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Demery v. Johns

United States District Court, W.D. Louisiana, Shreveport Division

March 2, 2017

SIMMION BASHON DEMERY
v.
TODD S. JOHNS[1]

          MEMORANDUM RULING

          S. MAURICE HICKS, JR. UNITED STATES DISTRICT JUDGE.

         Before the Court is an appeal of the Bankruptcy Court's denial of requested attorney's fees by appellant Simmion Bashon Demery (“Demery”). See Record Document 4. For the reasons contained in the instant Memorandum Ruling, the Bankruptcy Court's ruling denying Demery's Application for Compensation by Attorney for Debtor and Motion to Reconsider is REVERSED AND REMANDED.

         FACTUAL AND PROCEDURAL BACKGROUND

         On April 3, 2013, Demery filed a voluntary Chapter 13 bankruptcy petition in the Bankruptcy Court in Shreveport, Louisiana. See Record Document 1-3 (Bankruptcy Court docket sheet). The original plan called for payments of $420.00 per month for a term of 60 months. See Record Document 4 at 6. However, because all of the parties apparently believed that Demery owed money to at least two state or local taxing entities, the Bankruptcy Court rejected the original plan and confirmed an amended plan calling for $560.00 monthly payments. See id.; see Record Document 1-3.

         On April 14, 2015, Demery met with his counsel, David Welch (“Welch”), to discuss his financial situation. See Record Document 4 at 6-7. Demery informed Welch that his financial situation had worsened due to rising expenses, forcing him to borrow against his 401(k) plan to cover his monthly expenses. See id. Demery also informed Welch that he expected furloughs in the near future from his employer Schlumberger as a result of the decline in oil prices. See id. Welch discovered that none of the taxing entities to whom Demery ostensibly owed money had ever filed a proof of claim with the Bankruptcy Court. See id. Welch advised Demery that he could file a modified plan on his behalf that would reduce Demery's required payments and remove future payments to be made to these taxing entities, though those taxing entities could object to the plan and assert their claims against Demery. See id. Welch also advised Demery that even if these entities were to object to the plan, it was possible that Demery's payments could be suppressed temporarily until his income stabilized. See id. at 8. Demery requested that Welch file a modified plan with the Bankruptcy Court, and Welch filed the modified plan and accompanying materials on April 24, 2015. See id.; see Record Document 1-3.

         On May 27, 2015, without consulting Welch first, Demery left his job with Schlumberger, paid off his 401(k) loans, cashed out the remaining balance of his 401(k), and began searching for a new job. See Record Document 4 at 8. On June 3, 2015, the Chapter 13 Trustee filed an objection to confirmation of Demery's modified plan. See Id. On June 4, 2015, Welch reviewed the Trustee's objection, took notes regarding the objection, and discussed the matter with a partner in the firm. See id. Welch later began drafting the response to the objection. See id. Welch met with Demery on June 24, 2015 to discuss the objection. See id. At this meeting, Demery informed Welch for the first time of the fact that he had left his job and cashed out his 401(k). See id. Welch informed Demery that he had converted an exempt asset to a non-exempt asset, a fact that would have to be disclosed to the Bankruptcy Court and that would likely prompt the Chapter 13 Trustee to assert an interest in the 401(k) proceeds. See id. at 8-9.

         In response to this new situation, Welch informed Demery that he essentially had two options: (1) disclose the liquidation of the 401(k) and deposit the bulk of the remaining proceeds into a tax deferred retirement account within 60 days of the withdrawal, reserving only enough to cover Demery's reasonable and necessary expenses and fund his plan payments while searching for a job; or (2) retain the proceeds, voluntarily dismiss his case, and request that the dismissal of the case be without prejudice to his ability to re-file a subsequent bankruptcy petition. See id. at 9. On July 10, 2015, Demery requested that his case be dismissed. See id. On July 15, 2015, Welch filed an Ex Parte Motion to Voluntarily Dismiss Demery's case, a Motion that the Bankruptcy Court granted later the same day. See id.

         After the voluntary dismissal of the case, one of Welch's paralegals sent an email to the Chapter 13 Trustee and two paralegals working for the Trustee requesting that funds be retained in the Trustee's possession for payment of Welch's fee. See id. at 9-10. Welch obtained Demery's consent to a fee application requesting a fee of $350.00, and Welch filed the Application for Administrative Compensation/Expenses (the “fee application”) on July 28, 2015. See id. at 10. On July 29, 2015, the Bankruptcy Court denied the fee application without explanation. See id. Welch's paralegal again contacted the Chapter 13 Trustee and the Trustee's two paralegals requesting that the $350.00 be retained in the Trustee's account until the Bankruptcy Court could decide a Motion to Reconsider its denial of the fee application. See id. Despite this request, the Trustee mistakenly disbursed the funds to Demery's creditors in early August 2015. See id. On August 7, 2015, Welch filed a Motion to Reconsider the denial of the fee application and requested a hearing. See id. The Bankruptcy Court denied the Motion without a hearing, holding that the matter was moot. See id.; see Record Document 1-2.

         Demery filed the instant appeal of the denial of the fee application and the Motion to Reconsider on August 24, 2015. See Record Document 1. On March 3, 2016, Demery filed a “Notice of Statement Regarding Change in Facts” and a Chapter 13 Trustee Report in which he confirmed that the amount of funds necessary to pay the requested fees that are the subject of the instant appeal had been refunded to the Chapter 13 Trustee. See Record Document 6. The Chapter 13 Trustee never filed a brief with the Court.

         LAW AND ANALYSIS

         A. Jurisdiction

         The United States Bankruptcy Court has the authority to issue final orders pursuant to 28 U.S.C. § 157(b). This United States District Court for the Western District of Louisiana, Shreveport Division has subject matter jurisdiction, pursuant to 28 U.S.C. § 158(a)(1) and 28 U.S.C. § 1334(b), to hear appeals from a final order of the Bankruptcy Court. “Final orders” of a Bankruptcy Court under 28 U.S.C. § 158 include both (1) “a final determination of the rights of the parties to secure the relief they seek” and (2) “a final disposition of a discrete dispute within the larger bankruptcy case.” Bartee v. Tara Colony Homeowners Ass'n (In re Bartee), 212 F.3d 277, 282 (5th Cir. 2000). This is an appeal of the final order entered from the United States Bankruptcy Court for the Western District of Louisiana, Shreveport Division on July 29, 2015, denying Demery's fee application, a “discrete dispute within the larger bankruptcy case.” Id.; see Record Document 1-1.

         B. Standard of Review

         A District Court reviews a Bankruptcy Court's decision on a fee application by a debtor's attorney under an abuse of discretion standard of review. See Cahill v. Walker & Patterson, P.C., 428 F.3d 536, 539 (5th Cir. 2005). “An abuse of discretion occurs where the bankruptcy court (1) applies an improper legal standard or follows improper procedures in calculating ...


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