Summary
describing Hunt case and applying "in connection with" test
Summary of this case from In re Carolina GaytanOpinion
21-31410
04-08-2022
In re: ROBERT SCOTT POCHRON VERONICA ANNE POCHRON, Debtors.
MaryAnne Wilsbacher (Assistant United States Trustee), 170 North High Street, Suite 200, Columbus, Ohio 43215-2417 Jeremy Shane Flannery (Counsel for the United States Trustee), 170 North High Street, Suite 200, Columbus, Ohio 43215-2417
Chapter 13
MaryAnne Wilsbacher (Assistant United States Trustee), 170 North High Street, Suite 200, Columbus, Ohio 43215-2417
Jeremy Shane Flannery (Counsel for the United States Trustee), 170 North High Street, Suite 200, Columbus, Ohio 43215-2417
ORDER ON DEBTOR COUNSEL'S APPLICATION FOR COMPENSATION (DOC. 30)
Guy R. Humphrey United State Bankruptcy Judge
This matter is before the court on the Application for Compensation (doc. 30) (the "Application") filed by G. Timothy Dearfield, counsel for the Debtors, which seeks an award of attorney fees in the amount of $15, 593.50 for services rendered by Mr. Dearfield and his law firm ("Dearfield") pre-petition and pre-confirmation, and the response filed by the Chapter 13 Trustee (doc. 36) (collectively, the "Contested Matter").
Local Bankruptcy Rule 2016-1(b)(2)(C) allows a Chapter 13 debtor's attorney to opt-out of the no-look fee and requires a complete itemization entry within 60 days of the confirmation order.
The court conducted a hearing on February 17, 2022 on the Contested Matter, participated in by Mr. Dearfield, Scott G. Stout, counsel for the Chapter 13 Trustee, and John G. Jansing, the Chapter 13 Trustee. Mr. Dearfield testified. In addition, Dearfield filed a Memorandum in Opposition to Trustee's Response to the Application (doc. 43), a Memorandum in Support of the Application (doc. 48), and a Notice of Case Citations in Support of Application for Attorney Fees (doc. 49).
This court recently issued a decision discussing attorney fees for pre-confirmation services provided in a Chapter 13 case. In re Spear, No. 21-30649, 2022 Bankr. LEXIS 65, 2022 WL 117556 (Bankr. S.D. Ohio Jan. 10, 2022). The court will use the applicable tenets from the Spear decision as the starting point and framework for analyzing the Application.
I. Debtors' Counsel's Position
In response to the court's and Trustee's concerns, Dearfield asserted that they incurred significant time in determining what bankruptcy relief the debtors should pursue, including examining whether to file a Subchapter V Small Business Reorganization Act ("SBRA") Chapter 11 proceeding, which was enacted shortly before the debtors first met with counsel; a Chapter 7 proceeding; or a joint Chapter 13 proceeding. Both at the hearing and in court filings, counsel expressed concerns about filing a Chapter 7 liquidation case for the debtors because of uncertainty regarding how the United States Trustee would view the filing of a Chapter 7 case and whether the United States Trustee would seek dismissal under 11 U.S.C. § 707(b)(2) or (b)(3). See Doc. 48 at ¶¶ 4, 5, 9, and 10.
The SBRA become law on August 23, 2019. Pub. L. 116-54, 113 Stat. 1079. It was effective as of February 19, 2020. The initial meeting by the debtors with Mr. Dearfield was on January 30, 2020. Doc. 30 at 5 (entry 1).
Counsel also indicated that they spent significant time on this Chapter 13 case due to the intertwining of Mr. Pochron's business and personal affairs. Thus, they incurred time determining how to value Mr. Pochron's business, identifying an appropriate level of compensation for Mr. Pochron from his limited liability company, and understanding the appropriate tax elections to make. See Id. at ¶¶ 10, 11, and 12.
The court also reviewed a post-hearing list of cases filed by Dearfield. The cases were intended to support the position that this court should be "liberally construing" the term "in connection with" the case. Doc. 49 at 1. See 11 U.S.C. §§ 329(a) and 330(a)(4)(B) (both using the term "in connection with"). In addition, Dearfield cited cases which he asserted "distinguish the law regarding fees for attorney services that must reasonably likely benefit the estate under 11 U.S.C. § 330(a)(4)(A) with the law regarding fees for attorney services that are allowed to specifically benefit the Debtor, and not necessarily the estate, in a chapter 13 case under 11 U.S.C. § 330(a)(4)(B)." Doc. 49 at 1.
II. Legal Analysis
A. Independent Review of Attorney Fee Applications in Chapter 13 Cases
As this court made clear in Spear, bankruptcy courts guard the public interest and the integrity of the bankruptcy system when carrying out the independent duty to review and determine the reasonableness of attorney fees in Chapter 13 cases. Spear, 2022 Bankr. LEXIS 65, at *6-8, 2022 WL 117556, at *2-4. This duty exists even in the absence of an objection from the trustee or another party or when the debtor appears to support the fee application. Id.; see also Dery v. Cumberland Cas. & Sur. Co. (In re 5900 Assocs.), 468 F.3d 326, 329-30 (6th Cir. 2006) (discussing the importance of judicial fee review in bankruptcy cases).
