JEFFREY P. NORMAN, Bankruptcy Judge.
Before the Court are applications for compensation filed by attorney Reese W. Baker (hereinafter "Baker"), a volume Chapter 13 practitioner in this division.
Baker filed this Chapter 13 case on behalf of debtor Mark Contreras on March 5, 2018. Baker also represented Mr. Contreras in his original bankruptcy case (Case No. 17-32841), filed on May 2, 2017. That case was dismissed on November 21, 2017. The Statement of Financial Affairs filed on March 16, 2018 (ECF No. 10), indicates that Mr. Contreras paid Baker's law firm $400.00 on May 2, 2017, $650.00 on March 2, 2018, and $3,435.00
Mr. Contreras refiled bankruptcy to save a property he inherited, which is located at 809 Sunset Drive, Baytown, Texas 77520. Baker testified that Mr. Contreras informed him this property had been paid off through his father's life insurance. To support his claim, Mr. Contreras presented a document to Mr. Baker that appeared to be printed from a computer. Based on this evidence, Baker testified that he filed an adversary proceeding (Case No. 18-3255) against Rushmore Loan Management Services LLC and nine other financial institutions, on August 20, 2018, to contest their interest in the property and to contest how the alleged life insurance funds had been applied to the mortgage loan. During the adversary proceeding, Baker testified that the defendants were able to present proof that the life insurance policy in question had not in fact paid off the loan. This Court signed an agreed order dismissing the adversary proceeding on November 28, 2018 (Case No. 18-3255, ECF No. 26).
The Chapter 13 Trustee has argued that Baker should have known the adversary proceeding would be of little or no benefit because most of the claims were barred by the Texas statute of limitations. On cross examination, it became clear that Baker had not performed sufficient due diligence to determine the veracity of the claims before initiating the adversary proceeding. Baker testified that the reason he filed the adversary proceeding because "the debtor wanted us to do this." (ECF No. 79, pg. 15, line 9.) Instead, Baker filed the adversary proceeding based solely on his client's representations and a computer printout. That computer printout, which was not introduced into evidence, only showed that an insurance premium was being paid when the mortgage loan was executed in 2001; it did not show whether insurance was actually in place when the debtor's father died. Baker made no mention of any investigation he performed to determine whether any of the claims had any merit. If Baker had performed minimal investigation, he likely would have easily discovered that there had been no life insurance policy in place when the debtor's father died, and therefore no life insurance funds were disbursed to be applied to the mortgage loan. In addition to this, it is arguable that some or most of the claims, including the breach of contract claim, in the adversary proceeding were barred by the Texas statute of limitations. This adversary proceeding provided no benefit to the debtor or the bankruptcy estate. Further, Baker did not perform sufficient due diligence to determine whether the adversary proceeding reasonably could have benefited the debtor or the estate.
In the 2017 case, Baker filed a Fixed Fee Agreement in the amount of $3,825.00. (Case No. 17-32841, ECF No. 31). Baker also attempted to file a Fixed Fee Agreement in the present case, but his application was denied as untimely. (ECF No. 40). As a result, Baker billed this case on an hourly fee basis. In this refiled case, from February 23, 2018, through February 26, 2019, Baker's fees total $13,097.00, which includes the fees in the main case ($4,681.00) and the fees from the adversary proceeding ($8,416.00). (ECF No. 71-4). The adversary proceeding was dismissed as was the debtor's main case before confirmation. He seeks a total of $12,943.58 after deduction of the debtor's March 2, 2018, payment of $650.00.
The Court notes three important facts. First, over two unsuccessful bankruptcy cases and one unsuccessful adversary proceeding, Baker has sought fees totaling $16,522.00 and has been paid $4,475.00. Second, irrespective of the time Baker and his law firm have billed, neither the debtor nor the bankruptcy estate have received much benefit from the work Baker has performed. Third, twelve different people, including Baker, billed on this case. Baker does not employ secretarial staff, so paralegals bill for secretarial tasks. No task is billed below a $100 rate. (ECF No. 71). This raises issues concerning duplication of effort and billing for clerical tasks. As this case was dismissed before confirmation, no plan was confirmed and no distributions to unsecured creditors will occur.
