United States District Court, S.D. Florida
BRETT A. ELAM, Appellant,
THE BANK OF NEW YORK MELLON, Appellee.
ORDER AFFIRMING BANKRUPTCY COURT DECISION AND DENYING
WITHOUT PREJUDICE INTERVENOR'S MOTION FOR ATTORNEY'S
L. ROSENBERG UNITED STATES DISTRICT JUDGE.
matter is before the Court upon the appeal by Appellant Brett
A. Elam of the bankruptcy court's order sanctioning Mr.
Elam, entered on October 24, 2017, and the bankruptcy
court's order denying reconsideration of its sanctions,
entered on November 17, 2017. The Court has carefully
considered the appeal, the briefs, the record on appeal, and
is otherwise fully advised in the premises.
Chapter 11 Bankruptcy usually offers a reorganization
opportunity and a fresh start. The debtor in the proceeding
below, Ms. Kim Crawford, initially filed for Chapter 11
Bankruptcy in 2014. As of October 2016, however, Ms. Crawford
was on her fourth amended Chapter 11 plan. [IA
1-23]. A couple of months earlier, Ms.
Crawford's attorney, Mr. Brett A. Elam (the Appellant in
this case) had filed an amended application for final
compensation claiming $34, 370.00 in attorney's fees and
$30.00 in costs. [IA 24-40]. The bankruptcy court denied
confirmation of Ms. Crawford's fourth amended plan and
instead set a status conference for May 9, 2017. [IA 41-42].
Earlier, Mr. Elam had been granted interim attorney's
fees but no final fee order had been entered. [IA 43-44].
to the aforementioned denial, Bank of New York Mellon (the
Appellee in this appeal) filed a Filing in Further Support Of
Its Motion to Dismiss Case [IA 45-64] with the main purpose
to alert the bankruptcy court that Ms. Crawford's March
2017 monthly operating report (“March 2017 MOR”)
[IA 65-86] reflected that on March 2, 2017, check number 256
in the sum of $34, 400.00 was withdrawn from Ms.
Crawford's debtor-in-possession (“DIP”)
account and was paid to Mr. Elam for “Attorney's
Fees.” Appellee was concerned because the bankruptcy
court had not awarded attorney's fees to Mr. Elam in
March 2017 when the confirmation was denied. [IA 46; IA
41-42]. Appellee contacted Mr. Elam by email asking for proof
that the $34, 400.00 remained in Mr. Elam's trust
account. [IA 52-63]. Although Mr. Elam provided Appellee with
a redacted trust account statement showing the March 2, 2017
deposit of the $34, 400.00 into his trust account [IA 52-63],
Appellee was unable to get Mr. Elam to provide proof that the
DIP funds remained in Mr. Elam's trust account despite
the exchange of many emails with Mr. Elam. [IA 52-63].
than two and a half hours before the May 9, 2017 status
conference hearing, Mr. Elam filed an Amended March 2017 MOR
specifying that $34, 400.00 in legal fees was “being
held in” the Trust Account “pending
approval” of Ms. Crawford's plan. [IA 87-108]. Mr.
Elam asserted that:
In anticipation of confirmation hearing March 15, 2017, [Ms.
Crawford] tendered a check for Admin fees to counsel. These
funds were deposited into counsel's trust account. As the
Court failed to confirm the Plan those fees were not
approved. The fees are in counsel's trust account pending
approval from the Court.
[IA 88]. The additions to the amended March 2017 MOR [IA 88,
94, 103] explaining the transfer of the DIP funds appear to
be in different handwriting than Ms. Crawford's and her
signature on the Amended March 2017 MOR [IA 95] appears
identical to that on the original March 2017 MOR [IA 73].
transcript of the May 9, 2017 hearing was filed in this
appeal as part of Mr. Elam's appendix to his Initial
Brief [Elam's App. 1-34]. In the relevant portion of the
transcript, Mr. Elam represents: (i) that the $34, 400.00 was
put in his trust account, that the March 2017 MOR was amended
to reflect the funds are an asset of the estate, and the
money was put there based upon a pending confirmation
hearing; and, (ii) “that cash would be available to pay
down the - -whatever that we need to do.”
[See, Elam's App. 014-020].
hearing, Appellee and Mr. Elam agreed that Mr. Elam had
furnished proof that the $34, 400.00 in DIP funds had been
deposited into his account on March 2, 2017 but the Appellee
was still seeking proof that the funds stayed there.
[Elam's App. 31-33]. Mr. Elam told the court that
“[Appellee had] been provided - - oh, okay, I was going
to say, I provided him with the information that it went in
and that's - - but I'll give him the rest.”
[Elam's App. 31, 32]. The court then stated:
“that's fine.” [Elam's App. 32].
16, 2017, the bankruptcy court entered an Order on Status
Conference [IA 109-110] which, in relevant part, ordered Mr.