Bankruptcy Code § 330 addresses the compensation of attorneys and states in relevant part:
(a)(1) After notice to the parties in interest and the United States Trustee and a hearing, and subject to sections 326, 328, and 329, the court may award to . . . a professional person employed under section 327 or 1103 -
(A) reasonable compensation for actual, necessary services rendered by the . . . attorney and by any paraprofessional person employed by any such person; and
(B)reimbursement for actual, necessary expenses.
(2) The court may, on its own motion or on the motion of the United States Trustee, the United States Trustee for the District or Region, the trustee for the estate, or any other party in interest, award compensation that is less than the amount of compensation that is requested.11 U.S.C. § 330(a). The applicant seeking the attorney fees always carries the burden of proof to establish that the fees are warranted and should be approved. Hutter Constr. Co., 126 B.R. 1005, 1011-12 (Bankr. E.D. Wis. 1991); In re Dekeyzer, Case No. 20-11271-ta13, 2021 Bankr. LEXIS 956, at *6, 2021 WL 1344715, at *3 (Bankr. D.N.M. Apr. 9, 2021). "This burden is not to be taken lightly given that every dollar expended on legal fees results i[n] a dollar less that is available for distribution to the creditors." In re Dille, No. 18-42994, 2021 Bankr. LEXIS 538, at *6, 2021 WL 864201, at *2 (Bankr. W.D. Mo. Mar. 8, 2021) (citing In re Ulrich, 517 B.R. 77, 80 (Bankr. E.D. Mich. 2014)).
In Chapter 13 cases, courts determine the reasonableness of attorney fees under § 330 by calculating an initial estimate using the lodestar method, multiplying the number of hours reasonably expended on the matter by a reasonable hourly rate, taking into account the attorney's experience level and comparable rates in the local market. Spear, 2022 Bankr. LEXIS 65, at *6-8, 2022 WL 117556, at *5 (citing In re Boddy, 950 F.2d 334, 337 (6th Cir. 1991)); see also In re Atwell, 148 B.R. 483, 488-89 (Bankr. W.D. Ky. 1993) ("A major factor in determining what is a reasonable hourly rate for purposes of Lodestar is whether the rate charged is comparable to rates charged by comparable attorneys in the area.") (internal citations omitted). After the lodestar analysis, courts consider other factors that "may warrant an increase or decrease in the fees awarded." Spear, 2022 Bankr. LEXIS 65, at *9, 2022 WL 117556, at *3 (citing Hensley v. Eckerhart, 461 U.S. 424, 433 (1983)). These factors include:
1) the novelty and difficulty of the issues; 2) the skill required to perform the services properly; 3) the preclusion of other employment resulting from counsel's acceptance of the matter; 4) the customary fee for such matters; 5) whether the fee is fixed or contingent; 6) time limitations imposed by the client or otherwise
dictated by the circumstances; 7) the amount at issue and the results obtained; 8) the experience, reputation, and ability of the attorneys; 9) the undesirability of the case; 10) the nature and length of the professional relationship between counsel and the client; and 11) awards in similar cases or under similar circumstances.Spear, 2022 Bankr. LEXIS 65, at *10, 2022 WL 117556, at *3 (collecting cases and discussing incorporation of these factors into 11 U.S.C. § 330(a)(3)). In addition, except as otherwise allowed, "the court shall not allow compensation for- (i) unnecessary duplication of services; or (ii) services that were not-(I) reasonably likely to benefit the debtor's estate; or (II) necessary to the administration of the case." 11 U.S.C. § 330(a)(4)(A).
This case also raises an additional element not addressed in Spear. To what extent may counsel be compensated through the bankruptcy estate, as an administrative expense, for services that do not directly benefit the bankruptcy estate but were performed for the benefit of the debtor pre-petition? In part, the question arises here because of the lengthy period of time between the debtors' initial engagement with counsel and the bankruptcy petition date. Thus, the court will review the law applicable to such services before discussing the particular circumstances presented by the case at bar.
