Opinion
4:19-03194-MJC
09-30-2024
In re: Lonnie Dean Carpenter, Debtor.
Chapter 13
OPINION
MARK J. CONWAY, BANKRUPTCY JUDGE
Pending before the Court is the Amended Application for Allowance of Compensation to Attorney for Chapter 13 Debtor ("Application") filed by Debtor's Counsel, Mr. C. Stephen Gurdin, Jr., Esquire ("Counsel" or "Mr. Gurdin"), Dkt. # 172, and the Objection to the Amended Application ("Objection") filed by the Chapter 13 Trustee ("Trustee"), Dkt. # 177. Mr. Gurdin seeks approval of $36,691.40 in compensation and reimbursement of expense of $753.42 for the period from April 29, 2019 through December 16, 2022 ("Compensation Period"). The Trustee in his Objection argues that the fees are excessive and that Mr. Gurdin seeks payment of his fees and costs from Debtor outside of the Chapter 13 Plan process and after Debtor receives his discharge and bankruptcy "fresh start."
The Application does not state whether this is a final or interim Application. However, at the hearing on the Application, Mr. Gurdin indicated it was a final Application and he would not be seeking any additional compensation from Debtor relating to this case. July 18, 2023 Transcript at 12; Dkt. # 188.
For the reasons stated below, the Application will be reduced and compensation in the amount of $20,011.80 and reimbursement of expenses of $753.42 will be approved. The Court further notes that the award of fees and costs to Mr. Gurdin may be subject to Debtor's discharge that should be entered soon as the case is almost completely administered. Accordingly, any payment by Debtor of Mr. Gurdin's fees and costs would be strictly voluntary. Further, Mr. Gurdin's Application, which is almost ten times the standard Chapter 13 fee, is concerning to the Court as it was requested at the end of the case without any notice that such exorbitant fees would be sought from Debtor.
I. JURISDICTION
This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§157 and 1334 and the March 11, 2016 Standing Order of Reference of the United States District Court for the Middle District of Pennsylvania. This matter is a core proceeding pursuant to 28 U.S.C. §157(b)(2)(A). Venue is proper pursuant to 28 U.S.C. §1409(a).
II. PROCEDURAL AND FACTUAL HISTORY
1. The Bankruptcy Case
Because of the staggering amount requested in the fee request of Counsel, it is necessary to outline the history, facts, and circumstances in this Chapter 13 case in order to determine whether there is any basis for the payment of these extraordinarily high fees.
Debtor Lonnie Dean Carpenter ("Debtor") initiated this bankruptcy case by filing a voluntary Chapter 13 petition on July 25, 2019. Dkt. # 1. After requesting two extensions of time, Debtor filed his schedules, statements, and other required documents, including his Chapter 13 plan, on September 3, 2019. See Dkt. #s 15-20.
According to Schedule A/B, Debtor owns two (2) parcels of land totaling 128 acres, which includes his residence and other structures ("Property"). See Dkt. # 15. "Parcel 1" is identified as a 67-acre parcel which includes Debtor's residence and is valued at $650,000. "Parcel 2" is identified as a 61-acre parcel with a barn, garage, mobile home, and pole barn valued at $500,000 (total value of the Property is $1,150,000). Debtor also lists two used vehicles, a backhoe and a tractor. Id. Debtor does not list any bank accounts but does have a "Net Spend card, joint with Brenda Hartman" having a balance of $99.00. Id.
On Schedule D, Debtor lists the following obligations secured against the Property: (i) 4 loans owed to BB&T totaling $707,202.15, and (ii) 4 obligations owed to the Bradford County Tax Claim Bureau ("Bradford County") totaling $35,878.86. Id. He also lists an obligation owed to Santander Consumer USA ("Santander") in the amount of $43,864 secured by a 2016 Jeep. See Id.
BB&T is abbreviated for Branch Banking & Trust Company. According to filed proofs of Claim, BB&T sold or assigned its rights to Susquehanna Capital Management, LLC ("Susquehanna"). See Claims 8-1 and 8-2. From the loan documents attached to the Claims it appears that Susquehanna Bank was the original lender to Debtor and after assignments and mergers Susquehanna is current holder of the loans and the Court shall hereafter refer to Susquehanna as such.
Only 8 creditors filed proofs of claim. Bradford County Tax Claim Bureau filed 2 claims totaling $21,601.85 for unpaid real estate taxes. See Claims 1 and 2. Susquehanna filed a secured Claim # 8 in the amount of $711,444.49, as amended. Santander filed a partially secured claim in the amount of $43,864.28 (secured by the 2016 Jeep). See Claim 4. The 4 remaining claims totaled approximately $1,100.
