IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
|DO NOT PUBLISH
This case disposition has no value as precedent and is not intended for publication. Any publication, either in print or electronically, is contrary to the intent and wishes of the court.
CALIFORNIA FIDELITY, INC., No. 95-10110
Memorandum of Decision
Debtor California Fidelity, Inc., filed its Chapter 11 petition on January 19, 1995. On the day
before filing, it gave its Chapter 11 counsel, Wright, Robinson, McCammon, Osthimer & Tatum,
two cashiers checks. One check, for $25,000.00, was made as a retainer for Chapter 11 work.
The second check, for $25,929.36, was for prefiling services related to the bankruptcy. The firm
had also received a payment of $2,000.00 about five weeks earlier for bankruptcy-related
In its disclosure statement required by FRBP 2016(b), the law firm disclosed only the
$25,000.00 retainer. No mention was made of either the $25,929.36 check or the $2,000.00
On February 3, 1995, the law firm applied for approval of its employment as counsel for the
debtor in possession. The declaration of counsel required by FRBP 2014(a) disclosed only that
the firm was "retained" prior to the filing and that the terms of employment included a retainer
fee of $25,000.00. No mention of the other payments was made, and the declaration averred that
the firm had no connection with the debtor other than representing the debtor "in this
proceeding." Believing this to be true, the court entered an ex parte order approving the
Only when the U.S. Trustee brought her motion to vacate the order did the court realize that
the firm had violated both FRBP 2014(a) and FRBP 2016(b) by failing to disclose most of the
money it had received from the debtor. Because of this nondisclosure, the court grants the
motion and vacates the order.
The violation of Rule 2016(b) is clear and flagrant. Section 329(a) of the Bankruptcy Code
requires any attorney who was paid anything within one year before the filing to file a written
disclosure statement if the payment was made in contemplation of or in connection with the
bankruptcy. Rule 2016(b) sets the deadline for such disclosure at 15 days after the petition was
filed. The payments in question were not disclosed by the firm until more than a month after the
filing, and then only in response to the U.S. Trustee's motion.
The firm argues that the payments were disclosed by the debtor in the debtor's schedules.
However, section 329(a) requires a written statement by the attorney, not the debtor. Moreover,
it is no justification for a disclosure statement which is patently false that the true information
was available in the schedules.
The firm argues that because it was paid in such a manner as to avoid making the $25,929.36
recoverable as a preference, it did not need to disclose the payment in its fee application.
However, it is not the place of counsel to decide if there is any sort of conflict of interest. Rule
2014(a) imposes on counsel the responsibility for disclosing all connections
it may have with the
debtor; it is for the court to determine if the connection rises to the level of a conflict of interest.
Even setting aside the flagrant violation of Rule 2016(b), the court feels strongly that it has
been deceived by the firm. The declaration of counsel included with the employment application
read for all the world like the firm had no prior relationship with the debtor and had been paid
a single retainer fee of $25,000.00, when in fact the firm had done extensive work for the debtor
before bankruptcy and had been paid almost $28,000.00 in undisclosed fees. The court feels
strongly that by this deception the firm has forfeited eligibility to represent the estate in this case.
For the foregoing reasons, the motion of the U.S. Trustee will be granted and the order
appointing the firm will be vacated.
Dated: March 6, 1995 _______________________