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NOTFOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. NC-15-1029-JuTaD

) BAP No. NC-15-1036-JuTaD

DEBORAH MYNETTE MCINTOSH, ) (cross appeals)

)

Debtor. ) Bk. No. 13-11774

______________________________)

)

DAVID N. CHANDLER, p.c., )

)

Appellant/ )

Cross Appellee, )

v. ) M E M O R A N D U M*

)

DEBORAH MYNETTE MCINTOSH; )

Appellee/ )

Cross Appellant, )

)

CALHFA MORTGAGE ASSISTANCE )

PROGRAM,** )

)

Appellee. )

______________________________)

Argued and Submitted on October 23, 2015

at San Francisco, California 

Filed - November 3, 2015

Appeal from the United States Bankruptcy Court

for the Northern District of California

Honorable Thomas E. Carlson, Bankruptcy Judge, Presiding***

FILED

NOV 03 2015

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

* This disposition is not appropriate for publication.

Although it may be cited for whatever persuasive value it may

have (see Fed. R. App. P. 32.1), it has no precedential value. 

See 9th Cir. BAP Rule 8024-1.

** Appellee CalHFA Mortgage Assistance Program (CalHFA) has

not participated in this appeal.

*** The post-confirmation proceedings that culminated in the

orders on appeal were assigned to Judge Carlson by Judge

(continued...)

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___________________________

Appearances: David N. Chandler, Jr. argued for

appellant/cross-appellee David N. Chandler, p.c.;

Paul Jamond argued for appellee/cross appellant

Deborah Mynette McIntosh.

____________________________

Before: JURY, TAYLOR, and DUNN, Bankruptcy Judges.

The orders on appeal arise from a disagreement between

Deborah Mynette McIntosh (Debtor) and her former bankruptcy

attorney David N. Chandler, Jr. over his fees. David N.

Chandler, p.c. (Chandler)1 appeals from: (1) the order granting

Debtor’s motion to dismiss her bankruptcy case (Dismissal

Order); (2) the order denying Chandler’s motion for order

directing escrow company to pay net sales proceeds to the

chapter 13 trustee (Distribution Order); and (3) the order

denying Chandler’s fee application and requiring him to disgorge

amounts that had been previously paid (Fee Order) (BAP No. 15-

1029). Debtor cross appeals on the Fee Order, contending that

certain findings made by the bankruptcy court in its Memorandum

Decision preclude her from filing a legal malpractice claim

against Chandler in another court or seeking further damages due

to his continuing breach of the duty of loyalty (BAP

***(...continued)

Jaroslovsky.

1 Appellant David N. Chandler, p.c. consists of David N.

Chandler, Jr. and his father, David N. Chandler, Sr. The

bankruptcy court found that David N. Chandler, Jr. performed most

of the work for Debtor. For simplicity, we refer to David N.

Chandler, Jr. and David N. Chandler, p.c. as “Chandler”

throughout this memorandum.

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No. 15-1036). For the reasons set forth below, we AFFIRM the

three orders on appeal.

 I. FACTS2

Debtor owned real property in Rutherford, California. The

property was encumbered by a first deed of trust in favor of

Bayview Loan Servicing, a second deed of trust in favor of

PNC Bank, and a fourth deed of trust in favor of CalFHA. Debtor

owed $450,000 in attorneys’ fees to Carr, McClellan, Ingersol,

Thompson & Horn (CMITH) for contesting a will on her behalf. Of

this amount, $230,000 was secured by a third priority deed of

trust on the property. CMITH sued Debtor in the California

Superior Court, seeking to foreclose on its security interest

and obtain a money judgment for the outstanding fees and costs. 

After she was served with CMITH’s complaint, Debtor hired

Chandler to file a chapter 133 bankruptcy case for her and to

represent her in that case. 

On September 18, 2013, Chandler filed Debtor’s petition. 

Chandler later filed a Rule 2016(b) Statement disclosing that he

had received $3,500 from Debtor and that $3,000 was still owed. 

The statement showed that Chandler’s services included an

analysis of Debtor’s financial situation, preparation and filing

2 We borrow from the bankruptcy court’s recitation of the

facts in its Memorandum Decision.

3 Unless otherwise indicated, all chapter and section

references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532. 

“Rule” references are to the Federal Rules of Bankruptcy

Procedure, “Civil Rule” references are to the Federal Rules of

Civil Procedure, and “Cal. RPC” references are to the California

Rules of Professional Conduct.

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of the petition, schedules, and other documents, and

representation of Debtor at the meeting of creditors.4 

To deal with the CMITH deed of trust, Chandler took a

number of steps. Chandler filed Debtor’s initial plan which

provided for the sale of her residence free and clear of CMITH’s

lien and stated that she “shall commence proceedings” against

CMITH to enforce her homestead exemption. The plan also said

that if Debtor prevailed in the proceeding, after payment of the

lien of CalHFA, Debtor “shall be entitled to funds representing

her allowed homestead.” 

Chandler then filed an adversary complaint against CMITH on

Debtor’s behalf, seeking declaratory and injunctive relief. 

The complaint alleged that the deed of trust was procured in

violation of Cal. RPC 3-300 because CMITH had not advised Debtor

to seek advice from separate counsel before engaging in the

transaction with her attorneys.5 The complaint did not mention

4 The disclosure talks about a fixed fee, and there is no

disclosure of any fee agreement for billing at an hourly rate for

services beyond those listed.

5 Cal. RPC 3-300, entitled “Avoiding Interests Adverse to a

Client,” provides:

A member shall not enter into a business transaction

with a client; or knowingly acquire an ownership,

possessory, security, or other pecuniary interest

adverse to a client, unless each of the following

requirements has been satisfied:

(A) The transaction or acquisition and its terms are

fair and reasonable to the client and are fully

disclosed and transmitted in writing to the client in a

manner which should reasonably have been understood by

the client; and

(continued...)

