Opinion
No. 03-42684 EDJ.
December 29, 2006
MEMORANDUM RE DEBTOR'S COUNSEL'S FEE APPLICATION
John G. Warner ("Warner"), counsel for the above debtor, has applied for a final allowance of fees in the sum of $75,672.50 and costs in the sum of $916.05. Lois I. Brady ("Brady"), chapter 11 trustee, has objected to a portion of the fees on various grounds. Warner and Brady also disagree as to the manner in which the $15,000 prepetition retainer Warner received should be applied.
The above debtor filed a voluntary chapter 11 petition on May 7, 2003. On May 23, 2003, the court signed an order authorizing the debtor to employ Warner as its counsel herein. On June 24, 2004, Brady was appointed chapter 11 trustee.
A. Fees After June 24, 2004.
Brady objects to the allowance of any fees for services Warner rendered after June 24, 2004, the date of her appointment. The objections fall into two categories. First, Brady contends that such fees are not allowable under Lamie v. U.S. Trustee, 540 U.S. 526, 124 S.Ct. 1023 (2004). Lamie held that Bankruptcy Code § 330(a)(1), as amended by the Bankruptcy Reform Act of 1994, does not authorize compensation to a debtor's attorney out of the estate unless the attorney is employed as authorized by Bankruptcy Code § 327. Lamie, 124 S.Ct. at 1032. Section 327 concerns employment of professional persons by a trustee (including professional persons employed by a debtor in possession with the powers of a trustee, see § 1107, but not including professional persons employed by a debtor that is not a debtor in possession). Brady also contends that many of the services Warner provided are not compensable because they did not benefit the estate and were not reasonably likely to benefit the estate. See § 330(a)(4).
All further section references herein are to the Bankruptcy Code, 11 USC § 101 et. seq., as in effect prior to October 17, 2005.
The court holds that Lamie governs, and consequently, that the services Warner performed after June 24, 2004, which total $33,613.50, are not compensable out of the estate. Warner notes that Lamie involved services by counsel for a chapter 7 debtor, whereas here, the services at issue were performed on behalf of a chapter 11 debtor out of possession. He acknowledges, however, that this is "tantamount to a distinction without a difference."
For this reason, the court need not consider Brady's other objections to allowances for services Warner rendered after her appointment.
Warner's Supplemental Memorandum dated December 14, 2006.
The court agrees that the distinction is irrelevant. Under § 323(a), the trustee is the representative of the estate. Neither a chapter 7 debtor not a chapter 11 debtor out of possession is a trustee, and neither represents the estate. Section 330(a) makes no provision for compensation of professionals employed by a debtor that is not a trustee. Lamie 124 S.Ct. at 1032.
Warner also cites In re Smith, 317 F.3d 918 (9th Cir. 2002), and In re Century Cleaning Services, 195 F.3d 1053 (9th Cir. 1999), noting that he has found no cases stating that Smith andCentury Cleaning were actually overruled by Lamie. Smith andCentury Cleaning held that Congress's removal in 1994 of the reference to "debtor's attorney" from § 330(a)(1) did not preclude compensation out of the estate to a debtor's attorney. The court believes, however, that Smith and Century Cleaning were in fact overruled by Lamie to the extent they held that a professional person employed by a debtor may be compensated out of the estate pursuant to § 330(a) even when such professional has not been employed under § 327. The court so holds.
B. Tax Services
Brady objects to the allowance of $4,427.50 Warner requests for negotiating with tax authorities. Brady argues that the services were primarily for the benefit of debtor's principal, David Pease, and that they duplicated services rendered by debtor's special tax counsel. Warner disagrees.
The court has reviewed Warner's time sheets and considered his arguments. On balance, it appears to the court that the tax services rendered prior to Brady's appointment are compensable. The court will therefore overrule Brady's objection to allowance of these fees.
Thus after application of a voluntary credit, Warner should be allowed compensation out of the estate in the sum of $40,122.50, and expense reimbursement in the sum of $916.05, for a total allowance of $41,039.
C. Warner's $15,000 Retainer
Warner argues that his $15,000 prepetition retainer should be applied as against the fees that the court has disallowed. Brady argues the retainer should be applied as against Warner's prorated share of the estate, calculated without regard to the retainer (as opposed to deducting the $15,000 from the allowance, and prorating the balance). This, argues Brady, would result in a more equitable distribution to the officers of the estate in this administratively insolvent case.
The court rejects both arguments.
As to Warner's argument, there is no indication in the debtor's application to employ Warner filed May 16, 2003, or the fee agreement attached thereto, that the retainer could be applied to disallowed fees. Rather, the agreement merely refers to a "start-up retainer." Had the application stated that the retainer was for disallowed fees, the court would not have granted it.
As to Brady's argument, it appears to the court that the most reasonable construction of the debtor's application to employ Warner and the fee agreement therewith is that the parties intended the retainer to serve as security for any allowed fees in the case. Under this construction, Warner is entitled to the benefits of the retainer without need of sharing it with the other officers of the estate. See In re Dick Cepak, Inc., 339 B.R. 730 (9th Cir. BAP 2006).
The court therefore holds that Warner must apply the $15,000 to his allowed fees and costs in the sum of $41,039, and that he is to be paid his prorated share of the remaining $26,039.
D. Conclusion
The court will issue its order allowing Warner compensation out of the estate in the sum of $40,122.50, and expense reimbursement in the sum of $916.05, for a total allowance of $41,039. Warner is to apply his $15,000 retainer in reduction of this allowance, and will be entitled to receive his prorated share of the balance calculated as provided above. Any excess fees will be disallowed.