As per Schedules I and J, Debtor is employed as a "pipeliner" with a local union earning $9,403.85 gross income per month. Id. Debtor also lists other miscellaneous income totaling $1,380. Schedule I reflects a total monthly income in the amount of $10,108.07 after tax and payroll deductions. Schedule J indicates total monthly expenses of $10,007.68 with $6,004.68 of mortgage payments. Accordingly, there is a monthly net income of $100.39 available to fund Debtor's Chapter 13 Plan.
Schedule J indicates that Debtor has a household of 2 - Debtor and his girlfriend. On Schedule I the girlfriend is listed as contributing $430 and $300 to the household. There is nothing in the record as to why there are 2 "contributions" listed.
Schedules I and J were amended on February 11, 2022 (Dkt. # 71) and indicate that Debtor was unemployed, and his net monthly income was $309.48.
On September 3, 2019, Debtor filed his Chapter 13 plan ("Plan"). Dkt. # 17. The Plan provided, inter alia, for payments of $100 per month for 24 months and $1,360.55 for 36 months for a total base amount of $51,379.80. The Plan also provided for the payment of estimated proceeds of $500,000 to BB&T from the sale of Parcel 2 on or before July 31, 2020 and if Parcel 2 did not sell, it would be surrendered. See Plan at §1.B. The Plan did not propose any cure of arrears on Debtor's mortgages but did include arrears of $21,824.37 to Bradford County and $15,928.46 to Santander on the 2016 Jeep loan, to be paid through the Plan. The Plan further provided for payment of attorney's fees upon application and approval by the Court. Id. at §3.A.2. The Plan was confirmed on January 31, 2020. See Dkt. # 31.
The Plan indicates that three gas wells were being drilled and Debtor anticipated additional income within two years to justify the "step-up" in payments of $1,260.55.
This case followed a convoluted path over the years with certain events highlighted below:
1. On July 31, 2020, Debtor filed a Motion to Sell Parcel 2 for $400,000 to a third party. Dkt. # 32. There were no objections and by Order dated September 1, 2020, the Court approved the Motion to Sell. Dkt. # 35. Ultimately, this sale did not close.
2. On December 23, 2021, Debtor filed a Motion Seeking Approval to Lease a portion of Parcel 2 for the purpose of generating solar power ("Solar Lease Motion"). Dkt. # 51.
3. On January 7, 2022, Debtor filed a Motion for Leave to Amend the Plan to account for the surrender of a vehicle and funding from the proposed solar lease. Dkt. # 53.
4. Secured creditor Susquehanna filed objections to the Solar Lease Motion (Dkt. # 55) and Motion for Leave to Amend the Plan (Dkt. # 56) and filed a Motion for Relief from Stay (Dkt. # 57) based upon Debtor's failure to sell Parcel 2, pay the $500,000 under the Plan, or surrender Parcel 2.
5. By order dated February 24, 2022, the Court denied the Solar Lease Motion without prejudice, because, inter alia, the full lease was not attached to the motion and therefore the Court was unable to assess the terms of Solar Lease. Dkt. # 85.
6. Debtor filed 4 additional Motions to Amend the Plan (Dkt. #'s 62, 97, 103, 167).
7. On February 8, 2022, Debtor filed an Objection to Susquehanna's Proof of Claim. Dkt. # 61. Susquehanna amended its Claim on March 10, 2022 to $711,444.49. Debtor again objected on March 17, 2022. Dkt. # 92.
8. On June 4, 2022, Debtor filed a Motion to Sell the Property to Debtor's son Noah J. Carpenter and two other individuals at a price to pay Susquehanna a net of $550,000 ("Motion to Sell"). Dkt. # 102.
9. On June 5, 2022, Debtor filed a Second Motion Seeking Approval to Lease a portion of the Property for the purpose of generating solar power ("Second Solar Lease Motion"). Dkt. # 105. Debtor also filed a Motion to Seal Administrative Lease. Dkt. # 106. Even though Debtor filed a motion to sell the Property the day before, the Second Solar Lease Motion was filed specifically with the intent of assigning the Solar Lease to the third-party buyers of the Property and not for the benefit of Debtor or the bankruptcy estate. See Dkt. # 106 at ¶22.
10. By Order dated July 28, 2022, the Court approved the Motion to Sell. Dkt. # 138. Susquehanna agreed to accept the proceeds from the sale and withdrew its Claim. See Dkt. # 142.
11. The case docket is replete with amended pleadings that appear to be mistakes of counsel (See Dkt. #'s 78, 109, 113, 114, 119, 126, 127, 133, 154, 172 and 182). Debtor's counsel filed unnecessary Motions for Default (Dkt. #'s 117 and 135) and Amended Sale Notices (Dkt. #'s 119 and 126). Attached to Dkt. # 117 was an Entry of Default counsel prepared falsely inserting the Clerk's signature and Official Stamp. See Order to Appear and Show Cause, Dkt. # 131.
12. A review of the Trustee's financial report indicates that Debtor has made payments totaling $4,345.84 into the Plan for distribution to creditors. The final payment was made on July 25, 2023. The Trustee's report lists a balance on hand of $191.08.
