Opinion
NOT FOR PUBLICATION
Argued and Submitted at Los Angeles, California: October 24, 2007
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.
For SHARI L. THOMAS, Appellant: Janet A. Lawson, Attorney, Ventura, CA.
For JERRY NAMBA, Chapter 7 Trustee, Appellee: Richard W. Brunette, Jr., Attorney, SHEPPARD, MULLIN, RICHTER & HAMPTON, Los Angeles, CA; David Y. Farmer, Attorney, FARMER & READY, San Luis Obispo, CA.
Before: PAPPAS, BARDWIL [ and KLEIN, Bankruptcy Judges.
Hon. Robert Bardwil, United States Bankruptcy Judge for the Eastern District of California, sitting by designation.
This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have ( see Fed. R. App. P. 32.1), it has no precedential value. See 9th Cir. BAP Rule 8013-1.
Chapter 7 debtor Shari L. Thomas (" Thomas") appeals from the bankruptcy court's final Order Allowing Administrative Claims, Professional Fees and Expenses, Trustee's Fees and Expenses. We hold that issue preclusion bars Thomas' arguments concerning the propriety of the court-ordered sale of Thomas' property during the bankruptcy case as a basis for attacking the award of fees to the trustee and his attorney. We also determine that the bankruptcy court did not abuse its discretion in approving the award of compensation to the trustee. However, we VACATE the award of fees to the trustee's attorneys and REMAND to the bankruptcy court for a further review of the " lumped" billing entries on the attorneys' Final Fee Application and for additional findings.
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.
FACTS
Proceedings During the Bankruptcy Case
Thomas filed a petition for relief under chapter 11 of the Bankruptcy Code on May 31, 1996. On October 5, 1996, the case was converted to a case under chapter 7. Then, on January 8, 1997, the chapter 7 case was dismissed at Thomas' request with a 180-day bar to filing another chapter 11 petition.
In December 1994, certain real property located in Santa Barbara, California (the " Property") had been purchased for $ 1, 125, 000.00 by Wanda Joy Woodruff (" Woodruff"), Thomas' business associate and romantic partner. Their relationship deteriorated, eventually resulting in litigation, Thomas v. Woodruff, et al., Case no. BC-171805 (Los Angeles Superior Court, June 25, 1999). The state court found that Thomas had provided all of the funds for the purchase of the Property, but that title was placed in Woodruff's name to protect the Property from judgments that had been entered in various courts against Thomas. The state court therefore ordered Woodruff to execute a quitclaim deed in favor of Thomas, transferring all of Woodruff's interest in the Property to Thomas. Woodruff's appeal of the state court's order was denied by the California Court of Appeals on March 9, 2000, and a deed was recorded.
Woodruff had filed her own chapter 7 case on July 16, 1999, Bankr. C.D. Cal. no. 99-12720. On her schedules B and C, Woodruff claimed ownership of the Property. After denial of the appeal in the state court action, Woodruff filed amended schedules B and C eliminating her claim to the Property.
Given these developments, Thomas' bankruptcy case was reopened on February 28, 2000, by Michael Kogan, the chapter 7 trustee, " so that the Trustee may administer the estate's interest in certain real property." On June 16, 2000, the bankruptcy court vacated its order dismissing the case at Kogan's request.
For reasons not appearing in the record on appeal, Kogan resigned, and Jerry Namba was appointed chapter 7 trustee (" Trustee") on June 28, 2000. The bankruptcy court approved Trustee's request to employ David Y. Farmer and his law firm of Farmer & Ready (" Farmer") to act as attorneys for Trustee on August 18, 2000.
On May 3, 2000, Woodruff filed a creditor's proof of claim in Thomas' reopened bankruptcy case, seeking $ 753, 465.00 for services rendered, contribution to business, increase in value of real estate purchased, and quantum meruit . The claim was amended on December 15, 2001, to include additional increases in value of the Property. Both Thomas and Trustee filed objections to allowance of this claim.
At the February 14, 2001, hearing on Thomas' and Trustee's objections, Woodruff was granted stay relief to liquidate her claims against Thomas in the California state courts. Woodruff filed an amended complaint in the state court action, asserting the same claims she made in the bankruptcy court. Thomas demurred, and the state court sustained the demurrer without leave to amend on July 17, 2001. Woodruff appealed the state court's ruling to the California Court of Appeals. It is not clear in the record if the state court of appeals has ruled.
On June 21, 2001, Trustee filed a motion in the bankruptcy court to sell the Property. Thomas filed an opposition on July 3, 2001, principally arguing that there was no sound business justification for the sale.
On July 3, 2001, Woodruff filed an administrative expense claim under § 503(b)(1)(A) for $ 625, 814.78. She sought the " actual, necessary costs and expenses of preserving" the Property. Thomas objected to Woodruff's administrative claim on August 13, 2001. Trustee joined in that objection on August 27, 2001. At a hearing on the objections to Woodruff's administrative claim on September 5, 2001, the bankruptcy court ruled that Thomas' objection should be treated as an adversary proceeding. Trial in that adversary proceeding was set for December 6, 2001.