B. Code § 330(a)(4)(B): Services Provided to the Debtor in Connection with a Bankruptcy Case
In general, only legal services that benefit the bankruptcy estate are compensable in a bankruptcy case. See In re James Contracting Group, Inc., 120 B.R. 868, 872 (Bankr.N.D.Ohio 1990) ("It is a well-settled legal maxim that in order for legal fees to be compensable, the legal services rendered must have benefitted the estate."). However, § 330 contains an "explicit exception" to this rule for chapter 12 and chapter 13 cases and permits attorneys to receive compensation for work that benefits the debtor alone in some circumstances. In re Beutel, No. 19-12690-13, 2021 Bankr. LEXIS 628, at *6-7, 2021 WL 1093969, at *2 (Bankr. W.D. Wis. Mar. 17, 2021). Buetel explained the rationale behind this exception to the requirement that such services directly benefit the bankruptcy estate:
It recognizes that the earning ability of a chapter 12 or 13 debtor is typically the primary asset of the estate. "Plans in such cases are typically funded by the debtor's income, which is property of the estate; the individual debtor is the going concern. Thus, services that benefit the debtor in connection with the case are services that facilitate the successful completion of the debtor's plan. For example, . . . the debtor's litigation of the dischargeability of a particular debt, or defense against a motion for relief from the stay may determine whether the debtor will continue with the chapter 13 case." 3 Collier on Bankruptcy ¶ 330.03[1][b][v] (16th ed.).2021 Bankr. LEXIS 628, at *6-7, 2021 WL 1093969, at *2. For these reasons, bankruptcy courts have approved fees for services rendered to a Chapter 13 debtor in defending nondischargeability adversary proceedings under this provision. See Beutel, 2021 LEXIS 628, at *9-10, 2021 WL 1092969, at *4 ("The magnitude of the claim in the adversary and its potential impact on the ability of the Debtor to achieve a fresh start are sufficient to determine that the services were a necessary benefit to the Debtor within the exceptions to the general rule."); In re Steen, 631 B.R. 704 (Bankr. N.D. Tex. 2021) (citing In re Phillips, 291 B.R. 72, 82 (Bankr.S.D.Tex. 2003)) (Subsection 330(a)(4)(B) "requires the court to consider (among other things) whether there was a benefit to the debtor and whether the attorney's services were necessary or beneficial toward the completion of the case.").
Bankruptcy Code § 330(a)(4)(B) provides the framework for determining the extent to which counsel may be compensated from the bankruptcy estate for services provided to the debtor that do not directly benefit the bankruptcy estate:
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.11 U.S.C. § 330(a)(4)(B). In order for services to be compensable by the bankruptcy estate under this subsection, those services must: 1) be provided to an individual debtor; 2) be provided "in connection with" a Chapter 12 or Chapter 13 case; 3) benefit the debtor; 4) be necessary to the debtor; and 5) otherwise be appropriate under the terms of § 330. See In re Hunt, 588 B.R. 496, 499 (Bankr. W.D. Mich. 2018). The services must not only be beneficial to the debtor, but they must also be made "in connection with" a Chapter 12 or Chapter 13 case. Id. In Hunt, a Chapter 13 case, the court applied this framework and considered whether to approve attorney fees for services related to a family business transaction that required the debtor, who owned 50 % of the entity, to personally guarantee business debt. Id. The court approved fees for the work related to the debtor's guaranty, noting that the financing bank required the guaranty to secure the loan and that, as a Chapter 13 debtor, he was required to seek bankruptcy court approval to incur debt. Id. However, the court denied approval of fees for other services related to the transaction because those services benefited the business entity and the debtor's parents rather than the debtor personally or the bankruptcy estate. Id. Ergo, that portion of the requested fees was not for services provided in connection with the Chapter 13 case and could not be paid as an administrative expense. Id.
Courts generally construe the term "in connection with the bankruptcy case" broadly. See In re Campbell, 259 B.R. 615, 626 (Bankr.N.D.Ohio 2001); In re Bartmann, 320 B.R. 725, 747 (Bankr. N.D. Okla. 2004); Cohn v. U.S. Trustee (In re Ostas), 158 B.R. 312, 321 (N.D.N.Y. 1993) ("The phrase ('in connection with') may include services related to [a] precipitating cause of the bankruptcy, or services which are inextricably intertwined with the bankruptcy."). In In re Scribner, the court examined the meaning of "in connection with the bankruptcy case" as used in § 330(a)(4)(B) when considering prepetition services provided to a Chapter 13 debtor. 2002 Bankr. LEXIS 1980 (Bankr. N.D. Tex. Aug. 8, 2002). The court noted that § 329(a) uses both this phrase and "in contemplation of" bankruptcy and therefore concluded that, because those phrases are used separately in §§ 329(a) and 330(a)(b)(4), they must have different meanings. Id. at *7. The doctrine of statutory construction of "verba cum effectu sunt accipienda - that if possible, every word and every provision is to be given effect and that none should be ignored" supports the Scribner court's conclusion that these phrases must have different meanings. See In re Smith, 600 B.R. 570, 578 (Bankr.S.D.Tex. 2019) (referring to this principle of statutory construction as "the ordinary-meaning rule"). The Scribner court then concluded that services rendered in contemplation of bankruptcy, as that term is used in § 329(a), mean those services rendered after "counsel is consulted by a client due to the client's financial problems and counsel discusses a possible bankruptcy filing as one of the alternatives for attempting to solve the client's financial difficulties." 2002 LEXIS 1980, at *11-12. On the other hand, the court concluded that services rendered "in connection with" a bankruptcy case, as used in both § 329(a) and in § 330(a)(4)(B), are those services provided after "the client has chosen bankruptcy as the means through which to resolve his financial difficulties and counsel thus begins to prepare for an actual filing under Chapter 13 [or Chapter 12 under § 330(a)(4)(B)]." Id. at *12. Applying these definitions, the court construed the statute as drawing a bright line and determined that fees incurred before the debtor makes the decision to file the Chapter 13 case cannot be allowed under §330(a)(4)(B) while fees incurred after the decision to file should be allowed. Id. at *12-13. See also In re Busetta-Silivia, 314 B.R. 218, 225-26 (B.A.P. 10th Cir. 2004) (holding that prepetition fees of counsel in a Chapter 13 case may be allowed as an administrative expense under § 330(a)(4)(B) and discussing, explaining, and distinguishing Scribner).
