Reconstructed Time Records Are Ok in a POC for Pre-Filing Attorneys’ Fees

Reconstructed time records do not result automatically in the reduction or disallowance of a mortgage lender’s claim for prepetition legal services, according to Chief Bankruptcy Judge Janice D. Loyd of Oklahoma City.

The mortgage lender initiated a foreclosure proceeding in state court, to which the homeowners responded by filing a chapter 13 petition. The lender filed a secured proof of claim, listing the outstanding principal, interest, and $1400 in attorneys’ fees. The claim attached copies of the note and mortgage, but not attorneys’ time records.

The debtors objected to the claim for attorneys’ fees on numerous grounds, none of which gained traction with Judge Loyd in her May 17 opinion.

Because the lender was seeking prepetition attorneys’ fees, Judge Loyd explained that the burden of proof fell on the debtor if the claim complied with Rule 3001. Were the lender claiming for postpetition fees, she said the lender would have borne the burden of proof under Rule 3002.1.

Assuming the proof of claim was up to snuff, it would be entitled to “prima facie evidence of the validity and amount of the claim” under Rule 3001(f). Judge Loyd said she was therefore required to decide whether the claim contained “the required itemization under Rule 3001.”

The debtor objected to the claim because the proof of claim only listed $1400 for attorneys’ fees but did not include time records. In response, the lender’s foreclosure counsel submitted reconstructed time records showing 6.2 hours of work at $275, for a total of $1705. The lender, however, was only claiming $1400, because that was the amount it paid counsel under a fixed-fee arrangement.

Since the lender sought recovery of prepetition counsel fees, Judge Loyd informed her decision by Oklahoma law. According to Judge Loyd, the Oklahoma Supreme Court ruled that contemporaneous time records are not required. Although the court may discount time charges if the records were not prepared contemporaneously, Judge Loyd said there was no basis for reducing the claim given how the bank was claiming less than the time value of the attorney’s work.

Significantly, Judge Loyd ruled that the lender was not required to include the attorneys’ time records in the proof of claim, because Rule 2016 applies to applications for compensation, not to proofs of claim. The lender, however, conceded that time records were required if there were an objection to the claim.

The debtor also contended that the bank’s attorneys were guilty of so-called lumping and block billing. Even if it were true, Judge Loyd said the Tenth Circuit “has not adopted a per se rule prohibiting fees due to block billing.” Again assuming there was block billing and she reduced the time charges by 15%, Judge Loyd said the reduced fees would still be more than the bank was claiming under the fixed-fee arrangement.

Judge Loyd therefore denied the objection to the lender’s claim, although she said the opinion did not amount to a holding that a flat-fee arrangement is prima facie evidence of the reasonableness of the fee. There is “no precise rule or formula,” she said, to determine the reasonableness of the fee.