# In re Grasso

> United States Bankruptcy Court, E.D. Pennsylvania · June 15, 2018 · 586 B.R. 110

URL: https://www.frixlaw.com/law-library/cases/8501381

## Case

- **Full name:** IN RE: Joseph GRASSO, Debtor.
- **Court:** United States Bankruptcy Court, E.D. Pennsylvania
- **Decided:** June 15, 2018
- **Citations:** 586 B.R. 110
- **Precedential status:** Published
- **Opinion:** Opinion of the court by Coleman
- **Judges:** Coleman
- **Cited by:** 10 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/8501381

## How later opinions describe it (automated extraction)

- stating that the duties imposed by section 521 are among the most significant imposed upon a debtor in bankruptcy

## Opinion text

Magdeline D. Coleman, United States Bankruptcy Judge
I. INTRODUCTION
By Order dated January 17, 2014, this Court sustained objections to the Second Interim and Final Application for Compensation *113 and Reimbursement of Expenses (the "Final Application"), 1 filed by the Law Offices of Paul J. Winterhalter, P.C. (the "Firm"), former counsel for the debtor, Joseph Grasso (the "Debtor"), and ordered the Firm to disgorge all fees paid to it by the Debtor in connection with this bankruptcy case (the "Compensation Denial Order"). 2
On July 10, 2014, the United States District Court for the Eastern District of Pennsylvania (the "District Court") vacated the Compensation Denial Order, and remanded to this Court for consideration of the benefit the Firm's legal services provided to the Debtor's estate ("District Court's Remand Order"). 3 As directed by the District Court, this Court identified the areas of concern relating to the Firm's representation and held several hearings to consider whether the Firm's legal services provided a benefit to the estate.
After consideration of the pleadings, evidence, testimony, and argument, the Court will sustain the objections and deny the Firm's Final Application. The Firm failed to establish that services identified by the Court, including but not limited to, those relating to (1) preparation of the Debtor's schedules and statements, monthly operating reports ("MORs"), and the financial reports required by Fed. R. Bankr. P. 2015.3 (" Rule 2015.3 Reports); (2) the sale and transfer of the Wilmington Savings Fund Society claim (the "WSFS Claim"); 4 and (3) the Debtor's distributions from his ownership interests in various entities provided any benefit whatsoever to the Debtor's estate. In addition, to the extent that any services delivered by the Firm provided a benefit to the Debtor's estate, any such benefit is far outweighed by the substantial harm caused to the estate by the poor and inadequate legal services rendered by the Firm and Paul J. Winterhalter, Esquire ("Winterhalter"), the attorney at the Firm primarily responsible for representing the Debtor in this bankruptcy case. Accordingly, the Court will deny all compensation to the Firm, and order disgorgement of all monies received by the Firm for representation of the Debtor in this bankruptcy case, including the unauthorized payment received during the Debtor's Chapter 11 case.
Further, the Court finds that Winterhalter failed to provide any competent evidence to allay the Court's concerns regarding his actions in this case. Winterhalter's poor representation of the Debtor combined with his breach of his duty of candor to the Court, in spite of the admonition rendered to him by the Court at the inception of this case, requires a judicial response that goes further than the mere denial of fees. Although it would much prefer not to undertake this action, the Court is required to forward for review this Opinion to the District Court and the appropriate disciplinary boards for the jurisdictions in which Winterhalter is authorized to practice.
*114 II. FACTUAL/PROCEDURAL HISTORY
A. The Filing of the Petition, the Reassignment of the Bankruptcy Case, and Employment of the Firm
On February 6, 2012, Winterhalter filed the Debtor's Chapter 11 Voluntary Petition (the "Petition"). 5 The Debtor's case was assigned to now retired Judge Bruce I. Fox. 6 In the Petition, the Debtor listed as "pending cases filed by any spouse, partner or an affiliate of this Debtor," Saxbys Coffee Worldwide, LLC, Bky. No. 09-15898 (" Saxbys "), a case that was assigned to my colleague Judge Eric L. Frank. 7 As a result and in accordance with Court procedure, the Debtor's personal bankruptcy case was reassigned to Judge Frank. 8
The next day, on February 7, 2012, the Debtor submitted an Application to Employ the Law Offices of Paul J. Winterhalter, P.C. (the "Application to Employ"). 9 Winterhalter filed an Affidavit in Support of the Application to Employ disclosing his representation as bankruptcy counsel in Union Trust Philadelphia, LLC , Bky. No. 11-12565 (" Union Trust ") and WSC 717 Associates, L.P. , Bky. No. 11-12567 (" WSC 717 ") (the "Related Cases"), both then active cases on this judge's docket and companies in which the Debtor held an ownership interest and served as bankruptcy representative. 10
On February 14, 2012, Judge Frank issued an Order scheduling a hearing (the "Petition Hearing") to consider (1) whether the Debtor's case should be transferred to the undersigned judge's docket based upon the pending Related Cases; and (2) whether the Application to Employ should be granted in light of the Firm and Winterhalter's representation of the debtors in the Related Cases and the issues raised by same including whether there was "an actual conflict of interest, a potential conflict of interest or neither." 11 Judge Frank also directed, in relevant part, that at the hearing Debtor's counsel be prepared to (1) explain why the Debtor's petition and amended petition listed Saxbys as the only pending case of an affiliate of the Debtor; and (2) address whether the estimated number of creditors, estimated assets and estimated liabilities on the Debtor's disclosure statements were grossly inaccurate given the disclosure statements filed in the Union Trust case, and if so, to explain why this occurred. 12
On March 5, 2012, the Debtor filed a Second Amended Voluntary Petition ("Second Amended Petition") disclosing the Related Cases. 13 Thereafter, on March 7, 2012, Judge Frank held the Petition Hearing. The Office of the United States Trustee ("UST") appeared at the Petition Hearing and voiced an objection to the Application to Employ contending, among other things, that the Firm's representation in the Related Cases created an actual conflict of interest.
*115 Following the Petition Hearing, Judge Frank issued an Order (i) overruling the objection of the UST, (ii) approving the Application to Employ, and (iii) transferring the Debtor's bankruptcy case to the undersigned judge's docket for further administration (the "Transfer Order"). 14 In the Transfer Order, Judge Frank noted that Winterhalter's decision to omit any reference to the Related Cases was "entirely inappropriate" and Winterhalter's actions "evidenced a fundamental misconception regarding the scope of his disclosure obligation." 15 The Court further stated that "Winterhalter would be well advised not to tread further down this path and instead, in the future, err, if he must, on the side of making disclosure." 16
On March 5, 2012, Winterhalter filed a Disclosure of Compensation of Attorney for the Debtor (the "2016(b) Statement"). 17 In the 2016(b) Statement, Winterhalter disclosed that the Firm had been paid $26,046.00 during the year prior to the Petition Date as a retainer (the "Initial Retainer") for services rendered on behalf of the Debtor in contemplation of or in connection with the administration of the Debtor's bankruptcy estate. 18 The Initial Retainer was paid by Avalon Breezes Development, LLC ("Avalon Breezes"), a business entity owned and controlled by the Debtor. 19 Winterhalter further disclosed that payment of monies beyond the Initial Retainer "shall only be made from the Debtor or on behalf of the Debtor from family or related business interests only after Court approval of an interim and or final fee application filed with and approved by the Bankruptcy Court." 20
On July 17, 2012, the Firm filed the First Interim Application for Compensation (the "First Interim Application," collectively with the Final Application, the "Applications"), seeking approval of interim compensation in the amount of $47,912.50 for 137.1 hours of legal services rendered and $1,388.66 for the reimbursement of expenses for the period February 6, 2012 to June 30, 2012. 21
On August 10, 2012, Winterhalter filed a Supplemental Statement on the Disclosure of Compensation of Attorney for Debtors Pursuant to Federal Rule of Bankruptcy Procedure 2016(b) (the "Supplemental Statement"). 22 In the Supplemental Statement, Winterhalter revealed that on July 16, 2012, one day prior to filing the First Interim Application, "counsel for the Debtor had received an additional payment from Curtis Investors, L.P. on behalf of the Debtor on account of services rendered and fees incurred during the legal representation in the amount of $30,000.00" (the "Unauthorized Post-Petition Payment"). 23 At the time of the payment, no Court order approving the First Interim Application had been entered. An order approving the First Interim Application was entered as unopposed on August 17, 2012. 24
*116 B. The Motion to Convert Case, Appointment of Chapter 11 Trustee and Conversion to Chapter 7
On July 23, 2012, Madison Capital Company, LLC ("Madison"), a substantial unsecured creditor in the case, filed a Motion to Convert the Debtor's case from Chapter 11 to Chapter 7 (the "Conversion Motion"). 25 On July 24, 2012, Madison filed the Ex Parte Motion to (A) Seal Certain Documents, (B) Limit Access to those Documents to Court Employees and (C) Waive any Requirements Under Federal Rules of Bankruptcy Procedure requesting, among other things, that the Court seal the exhibits to the Conversion Motion because they included personal financial information of the Debtor (the "Motion to Restrict"). 26 On July 25, 2012, the Court entered an Order granting the Motion to Restrict and directed Madison to file a redacted version of the Conversion Motion on or before August 8, 2012. 27 On August 2, 2012, Madison filed the redacted Conversion Motion. 28
In the Conversion Motion, Madison sought conversion of the Debtor's case to Chapter 7 for several reasons including the Debtor's alleged (1) failure to file any of the required monthly operating reports including the Rule 2015.3 Reports; (2) dissipation of at least $105,000.00 of property of the estate to fund a "lavish lifestyle;" (3) failure and refusal to produce documents regarding the value of the financial condition of any of his businesses; and (4) breach of his fiduciary duty to his creditors by allowing Sansom Street Partnership to use the Debtor's distribution from the sale of the partnership's real estate to purchase the WSFS Claim. 29 The Debtor opposed the Conversion Motion, arguing that he had diligently provided documentation and information regarding his numerous business interests, filed monthly operating reports, pursued claim objections, and would be able to propose a viable reorganization plan ("Opposition to Conversion Motion"). 30
The Court held a series of hearings on August 28, September 5, and September 7, 2012, on the Conversion Motion. During the hearings, Debtor testified that his (1) monthly income was $16,000.00 derived solely from "Distributions from various business interests," and (2) monthly expenses were $15,625.00 as detailed in his filed Schedule J. 31 On September 7, 2012, the Court entered an Order (1) denying the Conversion Motion without prejudice and, in relevant part, (2) permitting the Debtor to use $17,000.00 in monthly income for the expenditures set forth on Schedule J only and for no other purpose without prior Court approval (the "Conversion Denial Order"). 32 The Court further ordered that Debtor's MORs include additional details regarding all income received during the applicable month including: (i) the type of income (e.g. loan repayment or distribution); (ii) the name of the source of the income; (iii) the amount received; and (iv) the date received. 33 Debtor was also ordered to amend all previously filed MORs to include such details on or before *117 October 1, 2012. 34 The Debtor timely filed the amended operating reports for February 2012 through July 2012 ("Amended MORs"). 35
On September 14, 2012, following the court's denial of the Conversion Motion, Madison filed a motion for the appointment of a Chapter 11 Trustee (the "Chapter 11 Trustee Motion"). 36 The Debtor filed an opposition to the Chapter 11 Trustee Motion ("Opposition to Chapter 11 Trustee Motion"). 37 Following a hearing on the Chapter 11 Trustee Motion on October 15, 2012, this Court issued an Order dated October 16, 2012, appointing a Chapter 11 Trustee ("Chapter 11 Trustee Order"). 38 On December 18, 2012, Christine C. Shubert, Esquire ("Shubert") was appointed Chapter 11 Trustee (the "Chapter 11 Trustee").
