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Bad planning

In the venerated legal directory Martindale-Hubbell, North Dallas lawyer David A. Schiller appears to lead a flourishing practice. Even though the 36-year-old Louisiana native graduated from the South Texas College of Law just four and a half years ago, according to his directory entry, Schiller now operates his own shop with one associate and practices in multiple areas of the law. As his specialties, Schiller lists commercial litigation, medical and legal malpractice, wrongful death, negligent security, and family law.

Ironically, given the allegations that are being made against him by other lawyers, Schiller doesn't mention bankruptcy law.

In a case in Dallas federal court that has stunned veteran bankruptcy lawyers, Schiller and others are accused of "snookering" U.S. Bankruptcy Judge Harold Abramson and taking nearly a million dollars in professional fees from a reorganization plan created to repay creditors of a bankrupt medical practice. Abramson ordered Schiller to return some $600,000 in legal fees.

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Schiller, who didn't return telephone calls to his office for this story, has not paid back the fees. He has told the judge he doesn't have the money. His attorney says Schiller plans to appeal Abramson's order. "There will be a lot of procedural reasons and factual concerns," Schiller's lawyer Michael Massad says.

But for Frank Broyles, a lawyer representing creditors, the bankruptcy of the Allied Physicians of DFW highlights the eye-popping potential of such a case to become a gravy train for professionals. "I have been practicing bankruptcy law for 15 years, and I have never seen something like this," Broyles says. "Just a ton of money went out the door to professionals without court supervision."

Attorneys for the other side disagree.

Christopher Weil, who represents Gregory Ginn, a certified public account who oversaw the bankruptcy plan and whom Abramson ordered to return some $340,000 in professional fees, says his client was operating entirely within a rule book that creditors had approved. The rules did not require court approval for each disbursement by the plan.

"They were informed all along, and now some of them are unhappy with the arrangement," Weil says about the creditors.

The case began in February 1997, when a group of doctors filed for bankruptcy protection. At the time, Allied Physicians claimed they had $10 million in assets and $6.8 million in liabilities.

As chairman of the committee of unsecured creditors, Ginn became the overseer of the bankruptcy plan. As such, according to court documents, he had "virtually unfettered access to substantial funds of the reorganized debtor."

Typically, bankruptcy reorganization plans, which are designed to maximize payments to creditors, go before a judge for approval. Once a judge approves a plan, an agent like Ginn is free to follow plan rules and pay professionals like Schiller for their services without necessarily going back to the court. There are supposed to be, however, built-in protections so that most of the money goes to the creditors.

In the Allied Physicians case, Schiller's largest single fee came after Ginn hired the lawyer to sue Allied's directors and officers for failing to properly manage the company. In October 1998, the insurance firm for the directors settled the lawsuit for about $1.35 million. Ginn paid Schiller $270,000. The amount was based on a percentage of the settlement, but Ginn did not subtract the costs of the lawsuit before calculating Schiller's take.

According to Broyles, Schiller didn't have the experience to handle the job. "Schiller's inexperience is evident from an examination of invoices filed with the court..." Broyles wrote in one document. During 10 days in March 1998, when Schiller was preparing the original petition in the lawsuit, he billed the plan for 144 hours of his services alone -- not including work done by his paralegals.

Ginn also loaned $300,000 from the plan to Waylon McMullen, a lawyer. Ginn told Abramson he did so "to maximize the yield of the assets." The plan was repaid in three installments plus interest. But the notion that the plan agent was lending money to his friends riled Abramson, who later ruled that the accountant must give back his fees.

Weil says that his client turned to the relatively inexperienced Schiller because "there was some difficulty in finding a lawyer who would take the case on a contingency basis." Weil said he doesn't want to comment about the loan to McMullen, but adds, "There were differing views about the appropriateness of that loan."

Weil believes his client is being held accountable for a plan that everyone else had signed off on. "Mr. Ginn didn't draft the plan or the plan documents. Lawyers for the creditors committee and the debtor designed it," Weil says. He contends that the creditors did not complain about Ginn's management until Schiller won the $1.35 million settlement.

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