02/14/2008 376 Motion to Compel, filed by James D. Lyon. Hearing scheduled for 2/27/2008 at 10:00 AM at Lexington Courtroom, 3rd Floor.Last day to file objections: 2/29/2008. (Attachments: # 1 Proposed Order) (Barnes, Stephen) (Entered: 02/14/2008)
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Doc 376
IN RE:
CASE NO. 07-50934
CHAPTER 11
HON. WILLIAM S. HOWARD
PLASTICON INTERNATIONAL , INC.
DEBTOR.
MOTION TO COMPEL TURNOVER OF RETAINER FUNDS HELD BY WYATT, TARRANT & COMBS, LLP
Comes now the Chapter 11 Trustee James D. Lyon (the “Chapter 11 Trustee”), solely in his capacity as the Trustee for the Chapter 11 Bankruptcy Estate of Plasticon International, Inc.
(the “Debtor”), pursuant to §§ 541 and 542(a) of Title 11 of the United States Code (the “Bankruptcy Code”), and hereby respectfully requests this Court to enter an Order compelling the law firm of Wyatt, Tarrant, & Combs, LLP (“Wyatt”) to turn over any and all retainer funds held by Wyatt to the Chapter 11 Trustee, because such funds are property of the Bankruptcy Estate.
For his Motion, the Trustee states as follows:
JURISDICTION AND VENUE
1. This Court has jurisdiction over this Motion pursuant to 28 U.S.C. §1334, and venue is proper under 28 U.S.C. §1409. This is a core proceeding under 28 U.SC. §157(b)(2).
PROCEDURAL HISTORY
2. From the commencement of this Bankruptcy case, Wyatt has retained funds that are property of this Bankruptcy Estate. On May 16, 2007, Wyatt filed a voluntary Chapter 11 Bankruptcy Petition commencing the above-captioned case. In his Affidavit in support of the Debtor’s May 17, 2007 Application (Docket No. 8) to Employ Wyatt as attorney for the Debtors, Wyatt attorney Robert J. Brown (“Attorney Brown”) stated that “Wyatt, Tarrant & Combs, LLP, is holding a retainer in the amount of $55,658.22.”
3. On July 10, 2007, the Unsecured Creditors’ Committee (the “Committee”) filed an Application to Employ (Docket No. 102) the law firm of Wise DelCotto PLLC (“WD”). In this Application, the Committee requested that the Court approve a carve-out and requested that the Court order “an initial deposit of $25,000 to be paid by Debtor to the Wise DelCotto Escrow Account[.]” On August 27, 2007, this Court entered an Order (Docket No. 175) approving the Committee’s Application to Employ WD, and ordered “[t]hat the debtor pay over to Wise DelCotto the retention sum sought in the application to be held by Wise DelCotto in an escrow account pending further orders of this Court.” The August 27, 2007 Order did not specify the source of retainer funds to be paid to WD, and WD did not receive a disbursement of $25,000.
4. On October 10, 2007, the Court entered an Order (Docket No. 271) appointing Stephen Palmer as Chapter 11 Trustee.
5. In the Fall of 2007, Wyatt ultimately withdrew as Counsel for the Debtor, and was replaced by the law firm of Fowler, Measle & Bell, PLLC (“FMB”). On October 31, 2007, this Court entered an Order (Docket No. 285) directing Wyatt to disburse to FMB the sum of $23,597.51.[1] The Court directed Wyatt to continue to hold the $32,060.71 portion remaining from the original $55,658.22 pending a decision on Wyatt’s Final Fee Application. In the same Order, the Court stated that it reserved its ruling on the Unsecured Creditor Committee’s request for a portion of the retainer funds pending the disposition of Wyatt’s Final Fee Application.
[1] FMB has agreed to turn over the $23,597.51 in retainer funds that FMB is holding to the Chapter 11 Trustee and has signed an Agreed Order to that effect. This Agreed Order was tendered to the Court on February 13, 2008 (Docket No. 375), but has not yet been entered as of the date of this Motion.
6. On October 29, 2007, Wyatt filed its First and Final Fee Application (Docket No. 281) in this case. On November 16, 2007, this Court entered an Agreed Order (Docket No. 313) regarding Wyatt’s Fee Application in which it ruled that Wyatt was authorized to disburse to itself an expense reimbursement in the amount of $3,463.54, but also provided that Wyatt waived its claim to any fees in this case. In the same order, Wyatt was directed to disburse to WD the remaining balance ($28,597.17) of the funds then held by Wyatt, to be held in escrow pursuant to the Order (Docket No. 175) approving WD’s employment application. Three days later, on November 19, 2007, FMB filed a Motion (Docket No. 320) requesting that the Court set aside its November 16, 2007 Order (Docket No. 313). Specifically, FMB’s November 19, 2007 Motion requested that the retainer funds held by Wyatt be turned over to FMB, rather than WD. No hearing has ever been held on FMB’s motion, nor has the Court entered any Order disposing of FMB’s Motion. The Wyatt funds were never delivered to WD.