None of the Plan Amendments referenced Debtor's accruing of counsel fees. The Fifth Motion, which was filed after the Application, was taken under advisement pending disposition of this Application.
Debtor acknowledges that a state court judgment was entered in favor of Susquehanna on June 21, 2019 in the amount of $702,201.34 plus costs in the Pennsylvania Court of Common Pleas, Bradford County. Id. at ¶ 5.
Amended Motions of both of these pleadings were filed on June 12, 2022. See Dkt. # 113, 114.
This amount represents the total payments provided for in the Debtor's 5th Amended Plan (Dkt. # 167-1) that is pending before the Court.
What the above background indicates is that this case really was not complicated. It was a case that contemplated the sale of all or a portion of Debtor's Property in order to satisfy the one (1) secured creditor and real estate taxes. What is concerning to the Court is that Debtor's counsel embarked upon an unbridled billing expedition that was of questionable benefit to Debtor and the bankruptcy estate. What is even more troubling is the fact that Mr. Gurdin's legal fees were not disclosed until the end of the case and were never provided to be paid through the Plan as an administrative expense as is usual and customary in a Chapter 13 case. The Court has great difficulty saddling Debtor with an attorney bill of almost $40,000 where he should be obtaining a "fresh start" after being in bankruptcy for 5 years.
2. Debtor's Counsel's Fee Application
On February 26, 2023, Mr. Gurdin filed his Fee Application. Dkt. # 150. The Trustee Objected to the Fee Application and filed an Amended Objection on March 9, 2023. Dkt. # 155 and 157. On May 2, 2023, Mr. Gurdin filed an Amended Fee Application seeking approval of $36,691.40 in compensation and reimbursement of expense of $753.42 for the period from April 29, 2019 through December 16, 2022 ("Compensation Period"). Dkt. # 172. Mr. Gurdin indicates that he already received a retainer of $4,882 and seeks compensation based upon an hourly rate for him of $360 that was increased to $420 during the pendency of the case without any explanation, and $142 per hour for his paralegal.
Attached to the Application is Mr. Gurdin's Retention Agreement with Debtor dated May 3, 2019. Dkt. # 172-3. The Retention Agreement consists of 13 pages and outlines the conditions of Mr. Gurdin's retention. Much of it is "boilerplate" but the essential terms are that $4,882 is required as a retainer before the case can be filed, the "estimated base fee" is $7,582, and, relevant here are the statements, "[i]n the event that the base fee has been exhausted, these items will be billed separately through the plan", Id. at 7, and "[t]he Trustee will save up the payments, and out of this money pay the balance if any, of additional attorney fees approved by the court on [a] fee application …" Id. at 8-9.
Also attached to the Application is an "Approval of Debtor," signed by Debtor, indicating that Debtor has reviewed the Application, consents to the charges and agrees that Mr. Gurdin can be paid outside the plan. Dkt. 172-4.
Mr. Gurdin also filed a Motion to Seal certain proposed documents that evidence Mr. Gurdin's billing practices in non-bankruptcy matters. Dkt. # 173. After a hearing held on June 1, 2023, the Motion to Seal was denied as there was no basis to have the documents filed under seal. Dkt. # 185. Mr. Gurdin could have simply redacted any information he deemed privileged or confidential.
The Trustee filed an Objection on May 22, 2023. Dkt. # 177. Mr. Gurdin then filed a 60-page Answer, Dkt. # 181, and an Amended Answer the next day, Dkt. # 182. A hearing was held on the Fee Application on July 18, 2023, and the matter was taken under advisement. Debtor did not appear at the hearing on the Application.
III. LEGAL STANDARD
The Third Circuit Court of Appeals has instructed that a Bankruptcy Court has a "duty to review fee applications, notwithstanding the absence of objections." In re Busy Beaver Bldg. Centers, Inc., 19 F.3d 833, 841 (3d Cir. 1994) (emphasis in original). "Disagreeable as the chore may be, the bankruptcy court must protect the estate, lest overreaching attorneys or other professionals drain it of wealth which by right should inure to the benefit of unsecured creditors." Id. at 844 (citing Cohen & Thiros, P.C. v. Keen Enterprises, Inc., 44 B.R. 570, 573 (N.D. Ind. 1984)). Here, as discussed more fully below, it appears as though the Court must protect the interests of Debtor as Mr. Gurdin has planned this case so that Debtor may be obligated to pay his staggering bill (or bills) outside of the Chapter 13 plan process after he obtains his discharge under 11 U.S.C. §1328(a).
The Court has previously written on attorney's fees in Chapter 13 cases and, accordingly, the legal analyses in In re Badyrka, 2022 WL 4656034 (Bankr. M.D. Pa. 2022) and In re Thomas, 2023 WL 6885827 (Bankr. M.D. Pa. 2023) are incorporated herein. A brief review of the relevant legal analysis is set forth below.
