Opinion
NOT FOR PUBLICATION
Argued and Submitted at Pasadena, California: June 18, 2009
Appeal from the United States Bankruptcy Court for the Central District of California. Bk. No. ND 96-12129-RR. Honorable Robin L. Riblet, Bankruptcy Judge, Presiding.
Before: HOLLOWELL, MONTALI and PAPPAS, Bankruptcy Judges. PAPPAS, Bankruptcy Judge, dissenting in part.
MEMORANDUM
Shari L. Thomas (" Thomas") previously appealed the bankruptcy court's order allowing professional fees and expenses of the law firm Farmer & Ready (" Farmer"), counsel for the chapter 7 trustee. The Bankruptcy Appellate Panel determined the bulk of the fees were appropriately incurred; however, it found the bankruptcy court erred in finding the fees were adequately documented and reasonable because Farmer inappropriately " lumped" services on its billing entries. The Panel remanded the matter to the bankruptcy court to review the nature of the work done, amount of time spent on activities, and the overall reasonableness of the fees under the standards set in § 330(a)(3). On remand, the bankruptcy court approved Farmer's final fee application. It imposed a 10% reduction for all lumped time entries over .3 hours, disallowed certain fees, and allowed Farmer's full hourly rate for travel time. Thomas appeals the bankruptcy court's decision. We AFFIRM.
Unless otherwise indicated, all chapter, section, and rule references are to the Bankruptcy Code, 11 U.S.C. § § 101-1330, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9036, as enacted and promulgated prior to the effective date (October 17, 2005) of the relevant provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. 109-8, April 20, 2005, 119 Stat. 23.
Occasionally, lesser amounts of time were charged, presumably because the lawyer participated in court hearings involving more than one case.
" Lumping" or block billing results when an attorney enters the daily time spent working on a case, rather than itemizing the time expended on specific tasks. Lumping may also result when a single time entry on a billing record lists multiple activities without separating the time spent on each activity. Mendez v. County of San Bernardino, 540 F.3d 1109, 1129 (9th Cir. 2008).
The firm also billed for reimbursement of " mileage" for these trips. I assume these trips were all necessary, and therefore have no concerns with Farmer recovering its out-of-pocket costs. I mention this simply to provide context in considering the total cost to have a Farmer attorney appear for the trustee at even a brief hearing in this case.
dated November 5, 2007 (" Thomas I"). Unpublished memorandum decision, Thomas v. Namba, et. al. (In re Thomas), BAP No. CC- 07-1053-PaBaK,
At oral argument, Farmer's counsel conceded that the evidentiary record to support full hourly rates for travel time was " thin." This is a classic understatement, since there is no proof in the record to show this billing practice was reasonable.
I. FACTS
Thomas filed a chapter 11 bankruptcy petition on May 31, 1996. On October 5, 1996, the case was converted to chapter 7. Jerry Namba (" Trustee") was appointed to replace the previous chapter 7 trustee on June 28, 2000. The bankruptcy court approved Trustee's request to employ David Farmer and his law firm, Farmer, as counsel for the Trustee on August 18, 2000.
Farmer filed five interim fee applications during the course of the bankruptcy case, most of which were objected to by Thomas, and all of which were approved by the bankruptcy court. Farmer submitted its Fifth Interim and Final Fee Application (" Final Fee Application") on April 25, 2006. The Final Fee Application listed the cumulative fees and expenses from all fee applications as $226,896.50 and $20,284.39, respectively.
Thomas filed an opposition to the Final Fee Application, challenging the reasonableness of the fees. For the most part, Thomas objected to fees Farmer incurred in litigation surrounding the sale of certain real property owned by Thomas. Thomas argued the sale of the property was unnecessary, and therefore, any fees related to the sale of the property were unnecessary and unreasonable. Additionally, Thomas argued the Final Fee Application lacked specificity of the services provided and contained unnecessary fees for travel.
The bankruptcy court heard the matter on January 26, 2007, and approved the fees and expenses, finding the fees and expenses related to the sale of the property appropriate and all billing entries sufficiently specific. Thomas appealed the decision. On appeal, the Panel, in Thomas I, agreed that the fees related to the sale of property were appropriate; however, it held that the bankruptcy court erred in finding Farmer's Final Fee Application was adequately documented:
In light of § 330(a)(3)(A)'s command that the bankruptcy court consider " the time spent on such services, " when a professional includes a significant number of lumped time entries, the bankruptcy court can not properly evaluate whether a professional's services were actual, necessary and reasonable.
We emphasize that, when properly documented upon remand, it may be that Farmer is entitled to the full amount of fees requested in his application. However, Farmer's extensive use of block billing entries deprived the bankruptcy court of the ability to adequately assess whether the amounts requested were reasonable, or whether Farmer had engaged in proper billing judgment. We believe the bankruptcy court clearly erred when it found that this documentation problem was insignificant.
Thomas I:24-25.
On November 5, 2007, the Panel vacated Farmer's fee award and remanded the matter to the bankruptcy court for a further review of Farmer's Final Fee Application and an examination of the lumped billing entries.
