Case No. 03-30949
UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

IN THE MATTER OF HAMPTON VILLAGE, INC.
Debtor

DWIGHT SMITH; ATLAS ASSOCIATES
Appellants-Cross-Appellees
v.
JOHN HAAS WEINSTEIN
Appellee-Cross-Appellant

IN THE MATTER OF HAMPTON VILLAGE, INC.
Debtor

DWIGHT SMITH; ATLAS ASSOCIATES
Appellants-Cross-Appellees

v.

H. Kent Aguillard
Appellee-Cross-Appellant

DWIGHT SMITH AND ATLAS ASSOCIATES, INC.
BRIEF OF CROSS-APPELLEES AND REPLY BRIEF OF APPELLANTS

Donald L. Beckner
5800 One Perkins Place
Building 7, Suite A,
Baton Rouge, La. 70808
225-769-7779

Case No. 03-30949
UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

IN THE MATTER OF HAMPTON VILLAGE, INC.
Debtor

DWIGHT SMITH; ATLAS ASSOCIATES
Appellants-Cross-Appellees
v.
JOHN HAAS WEINSTEIN
Appellee-Cross-Appellant

IN THE MATTER OF HAMPTON VILLAGE, INC.
Debtor

DWIGHT SMITH; ATLAS ASSOCIATES
Appellants-Cross-Appellees
v.
H. Kent Aguillard
Appellee-Cross-Appellant

CERTIFICATE OF INTERESTED PERSONS

The undersigned counsel of record certifies that the following listed persons and entities as described in the fourth sentence of Rule 28.2.1 have an interest in the outcome of this case. These representations are made in order that the judges of this Court may evaluate possible disqualification or recusal.

Dwight H. Smith, Appellant
P. O. Box 45137
Baton Rouge, Louisiana

Atlas Associates, Inc., Appellant
P. O. Box 45137
Baton Rouge, Louisiana

Donald L. Beckner, Counsel for Appellants
Donald L. Beckner & Associates
5800 One Perkins Place
Building 7, Suite A
Baton Rouge, Louisiana 70808

Gary K. McKenzie, Counsel for Appellants
Steffes, Vingiello & McKenzie
2039 S. Sherwood Forest Blvd.
Baton Rouge, Louisiana 70816

John Haas Weinstein, Appellee and Counsel for Appellee
407 South Union Street
Opelousas, Louisiana 70570

H. Kent Aguillard, Appellee and Counsel for Appellee
141 South 6^th Street
Eunice, Louisiana 70535

Richard D. Shaffett, Guarantor of all Legal Fees and Expenses of Appellees
10418 Shoe Creek Drive
Baton Rouge, Louisiana 70818

Pursuant to Fed. R. App. P. 26.1(a), there is no parent corporation or publicly held corporation than owns 10% or more of the stock of Atlas Associates, Inc.

DONALD L. BECKNER & ASSOCIATES
By: ______________________
Donald L. Beckner
Counsel for Appellants
5800 One Perkins Place
Building 7, Suite A
Baton Rouge, Louisiana
225.769.7779

TABLE OF CONTENTS

ARGUMENT:

TABLE OF CASES, STATUTES, AND AUTHORITIES

Statutes:

Cases:

Authorities:

DWIGHT SMITH AND ATLAS ASSOCIATES, INC.
BRIEF OF CROSS-APPELLEES AND REPLY BRIEF OF APPELLANTS TO THE ARGUMENTS OF WEINSTEIN AND AGUILLARD, APPELLEES-CROSS APPELLANTS.

Smith and Atlas will state each argument made by Weinstein and Aguillard and answer it, seriatim.

1. Weinstein and Aguillard had a secret agreement with Shaffett wherein Shaffett personally guaranteed payment of all of their legal fees and expenses and, Weinstein and Aguillard also concealed the fact that they had been paid a $10,000.00 retainer by Shaffett, Inc.

Weinstein and Aguillard assert that “Appellants’ brief is laced with emotionally charged terms such as ‘secret agreement’ and ‘concealed’. [Appellees’ brief, p. 1.] Weinstein and Aguillard assert that “(t)here were no ‘secret’ agreements between the appellees and the debtor or its representative.” [Appellees’ brief, p. 8.] This assertion is not true. Weinstein and Aguillard had an agreement with Richard D. Shaffett [Shaffett], the sole owner and President of the Debtor, Hampton Village, Inc., in which Shaffett personally guaranteed the payment of all of Weinstein and Aguillard’s legal fees and expenses as attorneys for the Debtor. [Smith and Atlas’ R. E. 5.] Weinstein and Aguillard never divulged the existence of this personal guarantee agreement until during the hearing on their fee applications. [See, R. 814 A, Transcript of Hearing in re Trustee’s Opposition to Compensation and Reimbursement held on November 15, 2002, at 51.] And when Weinstein and Aguillard finally divulged their personal guarantee agreement with Shaffett, they divulged it not to “finally come clean”. They produced the correspondence that contained the personal guarantee agreement in an attempt to show that they had not been hired to represent Shaffett personally, but only the Debtor. [Smith and Atlas R. E. 5.]^[1] Up until that moment, the Courtroom colloquy clearly indicates that the Bankruptcy Court was not aware of this personal guarantee agreement. At the hearing, Shaffett had testified that he had personally guaranteed Weinstein and Aguillard’s legal fees. [R. 814 A, Transcript of Hearing in re Trustee’s Opposition to Compensation and Reimbursement held on November 15, 2002, at 51.] The Court interrupted Shaffett’s testimony: “I’m sorry. You as Shaffett, Incorporated, or you, Mr. Shaffett?” [Id. at 55.] Shaffett responded: “Well, I did, sir.” The Court inquired further: “You personally?” Shaffett said yes. [Id.] Even in their brief to this Court, Weinstein and Aguillard mention this correspondence in which Shaffett’s personal guarantee agreement is set out only in an attempt to show that their client was the Debtor and not Shaffett. [Appellees’ brief, p. 20.]

