In In re D’Arata,[1] the bankruptcy court ordered debtor’s counsel to disgorge the fee he received to represent the debtor in a chapter 7 case. The court also discussed and cautioned against the use of appearance counsel.
The debtor paid Mr. Ragues $900 to file a chapter 7 bankruptcy case and to represent him in connection with the case. The debtor communicated with Mr. Ragues online and over the phone, but they never met at the attorney’s office. While the case was a straightforward one, counsel committed a series of blunders from the start.
Counsel failed to appear at the debtor’s § 341 meeting of creditors. Instead, a different attorney, from a different firm, appeared on behalf of Mr. Ragues. The debtor had never met the new attorney and did not even know his name before the meeting. The debtor also said that much of the information in his bankruptcy schedules and on his petition was incorrect. He testified that he had reported the problems to Mr. Ragues before the documents were filed with the court, but Mr. Ragues failed to correct the errors. The chapter 7 trustee instructed the attorney to be present at the § 341 meeting to have Mr. Ragues meet with the debtor to correct the errors.
After the meeting, the debtor sent correspondence to the court in which he said he had been unable to contact Mr. Ragues and that Mr. Ragues had not amended the bankruptcy schedules as directed. Mr. Ragues did not respond to letters and failed to appear at a continued § 341 meeting of creditors. An entirely new attorney, whom the debtor had never met, appeared instead. At the second § 341 meeting, the debtor stated that his schedules were still not correct. The debtor also testified to a number of other problems, stating that Mr. Ragues filed documents without his consent and without his signature (the court did not rule on these allegations).
The court issued an order to show cause upon Mr. Ragues. Both the U.S. Trustee and the chapter 7 trustee filed statements in support of disgorging Mr. Ragues’s fees. The court applied the standards set forth in § 329 and easily concluded that Mr. Ragues should return the fee he received from the debtor. The court concluded, “In short, Mr. Ragues did not adequately represent his client Mr. D’Arata, either in the documents that were filed or at the 341 meetings.”
The court also expressed concern about appearance counsel. It noted that debtors may be unaware that an appearance counsel is scheduled to represent them until right before, or even at, a particular meeting or hearing and that such counsel often know little or nothing about the case.
Further, using appearance counsel may violate applicable rules of professional responsibility. The court concluded that Mr. Ragues violated the New York Rules of Professional Responsibility in a couple of important ways. First, counsel failed to obtain the debtor’s informed consent to use appearance counsel. Second, Mr. Ragues failed to ensure that the appearance counsel who appeared at the two meetings of creditors was adequately prepared to address the issues raised at the meetings.
The court found the practice very problematic and indicated that it would consider enacting a local rule to address such issues. It also stated that it would be “exceedingly vigilant” in matters regarding appearance counsel.
The case serves as a reminder to counsel that they should communicate with their clients when they are unable to attend all meetings and hearings and provide information about who will be appearing in their stead. They should also provide as much information about the client and the case to the appearance counsel as possible so that the attorney may adequately represent the debtor.