ORDER ON MOTION FOR REVIEW AND RETURN OF ATTORNEY'S FEES1
On August 20, 2025, the court heard the Motion for Review and Return of Attorney's Fees brought by the Office of the United States Trustee ("UST") in the above-referenced Chapter 11 proceeding ("Disgorgement Motion"). The appearances of counsel were noted on the record. After arguments were presented, the matter was taken under submission.
BACKGROUND
On April 5, 2022, T-Shack, Inc. ("Debtor") filed a voluntary "skeleton" Chapter 11 petition ("Petition"). (ECF No. 1). The Petition designated the Debtor as a "small business debtor" under Section 101(51D). The Petition attests that the Debtor operates its business at 405 County Rd 25, Mantador, ND 58058 ("Business Address") and that Raymond Zajac is the registered agent of Debtor ("Debtor's Representative"). A notice of bankruptcy filing
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("Bankruptcy Notice") was served by first class mail on all parties in interest.2(ECF No. 4). On April 19, 2022, Debtor filed a Motion to Extend Deadline to File Schedules or Provide Required Information. (ECF No. 13). On May 4, 2022, Debtor filed their schedules of assets and liabilities ("Schedules"), statement of financial affairs, and other information required by Sections 521(a). (ECF Nos. 16-18). Schedule "A," lists eight real properties with no other assets. Schedule "D," lists only two secured creditors, Prestige Default Service, LLC, and Quality Loan Service Corporation, for which the Debtor provides no description of the property securing the claims and no amount owed. Schedule "E/F," lists no unsecured creditors. Also on that date, Debtor filed a Disclosure of Compensation of Attorney for Debtor(s) ("Compensation Disclosure") required under Section 329(a) and Bankruptcy Rule 2016(b). (ECF No. 19). According to that Compensation Disclosure, Debtor paid attorney Michael Harker ("Attorney Harker") a $15,000 pre-petition retainer ("Retainer").
On May 5, 2022, the 341 Meeting was continued to May 26. (ECF No. 21). Also on that date, Breckenridge Property Fund ("BPF") filed a Motion for Relief from Stay property: 5155 W. Tropicana Avenue, #2042, Las Vegas, NV 89103 ("BPF MRS"). (ECF No. 22). On May 17, 2022, NewRez LLC d/b/a Shellpoint Mortgage Servicing ("Shellpoint") filed a proof of claim ("POC 1-1") asserting a claim in the amount of $186,091.47 secured by an interest in 5155 W. Tropicana Avenue, Unit 2010, Las Vegas, NV 89103. On May 30, 2022, the 341 Meeting was continued again to July 21. (ECF No. 31). On June 23, 2022, the court filed an order granting the BPF MRS. (ECF No. 33). On June 28, 2022, Shellpoint filed a Motion for Relief from Stay property: 5155 W. Tropicana Ave., #2010, Las Vegas, NV 89103 ("Shellpoint Tropicana MRS"). (ECF No. 36).
On July 6, 2022, Debtor filed an Application to Employ Law Firm as Attorney for Debtor in Possession ("Employment Application"), naming Attorney Harker as its attorney. (ECF No.
39). On July 19, 2022, Debtor filed an Opposition to Shellpoint Tropicana MRS ("Debtor
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Tropicana Opposition"). (ECF No. 42). On July 27, the 341 Meeting was further continued to August 18. (ECF No. 43).
On August 8, 2022, Shellpoint filed a Motion for Relief from Stay Property: 874 Ripple Way, Las Vegas, NV 89116 ("Shellpoint Ripple MRS"). (ECF No. 46). On August 9, 2022, Debtor filed an Application to Employ Broker to Sell Certain Real Property ("Broker Application"), naming Jeff Chain at Milestone Realty ("Broker") as its desired real estate broker. (ECF No. 48). On August 16, Debtor filed an Objection to POC 1-1 of Shellpoint in the amount of $186,091.47 ("1-1 Objection"). (ECF No. 52). On August 23, 2022, the 341 Meeting continued again to September 22. (ECF No. 56).