Conversely, the court in Hirsch rejected the notion that there was a "temporal" limitation on the term and found that fees earned after a case was dismissed were incurred "in connection with the case:
The court finds the meaning of "in connection with the bankruptcy case" to be clear and unambiguous. It means to have a "causal or logical relation or sequence." Webster's Ninth New Collegiate Dictionary 342 (1989); see Black's Law Dictionary 302 (6th ed. 1990) (defining "connection" as "the state of being connected or joined," among other things). The plain meaning thus requires the court to give the phrase "in connection with the bankruptcy case" a broad reading. Congress clearly understood how to provide temporal limitations in the Bankruptcy Code by using terms such as "during", "prior", "before" and "after." See, e.g., 11 U.S.C. § 101(10A)(A) (current monthly income is income debtor receives "during" six-month period preceding petition date); 11 U.S.C. § 1305(c) (post-petition claim disallowed if claimant knew "prior" approval by trustee was practicable and not obtained); 11 U.S.C. § 1306(a)(1) (property of estate in Chapter 13 includes property debtor acquires "after" commencement of case but "before" case is closed, dismissed, or converted). In section 330(a)(4)(B), however, Congress chose to use a temporally indefinite phrase that would encompass services related to a case, so long as they were both necessary and beneficial to the debtor. Nothing leads the court to believe that an attorney for a Chapter 13 debtor is precluded per se from seeking an award of compensation for post-dismissal services.In re Hirsch, 550 B.R. 126, 140-41 (Bankr. W.D. Mich. 2016).
The court finds some merit to the Scribner court's differentiation of legal services provided "in contemplation of" versus "in connection with a bankruptcy case" because it properly emphasizes a need to weed out unrelated legal work with a clean line of demarcation and gives meaning to the varying terms of "in contemplation of" and "in connection with." Nevertheless, the court declines to adopt the bright-line test of Scribner for determining allowable fees under § 330(a)(4)(B) and instead agrees with the reasoning in Hirsch. In rejecting the strict temporal approach, the court notes that § 329, which the Scribner court draws upon, addresses disclosure of attorney fees and examination of prepetition fee agreements and fees paid prepetition, whereas § 330(a)(4)(B) addresses attorney fees for trustees and the bankruptcy estate. Because of this, the court is not convinced that drawing upon the terms in § 329 can resolve the interpretation of "in connection with" under § 330(a)(4)(B). In addition, the broad interpretation given to "in connection with" by most courts would seem to include many services provided by debtors' counsel prior to the time that a definitive determination is made to file a Chapter 13 or Chapter 12 case.
C. Application of § 330 to the Fee Application in the Present Case
As in Spear, the court does not take issue with the rates charged by Dearfield on this matter and finds that all of the rates charged for the professionals who rendered services on behalf of the debtors in this case are appropriate for the Southern District of Ohio and the Dayton area. But see also In re Henson, Case No. 20-32487, B.R., 2022 Bankr. LEXIS 500, 2022 WL 598612 (Bankr. S.D. Ohio Feb. 25, 2022) (analyzing the billing rate for a lawyer doing consumer bankruptcy work, and determining it excessive).
Rather, the court's concern with the Application centers on the amount of time spent and some of the work performed. The Chapter 13 Trustee also expressed concern over billing items contained in the Application. Specifically, the Trustee asserted that some of the charges were duplicative, repetitive, excessive, and not beneficial to the bankruptcy estate. The Trustee also raised concern with billing at the top rate in the firm for research and whether all of the research was actually needed. The Trustee noted that time spent reviewing the debtors' tax returns appeared to be excessive; that the drafting and filing of an answer in a state court case did not appear to benefit the bankruptcy estate; and that "billing for the simple review of a notice" appeared excessive. Doc. 36 at 1. The court finds that all of the Trustee's concerns are warranted. The court also independently reviewed matters that it raised at the hearing.
1. Length of Time Relating to Prepetition Services
Counsel's first time entry is dated January 30, 2020. The case was not filed until almost 19 months later, on August 19, 2021. While the circumstances leading to such a delay between the initial consultation with the client and the actual filing of the bankruptcy case may justify an extended timeline, such a lengthy gap creates difficulties in assessing the appropriateness of the fees. First, the longer the time between the initial consultation and the filing of the bankruptcy petition, the more difficult it is to assess whether those services were provided in connection with the case. With the passage of significant time, the connection to the case naturally becomes more remote. Second, to the extent not all the prepetition fees are approved by the court, unless counsel waives those fees, questions and issues arise from that consequence. Third, the longer the lead-up time becomes between the initial consultation and the filing of the case, the more likely it is that duplication and inefficiencies in the services will be present. Delay almost always results in increased fees. For instance, if counsel begin drafting the debtor's schedules a year before the case is filed, the debtor's creditors and financial circumstances will undoubtedly be different when the case is filed, requiring updates and revisions to the schedules. And, of course, additional meetings with the debtor will be required to ensure that the schedules and filings are indeed updated and accurate. The court identified the following examples of such events in the present case: a) on December 30, 2020 counsel billed an hour of time for a “Meeting with Debtors to update business/personal events;” b) on February 12, 2021 counsel billed 1.5 hours for “Meeting with clients discussing progress on the case, goals, strategy on chapter 7 individual non-consumer case v. chapter 13 reorganization;” c) on June 11, 2021 counsel billed 1.5 hours for “Meeting with clients discussing progress on the case, strategy going forward, new developments with income, etc; review complaint filed by American Express in Warren County Common Pleas Court;” and d) on September 1, 2021 counsel billed 1.5 hours for a meeting “with Debtors to review/analyze/edit schedules, statements and plan.” The court addresses fee reductions for those redundancies below.