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or seek relief under any Bankruptcy Code provision. In seeking

the injunction, the complaint alleged that Debtor would suffer

irreparable harm because CMITH’s foreclosure would deprive her

of her homestead exemption. 

Chandler filed a motion for summary judgment (MSJ) in the

adversary proceeding which was scheduled for hearing on

February 7, 2014. The MSJ mentioned only Cal. RPC 3-300. 

In Schedule C, Debtor claimed a homestead exemption in her

property. The exemption was deemed allowed because no party

filed a timely objection. 

Chandler also filed a motion to sell Debtor’s residence

free and clear of CMITH’s lien, alleging that the validity of

the lien was in bona fide dispute. In describing the dispute,

the motion cited only Cal. RPC 3-300. 

On December 11, 2013, the bankruptcy court held a

preliminary hearing on the confirmation of Debtor’s chapter 13

plan.6 Judge Jaroslovsky asked Chandler whether the CMITH lien

5(...continued)

(B) The client is advised in writing that the client

may seek the advice of an independent lawyer of the

client's choice and is given a reasonable opportunity

to seek that advice; and

(C) The client thereafter consents in writing to the

terms of the transaction or the terms of the

acquisition.

6 On April 16, 2015, Chandler filed a motion to augment the

record on appeal to include the transcript of the initial plan

confirmation hearing heard by the bankruptcy court on

December 11, 2013. As the transcript is material to Chandler’s

arguments on appeal, we grant the motion.

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would be preserved for the benefit of the estate under § 5517 

if it were invalidated. In response, Chandler argued that the

lien was not being avoided under the Bankruptcy Code and thus

would not be preserved for the benefit of the estate.

We’re not avoiding [the CMITH deed of trust] under a

rule that would require preservation for the benefit

of the estate. It’s a void [sic] for clear violation

of rule 3300. . . . 

Chandler also argued that the transfer was not truly voluntary

so that Debtor could exempt the value created by setting aside

the CMITH deed of trust.

Well, the idea is this: by virtue—3300 has to do with

informed consent. When you make a voluntary transfer

and you then avoid it, it would typically be for the

benefit of the estate. But when you have a failure

under 3300 then you don't have a consensual transfer

because it wasn’t voluntary by definition, you are not

voiding it under the Bankruptcy Code, you are voiding

it under the [California] Rules of Professional

Conduct. 

On January 21, 2014, Judge Jaroslovsky approved the sale of

Debtor’s residence free and clear of liens. The approved sale

price was $750,000. Taxes and two deeds of trust senior to the

CMITH deed of trust would be paid upon closing and the remaining

sale proceeds would be held in escrow pending resolution of the

dispute regarding the CMITH deed of trust and “further order of

the Court.” 

Three days later, on January 24, 2014, and prior to the

7 Section 551 provides:

Any transfer avoided under section 522, 544, 545, 547,

548, 549, or 724(a) of this title, or any lien void

under section 506(d) of this title, is preserved for

the benefit of the estate but only with respect to

property of the estate.

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scheduled MSJ hearing on February 7, 2014, CMITH unilaterally

recorded a deed of reconveyance with the Napa County Recorder’s

office and formally released its deed of trust as a lien against

Debtor’s property. Upon the reconveyance, the sale provision to

sell free and clear of its lien was effectively mooted. 

CMITH had filed a proof of claim in Debtor’s bankruptcy

case and Debtor had potential additional claims against CMITH. 

In early February 2014, Debtor reached a settlement with CMITH. 

Under that settlement, CMITH agreed to withdraw its proof of

claim, Debtor agreed to release any further claims she might

have against CMITH, including claims for attorneys’ fees that

she incurred in pursuing the adversary proceeding, and CMITH

agreed to pay $10,000. Chandler’s declaration accompanying the

motion to approve the compromise stated that the terms of the

settlement included, among other things, that “Carr McClellan

will pay directly to the Debtor’s Counsel the sum of $10,000[]

in full satisfaction of any claims for costs or attorneys fees

by either Debtor’s Counsel or Debtor arising out of the

Adversary Proceeding.” 

Judge Jaroslovsky approved the settlement by an order

entered on February 10, 2014. The order states that the terms

of the settlement as set forth in ¶ 4 of Chandler’s declaration,

including the payment of $10,000, were approved. As of that

date, there was no written settlement. Later, the parties

negotiated and executed an Agreement and Mutual General Release

and filed a motion for an amended order authorizing the

compromise. With respect to the settlement payment, the

agreement stated: 

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Settlement Payment. Attorneys shall within two

business days of the Effective Date of this Agreement

as defined below pay to David N. Chandler, [p.c.] the

sum of $10,000.00 in full satisfaction of any and all

known or unknown monetary claims by Former Clients

against Attorneys,8 including without limitation

claims for attorneys’ fees and costs Client Mcintosh

may assert arising out of the Mcintosh Adversary

Proceeding.

The bankruptcy court entered the amended order on March 31,

2014. At that time, Chandler had not submitted a fee

application in connection with fees incurred in litigating the

adversary proceeding. See § 330(a)(4)(B). On April 11, 2014,

Chandler filed a Disclosure of Compensation of Attorney pursuant

to Rule 2016(b), stating that he had retained the $10,000 for

payment of fees owed to him by Debtor in connection with the

adversary proceeding. 

On February 12, 2014, Chandler filed a First Amended

Chapter 13 Plan. Revised § 6.01 of the Amended Plan provided:

a. Real Property located at . . . Grape Lane,

Rutherford, California 94573 shall be sold as soon as

practicable pursuant to the Order Authorizing Sale of

Real Property. Docket No. 71. Closing costs and the

secured claims of Bayview Loan Servicing, PNC Bank,

CalHFA Mortgage Assistance Corp. and any amount due

the Napa County Tax Collector shall be paid by the

Debtor directly from escrow with proceeds from the

sale. The Debtor shall receive net proceeds from the

sale on account of her homestead exemption. Should

there be any non-exempt net sale proceeds, the same

shall be payable to the Ch. 13 Trustee for

distribution in accordance with the Code. (Emphasis

added).

