EDWARD ELLINGTON, Bankruptcy Judge.
Although not directly relevant to the matter pending before the Court, the Court will briefly describe the events leading up to the bankruptcy filing. Community Home Financial Services, Inc. (CHFS) is in the business of purchasing and servicing loan portfolios. The president of CHFS is William D. Dickson (Dickson). CHFS entered into various business transactions with several companies controlled by Dr. Charles C. Edwards (Dr. Edwards). This bankruptcy case evolved out of disputes between Dickson and CHFS on the one hand, and Dr. Edwards and his companies on the other.
CHFS and Edwards Family Partnership, L.P. and Beher Holdings Trust
On February 15, 2012, CHFS (and Dickson individually) filed suit against Edwards and others in the Chancery Court of the First Judicial District of Hinds County, Mississippi. A variety of relief was sought in the complaint, including: specific performance; an accounting; damages for breach of contract; and rescission or modification of the agreement. On April 11, 2012, Edwards removed the suit to the United States District Court for the Southern District of Mississippi (District Court Litigation) [USDC Case No. 3:12-cv-252-CWR-LRA].
In the District Court Litigation, Edwards denied that CHFS and Dickson were entitled to any relief. Edwards also filed a counterclaim against CHFS and Dickson requesting various relief including: judgments against CHFS on the promissory notes; a judgment against Dickson on his guaranty agreements; and the appointment of a receiver for CHFS. Edwards filed a separate motion for the appointment of a receiver, and the district court set the receiver motion for trial.
Over the course of several days, the receiver motion was heard by United States District Court Judge Carlton W. Reeves (in Case No. 3:12-cv-252-CWR-LRA). The day prior to the final hearing before Judge Reeves, CHFS (Debtor) filed a petition for relief under Chapter 11 of the United States Bankruptcy Code on May 23, 2012.
Except for the Internal Revenue Service, Edwards is, for the most part, the only creditor to actively participate in the Chapter 11 case. The relationship between Edwards and the Debtor appears to have been amicable at one point, but it deteriorated rapidly as the Chapter 11 case progressed. Any motion filed by the Debtor was hotly opposed by Edwards and vice versa. The Debtor filed adversary proceedings against Edwards that were also hotly contested. The Debtor proceeded as the debtor-in-possession (DIP) in the bankruptcy case for approximately a year and a half.
On December 20, 2013, the attorney for the Debtor, Derek A. Henderson (Henderson), filed Disclosure of Transfer of Funds and Other Matters (Dkt. #426) (Disclosure). In the Disclosure, Henderson stated that the Debtor had changed its principal place of business from Jackson, Mississippi, to Panama, and had opened branch offices in Panama and in Costa Rica. Further Henderson disclosed that the Debtor transferred all of the funds from the Wells Fargo DIP bank accounts to banks located in Panama. All of these actions were done by the president of the Debtor, Dickson, without the knowledge or the advice of Henderson or Dickson's personal bankruptcy attorney, Eileen N. Shaffer.
On that same day, the United States Trustee (UST) filed the United States Trustee's Emergency Motion for Order for the Appointment of a Chapter 11 Trustee (Dkt. #427). On December 23, 2013, the Court entered the Order Granting United States Trustee's Emergency Motion for Order for the Appointment of a Chapter 11 Trustee (Dkt. #429). The UST was directed to appoint a Chapter 11 trustee for the Debtor.
The United States Trustee's Application for Approval of Chapter 11 Trustee (Dkt. #455) was filed on January 8, 2014. On January 21, 2014, an Order (Dkt. #473) was entered appointing Kristina M. Johnson as the Chapter 11 trustee (Trustee) for the Debtor.
The Trustee filed an application to employ her law firm, Jones Walker, LLP (JW), as counsel for the Trustee. On March 5, 2014, an Order Granting Application of Kristina M. Johnson, Trustee, to Employ Jones Walker LLP as Counsel Nunc Pro Tunc to January 8, 2014, and Disclosure of Compensation with Supporting Affidavit [Dkt. #474] (Dkt. #558) was entered.
As noted above, at the time the Trustee was appointed, Dickson had moved to Central America and had taken almost all of the Debtor's books, records, and money, and had set up a new operating base in Central America. With the exception of a few relatives of Dickson, the employees of the Debtor living in Mississippi were either fired or relocated to Central America. Consequently, the Trustee was placed in a position where she had to operate the Debtor's loan servicing business with very few books and records, no computers, no employees, and very little cash.
The Trustee also had to stop someone's attempts (presumed to be Dickson) to divert funds from the bankruptcy estate to Central America by changing the Debtor's address to a company in Nevada and by telling borrowers to send payments to an address in Miami. With records later obtained from Edwards, the Trustee was able to send letters to borrowers instructing them to send their payments to the Trustee and to provide copies of any loan documents, etc. that they possessed. Once the borrowers received correspondence from the Trustee, the Trustee began to receive emails, telephone calls, faxes, and letters from the borrowers, closing attorneys, regulators, etc.
In April of 2014, the Trustee was able to obtain access to computer servers of the Debtor that were located in Panama. In June of 2014, the professional mortgage servicing company hired by the Trustee began to service the vast majority of the loans. The information on the Debtor's computer servers along with any records and files already in the Trustee's possession were transferred to the servicing company.
Dickson was arrested in March of 2014. Once Dickson was arrested and returned to the United States, the attempts to divert money from the bankruptcy estate stopped.
On August 15, 2014, the Trustee filed her First Application for Compensation for the Period of January 2, 2014 through July 31, 2014, and Reimbursement of Expenses by the Law Firm of Jones Walker LLP as Counsel to Kristina M. Johnson, Trustee of the Estate of Community Home Financial Services, Inc. (Dkt. #783) (Application).
Edwards filed Edwards Family Partnership, L.P. and Beher Holdings Trust's Objection to Fee Applications (Dkt. #820) (Objection) on October 3, 2014, and Edwards Family Partnership, L.P. and Beher Holdings Trust's Trial Brief and Supplement to Objection to First Application for Compensation of Jones Walker LLP as Attorneys for the Trustee (Dkt. #917) on December 16, 2014.