The Chapter 11 Trustee commenced an investigation of the Debtor's affairs and filed a Status Report dated February 26, 2013, disclosing, among other things, that the Debtor had omitted from his bankruptcy schedules his ownership interests in at least twenty-six corporate entities, certain real property and a variety of motor vehicles. 39 The Status Report further disclosed that the Debtor had diverted (1) estate assets to fund the post-petition acquisition of at least three motor vehicles, and (2) approximately $497,329.40 in distributions from non-debtor entities that apparently should have accrued to the Debtor's bankruptcy estate. 40
On May 28, 2013, the Court held an evidentiary hearing to address Madison's renewed request to convert the Debtor's case to Chapter 7 ("Renewed Conversion Motion"). The Court concluded that circumstances warranted conversion of the Debtor's bankruptcy case and issued an Order on June 12, 2013, converting the Debtor's case from Chapter 11 to Chapter 7 ("Chapter 7 Conversion Order"). 41 Shubert was appointed to serve as the Chapter 7 Trustee ("Shubert" or "Chapter 7 Trustee"). 42
C. The Firm's Final Fee Application
After the appointment of the Chapter 11 Trustee and prior to conversion of the case to Chapter 7, the Firm filed the Final Application 43 on December 28, 2012, requesting (i) interim compensation in the amount of $69,468.75 for actual and necessary expenses of 185.25 hours of legal services rendered; and $566.56 for the reimbursement of expenses expended on behalf of the administration of the Debtor's Chapter 11 estate for the period of July 1, 2012 through October 31, 2012; and (ii) a final order approving all compensation paid to date. 44
*118 Madison filed an Objection to the Final Application dated February 5, 2013 (the "Madison Objection"). 45 Madison requested that, pursuant to § 328(c) and § 330(a)(5) of the Bankruptcy Code, this Court deny the payment of any compensation to the Firm and order the disgorgement of any compensation previously paid to the Firm because Winterhalter (1) held an interest adverse to the Chapter 11 estate of the Debtor; (2) failed to be forthcoming with the Court when he denied his involvement in the purchase of the WSFS Claim; (3) billed the Debtor's Chapter 11 estate for work performed on behalf of 15th and Sansom, L.P. ("Sansom Street Partnership"); and (4) Winterhalter's services injured the Debtor's Chapter 11 estate by facilitating the Debtor's diversion of estate assets. 46
The Madison Objection was later joined by the Chapter 7 Trustee (together, the "Objecting Parties") who filed an Objection to the Final Application dated May 24, 2013 (the "Chapter 7 Trustee Objection," and together with the Madison Objection, the "Objections"). 47 The Chapter 7 Trustee requested that this Court deny the Final Application and grant any such other relief that might be appropriate, including the disgorgement of any compensation previously paid to the Firm pursuant to the First Interim Application. In support of this request, the Chapter 7 Trustee relied upon (1) the grounds asserted in the Madison Objection; and (2) the Trustee's belief that the Debtor's Chapter 11 estate did not receive any actual benefit from the services provided by the Firm. 48 After a hearing on the Applications and Objections, this Court entered the Compensation Denial Order denying the Applications and ordering the disgorgement of all fees paid to date. 49 Thereafter, the Firm appealed the Compensation Denial Order to the District Court. 50
D. Appeal of this Court's Prior Memorandum
On July 10, 2014, the District Court issued its Memorandum overruling the Compensation Denial Order. In its decision, the District Court determined that, notwithstanding the scope or gravity of Winterhalter's alleged misconduct, the Firm should be provided an opportunity to demonstrate whether its services nonetheless resulted in a net benefit to the estate. 51 For this reason, the District Court *119 vacated this Court's Compensation Denial Order and remanded the Applications for consideration by this Court consistent with the District Court's instructions in an Order dated July 10, 2014. 52
E. The Hearings after Remand
Following remand, and in accordance with the District Court's instructions, this Court entered an Order dated August 12, 2014 (the "Appraisal Order"), identifying and providing the Firm with the opportunity to address the various issues and concerns relating to the Court's consideration of the Applications. 53 The Appraisal Order enumerated thirty-five separate issues that this Court had identified in the course of its consideration of the Applications. Among the myriad of issues identified by this Court, this Court identified the following concerns as being integral to its present decision: (1) whether the Firm provided competent legal advice relating to the Debtor's representation in his schedules that he owned certain partnership interests with his wife, Donna Grasso, as tenants by the entirety; (2) whether the Firm provided competent legal advice relating to the Debtor's interest in Curtis Investors, L.P. and specifically relating to the undisclosed receipt of cash distributions from that entity; (3) whether the failure of the Debtor to perform his basic obligations as a debtor-in-possession indicated that the Firm failed to provide competent representation; and (4) whether the Firm provided competent representation of the Debtor when Winterhalter facilitated the undisclosed negotiation and discounted sale of the WSFS Claim to an insider. 54
After several continued hearings and an unsuccessful attempt at mediation, the first evidentiary hearing on the Applications and the Court's Appraisal Order was held on December 8, 2014 (the "December 8th Hearing"). On that date, Madison did not appear to prosecute its objections to the Applications. However, the Chapter 7 appeared and elected to proceed with her objections to the Applications solely on the issue of whether the Firm's services provided a "benefit" to the estate (the "Limited Objections"). Thereafter, the Firm began its presentation of evidence in support of the Applications. First, the parties stipulated to the admission of the prior testimony of Bonnie Golub, Esquire, counsel for Wilmington Savings Fund Society ("WSFS"). Ms. Golub had previously testified regarding her role in the sale of the WSFS Claim against the Debtor to Sansom Street Partnership. Thereafter, the Firm called Winterhalter personally to testify in support of its Applications. Winterhalter testified regarding (1) the involvement of Bruce Kaplan, the Debtor's accountant ("Kaplan") in the preparation of the Debtor's schedules; (2) Winterhalter's awareness of the 15th and Sansom Street Property; (3) what interests, if any, the Debtor held as property in the entireties with his wife; (4) the purchase of the WSFS Claim (the "WSFS Claim Purchase"); and (5) his billing and engagement in this case more generally. The December 8th Hearing concluded at the end of Winterhalter's direct testimony.
Thereafter, a series of continued hearings were held on March 30, 2015, May 26, 2015, and May 27, 2015 (collectively, and together with the December 8th Hearing, *120 the "Hearings"). At the March 30, 2015 hearing, the Trustee cross-examined Winterhalter and the parties concluded their examination of Winterhalter. Thereafter, the Firm called David Grasso, the Debtor's brother and the managing member of Sansom Street Partnership, in support of the Applications. David Grasso testified regarding Sansom Street Partnership's purchase of the WSFS Claim. At the close of David Grasso's testimony, this Court scheduled its consideration of the Applications to resume on May 26, 2015 (the "May 26th Hearing").
At the beginning of the May 26th Hearing, the Firm continued with the presentation of evidence in support of its Applications. To that end, the Firm called the Debtor to testify regarding who prepared his schedules and his awareness of the sale of the WSFS Claim. The Firm recalled Winterhalter for a brief examination regarding his obligations to file reports on behalf of the Debtor under Rule 2015.3. After its exhibits were entered into evidence, the Firm rested.
The Chapter 7 Trustee then began her opposition to the Applications. The Chapter 7 Trustee called Kaplan as her first witness. Kaplan testified regarding what responsibility he had for the Debtor's schedules, whether he knew that the Debtor needed to open a Debtor-in-Possession account, and his knowledge regarding the WSFS Claim Purchase. The May 26th Hearing ended with Kaplan's testimony.
The next day, May 27, 2015 (the "May 27th Hearing"), the hearing on the Applications resumed with the Chapter 7 Trustee's next witness, Charles Persing. Mr. Persing had been hired as an accountant by the Chapter 11 Trustee to aid in her administration of the Debtor's bankruptcy estate. Mr. Persing testified regarding facts he learned during the course of his retention and the basis for several revisions that were made to the Debtor's previously filed MORs. Mr. Persing testified that the changes were due to the discovery that those reports omitted reference to "numerous payments that were made from various entities for Joe Grasso's-Mr. Grasso's direct benefit..." 55 Mr. Persing broadly described his efforts to correct the information contained in the Debtor's MORs filed on behalf of the Debtor while he remained in possession. As described by Mr. Persing, the various inaccuracies contained in the Debtor's MORs caused the Debtor's income to be under-reported by approximately $261,000.00 and his expenses to be under-reported by approximately $562,000.00. 56
Finally, the Firm recalled Winterhalter to enable him to provide additional testimony regarding issues relating to the Applications that were identified during the course of the other witnesses' testimony. During his brief testimony, Winterhalter disclaimed possessing any prior knowledge of his client's post-petition purchase of a Hummer vehicle. Addressing the Debtor's diversion of distributions from Curtis Investors, L.P. to pay for the copper roof on his personal residence, Winterhalter testified that he advised Kaplan as follows:
I told him it was completely inappropriate to allow for transfers being made from a non-debtor entity for the benefit of Joseph Grasso while he was a debtor-in-possession. I told him specifically that the proper way to account for that transaction was for any distribution that's used for Joe's personal benefit, to *121 be deposited into the DIP account and then paid out of the DIP account. 57
At the close of Winterhalter's testimony, the parties rested.
A final hearing on the matters was scheduled for December 22, 2015 (the "Final Hearing"), to address the Malpractice Action 58 and the Applications. Shortly before the Final Hearing, the parties reported that the Malpractice Action had been settled. As evidenced by the Motion of Chapter 7 Trustee Pursuant to Rule 9019 for Approval of Consent Judgment dated December 16, 2015 (the "Settlement Motion"), the parties agreed to a mutual release of all claims asserted in the Malpractice Action in consideration of a payment of $100,000.00 from the Firm and Winterhalter to the Chapter 7 Trustee. 59 The parties' settlement specifically reserved for this Court's determination any issues relating to the Applications. 60
On January 8, 2016 (the "January 8th Hearing"), this Court held a hearing on the Settlement Motion. After the Chapter 7 Trustee rested, counsel for the Firm indicated that his clients intended, consistent with their conduct to this point, to vigorously contest any further adjudication of the Malpractice Action. For that reason and because of the substantial fees that all parties would be likely to incur absent approval of the proposed settlement, the Firm argued approval of the Settlement Motion was warranted. At the close of the January 8th Hearing on the Settlement Motion, this Court reiterated its position that the proposed settlement of the Malpractice Action would not affect its consideration of the Applications. With that caveat stated, this Court took the Settlement Motion under advisement pending its receipt of the parties' post-trial briefing and its ultimate resolution of the Applications. Thereafter, the parties submitted post-trial briefings on the Applications only.
III. FINDINGS OF FACT 61
Filing of the Debtor's Bankruptcy Petition and Schedules
1. Winterhalter was the primary attorney for the Firm representing the Debtor in this bankruptcy case. 62
2. Winterhalter is an experienced bankruptcy lawyer and has been practicing in this area since 1984. 63
3. The Debtor is a sophisticated real-estate developer with interest in partnerships *122 owning multi-million dollar real estate properties. 64
4. Winterhalter prepared, reviewed, and filed the Debtor's Petition. 65
5. At the time he prepared, reviewed, and filed the Debtor's Petition, Winterhalter was serving as bankruptcy counsel for Saxbys, Union Trust, and WSC 717 (collectively, the "Related Entities"), entities that the Debtor either owned and controlled or previously held an interest, in three (3) separate bankruptcy cases, all of which were then open cases in this bankruptcy court. 66
6. Winterhalter did not advise the Debtor to list or disclose the Union Trust and WSC 717 bankruptcy cases on the Debtor's Petition. 67
7. On March 5, 2012, Winterhalter filed the Debtor's Schedule A dated March 5, 2012 (the "Schedule A"), and the Debtor's Schedule B dated March 5, 2015, listing, among other things, numerous partnerships in which the Debtor held an ownership interest (the "Schedule B"). 68
8. In lieu of performing an independent investigation in connection with the preparation of the Debtor's schedules, Winterhalter relied upon his general familiarity with the Debtor's financial condition resulting from Winterhalter's prior handling of the bankruptcy cases of the Related Entities. 69
9. In connection with his preparation of the Debtor's schedules, Winterhalter reviewed the Debtor's personal tax returns. 70
10. The Debtor's personal tax returns for the years 2009 and 2010 identified that Debtor held interests in real property that were not identified on the Debtor's Schedule A. 71
11. The Debtor's personal tax returns for the years 2009 and 2010 identified that Debtor held interests in partnerships that were not identified on the Debtor's Schedule B. 72
12. In the Debtor's Schedule B, the Debtor disclosed his interest in WSC 717 and that he held this interest as tenants by the entirety with his wife, Donna Grasso. 73
13. In the WSC 717 Bankruptcy, Winterhalter filed with this Court a List of Equity Security Holders dated April 14, 2011 (the "WSC List of Equity Holders"). 74
14. In the WSC List of Equity Holders, the Debtor was identified as the holder of a "25% Limited Partner" interest. 75
15. The WSC List of Equity Holders made no reference to Donna Grasso's alleged interest or whether the Debtor's 25% interest was held with his wife as tenants by the entirety. 76
*123 16. Winterhalter knew his client's description of his ownership interests in WSC 717 was inaccurate.
