Opinion
22-30644
01-25-2023
In re: GLEN D. COMBS, JR., Debtor.
Chapter 13
ORDER GRANTING IN PART AND DENYING IN PART ATTORNEY FEE OF DEBTOR COUNSEL (DOC. 1)
GUY R. HUMPHREY UNITED STATES BANKRUPTCY JUDGE
This order concerns the reasonableness and necessity of the requested attorney fee of Andrew Zeigler, counsel to the Chapter 13 debtor Glen D. Combs, Jr., of $4,350. See Disclosure of Compensation of Attorney for Debtor and Application for Allowance of Fees in Chapter 13 Case (doc. 1). The requested $4,350 fee is the current maximum "no-look fee" provided by the United States Bankruptcy Court for the Southern District of Ohio. Local Bankruptcy Rule ("LBR") 2016-1(b)(2)(A), as amended by General Order 50-1 (effective for cases filed on or after February 24, 2021).
The court addressed the same issue initially in In re Spurlock, 642 B.R. 269 (Bankr. S.D. Ohio 2022) and subsequently entered orders based upon oral decisions in the following cases: In re Niedenthal 21-32148 (Doc. 42); In re Sizemore 22-30068 (Doc. 62); In re Dudley 22-30156 (Doc. 59); In re Buchholz 22-30584 (Doc. 37. See also Doc. 42 (denying motion under Federal Rule of Civil Procedure 9023)).
As stated in this court's scheduling orders (docs. 23, 28):
This case appears to primarily address a secured vehicle claim and generally lacks other typical Chapter 13 issues including, but not limited to, mortgage loan claims,
land contracts, significant tax issues, secured claim arrearages, small business income, or unusual special plan provisions. For this reason, the requested maximum no-look fee appears excessive or unreasonable in light of the comparatively limited issues and complexity presented by the circumstances in this case. See In re Spurlock, [642 B.R. 269 (Bankr. S.D. Ohio 2022)].
The court set this matter for an evidentiary hearing, which was held on December 8, 2022 (Doc. 28). See also Transcript (doc. 36). Mr. Zeigler represented himself in defending his attorney fee and was the only witness who testified. The court admitted Exhibits A, B, C, E and H at the hearing and took under advisement whether Exhibits D, F, and G could be admitted. The court has concluded that these remaining exhibits may also be admitted. The court also considered the legal arguments of Mr. Zeigler, both in his pre-hearing memorandum (Doc. 31) and at the hearing. The Chapter 13 Trustee, John Jansing, and his counsel attended the hearing but did not take a position with respect to the matter.
The court raised whether the debtor counsel could act his own expert witness pursuant to Federal Rule of Evidence 702. Based on counsel's undergraduate degree in Statistics from Carnegie Mellon University, the court finds that the debtor competent to be an expert witness for these limited purposes. The court also considered whether the summaries, Exhibits D, F, and G, included evidence that was not admissible. See F.R.E. 1006 (Summaries to Prove Content). Mr. Zeigler argued that the court could take judicial notice of certain information contained within those summaries. The court agrees that it can take judicial notice of publicly available data such as the consumer price index for legal services. Tuttle v. Educ. Credit Mgmt. Corp. (In re Tuttle), 600 B.R. 783, 806 (Bankr. E.D. Wis. 2019). Although the court could have required Mr. Zeigler to provide the underlying data, the court determines that the Bureau of Labor Statistics figures it reviewed are materially similar to what Mr. Zeigler described. See generally F.R.E. 705 (Disclosing the Facts or Data Underlying an Expert's Opinion). See https://beta.bls.gov/dataViewer/view/timeseries/CUSR0000SEGD01 (last viewed Jan. 23, 2023).
The burden of proof lies with counsel to show his fees are reasonable, but the court is required to calculate the appropriate lodestar amount. In re Boddy, 950 F.2d 334, 338 (6th Cir. 1991). The court considered all relevant factors, including those enumerated in 11 U.S.C. § 330(a)(3).