The sale of Debtor’s property closed on March 10, 2014. 

After the two senior lenders were paid, the amount of $57,712

8 A reasonable interpretation of this provision is that the

$10,000 amount was the total amount of fees Chandler would seek

for work done in the adversary proceeding.

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remained in escrow subject to the $21,000 secured claim of

CalHFA and Debtor’s homestead exemption. 

The amended plan was unopposed when it came before the

court for approval. On April 3, 2014, the bankruptcy court

entered the order approving the amended plan. No appeal was

filed. 

After the amended plan was approved, Debtor asked Chandler

numerous times to arrange to have the funds held in escrow by

the title company released to both her and CalHFA. Chandler did

not comply, finally telling Debtor in an August 14, 2014 email: 

. . . it is not totally clear that any of the money

in escrow is yours. We certainly discussed the

possibility of it being yours and you may continue to

insist that it is, but the decision is neither yours

nor mine. The decision rests with the Court and the

issues are complicated. . . . 

A disagreement arose between Debtor and Chandler regarding

his fees. Debtor allegedly was never informed about the amount

of fees claimed by Chandler and did not know that Chandler

wanted some of the money held in escrow for his fees. 

Prior to the dispute, Chandler had received a pre-petition

retainer of $3,500 and the $10,000 settlement amount paid by

CMITH. The confirmed plan approved additional fees in the

amount of $3,000 to be paid at the rate of $273 per month for

60 months. Chandler received $2,093 through these plan

payments. Combined, Chandler received the sum of $15,593.

On August 19, 2014, Debtor discharged Chandler and

substituted Paul M. Jamond as her counsel. On the same day,

Debtor filed a motion to dismiss her chapter 13 case. 

Chandler opposed the dismissal arguing that Debtor’s request for

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dismissal was not in good faith since she was attempting to

obtain the proceeds from the sale of her property for herself to

the detriment of the estate. 

Chandler also filed his final fee application seeking

$88,816 in fees and $3,384.82 in costs ($92,200.82) for work

done in the bankruptcy case and the adversary proceeding. After

application of the prepetition retainer, amounts paid through

the chapter 13 plan, and the $10,000 received through the

settlement with CMITH, Chandler sought payment of the remaining

balance of $75,670.82. Chandler’s time records show that

approximately $19,620 in fees and $1,598.59 in costs were

incurred for services relating to the adversary proceeding. 

After deducting the $10,000 settlement payment from CMITH,

Chandler showed $11,218.59 due in connection with the adversary

proceeding with the balance of the requested fees for services

performed in the bankruptcy case. 

On September 5, 2014, Chandler filed the Motion for Order

Directing Escrow Company to Pay Net Sales Proceeds to Chapter 13

Trustee (Distribution Motion). In the motion, Chandler states:

The [CMITH] deed of trust was avoided under the

authority of section 544 of the [Bankruptcy] Code. 

11 U.S.C. 544. The avoided [CMITH] Deed of Trust was

automatically preserved for the benefit of the

Bankruptcy Estate. 11 U.S.C. 551. 

In his accompanying declaration, Chandler states:

I argued that, upon avoidance of the [CMITH] Deed of

Trust, the subordinate CalHFA Deed of Trust would

improve its position and the Debtor would have an

exemption in the remaining equity.

Following confirmation and after conducting legal

research in the months of June and July 2014, I

reached the conclusion that the Court was correct and

that preservation of the avoided [CMITH] lien for the

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estate occurred automatically. However, in so

concluding, I was mindful that my office’s interest in

the case had become adverse to that of the Debtor on

the issue of disposition of sale proceeds.

. . . 

I tried to explain [to Debtor’s new counsel] the

complexity of the situation and the legal issues

involved, including § 522(g) and § 551.

On September 15, 2014, Debtor opposed Chandler’s fee

application on the grounds that he had breached his duty of

loyalty to her by switching his position on the preservation of

CMITH’s lien — arguing no preservation when he represented her

and then arguing for preservation after the fee dispute arose. 

Due to this ethical violation, Debtor requested the bankruptcy

court to deny him all fees and order the disgorgement of fees

previously received. Chandler replied, stating that: (1) his

Distribution Motion which required the net sales proceeds to be

paid to the chapter 13 trustee was fully “consistent with the

Plan and implements its terms;” (2) Debtor avoided the CMITH

lien under §§ 544(a)(1) and (b)(1); and (3) the avoided CMITH

lien was preserved for the bankruptcy estate and not Debtor

under § 551.

The inability of a debtor to exempt voluntarily

transferred property that is recovered under Section

551 is, likewise, a strictly legal issue, and the

result that the estate benefit from avoidance of a

voluntary transfer is mandated by law. 11 U.S.C.

Section 522(g); see also Russel v. Kuhnel

(In re Kuhnel) (10th Cir. 2007) 495 F.3d 1177.

Chandler further argued:

Because David N. Chandler, p.c. only took action to

obtain approval of disputed fees and address funds

held in escrow after the Debtor terminated the

attorney-client relationship and subsequently retained

substitute counsel, the common law duty of loyalty was

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not infringed upon as a matter of law because there

was no compromised representation. Santa Clara County

Counsel Attnys. Assn. vs. Woodside, supra, 7 Cal.4th

at 549-54. The concept is consistent with the

principle that an attorney must withdraw from

representation before suing a client for disputed

fees. Id. at 548-49, citing Los Angeles County Bar

Ethics Opns., opn. No. 212 (1953). The common law

duty of loyalty did not require David N. Chandler,

p.c. to abnegate its rights and duties in favor of

advancing the wishes of its client, particularly when

the client’s wishes were contrary to the law.