Baker filed this Chapter 13 bankruptcy petition on behalf of debtor James Curry on September 21, 2016. The Court confirmed Mr. Curry's plan on May 16, 2017 (ECF No. 63). A modification of the confirmed plan was approved (ECF No. 111) on June 14, 2018. The confirmed plan, as modified, provided for a total of $5,835.00 in attorney fees to Baker & Associates, of which $3,735.00 had been previously disbursed pursuant to a fixed fee agreement (ECF No. 99). It also estimated approximately $3,548.87 available for general unsecured claims.
On March 11, 2019, Baker filed a Chapter 13 Fee Application (ECF No. 115) in the total amount of $3,808.88. He has requested that 100% of these fees and expenses be paid to him through the Chapter 13 plan. To date, Baker has been paid $3,735.00 in fees through the Chapter 13 plan pursuant to a fixed fee agreement. Seven different people, including Baker, billed on secretarial tasks.
Baker filed this Chapter 13 bankruptcy petition on behalf of debtors David and Heather Campbell on November 18, 2016. The Court confirmed debtors' Chapter 13 plan on April 18, 2017 (ECF No. 51). A modification of the confirmed plan was approved on March 9, 2018 (ECF No. 73). The Court approved another modification of the plan on August 22, 2018 (ECF No. 88). The confirmed plan, as modified, provides for a total of $7,235.00 in attorney fees to Baker & Associates, of which $3,544.00 had been previously disbursed pursuant to a fixed fee agreement. It also estimated approximately $6,444.40 available for general unsecured claims. On February 6, 2019, Baker filed a Chapter 13 Fee Application (ECF No. 93) for post-confirmation fees in the total amount of $2,790.73. On March 4, 2019, this Court entered an order (ECF No. 97) denying the Chapter 13 Fee Application. On March 6, 2019, Baker filed a Second Chapter 13 Fee Application (ECF No. 98) for post-confirmation fees in the total amount of $2,097.46. Nine different people, including Baker billed on this case. Baker does not employ secretarial staff, so paralegals billed for secretarial tasks.
Baker filed this Chapter 13 bankruptcy petition on behalf of debtor Wanda Hubbard on June 4, 2018. The Court confirmed debtors' Chapter 13 plan (ECF No. 43) on December 7, 2018. The confirmed plan provides for a total of $5,100 in attorney fees to Baker & Associates. It also estimates approximately $13,431.00 available for general unsecured claims. On March 7, 2019, Baker filed a Chapter 13 Fee Application (ECF No. 53) for fees totaling $4,061.50. Ten different people, including Baker, billed on this case. Baker does not employ secretarial staff, so paralegals are billing for secretarial tasks.
The Chapter 13 Trustee filed objections to each of Baker's fee applications, and each objection raises similar issues. In the Contreras, the Trustee alleges that: (a) billing records that reflect that paraprofessionals performed clerical or secretarial services such as reviewing the Trustee's website and reviewing dockets, which may not be compensable; (b) the billing records reflect paraprofessionals and attorneys performed what appear to be duplicative tasks; (c) the billing records show $335.00 per hour for Rick Carter, an individual identified as a "Contract Attorney," which is excessive for a contract attorney; (d) that an adversary proceeding filed in the case was unnecessary, and that the fees billed were excessive because the adversary proceeding provided little or no benefit to the estate; (e) as a board-certified attorney, Baker should have known the adversary was frivolous with reasonable inquiry into the matter before filing; and (f) the total fee requested is unreasonable as it exceeds the amount reasonably necessary for the work required to be performed and exceeds the prevailing rate for similar work.
In Curry, the Trustee alleges the following: (a) billing records that indicate charges for deficient filings that were either denied or needed to be amended; (b) Baker, as a board-certified attorney, should be held to a higher duty of care and should be expected to have a greater experience level than attorneys who do not hold a board certification; (c) that the total fee requested is unreasonable as it exceeds the amount reasonably necessary for the work required to be performed to date and that it exceeds the prevailing rate for similar work; and (d) that the small return to general unsecured claims should not be further diminished to provide for these excessive fees.
In Campbell, the Trustee alleges the following: (a) billing records that reflect that paraprofessionals performed clerical or secretarial services such as reviewing Trustee's website and reviewing dockets, which may not be compensable; (b) billing records that indicate charges for deficient filings that were either denied or needed to be amended; (c) the billing records reflect paraprofessionals and attorneys performing what appear to be duplicative tasks; (d) Baker, as a board-certified attorney, should be held to a higher duty of care and should be expected to have a greater experience level than attorneys who do not hold a board certification; and (e) that the total fee requested is unreasonable as it exceeds the amount reasonably necessary for the work required to be performed to date and that it exceeds the prevailing rate for similar work.
