Scotchel v. United States Trustee

Filing 18

MEMORANDUM OPINION AND ORDER AFFIRMING THE ORDER OF THE BANKRUPTCY COURT, DENYING AS MOOT APPELLANTS MOTION FOR STAY PENDING APPEAL 12 , AND DENYING AS MOOT APPELLEES MOTION TO DENY REQUEST FOR STAY AND VACATE ORDER 16 . Signed by District Judge Irene M. Keeley on 3/3/14. (jss)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
JOHN CHARLES SCOTCHEL, JR.,
Appellant,
v.

//

Civil Action No. 1:13CV161
Bk. No. 1:12BK9
(Judge Keeley)

MARTIN P. SHEEHAN, Trustee
of the Bankruptcy Estate of John
C. Scotchel, Jr., and Helen H.
Scotchel,
Appellee.

MEMORANDUM OPINION AND ORDER AFFIRMING THE ORDER OF THE
BANKRUPTCY COURT, DENYING AS MOOT APPELLANT’S MOTION FOR STAY
PENDING APPEAL [DKT. NO. 12], AND DENYING AS MOOT APPELLEE’S
MOTION TO DENY REQUEST FOR STAY AND VACATE ORDER [DKT. NO. 16]
The

appellant,

John

Charles

Scotchel,

Jr.

(“Scotchel”),

appeals from an order of the United States Bankruptcy Court for the
Northern District of West Virginia (dkt. no. 1-28), concluding that
his contingency fee of $690,000 is property of the bankruptcy
estate and subject to the administration of the Chapter 7 trustee,
the appellee, Martin P. Sheehan (“Sheehan”).

Scotchel also has

filed a motion for stay pending appeal (dkt. no. 12), and Sheehan
has filed a motion to deny Scotchel’s request for a stay and to
vacate the stay imposed by the bankruptcy court (dkt. no. 16). For
the reasons that follow, the Court AFFIRMS the order of the
bankruptcy court, DENIES AS MOOT Scotchel’s motion for a stay, and

SCOTCHEL V. SHEEHAN

1:13CV161

MEMORANDUM OPINION AND ORDER AFFIRMING THE ORDER OF THE
BANKRUPTCY COURT, DENYING AS MOOT APPELLANT’S MOTION FOR
STAY PENDING APPEAL, AND DENYING AS MOOT APPELLEE’S
MOTION TO DENY REQUEST FOR STAY AND VACATE ORDER
DENIES AS MOOT Sheehan’s motion to deny the request for a stay and
to vacate the bankruptcy court’s stay.
I.
On May 9, 1989, Cindy Jo Falls (“Falls”) was involved in an
automobile accident and retained Scotchel to represent her in a
personal

injury

action.

Although

that

case

was

eventually

dismissed in September 1999, during the litigation it became
apparent that Falls had a first party bad faith settlement claim
against her insurer, Allstate Insurance Company (the “Falls Case”).
Therefore, on September 1, 2000, Scotchel entered into a fee
sharing agreement with the law firm of Bordas & Bordas, PLLC
(“B&B”), in Wheeling, West Virginia, to prosecute the claim for
Falls, pursuant to which B&B was to receive 60% of any fee
recovered from the Falls Case and Scotchel would receive the
remaining 40%.

See Bordas Aff. ¶¶ 6-7, Dkt. No. 1-23.

In October,

2001, Falls signed a retainer agreement with B&B, pursuant to which
B&B would receive a fee of 40% of any settlement amount.
Retainer Agmt., Dkt. No. 1-22.

See

Trial in the Falls Case was

originally scheduled for January 9, 2012, but was later continued
until March 12, 2012.

See Bordas Aff. at ¶ 10.

2

SCOTCHEL V. SHEEHAN

1:13CV161

MEMORANDUM OPINION AND ORDER AFFIRMING THE ORDER OF THE
BANKRUPTCY COURT, DENYING AS MOOT APPELLANT’S MOTION FOR
STAY PENDING APPEAL, AND DENYING AS MOOT APPELLEE’S
MOTION TO DENY REQUEST FOR STAY AND VACATE ORDER
On January 5, 2012, four days before the original trial date,
Scotchel filed a petition for bankruptcy in this District pursuant
to Chapter 7 of the United States Bankruptcy Code.
No. 1-5.