In a separate reply in response to Debtor’s opposition to

the Distribution Motion, Chandler also asserted that the motion

was “consistent with the chapter 13 Plan and implements its

terms” and that:

Section 522(g) of the Code which prohibits a debtor

from claiming property recovered by the estate under

Section 551 as exempt if the recovered property was

voluntarily transferred by the debtor. 11 U.S.C.

§ 522(g); see also Russel v. Kuhnel (In re Kuhnel)

(10th Cir. 2007) 495 F.3d 1177.

On October 21, 2014, the bankruptcy court heard Debtor’s

motion to dismiss, the Distribution Motion, and Chandler’s fee

application and took the matters under submission. 

On January 16, 2015, the bankruptcy court issued a

Memorandum Decision. In discussing the Distribution Motion, the

court noted that the CMITH lien was not preserved for the

benefit of the estate under any of the relevant sections of the

Bankruptcy Code because the adversary proceeding under which the

CMITH deed of trust was invalidated was brought solely under

Cal. RPC 3-300 and did not seek to avoid the lien under any of

the Bankruptcy Code sections listed in § 551. The court also

found that the confirmed chapter 13 plan provided that the CMITH

deed of trust was not preserved for the benefit of the estate.

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In the end, the court denied the Distribution Motion and ordered

the escrow agent to distribute the $57,713 in sale proceeds,

with $21,000 to CalFHA and the remainder to Debtor on account of

her homestead exemption.

In ruling on Chandler’s final fee application, the

bankruptcy court found that Chandler had “blatantly” breached

his duty of loyalty to Debtor and that he should be denied all

fees as a result of his misconduct. 

At the outset, it is important to note that Chandler’s

breach of loyalty is not in his attempt to collect

fees from Debtor. An attorney must always be free to

pursue his client for fees if he or she does so

properly. Chandler’s breach of duty arises from the

fact that he is taking a position adverse to his

former client on an issue on which he previously

represented the client and that is separate from the

fees he is seeking to collect. With respect to that

separate issue, it does not matter whether the court

has decided the issue, or whether the position

Chandler is currently taking is legally correct. An

attorney who advocates a position on behalf of a

client cannot switch sides simply because the issue

has not yet been decided and/or he now believes the

position he previously asserted on behalf of the

client is wrong. 

The bankruptcy court noted that it had discretion under

both state law and bankruptcy law to deny some or all fees to an

attorney who has breached ethical requirements. The court

determined that Chandler’s breach of ethical duty was “so

flagrant” that he should be denied all fees and required to

refund fees he previously received. 

First, the breach of loyalty was stark. Chandler

specifically argued that the CMITH lien was not

preserved, obtained that result through the confirmed

plan, then specifically argued that the lien was

preserved. Second, Chandler made a blatant

misrepresentation to this court. In arguing that the

CMITH lien was preserved, he stated that it had been

avoided under section 544 of the Bankruptcy Code

(which would result in preservation of the lien).

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Docket No. 120, ¶¶ 7, 8. In fact, the adversary

proceeding against CMITH, which Chandler drafted and

filed, sought to invalidate the lien solely on the

basis of Rule 3–300 of the California Rules of

Professional Conduct (which resulted in the

elimination of the lien). Docket No. 31, ¶¶ 13–16,

25–31. Third, Chandler’s reversal of course was for

the purpose of collecting his fees, and sought to

deprive his former client of her homestead

exemption—one of the most important protections

provided debtors under both state and Federal law.

Fourth, Chandler understood all of this. Although the

question whether the CMITH lien was preserved may

appear technical and confusing to an attorney who does

not regularly practice bankruptcy law, Chandler

specializes in bankruptcy law and understood the

meaning of everything he did. Any doubt about that is

dispelled when one sees the technical virtuosity with

which he first argued that the lien was not preserved

and then argued that it was preserved.

On the same day, the bankruptcy court entered the Dismissal

Order, Distribution Order and Fee Order. Chandler filed a

timely appeal from those orders and Debtor filed a timely cross

appeal on the Fee Order.

II. JURISDICTION

The bankruptcy court had jurisdiction pursuant to 28 U.S.C.

§§ 1334 and 157(b)(2)(A) and (L). We have jurisdiction under

28 U.S.C. § 158.

III. ISSUES

ISSUES ON APPEAL:

Did the bankruptcy court err in finding that Chandler had

breached the duty of loyalty?

Did the bankruptcy court abuse its discretion by denying

Chandler’s fee application in its entirety and requiring

disgorgement of fees previously paid?

Did the bankruptcy court err in denying Chandler’s

Distribution Motion? 

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Did the bankruptcy court err in granting Debtor’s motion to

dismiss her case? 

ISSUES ON CROSS APPEAL

Does the bankruptcy court’s statement that its denial of

Chandler’s fees “fully compensated” Debtor for breach of

Chandler’s duty of loyalty preclude her from pursuing a

malpractice action against him or seeking further fees?

Did the bankruptcy court deny Debtor procedural due process

when it found that its denial of Chandler’s fees “fully

compensated” her for Chandler’s breach of the duty of loyalty? 

 IV. STANDARDS OF REVIEW

We review the bankruptcy court’s findings of fact for clear

error and its conclusions of law de novo. Cont’l Ins. Co. v.

Thorpe Insulation Co. (In re Thorpe Insulation Co.), 671 F.3d

1011, 1030 (9th Cir. 2011). 

 We review the bankruptcy court’s denial of attorneys’ fees

for abuse of discretion. Rodriguez v. Disner, 688 F.3d 645, 652

(9th Cir. 2012); First Interstate Bank of Nev., N.A. v. CIC Inv.