In Hubbard, the Trustee alleges that: (a) the billing records reflect paraprofessionals and attorneys performing what appear to be duplicative tasks; (b) billing records that indicate charges for deficient filings that were either denied or needed to be amended; (c) Baker, as a board-certified attorney, should be held to a higher duty of care and should be expected to have a greater experience level than attorneys who do not hold a board certification; (d) that the total fee requested is unreasonable as it exceeds the amount reasonably necessary for the work required to be performed to date and that it exceeds the prevailing rate for similar work; and (e) that the small return to general unsecured claims should not be further diminished to provide for these excessive fees.
Section 330(a)(4)(B) of the Bankruptcy Code provides the following:
The other factors set forth in § 330(a)(3) include the following:
The Supreme Court and the Fifth Circuit Court of Appeals have clearly held that the lodestar method of fee calculation is the method by which federal courts should determine reasonable attorney fees under federal statutes which provide for such fees. See, e.g., Pennsylvania v. Delaware Valley Citizens Council for Clean Air, 483 U.S. 711 (1987) (lodestar method used to calculate fees under Clear Air Act); Hensley v. Eckerhart, 461 U.S. 424, 433-34 (lodestar method used to calculate fees under 42 U.S.C. § 1988); Shipes v. Trinity Indus., 987 F.2d 311 (5th Cir. 1993). The lodestar is computed by multiplying the number of hours reasonably expended by the prevailing hourly rate in the community for similar work. Id.
In evaluating attorney fee applications under the lodestar method, the Court routinely reviews the following factors:
Because the applicant in this case uses paralegals or secretaries, the Court also takes the following factors into consideration:
One of the first and most well-known tests of reasonableness was set forth by the Fifth Circuit in Johnson v. Georgia Highway Express, 488 F.2d 714 (5th Cir. 1974). Therefore, in determining a fee award, this Court routinely uses the twelve factors, known as the "Johnson factors," as a guideline in determining fee awards. These factors include the following:
Baker testified in support of his fee applications. The Court finds Baker was not credible. This finding is based on factors discussed in this opinion. It is also based on Baker's testimony regarding various charges in the applications. Several of these charges are glaringly false and are present in each case. While portions of the applicant's testimony appear truthful, his truth and veracity were severely impeded by several significant misstatements as well as the overall clearly excessive billing in each case.
One misstatement included his testimony regarding billing of 1.1 hours for filing an amended plan and schedules in the Hubbard case. Other than the additions of the words "amended" and "cove," the amended plan and schedules are identical to previously filed documents. The preparation of these amended documents is a clearly simple task. It only involved taking an already existing document, adding three words to it, printing and redlining it. With computer software, this task should have taken no more than five minutes. Even an inexperienced paralegal should have taken no more than ten minutes to complete this entire task. However, the applicant billed 1.1 hours for this task. More importantly, Baker represented to the Court that his staff is highly trained and efficient and that this billing was an accurate reflection of time spent on this task. These representations were clearly false.
Like the other cases, the application in the Hubbard case includes inflated billing, and billing that reflects extreme inefficiency. Baker's fee applications, including those in these four cases, are routinely the highest the Court sees in all its Chapter 13 cases. This Court has extensive experience in Chapter 13 cases, both as a practicing lawyer and former Chapter 13 Trustee. The fees sought by the applicant strain credibility. The applicant's law firm appears to bill more and take longer to do any task in a Chapter 13 than other law firm in the Houston, Galveston and Victoria Divisions of the Southern District of Texas, the Shreveport Division of the Western District of Louisiana, and the Columbus Division of the Southern District of Ohio. These are locations where this judge previously practiced or served as a Chapter 13 Trustee or bankruptcy judge. If the time in these applications is not inflated, then the services provided are clearly not being provided in a time efficient manner. Fee application hearings must be based on the belief that the testifying witness is truthful and credible. The Court cannot make that finding in these cases and finds that Baker is neither truthful nor credible.
