In re Petrovic

560 B.R. 312, 2016 Bankr. LEXIS 4008, 2016 WL 6775913
CourtUnited States Bankruptcy Court, N.D. Illinois
DecidedNovember 16, 2016
DocketNo. 16 B 18969
StatusPublished
Cited by2 cases

This text of 560 B.R. 312 (In re Petrovic) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, N.D. Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Petrovic, 560 B.R. 312, 2016 Bankr. LEXIS 4008, 2016 WL 6775913 (Ill. 2016).

Opinion

MEMORANDUM OPINION

A. Benjamin Goldgar, United States Bankruptcy Judge

Before the court for ruling is the motion of chapter 13 trustee - Glenn Stearns (“Stearns”) seeking an examination under Rule 2017 of the Federal Rules of Bankruptcy Procedure, Fed. R. Bankr. P. 2017, of the compensation paid to J. Kevin Benjamin (“Benjamin”), counsel for debtor Rade Petrovic (“Petrovic”). Stearns, maintains that Benjamin’s compensation exceeded the reasonable value of his services under section 329 of the Bankruptcy Code, 11 U.S.C. § 329.

For the reasons set forth below, Stearns’s motion will be denied.

1. Background

The facts are taken from the motion, the parties’ memoranda, Petrovic’s petition and schedules, the docket in the bankrupt[314]*314cy case, and the proof of claim (and attachments) filed by Petrovic’s ex-wife, Mirjana Petrovic (“Mirjana”).

The Petrovics were married in Serbia in 1998. They have one child, a daughter. In 2008, Mirjana filed a divorce petition against Petrovic in the Circuit Court of Cook County, Illinois. On February 4, 2008, the circuit court entered a judgment for dissolution of marriage that incorporated the parties’ marital settlement agreement. Among other things, the judgment obligated Petrovic to pay Mirjana $200,000 within 30 days of the judgment’s entry and an additional $200,000 in annual installments of $50,000. The judgment also obligated Petrovic to pay $2,000 per month in child support, to maintain his life insurance for the benefit of the child, and to provide health insurance for the child.

Petrovic evidently failed to comply with the judgment for dissolution, because Mir-jana brought a petition requiring him to show cause why he should not be held in contempt for failing to comply with the judgment. On March 8, 2016, the circuit court granted the motion, finding a prima facie case of contempt had been shown and good cause for failure to comply with the 2008 judgment had not. The court issued the rule, noting that Petrovic had not paid Mirjana the $200,000 (plus interest) he owed her and had not maintained either the health or life insurance. Petrovic was ordered to pay $50,000 on or before June 8, 2016, and the matter was set for final disposition that day.

Rather than comply with the show cause order, on June 8, 2016, Petrovic filed a chapter 13 bankruptcy petition. His petition and schedules disclosed more than $700,000 in unsecured debt, well over the $394,725 limit in section 109(e) for a chapter 13 debtor. See 11 U.S.C. § 109(e).1 Stearns therefore moved in late June to dismiss the case on the ground Petrovic was ineligible for chapter 13. In response, Petrovic argued that under section 109(e), only “noncontingent, liquidated, unsecured debts” count toward the debt limit, id., and once the debts he scheduled as contingent or unliquidated were excluded, he was under the limit.

On August 19, 2016, the court ruled on the trustee’s motion, agreeing with his position. Although Petrovic had checked the boxes on his schedules designating more than $400,000 of unsecured debt as contingent, unliquidated, or both, he offered no explanation why those debts were in fact contingent or unliquidated. Checking the boxes alone was not enough. See In re De Jounghe, 334 B.R. 760, 768 (1st Cir. BAP 2005). Moreover, the schedules suggested that the debts in question were in fact neither contingent nor unliquidated, since they were neither dependent on the occurrence of a future event nor in an uncertain amount. See In re Knight, 55 F.3d 231, 235-36 (7th Cir. 1995). It appeared Benjamin had confused “contingent” and “unliq-uidated” with “disputed.” But debts are not contingent or unliquidated merely because they are disputed. Disputed debts count toward the debt limit. Id. at 234.

Stearns, then, was right that Petrovic could not be a debtor under chapter 13. Rather than dismiss the case on the spot, however, the court gave Petrovic a chance to convert the case to one under chapter 11. Petrovic was told that if he wanted to take that opportunity, he had to move to convert the case and notice the motion for hearing on September 9, 2016. If he failed to do so, the trustee’s motion would be [315]*315granted and the case dismissed. Petrovic did not move for conversion, and on September 9, three months after he filed his petition, the case was dismissed.

On September 30, 2016, Stearns moved in accordance with Rule 2017 for an examination of Benjamin’s fees under section 329. Stearns contends that Petrovic’s ineligibility for chapter 13 was obvious, that the boxes on his schedules were checked solely to give him “an opportunity to stall dismissal of his ease.” What is more, Stearns says, Petrovic made no effort to pursue the case: he made no plan payments, failed to provide the trustee with pay advices, and did not provide his tax returns until the creditors meeting had been concluded. Benjamin’s services therefore had no value. The fees Benjamin received from Petrovic — a $4,000 prepetition retainer, according to the Rule 2016(b) disclosure statement — should be disgorged and paid to the clerk of the bankruptcy court.

Benjamin objects to the motion primarily on jurisdictional grounds, insisting that the dismissal of the case means the court cannot entertain Stearns’s motion.

2. Discussion

The section 329 motion will be denied. The court has jurisdiction to address the motion despite the dismissal of the bankruptcy case. But the facts do not suggest that Benjamin’s compensation exceeded the reasonable value of his services, given Petrovic’s likely reason for filing the case in the first place.

a. Jurisdiction

First, jurisdiction. Although Petro-vic’s case was dismissed on September 9, there is still jurisdiction to decide the motion to examine Benjamin’s fees. A bankruptcy court has ancillary jurisdiction to take care of “minor loose ends” remaining after a bankruptcy case has been dismissed. In re Sweports, Ltd., 777 F.3d 364, 367 (7th Cir. 2015) (calling this “ ‘clean-up’ jurisdiction”); Dery v. Cumberland Cas. & Surety Co. (In re 5900 Assocs., Inc.), 468 F.3d 326, 330 (6th Cir. 2006). Those “loose ends” include questions about attorney’s fees. Sweports, 777 F.3d at 367-68; Deni-son v. Marina Mile Shipyard, Inc. (In re New River Dry Dock, Inc,), 497 Fed.Appx. 882, 886 (11th Cir. 2012); In re Fricker, 131 B.R. 932, 938 (Bankr. E.D. Pa. 1991).

A bankruptcy court therefore has ancillary jurisdiction to examine the fees of counsel for a debtor under section 329 post-dismissal. See In re Windman, No. CC-08-1080-MkHPa, 2009 WL 7809923, at *4 (9th Cir. BAP Nov. 18, 2009); In re Burroughs, No.

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Cite This Page — Counsel Stack

Bluebook (online)
560 B.R. 312, 2016 Bankr. LEXIS 4008, 2016 WL 6775913, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-petrovic-ilnb-2016.