The Ninth Circuit Bankruptcy Appellate Panel laid down rules about the sufficiency of pleadings and the burden of proof in small chapter 7 cases when the trustee seeks compensation for himself as his own attorney.
In short, the attorney’s fee application must contain facts showing that the chores required the services of counsel. As the BAP said in its December 19 opinion, “blind insistence that [the time spent as an attorney] was compensable professional time because [the attorney-trustee] said so is not sufficient to satisfy the requirements of the Bankruptcy Code.”
In a couple’s chapter 7 case where filed claims were less than $10,000, the trustee obtained the court’s authority to retain himself as his own trustee. At the end of the case, the attorney filed a final fee application seeking almost $3,400 for 11.3 hours of work at $300 per hour. The fee application listed 8.4 hours of time for “litigation.” The remainder sought compensation for preparing the retention application and the fee application.
The U.S. Trustee objected to the fee application, primarily asserting that the attorney was seeking compensation for services ordinarily performed by a trustee. Bankruptcy Judge Scott H. Gan of Phoenix sustained the objection and granted only $870 in compensation. Judge Gan disallowed all of the compensation for litigation while allowing compensation for the preparation of the retention and fee applications.
The attorney appealed to the BAP, principally arguing that the party objecting to a fee application carries the burden of showing that the fees were unreasonable or unnecessary. The BAP disagreed and affirmed Judge Gan in a nonprecedential, unsigned, memorandum opinion.
The BAP panel said that a fee award will be upheld absent an abuse of discretion or an erroneous application of law. The panel said it uses an “extremely deferential standard” because the “bankruptcy court is uniquely in the best position to assess the amount of work done, its contribution to the administration of the estate, and its benefit to the stakeholders.”
The panel bemoaned the difficulty in assessing fee allowances in small cases where “the court simply does not have the same opportunity to assess the nature of the work or whether it was actually necessary.” In mid-sized and larger cases, the panel said that the “skill requisite to achieve those results may be much more obvious.”
The panel agreed that the objecting party has the burden of proof to show that the fees were unreasonable or unnecessary but disagreed with the attorney’s premise “that the burden of the objecting party somehow relieves the professional from its burden to establish that its requested fees are reasonable in the first instance.”
In what amounts to a rule regarding the sufficiency of a pleading to state a claim for an award of fees, the panel said that the “burden is on the party requesting allowance of the fees to establish that the requirements of the Code have been met.” In the case on appeal, the panel said that the attorney “failed to offer sufficient evidence that the fees were reasonable and necessary under the requirements of § 330(a).”
The panel explained why the fee application did not measure up in terms of stating facts sufficient allege a claim. The attorney-trustee said in a pleading in bankruptcy court that it was “his opinion” that the services were not those to be performed by a trustee. The panel rebutted the contention by saying that the fee application
contained no separate declaration . . . that the services rendered were actually and necessarily performed within § 330. The single-sentence explanation in the application for the work is: “[t]hat the legal services rendered in this Case were required and benefitted the Estate including (but not limited to) the following: Legal work to prosecute and settle Litigation to recover the Bankruptcy Estate’s interest in Estate Assets.”
The “litigation” for which the attorney had sought fees included $2,500 recovered as a settlement with the debtors on account of $5,000 they had withdrawn from a bank account before bankruptcy. The attorney-trustee also negotiated for the estate to retain about $3,000 from the apportionment of a $9,400 tax refund the debtors received. The bankruptcy court approved both settlements based on terse applications.
The panel cited its own precedent by saying that an attorney “must therefore present sufficient evidence including billing records with enough detail to establish that the services rendered went beyond the scope of the trustee’s statutory duties and involve unique difficulties.” The BAP found “nothing in the record that would support a finding that the efforts disallowed by the bankruptcy court required expertise beyond that expected of an ordinary trustee.”
Furthermore, the BAP said that an attorney must exercise “billing judgment” and that “[h]aving an attorney perform a task does not compel a finding that the fees were necessary per se.” The panel said it “implicitly” relies “on the trustee to exercise appropriate discretion before burdening the estate, and in particular a small estate, with attorney’s fees where the task might well have been performed by the trustee.”
In conclusion, the BAP said that the attorney “offered no explanation as to why litigation was required to monetize what was obviously going to be a simple and nominal recovery for the estate.” Affirming the bankruptcy court, the panel said that the attorney “offered no evidence that he considered the potential for recovery and did any balancing assessment before filing the turnover motion.”
The Ninth Circuit Bankruptcy Appellate Panel laid down rules about the sufficiency of pleadings and the burden of proof in small chapter 7 cases when the trustee seeks compensation for himself as his own attorney.
In short, the attorney’s fee application must contain facts showing that the chores required the services of counsel. As the BAP said in its December 19 opinion, “blind insistence that [the time spent as an attorney] was compensable professional time because [the attorney-trustee] said so is not sufficient to satisfy the requirements of the Bankruptcy Code.”
In a couple’s chapter 7 case where filed claims were less than $10,000, the trustee obtained the court’s authority to retain himself as his own trustee. At the end of the case, the attorney filed a final fee application seeking almost $3,400 for 11.3 hours of work at $300 per hour. The fee application listed 8.4 hours of time for “litigation.” The remainder sought compensation for preparing the retention application and the fee application.