Thomas J. Tucker, United States Bankruptcy Judge.
This case is before the Court on a remand from the United States District Court. The remand concerns the attorney fees to be awarded to the firm of Silverman & Morris PLLC ("Silverman & Morris"), for their work as special counsel for the Chapter 7 Trustee.
After the Chapter 7 Trustee filed his final report in this bankruptcy case, the Court considered the fee applications filed by the Trustee, by Trustee's counsel, Ellmann & Ellmann P.C., and by Silverman & Morris. These three applicants filed applications seeking allowance of attorney fees and reimbursement of expenses in the following amounts:
Because there was not enough money in the bankruptcy estate to actually pay these fee and expense amounts in full, the applicants later modified their requests, and ultimately sought fees and expenses in the following reduced amounts, as reflected in the Trustee's Final Report:
Although no timely objections were filed, the Court concluded that it was necessary to hold a hearing on the fee applications. In its Order setting the hearing, the Court expressed its concern that the fees requested by the applicants appeared to be unreasonably high, because they would consume all of the assets of the bankruptcy estate, leaving nothing for any of the
The Court held the hearing on May 23, 2018. The Trustee's special counsel, attorney Thomas Morris, appeared at the hearing, and argued in support of the fee applications on behalf of all the fee applicants.
The Court then entered an opinion and order on June 4, 2018, entitled "Opinion and Order Regarding Fee Applications" (the "Opinion and Order").
The Court held:
After discussing in detail the legal basis, under 11 U.S.C. § 330(a)
The Court gave the fee applicants the opportunity to stipulate as to how they wanted to allocate the aggregate fee amount among themselves, subject to their right to appeal the Court's fee reduction. The applicants filed such a stipulation on June 11, 2018, in which they agreed, subject to their right to appeal, to "allocate [the $20,355.44 fee total] as follows: (a) $17,079.77 to Silverman & Morris, P.L.L.C.; (b) $1,011.13 to Ellmann & Ellmann P.C.; and (c) $2,264.54 to Douglas S. Ellmann, Chapter 7 Trustee."
On June 12, 2018, in response to the parties' stipulation, the Court entered fee orders in reduced amounts. Consistent with the Court's June 4, 2018 Opinion and Order, and the stipulation filed by the parties on June 11, 2018, the Court's orders awarded fees to the Trustee Douglas S. Ellmann and to Ellmann & Ellmann P.C. in the stipulated (reduced) amounts, i.e., $2,264.54 and $1,011.13 respectively.
But the Court made a mistake in the fee order it entered in favor of Silverman & Morris. That order allowed fees to Silverman & Morris in the reduced amount of $20,355.44.
Silverman & Morris appealed its $20,355.44 fee order to the district court. Even with its fee award at the inadvertently high (but reduced) amount of $20,355.44, Silverman & Morris argued on appeal that it was an abuse of discretion for this Court to reduce Silverman & Morris's fees from its requested amount of $33,984.25.
The other two fee applicants, Trustee Douglas S. Ellmann and his firm, did not appeal the Court's orders allowing their fees in the reduced amounts. So those two fee orders remain unaffected by the district court's appeal decision.
On August 23, 2019, the district court entered an order entitled "Order Reversing and Remanding the Case" (the "District Court Order").
The district court remanded the case to this Court with the following instructions:
The Court now will comply with the district court's mandate, and will apply the district court's instructions to the Silverman & Morris fee application.
As quoted in Part B of this Opinion, the district court cited the Sixth Circuit decision in In re Boddy, 950 F.2d 334, 338 (6th Cir. 1991), to describe the lodestar calculation: "The lodestar amount `is calculated by multiplying the attorney's reasonable hourly rate by the number of hours reasonably expended.'"
In its prior ruling on the Silverman & Morris fee application, this Court did not quarrel with or criticize either the hourly rates or the number of hours that were included in the fee application. But neither did the Court explicitly make a lodestar calculation. It will do so now.
The Silverman & Morris Fee Application sought approval of fees totaling $36,889.25, on an hourly-rate basis, for the work of three attorneys in the firm: Thomas R. Morris (37.45 hours at a rate of $350.00 per hour); Karin F. Avery (62.30 hours at a rate of $310.00 per hour); and Melinda B. Oviatt (16.25 hours at a rate of $275.00 per hour).
The Court finds that the above hourly rates are reasonable, and finds that the number of hours expended by these attorneys is reasonable. There is no need for extended discussion of why this is so, because the Court agrees with Silverman & Morris on these points, and no one has argued otherwise.
Thus, the lodestar amount for the fees of Silverman & Morris is $36,889.25.
As noted in Part B of this Opinion, the district court quoted In re Boddy in holding that:
In its remand order, the district court has instructed this Court "to determine the lodestar amount, which it may then adjust based on the factors set out in Harman v. Levin, 772 F.2d 1150, 1152 (4th Cir. 1985) and adopted by the Sixth Circuit in Boddy, 950 F.2d at 338."
The district court's reference to "the factors set out in Harman v. Levin... and adopted by the Sixth Circuit in Boddy," no doubt is based on the following passage from Boddy:
Boddy, 950 F.2d at 338. Under the district court's remand order, and under Boddy, therefore, this Court has discretion to adjust the lodestar fee amount, after considering other factors, including, specifically, "the results obtained," and whether the fee "is commensurate with fees for similar professional services in non-bankruptcy cases."