On August 6, 2001, the bankruptcy court granted the motion approving the sale of the Property for $ 3, 495, 000 to James Nigro. However, the court conditioned the sale order on failure of Thomas to redeem the Property by August 31, 2001, through refinancing or posting of a large bond.
Following the events of September 11, 2001, Nigro withdrew his offer for the Property, which, according to Trustee and the bankruptcy court, was within his rights under the court's order of August 6, 2001.
The Property was again listed for sale by Trustee's realtor, and on April 15, 2002, Trustee moved to sell the Property, this time for $ 2, 700, 000, to Robert K. Wolf. Thomas filed yet another opposition, arguing once more that a " [s]ale of the [Property] is completely unnecessary now that a loan has been obtained [by Thomas to purchase the Property], subject solely to an Order authorizing the Debtor to execute a Deed of Trust, the motion for which is being concurrently heard." Thomas also objected that sale of the Property would have disastrous tax consequences to her.
The bankruptcy court conducted a hearing on the second sale motion on May 29, 2002. Trustee and Thomas were present and represented by counsel. Thomas' counsel argued:
. that Trustee had not asserted a sound business justification for the sale. Tr. Hr'g 17:2-5 (May 29, 2002);
. that the $ 2.7 million sale price was not fair market value for the Property, and the sale was not at arms length because the realtor represented both buyer and seller. Tr. Hr'g 17:6-8. and, . that the Woodruff claim lacked merit, which meant that the amount of legitimate creditor claims was relatively small and a sale of the Property was not necessary. Tr. Hr'g 17:21.
The bankruptcy court ruled that Thomas' objection based on lack of business justification and low market value were speculative and not supported by evidence. Tr. Hr'g 17:9-12. Regarding the last issue raised by Thomas, whether sale of the Property was necessary, the court determined that the Woodruff claim may have merit and that there were substantial other claims against the estate. Tr. Hr'g 18:12-13, 25, 19:1-4. Finally, in response to Thomas' offer to redeem the Property, the bankruptcy court ruled that " With respect to the amount that Dr. Thomas could raise for the estate, Mr. Farmer's response has made it clear that that's not necessarily sufficient to pay the claims. So there is a justification for selling the Property." Tr. Hr'g 17:22 - 18:1.
The bankruptcy court granted Trustee's motion and entered its order on May 29, 2002, approving the sale (the " Sale Order"). Thomas appealed the Sale Order on June 7, 2001. On the same day, Thomas sought a stay of the Sale Order pending appeal. The bankruptcy court denied the motion for stay pending appeal on June 17, 2002. Trustee thereafter completed the sale transaction.
At oral argument before this Panel in the appeal of the Sale Order, Trustee argued that since the sale had been completed, the appeal should be dismissed as moot. Thomas argued that an issue existed as to whether the buyer had acted in good faith, and therefore, the exception to mootness in § 363(m) saved the appeal. The Panel decided in a published opinion that when the issue of the buyer's good faith in a sale arises for the first time on appeal, it was appropriate to remand to the bankruptcy court to decide the question. Thomas v. Namba (In re Thomas), 287 B.R. 782, 784 (9th Cir. BAP 2002). After a limited remand, the bankruptcy court decided on March 7, 2003, that Wolf was indeed a good faith purchaser of the Property, and the sale was conducted by Trustee in good faith. An order memorializing that finding was issued on April 10, 2003.
Thomas again appealed the bankruptcy court's order and the Panel consolidated her second appeal with the original appeal. In an unpublished decision, the Panel then determined that the bankruptcy court's finding of good faith was not clearly erroneous, and granted Trustee's motion to dismiss the original appeal as moot, along with the consolidated appeal. Thomas v. Namba (In re Thomas), BAP no. CC-02-1307/1237 (January 9, 2004). Thomas appealed the Panel's decisions to the Ninth Circuit Court of Appeals, which affirmed, concluding that " § 363(m) renders moot all of Thomas's challenges to the sale order." Thomas v. Namba (In re Thomas), 154 Fed.Appx. 673 (9th Cir. 2005).
The Fee Applications
On April 10, 2001, Farmer filed its First Interim Application for Payment of Fees, requesting $ 38, 350 in fees and $ 2, 772.62 in expenses. Thomas objected in part to this application, arguing that Trustee's efforts to sell certain property located in Studio City were duplicative of the efforts of a broker whom Thomas had engaged to sell that property. The U.S. Trustee filed a statement of no objection to this application, and opposed Thomas' objection because it considered it appropriate for Trustee to employ his own broker. An order approving the full request in Farmer's first interim fee application was entered on May 17, 2001.
The Studio City property was the original residence of Thomas before she purchased the Property. The Trustee sold the Studio City property for $ 660, 000 on December 20, 2000.
