UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
JAMES LEE BYRD JR.
LESLEY ANN BYRD CASE NO. 98-52882
OPINION AND ORDER
This matter is before the court upon the Motion of Hughes and Coleman, PLC for Attorney Fee filed on August 20, 2001 and the Application for Compensation for Honorable John Simms, attorney for trustee, filed by the trustee herein on August 30, 2001.
Prior to the filing of this bankruptcy case, one of the debtors, James Byrd, had hired Hughes and Coleman, attorneys, to represent him with respect to a personal injury case. In the Hughes and Coleman motion herein, (Doc. #42), it reflects that services began on or about May 7, 1997, and based upon that document, it appears that a lawsuit was filed on January 12, 2001. This bankruptcy proceeding was filed November 13, 1998 and it is clear to the court that the bulk of the work done by Hughes and Coleman was done after the bankruptcy proceeding was filed.
Upon the filing of the bankruptcy proceeding, the motions and responses of the parties reflect that the trustee and Hughes and Coleman were unable to agree as to the representation on the claim, which was now estate property pursuant to 11 U.S.C. '541. The trustee hired attorney John Simms to represent the estate in the matter, and Mr. Simms proceeded to reach a settlement, which has been approved by this court, in the amount of $85,000. Mr. Simms states that Hughes and Coleman was unresponsive to his request for the records and that much of his work duplicated that of Hughes and Coleman since they would not make available to him the information which they had. Hughes and Coleman responds that the case could have and should have been settled for a larger sum. The trustee points out that the insurer, Reliance Insurance, is in a Chapter 11 proceeding thereby making collection on the claim more dubious and indicates this was one of the substantial reasons for settlement in the case.
Pursuant to 11 U.S.C. '541, the estate is comprised of all legal and equitable interests of the debtor in property as of the commencement of the case. Clearly, the cause of action being prosecuted by Hughes and Coleman at the time of the filing of the case was such property. The prosecution of the lawsuit was then the province of the trustee as the party responsible for administering the estate. The funds received from the lawsuit would be estate property, subject only to any exempt portion properly claimed by the debtor in the bankruptcy case. The trustee was not, of course, bound by debtor=s selection of counsel and after initial attempts to reach agreement failed, selected her own counsel.
Actions taken by Hughes and Coleman from and after the filing of the bankruptcy proceeding were without the authority of the owner of the cause of action, the estate. While it is not clear when Hughes and Coleman became aware that Mr. Byrd had filed his bankruptcy proceeding, it is clear that they were aware of the pending bankruptcy on or before October 27, 2000, in that their statement of services reflects ADraft correspondence to bankruptcy attorney and client@. (Doc. #42). Hughes and Coleman have stated that they keep no time records with regard to contingency fee cases and have reconstructed their statement of services from their records. Clearly, they rendered services regarding the cause of action prior to the filing of the bankruptcy case and have a lien for the services pursuant to KRS 376.460.
In reviewing the matter, it appears to the court that Hughes and Coleman proceeded with the prosecution of the case after becoming aware of the filing of the bankruptcy. As attorneys, they should be charged with knowledge of the fact that the filing of a bankruptcy creates an estate and that the cause of action which they were prosecuting was the property of that estate and that the estate was administered by the trustee. 11 U.S.C. ' 541. They should not profit from their neglect of, or indifference toward, the pending bankruptcy proceeding. Additionally, in arguments of counsel, they did not deny that they refused to turn over records and cooperate with the trustee=s prosecution of the case. The court considers this also an important factor in deciding upon the allocation of attorney=s fees herein.
With respect to the attorney=s fees herein, it appears that the trustee applied to appoint the attorney in accordance with the attorney=s declaration and that declaration reflects a contingency fee of one-third of any recovery plus expenses incurred by the attorney. An order was entered by the estate on March 19, 2001 allowing the employment of the attorney on that basis.
Upon a review of the entire file, it appears that the court should allow one attorney fee in the total amount of one-third of $85,000.00, or $28,333.33. Based upon the hearing in the matter, the record and the recitations above, it appears that that sum should be divided one-third to Hughes and Coleman and two-thirds to John Simms, attorney for trustee. Additionally, it appears that expenses in the amount of $151.61 should be allowed to the attorney for the trustee.
IT IS THEREFORE ORDERED AS FOLLOWS:
1) The trustee shall pay to Hughes and Coleman, PLC, the sum of $9,444.44; and
2) The trustee shall pay to John Simms, attorney for trustee, the sum of $18,888.89 as attorney=s fees, and $151.61 for expenses.
3) The trustee is directed to forthwith make the aforesaid payments from funds of the estate.
Dated this day of November, 2001.
BY THE COURT
John M. Simms, Esq.
Anna C. Johnson, Esq.
Brent Travelsted, Esq.