Recent Case Summary
Lamie case discussed and applied
Pre-petition, the Debtors assigned tax refunds to their bankruptcy counsel as an additional retainer to be used for post-petition fees. The Debtors received $50,000.00 of tax refunds post-petition, all of which was delivered and deposited into the law firm trust account. The post-petition attorney fees and expenses were around $13,000.00, which the Chapter 7 Trustee contended were not recoverable by the law firm under the Supreme Court case of Lamie v. United States Trustee, 540 U.S. 526 (2004). The Trustee argued that under Lamie, Debtor’s counsel is allowed compensation for post-petition services only if employed by the Trustee under §327. The Bankruptcy Court disagreed, finding that the pre-petition assignment transferred full ownership of the retainers, subject only to the Debtors’ contingent right of reversion. Therefore, the retainer funds were neither the Debtors’ property nor part of their estate. Direct appeal was taken to the Tenth Circuit. In re Wagers, 514 F.3d 1021 (10th Cir. 2007).
The Circuit Court cited In re Barowski, 946 F.2d 1516 (10th Cir. 1991), which held that tax refunds attributable to the pre-petition portion of the year in which bankruptcy is filed are property of the bankruptcy estate. The Court then noted that the retainer was a security retainer, given to ensure payment of fees the parties expected to be earned. Under Kansas law, such retainers were required to be held in a trust account until services were rendered. Therefore, any portion of the retainers not earned through pre-petition services remained estate property post-petition, and could not be paid for post-petition legal services except where the firm was employed by the Trustee under §327, which had not happened here. The Court stated and shared the Bankruptcy Court’s “concern regarding adequate payment of debtors’ counsel.” However, the Lamie case allowed no other result.
