MARVIN ISGUR, Bankruptcy Judge.
On May 23, 2016, John Akard, Chapter 11 Trustee, filed a complaint to avoid certain prepetition payments made by Golden State Holdings to Jason Lane. The Trustee hired Jerry Holt to provide an expert report on the issue. On October 25, 2017, Jason Lane filed a Motion to Strike Holt's Report. On December 18, 2017, the Court struck Holt's expert report based on a number of deficiencies.
Subsequently, on March 20, 2018, the Court found that the Trustee failed to meet the requirements of Federal Rule of Civil Procedure 26(a)(2)(B) and could not amend or supplement the stricken report, given that it no longer existed for purposes of the record. In light of the Trustee's violation of Rule 26(a)(2)(B), the Court found that Rule 37(c) sanctions were appropriate. The Court, however, granted the Trustee a continuance to file a new expert report, provided that the Trustee pay Lane's reasonable expenses and attorney's fees associated with reviewing the original report, preparing a rebuttal report, and moving to strike the expert report.
On April 3, 2018, Lane filed his Motion for Fees and Expenses, along with a Motion to Modify the Court's Opinion, seeking $31,715.48
Lane's Motion to Modify is denied, and further proceedings are needed to determine the appropriate attorney's fees.
On December 1, 2014, Golden State Holdings, Inc. filed for chapter 11 bankruptcy. (Case No. 14-36650, ECF No. 1 at 1). On January 6, 2015, the Court entered an order directing the United States Trustee to appoint a chapter 11 trustee in Golden State's bankruptcy case. (Case No. 14-36650, ECF No. 18). John Akard, Jr. was appointed Chapter 11 Trustee on January 13, 2015. (ECF No. 1 at 2).
On May 23, 2016, the Trustee filed this adversary proceeding to avoid certain prepetition payments made by Golden State Holdings to Jason Lane. (ECF No. 1 at 1-3). In support of his position, the Trustee retained Jerry Holt to opine on Golden State's insolvency at the time of the transfers. Holt prepared an expert report to this effect, which was submitted on July 24, 2017. (ECF No. 43).
Lane retained his own expert, Helga Zauner, to prepare rebuttal testimony and an expert report. (ECF No. 47). In her report, Zauner concluded that Holt's opinions as to Golden State's insolvency were "flawed, unsupported, and unreliable." (ECF No. 47-1 at 3). Following the submission of this rebuttal report, Lane filed a motion to strike Holt as an expert on October 25, 2017. (ECF No. 62 at 1).
On December 18, 2017, the Court struck Holt's expert report for failing to include the reasons why unidentified deposits were characterized as liabilities, and for failing to consider financial information regarding Golden State's alter ego. The Court then allowed the parties to brief whether the striking of Holt's report prohibited the Trustee from filing a new or amended expert report even though the discovery deadline in the proceeding had passed. The parties submitted their briefs on January 12, 2018. (ECF No. 84; ECF No. 85).
On March 20, 2018, the Court found that due to Holt's stricken expert report, the Trustee failed to meet the requirements of Rule 26(a)(2)(B)—that any expert witness retained expressly for trial disclose a report as prescribed by that rule. (ECF No. 87 at 5). Consequently, the Trustee was incapable of amending or supplementing Holt's stricken report, as it no longer existed for the purposes of the record. (ECF No. 87 at 5). The Court further noted that the Trustee's violation of Rule 26(a)(2)(B) was neither substantially justified nor harmless, and therefore sanctions under Federal Rule of Civil Procedure 37(c) were appropriate. (ECF No. 87 at 8). The Court, however, granted the Trustee a continuance to file a new expert report, conditioned on the Trustee's payment of Lane's reasonable expenses and attorney's fees associated with the protracted discovery process made necessary by the Trustee's failure to comply with Rule 26(a)(2)(B). (ECF No. 87 at 8).
