Opinion
21-30529
05-16-2022
In re: MICHAEL S. GRASS, SR., JOSIE E. GRASS, Debtors.
MaryAnne Wilsbacher (Assistant United States Trustee) Jeremy Shane Flannery (Counsel for the United States Trustee)
Chapter 7
MaryAnne Wilsbacher (Assistant United States Trustee)
Jeremy Shane Flannery (Counsel for the United States Trustee)
ORDER GRANTING IN PART AND DENYING IN PART CHAPTER 7 TRUSTEE'S APPLICATION FOR COMPENSATION (DOC. 40)
Guy R. Humphrey, United States Bankruptcy Judge
This matter is before the court on the Chapter 7 Trustee's Application of Patricia J. Friesinger and Coolidge Wall Co., L.P.A., for Allowance of Compensation as Attorney for Trustee (doc. 40) (the "Applicant" and "Application"). The Application seeks an award of attorney fees in the amount of $610 for services rendered by Ms. Friesinger and her law firm for work performed in connection with this case. For the reasons stated below, the court grants the Application in the amount of $530 and denies $80 of the fees sought through the Application.
Under 11 U.S.C. § 330(a), bankruptcy courts exercise an independent duty to review fee applications for reasonableness. In re Spear, 636 B.R. 765, 769 (Bankr. S.D. Ohio 2022); In re Pochron, __ B.R. __, No. 21-31410, 2022 Bankr. LEXIS 1041, at *3-4, 2022 WL 1085459, at *2 (Bankr. S.D. Ohio Apr. 8, 2022); In re Henson, 637 B.R. 13, 15 (Bankr. S.D. Ohio 2022); In re Harper, No. 21-50709, 2022 WL 727573, at *1, 2022 Bankr. LEXIS 652, at *3 (Bankr. S.D. Ohio Mar. 10, 2022). As this court recently noted, the applicant bears the burden of demonstrating that requested fees are warranted for the services provided. Pochron, 2022 Bankr. LEXIS 1041, at *4-5, 2022 WL 1085459, at *2; In re Scarlet Hotels, LLC, 392 B.R. 698, 703 (6th Cir. B.A.P. 2008) (citing In re Swartout, 20 B.R. 102, 105 (Bankr. S.D. Ohio 1982)) ("The burden of proof in all fee matters is on the applicant.").
Here, Applicant requests a total of $610 in fees, broken down as: a) $380 for legal services performed in negotiating, documenting, and obtaining court approval of the settlement of claims for $2,000 in rents paid to the debtor's father-in-law and for $1,227 in the non-exempt portion of a pre-petition tax return; and b) $230 for legal services performed in seeking approval of those fees. The court finds that the $380 in fees for the legal services involved in negotiating, documenting, and obtaining court approval of the compromise reached with the debtor is reasonable and meets the standards of Bankruptcy Code § 330. However, the remaining $230 in fees sought for preparing the fee application is not appropriate under § 330. The court awards $150 for those services.
This issue - the reasonableness of attorney fees incurred in seeking the approval of attorney fees - has been the subject of many decisions, both within the Sixth Circuit and outside of it. In Coulter, a Title VII sex discrimination civil rights action against the State of Tennessee, the Sixth Circuit articulated the rule that such fees should not exceed 3% of the total fees sought when no trial is involved and 5% when a trial is involved:
In the absence of unusual circumstances, the hours allowed for preparing and litigating the attorney fee case should not exceed 3% of the hours in the main case
when the issue is submitted on the papers without a trial and should not exceed 5% of the hours in the main case when a trial is necessary. Such guidelines and limitations are necessary to ensure that the compensation from the attorney fee case will not be out of proportion to the main case and encourage protracted litigation.Coulter v. State of Tennessee, 805 F.2d 146, 151 (6th Cir. 1986). Bankruptcy courts have adopted and applied the Coulter principle. See e.g. In re By-Rite Oil Co., 87 B.R. 905, 917 (Bankr. E.D. Mich. 1988) (applying Coulter rule); In re Churchfield Management & Inv. Corp., 98 B.R. 838, 887 (Bankr. N.D.Ill. 1989) (similar); In re Bass, 227 B.R. 103, 109 (Bankr. E.D. Mich. 1998) (similar); In re Economy Lodging Sys., No. 94-14144, 1999 Bankr. LEXIS 1122 at *7-8, 1999 WL 714099 at *2 (Bankr.N.D.Ohio Sep. 7, 1999) (similar); In re King, 546 B.R. 682, 735-36 (Bankr.S.D.Tex. 2016) (similar). However, the Sixth Circuit abrogated Coulter in part in Northeast Ohio Coalition for the Homeless v. Husted, which states:
The Jean Court [Commissioner, I.N.S. v. Jean, 496 U.S. 154, 110 S.Ct. 2316, 110 L.Ed.2d 134 (1990)] dismissed the government's argument that allowing an automatic award of fees for fees would encourage exorbitant fee requests, generate needless litigation, and unduly burden the federal fisc, stating that the district court can "recognize and discount" improper claims. Id. at 162-63, 110 S.Ct. 2316…
