Baker v. Trustee Cage (In the matter of Whitley)

Citation:
Case No. 12-41125 (5th Cir. December 16, 2013)
Tag(s):
Ruling:
Reversed and Remanded the order disgorging two properties transferred from Debtor to Debtor's counsel and held that while the Bankruptcy Code seeks to protect debtors and their estates from excessive or unnecessary legal fees, 11 U.S.C. 329(b) limits the court to attorney compensation that exceeds the reasonable value of any services. Because the bankruptcy court did not value the property at the time Debtor transferred the property to his attorney and the time the Court ordered the properties returned to the estate, the disgorgement under Section 329(b) was not limited to a comparison of the amount of compensation received by the attorney with the reasonable value of the services performed. Further, the bankruptcy court must first determine the fees are excessive and then only to the extent they are excessive, would there be a disgorgement.
Procedural context:
In response to show cause order, bankruptcy court held that attorney's services provided Debtor no reasonable value and that attorney violated his duty of disclosure. Court denied attorney's request for fees, ordered him to return $12,074 in fees and to return two properties to estate. Attorney filed a motion to amend the bankruptcy's court's order arguing that Court should have considered the $98,775 attorney paid at foreclosure for the properties to pay off liens and the money attorney spent to maintain and repair the properties after attorney's purchase of them. The bankruptcy court denied motion and district court affirmed and held that the amount paid was irrelevant and the price attorney was required to pay for concealing his compensation and business dealings from the court and for failing to provide a valuable service to his client.
Facts:
Debtor Whitney retained attorney Reese Baker ("Baker") in two failed reorganization efforts in 2008 and 2009 that were dismissed. The 2009 case was later reinstated and converted to a Chapter 7. Between the time of dismissal and the reinstatement, Debtor transferred two properties to Baker's alter ego company. The properties were subsequently foreclosed on and Baker won and bought both properties at foreclosure sales for the total sum of $98,775.00. The U.S. Trustee filed an adversary proceeding claiming the undisclosed transfers were voidable. The Bankruptcy court held that the first issue to be decided was whether, under Section 329, Baker must disgorge compensation. The Court issued a show cause order instructing Baker to provide evidence of the reasonable value of the services rendered with his representation and to show cause why previously paid compensation should not be disgorged in excess of the reasonable value of the services under 11 U.S.C. 329(b). After a multi-day evidentiary hearing, the Court denied Baker all his requested fees, found he provided no valuable services and ordered Baker to return his fee of $12,074 plus the two properties to the estate.
Judge(s):
Higginbotham, Owen, and Higginson, Circuit Judges

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