On October 10, 2014, the Order Granting, in Part and on an Interim Basis, First Application for Compensation for the Period of January 2, 2014 through July 31, 2014, and Reimbursement of Expenses by the Law Firm of Jones Walker LLP as Counsel to Kristina M. Johnson, Trustee of the Estate of Community Home Financial Services, Inc. [Dkt. #783] (Dkt. #833) (Interim Order) was entered. The Interim Order allowed on an interim basis:
The Interim Order further reserved all rights, defenses and claims of all parties.
A trial was held on the Application and Objection on December 18, 2014. At the conclusion of the trial, the parties were instructed to submit an agreed scheduling order on the submission of post-trial briefs. On February 13, 2015, the Order Setting Briefing Schedule (Dkt. #971) was entered. The last brief was filed on March 12, 2015, and the Application and Objection were taken under advisement.
On April 7, 2015, the Trustee filed Urgent Motion to: (1) Withdraw the Reference to Bankruptcy Court of the Whole Chapter 11 Case or, Alternatively, of Certain Adversary Proceedings and Contested Matters, and (2) Consolidate Certain Adversary Proceedings and Contested Matters with Pending District Court Actions
On April 9, 2015, the Court of Appeals for the Fifth Circuit entered an opinion relating to the compensation of professionals in bankruptcy cases, Barron & Newburger, PC v. Tex. Skyline, Ltd. (In re Woerner), No. 13-50075, 2015 WL 1591143 (5th Cir. Apr. 9, 2015). Subsequently (on April 15, 2015, and April 20, 2015
On June 29, 2015, the Judge Reeves entered an Order
This Court has jurisdiction of the subject matter and of the parties to this proceeding pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157. This is a core proceeding as defined in 28 U.S.C. § 157(b)(1) and (2)(A).
JW alleges that the Trustee's Motion for Interim Authority Nunc Pro Tunc to January 8, 2014, to Service Loans in the Ordinary Course of Business (Dkt. #553) (Loan Servicing Motion) and the subsequently entered Order Granting Trustee's Motion for Interim Authority Nunc Pro Tunc to January 8, 2014, to Service Loans in the Ordinary Course of Business [Dkt. #553] (Dkt. #616) (Loan Servicing Order) authorized the Trustee to use JW attorneys and paralegals to service the Debtor's loans. Since Edwards did not object to the interim servicing motion, JW asserts that Edwards is "precluded from re-litigating the issue"
The Court agrees with Edwards. Federal Rule of Bankruptcy Procedure 2016
The Trustee's Motion for Interim Authority Nunc Pro Tunc to January 8, 2014, to Service Loans in the Ordinary Course of Business (Dkt. #553) is not an application which complies with Rule 2016(a)-the motion does not give "a detailed statement of (1) the services rendered, time expended and expenses incurred, and (2) the amounts requested."
At trial, Edwards requested that a chart it had created entitled Summary of Time Entries on Jones Walker Fee Application (Summary Chart) (Trial Exhibit EFP-2) be admitted into evidence. Edwards' attorney explained that Edwards objected to approximately 800 time entries on the Application, and that the Summary Chart was a compilation of the specific entries to which Edwards objects. (Trial Tr. at 102).
The attorney for the Trustee objected to the admission of the Summary Chart: "As a summary of the objection, it is fine. We do note that we believe that the summary has incorrect descriptions of the work on there, but that would be our primary objection to its being entered that it's not necessarily an accurate summary of what the objected-to time entries are." (Trial Tr. at 102). The Court overruled the objection "in the sense that I will allow it to be admitted as their objection [to the Application]. Whether it's right or not is a whole `nother matter." (Trial Tr. at 102).
In the Trustee's Post-Trial Memorandum in Support of Jones Walker LLP's First Fee Application (Dkt. #973), the Trustee again raises an objection to the Summary Chart, but on a different ground than raised at trial: "The Summary Chart violates Fed. R. of Evid. 1006." Id. at p. 11.
At trial, the Trustee objected to the admissibility of the Summary Chart, and the Court overruled her objection. Pursuant to Federal Rule of Evidence 103, by objecting to the admission of the Summary Chart, the Trustee preserved her claim of error. The Fifth Circuit has held that "`[a]n appellant must raise an objection to the admission of evidence at trial such that the issue is presented to the district court with sufficient specificity. . . . If the issue was not adequately raised at trial, we review only for plain error.' United States v. Burton, 126 F.3d 666, 671 (5th Cir.1997) (internal citations and quotation marks omitted)." United States v. Morin, 627 F.3d 985, 994 (5th Cir. 2010). Consequently, the Trustee may not, and especially not in a post-trial brief, attempt to reopen the record and raise a different or a more specific ground which was not presented to the Court at trial.
The Court notes that the Summary Chart is helpful because it specifies exactly which time entries in the over 700 page Application to which Edwards objects. However, the Court is not bound by any generalized descriptions of the work performed by JW employees used by Edwards in the Summary Chart. The Court is capable of using the Summary Chart to find the time entries in the Application to which Edwards objects, and then reading the description used by JW for each entry.
A trustee appointed by the Court is not expected to perform his/her duties without compensation. Therefore, the Code permits a trustee to be compensated for "the trustee's services"
Additionally, a trustee is not required or expected to perform his/her duties alone, and, therefore, the Code permits a trustee to hire professionals to assist him/her under § 327(a). "Congress has enacted a uniform scheme for retaining and compensating . . . attorneys under 11 U.S.C. §§ 327-330. First under § 327(a), the [trustee] must obtain the bankruptcy court's approval to employ the attorney."
As stated previously, pursuant to § 327, the Trustee hired JW, the Trustee's law firm, to represent her in the above-styled bankruptcy case. Subsequently, JW filed its Application for compensation pursuant to § 330(a), and Edwards objected to the Application. Section 330(a) provides in pertinent part:
11 U.S.C. § 330(a).
Section 1104 of the Code, provides for the appointment of a trustee in a Chapter 11 case. Once a Trustee has been appointed, the duties of a Chapter 11 trustee are spelled out in § 1106. The pertinent sections of § 1106 are:
11 U.S.C. § 1106.
Upon a review of § 704, the applicable provisions which apply to the Trustee in the case at bar are:
11 U.S.C. § 704.
The responsibility of supervising a Chapter 11 trustee falls under the office of the United States Trustee (UST). In order to meet its responsibility, in May of 2004, the UST issued a Chapter
In discussing the role of a Chapter 11 trustee who acts as his/her attorney and also hires professionals, the Trustee Handbook states that "[a] trustee acting as an attorney . . . under § 327(d) may receive compensation only for services performed in that capacity and not for the performance of regular trustee duties. 11 U.S.C. § 328(b). Similarly, attorneys and accountants may not be compensated for performing the statutory duties of the trustee."