17. In the Debtor's Schedule B, the Debtor disclosed his interest in Sansom Street Partnership and stated that he held this interest as tenants by the entirety with his wife, Donna Grasso and valued at $1 million. 77
18. Aside from what was disclosed in the Debtor's Schedule B, Winterhalter had no independent knowledge of the Debtor's interest in Sansom Street Partnership. 78
19. Winterhalter admits that as of the time he filed the Petition and the Schedule B on behalf of the Debtor he had little to no knowledge about the assets held by Sansom Street Partnership, but he was aware that Sansom Street Partnership was the owner of an office building. 79
20. At the time Winterhalter filed the Debtor's schedules, Winterhalter did no investigation of the value of the Debtor's interest in Sansom Street Partnership or its office building. 80
21. In the Debtor's Schedule B, the Debtor disclosed his interest in Curtis Investors, L.P. and stated that he held this interest as tenants by the entirety with his wife, Donna Grasso and that it was valued at $5,000,000.00. 81
22. In the Debtor's Schedule I, the Debtor disclosed his primary source of income as "Disbursements from various business interests." 82
The Debtor's Entireties Interests
23. In the Debtor's Schedule B, the Debtor listed that he and his wife, Donna Grasso, owned certain partnership interests as tenants by the entirety. 83
24. The Debtor repeatedly testified to the Court that he transferred his interest in certain partnership entities, inclusive of Curtis Investors, L.P. and Sansom Street Partnership, to himself and his wife as tenants by the entirety pursuant to a transaction that occurred in 2008 whereby he and his wife contributed to these partnerships $2,000,000.00 in operating capital drawn from the equity in their marital home. 84
25. As consideration for her portion of this contribution, the Debtor claimed that his partnership interests were retitled as entireties property. 85
26. Despite claiming to be in possession of the agreements memorializing these transfers, the Debtor only produced to this Court two agreements: (1) an Assignment and Assumption of Partnership Interests dated August 15, 2008, whereby the Debtor transferred to himself and his wife as tenants by the entireties the Debtor's interest in Sansom Street Partnership; 86 and (2) an Assignment and Assumption of Partnership Interests dated August 15, 2008, whereby the Debtor transferred to himself and his wife as tenants *124 by the entireties the Debtor's interest in Curtis Investors, L.P. 87
27. Winterhalter performed no investigation to substantiate his client's statement that he owned his interests in Sansom Street Partnership, WSC 717 Associates, L.P., Curtis Investors, L.P., and PLB Partners, L.P. as tenants by the entirety with his wife, Donna Grasso. 88
28. Winterhalter admits that, at the time he prepared and filed the Debtor's Schedule B, he "had some concerns" regarding the accuracy of the Debtor's assertion that he owned certain partnership interests with his wife as tenants by the entireties. 89
29. Winterhalter admits that, at the time he prepared and filed the Debtor's schedules, he knew that the Debtor's characterization of his partnership interests as entireties properties conflicted with statements appearing in relevant tax returns. 90
30. Winterhalter admits that, at the time he prepared and filed the Debtor's schedules, he did not believe that the Debtor's characterization of his partnership interests as entireties properties had legal merit. 91
31. Due to the issues Winterhalter identified with regard to the Debtor's characterization of his partnership interests as entireties properties, this Court does not find credible Winterhalter's later testimony in which he stated he had no reason to doubt the information provided by his client. 92
Representation of the Debtor at his Initial Meeting of Creditors
32. The Debtor's initial meeting of creditors was held on March 13, 2012. 93
33. During the meeting of creditors, Winterhalter appeared in his capacity as counsel for the debtor-in-possession. 94
34. During the meeting of creditors, the Assistant United States Trustee and Bonnie Golub, counsel for WSFS, questioned the Debtor about the basis for his wife's alleged interests in certain entities identified by the Debtor's Schedule B. 95
35. Ms. Golub questioned why the Debtor, at the time the Debtor and WSFS executed a Revolving Credit Agreement dated August 2, 2006, did not disclose in certain loan documents his wife's interest. 96
36. In response to this questioning, the Debtor admitted that he made a false statement in the Assignment of Distributions, Income and Proceeds of Partnership Interests and Security Agreement dated March 31, 2011 (the "Assignment Agreement"), the agreement that conferred upon WSFS a security interest in the Debtor's right to distributions from Curtis Investors, L.P. and PLB Partners, L.P. 97
*125 37. In response to this questioning, Winterhalter admitted that he was not aware of WSFS's security interest in the Debtor's right to distributions from Curtis Investors, L.P. and PLB Partners, L.P. 98
38. At the meeting of creditors, the Debtor was asked whether he was in possession of the organizational documents for the partnerships in which the Debtor held an interest. 99
39. After the completion of the Debtor's meeting of creditors, Winterhalter held a telephone conference with his client to discuss "inquiries made during Creditors Meeting on ownership of property." 100
40. As of March 13, 2012, and as a result of his client's admission that the Debtor provided a false description of his interest in the collateral securing the WSFS Claim, Winterhalter had reason to investigate the validity of WSFS's security interest.
41. Winterhalter did not request from the Debtor or Kaplan copies of the Curtis Investors, L.P. organizational documents until October 11, 2012. 101 Prior to that date, Winterhalter performed no investigation to substantiate whether the Debtor had the authority to confer a security interest in the Debtor's right to distributions from Curtis Investors, L.P. and PLB Partners, L.P.
Monthly Operating Reports
42. Kaplan, the Debtor's accountant, prepared the Debtor's MORs and forwarded them to Winterhalter for review and filing with the Bankruptcy Court.
43. On August 6, 2012, Winterhalter reviewed the monthly operating reports for March, April and May. 102
44. On August 7, 2012, Winterhalter filed the March 2012 MOR ("Original March 2012 MOR"). The Original March 2012 MOR listed the Debtor's income for that month as $25,000.00 from loan repayments and $4,000.00 from partnership distributions along with expenses of $7,386.76 for the Debtor and $17,051.93 for Debtor's wife. The Original March 2012 MOR was reported incorrectly on the "Initial Monthly Operating Report" form. 103
45. On August 7, 2012, Winterhalter filed the April 2012 MOR (the "Original April 2012 MOR"). The Original April 2012 MOR listed the Debtor's income for that month as $10,000.00 from loan repayments along with expenses of $8,581.73 for the Debtor and $13,684.24 for Debtor's wife. The Original April 2012 MOR was reported incorrectly on the "Initial Monthly Operating Report" form. 104
46. On August 7, 2012, Winterhalter filed the May 2012 MOR (the "Original May 2012 MOR"). The Original May 2012 MOR listed the Debtor's income for that month as $17,000.00 from loan repayments *126 and $8,141.00 from partnership distributions along with expenses of $10,301.71 for the Debtor and $13,317.61 for Debtor's wife. The Original May 2012 MOR was reported incorrectly on the "Initial Monthly Operating Report" form. 105
47. On August 27, 2012, Winterhalter reviewed and filed the June 2012 MOR (the "Original June 2012 MOR"). The Original June 2012 MOR listed the Debtor's income as $20,000.00 from loan repayments and $5,000.00 from partnership distributions along with expenses of $8,238.77 for the Debtor and $12,324.75 for Debtor's wife. 106
48. The Original June 2012 MOR included the June bank statement for the Debtor's debtor-in-possession account at TD Bank, N.A. (the "DIP Account") reflecting a deposit of $350.00 with a prior balance of $75.00 as of May 30, 2012. Also attached was the June bank statement for the Debtor's pre-petition bank account at PNC Bank, N.A. (the "PNC Account"). The Debtor deposited $25,000.03 into the PNC Account during June 2012. 107
49. On August 27, 2012, Winterhalter reviewed and filed the July 2012 MOR (the "Original July 2012 MOR"). The Original July 2012 MOR listed the Debtor's income as $10,000.00 from loan repayments and $4,000.00 from partnership distributions along with expenses of $7,754.76 for the Debtor and $10,080.36 for Debtor's wife. 108
50. The Original July 2012 MOR included the July bank statement for the DIP Account reflecting no activity including $0.00 deposits into the account. Also attached was the July 2012 statement for the PNC Account reflecting deposits of $14,189.28, a beginning balance of $6,303.40 and deductions of $17,835.11. 109
51. On August 30, 2012, Winterhalter reviewed and filed the February 2012 MOR covering the period February 6-28, 2012 (the "Original February 2012 MOR," and together with the Original March 2012 MOR, the Original April 2012 MOR, the Original May 2012 MOR, the Original June 2012 MOR, the Original July 2012 MOR, and the August 2012 MOR, the "Original MORs"). The Original February 2012 MOR listed the Debtor's income as of the Petition Date of $14,000.00 from loan repayments and $4,000.00 from partnership distributions along with expenses of $10,160.42 for the Debtor and $13,614.81 for Debtor's wife. The Original February 2012 MOR was not reported on the "Initial Monthly Operating Report" form. 110
52. On October 1, 2012, Winterhalter reviewed and filed the Debtor's Amended MORs for the months of February 2012 to July 2012, as ordered by the Court in the Conversion Denial Order. The Amended MORs listed several of the Debtor's partnerships as the source of the loan repayments, and Grasso Family Partnership as the source of the partnership distributions. 111
*127 53. On October 4, 2012, Winterhalter reviewed and filed the August 2012 MOR (the "August 2012 MOR"). The August 2012 MOR, listed the Debtor's income as $28,000.00 from partnership distributions, including $24,000.00 from Curtis Investors, L.P. and $4,000.00 from Grasso Family Partnership along with expenses of $9,220.41 for the Debtor and $12,889.72 for Debtor's wife. The August 2012 MOR did not list any income from loan re-payments. 112
54. The August 2012 MOR included the August bank statement for the Debtor's DIP Account reflecting no activity including $0.00 deposits into the account. The August bank statement for the Debtor's PNC Account reflected deposits of $29,032.44, including the $28,000.00 in income received by the Debtor during August 2012. 113
Rule 2015.3 Reports
55. On July 26, 2012, three days after Madison filed the Motion to Convert, Winterhalter provided legal advice and instructions to Kaplan regarding the preparation and filing of the financial reports of financial information required by Rule 2015.3 for the first time. 114
56. The Debtor filed the initial Rule 2015.3 Reports on September 21 and 28, 2012, as ordered by the Court in the Conversion Denial Order. 115
57. The Rule 2015.3 Reports did not include information covering any time period after December 31, 2011.
58. The Debtor did not file any additional Rule 2015.3 Reports.
Sale of the Sansom Street Property
59. Sansom Street Partnership is organized pursuant to an Agreement of Limited Partnership of 15th and Sansom, L.P. dated November 27, 2000 (the "Partnership Agreement"). 116
60. Section 4.A of the Partnership Agreement provides:
The sole purpose of the Partnership is to acquire, develop, lease and manage that certain office building, located at 124-134 S. 15th Street, in the City and County of Philadelphia, PA ("Partnership Property")....
Agreement of Limited Partnership of 15th and Sansom, L.P. dated November 27, 2000 (emphasis added). 117
61. Section 7.6 of the Partnership Agreement provides:
Upon sale or refinancing of the Partnership Property, the cash available for distribution (after payment of expenses and any previously outstanding indebtedness of the Partnership) shall be distributed to all Partners, pro rata amongst them, in accordance with their Percentage Interests.
Agreement of Limited Partnership of 15th and Sansom, L.P. dated November 27, 2000 (emphasis added). 118
62. The Debtor held a one-third interest *128 in Sansom Street Partnership. 119
63. As of the Petition Date, Sansom Street Partnership was the owner of certain real property located at 1500-1504 Sansom Street, 124-134 S. 15th Street, and 1502-05 Moravian Street, Philadelphia, Pennsylvania (the "Sansom Street Property"). 120
64. On May 16, 2012, Sansom Street Partnership sold its only asset, the Sansom Street Property to Goodsam 1500, L.P. and Sansom and Sons, LLC. (the "Sansom Street Sale"). 121
65. The Sansom Street Sale was negotiated over a period of months. 122
66. Prior to the Sansom Street Sale, David Grasso, the Debtor's brother, informed the Debtor of the amount of the sale price of the Sansom Street Property and that the net proceeds of the sale would be available for distribution. 123
67. Prior to the Sansom Street Sale, and during the course of the Debtor's administration of his bankruptcy estate, the Debtor had conversations with Winterhalter regarding the potential sale of the Sansom Street Property. 124
68. After the Sansom Street Sale, the Debtor negotiated with WSFS for a compromise of the WSFS Claim. 125
69. On the date of the Samson Street Sale, Sansom Street Partnership received net proceeds of $2,410,593.64 (the "Sale Proceeds"). 126
70. At the time of the closing on the Sansom Street Sale, David Grasso was aware of the pendency of his brother's bankruptcy. 127
71. After the payment of $114,963.67 to the Debtor and $347,388.67 to David Grasso for the repayment of partner loans and other expenses, $1,861,895.29 in distributions was available to the Debtor ($620,631.76) ("Debtor's Share of the Sale Proceeds") and David Grasso ($1,241,263.53) ("David Grasso's Share of the Sale Proceeds"). 128
72. The Debtor's Share of the Sale Proceeds was distributed to him (i) on May 24, 2012, in the amount of $500,000.00 via wire transfer to WSFS; 129 (ii) on June 11, 2012, by checks in the amounts of $32,758.35 and $30,000.00 respectively, and (iii) on July 9, 2012, by a check in the amount of $94,000.00. 130
73. As of June 9, 2012, $78,837.08 of the Debtor's Share of the Sale Proceeds remained in the possession of Sansom Street Partnership. No Sansom Street Partnership document has been produced *129 evidencing a distribution of the remaining monies to the Debtor or his estate. 131
74. On July 23, 2012, Sansom Street Partnership distributed $1,611,029.48 of the Sale Proceeds to David Grasso. 132
75. None of the Debtor's Share of the Sale Proceeds distributed to Debtor was deposited into the DIP Account. 133
76. None of the Debtor's Share of the Sale Proceeds distributed to the Debtor was deposited into the PNC Account. 134
77. None of the Debtor's Share of the Sale Proceeds distributed to the Debtor was disclosed in the Original June 2012 MOR or Amended June 2012 MOR. 135
The Diversion of Sale Proceeds
78. During his assistance with the administration of the Debtor's bankruptcy estate, Winterhalter was aware that the Debtor's interest in Sansom Street Partnership was one of his estate's most significant asset. 136
79. Despite Winterhalter's awareness of the significance of Sansom Street Partnership to the administration of the Debtor's bankruptcy estate, Winterhalter did not undertake any review of the Partnership Agreement to determine the scope of his client's rights and interests in Sansom Street Partnership. 137
80. Despite his knowledge of the Sansom Street Sale and his client's interest in the Sale Proceeds, Winterhalter performed no investigation of whether his client was entitled to or received a distribution of the Sale Proceeds. 138
81. As the basis for his legal advice to the Debtor relating to the administration of the Debtor's interest in Sansom Street Partnership, Winterhalter concluded that his client lacked any control over Sansom Street Partnership. 139
82. Winterhalter performed no investigation of fact or law to substantiate his legal conclusion that his client lacked any control over Sansom Street Partnership. 140
83. Winterhalter did not review the Partnership Agreement or otherwise attempt to obtain a copy of the Partnership Agreement in order to substantiate his client's interests or to confirm his legal conclusion that his client lacked any control over Sansom Street Partnership. 141
84. Winterhalter performed no investigation of fact or law to substantiate his *130 legal conclusion regarding Sansom Street Partnership's authority to purchase the WSFS Claim and that Debtor's consent was not required. 142
85. The Debtor's bankruptcy estate did not receive a distribution of any of the Sale Proceeds. 143
86. The Debtor directed Sansom Street Partnership to transfer $500,000.00 of the Debtor's Share of the Sale Proceeds to WSFS for the purchase of the WSFS Claim. 144
87. The Debtor, together with Winterhalter and David Grasso, orchestrated a scheme where Sansom Street Partnership was deemed the purchaser of the WSFS Claim. 145
88. At the Debtor' direction, at least $156,758.35 of the Debtor's Share of the Sale Proceeds were distributed either directly to him or non-debtor entities that he controls that in turn made transfers for the benefit of the Debtor. 146
89. Winterhalter's testimony that he was not aware whether the Debtor received distributions from Sansom Street Partnership because he never communicated with the Debtor regarding the subject is not credible. 147
Purchase of the WSFS Claim
90. On August 2, 2006, the Debtor and WSFS executed a Revolving Credit Agreement whereby WSFS advanced to the Debtor up to $1,000,000.00 to be used for real estate investments (the "WSFS Loan"). 148
91. As further evidence of the WSFS Loan, the Debtor executed a Promissory Note dated August 2, 2006, in the principal amount of $1,000,000.00 (the "Note") and two Partnership Interest Pledge Agreements dated August 2, 2006 (the "Pledge Agreements"), whereby the Debtor granted a security interest to WSFS in his interests in Sansom Street Partnership and 1111 Spring Garden Associates, L.P. 149
*131 92. As originally contemplated, the Debtor was obligated to repay the WSFS Loan on or before February 2, 2008, subject to one automatic extension for a period of one year. 150
93. The Debtor failed to repay the WSFS Loan by February 2, 2009, following the automatic extension. 151
94. On March 31, 2011, WSFS and the Debtor executed a Forbearance Agreement (the "Forbearance Agreement") that extended the term of the WSFS Loan to June 30, 2011. 152
95. As consideration for WSFS's forbearance, the Debtor executed an Assignment of Distributions, Income and Proceeds of Partnership Interests and Security Agreement dated March 31, 2011 (the "Assignment Agreement"), that granted to WSFS a security interest in the Debtor's rights to distributions due from Curtis Investors, L.P. and PLB Partners, L.P. that might be generated as a result of a sale of the real estate owned by each. 153
