In re Campbell

In Re: MICHAEL SCOTT CAMPBELL, Debtor.

No. 16-34692-pcm13

United States Bankruptcy Court, D. Oregon

August 11, 2021

MEMORANDUM OPINION ^[1]

PETER C. MCKITTRICK U.S. BANKRUPTCY JUDGE

This matter came before the court on the Motion for Disgorgement of Fees (the Motion to Disgorge), Doc. 139, filed by Nancy Campbell, who is the ex-wife of Michael Campbell, the debtor in this chapter 13^[2]bankruptcy case. Nancy is a creditor of Michael's by virtue of an equalizing judgment entered in their state court divorce case.^[3] Nancy requests that this court require Michael's counsel, Wade Bettis (Bettis), to disgorge all fees he received in excess of the amount approved at confirmation of Michael's chapter 13 plan. Nancy contends that those funds should be disgorged and paid to the chapter 13 trustee or returned to Michael's estate.^[4] For the reasons that follow, the court will require Bettis to disgorge $10, 381.18.

FACTS AND PROCEDURAL BACKGROUND

Michael filed a chapter 13 petition on December 14, 2016. Doc. 1. On the same date, Bettis filed an attorney disclosure form (the ADF) using the required Local Bankruptcy Form (LBF), LBF 1305. Doc. 2. A copy of LBF 1305 is attached to this opinion as Exhibit 1. Bettis marked the box indicating that his fee arrangement with Michael was a "Schedule 1" fee structure and that his total fee request for the life of the case, except for adversary proceedings and appeals, was $4 000, plus expenses of $310, for a total of $4, 310. Doc. 2. As indicated on the ADF, Michael had paid $1, 720 on the petition date, leaving $2, 590 to be paid through the confirmed chapter 13 plan. Doc. 2.

Although Bettis said on the ADF that he was charging Michael a $4, 000 fixed-fee for the life of the bankruptcy case, the actual fee agreement between Bettis and Michael provided otherwise. On December 13, 2016, Michael signed a Contract for Legal Representation, which is attached to the ADF (the First Agreement). Doc. 2. The First Agreement indicates that some services would be included in the $4, 000 fixed-fee, while others would be billed at an hourly rate. Under the First Agreement, "Standard Services" are covered by the $4, 000 fixed-fee, and "Non-Standard Services" are billed at an hourly rate.^[5] Doc. 2. The First Agreement specifically excludes services related to adversary proceedings, appeals, and proceedings in any non-bankruptcy court or administrative agency. Doc. 2.

The First Agreement, however, was not the first fee agreement that Michael signed. In October 2016, he signed a fee agreement with UpRight Law, LLC (hereinafter, the firm is referred to as "UpRight" and the agreement as the "UpRight Contract"). Doc. 126. Bettis was associated with, and signed the UpRight Contract on behalf of, UpRight. Under the UpRight Contract, Michael was obligated to pay the $310 filing fee and $1, 720 prepetition and $2, 280 after the petition was filed, for a total of $4 310. Doc. 126. The amount due postpetition, $2, 280, would be paid, subject to court approval, through the confirmed plan and would cover all attorney fees for the life of the chapter 13 case.^[6] Bettis did not disclose the UpRight Contract to the court until May 24, 2018, when he filed a second amended ADF. Bettis has represented to the court that he became uncomfortable with UpRight due to their well-chronicled issues with courts around the country, so he and Michael terminated their relationship with UpRight.^[7]

Michael's chapter 13 case was contentious from the outset. The court ultimately confirmed a chapter 13 plan in July of 2018, after extensive litigation between Michael and Nancy.^[8] A detailed recitation of the history of those disputes is necessary to frame and understand the matter currently before the court.

Approximately one month after Michael filed his chapter 13 petition, Nancy filed an objection to confirmation and a motion to convert or dismiss the chapter 13 case. Doc. 14. Nancy objected to confirmation, alleging that Michael omitted and under-valued assets in his bankruptcy schedules, and lacked good faith in filing his chapter 13 petition. Nancy also filed a motion for relief from the automatic stay. Doc. 17. In February of 2017 Nancy obtained limited relief from stay, to file a state court contempt action against Michael and liquidate amounts due for spousal support and attorney fees. The court then set further hearings on confirmation of Michael's chapter 13 plan and Nancy's motion to dismiss. Doc. 28. Thereafter, Nancy filed additional objections to confirmation, and a motion to require Michael to file an amended means test. Docs. 33, 43. The court held an evidentiary hearing on June 16, 2017, to address those disputes.

