agreement are not regulated by law, but are negotiable between the Attorney and Client.
4. Costs
Attorney may incur costs and expenses in performing legal services for Client under this Agreement. Client agrees to pay all costs, disbursements and expenses in addition to the hourly fees authorized in this Agreement. Except for the items listed below, all costs and expenses will be charged at Attorney's cost:
In-Office Black/White photocopying: $0.25 per page In-Office Color photocopying $0.50 per page Mileage: $0.52 per mile Faxes: $0.25 per page
Attorney shall not incur costs exceeding Five Hundred Dollars ($500.00) per item or in the aggregate in any month without Client's prior consent. Attorney may request a deposit for any such approved costs, or may request that Client pay such costs directly to outside providers.
5. Disclaimer of Guarantee.
Attorney has made no promises or guarantees to Client about any specific outcome in the Bankruptcy. Nothing in this Agreement shall be construed as such a promise or guarantee. Attorney's comments about the potential outcome of any aspect of the Bankruptcy are expressions of opinion only.
6. Document Retention
Attorney's policy is to return all of Client's original documents prior to or no later than the completion of the work described in section 1, above and to destroy Attorney's notes. Attorney shall also provide Client copies of all correspondence and other documents developed or received by Attorney. Attorney will maintain any other documents consistent with the Rules of Professional Conduct and other applicable laws as they may change from time to time.
7. Discharge and Withdrawal
Client may discharge Attorney at any time. Subject to Court approval, Attorney may withdraw with Client's consent or for good cause. Good cause includes Client's breach of this Agreement, refusal to cooperate or to follow Attorney's advice on a material matters, or any fact or circumstance that would render Attorney's continuing representation unlawful or unethical. Upon conclusion of his services, Attorney will, at Client's request, deliver Client's files and personal property in Attorney's possession as directed by Client regardless of whether Client has paid for all services and costs.
This Agreement shall inure to the benefit of and be binding upon the successors and assigns of the parties hereto. This Agreement shall be effective retroactively to the ate Attorney first performed services for the Client within the Scope of Representation et forth above.
I have read and understand the terms set forth above and agree to them effective as of the date of this letter set forth above.
UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF CALIFORNIA
The court has reviewed the Application to Employ Thomas C. Nelson as General Counsel to Debtor ("Application") and the remaining docket entries in this case. In addition, this Court is preparing a decision and order relating the Court's concerns about the professional practices of Mr. Nelson in another Chapter 11 case. In re Simplon Ballpark LLC., Case No. 08-01803-JM11, ("Simplon Case"), which will be issued forthwith.
The Application in the present case is inadequate. First, Mr. Nelson has not filed form CSD 1009, the required disclosure statement of attorneys fees. Second, the declaration he filed in support of the Application is incomplete. It fails to include information, to the best of his knowledge, of all of Mr. Nelson's connections with the debtor, creditors, any other party in interest, their respective attorneys and accountants, the United States trustee, or any person employed in the office of the United States trustee, information specifically required by Bankruptcy Rule 2014(a). If he has no connections with anyone in the scope of those categories, he must include such a statement in his declaration under penalty of perjury.
Finally, the Court has serious concerns about the professionalism exhibited by Mr. Nelson, and his ability to competently represent a Debtor-in-Possession. The litany of tardy filings and lack of candor displayed by Mr. Nelson in the Simplon Case will be enumerated in the forthcoming decision, but it appears that Mr. Nelson is continuing the pattern here.
The petition in this case was filed July 9, 2009, as a "bare bones" filing. The § 341(a) meeting of creditors was scheduled for August 4, 2009, at 3:00 p.m. The balance of schedules were due by July 24, 2009. At 3:54 p.m. on July 24, Mr. Nelson filed an Ex Parte Application, "out of an abundance of caution", for an extension of time to file the schedules and statement of affairs to July 31, 2009. The Ex Parte Application contained an express condition requiring the Debtor to personally deliver the copies of the schedules to the Office of the United States trustee no later than 12:00 p.m. on July 31, 2009. With that express condition, the United States trustee filed a Statement of No Opposition to the Ex Parte Application.
The Court is not aware of the timing of the delivery of the copies to the United States trustee, but notes that the Balance of Schedules and Statement of Affairs were not tendered to the Court until 12:13 p.m. on August 5, 2009. This delay violated the terms of the proposed order extending the time. And, unless the schedules were received by all creditors and interested parties by July 31, had the effect of denying them any opportunity to review the schedules before the § 341(a) meeting.
Therefore, given the procedural inadequacies associated with the Application, and the unresolved concerns about the professional ability of Mr. Nelson to fulfill his obligations as an officer of the court or counsel for a Debtor-in-Possession,
IT IS ORDERED that:
1) The Application is denied.
2) This Order is without prejudice to an amended Application upon cure of the procedural deficiencies in this case and a satisfactory showing of cause for the lack of candor and competence displayed in the Simplon Case.