The term “concealed” also appears appropriate in describing Weinstein and Aguillard’s failure to disclose that Shaffett, Inc. had paid them a $10,000.00 retainer. Shaffett, Inc. was a creditor, since it was asserting a claim against the Debtor in the amount of $20,516.21. [R. 364] Shaffett, Inc. was a party in interest, since it was a creditor. 11 U.S.C. 1109 (b). Weinstein and Aguillard assert in their brief to this Court that “it was disclosed from the beginning that Appellee had received a retainer from Shaffett (or his corporation). The fact comes as a surprise to no one.” [Appellees’ brief, p. 13.] This is, of course, not true. For our purposes here, as far as Weinstein and Aguillard are concerned, “the beginning” was June 6, 2002, when they filed their first application for employment. [Smith and Atlas R.E. 7.] They filed their second and third applications for employment on June 6 and June 11, 2002. [Id. R.E. 8 and 9.] In none of these three applications for employment, did Weinstein and Aguillard disclose that they had been paid a $10,000.00 retainer by Shaffett, Inc., a creditor of the Debtor and a party in interest. To the contrary, in all three applications, Weinstein and Aguillard attested under oath that they had “no connection with...creditors, or any party in interest.” [Id. R. E. 7, 8, and 9.] Since Weinstein and Aguillard had been paid $10,000.00 by Shaffett, Inc., they certainly had a connection with a creditor and a party in interest. The Order granting their applications for employment was signed by the Bankruptcy Court on June 12, 2002. [Id. R. E. 10.] Eight days after the Order was signed authorizing their employment by the Debtor-in-Possession, on June 20, 2002, Weinstein and Aguillard filed a fourth application for employment. [Id. R. E. 11] Here, they supplemented their earlier attestations by attesting that their “fees were paid by an insider of the debtor initially.” They declined to name the “insider”. This supplement availeth them naught. By definition, Weinstein and Aguillard could not have been referring to Shaffett, Inc., since Shaffett, Inc. could not have been an “insider”. When the debtor is a corporation, the Bankruptcy Code defines “insider” as a director, officer, or person in control of the debtor or relative of any of these persons. 11 U.S.C. 101 (31)(B) Shaffett, Inc. was not a director, officer, or person in control of the debtor or relative of any of these persons. Shaffett, Inc. was a creditor of the Debtor and a party in interest. In their fourth application, they repeated their earlier attestations that they had no connection with “creditors, or any party in interest.” [Id. R. E. 11.] Thus, “from the beginning” Weinstein and Aguillard concealed the fact that Shaffett, Inc. had paid them $10,000.00. Now, in the end, when they are trying to keep their legal fees, Weinstein and Aguillard show no compunction in urging that “it was disclosed from the beginning that Appellee had received a retainer from Shaffett (or his corporation). This fact comes as a surprise to no one.” [Appellees’ brief, p. 13.] They appear to have no qualms in asserting that “the source of the retainer (from Shaffett, Inc.) was always disclosed.” [Appellees’ brief, p. 28.]

Weinstein and Aguillard also take the opposite position. They proffered Aguillard’s testimony that they did not even know that Shaffett, Inc. had paid them $10,000.00. Aguillard testified that “my first knowledge” that Shaffett, Inc. had paid them $10,000.00 was when “Mr. Miller, I think, filed an opposition to our fee applications.” [Appellees’ brief, p. 21.] These arguments are duplicitous. We have two attorneys who represented to the Bankruptcy Court in their applications for employment that they were experienced bankruptcy counsel who are now telling this Court that they did not even know Shaffett, Inc. had paid them $10,000.00, after just telling this Court that it was disclosed from the beginning that Shaffett, Inc. had paid them $10,000.00, it was a surprise to no one.^[2] Believable or not, Weinstein and Aguillard’s “saw no evil” defense is entirely inexcusable. The Trustee summed the matter up succinctly in his Supplemental Opposition to Weinstein and Aguillard’s fee applications when he argued that the “Estate’s professionals should be imputed with knowledge of the identity of the drawer of a negotiable instrument, negotiated by the firm...because to hold otherwise would eviscerate section 327 and 330 of the Code, as well as Bankruptcy Rules 2014 and 2016.” [R. 779] The Trustee continued: “(i)f law firms are allowed to close their eyes...and ignore the instrument by which they are actually paid, then there is effectively no disclosure requirement.” [Id.]

The truth of the matter is that the $10,000.00 payment by Shaffett, Inc. to Weinstein and Aguillard was not divulged until the second day of the hearing on the Motion to appoint a Chapter 11 Trustee, which was held on August 19, 2002.^[3] [Record, un-designated Transcript of Proceedings held on August 19, 2002, at 141-147.] A creditor, Barry W. Miller, had uncovered through discovery copies of the Shaffett, Inc. checks payable to Aguillard. [Smith and Atlas R. E. 6.] Miller had Shaffett identify them on the witness stand. [Record, un-designated Transcript of Proceedings held on August 19, 2002, at 141-147.] Then, Miller sought to introduce the Shaffett, Inc. checks into evidence. [Id.] Weinstein objected to their introduction. [Id.] Miller argued that the checks were relevant because Weinstein and Aguillard had reported in the Debtor’s Schedules that they had received $10,000.00 from Shaffett individually, when the checks showed that Weinstein and Aguillard had been paid by Shaffett, Inc., who was a creditor of the Debtor. [Id. at p. 147.] The Bankruptcy Court appeared to be unaware that Weinstein and Aguillard had been paid $10,000.00 by Shaffett, Inc. The Court stated: “That’s where I think it has some relevance, if you have a creditor who’s paying fees of counsel.” [Id.] Weinstein’s objections were overruled and the Shaffett, Inc. checks were admitted into evidence. [Id.]

Three months later, in opposition to Weinstein and Aguillard’s fee applications, the Trustee argued that there were violations of Bankruptcy Rule 2014 “because the Applicants failed to disclose that Shaffett, Inc., a creditor...paid the $10,000 retainer to Applicants...(they) did not disclosed (sic)...their retainer from Shaffett, Inc...the Order granting their employment is predicated upon absolutely no disclosure...the Applicants utter failure...violates the Code’s numerous disclosure requirements.” [R. 734-736] The Trustee argued that “(t)he Applicants have not-even to this day-made even a barely adequate disclosure of the facts and circumstances surrounding their retainer and relationship with the DIP, the DIP’s insiders, and the DIP’s creditors.” [R. 725] Worse still, at the time the Trustee was making these arguments to the Bankruptcy Court, Weinstein and Aguillard’s personal guarantee agreement with Shaffett was still a secret.

Fed. R. Bank. Pr. 2014 (a) mandates that the Application for an order of Employment shall state: “...any proposed arrangement for compensation and...all of the person’s connections with the debtor, creditors, (and) any other party in interest...the application shall be accompanied by a verified statement of the person to be employed setting forth the person’s connections with the debtor, creditors, (and) any other party in interest...” In all four applications for employment, Weinstein and Aguillard attested under oath that they did not have any “connection with...creditors, or any party in interest.” [Smith and Atlas’ R. E. 7, 8, 9, 11.] Of course, this was not true. Weinstein and Aguillard had a connection with Richard D. Shaffett, a creditor of the Debtor and a party in interest: they had a secret agreement wherein Shaffett personally guaranteed the payment of all their legal fees and expenses. Weinstein and Aguillard also had a connection with Shaffett, Inc., a creditor of the Debtor and a party in interest: Shaffett, Inc., had paid them a $10,000.00 retainer.

Eight days after Weinstein and Aguillard filed their last application for employment, Weinstein and Aguillard prepared and filed with the Bankruptcy Court the Debtor’s Schedules in which they listed as “undisputed” a claim against the Debtor asserted by Shaffett, in the amount of $98,471.84, a claim against the Debtor asserted by Shaffett, Inc., in the amount of $20,5156.21, and $83,156.86 in claims asserted by various other companies owned by Shaffett. [R. 363-367] These claims totaled $198,144.89. By listing all of these claims as “undisputed”, it seems certain that Weinstein and Aguillard were seeking to insure that all of these claims would be paid by the Debtor, to the detriment of the Estate and the creditors. Shaffett was never able to demonstrate that these claims were valid and, later, he dismissed them all.^[4] To say the least, Weinstein and Aguillard’s “lack of disinterestedness” , which they sought to conceal was egregious.

