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Goldsmith v. United States Trustee

United States District Court, D. Nevada

October 11, 2017

Jonathan Goldsmith, Appellant
v.
United States Trustee, Appellee

          ORDER AFFIRMING BANKRUPTCY COURT DECISION

          JENNIFER A. DORSEY UNITED STATES DISTRICT JUDGE.

         After his two-year representation of Chapter 11 bankruptcy petitioners resulted in the dismissal of his clients' case, Appellant Jonathan Goldsmith was found to have provided services of no reasonable value to his clients. The bankruptcy judge deemed him entitled to $0.00 in attorney's fees and costs, and he was ordered to return to his clients the entire $15, 000 retainer. Goldsmith appeals, arguing that the bankruptcy court erred in making its findings after a five-minute summary hearing, with no evidentiary hearing, and in failing to consider certain stipulations. Appellee United States Trustee responds that Goldsmith submitted the issues on his brief and declined two opportunities for oral argument, and that the stipulations at issue were immaterial to the court's findings. I find that the bankruptcy court did not abuse its discretion or commit reversible error and thus affirm.

         Background[1]

         Goldsmith filed a voluntary Chapter 11 petition on behalf of his clients Luis Burgos and Dorian Burgos (debtors) on June 9, 2012. A year later, the Office of the United States Trustee filed a motion to dismiss for the debtors' failure to file any monthly operating reports (MORs), as well as their failure to file a proposed disclosure statement and plan of reorganization. The twelve outstanding MORs were then filed on July 5, 2013, just twelve days before the dismissal hearing. Deadlines for filing a proposed plan and disclosure statement and confirming the plan were then set for July 24 and October 30, 2013, respectively. Debtors were also ordered to timely file their MORs. The proposed plan and disclosure statement were timely filed on July 24, 2013, but debtors did not notice the hearing to approve the disclosure statement.

         More than thirteen months after the Chapter 11 proceeding was commenced, Goldsmith filed an application for approval of his employment as counsel for the debtors. The application was approved on October 15, 2013, and backdated his authorization to represent them to the date the petition was filed. On the deadline for confirming the plan of reorganization, Goldsmith filed an amended disclosure statement and a proposed amended plan. The next day, he filed a stipulation with the Trustee to extend the plan-confirmation deadline to January 28, 2014. The stipulation was approved on November 4, 2013, and the debtors were ordered to timely file their MORs.

         Then, on January 28, 2014, Goldsmith filed two amended disclosure statements, two proposed amended plans of reorganization, and a motion for conditional approval. The motion was denied. One week later, Goldsmith filed yet another stipulation with the Trustee to extend the plan-confirmation deadline again until April 29, 2014. He represented that this extension would be the “last and final extension of the confirmation deadline.” The stipulation was approved on February 5, 2014.

         Goldsmith filed a fee application on March 12, 2014, for services rendered from March 19, 2012, through March 12, 2014, and he attached an hourly billing statement. The fee-application matter was called for hearing on April 9, 2014, but it was continued until April 23, 2014, because the February 2014 MOR hadn't been filed and no additional steps had been taken to meet the stipulated, final-confirmation deadline. When Goldsmith's fee-application matter was called on calendar on April 23, 2014, Goldsmith did not appear, and his fee application was thus denied without prejudice.

         Goldsmith filed yet another amended disclosure statement on April 28, 2014, just one day before the stipulated, final-confirmation deadline. The Trustee then moved to dismiss the action for failure to prosecute on May 1, 2014, and the motion was granted one week later. Goldsmith filed a motion for relief from the dismissal order on July 30, 2014, which he withdrew on the ground that it was filed in error, and he refiled the motion for relief on October 21, 2014. The relief motion was noticed to be heard on November 25, 2014, but the date was not available, so Goldsmith renoticed it to be heard on March 4, 2015, and that hearing was continued to April 22, 2015, because the prior date had not been noticed to all creditors.

         On March 4, 2015, Goldsmith filed an amended notice of hearing, a certificate of service representing that notice had been mailed to all creditors, and MORs through April 2014. Nine more MORs (May 2014 - February 2015) were filed on March 6, 2015, and MORs for March and April 2015 were filed on April 21, 2015, the day before the relief hearing. The matter was heard and taken under submission on April 22nd, and the relief motion was denied on May 6, 2015. The bankruptcy court concluded that Goldsmith had not diligently represented the debtors in the case and that his neglect was not excusable. The court also held that Goldsmith's representation was inadequate and relief was not warranted. Goldsmith never appealed the court's order. The bankruptcy case was closed on May 22, 2015.

