by Two cases out of the Western District of Louisiana found that attorney Glay H. Collier’s fee collection practices violated sections 526, 528, 362 and 524 of the Bankruptcy Code. Wheeler v. Collier (In re Wheeler), No 11-1670 (W.D. La. May 22, 2014) and (July 17, 2014), and Patrick v. Collier (In re Patrick), No. 14-11203 (Bankr. W.D. La. July 23, 2014). Citing Milavetz, Gallop & Milavetz, P.A. v. United States, 130 S.Ct. 1324, 1329 (2010), both courts found that Collier was a “debt collection agency” and that the debtors were “assisted persons,” thereby making the requirements of sections 526 and 528 applicable.
Collier (through his bankruptcy law firm McBride & Collier) advertises “No Money Down Chapter 7 Bankruptcy.” Instead of collecting fees up front, Collier uses a document entitled “credit/debit authorization form” under which he collects his fee by debiting the debtor’s bank account as the case progresses.
When debtor, Wheeler, sought legal counsel from Collier, she signed the form in blank as well as another form entitled “Rights and Duties of Filing a Bankruptcy with the Firm of McBride & Collier.” She was not given copies of either signed form. Pursuant to the credit/debit authorization, Collier collected $100 pre-bankruptcy, $800 post-petition but pre-discharge, and $400 post-discharge. The case came before the district court on Collier’s unopposed motion for withdrawal of reference from the bankruptcy court.
On motion for summary judgment, the court granted judgment to the debtor/plaintiff for violation of the automatic stay under section 362(a)(6). The court rejected Collier’s argument that the collection of fees during the bankruptcy was not a violation of the automatic stay because section 362(a) provides that the filing of the bankruptcy petition prohibits “(6) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title,” and his fees were not a “claim.” Citing Rittenhouse v. Eisen (In re Rittenhouse), 404 F.3d 395 (6th Cir. 2005), the court found that section 362(a)(6) was broad enough to encompass a claim for attorney fees by the debtor’s bankruptcy attorney. In the absence of evidence that the debtor authorized the post-petition payment other than by the defective pre-petition agreement, Wheeler established violation of the automatic stay.
Although the court found that “the pre-petition Credit/Debit Authorization agreement in this matter clearly failed to comply with the Section 528 requirements, and is therefore, void pursuant to Section 526(c)(1),” it deferred judgment for damages on that claim pending an evidentiary hearing as required by section 526. With respect to the claim for violation of the discharge injunction under section 524(a)(2), the court agreed with Collier that that section does not create a private right of action but found that the court’s inherent contempt power under section 105(a) permitted a court to sanction a creditor for violation of the discharge injunction. It deferred that claim for determination after evidentiary hearing as well.
After the hearing, the court found that Collier’s fee collection practices violated section 528(a)(1) and (2), and section 524(a)(2). It ordered disgorgement of fees in the amount of $1,300, damages under section 105(a) in the amount of $10,000, and punitive damages in the amount of $30,000, all payable to the debtor. It also sanctioned Collier in the amount of $10,000 payable to the court and ordered Collier and his law firm to cease all “no money down” bankruptcies. The court additionally referred the case to the Chief Judge for a determination of whether further sanctions including suspension or disbarment were appropriate. Wheeler v. Collier (In re Wheeler), No. 11-1670 (W.D. La. July 17, 2014).
Shortly after the district court’s initial findings on summary judgment in Wheeler, Collier entered into a “no money down” fee agreement with debtor, Patrick. Patrick v. Collier (In re Patrick), No. 14-11203 (Bankr. W.D. La. July 23, 2014). In that case, Collier’s retainer agreement stated: “the fee for these services is a flat fee of $2,400.” The agreement stated: “Client(s) understands that these costs and fees are discharged by the filing of the chapter 7 and that client is under no legal obligation to repay any of them.” Collier also had Patrick sign “an ACH debit authorization form which permitted Collier to automatically debit the Debtor’s bank account post-petition for $200 per month for twelve (12) months, or $2,400.” A post-petition retainer agreement specified that Collier would “provide certain services, including: (i) the transmission of all necessary documents including schedules, pay stubs, tax returns and required motions to the court and/or chapter 7 trustee in order to obtain a discharge; (ii) the stopping of any garnishments active before the filing of the chapter 7 petition; (iii) all debtor(s) education fees and the filing of debtor’s education certificates; and (iv) representation at the trustee § 341 meeting and any subsequent hearings requiring representation. In the post-petition agreement, the Debtor agreed to pay Collier $2,400.”
In June, 2014, the trustee in Patrick moved to have Collier disqualified as counsel for the debtor. The court found that it had inherent power to remove counsel under sections “105(a), 329, 362, 526 and 528 and Bankruptcy Rules 2016(b), 2017 and ULR 83.2.4 (made applicable to this case by virtue of LBR 9029-3) and the inherent power of the court to preside over the disqualification of a lawyer representing a party in a bankruptcy case.”
The court found that the agreements signed by the debtor did not comply with the requirements of section 528 in that they failed to identify the date when the periodic installment payment was due and the amount of each payment. The debit authorization was not executed by Collier and did not fulfill the requirements of a written contract between a debt relief agency and an assisted person. As in Wheeler, the Patrick court found that any post-petition collection by Collier pursuant to the deficient agreement violated the automatic stay. Furthermore, under the Louisiana Rules of Professional Conduct and the ABA Model Rules, the court found that Collier’s improper collection practices created a conflict of interest between him and his client.
Instead of granting the trustee’s motion to disqualify, however, the court ordered Collier to disgorge his fees to the debtor but to continue to represent her “without entitlement to compensation.”
[…] found this improper and have made the lawyers cough up their fees. The latest cases are out of Louisiana, The courts find when this is for basic bankruptcy services it is wrong. The Lawyer is […]