In re Davis

605 B.R. 658

IN RE: Sharon DAVIS, Debtor.

CASE NO.: 16-33116 (SLM)

United States Bankruptcy Court, D. New Jersey.

Signed August 29, 2019

Sharon Davis, 1029 East Blancke Street, Linden, NJ 07036, Pro Se

Walter D. Nealy, Esq., Walter D. Nealy, PC Attorney at Law, 100 South Van Brunt Street, Englewood, NJ 07631, Pro Se

OPINION

STACEY L. MEISEL, UNITED STATES BANKRUPTCY JUDGE

INTRODUCTION

This matter is before the Court on Debtor's Motion to Compel, Walter D. Nealy, Attorney at Law to Disgorge Attorney's Fees ("Disgorgement Motion ") filed by debtor Sharon Davis ("Debtor ") (Docket No. 64) on the basis that counsel Walter D. Nealy, Esq. ("Counsel ") provided inconsistent payment records to the Court and "colluded with the adversary" throughout the Debtor's case. This Court sua sponte , raised the issue of whether Counsel provided the requisite "debt relief agency" disclosures to Debtor as required by Title 11 of the United States Code ("Bankruptcy Code "). The Court heard oral argument, allowed for subsequent briefing, and reserved. The Court issues the following findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.

JURISDICTION AND VENUE

The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334(a) and 157(a) and the Standing Order of Reference from the United States District Court for the District of New Jersey dated July 23, 1984 and amended September 18, 2012. These matters constitute core proceedings pursuant to 28 U.S.C. § 157(b)(2)(A) because payment of professional fees implicates the administration of the estate. Additionally, this matter arises under 11 U.S.C. § 329(b), §§ 526, 527, and 528 of the Bankruptcy Code, and Federal Rule of Bankruptcy Procedure 2017. See 28 U.S.C. § 157(b)(1). Venue is proper under 28 U.S.C. § 1408. The Court retained jurisdiction in this dismissed case to decide the Debtor's attorney's compensation and whether fees should be disgorged.¹

FACTUAL BACKGROUND AND PROCEDURAL HISTORY

Debtor's Bankruptcy Case

On December 3, 2016, Debtor filed a Chapter 13 Voluntary Petition (the "Petition ").² Debtor also filed a Chapter 13 Plan (the "Initial Plan ").³ Counsel utilized Case Management/Electronic Case Files ("ECF ") to docket these pleadings on Debtor's behalf.⁴ In addition to the Petition and Initial Plan, Counsel also filed a Disclosure of Compensation of Attorney for Debtor(s) (the "Rule 2016 Disclosure ").⁵ According to the Rule 2016 Disclosure, Counsel agreed to accept $3,500 for legal services, of which he received $1,500 prior to the filing of the Rule 2016 Disclosure.⁶ Counsel listed the "Balance Due" from Debtor as $2,000.⁷

On December 19, 2016, Debtor filed a Notice of Request for Loss Mitigation – By the Debtor ("Loss Mitigation Application ").⁸ Debtor sought loss mitigation with respect to 1029 East Blancke Street, Linden, New Jersey (the "Property "). Debtor identified Caliber Home Loans, Inc., as servicer for US Bank Trust, N.A., ("Caliber ") as the mortgagee of the Property. On January 5, 2017, the Court entered an Order granting the Loss Mitigation Application with a termination date of April 5, 2017 for the loss mitigation period.⁹ The Court held a hearing on confirmation of the Initial Plan and entered an Order Confirming Plan (the "Confirmation Order ") on February 14, 2017.¹⁰ The Court also entered three additional Orders further extending the loss mitigation period.¹¹

On July 10, 2017, Caliber filed a Motion for Order Allowing Late Proof of Claim ("Late Claim Motion ") stating that it was unable to file a timely proof of claim prior to the bar date of April 17, 2017 "due to delays in the accumulation of documents."¹² Counsel filed opposition to the Late Claim Motion.¹³ A hearing was scheduled for August 9, 2017, but the Court adjourned the matter upon the parties' consensual request.

On February 5, 2018, the Chapter 13 Trustee filed a Certification in Support of Default because Debtor failed to comply with the Confirmation Order.¹⁴ The Debtor failed to, among other things, either sell or refinance the Property (with the proceeds to fund the plan), or complete a loan modification by April 5, 2017.¹⁵ So, the Chapter 13 Trustee sought dismissal. Debtor on a pro se basis, although still represented by Counsel, filed opposition.¹⁶ Debtor, also on a pro se basis, filed an objection to Caliber's proof of claim (Claim No. 26-1) ("Debtor's Claim Objection ").¹⁷

On April 16, 2018, the Court entered an Order Permitting Debtor to Cure Arrearages to Trustee that resolved the Chapter 13 Trustee's Certification in Support of Default and required the Debtor to file a modified plan by April 18, 2018.¹⁸ Counsel filed a modified Chapter 13 Plan on April 17, 2018 ("Modified Plan ").¹⁹