In Perdue v. Kenny, 559 U.S. 542, 551 (2010), the Supreme Court of the United States adopted the method to calculate attorney fees as established by the Court of Appeals for the Third Circuit.
The method a bankruptcy court must follow in order to determine the amount of an award of attorney fees in a bankruptcy case was recently explained by the Fifth Circuit:
"The lodestar is calculated by multiplying the number of hours an attorney reasonably spent on the case by an appropriate hourly rate, which is the market rate in the community for this work. There is a strong presumption of the reasonableness of the lodestar amount." Black v. SettlePou, P.C., 732 F.3d 492, 502 (5th Cir. 2013) (citations omitted). The party seeking an award of attorney fees bears the burden of "establishing entitlement to an award and documenting the appropriate hours expended and hourly rates." United States ex rel. Rigsby v. State Farm Fire & Cas. Co., No. 1:06cv433, 2014 WL 691500, at *9 (S.D. Miss. Feb. 21, 2014).
The lodestar, Johnson, and § 330 form the framework that is applied in the vast majority of bankruptcy cases which deal with the determination of an award of attorney fees. However, in the case at bar, Edwards specifically states
Instead, Edwards contends that the Application is replete with entries where attorneys, paralegals, and non-professionals are billing the bankruptcy estate for work that would fall under the Trustee's Comp-because the work the attorneys, paralegals, and non-professionals performed fell under the statutory duties of the Trustee. Consequently, the traditional manner of determining the reasonableness of an award of attorney fees (the lodestar, Johnson, and § 330 calculations) is unnecessary to rule on Edwards' Objection.
As noted above, the duties of a Chapter 11 trustee are set forth in § 1106 and § 704. At trial, the Trustee testified as to what she understood part of her duties covered:
(Trial Tr. at 37); see also (Trial Tr. at 49-50) (obtaining control of bank accounts, mail and web site).
"[I]t is well-settled that courts may not compensate an attorney appointed to represent the trustee for services statutorily required of the trustee. In re J.W. Knapp Co., 930 F.2d 386, 388 (4th Cir. 1991)." In re Finney, No. 91-20239-SCS, 1997 WL 33475580, at *25 (Bankr. E.D. Va. Feb. 26, 1997).
An attorney is never entitled to professional compensation for performing duties
In re Shades of Beauty, Inc., 56 B.R. 946, 949 (Bankr. E.D.N.Y. 1986), aff'd in part and remanded on other grounds, 95 B.R. 17 (E.D.N.Y. 1988); see U.S. Trustee v. Porter, Wright, Morris & Arthur (In re J. W. Knapp Co.), 930 F.2d 386, 388 (4th Cir. 1991); In re Finney, 1997 WL 33475580, at *25; In re Polk, 215 B.R. 250, 253 (Bankr. M.D. Fla. 1997); Gordon v. Walton (In re Hambrick), No. 08-66265, 2012 WL 10739279, at *4 (Bankr. N.D. Ga. April 10, 2010); 9 Am. Jur 2d Bankruptcy § 264; In re NRG Res., Inc., 64 B.R. 643, 651 (W.D. La. 1986); In re Lexington Hearth Lamp & Leisure, LLC., 402 B.R. 135, 142 (Bankr. M.D.N.C. 2009).
In drawing the line between the duties of an attorney versus a trustee, courts generally have asked whether the trustee could perform the task without a license to practice law. "The burden rests with the attorney for the trustee to demonstrate that the services for which compensation is sought involve legal skills beyond the scope of the trustee's statutory duty." In re Polk, 215 B.R. at 253. (citations omitted). "[T]he attorney must establish that the tasks for which compensation is sought are not duties which are generally performed by a trustee without attorney assistance. In re Whitney, 27 B.R. at 353-354." In re Finney, 1997 WL 33475580, at *25; see In re Howard Love Pipeline Supply Co., 253 B.R. 781, 792 (Bankr. E.D. Tex. 2000) (services for attorney compensation cannot be performed except by an attorney). "Several courts have stated that the attorney for the trustee should only perform services that someone without a law license could not perform." In re Lexington Hearth, 402 B.R. at 143. (citations omitted). "Attorneys must therefore present billing records with enough detail to show that the charge involves some legal service beyond the scope of the trustee's statutory duty." In re Hambrick, 2012 WL 10739279, at *4; see In re NRG Res., 64 B.R. at 653.
"Courts have consistently acknowledged that differentiating the roles of a trustee and an attorney is often a difficult task." In re Finney, 1997 WL 33475580, at *25 (citations omitted); see In re Meade Land & Development Co., Inc, 527 F.2d at 280, 285 (3d Cir. 1975); In re LeClair, 336 B.R. 718, 721 (Bankr. E.D. Va. 2002); In re King, 88 B.R. 768, 770 (Bankr. E.D. Va. 1988); In re Wilmon, Inc., 61 B.R. 989, 991 (Bankr. W.D. Pa. 1986); In re Red Cross Hosp. Assoc., Inc., 18 B.R. 593, 594 (Bankr. W.D. Ky. 1982).
