Gibson, Nakamura & Green ("GNG"), the law firm that represents chapter 7
Debtor was a Yuma trucking company. GNG, a Tucson law firm, was retained by Debtor on November 5, 2009, to represent the company in a case under chapter 7 of the Bankruptcy Code. For its services, Debtor agreed to pay GNG a flat fee of $12,000, plus expenses. Acting through GNG partner Scott D. Gibson ("Gibson"), Debtor's petition was filed on November 6, 2009. On November 23, 2009, GNG filed a Rule 2016(b) Disclosure of Compensation of Attorney for Debtor, stating that it had received $12,000 from Debtor prior to the filing of the bankruptcy case to represent Debtor.
Trustee was appointed to serve as chapter 7 trustee. On December 4, 2009, Debtor's schedules and Statement of Financial Affairs ("SOFA") were filed. The schedules disclose that Debtor owned only four assets and that it had no secured creditors and seven unsecured creditors, only one of which was listed as disputed. Debtor's responses to the relevant questions on the SOFA were brief and unremarkable.
The § 341 meeting of creditors took place in Yuma on December 16, 2009. Gibson appeared representing Debtor at the meeting.
The bankruptcy case was otherwise uneventful until May 31, 2011, when Trustee filed a Motion to Compel Turnover (the "Turnover Motion"). In it, Trustee requested that the bankruptcy court review the $12,000 fee paid by Debtor to GNG under § 329(b). Trustee argued that, under the circumstances, the $12,000 flat fee paid to GNG was "patently unreasonable," and that a fee of $3,000 was reasonable for an experienced bankruptcy lawyer to represent a chapter 7 corporate debtor in an uncomplicated case with few assets and creditors. To support his view that the amount paid to GNG was excessive, Trustee cited nine corporate chapter 7 cases filed in the Yuma division of the Arizona bankruptcy court in the same year as the IMG case, in which the attorney's fees ranged from $1,500 to $4,000. Trustee therefore sought an order requiring that $9,000 of GNG's $12,000 fee be disgorged and paid over to Trustee.
GNG filed a response to the Turnover Motion on June 16, 2011. In it, GNG noted that Debtor had retained GNG pursuant to a nonrefundable flat fee agreement. In setting the amount of the fee in this case, GNG had been particularly concerned about the risks associated with representing a client that had just lost in "extremely extensive litigation for a personal injury matter"; that the client's principal did not speak English; that there would be significant costs for GNG lawyers to travel between Tucson and Yuma; and that there was the potential for other proceedings that might arise in the case. GNG argued that Arizona state case law supported the reasonableness of a flat fee arrangement even where, after the fact, the payment to counsel exceeded usual billing rates. Attached to GNG's response was a copy of the retainer letter and a statement detailing the time and services provided by GNG to Debtor.
Trustee filed a reply on June 21, 2011, contending that while Debtor had the right to engage its choice of attorney, it could not do so at unreasonable cost to the bankruptcy estate. Trustee challenged several of the entries in the GNG fee statement. For example, Trustee pointed out that GNG's statement allocated 10.5 hours at Gibson's $395 partner billing rate for his preparation and travel to attend the fifteen-minute § 341 meeting in Yuma. Trustee questioned why a local attorney could not have been engaged to appear at the meeting for considerably less than $4,147.50. Trustee's other criticisms of GNG's billing statement included its twice billing for paralegal time to make photocopies and billing 2.5 hours of Gibson's time for preparing a simple, three-page bankruptcy petition.
The bankruptcy court held a hearing on Trustee's motion on June 24, 2011. After the parties made substantially the same arguments as those in the motion, response and reply, the court took the issues under advisement to, in its words, review the pleadings and the fee statement with a "fine tooth comb."
The bankruptcy court entered an order disposing of the Turnover Motion on July 19, 2011 (the "Disgorgement Order"). In the Disgorgement Order, the court found that: (1) Debtor's schedules listed only five non-insider creditors, very little tangible personal property, and no real property; (2) Debtor was required to respond to few of the twenty-five questions in the form Statement of Financial Affairs; (3) other than the pleadings regarding the Turnover Motion, the petition, and some minor matters, "little else of substance performed by the Debtor's attorneys appears in the file." The bankruptcy court determined that $3,000 was a reasonable fee for the work done by GNG. After also allowing GNG's costs, the balance of the $12,000 retainer, $8,794.62, was ordered disgorged by GNG to Trustee.
Debtor filed a timely appeal on July 20, 2011.
The bankruptcy court had jurisdiction under 28 U.S.C. § 1334(b) and § 157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158.
Whether the bankruptcy court abused its discretion in ordering GNG to disgorge $8,794.00 to Trustee.