Farmer submitted its Second Interim Application on October 16, 2002, requesting fees of $ 62, 650 and expenses of $ 6, 008.65. It is not clear in the record if Thomas filed an objection to Farmer's second application. The U.S. Trustee filed a statement of no objection. A hearing on the second fee application (as well as Trustee's First Interim Application reported in the next paragraph) was held on November 20, 2002, in which Trustee and Thomas were present. Although Thomas' counsel entered her appearance at the hearing, she did not participate and there was no objection raised at the hearing to the fee application. The bankruptcy court approved the full request of Farmer's second application for fees and expenses.
The Trustee filed his First Interim Application on October 16, 2002, requesting $ 82, 807.78 for services rendered and $ 1, 588.78 in expenses. Thomas objected to Trustee's first application, repeating her argument regarding duplicative services, and also suggesting that Trustee's request equated to $ 532.52 per hour, an unreasonable request. The bankruptcy court approved interim compensation to Trustee for his first application in a reduced amount of $ 30, 000 for fees and the full amount of expenses on November 20, 2002.
Farmer submitted its Third Interim Application on August 14, 2003, requesting $ 47, 336 in fees and $ 5, 349 in expenses. It appears that Thomas did not file an objection to Farmer's third application. The U.S. Trustee filed a statement of no objection. The order approving Farmer's third application in full was entered on October 1, 2003.
There is no transcript in the record of the hearing on Farmer's third application.
Farmer's Fourth Interim Application was submitted on March 22, 2004, for $ 46, 027.50 in fees and $ 5, 349.03 in expenses. Trustee noted that most of these fees were incurred for services provided in litigation related to the Woodruff administrative claim and the Thomas appeals of the Sale Order of the Property. Thomas objected to the fourth application because there was no business justification for the sale of the Property, and that the charges for litigating the Woodruff administrative claim were excessive. There was no submission from the U.S. Trustee. A hearing was held on Farmer's fourth application on April 14, 2004. Thomas and Trustee were present and represented by counsel. Counsel for Thomas submitted on her written objections. The bankruptcy court entered an order approving Farmer's fourth application in full on April 15, 2004.
Farmer submitted his Fifth Interim and Final application on April 25, 2006. He sought in his fifth application an additional $ 32, 533.00 in fees and $ 2, 534.22 in expenses, for a total in the Final Application of $ 226, 896.50 and expenses of $ 20, 284.39.
The Trustee submitted his Final Report and Application for Trustee's Fee and Expenses on November 30, 2006. The Trustee reported total receipts of $ 3, 494, 349.99, total disbursements of $ 2, 547, 561.42, and cash on hand as of the Final Report date of $ 946, 787.47. The Trustee calculated and requested the maximum statutory fee of $ 112, 671.97, based on total disbursements of $ 2, 980, 732.30. Allowing for the $ 30, 000 interim payment, Trustee therefore sought additional compensation of $ 82, 671.97 ($ 112, 671.97 - $ 30, 000.00), and additional expenses of $ 1, 177.93.
An impressive " battle of the objections" ensued.
On December 27, 2006, Thomas filed an opposition to Farmer's fifth and final applications and the Trustee's final application. This 109-page objection argued that the bulk of all fees requested by Farmer and Trustee were the result of sale of the Property, and that sale was unnecessary and simply never should have happened. Thomas also argued that the fee applications lacked specificity.
Farmer submitted his Reply to Thomas' opposition to the fee applications on January 5, 2007. Farmer argued that this was the most bitterly contested bankruptcy he had experienced in 36 years as a trustee or trustee's attorney. He contended that sale of the Property was appropriate, as were the fees attendant to the sale. Regarding the specificity objection, Farmer noted that Thomas had relied upon In re Garcia, 317 B.R. 810 (Bankr. S.D. Cal. 2004) for support, and suggested that the Panel's subsequent decision on appeal in that case, Ferrette & Slater v. United States Tr. (In re Garcia), 335 B.R. 717 (9th Cir. BAP 2005), actually supported Farmer's and Trustee's position.
In response to Farmer's reply, Thomas submitted a 161-page document on January 16, 2007, including a line-item commentary concerning Farmer's time sheets. Thomas added a 44-page Supplemental Opposition to the Trustee's time sheets, again criticizing any activity related to the sale of the Property, as well as lodging attacks on the entries' lack of specificity, Trustee's unnecessary travel and attendance at hearings, and unnecessary communications.
Farmer then submitted a mercifully short " Further Reply" to Debtor's objection to his fifth application. Among his other points, Farmer noted that this fee application contained no less detail than he had provided to the bankruptcy court in other bankruptcy cases, and that he had never had fees denied for inadequate itemization.
The bankruptcy court's hearing on approval of Farmer's Fifth Interim and Final Fee Application and Trustee's Final Fee Application occurred on January 26, 2007. Thomas, Farmer for itself and for Trustee, and the attorney for the U.S. Trustee all appeared and were heard.
The bankruptcy court recited its findings on the record. The court found and concluded that:
. Thomas' arguments regarding sale of the Property were a " dead horse. That one has been up and down the flagpole so many times. . . . Some attorney for Dr. Thomas took it all the way to the Ninth Circuit and the sale was upheld. We're not going there anymore." Tr. Hr'g 3:21-25 (January 26, 2007).