On March 13, 2018, the court issued a letter opinion finding that Michael did not file his Chapter 13 petition in bad faith and that neither dismissal, nor conversion was warranted. Doc. 80. The court also granted, in part, Nancy's motion to compel Michael to amend his means test form. Docs. 80, 81.

Bettis filed amended schedules and means test documents in March and April of 2018, which were met with further objections from Nancy. Docs. 85-87, 89-92, 94-96. On May 8, 2018, Michael filed an amended plan, to which Nancy also objected. Docs. 99, 101. The court determined that another evidentiary hearing was necessary to determine issues regarding Michael's disposable income.

From the petition date to the date the court confirmed Michael's chapter 13 plan, Bettis filed several ADFs. The following table identifies each ADF, the date it was filed, which fee agreement contracts were attached, and the date of each contract.

Disclosure Form

Docket #

Date Filed with Court

Attached Agreements and Date Signed

Original ADF

Doc. 2

December 14, 2016

First Agreement signed December 13, 2016

First Amended AFD

Doc. 100

May 8, 2018

First Agreement signed December 13, 2016

Second Agreement signed May 4, 2017

Third Agreement signed June 8, 2017

Fourth Agreement signed July 14, 2017

Second Amended ADF

Doc. 111

May 24, 2018

First Agreement signed December 13, 2016

Second Agreement signed May 4, 2017

Third Agreement signed June 8, 2017

Fourth Agreement signed July 14, 2017

UpRight Contract signed October 18, 2016

Third Amended ADF

Doc. 126

July 19, 2018

First Agreement signed December 13, 2016

Upright Contract signed October 18, 2016

For purposes of this opinion, the First and Second Agreements are virtually identical. The Third and Fourth Agreements are addendums that define the terms of a $20, 000 retainer agreement between Bettis and Michael and explain that the retainer would come from Michael's retirement account not from the bankruptcy estate or the chapter 13 trustee.

The issue of attorney fees and Bettis' entitlement to fees in excess of the $4, 000 fixed-fee was broached at several hearings held before the court confirmed Michael's chapter 13 plan.

At an evidentiary hearing in June of 2017, Michael testified, while being examined by Nancy, that he had paid around $22, 000 to Bettis by withdrawing $25, 000 from a retirement account. Doc. 74. Bettis tried to interject and elaborate, but the court indicated that the attorney fee issue would be addressed later. At the end of the evidentiary hearing, Bettis, in an attempt to clarify the attorney fee issue, stated that Michael had retained him for the bankruptcy case and the state court divorce case. He said that he was holding the funds in trust, except for expenses, and that he would file an amended ADF.

On July 18, 2017, Bettis tried to file two duplicate Applications for Supplemental Compensation using LBF 1307. LBF 1307, however, is used to request supplemental fees only after a chapter 13 plan has been confirmed. Michael's plan had not yet been confirmed when Michael tried to file the Applications for Supplemental Compensation, so they were rejected by the Clerk's Office and returned to Bettis. Doc. 76. On the returned Applications for Supplemental Compensation, Bettis indicated that he was requesting an additional $20, 000 in attorney fees, but that the request would "not change the payment amount in the Chapter 13 plan." Bettis attached itemizations to the rejected forms.

After the court issued its letter opinion resolving Nancy's motion to dismiss, it held an adjourned confirmation hearing on March 22, 2018. At that hearing, Nancy argued that the retirement funds that Michael used to pay to Bettis should have become part of the bankruptcy estate. The court required Bettis to file an amended ADF by April 16, 2018, to assist the court in determining whether the retirement funds used to pay Bettis were, in fact, property of the bankruptcy estate. Doc. 88.

At the time of the next adjourned confirmation hearing on May 3, 2018, Bettis had not filed an amended ADF as required by the court. Bettis told the court at the May 3, 2018, hearing that he had tried to file an amended ADF but that the Clerk's office returned it, apparently referring to the Applications for Supplemental Compensation that he erroneously filed approximately 10 months earlier.

On May 8, 2018, Bettis filed the First Amended ADF, to which Nancy objected. Docs. 100, 102. Nancy again raised the issue of whether the funds Michael withdrew from his retirement account became non-exempt property of the estate. The court required Bettis to file a second amended ADF because the First Amended ADF did not include the UpRight Contract. The court also required both parties to submit correspondence summarizing the outstanding issues regarding confirmation of Michael's chapter 13 plan.

Nancy submitted her summary of outstanding issues. Doc. 108. With regard to Bettis' attorney fees, Nancy listed: (1) "what should be the disposition be [sic] of the funds withdrawn from the retirement...