Ashely M. Chan, United States Bankruptcy Judge.
When Silvia Yovtcheva ("Debtor") became entitled to receive $250,000 from the
On November 15, 2017, the Debtor filed for relief under Chapter 7 of the Bankruptcy Code. Case No. 17-17779 ECF No. ("ECF") 1. On the same date, Terry Dershaw was appointed as the Trustee in this case. ECF 2. The Debtor disclosed that she was the beneficiary of a term life insurance policy ("Policy") on the life of her ex-husband on Schedule B. Schedule B ¶ 31. She also disclosed on her Statement of Financial Affairs ("SOFA") that her only source of income in 2017 was $12,672.00 from child support and $17,487.00 from disability payments. SOFA ¶ 5.
On December 13, 2017, the Trustee conducted the § 341 meeting of creditors ("Meeting"). On the same day, the Debtor amended her SOFA to disclose a debt consolidation case ("Litigation") which had been resolved in her favor prior to filing her case. ECF 11. She also amended: (1) Schedule B to reflect that she held $1,500 in a savings account related to proceeds from the Litigation and (2) Schedule C to fully exempt such proceeds. ECF 9, ECF 10. On December 14, 2017, the Trustee filed a report of no distribution ("Report") stating that there was no property available for distribution from the estate.
On January 23, 2018, the Debtor's ex-husband died. Trustee's Mot. for Turnover ("Mot.") ¶ 7. The Debtor promptly notified the Trustee of his death and, on January 30, 2018, the Trustee filed a praecipe to withdraw his Report and a notice to change the status of the case from a no-asset case to an asset case. ECF 13, ECF 14. The Trustee filed an application to retain Fox Rothschild LLP ("Fox") as counsel to represent the Trustee on January 31, 2018, which was ultimately approved by the Court on March 14, 2018. ECF 15, ECF 21. In the meantime, the Debtor amended her schedules to reflect her entitlement to receive, and exempt a small portion of, the $250,000 payable under the Policy. ECF 16, ECF 17.
Despite repeated attempts by the Debtor to obtain a copy of her ex-husband's death certificate ("Certificate"), she was unable to immediately obtain a copy of the Certificate, apparently because the marriage ended before his death. See Debtor's Obj. to Fee Appl. ("Debtor's Obj.") Ex. A, at 4. The Debtor was concerned about the delay in obtaining a copy of the Certificate, which was needed to make a claim under the Policy, because the survivor benefits that she began receiving from Social Security for her daughter after her ex-husband died were less than the child support payments that she had been receiving while he was alive, and she was accordingly struggling to pay her bills. Id. at 5. On March 6, 2018, the Debtor ultimately obtained the Certificate and sent it to Fox. Id. at 6-8.
On April 26, 2018, Counsel filed a Motion for Turnover Pursuant to 11 U.S.C. § 542 ("Motion") requesting that the Court direct Voya to turn over the proceeds of the Policy to the Trustee. Mot. 1, ECF 23. The Motion was a simple pleading, consisting of eleven paragraphs, and merely set forth the factual background leading up to the request. It did not contain any case law or legal discussion. The Motion was uncontested and, on May 30, 2018, the Court entered an order granting the Motion. ECF 33.
On July 2, 2018, Counsel filed an Application for Allowance of Compensation and Reimbursement of Expenses of Fox Rothschild LLP, Counsel to Trustee, for the Period January 31, 2018 through June 21, 2018 ("Application"). ECF 36. The Application sought reimbursement of fees in the amount of $18,625.00 and expenses in the amount of $14.02, and stated that Fox had "reviewed the Debtor's assets with the Trustee, investigated the life insurance benefits due the Estate, and prepared the necessary documents for turnover of the life insurance benefits." Counsel's App. 3. The Application also stated that the Trustee had approximately $260,000 on hand to pay claims totaling $82,000. Id.
Of the 29.2 hours billed by Fox in the Application, 24.7 hours were billed by Counsel at an hourly rate of between $660.00-$695.00. See Counsel's App. Ex. A. However, most of this time was spent performing nonlegal services. In fact, Counsel only spent 2.2 hours performing legal services in this case — .5 hours drafting Fox's retention application and 1.7 hours drafting the Motion. See id. Counsel spent over 6 hours unsuccessfully trying to obtain a copy of the Certificate. See id. There were numerous entries billed by Counsel for: correspondence and calls to Voya, the Debtor, and Debtor's counsel regarding the Policy; review of claims and calls/correspondence with creditors; ministerial acts such as preparation of certificates of no objection; and review of the Debtor's financial management certificate, Counsel's retention order, and the discharge order. See id.