96. Despite the Forbearance Agreement, the Debtor ultimately defaulted on his obligation to repay the WSFS Loan.
97. Thereafter, WSFS obtained the Confessed Judgment. 154
98. Over a period of time commencing prior to the filing of the Debtor's Petition, the Debtor and Kaplan negotiated with WSFS for a compromise of the WSFS Claim. 155
99. According to the Firm's time records, the Debtor called Winterhalter on February 21, 2012, to discuss the validity of the lien held by WSFS in the Debtor's "Curtis Center interest." 156
100. On May 17, 2012, one day after the Sansom Street Sale, the Debtor and Kaplan telephoned Winterhalter to obtain legal advice regarding the potential settlement of the WSFS Claim. 157
101. At the time of this conversation, Winterhalter knew of the occurrence of the Sansom Street Sale. 158
102. During this conversation, the Debtor informed Winterhalter that the Debtor had personally negotiated the settlement of the WSFS Claim for $500,000.00. 159
103. During this conversation, the Debtor requested Winterhalter provide legal *132 advice regarding whether the Debtor would be personally able to acquire the WSFS Claim or could otherwise personally cause a settlement of the claim outside of a plan of reorganization. 160
104. The Debtor was in favor of consummating the settlement because he believed that it would lower his total indebtedness. 161
105. Winterhalter admits that, in response to his client's inquiries, he did not know how to cause the proposed settlement of the WSFS Claim. 162
106. Winterhalter specifically admits that, in response to his client's inquiries, he concluded that the proposed settlement of the WSFS Claim "cannot be accomplished outside of a plan." 163
107. Winterhalter admits that in response to the proposed settlement, he concluded that the Debtor could not personally acquire the WSFS Claim. 164
108. Winterhalter admits that he had no idea how to address the proposed settlement of the WSFS Claim outside of a plan. 165
109. At the close of the conversation with his client, Winterhalter states that the Debtor instructed him to "Call the girl." 166
110. At the direction of the Debtor, Winterhalter contacted Bonnie Golub, counsel for WSFS. 167
111. Bonnie Golub had previously appeared at the Debtor's initial meeting of creditors and questioned the Debtor about his claim that he held certain partnership interests, including but not limited to Curtis Investors, L.P., as entireties property.
112. In her capacity as counsel for WSFS, Bonnie Golub was adverse to the Debtor and the Debtor's bankruptcy estate.
113. On May 17, 2012, Winterhalter and Bonnie Golub discussed how their clients could effectuate the compromise of the WSFS Claim. 168
114. Winterhalter testified that during this conversation, Bonnie Golub informed him that (1) the proposed compromise could be accomplished through a claim transfer, and (2) Sansom Street Partnership would be the purchaser. 169
115. Relying exclusively upon the opinion of adverse counsel and despite his allegedly existing misgivings regarding the legality of the proposed settlement, Winterhalter concluded "Wow, that'll work. That would work. It's legitimate." 170
116. Winterhalter performed no independent analysis of whether the proposed settlement of the WSFS Claim could be accomplished through a claim transfer.
*133 117. Winterhalter performed no independent analysis of whether an insider of a debtor may acquire at a discount a claim against the estate.
118. Winterhalter performed no independent analysis to determine what his client's obligations were with regard to the Debtor's involvement in the discounted sale of a claim against the estate to an insider.
119. Winterhalter admitted that, when he was informed by Bonnie Golub that Sansom Street Partnership would be acquiring the WSFS Claim, "I did not give it much thought." 171
120. At the time Winterhalter learned of the proposed settlement of the WSFS Claim and that said settlement would be effectuated through a sale of the WSFS Claim to Sansom Street Partnership, Winterhalter knew that Sansom Street Partnership was an insider of the Debtor. 172
121. At the time Winterhalter learned of the proposed settlement of the WSFS Claim, Winterhalter knew that the Debtor intended to use $500,000.00 from the Debtor's Share of the Sale Proceeds to fund the settlement. 173
122. On July 6, 2012, David M. Shafkowitz on behalf of Sansom Street Partnership filed a Transfer of Claim Other Than For Security Pursuant to B.R. 3001(e)(2) (the "Claim Transfer"). 174
123. Winterhalter recruited David M. Shafkowitz in order to obscure Winterhalter's involvement in the WSFS Claim Purchase by Sansom Street Partnership. 175
124. The Court does not find credible Winterhalter's characterization of his involvement in the WSFS Claim Purchase as being merely an intermediary between WSFS and Sansom Street Partnership.
125. Winterhalter specifically advised the Debtor that he could not appear to be involved in the sale of the WSFS Claim. 176
126. On May 24, 2012, Sansom Street Partnership paid $500,000.00 from the Debtor's Share of the Sale Proceeds to WSFS for the alleged purchase of WSFS Claim pursuant to a wire transfer made on May 24, 2012, from Sansom Street Partnership's Firstrust Bank Account. 177
*134 127. Winterhalter did not request copies of Sansom Street Partnership's organizational documents from the Debtor or Kaplan until September 7, 2012. 178
128. In connection with his representation of the Debtor as to the Claim Transfer, Winterhalter did not review Sansom Street Partnership's organizational documents in order to confirm whether Sansom Street Partnership had the authority to purchase the WSFS Claim.
129. Winterhalter did not review the Debtor's minority partnership interests in Sansom Street Partnership until September 28, 2012. 179
130. Winterhalter performed no legal research to confirm whether the Debtor's involvement in the so-called settlement of the WSFS Claim violated any of the Debtor's fiduciary obligations. 180
Testimony Regarding Purchase of the WSFS Claim
131. In his testimony to this Court in support of the Applications, Winterhalter stated that he believed that the proposed settlement of the WSFS Claim effectuated through the sale to Sansom Street Partnership would result in a benefit of $462,000.00 accruing to the benefit of the Debtor's estate. 181
132. With regard to his explanation of the benefits of the proposed settlement of the WSFS Claim, Winterhalter testified:
[t]he $962,000.00 are the net proceeds that would have been paid or could have been paid or should have been paid, would not become property of the estate, it would go directly to WSFS on its claim.
A secured creditor's claim to collateral does make that property, property of the estate. WSFS had a first right to those monies. That money wasn't coming to the estate, that money-if the $500,000.00 deal was not transacted-that money-all of it or nine hundred and sixty-two thousand, plus any accrued interest that to the date of payment, would have went to WSFS. 182
133. Winterhalter testified that he believed that this net benefit would be achieved by relying on the efforts of Madison and/or creditor, Marshall Katz to argue that the WSFS Claim should be equitably subordinated to the estate's general unsecured creditors. 183
134. Winterhalter believed that as a result of the sale of the WSFS Claim to an insider of the Debtor, the Debtor's estate would be benefitted by the "elimination" of a secured creditor that held a lien on the Debtor's primary asset, Curtis Investors, L.P. 184
135. Winterhalter testified that he believed that David Grasso, through Sansom Street Partnership, would not attempt to collect the full amount of the WSFS Claim. 185
*135 136. Winterhalter testified that prior to May 23, 2012, he had never communicated with David Grasso in any manner whatsoever. 186
137. Winterhalter testified that prior to May 23, 2012, he did not discuss the terms of the sale of the WSFS Claim to Sansom Street Partnership with David Grasso at any time prior to the preparation of the sale documents. 187
138. Winterhalter testified that he did not discuss at any time nor did David Grasso agree that Sansom Street Partnership would not attempt to collect the full amount of the WSFS Claim. 188
139. David Grasso testified that he did not negotiate the settlement of the WSFS Claim including the price. 189
140. David Grasso learned of the settlement of the WSFS Claim after May 17, 2012, and after the telephone discussions between Winterhalter and Golub regarding the details for finalizing the settlement. 190
141. By acquiring the WSFS Claim, David Grasso believed that Sansom Street Partnership would be entitled to the full repayment of the WSFS Claim that was secured by a lien on the Debtor's interest in distributions from Curtis Investors, L.P. 191
142. As a result of the purchase of the WSFS Claim by an entity in which the Debtor held a one-third interest, David Grasso believed that the Debtor would be entitled to one-third of any amounts collected by Sansom Street Partnership as a result of its enforcement of the WSFS Claim. 192
143. David Grasso did not agree to reduce the WSFS Claim to any amount less than the $929,259.69, the amount originally asserted by WSFS. 193
144. During the administration of the Debtor's bankruptcy estate, Sansom Street Partnership continued to assert the liens securing the WSFS Claim in 1111 Spring Garden Associates, L.P., Curtis Investors, L.P., and PLB Partners, L.P. 194
145. As a result of its purchase of the WSFS Claim, Sansom Street Partnership did not release or otherwise agree to remove the liens securing the WSFS Claim in 1111 Spring Garden Associates, L.P., Curtis Investors, L.P., and PLB Partners, L.P. 195
146. At the time of the August 28, 2012 hearing, Winterhalter knew that the Debtor had negotiated the purchase, including the agreement on price, of the WSFS Claim Purchase. 196
147. At the time of the August 28, 2012 hearing, Winterhalter knew that the Debtor knew the identity of counsel for WSFS. 197
*136 148. At the time of the August 28, 2012 hearing, Winterhalter knew that the Debtor's testimony that the sale and purchase of the WSFS Claim had been negotiated exclusively by his brother, David Grasso, was false. 198
149. At the time of the August 28, 2012 hearing, Winterhalter knew that the WSFS Claim Purchase by Sansom Street Partnership was a sham transaction designed to obscure the Debtor's settlement of the WSFS Claim. 199
150. At the time of the August 28, 2012 hearing, Winterhalter knew that the source of the proceeds for purchase of the WSFS Claim was the Debtor's Share of the Sale Proceeds 200
Debtor's Use of Cash Collateral and Diversion of Curtis Investors, L.P. Distributions
151. During his representation of the Debtor, Winterhalter provided to his client certain advice regarding the Debtor's use of cash collateral and specifically his ability to use any distributions received on account of the Debtor's partnership interests. 201
152. During his representation of the Debtor, Winterhalter was aware that the Debtor's interests in distributions from his partnership interests were subject to at least three pre-petition liens held by the following entities: (1) The Bancorp Bank ("Bancorp"); 202 (2) NexTier Bank ("NexTier"); 203 and (3) WSFS. 204
153. During his representation of the Debtor, Winterhalter was aware that WSFS was asserting a security interest in the Debtor's right to distributions from the Sansom Street Partnership and Curtis Investors, L.P. 205
154. On March 15, 2012, WSFS filed the WSFS Proof of Claim asserting a claim against the Debtor in the amount of $929,259.69 and secured by certain of the Debtor's partnership interests, inclusive of *137 his interest in both Curtis Investors, L.P. and Sansom Street Partnership. 206
155. No later than March 15, 2012, Winterhalter had reason to know that WSFS was asserting a security interest in the Debtor's distributions from Curtis Investors, L.P. and Sansom Street Partnership.
156. On May 3, 2012, NexTier filed the NexTier Proof of Claim asserting a claim against the Debtor in the amount of $496,030.13 and secured by the Debtor's partnership interests. 207
157. No later than May 3, 2012, Winterhalter had reason to know that NexTier was asserting a security interest in all of the Debtor's partnership interests and that any partnership distribution may constitute the cash collateral of NexTier.