An order reviewing fees and directing a debtor's attorney to disgorge excessive amounts paid prior to the bankruptcy filing under § 329(b) is reviewed for abuse of discretion.
In applying an abuse of discretion test, we first "determine de novo whether the [bankruptcy] court identified the correct legal rule to apply to the relief requested."
Section 329(a) requires an attorney representing a debtor to disclose the amount of all compensation "paid or agreed to be paid, if such payment or agreement was made after one year before the date of the filing of the petition, for services rendered or to be rendered in contemplation of or in connection with the case . . . ." Section 329(b), in turn, provides that "[i]f such compensation exceeds the reasonable value of any such services, the [bankruptcy] court may cancel any such agreement, or order the return of any such payment[.]" It is undisputed in this appeal that, prior to the filing of its petition, Debtor paid $12,000 to GNG to represent the company in its bankruptcy case.
The burden is upon the applicant to demonstrate that the fees requested are reasonable.
§ 330(a)(3) (emphasis added);
This Panel has analyzed §330(a) on numerous occasions and has also identified factors for the bankruptcy court to consider when determining reasonableness, including:
In addition, the Ninth Circuit recently ruled that a trial court may rely on its own knowledge of reasonable and proper fees in determining the reasonableness of attorney's fees.
At the hearing on June 24, 2011, GNG argued that the bankruptcy court should not order disgorgement because flat fee arrangements were reasonable under Arizona law. The bankruptcy court disagreed, pointing out that prebankruptcy transfers from a debtor to its counsel, even if proper under state law, were unquestionably subject to review by the bankruptcy court under §§ 329 and 330. To further explain its views, the court referred the parties to its recent decision regarding the methodology and analysis employed by the court in determining the reasonableness of fees.
Hr'g Tr. 10:22-28, June 24, 2011.
In the Disgorgement Order, the bankruptcy court noted that Debtor's schedules listed only a few creditors and assets and that little information was required to respond to the questions in the SOFA. It also noted that "[o]ther than these pleadings, the petition, a motion and order to extend time to file schedules, etc., little else of substance performed by the debtor's attorneys, appears in the file."
GNG had the burden of showing that its fees were reasonable.
GNG disagrees with the bankruptcy court's decision. In the bankruptcy court, and again in its opening brief on appeal, GNG argued that the bankruptcy court erred because, under Arizona law, a nonrefundable flat fee "is a reasonable fee arrangement which should not be subject to critical review by the courts[.]" GNG points out that "such flat fee arrangements are part of the negotiation of arrangements between client and attorney, which should be allowed to stand, even if ultimately the amount of the services rendered is less than the hourly rate of fees." GNG Op. Br. at 9. GNG cites
Of course, on its surface, GNG's assertion that the bankruptcy court may not examine the reasonableness of fee agreements sanctioned under state law as "reasonable" would seem to conflict directly with § 329(b), which expressly authorizes a bankruptcy court to review a debtor's fee arrangement with its counsel, to "cancel such agreement," and to order an attorney to disgorge any payments received from a debtor "[i]f such compensation exceeds the reasonable value of any such services . . . ." In the face of such conflict, state law must yield.
However, as Trustee points out, even if state law should influence the bankruptcy court's determination of the reasonableness of GNG's fees in this case,
GNG abandoned this argument in its reply brief: "Appellant agrees that the Court has the ability to review fees of Debtor's counsel for reasonableness even under a `flat fee' arrangement such as here." GNG Reply Br. at 5. Instead, GNG repeated its earlier argument that "the determination of the facts still requires some modicum of evidence and an opportunity to provide competing evidence. . . . [T]hat opportunity was never provided in this case." GNG Reply Br. at 5. GNG also argues it should have had an opportunity to present evidence on the reasonableness of its fees.
GNG's suggestion that it was not given a fair opportunity to prove up the value of its fees in this case is not supported by the record. Indeed, GNG explicitly waived the bankruptcy court's offer of a continuance to allow it to supplement the pleadings:
Hr'g Tr. 8:21-25, June 24, 2011.
Even if CNG had not waived the bankruptcy court's offer of a continuance, as noted above, in applying § 330(a)(3) to the facts of a case, the Ninth Circuit has ruled that a court may rely on its own knowledge of reasonable and proper fees in determining the reasonableness of attorney's fees.
In sum, we conclude that the bankruptcy court, in determining that $12,000 was excessive and that a reasonable fee for GNG's services in this case was $3,000, applied the correct law, §§ 329(b) and 330(a), and that its findings were not illogical, implausible, or without support in inferences that may be drawn from the facts in the record. As a result, the bankruptcy court did not abuse its discretion in ordering GNG to disgorge to Trustee the amount it received from Debtor for fees in excess of $3,000 plus costs.
The bankruptcy court's Disgorgement Order is AFFIRMED.
