In re | Case No. J-89-00196 HAR |
  | Chapter 7 |
CARY N. WILLIAMSON, d/b/a The |   |
Corner Deli, and GLADYCE M. |   |
WILLIAMSON, |   |
Debtor(s). | MEMORANDUM REGARDING PARTIAL |
  | ALLOWANCE AND REDUCTION OF |
  | ATTORNEY'S FEES REQUESTED |
This matter concerns the fees of debtors' attorney, John M. Rice, Esq., of Juneau. Mr. Rice represented debtors when they filed chapter 7 on February 21, 1989, and for a period of about eight months before then.
The trustee challenged Mr. Rice's entitlement to a large part
of the $11,000.76 retainer Mr. Rice collected prepetition. See Motion
of Trustee for Examination of Payment of Fees Made to Attorney in
Contemplation of Bankruptcy (Docket No. 48) and Mr. Rice's Opposition
to Motion by Trustee for Examination of Payment of Fees Made to Attorney
in Contemplation of Bankruptcy (Docket No. 54) and Defendant's [sic]
Memorandum in Opposition to Motion by Trustee
2 ABR 263
for Refund of Payment of
Fees Paid to Attorney (Docket No. 65). Later, Mr. Rice filed an
Application for Attorney Fees (Docket No. 68) requesting $9,024.66 in
addition to $11,000.76 which he received from debtors prior to filing
the chapter 7 petition.
The trustee objects to the fees as being grossly excessive (Docket No. 48 noted above and the Supplemental Memorandum in Support of Trustee's Objection to Debtors' Attorney Fees, Docket No. 64). FDIC joined in the objection on the grounds the fees were excessive, not justified under a lodestar analysis, and not for the benefit of the estate. (Docket No. 72).
In addition to the briefs which have been filed, the court held a hearing and heard testimony or argument from Mr. Rice.
Rice's actual billing statements can be found as an exhibit to the fee application, Docket No. 68. A table summarizing Mr. Rice's billing statements follows (since the amount charged for costs is inconsequential, I have lumped them with the fees for the purposes of this memorandum):
Dates of Service | Attorney Fees and Costs Claimed |
Amount Received |
Prepaid or Due at End of Period |
06/28/88 to 12/28/88 | $4,908.35 | $11,000.76 | <$6,092.41> |
01/01/89 to 05/31/89 | $5,965.38 | $0.00 | <$127.03> |
06/01/89 to 06/30/89 | $1,191.66 | $0.00 | $1,064.63 |
07/01/89 to 07/31/89 | $852.50 | $0.00 | $1,917.13 |
08/01/89 to 08/31/89 | $1,607.53 | $0.00 | $3,524.66 |
09/01/89 to 09/30/89 | $412.50 | $0.00 | $3,937.16 |
10/01/89 to 11/30/89 | $3,941.67 | $0.00 | $7,878.83 |
12/01/89 to 12/31/89 | $1,145.83 | $0.00 | $9,024.66 |
The billing statement for the prepetition period from June 29, 1988 to December 28, 1988 shows that Rice received a retainer on July 7, 1988 of $9,911.00 and another $1,089.76 on December 14, 1988, or a total of $11,000.76 in 1988. Rice's statement for the year 1988 shows fees of $4,908.35.
None of the 1988 fees are specifically identified as bankruptcy related, although they generally appear to be related to financial woes of debtors' business. Thus, at the end of 1988, which is shortly before the bankruptcy was filed, Rice showed a credit balance for prepaid fees of $6,092.41. The $6,092.41 held by Rice on January 1, 1989 was like a prepetition retainer. It was property of the estate, and is subject to review. NBI, Inc., 129 BR 212, 222 (Bankr D Colo 1991).
Starting with the billing statement for the period from January 1, 1989 to May 31, 1989, Mr. Rice begins to show line items identified as directly relating to the impending bankruptcy. The first direct reference to bankruptcy is the item on February 1, 1989 (3 hours for drafting chapter 7 forms). Numerous hours during this period were logged for "drafting schedules."
Generally fees in a bankruptcy case are first analyzed using
the lodestar approach. That is that "[a] compensation award based upon
a reasonable hourly rate multiplied by the number of hours actually and
reasonably expended is presumptively correct." In re Manoa Finance
Co., Inc., 853 F2d 687, 691 (9th Cir 1988) and In re Four Star Terminal,
42 BR 419, 429 (Bankr D Alaska 1984). The Ninth Circuit has also held
that the lodestar approach is not
2 ABR 265
mandated in all cases. Unsecured
Creditors Committee v. Puget Sound Plywood, Inc., 924 F2d 955, 960 (9th
Cir 1991). Where the hours claimed appear to be totally out of
proportion to the size of the case or legal problems, a bankruptcy judge
must use his or her common sense and experience to award a just fee --
just to the attorney, the debtor, and the creditors.
