ORDER REGARDING FIRST AND FINAL APPLICATION FOR AWARD OF COMPENSATION TO DAVID J. WINTERTON & ASSOC., LTD.1

MIKE K. NAKAGAWA, Bankruptcy Judge.

On November 14, 2018, the court heard the First and Final Application for Award of Compensation to David J. Winterton & Assoc., Ltd. ("Fee Application"). The appearances of counsel were noted on the record. After arguments were presented, the matter was taken under submission.2

BACKGROUND

On February 8, 2017, Hartland MMI, LLC ("Debtor") filed a voluntary Chapter 11 bankruptcy petition along with its schedules of assets and liabilities ("Schedules") and other required information. (ECF No. 1). On its Schedule "A/B," Debtor listed real property located at 1044 South 6th Street, Las Vegas, Nevada. The value of the real property was scheduled as $3,600,000. The same schedule also listed real property located at 525 Park Paseo, Las Vegas, Nevada. The value of the latter property was scheduled as "Unknown." Together, the two parcels of real property are known as the Hartland Mansion. In addition to the real property, the same Schedule listed the Debtor having "Cash" with a value of $7,365, and "Miscellaneous Furnishings" with a value of $50,000.00. On its secured creditor Schedule "D," Debtor listed, inter alia, MRT Holdings LLC, c/o LTV Private Equity Inc. ("LTV"), as having a claim in the amount of $1,040,643.75 secured by a deed of trust against the real property. The Schedules are signed under penalty of perjury by Garry Hart ("Hart") who is described as the "Manager" of the Debtor.3

On February 28, 2017, an application to employ the law firm of David J. Winterton & Associates, Ltd. ("Winterton Firm") as counsel for the Debtor was filed ("Employment Application") and was noticed to be heard on April 5, 2017. (ECF Nos. 18 and 19). The Employment Application did not seek approval retroactive to the bankruptcy petition date.

On April 6, 2017, an order granting the application to employ the Winterton Firm was entered ("Employment Order"). (ECF No. 32). The Employment Order did not approve employment of the Winterton Firm retroactive to the bankruptcy petition date.

On August 7, 2017, the deadline for both non-governmental and governmental entities to file proofs of claim had expired. According to the claims register maintained by the clerk of the court, secured claims totaling $1,316,858.67, and general unsecured claims totaling $226,289.58 were filed by the applicable deadlines.

On February 20, 2018, a motion to sell the Hartland Mansion was filed ("Sale Motion") and noticed to be heard on shortened time for March 7, 2018. (ECF Nos. 159 and 161).

On February 27, 2018, opposition to the Sale Motion was filed by creditor Pro-Tect Security Services, LLC. (ECF No. 164).

On March 2, 2018, opposition to the Sale Motion was filed by creditor Benjamin B. Childs, Esq. (ECF Nos. 165 and 167). On this same date, a limited objection was filed by LTV. (ECF No. 166).

On March 14, 2018, an amended Sale Motion was filed by Debtor and noticed to be heard on March 21, 2018. (ECF Nos. 181 and 185).

On March 16, 2018, Debtor filed a combined reply to the three oppositions to the Sale Motion. (ECF No. 191).

On July 26, 2018, an order was entered granting the Sale Motion ("Sale Order"). (ECF No. 258).

On October 10, 2018, a "First and Final Application for Award of Compensation to David J. Winterton & Assoc., Ltd." ("Fee Application") was filed and noticed to be heard on November 14, 2018. (ECF Nos. 274 and 275). Two exhibits are attached to the Fee Application. Exhibit "1" consists of a billing statement dated February 11, 2017, reflecting services provided by the Winterton Firm from December 1, 2016, through February 8, 2017. Exhibit "2" consists of a 90-page billing statement ("Winterton Billing Statement") dated October 10, 2018, reflecting services rendered from February 13, 2017, through October 10, 2018. The total amount of attorney's fees set forth in the Winterton Billing Statement is $319,095.00 and the total amount of costs is $4,999.07.

On October 24, 2018, an objection to the Fee Application was filed by Hart as Executor of the Estate of Ailene E. Wart ("Hart Objection").4 (ECF No. 278).