Under the Bankruptcy Code, compensation of professionals is governed by Section 330. In Chapter 13 cases, the Court may award "reasonable compensation" to debtor's counsel, taking into account "the nature, the extent, and the value of such services." 11 U.S.C. §330(a)(3). Under §330(a)(3), the Court must consider:
(A) the time spent on such services;
(B) the rates charged for such services;
(C) whether the 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;
(E) with respect to a professional person, whether the person is board certified or otherwise has demonstrated skill and experience in the bankruptcy field; and
(F) whether the compensation is reasonable based on the customary compensation charged by comparably skilled practitioners in cases other than cases under this title.11 U.S.C. §330(a)(3)(A)-(F).
Also relevant in Chapter 13 cases is Section 330(a)(4)(B), which governs the circumstances where an attorney provides services that benefit the individual debtor, rather than the bankruptcy estate. It provides:
In a chapter 12 or chapter 13 case in which the debtor is an individual, the court may allow reasonable compensation to the debtor's attorney for representing the interests of the debtor in connection with the bankruptcy case based on a consideration of the benefit and necessity of such services to the debtor and the other factors set forth in this section.11 U.S.C. §330(a)(4)(B).
For requests for compensation, the burden of proof rests on the applicant to establish that the fees earned are reasonable. Zolfo, Cooper & Co. v. Sunbeam-Oster Co., 50 F.3d 253, 261 (3d Cir. 1995) (citing In re Metro Transp. Co., 107 B.R. 50, 53 (E.D. Pa. 1989)); In re Pochron, 2022 WL 1085459, at *2 (Bankr. S.D. Ohio 2022); In re Murray, 2007 WL 2317523, at *2 (Bankr. E.D. Pa. 2007). "This burden is not to be taken lightly, especially given that every dollar expended on legal fees results in a dollar less that is available for distribution to the creditors or use by [the] debtor." In re Pettibone Corp., 74 B.R. 293, 299 (Bankr. N.D.Ill. 1987) (citing In re Hotel Associates, Inc., 15 B.R. 487, 488 (Bankr. E.D. Pa. 1981)).
In connection with its analysis of "reasonableness," the Court must determine if the "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." 11 U.S.C. §330(a)(3)(C); see also In re Martinez, 2024 WL 1059078, at *3-4 (Bankr. D.N.M. 2024) (services rendered must be necessary for benefit of estate or debtors). A bankruptcy court has "broad discretion" to determine reasonable attorneys' fees, as the "bankruptcy court is more familiar with the actual services performed and has a far better means of knowing what is just and reasonable than an appellate court can have." In re ASARCO, L.L.C., 751 F.3d 291, 294 (5th Cir. 2014) (citing In re Lawler, 807 F.2d 1207, 1211 (5th Cir. 1987) (internal quotation marks and citation omitted)); In re Smith, 331 B.R. 622, 628 (Bankr. M.D. Pa. 2005).
In determining a reasonable fee, the calculation most frequently used is the lodestar method, which, simply stated, multiplies the number of expended hours by the hourly rate. Smith, 331 B.R. at 628 (citing Hensley v. Eckerhart, 461 U.S. 424, 433 (1983)). Under lodestar, courts frequently assess whether the services were provided in a cost-efficient manner. See In re Szymczak, 246 B.R. 774, 782 (Bankr. D. N.J. 2000) ("Simply because an attorney spent time, does not mean it is compensable or that counsel used the most economical means of rendering the services.").
Courts also look to ensure that an applicant has delegated tasks that do not require a senior attorney's expertise to less expensive attorneys or paralegals, Szymczak, 246 B.R. at 783, and that administrative tasks are billed at appropriate rates, see Busy Beaver, 19 F.3d at 855 ("[w]hen an experienced attorney does clerk's work, he or she should be paid clerk's wages") (quoting In re Vogue, 92 B.R. 717, 718 (Bankr. E.D. Mich. 1988)). Tasks such as "obtaining hearing dates, filing pleadings, copying, exhibit preparation, forwarding documents, preparing a certificate of service and ordering a transcript" are clerical in nature, can be accomplished by non-lawyers, and consequently, should be billed at paralegal or office staff rates. In re Oakes, 135 B.R. 511, 514 (Bankr.N.D.Ohio 1991). This type of review is necessary so that the costs of administration do not consume assets that otherwise would be available to creditors. See Badyrka, 2022 WL 4656034, at *10 (citing In re Fontaine, 2015 WL 5162557, at *3 (Bankr. M.D. Pa. 2015)).
The bottom line is that attorneys are expected to exercise reasonable billing judgment. See Busy Beaver, 19 F.3d at 856; Szymczak, 246 B.R. at 783. This involves "writing off unproductive research time, duplicative services, redundant costs precipitated by overstaffing, or other expenses with regard to which the professional generally assumes the cost as overhead in corresponding non-bankruptcy matters." Busy Beaver, 19 F.3d at 856.
