UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
LESLIE RAY JESSE
DEBTOR CASE NO. 91-00242
This matter is before the Court on attorney Barbara Griffin's Motion to Payover Fees, filed herein on August 23, 1991. This matter is grounded in a dispute between Robert L. Devers, on the one hand, and Barbara Griffin and Ginger Knight on the other. All three are attorneys who represent debtors in this Court. Devers and Griffin are currently involved in a state court contract dispute concerning their former professional affiliation.
The record in this case shows that the debtor herein entered into a contract with "R.L. Devers and Associates" on November 3, 1990, for legal representation in his bankruptcy case. The debtor has stated that he paid the Devers firm $795.00 ($675.00 fee; $120.00 expenses). Ginger Knight, at the time a Devers employee, signed the contract on behalf of R.L. Devers and Associates. The debtor's Chapter 7 petition was not filed until May 13, 1991, more than 6 months after the date of the contract. In the period between November and May, several things happened.
In February 1991, Devers and Griffin entered into a contract which purported to establish a relationship whereby Griffin would be an independent "contractor" and provide certain services for the Devers organization in return for a set salary. Sometime after this, the arrangement deteriorated, and a dispute arose over use of the business name "The Debt Relief Clinic of..." and who had claim to which clients. The record suggests that the principals engaged in mutually unpleasant behavior. Griffin's Reply to Devers' Response to the Motion to Payover Fees states that she formed her own law firm on March 15, 1991, and that Ginger Knight became her employee on April 1, 1991. The debtor's Chapter 7 petition was filed after Knight purports to have left the Devers firm and become an employee of Griffin.
While it does not fall to this Court to resolve the contractual dispute between Devers and Griffin, the employment and compensation of professionals, and attorneys in particular, in bankruptcy cases is subject to the supervision of the Court. 11 U.S.C.''327-331. Bankruptcy Rules 2014, 2016 and 2017. In a recent case a Chapter 11 debtor sought to employ counsel, and the contract of employment provided for an "earned retainer". In re NBI, Inc., 129 B.R. 212 (Bkrtcy.D.Colo. 1991) In deciding that such a pre-petition minimum fee retainer was not reasonable in a Chapter 11 case, the Court considered its role:
Neither a debtor nor debtor's counsel have unrestricted freedom in defining their relationship as attorney and client under Title 11. The substance of that relationship is subject to Court scrutiny. The existence of the relationship is dependent on Court approval. Adjustment of the terms of that relationship is within the Court's discretion.
At page 224. The Court also discussed the controlling nature of federal bankruptcy law:
In a case under Title 11, the relationship between a debtor and the debtor's attorneys as attorney and client is subject not only to state law, but, more importantly, to bankruptcy law. Where any potential discrepancy between these two bodies of law exists, the terms, conditions, and policies of federal bankruptcy law control.
At page 225.
Pursuant to 11 U.S.C.'329(b), the Court may cancel a compensation agreement if the compensation exceeds the value of services rendered. This Court obviously has the authority to review the compensation agreement (contract) entered into by the debtor and R.L. Devers and Associates, and could determine, for instance, that the compensation exceeds the value of services rendered, if no services were rendered by the Devers firm. If the contention of Ginger Knight is accepted, that she became an employee of "The Debt Relief Clinic of Barbara M. Griffin, P.S.C." on April 1, 1991, then she was not an employee of Devers at the time the debtor's petition was filed. This Court could order the fee the debtor paid returned to him.
However, the difficulty with such action is that it is based on a determination of whose client the debtor was and/or whose employee Ginger Knight was on May 13, 1991. Devers' intention to represent the debtor might be called into question by the passage of a substantial amount of time without the filing of a petition. On the other hand, Ginger Knight had disavowed any relationship with the Devers firm, yet the disclosure of compensation which she signed and filed with the debtor's petition on May 13, 1991, stated that she had been paid $675.00. If she was paid pursuant to the employment contract and before the filing of the petition, she was a Devers employee when she was paid. It was not until August 5, 1991, that Knight filed an Amended Disclosure stating that the fee already paid to Devers, the debtor's "former attorney", was to be the source of her compensation.
The debtor has filed an unsworn statement requesting that the fee he paid Devers be paid to Griffin and Knight. He does not request relief for himself. He appears to have gotten what he paid for, i.e., the filing of a Chapter 7 petition in this Court. The trustee has not intervened in any way. There does not appear to be any interest of the debtor or of the estate that requires the protection or intervention of this Court. It is therefore the opinion of this Court that the Motion to Payover Fees should be OVERRULED.
Entered this ____ day of November, 1991.
By the Court -
Ginger C. Knight, Esq.
John T. Hamilton, Esq.
Mark Miller, Esq., Trustee