Based on the Court's review of the case law, the duties listed below
See 11 U.S.C. § 704(a)(4) ("investigate the financial affairs of the debtor"); Chapter 11 Trustee Handbook, p. 67-68, http://www.justice. gov/UST/eo/private_trustee/library/chapter11/index.htm (investigating the financial affairs of the debtor); In re Hambrick, 2012 WL 10739279, at *5 (initial investigation of financial affairs); In re Holub, 129 B.R. 293, 295 (Bankr. M.D. Fla 1991) (review of the debtor's books and records); In re Garcia, 317 B.R. 810, 816 n.4 (Bankr. S.D. Cal. 2004) (examination of the debtor's papers); In re Polk, 215 B.R. at 253 (review of file); In re Garcia, 317 B.R. at 818 (reviewing the debtor's file); In re Howard Love Pipeline, 253 B.R. at 791 n.14 (review of the debtor's books and records); In re Adelson, 239 B.R. 627, 629 (Bankr.S.D.Fla.1999) (review the debtor's file); In re Kuhn, 150 B.R. 825, 826-27 (Bankr. M.D. Fla. 1993) (review of the debtor's file); In re McKenna, 93 B.R. 238, 242 (Bankr. E.D. Cal. 1988) (examination of the debtor's papers); In re King, 88 B.R. 768, 771 (Bankr. E.D. Va. 1988) (review of the debtor's files); In re McAuley Textile Corp., 11 B.R. 646, 648-49 (Bankr. D. Me. 1981) (examining the debtor's books and records); In re Lexington Hearth, 402 B.R. at 144 (review of records).
See 11 U.S.C. § 1106(a)(3); In re Shades of Beauty, Inc., 56 B.R. at 953 (obtain documents regarding accounts receivables and monitoring accounts receivables); In re Shades of Beauty, Inc., 95 B.R. 17, 18 (E.D.N.Y. 1988) (examine books, gain access to debtor's premises, collecting accounts receivables); In re Prairie Central Railway Co., 87 B.R. 952, 959 (Bankr. N.D. Ill. 1988) ("Investigation of assets, conduct, liabilities and financial condition of the debtor"); In re Virissimo, 354 B.R. 284, 294 (Bankr. D. Nev. 1981) (inspect the debtor's property); In re Howard Love Pipeline, 253 B.R. at 792-94 (telephone calls to the debtor's attorney or to a creditor's attorney regarding assets); In re Finney, 1997 WL 33475580, at *23 (gathering information concerning the debtor); In re Lexington Hearth, 402 B.R. at 144 (investigation of estate property); In re Wilmon, 61 B.R. at 992-93 (investigating existence of security interests and investigating whether to abandon property); 7 Collier on Bankruptcy ¶ 1106.03[10] (Alan N. Resnick & Henry J. Sommer eds., 16th ed.) (trustee shall investigate the affairs of the debtor).
See 11 U.S.C. § 704(a)(7) ("furnish such information concerning the estate and the estate's administration as is requested by a party in interest"); Chapter 11 Trustee Handbook, p. 67-68, http://www.justice. gov/UST/eo/private_trustee/library/chapter11/index.htm (investigating the financial affairs of the debtor); In re J.W. Knapp), 930 F.2d at 387-88 n.4 (furnish information); In re Crutcher Transfer Line, Inc., 20 B.R. 705, 707-08 (Bankr. W.D. Ky. 1982) (consulting with accountant); In re McLean Wine Co., 463 B.R. 838, 849 (Bankr. E.D. Mich. 2011) (responding to inquiries and routine phone calls and correspondence); In re Holub, 129 B.R. 293, 295 (communications with debtor, creditors, and attorneys regarding status of case); In re Virissimo, 354 B.R. at 298 (calls to and from information seekers); In re Garcia, 317 B.R. at 824 (answering inquiries from creditors, employees, etc.); In re McKenna, 93 B.R. at 241-42 (meeting with debtor's counsel and routine calls and correspondence with information seekers); In re Howard Love Pipeline, 253 B.R. at 792-94 (calls from creditors); In re Wilmon, 61 B.R. at 993 (review and drafting of correspondence regarding status of property of estate); In re Minton Grp., Inc., 33 B.R. 38, 41 (Bankr. S.D.N.Y.1983) (telephone calls to and from information seekers and correspondence with information seekers); In re Lexington Hearth, 402 B.R. at 144 (communicating with other parties).
See 11 U.S.C. § 704(a)(5) ("examine proofs of claims and object to the allowance of any claim that is improper"); Chapter 11 Trustee Handbook, p. 67, http://www.justice.gov/UST/eo/private_trustee/library/chapter11/index.htm (investigating the financial affairs of the debtor); In re Hambrick, 2012 WL 10739279, at *4 ("preparation of a routine objection to a claim"); In re Garcia, 317 B.R. at 822 (examination of claims and objecting to them); In re Howard Love Pipeline, 253 B.R. at 792-94 (review of prepetition and administrative claims); In re Perkins, 244 B.R. 835, 843 (Bankr. D. Mont. 2000) (routine objections to claims that are unopposed and require no legal analysis); In re Haggerty, 215 B.R. 84, 86 (Bankr. M.D. Fla. 1997) (routine objections to claims that are unopposed and require no legal analysis); In re Kuhn, 150 B.R. at 826-27 (review of claims); In re Holub, 129 B.R. at 296 (routine objections to claims, such as lack of documentation); In re King, 88 B.R. at 771 (preparing objections to claims); In re Lexington Hearth, 402 B.R. at 144-45 (reviewing and objecting to claims).
See 11 U.S.C. § 704(a)(7) ("furnish such information concerning the estate and the estate's administration as is requested by a party in interest"); Chapter 11 Trustee Handbook, p. 67, http://www.justice.gov/UST/eo/private_trustee/library/chapter11/index.htm (furnishing information to parties); In re Shades of Beauty, Inc., 56 B.R. at 953 (review auctioneer's report, attend auction & pay secured creditor); In re Holub, 129 B.R. at 296 (supervision of professionals); In re Garcia, 317 B.R. at 817 n. 4 (acting as liaison with special counsel); In re McLean Wine Co., 463 B.R. at 848 (applications to employ professionals); In re Howard Love Pipeline, 253 B.R. at 791 n.14 (corresponding with estate professionals); In re McKenna, 93 B.R. at 242 (acting as liaison with special counsel); In re Jebco, Inc., 44 B.R. 81, 83 (Bankr.W.D. Ky.1984) (audit conference with estate CPA); In re Lexington Hearth, 402 B.R. at 145 (communicating and supervising professionals).
