A hearing was held on March 30, 1992 on Martinson Gravel and Crane's challenge to the court's subject matter jurisdiction to hear the fee application of Walter Garretson, special counsel for Martinson, the debtor. The hearing also concerned whether the bankruptcy court should, in any event, abstain in favor of a fee arbitration before an Alaska Bar Association Fee Review Committee. Garretson wants the bankruptcy court to hear the matter and     2 ABR 370  Martinson wants the matter arbitrated by the Alaska Bar Association. I determine that I have jurisdiction and should not abstain.

     The debtor confirmed a chapter 11 plan on August 29, 1991. The major source of funding for the plan was to be the recovery on a construction contract claim of debtor against Wilder Construction Co., Inc., and the State of Alaska arising out of a pre-petition construction project at the Nome airport. The court approved the retention of Garretson to represent debtor in the state court action on a contingent fee pursuant to 11 USC § 327(e) with his ultimate fees to be approved after notice and hearing.

     The construction lawsuit was settled in November, 1991 for about $630,000 in cash payable to Martinson, transfer of equipment to Martinson with an alleged value of $125,000, and forgiveness of about $120,000 in debt. Garretson applied for fees and costs in excess of $240,000. Debtor contested the fee application (alleging coercion and improper representation) and filed a fee arbitration demand under Alaska Bar Rules 34-42 for mandatory arbitration before a Fee Review Committee. Alaska Bar Rule 34(b) provides:

     (b) Mandatory Arbitration for Attorneys.
Arbitration pursuant to these Rules is mandatory for an attorney when commenced by a client. For the purposes of these Rules, a "client" includes any person who is legally responsible to pay the fees for professional services rendered by an attorney.

     There are certain exceptions, e.g., where the matter already "has been determined pursuant to State statute or by a court rule, order, or decision." Alaska Bar Rule 34(c)(3).

     Martinson suggests there is no subject matter jurisdiction and that, since the matter concerns state law, the court must abstain. See 28 USC § 1334(c)(1) re mandatory abstention. I hold     2 ABR 371  that the bankruptcy court has jurisdiction to determine the fees due to Garretson. Compare In re Shirley, 134 BR 940, 943 (9th Cir BAP 1992) which held:

Although we recognize that "[a] clear congressional policy exists to give state law claimants a right to have claims heard in state court," In re Castlerock Properties, 781 F.2d 159, 163 (9th Cir.1986), See, 28 U.S.C. § 1334(c), DeRonde's services were admittedly rendered in connection with Shirley's bankruptcy and therefore the entire matter falls squarely within the governance of the Bankruptcy Code provisions concerning employment of professionals and payment of fees. [footnote omitted]

     I further find that this is a core proceeding under 28 USC § 157(b)(2)(A, O).

     Martinson also suggests that the court use its discretion to abstain under 28 USC § 1334(c)(2) in light of the arbitration procedure set out in Alaska Bar Rules 34-42. Neither counsel nor the court has found a case involving mandatory fee arbitration for a debtor's attorney whose employment is authorized under 11 USC § 327. Even where a bankruptcy court has jurisdiction to hear a matter, it can abstain or lift the stay in favor of arbitration. See In re Mor-Ben Ins. Markets Corp., 73 BR 644 (9th Cir BAP 1987) holding that arbitration can be compelled unless there are overriding bankruptcy issues. But, where the matters involved are largely bankruptcy issues, a bankruptcy court can determine not to abstain or lift the stay in favor of arbitration. Id at 648.

     Approval of a debtor's counsel fees are so common and pervasive in bankruptcy, that matter should normally be heard by the bankruptcy court. That is not to say the court would never abstain. In this case, however, the amount of Garretson's fees will affect     2 ABR 372  the amount left over to pay creditors under the workings of the plan. The issue in this case should be heard by the bankruptcy court. Therefore,

     IT IS ORDERED that the court has subject matter jurisdiction to hear this matter and the court will not abstain. I neglected to invite the Alaska Bar Counsel to participate in this matter, and should he desire to state a position contrary to the ruling, I will allow him until April 10, 1992 to file a brief and, if one is filed, the court will allow the Alaska Bar Counsel to be heard.