Opinion
ORDER ON FEE APPLICATION
Peter W. Bowie, Chief Judge United States Bankruptcy Court
This is a Chapter 13 case filed on April 13, 2007. At the time of filing, the law firm also filed its "Disclosure of Compensation of Attorney for Debtor". The firm indicated it had agreed to accept $4,000 and had already received $1,226 toward that amount. Paragraph 5 of the form stated in relevant part:
5. In return for the above-disclosed fee, I have agreed to render legal service for all aspects of the bankruptcy case, including:
b. Preparation and filing of any petition, schedules, statements of affairs and plan which may be required;
c. Representation of the debtor at the meeting of creditors and confirmation hearing, and any-adjourned hearings thereof.
Paragraph 6 of the same form affords an attorney to disclose what services are not included for the disclosed fee. That part of the form was left blank, indicating nothing was excluded. Rule 2016(b), Federal Rules of Bankruptcy Procedure, requires the filing of the "Disclosure of Compensation" within 15 days of filing a voluntary petition.
The case proceeded, and ultimately resulted in confirmation of a plan. Thereafter, counsel for the debtors filed their fee application, which is the subject of this proceeding.
At the outset it is noted that this district has for years utilized a presumptive or "no-look" fee system in Chapter 13 cases because of economies of such a system to debtors, creditors, and even court administration. However, attorneys have always been able to file a fee application instead, subject, of course, to the statutory standards of 11 U.S.C. § 330. Participation in this district's presumptive fee system is triggered by filing a "Rights and Responsibilities" agreement executed by the attorney and the client. In this case, no such document was ever filed, suggesting that the firm always intended to file a fee application in this case.
Section 330(a)(4)(B) of Title 11, United States Code provides:
In a chapter 12 or chapter 13 case in which the debtor is an individual, the court may allow reasonable compensation to the debtor's attorney for representing the interests 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 this section.
A hallmark of the "other factors" is that the compensation be "reasonable" and for "actual, necessary services". Section 330(a)(3) provides in relevant part:
(3) In determining the amount of reasonable compensation to be awarded . . ., the court shall consider 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 at which 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;
(E) with respect to a professional person, whether the person is board certified or otherwise has demonstrated skill and experience in the bankruptcy field; and
(F) whether the compensation is reasonable based on the customary compensation charged by comparably skilled practitioners in cases other than cases under this title.
The fee application filed by the firm creates a bit of a puzzle. The application states that the "agreed upon fee was $3,300.00." That amount is inconsistent with the amount on Form B203. The application itself is scarcely a page, and asks for an award of fees of $6,642.50, with credit for $1,226 already paid.
Attached to the application is a "Supplemental Declaration Regarding Award of Compensation of Attorney's Fees", signed by attorney Diamond. It is, quite simply, all over the map. It starts off saying it seeks fees from July 2, 2007, while the "Application" says the firm was hired February 2, 2007. The Supplemental says the case was filed April 16, when in fact it was filed April 13. It says the initial agreed fee was $3,300, in contrast with the Form B203. It says the agreement contemplates "one hearing in Chapter 7 and 13 cases and one court hearing in chapter 13 cases." That is in contrast to the Rule 2016 statement. It also says that the fee "does not include amendments required post-filing that are a result of your (the debtors) failure to provide us with information." That, too, is in contrast with the form B203 filed in this case.
Pages 2-4 of the "Supplemental" appear to be from a different case altogether. It refers to an objection to confirmation by GMAC, and continued confirmation hearings two months after this case was confirmed. The bulk of p.2 refers to Mr. And Mrs. Rodriguez and their tax returns, not these debtors, the Kidwells. The bottom of p.3 and top of p.4 ask for fees totalling $7,490.10, not the amount sought in the "Application".
The thrust of the firm's pitch for fees is contained on p.3 of the "Supplemental", although the Court is left to guess at its applicability to these debtors since it appears to continue to be aimed at the Rodriguezes. The firm states:
In sum, the debtors numerous failures to provide accurate information to both their attorney and the IRS caused an inordinate amount of time and resources to be devoted to an otherwise unremarkable matter.
Debtors' counsel are required to perform issue specific analysis in order to calculate a feasible plan proposed in good faith which devotes all of a debtor's disposable income to re-payment of their obligations. These debtors' actions specifically frustrated the required actions of their attorney.
The debtor's case should specifically serve as instructive to the entire bankruptcy system from the bench, to the UST to the Chapter 13 Trustees in this district and to other bankruptcy practitioners. The lesson to be learned being that counsel for the debtors are at the mercy of the debtor. Debtors' counsel is at the debtor's mercy since counsel must rely on the information given him by the debtor in conceptualizing the case. If the information is inaccurate or just plain false counsel is left there to pick up the pieces and that time is often uncompensated.