On October 31, 2018, an additional objection to the Fee Application was filed by Robert W. Lueck ("Lueck Objection"). (ECF No. 279). On the same day, the UST also filed an objection ("UST Objection"), supported by the declaration of Tina Spyksma ("Spyksma Declaration"). (ECF Nos. 280 and 281). Attached to the Spyksma Declaration as Exhibit "A" is a copy of the Winterton Billing Statement blocking out certain time and hourly rate figures, as well as resulting dollar amounts, for specific billing entries.

On November 7, 2018, replies were filed by the Winterton Firm to the objections of Hart ("Reply to Objection"), Lueck, and the UST, along with the declarations of Gene Campbell ("Campbell Declaration") and David J. Winterton, Esq. ("Winterton Declaration").5 (ECF Nos. 284,6 285, 286, 287, and 288).

On November 14, 2018, a hearing was held in which counsel for the objecting parties as well as the Winterton Firm presented oral argument. No requests were made to cross-examine any of the witnesses whose declarations had been filed, nor to conduct an evidentiary hearing. The record in this matter is closed.

APPLICABLE LEGAL STANDARDS

Professionals who perform services for a debtor in possession cannot be compensated unless the services were previously authorized by a court order. See, e.g., In re Capitol Litho Printing Corp., 573 B.R. 771, 774-75 (Bankr. D. Ariz. 2017). For a professional person employed under Section 327, Section 330 provides that the court may award reasonable compensation for actual, necessary services rendered by the professional person and reimbursement for actual, necessary expenses. 11 U.S.C. § 330(a)(1)(A)-(B).

Compensation requested under Section 330 is not automatic. Rather, the "court may, on its own motion or on the motion of the United States Trustee, the United States Trustee for the District or Region, the trustee for the estate, or any other party in interest, award compensation that is less than the amount of compensation that is requested." 11 U.S.C. § 330(a)(2). Section 330(a)(3) provides that:

11 U.S.C. § 330(a)(3)(A)-(F).

Section 330(a)(4), however, provides that "[t]he court shall not allow compensation for (i) unnecessary duplication of services; or (ii) services that were not — (I) reasonably likely to benefit the debtor's estate; or (II) necessary to the administration of the case." 11 U.S.C. § 330(a)(4)(A)(i)-(ii) (I and II). See Smith v. Edwards & Hale, Ltd. (In re Smith), 317 F.3d 918, 926 (9th Cir. 2002), abrogated on other grounds by Lamie v. United States Trustee, 540 U.S. 526 (2004) ("[u]nder [S]ection 330(a)(4)(A), a bankruptcy court may award compensation if the services rendered were not unnecessarily duplicative and if the services rendered were both reasonably likely to benefit the debtor's estate and were necessary for the administration of the case."). In the latter case, the circuit acknowledged that Section 330 "[e]xpressly contemplate[d] compensation for preparation of fee applications." Id. at 927, citing 11 U.S.C. § 330(a)(6).7

Prior to 1994, Section 330 provided limited guidance on the award of compensation to professionals employed by a bankruptcy estate. Section 330 stated that a bankruptcy court may award "reasonable compensation for actual, necessary services . . . based on the nature, the extent, and the value of such services, the time spent on such services, and the cost of comparable services other than in the case under this title." 11 U.S.C. § 330(a)(1) [superseded]. See, e.g., In re Gianulias, 111 B.R. 867, 869-70 (E.D. Cal. 1989) (affirming bankruptcy court decision requiring Chapter 11 debtor's counsel to submit evidence of prevailing rates charged by bankruptcy attorneys in the community in order to establish a reasonable hourly rate). In 1994, Section 330(a) was amended to add subsection 330(a)(3), which required the court to consider "the nature, the extent, and the value" of the professional services, and which delineated five specific factors that must be considered in determining the amount of reasonable compensation. See Bankruptcy Reform Act of 1994, Pub.L. No. 103-394, 108 Stat. 4106 (effective Oct. 22, 1994). Those factors included the time spent, the rates charged, the necessity or benefit of the services at the time they were performed, the complexity, importance, and nature of the task addressed, and the customary compensation of comparably skilled attorneys in non-bankruptcy cases. See 11 U.S.C. § 330(a)(3)(A through E) [superseded]. In 2005, Congress added the language of current subsection 330(a)(3)(E), which requires the court to consider a sixth factor: whether the professional is board certified or otherwise has demonstrated skill and experience in the bankruptcy field. See Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub.L. No. 109-8, 119 Stat. 23 (enacted April 20, 2005).