158. On May 4, 2012, Bancorp filed a Proof of Claim asserting claims against the Debtor in the amount of $544,575.46, and secured by all of the Debtor's partnership interests in Curtis Investors, L.P., PLB Investors, L.P. and JGKM Assoc., LLC. 208
159. On May 4, 2012, Bancorp filed a Proof of Claim asserting claims against the Debtor in the amount of $299,216.42 and secured by all of the Debtor's partnership interests in Curtis Partners JV, L.P. and Curtis Investors, L.P. 209
160. No later than May 4, 2012, Winterhalter had reason to know that Bancorp was asserting a security interest in certain of the Debtor's partnership interests including Curtis Investors, L.P. and that any partnership distribution from those partnerships may constitute the cash collateral of Bancorp.
161. Despite his knowledge of at least the existence of the WSFS lien on the Debtor's interest in distributions from Curtis Investors, L.P. and Sansom Street Partnership, NexTier's assertion of a lien on all of the Debtor's partnership interests, and Bancorp's assertion of a lien on certain of the Debtor's partnership interests, Winterhalter did not advise the Debtor as to whether the post-petition use of distributions received from Curtis Investors, L.P. or any other of his partnerships required the consent of secured creditors or the approval of this Court.
162. On August 3, 2012, NexTier filed a Motion to Enjoin Use of Cash Collateral and/or for Adequate Protection ("NexTier Motion to Enjoin Use of Cash Collateral"). 210
163. On August 29, 2012, more than six (6) months after the Petition Date, the Debtor and NexTier entered into a stipulation permitting the Debtor to use NexTier's cash collateral until further order of the Court and after a hearing on the Motion to Enjoin Use of Cash Collateral. 211
164. On November 12, 2012, Bancorp filed a Response and/or in the Alternative Objection to the Motion of NexTier Bank, N.A. d/b/a Radnor Trust Company to Enjoin Use of Cash Collateral and/or for Adequate Protection ("Bancorp Objection to Use of Cash Collateral"), seeking to enjoin the Debtor's use of Bancorp's cash collateral. 212
165. The Debtor and Bancorp never entered into a cash collateral agreement. 213
*138 166. The Debtor's pre-petition business practice was not to report the diversion of distributions from one entity to another entity as income to the Debtor. 214
167. Winterhalter knew of the Debtor's pre-petition business practice to direct the payment of distributions he received personally from Curtis Investors, L.P. and other partnerships to other business entities controlled by the Debtor without recognizing such distributions as income to the Debtor. 215
168. Winterhalter advised Kaplan that the post-petition diversion of distributions from one entity to another entity was not required to be reported on the Debtor's MORs because the Debtor "didn't spend the money on something personally." 216
169. Kaplan relied upon the advice of Winterhalter when Kaplan failed to report the diversion of distributions due to the Debtor to other non-debtor entities controlled by the Debtor on the MORs. 217
170. Prior to filing the Debtor's Petition, Winterhalter was aware of the Debtor's interest in Curtis Investors, L.P. 218
171. As alleged by the Debtor's Schedule B, the Debtor, with Donna Grasso, held as tenants by the entirety, a 90% interest in Curtis Investors, L.P. 219
172. During his assistance with the administration of the Debtor's bankruptcy estate, Winterhalter knew that the Debtor, in his personal capacity, received periodic distributions resulting from the Debtor's interest in Curtis Investors, L.P. 220
173. Winterhalter knew that the Debtor's receipt of distributions from Curtis Investors, L.P. was one of Debtor's sources of income. 221
174. Winterhalter knew that the Debtor's interest in distributions from Curtis Investors, L.P. was one of his estate's most significant assets. 222
175. Winterhalter knew that the Debtor controlled, in his sole discretion, whether Curtis Investors, L.P. made distributions. 223
176. Winterhalter knew that the Debtor's interest in Curtis Investors, L.P. would be required to fund a potential Chapter 11 plan. 224
177. Winterhalter did not conduct any investigation of the assets held by Curtis Investors, L.P. 225
178. Winterhalter never requested the Debtor provide Winterhalter any financial information relating to Curtis Investors, L.P. 226
179. No later than February 21, 2012, the Debtor had requested legal advice from Winterhalter regarding whether the *139 Debtor's interest in Curtis Investors, L.P. was subject to a security interest. 227
180. During the month of June 2012, Kaplan disclosed to Winterhalter that the Debtor was causing Curtis Investors, L.P. to make distributions directly to third parties in order to fund the renovation of the Debtor's personal residence, including a distribution of at least $125,000.00 to fund the installation of a copper roof on the Debtor's personal residence (the "Roofing-Repair Distribution"). 228
181. After learning of the Roofing-Repair Distribution, Winterhalter allegedly instructed the Debtor and Kaplan that any distributions made by Curtis Investors, L.P. on the Debtor's behalf must be deposited into the estate's DIP Account prior to being disbursed for any purpose and disclosed on the MORs. 229
182. Winterhalter also allegedly again instructed the Debtor and Kaplan that any distributions made by Curtis Investors, L.P. directly to other entities owned or controlled by the Debtor, and not made for the Debtor's personal benefit, need not be disclosed or otherwise deposited into the estate's DIP Account prior to being disbursed to the non-debtor entity. 230
183. After Winterhalter allegedly instructed Debtor and Kaplan on the method for addressing partnership distributions made on behalf of Debtor, the Debtor caused distributions totaling at least $377,549.90 to be made directly to third parties on his behalf including, $38,482.57 by JGKM Associates, L.P.; $37,600.00 by WSC and $301,467.33 by Curtis Investors, L.P. 231 The Curtis Investors, L.P. distributions included the Unauthorized Post-Petition Payment to Winterhalter. 232
184. During the month of June 2012, Winterhalter did not advise the Debtor whether the post-petition use of distributions received from Curtis Investors, L.P. required the consent of secured creditors or the approval of this Court.
185. None of the Original MORs, including the Original June 2012 MOR, made any reference to the Roofing-Repair Distribution. 233
186. Winterhalter reviewed the Original MORs, prior to filing them on behalf of the Debtor but failed to advise the Debtor or Kaplan to include the Roofing-Repair Distribution. 234
187. None of the Amended MORs, including the amended June 2012 MOR ("Amended June 2012 MOR"), included any reference to the Roofing-Repair Distribution or any of the distributions to third parties made for the Debtor's benefit primarily for renovations and repairs to the Debtor's residence (the "Renovation Payments").
188. Winterhalter reviewed the Amended MORs prior to filing them but *140 made no inquiry to the Debtor or Kaplan regarding the absence of the Roofing-Repair Distribution or whether there were any additional partnership distributions made to third parties for the Debtor's benefit. 235
189. At the hearings before this Court, Winterhalter evaded questions about his actions and failed to provide any explanation regarding the omission of the Roofing-Repair Distribution from the MORs. 236
The Unauthorized Post-Petition Payment
190. Winterhalter requested the Debtor cause Curtis Investors, L.P. to pay the Unauthorized Post-Petition Payment to the Firm. 237
191. At the request and on the advice of Winterhalter, the Debtor caused Curtis Investors, L.P. to pay the Unauthorized Post-Petition Payment to the Firm for legal services provided to the Debtor. 238
192. At the time Winterhalter requested the Debtor make payment of the Unauthorized Post-Petition Payment to him, Winterhalter had reason to investigate whether the Debtor's interest in distributions from Curtis Investors, L.P. was collateral securing the claims of Bancorp and NexTier. 239
193. At the time Winterhalter requested the Debtor make payment of the Unauthorized Post-Petition Payment to the Firm, Winterhalter did not advise the Debtor that the payment of the Unauthorized Post-Petition Payment from the cash collateral of Bancorp and NexTier required either (i) the consent of Bancorp and NexTier; or (ii) the approval of this Court.
194. At the time Winterhalter requested the Debtor make payment of the Unauthorized Post-Petition Payment to the Firm, the Debtor had not contested the validity of the liens asserted by Bancorp and NexTier in the Debtor's interest in distributions from Curtis Investors, L.P.
195. On July 16, 2012, Curtis Investors, L.P. paid the Unauthorized Post-Petition Payment directly to the Firm. 240
196. At the time Winterhalter received the Unauthorized Post-Petition Payment, Winterhalter had reason to know that the Debtor's interest in distributions made by Curtis Investors, L.P., including the distribution that funded the Unauthorized Post-Petition Payment, was Bancorp and NexTier's cash collateral. 241
197. At the time Winterhalter requested the Debtor make payment of the Unauthorized Post-Petition Payment to the Firm, Winterhalter knew that the Firm had not filed any application for compensation, including the First Interim Application.
198. The First Interim Application was filed on July 17, 2012, one day after Winterhalter received the Unauthorized Post-Petition Payment.
199. At the time Winterhalter requested the Debtor make payment of the Unauthorized Post-Petition Payment to the Firm, the Firm had not filed a motion with this Court seeking authority to modify the *141 terms of his original retention by the Debtor's bankruptcy estate.
200. At the time Winterhalter requested the Debtor make payment of the Unauthorized Post-Petition Payment to the Firm, Winterhalter knew that the Debtor was to receive a distribution from Curtis Investors, L.P. 242
201. At the time Winterhalter requested the Debtor make payment of the Unauthorized Post-Petition Payment to the Firm, Winterhalter knew that the contents of the estate's DIP Account were insufficient to fund the Unauthorized Post-Petition Payment. 243
202. The Unauthorized Post-Petition Payment was funded by a distribution made by Curtis Investors, L.P. on behalf of the Debtor and was not deposited in the estate's DIP Account prior to its payment to the Firm.
203. Based upon Winterhalter's receipt and the Firm's retention of the Unauthorized Post-Petition Payment, this Court does not find credible Winterhalter's testimony that he instructed Kaplan that any distributions from Curtis Investors, L.P. made on behalf of the Debtor must be deposited into and disbursed from the estate's DIP Account.
204. Winterhalter did not seek or obtain this Court's approval of the Firm's receipt of the Unauthorized Post-Petition Payment. 244
205. Winterhalter explained the Firm's failure to seek prior approval of its receipt of the Unauthorized Post-Petition Payment by reference to his belief that attorneys are only required to seek approval of post-petition payments received directly from a debtor-in-possession. 245
206. Winterhalter further explained the Firm's failure to seek prior approval of its receipt of the Unauthorized Post-Petition Payment by reference to his belief that the payment of the Unauthorized Post-Petition Payment by an affiliated, non-debtor entity obviates the requirement of prior approval by the bankruptcy court. 246
207. In connection with the Firm's receipt of the Unauthorized Post-Petition Payment, Winterhalter performed no investigation of whether Curtis Investors, L.P. was authorized to make payment of the Unauthorized Post-Petition Payment.
208. In connection with the Firm's receipt of the Unauthorized Post-Petition Payment, Winterhalter performed no investigation of whether the Firm's receipt of the Unauthorized Post-Petition Payment constituted an unauthorized use of cash collateral.
209. Winterhalter made no investigation of whether the Debtor violated his duties as a debtor-in-possession when the Debtor directed Curtis Investors, L.P. to make payment of the Unauthorized Post-Petition Payment.
The Discharge Litigation and Services for Non-Debtor Entities
210. During his involvement in this bankruptcy case, Winterhalter represented the Debtor in defending against adversary actions objecting to the Debtor's discharge filed by the USX ( DeAngelis v. Grasso , Adversary No. 13-00477), the Chapter 7 Trustee ( Shubert v. Grasso , Adversary No. 13-00479), Madison ( *142 Madison Capital Company, LLC v. Grasso , Adversary No. 13-00438) and Michael Katz ( Katz v. Grasso , Adversary No. 13-00481) (collectively the "Discharge Litigation"), and objecting to the dischargeability of a debt filed by Sherwin Williams Company ( Sherwin Williams Company v. Grasso , Adversary No. 12-00394) (the "Dischargeability Litigation," together with the Discharge Litigation, the "Litigation").
211. Winterhalter filed various pleadings and engaged in discovery on behalf of the Debtor in the Litigation, including opposing a Motion for Summary Judgment in the Discharge Litigation. 247
212. As set forth in Debtor's Schedule B, the Debtor held ownership interests in numerous partnerships and limited liability corporations. 248 During the Debtor's bankruptcy, several of these entities, including JGKM Associates, L.P., Warminster Plaza Associates, York & Swam Assoc., L.P., and Positive Dining Experiences, Inc. (collectively, the "Distressed Entities") were suffering financial difficulties and defending against numerous collection efforts by various lenders including foreclosure upon real estate, set-off against bank accounts and enforcement of mechanics liens, or debtors in on-going Chapter 11 bankruptcy cases, the Related Entities.