Nearly all of the information provided by these debtors proved to be unreliable. This unreliability which is the common denominator in nearly all bankruptcy cases causes an inordinate amount of work to complete cases and debtor's counsel should not have to bear the risk of this unreliability in the form of depressed chapter 13 fees. Had these debtors been honest with their attorney from the outset of their case, numerous calls to Rebecca Pennington and Regina Greene would have been avoided, file review and amended plan analysis avoided, and numerous confirmation hearings would have been avoided as well.
The Chapter 13 trustee filed opposition to the firm's fee application. Unfortunately, the trustee was led down the wrong path by pages 2-4 of the "Supplemental" and spent time addressing the tax matters which, so far as the Court can determine, were not an issue in the Kidwell case. Nonetheless, the trustee makes several valuable points. At the core is the notion that there is much counsel can do to improve the reliability of information provided by debtors if, in fact, the problem is endemic, as counsel argues. Moreover, the idea that the attorney is at the mercy of the client is not completely accurate because, as the trustee points out, there are steps the attorney can take to reduce that dependency on the completeness and accuracy of the client's information, including requiring the client to produce documentation. Aside from periodic billing statements and other similar documents, the trustee correctly noted that a debtor is required by statute to produce the applicable tax return to the trustee not less than 7 days prior to the first date set for the meeting of creditors. 11 U.S.C. § 521(e)(2)(A)(i). It is difficult to imagine why production of tax returns is not an early requirement of counsel for debtors given not only that statutory requirement, but also the need for hard information in designing a confirmable plan. Among many other things, counsel will need to know whether the client underwithholds or overwithholds, and whether there are annual refunds that a trustee will want to factor in.
One of the more troubling aspects of the attorney-at-the-mercy-of-the-client argument is the scope of the attorney's duty, and resulting representations upon signing and filing virtually any document. Rule 9011, Fed.R.Bankr.P., provides in pertinent part:
(b) Representations to the Court. By-presenting to the court (whether by signing, filing, submitting, or later advocating) a petition, pleading, written motion, or other paper, an attorney ... is certifying that to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances,
(3) the allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery ....
Implicit in counsel's argument that the attorney is at the client's mercy is a notion that an attorney has no responsibility to try to find out the truth, or to test any of the client's representations. That notion is directly contrary to Rule 9011. While a body of law concerning what Rule 9011 does require an attorney to do as a "reasonable inquiry" has yet to develop, the idea that an attorney could comply by just uncritically accepting whatever the client says is not only contrary to Rule 9011, but it also leaves the attorney exposed and vulnerable. Rule 9011 clearly contemplates something more. See, e.g., Hendrix v. Naphtal. 971 F.2d 398 (9th Cir. 1992).
In an interesting sense, counsel has impeached his own fee application by asserting that unreliability of information "is the common denominator in nearly all bankruptcy cases". As counsel is aware, the judges of the court have recently revised the presumptive fees allowable in Chapter 13 cases, with multiple opportunities for input from members of the bar. One might infer that by this application counsel is attempting to attack the reasonableness of those fees. Whether that is so or not, counsel has failed to show how this case, the Kidwell case, is extraordinary or unusual in some way that would support allowing compensation by fee application in an amount substantially in excess of the presumptive or no-look fee. In re Eliapo, 468 F.3d 592 (9th Cir. 2006); In re Geraci. 138 F.3d 314 (7th Cir. 1998) That is especially true in this case in the light of the B203 form. Disclosure of Compensation, in which counsel indicates the base fee was really $3,300, not $4,000, and includes representation "of the debtor at the meeting of creditors and confirmation hearing, and any adjourned hearings thereof." Review of the "Accounting" suggests there were several continuances of the confirmation hearing, which presumably constitutes the extra work counsel complains of.
For the foregoing reasons, the Court has no need to review individual time entries, including those challenged by the trustee. Were it to do so, however, one item stands out: 5.8 hours of a partner's time at $250 an hour to prepare the few pages of this fee application, especially since most of the "Supplemental Declaration" wasn't even applicable to this case. The Court also has in mind the direction of 11 U.S.C. § 330(a)(6), which states: (6) Any compensation awarded for the preparation of a fee application shall be based on the level and skill reasonably required to prepare the application.
As noted, compensation allowed under § 33 0 has to be "reasonable" to be an allowed administrative claim payable by the bankruptcy estate. The firm has not shown how this case was extraordinary or unusual in a way that supports departure from the reasonable presumptive fee for a routine chapter 13 case.
'For the foregoing reasons, the Court has no need to review individual time entries, including those challenged by the trustee. Were it to do so, however, one item stands out: 5.8 hours of a partner's time at $250 an hour to prepare the few pages of this fee application, especially since most of the "Supplemental Declaration" wasn't even applicable to this case. The Court also has in mind the direction of 11 U.S.C. § 330(a)(6), which states: (6) Any compensation awarded for the preparation of a fee application shall be based on the level and skill reasonably required to prepare the application. Having failed to make such a showing, the Court finds and concludes that the presumptive fee of $3,300 is reasonable under the circumstances and is allowed as an administrative claim payable by the Chapter 13 trustee, before credit for the $1,226 already paid by the debtors. The net award payable by the trustee is $2,074.