On July 13, 2018, the Debtor filed a pro se letter objection ("Objection") to the Application. ECF 37. The Debtor vehemently objected to the amount requested in the Application based upon her view that her case was not complex, there was no novelty involved in the representation of the Trustee, and no special legal expertise was needed to handle the case. Debtor's Obj. 11. In addition, the Debtor argued that Fox improperly seeks compensation for services that should have been performed by the Trustee as part of his statutory duties under § 704(a). Id. at 1-4. Specifically, the Debtor argued that the Trustee has a statutory duty to collect and liquidate assets of the estate, examine proofs of claim, investigate the financial affairs of the debtor, furnish information to parties in interest on factual matters, and file applications, and that Fox should not be reimbursed for performing any of these services. Id. The Debtor also argued that Counsel unnecessarily spent time trying to unsuccessfully obtain the Certificate and determine whether the proceeds from the Policy would be taxable. Id. at 5-7. Finally, the Debtor argued that Fox should not be reimbursed for any services performed
The Debtor also argued that she and her daughter desperately need the proceeds from the Policy because they:
Id. at 7.
On July 26, 2018, the United States Trustee ("UST") filed an objection ("UST Objection") to the Application along similar lines. ECF 40. The UST argued that Fox: (1) should not be reimbursed for services performed "which are more appropriately a trustee's responsibility;" and (2) "failed to exercise responsible billing judgment," because certain "tasks were performed by individuals commanding an hourly rate higher than the nature of the work demanded." UST Obj. to Fee Appl. ("UST Obj.") 2. The Trustee asserted that Fox billed 13.5 hours of objectionable time with a total value of $8,301.50. See id. Ex. A.
The Debtor's attorney also filed an affidavit in support of the Objection ("Affidavit" and together with the Objection and the UST Objection, the "Objections") and stated that the fees were excessive for such a straightforward case which only required the Trustee to collect the Policy and pay out the claims in the case. ECF 41.
The Court held a hearing on the Objections on August 22, 2018, with the Debtor, Counsel, and the UST in attendance. ECF 42. The Trustee did not attend the hearing, and Counsel did not provide any evidence or testimony during the hearing.
In response, Counsel argued that the Trustee had specifically asked him to perform each of the services undertaken by Fox and that he had done exactly what the Trustee had asked him to do. In response to the Court's inquiry about whether Counsel should have raised the appropriateness of performing some of the nonlegal services with the Trustee at the outset of the case, Counsel responded that he would never question the Trustee about that and that he felt that he had a duty to his client, the Trustee, to perform whatever service the Trustee requested him to perform in connection with this case. He also suggested that there was a heightened need for scrutiny of the Debtor's case because she initially failed to list the Litigation on her SOFA and the related proceeds from such Litigation on her Schedules. At the conclusion of the hearing, the Court took the matter under advisement.
The Debtor and the UST argue that Counsel should not be compensated for
The Court finds that Counsel performed many nonlegal services in the Application which should have been performed by the Trustee as part of his statutory duties under § 704(a). In addition, the Court finds that many of Counsel's time entries in the Application were not reasonable, nor were they necessary, under § 330(a).
The relevant provisions of § 704(a) setting forth the Chapter 7 trustee's statutory duties provide that:
Some of the trustee's duties under § 704(a) are clearly nonlegal and can be executed without the assistance of an attorney (e.g., investigating the debtor's financial affairs in order to conduct the § 341 meeting of creditors), while others clearly require the assistance of an attorney (e.g., filing an objection to a debtor's discharge.). However, there is a gray area involving services "which are legal in nature,
Because a trustee is entitled to a commission based upon the distributions that are ultimately made in a Chapter 7 case, subject to the maximum percentages set forth in § 326(a), in exchange for performing the duties listed in § 704(a), it is important to ensure that there is no "double dipping" of the bankruptcy estate assets which would occur if a trustee's attorney is improperly compensated for work that the trustee is statutorily required, and paid, to perform. In such event, the bankruptcy estate would be unnecessarily depleted by the compensation paid to the trustee's counsel for such work. In addition, the trustee would also receive a higher commission than he would be entitled to because his commission would be calculated, in part, on the improper distribution to his counsel.
Indeed, the Third Circuit has confirmed that "an attorney is not entitled to compensation for the assumption of duties of the . . . Trustee," and explained the underlying rationale for such principle as:
In re Meade Land and Development Co., Inc., 527 F.2d 280, 285 (3d Cir. 1975). The Third Circuit further recognized that bankruptcy courts have "substantial latitude" in distinguishing "the line between legal and non-legal services and between necessary legal services and ministerial duties of the Trustee, requiring only sound business judgment." Id.
