According to the U.S. Bankruptcy Court for the Western District of Oklahoma, if pre-petition attorney’s fees are included in the mortgage creditor’s proof of claim, contemporaneous time records are required to establish the reasonableness of those fees.
In Fanning,[1] state court foreclosure proceedings were initiated the month before the debtors filed for chapter 13 relief. Pursuant to Rule 3001, the creditor filed a timely proof of claim asserting an interest secured by a first mortgage on the debtors’ residence. In addition to principal and interest, the creditor’s proof of claim included $1,400 for attorneys’ fees incurred in the foreclosure action. On the claim, the attorneys’ fees were stated in separate increments of $1,000 and $400, which were incurred on different dates.
The debtors filed an objection to the claim, challenging the reasonableness of the attorneys’ fees. In response, the creditor’s attorney submitted an affidavit that attached reconstructed time records indicating that a total of $1,705 of fees were incurred by two attorneys at the law firm and no nonattorney time was charged. However, due to the law firm’s fee agreement with the creditor, the creditor was charged only a flat fee of $1,400.
The debtors first argued that the creditor had the burden of proving the reasonableness of the attorneys’ fees because it sought court approval for those fees. Although that may typically be true, the court disagreed here because the creditor was seeking the pre-petition attorneys’ fees as part of its proof of claim.[2] Under Rule 3001(f), “a proof of claim executed and filed in accordance with these rules shall constitute prima facie evidence of the validity and amount of the claim.” Rule 3001(c)(2)(A) requires, in relevant part, that “[i]f, in addition to its principal amount, a claim includes interest, fees, expenses, or other charges incurred before the petition was filed, an itemized statement of the interest, fees, expenses, or charges shall be filed with the proof of claim.” The court found the creditor’s claim, which attached copies of the note and mortgage as well as a breakdown of the attorney’s fees, complied with Rule 3001(c)(2)(A). Therefore, the creditor’s claim enjoyed the Rule 3001(f) evidentiary effect, and the burden of proof was on the debtors to refute the $1,400 claim for attorneys’ fees.
The court then considered whether the fees claimed by the creditor were reasonable. The parties agreed that the underlying loan documents provided for the recovery of attorneys’ fees. Although the debtors asserted that the $1,400 claimed for pre-petition attorneys’ fees for representation during the foreclosure proceedings were not reasonable, they presented no expert testimony to refute the reasonableness of the fees charged, nor any evidence to demonstrate what reasonable attorneys’ fees should be. Instead, the debtors argued that no time records existed for the creditor to accurately demonstrate how much time was expended by its attorneys. In response, the creditor’s attorneys produced reconstructed time records.
Although the production of detailed time records is required when a creditor seeks to recover pre-petition fees and expenses under Rule 3001, the court found that applicable state and federal case law do not require that the time records be contemporaneous. The court noted that the seminal state court case discussing the recovery of attorneys’ fees involved reconstructed time sheets.[3] Additionally, the Tenth Circuit requires only that courts give “special scrutiny” to reconstructed time records to ensure they contain sufficient detail to establish the reasonableness for the time and fees the party seeks in an award.[4] The court found that the reconstructed time records attached to the attorney’s affidavit included adequate descriptions and corresponding time entries and dates. Therefore, based on the testimony and affidavit of the creditor’s attorney, the court concluded there were no grounds to deny or discount the requested attorneys’ fees.[5]
Thus, the court overruled the debtors’ objection and found that the creditor’s request for $1,400 for pre-petition attorneys’ fees was reasonable and allowed. However, the court warned that its holding should not be interpreted as a per se allowance of an attorney’s flat fee arrangement with a mortgage creditor. Instead, the reasonableness of such fees should be determined on a case-by-case factual basis.
[1] In re Fanning, C/A No. 18-11163 (Bankr. W.D. Okla. May 17, 2019).
[2] The court noted that Rule 3002.1 places the burden of proof upon the creditor for the recovery of post-petition attorney’s fees.
[3] State ex rel. Burk v. City of Oklahoma City, 598 P.2d 659 (Okla. 1979).
[4] Ramos v. Lamm, 713 F.2d 546, 553 n.2 (10th Cir. 1983); Jan L. v. Bangerter, 61 F.3d 1505, 1510 (10th Cir. 1995).
[5] The debtors also challenged the attorney’s alleged use of block-billing. The court found that the time records did not constitute block-billing because they contained discrete tasks performed by each attorney within a given period and were not lumped together with unrelated tasks or generic descriptions. Fanning, C/A No. 18-11163, slip op. at 12.