In addition, Baker has represented that work in these cases was reasonable based on the customary compensation charged by other skilled bankruptcy practitioners. On this point, the Court stresses that Baker is a skilled bankruptcy practitioner; he is Board Certified by the Texas Board of Legal Specialization in both Consumer and Business Bankruptcy Law (Case No. 18-30095, ECF No. 71-5). This Court, therefore, holds him to a higher duty of care as he represents a greater experience level than attorneys who do not hold a board certification. Yet, he filed an adversary proceeding in the Contreras case that clearly involved claims barred by the statute of limitations and then sought $8,416.00 in compensation for work that could have never benefited the debtor or the bankruptcy estate.
In his testimony, Baker stated the following:
Additionally, under cross-examination by the Trustee regarding the time-barred claims, Baker testified as follows:
The complaint in the adversary case (Case No. 18-03255, ECF No. 1) clearly states "[p]laintiff's father, Gilbert Contreras died on or about January 3, 2009." Therefore, Baker clearly had knowledge of the date of the debtor's father's death. Assuming the maximum four-year statute of limitation period for a claim against a contractual life insurance policy, some of the debtor's claims expired on January 2, 2013. This was more than five years before Baker's law firm filed the adversary. Yet, Baker testified, "I believe very clearly he had a reasonable basis for going forward with the information I have been provided." These representations are either false or grossly misleading. While these statements were probably made in haste during cross-examination to support his fee application, these misstatements seriously impugn Baker's credibility with respect to each of the instant fee applications. Further, as the Court has already discussed, there is no evidence Baker conducted any investigation or performed any due diligence to determine the veracity of the claims before filing the adversary proceeding.
The four cases addressed in this opinion demonstrate a systematic billing pattern that is troubling. By submitting these billing records to the Court, Baker has certified that, to the best of his knowledge, information and belief, formed after an inquiry reasonable under the circumstances, the billing is not being presented for an improper purpose. However, all the applications exhibit rampant duplication of effort. This problem is due in part to the sheer number of individuals working on each single case. Up to twelve individuals bill on the fee applications in a single case. Firm lawyers Reese W. Baker, Sonya L. Kapp, Nikie Lopez-Pagen, contract lawyer Rick Carter, and paralegals Katherine Wright, Amanda Ginesta-Osuna, Angie Duque, Gabby Martinez, Jennifer Hunt, Angela Harpin, Dee Wright, and Tammy J. Chandler bill on these cases. The firm does not have any secretarial staff. Therefore, Baker's paralegal staff performs significant secretarial work such as typing pleadings, petitions and schedules. Just because Baker has paralegals performing secretarial work does not make that work compensable.
The Court notes that, in the context of Chapter 13 cases, the number of individuals Baker has billing on a single simple Chapter 13 case is extremely rare. In fact, this Court is not aware of any other law firm using or needing this many people to work on a single Chapter 13 case. This Court has not seen any other consumer bankruptcy case with more than four individuals billing; indeed, even four individuals billing on a case is rare. The Court also notes that the total number of people billing on this case exceeds many of this Court's medium sized Chapter 11 cases. One bankruptcy court made the following analysis of the inherent problems with having a high number of individuals working on a single Chapter 13 case:
This Court agrees with this analysis.
The Court sustains the Trustee's objections to the fee application in Contreras case. First, the Court notes that this was a refiled case. Baker filed the debtor's previous case (Case No. 17-32841), which was dismissed prior to confirmation. When a case is refiled by the same firm, the information from the original filing can be cloned or copied by bankruptcy software to use for the new case. In addition, Baker and his firm should have knowledge of the debtor's situation, including his assets and debts, since they had so recently represented him in a prior case. Baker would have needed only to edit information that had changed from the prior case to the new case. However, between February 23, 2018, and the filing date of the petition on March 5, 2018, attorneys or paralegals spent 3.7 hours to file a petition (ECF No. 1), which was an exact copy of the petition filed in the prior case with the sole exception of the additional disclosure of the prior case. This billing is blatantly excessive.