In making this distinction, the Court finds it helpful to contrast the legal expertise required to represent a Chapter 7 trustee, who is statutorily required to possess a certain level of business and legal expertise as established by the Attorney General under 28 U.S.C. § 586(a) and set forth in 28 C.F.R. § 58.3, as opposed to a layperson. The court in In re Lowery, 215 B.R. 140, 141-42 (Bankr. N.D. Ohio 1997), explained that:
Given the special qualifications required to become a trustee, therefore, a trustee "necessarily has a greater skill set than a layman in performing duties such as investigating a debtor's financial affairs or writing letters to collect debts." In re King, 546 B.R. at 696. As a result, courts have held that a trustee's attorney may only receive compensation for services which overlap with the trustee's when "unique difficulties" arise. In re J.W.
The court in In re King suggested that a trustee's attorney should not be compensated for drafting and filing an objection to a proof of claim that contains no supporting documentation because it would be such a ministerial task. In re King, 546 B.R. at 695; see also In re Haggerty, 215 B.R. 84, 86 (Bankr. M.D. Fla. 1997) ("[T]he making of routine objections to claims in this case constitutes performance of the trustee's duties, and is not compensable as professional time."). At the very least, the trustee should make an initial review of the claims filed in a case before involving his counsel. Similarly, a trustee's attorney should not be compensated for routine communications with creditors. See In re Minton Group, Inc., 33 B.R. 38, 41 (Bankr. S.D.N.Y. 1983) ("[T]he court must be mindful that routine and ministerial services, such as telephone calls and correspondence with creditors and information seekers should not be compensated at billable rates attributable to truly legal services."). The court in In re Virissimo, 354 B.R. 284, 293 (Bankr. D. Nev. 2006), held that a trustee's counsel failed to establish that unique difficulties existed which required the expertise of a lawyer in the performance of "records searches, the deed orders, the communications or the review of the pending lawsuits."
Fox seeks compensation pursuant to § 330(a), which provides for an award to professionals, such as counsel to the trustee, for "reasonable compensation for actual, necessary services rendered," and which also states:
Even if objections to fee applications are not filed, courts have an independent responsibility to insure that fees awarded under § 330(a) are fair and reasonable. In re Busy Beaver Bldg. Centers, Inc., 19 F.3d 833, 841 (3d Cir. 1994) ("Beyond possessing the power, we think the bankruptcy court has a duty to review fee applications, notwithstanding the absence of objections by the United States trustee (`UST'), creditors, or any other interested party, a duty which the Code does not expressly lay out but which we believe derives from the court's inherent obligation to monitor the debtor's estate and to serve the public interest."). However, courts do not need to render detailed findings in reviewing fee applications. Id. at 844-45. Furthermore, determinations of reasonableness under § 330(a) clearly are within a bankruptcy court's discretion. See,
The Third Circuit has directed courts to use the lodestar approach in determining an allowance of reasonable fees under § 330(a) for a professional, such as an attorney. See In re Busy Beaver, 19 F.3d at 849, 856. In applying the lodestar method, courts multiply the prevailing market hourly rate, taking into account the experience of the professional and the nature of the professional services provided, by the number of hours reasonably expended in providing those services. Id. at 849 n. 21 ("Under the lodestar analysis, a court first establishes a reasonable hourly rate (corresponding to the value of the services and the cost of comparable services in § 330(a)(1)) for each set of compensable services (corresponding to the nature of the services in § 330(a)(1)), and then multiplies each rate by the reasonable number of hours of compensable work included in each respective set (corresponding to the time and extent of the services in § 330(a)(1)).").
A bankruptcy court should consider the benefit achieved by the services rendered in applying § 330(a), since there is an "express mandate of `benefit-to-the-estate' imposed by § 330." Ferrara & Hantman v. Alvarez (In re Engel), 124 F.3d 567, 573, 577 (3d Cir. 1997), However, § 330(a)(3) merely requires that "the services be reasonably likely to yield a benefit to the estate at the time they were provided; not that they actually do so." In re Mushroom Transp. Co., 486 B.R. 148, 163 (Bankr. E.D. Pa 2013). In determining the reasonableness of an hourly rate, "a bankruptcy judge may use his own knowledge of the market and of the professional's experience to determine the appropriate hourly rate." Id. at 164; see also In re Busy Beaver, 19 F.3d at 854 ("Although this case does not present us with a pressing need to define precisely how a bankruptcy court should verify the market rates, if any, for select clerical services, we observe that certainly a bankruptcy judge's experience with fee petitions and his or her expert judgment pertaining to appropriate billing practices, founded on an understanding of the legal profession, will be the starting point for any analysis.").
Turning to the Application, the Court finds that the Trustee had one relatively simple task to perform in this case — to liquidate the Policy. The only legal work that needed to be performed in connection with this task was the drafting and filing of the Motion. All of the nonlegal work associated with performing this task (such as the multiple calls, correspondence, and internet and document searches) should have been performed by the Trustee, pursuant to § 704(a), who was more than capable, and therefore responsible, to make calls and draft correspondence to the Debtor, her counsel, and Voya. As a result, the Court will deny all nonlegal work performed by Fox in connection with the liquidation of the Policy (see Exhibit A, which strikes all nonlegal time entries, labeled as "NL," totaling 14.3 hours at a value of $8,696.5.).