This Court, in In the Matter of Consolidated Bancshares, Inc. , 785 F. 2d 1249 (5^th Cir. 1986), established high standards for the requirement of “disinterestedness” in this Circuit: “(a) major treatise on bankruptcy states that the requirement of disinterestedness appears broad enough to include anyone who in the slightest degree might have some interest or relationship that would color the independent and impartial attitude required by the Code...Indirect or remote associations or affiliations, as well as direct, may engender conflicting loyalties. The purpose of the rule is to prevent even the emergence of a conflict irrespective of the integrity of the person under consideration... 2 Collier on Bankruptcy s 327.03 at 327-19, 20 (15^th ed. 1985) (footnotes omitted).” [Id. at p. 1256.] Weinstein and Aguillard’s associations and affiliations with Shaffett, because of his personal, but secret, guarantee of all their legal fees, and with Shaffett, Inc. because of its secret payment of their $10,000.00 retainer, certainly do not meet this Court’s high standards for “disinterestedness”. This Court also stated that “(t)he standards for the employment of professional persons are strict, for Congress has determined that strict standards are necessary in light of the unique nature of the bankruptcy process. (Citation omitted.) ‘[P]rofessionals engaged in the conduct of a bankruptcy case should be free of the slightest personal interest which might be reflected in their decisions concerning matters of the debtor’s estate or which might impair the high degre (sic) of impartiality and detached judgment expected of them during the course of administration. (Citations omitted.)’” [Id.]

This Court, in In re W.F. Development Corporation, 905 F. 2d 883 (5^th Cir. 1990), plainly stated that “(a)n attorney in a bankruptcy action must ‘not hold or represent an interest adverse to the estate’ and must be ‘disinterested’. 11 U.S.C. s 327(a). An attorney in (sic) ‘disinterested’ when he ‘does not have an interest materially adverse to the interest of the estate or of any class of creditors or equity security holders, by reason of any direct or indirect relationship to...the debtor...or for any other reason.’ 11 U.S.C. s 101(13)(E).” [Emphasis added.] Weinstein and Aguillard had a direct connection to Shaffett, a creditor and insider of the debtor, that was akin to an umbilical cord because of Shaffett’s personal, but secret, guarantee of all their legal fees. Weinstein and Aguillard had a direct connection to Shaffett, Inc., a creditor of the debtor, because of its secret payment of their $10,000.00 retainer. Certainly, Weinstein and Aguillard’s secret relationships with Shaffett and Shaffett, Inc. also fit squarely within the catch-all provision, “or for any other reason”, of 11 U.S.C. s 101 (13)(E). [Emphasis added.] Collier’s states that this catch-all phrase “appears broad enough to include anyone who in the slightest degree might have some interest or relationship that would color the independent and impartial attitude required by the Code.” 3 Collier on Bankruptcy, s 327.04[4][e].

In re Bergdog Productions of Hawaii, Inc., 7 B.R. 890 (Bankruptcy D. Hawaii, 1980) is a case very similar to our case. Here, the Bankruptcy Court denied the debtor’s application to employ a law firm. A stockholder of the debtor had already paid the firm $2,000.00 for legal services rendered to the debtor. The legal fees of the law firm had been guaranteed by the two stockholders of the debtor. The court stated that “(b)y taking payment from stockholders of the Debtor and by obtaining a guarantee of further payments from these individuals for services rendered to the Debtor, the Attorney for the Debtor will be in a conflict of interest situation.” [Id. at 891.] The court cited another case with very similar facts in which compensation to an attorney for the debtor was denied, “when it was learned that the attorney had accepted fees from the President of the (debtor) corporation for services (rendered) on behalf of the Debtor. In re Holiday Mart, Inc., Bk. No. 77-00565 (filed October 10, 1980).” The court noted that “(a)n attorney should not place himself in a position where he may be required to choose between conflicting duties. (Citing) Woods v. City National Bank, 312 U.S. 262, 61 S.Ct. 493, 85 L. Ed. 820 (1940) (Remaining citations omitted.)” In passing, the court noted that “the Court agrees with the applicant’s contention that the interests of a debtor corporation overlap to some degree with the individual interests of its chief operating officers and its shareholders. The corollary is that the corporate and individual interests sometimes also conflict.” In re Bergdog Productions of Hawaii, Inc. at p. 892.

“It is the duty of the attorney to reveal all connections.” In re Coastal Equities, Inc. 39 B.R. 304 (Bankruptcy, S.D. California, 1984, at p. 308.) “An attorney for a debtor-in-possession is an officer of the court and as such, unquestionably has a duty to be perfectly candid regarding his fitness to perform his duties. This would necessarily require a full disclosure of any connection which may have any bearing on his disinterest.” [Id.] Weinstein and Aguillard’s disclosures to the Bankruptcy Court do not even approach that standard.

In re WPMK, Inc. 42 B.R. 157 (Bankruptcy, D. Hawaii, 1984) was another very similar case. Here, the law firm sought compensation as counsel for the debtor-in-possession, WPMK, Inc. The trustee and others opposed the fee application. The law firm failed to disclose that it had received $20,000.00 from a principal of the debtor and three creditors of the debtor. Nor did the law firm disclose that it had agreed to reimburse these parties upon the court’s approval of its fees. In denying the law firm’s fee application, and in ordering that all fees previously paid be returned to the estate, the court stated that “(w)hen an attorney is retained by a corporation, his responsibilities and loyalties are to the corporation and not to individual employees, officers, or directors of the company.” [Id. at 162.] The court continued: “(t)aking compensation from an individual officer poses a substantially greater temptation for the debtor’ attorney to deviate from his duty of undivided loyalty to his client, the corporate debtor.” [Id.] The court cited Woods v. City National Bank, 312 U.S. 262, 61 S. Ct. 493, 85 L.Ed. 820 (1941) in which the Supreme Court stated: “(w)here a claimant...was serving more than one master or was subject to conflicting interests, he should be denied compensation. It is no answer to say that fraud or unfairness were not shown to have resulted... ‘what is struck...is not only actual evil results but their tendency to evil in other cases.’” [312 U. S. at 268.] [Emphasis in original.]

On almost identical facts, in In re 765 Associates, 14 B.R. 449 (Bankr. Haw. 1981), the attorney for the debtor-in-possession filed an application for final compensation, and objections were filed. In denying compensation, the court cited Woods v. City National Bank, supra, and noted that the attorney had received compensation for services rendered to the debtor from a corporation controlled by a general partner of the debtor, who was also owner of a corporation that was a creditor of the debtor. The court found that “such a situation posed a great temptation for the Debtor’s attorney to deviate from his duty of undivided loyalty to his client, the Debtor.” In re 765 Associates, at p. 451. The court continued: (a)n attorney representing a debtor should not receive compensation from any creditors, directly or indirectly.” [Id.] The court condemned the practice of an attorney receiving compensation from “one holding an interest adverse to the estate.” In re WPMK, Inc., 42 B.R. at 163. The application for compensation was denied and, the attorney was required to return all fees previously paid.

