Rivera v. Wolkowitz (In re Barajas)

B.A.P. No. CC-12-1642 (9th Cir. B.A.P, July 3, 2013) (Not for Publication)
In an unpublished opinion, the Bankruptcy Appellate Panel for the Ninth Circuit affirmed the orders of the Bankruptcy Court for the Central District of California requiring the debtor's Chapter 11 counsel to disgorge a prepetioner retainer of $10,000 to the Chapter 7 trustee and denying reconsideration thereof. The failure of the debtor's counsel to file and serve a Notice of Application required under Local Rule 2014 and to act with diligence in seeking approval of his employment as required by Bankruptcy Code section 327 justified the Court's disgorgement order, despite counsel's contention that his pre-petition services were reasonable within the meaning of Bankruptcy Code Section 329.
Procedural context:
Appeal from orders of the United States Bankruptcy Court for the Central District of California (J. Bluebond), reviewed for abuse of discretion.
Appellant, Michael Rivera ("Rivera"), filed a Chapter 11 petition for the debtor, Jorge Barajas ("Debtor"), after first obtaining a pre-petition retainer in the amount of $10,000. Although he subsequently filed an application for employment (in multiple filings due to a computer error) and contended that he had uploaded an order, he did not file and serve a Notice of Application, as required by the Court's Local Rule 2014-1(b), and the Court never entered an order approving his employment. After the case was converted to Chapter 7, the Chapter 7 trustee, Edward Wolkowitz ("Trustee"), brought a Motion for Disgorgement of Fees and for Determination of the Reasonable Value of Services Rendered by Counsel, seeking the disgorgement of Rivera's pre-petition retainer on the grounds that his employment had never been approved by the Bankruptcy Court. After hearing, the Bankruptcy Court granted the Trustee's Motion and later denied a motion for reconsideration filed by Rivera. On appeal, the Bankruptcy Appellate Panel affirmed the Bankruptcy Court's decisions in total. Relying on the decision of the Ninth Circuit Court of Appeal in the case of Law Offices of Nicholas A. Franke v. Tiffany (In re Lewis), 113 F.3d 1040, 1044 (9th Cir. 1997), the B.A.P. held that the Bankruptcy Court has the power to deny attorney's fees under its inherent authority over a debtor's attorney's compensation under Bankruptcy Code Section 327. Moreover, an order compelling disgorgement does not constitute a finding that the retainer constitutes property of the estate--that can be an issue for separate determination. Rivera's lack of diligence in seeking approval of his employment and his failure to file and serve a Notice of Application in accordance with the Local Rules, despite the passage of many months after the filing of the Debtor's petition, supported the Bankruptcy Court's order. Contrary to the argument of Rivera, the Bankruptcy Court was not required to make any finding under Bankruptcy Court Section 329(b) as to the reasonableness of the pre-petition services provided, where no specific evidence of such pre-petition services had been properly provided to the Court. Finally, the B.A.P. affirmed the Bankruptcy Court's denial of Rivera's motion for reconsideration under Federal Rule of Civil Procedure 59(e), because Rivera's arguments were not new and his proffered new evidence, consisting of time records showing his pre-petition services, could have been presented at the time of the hearing on the Motion.
Pappas, Dunn, and Kirscher, Bankruptcy Judges.

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