The Chapter 13 Plan (the "Plan") in this case proposed a payment of $350 each month to the Chapter 13 Trustee (the "Trustee"). The Plan did not provide a dividend to non-priority unsecured creditors. The monthly payment, aside from the Trustee's administrative fee, would go to two "910" car creditors, with the balance left each month to be paid to Mr. Zeigler as "Class 2" out of the remaining funds after the car payments and the Trustee's administrative fee, all of which are Class 1 payments. Mr. Zeigler received $150 in pre-petition fee payments from the Debtor, and the balance of the requested attorney fee would take 4 to 5 years to pay in full. One distinguishing factor in this case is that Mr. Zeigler filed a motion to extend the automatic stay, a service which is not covered by the no-look fee requirements. He seeks an additional hour in fees at his present hourly rate of $350 per hour for those services.
A motor vehicle purchased within 910 days of the petition date for the "personal use of the debtor" cannot be bifurcated into a secured and unsecured claim if the creditor has a purchase money security interest. 11 U.S.C. § 1325(a).
Mr. Zeigler testified that similar cases are often dismissed before the plan is completed, and counsel do not receive their full attorney fees in such instances. But the court cannot set the fee for a particular debtor because some debtors do not complete their cases. It also does not adjust the no-look fee when counsel is fully paid in a case that does not complete and thus performs fewer hours of post-confirmation work.
With one exception, Mr. Zeigler did not argue that this case included legal issues or work distinguishable from Spurlock, which the court, after considering an itemization of counsel, used the lodestar analysis to calculate a fee of $3,660 for very similar services. The court previously noted that Mr. Zeigler performed work on motion to extend the automatic stay pursuant to 11 U.S.C. § 362(c)(3). As Mr. Zeigler has indicated that he will not be separately billing for this work, and it is not included in the list of required work under LBR 2016-1(b)(2)(A), the court awards one additional hour at Mr. Zeigler's current rate of $350 for those services.
The total fee was $4,320 in Spurlock because the debtor counsel filed a confirmation memorandum and was awarded $600 for such work.
Mr. Zeigler did not provide an itemization of his work for the court to consider in determining the appropriateness of the $4,350 as a fee for this case. Instead, he raises a series of discrete arguments regarding why the full no-look fee of $4,350 is appropriate, despite this court's lodestar calculation in Spurlock and other similar Chapter 13 cases. The court will address each such issue separately.
First, Mr. Zeigler argues that his fee must account for $70.72 in postage and copying costs paid to a third-party service provider. The court finds, as it indicated at the hearing, the presumptive hourly rate and total fee calculated in Spurlock for such cases includes overhead such as postage and copying costs. The court was well-aware of the prior increase of the no-look fee when debtor counsel became responsible for service of debtors' plans. For purposes of the no-look fee, the court finds such overhead is accounted for in the reasonable hourly rate of $300 and total fee of $3,660 outlined in Spurlock. This court does not separately award expenses for copying and service of the plan and other such expenses when it approves no-look fee awards because such expenses are included in this flat fee. In addition, if counsel wants to be reimbursed for such expenses, counsel may opt out of the no-look fee and itemize counsel's fees and expenses pursuant to Local Bankruptcy Rule 2016-1(b)(2)(C) ("The debtor's attorney may opt out of the no-look fee by filing an application for allowance of fees that includes an itemization of all legal services performed, the amount of the total fee requested, the amount and itemization of any expenses for which reimbursement is sought . . . ."). Thus, for these reasons, the court declines to add these expenses to the $3,660 base number determined by the court in Spurlock for such cases.
Second, Mr. Zeigler argues that the court should account for the payment of his attorney fee occurring over almost five years and the time value of the funds he is receiving. Chapter 13 fees are sometimes paid in twelve months or less, and sometimes over a five year plan. The timing of the payment can also be affected by subsequent modifications of the plan. The court is unaware of any court's local rule calculating the no look fee in this manner. LBR 2016-1(b)(2)(A) does not provide for adjustment of the amount of the no-look fee based upon the timing of the payments over the life of the Chapter 13 plan. Therefore, the same amount is approved regardless of whether it is paid over twelve months or sixty months. Of course, requiring such calculus would defeat the primary purpose of the no-look fee of providing administrative convenience to counsel, the debtor, the creditors, and the court. The court declines to re-calculate the lodestar determination in Spurlock absent a distinguishing feature of a particular case or a complete itemization for work completed up to confirmation.