In In re Marine Power & Equipment Co., Inc., 67 B.R. 643 (Bankruptcy, W.D. Washington 1986), the court stated: “(t)he receipt of compensation from a party other than the debtor constitutes a conflict which may warrant denial of compensation by the court. (Citing, In re WPMK, Inc. supra, wherein “the court denied a petition for compensation and ordered all fees previously paid to the applicant to be returned to the estate.”) In re Machine Power & Equipment Co., Inc., at p. 651. The court also cited In re Bergdog Productions of Hawaii, Inc, supra, that “an attorney to be retained by the debtor would have a conflict of interest by taking payment from stockholders of the debtor and by obtaining a guarantee of further payments from those individuals for services rendered to the debtor.” [Id. at p. 652.] The court noted cases that held that the purpose of this rule is to “remove from the attorney any temptation which may tend to cause him to deviate from his duty of enforcing to the full extent the rights of his client, to further the orderly administration of justice, and to foster respect for the profession and the courts.” [Id.] The court rejected “Applicant’s argument that the court cannot deny the compensation and reimbursement sought herein without first finding an actual conflict of interest...” [Id.] The court stated applicant’s argument “is not supported by the greater weight of case law...” [Id.] The crucial question is “whether or not the attorney was placed in a position of being required to choose between conflicting duties and interests. (Citations omitted.)” The applicant’s fee application was denied.

In In re Huntmar Beaumeade I Limited Partnership (and) In re Umbrella One Limited Partnership, 127 B.R. 363 (Bankruptcy, E.D. Virginia 1991), the court joined these cases to decide whether the law firm’s application for employment by both debtors should be granted.

The law firm had been paid retainers to represent each debtor by a creditor of the debtors. The court found that “by receiving payment of its fees from a creditor of the debtors, the law firm was not ‘disinterested’ as that term is used in Sections 327(a) and 101(13) of the Bankruptcy Code. (List of citations omitted.)” The court stated that “‘disinterestedness...appears broad enough to include anyone who in the slightest degree might have some interest or relationship that would color the independent and impartial attitude required by the Code.’ 2 Collier on Bankruptcy s 327.03[f] p. 327-38 (1989)” [Id. at 365.] The court stated, “the proposed counsel for the debtor is being paid by a creditor whose interests are directly adverse to those of the debtor. Where a creditor pays the legal fees of the debtor’s attorney, the possibility that the attorney’s loyalty may be divided is so significant that he cannot continue such representation. ‘It is no answer to say that fraud or unfairness were not shown to have resulted.’ Woods v. City Nat’l Bank, 312 U.S. 262, 268, 61 S.Ct. 393, 497, 85 L.Ed. 820 (1940).” The law firm argued that since the debtors could not pay their own attorneys fees, their applications should be granted. The court responded: “‘experience’ and ‘common sense’ dictate that we do not ignore conflict-of-interest standards set forth in the Bankruptcy Code and in relevant case law in favor of achieving an expedient solution to the debtors’ purported shortage of financial resources.” [Id. at 366.] Because the law firm was “not disinterested as required by 11 U.S.C. s 327(a),” their applications for employment were denied.

In In re Flying E. Ranch Co. 81 B.R. 633 (Bankruptcy, D.

Colorado 1988), the court denied the law firm’s application for payment of interim compensation and ordered that the firm’s appointment to represent the Chapter 11 debtor be withdrawn. In its application for employment, the law firm had failed to disclose certain facts that would have shown a conflict of interest. The law firm argued that these facts that showed a conflict of interest were disclosed in the schedules filed on behalf of the debtor. The court held that the disclosures made by the firm in the debtor’s schedules filed after employment came too late and were insufficient. “Where an attorney has failed to be forthright in disclosing potential conflicts of interest or disclosing his financial transactions or arrangements so that the Court can make an informed judgment (as to employment), denial of compensation has been recognized as being an appropriate remedy. (Citations omitted.)” [Id. at p. 637.]

Finally, in In re Sixth Avenue Car Care Center, 81 B.R. 628 (Bankruptcy, D. Colorado 1988), the Bankruptcy Court denied the law firm any fees or costs and withdrew its order approving employment as counsel for the debtor-in-possession because the firm failed to disclose in its employment application that, inter-alia, its legal fees and costs had been guaranteed by a entity that had guaranteed the debt of the debtor-in-possession. In denying the law firm any fees, the bankruptcy court noted that “(s)ince Meredith Management, Inc. had agreed to guarantee the payment of the fees of the Firm, it is appropriate that it fulfill that agreement. Thus, the Firm will not suffer economic harm and can be compensated for the value of whatever services it has provided to the Debtor...” [Id. at 632.] Weinstein and Aguillard can look to Shaffett to pay their fees and costs, since they had a secret personal guarantee agreement with Shaffett to pay those fees and costs.

2. The Statement of Attorney’s Compensation prepared and filed by Weinstein and Aguillard stated that their $10,000.00 retainer had been paid by Richard D. Shaffett, Individually.

Weinstein and Aguillard assert that “(a)ppellees disclosed in their Statement of Attorney Compensation that the $10,000 retainer had been received from ‘Shaffett’.” [Appellees’ Brief, p. 4.] This is not true. In their statement of attorney compensation, they represented that “the retainer of $10,000.00 was paid by Richard D. Shaffett individually.” [Smith and Atlas R.E. 12, item 4.] This, also, was not true. Their $10,000.00 retainer had been paid by Shaffett, Inc. This document was filed on June 28, 2002, more than two weeks after the Bankruptcy Court had already granted their applications for employment.

3. Weinstein and Aguillard dismissed their Adversary Complaint before they could have known that a Trustee would be appointed.

Weinstein and Aguillard assert that they dismissed the adversary proceeding that they had filed against Shaffett and his companies “to allow the trustee of the creditor’s liquidation trust, who would be appointed pursuant to the Plan, to pursue those causes of action.” [Appellees’ brief, pp. 4-5.] This assertion is not true. Weinstein and Aguillard dismissed their Adversary Complaint on July 9, 2002. No “Plan” had been filed by anyone at that time. Weinstein and Aguillard assert that “(t)he suit was dismissed without prejudice to allow the trustee, later appointed, to review causes of action and determine if the estate of the debtor would be benefitted (sic) by pursuing those claims.” [Appellees’ brief, p. 19.] This assertion could not be true. Weinstein and Aguillard were opposing the appointment of a Trustee. Even in their brief to this Court, Weinstein and Aguillard state: “(a)ppellant filed a motion to convert the case to Chapter 7 or to appoint a trustee...Appellees...vigorously opposed this motion.” [Appellees’ brief, p. 4.] And, again in their brief to this Court, “(o)n August 26, 2002, the Debtor agreed to allow the appointment of a Chapter 11 trustee. Counsel for the Debtor believed that the Debtor could have continued to oppose the appointment of a trustee in good faith. However, the Debtor acquiesced to the trustee as a result of escalating costs of this proceeding...” [Appellees’ brief, pp. 6-7] [Emphasis added.] If Weinstein and Aguillard’s opposition had been successful, no Trustee would have been appointed. How can they assert to this Court that they dismissed the adversary complaint on July 9, 2002, “to allow the trustee...to pursue those causes of action” when they “vigorously” opposed the appointment of a Trustee until August 26, 2002?”^[5]

4. Weinstein and Aguillard knew that the Debtor had claims against Shaffett and his companies, yet they stated in the Debtor’s Schedules they prepared that the Debtor had no such claims.

