In re Talley

97 B.R. 312, 20 Collier Bankr. Cas. 2d 1086, 1989 Bankr. LEXIS 298, 1989 WL 20000
CourtDistrict Court, W.D. Louisiana
DecidedFebruary 3, 1989
DocketBankruptcy No. 486-01860-LO-11
StatusPublished
Cited by3 cases

This text of 97 B.R. 312 (In re Talley) is published on Counsel Stack Legal Research, covering District Court, W.D. Louisiana primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Talley, 97 B.R. 312, 20 Collier Bankr. Cas. 2d 1086, 1989 Bankr. LEXIS 298, 1989 WL 20000 (W.D. La. 1989).

Opinion

MEMORANDUM OPINION

W. DONALD BOE, Jr., Bankruptcy Judge.

This Opinion concludes that the confirmed Chapter 11 Debtor is entitled to the excessive fees paid by him to his attorney even though most classes of creditors under the confirmed plan are impaired when the creditors have failed to assert any [313]*313claim to these funds and the Chapter 11 Plan is now fully consummated.

In this case, many classes of secured creditors were “impaired”, as that term is used in Bankruptcy Code Sec. 1124, and the Plan so stated. These creditors did not under the Plan provisions get what was owed to them pre-bankruptcy. What they got was surrender of depreciated collateral that would not be sufficient to satisfy indebtedness. This was permissible under the Bankruptcy Code because all impaired classes accepted the Plan. Had they not accepted the Plan, the Court would have been obliged by Sec. 1129(b)(1) to examine whether the Plan was fair and equitable and the Court could confirm only if the so-called “cramdown” requirements of Sec. 1129(b)(2) were met. These requirements would not have been met. Secured creditors did not receive deferred payments in cash equal, on a present value basis, to the allowed amounts of their claims. See Sec. 1129(b)(2)(A)(i). They essentially received depreciated property, not deferred payments. Nor did they realize “the indubitable equivalent” of their claims. See 11 U.S.C. § 1129(b)(2)(A)(iii). The Summary of Debts and Property filed by the Debtor showed that debts exceeded the value of property owned by a very substantial margin.

Immediately after plan confirmation, the Debtor’s attorney, James E. Mouton, advised the confirmed Debtor, Mr. Talley, that his fee would be $92,500.00. This was over and above a $7,500.00 retainer earlier received. Mr. Talley paid Mr. Mouton the $92,500.00.

The unauthorized receipt of these funds came to light as a result of review, at the Court’s request, by Estate Administrator Gregory DaGian of confirmed Chapter 11 cases to determine in which cases, if any, a final decree would be appropriate-. Mr. Da-Gian noticed that Mr. Mouton had never submitted a final fee application. He contacted Mr. Mouton who then submitted an application in the amount of $92,500.00.

At a fee hearing on September 7, 1988, the Court determined that Mr. Mouton should be allowed compensation of $60,-250.00 and that the total compensation of $100,000.00 already received by Mr. Mouton exceeded this amount by $39,750.00. The Court by order of September 30, 1988, required Mr. Mouton to deposit $39,750.00 into the registry of the Court by October 15, 1988. It also invited the filing of comments by any interested party regarding the person or persons to whom this sum should be paid.

Mr. Mouton failed to comply with the Court’s deposit order. On October 31, 1988, the Court ordered Mr. Mouton to show cause why he should not be found in civil contempt. The contempt hearing was set for November 30, 1988, to determine whether Mr. Mouton was able to comply with the Court’s deposit order. However, on November 18, 1988, before the scheduled November 30 hearing, Mr. Mouton moved that the District Court withdraw this matter from the Bankruptcy Court. The Bankruptcy Court postponed the contempt hearing to allow the District Court sufficient time to consider the Motion for Withdrawal of Reference. After hearing testimony of Mr. Mouton and the confirmed Debtor, the Honorable Earl E. Ver-on of the District Court denied the Motion of Withdrawal of Reference and gave instructions that there be a hearing before the Bankruptcy Court.

At the civil contempt hearing on December 22, 1988, the financial evidence and the testimony of Mr. Mouton left no choice but for this Court to conclude in an oral decision that Mr. Mouton is indeed financially unable to provide the $39,750.00 earlier ordered. That money had been spent. Mr. Mouton had insufficient other funds and unencumbered assets to be able to pay the amount required. Accordingly, I found that Mr. Mouton was not in civil contempt of court. The purpose of civil contempt proceedings in this case was to coerce compliance with a court order. But a court cannot use the civil contempt power to require the impossible. By demonstrating inability to pay, Mr. Mouton has shown that his failure to deposit the money required was not contempt. See 2 Collier on [314]*314Bankruptcy Sec. 329.05 at 329-22 and 329-23 (15th ed. 1988).

While Mr. Mouton is not in civil contempt, there is no excuse or justification for his solicitation of funds from his client without Bankruptcy Court authorization or for his failure to advise his client that he could not receive funds without such authorization. Sec. 327 of the Bankruptcy Code provides for employment, with the court’s approval, of attorneys and other professional persons. Sec. 330 provides for court determination of the amounts to be paid to a debtor’s attorney as reasonable compensation for actual, necessary services ren-' dered and for reimbursement of actual, necessary expenses. Sec. 331 allows compensation on a interim basis, but only with court approval, for a debtor’s attorney during the course of a case. Bankruptcy Rule 2016 clearly provides that an “entity” (defined by Sec. 101(14)) to include a “person” seeking interim or final compensation for services, or reimbursement of necessary expenses “shall file” with the court a fee application.

Section 329 of the Bankruptcy Code provides:

(a) Any attorney representing a debtor in a case under this title, or in connection with such a case, whether or not such attorney applies for compensation under this title, shall file with the court a statement of the compensation paid or agreed to be paid, if such payment or agreement was made after one year before the date of the filing of the petition, for services rendered or to be rendered in contemplation of or in connection with the case by such attorney, and the source of such compensation.
(b) If such compensation exceeds the reasonable value of any such services, the court may cancel any such agreement, or order the return of any such payment, to the extent excessive, to—
(1) the estate if the property transferred—
(A) would have been property of the estate; or
(B) was to be paid by or on behalf of the debtor under a plan under chapter 11, 12, or 13 of this title; or
(2) the entity that made such pay.ment.

This provision is explained in legislative history of the Reform Act of 1978:

“This section, derived in large part from current Bankruptcy Act Sec. 60d, requires the debtor’s attorney to file with the court a statement of the compensation paid or agreed to be paid to the attorney with the case, and the source of the compensation. Payments to a debt- or’s attorney provide serious potential for evasion of creditor protection provisions of the bankruptcy laws, and serious potential for overreaching by the debt- or's attorney, and should be subject to careful scrutiny.
Subsection (b) permits the court to deny compensation to the attorney, to cancel an agreement to pay compensation, or to order the return of compensation paid, if the compensation exceeds the reasonable value of the services provided.

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Bluebook (online)
97 B.R. 312, 20 Collier Bankr. Cas. 2d 1086, 1989 Bankr. LEXIS 298, 1989 WL 20000, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-talley-lawd-1989.