On August 29, 2022, Debtor filed a list of 20 Largest Unsecured Creditors for Chapter 11 Non-Individual Cases, amended Schedules, an amended Verification of Creditors Matrix, a List of Equity Security Holders, and a Corporate Ownership Statement. (ECF Nos. 59-63). On its amended Schedule "D," Debtor lists secured creditor "Prestige Default Services" with a real property description listing 3400 Cabana Drive #2027, Las Vegas, NV 89122 ("Cabana Property") and having a claim in the amount of $114,207.83. Also on that date, Shellpoint filed a response to the 1-1 Objection ("Response"). (ECF No. 64).
On September 2, 2022, the court filed an order granting the Employment Application, authorizing Attorney Harker as the Debtor's attorney in this bankruptcy proceeding. (ECF No.
65). On September 8, 2022, the court filed a conditional order denying the Shellpoint Tropicana MRS. (ECF No. 67).
On September 12, Debtor filed a supplement to the Broker Application. (ECF No. 72). On September 23, 2022, the 341 Meeting concluded. (ECF No. 74).
On September 27, 2022, the court entered an order overruling the 1-1 Objection ("1-1 Approval"). (ECF No. 75). On October 11, 2022, Debtor filed a Notice of Appeal to have the Ninth Circuit Bankruptcy Appeals Panel ("BAP") review the 1-1 Approval ("1-1 Appeal"). (ECF Nos. 79 and 81).
On November 21, 2022, MCLP Asset Company, Inc. ("MCLP") filed a Motion for Relief from Stay Property: 8679 Tom Noon Avenue, Unit 102, Las Vegas, NV 89178 ("MCLP MRS").
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(ECF No. 94). On December 14, 2022, Debtor filed an opposition to the MCLP MRS ("Debtor MCLP Opposition"). (ECF No. 97). On January 6, 2023, the court entered an order granting the MCLP MRS. (ECF No. 98).
On March 7, 2023, Shellpoint filed a Motion for Relief from Stay Property: 1417 Hialeah Drive, Apt B, Las Vegas, NV 89119 ("Shellpoint Hialeah MRS"). (ECF No. 102). On March 15, 2023, The Bank of New York Mellon fka The Bank of New York, as Trustee for the Certificate Holders of CWALT, Inc., Alternative Loan Trust 2004-36CB, Mortgage Pass-Through Certificates, Series 2004-36CB, filed a proof of claim ("POC 5-1") through its loan servicer, Shellpoint. Attached to POC 5-1 are a variety of documents in support of the claim. One of the documents is a Mortgage Proof of Claim Attachment: Addendum that itemizes various fees and costs charged on the loan, various disbursements and advances, and a running balance of payments due and payments received. In addition, the attachments to POC 5- 1 includes a copy of a promissory note executed by Hanna T. Abdo, dated November 8, 2004, in the original principal amount of $123,200.00 ("Note"), along with a deed of trust against the Cabana Property ("Deed of Trust") recorded on November 15, 2004.
On April 14, 2023, the BAP dismissed the 1-1 Appeal. (ECF No. 116). On the same date, Debtor filed an amended Petition, removing its small business designation. (ECF No. 109). On April 17, Debtor filed an Application to Employ Realtor ("Realtor Application"), naming Rebeca Garcilazo de Martinez ("Realtor") as its desired realtor. (ECF No. 110). On May 3, 2023, Debtor filed an Objection to POC 5-1 of Shellpoint in the amount of $229,554.98 ("5-1 Objection"). (ECF No. 113). On May 5, 2023, the BAP reinstated the 1-1 Appeal. (ECF No.
117). On May 16, 2023, Debtor filed an amended Realtor Application. (ECF No. 119). On June 8, 2023, Debtor filed a complaint commencing Adversary Case No. 23-01099 against Shellpoint ("Debtor Shellpoint Complaint"). (ECF No. 129). On June 15, 2023, Debtor filed an amended Debtor Shellpoint Complaint. (ECF No. 135).
On June 27, 2023, Shellpoint filed a response to the 5-1 Objection. (ECF No. 136).
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On August 8, 2023, Debtor filed a supplement to the Realtor Application. (ECF No.