Several other provisions of the Bankruptcy Code permit or require an award of attorney's fees in matters before the bankruptcy court. For example, bankruptcy courts are permitted or required to award fees when involuntary bankruptcy petitions are dismissed without consent, see 11 U.S.C. § 303(i), to award attorney's fees as damages to individuals injured by a violation of the automatic stay, see 11 U.S.C. § 362(k)(1), to allow attorney's fees as part of a creditor's oversecured claim, see 11 U.S.C. § 506(b), and to award attorney's fees to an individual debtor for defending a dischargeability complaint under Section 523(a)(2) that was brought without substantial justification. See 11 U.S.C. § 523(d). Outside of bankruptcy, attorney's fees also are awarded in a variety of proceedings. See, e.g., Gates v. Deukmejian, 987 F.2d 1392 (9th Cir. 1992) (award of reasonable attorney's fees under 42 U.S.C. § 1988 in civil rights litigation); Nilsen v. York County, 400 F.Supp.2d 266 (D. Maine 2005) (award of attorney's fees out of a common fund produced by a class-wide settlement of strip search litigation).

None of the other provisions of the Bankruptcy Code addressing an award of attorney's fees require the court to take into account the six factors now specified in Section 330(a)(3)(A through F). While courts may be required to address an award of attorney's fees outside of bankruptcy, this court also is unaware of any statute that requires consideration of specific factors, if any, that are similar to those set forth in Section 330(a)(3). This dissimilarity no doubt exists because of the unique role occupied by a professional employed by a bankruptcy estate, particularly counsel for a Chapter 11 debtor.

A Chapter 11 debtor in possession has a fiduciary responsibility to the creditors of the bankruptcy estate. See Woodson v Fireman's Fund Ins. Co. (In re Woodson), 839 F.2d 610, 614 (9th Cir. 1988) ("[Debtor's] failure to notice his creditors of the $1 million in a timely fashion is troubling because [Debtor] is not an ordinary litigant. As debtor in possession he is the trustee of his own estate and therefore stands in a fiduciary relationship to his creditors."). That fiduciary responsibility also rests with bankruptcy counsel for the debtor in possession. See Everett v. Perez (In re Perez), 30 F.3d 1209, 1219 (9th Cir. 1994). As part of its fiduciary obligation under Section 1107, a debtor in possession is accountable for all property received. See 11 U.S.C. §§ 1107(a), 1106(a)(1), and 704(a)(2). As a fiduciary to creditors of the estate, a debtor in possession, therefore, is accountable for assets of the bankruptcy estate that are expended on professional services that are not necessary or beneficial to the estate.

The factors set forth in Section 330(a)(3) address these concerns. The considerations reflected in Sections 330(a)(3)(A, B, D and E) are consistent with the "lodestar" method utilized in determining other attorney's fee awards in both bankruptcy and non-bankruptcy cases. That method typically bases an award on a reasonable number of hours charged at a reasonable hourly rate. See Gates v. Deukmejian, 987 F.2d at 1397; Nilsen v. York County, 400 F.Supp. at 271. Sections 330(a)(3)(A and D) focus on the number of hours billed by the professional. Likewise, Sections 330(a)(3)(B and E) focus on the hourly rate charged by the professional, taking into account the professional's qualifications, skills and experience. Section 330(a)(3)(C) focuses on the necessity to the administration of the bankruptcy case, or the benefit to the completion of the bankruptcy case, of the services performed by the professional at the time the services were rendered. This factor recognizes both the limited resources available to pay unsecured creditors in a bankruptcy case and the corresponding need to limit the administrative expenses of completing the case. These concerns are not implicated by the other Bankruptcy Code provisions where an award or allowance of attorney's fees will be satisfied by a source that does not reduce the distribution to unsecured creditors. Section 330(a)(3)(F) focuses on whether the fees charged by the professional in the bankruptcy case are comparable to those charged in non-bankruptcy cases. This factor recognizes that bankruptcy serves an important function and that attorneys providing services in bankruptcy cases should not be dissuaded from representing debtors. See In re Gianulias, 111 B.R. at 870 ("In enacting section 330(a), Congress sought to ensure that bankruptcy attorneys would not be paid less than their colleagues practicing in other areas of the law. Congress expressed its concern that if the field did not provide adequate compensation, bankruptcy specialists, who enable the system to operate smoothly, efficiently, and expeditiously, would be driven elsewhere.").

