Austin v. Austin (In re Decloutte)

IN RE: LORETTA DECLOUTTE Debtor.

IN RE: KELLEY LAVONE AUSTIN and RAYON L. AUSTIN, Debtors.

LORETTA DECLOUTTE Plaintiff, v. KELLEY AUSTIN Defendant.

LORETTA DECLOUTTE Plaintiff, v. KELLEY LAVONE AUSTIN, Defendant.

CASE NO. 14-35557

CASE NO. 12-35092

ADVERSARY NO. 16-3275

ADVERSARY NO. 17-3237

UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION

June 20, 2018

CHAPTER 13

OPINION

Docket Nos. 152 and 153, Case No. 14-35557

Docket Nos. 1 and 20, Adversary No. 16-3275

Docket No. 1, Adversary No. 17-3237

In these proceedings, the Court must unfortunately address the applicable standard of conduct required of an attorney representing a debtor in a bankruptcy case. The evidence presented over the course of several days of trial establishes that Kelley Austin intentionally used her position as counsel for Loretta Decloutte to take advantage of Ms. Decloutte and then conceal her actions from the Court. Not only did Ms. Austin misappropriate estate property and file false statements before this Court, she facilitated criminal charges against Ms. Decloutte based on knowingly false facts in a concerted effort to silence her voice. Ms. Austin further failed to comply with court instructions regarding discovery in an effort to obfuscate the truth.

The Court has never before seen the level of misconduct present in this case. Ms. Austin's actions are an unacceptable affront to a properly functioning bankruptcy system. While the Court cannot undo what has been done, it will attempt to restore public confidence in the bankruptcy system and the legal profession in the Southern District of Texas as well as to compensate the victim of Ms. Austin's actions. Accordingly, the Court will grant relief as set forth below. In addition, the Court will set a hearing for Ms. Austin to appear and show cause why she should be allowed to continue to practice before the undersigned judge. In addition, the Court will refer this matter to the Chief District Judge for the Southern District of Texas for further disciplinary proceedings, including but not limited to disbarment, in accordance with the Rules of Discipline of the United States District Court for the Southern District of Texas. In addition, a copy of this opinion and associated judgment will be delivered to the Office of Chief Disciplinary Counsel for the State Bar of Texas, the Fort Bend County District Attorney's Office and the bankruptcy judges of this District. A separate judgment consistent with this opinion will issue.

Factual Background

Bankruptcy Filing by Loretta Decloutte

Ms. Decloutte filed a chapter 13 case on October 6, 2014 [Docket No. 1, Case No. 14-35557]. Ms. Austin signed the bankruptcy petition as Ms. Decloutte's attorney [Docket No.1, Case No. 14-35557]. In her disclosure of compensation filed October 20, 2014, Ms. Austin reflected that she agreed to handle all aspects of Ms. Decloutte's bankruptcy case in exchange for $3,500 [Docket No. 8, Case No. 14-35557]. Ms. Austin further disclosed that she had received $1,000 prior to the filing of the disclosure [Docket No. 8, Case No. 14-35557].

On October 20, 2014, Ms. Austin filed Ms. Decloutte's schedules [Docket No. 10, Case No. 14-35557]. Ms. Decloutte's Schedule A reflects no deposits or other assets held by Ms. Austin [Docket No. 10, Case No. 14-35557]. Schedule F reflects a debt in favor of Ms. Austin in the amount of $2,500 incurred on the petition date of October 6, 2014 [Docket No. 10, Case No. 14-35557]. This amount represents the unpaid balance of the $3,500 bankruptcy fee referenced in Docket No. 8, Case No. 14-35557. Ms. Decloutte's statement of financial affairs reflects that no payments were made to Ms. Austin within the two years preceding the bankruptcy case [Docket No. 12, Case No. 14-35557]. The statement of financial affairs further reflects that on the petition date, Ms. Decloutte was a party to a pending divorce action in Cause No. 12-DCV-201744, pending in the 387th Judicial District Court of Fort Bend County, Texas. [Docket No. 12, Case No. 14-35557].

On October 22, 2014, Ms. Austin filed her application to approve a fixed-fee agreement for her representation of Ms. Decloutte in the bankruptcy case [Docket No. 16, Case No. 14-35557]. The application sets a fixed fee of $3,500 for certain enumerated services [Docket No. 16, Case No. 14-35557]. Uncovered services such as representing Ms. Decloutte in an adversary proceeding or an uncovered contested matter were compensable at an hourly rate of $100 [Docket Entry No. 16, Case No. 14-35557]. The fixed-fee agreement was approved by order entered October 23, 2014 [Docket No. 17, Case No. 14-35557].

On January 14, 2015, Ms. Austin filed an amended Schedule B on Ms. Decloutte's behalf disclosing for the first time "proceeds from an unsettled personal injury case" [Docket No. 32, Case No. 14-35557]. No reference exists to any funds or other property held by Ms. Austin.