The court certainly understands that the timing of the filing of a bankruptcy petition is very important in many cases, can make significant differences on the outcome of the case for the debtors, and the financial impact it may have on the debtors, creditors, and other parties-in-interest.
The court in Scribner raised the issue of whether a Chapter 13 debtor's counsel is subject to the "disinterested" requirement of § 327(a), but declined to determine that issue. 2002 LEXIS 1980, at *5-6. The court noted that it was not able to find any reported decisions on that issue. Id. However, following that decision, in In re Gilliam, the court determined that "[t]he disinterestedness standard does not appear to apply in chapter 13 matters …. Instead, the inquiry is one under section 330 regarding benefit to the debtor's estate." 582 B.R. 459, 470 (Bankr. N.D.Ill. 2018); see also In re Gutierrez, 309 B.R. 488, 500-01 (Bankr.W.D.Tex. 2004) (declining to apply the disinterested requirement of § 327(a) to Chapter 13 debtors' counsel and finding that debtors' lawyers in Chapter 13 cases, as relates to conflict issues, are only bound by the "conflict of interest rules with which they must, as a matter of law, comply… by virtue of the rules of the state that has licensed them to practice."). Regardless of whether the "disinterested" requirement of § 327(a) applies to Chapter 13 counsel, significant issues could arise if counsel may be an unsecured creditor of the debtor on account of fees for services provided to the debtor that were not connected to the Chapter 13 case or otherwise are not allowable in the Chapter 13 case. See also In re Swartout, 20 B.R. 102, 106-07 (Bankr. S.D. Ohio 1982) (discussing whether the unapproved portion of counsel's fees could be avoided either as a prepetition preference under § 547 or as an unauthorized post-petition transfer under § 549, and ordering counsel to pay $888 to the trustee, representing the amount which counsel received post-petition which was not approved as being rendered in connection with the case).
2. Services Incurred on Behalf of the Debtor in Connection with the Bankruptcy Case Under § 330(a)(4)(B)
As noted, the length of time between the initial consultation with the debtors and the filing of this case strains the "in connection with the case" requirement of § 330(a)(4)(B). This court has previously confronted situations in which bankruptcy counsel rendered substantial services to a debtor prior to an individual debtor's filing of a bankruptcy petition. In the context of a Chapter 7 case, this court issued one of the earliest decisions analyzing the "in contemplation of" and "in connection with the case" terms. See In re Swartout, 20 B.R. 102 (Bankr. S.D. Ohio 1982). Swartout involved a debtor who was going through a contentious divorce while also trying to extricate himself from a failing restaurant business co-owned with his estranged wife. Id. at 103-05. There, this court engaged in an examination of counsel's fees in the context of § 329(a) after the Chapter 7 trustee objected to the prepetition fees counsel received. Id. The court first noted that "pre-petition services should be particularly scrutinized to Id. at 105. In examining the issue, the court found that:
In order for services to be "in contemplation" of bankruptcy, they should be influenced by, and a direct result of, the imminence of the Debtor's Petition filing. Tripp v. Mitschrich, 211 F. 424 (8th Cir. 1914); Quinn v. Union Nat'l Bank, 32 F.2d 762 (8th Cir. 1929), cited in Collier on Bankruptcy, 15th Ed., para. 329.03, n. 2. The Court should further ascertain that the services provided bear more than a casual relationship to the bankruptcy proceeding.Id. at 106. In rejecting fees for representation of the debtor in his divorce proceeding, which counsel argued was "inseparable" from the bankruptcy case, the court stated that:
Although a contemplated bankruptcy filing may alter legal tactics in a debtor's other involvements, legal services for matters unrelated to the ultimate bankruptcy proceeding should not be compensated as a priority expense if the services were not directly connected with the bankruptcy proceeding. In this case, the strategies used in Debtor's divorce proceeding were affected by the contemplated bankruptcy proceeding. The divorce proceeding itself, however, is separable, and not "connected with" the case at bar as contemplated in 11 U.S.C. § 329(a).Id. However, the court did find that the legal services related to the debtor's corporate affairs were connected with the bankruptcy case because they "were undertaken primarily for purposes of protecting Debtor's bankruptcy privileges, and preserving Debtor's estate." Id. at 106.
