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IN RE DEVERS

January 13, 1981

In re John DEVERS


The opinion of the court was delivered by: ROBINSON

 In October, 1979, the Appellant became counsel for a corporation doing business in the District of Columbia known as American Financial Services (AFS). AFS was in the business of arranging pro-rated payment schemes for customers who were attracted to the company by newspaper ads proclaiming "Get out of debt". Customers in particularly dire financial straits were advised to consult with a bankruptcy attorney and were specifically referred to the Appellant, John Devers. Devers maintained his office in the same suite as AFS and used the same telephone exchange. He acquired thirty-eight clients through referrals from AFS and filed bankruptcy petitions on their behalf in the United States Bankruptcy Court for the District of Columbia during 1979.

 On January 10, 1980, the presiding Bankruptcy Judge sua sponte issued a show cause order to Appellant Devers pursuant to 11 U.S.C. § 329 and Bankruptcy Rule 220, which authorize a Bankruptcy Judge to examine debtors' fee arrangements with attorneys. The show cause order contained the following directive:

 
[Counsel shall explain] why this Court should not review and take action regarding the nature and value of the services rendered in the above-captioned cases and determine what is in fact a reasonable fee for the services actually rendered, and order the return of all or part of the fee received by him as attorney for the above named [38] debtors, and why this Court should not consider, in reviewing the nature and value of services rendered, the extent of the attorney's compliance with the standards of competence and ethical conduct as set forth in the Code of Professional Responsibility . . . .

 Order to Show Cause, January 10, 1980.

 The show cause hearing was conducted on April 25, 1980. Prior to the hearing, the Bankruptcy Judge propounded a questionnaire to the Appellant containing questions about whether and how the cases were referred to Mr. Devers, his relationship with the referring organization, the nature of the legal services rendered and the compensation paid. At the hearing, four debtor-clients, selected at random by the Court, appeared to testify about their fee arrangements with Mr. Devers.

 Appellant takes issue with the notice given him by the Bankruptcy Judge as to the nature of the Court's inquiry. Specifically, Appellant maintains that the Bankruptcy Judge should have cited sections of the Code of Professional Responsibility allegedly violated. Without such notice, Devers argues that he was unable to adequately prepare for the show cause hearing and was thus denied due process. This Court need not reach the due process/adequacy of notice question. The deficiencies in the Bankruptcy Court's substantive determinations under Section 329 of the Bankruptcy Code requires a reexamination by the Bankruptcy Judge of the fees paid or due in all thirty-eight cases.

 The Bankruptcy Judge has broad discretion when he examines the reasonableness of fees paid an attorney for work on a bankruptcy case. 2 Collier on Bankruptcy para. 329.04 [1] - [5] (15th ed. 1979). *fn1" However broad his discretion, it is obvious that when a Bankruptcy Judge examines fees under Section 329, he must in fact examine the fees in relation to the value of services performed. Collier expresses the opinion that the criteria used when fees are awarded by the Court are appropriate criteria in a Section 329 examination of fees paid by a client; the criteria include time, nature, extent and value of services rendered as well as the cost of comparable services other than in a case under the Bankruptcy Code. Id. § 330.05. The Bankruptcy Judge erred when he determined that the value of the services performed in all thirty-eight cases was zero solely because Devers engaged in unethical conduct.

 The finding that Devers accepted unauthorized referrals, assisted the unauthorized practice of law, was under the control of one other than the client and engaged in other violations of the Code of Professional Responsibility was not enough, without more, to order the return or cancellation of all fees. The Bankruptcy Judge did not determine how the ethical violations diminished the value of services performed for the thirty-eight debtors. The cancellation of the fees was nothing more than a penalty for violations of the Code of Professional Responsibility. The Bankruptcy Judge is without statutory authority for assessing such a penalty.

 On remand, the Bankruptcy Judge should examine the value of the services performed by Appellant Devers in each of the thirty-eight cases. If unethical conduct on the part of the Appellant diminished the value of his services to a client, the ...


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