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Elam v. Bank of New York

United States District Court, S.D. Florida

June 19, 2018

BRETT A. ELAM, Appellant,
v.
THE BANK OF NEW YORK MELLON, Appellee.

          ORDER AFFIRMING BANKRUPTCY COURT DECISION AND DENYING WITHOUT PREJUDICE INTERVENOR'S MOTION FOR ATTORNEY'S FEES

          ROBIN L. ROSENBERG UNITED STATES DISTRICT JUDGE.

         This 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.

         I. BACKGROUND

         A 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].[1] 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].

         Subsequent 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report (“March 2017 MOR”) [IA 65-86] reflected that on March 2, 2017, check number 256 in the sum of $34, 400.00 was withdrawn from Ms.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].

         Less 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].

         The 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].

         At the 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].

         On May 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].

         Appellee 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].

         Ms. 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].

         On June 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].

         On June 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].

         On July 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 154].

         On 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].

         At the 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] got ...

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