Corp. (In re CIC Inv. Corp.), 192 B.R. 549, 551 (9th Cir. BAP

1996). “We generally give broad deference to the [bankruptcy]

court’s determinations on fee awards because of its ‘superior

understanding of the litigation and the desirability of avoiding

frequent appellate review of what essentially are factual

matters.’” Rodriguez, 688 F.3d at 652.

We also review an order dismissing a chapter 13 bankruptcy

case for abuse of discretion. Brown v. Sobczak (In re Sobczak),

369 B.R. 512, 516 (9th Cir. BAP 2007). 

Under the abuse of discretion standard, we must affirm

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unless the bankruptcy court applied the wrong legal standard or

its findings of fact were illogical, implausible, or without

support in the record. United States v. Hinkson, 585 F.3d 1247,

1262 (9th Cir. 2009) (en banc).

We may affirm on any ground supported by the record. 

Vestar Dev. II, LLC v. Gen. Dynamics Corp., 249 F.3d 958, 960

(9th Cir. 2001).

V. DISCUSSION

Chandler identifies seven issues on appeal in his opening

brief. Each of his claims pertains to the bankruptcy court’s

errors in finding that he breached the duty of loyalty. In

Chandler’s view, the bankruptcy court did not apply the correct

legal standards in making its determination and the evidence

simply did not add up to a breach of the duty of loyalty. “For

one reason or another, the Bankruptcy Court simply got it

wrong.” As discussed below, we are not persuaded by any of his

arguments. 

A. The bankruptcy court did not err in concluding that 

Chandler had breached the duty of loyalty to Debtor.

1. Legal Standards

“The federal courts in California do not have their own

rules of professional conduct for lawyers.” In re Muscle

Improvement, Inc., 437 B.R. 389, 393 (Bankr. C.D. Cal. 2010). 

Northern California Bankruptcy Court Local Rule 1001-2(a)

incorporates the Northern District Court Civil Local

Rule 11-4(a)(1), which in turn provides that all attorneys must

“comply with the standards of professional conduct required of

members of the State Bar of California.” Cal. RPC 1-100

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provides that “the prohibition of certain conduct in these rules

is not exclusive. Members are also bound by applicable law

including . . . opinions of California courts.” In addition to

the California Rules of Professional Conduct, an attorney’s duty

of loyalty has been recognized in the common law. 

The California Supreme Court explained the duty of loyalty

over eight decades ago:

One of the principal obligations which bind[s] an

attorney is that of fidelity, the maintaining

inviolate the confidence reposed in him by those who

employ him, and at every peril to himself to preserve

the secrets of his client. This obligation is a very

high and stringent one. It is also an attorney’s duty

to protect his client in every possible way, and it is

a violation of that duty to assume a position adverse

or antagonistic to his client without the latter’s

free and intelligent consent given after full

knowledge of all the facts and circumstances. By

virtue of this rule an attorney is precluded from

assuming any relation which would prevent him from

devoting his entire energies to his client’s

interests. Nor does it matter that the intention and

motives of the attorney are honest. The rule is

designed not alone to prevent the dishonest

practitioner from fraudulent conduct, but as well to

preclude the honest practitioner from putting himself

in a position where he may be required to choose

between conflicting duties, or be led to attempt to

reconcile conflicting interests, rather than to

enforce to their full extent the rights of the

interest which he should alone represent.

Anderson v. Eaton, 211 Cal. 113, 116 (1930). 

The duty of loyalty does not stop once the attorney-client

relationship ends. Oasis W. Realty, LLC v. Goldman, 51 Cal.4th

811, 821 (2011). An attorney “may not do anything which will

injuriously affect [the] former client in any matter in which

[the attorney] formerly represented him.” Id.; see also

Wutchumna Water Co. v. Bailey, 216 Cal. 564, 573-74 (1932). 

This is so even if the action injurious to the former client

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does not involve the use or disclosure of confidential

information. People ex rel. Deukmajian v. Brown, 29 Cal.3d 150,

156 (1981). An attorney breaches the duty of loyalty in taking

action on his or her own behalf, if that action is injurious to

a former client on a matter in which the attorney represented

that client. Oasis, 51 Cal.4th at 822-24. Applying these

standards, we consider whether the bankruptcy court’s conclusion

that Chandler breached his duty of loyalty to Debtor was

correct.

2. Analysis 

Although Chandler acknowledges the long standing rule that

an attorney “may not do anything which will injuriously affect

[the] former client in any matter in which [the attorney]

formerly represented him,” he insists the rule does not apply

under these circumstances. Chandler argues that since he

withdrew from representation as soon as the conflict arose, the

common law duty of loyalty was not infringed upon as a matter of

law because there was no compromised representation. Chandler

cites Santa Clara County Counsel Attorneys Association v.

Woodside, 7 Cal.4th 525, 549-54 (1994), in support of this

argument. Relying again on Woodside, he argues that the “never

injuriously affect the former client” prohibition set forth in

Oasis is qualified by a client’s “legitimate expectations” of

the attorney’s conduct and courts will not protect a client’s

illegitimate or unreasonable expectations of loyalty. In this

regard, Chandler maintains that the bankruptcy court erred by

not considering whether Debtor had a legitimate expectation that

he would sit silently by the side lines and ignore the effect of

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§§ 544 and 551 while she was trying to dismiss her case, obtain

the proceeds from the sale of her property for herself with no

judicial oversight, and evade paying him for beneficial services

rendered. Chandler is wrong on both accounts. 

The Woodside case is distinguishable and does not stand for

the propositions Chandler asserts. There, the California

Supreme Court held that attorneys employed by the County

Counsel’s office could maintain a suit against the County to

enforce their statutory rights in a salary dispute without

violating a duty of loyalty to their public agency employer. 

The court reasoned that the lawsuit did not represent a conflict

with the County on matters in which the attorneys had

represented or were representing the County. In contrast, the

bankruptcy court here explicitly found that Chandler’s position

in the Distribution Motion where he argued for the preservation

of CMITH’s lien directly conflicted with his position on that

issue when he was representing Debtor. 