See Pet., Dkt.

As part of the petition, he also filed a schedule of

assets. On Schedule B - Personal Property next to the box entitled
“[o]ther contingent and unliquidated claims of every nature,” he
listed “Contingent Fee Agreements related to the legal practice of
John Charles Scotchel, Jr.,” with an assigned value of one dollar.
See Schedule B, Dkt. No. 1-7.

Scotchel also listed the same item

on Schedule C - Property Claimed as Exempt and assigned one dollar
as the “value of claimed exemption.” See Schedule C, Dkt. No. 1-7.
Coincidentally, on the same day Scotchel filed his bankruptcy
petition, Allstate made its first offer to settle the Falls Case.
See Bordas Aff. ¶ 12 (noting that no previous settlement offers had
been made “prior to January 5").

Further negotiations followed

until, on March 7, 2012, five days before trial was to begin, the
parties finally settled their dispute. See Debtor’s Br. at 2, Dkt.
No. 1-15. On March 31, 2012, Allstate’s draft cleared the bank and
B&B proceeded to disburse the settlement proceeds. See Bordas Aff.
at ¶ 11.

3

SCOTCHEL V. SHEEHAN

1:13CV161

MEMORANDUM OPINION AND ORDER AFFIRMING THE ORDER OF THE
BANKRUPTCY COURT, DENYING AS MOOT APPELLANT’S MOTION FOR
STAY PENDING APPEAL, AND DENYING AS MOOT APPELLEE’S
MOTION TO DENY REQUEST FOR STAY AND VACATE ORDER
Pursuant to its retainer agreement with Falls, and its fee
sharing agreement with Scotchel, B&B received 40% of the total
settlement, of which $690,000 belonged to Scotchel.

See id. at ¶

13. Due to Scotchel’s ongoing bankruptcy proceedings, however, B&B
disbursed the money to Sheehan, rather than to Scotchel.

See Hrg.

Tr. at 31:2-4.
Prior to that disbursement, on February 27, 2012, Sheehan had
objected that Scotchel’s exemption of the contingency fee in the
Falls Case should be limited to one dollar because that was the
value he had assigned to the claim.
No. 1-12.

See Trustee’s Obj. ¶ 2, Dkt.

Scotchel responded that, when he listed the contingency

fee on Schedule C, he intended to exempt its full fair market
value, regardless of how he had valued it on the schedule.
Debtor’s Resp. ¶ 2, Dkt. No. 1-13.

See

Sheehan then filed another

objection, seeking denial of Scotchel’s “amended exemptions” (i.e.,
the full fair market value of the contingency fee).

See Trustee’s

Obj. ¶¶ 7-9, Dkt. No. 1-14.
On October 16, 2012, the bankruptcy court entered an order
sustaining

Sheehan’s

original

objection

to

the

exemption

and

holding that Scotchel could not exempt the fair market value of the

4

SCOTCHEL V. SHEEHAN

1:13CV161

MEMORANDUM OPINION AND ORDER AFFIRMING THE ORDER OF THE
BANKRUPTCY COURT, DENYING AS MOOT APPELLANT’S MOTION FOR
STAY PENDING APPEAL, AND DENYING AS MOOT APPELLEE’S
MOTION TO DENY REQUEST FOR STAY AND VACATE ORDER
contingency fee.

See In re Scotchel, No. 1:12BK9 (Bankr. N.D.W.

