In the Matter of Bill K. Hargis and Marilyn E. Hargis, Debtors.palmer & Palmer, P.c., Appellant, v. United States Trustee, Appellee, 895 F.2d 1025 (5th Cir. 1990)

Today we grant the petition for rehearing of the United States Trustee, clarify our opinion of October 27, 1989¹  and hold as follows: 1) Palmer & Palmer is entitled to a return of all fees for services rendered in matters not associated with the bankruptcy proceeding; 2) as to fees paid for services rendered in connection with the bankruptcy proceeding, Palmer & Palmer may also be entitled to their return, subject to a review by the bankruptcy court of their reasonableness.

Discussion

As the United States Trustee points out, 11 U.S.C. Section 329 authorizes the bankruptcy court to order an attorney to return fees paid for services rendered in connection with a bankruptcy proceeding, if those fees are determined by the court to be excessive, regardless of their source. At the time this case was filed, section 329 stated:

Sec. 329. Debtor's transactions with attorneys

(a) Any attorney representing a debtor in a case under this title, or in connection with such a case, whether or not such attorney applies for compensation under this title, shall file with the court a statement of the compensation paid or agreed to be paid, if such payment or agreement was made after one year before the date of the filing of the petition, for services rendered or to be rendered in contemplation of or filing of the petition, for services rendered or to be rendered in contemplation of and in connection with the case by such attorney, and the source of such compensation.

(b) If such compensation exceeds the reasonable value of any such services, the court may cancel any such agreement, or order the return of any such payment, to the extent excessive, to--

(1) the estate, if the property transferred--

(A) would have been property of the estate; or

(B) was to be paid by or on behalf of the debtor under a plan under chapter 11, 12, or 13 of this title; or

(2) the entity that made such payment.

11 U.S.C. § 329 (1979).² 

We therefore hold that as to those services rendered by Palmer & Palmer that were unrelated to the bankruptcy proceeding, section 329 does not apply, and Palmer & Palmer is entitled to be paid in full for such services. As to payment for services rendered by Palmer & Palmer in connection with the bankruptcy proceeding, section 329 does apply. That being so, Palmer & Palmer is entitled to be paid for such services only to the extent that the bankruptcy court determines its fees to be reasonable.

We remand the case to the bankruptcy court for determinations of 1) the amount of fees owed Palmer & Palmer for services rendered on matters unrelated to the bankruptcy proceeding; 2) the amount of fees owed Palmer & Palmer for services rendered in connection with the bankruptcy proceeding; and 3) the reasonableness of the fees charged by Palmer & Palmer for services rendered in connection with the bankruptcy proceeding. And, we order that Palmer & Palmer be paid in accordance with those findings. It is so

ORDERED.