Elam to provide Appellee with a true and correct copy of his
redacted Trust Account statement(s) reflecting that the sum
of $34, 400.00 paid out of the DIP account on March 2, 2017
had always been maintained in the Trust Account. [IA
109-110]. Mr. Elam did not move to reconsider, to vacate, or
to clarify the Order on Status Conference. [IA 286].
filed a Motion to Compel Production of Trust Account
Documents on May 22, 2017 asserting that so far Mr. Elam had
provided proof that the $34, 400.00 was deposited into his
trust account and proof that as of May 11, 2017 the $34,
400.00 was in the trust account. [IA 111-114]. What Appellee
did not receive from Mr. Elam was proof that the $34, 000.00
always remained in the trust account. [IA 111-114].
Crawford filed her April 2017 MOR on May 31, 2017 and that
report did not reflect that the $34, 400.00 was part of the
bankruptcy estate. [IA 115-129]. At the June 1, 2017
bankruptcy court hearing, Appellee's motion to compel
trust account records [IA 111-114] was heard. [Elam's
App. 046-049]. Appellee stated it wanted to see whether or
not the DIP funds were ever disbursed out of the trust
account and wanted Mr. Elam's trust account records for
March, April, and May 2017. [Elam's App. 047-048]. Mr.
Elam told the court that “at the last hearing the court
ordered [me] to provide the trust account records to show
that it went in the trust account, and that it was in the
trust account. And that's what [Appellee] got.”
[Elam's App. 048]. Mr. Elam complained that the May 16,
2017 Order on Status Conference [IA 109-110] did not comply
with the oral pronouncement in court. [Elam's App. 048].
12, 2017, the bankruptcy court entered an Order Granting
Motion to Compel Production of Trust Account Documents
ordering Mr. Elam to provide the Appellee with true and
correct copies of his firm's trust account records for
March through May 2017 reflecting the DIP funds remained in
the trust account. [IA 130-131].
19, 2017, Appellee filed its Motion for Order to Show Cause
Why Debtor's Counsel Brett Elam Should Not Be Held in
Contempt and for Sanctions. [IA 132-137], reciting that Mr.
Elam had failed to comply with two court orders requiring him
to produce his trust account records. Mr. Elam filed a Motion
to Vacate Order Granting Motion to Compel Production of Trust
Account Documents [IA 138-142] which was heard by the
bankruptcy court but denied [IA 143-144]. Mr. Elam did not
move to reconsider. [IA 286-287]. On July 14, 2017, the
bankruptcy court entered an Order Dismissing Case with
Prejudice providing that the case is dismissed with 180 days
prejudice to filing another petition, for the debtor to pay
certain fees, and retaining jurisdiction to enforce the
provision of this order and any other pending orders entered
in this case. [IA 145-146].
19, 2017, Appellee filed an Amended Motion for Sanctions [IA
147-176] requesting pursuant to 11 U.S.C. § 105(a) that
the court require Mr. Elam to reimburse the Appellee for
reasonable attorney's fees it had incurred with respect
to the improper disbursement of the DIP funds and to return
the DIP funds to the debtor. Appellee asserted that after the
DIP funds were deposited in Mr. Elam's trust account on
March 2, 2017, the trust account balance dropped by about $8,
950.00 between March 2 and March 31, 2017 and dropped again
by about $8, 000.00 on April 28, 2017. [IA 147-176]. However,
on May 11, 2017, two days after the court heard the
Appellee's sanctions motion and ordered Mr. Elam to prove
that the $34, 400.00 in question was always in the
trust account-the balance was back up to $34, 836.12. [IA
September 1, 2017, the bankruptcy court entered an Order to
Show Cause, ordering Mr. Elam to appear for an evidentiary
hearing to show cause as to why he should not be suspended
from practicing before the bankruptcy court in addition to
other sanctions requested by the Amended Motion for Sanctions
[IA 147-176] for making false statements regarding financial
information relating to the DIP funds and for making improper
disbursements of the DIP funds from the trust account. [IA
177, 178]. The court further directed Mr. Elam to produce at
the Show Cause Hearing any and all Trust Account statements
and redacted records reflecting the receipt and disbursement
of the DIP funds from March 2017 to the present, including
the recipient of the disbursements, adding that the court
would determine at the Show Cause Hearing the amount of
reasonable attorney's fees and costs that Mr. Elam would
pay to the Appellee regarding the Appellee's discovery
efforts relating to the DIP funds. [IA 177-178].
Show Cause Hearing on the Amended Motion for Sanctions and
the Order to Show Cause, the bankruptcy court asked Mr. Elam
why he should not be suspended from practice for lying to the
court and misappropriating funds from the trust account. [IA
179-233]. Mr. Elam responded that if he told the court the
DIP funds were “always” in the trust account then
that was “incorrect” and he
“apologize[d].” [See IA 109-110]. He
said he “took the DIP funds out of the trust account
“in an emergency situation and they were put
back.” [IA 182-183]. Mr. Elam testified that:
[T]he funds were there, and [his] wife had surgery, and [he]
needed to use the funds to live for a bit, and when [they]