Applying § 330(a) to the remaining time charged by Counsel, the Court finds that Counsel recorded certain duplicative entries which the Court will strike as unreasonable and unnecessary (see Exhibit A, which strikes all duplicative time entries, labeled as "D," totaling .6 hours at a value of $396.00.). The Court also will reduce the hourly rate charged by Counsel for performing ministerial acts, such as preparing and filing certificates of no response. Given Counsel's hourly rate of over $600 and the simplicity of these tasks, it would be more appropriate for a paralegal, with a far lower hourly rate, to perform such tasks (see Exhibit A, which reduces the hourly rate charged for ministerial time entries to the paralegal's rate. These entries are labeled as "P" totaling .5 hours at a value of $330.00.). In addition, there was no reason for Counsel to review the Debtor's financial management certificate (twice), his retention order (twice), or the discharge order. Therefore, the Court will strike all time entries for these types of unnecessary tasks (see Exhibit A, which strikes all unnecessary time entries, labeled as "U," totaling .4 hours at a value of $264.00.).
Although the Court will allow some of the time spent by Counsel reviewing the Schedules and SOFA in order to become familiar with the case, the Court finds it appropriate to reduce many entries for unnecessary time spent performing such tasks (see Exhibit A, which reduces all unnecessary time entries, labeled as "R," totaling .2 hours at a value of $132.00.). In addition, the Court will reduce the time spent by Counsel drafting the Motion (1.7 hours) as unreasonable because the pleading merely set forth the basic factual background in the case (in eleven one-sentence paragraphs) and contained no legal analysis (see Exhibit A, which reduces these legal time entries, labeled as "LR," totaling 1.2 hours at a value of $792.00.). Taking all of these deductions into consideration, the Court will reduce Fox's reimbursement request by $11,599.00.
At the hearing, the only other argument made in defense of the Application by Counsel was the alleged heightened need for scrutiny of the Debtor's case based upon the Debtor's failure to list the Litigation on her Schedules and SOFA. This argument makes no sense.
First, although the Debtor initially may not have listed the $1,500 that she had on hand as a result of the undisclosed Litigation, the Debtor was entitled to fully exempt those modest proceeds. See Am. Sch. C; 11 U.S.C. § 522(d)(5). More importantly, the Debtor disclosed the Policy at the outset of her bankruptcy case and immediately notified the Trustee when her ex-husband died. There was, therefore, no need for any heightened scrutiny in this case regarding the Debtor's actions.
Second, even if heightened scrutiny was warranted in this case, it would not justify Counsel spending significant time performing unnecessary nonlegal tasks. In particular, there was no reason for Counsel to spend over 6 hours trying to unsuccessfully obtain a copy of the Certificate. It was the Trustee's responsibility to perform whatever nonlegal tasks were necessary to liquidate the Policy.
Going forward, this Court expects that no Chapter 7 trustee will ask its counsel to perform, or seek reimbursement for, services which are statutorily required to be
Finally, it is unclear to the Court exactly what services were performed by the Trustee in this case and, therefore, whether the Trustee is entitled to his maximum commission under § 326(a). As a result, the Trustee should be prepared to appear at the hearing on the Final Audit in this case and testify as to the services he performed in order to justify payment of such commission.
Based upon the foregoing, the Court will allow compensation of $7,026.00 and reimbursement of expenses of $14.02 for a total award of $7,040.02 to Fox under its Application. An order will follow.
Attorney Hours Rate Total
E. J. DIDONATO 2.7 $695.00 $1,876.50
E. J. DIDONATO 24.7 $660.00 $16,302.00
K. G. DAMBROSIO 1.1 $320.00 $352.00
A. ROSE 0.7 $135.00 $94.60
29.2 $18,625.00
TOTAL PROFESSIONAL SERVICES $18,625.00
COSTS ADVANCED AND EXPENSES INCURRED:
PHOTOCOPYING $11.20
POSTAGE CHARGES $2.82
CURRENT EXPENSES $14.02
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TOTAL BALANCE DUE UPON RECEIPT $18,639.02
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AND NOW, this 19th day of September, 201 8, upon consideration of the Application of counsel to the Trustee for allowance of compensation in the amount of $18,625.00 and reimbursement of expenses in the amount of $14.02, the Debtor's and United States Trustee's objections thereto, and the parties' arguments at a hearing, for the reasons stated in the accompanying opinion, it is hereby ORDERED that:
1. The Application is GRANTED IN PART AND DENIED IN PART.
2. Compensation in the amount of $7,026.00, plus expenses in the amount of $14.02, is allowed to Fox Rothschild LLP as counsel to the Trustee for the period of January 31, 2018 through June 21, 2018.