In reviewing fee applications, the court must "conduct an objective inquiry based upon what services a reasonable lawyer or legal firm would have performed in the same circumstances." In re Fleming Companies, Inc., 304 B.R. 85, 89 (Bankr. D. Del. 2003) (quoting In re Cenargo Int'l, PLC, 294 B.R. 571, 595 (Bankr. S.D.N.Y. 2003)) (internal quotations omitted). A "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." Id. (citing Busy Beaver, 19 F.3d at 854). The Court should then consider any evidence submitted with the application or at a hearing. Id. When making its consideration, the court is not required to make a line-by-line analysis of the fee application, and a sampling will suffice. In re Maruko Inc., 160 B.R. 633, 645 (Bankr. S.D. Cal. 1993). "Because its time is precious, the reviewing court need only correct reasonably discernible abuses, not pin down to the nearest dollar the precise fee to which the professional is ideally entitled." Busy Beaver, 19 F.3d at 845.
Additionally, a fee applicant's failure to exercise billing judgment will result in reduction of fees where, in the sound discretion of the bankruptcy court, such fees are unreasonable. In re Maxine's, Inc., 304 B.R. 245, 249 (Bankr. D. Md. 2003). "The exercise of billing judgment is the voluntary reduction of a fee by counsel to a private client for services that either conferred a negligible benefit or were excessive." Id. (citing In re Leonard Jed Co., 103 B.R. 706, 713 (Bankr. D. Md. 1989)). "Such billing judgment is an absolute requirement of fee applications in bankruptcy." Maxine's, 304 B.R. at 249.
In evaluating a fee application, "[a] bankruptcy court must balance adequately compensating attorneys in order to encourage competent counsel to represent bankruptcy debtors with insuring that the costs of administration do not consume assets that otherwise would be available to creditors. … The court's responsibility to protect the estate is especially important in chapter 13 cases where there is little motivation for a debtor, or creditors, to object to a particular fee allowance." Fontaine, 2015 WL 5162557, at *3 (quoting Szymczak, 246 B.R. at 778).
With these standards in mind, the Court will review Mr. Gurdin's Application.
IV. DISCUSSION
In his Objection, the Trustee essentially raises two (2) issues: (1) "that the overall fees charged are excessive where this is the First Fee Application in the case, and Applicant has already received $4,882 as a retainer;" and (2) that payment of the requested fees "entirely outside of the Chapter 13 Plan would deprive the debtor of a fresh start." Dkt. # 177 at ¶¶ 19-20. As the payment of fees outside the Plan denies the Debtor a "fresh start," the Court will address that issue first.
A. The Payment of Counsel Fees Deprives Debtor of a Fresh Start
The Bankruptcy Code's purpose has been described as providing the honest but unfortunate debtor a fresh start. See Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365, 367 (2007); Grogan v. Gardner, 498 U.S. 279, 286-87 (1991); In re Cohn, 54 F.3d 1108, 1113 (3d Cir. 1995). "Chapter 13 authorizes an individual with regular income to obtain a discharge after the successful completion of a payment plan approved by the bankruptcy court." Marrama, 549 U.S. at 367. Here, the issue before the Court is whether Debtor, after navigating through a Chapter 13 case for 5 years, should be saddled with an undisclosed $37,000 legal bill after he obtains his discharge and "fresh start." In order to determine the answer to this question, a review of the applicable parts of the Bankruptcy Code is required.
Generally, debtor's attorney fees are administrative expenses entitled to priority under §507(a)(2) and must be provided for in the plan. In re Busetta-Silvia, 314 B.R. 218, 222-23 (B.A.P. 10th Cir. 2004). Section 1322(a)(2) states that, a Chapter 13 plan shall "provide for the full payment, in deferred cash payments, of all claims entitled to priority under section 507 of this title, unless the holder of a particular claim agrees to a different treatment of such claim." Section 507(a)(2) affords second priority (after domestic support obligations) to "administrative expenses allowed under section 503(b)." Section 503(b)(2) affords administrative expense priority for "compensation and reimbursement awarded under section 330(a)." Reading these sections together, attorney's fees that are awarded under §330(a) are entitled to second priority under §507(a)(2) and must be paid in full under the terms of the Chapter 13.
Local Bankruptcy Rule 2016-2(a) also provides that "[a]fter the petition is filed, an attorney may not receive payment of fees except through the chapter 13 plan, unless payment is otherwise approved by the Court."
