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In re Ramelah

May 4, 2009


The opinion of the court was delivered by: Baylson, J.


Presently before this Court is an appeal from an Order by the Bankruptcy Court of the Eastern District of Pennsylvania sustaining Debtors' Objection to a portion of former counsel's Final Fee Application and ordering former counsel to disgorge and remit $1,600 to Debtors based on counsel's failure to disclose this fee. For the following reasons, the Appellant Eric Leinbach's appeal is denied, and the Bankruptcy Court's Order is AFFIRMED.

I. Factual and Procedural Background

The Debtors in this case have filed three separate bankruptcy cases, two of which are relevant to this appeal, so the Court will first briefly review each of the filings and then discuss the circumstances surrounding the Order at issue here.

A. Prior Bankruptcy Filings

The Debtors in the underlying bankruptcy case, Mr. and Mrs. Ramelah, first filed for bankruptcy on February 26, 2001, case no. 01-br-20786 ("Ramelah I"). Appellant Leinbach represented them in that case. They originally filed for Chapter 13, but the case was converted to Chapter 7 in April 2001. Debtors received their Chapter 7 discharge on October 3, 2001.

Shortly thereafter, on November 1, 2001, Debtors filed for Chapter 13, again represented by Leinbach, case no. 01-br-25023 ("Ramelah II"). As explained by Bankruptcy Judge Fehling, filing a Chapter 13 case subsequent to a discharged Chapter 7 case is not uncommon as a way to pay off non-dischargeable debt remaining from the Chapter 7 bankruptcy over the life of the Chapter 13 plan. (See 02-br-26185, Doc. No. 172 n.20). On December 13, 2001, Leinbach filed a Disclosure of Compensation for $1,500 (01-br-25023, Doc. No. 9), representing the fixed amount that the Debtors claim that they agreed to (02-br-26185, Tr. 26:18-21, 37:17-19, June 27, 2008). Ramelah II was dismissed by motion of the trustee on November 14, 2002, prior to the completion of the Chapter 13 plan.

Following dismissal, on December 16, 2002, the trustee disbursed Debtors' plan payments made up to that date, totaling $15,877.86, to Leinbach as Debtors' counsel, which was placed in Leinbach's lawyer's trust account. The trustee disbursed the funds to Leinbach pursuant to a "Payment and Disbursement Authorization," which Debtors signed on December 9, 2001, authorizing disbursement to Leinbach "for the payment of any attorney's fees outstanding." (02-br-26185, Doc. No. 133 Ex. B). The Authorization stated that Leinbach would provide an accounting to Debtors and disburse any remaining funds to Debtors. (Id.) Judge Fehling, in reviewing the record, stated that the record is ambiguous regarding the exact date that Leinbach received and deposited the $15,877.86 check from the trustee, but he found that Leinbach received the disbursement a few days before December 23, 2002. (02-br-26185, Doc. No. 172, p. 12). Following disbursement, Leinbach paid out the $15,877.86 as follows: $10,000 to PNC Bank (creditors of the Debtors) on July 23, 2004; $2,000 to Debtors on March 28, 2003; $2,227.86 to Debtors on June 8, 2005; and $50 to Debtors between June and August 2008 (02-br-26185, Doc. No. 172, p. 13-14).

At issue in this appeal is the remaining $1,600, which Leinbach paid to himself as an additional fee allegedly owed in Ramelah II. According to Leinbach, the Ramelah II retainer agreement signed by Debtors contained a paragraph stating that contested proceedings were outside the scope of representation and required additional fees. (02-br-26185, Tr. 69:23-70:4, June 27, 2008).*fn1 There were adversary proceedings in Ramelah II. Leinbach claims that the Debtors were aware of these additional charges and in fact negotiated the final amount charged in Ramelah II. (Id. at 73:4-16). Debtors claim they were not aware and did not agree to additional charges beyond the $1,500 initial attorney fee plus $185 filing fee. (Id. at 44:11-13).

