Court Orders Partial Disgorgement Of Legal Fees Where Attorney Fails To List Prior Filing In Client's Subsequent Bankruptcy Petition

In a recent ruling by a U.S. Bankruptcy Court in Alexandria Virginia, a bankruptcy attorney was ordered to pay back some of his $1,500 in legal fees after screwing up a bankruptcy petition filed on behalf of a client. The matter occurred in the context of a homeowner first approaching the attorney at the "eleventh hour" to file a bankruptcy petition to stave off a foreclosure sale, the attorney filing two petitions with the court within a two month period, the client being somewhat negligent in providing all the required information, and some apparently non-egregious but nevertheless sloppy handling of the matter by counsel.

For the ruling, see In re: OhPark, Case No. 10-10194-SSM (Bankr. E.D. Va. Alexandria Div., May 12, 2010).

(1) The following excerpt is taken from the ruling:

• As the U.S. Trustee correctly points out, it is improper for an attorney to fail to list a debtor's prior bankruptcy filing on the bankruptcy petition. The omission of a previous filing is particularly troublesome because the disclosure is important to many aspects of the administration of a bankruptcy case. A previous filing may determine whether a debtor is eligible for a discharge in a subsequent case. See §§ 727(a)(8), (9), 1328(f)(1), (2), Bankruptcy Code. It also determines whether the automatic stay is subject to early termination or even arises at all. Id. § 362(c)(3), (4). Moreover, disclosure of a prior filing assists the clerk's office in assigning the new case to the same judge as a previous case.

• This court has previously held that "where the petition and schedules filed on behalf of the debtor contain discrepancies, omissions, and inaccuracies, fee disgorgement is appropriate under § 329." In re De Molina, No. 09-14158 (Bankr. E.D. Va. Dec. 15, 2009) (citing In re Nickerson, No. 08-35234, 2009 WL 1587160 (Bankr. N.D. Ohio, April 16, 2009)).

• This is true whether the mistakes in the documents were intentional or inadvertent, although the amount of fees to be disgorged will obviously vary depending on the seriousness of the omission or error and the efforts made by the attorney to verify the accuracy of the documents. Here Mr. Eisner clearly filed a petition that contained a material inaccuracy. Although he was the attorney who filed the prior petition for the debtor, he failed to list the prior filing on the petition in the second case. Even if there was some copy of the petition floating around his office that listed the prior filing, an attorney who files documents electronically with the court is responsible for ensuring that the electronically-filed version conforms to the paper original and is accurate. Because Mr. Eisner was at the very least negligent in filing a petition that failed to disclose the debtor's prior filing, the court concludes that disgorgement of some portion of the fees he was paid is appropriate.

• Were it not that the debtor was also materially at fault in failing to provide Mr. Eisner with the information needed to complete the schedules and statement of financial affairs, the court would be inclined to order disgorgement of the entire fee. And certainly, having failed once to receive the information that would enable timely schedules to be prepared, a cautious attorney might have been concerned that the client had no real intent to follow through and was simply seeking to invoke the automatic stay for the purposes of delay, and for that reason would not have taken the second case without some reasonable assurance that timely schedules could be filed in the second case.

• In any event, taking into account that schedules were never prepared in either case, and that the sole document (the petition) that counsel did prepare contained a material inaccuracy that was wholly within the attorney's power to prevent, the court concludes that $500.00 is the maximum fee that is reasonable. Accordingly, counsel will be required to disgorge the remaining $1,000.00 of the fee he received.