Opinion
Case No. 01-34518-T
April 9, 2002
MEMORANDUM OPINION AND ORDER
Hearing was held on March 20, 2002, on the motion of Charles H. Krumbein for setoff pursuant to 11 U.S.C. § 553. At conclusion of hearing, the court took the matter under advisement. For the reasons stated herein, Krumbein's motion for setoff will be denied.
Facts and Procedural History.
Debtors filed the instant chapter 13 petition on July 26, 2001, represented by Mark Leffler. Debtors had previously filed another chapter 13 petition, case number 00-30894-T, in which they were represented by Krumbein. No plan was ever confirmed in case 00-30894-T, and the case was dismissed on July 20, 2001.
On November 13, 2001, prior to filing this motion for setoff, Krumbein filed a motion to re-open case 00-30894-T along with initial and supplemental applications for compensation.
Hearing was held on December 5, 2001, and the court denied the motion to re-open and applications for compensation. Order was entered on December 18, 2001.
In their prior case, debtors signed a contract stating that in the event of dismissal of the case without a confirmed plan, all plan payments held by the trustee would be sent to their attorney of record at the time, Krumbein. On July 31, 2001, the chapter 13 trustee forwarded $2,849.13 to Krumbein, representing funds received by the trustee pursuant to 11 U.S.C. § 1326(a)(2).
On February 26, 2002, Krumbein filed a motion for setoff of these funds for his "time, efforts, and costs expended" in case 00-30894-T asserting that he is a secured creditor, holding both contractual and possessory liens.
In his motion for setoff, Krumbein refers to two exhibits, A and B, which he states are his applications for compensation and contract signed by debtor granting him a lien on the funds held in escrow in case 00-30894-T; however, there were no exhibits attached to his motion.
At hearing on March 20, Krumbein sought $2710.00 in fees and costs; however, in his supplemental fee application filed on November 13, 2001, he sought only $2,517.97 in fees and costs.
Conclusions of Law.
In a recent opinion issued by the Alexandria Division of the United States Bankruptcy Court for the Eastern District of Virginia, In re Hall, case number 01-80623-SSM (Bankr. E.D. Va. Feb. 14, 2002), the court determined that in cases that are ripe for dismissal in which no plan has been confirmed, a trustee may pay approved fees of debtor's counsel from payments made by debtor while the case was pending. The court based its ruling on 11 U.S.C. § 1326(a)(2) which states that if a plan is not confirmed, the trustee shall return to debtor all payments made by debtor "after deducting any unpaid claim allowed under section 503(b) of this title." 11 U.S.C. § 1326(a)(2) (2002). The court concluded that the fees and expenses of debtor's counsel constituted a § 503(b) claim.
This case can be distinguished from the case at hand as debtor's counsel's application for compensation in Hall was approved prior to the case closing. In the instant case, Krumbein first sought to re-open a closed case solely for the purpose of filing his fee applications, and the court denied this motion. Krumbein has now filed this motion for setoff in debtors' new case asserting that he is a secured creditor with a contractual lien on funds held in escrow and seeks payment of attorney fees that were incurred in the closed case.
Krumbein did not attach exhibits to his motion for setoff; therefore, the court is unable to determine whether Krumbein truly has a contractual lien on the funds. However, the court examined a copy of the contract that was attached to the fee applications filed in case 00-30894-T. The contract states that debtors "grant to Charles H. Krumbein a limited power of attorney to endorse checks from the Standing Chapter 13 Trustee that may be issued to Charles H.
Krumbein and myself to deposit them into his escrow account, and to deduct any remaining agreed fees outstanding." The court is uncertain whether this is the language upon which Krumbein relies in asserting his lien but notes that this language is insufficient to grant Krumbein a contractual lien on the funds currently held in escrow.
Because Krumbein did not include exhibits in his motion for setoff and the language previously cited would be insufficient to grant him a contractual lien on the funds, Krumbein is not entitled to setoff the funds.
Accordingly,
IT IS ORDERED that counsel's motion for setoff is DENIED.