Shortly following remand, on November 26, 2007, Thomas requested from Farmer all time and billing records used to support the Final Fee Application, as well as the deposition of David Farmer, to describe the basis for Farmer's fees. Farmer asserted that because there was no pending adversary proceeding, Thomas' request for deposition and production of documents was not authorized. Farmer additionally responded that it was making efforts to comply with the Panel's instructions to de-lump and properly document its billed services.
On January 28, 2008, Farmer sent Thomas a supplemental invoice that de-lumped its Final Fee Application (" De-lumped Fee Statement"). In preparing the De-lumped Fee Statement, Farmer reviewed the original bills, daily time logs and relevant pleadings and correspondence in order to separate the tasks contained in the billed entries and to correct any errors. The De-lumped Fee Statement adjusted the Final Fee Application to $244,021.50 in total fees and $20,959 in total expenses.
Farmer's daily time log is a contemporaneously, or near contemporaneously, made document by each of Farmer's attorneys, which lists the time spent and the tasks performed by the attorney for a given day.
The import of the bankruptcy court's oblique reference to rates of $750 per hour for cases elsewhere in the district is perplexing. Obviously, some bankruptcy attorneys command high rates for their services; the media has reported rates for bankruptcy lawyers appearing in chapter 11 mega-cases in some courts of $1,000 per hour or more. But the court did not indicate that such rates have ever been approved in the Santa Barbara division, nor did it state that lawyers charging $750 per hour in other Central District cases did so for travel time. As a result, such an " apples and oranges" comparison is of little value in the context of this particular case.
A post-remand scheduling conference was held on February 26, 2008. Thomas requested she be able to examine Farmer's billing records, including Farmer's computer hard drive in order to determine the accuracy of Farmer's billing records. The bankruptcy court denied the request but required Farmer to provide redacted paper copies of Farmer's daily time logs for Thomas' review.
On June 25, 2008, Thomas filed a " Motion to Determine Professional Fees Consistent with the Remand Order" (" Motion to Determine Fees"). Thomas argued that because Farmer billed $101,377.50 for services that were inappropriately lumped together, that amount should be disallowed. Thomas also contended the Final Fee Application inappropriately contained $3,600 in fees that appeared to have been for duties the Trustee should have performed. She argued Farmer's fees for travel time should be billed at 50% of the attorney's usual hourly rate. Finally, Thomas contended $1,368 in fees had either no back up documentation or were inconsistent with the time listed on the Final Fee Application.
On September 12, 2008, Farmer filed an Amended and Supplemented Fifth and Final Fee Application (" Amended Fee Application"). The Amended Fee Application sought approval of $247,340.50 in total fees and $21,630.32 in total expenses. The Amended Fee Application incorporated the De-lumped Fee Statement along with a supplemental request for authorization of fees from the billing period since the submission of the Final Fee Application, which included $13,132.50 in fees associated with Farmer's de-lumping efforts and preparation of the Amended Fee Application.
Farmer filed its response to Thomas' Motion to Determine Fees on September 17, 2008. Farmer alleged Thomas incorrectly based her contentions about lumped time on the Final Fee Application rather than on the De-lumped Fee Statement and that her arguments regarding travel time and unnecessary fees were beyond the scope of the remand order.
Thomas replied, arguing that in a footnote of Thomas I, the Panel brought the issue of travel time and Farmer's performance of Trustee's duties within the scope of the remand. Also, Thomas asserted that Farmer's " de-lumping" efforts, as reflected in the De-lumped Fee Statement, were ineffective because they did not rely on contemporaneously produced detailed records.
Footnote 12 of Thomas I reads in part, " The bankruptcy court should further consider Thomas' argument [regarding charging the full hourly rate for travel time] when it re-examines Farmer's time records." And that " [p]resumably, with proper time documentation, the bankruptcy court can assess the propriety of Trustee's delegation of duties to his counsel." Thomas I:25.
The only reported court of appeals decision on this topic affirmed a bankruptcy court's order awarding attorney fees at half the usual hourly rate for travel time. Caplan & Drysdale v. Babcock & Wilson Co. (In re Babcock & Wilson Co.), 526 F.3d 824, 828-829 (5th Cir. 2008). The same occurred in the only BAP decision concerning travel time compensation. Bachman v. Laughlin (In re McKeeman), 236 B.R. 667 (8th Cir. BAP 1999). To be fair, I acknowledge that both appellate courts deferred to the discretion of the local bankruptcy judge.
On October 28, 2008, at the bankruptcy court's request, Farmer submitted chronological daily time logs from January 1, 2002 to December 27, 2007 (" Daily Logs"). (The daily time logs from 2000 - 2001 had been destroyed). Farmer also submitted, in an amendment, the daily time logs from January 1, 2008, through October 23, 2008. Additionally, on October 28, 2008, Farmer submitted a chronological billing statement beginning with entries from July 17, 2000, through August 7, 2008 (" Chronological Billing Statement"). This was amended to include chronological billing entries from August 8, 2008, to October 23, 2008. The Chronological Billing Statement listed, in chronological order, all requested fees contained in the Amended Fee Application (which had been purportedly de-lumped by Farmer).
The hearing on the Motion to Determine Fees was held on November 12, 2008. The bankruptcy court reviewed the Chronological Billing Statement and compared its entries with the Daily Logs. However, because there were no daily time logs for 2000 - 2001, the bankruptcy court's review of the Chronological Billing Statement was compared to the relevant interim fee application which listed each of the billing entries for 2000-2001.