Weinstein and Aguillard assert that the “(o)n June 28, 2002, Debtor filed its schedules...(t)he schedules did not disclose the payments made within 1 year to Shaffett or his related companies because Debtor had not yet provided counsel with that information.” [Appellees’ brief, p. 5.] This assertion is not true. Weinstein and Aguillard already possessed the information as to the existence of these claims because, eleven days earlier, they had prepared and filed their Adversary Complaint asserting these claims against Shaffett and his companies. [R. 298-307]

5. HV Acquisition, Inc. did not exist.

Weinstein and Aguillard assert that on August 7, 2002 they filed the Debtor’s “first plan and disclosure statement...The plan provided that the remaining subdivision lots would be purchased by HV Acquisition, Inc., an entity to be owned by Shaffett and outside investors...Shaffett did not have time to form the corporation.” [Appellees’ brief, p. 5.] This is not what Shaffett said, under oath, about HV Acquisition, Inc [HVA]. Shaffett testified that “HVA is just one of the many plans I am working on to reorganize this company.” [Record, un-designated Transcript of Proceedings on August 19, 2002, at 95.] Shaffett testified that “if HVA is ever formed, (I wasn’t) going to put any money in it... HVA is in the contemplation stage.” [Id. at 96.]

6. Weinstein and Aguillard asserted that HV Acquisition, Inc. (HVA) was a known, willing, and able purchaser of the property when they knew that HVA did not even exist.

Weinstein and Aguillard assert that “(i)t was never affirmatively alleged that HV Acquisition was organized and existing.” [Appellees’ brief, pp. 5-6.] This is not true. In Weinstein and Aguillard’s Motion to Establish Bid Procedures they were arguing the propriety of their “overbid” provision. [R. 416-421.] They argued that this provision was necessary “to compensate the Debtor for the risk that it assumes of foregoing a known, willing, and able purchaser (HVA) for a new potential acquirer...” [Id.] [Emphasis added.] If HVA is “a known, willing, and able purchaser”, then a creditor reviewing Weinstein and Aguillard’s Motion to Establish Bid Procedures could reasonably conclude that HVA actually existed and was ready, “willing, and able” to purchase the property. Smith and Atlas respectfully suggest that Weinstein and Aguillard’s “known, willing, and able” language was not just haphazardly placed in their Motion to Establish Bid Procedures.

7. Under Weinstein and Aguillard’s First Amended Plan and Disclosure Statement, Shaffett could be paid in cash or with an ownership interest, or both.

Weinstein and Aguillard assert that they filed their “first amended plan and disclosure statement...(providing) that the property would be purchased by a limited liability company...Shaffett would not have any immediate ownership interest in this entity but would likely act as a consultant.” [Appellees’ brief, p. 6.] This is not what their first amended plan and disclosure statement provided. They provided that: “Shaffett may be retained as a consultant...If Shaffett is so retained, he may be paid in cash, with an ownership interest in the LLC, or both.” [R. 568, para. 2.2 and R. 583, para.2.2]

8. Counsel for Smith and Atlas never had the opportunity to review the proposed orders submitted by Weinstein and Aguillard prior to those orders being signed by the Bankruptcy Court.

Weinstein and Aguillard assert that “appellants were afforded the opportunity to review the amended applications of appellees and made no objection to them. After waiting for input from appellants and having received none, the court entered an order allowing appellees the fees...” [Appellees’ brief, pp. 8-9.] They assert that “(c)ounsel for Appellants received a copy of both Appellees’ amended applications for compensation and the orders relative to those applications.” [Appellees’ brief, p. 27] These statements are not true. At the hearing on Smith and Atlas’ motion for a stay pending appeal of the Bankruptcy Court judgment awarding compensation to Weinstein and Aguillard, counsel for Smith and Atlas reviewed this issue of notice with the Court.^[6] [R. 876 A, at p. 10.] Counsel for Smith and Atlas told the Court that “Mr. Aguillard submitted his calculations to me prior to submitting the order, but...we did not have adequate time to...make sure that it complied, before it was submitted to the court. I don’t recall actually whether or not I saw in advance Mr. Weinstein’s, but I couldn’t argue with him. If he did submit it to us, it couldn’t have been more than a day or two prior to the order being submitted. So, we never did have the opportunity to respond to either of them.” [Id.] Accompanying Aguillard’s filing was a Notice to Counsel that “any objections to this application must be made in writing and filed with the Clerk of this Court...within twenty (20) days of the date of this notice (February 3, 2003).” [R. 844] [Emphasis added.] However, Counsel for Smith and Atlas noted to the Court: “(f)rom looking at the docket, it appears to me that the orders were submitted and entered substantially contemporaneously.” [R. 876 A, at p. 12.] The Docket Report in the Bankruptcy Court shows that Aguillard filed his Amended Application for Administrative Expenses and proposed Order on February 3, 2003. [R. 831-845 and Supplemental Record on Appeal, Vol. 1, un-designated Docket Report in the Bankruptcy Court, entry 473.] The next day, February 4, 2003, the Bankruptcy Court signed and entered Aguillard’s proposed Order. [R. 845] The Docket Report in the Bankruptcy Court does not contain any entry showing that Weinstein ever filed his amended fee application with the Court. [Supplemental Record on Appeal, Vol. 1, un-designated Docket Report in the Bankruptcy Court showing no entries prior to the entry of Weinstein’s proposed Order after being signed by the Bankruptcy Court, entry 481.] Weinstein’s proposed Order was signed by the Bankruptcy Court on February 5, 2003. [R. 846-847] In referring to Weinstein’s proposed Order, counsel for Smith and Atlas told the Court that subsequent to the Orders being signed “we have had the opportunity to go back and compare the deductions to the Court’s announced reasons...We don’t agree the calculations are correct.” ^[7] [R. 876 A, pp. 12-13] The Court stated: “I don’t know what happened with the order. I tried to design the process with the order so that all parties would be able to weigh in and agree on the numbers...Apparently, that didn’t work, so we’ll try something new the next time.” [Id. at p. 21.]

9. The Bankruptcy Court denied Weinstein and Aguillard’s applications for additional compensation for the time they spent litigating their rights to fees after the appointment of the

Chapter 11 Trustee and, they did not appeal these adverse judgments to the District Court.

Weinstein and Aguillard assert that “In the Matter of Pro-Snax Distributors, Inc., 157 F. 3d 414 (5^th Cir. 1995) does not address the issue before this court...Are counsel...entitled to fees and expenses for defending an appeal of an order awarding fees awarded to them (sic)?” Smith and Atlas respectively submit that this issue as to whether or not Weinstein and Aguillard were entitled to additional fees generated by them after the appointment of the Chapter 11 Trustee for time spent litigating their rights to fees is not before this Court. This issue was adjudicated adversely to them by the Bankruptcy Court. Weinstein and Aguillard did not appeal those adverse judgments to the District Court, thus, those judgments were not before the District Court. Even though Weinstein and Aguillard appealed the judgment of the District Court affirming the Bankruptcy Court’s judgment awarding them compensation, the issue as to whether or not they were entitled to additional fees generated by them after the appointment of the Chapter 11 Trustee for time spent litigating their rights to legal fees was not before the District Court since they had not appealed the judgments of the Bankruptcy Court denying them these additional fees. Those adverse judgments on this issue by the Bankruptcy Court are now final judgments and are Res Judicata.