Thus, in Section 330, Congress provided specific guidance for the reasonableness of compensation awarded to professionals who provide services to a bankruptcy estate. Although much discretion is still afforded to bankruptcy courts in awarding fees under Section 330, the task is not relegated simply to the gut instinct of the bankruptcy judge. Compare Nilsen v. York County, 400 F.Supp.2d at 277 n.30 (favoring a "market-mimicking" approach over a judge's "fee Gestalt").

DISCUSSION

The court has reviewed the billing statements attached to the Fee Application, as well as the history of the proceedings in this case. As previously mentioned, the total amount of attorney's fees set forth in the Winterton Billing Statement is $319,095.00 and the total amount of costs is $4,999.07. The court also has considered the written objections presented by Hart, Lueck, and the UST, and the detailed replies to each objection submitted by attorney Winterton. The oral arguments of counsel at the hearing also have been considered. Based on this record, the court concludes that the Winterton Firm should be allowed professional fees and reimbursement of costs advanced in the amounts set forth below.

As an initial matter, the court must deny any fees or costs incurred prior to April 5, 2017. The Chapter 11 proceeding was commenced on February 8, 2017. The Employment Application was not filed until February 28, 2017, and did not seek authorization to employ the Winterton Firm nunc pro tunc to the date of commencement of the Chapter 11 proceeding. The Employment Application was granted on April 5, 2017, and the Employment Order also did not authorize the Debtor to employ the Winterton Firm retroactive to the petition date. The first nine pages of the Winterton Billing Statement included time entries from February 13, 2017 through April 4, 2017. The professional fees billed for that period are $31,600, based on 86.5 hours of services rendered. The costs billed for that period are $140.47. The Winterton Firm seeks final allowance of attorney's fees and costs during an unauthorized period and both amounts therefore must be disallowed. See, e.g., In re Watson, 2015 WL 3939781, at *4 (B.A.P. 9th Cir. June 25, 2015)("`Failure to receive court approval for the employment of a professional . . . precluded the payment of fees' . . . Therefore, if the bankruptcy court abused its discretion in granting [retroactive authorization of employment], it follows that [counsel] was not entitled to payment of legal services prior to entry of the Nunc Pro Tunc Order.").

For the period from April 5, 2017 through October 10, 2018, the Winterton Billing Statement reflects professional fees charged in the total amount of $287,495. This total is based on 775.3 hours of services rendered by members of the firm during that period. For the same period, the Winterton Billing Statement reflects costs charged in the total amount of $4,858.60.8

The objecting parties maintain that the amount of time billed by the Winterton Firm in this Chapter 11 case is excessive.9 Based on excessive billing or insufficiently described billing, Hart maintains that the original attorney fee request of $319,095 should be reduced by fifty percent to $159,547.50. See Hart Objection at 8:21-23.10 Based on an alleged lack of complications in the case,11 Lueck argues in writing that the original attorney fee request should be "scaled back to approximately $100,000," see Lueck Objection at 2:19-20, and then changed that suggestion to approximately $125,000 at the hearing. On a percentage basis, Lueck therefore asserts that the original attorney fee request should be reduced by approximately sixty-one percent. Based on time entries of approximately $165,000 of attorney's fees identified in its Exhibit "A" for "emails, conferences, phone calls, meeting, and other communications," see UST Objection at 4:4-7, the UST apparently argues that the original fee request should be reduced by deducting fifty percent of the amount in Exhibit "A." If that deduction occurs, the attorney fees would be reduced to $236,595.12 On a percentage fee basis, the UST therefore argues that the original attorney fee request should be reduced by approximately twenty-six percent. The average of the three requested percentage reductions of the Winterton Firm's original attorney fee request is approximately forty-six percent.

The current fee dispute, therefore, comes to this: the Winterton Firm seeks attorney's fees of $319,095 even though it is eligible for no more than $287,495 during the period of authorized employment. The objecting parties, however, assert that the Winterton Firm should be allowed attorney's fees ranging from a minimum of $125,000 to a maximum of $236,595. While each of the objecting parties refer to specific entries in the Winterton Billing Statement as examples of excessive billing, all of them seek a percentage or lump sum reduction of the total amount of the fees requested rather than a reduction on an item by item basis.

