Court Opinion

ID: 9496598
Source: CourtListenerOpinion
Date Created: 2023-08-05 16:30:43.357285+00
Date Added: 2024-06-11T17:57:40.875481
License: Public Domain

CUDAHY, Circuit Judge,
concurring in part and dissenting in part.
I agree with the majority that the painstaking procedure provided in § 329 of the Bankruptcy Code to conform lawyers’ charges to reasonable levels is not in “conflict” with the discharge provisions of §§ 727 and 524 or the automatic stay provision of § 362. The relationship of these sections may be awkward, and this awkwardness raises some questions about Congress’s understanding and intent with respect to the discharge of attorneys’ fees. It does seem implausible that Congress provided a procedure in § 329 to impose reasonableness on attorneys’ fees only to simultaneously decree them discharged under § 727. But, as the majority holds, there is no conflict clear enough to defeat discharge, when attorneys’ charges are not among the items specifically excepted from discharge by § 523. This conclusion knocks the props out from the main argument made by the courts below to justify an exception from discharge.
There are, however, other incongruities in the application of the Code that lead one to wonder whether Congress really did anticipate that attorneys’ fee claims would be discharged. For example, Bankruptcy Rule 1006, implementing 28 U.S.C. § 1930, provides for payment of bankruptcy filing fees in installments within 120 days after the filing of a bankruptcy petition, but Rule 1006(b)(3) prohibits any payment to the debtor’s attorney before the filing fee is paid in full. See Fed. R. Bankr.P. 1006(b)(3). Rule 1006 codifies the longstanding practice under the former Bank*1130ruptcy Act and rules. See, e.g., In re Latham, 271 F. 538 (N.D.N.Y.1921). Thus, the rules at least implicitly recognize that attorneys representing debtors in connection with their bankruptcies may be paid, and may agree to be paid, post-petition. Although the Bankruptcy Rules may not contradict substantive provisions of the Code, rules propounded by the Supreme Court are presumed not to do so. See In re Moralez, 618 F.2d 76, 78 (9th Cir.1980) (resolving doubt about prior substantive law in favor of the understanding expressed by the rule); Matter of Decker, 595 F.2d 185, 189 (3d Cir.1979) (“strong presumption” in favor of consistency of rules with Code); but see In re Jastrem, 253 F.3d 438, 441-42 (9th Cir.2001) (resolving inconsistency in favor of Bankruptcy Code and discharging pre-petition fees).
There is also evidence in the history of § 60(d) of the Bankruptcy Act of 1898, as amended (the predecessor of § 329 of the Code), that Congress did not intend that pre-petition attorneys’ fees be discharged. The Supreme Court characterized § 60(d) as “recognizing] the right of ... a debtor to have the aid and advice of counsel, and, in contemplation of bankruptcy proceedings which shall strip him of his property, to make provisions for reasonable compensation to his counsel.” In re Wood, 210 U.S. 246, 253, 28 S.Ct. 621, 52 L.Ed. 1046 (1908); see also In re Falk, 30 F.2d 607, 609 (2d Cir.1929) (“The object of § 60(d) was to afford the bankrupt representation by counsel, who would not have to take his chances as a general creditor, but might know that a reasonable fee was assured ....”). I do not see this, as the majority suggests, as a species of “social-class preference.” It seems to me an arrangement that might enable debtors to obtain counsel in bankruptcy when counsel might be sorely needed. The elementary demands of fairness are offended when a necessitous debtor retains a lawyer to help him unburden himself of his debts and then hoists the unsuspecting attorney on his own petard by not only refusing to pay what is due under the retainer but asking that the lawyer be held in contempt.
Bankruptcy Judge Barliant began his opinion in this case with a plea for an appropriate regard for context in the construction of statutes. In that respect, he quoted from our decision in In re Handy Andy Home Improvement Centers, Inc., 144 F.3d 1125, 1128 (7th Cir.1998) (Posner, C.J.), “when context is disregarded, silliness results.” So in taking account of the context here, there may be some grounds for viewing the discharge of pre-petition attorneys’ fees as “silly,” but that is a description we must lay at the feet of Congress, which, I think dispositively, failed to include pre-petition lawyers’ fees as an exception to discharge.