213. Winterhalter provided legal services at the Debtor's request directly to the Distressed Entities by reviewing various complaints against the Distressed Entities, negotiating with creditors of the Distressed Entities, and representing the Distressed Entities in state court litigation. 249
The Firm's Legal Services
214. The Firm seeks compensation for 322.35 hours of legal services provided to the Debtor.
215. The Court finds that 35.95 hours of time in the Applications are related to filing the Debtor's schedules and petition. 250
216. The Court finds that 9.6 hours of time included in the Applications are related to filing the Debtor's MORs. 251
217. The Court finds that 50.45 hours of time included in the Applications are related to defense of the Conversion Motion. 252
218. The Court finds that 11.6 hours of time included in the Applications are for *143 services relating to the Cash Collateral. 253
219. The Court finds that 6.7 hours of time included in the Applications are for services relating to the Rule 2015.3 Reports. 254
220. The Court finds that 46.6 hours of time included in the Applications are related to service provided to the Debtor in his personal capacity (e.g. representation of Debtor in defense against the discharge litigation and representative of separate non-debtor entities). 255
221. The Court finds that 19.50 hours of time included in the Applications are related to the sham purchase of the WSFS Claim. 256
222. The Court finds 141.9 hours of the hours set forth in the Applications are attributable to legal services provided for the general administration of the Debtor's bankruptcy case. 257
IV. CONCLUSIONS OF LAW
A. Standard for Compensation
This Court may award a professional person "reasonable compensation for actual, necessary services rendered" and "reimbursement for actual, necessary expenses," but may not award compensation for "services that were not ... reasonably likely to benefit the debtor's estate[ ] or necessary to the administration of the case." 11 U.S.C. § 330 (a)(1) and (a)(4). The burden of proof remains with the attorney applicant. Woods v. City Nat. Bank. & Trust Co. of Chicago , 312 U.S. 262 , 268, 61 S.Ct. 493 , 85 L.Ed. 820 (1941) ("[the attorney] has the burden of proving their worth."); Zolfo, Cooper & Co. v. Sunbeam-Oster Co., Inc. , 50 F.3d 253 , 261 (3d Cir. 1995) ("The fee applicant has the burden of proving it has earned the fees it requests, and that the fees are reasonable.").
In determining the amount of reasonable compensation, § 330(a)(3) requires a bankruptcy court to consider "the nature, the extent, and the value of [the legal] services" taking into consideration "all relevant factors" including but not limited to those listed in § 330(a)(3)(A) through (F). As elaborated by the Third Circuit, this Court must consider:
(1) the time spent performing the services;
(2) the rates charged;
(3) whether the services were necessary to the administration of, or beneficial toward the completion of the case;
(4) whether the services were performed within a reasonable amount of time commensurate with the complexity or importance of the task(s) completed;
(5) whether the attorney demonstrated skill and experience in the bankruptcy field; and
(6) whether the compensation is reasonable based on the customary compensation *144 charged by comparably skilled practitioners in non-bankruptcy cases.
In re Jade Management Services , 386 Fed. Appx. 145 , 151 (3d Cir. 2010).
Generally speaking, this Court must satisfy itself that the attorney's services were actual and necessary by determining whether, if at the time services were rendered, the attorney reasonably believed such services would benefit the estate. See, e.g., Barron & Newburger, P.C. v. Texas Skyline, Ltd. (In re Woerner) , 783 F.3d 266 , 277 (5th Cir. 2015) ; In re Top Grade Sausage, Inc. , 227 F.3d 123 , 131-32 (3d Cir. 2000) (abrogated on other grounds by Lamie v. U.S. Trustee , 540 U.S. 526 , 124 S.Ct. 1023 , 157 L.Ed.2d 1024 (2004) ). Next, the Court must assess the value of those services. In re APW Enclosure Systems, Inc. , Bky. No. 06-11378, 2007 WL 3112414 , *3 (Bankr. D. Del. Oct. 23, 2007). If this Court determines that the amount of proposed compensation exceeds the reasonable value of the Firm's services, the Court may order the return to the estate of a fee paid to an attorney for the debtor to the extent compensation exceeded the reasonable value of services. 11 U.S.C. § 329 (b). Significantly, this test must be applied without the benefit of hindsight. Top Grade Sausage, Inc. , 227 F.3d at 131 -32 .
The reasonable value of an attorney's services is typically evaluated by considering the amount of time spent, the rates charged and the market rate of similarly skilled attorneys. 11 U.S.C. § 330 (a)(3). To calculate value, this Court is instructed to rely on a market approach that looks to the amounts typically charged by similarly situated professionals. See, e.g., In re Busy Beaver Building Centers, Inc. , 19 F.3d 833 , 848 (3d Cir. 1994) (stating that courts should "rely on the market" to assess reasonableness of fees); In re Dubin Paper Co. , 169 B.R. 115 , 122 (Bankr. E.D. Pa. 1994). In reciting this standard, this Court is careful to note that this formulation presumes that the services were competent. Typically, the issue of competence is addressed when considering the reasonableness of an attorney's billable rate or the amount of time spent on any given task. For instance, if a bankruptcy court determines that a particular service did not require special skills, a bankruptcy court may determine that it was unreasonable to charge an above-average billable rate or to accrue a significant amount of time. See, e.g., In re Dubin Paper Co. , 169 B.R. at 123 .
Here, the issue is not whether the Debtor's case was simple or did not otherwise present enough complexity to justify the payment of the billable rates charged by the Firm. Rather, both this Court and the parties who objected to the Applications called into questioned whether Winterhalter provided competent representation of the Debtor resulting in a benefit to the Debtor's estate. While no mention of competence is made by § 330(a), it is generally presumed that the competent performance of services is a prerequisite to the § 330(a) inquiry. In re Glemaud , 2013 WL 4498677 (Bankr. D. Ct. 2013) (When determining whether attorney fees are reasonable under the circumstances, the Court must consider the nature of the services and the competence of the performance); Matter of Grant , 14 B.R. 567 , 569 (Bankr. S.D.N.Y. 1981) (same). "Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation." Pa. R.P.C. 1.1. See, In re Dean , 401 B.R. 917 , 924 (Bankr. D. Idaho 2008) (When determining whether an attorney provided competent legal services a court may consider several factors including whether (1) the attorney impressed upon the debtor the critical importance of accuracy in the preparation of *145 documents to be presented to the Court; (2) did the attorney seek from the debtor, and then review, whatever documents were within the debtor's possession, custody or control in order to verify the information provided by the debtor; and (3) did the attorney employ such external verification tools as were available and not time or cost prohibitive (e.g., on-line real estate title compilations, on-line lien search, tax "scripts") ).
As discussed below, Winterhalter failed to provide competent legal representation to the Debtor in his bankruptcy case. Winterhalter failed to undertake any material investigation of the facts of his client's case. Winterhalter's time records and his testimony to this Court revealed that he made no material effort to counsel his client. The evidence indicates that, at best, Winterhalter did nothing more than simply provide curt reminders to the Debtor that he must undertake certain actions such as the creation and use of a DIP Account or that he must ensure disclosures are accurate. Emails reciting rote instructions are insufficient. Advice should be tailored to a client's individual circumstances. As is evidenced by the circumstances of this case, the failure of Winterhalter to perform any investigation of his client's circumstances, or his willful disregard of the same, rendered his services valueless.
In evaluating the value the Firm's services, this Court has been careful not to apply the benefit of hindsight. See, e.g., Top Grade Sausage, Inc. , 227 F.3d 123 at 132 ("Accordingly, the debtor's attorney must show that the representation was reasonably likely to benefit the debtor's estate."); In re Taxman Clothing Co. , 49 F.3d 310 , 313-15 (7th Cir. 1995) ; In re Molycorp, Inc. , 562 B.R. 67 , 81 (Bankr. Del. 2017) ("For the same reasons, the bankruptcy court cannot allow compensation for services that were not reasonably likely to benefit the estate or were not necessary to the administration of the case."). Instead, this Court has premised its evaluation of the quality of Winterhalter's services upon whether, at the time his services were rendered, a reasonably prudent counsel would have undertaken the same course. See, e.g. , In re Smith Technology Corp. , Civ. No. 99-132, 1999 WL 1427681 , *6-7 (D. Del. Dec. 23, 1999).
B. Benefit to the Estate
1. Services Relating to the Preparation of the Debtor's Initial Petition and Schedules
Several categories of this Court's inquiries implicate Winterhalter's initial representation of the Debtor in his preparation of his petition and his schedules. 258 Pursuant to § 521 and Fed. R. Bankr. P. 1007, a debtor is obligated to prepare and file his schedules. See, e.g., In re Matthews , 154 B.R. 673 , 678 (Bankr. W.D. Tex. 1993). The duties imposed by § 521 are considered to be among the most significant imposed upon a debtor and have been read to extend to debtor's counsel. See, e.g. , In re Daw , Bky. No. 09-00690, 2011 WL 231362 , *7 (Bankr. D. Idaho Jan. 24, 2011) ("few rules in bankruptcy are as essential as proper client review, and execution, of petitions, schedules and statements."); In re Engel , 246 B.R. 784 , 794 (Bankr. M.D. Pa. 2000) ("Regardless of who drafted the schedules, Bressett's obligation to competently represent his client required him to review these documents with his clients before they became a part of the public record."). Because a debtor's creditors are expected to rely upon the accuracy of a debtor's initial financial disclosures, an attorney is generally entitled *146 to compensation for any services incurred in connection with an attorney's assistance with a debtor's preparation of complete and accurate schedules. In re Matthews , 154 B.R. 673 , 679 (Bankr. W.D. Tex. 1993).
While a debtor-in-possession who is an individual is under no obligation to investigate its assets, it cannot be said that this exception absolves an attorney for a debtor-in-possession from the need to conduct any reasonable investigation necessary to provide competent legal advice to his client. See, e.g. , Fed. R. Bankr. P. 9011(b)(3), Pa. R.P.C. 1.1(5). In furtherance of a debtor's significant disclosure obligations, a debtor's attorney may not operate as a purely passive conduit. A debtor's attorney is not hired merely to file documents with this Court. Pursuant to an attorney's obligations to the judicial system as embodied by Rule 9011(b) 259 as well as an attorney's professional obligations to her client, a debtor's attorney must conduct a reasonable inquiry into the facts set forth in her client's schedules. In re Kayne , 453 B.R. 372 , 383 (9th Cir. BAP 2011) ; In re Withrow , 405 B.R. 505 , 512 (1st Cir. BAP 2009) ; In re Stomberg , 487 B.R. 775 , 811 (Bankr. S.D. Tex. 2013) ; In re Bellows-Fairchild , 322 B.R. 675 , 681 (Bankr. D. Or. 2005) ; In re Matthews , 154 B.R. 673 , 680 (Bankr. W.D. Tex. 1993). A debtor's attorney cannot (1) ignore information otherwise known or available to him or (2) allow the filing of schedules that a debtor's attorney has reason to suspect are inaccurate. In re Parikh , 508 B.R. 572 , 590 (Bankr. E.D.N.Y. 2014) ; In re Cuomo , Bky. No. 10-14813, 2013 WL 3155425 , *9-10 (Bankr. D. Nev. June 20, 2013) ; In re Tufano , Bky. No. 10-07692, 2011 WL 1473384 , *5 (Bankr. M.D. Pa. Apr. 19, 2011).
Crediting Winterhalter's testimony, this Court cannot confirm Winterhalter acted reasonably or otherwise satisfied his duty of inquiry with regard to his filing of the Debtor's petition and schedules. A reasonably prudent counsel is entitled to rely on the representations of his client. See, e.g., Reis v. Barley, Snyder, Senft & Cohen LLC , 667 F.Supp.2d 471 , 489 (E.D. Pa. 2009) ("An attorney is entitled to rely in good faith upon the statement of facts made to him by his client, and is not under a duty to institute an inquiry for the purpose of verifying his statement before giving advice thereon."). However, when an attorney has reason to doubt his client, blind reliance ceases to be reasonable. United States v. Kauffman , 109 F.3d 186 , 190 (3d Cir. 1997) ("While counsel is entitled to substantial deference with respect to strategic judgment, an attorney must investigate a case, when he has cause to do so, in order to provide minimally competent professional representation."); In re Ingram , Bky. No. 13-35756, 2014 WL 1278160 , *3-4 (Bankr. E.D. Wis. Mar. 27, 2014) (relying on attorney's admission that she had failed to perform legal research relating to her client's bankruptcy objectives to conclude that her fees were not reasonable).
*147 In his testimony to this Court, Winterhalter stated that he relied exclusively on the Debtor and his accountant Kaplan, to prepare the Debtor's initial filings and that he warned them repeatedly of the requirement of full and accurate disclosure. This Court has received no evidence that Winterhalter asked either the Debtor or Kaplan probing questions designed to elicit his client's accurate and honest disclosure. Rather, it appears that in spite of his own misgivings regarding the accuracy of the Debtor's schedules, including Debtor's claim that he owned his partnership interest as tenants by the entirety, Winterhalter merely recited boilerplate advice regarding the need for complete and accurate disclosure. The absence of any evidence of a more fulsome effort to advise his client as to the nature of his disclosure obligations indicates he failed to fulfill his duty of inquiry.
While Winterhalter stated that he reviewed the Debtor's tax returns, the record confirms that he failed to notice that the Debtor's Petition and Schedules contained facial inconsistencies with other publicly filed documents known to Winterhalter. At the very least, his Rule 11 obligations included a duty to confirm that the Debtor's statements in his Schedule B were consistent with the Debtor's statements in the WSC List of Equity Holders.
From the evidence, this Court may conclude that facial inconsistencies between the contents of the Debtor's Petition and Schedules with other documents known to Winterhalter indicate that he failed to ensure the contents of the Petition and Schedules were internally and externally consistent. See, e.g., In re Parikh , 508 B.R. 572 , 590-94 (Bankr. E.D.N.Y. 2014) (finding that counsel's failure to review prior petitions to ensure accuracy of disclosures in new petitions constituted sanctionable conduct); In re Cuomo , Bky. No. 10-14813, 2013 WL 3155425 , *18 (Bankr. D. Nev. June 20, 2013) ("His practice of deliberately ignoring his clients' prior bankruptcy schedules reflects poorly on the legal profession, as it engenders distrust and the perception that attorneys are inattentive to clients' particular circumstance.").