That same day, the Court issued an Order consistent with its Memorandum Opinion. (ECF No. 90). The Court's Order set forth the following:
Thereafter, Lane submitted an Accounting of Fees and Expenses and a Motion to Modify within the prescribed 14-day period. (See ECF No. 91). Through his Motion, Lane requests the approval of $31,715.48
The Trustee objected to Lane's Accounting and Motion to Modify on April 16, 2018. (See ECF No. 92). Specifically, the Trustee argues that: (i) he should not be required to pay for the discounts HSSK
The issues before the Court are whether Lane's fees and expenses are reasonable, and in line with the Court's Order, and whether the Court's Order should be modified to include Lane's Summary Judgment fees.
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (H), and (O). Pursuant to 28 U.S.C. § 157(a), this proceeding has been referred to the Bankruptcy Court by General Order 2012-6.
As mentioned previously, after concluding that the Trustee's violation of Rule 26(a)(2)(B) was neither substantially justified nor harmless, the Court found that Rule 37(c) sanctions were appropriate. (ECF No. 87 at 8). As such, the Court conditioned the Trustee's filing of a new expert report on the Trustee's payment of Lane's reasonable expenses and attorney's fees incurred in opposing Holt's expert report. (ECF No. 87 at 8). The Trustee objects to the reasonableness of the fees requested, and the inclusion of fees beyond those ordered by the Court.
Lane argues that this Court's previous Order should be modified to include the fees and expenses associated with his Motion for Summary Judgement because the work performed on the Motion is "inextricably intertwined" with the work done on his Motion to Strike Holt's Expert Report. (ECF No. 91 at 2). Lane further maintains he is entitled to these fees because the filing of a new expert report would necessitate another motion for summary judgment. (ECF No. 91 at 2 ("[S]hould the Trustee be permitted to submit a new expert report, then Lane would have to file a new motion for summary judgment since the last one was predicated in large part on [the] Trustee's deficient expert opinions.")).
The Trustee counters that Lane's Motion for Summary Judgment was predicated on Lane's affirmative defenses, rather than solely on the Motion to Strike Holt's Expert Report. (ECF No. 92 at 7). The Trustee maintains that in order to prevail on his summary judgment motion, Lane must demonstrate no genuine issue of material fact exists on the insolvency question, requiring his own expert opinion, rather than relying on Holt's expert report. (ECF No. 92 at 7-8). In essence, the Trustee argues that Lane's claimed reliance on Holt's expert report to formulate the summary judgment motion is misplaced and does not warrant an award of Summary Judgment Fees.
By indicating that the work performed under both the Motion for Summary Judgment and the Motion to Strike are "inextricably intertwined," Lane appears to invoke an exception to the requirement for segregation of fees under Texas law.
Lane is correct in that his Motion for Summary Judgment and his Motion to Strike are "nearly identical." (ECF No. 93 at 3). In fact, in his Motion for Summary Judgment, Lane states that he "also files a Motion to Strike Plaintiff's Expert concurrently with this motion, and it is incorporated by reference as if fully set forth herein." (ECF No. 60 at 8). Other than a few pages, Lane's Motion for Summary Judgment is no different than his Motion to Strike. (ECF No. 93 at 3 ("Other than pages 5-6 and 17-18 . . . they are nearly identical.")).
The Court, however, will not allow Lane to recover twice for the same work. Inserting the Motion to Strike within the Motion for Summary Judgment does not make the fees for such work allowable under the Court's Order. In conditioning the Trustee's introduction of a new expert report on the payment of Lane's reasonable expenses, the Court explicitly enumerated the work for which the Trustee should pay, specifically, Lane's (i) review of the original expert report; (ii) preparation of a rebuttal report; and (iii) moving to strike Holt's expert report. (ECF No. 90). The fact that Lane's work on any of these three areas involving Holt's expert report provided a basis for a motion for summary judgment does not make the summary judgement fees an allowable expense. Lane's recoverable fees are limited to those incurred as a consequence of the Trustee's violation of Rule 26(a)(2)(B). See FED. R. CIV. P. 37(c)(1)(A) (detailing that the fees provided by the court are those "reasonable expenses, including attorney's fees, caused by the failure") (emphasis added). The Trustee's failure to meet Rule 26's requirements is directly related to Lane's Motion to Strike the Report. The Trustee's failure, however, did not cause Lane to move for summary judgment; it rather provided a separate basis for Lane to do so. Furthermore, as Lane indicated, his summary judgment motion is largely made up of his Motion to Strike. The Court is unable to see why Lane should be compensated twice for nearly identical work.