Based on this review, the bankruptcy court found several instances where Farmer still had lumped entries. The total amount of the lumped fees (considered by the bankruptcy court to be time over .3 hours that contained more than one service or task in the same entry) totaled $76,881.50. The bankruptcy court applied a 10% reduction as a remedy for the lumped entries, in the amount of $7,688.15.
The bankruptcy court also disallowed $13,132.50 from Farmer's fees and $850.85 in expenses incurred after November 27, 2007, because Farmer " wouldn't have had to spend that time if he hadn't lumped in the first place." It subtracted $5,070.00 for fees that were listed on the Amended Fee Application but not supported by the Daily Logs. Finally, the bankruptcy court deducted $3,600 in fees for work the Trustee, rather than Farmer, should have performed. The court did not reduce Farmer's billed hourly rate for travel time.
The bankruptcy court's Order on Debtor's Motion to Determine Professional Fees Consistent with Remand Order and Amended and Supplemented Fifth and Final Fee Application was entered on November 18, 2008, incorporating its oral findings of fact and conclusions of law, and allowing final fees of $217,849 and expenses of $20,779.47. Thomas timely appealed.
II. JURISDICTION
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. § 157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158.
III. ISSUES
1. Did the bankruptcy court abuse its discretion when it reduced by 10% Farmer's fees for lumped billing entries of more than .3 hours?
2. Did the bankruptcy court abuse its discretion when it allowed Farmer its full hourly rate for travel time?
IV. STANDARDS OF REVIEW
A bankruptcy court's award of attorneys' fees will not be disturbed on appeal absent an abuse of discretion or an erroneous application of the law. Smith v. Edwards & Hale, Ltd. (In re Smith), 317 F.3d 918, 923 (9th Cir. 2002). Under the abuse of discretion standard, we must have a definite and firm conviction that the bankruptcy court committed a clear error of judgment in the conclusion it reached before reversal is proper. AT& T Universal Card Servs. v. Black (In re Black), 222 B.R. 896, 899 (9th Cir. BAP 1998) (citations omitted).
Factual findings made in the course of awarding compensation are not disturbed unless clearly erroneous. See Friedman Enters. v. B.U.M. Int'l, Inc. (In re B.U.M. Int'l, Inc.), 229 F.3d 824, 830 (9th Cir. 2000); Rule 8013. A finding is not " clearly erroneous" unless, based on the entire evidence, the reviewing court is left with the definite and firm conviction that a mistake has been committed. United States v. U.S. Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 92 L.Ed. 746 (1948).
V. DISCUSSION
A bankruptcy court may allow professionals employed by the estate " reasonable compensation for actual, necessary services rendered." 11 U.S.C. § 330. However, § 330(a)(3) requires the bankruptcy court to consider the nature, extent, and value of such services, taking into account all relevant factors, including
(A) the time spent on such services;
(B) the rates charged for such services;
(C) whether such services were necessary to the administration of, or beneficial at the time at which the service was rendered toward the completion of a case under this title;
(D) whether the services were performed within a reasonable amount of time commensurate with the complexity, importance, and nature of the problem, issue, or task addressed; and
(E) whether the compensation is reasonable based on customary compensation charged by comparably skilled practitioners in cases other than cases under this title.
Additionally, attorneys applying to a court for attorneys' fees should exercise good billing judgment by making " a good faith effort to exclude from a fee request hours that are excessive, redundant, or otherwise unnecessary . . . ." Hensley v. Eckerhart, 461 U.S. 424, 434, 103 S.Ct. 1933, 76 L.Ed.2d 40 (1983). Thus, the standard of § 330(a)(3) that compensation be for actual and necessary services makes the exercise of " billing judgment" a required element of a reasonable fee. Unsecured Creditor's Comm. v. Puget Sound Plywood, Inc., 924 F.2d 955, 957-58 (9th Cir. 1991); In re Pettibone Corp., 74 B.R. 293, 303 (Bankr. N.D.Ill. 1987); Roberts, Sheridan & Kotel, P.C. v. Bergen Brunswig Drug Co. (In re Mednet), 251 B.R. 103, 108 (9th Cir. BAP 2000).
The bankruptcy court has a responsibility to evaluate fees requested from the estate pursuant to § 330(a)(3) and Rules 2016 and 2017. The burden of establishing entitlement to the fees requested from the estate rests with the trustee. In re Roderick Timber Co., 185 B.R. 601, 606 (9th Cir. BAP 1995). The burden " is not to be taken lightly, especially given the fact that every dollar expended on fees results in a dollar less for distribution to creditors of the estate." In re Pettibone Corp., 74 B.R. at 305. Thus, the bankruptcy court must award only the fees that are proven to be actual, necessary and reasonable. In re Roderick Timber Co., 185 B.R. at 606.
A. Lumping Services in a Single Billing Entry
The Panel in Thomas I concluded the bankruptcy court could not properly have made a determination under § 330(a)(3) because Farmer submitted numerous billing entries that lumped services together.
