Opinion
Case Nos. 02-80016-RGM, 02-80017-RGM, 02-80015-RGM
March 21, 2002
MEMORANDUM OPINION
THESE CASES are before the court on the application of Donald F. King, the chapter 7 trustee, to employ the law firm of Odin, Feldman Pittleman, P.C., as counsel for the trustee. Mr. King is a member of the law firm sought to be employed. The application does not limit which members of the law firm may perform legal services for the trustee nor does it set forth specific hourly rates for the members of the firm. The application states that the regular hourly rates of the members of the firm range from $160.00 per hour to $350.00 per hour for members, $70.00 per hour to $185.00 per hour for associates and $70.00 per hour to $115.00 per hour for para-professionals. The application and proposed order properly state that the compensation will be paid in such amounts as may be allowed by the court upon proper application.
The manner in which compensation is determined is well established. Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir. 1974) is the principal and most commonly cited case. See also 11 U.S.C. § 330(a)(3) and (4). Johnson and § 330(a) set out various factors to be considered by a trial court in determining compensation of an attorney. Johnson was approved by the Supreme Court in Blum v. Stenson, 465 U.S. 886, 104 S.Ct. 1541 (1984) and adopted by the Court of Appeals for the Fourth Circuit in Barber v. Kimbrell's Inc., 577 F.2d 216 (4th Cir. 1978). The principles set out in Blum, Johnson and Barber have been further explained in Daly v. Hill, 790 F.2d 1071 (4th Cir. 1986), Harman v. Levin, 772 F.2d 1150 (4th Cir. 1985), Ballard v. Schweiker, 724 F.2d 1094 (4th Cir. 1984) and Arnold v. Burger King Corporation, 719 F.2d 63 (4th Cir. 1983) and applied in In re King, 88 B.R. 768 (Bankr.E.D.Va. 1988) (Bostetter, C.J.).
A central factor in determining an appropriate award of compensation is "the prevailing market rates in the relevant community". Blum, 465 U.S. at 895, 104 S.Ct. at 1547; Daly, 790 F.2d at 1077, 1079-81. This court is in an excellent position to evaluate the prevailing market rate for attorney's fees by virtue by the many fee applications presented to the court. The very number of applications provides an exceptional view of the breadth and depth of the legal community and the fees charged. The current highest prevailing rate for experienced bankruptcy practitioners is $265.00. Absent the application of other Johnson factors, bankruptcy counsel should not have an expectation of compensation in excess of $265.00 per hour for attorneys and $70.00 per hour for para-professionals. The prevailing rate for less experienced attorneys is lower and such counsel should expect less than the maximum rate as illustrated by the range of rates charged by the proposed law firm. See In re Geofreeze Corp., 50 B.R. 200 (Bankr.E.D.Va. 1985) (Bostetter, J.).
The para-professional rate is applicable only to para-professionals employed by the law firm who assist counsel for the debtor. This is not compensation for para-professionals who assist the trustee in the performance of trustee duties. If para-professional compensation is allowed at all as an expense of a trustee, it would be allowable at the cost to the trustee without any profit. While the trustee is entitled to recover his costs and expenses, he is not entitled to profit from costs and expenses incurred. The costs of para-professionals assisting trustees is, generally, no more than $35.00 per hour.
The prevailing market rate may be less than an individual attorney's hourly rate. When employing counsel, the trustee has a duty to the bankruptcy estate to retain competent professionals at reasonable rates. As long as competent bankruptcy counsel is available at rates not exceeding the prevailing market rates, the trustee is duty-bound to seek out such counsel or obtain such rates, even if the counsel proposed to be employed must reduce his or her regular rates. The test is not the particular attorney's rate, but the prevailing market rate.
Establishing the prevailing market rate is particularly important in circumstances where the trustee is employing his own firm. The transaction is not an arm's length transaction. While employment by the trustee of the trustee's own law firm is frequently appropriate and is expressly authorized by § 327(d) of the Bankruptcy Code, compensation must be closely scrutinized to avoid even the appearance of impropriety. The appearance of impropriety can easily arise — especially to disappointed litigants and creditors — when the trustee employs his own law firm, when a trustee regularly retains an attorney from the same small group of professionals, particularly if the retention appears to be reciprocal with the trustee's firm in other bankruptcy cases, or when counsel is compensated at a rate higher than the prevailing rate. Fortunately, through the vigilance and professionalism of the panel trustees, the United States Trustee, and the bankruptcy bar, this district does not suffer from these appearances of impropriety.
The orders tendered by counsel will be entered with compensation to be determined upon application made at the appropriate time.