The Trustee notes that Mr. Rice claims 44.09 hours for the preparation and revision of schedules and 32.74 hours for legal research. The bulk of Rice's postpetition fees were for an excessive amount of time drafting and redrafting the schedules and for representation of debtors' in the dischargeability and exemption litigation. The fees beyond a reasonable amount of time to complete a task should not burden the estate. The number of hours sought for schedule is excessive.
This is a relatively small business chapter 7. The schedules show about $325,000 in debt ($140,000 related to debtor's home), and $213,000 in assets. The Trustee compares this case with In re Riverview Financial Services, Inc., 67 BR 714 (Bankr ED Mich 1986) in which fees were reduced from $10,000 to $4,000 in a case much larger. The court in Riverview held it had authority to review the fees received in the year before the petition under 11 USC § 329. The court described the normally compensable work of a chapter 7 attorney in Riverview at 715, quoting from In the Matter of Nu-Process Industries Inc., 13 BR 136, 138 (Bankr ED Mich 1981):
An attorney is entitled to compensation for analyzing the debtor's financial condition; rendering advice and assistance to the debtor in determining whether to file a petition in2 ABR 266 bankruptcy; the actual preparation and filing of the petition, schedules of assets and liabilities and the statement of affairs and representing the debtor at the 341 meeting of creditors.
Rice counters that the $4,908.35 charged against the retainer for 1988 work was not directly related to filing the bankruptcy. See Defendant's [sic] Memorandum in Opposition to Motion by Trustee for Refund of Payment of Fees Paid to Attorney (Docket No. 65), pages 4-7, listing efforts with respect to Rice's work on debtors' business problems before bankruptcy was contemplated. He acknowledges that the billing from January, 1989 was related to the bankruptcy. Id at page 5.
Debtors and Mr. Rice have the burden of showing their fees are both reasonable, In re Four Star Terminal supra at 428, and reasonably necessary for the benefit of the estate, as opposed to the debtors' own interests. In re Walter, 83 BR 14, 19 (9th Cir BAP 1988).
Rice argues that his attorney fees were driven up by the
trustee's and FDIC's litigiousness. However, Rice's work on debtors'
exemption dispute and dischargeability case should not be borne by the
estate, especially when the flavor of the evidence is that debtors were
caught trying to manipulate the bankruptcy process. Fees incurred for
the benefit solely of the debtor and not for the bankruptcy estate may
be disallowed. In re Acala, 918 F2d 99, 103 (9th Cir 1990) (attorneys
representation of debtor in a claim which had not been disclosed to the
trustee was not compensable); In re Walter supra at 19 (attorney fees
incurred in an attempt to establish right to an exemption); In re
Storms, 101 BR
2 ABR 267
645 (Bankr SD Cal 1990) (no attorney fees for opposing
confirmation of competing plan); In re LaRosa, 91 BR 920 (Bankr SD Cal
1988) (no attorney fees for opposing trustee's objection to exemptions);
and, In re B.E.S. Concrete Products, Inc., 93 BR 228, 234 (Bankr ED Cal
1988) (fees denied due inability to determine proper allocation between
work for estate and for conflicting interest). But see In re Eith, 111
BR 311 (Bankr D Hawaii 1990) (fees allowed for attorney services related
to nondischargeable prepetition tax obligations, against contention
these were for debtor's personal benefit).
The Trustee wants Rice to disgorge about $6,000 of the amount he has been paid. See Supplemental Memorandum in Support of Trustee's Objection to Debtors' Attorney Fees, Docket No. 64 at page 4. In other words, of the total of $20,025.42 which Rice has billed between June 28, 1988 and December 31, 1989, the Trustee wants to allow only $5,025.42.
The court will accept Mr. Rice's version of the facts
regarding his work in 1988 and find that the bulk of the work he did
before 1989 did not directly relate to bankruptcy. However, a
reasonable fee for the post-1988 work is $1,500, especially in light of
the fact that the 1988 work, if not directly bankruptcy connected, did
involve closely related debtor-creditor matters and debtors' financial
problem. The $1,500 is roughly equivalent to two days of attorney's
work on this case after bankruptcy was contemplated, calculated at the
$125 per hour billing rate Mr. Rice charged. The description on the
billing from 1989 is not informative enough to do a cogent line-by-line
analysis, nor should
2 ABR 268
the court be required to do that where the
statement is so far from reasonable to begin with. Compare Unsecured
Creditors Committee v. Puget Sound Plywood, Inc. supra at 960 and Four
Star Terminals, Inc. supra at 426-427.
Allowing for a small adjustment to pick up any costs, Rice must refund $4,500 to the trustee of the amount he held as a prepetition retainer on January 1, 1989.
DATED: February 6, 1992. |   |
  |   |
  | ______________________________ |
  | HERBERT A. ROSS |
  | Bankruptcy Judge |
Serve: |   |
John Rice, Esq., for Debtors |   |
Bonnie Stratton, Esq., for FDIC |   |
Dan Bruce, Esq., Trustee |   |
U.S. Trustee | H3948 |