140). On September 14, 2023, the court entered an order granting the Realtor Application. (ECF No. 145).
On September 15, 2023, the BAP affirmed the 1-1 Approval. (ECF No. 146). On November 7, 2023, the court filed an order overruling the 5-1 Objection ("5-1 Approval"). (ECF No. 151).
On November 8, 2023, Debtor filed a Motion to Sell Real Property 5388 Swenson Street #24, Las Vegas, NV 89119 Free and Clear of Liens and Encumbrances ("Swenson Sale Motion"). (ECF No. 153). On November 21, 2023, Debtor filed a Notice of Appeal to have the BAP review the 5-1 Approval ("5-1 Appeal"). (ECF Nos. 158 and 160). On January 2, 2024, Debtor withdrew the Swenson Sale Motion. (ECF No. 174). On April 9, 2024, Debtor filed a Motion to Value Collateral Property: 1417 Hialeah Drive, Unit B, Las Vegas, NV 89119 ("Hialeah Valuation"). (ECF No. 181). On April 29, 2024, Shellpoint filed an opposition to the Hialeah Valuation ("Hialeah Valuation Opposition"). (ECF No. 187). On May 8, 2024, the BAP dismissed the 5-1 Appeal. (ECF No. 195).
On June 27, 2024, Debtor filed the Swenson Sale Motion for a second time. (ECF No.
196). On July 18, 2024, Shellpoint filed a Supplemental Hialeah Valuation Opposition. (ECF No. 201). On August 22, 2024, the court entered an order approving the stipulation between the parties that the Hialeah Valuation would result in a value of $172,000. (ECF No. 210). On September 20, 2024, the court filed an order granting the Swenson Sale Motion. (ECF No. 214). On December 13, 2024, the UST filed a Motion to Dismiss or Convert Chapter 11 Case ("Dismissal Motion") which requested that the case be dismissed, converted to Chapter 7, or that the Debtor be required to submit a proposed plan by a set deadline. (ECF No. 222). On January 10, 2025, Shellpoint filed a joinder to the Dismissal Motion. (ECF No. 231). On January 13, 2025, Debtor filed an opposition to the Dismissal Motion ("Debtor Dismissal Opposition"). (ECF No. 232). On January 14, 2025, the UST filed a reply to the Debtor Dismissal Opposition ("Dismissal Reply"). (ECF No. 235).
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On January 23, 2025, the court entered an order dismissing the Chapter 11 proceeding. (ECF No. 238).
On July 14, 2025, the UST filed a Motion to Reopen Chapter 11 Case. (ECF No. 243). On July 17, 2025, the court entered an order reopening the case. (ECF No. 244). On that date, the UST also filed the instant Disgorgement Motion requesting that Attorney Harker be required to disgorge all fees he had received for services rendered during the Chapter 11 proceeding. (ECF No. 245).
On August 6, 2025, Attorney Harker filed an opposition to this Disgorgement Motion ("Disgorgement Opposition"). (ECF No. 251).
On August 7, 2025, Attorney Harker filed an Application for Compensation ("Harker Fee Application") seeking $72,907.50 in fees and expenses for services rendered during the Chapter 11 proceeding. (ECF No. 253).
On August 13, 2025, the UST filed a reply to the Disgorgement Opposition ("UST Disgorgement Reply"). (ECF No. 258).
On August 18, 2025, Attorney Harker filed a Supplemental Affidavit of Michael J. Harker in support of his Disgorgement Opposition ("Harker Disgorgement Affidavit"). (ECF No. 261).
On December 3, 2025, the UST filed an objection to the Harker Fee Application ("UST Fee Objection"). (ECF No. 273).
On December 10, 2025, Attorney Harker filed Supplemental Points and Authorities in support of his fee application ("Harker Fee Supplement") to which is attached his affidavit ("Harker Fee Affidavit"). (ECF No. 275).
DISCUSSION
"The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of [the Bankruptcy Code]." 11 U.S.C. § 105(a). This right includes enumerated and inherent powers.
