Opinion
Case No. 06-00062-B11.
November 27, 2006
ORDER ON APPLICATION OF THE DUCKOR FIRM FOR AWARD OF FEES AND COSTS
This matter came on regularly for hearing on the application for attorneys fees and costs filed by the Duckor Spradling Metzger Wynne law firm in their capacity as special litigation counsel. That application is opposed by two alleged creditors as excessive.
The Court has subject matter jurisdiction over the proceeding pursuant to 28 U.S.C. § 1334 and General Order No. 312-D of the United States District Court for the Southern District of California. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (B).
There are two major issues concerning the fee application. The first concerns the substantial charges for efforts to have the firm employed. The second involves fees claimed for the motion for summary adjudication given that a similar motion had already been prepared and filed in state court.
The firm sought employment as special litigation counsel pursuant to the more flexible standard of 11 U.S.C. § 327(e). The same parties that object here submitted a letter objection to the United States Trustee, which resulted in the matter being set for hearing before this Court. Prior to the hearing, Mr. Metzger filed his Supplemental Declaration. In it, he stated:
2. After receipt of a copy of Matthew Rutherford's letter to the U.S. Trustee . . ., I reviewed our firm's records to determine whether [the firm] had ever represented the Waltz Family Limited Partnership, a member in the Debtor. Upon that review, I learned that Stephen Treadgold, then a partner at [the firm] had provided legal services to the Waltz Family Limited Partnership for a brief period in the spring of 2003 and again for a brief period in the spring of 2004.
3. I was not personally involved in this representation which related to transactional advice, apparently rendered by Mr. Treadgold, to the Waltz Family Limited Partnership.
4. My first involvement with Alpha Medical [sic] Partners, LLC commenced in late August, when our firm was retained by Alpha Medical Center Partners, LLC in connection with litigation initiated by the Company against Messrs. Gaines and Abney and defense of the Company with respect to cross-complaints filed against it.
That declaration was signed March 1, 2006.
The hearing was held on March 16. At the hearing, the Court stated:
The biggest problem for me is the Duckor Spradling firm, because of a number of things. But the most important of which, and which I had written in my notes long before this morning's argument, was the Duckor firm's involvement in drafting the first amendment to the AMC Partners operating agreement. Its relationship, and then being in a position, now, of working for certain interests in accomplishing that. And then going in to defend that when that work is going to be a major subject of contention in the context of the litigation.
I'm also concerned about, at least at this point in time I think it would be remediable; the inadequate disclosure about the $125,000 and the drawdowns on it; timing; and the rest of it. Because that is an issue that should have been at least in part of a supplemental once it got raised. It hasn't been. So given where we are and given the state of the record at this point in time, I have to find that while I think it's close, I think there is a conflict sufficient under 327(e) to preclude the employment of the Duckor firm.
Since the issue of the firm's employability first came before the Court in March, the Court has wondered what sort of conflicts check was performed by the firm, both when it was retained in the state court litigation in August, 2005, and when it applied to be employed by the estate in 2006. The fact that Mr. Metzger had no knowledge that his former partner, Mr. Treadgold, had done any work for a driving principal of the debtor in the prior two years, much less that the work involved the amended partnership agreement, a centerpiece of the litigation, suggests that little or no conflicts check was done.
On March 28, 2006, Mr. Metzger filed another declaration, in support of the renewed application for employment. In this one, he stated:
2. On September 7, 2005, the WFLP [Waltz Family Limited Partnership] deposited $125,000 into the [firm] client trust account for the benefit of AMC Partners.
A chart which followed showed that virtually all of the $125,000 was consumed by the firm for fees and expenses between September 9, 2005 and January 13, 2006. However, this information was not disclosed in support of the original employment application of the firm.
The objecting parties contend the fees and expenses of the firm incurred leading up to the failed attempt at employment on March 16, 2006 should be disallowed, and does not seriously contest those incurred thereafter. They contend $11,578.50 should be disallowed. The Court is inclined to think the fees incurred after March 16, in doing what should have been done initially, are the fees that should be disallowed. Moreover, the Court is of the view that if the firm had done it right the first time around, even much of the initial fees could have been avoided because no hearing or supplements would possibly have been necessary. However, since that is speculative, the Court has not deducted from the fees incurred on or before March 16 on the employment application. The Court disallows the fees sought on the efforts at employment of the firm after March 16 that the Court can identify with those efforts. They are the billing entries as follows:
Date Biller Time Amount
3/17 GCC .2 $ 45.00 3/20 SLM 2.3 908.50 SLM .6 237.00 3/21 SLM .8 316.00 SLM .2 79.00 SLM .2 79.00 SLM .3 118.50 SLM .6 237.00 GCC .2 45.00 3/22 MTJ 3.6 594.00 3/23 SLM .2 79.00 GCC .4 90.00 GCC 1.9 427.50 MTJ 3.6 594.00 3/27 GCC 7.5 1,687.50 3/28 SLM .8 316.00 GCC 5.0 1,125.00 4/5 SLM .5 197.50 4/6 SLM .2 79.00 SLM 1.2 474.00 GCC 8.0 1,800.00 4/7 SLM .8 316.00 SLM .7 276.50 SLM .2 79.00 GCC 1.0 225.00 4/10 SLM 2.0 790.00 GCC 1.0 225.00
The second fee issue concerns the motion for summary adjudication filed by the firm on March 14, 2006. An earlier version was filed in the state court litigation on or about October 24, 2005, for which the firm had already been paid by drawdown from the $125,000 advanced by WFLP. The objecting parties are correct that some of the paragraphs in the later papers are very similar to those in the earlier. The firm is correct that it needed to tailor the pleading to federal summary judgment standards, which it did in about 30 lines of text. The Court has conducted a paragraph-by-paragraph comparison of the two pleadings, and noted substantive additions to the more recent motion, for which compensation should be allowed. The Court cannot find, however, over $26,000 in fees in difference between the former and latter pleadings, which is what the Court calculates was incurred between January 31 and May 3. Given the amount of work involved in the earlier motion, which formed much of the core for the later papers, and that the firm was already compensated for that work, the Court finds and concludes that $13,000 of the fees claimed are excessive and are disallowed.
At the hearing, counsel for the firm offered two billing corrections, reducing the fees claimed on 2/1 from $787.50 to $202.50, and on 2/28 from $316 to $118.50, for a further reduction in fees claimed of $782.50.
Because the attorneys fees allowed are being reduced significantly from those requested, the Court concludes there should be a corresponding reduction in the proportional costs allowed. The fees have been reduced by a total of $25,222.50, about 38%, to $41,610.00. Costs allowed are reduced from the $10,016.57 sought to $6,210.27.
For the foregoing reasons, as well as those previously set out on the record, attorneys fees and costs for the firm are allowed on an interim basis, and subject to possible disgorgement under the Bankruptcy Local Rules as follows:
Attorneys fees allowed: $41,610.00 Costs allowed: $6,210.27 IT IS SO ORDERED.