In light of its reasoning in Swartout, the court will now examine under § 330(a)(4)(B) several of counsel's prepetition time entries related to services provided to the debtors which were not necessarily performed for or directly beneficial to the bankruptcy estate. First, the court notes that counsel spent time researching possible tax issues relating to Mr. Pochron's business and establishing a new business entity. See entry 20 (Research tax law for S Corporation "reasonable compensation" for past potential assessments and planning for future operations) (2.5 hours @ $275) and entry 25 (Analysis of potential personal services contract and its effect on Debtor/Husband's projected disposable income; new LLC to conduct new consulting services) (1.8 hours @ $175). The court determines that these services are allowable under § 330(a)(4)(B) because they involved assisting Mr. Pochron in establishing his new limited liability company, whose income was intended to and is funding the Chapter 13 plan. Therefore, the court finds that those services were provided to Mr. Pochron "in connection with" the case and were otherwise reasonable, necessary, and appropriate under § 330. See Beutel, 2021 LEXIS 628, at *6-7, 2021 WL 1093969, at *2; Swartout, 20 B.R. at 106. However, the court finds the amount of time spent on these services to be excessive in light of the relatively straight-forward nature of the issues presented. The basic aspects of S-corporation tax status, including compensation requirements, the appropriateness of electing this status in Mr. Pochron's circumstances, and the likelihood that an issue would arise from past noncompliance are not novel issues. In addition, the billing record does not show any entries in which counsel correspond with or review any statements from Mr. Pochron's accountant, presumably the person most able to determine an appropriate tax status for Mr. Pochron and provide information regarding past practices. To the extent counsel is not familiar with these concepts, he cannot expect compensation for time spent acquiring the sort of general knowledge integral to any practitioner who files bankruptcy cases on behalf of clients who are self-employed or operate small businesses. Thus, the court will allow 1 hour at the blended attorney rate of $225 for the establishment of the new LLC and work related to the election of an S-corporation tax status and .5 hours at the blended attorney rate of $225 for the review of the personal services contract for a total of $337.50 but disallows the remaining $665.
The other prepetition work which implicates § 330(a)(4)(B) is the entry for .8 hours of time spent by Matthew Dearfield, an attorney with the firm, drafting an answer to a state law collection complaint filed by American Express. See time entry 30. While the court questions the necessity of this work had the case been filed earlier (and perhaps on a timelier basis), the court will allow this time as work being performed in connection with the case. Had the answer not been filed, presumably counsel would have spent time avoiding any judgment lien which American Express may have obtained if default judgment had been taken against the debtors.Those services also appear to be related to a precipitating cause of the bankruptcy and potentially "inextricably intertwined with the bankruptcy," since Mr. Pochron's earlier business was not able to pay that bill, at least in part, creating the debtors' need to seek bankruptcy relief. See Cohn v. U.S. Trustee (In re Ostas), 158 B.R. 312, 321 (N.D.N.Y. 1993).
Of course, the court cannot opine on the merits of the answer or any pled defenses, but can only opine on the connection between the services provided by counsel and the filing of the Chapter 13 case.
3. Review of Documents
Counsel spent 14 hours reviewing documents for a total of $3, 020, with much of that time spent reviewing the debtors' tax returns and bank statements (time entries 5, 7, 8, 9, 11, 13, 14, 15, 19, 27, and 35). As the court explained at the hearing, the court finds that amount of time reviewing those documents is excessive. The court will reduce allowable time for those services to 7 hours at a blended attorney rate of $225, for a total of $1, 575, reducing the allowable fees by $1, 445.
4. Meetings with Debtors (time entries 1, 3, 4, 12, 22, 24, 28, 29, 32, 33, 45, 50, 52, 57, 59, 61, and 68)
Counsel spent 17.4 hours in meetings with the debtors, for a total of $4, 383. As discussed above, the court believes that the long delay between the initial meeting with the debtors and the filing of the case almost 19 months later resulted in inefficient use of time. The court is convinced that this time could have been used more efficiently and reduces the allowable amount to 10 hours at a blended attorney rate of $225, for a total of $2250, resulting in a reduction of $2, 133.
5. Time Spent Filing State Court Answer (time entries 30 and 31)
In addition to the .8 hours which Matthew Dearfield spent drafting the answer to the American Express state court complaint, he also billed .7 hours for time spent travelling to the court and filing the answer at a rate of $175 per hour. As attorney time was billed at the attorney's hourly rate for performing clerical or administrative work which could have been performed by a courier or through another service, the court will deduct the .7 hours billed for filing the complaint, resulting in a deduction of $122.50 from the allowable fees. See Spear, 2022 Bankr. LEXIS 65, at *16-18, 2022 WL 117556, at *2-4.
6. Chapter Choice Time (time entries 1, 3, 12, 26, and 32)
Counsel spent 7.8 hours researching and analyzing under which Bankruptcy Code chapter the debtors should file, for a total of $1, 923. While the court recognizes that every potential debtor's situation deserves critical analysis to determine which chapter provides the best and most appropriate relief to the debtor, the time spent making that determination here was excessive. The court finds that the maximum allowable time in this case for making that determination is 4 hours. First, while Subchapter V provided under the Small Business Reorganization Act was new, the court believes that minimal time was required to conclude that the debtors were not good candidates for the relief accorded under Subchapter V of Chapter 11. The court also does not believe that the considerations related to whether a Chapter 7 case was viable for the debtors were time-consuming or difficult. As a result, the court will eliminate 3.8 hours at a blended rate of $225, reducing the total allowed fees by $855.