Following that claimed 3.7 hours of billing, Baker and his firm claim an additional 5.5 hours before the debtor filed his complete schedules on March 16, 2018 (ECF No. 10). The Court compared the schedules filed in this case with the schedules filed in the debtor's previous case (Case No. 17-32841, ECF No. 13). The schedules filed in the instant case are 53 pages long, while the schedules filed in the previous case are 55 pages long. They are sufficiently similar that some time should have been saved in the second case for schedule preparation, reviewing, and filing. However, there was no time savings. The total time Baker and his firm spent in preparing the pleadings prior to filing the schedules on March 16, 2018, is 9.2 hours. This is clearly excessive. The time is either inflated or the services were provided in an extremely inefficient manner (or both). Between March 5, 2018, and March 16, 2018, there are the following seven docket entries relating to the 9.2 hours billed by the applicant: (a) the Chapter 13 Voluntary Petition (ECF No. 1), which a paralegal could have cloned or copied from the prior case, updated, had the debtor sign, and then filed within .3 hours; (b) the credit counseling certificate (ECF No. 2) that requires no attorney preparation and could be reviewed in.1 hour and filed by secretarial staff; (c) the proposed wage order (ECF No. 3), which is a duplicate of the order filed in the previous case (Case No. 17-32841, ECF No. 3) and could have been copied, prepared, and filed in .1 hours; (d) the complete schedules (ECF No. 10), which are sufficiently similar to the schedules in the prior case that a client meeting could be have been held, information processed, the schedules updated, then signed by the debtor and filed with the Court in one hour; (e) the Chapter 13 Plan (ECF No. 11), which could have been prepared, reviewed, and filed in .5 hours; (f) the amended wage order (ECF No. 12), which is an exact copy of a prior wage order except for the amount and could have been copied, prepared, and filed in .1 hour; and (g) the payment advices (ECF No. 14), which could have been copied, reviewed, and filed in .3 hours. Based on this analysis, Baker has billed 9.2 hours for tasks this Court would expect to be completed in 2.4 hours. The application demonstrates obvious time inefficiency, and the Court finds this billing clearly excessive. Importantly, Baker's representations that his billing represents the actual time spent on these tasks or that the work in these cases was reasonable based on the customary compensation charged by other skilled bankruptcy practitioners are determinative in this Court's finding that Baker was not credible.
The Court's time estimates are based on its prior actual preparation of the documents for which the applicant seeks compensation. The estimates are also supported by a prior en banc opinion of the Bankruptcy Judges for the Southern District of Texas. On October 3, 2006, the Southern District of Texas issued a Memorandum Opinion and Order Amending Local Procedures for Chapter 13 Fee Applications. In re Chapter 13 Fee Applications, No. 06-00305, 2006 Bankr. LEXIS 2710 (Bankr. S.D. Tex. 2006) ("Fixed Fee Memorandum"). In summary, the Fixed Fee Memorandum provides that a Chapter 13 debtor's counsel can be compensated on a "fixed fee" (i.e. a "pre-calculated lodestar" fee) or on an hourly basis. It sets forth a list of services that debtor's counsel must perform to claim a fixed fee. The Fixed Fee Memorandum also allows debtor's counsel to elect a fixed fee for certain post-confirmation Chapter 13 services. The fixed fee schedule eliminates the need for debtor's counsel to keep contemporaneous time records because the fixed fee is a precalculated lodestar. The fixed fee is popular with the consumer debtor bar because it eliminates the need for time records. Attorneys choose the fixed fee in the clear majority of Chapter 13 cases. The "fixed fee" has been gradually increased over time. In 2006, the maximum fixed fee for a Chapter 13 case was $3,085.00. The fixed fee was last increased on December 1, 2017, to $4,500.00 for a standard case and $5,600.00 for a non-standard case.
This Court is currently assigned approximately 3,000 Chapter 13 cases. The Court finds the "fixed fee" has become the prevailing or customary rate for legal services in consumer Chapter 13 cases. Indeed, there generally have been less than 20 Chapter 13 fee applications filed per month in this Court. Since the recent increase of the "fixed fee" to $4500, the number of fee applications has decreased substantially to less than 10. The Fixed Fee Memorandum lists estimated time obligations for attorneys representing Chapter 13 debtors. The following is a breakdown of the time estimates contained in the Fixed Fee Memorandum:
It states that 6.4 hours of attorney time and 7.5 hours of paralegal time is typical in a standard Chapter 13 case. The applicant consistently exceeds these estimates.
Additionally, Rick Carter, who is a contract attorney, bills at $335 per hour in these applications. The Court finds this rate excessive for a contract attorney, especially since Baker's firm only paid Mr. Carter $50 for his contract appearance. The Court finds Mr. Carter's contract rate for fee applications should be $100 per hour, if he is charging a flat $50 to Baker to appear.