In the Bankruptcy Court, Weinstein and Aguillard both sought compensation for work done after the Chapter 11 Trustee was appointed on August 27, 2002, for time spent litigating their rights to fees. Aguillard sought additional fees for: “Preparation of Application for Compensation...Attendance of (sic) hearing on application...Travel to and from Baton Rouge for hearing 5.5 hours...$800.00.” [R. 832-833] Weinstein filed a “Supplemental Application for Allowance for Compensation and Reimbursement of Expenses” on December 26, 2002.^[8] [R. 815-824] Weinstein sought $8,491.00 in fees and $654.09 in expenses for work performed after the appointment of the Chapter 11 Trustee for time he spent litigating his right to fees. [R. 824-825] Weinstein attached to his Supplemental Application an invoice for work performed after the appointment of the Chapter 11 Trustee. [R. 815-817] Weinstein’s invoice included, inter-alia, these items:

prepare brief re fee application, review opposition to application for compensation and prepare supplement to fee application; Review Smith’s objection to fee application...; draft the memorandum in support of our fee application; Appearance at hearing of fee application...; estimated time for appearance at continued hearing of fee application.” [Id.]

At the second day of the hearing on their fee applications held on January 17, 2003, in oral argument, the Chapter 11 Trustee argued that Weinstein and Aguillard were not entitled to any compensation for “work on a fee application that’s contested by the Trustee. The fee application is no benefit to the estate.” [R. 853 A, Transcript of Proceedings held on January 17, 2003, at p. 81.] The Trustee cited this Court’s decision in In the Matter of Pro-Snax Distributors, Inc., 157 F. 3d 414 (5^th Cir. 1998). [Id.] At the conclusion of the oral arguments, the Bankruptcy Court issued its order granting compensation to Weinstein and Aguillard and setting the amount of that compensation. [Id., at pp. 99-113.] However, the Bankruptcy Court, citing In the Matter of Pro-Snax Distributors, Inc., supra, specifically denied Weinstein and Aguillard’s requests for compensation for time spent after the appointment of the Chapter 11 Trustee litigating their rights to fees. In making its ruling on this issue, the Bankruptcy Court stated:

I think I have to agree with Pro Snacks (sic)...in response to a question at one of the earlier hearings...whether applicant’s (sic) time for prosecuting the fee applications after appointment of the Trustee was compensable. My review of Pro Snacks (sic) leads me to conclude that I can’t allow any time, even application time, for time spent after appointment of the Chapter 11 Trustee.

[R. 853 A, Transcript, at pp. 105-106] Neither Weinstein nor Aguillard appealed the Bankruptcy Court’s judgments on this issue to the District Court.^[9] In fact, Weinstein and Aguillard filed no appeals to the District Court at all. Thus, the

judgments of the Bankruptcy Court denying additional fees and expenses to Weinstein and Aguillard generated after the appointment of the Chapter 11 Trustee litigating their rights to fees are final and Res Judicata. [See, Wright, Miller, and Cooper, Federal Practice and Procedure: Jurisdiction s 4433, p. 305 (1981)(citing cases) (footnote omitted): “once the time for appeal has run, a final judgment of a trial court or an intermediate appellate court is res judicata without regard to the fact that appeal might have been taken to a higher court.” See, also, Federated Department Stores, Inc. v. Moitie, 452 U. S. 394, 101 S. Ct. 2424, 69 L. Ed. 2d 103 (1981), and, See, footnote 4, at p. 399: “an adverse judgment from which no appeal has been taken is res judicata and bars any future action on the same claim....(Citation omitted.)”] The question of Weinstein and Aguillard’s rights to additional fees generated after the appointment of the Chapter 11 Trustee for time spent litigating their rights to fees was adjudicated adversely to them by the Bankruptcy Court. They did not appeal those adverse judgments to the District Court. Those adverse judgments are final and Res Judicata.

10. Weinstein and Aguillard are not entitled to additional fees for time they spent after the appointment of the Chapter 11 Trustee litigating their rights to fees.

Weinstein and Aguillard assert that not being paid additional fees for the time they spent after the appointment of a Chapter 11Trustee litigating their rights to fees is tantamount to involuntary servitude under the Thirteenth Amendment to the Constitution of the United States. [Appellees’ brief, p. 23.] This argument is patently frivolous. The case Weinstein and Aguillard quote from in their brief clearly defines “involuntary servitude” and, that definition places them outside the reach of the Thirteenth Amendment. United States v. Kozminski, 487 U. S. 931, 1089 S. Ct. 2741, 101 L. Ed. 788 (1988). The Supreme Court defined “involuntary servitude” as “a condition of servitude in which the victim is forced to work for the defendant by the use or threat of physical restraint or physical injury, or by the use or threat of coercion through law or the legal process.” [United States v. Kozminski, 108 S. Ct. at 2765.] Over the urging of the Government, the Supreme Court carefully circumscribed the scope of what action constitutes “involuntary servitude”. The Supreme Court held that the Thirteenth Amendment was not limited to abolishment of “the institution of African slavery. ” “‘(I)nvoluntary servitude’ was intended to extend ‘to cover those forms of compulsory labor akin to African slavery which in practical operation would tend to produce like undesirable results.’ (Citations omitted.)” Weinstein and Aguillard specified their “condition of servitude”: “(e)ither defend the appeal of the order granting our fees or do nothing and risk your opponent having the ear of the court without the benefit of your input.” [Appellees’ brief, p. 24.] Obviously, this is not “involuntary servitude”. Weinstein and Aguillard are not being “forced to work” for another party. They are working for themselves. Of their own free will, they have chosen to litigate their rights to fees. Litigating their rights to fees is not akin to African slavery. The Supreme Court stated that “not all situations in which labor is compelled by physical coercion or force of law violate the Thirteenth Amendment”. For example, situations such as the performance of civic duties, jury duty, and military service. [Id. at 2760.] “Coercion through law or the legal process” does not encompass Weinstein and Aguillard choosing to litigate their rights to keep their fees. They won’t go to jail if they choose not to litigate their right to fees. “Coercion through law or the legal process” describes a situation in which “the victim had no available choice but to work or be subject to legal sanction.” [Id. at p. 2760.] The Supreme Court noted that “involuntary servitude” would not encompass a situation where “an employee asserts that his will to quit has been subdued by a threat which seriously affects his future welfare but as to which he still has a choice, however painful.” [Id. at p. 2763.] This is close to what Weinstein and Aguillard are asserting: that they do not want to work without pay litigating their rights to fees, but their desire not to work without being paid has been subdued by a threat that they might lose their fees if they don’t. They have a choice to litigate or not to litigate, however painful they may feel that to be. That is not “involuntary servitude”.

In Channer v. Hall, 112 F. 3d 214 (5^th Cir. 1997), this Court adopted the definition of “involuntary servitude” set out by the Supreme Court, and “extended its definition of involuntary servitude to civil suits. (Citation omitted.)” [Id. at 217.] Weinstein and Aguillard’s “involuntary servitude” argument is patently frivolous.

