A district judge in Shreveport, La., called a halt to a local practice of paying counsel only after confirmation of a chapter 13 plan and therefore automatically disallowing compensation whenever a chapter 13 case is converted to chapter 7.
After residing in chapter 13 for about six months, the debtor had decided on conversion to chapter 7, but the conversion motion had not been filed.
With the debtor’s approval, the debtor’s counsel filed an application for interim allowance of $1,000 in compensation. The application acknowledged that the debtor intended on converting to chapter 7. The so-called no-look fee in the district was $2,800 at the time.
Before conversion, the bankruptcy court denied the fee application on the authority of Harris v. Viegelahn, 135 S. Ct. 1829 (2015), where the Supreme Court held that undistributed post-petition wages in the hands of a chapter 13 trustee must be paid to the debtor on conversion to chapter 7. The bankruptcy court also relied on the “historical practice” in the district of allowing compensation only after confirmation, dismissal or conversion.
District Judge S. Maurice Hicks, Jr. reversed in a Feb. 7 opinion, ruling that the bankruptcy court was wrong to rely on Harris and local practice.
Judge Hicks said that allowing compensation only after confirmation “makes the collection of attorney fees [during a chapter 13 case] 100% contingent upon the successful confirmation of a chapter 13 plan.” Since chapter 13 confirmations “are not common,” he said that requiring confirmation “would be inequitable.”
In terms of precedent, Judge Hicks characterized Harris as “narrow and concise.” Nothing in the Supreme Court’s opinion, he said, indicates that fees “cannot be distributed prior to conversion.” Harris “simply holds that after conversion any funds retained by the chapter 13 trustee must be returned to the debtor.”
The bankruptcy court’s decision would have been correct, Judge Hicks said, if compensation had been denied after conversion. Since conversion had not occurred, he held that neither Harris nor Section 348 “prevents awarding and payment of compensation for attorney fees prior to the conversion.”
Judge Hicks was evidently mindful that his opinion would alter practice in the district in perhaps hundreds of future cases. He noted, for example, that counsel are not precluded from collecting fees “[e]ven if the services were ultimately unsuccessful,” citing Fifth Circuit authority.
With regard to amount, he found that $1,000 was “reasonable.” If the bankruptcy court believed the amount was not reasonable, Judge Hicks said the bankruptcy court “had the chance to rule accordingly.” Instead, he said, the bankruptcy court rested its decision on Harris and “historical practice.”
Judge Hicks ended his opinion by holding that Harris did not preclude payment before confirmation. He also held that reliance on “historical practice” was an “abuse of discretion” when the court “had the authority to award such a fee.”
A district judge in Shreveport, La., called a halt to a local practice of paying counsel only after confirmation of a chapter 13 plan and therefore automatically disallowing compensation whenever a chapter 13 case is converted to chapter 7.