Opinion
Case No. 04-13296-SSM.
February 15, 2006
Robert Michael Grossman, Claire Ellen Grossman, Woodbridge, VA, Debtors.
Ronald B. Cox, Esquire, Law Offices of Ronald B. Cox, Occoquan, VA, Attorney for the debtors.
Gerald M. O'Donnell, Alexandria, VA, Chapter 13 trustee.
MEMORANDUM OPINION AND ORDER
This matter is before the court on the application of Ronald B. Cox, Esquire, for approval and payment of $982.34 in supplemental compensation as attorney for the debtors. The debtors have objected to the fees, and the court, following a hearing on February 8, 2006, took the motion under advisement. Because the debtors had not served their written objection on Mr. Cox, the court allowed him an additional period to file a response, which he has now done. For the reasons stated, the court will approve the fees, but in a slightly lesser amount.
An order had been entered prior to the hearing approving the fees after the court had reviewed the application in chambers, and the chapter 13 trustee had advised the court that he had sufficient funds on hand to pay the requested amount. In entering the order, the court overlooked the objection that had been filed by the debtors. After the objection was brought to the court's attention, the original order was vacated.
Background
Robert Michael Grossman and Claire Ellen Grossman are husband and wife. They filed a joint voluntary petition in this court on August 4, 2004, for an adjustment of their debts under chapter 13 of the Bankruptcy Code. They were represented throughout the case by Ronald B. Cox, an experienced bankruptcy attorney. The disclosure of compensation filed by Mr. Cox states that the agreed fee for representing the debtors was $1,500, of which $750 had been paid prior to the filing of the petition. According to the disclosure, the agreed fee included analysis of the debtors' financial situation and advice whether to file a bankruptcy petition; preparation and filing of any petition, schedules, statement of affairs, and plan which may be required; and representation of the debtors at the meeting of creditors and confirmation hearing. The disclosure further stated that the agreed fee did not cover "[a]ny representation after scheduled 341 meeting." A proposed 60-month 100% repayment plan was confirmed on October 21, 2004. The plan provided for the chapter 13 trustee to pay Mr. Cox the remaining $750.00 of the agreed fee, which the trustee has done.
The debtors also paid the $194.00 filing fee. This is typically not shown on the disclosure of compensation since it is a statutory fee payable to the clerk of court and is not "compensation" to the attorney.
Since a confirmation hearing would, in the nature of things, occur only after the meeting of creditors ("341 hearing"), there is an internal inconsistency which, under settled principles, the court must resolve in favor of the clients. Accordingly, the court construes the $1,500 agreed fee as covering all necessary services through confirmation of the plan.
Approximately a year later, the chapter 13 trustee filed a motion to dismiss the case on the ground that the debtors had fallen behind on their plan payments. The debtors (through Mr. Cox) responded by filing a motion for authority to refinance their home in order to cure the payment default and to pay off the plan in full. The motion was noticed for a hearing to be held on November 23, 2005, and the trustee's motion to dismiss was continued to that same date. Prior to the hearing, the trustee filed a written response stating that in order to complete the plan, he needed "$30,300.00 plus any subsequent award of attorney fees" paid to him from the refinance.
At the hearing, the court granted the motion to refinance and directed that $31,620 be paid to the trustee. An order reflecting that ruling was entered on November 30, 2005. The court has not been provided with a transcript of the hearing, but the court's usual practice would have been to ask debtor's counsel for an estimate of any additional fees for which application might be made and to add 10% (the trustee's commission) to that amount in determining the amount to be paid over to the trustee. The motion to dismiss was continued to February 8, 2006, to determine if the trustee actually received the expected funds to pay off the plan.
The trustee filed a pleading on January 4, 2006, withdrawing the motion to dismiss.
On December 22, 2005, Mr. Cox filed the application for supplemental compensation that is currently before the court. The motion — which was noticed for a hearing on January 25, 2006 — stated that any objection had to be filed "in the next ten days" with a copy to Mr. Cox and to the chapter 13 trustee. The certificate of service shows a mailing date of December 22, 2005. The debtors filed their objection on December 29, 2005, but did not serve a copy on either Mr. Cox or the chapter 13 trustee. Because of a scheduling conflict, the court continued all matters set for January 25th to February 8th.
The $982.34 in supplemental compensation, together with the $750.00 paid by the debtors prior to the bankruptcy and the $750.00 previously paid by the trustee, would bring the total fee in the case to $2,482.34.
