Opinion
Case No. 02-72401
December 23, 2002
OPINION
This proceeding is before the Court on the Motion of Gordon W. Gates of the firm of Gates, Wise Schlosser, P.C., for an award of his attorneys fees as administrative expenses. Mr. Gates originally received $5,000 from the Debtor for preparation of the bankruptcy petition and schedules, amendments to the schedules, and attendance at the meeting of creditors. He now seeks an additional $8,653.75 for professional services to the Debtor, which he claims were necessary to protect and preserve the assets of the estate. Both the Chapter 7 Trustee and U.S. Bank, N.A., which has filed a claim in excess of $10,000,000, object to the Petition for Award of Administrative Costs filed by Mr. Gates.
Pursuant to 11 U.S.C. § 329, counsel for a Chapter 7 debtor is entitled to compensation from the debtor's estate only for services that benefit the estate. In re Leff, 88 B.R. 105, 108-09 (Bankr. N.D. Tex. 1988), order aff'd 93 B.R. 91 (N.D.Tex. 1988), aff'd 878 F.2d 1432 (5th Cir. 1989). These services include analyzing the debtor's financial condition, rendering advice and assistance to the debtor in determining whether to file bankruptcy, the preparation and filing of the petition, and representation of the debtor at the meeting of creditors. Mr. Gates was amply compensated for his performance of these services by his $5,000 retainer.
A Chapter 7 debtor's attorney is not entitled to compensation from the debtor's estate pursuant to 11 U.S.C. § 329 for services that benefit the debtor's principals but do not benefit the estate. In re Leff, supra, 88 B.R. at 109. Counsel for a Chapter 7 corporate debtor owes a fiduciary duty of loyalty and care to his client, the debtor corporation, and not to the debtor's principals. In re Angelika Films 57th, Inc., 227 B.R. 29, 39 (Bankr.S.D.N.Y. 1988), aff'd 246 B.R. 176 (S.D.N.Y. 2000).
Section 328(c) of the Bankruptcy Code provides that the Court may deny compensation when a professional ceases to be disinterested. In this proceeding, Mr. Gates clearly lost his disinterestedness when he began to favor the interests of the Debtor's principals, Kevin and Brenda Von Behren, and their son, Kevin Von Behren, Jr., over those of the estate. Mr. Gates admits the conflict of interest when he notes in his Petition that the Petition does not include work that did not benefit the estate. He states that these services have been "billed separately". An attorney cannot serve two masters, and Mr. Gates was trying to serve both the Debtor and its principals.
Denial of fees is required after counsel performs services in conflict of interest. In re Entertainment, Inc., 225 B.R. 412, 423 (Bankr.N.D.Ill. 1998). Although some of Mr. Gates services may have benefitted the estate, these services were tainted by his conflict of interest. In re Entertainment, Inc., supra, 225 B.R. at 424.
For the foregoing reasons, Mr. Gates' Petition for Award of Administrative Costs is denied.
This Opinion is to serve as Findings of Fact and Conclusions of Law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure.
ORDER
For the reasons set forth in an Opinion entered this day,
IT IS HEREBY ORDERED that Gordon W. Gates' Petition for Award of Administrative Costs be and is hereby denied.