2. Services Relating to the Preparation of the Debtor's Monthly Operating Reports
Another concern identified by the Court related to whether the Firm instituted sufficient client controls to ensure the Debtor's compliance with his obligations as debtor-in-possession. 260 One area of concern raised by the Court related to the Debtor's MORs and whether Winterhalter had instituted sufficient controls to ensure that the Debtor filed timely, accurate and complete MORs. A Chapter 11 debtor is obligated to file the reports and summaries required by § 704(a)(8) of the Bankruptcy Code. 11 U.S.C. § 1107 (a) ; Fed. R. Bankr. P. 2015. The procedures for filing the MORs are established by the UST and set forth in the Operating Guidelines for Chapter 11 Case (the "Guidelines"). The Guidelines provide, in relevant part, that a debtor file an initial report within 15 days after the petition date and a monthly report thereafter by the 20 th day following the end of the month. See In re Kholyavka , 2008 WL 3887653 , *1 (Bankr. E.D. Pa. 2008) (describing the Guidelines). The "[m]onthly operating reports are the 'life blood of Chapter 11, enabling creditors to keep tabs on the debtor's post-petition operations.' " In re Domiano , 442 B.R. 97 , 105 (Bankr. M.D. Pa. 2010) ( citing In re Kholyavka , 2008 WL 3887653 at *4 ).
As Debtor's counsel, Winterhalter was required to implement a procedure that *148 ensured that the Debtor satisfied his obligations to file MORs that complied with the Guidelines. At the Hearings, Winterhalter testified that he established sufficient controls to ensure that the Debtor fulfilled his obligation to timely file accurate, truthful and complete MORs by (1) instructing Kaplan on the requirements for preparing the MORs, and (2) advising Kaplan that all of the Debtor's income and expenses including partnership distributions "made on behalf of the Debtor personally" were to be disclosed on the MORs. The record in this case belies Winterhalter's assertions.
A simple review of the Debtor's MORs reveals that whatever controls, if any, that Winterhalter installed were inadequate. The MORs were not timely filed nor properly prepared, included contradictory information and were incomplete. The Debtor did not file the Initial Report for February 2012 until August 30, 2012. The MORs for the months of March, April and May were filed on August 7, 2012, and June and July on August 27, 2012. The August 2012 MOR was not filed until October 4, 2012.
Several of the MORs were not prepared correctly and failed to comply with the Guidelines. The Original March 2012 and Original April 2012 MORs were submitted on the "Initial Report" form. As set forth in the Guidelines, this form is used to report the time period shortly after the petition date.
The Debtor's source of income was listed as "Loan Repayments" in all of the MORs except the August 2012 MOR. The Debtor's Schedule I, prepared and filed by Winterhalter, states the source of Debtor's income as "partnership distributions." No credible evidence was offered regarding the discrepancy. Indeed, the MORs included no information regarding the loans, including the amounts or terms. Furthermore, the MORs were incomplete and, among other things, did not include the statements for all of the Debtor's bank accounts. The bank statements for the DIP Account reflect it was opened in May 2012 at TD Bank. However, the Debtor failed to include a copy of the DIP bank statement for the May 2012 MOR. The August 2012 MOR included a copy of a bank statement for an account at Firstrust Bank. This was the Debtor's first disclosure of this particular bank account on the MORs.
Similarly, the Debtor's MORs did not disclose all of his income and expenses. In June 2012, Winterhalter learned from Debtor's accountant, Kaplan, that the Debtor was directing distributions to third parties for the Debtor's own personal benefit including the Roofing-Repair Distribution. Winterhalter allegedly instructed the Debtor that the distributions to third parties for the Debtor's "personal" benefit must be deposited into the DIP Account prior to disbursement and reported as income to the Debtor 261 . On August 7, 27, and 30, 2012, Winterhalter reviewed and filed the MORs for the months of February thru July 2012. None of the filed MORs included the Roofing-Repair Distribution totaling $125,000.00. The Debtor filed Amended MORs on October 1, 2012. The Amended MORs, likewise, did not disclose the Roofing-Repair Distribution.
Winterhalter admitted to reviewing the MORs prior to filing them. As an experienced Chapter 11 practitioner, Winterhalter should have easily recognized the errors and omissions and provided additional instructions to both Debtor and Kaplan on the reporting requirements and the necessity that the Debtor's MORs be filed timely and include accurate and complete information.
*149 There is no evidence in the Firm's time records or from the Hearings that Winterhalter took sufficient action to correct the discrepancies or to adjust the client controls he allegedly put into place to ensure that the Debtor complied with his reporting requirement obligations. Rather, it appears that Winterhalter conducted nothing more than a cursory review, if any at all, and gave short shrift to the MORs before filing them with the Court. The Court finds that Winterhalter failed to act reasonably or otherwise provide adequate legal advice to ensure that the Debtor complied with his obligation to file accurate MORs. Winterhalter's failure warrants denial of any compensation for hours related to these services, as they were not likely to provide any benefit to the estate.
3. Services Relating to the Preparation of the Debtor's Rule 2015.3 Reports
The Court identified as another concern that the Firm failed to act reasonably or otherwise provide adequate legal advice with regard to the Debtor's filing of the Rule 2015.3 Reports. 262
Rule 2015.3 applies in all Chapter 11 cases and requires all Chapter 11 debtors in possession and Chapter 11 Trustees to file periodic reports of the value, operations and profitability of each entity in which the estate holds a substantial or controlling interest. Fed R. Bankr. P. 2015.3(a). For purposes of the rule, an estate is presumed to have a "substantial or controlling interest" in any entity in which the estate controls or owns at least a 20 percent interest. Rule 2015.3(c). The reports must be filed in accordance with the prescribed appropriate official form and "based upon the most recent information reasonably available to the trustee or debtor in possession." Rule 2015.3(a).
According to the Debtor's Schedule B, he owned 20 percent interest or more in numerous partnerships including Sansom Street Partnership and Curtis Investors, L.P. The Debtor was required to file his initial Rule 2015.3 Reports "no later than seven days before the first date set for the meeting of creditors" and "no less frequently than every six months thereafter..." Fed. R. Bankr. 2015.3(b). The Debtor's meeting of creditors was held on March 13, 2012. Therefore, his first Rule 2015.3 Reports should have been filed no later than March 6, 2012 and his second Rule 2015.3 Reports should have been filed no later than September 6, 2012. 263 The Debtor did not file any of the required reports until ordered to do so by this Court. 264 As a result, the Debtor filed his first Rule 2015.3 Reports on September 21, 2012. Thereafter, as ordered, seven days later on September 28, 2012, the Debtor filed his first periodic report in which he provided financial information with regard to entities in which he held a minority interest. The Debtor failed to file any additional Rule 2015.3 Reports.
In addition to being filed long after the applicable deadline, the contents of the Debtor's Rule 2015.3 Reports were also deficient. As provided by Official Form 26, *150 Rule 2015.3 Reports are to include financial information for the most recent six-month period of the current fiscal year and for the prior fiscal year. 265 The Debtor's Rule 2015.3 Reports Periodic contained no information relating to the most recent six-month period. The omission of that information is of particular significance as it would have disclosed the Sansom Street Sale, the source of the monies used to purchase the WSFS claim, and the source of the monies used to fund the loan repayments that the Debtor relied upon to fund his post-petition expenses.
Winterhalter did not discuss or provide any instruction to the Debtor or Kaplan regarding the 2015.3 Reports until July 26, 2012, three days after Madison filed the Motion to Convert citing Debtor's failure to comply with Rule 2015.3 requirements as a basis for conversion to Chapter 7. 266 The Firm offered no evidence or reasonable explanation why Winterhalter failed to instruct or provide the Debtor with legal advice regarding his obligation to timely and properly prepare the 2015.3 Reports prior to July 26, 2012. Winterhalter's failure to provide the Debtor with timely advice and instructions did not benefit the Debtor's estate. Rather, Winterhalter's failure deprived creditors of critical information regarding the Debtor's partnership interests, and Debtor's receipt and use of the partnership distributions created suspicion among the creditors, contributed to the multiple litigation between the Debtor and his creditors at almost every juncture of his Chapter 11 case, and ultimately contributed to the conversion of the Debtor's case from Chapter 11 to Chapter 7. 267
4. Services Relating to Administration of the WSFS Claim
A dozen or more of the questions this Court put forward to the Firm required it to provide evidence sufficient to find a benefit to the estate relating to the WSFS Claim and its purchase by an insider of the debtor. 268 In response to the Court's inquiry, the Firm offered Winterhalter's testimony that his involvement in the WSFS Claim Purchase resulted in a benefit to the Debtor's estate by (1) reducing the WSFS Claim from $962,000.00 to $462,000.00, and (2) the subordination of the WSFS Claim that would likely occur as a result of anticipated creditor opposition to the purchase by an insider. 269
The WSFS Claim Purchase did not result in any reduction in the WSFS Claim. Following its alleged purchase of the WFSF Claim, Sansom Street Partnership *151 demanded payment of the full amount of the WSFS Claim. Sansom Street Partnership also claimed that, as the owner of the WSFS Claim, it held a secured interest in the Debtor's partnership interest in and distributions from Curtis Investors, L.P. The Firm has identified no factual or legal basis that Winterhalter relied upon for his conclusion that Sansom Street Partnership would seek payment of a lesser amount for the WSFS Claim. Winterhalter and David Grasso never discussed nor did David Grasso ever agree that Sansom Street Partnership would accept less than the entire amount of the WSFS Claim, or relinquish any security interest in Debtor's partnership interest in Curtis Investors, L.P.
Even if the Court were to credit the Firm's arguments, any alleged benefit provided to the estate by Winterhalter is insufficient to overcome the substantial harm that Winterhalter's poor legal advice caused to the Debtor's estate. As an initial matter, Winterhalter's advice was not rendered for the benefit of the Debtor's estate. Rather, it was provided for the exclusive purpose of assisting the Debtor in a scheme he orchestrated, aided by his brother, David Grasso, for whatever reasons, 270 and designed to (1) conceal the Debtor's settlement of the WSFS Claim; (2) deprive the Debtor's creditors of the benefits resulting from the settlement of the WSFS Claim (the elimination of $500,000.00 in secured claim against the Debtor's estate); (3) allow the Debtor to receive undisclosed loan repayments and partnership distributions from Sansom Street Partnership; and (4) preserve for the benefit of Debtor and David Grasso only the expected partnership distributions from the Debtor's interest in Curtis Investors, L.P. Winterhalter's advice substantially harmed the Debtor's estate because the Debtor was able to secrete more than $156,758.35 from his bankruptcy estate, the monies he received from Sansom Street Partnership for loan repayments and partnership distributions. 271 These payments were property of the Debtor's estate and which the Debtor had no authority to use without the consent of his secured creditors or the approval of the bankruptcy court. See e.g., In re Dupell , 235 B.R. 783 , 794 (Bankr. E.D. Pa. 1999) (holding that "[p]ursuant to section 363(c)(2)(A) & (B), a debtor may only use cash collateral with the consent of the creditor or the approval of the bankruptcy court based on a determination that the creditor's interest is adequately protected."). 272
This Court remains unswayed by Winterhalter's "value" to the estate claims. They are simply post-hoc attempts by Winterhalter to justify his failure to comply with his obligations as counsel for a Chapter 11 debtor. When Winterhalter became aware of the opportunity to purchase the WSFS Claim at a discount, he was under an obligation to report the opportunity to this Court. Grasso I, 490 B.R. at 512-14. When Winterhalter became aware that estate assets would be used to purchase the WSFS Claim, he was under an obligation to report this use to this Court. See, e.g., In re Food Management Group, LLC , 380 B.R. 677 , 708 (Bankr. S.D.N.Y. 2008) (observing that an attorney may violate her fiduciary obligation if she fails to report her client's misconduct). The Code does not afford an attorney the discretion *152 to make these determinations outside the purview of a Bankruptcy court or a debtor's creditors. Rancourt , 207 B.R. 338 , 361 (Bankr. D. N.H. 1997) ("The problem for the debtors' attorneys [is] ... that they 'took it upon themselves' to resolve the arguable issue in favor of the interest of the individual debtor and at the expense of the bankruptcy estate without any disclosure"). Expediency does not justify such short cuts. See, e.g., In re Combustion Engineering, Inc. , 391 F.3d 190 , 236 (3d Cir. 2004) (recognizing that a bankruptcy courts equitable powers cannot trump the express provisions of the Bankruptcy Code).
In addition, contrary to Winterhalter's beliefs, an attorney's zealous representation of his client does not obviate an attorney's obligation to ensure his client's compliance with applicable law, inclusive of the Bankruptcy Code. Pa. R.P.C. 3.1, Comment 1; In re Source Enterprises, Inc. , Bky. No. 06-11707, 2008 WL 850229 , *14-15 (Bankr. S.D.N.Y. 2008) ; In re Wilde Horse Enterprises, Inc., 136 B.R. 830 , 844 (Bankr. C.D. Cal. 1991) ("Competent representation of one's client is part of an attorney's ethical responsibility to his or her client; failure to act competently, willfully or habitually, such as by the failure to use reasonable diligence and his or her best judgment and skill in the application of one's learning, is a breach of the attorney's fiduciary duty to the client.").