Lane's Motion to Modify is denied.
The Trustee objects to Jason Lane's Motion for Fees and Expenses on various grounds. The Trustee indicates that: (i) it should not be required to pay for the discounts HSSK and Zauner gave Lane; (ii) not all of Zauner's report related to rebutting Holt's Report and it should therefore not be charged for all of Zauner's work; (iii) Lane did not attach an actual accounting or summary of how he arrived at the amount included in his Motion for Fees and Expenses, and the highlighted portions do not equal the amount requested; (iv) Lane attempts to include a significant amount of fees not provided for in the Court's order; and (v) Lane seeks unreasonable fees. (EFC No. 92 at 3-8).
The Trustee asserts that Lane's request to allow $11,129.86 for fees and expenses paid to HSSK for Zauner's work should be denied in part. (ECF No. 92 at 3). Specifically, the Trustee maintains that it should not be charged for the courtesy discounts HSSK provided to Lane, because such would provide Lane with a "windfall." (ECF No. 92 at 3-4). The Court agrees.
Lane's accounting of fees and expenses show that the amounts charged for Zauner's work reflect a figure of $11,129.86. (ECF No. 91-1 at 36-39). HSSK and Zauner, however, provided Lane with courtesy discounts, totaling $5,929.86. (ECF No. 91-1 at 37-38). Accordingly, Lane's actual loss for Zauner's work on the Holt report is $5,200.00.
Lane will not be compensated above and beyond his actual costs incurred in striking Holt's expert report. The courtesy discounts provided to Lane by HSSK are not allowable fees and expenses that may be charged against the Trustee. The Trustee is only responsible for Lane's actual costs incurred in reviewing the original report, preparing a rebuttal report, and moving to strike Holt's Report, specifically, $5,200.00.
The Trustee maintains that he is not responsible for the payment of all of Zauner's work, because Zauner's report involved procedures that did not directly relate to rebutting Holt's expert report. (ECF No. 92 at 4). Zauner's report identifies four different procedures by which she arrived at her conclusions. (ECF No. 62-1 at 3). Zauner indicates that she:
The Trustee argues that only one of the four directly relate to the allowable fees. (ECF No. 92 at 4). As such, the Trustee contends that he should only be charged for work done for that specific procedure, namely, analyzing the assertions and opinions set forth in Holt's expert report.
The Court's Order encompasses not only fees associated with reviewing Holt's original report, but also fees and costs incurred in preparing a rebuttal report. (See ECF No. 90). In preparing her rebuttal report, Zauner indicates that she performed four procedures, all of which aided her in arriving to the conclusion that "Mr. Holt's opinion of insolvency of Golden State is flawed, unsupported and unreliable." (ECF No. 62-1 at 4). Zauner could not, simply by looking at Holt's report in a vacuum properly give a qualifying expert opinion as to whether Holt's expert report was accurate. Accordingly, the reasonable fees and expenses actually paid for the preparation of Zauner's rebuttal report are allowable fees.
The Trustee is correct in that the highlighted portions of the accounting submitted by Lane do not add up to the amount requested. In his Response to the Trustee's Objection, after having voluntarily reduced the amount in one of its entries, Lane requests attorney's fees and expenses in the amount of $31,715.48. (ECF No. 93 at 5). Lane provides the following breakdown of his fees:
Lane's requested fees as set out in its Response, however, do not match the accounting he provided as proof of those fees. The discrepancy appears to stem from the highlighted entries in Lane's account summary.
After adding the highlighted portions and utilizing the reduced amounts as indicated, the Court finds that the total fees owed under Lane's highlighted summary is $25,720.10, as opposed to $21,839.00. In effect, the highlighted entries do not add up to the figure provided by Lane in its Response, creating a discrepancy of $3,881.10.
Furthermore, as the Court notes in Appendix A, attached to this Opinion, in two entries, Lane fails to accurately calculate his reduced amounts. (See ECF No. 91-1 at 12, 31). Those two entries are as follows:
After adding the highlighted portions and making the appropriate corrections to the two entries above, the Court finds that the amount of attorney's fees under Lane's summary is $24,720.00, as opposed to $21,839.00 as set out in Lane's Response.