Lumping services in a single billing entry in a fee application is " universally disapproved" by bankruptcy courts. In re Recycling Indus., Inc., 243 B.R. 396, 406 (Bankr. D. Colo. 2000); In re Telcar, Inc., 2007 WL 1438376, *3 (Bankr. D. Idaho 2007) (citations omitted). When services are lumped together, the bankruptcy court is prevented from determining the necessity of each service and " from fairly evaluating whether individual tasks were expeditiously performed within a reasonable period of time." In re Hudson, 364 B.R. 875, 880 (Bankr. N.D.N.Y. 2007); see also Welch v. Metro. Life Ins. Co., 480 F.3d 942, 948 (9th Cir. 2007). Thus, lumped fees may impede the bankruptcy court's ability to determine the overall reasonableness of fees requested. Id .; In re Lund, 187 B.R. 245, 251 (Bankr. N.D.Ill. 1995). Furthermore, lumping may allow counsel to claim compensation for minor tasks, which would not be compensable if reported separately. In re Recycling Indus., Inc., 243 B.R. at 406.
On remand, Farmer submitted billing documents that attempted to de-lump services so that the bankruptcy court could review the reasonableness of the fees requested and whether Farmer had engaged in proper billing judgment. The bankruptcy court meticulously reviewed the Chronological Billing Statement, Daily Logs, interim fee applications, and Amended Fee Application. It made specific findings regarding the dates and amounts of billed entries which, even after Farmer's de-lumping efforts, continued to have more than one activity listed, which impeded the bankruptcy court's ability to determine whether those fees were reasonable under § 330(a)(3). The bankruptcy court multiplied the identified time entries by the relevant billing rate (which increased incrementally from $250 per hour in 2000 to $325 per hour in 2007) and concluded that $76,881.50 in fees had been incurred for lumped services. The bankruptcy court then reduced the total lumped amount by 10%, or $7,688.15.
Thomas assigns error to the bankruptcy court's 10% reduction of lumped fees. Thomas contends Farmer failed to comply with Rule 2016, which requires that a request for fees set forth services rendered and time expended in a detailed billing statement. Because of this failure, Thomas argues the Trustee has not met his burden of showing Farmer's fees are reasonable, necessary and beneficial to the estate, and therefore, should be denied in their entirety. See, e.g., In re Breeden, 180 B.R. 802, 810 (Bankr. N.D. W.Va. 1995) (disallowing all lumped fee entries because the format in which they were presented did not allow for a thorough reasonableness analysis).
Thomas also alleges that even though Farmer produced the Daily Logs that informed Farmer's De-Lumped Fee Statement, the De-lumped Fee Statement is inaccurate because it is based on a current estimation of the past time spent on the specific tasks referenced in the billing statements, instead of on original contemporaneously prepared detailed time records. Thomas contends that because there are no contemporaneously prepared (un-lumped) detailed time records, all the original lumped fees of the Final Fee Application should be disallowed.
While the failure to maintain contemporaneous time records affects the reliability of the records, it does not automatically mandate a denial of the fees. In re Porcheddu, 338 B.R. 729, 737 (Bankr.S.D.Tex. 2006); In re Pinkins, 213 B.R. 818, 824 (Bankr. E.D. Mich. 1997). Even without contemporaneous time records the bankruptcy court may be able to make a reasonableness determination through information extraneous to the fee records. In re Porcheddu, 338 B.R. at 737; In re Moss, 320 B.R. 143, 155 (Bankr. E.D. Mich. 2005). The bankruptcy court determined it was able to properly review the Daily Logs and compare them with the Chronological Billing Statement and " the interim fee application when there were no logs to get to the lumped billing" in order to evaluate whether the fees were reasonable, necessary or beneficial and reflected good billing judgment. Hr'g Tr. at 28:19-21. We do not find the bankruptcy court erred in finding that the Daily Logs, which were contemporaneously prepared, or the Chronological Billing Statement, which was later prepared to further document Farmer's fee request, were adequate to review.
However, in reviewing the documents submitted by Farmer, the bankruptcy court agreed with Thomas that there were still entries that contained lumped billing. When fee applications are submitted with a portion or all of the requested fees based on lumped entries, courts may reduce, rather than disallow, compensation. Welch, 480 F.3d at 948 (courts have discretion to reduce block billed hours); Mendez v. County of San Bernardino, 540 F.3d 1109, 1129 (9th Cir. 2008) (finding it appropriate to reduce hours due to block billing, but not to make an across-the-board reduction or rejection of all hours). The bankruptcy court found Farmer had expended extensive and good faith efforts to de-lump the billing records and determined a 10% reduction on lumped time was an " appropriate penalty" for a violation of Rule 2016. As we discuss below, reducing fees is a recognized remedy when services have been lumped together. Therefore, we find the bankruptcy court's reduction of the Amended Fee Application's lumped billing entries was not an abuse of discretion.
Thomas argues, however, that even if the bankruptcy court was authorized to reduce the lumped billing entries, a 10% reduction was not enough of a reduction considering that 32% of Farmer's fees were based on lumped entries.
In setting a percentage penalty for lumping, most courts " typically make an adjustment ranging from 5% to over 30%, which is consistent with the finding of the California State Bar's Committee on Mandatory Fee Arbitration that block billing may increase time by 10% to 30%." Darling Int'l., Inc. v. Baywood Partners, Inc., 2007 WL 4532233, * 9 (N.D. Cal. 2007); Welch, 480 F.3d at 948.
