Opinion
Case No. 97-11708-SSM
October 15, 1998
Bennett A. Brown, Esquire, Fairfax, VA, of Counsel for the debtors
MEMORANDUM OPINION AND ORDER
A hearing was held in open court on October 13, 1998, on the application of Bennett A Brown, counsel for the debtor, for approval and payment of additional compensation. No creditors have objected, but the chapter 13 trustee, while not objecting to the amount of the fees, does object to their being paid through the plan because doing so would reduce the dividend to unsecured creditors.
Facts
John and Glenda McMasters filed a joint voluntary petition under chapter 13 of the Bankruptcy Code in this court on March 11, 1997. They were represented by Bennett A. Brown, whose disclosure of compensation represented that he had been paid (in addition to the filing fee) a retainer of $700.00, and that the debtors had agreed to pay him an additional $710.00, for a total fee of $1,410. On April 18, 1997, an order was entered approving the additional $710.00 and directing its payment through the plan as an expense of administration.
The chapter 13 plan filed by the debtors on March 12, 1997, provided for the payment to the trustee of $715.00 per month for 36 months. The plan, which was structured as a "pot" plan, estimated in § A-4 a dividend to unsecured creditors of 100 cents on the dollar and in § B-7 a dividend of 40 cents on the dollar. Apparently the trustee informally objected to the amount of the proposed monthly payment and negotiated an increase, because the order entered on July 3, 1997, confirming the plan required a payment of $900 per month for 36months. An amended order of confirmation that was entered on August 5, 1998, increased the plan payment to $1,200.00 per month beginning with the 20th month of the plan.
In a "percentage plan," creditors receive a set percentage of their allowed claims while leaving the exact amount the debtor will pay into the plan in flux until all claims are resolved. In a "pot plan," the debtor pays a fixed amount, and the percentage the creditors receive depends on the total amount of allowed claims. In re Witkowski, 16 F.3d 739, 741 n. 11 (7th Cir. 1994).
On August 24, 1998, Mr. Brown filed the application for a second award of compensation and reimbursement that is presently before the court. In it, he seeks compensation for services provided to the debtors following confirmation. These include negotiating with the trustee respecting the amount of the payments to be made by the debtors and objecting to a filed proof of claim that, had it been allowed in full, would have significantly reduced the dividend to unsecured creditors. The time entries attached to the application reflect that Mr. Brown expended 7.08 hours of time and incurred out of pocket expenses of $20.00. The application does not disclose an hourly rate, but the requested fee corresponds to an hourly rate of $225.00 per hour.
The claim of the Taullah Bacaj Revocable Intervivos Trust was filed in the amount of $41,740.69, most of which consisted of interest at a claimed rate of 18% per annum. The claim, as ultimately allowed after the debtors' objection, was $21,358.29.
The filed unsecured claims, as allowed, total $49,504.18. No secured claims are provided for under the plan, nor does the plan provide for any priority claims other than the chapter 13 trustee's statutory commission and the $710.00 in additional fee allowed to Mr. Brown by the April 18, 1997, order.
The court notes that the two claims filed by Sears Roebuck (one on Mr. McMaster's account, the other on Ms. McMaster's account) each include a secured component. Claim No. 3 consists of a secured claim of $689.93 and an unsecured claim of $2,590.94, for a total of $3,280.87. Claim No. 4 consists of a secured claim of $182.87 and an unsecured claim of $865.29, for a total of $1,048.16. The confirmed plan does not provide for any secured claims, and it is not clear whether the trustee is treating the entirety of the Sears claims as unsecured for the purpose of distribution. In any event, the total given in the opinion includes only the unsecured amount shown on the proof of claim.
Discussion A.
Although no objection was file1d to the amount of the fees requested, the court has an independent duty to review all applications for professional compensation. Section 330(A)(4)(B), Bankruptcy Code, allows the court to approve, as an expense of administration, "reasonable compensation" to the debtor's attorney in a chapter 13 case "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." Those "other factors" specified by the statute are as follows:
(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; 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.
Section 330(a)(3), Bankruptcy Code.
Having reviewed the time entries, the court has no difficulty concluding that the time spent was reasonable and the services rendered were beneficial. The court's only concern is with the hourly rate of $225.00, which exceeds what is routinely allowed in this court even in chapter 11 cases. Debtor's counsel is unquestionably one of the more experienced and skilled practitioners before this court and enjoys a good reputation as a specialist in the field of bankruptcy. The services for which compensation is being sought, however, did not involve difficult or novel questions of law and are of a relatively routine nature. The court is familiar, based on its review of numerous fee applications submitted for approval in chapter 11 and 13 cases, with the prevailing fees for representation in reorganization cases. Based on that familiarity, the court concludes that $195.00 per hour is a reasonable fee for a chapter 13 case not involving difficult or novel issues. Accordingly, reasonable compensation for the 7.08 hours expended by Mr. Brown would be $1,380.60. The out of pocket expenses claimed in the amount of $20.00 are reasonable and will be approved for a total award of $1,400.60.
B.
As noted above, the trustee, while not objecting to Mr. Brown's fees, does object to their payment through the plan. The application represents that the plan provides "sufficient resources" for the payment of the fees without having to extend the term of the plan. This is true only if one views the plan as one for the payment of unsecured claims at 40 cents on the dollar. Under the amended confirmation order, a total of $38,400 would be paid into the plan. Assuming a trustee's commission of $3,420.00 and total attorneys fees paid through the plan of $2,110.20, the amount available for unsecured claims would be $32,869.80, which would result in a dividend of 66 cents on the dollar. On the other hand, the plan is at least equivocal as to the expected dividend on unsecured claims, since in one section the plan estimates a dividend of 100% and in another a dividend of 40%. Furthermore, since the plan is a "pot" plan, any payout of less than 100 cents on the dollar prejudices the unsecured creditors, since they are not limited to the estimated payout specified in the plan. That being said, the unsecured creditors have clearly benefitted from counsel's efforts in successfully reducing the amount of the Bacaj Trust's claim. Even with the increase in plan funding, and assuming no additional attorneys fees, the payout on unsecured claims would have been no more than 59 cents on the dollar had the Trust's claim been allowed as filed. Given that tangible benefit, and given that payment of the allowed additional compensation through the plan will not reduce the dividend on unsecured claims below the 40% estimate stated in the plan, the court will direct that payment through the plan be made as an expense of administration. However, to avoid an undue disruption of the payments to unsecured creditors that would otherwise result from a literal application of § 1326(b)(1), Bankruptcy Code, the court will direct that payment be made in four equal installments.
Even if the secured portion of the two Sears Roebuck claims were included, the dividend would be 65 cents on the dollar.
ORDER
For the foregoing reasons, it is
ORDERED:
1. The application for second award of compensation and reimbursement of expenses is approved in part. Fees in the amount of $1,380.60 and reimbursement of expenses in the amount of $20.00, for a total award of $1,400.60, are approved as an expense of administration, and shall be paid by the chapter 13 trustee through the plan in four equal installments.
2. The clerk will mail a copy of this order to the debtors, counsel for the debtors, and the chapter 13 trustee.