Third, Mr. Zeigler argues that the court ought to account for increases in his hourly rate during the pendency of the Chapter 13 plan for his post-confirmation work. The court is unaware of any other District that considers subsequent potential increases in counsel's hourly rate in determining the presumptive hourly rate for purposes of a no-look fee lodestar calculation. If counsel wants his hourly rate to be accounted for over time, the solution is to itemize his work throughout the case and the court will consider that hourly rate under the lodestar standard mandated by the Sixth Circuit. Again, the District's no-look fee does not contemplate adjustment of the fee based upon anticipated increases in counsel's hourly billing rate over the life of the plan and such calculation would defeat the administrative convenience purpose of the no-look fee.
Fourth, Mr. Zeigler indicated that counsel cannot realistically itemize his fee applications because his firm lacks the resources to do so. The court has two responses. First, similarly small firms have itemized fee applications before this court. The resources needed to prepare an itemization would seem to be more than offset by cases that may justify a higher fee. Itemizing more complex cases in which the fee can be paid in the Chapter 13 plan would be appropriate for such cases and a better solution than having debtors in simpler cases pay the freight for debtors with more complex cases. If counsel never itemizes and always charges the same $4,350, some debtors are effectively subsidizing other debtors' Chapter 13 counsel fees. Although such an arrangement may be advantageous administratively for the court and debtor counsel (and for debtors with more complex cases), it does not fully consider the differences in legal work that Chapter 13 debtors require or for which they should pay.
Fifth, and finally, Mr. Zeigler argues that the current no-look fee is similar to the historical amount allowed by this District. The court recognizes that the no-look fee has varied in its present day value at different times. Obviously, the first year the no-look fee is raised by the court, that fee would be more valuable in real dollars than in year two. But, as the court discussed in Spurlock, it considered multiple sources in evaluating the itemization in that case. If anything, those sources of authority demonstrated the courts calculation of reasonable hours was fair and possibly overly generous. Spurlock, 642 B.R. at 298 (determining that Chapter 13 cases could be "effectively and efficiently administered" for 10.2 hours of counsel work and 8 hours of paraprofessional work and noting "this is more time than allocated by other authorities for similar Chapter 13 cases"). The court routinely approves the entire no-look fee for most Chapter 13 cases and similarly approves itemized fee applications of counsel concerning work not covered by the no-look fee. However, the court is entitled to consider the results achieved in this Chapter 13 case, which is essentially the adjustment of the timing of car loan payments, and a reduced interest rate for those secured claims.
Again, fees set at a single rate for legal services for virtually all Chapter 13 cases effectively require some Chapter 13 debtors with simple cases, who can ill-afford to do so, to subsidize legal work for other debtors with more complex cases. Other jurisdictions set different fee levels for the type of case, a practice which helps to ameliorate this "elephant in the room" problem and set figures both below and above $4,350, depending on the type of case. Indeed, the court has been told that there may not be a "typical case." Spurlock, 642 B.R. at 275 (expert testimony of Nannette Dean). By contrast, in Chapters 7 and 11, fees are generally set by an agreement between the attorney and client. Although fees are ultimately subject to court review for reasonableness, the initial fee agreement is not guided by subjective standards set by the court. The market for legal services is allowed to function.