Also under the district court's remand order and under Boddy, this Court has discretion to adjust the lodestar fee amount after considering the factors set out in Harman v. Levin, which are the following:
Harman v. Levin (In re Robertson), 772 F.2d 1150, 1152 n.1 (4th Cir. 1985) (citations omitted). Therefore, on remand this Court has discretion to adjust the lodestar fee amount, after considering factors that include, in the words of Harman, "the customary fee for like work;" "the amount in controversy and the results obtained;" and "attorneys' fees awards in similar cases."
The Court must consider the Silverman & Morris fee application in this case in light of the discretionary adjustment factors recognized by the district court, by Boddy, and by Harman. In this case, with two exceptions, the possible adjustment factors do not justify any adjustment, up or down, of the lodestar fee amount. But two of the factors are particularly important here — namely, in the words of Boddy, "the results obtained" for the bankruptcy estate by the work of Silverman & Morris; and whether the lodestar fee amount "is commensurate with fees for similar professional services in non-bankruptcy cases." See Boddy, 950 F.2d at 338.
Based on these factors, the Court concludes that Silverman & Morris's lodestar fee amount should be adjusted downward, substantially. The "results obtained" were that Silverman & Morris's work in this case, together with the work of the Trustee's other counsel (Ellmann & Ellmann, P.C.) and the Trustee, helped recover, at most, $40,710.31 for the bankruptcy estate (the total receipts listed in the Trustee's Final Report). Almost 91% of that amount would be consumed by the lodestar fee amount for Silverman & Morris alone ($36,889.25). All of that "results obtained" amount would be consumed when the fees of the Trustee's other counsel and the Trustee are considered. Creditors would get nothing at all.
The Court reiterates and adopts again the following conclusions stated in its June 4, 2018 Opinion and Order:
And the Court reiterates and adopts again the following from its June 4, 2018 Opinion and Order:
The Court must remember that a critical function of the Chapter 7 Trustee and the professionals employed by the Chapter 7 Trustee is to produce results for the creditors in the case — to maximize distributions that are paid to the creditors. Attorneys for the Chapter 7 Trustee work for the benefit of the creditors in the case. As one court has put it,
In re Allied Computer Repair, Inc., 202 B.R. 877, 886 (Bankr. W.D. Ky. 1996) (citations omitted).
Closely related to the "results obtained" factor in this context is the concept of billing judgment. That concept is implicit in the Boddy factor whether the fee "is commensurate with fees for similar professional services in non-bankruptcy cases." In the real world of law practice outside of bankruptcy, of course, attorneys who represent clients regularly exercise billing judgment. The Court reiterates and adopts again its discussion of this in its June 4, 2018 Opinion and Order:
See also In re Busy Beaver Building Centers, Inc., 19 F.3d 833, 855-56 (3rd Cir. 1994) ("because § 330(a) does not entitle debtors' attorneys to any higher compensation than that earned by nonbankruptcy attorneys, the court should review a fee application to ensure the applicant exercises the same `billing judgment' as do non-bankruptcy attorneys ....") (italics in original) (citations omitted).
The Court is mindful of the district court's admonition, taken from Boddy, about making discretionary adjustments to the lodestar fee amount. The admonition is that "in many cases," these discretionary adjustment factors "will be duplicative if the court first determines the lodestar amount because the lodestar presumably subsumes all of these factors in its analysis of the reasonable hourly rate and the reasonable hours worked."
But this case is not like the "many cases" referred to. Here the lodestar fee amount of professional fees is much too large in relation to the "results obtained" and in relation to what fees ought to result from good "billing judgment" by the lawyers. Here, if the Court simply allowed fees in the lodestar fee amount, it would utterly defeat the very purpose for which the Trustee's attorneys were hired in the first place — to benefit the creditors in the bankruptcy case.
The Boddy factors just discussed persuade the Court to make the same ultimate conclusion it made the first time,
For the reasons already discussed, this result is consistent with Boddy, and with the factors that Boddy permits bankruptcy courts to consider in making discretionary adjustments to the lodestar fee amount. And the result here is not inconsistent with the more specific holding in Boddy. In Boddy, the Sixth Circuit held that a bankruptcy court could not set a maximum, fixed fee amount for the work of a debtor's attorney in a Chapter 13 case, because that would be inconsistent with Bankruptcy Code § 330. See 950 F.2d at 337. The Sixth Circuit held that the bankruptcy court in the Western District of Kentucky had erred in following one of its prior cases, which had "established a maximum attorney's fee of $650.00 for legal services considered to be `normal and customary' for a Chapter 13 bankruptcy case in the Western District of Kentucky." Id. at 335, 337.
The Court's decision in this case is not based on any pre-established, fixed-dollar fee amounts for the Trustee and his attorneys. Rather, the Court in its discretion is adjusting the fees downward from the lodestar fee amount, as permitted by Boddy. In doing so, this Court chooses not to ignore the "results obtained" by the Chapter 7 Trustee and his professionals, and chooses not to approve fees that would leave the creditors with nothing.
For the reasons stated in this Opinion, the Court will enter an order granting the fee application of Silverman & Morris in part, and allowing fees for Silverman & Morris in the reduced amount of $17,079.77, plus reimbursement of expenses in the amount of $174.74.
11 U.S.C. § 330(a).