The 10-day notice period was not correct. That response period applies only to motions for which no hearing has been set. LBR 9013-1(H)(3)(a). Where a hearing has been set, the response deadline is the fifth business day prior to the hearing if it is set on at least 20 days notice and the second business day prior to the hearing if it is set on less than 20 days notice. LBR 9013-1(H)(3)(b) (c).
The original notice of hearing contained an incorrect mailing address for the court. An amended notice of hearing filed on December 30, 2005, contained the correct address.
The literal tenth day after the mailing date would have been January 1, 2006. But where notice is given by mail, three days are added to the response period. Fed.R.Bankr.P. 9006(f).
The billing records attached to the fee application reflects 5.65 hours in attorney time, 5 hours of paralegal time, and expenses of $39.78 through confirmation. Most of the attorney time is billed at $225.00 per hour but some is billed at $200.00 per hour. The paralegal time is billed at $60.00 per hour. For post-confirmation services connected with the trustee's dismissal motion and the debtors' motion to refinance, the billing records reflect 3.75 hours of attorney time — all of which is billed at $225.00 per hour — and $18.59 in expenses. The billing records do not include any time or expenses for preparation of the fee application itself. The written retainer agreement signed by the debtors provides that services provided after the "341 Hearing" (the meeting of creditors) would be billed at $200.00 per hour.
Discussion A.
In a chapter 13 case, the court may approve compensation, payable from the bankruptcy estate, to an attorney "for representing the interest of the debtor in connection with the bankruptcy case based on a consideration of the benefit and necessity of such services to the debtor and the other factors set forth [in § 330 of the Bankruptcy Code]. 11 U.S.C. § 330(a)(4)(B). The "other factors" specified in the statute are:
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 the services were necessary to the administration of, or beneficial at the time 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 the customary compensation charged by comparably skilled practitioners in cases other than cases under this title.§ 330(a)(3).
The text of the statute has been modified by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub.L. 109-8 (April 20, 2005), but the changes apply only to cases filed on or after October 17, 2005.
Based on a consideration of these factors — and putting to one side the specific objections raised by the debtors — the court would have to find that supplemental compensation of $768.59 (which would bring the total fees and expenses for the entire case to $2,268.59) was reasonable. In reaching this figure, the court has concluded that $60 per hour for paralegal time is reasonable. With respect to Mr. Cox's own time, the court determines that $200.00 per hour is a more appropriate billing rate for the services provided in 2004 as well as being consistent with the retainer agreement. But even at the reduced rate of $200 per hour for attorney time, the "lodestar" (the allowed hourly rate times the hours expended) exceeds the $1,500 flat fee. Accordingly the agreed fee of $1,500 for services through confirmation is reasonable and will be allowed. Absent the retainer agreement, the court would have allowed $225.00 per hour (based on current prevailing rates in consumer cases) for the services in 2005, but since the retainer agreement contained no provision for an increase of the hourly rate, the court will apply a $200.00 per hour rate for 2005 as well. All of the services for which compensation is sought were necessary and beneficial, and the court finds that the time billed for each of the tasks is reasonable and that the quality of the attorney's work product was high. After credit for the $750.00 paid by the debtors prior to the bankruptcy and for the $750.00 previously paid by the trustee, the difference, $768.59, would be an appropriate award of supplemental compensation.
Even though most attorneys charge a "flat fee" for chapter 13 representation up through either confirmation of a plan or the meeting of creditors, the practice in this district is to require attorneys who seek compensation beyond the flat fee amount to provide time records for the entire case. Put another way, the court does not approve supplemental compensation until the value of all the services in the case exceeds the flat fee.
The computations may be summarized as follows:
Through confirmation Hours Rate Amount Attorney time 7.65 $200.00 $1,530.00 Paralegal time 5 $60.00 $300.00 Expenses $39.78 ___________ Subtotal before cap $1,869.78 Excess over flat fee ($369.78) ___________ Capped Amount $1,500.00 After confirmation Attorney time 3.75 $200.00 $750.00 Expenses $18.59 __________ Total $2,268.59 Paid prior to bankruptcy ($750.00) Paid by trustee ($750.00) ________________________ __________ Balance $768.59
B.
