Antonio Delane Storey

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLUMBIA
In re
ANTONIO DELANE STOREY,
Debtor.
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Case No. 08-00198
(Chapter 11)
For Publication in West’s
Bankruptcy Reporter
MEMORANDUM DECISION RE MOTION TO VACATE
MEMORANDUM DECISION THAT ADDRESSED THE MOTION OF
THE UNITED STATES TRUSTEE FOR SANCTIONS AGAINST DEBTOR’S COUNSEL
The debtor’s counsel (“Barber”) has filed a motion
(Dkt. No. 152) to vacate the court’s prior Memorandum Decision
(Dkt. No. 148) addressing the Motion for an Order to Show Cause
(Dkt. No. 95) by which the United States Trustee sought the
imposition of sanctions against Barber for failing to disclose a
postpetition receipt of $2,032.00 from the debtor for services
rendered postpetition in connection with a state court landlord-
tenant action. 	The United States Trustee has filed an opposition
(Dkt. No. 165) to which Barber has filed a reply (Dkt. No. 168).
Barber was required to disclose compensation for his
services to the debtor in the landlord-tenant actions because,
within the meaning of § 329(a), he was “representing a debtor in
The document below is hereby signed.
Signed: June 26, 2009.
_____________________________
S. Martin Teel, Jr.
United States Bankruptcy Judge
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1 	Section 329(a) applies to an attorney “representing a
debtor in a case, or in connection with such a case . . . .”
Although attorneys such as Barber who represent the debtor in the
debtor’s main case are clearly “representing [the] debtor in
[the] case,” § 329(a) has also been held to apply to an attorney
who represented the debtor prepetition rendering services in
contemplation of the bankruptcy case even though the attorney did
not actually represent the debtor in the case (that is, did not
enter an appearance in the bankruptcy case as the debtor’s
counsel). 	Wootton v. Ravkind (In re Dixon), 143 B.R. 671, 676
(Bankr. N.D. Tex. 1992).
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a case” and the services were “in connection with the case.” 	The
relatively mild sanctions the court imposed for violating
§ 329(a) were appropriate under the circumstances. 	The motion to
vacate will be denied.
I
Barber is representing the debtor in possession as his
attorney with respect to the conduct of the case in general, and
thus was an attorney “representing [the] debtor in [the] case”
within the plain meaning of the opening clause of § 329(a). 1
That distinguishes this case from two decisions relied upon by
Barber in which the non-attorney individuals employed by the
debtor were not representing the debtor in the conduct of the
case, but were instead performing services in the ordinary course
of the debtor’s affairs. 	The issue addressed by those two
decisions was whether the individuals’ employment required the
court’s approval under 11 U.S.C. § 327(a), which requires court
approval of the employment of “attorneys, accountants,
appraisers, auctioneers, or other professional persons . . . to
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represent or assist the trustee in carrying out the trustee’s
duties.” 	Because the individuals were not representing the
debtor in the conduct of the case, they were deemed not to be the
types of “professionals” whose employment required court approval
under § 327(a). 	See In re D’Lites of Am., Inc., 108 B.R. 352
(Bankr. N.D. Ga. 1989) (court approval unnecessary for the hiring
of employees to replace the debtor in possession’s departed
employees because the replacement employees were hired to perform
everyday functions of the business rather than to assist in the
handling of the bankruptcy proceedings); In re Johns-Manville
Corp., 60 B.R. 612 (Bankr. S.D.N.Y. 1986) (court approval
unnecessary for the hiring of non-attorney lobbyists who
performed services in the ordinary course of the debtor’s
business, a function that was found to be “completely external to
the reorganization process . . . .”). 	Barber appears to argue
that under those decisions his representation of the debtor in
the ordinary course of business landlord-tenant actions could be
treated as not representing the debtor in the case because such
litigation was in the ordinary course of the debtor’s business.
But that argument has no bearing on whether § 329(a) applies
because Barber was already representing the debtor in the case,
thus triggering the requirement in § 329(a) that Barber disclose
any compensation for services “in connection with the case”
regardless of whether a trustee may employ an attorney for
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2 	Because the individuals employed in D’Lites of America
and Johns-Manville were not attorneys, § 329(a) could not have
been an issue as to those individuals. 	My research has uncovered
no decision discussing whether the rationale of those decisions
is relevant to the determination of whether § 329(a) applies to
an attorney who is providing services in the case or in
connection with the case.
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landlord-tenant actions without court approval under § 327. 2 	As
discussed in this court’s prior decision, were the rule
different, that would present an obvious danger that an attorney,
playing an influential role in the case as the debtor’s general
counsel in the conduct of the case, would be in a position to
receive unreasonable compensation for services in the landlord-
tenant actions without that compensation being disclosed and
subject to scrutiny by parties in interest.