Using the Court's corrected highlighted entries, the total amount of Lane's requested fees is $34,595.98, including the highlighted portions in Lane's summary, Lane's expenses, and all of Zauner's fees (amounts actually charged and courtesy discounts from HSSK). Below is a breakdown of the total amount:
The discrepancy between Lane's requested fees and its own summary, taking into account mathematical errors, is $2,800.50. The Court is unable to discern how Lane arrived at his calculation of attorneys' fees and expenses.
When determining the amount of attorney's fees to award in a bankruptcy case, the Court utilizes two tests: the lodestar method and the Johnson factors. CRG Partners Group, LLC v. Neary (In re Pilgrim's Pride Corp.), 690 F.3d 650, 656 (5th Cir. 2012); see Burdette v. Steadfast Commons II, LLC, No. 11-980-RSM, 2012 WL 12883114, at *1 (W.D. Wash. Nov. 19, 2012) ("In order to calculate reasonable attorney fees pursuant to a Rule 37 sanction, the court uses the lodestar approach.").
The Johnson factors enumerate twelve considerations which determine whether requested fees are reasonable or not. The twelve factors are:
Johnson v. Ga. Highway Express, Inc., 488 F.2d 714, 717-19 (5th Cir. 1974).
The lodestar method determines the amount of compensation by multiplying the number of hours spent by the prevailing hourly rate in the community for similar work. Neary, 690 F.3d at 655. However, the lodestar method also grants the court discretion to adjust the lodestar amount upwards or downwards based on its assessment of the Johnson Factors. Id.
The party seeking fees bears the burden of demonstrating the reasonableness of its request. Blum, 464 U.S. at 897; see Alto-Shaam, Inc. v. Manitowoc Co., No. 7:09-cv-018-O, 2012 WL 12978015, at *4 (N.D. Tex. Feb. 2, 2012) ("The burden of proving reasonableness of the billed hours is on the applicant."). As such, "the applicant must prove that he exercised billing judgment in calculating the hours expended." Alto-Shaam, 2012 WL 12978015, at *4 (citations omitted). "Billing judgment requires documentation of the hours charged and of the hours written off as unproductive, excessive, or redundant." Id. "Where no evidence of billing judgment has been submitted, it is appropriate to reduce the fee award by a percentage intended to substitute for the exercise of billing judgment." Id. (citing Walker v. City of Mesquite, 313 F.3d 246, 251 (5th Cir. 2002) (indicating that lack of billing judgment requires a reduction of fees rather than a denial of fees)).
As evidence to support the hourly rate and amount of hours charged, Lane attached an affidavit provided by his attorney, Jeremy Stone, to his Motion for Fees and Expenses. (ECF No. 91-1 at 2-5). In the affidavit, Stone indicated that the hourly rates of $375.00 and $350.00 charged by him and Corey Seel, respectively, are reasonable for the type of work performed— commercial and fraudulent transfer litigation—in the Southern District of Texas. (ECF No. 91-1 at 3). Stone further maintained that their level of experience, not only familiarized them with the commonly charged rates in the community, but further merited the amounts charged. (ECF No. 91-1 at 3). He indicated that the lower charges on the invoices reflected the amount of work done by paralegals and associates. (ECF No. 91-1 at 4). In essence, given his familiarity with the work and rates in the community, Stone stated that "the costs and attorneys' fees as shown on the [ ] invoices are reasonable and necessary in this case." (ECF No. 91-1 at 4).
The Trustee does not object to the rates charged, but rather indicates that the time spent on certain tasks render the fees requested unreasonable. Specifically, the Trustee objects to entries between December 11, 2018 and December 18, 2017, wherein Lane "includes 14.9 hours for preparing and attending a 30-minute hearing on the Motion to Strike." (See ECF No. 91-1 at 32; ECF No. 92 at 7). The following are entries pertaining to that time frame:
Although most of the entries relate to the December 18, 2018 Hearing on the Motion to Strike the Expert Report, some of the entries include tasks subsequent to the hearing and others include tasks which do not relate to the Motion to Strike. For example, the last entry in the above chart includes tasks related to preparing for and attending the hearing, but also includes subsequent correspondence with Jason Lane and research in supplementing the Report.