The debtors, however, dispute that Mr. Cox is entitled to any additional compensation. Their objection raises a number of issues. Some of these may be readily disposed of. For example, they complain that the notice stated that any objections to the application had to be filed with the court within ten days of the mailing, but that "there was no date on the motion." The motion, however, contains a certificate of service reflecting that it was mailed on December 22, 2005. Although the ten-day response period was not in fact correct under the local rules, and although the original notice contained a post office box address for the clerk that was obsolete, the court can perceive no prejudice, since the debtors' objection was received well in advance of the hearing. While the errors were unfortunate, they are reflective only of simple inattention to detail and not (as the debtors seem to believe) a design to prevent their concerns from being heard.
In any event, the debtors themselves are not without fault with respect to procedural niceties, since they failed to serve Mr. Cox or the chapter 13 trustee with a copy of their objection.
The debtors also complain that they should have been given credit for $944 paid prior to filing rather than only $750. There is no question that the total amount the debtors paid to Mr. Cox was $944. However, $194 of that was the filing fee for the bankruptcy petition. The difference, $750, is the amount to be applied against the $1,500 agreed fee and is properly reflected on the disclosure of compensation and the fee application.
A more substantial objection is that Mr. Cox, according to the debtors, stated at the hearing to approve the refinance that "the $33,000+ payment would be enough to cover his fees." By implication, the debtors seem to be suggesting that Mr. Cox represented at the hearing that he would not be seeking additional fees. Frankly, the court is somewhat mystified as to how the debtors could draw that conclusion. As noted, the court does not have the benefit of a transcript from the hearing. However, the trustee had stated in his report to the court that he needed "$30,300.00 plus any subsequent award of attorney fees" (emphasis added). The amount the court directed to be paid over to the trustee was $31,620. This suggests that there must have been some discussion at the hearing of additional attorneys fees, since the court's ruling clearly made allowance for them. Accordingly, the court cannot find that Mr. Cox agreed at the hearing that he would not be seeking additional fees.
A court reporter was present and took down the proceedings. However, a transcript is filed only if a party in interest pays the court reporter to prepare it.
As noted, the trustee has advised the court that he is holding sufficient funds to pay the requested fees.
The most serious objection raised by the debtors is that Mr. Cox unjustifiably procrastinated for more than two months in filing the motion for refinance, not only causing them to lose a commitment for a 6.75% ARM loan and having to accept a 7.5% ARM loan instead, but also causing them to incur the expense of the court hearing on November 23, 2005, which they say would have been unnecessary if the motion to approve the refinance had been filed in time to be heard on October 26th in conjunction with the trustee's motion to dismiss.
In response, Mr. Cox has provided the court with copies of faxed and email correspondence between him and the mortgage broker, the debtors, and the debtors' personal financial advisor. Having reviewed those documents, the court is satisfied that any delay by Mr. Cox in submitting the motion to refinance was largely caused by failure of the mortgage broker to provide the detailed information that Mr. Cox needed to show that the debtors would be better off by refinancing. Such care on Mr. Cox's part, far from being censurable, shows a commendable attention to the welfare of his clients. The job of an attorney is not merely to "paper" a transaction, but also to provide sound advice as to whether the transaction is in the clients' best interest. The particular loan being offered carried an adjustable interest rate, but the mortgage broker was slow in providing the specific information that would enable Mr. Cox to represent truthfully to the court that debtors would be better off financially by taking out a new loan to pay off their current mortgage and the chapter 13 plan. Unfortunately, it has happened in the past that chapter 13 debtors have been persuaded to do so to their detriment.
A cautionary example of a case where a debtor refinanced his house to borrow himself out of chapter 13 and then lost his home when he could not make the payments on the new loan is illustrated by a case decided in this court, Spence v. Advanta Mort. Co. (In re Spence), No. 97-19586-SSM, A.P. No. 98-1221 (Bankr. E.D. Va., May 4, 1999). Although the decision is unpublished, it is available on the court's Internet web site athttp://vaeb.uscourts.gov/opinions/ssm/spence.pdf.
In the present case, the court was satisfied, based on the information provided at the hearing, that the proposed refinance was in the debtors' interest. The court can hardly fault Mr. Cox for wishing to ensure that the court had complete and accurate information when it made that determination.
ORDER
For the foregoing reasons, it is
ORDERED:
1. The application of Ronald B. Cox for supplemental compensation as attorney for the debtors is granted in part and denied in part. Supplemental compensation is approved in the amount of $768.59, to be paid by the trustee as an expense of administration.
2. The clerk will mail a copy of this order, or give electronic notice of its entry, to the parties listed below.