Section 329(a) requires that an attorney representing a debtor must "file with the court a statement of compensation paid or agreed to be paid, if such payment or agreement was made"
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within the year before filing the petition. The attorney must file that compensation application containing the requisite details with the court within 14 days after the order for relief. See FED.R.BANKR.P. 2016(a) and (b). The attorney also must file a supplemental statement for any previously undisclosed payment or agreement within 14 days of that payment or agreement. See FED.R.BANKR.P. 2016(b)(2). The compensation application must be sent to the U.S. Trustee. See FED.R.BANKR.P. 2016(a)(3) and (b)(2).
Section 330(a)(1) gives the court power to determine an attorney's reasonable compensation. Even if the Bankruptcy Code and the Bankruptcy Rules did not provide such authority, the bankruptcy court has "inherent authority over the debtor's attorney's compensation." L. Offs. of Nicholas A. Franke v. Tiffany (In re Lewis), 113 F.3d 1040, 1045 (9th Cir. 1997); In re Gilsvik, 63 B.R. 745, 751 (B.A.P. 9th Cir. 2025).
"[F]ailure to comply with the disclosure rules is a sanctionable violation, even if proper disclosure would have shown that the attorney had not actually violated any Bankruptcy Code provision or any Bankruptcy Rule." Neben & Starrett, Inc. v. Chartwell Fin. Corp. (In re Park- Helena Corp.), 63 F.3d 877, 880 (9th Cir. 1995), cert. denied, 516 U.S. 1049 (1996); Lewis 113 F.3d at 1045 ("An attorney's failure to obey the disclosure and reporting requirements of the Bankruptcy Code and Rules gives the bankruptcy court the discretion to order disgorgement of attorney's fees."). "No section within the Bankruptcy Code, however, requires such a sanction, rather it is imposed because of the need to deter attorneys from general nonobservance of the Bankruptcy Code." Cristopher v. Mir (In re Boh! Ristorante, Inc.), 99 B.R. 971, 973 (B.A.P. 9th Cir. 1989); see also Film Ventures Int'l, Inc. v. Asher (In re Film Ventures Int't, Inc.), 75 B.R. 250, 253 (B.A.P. 9th Cir. 1987) ("[T]he Bankruptcy Court was not required to deny legal fees for the work actually performed"); Sundquist v. Bank of Am., N.A. (In re Sundquist), 576 B.R. 858 (Bankr. E.D. Cal. 2017) ("Accordingly, this court will exercise its discretion to refrain from using Park-Helena to reduce the $70,000.00 to zero or to some intermediate sum."), aff'd, Henderson v. Sundquist (In re Sundquist), 2019 WL 994027 (B.A.P. 9th Cir. Feb. 27, 2019), aff'd, 827 Fed.Appx. 763 (9th Cir. Oct. 27, 2020).
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"The disclosure rules are applied literally, even if the results are sometimes harsh. Negligent or inadvertent omissions do not vitiate the failure to disclose. Similarly, a disclosure violation may result in sanctions regardless of actual harm to the estate." Park-Helena, 63 F.3d at 881. "The disclosure requirements imposed by § 329 are mandatory, not permissive, and an attorney who fails to comply with the disclosure requirements forfeits any right to receive compensation." Hale v. U.S. Tr. (In re Basham), 208 B.R. 926, 931 (B.A.P. 9th Cir. 1997), citing Peugeot v. U.S. Tr. (In re Crayton), 192 B.R. 970, 981 (B.A.P. 9th Cir. 1996), aff'd sub nom., Hale v. U.S. Tr. (In re Byrne), 152 F.3d 924 (9th Cir. 1998). "Once the bankruptcy court determines that an attorney has violated § 329 and Rule 2016, the bankruptcy court has the authority to order the attorney to disgorge all of his fees." Id.