11. In the Matter of Pro-Snax Distributors, Inc. this Court held the debtor’s attorney may not be compensated from the estate after the appointment of a Chapter 11 trustee.

Weinstein and Aguillard assert that “Pro-Snax and progeny should be modified to allow for compensation for reasonable and necessary costs earned by debtor counsel for defending an appeal of a fee a few award (sic)....” [Appellees’ brief, p. 26.] Weinstein and Aguillard want to be paid for the time they spend litigating their rights to fees. Weinstein and Aguillard do not inform us as to whom they think should pay them. On June 27, 2003, the Bankruptcy Court granted the Trustee’s Motion for a Final Decree and entered the Final Decree. [R. 877] The Bankruptcy Court closed the proceeding. [Id.] The Estate no longer exists. Who do Weinstein and Aguillard think should pay them?

Irrespective of this issue, the Supreme Court of the United States has followed this Court’s decision in In the Matter of Pro-Snax Distributors, Inc., 157 F. 3d 414 (5^th Cir. 1998). In Lamie v. United States Trustee, 540 U. S. ____, 124 S. Ct. 1023, 157 L. Ed. 1024 (2004), the Supreme Court of the United States twice cited In the Matter of Pro-Snax Distributors, Inc., supra, with approval. In Lamie, an attorney represented the debtor-in-possession. After a trustee was appointed, Lamie continued to represent the former debtor-in-possession, now the debtor. Lamie “prepared reports...amended asset schedules...and...appeared at a hearing on an adversary complaint.” Lamie, 124 S. Ct., at 1029. Lamie had not been employed by the trustee under 11 U.S.C. 327. [Id.] The Supreme Court held that a “debtor’s attorney not engaged as provided by s 327 is simply not included within the class of persons eligible for compensation.” Lamie, 124 S. Ct., at 1030. The Supreme Court held that 11 U.S.C. 330(a)(1) “does not authorize compensation award to debtors’ attorneys from estate funds, unless they are employed as authorized by s 327.” Lamie, 124 S. Ct., at 1032.] Lamie’ efforts expended after the appointment of the trustee for which he sought compensation are in stark contrast with the efforts of Weinstein and Aguillard. Weinstein and Aguillard do not seek additional compensation for work performed for the benefit of the debtor, they seek additional compensation for work performed for the benefit of themselves, litigating their rights to fees. Lamie’s work benefited the debtor. If the Supreme Court did not modify “Pro-Snax and progeny...to allow for compensation” to an attorney whose work benefited the debtor, albeit performed after the appointment of a trustee, is it reasonable for Weinstein and Aguillard to ask this Court to modify “Pro-Snax and progeny...to allow for compensation” for Weinstein and Aguillard for litigating their rights to legal fees?

12. The $198,144.89 in claims made by Shaffett, Shaffett, Inc., and Shaffett’s companies that were Listed as “Undisputed” by Weinstein and Aguillard on the Debtor’s Schedules they prepared and filed were not valid claims.

Weinstein and Aguillard assert that the claims made by Shaffett, Shaffett, Inc., and Shaffett’s companies were valid claims. [Appellees’ brief, pp. 16-17.] Five days after the Bankruptcy Court signed the Order authorizing their employment by the Debtor-in-Possession, Weinstein and Aguillard prepared and filed, on June 17, 2002, an Adversary Complaint against, inter-alia, Shaffett and his companies. [R. 298-307] Weinstein and Aguillard alleged in their Adversary Complaint that Shaffett had “received over $350,000.00 from the debtor for personal and business expenses which were paid to the detriment of creditors of the estate of the debtor.” [R. 303, para. 11.] Weinstein and Aguillard alleged that Shaffett “should be required to account for all sums received by him or any entity with which he is affiliated from the debtor and return of any funds which were not properly and legally paid by him.” [R. 300, para. 20.] Finally, Weinstein and Aguillard prayed for judgment “ordering the return of all sums paid to...Shaffet (sic), or any affiliate of...Shaffet (sic) which are deemed to be preferential or fraudulent...” [R. 299, para. 24.] Certainly, if Weinstein and Aguillard were asserting $350,000.00 in claims on behalf of the Debtor against Shaffett and his companies, they would not have listed on the Debtor’s Schedules $198,144.89 in claims that Shaffett and his companies allegedly had against the Debtor as “undisputed”. [R. 363-367^[10]] Since the Debtor had off-setting claims against Shaffett and his companies, Weinstein and Aguillard should have listed the $198,144.89 in claims Shaffett and his companies were making against the Debtor as “disputed”. Weinstein and Aguillard did not do this. By listing the $198,144.89 in claims made by Shaffett and his companies against the Debtor as “undisputed”, it seems clear that Weinstein and Aguillard were seeking to insure that all of these claims would be paid by the Debtor with funds belonging to the Estate, to the detriment of the creditors. Weinstein and Aguillard’s intentions become even clearer when, on July 9, 2002, eleven days after they filed the Debtor’s Schedules listing these $198,144.89 in claims as “un-disputed”, they voluntarily dismissed their Adversary Complaint against Shaffett and his companies.

Secondly, despite repeated requests by creditors for production of documents validating these $198,1244.89 in claims against the Debtor listed as “undisputed” in the Debtor’s Schedules, and despite orders from the Bankruptcy Court to produce the documents supporting these claims, Shaffett never produced any documents validating these claims. [See, Record, un-designated Transcript of Proceedings held on August 19, 2002, at p. 111.] When the Trustee was appointed, he amended the Debtor’s Schedules and listed all these claims as “disputed”. [R. 695-704] Later, faced with the problem of having to prove the validity of these claims, and obviously being unable to do so, Shaffett withdrew them.

13. Weinstein and Aguillard changed the Debtor’s Statement of Financial Affairs they had prepared after a Creditor exposed their misrepresentations to the Bankruptcy Court and the other creditors.

Weinstein and Aguillard assert that “Appellants arguments melt away once the facts are exposed.” [Appellees’ brief, p. 19.] Weinstein and Aguillard continued: “(t)he Statement of Financial Affairs-Amended, item 3.b and 9 (Appendix 5, R. 148) clearly discloses that payments (by the Debtor) were made to Shaffett personally...This is a fact not mentioned or addressed by Appellants.” [Id.] Smith and Atlas respectfully suggest that this is hyperbole. Weinstein and Aguillard were forced to amend the Debtor’s Statement of Financial Affairs and disclose payments to insiders because a creditor exposed their misrepresentations to the Bankruptcy Court and the other creditors. [R. 380-406] In the Debtor’s original Schedules and Statement of Financial Affairs they filed on June 28, 2002, Weinstein and Aguillard represented that the Debtor had made no “payments...within one year immediately preceding the commencement of this case to or for the benefit of creditors who are or were insiders.” [R. 358, answer 3. b. “None”.] On these same Schedules, Weinstein and Aguillard had named Shaffett and all of his companies as creditors of the Debtor holding “undisputed” claims against the Debtor. [R. 363, T.W.S. Inc. $1,380.00 and $8,420.75; R. 364, Richard D. Shaffett $94,471.84 and Shaffett, Inc. $20,516.21; R. 365, Farms and Acreage Realty $20,972.44; R. 367, Bayou Paul Acres, Inc. $52,383.65.]^[11]