. in response to a query from the court, the attorney for the U.S. Trustee stated that it had no objection to the fee applications.
. based upon the amount requested, and the time spent providing the services, Trustee's fee request was the equivalent of $ 500 per hour, which the court would not allow. Instead, the court allowed a reduced final fee of $ 81, 350, and allowed all expenses of $ 2, 766.11.
. Thomas had " gotten in the way of the administration of this case since it was reopened. . . . She hired a real estate broker without court permission. Trustee had to intervene into that. She refused the Trustee access to the [Property]. He had to evict her, her mother, her brother. She objected to the retention of a realtor. . . . She objected to hiring an accountant. She objected to the budget motion when the Trustee wanted to pay income taxes." Tr. Hr'g 9:18 - 10: 6.
. Thomas originally filed and prosecuted the objections to Woodruff's claims, but later asked Farmer to become more involved. " He was lead counsel in the multi-day hearing on the Woodruff administrative claim. That was a real trial. We had 12 motions in limine. There's a lot of work involved in this." Tr. Hr'g 11:12-17.
. " Once in a great while, Mr. Farmer would put two things together [in his time sheets]. Oh my goodness he lumped which he shouldn't do but it's few and far between." Tr. Hr'g 11:19-21.
. Farmer's billing entries were consistent in terms of particularity and specificity with those the court has routinely approved in the past. Tr. Hr'g 12:1-8.
. " I have no qualms with any of the services of Mr. Farmer's firm. I do not think he over billed. I do not think he billed for unnecessary services." Tr. Hr'g 14:6-8.
. " I have no issues whatsoever with Mr. Farmer's fee. He is entitled a reasonable fee under the totality of the circumstances. The circumstances in this case render him a total fee of $ 231, 804 and expenses of $ 20, 538.61." Tr. Hr'g 14:21-24.
The bankruptcy court overruled Thomas' objections to the fee applications. It entered an order approving the final fee application of Farmer, and of Trustee in the reduced amount, on January 26, 2007. Thomas filed a timely notice of appeal on February 2, 2007.
JURISDICTION
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. § § 1334 and 157(b)(2)(A). We have jurisdiction pursuant to 28 U.S.C. § 158.
ISSUES
1. Whether Thomas is precluded from attacking the fee awards by arguing that services provided by Trustee and Farmer in connection with the court-ordered sale of the Property were unnecessary.
2. Whether the bankruptcy court abused its discretion in approving the fee applications.
STANDARDS OF REVIEW
Determining the preclusive effect of an order involves a question of law reviewed de novo. Jacobs v. CBS Broad., Inc., 291 F.3d 1173, 1176 (9th Cir. 2002).
A bankruptcy court's award of attorney's 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). 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).
DISCUSSION
I.
Issue preclusion bars Thomas from arguing about the necessity of the court-ordered sale of the Property as a basis for attacking the award of fees to Trustee and his attorney .
Thomas expends 12 pages in her Opening Brief attempting, in effect, to re-litigate the Sale Order. In this respect, Thomas' Opening Brief echoes the argument made to the bankruptcy court at the January 26, 2007 hearing concerning the fee applications:
MS. LAWSON [attorney for Thomas] I think my client is pretty legitimately angry.
THE COURT: Why?
LAWSON: Because no one investigated and made sure that the Woodruff claim was worth anything before they sold the [Santa Barbara] property.
THE COURT: We're getting back to we shouldn't have sold the property. That's a dead horse. That one has been up and down the flagpole so many times. . . . Some attorney for Dr. Thomas took it all the way to the Ninth Circuit and the sale was upheld. We're not going there anymore."
Tr. Hr'g 3:21-25 (January 26, 2007).
While not doing so expressly, we interpret the bankruptcy court's comments as invoking the doctrine of issue preclusion to bar further arguments by Thomas concerning the necessity of the court-ordered sale of the Property as a basis for attacking the award of fees to Trustee and his attorney. The bankruptcy court implies, quite forcefully, that this issue was fully litigated and finally resolved in the prior contest about that sale. We agree.
The ruling by the bankruptcy court is consistent with the requirements for issue preclusion in our Circuit. See Littlejohn v. United States, 321 F.3d 915, 923 (9th Cir. 2003) (requirements recently reaffirmed in Thacker v. FCC (In re Magnacom Wireless, LLC), 503 F.3d 984, 2007 WL 2694717 * 8 (9th Cir. 2007)). Issue preclusion requires that:
(1) the issue at stake is identical to an issue raised in the prior litigation; (2) the issue was actually litigated in the prior litigation; and (3) the determination of the issue in the prior litigation must have been a critical and necessary part of the judgment in the earlier action.
Littlejohn, 321 F.3d at 923.
The first criterion for preclusion is satisfied here. The issue of the necessity of the sale of the Property was at the heart of Thomas' objections to that sale. Her argument in this appeal, that Trustee and Farmer should not be compensated for their services regarding the Property sale, is essentially the same issue argued in opposition to the Sales Order before both the bankruptcy court and later on appeal.
