In re Bowman

IN RE: BRANDON BOWMAN and TIFFANY BOWMAN, Debtors.

Case No. 19-04789-JJG-7

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF INDIANA INDIANAPOLIS DIVISION

January 30, 2020

ORDER ON UNITED STATES TRUSTEE'S MOTION TO EXAMINE DEBTORS' TRANSACTIONS WITH ATTORNEY PURSUANT TO FED. R. BANKR. P. 2017 AND FOR DISGORGEMENT OF FEES PURSUANT TO 11 U.S.C. § 329

This matter raises the question of what services may be unbundled by attorneys representing debtors in chapter 7 cases. For the reasons stated below, the Court finds that attorneys cannot unbundle or exclude representation for "heavily litigated matters."

BACKGROUND

Debtors Brandon and Tiffany Bowman engaged Attorney Oliver Younge of Deighan Law LLC, a/k/a UpRight Law, a/k/a Chern Law (the "Firm"), to represent them in their bankruptcy proceeding. The Firm, both in its engagement letter with Debtors and in its Disclosure of Compensation of Attorney for Debtor(s), excluded representation for "any dischargeability action, adversary proceeding, or heavily litigated matters..." Debtors paid the Firm $1,500.00 for its legal services in connection with the bankruptcy case.

The Firm filed the case but the United States Trustee ("UST") noted several issues with how Debtors' means test was calculated. Although Debtors and the Firm provided some information to the UST, the UST believed that Debtors had disposable monthly income creating a presumption of abuse under 11 U.S.C. § 707(b). The UST then moved to dismiss Debtors' case based upon this presumption (the "Motion to Dismiss").

The UST followed up its Motion to Dismiss with certain discovery requests as well as a deposition. It was at this time that the relationship among Debtors and the Firm began to deteriorate. It is unclear whether the Firm declined to represent Debtors due to the matter being "heavily litigated" or if the Firm requested additional compensation and Debtors declined. Regardless, Debtors attended the hearing on the Motion to Dismiss without counsel. The Court continued that hearing as it felt that Debtors deserved the benefit of counsel at such a hearing.¹

Based upon the failure of the Firm to appear at the Motion to Dismiss hearing and statements by Debtors, the UST filed the United States Trustee's Motion to Examine Debtors' Transactions With Attorney Pursuant to Fed. R. Bankr. P. 2017 and for Disgorgement of Fees Pursuant to 11 U.S.C. § 329 (the "Motion toExamine"). The Motion to Examine sought to disgorge the fees paid by Debtors to the Firm for two reasons: (1) the Firm improperly unbundled "heavily litigated matters" from the scope of representation; and (2) that the services provided by the Firm were deficient such as the Firm's compensation was unjustified. The Firm filed a response to the Motion to Examine and ultimately refunded not only the compensation paid by Debtors to the Firm but also the filing fee. The Court conducted a hearing on the Motion to Examine and response thereto, and at the hearing the UST conceded that its requests for disgorgement were mooted by the Firm's refund of the compensation and filing fee. However, the UST asked the Court to determine whether the Firm, or any bankruptcy attorney, could unbundle "heavily litigated matters" from its representation of debtors.

ANALYSIS AND DISCUSSION

When debtors file for relief under the Bankruptcy Code, they seek a fresh start. See In re Roth, 594 B.R. 672, 677 (Bankr. S.D. Ind. 2018) (citing Lamar, Archer & Cofrin, LLP v. Appling, ___ U.S. ___, 138 S.Ct. 1752 (2018)). More specifically, debtors seek to "reorder their affairs, make peace with their creditors, and enjoy 'a new opportunity in life and clear field for future efforts, unhampered by the pressure and discouragement of pre-existing debt.'" In re Collmar, 417 B.R. 920, 923 (Bankr. N.D. Ind. 2009) (citing Grogan v. Garner, 498 U.S. 279, 286 (U.S. 1991)). When debtors hire bankruptcy counsel, it becomes counsel's "obligation to help their client achieve this goal and requires counsel to assist them through theentire journey through the bankruptcy process, not just at selected steps along the way." In re Collmar, 417 B.R. at 923.

The Firm's engagement letter and disclosure of compensation excluded certain steps from Debtors' journey. The exclusion of certain services in representing a client is not, in and of itself, improper. Indiana Rule of Professional Conduct 1.2(c) provides that counsel "may limit the scope and objective of the representation if the limitation is reasonable under the circumstances and the client gives informed consent." It is not uncommon, at least in this District, for debtors' counsel to exclude adversary...