See Chapter 11 Trustee Handbook, p. 67, http://www.justice.gov/UST/eo/private_trustee/library/chapter11/index.htm (collecting and liquidating estate assets); In re J.W. Knapp, 930 F.2d at 388 (sale of assets); In re Finney, 1997 WL 33475580, at *28 (gathering financial information regarding the debtor); In re Virissimo, 354 B.R. at 295 (routine negotiations regarding the sale of the debtor's property); In re Garcia, 317 B.R. at 824 (liquidate estate assets); In re Howard Love Pipeline, 253 B.R. at 792-94 & n.14 (advertising assets for sale, attending asset auctions, locating buyers for assets and telephone calls from creditor attorney regarding asset disposition); In re Adelson, 239 B.R. at 629 (call to auctioneer regarding asset liquidation); In re Boltec Indus., Inc., No. 91-21463, 1993 WL 853018, at *2 (Bankr. E.D. Mich. Jan. 8, 1993) (communicating with various parties re sale of the debtor's assets); In re Gary Fairbanks, Inc., 111 B.R. 809, 813 (Bankr. N.D. Iowa 1990) (calls re the sale of assets); In re McKenna, 93 B.R. at 241 (communication with prospective buyers); In re King, 88 B.R. at 771 (reviewing proposal by auctioneer and communicating with auctioneer); In re McAuley Textile, 11 B.R. at 648-49 (selling estate property); In re Lexington Hearth, 402 B.R. at 145 (selling and/or disposing of estate assets).
See Chapter 11 Trustee Handbook, p. 67, http://www.justice. gov/UST/eo/private_trustee/library/chapter11/index.htm (performing banking functions); In re Minton Group, Inc., 33 B.R. at 41 (payment of bills and taxes); In re Prairie Central Railway Co., 87 B.R. at 959 (bookkeeping, payment of operating expenses); In re Holub, 129 B.R. at 295 ("routine trustee banking matters, including deposits of funds, issuance of checks, and reconciliation of bank statements"); In re Howard Love Pipeline, 253 B.R. at 791, n. 14 ("supervising bank transactions"); In re Pickering, 66 B.R. 11, 12 (Bankr. N.D. Ohio 1986) (consulting with court regarding bank account).
Consequently, if any of the time entries on the Application are for services that fall under any of the above categories, the services will be deemed compensable as Trustee's Comp under § 326
In its Objection, Edwards lists seven (7) specific objections to the Application. Three (3) of the objections relate to expenses JW requests to be reimbursed (overtime pay, computer-assisted legal research, and long distance charges). These three (3) objections to expenses will be addressed separately.
The Court turns first to Edwards' remaining four (4) objections that relate to compensation for services. With respect to compensation, Edwards contends that the Application seeks compensation under § 330 for trustee duties performed by attorneys, paralegals and other non-professionals. Edwards contends if allowed, the Trustee and JW will be compensated twice. This category forms the bulk of Edwards' objections. With the exception of a specific attorney, Edwards objects to hourly rates above $340.00 for work performed by attorneys.
As stated above, an attorney may not be compensated for duties statutorily assigned to a trustee. The Summary Chart prepared by Edwards lists specific time entries in the Application which Edwards asserts are trustee duties and which should not be compensated under § 330. Edwards asserts that the Application contains approximately $215,485.00 in fees which are for the performance of the Trustee's statutory duties by professionals and non-professionals.
On the other hand, the Trustee asserts that every entry in the Application is for legal work compensable under § 330. The Trustee testified: "Q. Ms. Johnson, are you contending that every service that is billed for in the fee application by Jones Walker is a legal service? A. Yes, compensable by law firm [sic]. Compensable to a law firm under the standards of 330. I am contending that." (Trial Tr. at 64.)
The Trustee's lead attorney, Jeff Barber, concurred with the Trustee's position. Mr. Barber testified: "Q. Mr. Barber, as you review the Jones Walker fee application, [Exhibit] JW1, and have listened to the testimony today, in your opinion is the — are the time entries that are on this application legal services provided by Jones Walker to assist the trustee? A. Yes, I do." (Trial Tr. at 88); see also (Trial Tr. at 91) (Jones Walker did not provide any nonlegal services to the Trustee).
Using the Summary Chart and Trial Exhibit EFP-1
The following charts are a few examples of the type of entries the Court found in the Application where JW professionals and non-professionals have billed the estate under § 330 for duties of the Trustee. A legend at the end of the charts identifies the initials and the task codes.
L310 Written Discovery
A professional generally may not be compensated for services statutorily required to be performed by the trustee.
In In re Computer Learning Centers, Inc.,
Ultimately, the Computer Learning court found that given the scope of the case, the trustee "could not have personally performed all of his duties"
Previously, the Court found that the Application contained many time entries for which compensation under § 330 is generally not allowed. The Court finds further that at the time the Trustee was appointed, the Trustee could not have physically performed all of her duties without assistance. For example, the Trustee could not have responded to all of the calls, emails and/or letters from the borrowers; accepted payments; executed releases of liens; monitored bank accounts, and the post office, etc. without help from the professionals and non-professionals of JW. Consequently, the Court finds that exceptional or unique circumstances existed at the time the Trustee was appointed to allow the Trustee to utilize the professionals and non-professionals in her law firm in order to assist her in the performance of her statutory duties. Therefore, the Court concludes that JW may be compensated under § 330 for performing the Trustee's statutory duties.
The next issue is whether such compensation should reduce the Trustee's Comp. In several places in the Loan Servicing Motion, the phrase "with the assistance of counsel" is used in connection with the Trustee's request for authority to service the Debtor's loans on an interim basis-that is, until a servicing company could be hired. While the Court has previously found that the Loan Servicing Motion did not bar Edwards from objecting to the Application,
The Court, however, wants to make it clear that while the exceptional and unique circumstances existed at the time the Trustee was appointed and continued thereafter for some period of time, the Court is not finding that such exceptional and unique circumstances will remain in existence for the entire tenure of the Trustee's appointment. For example, once the Trustee hired a professional loan servicing company,
The Court is also not holding that with regard to any future applications by JW or any other fee application by other professionals, the Court will allow professionals and non-professionals to be compensated for performing the Trustee's statutory duties without charging against or subtracting from the Trustee's Comp. This is an interim fee application pursuant to § 331. "Any amounts that were awarded as interim compensation are subject to reconsideration at any time prior to the final award, for any reason." 3 Collier on Bankruptcy ¶ 331.04[3] (Alan N. Resnick & Henry J. Sommer eds., 16
Edwards objects to hourly rates for attorneys above $340.00 JW asserts that Edwards' contention that hourly rates above $340.00 "are unreasonable in Mississippi . . . . is patently false."
