IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
R. C. and BARBEL ROBERTS, No. 93-12490
Memorandum of Decision
For almost two years before debtors R.C. and Barbel Roberts filed their Chapter 11 petition,
the law firm of Pascoe & Rafton was their counsel. On the eve of their bankruptcy filing, at
Pascoe's instruction, the debtors gave Pascoe two cashier's checks of $20,000.00 each. Pascoe
treated these check as payment in full for the outstanding balance owed of $24,777.78 and a
Chapter 11 retainer of $15,222.22.
Pascoe applied for permission to be employed by the estate soon after the petition was filed.
In the application, Pascoe said only that the debtors had "consulted from time to time" with him
and that he had accepted a prepetition retainer of $15,241.28. The application was patently
false, in that Pascoe had done extensive legal work for the debtors and the $15,241.28 was
of a $40,000.00 payment on the eve of bankruptcy.
Pascoe's declaration was even more false. There, William Pascoe declared under oath that
he had no connection with the debtors and held no interest adverse to their estate. Pascoe did
in fact have an extensive connection with the debtors due to his prebankruptcy representation,
and had a potential adverse interest because the estate might well have been able to recover a
large portion of the $40,000.00 payment as a preference.
Based on the application and declaration, the court approved Pascoe's employment. Pascoe
represented the debtors for only about two more months before he had a falling out with the
debtors and they obtained new counsel. During those few months, Pascoe ran up fees totalling
After lengthy and strongly opposed confirmation proceedings in which the debtors were
represented by the new counsel, the debtors obtained confirmation of their plan of
reorganization. Now before the court is Pascoe's fee application. The debtors have objected,
bringing to the court's attention the fraudulent employment application. The U.S. Trustee has
objected, arguing that the amount of fees sought by Pascoe is unreasonable and unjustifiable.
Both objections are well taken.
II. Failure to Disclose
Section 327(a) of the Bankruptcy Code provides that with the court's approval a debtor in
possession may employ an attorney who is disinterested and does not hold an interest adverse
to the estate. Rule 2014(a) of the Federal Rules of Bankruptcy Procedure requires that the
application for approval of employment and the accompanying declaration disclose all
attorney's connections with the debtor. Pascoe violated this rule when he concealed the extent
of his prepetition relations with the debtors and did not disclose the two $20,000.00 cashier's
checks he took from the debtors on the day of filing.
The court does not believe for a second Pascoe's blaming of his lapse on personal problems.
Pascoe has been practicing bankruptcy law for many years, and knew exactly what he was
doing. In this district, the "disinterestedness" test of section 327(a) is strictly construed so as
to disqualify any attorney from representing a debtor if the attorney is a prepetition creditor.
In re Siliconix, Inc.
, 135 B.R. 378 (N.D.Cal.1991). Not wanting to waive his prepetition claim
and knowing the court would not approve his employment if he did not, Pascoe insisted on a
large payment which he allocated first to the outstanding balance owed on account by the
debtors. By failing to mention this payment and not disclosing the extent of his prepetition
involvement with the debtors, Pascoe expected to have his cake and eat it too.
As Pascoe himself concedes, the failure to fully disclose all of the information required by
FRBP 2014(a) justifies a forfeiture of all fees. See In re American Thrift & Loan Assn.
B.R. 381, 388-390 (Bkrtcy.S.D.Cal.1992), and cases therein cited. This is a harsh penalty
which the court rarely imposes, but feels that it is required in this case. The court does not
believe Pascoe's assertions that his failures were accidental and that he did not know the law.
He is an experienced bankruptcy practitioner who knew better and intended to deceive (and did
deceive) the court. Accordingly, Pascoe & Rafton shall forfeit all fees in this case and shall be
ordered to return the sum of $15,222.22 to the debtors forthwith.
III. Value of Services
Because the court has ordered the forfeiture of all fees, there is no need for the court to deal
at length with the objections raised by the U.S. Trustee as to the value of Pascoe's services.
However, the court does note that those objections have merit. Pascoe charged $65,000.00 for
only a few weeks' work which consisted largely of filing the petition. He fought few if any
battles, and spent an inordinate amount of time on routine matters such as obtaining
employment of professionals. He also duplicated the efforts of special counsel. The real work
of the case was done by the debtor's new counsel, who charged only $99,000.00 despite
laboring for many months and achieving confirmation of a plan. A very large reduction in
Pascoe's fees would be in order even if Pascoe had not forfeited his right to fees by misleading
By manipulating the treatment of a large payment from the debtors on the eve of bankruptcy
and failing to disclose this payment, and by misrepresenting the extent of its prepetition
relationship with the debtors, the law firm of Pascoe & Rafton has forfeited its right to any
compensation whatsoever in this case. It shall therefore be ordered to return to the debtors the
$15,222.22 it took as a retainer for postpetition work. The order shall also recite that the order
of the court approving the employment of Pascoe & Rafton is vacated as having been made in
error, and that the order is without prejudice to the estate's right to recover other sums as
preferences or otherwise in the event the case is subsequently converted to Chapter 7.
Counsel for the debtors shall submit an appropriate form of order forthwith.
Dated: September 18, 1994 _______________________