II
With respect to whether an attorney’s services were “in
connection with the case,” the courts treat that phrase as having
an extensive reach. 	See In re Laferriere, 286 B.R. 520, 528
(Bankr. D. Vt. 2002). 	Once an attorney is “representing the
debtor in [the] case” within the meaning of § 329(a), that
attorney must disclose compensation for services on any matter
having a connection with the case. 	Services are “in connection
with” the bankruptcy case “if it can be objectively determined
that the services rendered or to be rendered by the attorney have
or will have an impact on the bankruptcy case.” 	In re Rheuban,
121 B.R. 368 (Bankr. C.D. Cal. 1990), rev'd in part on other
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grounds, 124 B.R. 301 (C.D. Cal. 1990), on remand, 128 B.R. 551
(Bankr. C.D. Cal. 1991). 	See also 	In re Mayeaux, 269 B.R. 614,
623 (Bankr. E.D. Tex. 2001). 	As explained in In re Campbell, 259
B.R. 615, 626 (Bankr. N.D. Ohio 2001):
The scope of the phrase “in connection with the case”
is broad. 	In re Keller Fin. Servs. of Fla., Inc., 248
B.R. 859, 878-79 (Bankr. M.D. Fla. 2000); Cohn v. U.S.
Trustee ( In re Ostas), 158 B.R. 312, 321 (N.D.N.Y.
1993). 	“The phrase may include services related to the
precipitating cause of the bankruptcy, or services
which are inextricably intertwined with the
bankruptcy.” In re Keller Fin. Servs. of Fla., 248 B.R.
at 879. 	See also In re Hargis, 148 B.R. 19, 21 (Bankr.
N.D. Tex. 1991) (holding in the Chapter 11 context that
services by an attorney which enhance, preserve,
litigate, or discharge liabilities, or which affect
assets of the debtor are services in connection with
the case). 	The phrase is not so broad, however, that
it includes every service rendered to a person who is a
debtor. 	See for example, In re Swartout, 20 B.R. 102
(Bankr. S.D. Ohio 1982) (determining that services
related to a debtor's divorce proceeding were not
connected to the bankruptcy case within the meaning of
§ 329).
Barber’s services in the landlord-tenant actions to enforce the
debtor’s leases of real property to tenants had an impact on the
estate. 	Thus, under any of the various interpretations of the
phrase “in connection with” as it is used in § 329(a), whether
the interpretation articulated in In re Rheuban, the one
articulated in In re Keller Financial, or the one articulated in
In re Hargis, Barber’s services constitute services rendered “in
connection with” the bankruptcy case within the meaning of
§ 329(a).
Barber argues that the services were not “in connection with
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the case” based on D’Lites of America and Johns-Manville because
the services were with respect to ordinary course of business
litigation, and not with respect to the bankruptcy aspects of the
case. 	Neither of those decisions addressed the meaning of the
phrase “in connection with the case” under § 329(a), and Barber’s
argument is rejected.
Barber’s reliance on Palmer v. U. S. Trustee (In re Hargis),
887 F.2d 77 (5th Cir. 1989), is similarly misplaced. 	There, the
attorney rendered services to the debtor prepetition (as well as
postpetition), and the services rendered prepetition in matters
having nothing to do with the bankruptcy case plainly could not
be treated as rendered in connection with the case, and, of
course, some postpetition services might also not meet the “in
connection with” test. 	The court of appeals had no occasion to
address the meaning of the phrase “in connection with the case”
in § 329(a), and had no occasion to review the bankruptcy court’s
later articulation of the meaning of that phrase in In re Hargis,
148 B.R. at 21 (quoted above in the passage from In re Campbell).
III
Barber claims that he had a good faith argument for an
extension of the law under Rule 9011. 	But the court has inherent
authority to order a disgorgement of fees when an attorney
violates 11 U.S.C. § 329(a). 	Law Offices of Nicholas A. Franke
v. Tiffany (In re Lewis), 113 F.3d 1040, 1045 (9th Cir. 1997);
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Mapother & Mapother, P.S.C. v. Cooper (In re Downs), 103 F.3d
472, 477 (6th Cir. 1996); Neben & Starrett, Inc. v. Chartwell
Fin. Corp. ( In re Park-Helena Corp.), 63 F.3d 877, 880 (9th Cir.
1995); Arens v. Boughton (In re Prudhomme), 43 F.3d 1000, 1003-04
(5th Cir. 1995). 	As explained in In re Campbell, 259 B.R. at
627:
“Section 329 and Rule 2016 are fundamentally rooted in
the fiduciary relationship between attorneys and the
courts.” 	In re Downs, 103 F.3d at 480. 	Bankruptcy
courts have the inherent power to sanction an attorney
for a breach of this fiduciary obligation. 	In re
Downs, 103 F.3d at 478. 	The “failure to comply with
the disclosure rules is a sanctionable violation, even
if proper disclosure would have shown that the attorney
had not actually violated any Bankruptcy Code provision
or any Bankruptcy Rule.” 	Neben & Starrett, Inc. v.