The Court must note that contrary to JW's assertion, the Huffman court did not find that a $400.00 hourly rate was "appropriate in the Southern District of Mississippi." Instead, the court held "that $200.00 is a reasonable hourly rate in this legal community for attorneys of their experience and qualifications. See, e.g., United States ex rel. Rigsby v. State Farm Fire & Cas. Co., No. 1:06CV433, 2014 WL 691500 (S.D. Miss. Feb. 21, 2014) (approving hourly billing rates ranging from $262.00 to $400.00)."
"A reasonable attorney fee . . . is one calculated on the basis of rates and practices prevailing in the relevant market, i.e., `in line with those [rates] prevailing in the community for similar services by lawyers of reasonably comparable skill, experience, and reputation. . . ." Missouri v. Jenkins, 491 U.S. 274, 286 (1989); see also McClain v. Lufkin Ind., Inc. 649 F.3d 374, 381 (5th Cir. 2011).
In a bankruptcy case, a trustee has a duty to the bankruptcy estate not only to hire competent professionals but also to hire professionals with reasonable rates "not exceeding the prevailing market rate, even if proposed counsel must reduce his or her regular rates. The test is not the particular attorney's rate, but the prevailing market rate. This is especially important where the trustee employs his own firm. The transaction is not an arm's length transaction."
In the State of Mississippi, the issue of whether the hourly rates of the community where the attorney is physically located or where the debtor is situated should apply has been addressed in at least three bankruptcy cases: In re Waldoff's, Inc., 132 B.R. 329 (Bankr. S.D. Miss. 1991); In re Condere Corp., 251 B.R. 693, (Bankr. S.D. Miss. 2000); and In re Washington Furniture Manufacturing, 283 B.R. 201 (Bankr. N.D. Miss. 2002). The standard established by the Honorable Edward R. Gaines in Waldoff's is the standard applied in Condere and Washington Furniture.
The debtor in Waldoff's was a retail clothing store located in Hattiesburg, Mississippi. The debtor was owned by one man, Milton Waldoff. For reasons unclear to Judge Gaines, the debtor hired a law firm based in New York to represent it in its bankruptcy case. The UST and a creditor objected to the hourly rates charged by the New York law firm. Instead they argued that the law firm should be limited to the hourly rate charged by bankruptcy attorneys in Mississippi.
After reviewing applicable case law, Judge Gaines held that the higher rates of out-of-town attorneys may be appropriate in view of "the particular circumstances of the case." Id. at 335. As for the particular circumstances of Waldoff's, Judge Gaines disallowed the out-of-town rates:
Id.
In Condere, the court applied the Waldoff's standard and found that unlike the debtor in Waldoff's, the debtor in Condere operated a large tire manufacturing facility in Natchez, Mississippi, but was headquartered in the State of Massachusetts. In addition, the debtor sold tires across the entire United States. Creditors from many parts of the United States made appearances in the case, and the ultimate purchaser of the debtor's assets, Titan Tire, was from the State of Illinois. The court therefore found that the circumstances of the debtor's case justified the award of hourly rates higher than those of the prevailing market in Mississippi.
Likewise, the court in Washington Furniture found that the debtor's case was a "`national' or `regional' case as opposed to a `local' case. Accordingly, the court finds that `out-of-town' hourly rates are justified in this case even though they are higher than the hourly rates charged by local professionals." In re Washington Furniture, 283 B.R. at 204.
As stated previously, the Debtor is in the business of purchasing and servicing loan portfolios. In addition to joint ventures, the Debtor and Edwards entered into a series of agreements whereby Edwards invested money for the purchase of home improvement loans, typically second and third mortgages. At the time the bankruptcy petition was filed, the Debtor's business was located in Jackson, Mississippi. Edwards is located in the State of Maryland.
In the bankruptcy case, ten (10) creditors filed twenty-five (25) proofs of claim for the total amount of $60,904,435.96. The total dollar amount claimed in the six (6) proofs of claim filed by Edwards is $60,818,604.23. The remaining $85,831.73 was filed by the following:
Of these ten (10) creditors, only attorneys for Edwards, MDOR, IRS and Dickson have appeared before the Court on a regular basis. None of the other creditors has appeared at any of the hearings or trials.
The Court finds that while the Debtor has accounts receivables from across the United States, this case is not a national or a regional case like the debtors in Condere and Washington Furniture. That JW is a national law firm does not justify rates higher than those customarily charged in the Southern District of Mississippi. Consequently, the Court will not allow out-of-town attorney rates in this bankruptcy case.
Given the number of fee applications filed before this Court, the Court is in the exact position to evaluate and determine the prevailing attorney rate in this Court.
The Court will further note that with the exception of Dan Restreppo,
Except for Barber, who has practiced before this Court, the Court is without knowledge of the educational background, position, or experience level for the remaining attorneys and paralegals/non-professionals in the Application. In Rigsby, United States District Court Judge Halil S. Ozerden disallowed all time entries for what he called unknown timekeepers
In a recent case from the Southern District of Mississippi, Henderson v. Legal Helpers Debt Resolution, L.L.C. (In re Huffman), Adv. Case No. 1200099NPO, 2014 WL 1767694 (Bankr. S.D. Miss. May 2, 2014), a creditor objected to the fee application of the attorneys for the trustee. The creditor asserted that the attorneys were not entitled to be compensated for performing clerical duties. The court found that "[c]lerical work performed by an attorney is compensable at an hourly rate that is lower than the attorney's. Cruz v. Hauck, 762. F.2d 1230, 1235 (5th Cir. 1985) (holding that `[a] finding that some of the hours claimed were for clerical work . . . does not . . . justify complete denial of the fee request')." Huffman, 2014 WL 1767694, at *11.