The Woodside case also does not purport to place a

“legitimate expectation” qualification, or any qualification, on

the rule that it is an attorney’s duty to protect his client in

every possible way, and that it is a violation of that duty to

assume a position adverse or antagonistic to his client without

the latter’s free and intelligent consent given after full

knowledge of all the facts and circumstances. 

In addition, as noted above, the duty of loyalty does not

stop once the attorney-client relationship ends. Oasis,

51 Cal.4th at 821. Therefore, Chandler’s actions after Debtor

secured new counsel can be considered when determining whether

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Chandler violated the duty of loyalty. The bankruptcy court

recognized and correctly applied this rule. 

Next, as Chandler sees it, he never took an adverse

position to Debtor because at “no point and in no pleading or

document filed with the court, did [he] contest or refute []

Debtor’s claim to an exemption either under § 522(a) or (g).” 

Chandler maintains there is no evidence in the record showing

otherwise. Thus, argues Chandler, no duty of loyalty was

breached. We cannot agree.

First, Chandler’s making this argument on appeal is

disingenuous. In his reply to Debtor’s opposition to his fee

application, he argued for the bankruptcy estate and not for

Debtor. This argument was a clear contest to Debtor’s right to

her homestead exemption. 

Second, the bankruptcy court’s conclusion that Chandler

breached his duty of loyalty to Debtor has nothing to do with

whether he explicitly and specifically contested or refuted

Debtor’s homestead exemption claim. Rather, the record shows

that after the fee dispute arose, Chandler changed his position

on whether CMITH’s lien was preserved for the benefit of the

estate. While representing Debtor, Chandler argued that the

CMITH lien was not preserved for the estate and that the equity

created by removing the lien would be used to preserve Debtor’s

homestead. The bankruptcy court entered an order to that effect

when it approved Debtor’s first amended chapter 13 plan. Later

on, if CMITH’s lien was preserved under § 551 for the benefit of

the estate as Chandler argued in the Distribution Motion, Debtor

potentially would not receive any sale proceeds on account of

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her homestead exemption and Chandler would receive at least some

of his fees. On this record, a reasonable trier of fact could

find that Chandler’s change of position and personal interest in

having his fees paid before any sales proceeds were distributed

according to the terms of the approved plan had an injurious

affect on Debtor’s homestead exemption and resulted in a breach

of the duty of loyalty.

Chandler also argues at length in his opening and reply

briefs why his position in the Distribution Motion regarding the

preservation of CMITH’s lien under § 551 was correct. The point

of these arguments is to show that he did not breach the duty of

loyalty since he was simply following the law. Chandler’s

emphasis on the correctness of his position is misplaced. The

duty of loyalty was implicated when Chandler changed his

position on the lien preservation issue to protect his own

economic interests and not because his first position was

“wrong” and the second one “right.” We note that Chandler did

not arrive at the “right” conclusion until his fees were in

jeopardy. 

Chandler also contends that the bankruptcy court abused its

discretion in denying his fee application because its conclusion

was based on erroneous findings of fact. The arguments Chandler

makes again relate to the bankruptcy court’s conclusion that he

breached the duty of loyalty. Chandler argues that the court’s

finding that he made a “blatant misrepresentation” was error

because his statement regarding the reconveyance of the CMITH

deed of trust being “avoided under the authority of § 544” was a

legal position, not a statement of fact. Chandler insists,

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again, that this was a correct statement of the law. Chandler

also argues that the bankruptcy court misinterpreted the

confirmed chapter 13 plan because the plan did not determine

Debtor’s exemption nor did it contain language that entitled

CalHFA to sales proceeds. 

 On the record before us, there is no basis to question the

bankruptcy court’s factual findings, much less find them clearly

erroneous. We do not second guess the bankruptcy court’s

characterization of Chandler’s statement regarding CMITH’s lien

as being avoided under § 544 as a “blatant misrepresentation”

considering the context in which it was made. Moreover, even if

Chandler’s statement could be construed as a legal position, 

the facts underlying the position were not true — the adversary

proceeding Chandler filed against CMITH did not allege facts

where § 544 might apply and did not mention any Bankruptcy Code

section at all. Chandler’s statement, whether construed as an

argument or fact, was false. 

We also give substantial deference to the bankruptcy

court’s interpretation of Debtor’s first amended chapter 13

plan. See In re Marciano, 459 B.R. 27, 35 (9th Cir. BAP 2011)

(“We owe substantial deference to the bankruptcy court’s

interpretation of its own orders and will not overturn that

interpretation unless we are convinced that it amounts to an

abuse of discretion.”), aff’d, 708 F.3d 1123 (9th Cir. 2013). 

We are not convinced by Chandler’s contention that certain

issues regarding Debtor’s homestead exemption and payment to

CalFHA were “preserved” through the following language in

Debtor’s plan: “No lien on real property shall be removed,

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avoided or extinguished except by adversary proceeding pursuant

to Rule 7001(2). . . .” To put it lightly, Chandler’s

interpretation depends upon a strained and improbable reading. 

Due to Chandler’s actions and change in position, we find

that the bankruptcy court did not err when it concluded that

Chandler had breached his duty of loyalty. The court set forth

the correct legal standards for evaluating Chandler’s ethical

duty of loyalty and applied properly the law to the facts of the

case. Moreover, its factual findings were plausible and

supported by inferences that may be drawn from the facts in the

record. Having found that Chandler breached his duty of

loyalty, the bankruptcy court had discretion over whether to

permit Chandler to receive any fees. 

B. The bankruptcy court did not abuse its discretion in 

concluding that Chandler was not entitled to any fees 

as a result of his ethical violation and disgorgement was 

proper.

Chandler contends that the bankruptcy court abused its

discretion in denying all his fees and ordering disgorgement. 