Thomas contends that the issue presented in this appeal is not the same: whether Trustee's and Farmer's services were necessary for purposes of allowing compensation for those services under § 330(a)(1)(A)(providing that bankruptcy court may award trustee or professional compensation only for " necessary services") and 330(a)(3)(C) (in determining the amount of compensation, bankruptcy court shall consider " whether the services were necessary at the time at which the services were rendered toward the completion of, a case under this title. . . .") However, Thomas must concede that her argument that the services provided by Trustee and Farmer were not necessary is premised solely on her contention that the sale of the Property was not necessary, precisely the same argument she made, unsuccessfully in the bankruptcy court and on appeal, in opposing that sale from 2001 through 2005. Because Thomas' challenge to the compensation requests is predicated upon her belief that the sale of the Property was not necessary, Thomas can not avoid the preclusive effect of the courts' adverse decisions on that legal question.
Thomas devotes twelve pages of her Opening Brief to linking the allegedly unnecessary sale with the lack of necessity for services related to that sale. That her entire argument is premised on the lack of necessity of the sale is demonstrated by the three headings she assigns to her arguments in the brief: " The Claims Existing at the Time of the Sale Did Not Justify the Sale." Thomas Opening Br. at 8-9. " The Santa Barbara Property Should Never Have Been Sold." Thomas Opening Br. at 9-15. " All Fees and Costs Incurred in Connection With the Sale of the Santa Barbara Property Should be Denied." Thomas Opening Br. at 15-20.
The second and third issue preclusion criteria, that the issue be actually litigated and that it be necessary to the prior order, are also met here. Thomas repeatedly in her pleadings and in oral argument before the bankruptcy court stressed that there was no need for sale of the Property because, if Woodruff's administrative claim was not considered, there were sufficient funds in the estate from the sale of other assets to satisfy creditors without a sale of the Property. Thomas also argued that she had obtained loans sufficient to redeem the Property, and thus that was an alternate reason for not selling the Property.
At the hearing on sale of the Property on May 29, 2002, the bankruptcy court explicitly rejected these arguments. It determined that, as of the date that it approved the sale, the Woodruff claim may have merit and that there were substantial additional claims pending against the estate. Tr. Hr'g 18:12-13, 25, 19:1-4 (May 29, 2002). Regarding Thomas' offer to redeem the Property, the bankruptcy court found and concluded that: " With respect to the amount that Dr. Thomas could raise for the estate, Mr. Farmer's response has made it clear that that's not necessarily sufficient to pay the claims. So there is a justification for selling the Property." Tr. Hr'g 17:22 - 18:1.
Both Thomas' and Trustee's appeal briefs discuss two additional criteria for issue preclusion: that there be a final judgment on the merits, and that the parties in the former proceedings are the same as the parties in the current matter. Silva v. Smith's Pacific Shrimp, Inc. (In re Silva), 190 B.R. 889, 892 (9th Cir. BAP 1995); Cogliano v. Anderson (In re Cogliano), 355 B.R. 792, 802-03 (9th Cir. BAP 2006). These criteria complement the three criteria in Littlejohn . They are also satisfied here.
The Sales Order was a final judgment because it resolved all aspects of the dispute between Trustee and Thomas over sale of the Property. It is no less final because, due to Thomas' failure to obtain a stay on appeal and the subsequent completion of the sale of the Property, the appeal of the Sales Order became moot. The Sales Order was not reversed, modified or vacated on appeal. Unless a final order is reversed, modified or vacated on appeal, it has issue preclusive effect. Montana v. United States, 440 U.S. 147, 153, 99 S.Ct. 970, 59 L.Ed.2d 210 (1979). And it is uncontroverted that the parties to the Sales Order are the same parties involved in the instant dispute.
There is an appellate decision from another circuit demonstrating this precise point. An appeal from the bankruptcy court's order confirming sale of a debtor's property was dismissed as moot because the sale had been completed pending appeal. The debtor had failed to obtain a stay pending appeal, or any order vacating or modifying the bankruptcy court's sale order. Though the appeal was dismissed as moot, the court of appeals ruled that the bankruptcy court's order remained a " judgment on the merits, with preclusive effect." Plotner v. AT& T Corp., 224 F.3d 1161, 1169 (10th Cir. 2000).
We conclude that the bankruptcy court did not err in deciding that Thomas was precluded from making any further arguments concerning the necessity of the court-ordered sale of the Property as a basis for attacking the request for fees by Trustee and his attorneys. Since Thomas has challenged the bankruptcy court's decision awarding fees to Trustee solely because he should not have sold the Property, and since, like the bankruptcy court, we hold that Thomas is precluded from doing so, we AFFIRM the bankruptcy court's order awarding of fees to Trustee.
II.
The bankruptcy court erred in finding that Farmer's fee request was reasonable because Farmer did not properly document his services, using lumped time entries in his application .