On numerous occasions in the Ninth Circuit, courts have found it sufficient to disgorge all fees based on an attorney's actions or omissions that violated Section 329, Section 330, and/or Bankruptcy Rule 2016. See, e.g., Park-Helena, 63 F.3d at 881 (failure to provide the details of the payment); Lewis, 113 F.3d at 1044-45 (failure to file supplemental fee application and presenting false information); Basham, 208 B.R. at 931 (failure to file disclosure statements); In re Blackburn, 448 B.R. 28, 42 (Bankr. D. Idaho 2011) (failure to file supplemental fee application and failure to provide details of fee arrangement); In re Woodcraft Studios, Inc., 464 B.R. 1, 9 (N.D. Cal. 2011) (failure to file disclosure statements); In re Hanson,
223 B.R. 775, 781 (Bankr. D. Ore. 1998) (same); In re Bell, 212 B.R. 654, 656 (Bankr. E.D. Cal. 1997) (failure to file disclosure statements and supplemental fee applications); In re Maui 14K, Ltd., 133 B.R. 657, 660 (Bankr. D. Haw. 1991) (same).
In this case, the court concludes that fee disgorgement is appropriate because counsel violated Section 329, Section 330 and Bankruptcy Rule 2016. Attorney Harker received a $15,000 pre-petition retainer and did make the requisite disclosure for it in the Compensation Disclosure and the Employment Application. The Compensation Disclosure, however, represents that the Debtor paid the attorney's fees. This is incorrect; the Debtor's Representative paid the Retainer. Failure to make an accurate disclosure violates Section 329 and Bankruptcy Rule 2016. Even assuming that error was accidental, there is no dispute that Attorney Harker did
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not file a single request for approval of compensation prior to the UST bringing the Disgorgement Motion. As a result, he was never required to disclose his receipt of compensation from any source as part of the fee application process.3 Those transgressions alone would be sufficient for the court to order full disgorgement.
As noted by the UST, this is not Attorney Harker's first failure to file disclosures of fees received during a Chapter 11 case. Tracing back to 2019, Attorney Harker has filed twenty-eight Chapter 11 bankruptcy cases in this court. Counsel apparently failed to file disclosures of payments received in every one of those cases. Such repeated offenses more than warrant full disgorgement of fees in the instant case, if only to illustrate that this court takes the disclosure requirements seriously.4
The UST also suggests that the court should deny Attorney Harker compensation pursuant to Section 328(c) because he allegedly possesses an interest adverse to the estate since any fees he received for representing the Debtor reduces the value of the estate. Like all other professionals authorized to be employed by a bankruptcy estate, however, the allowance of
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compensation as a priority administrative expense is designed and necessary to induce professionals to provide post-bankruptcy services that they otherwise would not risk. Disgorgement based on this suggestion would open the door to disgorgement by professionals in every case. Thus, the court is not persuaded.
While Attorney Harker finally filed his first and only application for compensation on August 7, 2025, that belated effort does not cure his disclosure deficiencies. While the court is sympathetic to the circumstances counsel outlined in his Disgorgement Reply, those are explanations, not excuses. To his credit, Attorney Harker acknowledges the compensation disclosures required of Chapter 11 counsel, but he needs to abide by them. The court strictly construes the disclosure requirements and simply cannot permit extensive delay in filing the compensation application.
Given that Attorney Harker knowingly violated the disclosure requirements by failing to meet the fee disclosure requirements in this case, the court concludes that disgorgement is an appropriate sanction5and will require that Attorney Harker return all legal fees paid by the Debtor's Representative from the representative's personal funds during the Chapter 11 case.6
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IT IS THEREFORE ORDERED that the Motion for Review and Return of Attorney's Fees brought by U.S. Trustee in the above-referenced Chapter 11 proceeding, Docket No. 245, be, and the same hereby is, GRANTED.
IT IS FURTHER ORDERED that the fees paid by Raymond Zajac as compensation to counsel for services rendered to the Debtor in the above-captioned case must be returned to Raymond Zajac no later than 30 days after entry of this order.
Copies sent via CM/ECF ELECTRONIC FILING Copies sent via BNC to all parties Copies sent via BNC to:
T-SHACK, INC.
ATTN: OFFICER OR MANAGING AGENT
405 COUNTY RD 25
MANTADOR, ND 58058-4026 T-SHACK, INC.
ATTN: OFFICER OR MANAGING AGENT
5155 W. TROPICANA AVE., UNIT 2050
LAS VEGAS, NV 89103
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