Va. Oct. 16, 2012) (order sustaining objection), Dkt. No. 1-20. In
the same order, it also scheduled an evidentiary hearing to
determine the value, if any, of the portion of the contingency fee
subject to exemption.
The bankruptcy court used the hearing on December 20, 2012 to
narrow the scope of the issues under review. It focused on 11
U.S.C. § 541, which allocates “all legal or equitable interests of
the debtor in property as of the commencement of the case” to the
bankruptcy estate, and explained that “a lawyer typically has a
legally enforceable interest in a potential contingency fee,” and
that “the estate has a property interest in a contingency award.”
Hrg. Tr. at 17:2-3, 10-11.

Relying on several out-of-circuit

cases, see, e.g., In re Carlson, 263 F.3d 748 (7th Cir. 2001), it
concluded that a lawyer’s contingency fee falls within the scope of
§ 541 and is includable in the bankruptcy estate.

See Hrg. Tr. at

16-25.
The

bankruptcy

court

then

turned

its

attention

to

what

portion, if any, of the contingency fee Scotchel had earned postpetition. To determine this, Sheehan called Christopher J. Regan,

5

SCOTCHEL V. SHEEHAN

1:13CV161

MEMORANDUM OPINION AND ORDER AFFIRMING THE ORDER OF THE
BANKRUPTCY COURT, DENYING AS MOOT APPELLANT’S MOTION FOR
STAY PENDING APPEAL, AND DENYING AS MOOT APPELLEE’S
MOTION TO DENY REQUEST FOR STAY AND VACATE ORDER
the B&B attorney who had been personally involved in the Falls
Case, to testify about the extent of Scotchel’s involvement.
Sheehan first inquired about activity in the Falls case
between the date Scotchel had filed his bankruptcy petition and the
date the Falls Case settled.

See id. at ¶ 28:12-13.

Regan

recalled a settlement conference, a motions hearing, and settlement
negotiations between the parties, but testified that Scotchel had
not been involved in any of those proceedings, or in the trial
preparations.

See id. at ¶¶ 28:19-29:11, 29:23-30:1.

Regan also

testified that he had given Scotchel no legal assignments after
January 5, 2012.

See id. at ¶ 30:18. On cross-examination, Regan

reiterated his previous responses and explained to counsel for
Scotchel: “I know of nothing –- I have no personal knowledge of
anything Mr. Scotchel did to advance the case this year.”

See id.

at ¶ 40:19-20.
Scotchel then called J. Michael Benninger (“Benninger”) as a
witness.
legal

Benninger, a successful trial attorney, testified as a

expert

regarding

the

ethical

performing contingency fee contracts.

duties

of

attorneys

in

See id. at 95-109. At the

conclusion of the hearing, the bankruptcy court left the record

6

SCOTCHEL V. SHEEHAN

1:13CV161

MEMORANDUM OPINION AND ORDER AFFIRMING THE ORDER OF THE
BANKRUPTCY COURT, DENYING AS MOOT APPELLANT’S MOTION FOR
STAY PENDING APPEAL, AND DENYING AS MOOT APPELLEE’S
MOTION TO DENY REQUEST FOR STAY AND VACATE ORDER
open so that Scotchel could submit additional evidence of any
settlement negotiations occurring before the date of his bankruptcy
petition, as well as the terms of the fee sharing agreement.

See

id. at ¶¶ 117:19-118:12.
On January 15, 2013, it held a status conference, during which
Scotchel advised that the only additional evidence he intended to
submit was an affidavit of James G. Bordas (“Bordas”), a senior
partner at B&B, that stated Scotchel’s duties in the Falls Case
included “assisting the attorneys and other employees at Bordas &
Bordas with critical historical facts regarding [Falls],” “review
of many depositions, exhibits, and other documents,” “preparation
to testify and be fully prepared to be called as a witness,”
“ma[king] arrangements to stay at a hotel in Wheeling,” and
“continuing attorney-client duties.”

Bordas Aff. at ¶¶ 9-11.

In an opinion and order entered on April 26, 2013, the
bankruptcy court acknowledged that, under a theory of quantum
meruit, Scotchel would have been entitled to fees earned had he
been removed from the Falls Case. See In re Scotchel, No. 1:12BK9,
slip op. 5-6, Dkt. No. 1-27.