Under § 330(a)(1)(A), the bankruptcy court may allow compensation for a trustee and his professionals for " reasonable compensation for actual, necessary services rendered by the trustee . . . or attorney. . . ." In determining the amount of reasonable compensation to be awarded to Trustee and his attorney, the bankruptcy court was required to consider,
the nature, the extent and the 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.
Section 330(a)(3) was substantially modified in 2005 by BAPCPA. However, as noted above, resolution of the issues in this bankruptcy case is governed by the pre-amendment statutes governing professional fees.
In our decision in Roberts, Sheridan & Kotel, P.C. v. Bergen Brunswig Drug Co. (In re Mednet), 251 B.R. 103 (9th Cir. BAP. 2000), we outlined the methodology a bankruptcy court should employ when examining the circumstances and manner in which services are performed and results achieved to determine a reasonable fee. Such an examination should include:
(a) Were the services authorized?
(b) Were the services necessary or beneficial to the administration of the estate at the time they were rendered?
(c) Are the services adequately documented?
(d) Are the fees required reasonable, taking into consideration the factors set forth in section 330(a)(3)?
(e) Did the professional or trustee exercise reasonable billing judgment.
Mednet, 251 B.R. at 108 (cited with approval in Leichty v. Neary (In re Strand), 375 F.3d 854, 858 (9th Cir. 2004)); Garcia, 335 B.R. at 724.
In this case, Farmer's services were authorized. Thomas does not challenge this criterion and appears to concede it. Thomas' Reply Br. at five.
The bankruptcy court found that Farmer's services were necessary or beneficial to the administration of the estate at the time they were rendered. Thomas' principal challenge here is to the necessity of the attorneys' activities related to the sale of the Property. As we discuss above, this argument is precluded. Inasmuch as the bankruptcy court found that the sale of the Property was necessary, it was the duty of Trustee and his professionals to " reduce to money the property of the estate for which such Trustee serves[.]" § 704(a)(1).
The bankruptcy court also determined that the total fees requested by Farmer were reasonable considering the totality of the circumstances. In doing so, the court made a series of findings consistent with the requirements of § 330(a)(3). The bankruptcy judge stated " I have no qualms with any of the services of Mr. Farmer's firm. I do not think he overbilled. I do not think he billed for unnecessary services." Tr. Hr'g 14:6-7 (January 26, 2007). The court noted that the U.S. Trustee had not objected to any of Farmer's fee applications. The court specifically found that Farmer's fee was in line with the local market, that Trustee could have engaged more expensive attorneys, and that Farmer's rates of $ 250 (at the beginning of the case) to $ 325 per hour (near the end of the case) were reasonable. The court observed that had Trustee engaged more costly counsel, it was likely that the potential surplus of $ 550, 000 for Thomas would have fallen to $ 100, 000 or even less.
The bankruptcy court also found that much of Farmer's fees and expenses in the bankruptcy case were incurred as a direct result of Thomas' obstructive activities in the bankruptcy:
[Thomas] hired a real estate broker without permission. Trustee had to intervene in that. She refused the Trustee access to the Santa Barbara property. He had to evict her, her mother, her brother. She object[ed] to the retention of a realtor for the purpose of selling the Santa Barbara property. She objected to hiring an accountant. She objected to the budget motion when the Trustee wanted to pay income taxes. She objected to three interim fee applications of Farmer & Ready, and an interim fee application of the accountant, Mr. Kloster. . . . It's been a revolving door. The Woodruff claim Ms. Bronstein [one of Thomas' earlier attorneys] originally filed and proceeded with. She [Thomas] asked Mr. Farmer to become more involved. He was lead counsel in the multi-day hearing on the Woodruff administrative claim. That was a real trial. We had 12 motions in limine. There's a lot of work involved in this.
And while we do not necessarily agree with the bankruptcy court's conclusion, it determined that any arguably unnecessary work resulting from the dismissal of the mooted appeal from the Sale Order was caused by the court's own error. The court noted that an attorney should not be penalized for the court's error.
Finally, the bankruptcy court found that Farmer's fees were adequately documented and that Farmer had exercised reasonable billing judgment. Simply put, in this regard, the bankruptcy court found that Farmer did not overbill. While this may be shown to be true, in our opinion, the bankruptcy court clearly erred in so concluding because the documentation submitted by Farmer to support its fee request was inadequate.
The test of good billing judgment in our circuit dictates that " professionals employed under section 327 must make a good faith effort to exclude from fee requests hours that are excessive, redundant, unjustified, or otherwise unnecessary." Unsecured Creditors' Comm. v. Puget Sound Plywood, Inc., 924 F.2d 955, 961 (9th Cir. 1991). But an accurate assessment of whether appropriate billing judgment has been employed by a professional is, of course, dependent upon the bankruptcy court's ability to analyze the professionals' bills. Although in this case the bankruptcy court made general findings that the billing records were acceptable, it made one finding that, based upon the record, was a clear mistake.