On April 27, 2018, Caliber filed a response to Debtor's Claim Objection.²⁰ Caliber also filed an objection to confirmation of the Modified Plan.²¹ On May 8, 2018, the Court held a hearing on various pending matters and both Counsel and Debtor were present. At the onset of the hearing, Counsel stated that he could no longer serve as Debtor's attorney due to a conflict of interest resulting from a complaint Debtor filed in the District Court naming Counsel as a defendant. The Court recognizing the actual conflict between Debtor and Counsel permitted Debtor (at Debtor's behest) to proceed pro se , and the Court heard oral argument on the Late Claim Motion and Debtor's Claim Objection. The Court entered an Order Denying Motion or Application for the Entry of an Order to File Claim After Claims Bar Date ,²² and the Court adjourned the Debtor's Claim Objection, which contained the same claims that were simultaneously being asserted by Debtor in the complaint filed in District Court.

On May 11, 2018, Counsel filed a Motion to Withdrawal [sic] as Counsel for Sharon Davis (the "Withdrawal Motion ").²³ Counsel requested the motion be heard on shortened time, which the Court granted.²⁴ Counsel argued that his withdrawal was necessary because Debtor named him as a defendant in pro se litigation she filed in the District Court.²⁵ The Court entered an Order granting the uncontested Withdrawal Motion on May 23, 2018.²⁶

On September 26, 2018, after multiple adjournments, the Court held a confirmation hearing on the Modified Plan. Debtor appeared pro se at the confirmation hearing on the Modified Plan. At the hearing, Debtor expressed her intention to file a motion to disgorge fees from Counsel. The Court ruled an Order would be entered dismissing the case because the Debtor failed to rectify the issues necessary to confirm the Modified Plan. However, the Court agreed to retain jurisdiction to allow time for Debtor to file a motion regarding attorney's fees so long as she did so within thirty days of dismissal. On October 25, 2018, the Court entered the Order Denying Confirmation and Dismissing Petition.²⁷ In the Order, the Court retained jurisdiction to hear the fee dispute between Counsel and the Debtor so long as Debtor met the thirty-day time requirement.²⁸

The Disgorgement Motion

On October 25, 2018, Debtor timely filed the Debtor's Motion to Compel, Walter D. Nealy, Attorney at Law to Disgorge Attorney's Fees (the "Disgorgement Motion ").²⁹ Consistent with the Rule 2016 Disclosure, Debtor states that Mr. Nealy quoted her a $3,500 fee.³⁰ However, Debtor states that Counsel required her to pay $2,000 to be paid before filing the petition, whereas the Rule 2016 Disclosure states that the Debtor only paid $1,500 pre-petition.³¹ Debtor alleges that there was a post-petition assignment of her mortgage to Caliber without proper authorization to do so.³² Debtor also generally challenges Counsel's strategy with respect to the Late Claim Motion.³³ Debtor states she believes that Counsel was "colluding with the adversary" by failing to object to the Trustee's Certification of Default.³⁴ Debtor alleges this failure would result in a dismissal of Debtor's case, forcing the Debtor to file a new bankruptcy case, and thereby permit Caliber to then file a timely proof of claim.³⁵

Debtor states "Mr. Nealy's entire scheme was to collude with the adversary to pressure the Debtor into an unconscionable mortgage payment, while accepting a retainer under false pretenses."³⁶ Debtor further argues that her case was dismissed due to Counsel's "unethical and unscrupulous actions."³⁷ Debtor requests that the Court review Counsel's fees and require disgorgement.³⁸ Debtor attaches the following exhibits to her Certification in Support of Debtor's Motion to Compel, Walter D. Nealy, Attorney at Law to Disgorge Attorney's Fees :

• Exhibit A – Invoice # 1052 identifying payments made to Counsel;³⁹

• Exhibit B – A copy of the Rule 2016 Disclosure;⁴⁰

• Exhibit C – Trustee Report of Disbursements (showing a $1,163.66 payment to Counsel);⁴¹

• Exhibit D – A letter from Counsel to Debtor dated April 6, 2018 in which Counsel: (1) recommends Debtor consider accepting the loan modification offer; (2) advises that if Debtor does not accept the modification and the case is converted to a Chapter 7, that Debtor may need to file an adversary complaint to address the concerns raised in the Debtor's Claims Objection; and (3) "is not prepared to represent [Debtor] in an adversary proceeding ....";⁴²

• Exhibit E – NACA Home Save Program Assessment;⁴³ and

• Exhibit F – Post-petition Assignment of Mortgage dated January 18, 2017.⁴⁴

On November 21, 2018, Counsel pro se filed his Certification in Support of Opposition to Debtor's Motion to Disgorge Fees ("Counsel's Opposition ").⁴⁵ Counsel states that he disclosed a "no look" fee of $3,000 in the case and that he actually received $2,000.⁴⁶ After the case was confirmed, Counsel states he received $1,903.07 from the Chapter 13 Trustee, totaling $3,903.07 in legal fees received.⁴⁷ Minus costs of $430, the net amount received by Counsel was $3,473.07.⁴⁸ To support his assertion of legal fees received, Counsel attached the Debtor's executed retainer agreement dated ...