It is clear that in order to draw the line between attorney and trustee duties, courts have generally done so by asking whether the trustee could perform the task without a license to practice law. Consequently, many of the duties of a trustee are clerical in nature. Since it has been established that JW professionals were performing the Trustee's statutory duties, the Court could reduce the hourly rates charged by JW attorneys for those time entries indicating the performance of clerical work. However, because of the exceptional or unique circumstances of the case at the time the Trustee was appointed, the Court will not reduce the hourly rate of attorneys who in this Application performed work that was clerical in nature.
For all of these reasons, the Court finds that a reasonable maximum hourly rate and the prevailing maximum market rate in this Court is $350.00.
"The Fifth Circuit has held that paralegal work can be recovered as attorneys' fees if the work is legal in nature, rather than clerical. Vela v. City of Houston, 276 F.3d 659, 681 (5th Cir. 2001)."
In Rigsby, the court approved a rate of $124.00 an hour
In a review of the fee applications in other Chapter 11 cases which have been filed in this Court, the range of approved hourly rates for Non-Professionals is $65.00 to $125.00 an hour. With the guidance of other decisions in the Southern District of Mississippi and with the guidance of the fee applications approved by this Court in other Chapter 11 cases and without any biographical information on the Non-Professionals, the Court finds that a reasonable maximum hourly rate and the prevailing maximum market rate in the Southern District of Mississippi for Non-Professionals is $125.00.
The reductions in the hourly rates of Non-Professionals who charged above $125.00 an hour are as follows:
As a result of lowering the rates for the above Non-Professionals, the total reduction from the amount requested in the Application for Non-Professionals is $48,728.50.
Edwards objects to the hourly rate of $165.00 for law clerks. In Missouri v. Jenkins, the United States Supreme Court permitted compensation for work done by law clerks.
Neither JW nor Edwards provides the Court with much guidance on this issue. Edwards does not cite authority to support its position that $165.00 is too high. JW cites two cases, however, neither case is helpful in determining what a reasonable hourly rate should be for law clerks. In one case cited by JW, Alter Fin. Corp. v. Citizens & S. Int'l Bank of New Orleans, 817 F.2d 349, 350 (5th Cir. 1987), the court does not discuss an hourly rate for law clerks at all. In the other JW case, Blanchard v. Forrest, No. 93-3780, 1996 WL 125955, at *3 (E.D. La. Mar. 19, 1996), the court approved an hourly rate of only $35.00 for law clerks.
In Carr v. Astrue, the court discussed compensation for law clerks in order to determine the amount of allowed fees and expenses in a Social Security case. The court found:
Carr v. Astrue, No. 3:10CV1474, 2011 WL 5985292, at *2 (N.D. Tex. Nov. 28, 2011). The court found that an hourly rate of $75.00 was reasonable compensation for law clerks.
Based on the Court's research,
Although the Court finds that $100.00 is a reasonable maximum hourly rate for law clerks, the Court finds that it cannot award JW any compensation based on this reduced hourly rate for the work it billed the estate for law clerks in the Application for another reason. In the Application, the only entry for law clerks the Court was able to find simply states:
This type of time entry represents block billing in the extreme. "The term `block billing' refers to the `time-keeping method by which each lawyer and legal assistant enters the total daily time spent working on a case, rather than itemizing the time expended on specific tasks.' Glass v. United States, 335 F.Supp.2d 736, 739 (N.D. Tex. 2004) (Lindsay, J.) (citing Harolds Stores, Inc. v. Dillard Dep't Stores, Inc., 82 F.3d 1533, 1534 n.15 (10th Cir. 1996)); accord Barrow v. Greenville Indep. Sch. Dist., 2005 U.S. Dist. LEXIS 34557, at *10 (N.D. Tex. Dec. 20, 2005) (Fitzwater, J.) (citing Robinson v. City of Edmond, 160 F.3d 1275, 1284 n.9 (10th Cir. 1998)), aff'd, 2007 WL 3085028 (5th Cir. Oct. 23, 2007)."
In the Application, the block entry for law clerks not only is composed of an unknown number of unidentified timekeepers, it does not list the dates the work was performed, the subject matter of the work, the experience level of the law clerks, etc. Without a description of any kind as to what duties the law clerks performed, the Court is unable to determine the reasonableness of the billing entry or the basis of the hourly rate of $165.00.
In Burns v. Home Zone Sales and Lease Purchase, LLC (In re Burns), 503 B.R. 666 (Bankr. S.D. Miss. 2013), the court reduced an attorney's fee by 50% "due to the inordinate occurrences of `block billing.'" Id. at 678. The Court finds that the total lack of supporting information in this block time entry does not permit the Court to evaluate the reasonableness of the work, and therefore, a greater reduction than the court found in Burns is justified. Therefore, the Court disallows the entire fee of $6,072.00 for law clerks.
The Court finds that the Application contained many time entries where JW professionals and Non-Professionals billed for performing the Trustee's statutory duties, that is, non-legal work. The Court, however, finds that exceptional or unique circumstances existed at the time the Trustee was appointed to allow JW to assist the Trustee in carrying out her statutory duties. Consequently, the Court will allow JW to be compensated for these non-legal time entries under § 330. The Court, however, is not finding that such exceptional and unique circumstances will remain in effect for any future fee applications filed by JW.
At this point, moreover, the Court will allow JW professionals and Non-Professionals to be compensated for performing the Trustee's statutory duties without charging the amount against or subtracting the amount from the Trustee's Comp. This is, however, an interim fee application, and the issue of whether to charge against the Trustee's Comp will be revisited by the Court when the final fee applications and the final application for Trustee's Comp are filed.
As to the hourly rates of attorneys, the Court finds that this is not a national or regional case which would justify out-of-town hourly rates. With the guidance of other decisions in the Southern District of Mississippi and with the guidance of the fee applications approved by this Court in other Chapter 11 cases, the Court finds that a reasonable maximum hourly rate and the prevailing maximum market rate in this Court for professionals is $350.00. This will result in a $330.00 reduction from the amount requested in the Application.
With the guidance of other decisions in the Southern District of Mississippi and with the guidance of the fee applications approved by this Court in other Chapter 11 cases, the Court finds that a reasonable maximum hourly rate and the prevailing maximum market rate in this Court for Non-Professionals is $125.00. This will result in a $48,728.50 reduction from the amount requested in the Application.