The Court disallows all billing for the unnecessary adversary proceeding filed in connection with this case. The adversary proceeding provided no benefit to the debtor or the bankruptcy estate. As a board-certified attorney, Baker should have known with reasonable inquiry the adversary was frivolous. Even if the adversary proceeding had been beneficial, the fees billed in connection with that proceeding were excessive.
The Court sustains the Trustee's objections to the fee application in Curry case. The billing records indicating charges for deficient filings that were either denied or needed to be amended Baker, as a board-certified attorney, should be held to a higher duty of care and should be expected to have a greater experience level than attorneys who do not hold a board certification. Therefore, these deficient filings are not compensable.
In the Curry case, Baker's testimony and the Court's docket demonstrate that Baker and his firm muddled through the bankruptcy process during the period for which he seeks compensation—that is between October 13, 2017, and November 14, 2018. There were numerous deficient filings and errors by Baker and his firm. For example, on December 28, 2017, Baker filed a Motion to Modify Chapter 13 Plan (ECF No. 73). There were then three subsequent amended or corrected motions to modify (ECF Nos. 85, 86, and 99), and six hearing dates set, before final approval. An applicant who is board-certified in consumer bankruptcy law should be held to a higher legal standard, especially when that certification entitles the applicant to a higher billing rate. The debtor, the bankruptcy estate, and the unsecured creditors should not be required to pay for numerous corrections of errors. The fees requested for a single modification of the debtor's plan far exceeds the amount reasonably necessary for the work required to be performed.
The applicant's errors in all the cases discussed in this opinion cause increased billing on other activity in the case. For example, if an amended modification requires a plan payment change, the payment change the requires at least an amended budget and amended wage order. It also may require a client consultation. Therefore, the applicant's errors become magnified in the billing because the time is spent not only on amending deficient modifications but also doing the other required work that would always be incidental to the amended modification. These deficient filings are not compensable.
The Court sustains the Trustee's objections to the fee application in Campbell case. The billing records reflect that paraprofessionals performed clerical or secretarial services such as reviewing the Trustee's website and reviewing dockets, which are not compensable tasks. Also, the billing reflects non-compensable charges for deficient filings that were either denied or needed to be amended. Still further, the charges reflect paraprofessionals and attorneys performing what appear to be duplicative tasks, which are not compensable as to the duplicative time.
In the Campbell case, the record again reflects errors made by the applicant for which he expects to be compensated. The time period covered by the fee application is October 27, 2017, to January 1, 2019. On January 9, 2019, the Court held a hearing and the debtor was given 14 days to file a plan modification. The modification was filed on January 22, 2018 (ECF No. 64), then amended on February 20, 2018 (ECF No. 69), and then was approved on March 9, 2019 (ECF No. 73). Unfortunately, due to an attorney error in the modified plan, as approved, the modification had to be filed again, and it was then finally approved by the Court. Again, in this case, the applicant who is board-certified in consumer bankruptcy law, seeks compensation for the time spent correcting his own errors. Therefore, these deficient filings are not compensable.
The Court sustains the Trustee's objections to the fee application in Hubbard case. The billing records reflect paraprofessionals and attorneys performed non-compensable duplicative tasks. The billing records also reflect charges for deficient filings that were either denied or needed to be amended.
In the Hubbard case, the debtor filed an amended plan on October 18, 2018 (ECF No. 33), as well as amended schedules A and B (ECF No. 34). The plan amended a prior Chapter 13 plan filed on September 18, 2018 (ECF No. 22). The redlined amended plan consisted of three additional words. The added words were "amended" on page one, "cove" on page four (which is a correction to a property address), and "amended" on Exhibit A to the plan. There are no other changes to the plan. Likewise, the amended schedules add the word "cove" to match the changes to the plan. These are simple changes that could have been easily performed by secretarial staff. Even assuming a paralegal was required to change an incorrect address, this is a task that should have been completed in less than ten minutes. The following is the summary of billing for the addition of the word "cove" in the amended plan and schedules:
Baker billed 1.1 hours, for a total fee of $186.50.
On October 22, 2018, the debtor filed another amended plan (ECF No. 35). The redlined amended plan added "amended' to the first page of the plan, added the phrases "First Service Credit U" and "Secured Credit Card" on page 3, and "amended" on Exhibit A to the plan. There are no other changes to the proposed plan. The following is the summary of billing for the addition of these four words or phrases:
A total of 1 hour, or 15 minutes per word or phrase, was expended. This work is more capably performed by a paralegal rather than a secretary. Unlike the previous amendments, these amendments require the debtor to surrender undescribed assets to a secured lender. However, even though this amendment is more substantive, it should have been a relatively simple amendment to complete. The time Baker billed for this amendment is clearly excessive.
