In re Nelums

617 B.R. 70

IN RE: Janet Louise NELUMS, Debtor(s).

C/A No. 18-05885-JW

United States Bankruptcy Court, D. South Carolina.

Signed July 6, 2020

Janet Louise Nelums, Columbia, SC, pro se.

Eddye L. Lane, Columbia, SC, for Debtor.

ORDER

John E. Waites, US Bankruptcy Judge.

This matter comes before the Court upon the Motion to Compel William K. Stephenson, Jr., Trustee, to Recoup Funds and Disburse Them to the Debtor ("Motion"), filed by Janet Louise Nelums ("Debtor") on May 8, 2020. The Motion seeks to recoup attorney's fees in the amount of $1,900 paid by the Chapter 13 Trustee, William K. Stephenson ("Trustee"), to Debtor's former counsel, Eddye Lane ("Ms. Lane"), upon the dismissal of Debtor's case. In the Motion, Debtor asserts that the funds paid to Ms. Lane should have instead been returned to Debtor pursuant to 11 U.S.C. §§ 349(b) and 1326(a) and the ruling of the U.S. Supreme Court in Harris v. Viegelahn , 575 U.S. 510, 135 S.Ct. 1829, 191 L.Ed.2d 783 (2015). Responses to the Motion were filed by the Trustee and Ms. Lane, and the Court held a hearing on the Motion on May 21, 2020 ("Hearing"), where the matter was taken under advisement.¹

In order for the Court to make a full and complete determination of the Motion and in the interest of judicial economy, on May 22, 2020, the Court ordered that Ms. Lane file with the Court and serve on Debtor and the Chapter 13 Trustee an affidavit attesting to and describing the work she completed in the above-captioned case on behalf of Debtor that constitutes the attorney's fees in dispute in Debtor's Motion, including any time records (if available), by no later than May 28, 2020. The Court also ordered that any objections, responses or replies to Ms. Lane's affidavit be filed with the Court by no later than June 5, 2020. Ms. Lane filed her affidavit on May 28, 2020. Her affidavit stated that she worked on Debtor's case for 37 hours, incurring fees in the amount of $10,175.00.² No response was filed by Debtor or any other party to Ms. Lane's affidavit.

BACKGROUND

A. Employment of Ms. Lane

On November 16, 2018, Debtor met with Ms. Lane to discuss filing a bankruptcy case on her behalf in order to stop a foreclosure action in state court. On November 19, 2018, Debtor and Ms. Lane executed and signed an Employment Contract, wherein Debtor employed Ms. Lane "to file a Chapter 13 case, including Schedules, Statements, Plan; provide legal representation at Meeting of Creditors and Confirmation hearing[;] seek confirmation of plan; and request discharge upon completion of case." According to the Employment Contract between Debtor and Ms. Lane dated November 19, 2019, which was entered into evidence at the hearing on the Motion, Debtor agreed to pay Ms. Lane "a non-refundable retainer fee of three-thousand seven-hundred dollars ($3,700)" for legal services rendered in contemplation of or in connection with the bankruptcy case and further agreed to pay the required filing fee of $310.00 plus an initial retainer fee of $1,800 to Ms. Lane before she was obligated to commence work on Debtor's case.

The Employment Contract further provides that "[Debtor] understands and agrees that the above referenced attorney fees are earned upon retainer and filing of this matter and due and payable regardless of whether the client completes or fails to complete the bankruptcy case." In addition, Section H. of the Employment Contract, Attorney's Lien and Attorney's Right to Collect Funds from Trustee/Estate, provides that "[Ms. Lane] shall have a lien as to debtor's proceeds or funds held by the bankruptcy trustee or estate for payment of attorney fees and costs as charged herein. In the event debtor is desirous of converting his case from a Chapter 13 to a Chapter 7, and/or to the extent that there are outstanding fees due to the attorney, or incurred for further services, the Attorney shall have right to payment from the trustee, as to any unapplied funds or funds held in suspense held by the trustee to which debtor may otherwise be entitled."

B. Debtor's Bankruptcy Case

On November 19, 2018, with Ms. Lane's assistance, Debtor commenced this case by filing a voluntary petition for relief under Chapter 13 of the Bankruptcy Code. The Disclosure of Compensation filed with the petition provides that a $1,900 balance remained due to Ms. Lane on the petition date. Ms. Lane continued to represent Debtor during the bankruptcy case, by preparing and filing schedules, statements, a Chapter 13 plan, filing an objection to claim of Debtor's mortgage creditor, filing an adversary proceeding against that same mortgage creditor, and attending Debtor's meeting of creditors and several other hearings. Sixteen months after filing the case for Debtor, Ms. Lane sought to be relieved as counsel, at Debtor's request and with Debtor's consent, and the Court entered a consent order relieving Ms. Lane as counsel for Debtor on March 24, 2020.