Similarly, it reasoned, Scotchel had

a legal interest in the contingency fee that had become the

7

SCOTCHEL V. SHEEHAN

1:13CV161

MEMORANDUM OPINION AND ORDER AFFIRMING THE ORDER OF THE
BANKRUPTCY COURT, DENYING AS MOOT APPELLANT’S MOTION FOR
STAY PENDING APPEAL, AND DENYING AS MOOT APPELLEE’S
MOTION TO DENY REQUEST FOR STAY AND VACATE ORDER
property of the bankruptcy estate upon the filing of his petition.
The court then placed the burden of proving the value of the
portion of the contingency fee subject to bankruptcy administration
on Sheehan, requiring that he prove by a preponderance of the
evidence any contention that the entirety of the contingency fee
was rooted in the bankruptcy past.

See id. at 4, 6.

If Sheehan

could do that, the bankruptcy court ruled that he would not bear
the substantially more stringent burden of proof associated with
quantim

meruit

recovery.

Relying

on

Regan’s

testimony,

the

bankruptcy court then determined that Sheehan had met his burden of
proving that the contingency fee was based entirely on legal
services provided by Scotchel before he filled his bankruptcy
petition, and that the entirety of Scotchel’s portion of the
contingency fee therefore belonged to the bankruptcy estate.

See

id.
Scotchel

appealed

the

order

June 25, 2013 (dkt. no. 2).

of

the

bankruptcy

court

on

He also filed a motion to stay

distribution of the contingency fee funds pending appeal on July
26, 2013 (dkt. no. 12).
underlying

bankruptcy

Based on a similar motion filed in the
case,

the

8

bankruptcy

court

stayed

SCOTCHEL V. SHEEHAN

1:13CV161

MEMORANDUM OPINION AND ORDER AFFIRMING THE ORDER OF THE
BANKRUPTCY COURT, DENYING AS MOOT APPELLANT’S MOTION FOR
STAY PENDING APPEAL, AND DENYING AS MOOT APPELLEE’S
MOTION TO DENY REQUEST FOR STAY AND VACATE ORDER
distribution of Scotchel’s portion of the contingency fee to
creditors pending appeal on August 2, 2013.

See In re Scotchel,

No. 1:12BK9 (order staying distribution), Dkt. No. 16-2. Under the
terms of the bankruptcy court’s order, that stay was to dissolve
upon this Court’s decision on Scotchel’s appeal.

See id.

On

August 6, Sheehan then filed a motion in this Court seeking denial
of Scotchel’s motion for a stay and to vacate the stay imposed by
the bankruptcy court (dkt. no. 16).
II.
Pursuant to Fed. R. Bankr. P. 8013, this Court functions as an
appellate court whenever it reviews a bankruptcy court’s order; it
may affirm, modify, reverse, or remand with instructions for
further proceedings.

While the bankruptcy court’s conclusions of

law are reviewed de novo, its findings of fact are reversed only
for clear error.

In re Deutchman, 192 F.3d 457, 459 (4th Cir.

1999).
Scotchel

assigns

the

following

errors

to

the

bankruptcy

court’s factual findings and legal conclusions:
1.

The

bankruptcy

court

erred

in

concluding

that

contingency fee falls within the purview of § 541;

9

the

SCOTCHEL V. SHEEHAN

1:13CV161

MEMORANDUM OPINION AND ORDER AFFIRMING THE ORDER OF THE
BANKRUPTCY COURT, DENYING AS MOOT APPELLANT’S MOTION FOR
STAY PENDING APPEAL, AND DENYING AS MOOT APPELLEE’S
MOTION TO DENY REQUEST FOR STAY AND VACATE ORDER
2.

The bankruptcy court erred in finding that the entire
$690,000 contingency fee had been earned pre-petition,
because the facts show otherwise and Sheehan failed to
carry his burden of proof; and

3.

The bankruptcy court erred by considering Sheehan’s
equitable arguments and granting declaratory relief.
III.
A.