As Mr. Gurdin is likely aware, the Trustee is in possession of only $191.08 to fund his fees. He is seeking payment outside of the Plan for the large balance due and not from the estate. However, as discussed below, Debtor's Plan provides for the entry of a discharge under §1328(a). "Once confirmed, the plan rules; it becomes the binding mechanism for all the parties under §1327." In re Jaworski, 2018 WL 6287969, at *3 (Bankr. D. Minn. 2018). As there is no provision in Debtor's Plan for any attorney fees to be paid "outside" the Plan, they are subject to be discharged upon entry of Debtor's discharge. See In re Conner, 559 B.R. 526, 532 (Bankr. D.N.M. 2016).
In a case factually similar to the matter sub justice, the Court in Jaworski, supra, found that where the debtors had completed their plan payments and there were not sufficient funds left with the Chapter 13 Trustee, the debtors' counsel's fees in excess of $8,000 were subject to being discharged under §1328(a). The Jaworski Court found that:
Ultimately, an attorney is his client's advocate as well as his client's creditor. Just as many creditors will rarely be paid 100 cents on the dollar for their claims against a debtor's estate, an attorney who accepts a debtor as a client must do so with the full knowledge of the possibility that he, too, may be unable to collect 100 cents on the dollar for his claims against the debtor's bankruptcy estate - particularly when he fails to work successfully within the confines of the very law he practices.
In the world of bankruptcy, the plan reigns supreme; its contents provide guidance to the Court, the debtor(s), the trustees, and the creditors concerning the administration of the bankruptcy estate. Under §1327(a), "the provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan and whether or not such creditor has objected to, has accepted, or has rejected the plan." 11 U.S.C. §1327(a). Therefore, when a debtor's plan properly includes a provision discharging any debts provided for by the plan as soon as possible after a debtor completes payments under the plan, the creditors - including the debtor's attorney - are bound by that language. Finding otherwise would go against the entire foundation of bankruptcy: giving debtors the opportunity for a fresh start.Jaworski, 2018 WL 6287969, at *4.
At the hearing, the Court asked Mr. Gurdin to explain how Debtor is expected to pay his fee where the Plan contemplates a $4,000 legal fee and now he is faced with fees and costs close to $40,000. See Dkt. # 188 at 10. Mr. Gurdin responded:
I agreed to allow the debtor sufficient time to pay this; I do that frequently in large cases. It doesn't have to be paid through the plan. He's happy with my services, and will pay that. I have another one, owes me 47,000, paying me seven fifty a month. I'm happy as a clam with that. He might be able to -- after the case is all finished, he would agree to pay me something per month toward that.Id. This "loose" payment arrangement after being in a bankruptcy case for over 5 years, is concerning to the Court as it was not disclosed anywhere until the end of the case and it clearly impedes Debtor's "fresh start." It is also contrary to the Confirmed Plan.
In responding to the Trustee's Objection regarding denying the Debtor his "fresh start," Mr. Gurdin states "[t]he mere fact the debtor consents to and seeks approval of counsel fees but still emerges with the ability to function as a positive member of society is substantial evidence that he has a fresh start. It is this ability that follows the bankruptcy process that is the true meaning of the fresh start." Dkt. # 182 at ¶ 20. The Court is not sure what that means. Mr. Gurdin does not cite to any authority for that proposition and the Court is unclear on how emerging from bankruptcy with a $32,000 balance on a legal bill is evidence of a fresh start.
Here, Debtor's Chapter 13 bankruptcy case essentially accomplished the sale of the Property and relief from the corresponding secured debt. Debtor's Confirmed Plan, as modified many times by Mr. Gurdin, contained a provision for the payment of attorney's fees through the Plan. Until the late filed Amended Fee Application was filed, there was no indication by Debtor or Mr. Gurdin that the fees would be paid outside the Plan. Accordingly, the fees can only be paid through the Plan to the extent the Plan has funds. Any excess owed to Mr. Gurdin would be subject to be discharged under §1328(a). See In re Long, 560 B.R. 728, 731 (Bankr. W.D. Mich. 2016).
As no funds from the sale of the Property were paid into the Plan or distributed to any other creditor besides secured and real estate related claims, this could have been accomplished with the mere surrender of the Property and avoidance of Mr. Gurdin's fees.
Mr. Gurdin's retention letter also provides that his fees would be paid through the Plan. Dkt. # 170-3 at 7, 8-9 ("In the event that the base fee has been exhausted, these items will be billed separately through the plan" and "the Trustee will save up the payment, and out this money pay the balance if any. Of additional attorney fees …"). Mr. Gurdin's retention letter makes clear that fees above the paid retainer would be paid through the Plan.
At the hearing on this matter, Debtor did not appear or testify. Mr. Gurdin indicated that Debtor did agree to pay his fees outside the bankruptcy case. See Dkt. # 172-4. Although he has no obligation to pay, pursuant to 11 U.S.C. §524(f) a debtor can voluntarily pay any debt discharged in his case. However, the Court is concerned that Debtor may not be aware or fully comprehend that he has no legal obligation to pay any fees or claims that have been discharged.