Although Debtor made plan payments to the Trustee totaling $21,375.99 over the course of her bankruptcy case, Debtor's Chapter 13 plan was never confirmed. Therefore, the Trustee retained those funds and made no distributions to creditors. On April 1, 2020, the Trustee filed a Petition to Dismiss Debtor's bankruptcy case based on Debtor's failure to file an adequate plan. No objection was filed to the Petition to Dismiss, and the Court entered an Order dismissing the case on April 21, 2020. After the dismissal of the case, the Trustee disbursed $1,900 to Ms. Lane for attorney's fees, and refunded $19,660.78 to Debtor. On May 8, 2020, Debtor filed the Motion seeking to recover the $1,900 paid to Ms. Lane. On June 5, 2020, the Trustee filed his Final Report and Account reflecting the disbursements made to Ms. Lane and Debtor in this case.³

CONCLUSIONS OF LAW

I. Positions of the parties

Debtor argues that the Court should order the Trustee to return the $1,900 in attorney's fees paid to Ms. Lane on the following grounds: (1) the dismissal of Debtor's case revested the property of the estate in Debtor pursuant to 11 U.S.C. § 349(b)(3) ; (2) 11 U.S.C. § 1326 instructs the Trustee to return any plan payments not previously paid and not yet due and owing to creditors to Debtor if a plan is not confirmed; and (3) the Supreme Court's decision in Harris v. Viegelahn prohibits the Trustee from paying Ms. Lane's fees out of undistributed chapter 13 plan payments. The Trustee argues that the funds were distributed to Ms. Lane in accordance with the Local Rules of this Court and the Bankruptcy Code.

II. Trustee's Compliance with South Carolina Local Bankruptcy Rules

Through her Employment Contract with Ms. Lane, Debtor agreed to pay Ms. Lane a flat fee of $3,700 for representation in her bankruptcy case, which at the time of the filing of the petition was equal to the "Expedited Fee Amount" set forth in the undersigned's Chambers Guidelines. South Carolina Local Bankruptcy Rule 2016-1(b)(1) provides that an attorney representing a chapter 13 debtor may obtain approval of attorney's fees without the filing of a formal fee application when the attorney and debtor agree in writing that the fee for representation will be equal to or less than the amount set forth in the undersigned's Chambers Guidelines at the time of the filing of the case. Debtor paid Ms. Lane a prepetition retainer of $1,800 and owed Ms. Lane the balance of $1,900, which was to be paid to Ms. Lane through Debtor's chapter 13 plan, as indicated by the Attorney Fee Disclosure Statement filed with the petition. SC LBR 2016-1(b)(1) further provides that "[u]nless the Court orders otherwise, the Expedited Fee Amount is deemed conditionally approved for disbursement upon confirmation of the plan as a result of the attorney's filing of the Attorney Fee Disclosure Statement." However, in this case, the plan was never confirmed, and the funds paid by Debtor to the Trustee were not distributed to creditors pursuant to the terms of the plan. Therefore, when a case is dismissed prior to confirmation, SC LBR 3070-1(b)(2) instructs the Trustee to disburse the funds received prior to entry of an order of dismissal as follows:

(A) First, in a conduit case, the applicable mortgage creditor is paid each full mortgage payment received by the Trustee from the debtor as a conduit payment;

(B) Second, the trustee shall disburse to the debtor's attorney the lesser of the remaining amount due to debtor's attorney, or the remaining balance of funds received by the chapter 13 trustee;

(C) Third, as adequate protection required by 11 U.S.C. § 1326(a), the trustee shall disburse payments to holders of allowed claims secured by personal property and allowed claims for executory contracts that are proposed to be paid through the most recently filed plan, divided based upon the monthly payments provided therein; and

(D) Finally, any remaining funds and all funds received after dismissal shall be returned to the debtor unless there is a pending Motion to Reconsider Dismissal.

Debtor's case was not a conduit case and thus no distributions to Debtor's mortgage creditor were required to be made by the Trustee. Accordingly, as Debtor's attorney, Ms. Lane was entitled to a first priority distribution from the Trustee under SC LBR 3070-1(b)(2)(B), and the Trustee's distribution to Ms. Lane was proper under that Local Rule.⁴

III. 11 U.S.C. §§ 349(b)(3) & 1326(a)(2)

Debtor argues that the Trustee's distribution to Ms. Lane was improper because dismissal of Debtor's case revested the property of the estate in Debtor pursuant to 11 U.S.C. § 349(b)(3). Section 349(b)(3) provides that "[u]nless the court, for cause, orders otherwise, a dismissal of a case other than under section 742 of this title... (3) revests the property of the estate in the entity in which such property was vested immediately before the commencement of the case under this title."⁵ "[ Section] 349 applies to all debtors and their property under any chapter of the Bankruptcy Code." In re Kerr, 570 B.R. 74, 76 (...