I do not, however, agree with the majority that there is anything in the case before us that requires the rejection of In re Hines, 147 F.3d 1185 (9th Cir.1998) (Shadur, J.), and thereby the creation of a split with the Ninth Circuit. In this appeal, the debtors claim only that “Defendants violated the automatic stay ... and the discharge injunction ... of the Bankruptcy Code by collecting debts from Plaintiffs for attorneys’ fees earned pre-petition after Plaintiffs’ bankruptcy petitions were filed.” Appellants’ Br. at 3 (emphasis added). The status of payments for post-petition services is not in issue on this appeal, and the majority seems to agree that the parties have not raised this issue here. Under ordinary principles of the adversary system, we do not reach out to decide questions not before us. See, e.g., Adam A. Milani & Michael R. Smith, “Playing God: A Critical Look at Sua Sponte Decisions by Appellate Courts,” 69 Tenn. L.Rev. 245, 273 (2002) (“Party identification of the issues is at the core of th[e adversary] system and ‘[t]he adversary *1131process is no more starkly challenged than when a court decides an issue not raised, for it actually decides something other than what the parties asked it to decide.’ ”) (footnotes and citations omitted). The fact that, in passing, Judge Barliant disagreed with the Ninth Circuit’s analysis in Hines in support of his refusal to jump on the Biggar bandwagon is certainly not a sufficient reason for us to address an issue that is unnecessary to our disposition of this appeal. After all, the bankruptcy judge was rejecting Hines’s reaffirmation of Biggar’s discharge of pre-petition fees, not its non-discharge of post-petition fees. Moreover, neither party has “confessed error,” either explicitly or otherwise, as to Judge Barliant’s analysis of Hines, because the outcome has not (until now) hinged on Hines’ s validity. The majority argues that because it might be appropriate to remand for apportionment, we must instruct the lower courts on how to do that or they may “proceed in an unlawful manner.” Op. at 1128. But we have decided only the disposition of pre-petition fees— the only issue presented on this appeal. What sort of issues may arise on remand and how the parties will frame them is presently unknown, and it is premature to instruct anyone how to deal with an unliti-gated issue. The question before us is what issues are raised by the litigants, not, as in Lawrence v. Chater (cited by the majority), whether a lower court would change its opinion in light of a significant change in circumstances, such as a confession of error by one of the parties to the litigation or a failure to consider an important precedent, if given the opportunity to do so on remand.1 See Lawrence v. Chater, 516 U.S. 163, 167-68, 116 S.Ct. 604, 133 L.Ed.2d 545 (1996).
The issue that the majority seeks to decide prematurely is whether fees for work performed after the filing of the petition are to be discharged, not whether the particular rationales provided by the Hines majority or by Judge Tashima’s special concurrence are valid. The underlying principle is that only debts owed at the time of filing the petition are subject to discharge under Section 727. See 11 U.S.C. § 301 (the commencement of a voluntary case under Chapter 7 by filing a petition constitutes an order for relief); 11 U.S.C. § 727(b) (operating to discharge “all debts that arose before the date of the order for relief’). As the majority recognizes, fees arising from professional services rendered during bankruptcy are treated entirely differently by the Code. See op. at 1127-28. Nonetheless, the majority seems to be saying that because it might be difficult to allocate fees between pre-petition and post-petition work, both must be discharged. These concerns about problems of allocation are, as I have indicated, also premature. Whether the bankruptcy lawyers’ fees for post-petition legal services are dischargeable is an issue that may be raised and dealt with on remand in the bankruptcy court, and, as I have pointed out, we have no idea what positions will be taken by the parties with respect to that issue or what rationales they will advance in support of their posi*1132tions (or whether they will settle the case without further litigation).2 The validity of Hines may become an issue at that time, although that is by no means certain, and there will then be a record upon which to evaluate the holding of that opinion. The issue whether all lawyers’ fees in the course of a bankruptcy will be discharged, or only the fees incurred prior to filing the petition, is much too important to decide before it is litigated.
Although, as I have argued, the validity of the Ninth Circuit’s holding in Hines should not be reached at this time, it should be borne in mind that Hines— incidentally, an opinion authored by an able jurist from the Seventh Circuit, sitting by designation — is not only the law of the Ninth Circuit, see In re Sanchez, 241 F.3d 1148, 1150 (9th Cir.2001), but has been followed elsewhere, see, e.g., In re McNickle, 274 B.R. 477, 480 n. 5 (Bankr.S.D.Ohio 2002).3 And the principle that fees applicable to post-petition activities are not discharged, even if based on a prepetition contract, has been broadly recognized. See, e.g., Siegel v. Federal Home Loan Mortgage Corp., 143 F.3d 525, 532 (9th Cir.1998); In re Sure-Snap Corp., 983 F.2d 1015, 1018 (11th Cir.1993); In re Hadden, 57 B.R. 187 (Bankr.W.D.Wis.1986). But, more immediately relevant, the status of Hines in this circuit is an issue we may not properly reach in this appeal, and I see no merit to doing so. As Judge Easterbrook observed in another bankruptcy case, “[w]e do not create conflicts among the circuits without strong *1133cause. A conflict here would be gratuitous.” Mayer v. Spanel Int’l Ltd., 51 F.3d 670, 675 (7th Cir.1995).
I therefore respectfully dissent to the extent I have indicated.

