Opinion
No. 97-13375.
August 26, 2009
Tentative Decision
Philip M. Arnot was the attorney appointed by the court to represent debtor Straightline Investments, Inc., when it was the debtor in possession pursuant to § 1107 of the Bankruptcy Code. As such, Arnot was the attorney for the bankruptcy estate.
The case was converted from Chapter 11 to Chapter 7 on April 27, 1998. This had the effect of terminating Arnot's employment, as the Chapter 7 trustee became the successor representative of the estate.
On March 30, 2000, Arnot filed his first and final fee application. In it, he sought fees of $22,22750 and expenses of $1,516.97. No mention was made of any retainer.
On June 4, 2009, Chapter 7 Trustee Andrea Wirum filed her final report. In it, she proposed to pay Arnot the amount he prayed, less only a payment on account of $746.50. Arnot made no attempt to correct this report.
When the matter first came on for hearing on approval of fees, the court checked the file and saw that Arnot had received a retainer of $5,000.00 which was unaccounted for. The court put the matter over to allow the trustee to investigate the apparent discrepancy. On August 6, 2009, Arnot filed an amended fee application reflecting the $5,000.00 retainer and reducing his fee application by that amount.
The court is very disappointed in the Trustee and her counsel for failing to discover this problem. The court does not have the investigative resources to review such matters, and relies on the professionals in the case to make sure that their own fee applications are correct and that the applications of other professionals are in order. "Professional courtesy" has no place in such serious matters.
Moreover, by filing an improper fee application and failing to correct the mistake, Arnot has placed himself in a position where the court cannot simply say "no harm, no foul" and award the corrected sum. There must be some penalty to discourage negligent fee applications.
Accordingly, the court has it in mind to reduce Arnot's original request by $10,000.00 and those of the Trustee and her counsel by $1,000.00 each. This will be the ruling of the court unless the applicants appear at the hearing next week in person and demonstrate reasons why these reductions are not appropriate.
This assumes that Arnot is entitled to any fee whatsoever. He admits that he obtained only oral, and not written permission, to represent the debtor's principal in an action brought by the bankruptcy estate, his former client, arising out of actions which took place while he was the estate's attorney. He avers that no confidential information was disclosed, but the law presumes that confidences were disclosed. Forrest v. Baeza, 58 Cal.App.4th 65, 73-4 (1997); Truck Ins. Exch. v. Fireman's Fund Ins. Co., 6 Cal.App.4th 1050, 1056 (1992). Actual possession of confidential information is not necessary to disqualify. Elliott v. McFarland Unified School District, 165 Cal.App.3d 562, 569 (1985).