Hi Catherine,
1) What is the consequence of an attorney not seeking/obtaining employment
in a chapter 11 case? The attorney cannot be paid from the estate. This
does not mean the attorney is not able to keep fees received prepetition
and the lack of an order approving employment is not equal to an order
disgorging fees. To recover fees paid, the client would need to file a
motion to disgorge fees pursuant to section 329. The client would need to
show the fees paid were not reasonable, except that the attorney will not
be allowed to keep postpetition fees absent an order employing the
attorney, even if the fees paid were reasonable.
2) On what grounds would the client file a POC in the attorney's bankruptcy
case? Unless there is an order to disgorge fees, or some other
adjudication that the attorney owes money to the client, the client has at
most a contingent, unliquidated claim. A non-dischargeability motion
assumes that there is some debt not to be discharged. In this case there
is not yet a debt owed the client. If there was a debt owed the client why
would it be non-dischargeable? Fraud? How?
3) For what purpose would the client contact the Ch 7 trustee (the
attorney's chapter 7 trustee)? To report unreported income? The U.S.
Trustee might be interested if the attorney has a practice of defrauding
clients, but I'm not sure that is the case here.
Summary: Although the client may be upset at the attorney and the attorney
may not have followed the law, in order for the client to recover anything
he or she would first have to obtain a judgment against the attorney or an
order for the attorney to disgorge fees. This would likely be by motion in
the case where the attorney took the improper fees. Of course the client
would want to file something to stop the clock from running on the claim in
the attorney's bankruptcy. Realistically, even if the client obtained an
order disgorging fees (and paid counsel $1000+ for the motion) they might
never recover from the attorney. However, the attorney might not practice
bankruptcy law again unless the attorney met certain requirements imposed
by the court. The attorney could be reported to the U.S. Trustee which may
or may not take any action. The U.S. Trustee would probably keep a record,
however, and oppose employment by attorney in future chapter 11 cases, if
any.
Best Regards,
*Link Schrader, Attorney*
Law Office of Link W. Schrader
Mail: P.O. Box 3723, Tustin, CA 92781
Office: 106 W. 4th Street, Suite #308, Santa Ana, CA 92701
Office: (714) 542-5922; Mobile/Text: (310) 413-6924
San Diego: (619) 952-8342; Fax: (310) 878-4158
www.schrader-law.com
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