B. 2002 Bankruptcy Filing

On December 23, 2002, Leinbach filed another Chapter 13 case on behalf of Debtors, case no. 02-br-26185 ("Ramelah III"). This plan was successful, and the Debtors were ultimately discharged on April 15, 2008.(02-br-26185, Doc. No. 141). However, on July 12, 2007, prior to the case's dismissal, Linebach's representation of the Debtors was terminated per Order in an unrelated case, In re Leinbach, case no. 07-br-4002, which required that Leinbach discontinue his representation of all parties in the Bankruptcy Court of the Eastern District of Pennsylvania.(07-br-4002, Doc. No. 24).In addition, Leinbach's ECF password was cancelled.

Leinbach was allowed to continue prosecuting his own fee applications, being heard as a claimant, and otherwise defending himself. (Id.) On October 26, 2007, the Court issued a further order requiring that Leinbach be marked as withdrawing his appearance in each open case where he had served as counsel. (07-br-4002, Doc. No. 27).

Prior to Debtors' discharge in Ramelah III, Leinbach had filed several fee applications. The first, filed February 6, 2003, was an application for compensation for $1,500 in fees plus $185 in expenses. (02-br-26185, Doc. No. 7). The second, filed January 24, 2006, was an application for compensation for $6,435 in fees. (02-br-26185, Doc. No. 96). These applications were unopposed and were granted on April 20, 2006. (02-br-26185, Doc. No. 108). Leinbach filed a final application for compensation on September 28, 2007 for $725 in fees and $113.09 in expenses. (02-br-26185, Doc. No. 111). The Debtors filed an Objection to the final fee application on October 16, 2007. (02-br-26185, Doc. No. 112). The Debtors' Objection not only objected to the final fee application but made broader allegations that Leinbach had misrepresented his fee to the Debtors and had mishandled their prior Chapter 13 case, Ramelah II, including improperly retaining the additional $1,600 fee from the check disbursed by the Ramelah II trustee. The Ramelah II trustee also filed an Objection to Leinbach's final fee application but only objected to that particular fee as unreasonable and excessive. (02-br-26185, Doc. No. 114).

C. Court Proceedings Related to Debtors' Objection

Following a hearing on Leinbach's final fee application on December 3, 2007, presiding Bankruptcy Judge Fehling issued an order scheduling a further hearing on the issues raised by the Debtors' Objection that were beyond the scope of Leinbach's final fee application. (02-br- 26185, Doc. No. 119). The order also re-opened Ramelah I and Ramelah II. Judge Fehling took these actions "upon the interests of justice and equity requiring further review of the representation of Debtors by Mr. Leinbach in all three cases." (Id.) On December 19, 2007, Judge Fehling issued an order denying Leinbach's final application for compensation for $725 plus $113.09 in expenses, finding that Leinbach had already been adequately compensated and denying Leinbach's claimed expenses as a sanction for over-charging. (02-br-26185, Doc. No. 121). However, Leinbach never received this order since his name had been taken off the Court's mailing caption per order in In re Leinbach, case no. 07-br-4002, which required Leinbach to withdraw his representation from all pending cases. This order appears to be the only court document in Ramelah III that Leinbach did not receive. (02-br-26185, Doc. No. 172, p. 7).

After being continued several times, the hearing on the allegations in Debtors' Objection was held on March 3, 2008. (02-br-26185, Doc. No. 129). On that same day, Leinbach withdrew his final application for compensation despite Judge Fehling already having ruled on the application on December 19, 2007, since Leinbach had never received the December 19 order. Leinbach did not appear at the hearing on March 3. He claims he did not appear because he had withdrawn his fee application and therefore the hearing on an Objection to that application must also be withdrawn. (See 02-br-26185, Doc. No. 133, p. 2). On March 4, 2008, Judge Fehling ordered that Leinbach disgorge and pay to ...

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