In Exhibit 15 to her Opposition to the Final Fee Application of Farmer, Thomas cited some 30 examples where Farmer had " lumped" the description of travel-related services in its time sheets. Lumping of services, or " block billing, " is the practice of listing multiple activities, often unrelated, in a single time entry in the billing records. Lumping of services in line-item entries in fee applications is universally discouraged by bankruptcy courts, because it permits an applicant to claim compensation for rather minor tasks which, if reported separately, would not be compensable. In other words, lumping prevents the bankruptcy court from determining whether individual tasks were expeditiously performed within a reasonable period of time. In re Auto. Warranty Corp., 138 B.R. 72, 74 (Bankr. D. Colo. 1991). We have endorsed decisions by bankruptcy courts that have reduced or eliminated requested fees because of lumping in time sheets. See, e.g., In re Dutta, 175 B.R. 41, 46-47 (9th Cir. BAP 1994). (bankruptcy court's finding of severe lumping was correct and case remanded for explanation of what portion of fee reduction was due to this deficiency). In addition, the bankruptcy court's decision to overlook this problem with Farmer's billings also contravenes its own local rules, which provide that " Summaries [in line-items of fee applications] that list a number of . . . services under only one time period will generally not be satisfactory." Bankr. C.D. Cal LBR 2016-1(a)(1)(E)(ii).
See, generally, 3 COLLIER ON BANKRUPTCY, P 330.04[b] (Alan N. Resnick & Henry J. Sommer, eds., 15th ed. rev. 1999). A partial survey of recent bankruptcy court decisions shows the widespread disapproval of this billing practice: 1st Circuit: In re ACT Mfg., Inc., 281 B.R. 468, 483 (Bankr. D. Mass. 2002); 2nd Circuit: In re Brous, 370 B.R. 563, 576 (Bankr. S.D.N.Y. 2007); In re Baker, 374 B.R. 489 (Bankr. E.D.N.Y. 2007); Kelsey v. Great Lakes Higher Educ. Corp. (In re Kelsey), 272 B.R. 830, 834 (Bankr. D. Vt. 2002). 3rd Circuit: In re Heffner (Bankr. E.D.Pa. 2007). 4th Circuit: In re Ward, 190 B.R. 242, 246-48 (Bankr. D. Md. 1995). 6th Circuit: In re Williams, 357 B.R. 434, 440 (6th Cir. BAP 2007) (lumping of tasks made time entries " highly suspect"). 7th Circuit: In re New Boston Coke Corp., 299 B.R. 432, 443 (Bankr. E.D. Mich. 2003); In re Tak Comm'ns, Inc., 154 B.R. 514, 519 (Bankr. W.D. Wisc. 1993); In re Adventist Living Centers, Inc., 137 B.R. 701, 705-06 (Bankr. N.D.Ill. 1991). 8th Circuit: In re Racing Servs., (Bankr. D.N.D. 2004); In re Nwfx, Inc., 267 B.R. 118, 294 (Bankr. W.D. Ark. 2001). 9th Circuit: In re Douglas, 349 B.R. 836, 844 (Bankr. E.D. Wash. 2006); In re Jones, 356 B.R. 39, 46 (Bankr. D. Idaho 2005); In re Wilber, (Bankr. D. Mont. 2005); In re Staggie, 255 B.R. 48, 55 (Bankr. D. Idaho 2000); Wepsic v. Josephson (In re Wepsic), 238 B.R. 845, 848 (Bankr. S.D. Cal. 1999). 10th Circuit: In re Recycling Industries, 243 B.R. 396, 406-07 (Bankr. D.Colo. 2000); In re Reconversion Techs, 216 B.R. 46, 58 (Bankr. N.D. Okla. 1997); 11th Circuit: Oscher v. The Solomon Tropp Law Group (In re Atlantic Int'l Mortg. Co.), 373 B.R. 159, 161 (Bankr. M.D. Fla. 2007); In re S. Diesel, 309 B.R. 810, 817-18 (Bankr. M.D. Ala. 2004); In re Greater Miami Trading, 177 B.R. 1022, 1026 (Bankr. S.D. Fla. 1995).
The bankruptcy court acknowledged that it was aware of the lumping in Farmer's fee application, but observed that the instances were " few and far between." We are particularly sensitive to the bankruptcy court's familiarity with the facts of this case, but we believe this finding was clearly erroneous. An examination of the line items criticized by Thomas confirms that Farmer clearly lumped the service descriptions. The lumped entries listed in her Exhibit 15 reflect a total of 139.20 hours of time billed by Farmer at $ 250-285 per hour, or at least $ 35, 000. This sum amounts to about 15 percent of the total fees charged by Farmer and approved by the bankruptcy court.
Just as an example, one entry shows: " 7/18/01, DYF, Travel to and from Santa Barbara; court appearance - motion; conference with buyer, broker and attorneys; telephone calls to client (3)." The billed time was 6.2 hours. From this entry, it is impossible for the bankruptcy court, or this Panel, to determine what amounts of time Farmer spent traveling, in court, in conference, or in telephone conversations.
