Opinion
Case No. 97-11811-SSM
February 11, 1998
Jack Frankel, Alexandria, VA, for the United States Trustee Richard C. Deering, Gaithersburg, MD
David Ross Rosenfeld, Alexandria, VA, of Counsel for James A. Bielec
MEMORANDUM OPINION AND ORDER
A hearing was held in open court on February 6, 1998, on the motions of the United States Trustee (a) to vacate the order dismissing this case and (b) to enter an order requiring the debtors' attorney, Richard Deering, to disgorge the fees he was paid by the debtors to file their case. Neither the debtors nor Mr. Deering were present.
Background
John Mark Rhoads and Tammy Lynn Rhoads ("the debtors") filed a joint voluntary petition under chapter 7 of the Bankruptcy Code in this court on March 13, 1997. Their petition was prepared by the firm of Deering Associates, with James A. Bielec shown as local counsel. The principal of Deering Associates, Richard Deering, is an attorney but has never been admitted to practice in this court. Schedules and a statement of financial affairs were not filed with the petition but were subsequently filed and reflect that the debtors paid Deering Associates a total of $675.00 (which includes the $175 filing fee).
The disclosure of attorney fees filed with the petition, however, reflects that only $200 of this sum had been paid prior to the filing of the petition. The disclosure further reflects a fee sharing agreement with Mr. Bielec under which Mr. Bielec would be paid $50.00 per hour for local counsel appearances.
A notice of the meeting of creditors was mailed to the debtors on March 16, 1997, advising them of the time, date and place of the meeting of creditors. Also mailed to the debtors on March 16, 1997, was an Order to Debtor(s) dated the same date requiring the debtors to personally appear at the meeting of creditors and submit to examination. The debtors did not appear, and on April 21, 1997, an order was entered by the clerk under the authority of Local Bankruptcy Rule 2003-1(B) dismissing their case. An order closing the case was entered on April 25, 1997. No motion was ever filed by the debtors seeking to vacate the order of dismissal and no appeal was taken.
The debtors, rather than moving to set aside the dismissal of this case, simply filed a new chapter 7 petition, Case No. 97-13766-MVB, on May 20, 1997, and received a discharge on September 7, 1997. They were represented in that filing by different counsel.
On October 10, 1997 — five and a half-months after the case was dismissed — the United States Trustee filed a motion to vacate the order of dismissal "for the limited purpose of allowing the United States Trustee to investigate and examine the representation of the Debtors by their attorneys." Simultaneously, the United States Trustee also filed a motion to examine the debtors' transactions with Messrs. Deering and Bielec and to order disgorgement of all or part of the compensation paid. The motion further represents, apparently based on discussions with the debtors, that Mr. Deering's office telephoned them prior to the scheduled meeting of creditors, and advised them that Mr. Deering was ill and that their meeting of creditors would be rescheduled for another date.
The motion represents, apparently based on conversations between the debtors and counsel for the United States Trustee, that the amount actually paid by the debtors to Mr. Deering was $375.00.
Discussion
Under F.R.Bankr.P. 60(b), which is incorporated in bankruptcy cases by F.R.Bankr.P. 9024, a party may be relieved from a final judgment or order on the following grounds:
(1) mistake, inadvertence, surprise, or excusable neglect;
(2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b);
(3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party;
(4) the judgment is void;
(5) the judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application; or
(6) any other reason justifying relief from the operation of the judgment.
The motion must be made "within a reasonable time, and for reasons (1), (2), and (3) not more than one year after the judgment, order, or proceeding was entered or taken." Id.
F.R.Bankr.P. 9024 imposes the following additional time restrictions:
(1) a motion to reopen a case under the Code or for the reconsideration of an order allowing or disallowing a claim against the estate entered without a contest is not subject to the one year limitation prescribed in Rule 60(b),
(2) a complaint to revoke a discharge in a chapter 7 liquidation case may be filed only within the time allowed by § 121(Q) of the Code, and
(3) a complaint to revoke an order confirming a plan may be filed only within the time allowed by § 1144, § 1230, or § 1330.
The only ground among those set forth in Rule 60(b) that seems even remotely applicable is the catch-all provision, "any other reason justifying relief from the operation of the judgment." The problem here is that vacating the order of dismissal would have the effect of reinstating the debtor's case on the docket. The debtors, however, after this case was dismissed, filed another case and have received a discharge. The United States Trustee asks that the dismissal of this case be set aside for "the limited purpose" of seeking relief against Mr. Deering and Mr. Bielec. However, the court is aware of no authority for vacating a dismissal but then not proceeding with administration of the case. The court is concerned, too, that vacating the order of dismissal in this case would have the unintended effect of resurrecting the automatic stay and perhaps invalidating actions that may have been taken in reliance upon the original dismissal. While the court is deeply concerned about the allegations that Mr. Deering in effect abandoned his clients midstream, and is appreciative of the United States Trustee's vigorous efforts to ensure the integrity of the bankruptcy system, to reinstate a dismissed case for any purpose other than to administer the debtor's estate or to correct an error in the dismissal order (e.g., to determine whether the dismissal was with or without prejudice) would, in the court's view, be inconsistent with the purpose of relief under Rule 9024. Accordingly, it is
The United States Trustee has withdrawn or settled its claim for relief as to Mr. Bielec and is proceeding solely against Mr. Deering.
The debtors are, of course, free to bring an action against Mr. Deering in state court to recover damages for any breach of the contract of representation.
ORDERED:
1. The motion to vacate the order dismissing this case is denied.
2. The motion to examine the debtors' transactions with their attorney is denied as moot in light of the court's ruling on the motion to vacate the order of dismissal.
3. The clerk will mail a copy of this order to counsel for the United States Trustee, to the debtors, to Richard C. Deering, and to counsel for James A. Bielec.