Opinion
Case No. 99-40365.
April 21, 2000.
SUMMARY ORDER APPROVING COMPENSATION AND EXPENSES OF DEBTORS' ATTORNEYS
Before the Court for disposition is the Application for Interim Post-Petition Compensation and Administrative Expenses filed on March 22, 2000, by the attorneys for the Debtors, Craig W. Christensen, Chartered ("Applicant"). After notice to all parties, no objections to the Application were filed. At a hearing concerning the Application held on April 18, 2000, Applicant was offered an opportunity to submit evidence and testimony in support of the Application. Applicant declined this opportunity, and instead asked the Court to rule on the Application based upon its own knowledge of the bankruptcy case and the written record. The Court took the matter under advisement. This Order contains the Court's findings of fact and conclusions of law. F.R.B.P. 7052.
No response or comments as to the Application was received from the U.S. Trustee. Mr. Christensen represented that the U.S. Trustee had communicated to him that the U.S. Trustee did not object to the Application.
In the Application, Applicant requests compensation of $21,541.50 for services rendered after the filing of Debtors' bankruptcy petition, and reimbursement of expenses totaling $1,885.37. For the reasons set forth below, the Court will approve payment of amount requested for costs, and the bulk of the amount requested for compensation.
Background.
Debtors operated a business and commenced this case under Chapter 13 case in March, 1999. Debtors filed a proposed plan on March 29. Notably, the plan proposed to restructure certain secured creditor claims and to repay those claims over periods ranging from 60 to 120 months. Several of the effected creditors objected. The Chapter 13 Trustee also did not recommend confirmation of the plan. At a hearing on May 20, 1999, the Court denied confirmation of the plan, but at Debtors' request, granted them leave to file an amended plan. They did so on May 21, but again Debtors proposed stretching out payments to certain secured creditors beyond the five year maximum term provided by 11 U.S.C. § 1322(c). Predictably, the amended Chapter 13 plan spawned more creditor objections, the Trustee spurned it, and on June 29, the Court again denied confirmation. As a condition for not dismissing the case, the Court accepted Debtors' invitation to promptly seek to convert the case to a Chapter 11 case so they could restructure their debts over an extended period of time.
Debtors motion to convert to Chapter 11 was filed on July 8, and was granted by the Court on August 24. A Chapter 11 disclosure statement was approved, and after a confirmation hearing held on February 10, 2000, all objections to confirmation were resolved, and an order confirming the plan entered by the Court on March 31, a little over a year after filing.
Discussion.
While the Application requests "interim compensation", the Court understands from counsel's comments at the hearing, it is likely Applicant's final application. As attorneys for the Debtors, Applicant is entitled to "reasonable compensation for actual, necessary services rendered . . . and reimbursement for actual, necessary expenses." 11 U.S.C. § 330(a)(1)(A), (B). "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. . . ." 11 U.S.C. § 330 (a)(3). The "court shall not allow compensation for . . . services that were not reasonably like to benefit debtor's estate . . . or necessary to the administration of the estate." 11 U.S.C. § 330 (a)(4)(A)(ii). The burden of establishing entitlement to compensation, and its reasonableness, is on the applicant. In re Dale's Crane, Inc., 99.1 I.B.C.R. 8. The Court may award less than has been requested. 11 U.S.C. § 330(a)(2). Even in the absence of an objection, the Court has an independent duty to review fees and costs requested by bankruptcy estate professionals. Id.; In re Schwandt, 95 I.B.C.R. 268, 269.
Considering all relevant factors, including the record in this case and those factors discussed below, the Court has determined that Applicant is entitled to reasonable compensation in an amount lower than that requested for the following reasons.
Rate.
Bankruptcy attorneys in this District, based upon the Court's experience, generally charge from $75 to $150 per hour, depending upon the attorney, the facts and kind of bankruptcy case, and the requisite services. Services for attorneys in non-bankruptcy matters are charged out at a similar range of rates. Mr. Christensen is a seasoned, competent bankruptcy attorney and this case, as a business reorganization, involved some degree of complexity not present in a routine, consumer bankruptcy. Therefore, it is reasonable that Mr. Christensen could command a rate at the higher end of this range.
These conclusions are based upon not only the Court's general impressions and experiences, but also upon information generated at recent evidentiary hearings conducted concerning professional fee applications.
Applicant seeks compensation for Mr. Christensen's services at a rate of $125 per hour from commencement of the case through conversion of the case to Chapter 11, and at the rate of $145 per hour thereafter. While based upon the Court's knowledge of Mr. Christensen's experience and skills as a bankruptcy attorney, $145 per hour is no doubt a reasonable rate for those services requiring his particular expertise. By the same token, at $125 per hour, the Court feels relatively secure in awarding compensation to counsel of Mr. Christensen's qualifications for all necessary services rendered "across the board", since a veteran bankruptcy attorney is presumably more efficient in performing simple services than perhaps a less experienced attorney. However, $145 per hour is at the highest end of the range of reasonable rates for bankruptcy attorneys' services in this District. For compensation at such higher rates, it is critical that an attorney restrict services in a case to only those matters requiring special proficiency and abilities. To be reasonable, responsibilities for routine services should properly be delegated to associates and paralegals who charge lower rates. Exercise of such discretion in assigning responsibility for work among the firm's professionals is the essence of the "billing judgment" demanded by Section 330 and required as a matter of professional responsibility. In re Puget Sound Plywood, Inc., 924 F.2d 955, 959 (9th Cir. 1990) (estate professional has obligation to exercise billing judgment).