In reviewing the amount of services billed by the Winterton Firm in this case, the court takes into consideration how this case has proceeded. The voluntary Chapter 11 petition, signed by Hart, was filed on February 8, 2017. The Hartland Mansion was the primary asset of the Chapter 11 estate, and the Debtor had entered into a listing agreement to sell the property more than a month before the bankruptcy was filed. See Exhibit "1" to Motion for Approval to Employ Coldwell Banker Premier Realty as Realtor for the Debtor and to Approve Executory Contract, effective January 6, 2017. (ECF No. 29). After the Chapter 11 petition was filed, the Debtor took the usual steps of seeking authority to use cash collateral (ECF No. 28), to approve the employment of the existing realtor, and to obtain postpetition financing. (ECF No. 30).13 By June 8, 2017, the 120-day exclusive period under Section 1121(b) for the Debtor to file a proposed Chapter 11 plan expired, allowing any creditor or other party in interest to file a proposed plan of reorganization.14

In addition to the motions filed by the Debtor, several motions were filed by Lueck, including a motion to appoint a Chapter 11 trustee ("Lueck Trustee Motion"). (ECF No. 61).15 Likewise, objections to various claims were filed on behalf of the Debtor. All of the motions and claim objections were continued by agreement, or resolved in some manner, without a Chapter 11 plan ever being proposed by the Debtor. Likewise, a Chapter 11 plan was never proposed by a creditor or other party in interest even though the plan exclusivity period had elapsed. Apparently because the Hartland Mansion was anticipated to be sold even before the Chapter 11 was filed, none of the parties in interest actively pursued or even proposed a plan of reorganization.16 Moreover, no party in interest pressed to have a Chapter 11 trustee appointed to expedite a sale of the Debtor's primary asset.

On February 20, 2018, more than a year after the Chapter 11 was commenced, Debtor filed the Sale Motion.

On July 26, 2018, after numerous hearings, the Sale Order was entered. That order authorized the Debtor to sell the Hartland Mansion free and clear of liens for $2,900,000, with secured claims, commissions, and other items paid out of escrow, including a settlement amount of $3,000 to Lueck.17 All remaining proceeds from the sale were to be held in the trust account of the Winterton Firm.

On August 28, 2018, the UST Motion was filed because the Debtor had not filed a report of the sale of the Hartland Mansion,18 had not filed a proposed Chapter 11 plan, had not filed monthly operating reports, and had not paid quarterly fees to the UST. The Winterton Firm filed a response to the UST Motion.

Although reorganization of the Debtor has never been pursued in this Chapter 11 proceeding, the primary asset of the bankruptcy estate has been liquidated. None of the parties objecting to the Fee Application ever objected to the Debtor's sale of the Hartland Mansion and none have suggested that the amount obtained from the liquidation sale was unreasonable. More would have been better, but that is not determinative of the necessity or benefit of the services provided by counsel. More important, no party disputes that if the Chapter 11 case had not been commenced, LTV could have completed its foreclosure sale of the Hartland Mansion (perhaps even by credit bid), to the detriment of all other creditors in this case.

In addition to the manner in which the Chapter 11 case has proceeded, the court has considered the total number of hours billed by attorney Winterton at the highest hourly rate, compared to the hours billed by lower rates by the associate attorney and paralegal for the Winterton Firm. Of the 861.8 hours for which the Winterton Firm seeks compensation, 743.3 hours were billed by attorney Winterton (approximately eighty-six percent), 40 hours were billed by the associate (approximately five percent) and 78.5 hours were billed by the paralegal (approximately nine percent). See Fee Application at 16:2 to 17:24. In the Winterton Billing Statement, the first time entry for attorney Winterton is dated February 13, 2017, the first time entry for the paralegal is dated February 17, 2017, and the first time entry for the associate is dated November 20, 2017.19 This allocation of services is not ideal, but it likely reflects the realities of a solo law practice and the hiring of an associate well after the Chapter 11 case was filed.20