Jean's reliance on Hensley's [Hensley v. Eckerhart, 461 U.S. 424, 103 S.Ct. 1933, 76 L.Ed.2d 40 (1983)], reasonableness formulation at the fees for fees stage in AJA litigation preordains the conclusion that the reasonableness formulation applies to the fees on fees stage of § 1988 too… As Jean highlights, a presumptive cap lacks textual support and is not needed to ward off exorbitant fees and protracted litigation. The district court can correct any abuses at the fees for fees stage under the "reasonableness" standard.831 F.3d 686, 722 (6th Cir. 2016). Although Husted involved litigation under fee-shifting statutes, the court concludes that the abrogation of caps on "fee on fee" awards would equally apply to awards of fees under § 330 of the Bankruptcy Code. In fact, the focus in § 330 is "reasonable compensation," and courts have frequently, but not always, applied case law arising under the federal fee-shifting statutes in interpreting § 330. See In re Manoa Finance Co., Inc., 853 F.2d 687, 690-91 (9th Cir. 1988); CRG Partners Grp., LLC v. Neary (In re Pilgrim's Pride Corp.), 690 F.3d 650, 665 n. 18 (5th Cir. 2012); In re Schaeffer, 71 B.R. 559, 562-63 (Bankr. S.D. Ohio 1987).
As a practical matter, this situation highlights the inappropriateness of wholesale application of the 3% or 5% cap laid out in Coulter to bankruptcy matters. The nature of bankruptcy practice means that counsel cannot always avoid applying for approval of small fee requests, and the time and attention necessary to prepare competent fee applications on such matters cannot be conceivably accomplished for 3-5% of the fees billed for the underlying task. In this case, application of a Coulter fee cap would limit fees for this work to between $11.40 and $19.00. The absurdity of such a result speaks for itself.
Nevertheless, the court concludes that in determining reasonableness of fees under § 330, particularly with respect to "fees on fees," limitations are necessary to ensure that the compensation "will not be out of proportion to the main case." Coulter, 805 F.2d at 151. The time and fees involved in seeking approval of attorney fees should be, at least to some extent, commensurate with the fees sought for the underlying matter. See In re Planco, 626 B.R. 12, 23 (Bankr. E.D. N.Y. 2021) (citing In re Hoti Enters., 605 Fed.Appx. 67, 68 (2nd Cir. 2015)) (noting that bankruptcy courts should "carefully and independently review[] the attorney time and expense reports to ensure that they were reasonable and commensurate with the tasks undertaken."); In re Unitcast, Inc., 214 B.R. 992, 1009 (Bankr.N.D.Ohio 1997) (citing In re Allied Computer Repair, Inc., 202 B.R. 877, 887 (Bankr. W.D. Ky. 1996)) ("With these concerns in mind, the overwhelming majority of Courts have recognized that a 'reasonable' attorney fee for purposes of § 330 is one that is commensurate with the potential or actual value obtained.").
In a somewhat similar matter, another bankruptcy court recently reduced a fee application when counsel habitually billed one hour for every fee application without regard to the underlying services or matter. In re Andresiak, 578 B.R. 624, 625 n.1 (Bankr. W.D. Mich. 2017). The court allowed only $110 for the fee application preparation despite the attorney's request for $220 for that service, noting that other attorneys in the Western District of Michigan spent between .4 and .7 hours in preparing similar fee applications. Id. at 626.
Here, counsel seek $230 in fees for time spent preparing the fee application for $380 in underlying services. The preparation time consists of .8 hours of paralegal time at $160 per hour ($128) and .3 hours of attorney time at $340 per hour ($102). The court concludes that $150 is reasonable compensation for preparing the fee application to obtain $380 in underlying fees. That amount generally allows .5 hours of paralegal time ($80) and .2 hours of attorney time ($68) and is commensurate and proportionate with the $380 in underlying fees.
In order to handle such matters economically and efficiently and to make the total billed proportionate and commensurate with the underlying work, counsel must appropriately delegate such work to the lowest reasonable billing level and handle such matters as "lightly" as possible.
For the foregoing reasons, the court will allow $150 as the attorney fees for seeking approval of the fees involved in negotiating and obtaining approval of the underlying compromise, for a total of $530 in fees.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.