Two weeks after Weinstein and Aguillard had filed the Debtor’s Schedules and Statement of Financial Affairs, Barry W. Miller, a creditor, filed a supplemental memorandum in support of the motion to appoint a Trustee. [R. 380-406.] In his supplemental memorandum, Miller argued that Weinstein and Aguillard’s “answer...that there were no transfers to or on behalf of creditors who were or are insiders made within one year of the date of the filing of the bankruptcy petition...is a material misrepresentation.” [R. 405.] In support of his argument, Miller attached Exhibit 3, a summary of the Debtor’s cancelled checks and bank statements he had obtained in discovery showing hundreds of thousands of dollars in payments made mostly to Shaffett or for his benefit. [Id.] Miller argued that Weinstein and Aguillard knew that “this representation was false before the filing”. [R. 404.] The facts indicate that this is true. In addition to Weinstein and Aguillard having the Debtor’s cancelled checks and bank statements showing these payments, Weinstein and Aguillard had previously asserted claims against Shaffett and his companies seeking “the return of all sums paid to...Shaffett, or any affiliate of...Shaffett which are deemed to be preferential or fraudulent...” [See, Weinstein and Aguillard’s Adversary Complaint filed on behalf of the Debtor on June 17, 2002, R. 298-307.] Further, Weinstein and Aguillard had been furnished with a copy of Shaffett’s prior deposition testimony in which he had admitted that he had caused the Debtor to make preferential transfers to or for the benefit of creditors who were insiders, namely himself: “Q. You were using Hampton Village to support you, your family and all of your businesses? A. (by Shaffett) Absolutely.” [R. 268, Excerpts from deposition of Richard D. Shaffett taken on August 21, 2001 attached as Exhibit to Smith and Atlas’ Memorandum in Support of Motion to Convert Case to Chapter 7, or Alternatively, to Appoint a Chapter 11 Trustee, filed June 5, 2002.] “Q. ...you applied the proceeds of that loan (to Hampton Village, Inc. from the Bank of West Baton Rouge) to all of your businesses; is that correct? A. (by Shaffett) That is right. Q. And to your personal business; is that correct? A. That is right.” [Id. at 269.] The day after Miller exposed Weinstein and Aguillard’s misrepresentations, Weinstein and Aguillard filed their Amended Statement of Financial Affairs in which they disclosed that the Debtor had, in fact, “made payments...to or for the benefit of creditors who are or were insiders”, namely, “estimated $320,000.00 to Richard D. Shaffett.” [R. 413.]^[12] Smith and Atlas respectfully suggest that Weinstein and Aguillard’s “arguments melt away once the facts are exposed”. [Appellees’ brief, p. 19.]

CONCLUSION

Weinstein and Aguillard concealed their secret agreement with Richard D. Shaffett, a creditor of the Debtor and an insider, that Shaffett had personally guaranteed the payment of all their legal fees and expenses during their employment by the Debtor. Weinstein and Aguillard concealed the fact that they were paid a $10,000.00 retainer by Shaffett, Inc., a creditor of the Debtor. As a result of these secret connections and relationships, Weinstein and Aguillard were not “disinterested” persons. Throughout their employment by the Debtor, Weinstein and Aguillard sought to foster and promote the financial interests of Richard D. Shaffett in the myriad ways shown. As a result, their legal services did not result in an identifiable, tangible, and material benefit to the Estate. All compensation should have been denied. Weinstein should be required to return the compensation he was paid, $36,788.26. Aguillard should be required to return the compensation he was paid, $13,610.16. Alternatively, Weinstein should be required to return the $6,723.12 he was overpaid.

Respectfully submitted,

DONALD L. BECKNER & ASSOCIATES
By: ______________________________
Donald L. Beckner (La. Bar No. 02924)
5800 One Perkins Place
Building 7, Suite A
Baton Rouge, Louisiana 70808
Telephone: 225-769-7779

^[1]This correspondence had been dated January 15, 2001 in error. The correct date was January 15, 2002. [R. 814 A, at 94.]

^[2]“Oh, what a tangled web we weave, when first we practice to deceive.” The Lay of the Last Minstrel [1805], Sir Walter Scott.

^[3]Seven days later, on August 26, 2002, at the final day of the hearing, the Bankruptcy Court ordered that appointment of a Trustee.

^[4]Despite repeated requests from creditors and orders of Court for production, Shaffett never produced any documents validating these claims. Later, Shaffett withdrew all of these claims. [See, Record, un-designated Transcript of Proceedings on August 19, 2002, at 111.]

^[5]August 26, 2002 was the final day of the hearing, which had been held on July 23, 2002, and on August 19, 2002. Smith and Atlas respectfully submit that, after hearing all the evidence, Weinstein and Aguillard finally conceded to the appointment of a Trustee to foreclose the possibility that the Bankruptcy Court would decide to convert the case to Chapter 7.

^[6]The transcript incorrectly attributes these discussions with the Court to “Mr. Herpin”, when it was Mr. McKenzie. [Record, 876 A, Transcript of hearing held on March 21, 2003, at p. 9.]

^[7]Smith and Atlas did not assert that Aguillard’s calculations of the Court ordered deductions from his invoice were inaccurate, only that Weinstein’s calculations were inaccurate.

^[8]Weinstein filed his Supplemental Application after the first day of the hearing on Weinstein and Aguillard’s fee applications held by the Bankruptcy Court on November 15, 2002. [R. 814 A.] This hearing was not completed and was continued to January 17, 2003. [R. 853 A]

^[9]It seems clear that the District Court was unaware that the Bankruptcy Court had denied Weinstein and Aguillard’s request for additional fees and expenses for time spent litigating their rights to fees generated after the appointment of the Chapter 11 Trustee when, in a footnote, it invited them “to submit motions and briefs regarding this issue.” [See, Smith and Atlas R. E. 3, “Ruling on Bankruptcy Appeal”, p. 13.] Since Weinstein and Aguillard did not appeal to the District Court those adverse judgments of the Bankruptcy Court denying those additional fees, that issue was not before the District Court and, is, thus, not before this Court.

^[10]Richard D. Shaffett $94,471.84, Shaffett, Inc. $20,516.21, Bayou Paul Acres $52,383.65, Farms and Acreage Realty $20,972.44, T.W.S. Inc. $1,380.00, T.W.S. Inc. $8,420.75.

^[11]When the debtor is a corporation, the Bankruptcy Code defines “insider” as a director, officer, or person in control of the debtor or his or her relative. 11 U.S.C. 101 (31)(B). Richard D. Shaffett was a director, the President, the sole owner, and the person in control of the Debtor. Shaffett owned and controlled all of the Shaffett companies named as creditors.

^[12]Miller’s summary, Exhibit 3, was very similar to the summary filed by Smith and Atlas entitled “$355,337.51 Misappropriation by Richard D. Shaffett of Proceeds of Loans to Hampton Village, Inc. by the Bank of West Baton Rouge July 13, 2000 through July 31, 2001," which was an exhibit to Smith and Atlas’ Memorandum in Support of Motion to Convert Case to Chapter 7, or alternatively to Appoint a Chapter 11 Trustee, filed on June 4, 2002. [R. 212-223.]