In light of problems generated by entries such as the ones listed above, the Court must also examine Lane's accounting methods for his attorney's fees.
"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. Gurule v. Land Guardian, Inc., No. 4:15-cv-03487, 2017 WL 6761821, at *4 (S.D. Tex. Oct. 24, 2017). When time records are block billed, the court cannot accurately determine the number of hours spent on any particular task, and the court is hindered in determining whether the hours billed are reasonable. Id. (quoting Barrow v. Greenville Indep. Sch. Dist., No. 3:00-CV-0913-D, 2005 WL 6789456, at *4 (N.D. Tex. Dec. 20, 2005)). For example, a person engaging in block billing would record the total amount of time spent on a case that day, and then group several tasks under that single entry, leaving the court unable to determine how much time was devoted to a given task. Castro v. Precision Demolition LLC, No. 3:15-CV-0213-D, 2017 WL 6381742 (N.D. Tex. Dec. 14, 2017).
Court response to block billing varies. The general response has been to reduce the amount of fees by a set percentage depending on the egregiousness of block billing. See Symetra Life Insurance Co. v. Rapid Settlements, LTD., Nos. H-05-31667, H-06-2933, 2015 WL 6739022, at *7 (S.D. Tex. Nov. 4, 2014) (analyzing two separate cases, one of which reduced the amount of recoverable hours by 10% and another, which found a 40% reduction appropriate where there appeared "repeated block-billed entries and highly redacted and generally unreliable supporting documentation"). The court in Symetra itself only reduced the amount of fees by 3% for block billing. Id. The court indicated that the amount and extent of block billing was relatively low in comparison to other cases. Id. In coming to that conclusion, the court pointed to: (i) daily entries which identified and provided detailed information about the discrete tasks performed each day, (ii) the entries themselves were for short periods of time and contained "only one or two legal tasks reflecting a single objective;" and (iii) the court was "able to determine whether the amount of time billed was reasonable." Id.
However, "although courts may assess across-the-board reductions for block billing, a finding that an attorney engaged in block billing does not automatically lead to a reduction in the time billed. Martinez v. Refinery Terminal Fire Co., No. 2:11-CV-00295, 2016 WL 4594945, at *5 (S.D. Tex. Sept. 2, 2016). "The court must evaluate whether the applicant's evidence is sufficient to enable it to determine the reasonableness of the hours expended." Id.
In submitting its accounting of expenses and fees, Lane has grouped several tasks within a single entry, preventing the Court from accurately determining the time spent on a particular task, thus impairing the Court's evaluation of whether the fees charged, and the hours expended for those individual tasks, are reasonable. For example, in two separate examples dated October 25, 2017, similar to the one listed in the first chart, Lane sets forth the following:
Although there is handwriting next to each of these entries, reflecting a reduction of the time charged—given that some of the tasks listed are not allowable fees pursuant to the Court's Order, such as the Intervenor Summary Judgment Fee's—block billing prevents the Court from assessing the reasonableness of the fees charged under the allowable tasks. Furthermore, several of Lane's entries, such as the ones listed above, include fees incurred as a part of his Summary Judgment Motion. (See ECF No. 91-1 at 30-32). In light of the Court's denial of Lane's Motion to Modify to include the Summary Judgment Fees, entries which include those tasks via Lane's block billing procedure contain fees not allowed under the Court's previous Order.
The Court notes that in reducing the amount of certain entries, given Lane's own assessment of what is not allowable under the Court's Order, Lane exhibits some billing judgment. However, in failing to properly itemize tasks separately, such as those relevant only to the Motion for Summary Judgment, Lane prevents the Court from properly assessing the requested and allowable fees.
The Trustee and Lane have several options:
Not later than
Additionally, unless the parties stipulate as to the total reasonable fees to be awarded, Lane must file a revised statement of the amount that he claims, taking into account the items addressed in this Opinion that do not appear to total to the amount that he has requested.
The Court will issue an Order consistent with this Memorandum Opinion.