On March 4, 2016, Ms. Austin filed a motion on Ms. Decloutte's behalf to lift the automatic stay to allow the divorce proceeding to proceed [Docket No. 74, Case No. 14-35557]. At Ms. Decloutte's request and due to the prior assignment of her ex-spouse's bankruptcy case to the undersigned judge, her bankruptcy case was transferred to the undersigned judge by order entered March 31, 2016 [Docket No. 78, Case No. 14-35557]. The motion for relief was granted in part by order entered April 26, 2016 [Docket No. 86, Case No. 14-35557].

The Court confirmed Ms. Decloutte's chapter 13 plan by order entered July 30, 2015. [Docket No. 71, Case No. 14-35557].

On September 13, 2016, Ms. Austin filed a fee application for services for the period from March 1, 2016 through May 31, 2016 [Docket No. 113, Case No. 14-35557]. The application was amended on September 14, 2016 [Docket No. 114, Case No. 14-35557]. In the amended application, Ms. Austin sought total compensation of $1,012.00 for services related to a proof of claim [Docket No. 114, Case No. 14-35557]. The hourly rate charged by Ms. Austin was $100 in accordance with the fixed fee agreement [Docket No. 114, Case No. 14-35557]. Ms. Austin's time submissions do not reflect the existence of any other non-bankruptcy matters [Docket No. 114, Case No. 14-35557].

Ms. Decloutte retained a new attorney and objected to Ms. Austin's requested compensation on October 17, 2016 [Docket No. 119, Case No. 14-35557]. In the objection, Ms. Decloutte asserted that Ms. Austin's application failed to address any of the factors enumerated in Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5^th Cir. 1974) [Docket No. 119, Case No. 14-35557]. The Court scheduled a hearing to consider the application for December 19, 2016.

Ms. Decloutte also filed a motion to substitute counsel for Ms. Austin in her bankruptcy case on October 17, 2016 [Docket No. 120, Case No. 14-35557]. As a basis for the substitution, Ms. Decloutte stated that "[d]ue to a conflict arising from Austin's representation of her case, Decloutte terminated representation with Austin on or about September 24, 2016" [Docket No. 120, Case No. 14-35557]. In her response filed November 7, 2016, Ms. Austin did not oppose the requested substitution but stated that "[t]he alleged conflict does not now nor has it ever existed" [Docket No. 123, Case No. 14-35557]. This statement was false when made as evidenced below. Ms. Austin was withdrawn as counsel for Ms. Decloutte by order entered December 6, 2016 [Docket No. 125, Case No. 14-35557].

Six days later on December 12, 2016, Ms. Austin filed a "Bankruptcy Rule 2016(b) Disclosure" setting forth the following statements:

2. Debtor's spouse filed an Original Petition for Divorce in the 387th District Court of Fort Bend County, Texas under Cause No. 12-DCV-201744 entitled In the Matter of the Marriage of Ernest LaFleur, Jr. and Loretta DeCloutte and in the interest of Torrie E. Lafleur, Trenton E. Lafleur and Tierra E. Lafleur.

3. Kelley Austin was retained to represent the Debtor in the above referenced divorce action.

4. The Debtor's divorce case was finalized on or about August 29, 2016 pursuant to a mediated settlement agreement (hereinafter "MSA"). Pursuant to that agreement, Debtor's spouse was to pay her $10,000.00 to equalize their property division. The payment was to be made through the parties respective attorneys.

5. Following the conclusion of the divorce action, the Debtor had outstanding attorneys fees.

6. On or about July 19, 2016, pursuant to the MSA, attorney collected a Bank of America cashier's check in the amount of $10,000.00 and deposited it into attorney's Chase Bank account.

7. On or about August 5, 2016, attorney disbursed to Debtor $2675.00 from the $10,000.00 with the remaining $7325.00 being credited towards attorneys outstanding fees. Debtor signed an acknowledgment of receipt of the same.

8. On or about October 13, 2016, an affidavit was filed with Bank of America alleging that the cashiers check had been fraudulently endorsed and that the Debtor had not received any funds from said cashiers check.

9. On or about November 28, 2016, attorney received correspondence from Chase bank that the cashiers check had been returned and that the monies had been debited from attorneys account.

10. As of the date of the filing of this disclosure, Debtor has received funds from the $10,000.00 Bank of America cashiers check along with the $2675.00 that attorney disbursed to her on August 5, 2016.

[Docket No. 128, Case No. 14-35557] (typographical errors included). The foregoing disclosure and subsequent events discussed below are extremely disturbing on a number of levels, including but not limited to (i) the failure to seek approval of the "settlement" in accordance with Bankruptcy Rule 9019; (ii) Ms. Austin's failure to seek court approval of her retention as family law counsel; (iii) multiple violations of the automatic stay; (iv) the potential fraudulent misappropriation of property in violation of 18 U.S.C. § 153, including the...