In re Gourlay

496 B.R. 857, 2013 WL 4414827, 2013 U.S. Dist. LEXIS 114585
CourtDistrict Court, E.D. Michigan
DecidedAugust 14, 2013
DocketNo. 12-15223
StatusPublished
Cited by6 cases

This text of 496 B.R. 857 (In re Gourlay) is published on Counsel Stack Legal Research, covering District Court, E.D. Michigan primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Gourlay, 496 B.R. 857, 2013 WL 4414827, 2013 U.S. Dist. LEXIS 114585 (E.D. Mich. 2013).

Opinion

OPINION AND ORDER AFFIRMING THE DECISION OF THE BANKRUPTCY COURT

STEPHEN J. MURPHY, III, District Judge.

The matter before the Court is an appeal from a bankruptcy court decision. The appeal concerns the attorney-fee agreement that the debtor, Robert Gour-[858]*858lay, signed with Fregó & Associates (“Fre-gó”) before he filed for bankruptcy. The bankruptcy court determined that the pre-petition fee agreement was a dischargeable debt under 11 U.S.C. § 727, and canceled the agreement pursuant to 11 U.S.C. § 329 to the extent it required Gourlay to pay make payments post-petition. On appeal, Fregó concedes that a pre-petition attorney-fee agreement is potentially discharge-able debt, but asks the Court for an order holding that such debt could be determined non-dischargeable pursuant to an adversary proceeding filed under 11 U.S.C. § 523(a)(2). As set forth below, the Court agrees with Gourlay that the order Fregó seeks would be an advisory opinion, which the Court will decline to issue.

BACKGROUND

On February 23, 2012, Gourlay met with an attorney at Fregó regarding his potential bankruptcy. Gourlay retained the firm, and signed a fee agreement, under which he agreed to pay Fregó a flat fee of $1000 for its services related to the bankruptcy. Gourlay paid Fregó $100 at the time he retained the firm, and in the fee agreement agreed to pay the remaining $900 in post-petition installments, making payments of $50 per month starting April 12, 2012. Gourlay made one $50 payment toward the debt on May 4, 2012.

Gourlay filed for Chapter 7 bankruptcy on March 13, 2012. Fregó had until June 25, 2012, to file an adversary proceeding, objecting to discharge of Gourlay’s attorney-fee debt. See Fed. R. Bankr.P. 4007(c) (governing the time limits for objections to discharge filed under 11 U.S.C. § 523(c)); see also Docket Entry 8, ECF No. 2 at 2 (stating the deadline). Fregó did not file any such action, and on June 26, 2012, Gourlay received his Chapter 7 discharge. See Docket Entry. 18, ECF No. 2 at 3.

On May 24, 2012, while the discharge order was still pending, the United States Trustee (the “Trustee”) appointed to oversee Gourlay’s bankruptcy filed a motion under 11 U.S.C. § 329, seeking disgorgement of the $100 Gourlay had already paid to Fregó, and seeking to cancel the agreement to pay the remaining $900 debt. See Trustee’s Mot. & Br. in Support, ECF No. 2 at 47-60. In support, the Trustee argued that, pursuant to the Sixth Circuit’s holding in In Re Rittenhouse, 404 F.3d 395 (6th Cir.2005), Gourlay’s pre-petition attorney-fee agreement with Fregó was dis-chargeable under 11 U.S.C. § 727(b). The Trustee argued that the bankruptcy court should order Fregó to disgorge any fees collected and/or cancel the fee agreement pursuant to 11 U.S.C. § 3291 because Fre-gó did not advise Gourlay that the debt was dischargeable and thereby caused Gourlay to unknowingly pay dischargeable debt that he was not required to pay. Finally, the Trustee also argued that Fre-gó is precluded from seeking to collect the attorney fees because the debt is subject to the automatic-stay provision of 11 U.S.C. § 362 and, once Gourlay’s discharge is granted, to the discharge injunction of 11 U.S.C. § 524(a)(2), which enjoins creditors from continuing to seek payment on pre-petition debts after a discharge is granted.

On June 22, 2012, Fregó filed a response to the motion, and on July 6, 2012, the firm filed a brief in support of its response. See Frego’s Resp., ECF No. 2 at 62-67; Br. in Support, ECF No. 2 at 71-99. As pertinent here, in its brief in support, Fre-gó conceded that pre-petition fee arrangements are dischargeable, but argued that they may be determined non-dischargeable [859]*859in an adversary proceeding filed pursuant to 11 U.S.C. § 523(a)(2). See Br. in Support, ECF No. 2 at 78 (“An attorney must go through the Bankruptcy Courts and pursue an Adversary Proceeding to determine the non-dischargeability of the debt under 11 U.S.C. § 523(a)(2) in order to enforce pre-petition fee arrangements if a debtor does not pay voluntarily.”) (emphasis in original). Fregó appears to present the argument in response to the Trustee’s contention that the fees were unreasonable because Fregó failed to inform Gourlay that the attorney-fee debt was dischargea-ble. See id. at 78, 95-97.

The bankruptcy court issued its decision on October 9, 2012. The court, applying Rittenhouse, agreed with the Trustee that the pre-petition attorney-fee agreement was a dischargeable debt under 11 U.S.C. § 727. Order, ECF No. 2 at 360. It followed, the Court held, that any action to collect the debt was stayed during pen-dency of the case under § 362(a) and, post-discharge, was prohibited by the discharge injunction of § 524. Id. at 362. The bankruptcy court found the fee agreement subject to cancellation under § 329 because it is unenforceable. It did not rely on the Trustee’s argument that Fregó failed to inform Gourlay that the debt was dis-chargeable. The court reasoned as follows:

To the extent that the Debtor made a pre-petition agreement to pay $900.00 of Frego’s flat fee post-petition, that agreement is dischargeable under § 727. Any attempt by Fregó to enforce that agreement would violate the automatic stay of § 362(a) and, upon the Debtor receiving a discharge, would violate the discharge injunction of § 524(a). The Court concludes that the agreement to make post-petition payments in this case must be cancelled under § 329(b) because it is simply unenforceable.

Id. at 364. The court found that § 329 did not require Fregó to disgorge the $100 that Gourlay had paid Fregó, pre-petition. Fregó now appeals the order.

DISCUSSION

The Court has jurisdiction to hear this appeal pursuant to 28 U.S.C. § 158(a). The Court reviews a bankruptcy court’s findings of fact for clear error and its conclusions of law de novo. AMC Mortg. Co. v. Tenn. Dep’t of Revenue (In re AMC Mortg. Co.),

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Cite This Page — Counsel Stack

Bluebook (online)
496 B.R. 857, 2013 WL 4414827, 2013 U.S. Dist. LEXIS 114585, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-gourlay-mied-2013.