Prior to the associate's initial time entry on November 20, 2017, the Winterton Billing Statement reveals that attorney Winterton billed 283.7 hours for professional services in this case. That figure represents approximately thirty-eight percent of the total hours that he billed. Clearly there were no other attorneys in the Winterton Firm prior to November 20, 2017, who could have provided attorney services to the bankruptcy estate. After November 20, 2017, attorney Winterton billed 459.6 hours in the case. That figure represents approximately sixty-two percent of the total hours he billed. A review of the time entries after November 20, 2017, reveals that attorney Winterton spent the greatest portion of his time drafting, amending, and negotiating the Sale Motion, in addition to time spent negotiating and disputing the final form of the Sale Order that accomplished the disposition of the Hartland Mansion. It is not unexpected nor unreasonable that attorney Winterton, as senior counsel in a two-attorney law firm, rather than the associate, would undertake those critical tasks.21

Having considered the number of hours billed by the Winterton Firm over the eighteen months it took to obtain the Sale Order, as well as the delegation of tasks within the firm, the court also takes into account the complexity of the case. The court agrees with Lueck that this Chapter 11 is not complicated, see note 11, supra, but appears to have been made difficult because of its origins in an unusual state court probate proceeding.22 Selling the Hartland Mansion in a Chapter 11 proceeding should not have been a complicated task, especially where the Debtor's most prominent creditor, LTV, was significantly oversecured. As previously indicated, the Debtor engaged a realtor to sell the Hartland Mansion a month before the Chapter 11 proceeding was commenced. The automatic stay arising upon the filing of the Chapter 11 petition prevented LTV from foreclosing on its collateral. Because of the substantial equity cushion in the property, LTV apparently had the good sense not to seek relief from stay under Section 362(d)(1) nor under Section 362(d)(2). Difficulties apparently arose when the marketing process did not produce quick results in part due to the unanticipated events occurring in Las Vegas towards the end of 2017. But for the foreclosure efforts by LTV, however, the same difficulties may have arisen if the Chapter 11 was never commenced. The bottom line is that achieving a sale of the Hartland Mansion was not a complicated task and that the difficulties were significant but not extraordinary.

Based on the foregoing, the court concludes that the rates charged by the Winterton Firm are appropriate. Those hourly rates appear to be comparable to those charged in non-bankruptcy matters. While the court has not been provided evidence of whether the members of the law firm possess any relevant certifications beyond their licenses to practice law, the firm has demonstrated sufficient skill and experience in bankruptcy matters. Because the Chapter 11 proceeding prevented the Hartland Mansion from being foreclosed, and allowed the sale to be completed, the services rendered by the Winterton Firm were both necessary and beneficial.

From the sale of the Hartland Mansion, the sum of $683,062.66 remains. See notes 6 and 18, supra. If the Winterton Firm receives the maximum allowable attorney's fee amount of $287,495, it would receive approximately forty-two percent of the net proceeds of the sale.23 As previously concluded, this Chapter 11 proceeding presented no extraordinary difficulties because the value of the Hartland Mansion far exceeded the amount of the primary secured creditor's claim. From the very beginning, a sale of the only asset was contemplated. The risk of nonpayment of any reasonable fees earned by counsel for the Chapter 11 debtor was not substantial. For that reason, some adjustment of the attorney's fees is appropriate to reflect the reasonable value of the services performed.

The court therefore will reduce the original fee request by the initial amount of $31,600 to reflect the amounts billed during the period prior to the authorized employment of the Winterton Firm. For the remaining $287,495 billed during the authorized period of employment, the court will apply a fifteen percent reduction of $43,124.25. The resulting allowance for attorney's fees is $244,370.75. The court also will reduce the original cost reimbursement request by the amount of $140.47 incurred in the period prior to the authorized employment of the Winterton Firm. From the remaining $4,858.60 incurred during the authorized period of employment, the court will disallow the three parking ticket charges totaling $60.00, as well as the postage charge of $2,491 that was dated on 2/23/2018. The resulting allowance for reimbursement of costs advanced is $2,307.60.

IT IS THEREFORE ORDERED that the First and Final Application for Award of Compensation to David J. Winterton & Assoc., Ltd., Docket No. 274, be, and the same hereby is, GRANTED as follows:

IT IS FURTHER ORDERED that the sums allowed herein may be paid to David J. Winterton & Assoc., Ltd., from any unencumbered funds available in the Chapter 11 estate.