However, the amount of total fees that have been lumped does not dictate the percentage of the reduction. For example, in Gundlach v. N.A.A.C.P., 2005 WL 2012738, *4 (M.D. Fla. 2005), all of the requested fees were based on lumped billing and the court applied a 30% reduction for the lack of documentation and " to offset redundancy." In Spalding Labs., Inc. v. Ariz. Biological Control, Inc., 2008 WL 2227501, * 4 (C.D. Cal. 2008), where all of the requested fees were based on lumped billing, the court imposed a 15% reduction because it determined that lumping services could increase time records by 10% to 30%. The court, in Ambriz v. Arrow Fin. Servs., LLC, 2008 WL 2095617, * 4 (C.D. Cal. 2008), applied a 20% reduction on fees due to lumping of services even though one attorney submitted only 17% of his total fees in a lumped format and the other attorney seeking fees submitted merely 9% of its fees as lumped entries. Yet, the court in In re Recycling Indus., Inc., 243 B.R. at 407, took only a 5% reduction when 10% of the fees requested were based on lumped billing entries.
The variance in the percentage of reduction for lumped billing appears to reflect the court's understanding of the litigation involved and its determination of what is reasonable within that context. In re Dutta, 175 B.R. 41, 46 (9th Cir. BAP 1994) (fee awards are " left to the discretion of trial courts because they involve essentially factual matters"). The bankruptcy court " has the benefit of first-hand contact with the litigation and the lawyers involved." Welch, 480 F.3d at 946. Therefore, it is well situated to make a determination as to what is reasonable under the circumstances. See, e.g., Darling Int'l, Inc., 2007 WL 4532233 at * 9 (the court reduced fees by 19% where 40% of the bills were lumped because it found there was " little reason to doubt the overall veracity of the records" and the fee bill was not unreasonable).
Here, the bankruptcy court reviewed the previously submitted interim fee applications, the Chronological Billing Statement, the Daily Logs, and the Amended Fee Application carefully. The bankruptcy court reduced Farmer's fees because, even though Farmer attempted to de-lump the billing records, it still found entries that contained lumped services. The bankruptcy court determined an appropriate penalty based on Farmer's efforts as well as its knowledge of the more than seven years of litigation between the parties. We do not find the bankruptcy court's 10% reduction as penalty for lumped billing practices to be outside the norm, or to be a clear error of judgment. Therefore, we do not find the bankruptcy court abused its discretion when it reduced Farmer's Amended Fee Application by $7,668.15 due to lumped billing.
We next address Thomas' contention that the bankruptcy court made a significant error because, in reaching its total of lumped hours, it did not find time entries of .3 hours or less to be " lumped." The local bankruptcy rules (" Local Rules") state that " [a] summary that lists a number of services under only one time period is not satisfactory" in applications for compensation. Local Rule 2016-1(a)(1)(E)(ii). The Local Rules specify that " [t]ime spent must be accounted for in tenths of an hour and broken down in detail by the specific task performed. Lumping of services is not satisfactory." Local Rule 2016-1(a)(1)(E)(iii).
Nevertheless, the bankruptcy court:
[did] not count .3 as lumped time. You know, if it's a call to [counsel] and a letter to the client, who cares whether it's .1 and .2 and which one it is. You know, if its .2 hours to [counsel] and .1 to the client, that's fine. If it's vice versa, that's fine too. I did not count lumping until we started at .4 hours. Okay. Because it has to be .1 to one topic and .2 to the other topic, and in no instance when it was a total of .3 was I offended by an application of the greater time to one or the other of the services rendered.
Hr'g Tr. 5:19-25; 6:1-3 (November 12, 2008).
Our review of the record reveals a dozen lumped billing entries of .3 hours or less. Each of those entries involve two tasks, usually a telephone call to counsel or the Trustee and drafting correspondence. The bankruptcy court reviewed these entries and made a determination of the reasonableness of the time spent on such services, whether they were necessary and beneficial, and if such services were performed within a reasonable amount of time. Therefore, we find that although the time entries lumped two services together, the bankruptcy court made an appropriate determination under § 330(a)(3).
The total fees for lumped time of .3 hours or less is $1,059.00.
To accommodate difficulties in developing proof, and because estate professionals may simply prefer to drive themselves to court, the majority acknowledges that many bankruptcy courts and bankruptcy bars have chosen to develop local practices allowing compensation for travel time at standard, reduced rates (e.g., 50% of the full hourly rate). Such local protocols are practical and defensible. See, e.g., Law Offices of David A. Boone v. Derham-Burk (In re Eliapo), 468 F.3d 592, 599 (9th Cir. 2006) (bankruptcy court may rely on presumptive " no look" fee guidelines in lieu of reasonableness analysis for routine services in chapter 13 cases). Still, whether this approach is appropriate under § 330(a) will depend upon the facts of each case and the hourly rate involved.
B. Hourly Rate for Travel Time
Thomas previously challenged Farmer's practice of charging for its travel time at its full hourly rate in Thomas I; however, the Panel was unable to determine whether the court erred in authorizing full payment for Farmer's travel time because most of the travel time was included in lumped time entries. Therefore, the issue of the reasonableness of Farmer's travel time was remanded to the bankruptcy court to be considered as part of its re-examination of all of Farmer's time records.
