Thomas J. Tucker, United States Bankruptcy Judge.
This case is before the Court on the fee application of the Debtor's attorneys, Acclaim Legal Services, PLLC, filed September 12, 2019 (Docket # 81, the "Application"). The Application seeks allowance of fees totaling $7,949.00 and reimbursement of expenses in the amount of $35.25.
The Application presents a question about the meaning of Bankruptcy Code § 330(a)(4)(B). That section authorizes the Court, "in a Chapter 13 case," to "allow reasonable compensation to the debtor's attorney for representing the interests of the debtor in connection with the bankruptcy case. . . ."
This bankruptcy case began as a Chapter 7 case, but six months later the case was converted to Chapter 13. Seven months after that, the Court confirmed a Chapter 13 plan. The Debtor's attorneys, who have represented the Debtor for the entire duration of the case, now seek allowance of fees, on an hourly-rate basis, for their work on both the Chapter 7 and the Chapter 13 phases of this case. And they seek to have all such fees treated as an administrative expense under the Debtor's confirmed Chapter 13 plan, to be paid in full by the Chapter 13 Trustee.
The question presented is whether and to what extent § 330(a)(4)(B) permits the
On July 24, 2018, the Debtor filed a voluntary Chapter 7 petition, commencing this case. On that day the Debtor also filed a compensation statement under Fed. R. Bankr. P. 2016(b), in which the Debtor and her attorneys disclosed that before the case was filed, the Debtor had paid attorney fees in the form of a "flat fee" of $895.00 to Debtor's attorneys, plus the $335.00 filing fee.
On September 12, 2018, the United States Trustee filed a motion to dismiss this case (the "UST Motion"), based on 11 U.S.C. §§ 707(b)(2) and 707(b)(3), contending that this case was an "abuse" of the provisions of Chapter 7, within the meaning of 11 U.S.C. § 707(b)(1).
The Court held two lengthy hearings on the UST Motion, on October 10, 2018 and on December 12, 2018. During both hearings, the Debtor's attorney argued against the UST Motion. At the conclusion of oral argument during the December 12, 2018 hearing, the Court gave an oral opinion, conditionally granting the UST Motion. The Court entered an order the same day, which gave the Debtor 14 days to file a motion to convert this case to Chapter 13, and stated that if the Debtor did not file such a motion, the Court would dismiss the case.
On December 26, 2018, the Debtor filed a motion to convert this case to Chapter
On February 12, 2019, the Debtor filed another compensation statement under Fed. R. Bankr. P. 2016(b), in which the Debtor and her attorneys disclosed that the Debtor had agreed to pay attorney fees in the form of a "flat fee" of $3,500.00 to Debtor's attorneys for the Chapter 13 portion of this case.
The Debtor eventually was able to confirm a 60-month Chapter 13 plan, with the entry of a confirmation order (the "Order Confirming Plan") on August 28, 2019.
The Debtor's attorneys filed their fee application on September 12, 2019.
As discussed in more detail in Part IV.B of this Opinion, the Application seeks allowance of fees, on an hourly-rate basis, for the substantial pre-conversion work done by Debtor's attorneys during the Chapter 7 phase of this case, as well as for their post-conversion work in the Chapter 13 phase of the case.
In an Order entered on October 9, 2019 (Docket # 83, the "October 9 Order"), the Court required Debtor's attorneys to file a supplement to the Application, to address the issue of whether and to what extent the Court can allow fees and expenses incurred while this case was in Chapter 7.
In the October 9 Order, the Court stated, in part:
On October 23, 2019, Debtor's attorneys timely filed a supplement to their Application, responding to the October 9 Order.
This Court has subject matter jurisdiction over this bankruptcy case and this matter under 28 U.S.C. §§ 1334(b), 157(a) and 157(b)(1), and Local Rule 83.50(a) (E.D. Mich.). This is a core proceeding under 28 U.S.C. §§ 157(b)(2)(A), 157(b)(2)(B), and 157(b)(2)(O).
This matter also is "core" because it falls within the definition of a proceeding "arising under title 11" and of a proceeding "arising in" a case under title 11, within the meaning of 28 U.S.C. § 1334(b). Matters falling within either of these categories in § 1334(b) are deemed to be core proceedings. See Allard v. Coenen (In re Trans-Industries, Inc.), 419 B.R. 21, 27 (Bankr. E.D. Mich. 2009) (citations omitted). This is a proceeding "arising under title 11" because it is "created or determined by a statutory provision of title 11," see id., namely Bankruptcy Code § 330. And this is a proceeding "arising in" a case under title 11, because it is a proceeding that "by [its] very nature, could arise only in bankruptcy cases." See id. at 27.
The Court now concludes that it has authority, under 11 U.S.C. § 330(a)(4)(B), to allow some, but not all, of the fees and expenses requested in the Application.
Initially, it is clear that the Court cannot allow any attorney fees or expenses for the Debtor's attorneys, based on 11 U.S.C. § 330(a)(1),
540 U.S. at 538-39, 124 S.Ct. 1023.
Debtor's attorneys do not seek any fees based on § 330(a)(1). Rather, they argue that now that the case is in Chapter 13, the Court has authority to allow all of the fees and expenses Debtor's attorneys seek fees based on 11 U.S.C. § 330(a)(4)(B), including even fees incurred before the case was converted from Chapter 7 to Chapter 13.