Section 541(a) of the United States Bankruptcy Code provides
for the commencement of an estate upon the filing of a bankruptcy
petition. The estate includes “all legal or equitable interests of
the debtor in property as of the commencement of the estate.”
§ 541(a)(1).

In accord with congressional intent, the Fourth

Circuit construes this language in the broadest of terms.

See In

re Meyers, 483 B.R. 89, 96 (Bankr. W.D.N.C. 2012) (citing Tignor v.
Parkinson, 729 F.2d 977, 980 (4th Cir. 1984)).

Moreover, other

circuit courts have observed that “[a] debtor’s contingent interest
in future income has consistently been found to be property of the
bankruptcy estate.”

In re Yonikus, 996 F.2d 866, 869 (7th Cir.

10

SCOTCHEL V. SHEEHAN

1:13CV161

MEMORANDUM OPINION AND ORDER AFFIRMING THE ORDER OF THE
BANKRUPTCY COURT, DENYING AS MOOT APPELLANT’S MOTION FOR
STAY PENDING APPEAL, AND DENYING AS MOOT APPELLEE’S
MOTION TO DENY REQUEST FOR STAY AND VACATE ORDER
1993) (citing, e.g., In re Neuton, 922 F.2d 1379, 1382-83 (9th Cir.
1990)).
Determining

a

debtor’s

examination of state law.
48, 55 (1979).

interest

in

property

requires

an

See Butner v. United States, 440 U.S.

The threshold question is whether, under West

Virginia law, Scotchel maintained any interest in the contingency
fee the moment before he filed his bankruptcy petition.

The

bankruptcy court correctly concluded that he did.
Under Kopelman & Assocs., L.C. v. Collins, 473 S.E.2d 910,
916-17 (W. Va. 1996), a lawyer discharged from a contingency fee
contract can recover in contract or in quantum meruit.1

While the

filing of a bankruptcy petition and the termination of a lawyer are
not the same thing, the bankruptcy court recognized that those
circumstances provided a valid comparison of the interests in the
underlying contracts.

See, e.g., In re Carlson, 263 F.3d 748, 750

(7th Cir. 2001) (“That a lawyer has a legally enforceable interest
in a potential contingency fee is shown by the fact that if the

1

Scotchel argues at length that the contingency fee was not
property of the estate under a contract theory. See Appellant’s Br. at
11-16, Dkt. No. 7.
However, the bankruptcy court’s opinion never
analyzed Scotchel’s interest under a contract theory.
Thus, any
assignment of error in this regard is misguided.

11

SCOTCHEL V. SHEEHAN

1:13CV161

MEMORANDUM OPINION AND ORDER AFFIRMING THE ORDER OF THE
BANKRUPTCY COURT, DENYING AS MOOT APPELLANT’S MOTION FOR
STAY PENDING APPEAL, AND DENYING AS MOOT APPELLEE’S
MOTION TO DENY REQUEST FOR STAY AND VACATE ORDER
client terminates his employment before judgment or settlement
. . . he is entitled to the fair value of the services that he
performed up to the termination.”). Relying on this comparison, it
concluded that, because Scotchel held a property interest in the
contingency fee contract under quantum meruit, he also held an
interest in it for purposes of § 541.

See In re Scotchel, No.

1:12BK9, slip op. at 5.
Scotchel
Bankruptcy

attacks

Code

this

prohibits

conclusion
trustees

on

the

from

basis

assuming

that

the

executory

contracts more than sixty days after the entry of the order for
relief.

See § 365(d)(1). He argues here, as he did before the

bankruptcy court, that, because Sheehan did not comply with § 365,
it was error to grant the contingency fee contract to the estate.
In the same breath, however, he also argues that Sheehan never
assumed the contingency fee contract.
The bankruptcy court recognized the inherent inconsistency of
these arguments and determined that compliance with § 365 was not
required.