On remand, the bankruptcy court found that there should be no discount for Farmer's travel time for several reasons:
Santa Barbara is a small legal market. Most everybody qualified to participate in this case located in Santa Barbara was already involved or had been conflicted out. . . . But we do have a relatively small group of lawyers in town. The San Luis Obispo Bar practices almost exclusively - - Bankruptcy Bar - - practices almost exclusively in Santa Barbara because it's too far to go to San Jose probably, and we're in the district. So one must make court appearances. One shouldn't be talking on a cell phone. And now it is illegal. So one can only be billing to one case at a time, unless you have a chauffeur and you can sit in the back seat and bill all you want to all your other cases. But then you'd be having expenses of a chauffeured driver that would be disallowed.
And Mr. Farmer's billing rates, although they are, I imagine what the market will bear in San Luis Obispo, or they might be higher, are relatively low for the Central District of California. He is not billing $750 an hour to drive to Santa Barbara and back. . . . So because we have such a limited Bar, it's necessary many times to have lawyers from Ventura, even Los Angeles and certainly San Luis Obispo. They have to drive. It's not like walking down and spending five minutes. . . . So I'm not going to make any deduction for driving, and those are my reasons why.
H'rg. Tr. 8-9 (November 12, 2008).
Thomas assigns error to the bankruptcy court's decision to allow Farmer its full hourly rate for travel time. Thomas asserts travel time is not productive, and therefore, charging a full hourly rate is unreasonable.
As the Panel in Thomas I recognized, there is no consensus among courts about what hourly rate should be allowed for professional's travel time under § 330. 3 COLLIER ON BANKRUPTCY, § 330.05[3][b][iii]. Some districts have proscribed the allowable rate for travel through general orders or local rules. See, e.g., Bankr. N.D. Tex. General Order 2000-7, Standing Order on Guidelines for Compensation and Expense Reimbursement of Professionals (Dec. 21, 2000) (limiting compensation for travel time to 50% of normal billable rate unless legal work is being performed during travel); Delaware Local Bankruptcy Rule 2016-2 (" Travel time during which no work is performed shall be separately described and may be billed at no more than 50% of regular hourly rates."). Other districts have an established policy setting the compensable billing rate for travel. In re Kuhn, 337 B.R. 668, 676 (Bankr. N.D. Ind. 2006) (district policy limits travel compensation to 50% of the ordinary rate charged for legal services); Prologis Six Rivers Ltd. P'ship v. Gould (In re Gould), 363 B.R. 45, 53 (Bankr. D. Conn. 2007) (policy in district is to allow 100% compensation for travel time due to attorneys' lost income opportunity while traveling).
Thomas has not directed us to a local rule or district practice which establishes a set policy for compensable travel time and we do not find the Central District of California has set such guidelines or policies. Therefore, consistent with the § 330(a)(3) analysis, the bankruptcy court must make a subjective evaluation of the reasonableness of the fees sought. Thus, whether travel time is to be compensated at a full or partial rate should be evaluated " not as to whether such time was productive, but whether it was reasonable and necessary." In re The Academy, Inc., 2005 WL 950642, * 2 (Bankr. M.D. Fla. 2005); In re Bank of New England Corp., 134 B.R. 450, 455 (Bankr. D. Mass. 1991) (quoting In re Cano, 122 B.R. 812, 814 (Bankr. N.D.Ga. 1991).
Reasonableness of fees for travel time has been evaluated by " the services rendered, the time constraints imposed, the difficulties of the problems which have been handled, the impact on the business of the attorney's ability to service other clients, and the results achieved. In re Frontier Airlines, Inc., 74 B.R. 973, 979 (Bankr. N.D. Colo. 1987). Other courts conclude compensation at the full hourly rate is appropriate if the time is " (1) actually spent for travel; (2) a reasonable time considering the distance traveled; (3) necessary in the sense that the travel was required in connection with the bankruptcy court process; and (4) beneficial in the sense that the legal services for which the travel was undertaken advanced the administration of the estate." In re Holka, 2005 WL 1806436, * 2 (Bankr. E.D. Mich. 2005); In re Braddy, 195 B.R. 365, 367-68 (Bankr. D. Mich. 1996) (addressing issues of competitive disadvantage if travel time is not reimbursed at full rate).
Here, the bankruptcy court touched upon all these factors by determining that counsel outside of Santa Barbara was necessary to represent the estate due to conflicts within a small bar and that Farmer's travel and attendance at court hearings in Santa Barbara was necessary and beneficial to the bankruptcy case. The bankruptcy court found that Farmer was unable to bill other clients during the time he was traveling to Santa Barbara for hearings , and that the fee charged was modest by comparison to other rates charged in the district. Therefore, the bankruptcy court applied the correct legal standard under § 330 by finding Farmer's full hourly rate was necessary and reasonable.
The bankruptcy court, when it stated it was illegal to talk on a cell phone, was talking about the state of the law in California at the time of the hearing. Even though talking on a cell phone while driving was legal when Farmer was driving to and from Santa Barbara on the case, it was not advisable.
