Consumer Bankruptcy Committee

ABI Committee News

Debtor's Counsel Cannot Refuse Representation in Special Matter

Recently, the U.S. Bankruptcy Court for the Western District of New York, in a combined treatment of two chapter 7 cases involving the same trustee and debtor's attorney, penalized the attorney for delaying the cases and failing to comply with the  supplemental reporting requirements of Fed. R. Bankr. P. 2016(b).[1] The debtor's attorney refused to appear to defend against the trustee's motion for turnover of assets unless he was compensated by additional fees. After the trustee moved to force the attorney to disgorge his fees already received, the attorney appeared at the coincident hearing on both motions.  While the turnover issues were resolved and the clients satisfied, the fee issue was not.

According to the court, the Bankruptcy Code and Rules of Procedure, while requiring disclosure of a debtor's attorney's fees, do not mandate the scope of the representation that he must provide. However, in this matter, the attorney's compensation disclosure set forth his agreement to provide services, broadly, "for all aspects of the bankruptcy case." The subsequent list of exclusions contained no exception for defense of a turnover demand. Consequently, the court found that the attorney acted improperly when he refused to act absent additional compensation, delayed the case and caused the trustee to move for disgorgement of his fees.  The court determined that as a matter of equity, the debtor's attorney must reimburse the trustee for the costs that he was forced to unnecessarily bear.

1. In re Kasperek, 399 B.R. 591 (Bankr. W.D.N.Y. 2009).