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In re Hines

July 16, 1998

IN RE: BRENDA F. HINES, DEBTOR. ROBERT L. GORDON, APPELLANT,
v.
BRENDA F. HINES, APPELLEE.



Appeal from the Ninth Circuit Bankruptcy Appellate Panel Ashland, Ollason, and Hagan, Judges, Presiding

The Honorable Milton I. Shadur, United States District Judge for the Northern District of Illinois, sitting by designation.

Before: Stephen Reinhardt and A. Wallace Tashima, Circuit Judges, and Milton I. Shadur, District Judge*

The opinion of the court was delivered by: Shadur, District Judge:

FOR PUBLICATION

Argued and Submitted October 7, 1997--Pasadena, California

Opinion by District Judge Shadur; concurring by Judge Tashima

BAP No. SC-94-1893AsOH

This small-dollars but large-issue litigation poses a problem that pervades each of the many thousands of no-asset or lowasset personal bankruptcies in the federal court system: the legal posture of the attorneys' fees paid or payable by Chapter 7 debtors. Whether the debtor is required by his or her attorney to pay all of the fees up front--even before the filing in bankruptcy--or, as here, enters into a prefiling arrangement for payment of the fees (or a material portion of the fees) after filing, the legal status of the fees attributable to post-petition services does not fit comfortably within the provisions of the Bankruptcy Code.

Bankruptcy Judges are of course well aware of those problems on a day-to-day basis. But because the question is rarely encountered in an adversarial context, the conceptual difficulties that it presents are commonly swept under the rug. And because the stakes in any individual case tend to be so low in relation to the cost of litigating such a dispute, any such controversy that does arise in adversarial terms rarely finds its way to the district court level--and even more rarely to a Court of Appeals. This case presents a unique exception, because it seems to stem from bad blood between two lawyers competing for the high volume business that personal bankruptcies represent. We are thus required to deal here with the consequences of Congress' delinquency in failing to set out express ground rules to be followed by lawyers--and hence by the courts--on the issue before us.

In this instance Robert L. Gordon ("Gordon"), former attorney for Chapter 7 debtor Brenda F. Hines ("Hines"), appeals the reversal by the Ninth Circuit Bankruptcy Appellate Panel ("BAP") of a bankruptcy court order that had denied Hines' motion for contempt against Gordon for willful violation of one of the paragraphs of the automatic stay provision of the Bankruptcy Code ("Code"), 11 U.S.C. S 362(a)(6).*fn1 Hines' motion was a response to Gordon's post-petition cashing of two postdated personal checks and other actions to collect some previously-agreed-upon attorneys' fees. We have jurisdiction over this appeal under 28 U.S.C. S 158(d). For the reasons stated here, we reverse the BAP decision and remand the case for a limited return to the bankruptcy court.

Standards of Review

We review BAP decisions de novo (Hughes v. Lawson (In re Lawson), 122 F.3d 1237, 1240 (9th Cir. 1997)). We review a bankruptcy court's legal conclusions de novo and its factual findings for clear error (Feder v. Lazar (In re Lazar), 83 F.3d 306, 308 (9th Cir. 1996)). In this case the absence of any factual disputes means that de novo review applies throughout.

Facts*fn2

On November 24, 1992 attorney Harold Shilberg ("Shilberg") began a Chapter 13 bankruptcy proceeding on Hines' behalf. Almost exactly a year later Hines changed counsel by retaining Gordon (who had explained to her the apparent advantages of Chapter 7 over Chapter 13 in her situation) to convert her Chapter 13 case to one under Chapter 7. Because Hines could not pay Gordon's $875 fee in advance,*fn3 they entered into a written fee agreement for payment in seven monthly installments of $125 each, supported by a promissory note and seven postdated checks, the first to be cashed pre-petition and the remainder to be cashed postpetition.

On December 29, 1993 Gordon formally replaced Shilberg as Hines' attorney of record. Shortly thereafter, on Gordon's application the bankruptcy court issued an order converting Hines' case from Chapter 13 to Chapter 7. In conjunction with the conversion petition, Gordon properly disclosed his fee arrangement to the bankruptcy court pursuant to Section 329 and Federal Rule of Bankruptcy Procedure ("Bankruptcy Rule") 2016(b). In accordance with the fee agreement and related promissory note, Gordon proceeded to act on Hines' behalf post-petition, and he cashed two postdated checks, one on January 10, 1994 and the other on February 7 of that year (so that Gordon's total receipts for his services rendered aggregated $375).

Though the record does not disclose the dynamics that led to her further change of heart, Hines then became dissatisfied with Gordon and decided to revert to her former attorney Shilberg. First Shilberg advised Hines that any attorneys' fees incurred to Gordon before the commencement of Hines' Chapter 7 bankruptcy case were dischargeable. And on Shilberg's ...


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