These amended plans are computer driven. They were printed from a computer program that would have only required typing the words or phrases into software, then printing and redlining the documents. These are tasks that could easily have been performed in less than ten minutes per amendment. Yet, the applicant billed over two hours for these simple tasks.
This duplicative billing is illustrated by the following time records. On February 23, 2018, Reese W. Baker billed for drafting a power of attorney. This billing was bundled with other tasks, for a total of 1.4 hours. The bundled billing of these tasks is problematic in and of itself. However, individuals continued billing for work on the power of attorney with paralegals Katherine Wright on May 7, 2018, Angie Duque on May 29, 2019, and again with Katherine Wright on June 4, 2018. In fact, this final billing indicates Katherine Wright billed for drafting the power of attorney, even though it had already been drafted.
On September 31, 2018, two individuals prepared for the creditors meeting, which ended up being reset. Staff lawyer, Sonya L. Kapp, billed .3 hours and then paralegal Dee Wright billed .2 hours. This is duplicative, excessive, and unnecessary. They both billed again on August 21, 18, and August 22, 2018, for preparing for a creditor's meeting for which they had already prepared for and billed. This is duplication of effort and is excessive.
The Court is also concerned by the nature of the amendments in the Hubbard case. It appears the amendments were necessary to correct the debtor's address in the plan and the bankruptcy schedules. It is possible that the debtor failed to give the attorney the correct address. However, attorneys should conduct due diligence prior to filing a case, especially as it relates to real estate. An attorney cannot always rely on representations made by the client. It is also possible the mistake was simply typographical—that is, Baker may have just accidentally typed in the wrong address. Regardless, whether the mistake was due to a lack of due diligence or a typographical error, neither the debtor nor the estate should be required to pay such an excessive fee for such an amendment.
This Court has jurisdiction to enter a final order in this matter pursuant to 28 U.S.C. § 1334 and by virtue of the Order of Reference entered on May 24, 2012, by the United States District Court for the Southern District of Texas. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (B).
Baker, as a board-certified attorney, should be held to a higher duty of care and should be expected to have a greater experience level than attorneys who do not hold a board certification. He has not met this standard in these cases. In applying the lodestar method of fee calculation to Baker's cases, this Court sees no reason that Baker should be compensated for prosecuting the adversary proceeding in the Contreras case, where the Court disallows the entire requested fee for the reasons already stated.
The Court has decided to grant either a lodestar fee based on its own review of the billing records or the allowed fixed fee pursuant to the Fixed Fee Memorandum, whichever amount is less. The Court has decided to allow these fees, despite the deficiencies noted in this opinion, because Baker and his firm did provide benefit to the debtors and the estate. This Court finds the following:
The Court has taken extensive time and resources to review the fee applications in these cases. However, the Court simply does not have the resources to do this on every fee application that is filed. There were just under 240 time-entries in the four fee applications. To determine reasonableness, the Court took time to match Baker's time-entries against its docket and reviewed documents that often exceed 50 pages. While fee applications in Chapter 13 cases are not common, they are common in larger complex cases. The Court simply does not have the resources to review every billing entry, compare it to the docket, and separate those entries insufficiently substantiated or documented. Therefore, one court has taken a "rough justice" approach, which this Court adopts. See In re Bank of New England Corp., 134 B.R. 450 (Bankr. E.D. Mass. 1991). Rather than expending extensive court resources making line by line reductions for those entries that are insufficiently substantiated, this Court sets a fee based on "rough justice" as well as its own general knowledge and experience as to what constitutes a reasonable attorney fee in a bankruptcy case for the services provided by the applicant. Therefore, as already discussed, the Court awards fees in this case in part on this "rough justice" approach.
Also, this Court should not have to guess or spend excessive court time to justify a fee when the applicant has not provided sufficient information or justification in the application. The Court will not audit time records to determine what was reasonable, what was necessary, and what the result was for each endeavor. In re Chicago Lutheran Hosp. Assoc., 89 B.R. 719, 736 (Bankr. N.D. Ill. 1988). An applicant cannot simply throw time records at the Court to determine what sticks. Applicants have an absolute duty of candor and disclosure, which has not been met by Baker.