         Debtors filed a separate Chapter 11 case with a new attorney representing them on June 17, 2015. Their prior bankruptcy case was reopened on the Trustee's motion, and the Trustee filed a motion to disgorge compensation from Goldsmith; the debtors (under their new representation) joined. Goldsmith filed an opposition to the disgorgement motion and a renewed fee application seeking fees for his services to the debtors during the dismissed bankruptcy case. The Trustee and the debtors opposed Goldsmith's fee application. The disgorgement motion and the renewed fee application were heard and taken under submission on October 28, 2015. That same morning, Goldsmith noticed errors on his declaration in opposition to the disgorgement motion, so he filed an amended declaration. The bankruptcy court denied Goldsmith's fee application and granted the disgorgement motion on December 15, 2015.

         Discussion

         A. Standard of review

         I review the bankruptcy court's denial of attorney's fees and costs and its disgorgement order for abuse of discretion.[2] The bankruptcy court “abuses its discretion if it does not apply the correct law or if it rests its decision on a clearly erroneous finding of material fact.”[3] So I “must affirm unless the [bankruptcy] court applied the wrong legal standard or its findings were illogical, implausible or without support in the record.”[4]

         B. Issues presented on appeal

         Goldsmith raises six issues on appeal. He argues that it was an error of law or an abuse of discretion amounting to a due-process violation for the bankruptcy court to: (1) grant the Trustee's motion to disgorge compensation paid to him and to deny his request to approve compensation by making findings of fact without the benefit of discovery or an evidentiary hearing; (2) decide those motions based on findings of fact and declarations that were not part of a stipulated record and were not subject to discovery or cross-examination; (3) fail to resolve disputed facts without the benefit of discovery or an evidentiary hearing; (4) find that Goldsmith was not entitled to bill for costs-including the filing fee-and that he must return fees that were billed for matters prior to the bankruptcy case filing and after the case was dismissed without a hearing; (5) find that Goldsmith was entitled to $0.00 in attorney's fees and costs; and (6) fail to consider stipulated changes to Goldsmith's declaration in opposition to the disgorgement motion.[5] Issues 1-4 revolve around the lack of an evidentiary hearing or discovery, so I address them as a group, then I address issues 5 and 6 sequentially.

         1. Issues 1-4: No discovery or evidentiary hearing

         Goldsmith argues that it was a violation of his procedural-due-process rights for the bankruptcy court to grant the Trustee's disgorgement motion, deny his application for compensation, and order him to disgorge to his clients the entire $15, 000 retainer-even though he paid certain expenses like the case-filing fee-based on unresolved, disputed facts and without holding an evidentiary hearing or allowing him to conduct discovery.[6] As the Trustee correctly points out, however, Goldsmith declined his opportunity for oral argument twice.[7]

         At the combined hearing on Goldsmith's application for compensation and the Trustee's disgorgement motion, the bankruptcy court asked Goldsmith, “Is there anything that you want to argue that's not included in the briefs at this point?”[8] Goldsmith responded that there was nothing else he wanted to argue.[9] Then again, before taking the matters under submission, the bankruptcy court asked, “Mr. Goldsmith, is there anything you want to add beyond what appears in the relatively extensive briefs on this matter?”[10] Once again, Goldsmith responded “No, Your Honor.”[11] When Goldsmith did not affirmatively request oral argument, and he declined the court's offer for oral argument twice, he cannot legitimately argue that the bankruptcy court committed an error of law or abused its discretion in deciding the motions without oral argument. The bankruptcy court gave him every opportunity to have the hearing he now belatedly argues he was entitled to, and he submitted on his “relatively extensive briefs.” It was not an abuse of discretion to abide by Goldsmith's wishes.

         2. Issue 5: Finding that Goldsmith was entitled to $0.00 in attorney's fees and costs and ordering disgorgement of the $15, 000 retainer

         Goldsmith next argues that the bankruptcy court violated his Fifth Amendment right against wrongfully taking property when it ordered him to disgorge to his clients the entire $15, 000 retainer and awarded him $0.00 in attorney's fees and costs.[12] The disgorgement and fee denial are two sides of the same coin: Goldsmith did not perform services of any value to his clients, so he was therefore ordered to disgorge all of the retainer that they had paid to him. He argues that he paid certain expenses like the filing fee, so ordering him to pay that back is a taking of his personal property without due process.[13] The bankruptcy court did not violate his Fifth Amendment right simply because the $15, 000 retainer was not his property. And it was not ...


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