11 U.S.C. § 330(a)(4)(B).
Debtor's attorneys have cited no cases that directly address their argument. But after the Supreme Court's decision in Lamie, a few reported cases have addressed the fees of debtor's counsel in a case that began as a Chapter 7 case but was later converted to Chapter 13. At least three cases have held that a debtor's counsel who was not employed by the Chapter 7 trustee (i.e., employed under § 327) cannot be allowed fees for work done before a Chapter 7 case converted to Chapter 13. See In re Carey, 2006 WL 288226 (Bankr. D.N.H., Feb. 1, 2006); In re McDonald, 2011 WL 12885454 (Bankr. S.D.Ga., March 8, 2011); In re Holbrook, 2008 WL 2437735 (Bankr. E.D.Tenn., June 13, 2008). But two of these cases, Carey and McDonald, discussed only § 330(a)(1). They did not discuss the possible application of § 330(a)(4)(B) to the fees for pre-conversion work. The third case, Holbrook, appeared to assume, without discussion, that § 330(a)(4)(B) applies only to fees for work done by the debtor's attorney after the conversion to Chapter 13.
One case decided after Lamie has taken a different view, broadly interpreting § 330(a)(4)(B) to mean that a Chapter 13 debtor's attorney in a converted case can be allowed fees even for work done in the initial, Chapter 7 phase of the case:
In re Genatossio, 538 B.R. 615, 617 (Bankr. D.Mass. 2015) (citing the pre-Lamie case of In re Bottone, 226 B.R. 290, 297 (Bankr. D.Mass. 1998)).
In interpreting the language of § 330(a)(4)(B) in the present context, the Court must focus on the statute's language in bold below:
11 U.S.C. § 330(a)(4)(B) (emphasis added). In a converted case, does the phrase "in connection with the bankruptcy case" refer to the entire bankruptcy case — i.e., the Chapter 7 and Chapter 13 phases of the case — or does it refer only to the Chapter 13 phase of the case?
The Court concludes that the better and more reasonable interpretation is that the phrase "in connection with the bankruptcy case" in § 330(a)(4)(B) refers, in the context of a converted case, to the Chapter 13 phase of the case only. The phrase "the bankruptcy case" here clearly refers to "a chapter 13 case," the phrase that is used in the beginning of the same sentence in the statute.
Given this meaning of § 330(a)(4)(B), the Court concludes that the Debtor's attorneys in this case may be allowed fees only for the work they did "in connection with" the Chapter 13 phase of this case. They may not be awarded fees for any of the work they did in connection with the Chapter 7 phase of this case.
This interpretation of § 330(a)(4)(B) makes sense. It would not make sense, on the one hand, to refuse to allow fees for work done by a debtor's counsel in a Chapter 7 case that did not convert to Chapter 13, as Lamie dictates; while, on the other hand, allowing such fees for work done in a Chapter 7 case that did later convert to Chapter 13. In such cases, the debtor's counsel would have done the same Chapter 7-related work, but refused fees for that work in one case and allowed fees for that work in the other case. Nothing in § 330 or elsewhere in the Bankruptcy Code supports such disparate results.
In this case, a substantial part of the $7,949.00 requested in the fee Application is for work done by the Debtor's attorneys during the pre-conversion, Chapter 7 phase of this case, which was work done strictly for the purpose of prosecuting and maintaining the case as a Chapter 7 case. (The Court will refer to this work as the "Chapter 7 work"). This is apparent from both the Application itself and the fee itemization attached to the Application.
In the Application, Debtor's attorneys stated that "[a] substantial portion of the fee requested is related to services rendered on behalf of and for the benefit of the Debtor in opposing the [United States] Trustee's motion to dismiss her Chapter 7 case."
It is clear, from the fee itemization attached to the Application, that the Chapter 7 work includes all of the work reflected in the attorney and paralegal time entries from the beginning of the case through the time entry for December 12, 2018. The first time entry for which a fee is sought is
It is only beginning with the first time entry after December 12, 2018, which was December 21, 2018, that the work of Debtor's attorneys can be viewed as work related to, and in furtherance of, the Chapter 13 phase of this case. On December 21, 2018, Debtor's attorneys reacted to the Court's granting of the UST Motion by drafting a motion to convert this case to Chapter 13. That motion ultimately was filed on December 26, 2018.
Debtor's attorneys are correct in arguing that it is possible for work to be deemed Chapter 13 work even if it was done before the actual entry of the order converting this case to Chapter 13 on January 29, 2019. But Debtor's attorneys are incorrect, if and to the extent they argue that any of the work reflected in any time entries before the December 21, 2018 time entry is "not related to the administration of the Chapter 7 case specifically."
The fee itemization shows that the Chapter 7 work in this case — i.e., all of the work described in the time entries dated September 14, 2018 through December 12, 2018 — accounts for $3,753.50 of the total fees of $7,949.00. To the extent of this $3,753.50 amount, the fee Application must be denied, because such fees are not allowable under Bankruptcy Code § 330(a)(4)(B). Nor are they allowable under § 330(a)(1), as discussed in Part IV.A of this Opinion. Nor are they allowable under any other section of the Bankruptcy Code.
This leaves $4,195.50 in fees, reflecting the fees for the Chapter 13 work done by Debtor's attorneys. To the extent of this amount, the fee Application will be granted. Such fees are allowable under § 330(a)(4)(B), and the Court finds such fees to be reasonable.
The $35.25 in expenses included in the fee Application are for photocopying and postage charges incurred on February 12, 2019, well after this case had converted to Chapter 13, and reimbursement of these expenses will be allowed. These expenses obviously are for the copying and mailing of the Debtor's proposed Chapter 13 plan that was filed and served
Finally, the Court sees no reason to order Debtor's attorneys to refund to the Debtor, as excessive under 11 U.S.C. § 329(b),
For the reasons stated in this Opinion, the Court will enter an order granting the fee Application in part, and allowing fees in the reduced amount of $4,195.50 and reimbursement of expenses in the requested amount of $35.25. The order will disallow the fees requested by Debtor's attorneys, to the extent they exceed $4,195.50.
11 U.S.C. § 330(a)(1) (emphasis added).