. In fact, the majority is arguing not that a simple vacatur and remand is appropriate in this case as it was in Lawrence v. Chater, but that the parties (despite all indications to the contrary) have actually appealed the validity of Hines with respect to the discharge of post-petition fees, and that we must therefore pass judgment on that issue. Moreover, what the majority characterizes as an "effective” "confess[ion of] error” by the litigants is, if anything, merely argumentation on appeal that the lower court (not the parties themselves) has made an error of law. Lawrence v. Chater is thus inapposite, and neither it nor Rinaldi v. United States, 434 U.S. 22, 98 S.Ct. 81, 54 L.Ed.2d 207 (1977) (also cited by the majority), requires this court to "decide the issue independently.” Op. at 1128.

. It should be kept in mind that the debtors have argued vociferously that "legal fees only become a 'claim’ as the legal services are performed,” Appellants' Br. at 14, and would be judicially estopped from arguing the opposite on remand if the majority did not insist on prematurely invalidating the holding of Hines. And the bankruptcy lawyers have argued Hines is wrong only in that it discharges pre-petition fees; they have obviously never argued that post-petition fees should also be discharged. See Appellee's Br. at 17-18.

. Even though the majority disparages the idea of dividing a retainer agreement into multiple "claims” accruing when legal services are performed, "Illinois law entitles a client to discharge his lawyer (without liability) at any time, with or without cause.” Maksym v. Loesch, 937 F.2d 1237, 1245 (7th Cir.1991), citing Rhoades v. Norfolk & Western Ry., 78 Ill.2d 217, 35 Ill.Dec. 680, 399 N.E.2d 969, 974 (Ill.1979). (For the record, the Illinois Supreme Court followed California's lead in deciding this issue. See Fracasse v. Brent, 6 Cal.3d 784, 100 Cal.Rptr. 385, 494 P.2d 9 (1972) (allowing attorney discharged with or without cause to receive a reasonable fee for services rendered). Judge Tashima's rationale for allowing post-petition fees therefore does not actually involve “rewriting the contract” at all, because, just as in Illinois, California law does not create a right to payment until services have been performed.) Thus, particularly in this case, there is no support for the majority’s argument that bifurcating an agreement for legal fees in the way advocated in Hines "contradicts both the Code and the retainer agreement, which says that the fee is due whether or not the client uses the services.” Op. at 1129. For this reason, it is also arguable whether installment fee agreements entered into by Illinois bankruptcy lawyers would actually give rise to any "right to payment” until they have performed the agreed-upon legal services.
Rather, both Illinois law governing lawyer-client fee agreements and the Code support Hines’ s holding that post-petition fees are not discharged. Under Illinois law, a bankruptcy lawyer is entitled to the value of services rendered under a theory of quantum meruit. This is entirely in keeping with § 329(b) of the Code, which requires bankruptcy courts to make exactly that determination. Although the majority’s holding today is arguably correct in finding that the Bankruptcy Code trumps the law of restitution in denying a reasonable fee for pre-petition services rendered by "lawyers ... in circumstances in which they can reasonably be expected to be compensated,” Gaskill v. Gordon, 160 F.3d 361, 363 (7th Cir.1998), neither the Code nor Illinois contract law supports the majority's gratuitous determination that these lawyers are not entitled to their post-petition fees.