Chapter 13 addresses debtor counsel fees differently. This District, like many others, has established a no-look fee, perhaps among other reasons, to avoid a deluge of itemizations and to bring some certainty to client and counsel as to fees that are paid typically paid, to a large extent, in the Chapter 13 plan. But the fee is only presumptively reasonable, not just in this District, but at least as this court is aware, in all Districts that have a no-look fee. See In re Williams, 357 B.R. 434, 439 n.3 (B.A.P. 6th Cir. 2007) (discussing the use of presumptively reasonable fees in consumer bankruptcy cases). But if all Chapter 13 cases incur at least $4,350 in legal services, it would follow logically that many cases incur more than that figure. Despite this, most debtor counsel in the Dayton region rarely itemize any Chapter 13 case to seek a higher figure, which would give the court an ability to evaluate the legal services provided on an individualized basis. Perhaps this is because at some point the clients cannot pay a higher fee and successfully complete their Chapter 13 plans or that the market for Chapter 13 debtor counsel legal services would not absorb such an increase. Perhaps counsel simply prefer not to itemize and will go to great lengths to avoid doing so. Regardless, the court has determined that the appropriate lodestar calculation for cases materially indistinguishable from Spurlock is not the maximum no-look fee. The court does not intend to modify that holding at the present time. Counsel has not supplied any evidence, including an itemization, to suggest this case is materially different than Spurlock. At some point, by the passage of time, the current no-look fee may become reasonable in all Chapter 13 cases. Local rule amendments could change the structure of the no-look fee. But the court repeats again, the court is not required to approve the maximum no-look fee for every Chapter 13 case and, as noted before, such an approach is inconsistent with Sixth Circuit law, 11 U.S.C. § 330, and the Sixth Circuit's decision in Boddy. Further, absent a separate itemization from Mr. Zeigler being admitted into evidence or any explanation of how the legal services in this case are materially different, the court is awarding the calculated lodestar in Spurlock of $3,660, plus the hour of work on the motion to extend the stay, for a total fee of $4,010.
As far as the court is aware, debtors (or some representative on their behalf) have no direct or indirect role in determining what the no-look fee should be in this District.
It is unknown to the court what the market rate for debtor counsel would be without the present local rule structure. It is undeniable that LBR 2016-1(b)(2)(A) and General Order 50-1 play a role in the fee agreements between client and counsel. A no-look fee rule with a fee range or different amounts for certain types of cases would appear to ameliorate this issue somewhat and still avoid itemizations in most Chapter 13 cases.
In addition, as discussed in Spurlock, the court is entitled to consider the results counsel have achieved. See In re Village Apothecary, Inc., 45 F.4th 940, 952-53 (6th Cir. 2022) (§ 330(a)(3) of the Bankruptcy Code "permits court to consider 'results obtained'"). It is worth considering that in a Chapter 7 case, a fee of $1,500 or less is routinely charged by debtor counsel. It appears that this amount may be insufficient to account for the total hours needed for lawyers and paraprofessionals to gather the information and prepare schedules (listing assets, debts, exemptions, co-debtors and other information), a Statement of Financial Affairs with a myriad of detailed questions, interview the client, consider chapter choice, attend the 341 meeting, ensure the credit briefing and financial management course is completed, prepare a Statement of Intent, and perform other responsibilities debtor counsel must in those cases. Fees in Chapter 7 are presumably set based upon the legal result the debtor seeks, the fee a lawyer is willing to accept, and an amount the debtor is willing to pay a lawyer to provide such services. Some Chapter 7 cases are more complicated and the fees can be significantly higher. Generally, Chapter 11 cases tend to have much higher fees than other cases. But the commonality in all of this is, subject to court review, the fee structure for those Chapter 11 and 7 cases is not first determined by this court or approved in advance. It is largely set by a market for those particular legal services. A more flexible no-look fee would accommodate a more market-based approach and still retain the recognized conveniences of a non-itemized fee.
Finally, the court considers Mr. Zeigler an excellent consumer debtor counsel and has presided over many cases in which he has been involved, from the basic to the more complex. This order is merely reflective of what the court believes is the appropriate fee in this particular case.
For all these reasons, the court grants in part and denies in part the Application for Allowance of Fees in Chapter 13 Case (Doc. 1). The court finds the reasonable and necessary fee in this case (including the one hour for filing the motion to extend the stay but exclusive of any additional itemized work not covered by LBR 2016-1(b)(2)(A)) is $4,010.
IT IS SO ORDERED.
Copies to: Default List Plus
MaryAnne Wilsbacher (Assistant United States Trustee), 170 North High Street, Suite 200, Columbus, Ohio 43215-2417
Jeremy Shane Flannery (Counsel for the United States Trustee), 170 North High Street, Suite 200, Columbus, Ohio 43215-2417