The bankruptcy court suggested that charging the bankruptcy estate for a lawyer's " chauffeur" would not be allowed. Of course, a negative connotation attaches to the use of this term to describe what could in reality consist of a wide array of transportation services. Moreover, I disagree with the court's premise that a professional driver's charges would be disallowed. Indeed, in my own rural district, I have encountered estate professionals who have devised truly sensible approaches to this task. For example, one lawyer employs a paid driver, either someone from the firm or otherwise, to drive him long distances to and from court. The bankruptcy estate is charged for the driver's services, but invariably this cost is significantly lower than paying the senior attorney's hourly rates. En route, the lawyer performs billable services, thereby suffering no lost opportunity costs for the need to travel. That this scenario is not impractical folly is demonstrated by Farmer's own billing records in this case, which show that the bulk of the legal services its attorneys performed were for telephone conversations and for preparation and review of pleadings and documents. In this age of cell phones and laptops, is it speculative to assume that similar services could not be performed while riding in a car? Of course, without evidence, one can only wonder.
While we may have arrived at a different conclusion, we cannot simply substitute our judgment for that of the bankruptcy court. United States v. Henderson, 241 F.3d 638, 646 (9th Cir. 2000). The bankruptcy court's order regarding fees is reviewed for an abuse of discretion. In re Mendez, 231 B.R. 86, 88 (9th Cir. BAP 1999). Discretion is abused " when the judicial action is " arbitrary, fanciful or unreasonable" or " where no reasonable man [or woman] would take the view adopted by the trial court." Golden Gate Hotel Ass'n v. City & County of San Francisco, 18 F.3d 1482, 1485 (9th Cir. 1994); United States Cellular Inv. Co. Of L.A., Inc. v. GTE Mobilnet, Inc., 281 F.3d 929, 934 (9th Cir. 2002). As one court elaborated, " [i]f reasonable men [or women] could differ as to the propriety of the action taken by the trial court, then it cannot be said that the trial court abused its discretion." Ohanian v. Irwin (In re Irwin), 338 B.R. 839, 844 (E.D. Cal. 2006). Thus, reversal under the abuse of discretion standard is possible only " when the appellate court is convinced firmly that the reviewed decision lies beyond the pale of reasonable justification under the circumstances." Harman v. Apfel, 211 F.3d 1172, 1174 (9th Cir. 2000).
Given that courts differ on whether the award of travel time is compensable at a full hourly rate, the bankruptcy court is entitled to draw upon its own experience with the local practice and customs to factor into the determination of reasonableness of the fees charged for travel. We " defer to the bankruptcy court for judgments pertaining to the competitiveness and development of its local legal community." Bachman v. Laughlin (In re McKeeman), 236 B.R. 667, 673 (8th Cir. BAP 1999). Because we are not convinced the bankruptcy court's decision was unreasonable or unjustified under the circumstances, we do not find the bankruptcy court abused its discretion in awarding Farmer its full fees for travel time.
VI. CONCLUSION
The bankruptcy court conducted a careful analysis of Farmer's time records and concluded that $76,881.50 in fees were for services improperly lumped together in a single billing entry and applied a 10% penalty to that amount. We find no error in the bankruptcy court's finding of fact as to the lumped time and no abuse of discretion in imposing a 10% reduction on those fees. Nor do we find the bankruptcy court abused its discretion when it allowed the full hourly rate for Farmer's travel time. Therefore, we AFFIRM.
PAPPAS, Bankruptcy Judge, dissenting in part.
For the reasons explained by the majority, I join them in affirming the bankruptcy court's decision concerning the " lumping" issue. I agree with my colleagues that the bankruptcy court, on remand, engaged in a comprehensive review of Farmer's time and billing records, made detailed fact findings, and carefully designed an appropriate, balanced remedy for dealing with the remaining deficiencies in Farmer's billing records by imposing a measured reduction of the amount of fees requested.
On the other hand, I cannot join my colleagues' decision to affirm the bankruptcy court's approval of the full amount of Farmer's request for compensation for attorney travel. In stark contrast to the record upon which the bankruptcy court relied to resolve the time-lumping challenge, there is plainly nothing in the record to justify the court's apparent finding that $250-$350 per hour is a reasonable rate to compensate an attorney, not for lawyering skills and expertise, but to drive between the office and the courthouse.
Farmer's itemization of services attached to its Amended Fee Application shows that it billed the bankruptcy estate in excess of $33,000 for time spent by its attorneys driving their personal vehicles between San Luis Obispo, the site of the firm's offices, and the bankruptcy courthouse in Santa Barbara. Four hours was usually billed for each of these many trips, 2 for which Farmer sought compensation from the bankruptcy estate at $250 to $350 per hour. As a result, for each court appearance, this travel time alone cost the estate over $1,000.3 Almost invariably, the time spent by the Farmer attorney performing actual legal services at the destination was significantly less than the time spent driving.
Farmer lawyers also drove to more distant destinations to attend depositions in Encino and Woodland Hills, and to attend an appellate argument in Pasadena. These trips are also billed at full hourly rates in the time records.
