The opinion of the court was delivered by: Judge Conner
Presently before the court is an appeal from the order of the United States Bankruptcy Court for the Middle District of Pennsylvania, dated June 8, 2010, disqualifying Jacques H. Geisenberger, Jr. ("Geisenberger") and his law firm, Jacques H. Geisenberger, Jr., P.C.,*fn1 from representing debtor Ressler Hardwoods & Flooring, Inc. ("Debtor") and directing the disgorgement of $17,500 in professional fees. Geisenberger claims the Bankruptcy Court erred in three respects: (1) by misconstruing the provisions of 11 U.S.C. § 327 and Bankruptcy Rule 2014(a); (2) by misconstruing the relationship between the provisions of 11 U.S.C. § 329(a) and Bankruptcy Rule 2016(b); and (3) by requiring the disgorgement of $17,500 in fees to the bankruptcy estate. The court has jurisdiction to hear this appeal pursuant to 28 U.S.C. § 158(a)(1). See In re BH & P, Inc., 949 F.2d 1300, 1307 (3d Cir. 1991). For the reasons that follow, the court will affirm the order of the Bankruptcy Court.
I. Statement of Facts*fn2
A. Geisenberger's Pre-Petition Relationship with Debtor
Debtor is a flooring manufacturer owned and operated by Kenneth and Karen Ressler and their son Keith Ressler (collectively the "Resslers"). Beginning in October 2006, Geisenberger represented Debtor in a variety of business matters including: (1) an insurance dispute with Erie Insurance Company ("Erie"); (2) the lease of property used in Debtor's milling operations; (3) a loan default with Sovereign Bank ("Sovereign"); (4) the sale of stock to CQ (one of Debtor's vendors); and (5) the sale of stock to James Little ("Little").*fn3 (Bankr. Doc. 415, at 36-46, 62-68).*fn4 The attorney-client relationship was not formalized in writing until May 7, 2007, when Geisenberger sent a letter ("the engagement letter") to Debtor. (Id. at 35). The engagement letter refers to "financial and operational problems" caused by the Erie insurance dispute and the legal dispute with Sovereign Bank. (Id. Trustee's Ex. 1).
B. Geisenberger's Pre-Petition Relationship with Little
In spring 2007, Little entered into negotiations with the Resslers for a controlling interest in Ressler Hardwoods & Flooring, Inc. (Id. Trustee's Ex. 4 ¶ 9). The parties reached an agreement on the purchase price of the stock, but a final agreement remained contingent on the successful negotiation of a number of secondary matters. Little alleges he advanced $400,000 to Debtor during the pendency of these negotiations. (Id. Trustee's Ex. 4 ¶¶ 11-12). A dispute arose and Little demanded Debtor return the $400,000. (Id. Trustee's Ex. 4 ¶¶ 13-14). Geisenberger denies any involvement in these initial negotiations.
Debtor did not return the $400,000. (Id. Trustee's Ex. 4 ¶ 15). Instead, Debtor issued Little a stock certificate for 26,201 shares of its common stock. (Id. Trustee's Ex. 4 ¶ 17). Geisenberger advised Debtor's board of directors prior to their vote to issue the stock certificate. Geisenberger also drafted minutes of the board meeting memorializing the decision. (Id. at 64-66). After the board's approval, Geisenberger drafted the stock certificate and sent it to Little. (Id.) The stock certificate stated that it had not been registered and that the shares could not be sold unless they were registered or were transferred, subject to an opinion of counsel that no registration was required. (Id. Trustee's Ex. 6). Geisenberger did not investigate whether federal or state law required registration of the stock prior to issuance of the certificate. (Id. at 67-68).
On December 19,2007,Little's attorney sent a letter to Geisenberger asserting that the stock had not been properly registered and that its transfer was illegal. (Id. Trustee's Ex. 4 ¶ 18). Little's counsel offered to return the certificate in exchange for the $400,000 advanced by Little, plus interest. (Id.) Debtor rejected the offer. Little responded by filing a three-count lawsuit against Debtor and the Resslers on July, 22, 2008, in the United States District Court of Maryland alleging:
(1) violation of Maryland securities law for failure to register the securities ("Count I"); (2) violation of Maryland securities law for committing securities fraud ("Count II"); and (3) assumpsit for moneys had and received ("Count III"). (Id. Trustee's Ex.4).
C. Debtor's Bankruptcy Filing
Debtor filed a voluntary Chapter 11 bankruptcy petition on May 27, 2008.*fn5
(Id. at 1). On the same day, Debtor filed an application to employ Geisenberger ("the application") as its bankruptcy counsel under 11. U.S.C. § 327(a). (Id. Trustee's Ex. 1). Debtor noted on the application that Geisenberger previously advised Debtor in connection with its financial affairs and attached a copy of the engagement letter as an exhibit to the application. (Id.) Debtor disclosed on the application that it had paid Geisenberger a $17,500 retainer for future services and $2,000 to cover filing fees and other costs. (Id.) Debtor stated it had paid all previous billings in full, but did not provide the dates or amounts of the previous billings.*fn6 (Id.) Finally, Debtor stated Geisenberger had "no connection with the Creditors or any other party in interest or their respective attorneys in this proceeding." (Id.) Geisenberger filed a declaration of disinterestedness ("declaration") with the application as required under Federal Rule of Bankruptcy Procedure 2014. Geisenberger averred that he was disinterested and did not represent or hold an interest adverse to Debtor. (Id.)
On June 6, 2008, Geisenberger filed a statement of attorney compensation as required by 11. U.S.C. § 329 and Bankruptcy Rule 2016(b). (Bankr. Doc. 36). Geisenberger disclosed that Debtor had paid him a $17,500 retainer for future costs and $2,000 to cover filing fees and other costs, but failed to disclose any other pre-petition payments. (Id.) Based on the above filings and the lack of any objections, the Bankruptcy Court approved Geisenberger'sapplication on June 26, 2008. (Bankr. Doc. 76).
Subsequent to Debtor filing for bankruptcy, Little's action was transferred to the Bankruptcy Court and docketed as an adversary proceeding. Little v. Ressler Hardwoods and Flooring, Inc., Adv. No. 1-08-BK-00109 (M.D. Pa.) (Doc. 40). On March 31, 2009, the Bankruptcy Court granted summary judgment on Count I for Debtor and the Resslers, but denied summary judgment on Counts II and III. Id. (Doc. 53). After conducting a trial, the Bankruptcy Court found in favor of Little on the remaining counts and entered judgment in the ...