While it agreed that “the Falls Case contingent fee

contract is an executory contract,” see
1:12BK9,

slip

op.

at

8,

it

In re Scotchel, No.

distinguished

12

the

assumption

of

SCOTCHEL V. SHEEHAN

1:13CV161

MEMORANDUM OPINION AND ORDER AFFIRMING THE ORDER OF THE
BANKRUPTCY COURT, DENYING AS MOOT APPELLANT’S MOTION FOR
STAY PENDING APPEAL, AND DENYING AS MOOT APPELLEE’S
MOTION TO DENY REQUEST FOR STAY AND VACATE ORDER
executory contracts under § 365 from the pre-petition fees to which
the estate was entitled under § 541.

See id.

Although the Fourth Circuit has not yet addressed this issue,
the

bankruptcy

court’s

distinction

between

the

assumption

of

executory contracts and pre-petition fees is entirely sensible and
consistent with decisions reached by other courts. See, e.g., Watts
v. Williams, 154 B.R. 56, 58 (S.D. Tex. 1993).

Had the bankruptcy

estate assumed the contingency fee contract, it would have been
entitled to all derivative fees, regardless of whether they had
been earned pre-petition or post-petition.

As Sheehan conceded,

however, the bankruptcy estate had no claim to post-petition fees.
See Appellee’s Br. at 4, Dkt. No. 10.

Thus, the bankruptcy court

correctly concluded that Scotchel’s contingency fee belonged to the
bankruptcy estate under § 541.
B.
Although § 541(a)(1) broadly encompasses all of the debtor’s
legal or equitable interests at the time of filing, subsection
(a)(6) excludes “earnings from services performed by an individual
debtor after the commencement of the case.”

This language draws a

“bright line” between pre and post-bankruptcy filing events and

13

SCOTCHEL V. SHEEHAN

1:13CV161

MEMORANDUM OPINION AND ORDER AFFIRMING THE ORDER OF THE
BANKRUPTCY COURT, DENYING AS MOOT APPELLANT’S MOTION FOR
STAY PENDING APPEAL, AND DENYING AS MOOT APPELLEE’S
MOTION TO DENY REQUEST FOR STAY AND VACATE ORDER
“allows the debtor to exclude from his estate any compensation or
salary he might earn after the date of the petition.”

In re

Andrews, 80 F.3d 906, 910 (4th Cir. 1996).
Applying that bright line to the contingency fee contract in
dispute here, the parties and the bankruptcy court agreed that only
the portion of the $690,000 Scotchel earned pre-petition belonged
to the bankruptcy estate.

As to determining who bore what burden

of proof on this issue, the bankruptcy court laid the burden
squarely on Sheehan, a decision Scotchel supported, although he
disagreed with the court’s definition of Sheehan’s burden.
In defining that burden, the bankruptcy court adopted a twostep test.
prove

by

First, it determined that, as trustee, Sheehan had to
a

preponderance

of

the

evidence

performed no post-petition services.

that

Scotchel

had

See In re Charles, 334 B.R.

207, 216 (Bankr. S.D. Tex. 2005) (“Absent a statute or rule to the
contrary, the burden of proof in a bankruptcy case is by a
preponderance of the evidence.”).

Failing that, Sheehan bore the

burden of proving the value of the pre-petition services in order
to determine the portion of the contingency fee to which the
bankruptcy estate was entitled.

14

SCOTCHEL V. SHEEHAN

1:13CV161

MEMORANDUM OPINION AND ORDER AFFIRMING THE ORDER OF THE
BANKRUPTCY COURT, DENYING AS MOOT APPELLANT’S MOTION FOR
STAY PENDING APPEAL, AND DENYING AS MOOT APPELLEE’S
MOTION TO DENY REQUEST FOR STAY AND VACATE ORDER
Scotchel

contends

that,

after

finding

that

Sheehan

had

satisfied his burden under the first step, the bankruptcy court
erroneously relieved him of his burden under the second step.
Stated