In addition, our own examination of Farmer's bills suggests that Thomas may have significantly understated the extent of the block billing. For example, we considered the entry for October 26, 2000, which lists,
DYF. Review motion; telephone call to client; telephone call from Attorney Cohen; telephone call to Attorney Ericson; review file; research; prepare opposition brief and declaration; telephone call from Attorney Fahey. 5.3 hours.
ER at 2700. While we could assume that the 5.3 hours spent by Mr. Farmer performing these several discrete tasks was appropriately allocated, it would be a guess on our part to do so. This entry is not an isolated example: we discovered over 50 lumped entries in Farmer's second interim application alone, representing over 150 of the 404 total hours, or 37 percent of total hours in the second fee application.
An estate professional is " required to maintain and present to the bankruptcy court meticulously accurate time records of all services rendered as a necessary prerequisite to the recovery of attorney's fees." In re Nucorp Energy, Inc., 764 F.2d 655, 658 (9th Cir. 1985). " As the fact finder, the bankruptcy court must evaluate the sufficiency of the evidence provided by the professional in support of the application for compensation. . . . In every case, a court should award fees only to the level proven to be actual, necessary, and reasonable." First Interstate Bank of Nev., N.A. v. CIC Inv. Corp. (In re CIC Inv. Corp.), 192 B.R. 549, 554 (9th Cir. BAP 1996). 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. We will therefore vacate Farmer's fee award and remand this matter to the bankruptcy court for a further review of Farmer's Final Fee Application and an examination of the block billing entries.
We note that Thomas also challenged Farmer's practice of charging for its travel time at its full hourly rate, a practice the bankruptcy court did not address and apparently endorsed. Because nearly all these travel-related items are listed in lumped entries, and the record therefore does not show the total amount of travel time for which Farmer sought payment, it is impossible for the Panel to analyze whether the bankruptcy court clearly erred in authorizing full payment for this time. The bankruptcy court should further consider Thomas' argument when it re-examines Farmer's time records. While courts generally permit compensation for an attorney's non-local travel time, the courts are not in agreement with respect to the extent that travel time should be compensable. 3 COLLIER ON BANKRUPTCY, P 330.05[3][b][ii]. Compare In re Frontier Airlines, Inc . 74 B.R. 973 (Bankr. D. Col. 1987) (holding that time spent traveling should be compensated at the professional's full hourly rate), with In re The Landing, Inc., 122 B.R. 701 (Bankr.N.D.Ohio 1990) (reducing compensation for travel time to 50 percent of a professional's normal billing rate, focusing on the nonproductivity of travel).
As for the non-lumped entries, we find that the bankruptcy court did not abuse its discretion when it determined that the specificity and particularity of the entries were acceptable. In this regard, the Panel defers to the decision of the bankruptcy judge who has had the opportunity not only to preside over fee application hearings, but also to observe the performance and activities of Trustee's attorneys during the course of the bankruptcy proceedings. Red Carpet Corp. of Panama City Beach v. Miller (In re Red Carpet Corp. of Panama City), 902 F.2d 883, 891-92 (11th Cir. 1990).
CONCLUSION
We AFFIRM the order of the bankruptcy court approving the final fee application of Trustee.
We VACATE the bankruptcy court's order awarding fees to Farmer, and REMAND this matter to the bankruptcy court for a further review of Farmer's Final Fee Application after submission of proper documentation of services.
While we effectively endorse Thomas' challenge to Farmer's fee award, her victory likely comes at a cost. Even though we vacate and remand for a reexamination of a significant number of Farmer's time entries, Trustee and Farmer have prevailed in their defense against most of Thomas' arguments on appeal. Thus, Trustee and Farmer may have a proper basis to seek supplemental compensation and expenses for their efforts in this appeal. Smith v. Edwards & Hale (In re Smith), 317 F.3d 918, 928 (9th Cir. 2002) (" Failure to grant fees for successfully defending challenges to an authorized fee application would dilute fee awards, in violation of section 330(a), and thus would reduce the effective compensation of bankruptcy attorneys below the compensation available to attorneys generally"); see also Nucorp, 764 F.2d at 661.
Although Thomas prevailed in the state court, she did not emerge unscathed. The state court noted that Thomas' claim of ownership of the Property was inconsistent with her position in her bankruptcy case in which she did not claim ownership. In the state court's words, " The Court is skeptical concerning [Thomas'] professed ignorance and naievete concerning her obviously improper attempts to evade her creditors."
Thomas has also challenged, in both the bankruptcy court and in this appeal, whether Farmer has billed for services which should properly have been performed by the Chapter 7 trustee. We can not find in the record where the bankruptcy court addressed this issue. Again, because of the lumped entries, we are also unable to evaluate this objection. Presumably, with proper time documentation, the bankruptcy court can assess the propriety of Trustee's delegation of duties to his counsel. See, § 328(b) (prohibiting compensation to an attorney " for performance of any of the trustee's duties that are generally performed by a trustee without the assistance of an attorney . . . ."); Garcia, 335 B.R. at 725.