7. Preparation of Schedules (time entries 10, 18, 36, 42, 43, and 44)
Counsel spent 8.1 hours preparing the debtors' bankruptcy schedules, for a total of $2, 145. A review of the schedules indicates that the schedules were not much, if any more difficult than schedules typically filed in a Chapter 13 case. These fees represent approximately one-half of what the court presently allows as the maximum "no-look fee" for representation of debtors in Chapter 13 cases in this District. See Spear, 2022 Bankr. LEXIS 65, at *11-16, 2022 WL 117556, at *4-6. And the services built into a no-look fee involve significantly more responsibilities than just preparing the schedules. In addition, as noted in Spear, much of the responsibility for preparing schedules can be done by paraprofessionals with oversight and review by an attorney. The court also believes that the time spent on preparing the schedules was likely exacerbated by the length of time between when counsel was first involved and started drafting the schedules and when the bankruptcy case was actually filed. Accordingly, the court will limit the allowable fees for preparing the bankruptcy schedules to $1, 500, reducing the allowable fees by $645.
8. Ambiguous Entries
On January 20, 2020, counsel billed 2.7 hours ($742.50) for "Post meeting of law as to facts ascertained in initial meeting" (entry 2) and on June 1, 2021 counsel billed .5 hours for "Review and counsel regarding written agreement" (entry 28) ($87.50). The court cannot determine what those entries mean and what services were performed relating to those descriptions. The court will deduct $830 on account of those ambiguities. See In re Maruko Inc., 160 B.R. 633, 641 (Bankr. S.D. Cal. 1993) ("The Court concurs with the Fee Examiner's observation that Attorney 5's entries are vague and ambiguous. It is counsel's duty to fully explain the nature of the services rendered, and she has not done so. The Court disallows $150."); In re King, 546 B.R. 682, 712 (Bankr.S.D.Tex. 2016) (citing La. Power & Light Co. v. Kellstrom, 50 F.3d 319, 324 (5th Cir. 1995)) (disallowing numerous vague entries and stating: "Time entries that do not provide sufficient detail to determine whether the services described are compensable may be disallowed due to vagueness.").
9. Paraprofessional Time
The following entries, while billed by counsel at counsel's hourly rate, were services which a paraprofessional could have performed at a lesser rate: 7 (Review SOS website for Ohio business information; Debtor/Husband's membership of two LLC's Bridge Catalyst and Collaborative Venture (.3 hours @ $175); 9 (Review of Warren County Recorder for deed, and mortgage(s), information on real property, etc.) (1.0 hours @ $175); and 10 (Initial draft of schedules with currently available information and known creditors) (.8 hours @ $175). The Dearfield firm has paralegals who provided services on this case and who bill at $110 per hour. Accordingly, the court is allowing fees for those services at $110 per hour. This results in a reduction of $136.50 for those services. The court also considered that some of the time spent reviewing documents could have been incurred by the paralegals, but since the court has already reduced that time, the court will not make any further adjustment.
10. Research
The Trustee noted both that at least some research was conducted at a higher hourly rate than appropriate and questioned the need for some of the research. For example, on April 26, 2021 Timothy Dearfield "research[ed] tax law for S Corporation 'reasonable compensation' for past potential assessments and planning for future operations" (entry 20) at the rate of $275 per hour for a total of $687.50. The court has already reduced this amount above. And on May 29, 2021 (entry 23) Matthew Dearfield spent 2.5 hours researching "case law involving potential 11 USC 707(a) dismissals, specifically targeting business cases where Debtor does have the ability to pay some dividend" for a total of $437.50. The court questions the need to conduct that research, or at least that amount of time spent on such research, as the means test analysis, provided by 11 U.S.C. § 707(b), and not 707(a), only applies to individual debtors whose debts are primarily consumer debts. Counsel has at all times insisted that the debtors' debts were primarily business debts, and the law appears settled, at least in the Sixth Circuit, that § 707(a) cannot be used to dismiss an individual debtor's case based only on an ability to pay. In re Zick, 931 F.2d 1124, 1127 n.3 (6th Cir. 1991) (legislative history stating that ability to pay is an insufficient basis to dismiss under § 707(a)); In re Mohr, 425 B.R. 457, 466-67 (Bankr. S.D. Ohio 2010) (Walter, J.) (similar). When asked at the hearing, counsel also admitted that they did not call the United States Trustee to determine what the United States' Trustee's position might be under such circumstances. As this court stated in Swartout, this time appears to be "unnecessary preparation in anticipation of speculated creditor tactics[.]" 20 B.R. at 105. Thus, the court will reduce that time to one hour, with a $262.50 reduction in the allowed fees. Additionally, on February 10, 2021, Matthew Dearfield spent one hour researching "issues with exemptions related to retirement and annuities; Research applicable ORC statute 2329.66." See entry 6. As above, the court views basic knowledge of the Ohio exemption statute as foundational to Chapter 13 practice in this District and disallows this time in the amount of $175. See In re Smith, 2002 Bankr. LEXIS 1758, at *14 (Bankr. W.D. Ky. Sep. 17, 2002) (noting that the court disallowed fees requested for time spent researching stock option exemption issues because the issue should not have been novel to an experienced trustee); In re Churchfield Mgmt. & Inv. Corp., 98 B.R. 838, 886 (Bankr. N.D.Ill. 1989) (disallowing research that should have been unnecessary for experienced bankruptcy counsel). To the extent this case presented a unique issue requiring extended research, the court is unable to determine this from the skeletal entry drafted by counsel. See In re New Bos. Coke Corp., 299 B.R. 432, 438 (Bankr. E.D. Mich. 2003) (stating that the attorney bears the burden of justifying his requested fees and must "clearly identify, describe and explain the services and expenses charged to the estate"). Finally, on August 5, 2021, Matthew Dearfield spent 2.5 hours researching "whether IRA annuity distributions are calculated in the 6-month CMI period." See entry 34. The court determines that the amount of time spent conducting this research is excessive and allows one hour at $175. The remaining $262.50 is disallowed.
