Opinion ID: 4555771
Heading Depth: 1
Heading Rank: 2

Heading: welch’s fee arrangement and payments

Text: On the same day that Mr. Welch entered an appearance, he executed a representation agreement with the Stewarts. The engagement included general representation, debt counseling, and corporate-structure and bankruptcy representation to the Stewarts and certain named business affiliates. Also at that time, the named affiliates, including Neverve, guaranteed Mr. Welch’s legal fees in connection with the bankruptcy representation. The BP claims were settled in spring 2016. By that time Mr. Welch had obtained an interest in the settlement proceeds. Under a fee-sharing agreement executed on April 19, 2016, the total attorney fee was 40% of the proceeds; that amount was split 6 three ways with 52% of it going to the chief attorney, 32% to Mr. Welch, and 16% to the person who referred the matter to the chief attorney. Mr. Welch’s fee would therefore be about 13% of the amount recovered on the claims. There had been a previous attorneycompensation agreement governing the BP claims. But according to Mr. Welch, it could not be found; and the record apparently does not show what the terms of that earlier agreement were, or even whether he was a party to it. To explain his receipt of a contingency fee, Mr. Welch told the bankruptcy court that he “advised and assisted the non-debtor claimants in providing substantiating documents to support [the chief attorney] in the settlement process and negotiated specific language to the settlement agreements.” Aplt. App., Vol. 13 at 3305. The settlement proceeds were disbursed in August 2016. All of Mr. Welch’s $348,404.41 in fees in this case came out of proceeds that were wired to him. He received $144,591.85 under his contingency-fee contract, but he then credited all that toward what he was owed for his bankruptcy work. In his own words, this was “a matter of fairness and efficiency in [his] mind.” Id. at 3198. The remaining $203,812.56 came out of the $275,572.27 in net-settlement proceeds for Neverve. Mr. Welch paid himself because of Neverve’s guarantee of his fee. Although 11 U.S.C. § 329 and Bankruptcy Rule 2016(b) require attorneys for debtors to disclose their fee arrangements and all payments for their bankruptcy services, Mr. Welch failed to do so until September 2017, more than two years after entering into the bankruptcy-fee arrangement and more than a year after being paid. His disclosure was not voluntary. The failure to disclose was pointed out by SEPH during proceedings 7 on August 30, 2017, to determine whether the bankruptcy court would approve an agreement between the Trustee and the Stewarts signed in April. The agreement stated that the Trustee would abandon (thereby relinquishing to the Stewarts) all nonexempt property, including the Stewarts’ membership interests in various limited liability companies, and the Stewarts would pay $750,000. Before negotiations on the settlement agreement the Stewarts had argued that the Trustee should abandon those membership interests because they were valueless. In particular, on November 3, 2015, the Stewarts had moved in bankruptcy court to have the Trustee abandon their membership interests in three companies: Raven Resources, LLC, Oklamiss Investments, LLC, and Shimmering Sands Development Company, LLC, claiming that the three entities were in so much debt that they provided no value to the Stewarts’ bankruptcy estate. See 11 U.S.C. § 554(a) (“[T]he trustee may abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate.”). At a hearing on the matter on January 20, 2016, Mr. Welch acknowledged that at least one of the entities, Shimmering Sands, had a $600,000 claim against BP and that “an attorney’s contingency fee firm [had] agreed to try it” (he makes no mention that he was to receive any of that contingency fee). Aplt. App., Vol. 6 at 1516. But he downplayed the value of the claim, saying that it was “years from ever even being heard” and that they still would need to put on evidence and witnesses and the result was uncertain. Id. On March 18, however, Mr. Welch informed the Trustee that he had just learned that there was movement on the BP claims. On April 13 the 8 bankruptcy court denied the motion to abandon, at least in part because of the possibility the estate could benefit from the BP claims. This led to the settlement agreement between the Stewarts and the Trustee, and then the August 30, 2017 hearing on whether the court should approve it. It was when Mr. Welch stated at the hearing that he had paid himself out of the BP proceeds, that SEPH and the bankruptcy court began questioning Mr. Welch about his compensation arrangements. SEPH brought up that Mr. Welch had never filed his required disclosures, including anything regarding his compensation or representation agreement. Offering no explanation, Mr. Welch merely acknowledged his obligation to make disclosures. The bankruptcy court said that it did not understand why he had not turned over the Neverve BP claim proceeds to the Trustee, telling Mr. Welch that the Trustee “should be the one making these decisions, not you and not David Stewart.” Aplt. App., Vol. 29 at 6568. It told Mr. Welch to immediately make his disclosures. He filed disclosures on September 14 and 20, 2017.