another

way,

Scotchel

refuses

to

acknowledge

the

conclusiveness of the first step, arguing that the bankruptcy court
should have required Sheehan to prove the value of any pre-petition
services.
The Bankruptcy Appellate Panel (“BAP”) of the Ninth Circuit
has squarely addressed this issue and rejected the same argument.
In In re Wu, 173 B.R. 411, 414-15 (B.A.P. 9th Cir. 1994) (internal
citations omitted), the BAP determined that
[t]he proper analysis . . . is to first determine whether
any postpetition services are necessary to obtaining the
payments at issue. If not, the payments are entirely
‘rooted in the pre-bankruptcy past,’ and the payments
will be included in the estate. If some postpetition
services are necessary, then courts must determine the
extent to which the payments are attributable to the
postpetition services and the extent to which the
payments are attributable to prepetition services. That
portion of the payments allocable to postpetition
services will not be property of the estate.
That
portion of the payments allocable to prepetition services
or property will be property of the estate.
Scotchel has offered no compelling reason why this Court
should not adopt In re Wu’s well-reasoned analysis under which,

15

SCOTCHEL V. SHEEHAN

1:13CV161

MEMORANDUM OPINION AND ORDER AFFIRMING THE ORDER OF THE
BANKRUPTCY COURT, DENYING AS MOOT APPELLANT’S MOTION FOR
STAY PENDING APPEAL, AND DENYING AS MOOT APPELLEE’S
MOTION TO DENY REQUEST FOR STAY AND VACATE ORDER
once Sheehan established by a preponderance of the evidence that
Scotchel had performed no post-petition services, it would be
redundant to require him to provide evidence of all pre-petition
services. Adopting that approach, the Court turns to whether the
bankruptcy court’s factual finding that all of the contingency fee
payment was attributable to Scotchel’s pre-petition services is
clearly erroneous.

C.
Based on Regan’s testimony that Scotchel performed no legal
services in the Falls Case after January 5, 2012, the bankruptcy
court found that Sheehan had satisfied his burden of proof, and
that the burden therefore had shifted to Scotchel to rebut Regan’s
testimony.
affidavit,

Scotchel argues that Benninger’s testimony and Bordas’
both

of

which

addressed

Scotchel’s

continuing

contractual and ethical duties, established that he had earned a
portion of his contingency fee during the post-petition period.
The bankruptcy court rejected this argument, explaining that,
despite Scotchel’s continuing “duties,” neither Benninger nor

16

SCOTCHEL V. SHEEHAN

1:13CV161

MEMORANDUM OPINION AND ORDER AFFIRMING THE ORDER OF THE
BANKRUPTCY COURT, DENYING AS MOOT APPELLANT’S MOTION FOR
STAY PENDING APPEAL, AND DENYING AS MOOT APPELLEE’S
MOTION TO DENY REQUEST FOR STAY AND VACATE ORDER
Bordas had identified any specific legal services performed by
Scotchel as part of those duties.2
Scotchel’s ethical duties as a lawyer are common to the legal
profession and exist apart from any contract. See W. Va. R. Prof’l
Conduct 1.1 (“A lawyer shall provide competent representation to a
client.

Competent representation requires the legal knowledge,

skill, thoroughness and preparation reasonably necessary for the
representation.”).
unique

contractual

continuous.
performing

Moreover, as broadly laid out by Bordas, his
duties,

although

continuing,

were

not

In other words, Scotchel fulfilled these duties by
discrete

services

at

particular

times.

Bordas’

affidavit, however, offers no information about what these discrete
services may have been or when they were performed.

Because of

this, the bankruptcy court’s determination that Scotchel failed to
meet his burden of proving he had earned any of the contingency fee
post-petition is not clearly erroneous.
D.

2

Bordas’ affidavit noted that Scotchel had “made arrangements to
stay at a hotel in Wheeling,” a responsibility the bankruptcy court found
to be de minimis.