Since the issue was raised but not resolved in the prior appeal, the Panel asked the bankruptcy judge to " further consider" Farmer's habit of charging at full hourly rates for travel time, a practice which " the bankruptcy court did not address and apparently endorsed." Thomas I . But unlike the approach it took to the lumping issue, on remand, the bankruptcy court provided only the briefest comments and analysis of its reasons for authorizing such high amounts for Farmer lawyers' time spent driving, and it cited no evidence in the record to support Farmer's claim.4 In remarking about the travel time charges, the bankruptcy judge merely observed that, because of the limited number of local bankruptcy attorneys, it may have been necessary for trustee to retain counsel from outside of Santa Barbara. Hr'g Tr. 7-8 (November 12, 2008). The bankruptcy court also apparently thought full hourly rates were proper because, when compared to other rates apparently charged in cases in the Central District of California, Farmer's charges were " modest." Hr'g Tr. 9:1-6 (November 12, 2008).
I do not question the bankruptcy court's reasons for blessing the necessity of trustee's decision to hire counsel from San Luis Obispo, nor am I concerned with its conclusion that Farmer's rates for the legal services its lawyers provided to the trustee are reasonable. According to the majority, once the bankruptcy court reached such conclusions, it apparently had unfettered discretion to allow, discount, or disallow full hourly rates for the lawyers' travel time. I respectfully disagree with such a notion.
As to the appropriate amount to be allowed for nonproductive travel time, the bankruptcy court's observations simply miss the mark. That hiring out-of-town counsel was necessary, and that Farmer's rates for legal work are reasonable, do not justify allowing its lawyers to charge the exact same rate for such divergent tasks as appearing in a courtroom and driving up and down Highway 101. And that a Los Angeles attorney may charge $750 per hour for legal services in some cases does not explain why it was reasonable for the Farmer lawyers to charge $250 per hour and more to drive their cars in this case.5
My views are hardly radical.6 It is a bankruptcy estate professional's burden to prove that all compensation requested is reasonable. Hensley v. Eckerhart, 461 U.S. 424, 437, 103 S.Ct. 1933, 76 L.Ed.2d 40 (1983) (" Fee applicant bears the burden of establishing entitlement to an award and documenting the appropriate hours expended and hourly rates.") (cited for the burden of a bankruptcy professional in Hale v. U.S. Tr. (In re Basham), 208 B.R. 926, 930 (9th Cir. BAP 1997), aff'd sub nom. In re Byrne, 152 F.3d 924 (Table) (9th Cir. 1998)). The bankruptcy court has an independent duty to scrutinize professional fee requests. Mayer, Glassman & Gaines v. Washam (In re Hanson), 172 B.R. 67, 74 (9th Cir. BAP 1994). In reviewing whether the amount sought for an estate professionals' services is reasonable, § 330(a)(3)(D) commands that the bankruptcy court consider " the complexity, importance, and nature of the . . . task addressed . . . ." In applying § 330(a), bankruptcy courts have, forever, required that the rate allowed for compensation of the professional match the level of skill required to perform that service. In addition, the Ninth Circuit mandates that estate professionals exercise appropriate billing judgment in fashioning their fee requests. Unsecured Creditor's Comm. v. Puget Sound Plywood, Inc., 924 F.2d 955, 957-58 (9th Cir. 1991). In other words, as most bankruptcy professionals have come to understand, the trustee's law firm can not expect to be paid senior partner rates for performing services that could be more economically performed by junior partners, associates, paralegals, or perhaps in this case, by nonprofessional staff or even a commercial service.
I agree with my colleagues that in reviewing matters involving professional compensation, the Panel should show deference to the expertise of local bankruptcy courts. Still, even the generous abuse of discretion standard of review requires that there be some factual or other support in the record for a requested fee, or some analysis showing the bankruptcy court's special reasons for not requiring proof of reasonableness. In re Dutta, 175 B.R. 41, 46 (9th Cir. BAP 1994) (" [Although] attorneys' fee awards are left to the discretion of trial courts because they involve essentially factual matters, the Supreme Court has nevertheless mandated that a trial court must provide a 'concise but clear explanation of its reasons for the fee award.'" (quoting Hensley, 461 U.S. at 437) and that " [w]hile a trial court need not necessarily explain its analysis in terms of elaborate mathematical calculations, for example, it must provide sufficient insight into its exercise of discretion to allow an appellate court to exercise its reviewing function.").
Conceivably, payment of a professional's full hourly rate for travel time could be justified. But there is nothing in this record to show this case was so distinctive as to allow the same rate of compensation to Farmer attorneys to argue an appeal before the Ninth Circuit, as to drive to and from that argument.7 Though it may have been necessary for Farmer attorneys to get to the courthouse from their offices, driving their cars is not " legal services." Compensation must match the level of skill required to perform the service. At bottom, the bankruptcy court should have required some evidence, testimony, or other information from Farmer to show that its practice of billing at full hourly rates for driving was justified and reasonable in this case.8 Because the record includes no such evidence or information, I reluctantly conclude that the bankruptcy court abused its discretion by allowing full hourly rates to attorneys for travel. I therefore dissent.
I also dissent from my colleague's decision not to publish this ruling as an Opinion. Because the Panel endorses the bankruptcy court's approval of full hourly rates for estate professional travel time without a showing of any special facts or circumstances, an approach potentially at odds with the practice observed in many of the circuit's districts, the decision is certainly one of substantial importance and interest to the bankruptcy bench and bar. See 9th Cir. BAP R. 8013-1(a), (b).