7. On November 27, 2007, this Court entered an Order (Docket No. 325) authorizing Wyatt to withdraw as attorney for the Debtor. Upon information and belief and statements of WD, the Chapter 11 Trustee believes that the $28,597.17 retainer funds were never disbursed by Wyatt to WD, and that these funds are still being held in escrow by Wyatt.
8. On January 31, 2008, Stephen Palmer resigned as Chapter 11 Trustee (see Docket No. 366), and on February 8, 2008, the Court entered an Order (Docket No. 371) appointing James D. Lyon as successor Chapter 11 Trustee.
THE WYATT RETAINER FUNDS ARE PROPERTY OF THE BANKRUPTCY ESTATE AND MUST BE TURNED OVER TO THE CHAPTER 11 TRUSTEE
9. The retainer funds are property of the Bankruptcy Estate and should be immediately turned over to Trustee James Lyon. §541(a)(1) of the Bankruptcy Code provides that the bankruptcy estate is comprised of “all legal or equitable interests of the debtor in property as of the commencement of the case[.]” Pursuant to this Court’s November 16, 2007 Order (Docket No. 313), Wyatt waived its claim to any legal fees associated with this case. Consequently, these unearned retainer funds are property of the Estate. Under Kentucky State law, the Debtor retains an equitable interest in an unearned retainer. See e.g. Kentucky Bar Association v. Conley, 707 S.W.2d 343, at 344 (Ky. 1986) (“[I]n dealing with money belonging to his clients, the lawyer is trustee of an express trust[.]”); see also Mapother & Mapother, P.S.C. v. Cooper (In re Downs), 103 F.3d 472, at 478 (6th Cir. 1993) (“Retainers paid to counsel for the debtor are to be held in trust for the debtor, and the debtor's equitable interest in the trust is property of the estate.”) (citing In re Rittenhouse, 76 B.R. 610 (Bkr. S.D. OH 1987)); see also Arens v. Boughton (In re Prudhomme), 43 F.3d 1000, at 1004 (5th Cir. 1995) (citing In re Mondie Forge Co., 154 B.R. 232 (Bkr. N.D. OH 1993) (holding that if the debtor has a legal or equitable interest in unearned retainer under applicable state law, then the unearned retainer is estate property under §541).
10. Wyatt should be directed to immediately turnover and account for the remaining retainer funds to the Chapter 11 Trustee James Lyon. §542 of the Bankruptcy Code provides that “an entity. . . in possession, custody, or control, during the case, of property that the trustee may use. . . shall deliver to the trustee, and account for, such property or the value of such property[.]” The provisions of §542 apply to Chapter 11 cases. See 11 U.S.C. §103(a); see also Mills v. U.S. (In re Mills), 37 B.R. 832, at 834 (Bkr. E.D. TN. 1984) (“The provisions of Bankruptcy Code §§ 541-543 apply equally to both proceedings under chapters 7 and 11.”) (citing 11 U.S.C. §103(a)). Pursuant to §542, Wyatt is required to turn over the retainer funds, in their entirety, to the Chapter 11 Trustee.
WHEREFORE, the Chapter 11 Trustee respectfully requests that this Court enter an Order:
1. Compelling Wyatt to immediately turn over to the Chapter 11 Trustee any and all retainer funds held by Wyatt, which retainer funds total $28,597.17.
2. Compelling Wyatt to file in the record of this Bankruptcy case an affidavit accounting for any and all retainer funds deposited, held, and/or disbursed in connection with this case; and
3. Granting any and all other relief that is just, equitable, and appropriate.
NOTICE
Contemporaneously with this Motion, the Trustee has filed a Motion to shorten Notice on this matter. An expedited hearing on these Motions shall be held at 1000 am on Wednesday, February 27, 2008 in the 3rd Floor U.S. Bankruptcy Courtroom, 100 E. Vine
Street, Lexington, KY 40507.
Dated this the 14th day of February, 2008.
Respectfully submitted,
/s/ Stephen Barnes
Jonathan L. Gay, Attorney
Stephen Barnes, Attorney
Walther, Roark & Gay, PLC
163 E. Main Street, Suite 200
P.O. Box 1598
Lexington, KY 40588-1598
(859) 225-4714 (tel)
(859 225-1493 (fax)
jgay@wrgfirm.com
sbarnes@wrgfirm.com
COUNSEL FOR TRUSTEE
CERTIFICATE OF SERVICE
This is to certify that a copy of the foregoing Motion to Compel was served, electronically by the Court, or via U.S. Mail, First Class Postage Prepaid by the undersigned attorney, upon the individuals and entities listed below, on this the 14th day of February, 2008.
All parties in the ECF System.
All parties on the Master Service List
/s/ Stephen Barnes
COUNSEL FOR TRUSTEE |
