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Wheaton v. Fessenden

United States Bankruptcy Appellate Panel of the First Circuit

April 14, 2016

COREY R. WHEATON, Debtor. JEFFREY P. WHITE AND ASSOCIATES, P.C., Appellant,
v.
PETER C. FESSENDEN, Chapter 13 Trustee, Appellee

          Appeal from the United States Bankruptcy Court for the District of Maine. Bankruptcy Case No. 12-21291-PGC. (Hon. Peter G. Cary, U.S. Bankruptcy Judge).

         Jeffrey P. White, Esq., on brief for Appellant.

         Peter C. Fessenden, Chapter 13 Trustee, on brief for Appellee.

         Before Boroff, Godoy, and Finkle, United States Bankruptcy Appellate Panel Judges.

          OPINION

         Boroff, U.S. Bankruptcy Appellate Panel Judge.

         Jeffrey P. White and Associates, P.C. (" Attorney White" ) appeals from the bankruptcy court's July 16, 2015 order (the " Vacating Order" ), vacating its June 8, 2015 order on a motion for a review of attorney's fees filed by Peter C. Fessenden, Esq., Chapter 13 Trustee (the " Trustee" ). For the reasons set forth below, we REVERSE the Vacating Order and REMAND the matter to the bankruptcy court for entry of an order consistent with this opinion.

         BACKGROUND

         A. The Bankruptcy Case

         On October 16, 2012, Corey R. Wheaton (the " Debtor" ) filed a petition under chapter 13 of the Bankruptcy Code,[1] together with his schedules, statements and a chapter 13 plan. He has been represented by Attorney White at all relevant times prior to the issuance of the Vacating Order.

         During the course of his case, the Debtor filed two amended plans. Numerous parties objected to those plans, and neither was ever confirmed. On February 28, 2014, the Trustee filed a motion to dismiss the case alleging that the Debtor had failed to make certain payments under the Debtor's most recent unconfirmed plan.[2] The Debtor opposed the motion, arguing that he would recommence making payments and cure any existing defaults over the remaining life of his plan through a plan modification. But the Debtor did not file another amended plan.

         By April of 2014, the Trustee grew tired of waiting. On April 8, he filed a motion requesting a status conference and a scheduling order to address the stagnation of the case. The bankruptcy court granted the motion, ordering the Debtor to: (a) " notice and schedule a status conference . . . on the status and progress of confirmation; " (b) consult with the Trustee and those parties objecting to confirmation; and (c) " file a proposed form of scheduling order for the prompt prosecution of final confirmation" of the plan. The Debtor failed to comply, and on June 4, 2014, the bankruptcy court responded to the Debtor's moribund behavior by issuing an order to show cause why the case should not be dismissed for failure to prosecute.

         On June 11, 2014, the bankruptcy court held a hearing on, among other things, the Trustee's motion to dismiss and the order to show cause. And the next day, the bankruptcy court entered an order warning that the case would be dismissed in 14 days unless the Debtor converted the case " to a more appropriate chapter." The order also provided that " [i]f the case [were] dismissed . . . the court [would] expressly retain[] jurisdiction over any funds held by the trustee for the purpose of acting upon any application for fees for the debtor['s] attorney or other professionals employe[d] by the estate." The Debtor failed to seek conversion of the case to any other chapter of the Bankruptcy Code, and, on June 27, 2014, the bankruptcy court entered an order dismissing the case.

         B. The Fee Applications

         Attorney White filed his first application for compensation on November 13, 2013, seeking $5,709.75 in attorney's fees and $188.14 in expenses for the period of February 6, 2012, through November 7, 2013. No party objected, and on December 17, 2013, the bankruptcy court granted the application without a hearing (" 2013 Fee Award" ).

         Attorney White filed a further and final application for compensation on June 25, 2014, seeking $4,062.00 in attorney's fees and $65.04 in expenses for the period of November 8, 2013, through June 25, 2014. No party objected, and on July 29, 2014, the bankruptcy court granted the final application without a hearing (" 2014 Fee Award" ). The bankruptcy court authorized the Trustee to disburse the 2014 Fee Award to Attorney White to the extent of available funds. It also ordered the Trustee to disburse to Attorney White $2,816.89 in outstanding fees due under the 2013 Fee Award.

         C. Subsequent Events

         On August 13, 2014, the Trustee paid the $2,816.89 in outstanding fees due under the 2013 Fee Award to Attorney White, and refunded $7,596.91 to the Debtor. That was a mistake. The Trustee inadvertently overlooked the 2014 Fee Award and, therefore, did not pay it to Attorney White before returning funds to the Debtor.[3] Although Attorney White and the Trustee attempted to recover the disbursed funds from the Debtor, those efforts proved futile.

         On January 26, 2015, the Trustee filed his Final Report and Account (" Final Report" ) showing that he had distributed $4,297.89 to Attorney White and $7,596.91 to the Debtor. The Final Report did not reflect the 2014 Fee Award. Attorney White objected to the Final Report, maintaining that the Trustee had an obligation to pay the 2014 Fee Award before he returned funds to the Debtor, and the bankruptcy court should not approve the Final Report until the Trustee corrected his error.

         On March 31, 2015, the Trustee filed a Motion for Turnover seeking to recover the $7,596.91 refunded to the Debtor so that he could pay the 2014 Fee Award to Attorney White. However, the Trustee also attempted to resolve the matter by a different tack. He filed a Motion for Review of Fees seeking bankruptcy court review of the two fee applications filed by Attorney White and a reduction of the 2013 and 2014 Fee Awards. The Trustee did not offer any basis for why he was entitled to seek reconsideration of those awards and Attorney White objected, in part, on the ground that the period for appealing the 2014 Fee Award had long since passed. There followed settlement conference with the bankruptcy judge which resulted in an agreement on a stipulation for the disposition of the Motion for Review of Fees. And on June 8, 2015, the bankruptcy court, pursuant to that stipulation, entered an Order on Trustee's Motion for Review of Fees (the " Review of Fees Order" ), reducing the amount of unpaid fees due to Attorney White to $3,000.00, and directing the Trustee to pay that amount. It is undisputed that the Trustee paid $3,000.00 to Attorney White in accordance with that order.

         On June 24, 2015, the bankruptcy court held a hearing on the Motion for Turnover and the Trustee's Final Report. At that hearing, the parties and the bankruptcy court discussed whether, in light of the U.S. Supreme Court's ruling in Harris v. Viegelahn, 135 S.Ct. 1829, 191 L.Ed.2d 783 (2015),[4] the Trustee had the obligation all along to refund all monies in his possession to the Debtor upon dismissal of the case, rather than first paying the allowed attorney's fees to Attorney White, and if so, whether Attorney White ought to return the $3,000.00 in attorney's fees received from ...


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