Whether the case is a Chapter 13 case or a Chapter 11 case is not nearly as important to the Court as the complexity of the issues involved. Higher hourly rates can be justified in complicated Chapter 13 business reorganizations, and lower hourly rates may be appropriate in a straightforward Chapter 11 proceeding.
In this case, Applicant used the services of an associate to provide some services for Debtors at a rate of $75 per hour, which the Court finds is a reasonable rate. A paralegal also worked on the case at a $50 per hour rate, again a rate within reason. However, compared to the time spent on the case by Mr. Christensen, these other professionals were underutilized if Mr. Christensen intended to charge out his time at $145 per hour. In reviewing the itemized time entries for Mr. Christensen's services, much of what he did could have been performed by the less experience and less expensive professional. For such services, Mr. Christensen's higher rates are not reasonable. Therefore, the Court deems a reduction in the compensation requested for Mr. Christensen's services is warranted under the circumstances. An appropriate adjustment would be a five per cent reduction of the amount sought, or $1000.
According to a summary submitted by Applicant, the associate worked only 11 hours, and the paralegal worked only 14.1 hours on this case.
The total fees requested for Mr. Christensen's services was $20,011.50. Five per cent of this amount comes to $1,000.56.
Untimely Employment Application.
Attorneys for Chapter 13 debtors need not apply to the Court for the approval of their employment as a condition of payment of their compensation and expenses. However, 11 U.S.C. § 327(a) makes clear that a professional retained by a Chapter 11 debtor-in-possession must receive approval of employment. In this case, the order converting the case from Chapter 13 to Chapter 11 was entered on August 24, 1999. An application to approve Applicant's employment as counsel for the Chapter 11 Debtors was not filed with the Court until October 18, 1999. While the Court could deny compensation and reimbursement to Applicant for all amount incurred during this "gap", in its discretion, the Court declines to do so. However, the failure to comply with this important statutory requirement, even temporarily, warrants some sanction. Instead, the Court will reduce Applicant's requested compensation by the sum of $500.
By the Court's calculation, there were about 11 hours of services provided during this period.
Strategy.
One further issue must be addressed. From the Court's vantage, and without additional explanation from Applicant, a serious question is presented here why, if Debtors needed to restructure secured debt over a period in excess of five years, the maximum allowed under Chapter 13, this case was not originally pursued as a Chapter 11. Arguably, had the effected secured creditors consented to repayment of their claims over 120 months, as proposed in Debtors' two Chapter 13 plans, the plans could have been confirmed under authority of 11 U.S.C. § 1325(a)(5)(A). From the beginning, however, creditors objected to the proposal. Certainly, this approach should have been abandoned after it was first proposed in Debtors' original Chapter 13 plan, and confirmation of that plan was denied. Instead, Debtors, presumably at Applicant's suggestion, tried again to "cram down" secured claims over up to 10 years. This attempt also fizzled. The Court concludes that this second effort to restructure secured claims in violation of the terms of Chapter 13 yielded no benefit to Debtors' bankruptcy estate. It is difficult to distinguish with precision what services performed by Applicant during the six weeks the bankruptcy case continued under the wrong chapter benefitted Debtors or may have been necessary to administration of the case. Reading the time descriptions generously, the Court will impose a lump sum reduction of $2000 against total fees to adjust for this error in legal judgment.
Conclusion.
The Court will reduce Applicant's requested compensation, for the reasons identified above, by the total sum of $3,500, resulting in total approved compensation of $18,041.50. Expenses will be allowed as requested.
In the terminology of modern legal economics, Applicant's "blended hourly rate" for all legal services (partner, associate and paralegal combined) for which compensation was sought was $124.80 ($21,541.50 divided by 172.6 hours). In the reduced amount awarded by the Court, that blended hourly rate amounts to $104.52. This hourly rate still, in the Court's opinion, falls within reasonable ranges based upon rates charged by professionals in this District.
Accordingly, IT IS HEREBY ORDERED THAT the Application for Interim Post-Petition Compensation and Administrative Expenses filed herein by Craig W. Christensen, Chartered, as attorneys for the Debtors, should be and is hereby GRANTED IN PART and compensation is approved in the total sum of $18,041.50, and reimbursement of expenses in the sum of !,663.21. Payment is to be made from funds held in trust by Applicant, or as otherwise provided by Debtors' confirmed Chapter 11 plan.
Dated This 21st day of April, 2000.