11.Claim Review
On September 9, 2021, Dearfield billed two time entries related to claim review. See entry 46 ("Analyze secured claim of Wells Fargo-PMSI-HVACsystem [sic]") and entry 47 ("Analyze all claims filed to date"). The court notes that only six claims had been filed as of September 9, 2021, one of which was the Wells Fargo claim, three of which were filed by the same creditor, and one of which related to a nondischargeable student loan. As above, the court finds the amount of time Dearfield spent reviewing these documents to be excessive and accordingly reduces the allowed time to one hour at $275. The remaining $330 in requested fees is disallowed.
12. Overall Fee and Comparable Fees in Similar Cases
As in Spear, when viewed as a whole, the total hours expended multiplied by the hourly rate charged for these services results in what the court believes is an excessive amount for the total fees charged for the service. In reaching this conclusion, the court exercises its ability to compare the requested fees to those awarded for similar work performed by counsel in other bankruptcy cases.
The current maximum no-look fee in this District is $4, 350 and reflects a range of compensation generally appropriate for typical Chapter 13 cases of varying complexity. LBR 2016-1(b)(2)(A), as amended by General Order 50-1 (effective Feb 24, 2021). While this case is more complex than a typical Chapter 13, the court does not find it thrice as difficult. The schedules and the Chapter 13 plan are not complicated or significantly more involved than a typical Chapter 13 case in this court. However, given the additional issues raised by Mr. Pochron's business operations and counsel's exploration of the various bankruptcy chapter analysis, the court finds that the case has been somewhat more involved than the typical Chapter 13 case that comes before this court.
Nonetheless, the court reminds counsel that "the hourly fee awarded should be adjusted when a significant percentage of the total work completed is of such a routine nature. Compensation for routine work should be discounted." In re Ferkauf, Inc., 42 B.R. 852, 858 (Bankr. S.D.N.Y. 1984). Accordingly, counsel need to push work down to the lowest available rate for which such work can be competently performed or otherwise adjust the billing accordingly so that clients are not excessively billed for the level of the work performed. See Atwell, 148 B.R. at 492 ("[B]illing judgment must be exercised by debtor's counsel in determining the 'reasonable number of hours' for which fees will be requested under Lodestar."); Hensley, 461 U.S. at 434 ("[Attorneys] should make a good faith effort to exclude from a fee request hours that are excessive, redundant or otherwise unnecessary . . .").
Judge Kendig has identified the routine legal matters to which Chapter 7 trustees attend in In re Kieffer, 306 B.R. 197, 207 (Bankr.N.D.Ohio 2004). Routine matters in a Chapter 13 case are illustrated by the tasks provided for by the no-look fee in LBR 2016-1(b)(2)(A).
III. Conclusion
As in Spear and Henson, this court must assess the fees requested in the larger framework of all the Chapter 13 and other bankruptcy cases which come before the court. When this court compares the services provided in this case by Dearfield with the services provided by other counsel in other Chapter 13 cases for similar work performed, the court finds, again, that the total fees requested in this case are not commensurate with Chapter 13 services provided by counsel in Dayton and the Southern District of Ohio. And as set forth in this order, the court finds that some of the services were unnecessary, could have been performed more efficiently, or could have been performed at a lower rate. In addition, some of the time itemizations were too vague and ambiguous to justify the award of fees. Thus, based upon the court's adjustments discussed above, the court is reducing the fees by a total of $7, 862.00. The court allows fees in the total amount of $7, 731.50.
See also In re Harper, Case No. 21-50709, 2022 WL 727573, 2022 Bankr. LEXIS 652 (Bankr. S.D. Ohio Mar. 10, 2022) (Nami Khorrami, J.) (In a Chapter 13 case which Dearfield served as debtor counsel and opted out of the no-look fee, reducing itemized fees sought under LBR 2016-1(b)(2)(C) from $8, 745.50 to $7, 183).
IT IS SO ORDERED.