Chartwell Fin. Corp. ( In re Park-Helena Corp.), 63
F.3d 877, 880 (9th Cir. 1995). 	Sanctions may also be
imposed for negligent or inadvertent failures to
disclose. 	In re Park-Helena Corp., 63 F.3d at 881.
The court acted pursuant to its inherent authority, not Rule
9011, and Barber’s argument that Rule 9011 controls misses the
mark. 	Even under Rule 9011, “an inquiry reasonable under the
circumstances” would have included research into decisions under
§ 329(a) (instead of decisions under § 327(a)), and that research
would have disclosed to Barber that his argument was not a
“nonfrivolous argument for the extension, modification, or
reversal of existing law.”
Barber failed to disclose the fees when he should have, and
refused to amend his 2016(b) statement and make the appropriate
application for compensation when the United States Trustee
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advised him of the error. 	The court’s prior order directed that
Barber disgorge $500.00 and place the $1,532.00 balance of the
$2,032.00 fee for landlord-tenant work in escrow pending a ruling
on an application to be filed under 11 U.S.C. § 330, with that
$1,532.00 to be returned to the debtor if a fee application was
not filed. 	“Attorneys who fail to disclose compensation timely
should suffer strict and quick consequences including the
imposition of sanctions or the disgorgement of all fees paid in
the case.” 	In re Hackney, 347 B.R. 432, 443 (Bankr. M.D. Fla.
2006) (citations omitted). 	The sanction in this case was modest,
sufficient to deter non-compliance with § 329(a), but took into
account circumstances showing that Barber’s conduct was only
minimally egregious (those circumstances having included Barber’s
misguided but good faith belief that D’Lites of America and
Johns-Manville made § 329(a) inapplicable to his services on the
landlord-tenant cases).
Although Barber filed a monthly operating report that the
debtor prepared that showed the payments made to Barber, that was
not the same as filing the required statement under § 329(a) and
Fed. R. Bankr. P. 2016(b). 	“Counsel's fee revelations must be
direct and comprehensive. 	Coy or incomplete disclosures which
leave the court to ferret out pertinent information from other
sources are not sufficient.” 	In re Saturley, 131 B.R. 509, 517
(Bankr. D. Me. 1991) (citations omitted). 	The bankruptcy system
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cannot function appropriately under a system in which “disclosure
is required only if the payment information ‘leaks’ from another
source.” 	In re Mayeaux, 269 B.R. at 627.
The propriety of imposing sanctions is reinforced by
Barber’s failure to comply with Rule 2014(a) by filing a proper
application to be employed as the debtor in possession’s counsel,
a failure that independently would warrant ordering disgorgement,
and a failure that inexplicably continues to the date of
preparation of this decision despite having been noted in the
court’s prior decision.
IV
The court directed Barber to disgorge into an escrow
account, awaiting an application for compensation, the fees
received other than the $500 that the court directed him to
disgorge to the debtor. 	That order was justified both as a
sanction for violating § 329(a) and because § 330(a) requires
such an application whenever an attorney’s employment must be
authorized under § 327. 	Despite D’Lites of America and Johns-
Manville, Barber could not have been employed without court
authorization under § 327 to handle the landlord-tenant actions.
Even the employment of an attorney “for a specified special
purpose, other than to represent the trustee in conducting the
case,” requires court approval under the standards of § 327(e)
(or under the more rigorous standards of § 327(a) if the attorney
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is not “an attorney that has represented the debtor” within the
meaning of § 327(e)). 	Without court approval under § 327(a) or
§ 327(e), as the case may be, neither Barber nor some other
attorney could have been employed solely to conduct the debtor’s
ordinary course of business landlord-tenant litigation. 	See In
re 50-Off Stores, Inc., 213 B.R. 646, 654-655 (Bankr. W.D. Tex.
1997). 	See also In re Action Video, Inc., 2003 WL 21350081
(Bankr. M.D.N.C. June 9, 2003) (employment of accountant to
prepare tax returns required § 327(a) court approval because
preparation of returns is a trustee duty). 	Without such
authorization of employment, and without, in turn, court approval
of compensation under 11 U.S.C. § 330(a)(1), Barber is not
entitled to receive compensation for his services in the
landlord-tenant actions.
V
An order follows denying the motion to vacate.
[Signed and dated above.]
Copies to: Debtor; Debtor’s attorney; Office of United States
Trustee.
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