According to Chandler, compensation can only be disallowed after

breach of the duty of loyalty, citing Jeffry v. Pounds,

67 Cal.App.3d 6, 11-12 (1977). Chandler also complains that the

bankruptcy court did not consider the standards under § 330

regarding the reasonableness of his fees, the value of his

services, and its own observation of the quality of his

services. 

At the October 21, 2014 hearing, the bankruptcy court

acknowledged the rule in Jeffry that an attorney cannot collect

fees during the period in which he/she was breaching the duty of

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loyalty. However, the bankruptcy court properly noted that

under California law it had discretion to deny some or all of

the fees of an attorney who has breached ethical requirements. 

See Pringle v. La Chapelle, 73 Cal.App. 4th 1000, 1006 (1999);

Cal Pak Delivery, Inc. v. United Parcel Serv., Inc., 52 Cal.App.

4th 1, 14–16 (1997); Jeffry, 67 Cal.App.3d at 11-12. The

“egregiousness of the violation is often the critical factor.” 

Rodriguez, 688 F.3d at 655 (referring to California law). 

The bankruptcy court also correctly observed that under

Ninth Circuit law, it had discretion to deny fees to an attorney

who commits an ethical violation. Id. “In making such a

ruling, the [bankruptcy] court may consider the extent of the

misconduct, including its gravity, timing, willfulness, and

effect on the various services performed by the lawyer, and

other threatened or actual harm to the client.” Id. In

Rodriguez, the Ninth Circuit noted that “[t]he representation of

clients with conflicting interests and without informed consent

is a particularly egregious ethical violation that may be a

proper basis for the complete denial of fees.” Id. 

Applying these authorities, the bankruptcy court found that

Chandler’s breach of the duty of loyalty was so “flagrant” that

he should be denied all fees and refund fees previously

received. The court then made additional findings of fact to

support its decision - findings which establish that Chandler’s

breach of his ethical duty of loyalty was the equivalent of

“egregious:” (1) the breach of loyalty was “stark;”

(2) Chandler made a blatant misrepresentation to the court;

(3) Chandler’s reversal of course was for the purpose of

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collecting his fees, and sought to deprive his former client of

her homestead exemption; and (4) Chandler understood all this -

he “understood the meaning of everything he did.” These

findings are plausible and supported by inferences that may be

drawn from the facts in the record. Thus, they cannot be

clearly erroneous. 

Section 330 does not compel a different result. A

bankruptcy court’s authority to deny fees and order disgorgement

is “grounded in [its] inherent authority over the debtor’s

attorney’s compensation.” Law Offices of Nicholas A. Franke v.

Tiffany (In re Lewis), 113 F.3d 1040, 1045 (9th Cir. 1997). In

a chapter 13 case, a bankruptcy court “may allow reasonable

compensation to the debtor’s attorney for representing the

interests of the debtor in connection with the bankruptcy case

based on a consideration of the benefit and necessity of such

services to the debtor and the other factors set forth in this

section.” § 330(a)(4)(B). The allowance of reasonable

compensation is discretionary. In re CIC Inv. Corp., 192 B.R.

at 551. 

Ethical violations are relevant to a fee determination

under § 330. See Matter of Ranchero Motor Inn, Inc., 527 F.2d

1044, 1047 (9th Cir. 1975) (“Improper conduct on the part of

officers or attorneys has frequently been penalized by

withholding compensation or reimbursement or both.”);

In re Wilde Horse Enters., Inc., 136 B.R. 830, 844 (Bankr. C.D.

Cal. 1991) (“[V]iolations of . . . professional ethics or

breaches of fiduciary duties can give rise to the reduction,

denial or forfeiture of compensation or other sanctions.”). 

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Here, the bankruptcy court’s discretionary decision to deny all

fees and order disgorgement was based on its factual findings

regarding the gravity of Chandler’s ethical violations. Thus,

there was no need for the court to inquire into the

reasonableness of his fees or consider other factors under

§ 330(a)(3).9

Finally, Chandler makes no specific argument regarding the

bankruptcy court’s authority to require disgorgement of the

$10,000 payment made to him by CMITH under the court-approved

compromise order. Although the compromise order was a final

order as between Debtor and CMITH, there is no indication in the

order or in the record on appeal that the compromise order was

9 Section 330(a)(3) states:

In determining the amount of reasonable compensation to

be awarded to an examiner, trustee under chapter 11, or

professional person, the court shall consider the

nature, the extent, and the value of such services,

taking into account all relevant factors, including--

(A) the time spent on such services;

(B) the rates charged for such services;

(C) whether the services were necessary to the

administration of, or beneficial at the time at which

the service was rendered toward the completion of, a

case under this title;

(D) whether the services were performed within a

reasonable amount of time commensurate with the

complexity, importance, and nature of the problem,

issue, or task addressed;

(E) with respect to a professional person, whether the

person is board certified or otherwise has demonstrated

skill and experience in the bankruptcy field; and

(F) whether the compensation is reasonable based on the

customary compensation charged by comparably skilled

practitioners in cases other than cases under this

title.

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final as between Debtor and Chandler with respect to his fees. 

Actually, the record suggests that it was not. First, Chandler

incurred fees beyond the $10,000 in the adversary proceeding. 

Next, Chandler continued to represent Debtor in the underlying

bankruptcy case. Thus, he could not have submitted a “final”

fee application at the time of the compromise order. Last, by

filing his final fee application and seeking court approval for

amounts previously paid — including the $10,000 — Chandler could

not be relying on the compromise order as a final fee award with

respect to that payment. By treating the $10,000 payment as in

the nature of an interim award in his final fee application,

Chandler clearly anticipated that the bankruptcy court would

revisit that award. It is well established that interim fees

are always subject to disgorgement. See § 330(a)(5); see also

§ 329(b). On this record, Chandler can neither claim that

disgorgement of the $10,000 was an unexpected result nor can he

complain that he did not have the opportunity to be heard with

respect to that amount. 