The Court finds that $100.00 is a reasonable maximum hourly rate for law clerks. The Court, however, finds that it cannot award JW any compensation based on this reduced hourly rate for the work it billed the estate for law clerks in the Application because of block billing. Without a description of any kind as to what duties the law clerks performed, the Court is unable to determine the reasonableness of the billing entry or the basis of the hourly rate of $165.00. Therefore, the Court finds that JW may not be compensated $6,072.00 for the work it billed the estate for law clerks. This will result in a $6,072.00 reduction from the amount requested in the Application.
In its Objection, Edwards' objected to three (3) expenses for which JW seeks to be reimbursed: overtime, computer-assisted legal research and long distance charges. In the Interim Order, the Trustee agreed to waive its request for reimbursement of $3,992.75 in overtime expenses.
As for the final item, the computer-assisted legal research expenses, the Trustee agreed to waive its request for reimbursement of one-half ($4,756.16) of the $9,512.23 in computer-assisted legal research expenses. However, JW is requesting to be reimbursed for the remaining amount of $4,756.17 in computer-assisted legal research expenses.
After a review of the case law on whether to allow reimbursement for computer-assisted legal research, the court in In re Fibermark, Inc., 349 B.R. 385, 399 (Bankr. D. Vt. 2006), allowed the reimbursement for computer-assisted legal research, subject to certain conditions:
In re Fibermark, Inc., 349 B.R. at 399-400; see In re Wizard Enterprises, Inc., 109 B.R. 708 (Bankr. W.D. La. 1990) (allowed expenses for computer-assisted research when evidence was submitted establishing reasonableness).
This Court finds Fibermark to be persuasive and adopts the three-part requirement an applicant must follow in order to allow the Court to determine whether to permit reimbursement for computer-assisted research under § 330. In the case at bar, even though JW did not meet the three-part requirement per se, since JW agreed to reduce its request by one-half ($4,756.16), the Court finds that JW is entitled to be reimbursed for the remaining one-half, $4,756.17 for computer-assisted legal research.
"A request for attorney's fees should not result in a second major litigation. Ideally, of course, litigants will settle the amount of a fee. Where settlement is not possible, the fee applicant bears the burden of establishing entitlement to an award and documenting the appropriate hours expended and hourly rates." Hensley v. Eckerhart, 461 U.S. 424, 437 (1983). Since the parties were unable to settle the amount of JW's fee, JW "bears the burden of establishing entitlement to an award." Id.
Edwards objected to JW professionals and Non-Professionals being compensated for performing the Trustee's statutory duties. While the Court finds many time entries where JW professionals and Non-Professionals billed for performing the Trustee's statutory duties (non-legal work), the Court finds that based on the exceptional or unique circumstances in existence at the time the Trustee was appointed, the Court will allow JW to be compensated for the non-legal time entries under § 330. The Court, however, wants to make it clear that while the exceptional or unique circumstances existed at the time the Trustee was appointed and continued thereafter for some period of time, the Court is not finding that such exceptional or unique circumstances will remain in existence for the entire tenure of the Trustee's appointment.
Moreover, because of the exceptional or unique circumstances in existence at the time the Trustee was appointed, the Court will allow JW professionals and Non-Professionals to be compensated for performing the Trustee's statutory duties without charging the amount against or subtracting from the Trustee's Comp. Since this is an interim fee application pursuant to § 331, the issue of whether to charge against the Trustee's Comp will be revisited by the Court when the final fee applications and the final application for Trustee's Comp are filed. "Interim fee awards are not final determinations intended to put a matter to rest. Rather, they are interlocutory and reviewable, and are intended only to provide some interim relief from the economic hardships of subsidizing litigation." Continental Ill. Nat'l Bank & Trust Co. of Chicago v. Charles N. Wooten, LTD. (In re Evangeline Refining Co.), 890 F.2d 1312, 1321 (5th Cir. 1989).
As for the hourly rates of attorneys and Non-Professionals, the Court finds that since this case is not a national or regional case, out-of-town hourly rates are not justified. With the guidance of other decisions in the Southern District of Mississippi and with the guidance of the fee applications approved by this Court in other Chapter 11 cases, the Court finds that a reasonable maximum hourly rate and the prevailing maximum market rate in this Court is $350.00 for professionals and $125.00 for Non-Professionals.
The Court finds that $100.00 is a reasonable maximum hourly rate for law clerks. The Court, however, finds that it cannot award JW any compensation based on this reduced hourly rate for the work it billed the estate for law clerks in the Application because of block billing. Without a description of any kind as to what duties the law clerks performed, the Court is unable to determine the reasonableness of the billing entry or the basis for the hourly rate of $165.00. Therefore, the Court finds that JW may not be compensated for the work it billed the estate ($6,072.00) for law clerks.
As for expenses claimed by JW in the Application, JW previously agreed to waive $2,851.07 billed for long distance telephone service; $3,992.75 billed for overtime; and $4,756.16 for computer-assisted research, which represents one-half of the total amount requested.
JW requests to be reimbursed for the remaining $4,756.17 billed for computer-assisted research. The Court adopts the Fibermark three-part test an applicant must follow in order to allow the Court to determine whether to permit reimbursement for computer-assisted research under § 330. In the case at bar, even though JW did not meet the three-part requirement per se, since JW agreed to reduce its request by one-half ($4,756.16), the Court finds that JW is entitled to be reimbursed for the remaining one-half, $4,756.17 for computer-assisted legal research.
The Court does not take pleasure in having to resolve this dispute over JW's attorney fees. The Court, however, has "an independent duty to review the reasonableness of the fees of any professional." In re Lexington Hearth, 402 B.R. at 139 (footnote omitted). Further, the Fifth Circuit recently held that "[t]he bankruptcy court may exercise its discretion, upon motion or sus sponte, to `award compensation that is less than the amount . . . requested.' Id. § 330(a)(2)." Barron & Newburger, P.C. v. Texas Skyline Ltd (In re Woerner), 783 F.3d 266, 271-72 (5th Cir. 2015). Consequently, the Court finds that pursuant to § 331, JW is entitled to the following interim attorney fees and expenses:
A separate interim order will be entered by the Court.