Baker filed Mark Contreras' second Chapter 13 case on March 5, 2018. Baker also represented Mr. Contreras in his original bankruptcy case (Case No. 17-32841), filed on May 2, 2017. The Trustee has alleged that Baker collected a fee from Mr. Contreras for the first case prior to filing the second case. The Trustee argues this is a conflict of interest and Baker should not have represented Mr. Contreras in the second case. If Baker had received this alleged payment, then this Court agrees with the Trustee position that Baker's ability to represent Mr. Contreras in the second case possibly could be impaired and would prevent him from receiving compensation for the second case. However, it does not appear from the record that Baker received such a fee from the debtor.
Once a bankruptcy case is dismissed, any unpaid fees owed to an attorney are stripped of any priority status in future cases. If an attorney is a creditor in a bankruptcy case, that attorney cannot represent the debtor unless that conflict is waived pursuant to Texas Disciplinary Rules of Professional Conduct. Not only does counsel become a creditor in the new case, but counsel's receipt of such payment could be considered a preferential transfer in the refiled case. Rule 1.06 prohibits an attorney from representing a client with interests adverse to the attorney without knowing consent by the client after full disclosure and only if the attorney reasonably believes that the conflict will not materially affect the representation. If debtor's counsel conditions future representation in a new bankruptcy case on the debtor's payment of unpaid attorney fees, a conflict does materially affect the representation. While courts do not typically extend the requirements of 11 U.S.C. § 327 to Chapter 13 debtor attorneys, most still recognize the state law requirements to address conflicts.
11 U.S.C. § 547(b) allows for the avoidance of a preferential transfer that meet five criteria. The transfer must be:
Nothing within 11 U.S.C. § 547 excludes attorney fees. The Trustee argues Baker's receipt of a payment would have placed him in actual conflict with his client and this Court agrees. See In re Pantazelos, 562 B.R. 723 (Bankr. N.D. Ill., 2016). If Mr. Contreras paid Baker between the two cases, it most certainly would have been a preference. The payment would have been an interest of the debtor in property, paid to Baker on account of unpaid fees, which would have made Baker an unsecured creditor. This transfer was for an antecedent debt, as evidenced by Baker's testimony that the payment was for unpaid fees from the first case. As only 104 days elapsed between the dismissal of the first case and the filing of the second case, the payment would have been made in the 90 days prior to the filing of the second bankruptcy. Further, even if the transfer occurred outside the 90-day period, it could have still been avoided as Baker may have actually been an insider. However, as already discussed, Baker did not take such a payment in this case.
While not in the record in this case, Baker has testified in previous hearings that debtors make "voluntary" payments on approved fees in Chapter 13 cases after a case has been dismissed but before a bankruptcy case is refiled. These payments could be extremely problematic. The relationship between a debtor and attorney warrants scrutiny given that the transactions may not have been conducted at arm's length. Debtor's lawyers may infer or explicitly state that the refiling of a second bankruptcy case is conditioned on payment of these fees. Debtors faced with collection activity, including foreclosure of their homes, often make unjustified payments. The Trustee may argue, and the Court would likely agree, that Baker would be a creditor that exerts control or undue influence over debtors or that he engaged in less-than-arm's-length transactions with debtors. Some debtors are in extremely vulnerable positions, such as needing to immediately file a bankruptcy to save a principal residence. Debtors can be, and often are, incentivized to prioritize the repayment of debts over those of other creditors to avoid collection activity. Section 329 of the Bankruptcy Code requires attorneys to disclose amounts they have been paid for representing the debtor in the year prior to filing. This is further evidence that attorney-client relationships and payments should be viewed more stringently.
In Chapter 13 cases, attorneys must exercise judgment in their billing because increased attorney fees necessarily result in decreased dividends for unsecured creditors. Further, because a debtor's plan payment will not be altered whether a dollar goes to an attorney or an unsecured creditor, debtors have little incentive to object or negotiate their attorney's fees. Therefore, one court said that because of these peculiarities of Chapter 13 practice, "court scrutiny of Chapter 13 fee applications, even in the absence of an objection by a creditor or the trustee, is critical." In re Stromberg, 161 B.R. 510, 518 (Bankr. D. Colo. 1983). Furthermore, individual unsecured creditors usually have little economic incentive to object to a particular fee application. Therefore, fee applications in Chapter 13 cases require close court scrutiny.