Mr. Gurdin has acknowledged this: "[S]o that when there is a discharge, everything will be wiped." Dkt. # 188 at 8.
Based upon the above, the payment of Mr. Gurdin's fees and costs, as an administrative expense, are limited under the terms of the Confirmed Plan to the amount on hand by the Trustee ($191.08). Further, now that Debtor has completed his payments under the Plan, pursuant to §1329(a), the plan cannot be modified to provide that the attorney's fees survive the discharge.
However, the fact of imminent discharge does not prevent the Court from determining the amount of allowance. See, e.g., In re Sweports, Ltd., 777 F.3d 364, 365 (7th Cir. 2015) (bankruptcy court should determine attorney's entitlement to fees, even if not ordering payment of fees); In re Kavanaugh, 2016 WL 3355850, at *1 (Bankr. D. Me. 2016) (court allowed attorney fees under §330(a), whether or not attorney was entitled to payment). Accordingly, the Court remains tasked with determining what constitutes "reasonable" and "necessary" fees under §330(a) in this case.
B. Mr. Gurdin's Request for Counsel Fees Is Excessive and There is No Benefit to the Estate for Certain Matters
In complete agreement with the Third Circuit as how "disagreeable" the chore may be, "the bankruptcy court must protect the estate, lest overreaching attorneys or other professionals drain it of wealth which by right should inure to the benefit of unsecured creditors." Busy Beaver, 19 F.3d at 844 (citing Cohen & Thiros, P.C. v. Keen Enterprises, Inc., 44 B.R. 570, 573 (N.D. Ind. 1984)). The Third Circuit in Busy Beaver set forth the Court's obligation with respect to reviewing fee applications. In this case, the amount of fees requested by counsel in this Chapter 13 case, for the reasons set forth below, are not "reasonable compensation" under the Bankruptcy Code.
The presumptively reasonable fee ("PRF") in this District for a Chapter 13 case is $4,500.00. See L.B.R. 2016-2(c). The Court acknowledges that the instant case is not one in which counsel has chosen to utilize the presumptively reasonable fee method for billing and practitioners are under no obligation to employ the PRF. However, as this Court has previously stated, it considers the PRF as a guide or "starting point" to what should be considered a reasonable fee in a routine Chapter 13 case in this District. See Badyrka, 2022 WL 4656034, at *6 (citing In re Schuman, 2013 WL 1195279, at *6 (Bankr. N.D.N.Y. 2013) (describing presumptive fee as "pre-calculated lodestar" and utilizing it as starting point for review of lodestar fee applications)). It is Counsel's burden to support the "reasonableness" of billing almost ten (10) times the PRF in this case. Therefore, the Court questions the "reasonableness" of Mr. Gurdin's billing and also how much of the legal work was "necessary."
The PRF is an alternative method of billing that recognizes that generally speaking, many services rendered in Chapter 13 cases are "standard," and therefore, streamlines the billing process by forgoing formal fee applications and hearings.
Like the Court's review and analyses of fee applications in Badyrka and Thomas, supra, Mr. Gurdin's Invoice contains many entries that do not reflect a proper delegation of duties, has excessive amounts billed to tasks, contains charges to address errors made by counsel, and has billings for non-billable administrative tasks. In addition to the billing issues, the Trustee raised an objection that much of the work performed did not benefit the bankruptcy estate. Mr. Gurdin indicated that that the benefit was that he was able to "save the family farm." Dkt. # 188 at 16. However, upon questioning at the hearing, Mr. Gurdin admitted that Debtor lost all his interest in the farm property when it was sold to his son and 2 third parties.
THE COURT: …. So I'm not sure from his perspective this was a good deal. You mentioned retaining the family farm, but I'm not sure the family farm has actually been retained for Mr. Lonnie Dean Carpenter. Perhaps you can expand upon that.
MR. GURDIN: If the farm had been liquidated, there would have been no benefit to anyone except the secured lender. The royalties would be lost. The solar lease -
THE COURT: But, Mr. Gurdin, the benefits are lost as to Lonnie Carpenter.
MR. GURDIN: Yes, I agree.
THE COURT: Okay. So if this sale was accomplished to some unrelated third party, would you still be -- would you still be as happy with the results?
MR. GURDIN: No.
THE COURT: So I'm trying to understand your rationale for indicating that this has been a great benefit for the debtor.
MR. GURDIN: Okay, that's my response.Id. at 60-61. Mr. Gurdin also indicated that "I put together the financing package." Id. at 60. However, this appears to have only benefited the buyers of the Property and not Debtor or the bankruptcy estate.