There is an alternative reason why the bankruptcy court’s

order denying Chandler’s fees and ordering disgorgement was

appropriate. Under § 329(a) and Rule 2016(b), a debtor’s

attorney is required to execute and file a supplemental

statement concerning any payment received or compensation

agreement not previously disclosed within fifteen days after

receiving such payment or making any new agreement. While

Chandler did disclose that he had received the $10,000 amount

through CMITH and applied that to his fees, that disclosure was

inadequate. After the initially disclosed flat fee agreement,

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Chandler never supplemented his disclosure to show that he had

entered into a new fee agreement with Debtor whereby he would

bill at an hourly rate for services beyond those initially

disclosed. As a sanction for failing to timely and adequately

disclose the new fee agreement, the bankruptcy court has the

inherent authority to order disgorgement and discretion to deny

counsel all fees even if the violation was unintentional. 

In re Lewis, 113 F.3d at 1045.

For all these reasons, we conclude that the bankruptcy

court did not abuse its discretion by denying Chandler’s fees

and ordering disgorgement of amounts previously paid. 

C. Debtor’s Cross Appeal of the Fee Order

After denying Chandler’s fees and requiring disgorgement,

the bankruptcy court stated: 

I determine that this remedy fully compensates Debtor

for all harm caused by Chandler’s breach of duty.

Requiring Chandler to refund the $15,593 he already

received should be sufficient to cover the fees that

Debtor incurred in responding to Chandler’s fee

application, Chandler’s motion to distribute proceeds,

and Chandler’s opposition to Debtor's motion to

dismiss her chapter 13 case.

Debtor argues on appeal that this determination prevents

her from bringing a malpractice action against Chandler, as it

leaves her with no claim for damages. Debtor complains that she

has been further damaged by this appeal because (1) the title

company holding the $57,712 has not yet disbursed any of the

funds to either CalFHA or Debtor; (2) CalFHA is an oversecured

creditor and therefore interest continues to accrue on its deed

of trust which is senior to Debtor’s homestead; (3) there is an

attorneys’ fee clause in CalHFA’s note and deed of trust; and

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(4) Debtor is incurring her own additional attorneys’ fees. 

Finally, Debtor asserts that the bankruptcy court made a

procedural due process error when it made the “fully

compensates” statement. Debtor claims she did not have notice

that this issue was even being considered and thus never had the

opportunity to present evidence on her damages. 

Debtor’s arguments are understandably misplaced. The

court’s statements in the Memorandum Decision were not findings

because they were not made in support of any order issued by the

court. Debtor never sought any affirmative relief against

Chandler through the filing of a motion or otherwise. Thus, the

issues Debtor now complains about were not at stake and were not

“actually litigated” or “necessary” to the bankruptcy court’s

Fee Order. Further, the Fee Order itself does not mention the

“fully compensated” language since only denial of further fees

and disgorgement were at issue. Finally, it is not for this

Panel to determine the preclusive effect of any order issued by

the bankruptcy court. That decision is reserved for a court

where the issue is presented for decision. Smith v. Bayer

Corp., 131 S.Ct. 2368, 2375 (2011). 

Debtor’s procedural due process argument also is misguided. 

“The fundamental requisite of due process of law is the

opportunity to be heard.” Mullane v. Cent. Hanover Bank & Trust

Co., 339 U.S. 306, 314 (1950). Here, Debtor received notice of

the hearing on the fee application and the bankruptcy court held

a hearing in which she participated. Since Debtor fully

participated with respect to the only decisions ordered by the

court, she received adequate due process. The cross appeal

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addresses no error by the bankruptcy court. 

D. The bankruptcy court did not err in denying the 

Distribution Motion.

The bankruptcy court denied the Distribution Motion and

determined that the sales proceeds held in escrow were property

of Debtor, subject only to the secured claim of CalFHA. 

Chandler’s challenges to the Distribution Order are

intertwined with his arguments regarding the breach of duty of

loyalty. For instance, he contends that the bankruptcy court

erroneously held that §§ 544 and 551 were not triggered because

the adversary complaint did not seek relief under those Code

sections and it misinterpreted the plan by finding that it did

not preserve CMITH’s lien when preservation is automatic. 

According to Chandler, the amended plan entitled the parties to

further proceedings and determinations, nothing more. 

We addressed these arguments above and will not repeat our

response. In the bankruptcy court’s view, one which we do not

find clearly erroneous, the terms of the plan provided for the

payment of CalFHA’s lien with the remaining sale proceeds going

to Debtor on account of her homestead exemption. We discern no

error of law or fact in the bankruptcy court’s decision to deny

the Distribution Motion on this record. 

E. The bankruptcy court did not abuse its discretion in 

granting Debtor’s request to dismiss her case. 

 

The Debtor sought dismissal of her case so that she could

obtain the release of funds in escrow on account of her

homestead exemption. Chandler contends that her new counsel

refused to communicate with him and that the motion to dismiss

was filed to obtain the funds in escrow by default and without a

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hearing. Furthermore, Chandler asserts that Debtor “made no

secret that she was trying to deprive [him] the opportunity to

seek court approval of fees and make it difficult for [him] to

collect.” Finally, Chandler contends that his preservation

arguments had merit and thus dismissal of Debtor’s case resulted

in an injustice. We disagree with these contentions. Again,

the terms of the approved first amended plan, as interpreted by

the bankruptcy court, together with the other facts in the

record show that the bankruptcy court did not abuse its

discretion in granting Debtor’s motion to dismiss. Moreover,

because of the contested hearing on the motion to dismiss, no

funds were obtained by Debtor “by default” or without a hearing. 

VI. CONCLUSION

For the reasons stated above, we AFFIRM the three orders on

appeal in all respects.

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