17

SCOTCHEL V. SHEEHAN

1:13CV161

MEMORANDUM OPINION AND ORDER AFFIRMING THE ORDER OF THE
BANKRUPTCY COURT, DENYING AS MOOT APPELLANT’S MOTION FOR
STAY PENDING APPEAL, AND DENYING AS MOOT APPELLEE’S
MOTION TO DENY REQUEST FOR STAY AND VACATE ORDER
Finally, Scotchel alleges that the bankruptcy court erred by
permitting Sheehan to advance an equitable claim for declaratory
relief without first filing an adversary proceeding. He rests this
argument on a statement in the bankruptcy court’s opinion that
“[t]he Trustee seeks a declaration that Mr. Scotchel’s $690,000
contingency fee award is property of his bankruptcy estate,” and
“[t]he Trustee also invokes the court to consider equity.”

In re

Scotchel, slip op. at 1, 3.
Rule

7001

of

the

Federal

Rules

of

Bankruptcy

Procedure

requires that certain claims, including claims for equitable and
declaratory relief, be brought through an adversary proceeding
governed by the formal procedural requirements associated with
lawsuits.

See Fed. R. Bankr. P. 7001(7), (9), and Advisory

Committee Notes.

According to Scotchel, pursuant to Rule 7001,

Sheehan’s failure to file an adversary proceeding is a procedural
defect that violated Scotchel’s due process rights.
Rather than file an adversary proceeding, Sheehan filed an
objection pursuant to Fed. R. Bankr. P. 4003 to Scotchel’s claimed
exemption

of

the

full

market

value

of

the

contingency

fee.

Notwithstanding the bankruptcy court’s description of the relief

18

SCOTCHEL V. SHEEHAN

1:13CV161

MEMORANDUM OPINION AND ORDER AFFIRMING THE ORDER OF THE
BANKRUPTCY COURT, DENYING AS MOOT APPELLANT’S MOTION FOR
STAY PENDING APPEAL, AND DENYING AS MOOT APPELLEE’S
MOTION TO DENY REQUEST FOR STAY AND VACATE ORDER
being sought by Sheehan as a “declaration,” Sheehan actually never
sought

declaratory

relief,

but

rather

objected

to

Scotchel’s

claimed exemptions and requested that the bankruptcy court deny
them.

See Trustee’s Obj. at 3, Dkt. No. 1-14.

The bankruptcy

court, then, sua sponte, converted Sheehan’s objection into a
turnover action under 11 U.S.C. § 542.
op. at 4.

See In re Scotchel, slip

Courts have held that such action is not error when, as

here, the debtor was given the opportunity to present evidence at
a hearing and the burden of proof fell on the trustee.

See, e.g.,

Yaquinto v. Greer, 81 B.R. 870, 877 (N.D. Tex. 1988).
Thus, Sheehan never actually made an equitable claim in
Scotchel’s case.

Although he urged the bankruptcy court to

consider equity in deciding the matter, see Trustee’s Br. at 3,
Dkt. No. 1-25, beyond duly noting this argument, the bankruptcy
court never relied on it in reaching its decision regarding
Scotchel’s contingency fee.

Scotchel’s assertion of error as to

this matter therefore is unavailing.
IV.
Having reviewed the bankruptcy court’s conclusions of law de
novo, and its finding of facts for clear error, the Court AFFIRMS

19

SCOTCHEL V. SHEEHAN

1:13CV161

MEMORANDUM OPINION AND ORDER AFFIRMING THE ORDER OF THE
BANKRUPTCY COURT, DENYING AS MOOT APPELLANT’S MOTION FOR
STAY PENDING APPEAL, AND DENYING AS MOOT APPELLEE’S
MOTION TO DENY REQUEST FOR STAY AND VACATE ORDER
the order of the bankruptcy court, DENIES AS MOOT the appellant’s
motion to stay pending appeal, DISSOLVES the current stay, and
DENIES AS MOOT the appellee’s motion to deny the appellant’s
request for a stay and to vacate the current stay order.
It is so ORDERED.
The Court directs the Clerk to transmit copies of this Order
to counsel of record and all appropriate agencies.
DATED: March 3, 2014.
/s/ Irene M. Keeley
IRENE M. KEELEY
UNITED STATES DISTRICT JUDGE

20