Mr. Gurdin has the burden to show that his fees are reasonable and were "reasonably likely to benefit the debtor's estate." 11 U.S.C. §330(a)(4)(A)(ii)(II). Based upon the above testimony, the Court concludes that at least as to the sale of the farm property (which included Debtor's home) and assignment of solar lease, Mr. Gurdin did not meet his burden as there was no benefit to Debtor or Debtor's bankruptcy estate. It is clear that the sale benefited only the secured creditor, real estate tax claims, and Debtor's son. Further, the results of the case appear to be that Debtor entered the case with approximately $1,000 in unsecured debt (per the filed Proofs of Claim) and would exit the case with a $32,000 legal bill balance if Mr. Gurdin's Application is approved.
Section 330(a)(4)(B) allows the Court to award fees for services rendered to the debtor (in addition to the estate) "based on consideration of the benefit and necessity of such service to the debtor and the other factors set forth in this section." However, there does not appear to be any benefit to Debtor as he lost the Property without any compensation. In connection with the sale, the purchasers of the Property (Debtor's son and 2 third parties) benefited from Mr. Gurdin's work.
Although the Court approved the sale of the Property based upon Mr. Gurdin's representations that it was in the best interests of Debtor and the estate, there was no disclosure at the time of Mr. Gurdin's staggering fees.
"The [Supreme] Court in Hensley admonished that attorneys, in applying for fees, 'should make a good-faith effort to exclude from a fee request hours that are excessive, redundant, or otherwise unnecessary, just as a lawyer in private practice ethically is obligated to exclude such hours from his fee submission.'" In re Stromberg, 161 B.R. 510, 517 (Bankr. D. Colo. 1993) (quoting Hensley, 461 U.S. at 432-34). The Stromberg Court went on to state that "[n]ot every hour or part of an hour spent by an attorney is 'billable' and it is incumbent on the attorney to exercise 'billing judgment' when submitting applications to the court." Id.
Against this backdrop, the Court has undertaken a detailed review of Mr. Gurdin's Invoice and has designated certain of Mr. Gurdin's time entries on the attached marked-up Invoice as work that should have been delegated to a paralegal as "P", non-billable or overhead as "O", excessive time spent as "E" with an appropriate deduction, counsel error as "CE", and lastly as no benefit to Debtor or the Estate "NB". The Court has made these determinations, based upon a thorough review of the case docket and its experience not only as Judge in this District reviewing other attorney fee applications, but also based upon being a former Chapter 7 Trustee and practicing in this District for thirty (30) years. See Busy Beaver, 19 F.3d at 854 ("…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." (emphasis in original)).
A glaring example of "overreach" in the billing records is Mr. Gurdin's request to be paid for correcting an error made by him. Mr. Gurdin connected to the incorrect "Zoom" link relating to a hearing on a Motion for Relief and as a result the Court granted the Motion as unopposed. Counsel filed a Motion for Reconsideration, Dkt. # 72, and billed over $1,500 (time 2/13/22 - 2/16/22) for work to fix his error. Debtor should not bear the cost of this mistake. See In re Martinez, 2024 WL 1059078, *4 (Bankr. D.N.M. 2024) ("work done to correct mistakes is not considered necessary") (citing cases); In re Ryan, 517 B.R. 905, 909 (Bankr. E.D. Wis. 2014) (services necessitated by law firm's clerical or legal errors do not benefit debtors, are not reasonable and should not be compensated). The amount for these time entries has been disallowed.
Similarly, Counsel's time records indicate $1,141.80 in charges relating to a Second Solar Lease and Motion to Seal. This time was admittedly meant to preserve value for the buyers of the Property and did not benefit Debtor or the Estate and shall be disallowed.
As set forth on the marked-up Invoice, the total reductions are $16,679.60. Based on the above findings, the Court concludes that the amount allowed as an administrative claim to Mr. Gurdin for compensation is $20,011.80 after excluding the reductions, and for reimbursement of expenses is $753.42 for the period from April 29, 2019 through December 16, 2022.
V. CONCLUSION
For the reasons set forth above, and after considering the totality of the circumstances, the Court finds that Mr. Gurdin's Application is excessive and hereby reduces compensation requested therein to the sum of $20,011.80 and reimbursement of expenses in the sum of $753.42 for the period from April 29, 2019 through December 16, 2022, subject to further reduction by the retainer and/or any funds previously paid by Debtor or on his behalf. Although it would appear that Mr. Gurdin's fees would be subject to Debtor's discharge, as the discharge has not been entered as of this date, the Court shall exercise judicial restraint and not rule on that issue.
Pursuant to Fed.R.Bankr.P. 2017, Mr. Gurdin may request another hearing addressing the Court's findings on this matter by filing an appropriate motion within 14 days of the date of the Order that accompanies this Opinion. See also Busy Beaver, 19 F.3d at 845-846.
The Advisory Committee Notes for this Rule, states that this Rule "is premised on the need for and appropriateness of judicial scrutiny of arrangements between a debtor and his attorney to protect the creditors of the estate and the debtor against overreaching by an officer of the court who is in a peculiarly advantageous position to impose on both the creditors and his client."
An appropriate order will be entered.
(Table Omitted)