As is amply demonstrated by this case, an attorney does a disservice to his client when he ignores his professional obligations or applicable law. Even if the purchase price of the WSFS Claim represents a fair resolution of the claim, Winterhalter's decision not to advise the Debtor to choose disclosure over expediency colored the entire course of his client's bankruptcy. It also contributed to the already antagonistic relationship between the Debtor and his creditors causing every issue to be vigorously litigated which in turn led to an explosion of administrative expenses.
On balance, Winterhalter's legal advice and course of conduct in connection with the WSFS Claim cannot be said to have been performed with any expectation or likelihood that it would result in a benefit to the estate. In fact, it resulted in no net benefit to the Debtor's estate. The harm Winterhalter's actions inflicted on the Debtor's estate negate any finding that the Firm's services provided a benefit to the Debtor's estate for which compensation is warranted.
5. Services Relating to the Debtor-in-Possession and the Post-Petition Use of Cash Collateral
Another set of concerns this Court expressed to the Firm relate to the clear confusion Winterhalter has regarding his role as attorney for a debtor-in-possession, and the use of post-petition cash collateral by the Debtor. 273 To obtain a fresh start and escape the burden of debt, a debtor submits to the jurisdiction of the bankruptcy court. In order to obtain the privileges of bankruptcy, full and frank disclosure is required. While Winterhalter was entitled to frame his client's case in a manner that best advanced the Debtor's interests, Winterhalter remained obligated to ensure that his client did not engage in conduct prohibited by the Bankruptcy Code. 274 Rather than follow the instructions previously provided to him by Judge Frank and *153 err on the side of disclosure, Winterhalter admits to advising his client to make unilateral decisions as to whether his client's post-petition financial activity, including the use and disposition of cash collateral, should be disclosed to this Court and his client's creditors. As a result of Winterhalter's purported advice, the Debtor set about engaging in a series of transactions outside of the purview of this Court that ultimately resulted in the diversion of assets consisting of creditors' cash collateral. As an experienced bankruptcy practitioner should know, the Bankruptcy Code significantly restricts a debtor's use of cash collateral. 11 U.S.C. § 363 (c)(2) ; In re Heritage Highgate, Inc. , 679 F.3d 132 , 136, n.1 (3d Cir. 2012).
Despite having reason to know that the distributions generated by Curtis Investors, L.P. were cash collateral, Winterhalter's advice wholly failed to account for the Debtor's obligations under § 363(c)(2). Even if the Debtor had deposited the distributions into his DIP Account, the Debtor did not have the discretion to subsequently direct the payment of those distributions to unrelated third parties. If the Debtor desired to continue to use his creditors' cash collateral, it was incumbent upon Winterhalter to file a motion seeking either (1) a determination that the distributions were not the cash collateral of WSFS, Bancorp or NexTier, or (2) authority to use the distributions upon providing adequate protection to WSFS, Bancorp or NexTier. Winterhalter offered no credible evidence and the record contains no credible evidence that the Debtor or Winterhalter ever sought the consent of WSFS, Bancorp or NexTier to the Debtor's continuing use of their cash collateral prior to August 29, 2012. 275 Not only did Winterhalter fail to undertake these efforts, it appears from the record that Winterhalter never even considered whether the Debtor's use of the distributions constituted the unauthorized use of cash collateral.
Winterhalter's failure to consider the Debtor's obligations under § 363(c)(2) is magnified by reference to Winterhalter's receipt of the Unauthorized Post-Petition Payment. On August 10, 2012, Winterhalter filed his Supplemental Statement revealing that the Firm received the Unauthorized Post-Petition Payment, a payment on or about July 16, 2012, from Curtis Investors, L.P. on behalf of the Debtor in the amount of $30,000.00. As an initial matter, the fact that Winterhalter requested and received from his client the payment of the Unauthorized Post-Petition Payment is improper in and of itself. Marshall v. Fenstermacher , 388 F.Supp.2d 536 , 553 (E.D. Pa. 2005) ("if an attorney counsels a client to act in a manner that violates the rights of a third party, the attorney may be liable to the extent that a non-lawyer would be in the same situation."); In re Rivers , 167 B.R. 288 , 304 (Bankr. N.D. Ga. 1994) ("It is elementary that a professional may not solicit or accept compensation from a fiduciary without prior court approval and that compensation may be awarded only after notice to parties in interest and a hearing."). "As the Debtor's counsel, [the debtor's attorney] had a duty to inform his client about the general obligations and limitations on debtors, including that professionals may not be paid without court order." In re Bronx 439 E. 135th Street D.T. Building Corp. , Bky. No. 11-15855, 2014 WL 200996 , *7 (Bankr. S.D.N.Y. Jan. 17, 2014).
*154 Further, and perhaps of more significance, the Firm's 2016(b) Statement filed by Winterhalter provided that no additional payments would be made by the Debtor or any family member or entity on Debtor's behalf prior to court approval of an interim or final fee application. The Firm received the Unauthorized Post-Petition Payment on July 16, 2012, one day before the Firm filed its First Interim Application. By advising his client to make this payment without seeking prior court approval, Winterhalter failed to provide competent representation of the Debtor.
Further, based on the failure to account for the impact of the various creditors who alleged a security interest in the Debtor's distributions generated by Curtis Investors, L.P., this Court cannot conclude that Winterhalter provided competent advice to his client. His advice was simply wrong. A debtor cannot avoid the obligations regarding the post-petition use of cash collateral simply by depositing said cash collateral in its DIP Account. Winterhalter's approach to his client's unauthorized use of cash collateral is not without significant repercussions. Assuming his client's case had not been converted, the unauthorized use of cash collateral may have been considered a reason for denial of confirmation of a Chapter 11 plan. See, e.g., In re Cothran , 45 B.R. 836 , 838 (S.D. Ga. 1984). In addition, the recipients of these payments, having not been authorized by this Court, could be held liable to the estate pursuant to § 549(a). Finally, and most significantly to the Debtor's circumstances, the unauthorized use of cash collateral was a significant factor for this Court's finding of cause for appointment of a Chapter 11 Trustee. Matter of Anchorage Boat Sales, Inc. , 4 B.R. 635 (Bankr. E.D.N.Y. 1980). By failing to account for the Debtor's obligations regarding the post-petition use of cash collateral, Winterhalter failed to provide competent legal advice to his client, and when performed, had no likelihood of providing any benefit to the estate.
A. Services Provided to the Debtor Individually
Another area of inquiry identified by the Court was whether the Firm was required to disclose its representation of the Debtor, individually and whether the services provided to the Debtor personally provided a benefit to the Debtor's estate. 276 The Firm did not offer any evidence or advance any argument to address the Court's concern.
As discussed above, an applicant seeking compensation bears the burden of proving that it has earned the fees sought because they were actual and necessary expenses that provided a benefit to the debtor's estate. Woods v. City Nat. Bank. & Trust Co. of Chicago , 312 U.S. 262 , 268, 61 S.Ct. 493 , 85 L.Ed. 820 (1941) ("[the attorney] has the burden of proving their worth."); Zolfo, Cooper & Co. v. Sunbeam-Oster Co., Inc. , 50 F.3d 253 , 261 (3d Cir. 1995) ("The fee applicant has the burden of proving it has earned the fees it requests, and that the fees are reasonable."). The Firm was provided an opportunity to address this Court's concerns that were explicitly detailed in the Appraisal Order. The Firm failed to produce a factual predicate for this Court to conclude that the services performed by Winterhalter for the Debtor, individually, were necessary and provided a benefit to the Debtor's estate. The Firm's failure to produce any evidence that indicates that these services met the applicable standard for an award of compensation renders them non-compensable.
Further, even in the absence of the Firm's failure to prove that the services *155 were compensable, there are no facts in the record to support a finding by this Court that Winterhalter's representation of the Debtor, individually provided a benefit to the Debtor's estate requiring an allowance of compensation. Section 330(a)(4) of the Bankruptcy Code prohibits the Court from allowing compensation for, among other things, "services that were not (I) reasonably likely to benefit the debtor's estate, or (II) necessary to the administration of the case. 11 U.S.C. § 330 (a)(4)(A)(I), (II). See, In re Lederman Enterprises, Inc., 997 F.2d 1321 , 1323 (10th Cir. 1993) (stating that "[a]n element of whether the services were 'necessary' is whether they benefitted the bankruptcy estate."). The legal services provided by Winterhalter in the Discharge Litigation, or to third parties were solely for their benefit. They were not necessary for the administration of the Debtor's bankruptcy case, or reasonably likely to provide a benefit to the Debtor's estate in any manner whatsoever. In re Kitts Development, LLC , 474 B.R. 712 , 720 (Bank. D.N.M. 2012) ("Fees that benefit the debtor, but not the estate in a Chapter 11 case, are not compensable."); In re Kloubec, 251 B.R. 861 , 864 (Bankr. N.D. Iowa 2000) ("Attorney fee applications for debtors' attorneys in bankruptcy will be denied to the extent the services rendered were for the benefit of the debtor and did not benefit the bankruptcy estate."); In re Spanjer Bros. , 203 B.R. 85 , 92 (Bankr. N.D. Ill. 1996) (disallowing compensation for various phone calls and conferences with insiders and agents of the Debtors because, while they may have provided some benefit to various parties, there was inadequate and insufficient information to summarily conclude that merely because they were performed there was a benefit to the estate); In re Greene, 138 B.R. 403 , 408 (Bankr. S.D.N.Y. 1992) (stating that "fees awarded to an attorney for the debtor are determined in the light of the benefits those services produced for or in connection with the estate only, because fees are not allowed for services that benefit the debtor but not the estate.").
B. Reduction/Disallowance of the Firm's Fees
Yet another area of inquiry the Court identified in the Appraisal Order required the Firm to address whether any failures in the representation of the Debtor required a reduction of any compensation allowed, or, assuming such failures were found to be egregious, the denial of payment of any compensation to the Firm. 277
The Court has determined that the Firm is not entitled to compensation for 180.45 of the 322.35 hours requested because the Firm failed to prove that the legal services it provided was a benefit to the Debtor's estate. 278 There remains only 141.9 of hours for legal services relating to the administration of the Debtor's bankruptcy estate for which the Court must determine whether compensation should be allowed, and, if so, whether reduction or disallowance of any payment for these services is required.
Pursuant to § 330(a)(2) of the Bankruptcy Code, a Court may "award compensation that is less than the amount of compensation that is requested." 11 U.S.C. § 330 (a)(2). A decision to reduce fees should be exercised with "great care *156 and fairness." In re Wildman , 72 B.R. 700 , 705 (Bankr. N.D. Ill 1987). A court must evaluate the "quality of the legal services" even if a service is determined to be necessary, In re APW Enclosure Systems, Inc. , 2007 WL 3112414 , *4 (Bankr. D. Del. 2007). As a result, "[c]ourts have consistently reduced attorneys' fees for failure to meet the quality of representation expected of competent counsel." Id. See, In re Maxine's, Inc. , 304 B.R. 245 , 247-48 (Bankr. D. Md. 2003) (fee reduced where counsel was so unprepared that her earlier efforts amounted to spinning wheels, resulting in the debtor failing to meet the deadline for filing a plan of reorganization); In re Fleming Companies, Inc. , 304 B.R. 85 , 92 (Bankr. D. Del. 2003) (fees reduced where abysmal coordination and administration of the case led to wasteful case management); In re Net 2000 Commc'ns., Inc. , 2004 WL 2249487 , *4 (Bankr. D. Del. Sept. 17, 2004) (fees reduced where debtor's counsel prevented the efficient administration of the case by failing to reject certain leases, which were effectively worthless to the estate after the debtor had sold all its assets), In re Spanjer Bros., Inc. , 203 B.R. 85 , 92 (Bankr. N.D. Ill. 1996) (fees reduced because counsel failed to assist the debtor in fulfilling its duties under section 521, and failed to promote the efficient administration of the debtor's case).
An attorney may be compensated for services relating to administration of a debtor's estate if they are "necessary and a benefit to the estate." 11 U.S.C. § 330 (a)(1)(A). "Necessary services are those that aid the professional's client in fulfilling its duties under the Code." In re Ben Franklin Retail Store, Inc. , 227 B.R. 268 , 270 (Bankr. N.D. Ill. 1998), quoting In re Lifschultz Fast Freight, Inc. , 140 B.R. 482 , 485 (Bankr. N.D. Ill. 1992). The Firm had the burden of proving to the Court that these services were necessary and provided a benefit to the Debtor's estate. It failed to do so. The Firm's failure requires the Court to find that the fees for legal services for administration of the estate are not compensable.
Even if the Court were to find that the legal fees sought by the Firm for administration of the Debtor's estate are compensable, Winterhalter's representation of the Debtor failed "to meet the quality of representation expected of competent counsel" and requires a reduction of the requested compensation. See , In re Maxine's, Inc. , 304 B.R. 245 , 248 (Bankr. D. Md. 2003) ("The quality of legal representation for which compensation is sought is always the most important consideration."). As a result of Winterhalter's poor performance, the Court's finding that the services provided no benefit to the Debtor's estate, and the substantial harm resulting from Winterhalter's shorting comings, the Court will reduce the amount of compensation sought for the administration of the estate to zero. See , Lederman Enterprises, Inc. , 997 F.2d at 1323 (finding that actual benefit to the estate is a significant factor to be considered in determining the value of services).
Winterhalter failed to perform any reasonable investigation of the applicable law and facts when providing legal services to the Debtor. The record in this matter is replete with evidence of Winterha

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/8501381. Public record. Not legal advice.