Opinion
No. 00-22856, Adv. Pro. No. 03-2042.
July 11, 2007
Mark. S. Dessauer, Esq., Hunter, Smith Davis, LLP, Kingsport, Tennessee, Attorney for Mary F. Russell, Trustee.
Maurice K. Guinn, Esq., Gentry, Tipton McLemore, P.C., Knoxville, Tennessee, Attorney for Carleton A. Jones, III.
MEMORANDUM
This adversary proceeding is before the court on the objection by defendant Carleton A. Jones, III, to the request for attorney's fees by plaintiff Mary Foil Russell, Trustee. For the reasons set forth below, the court will sustain the objection. This is a core proceeding. See 28 U.S.C. § 157(b)(2)(A).
I.
Pro Page Partners filed a voluntary chapter 11 petition on October 23, 2000, and on September 4, 2001, the case was converted to a chapter 7 case. On September 28, 2001, Mary Russell, the chapter 7 trustee, filed an application to employ Mark S. Dessauer and the firm of Hunter, Smith Davis, LLP as special counsel pursuant to 11 U.S.C. § 327(e) to prosecute on the Trustee's behalf certain adversary proceedings, including the instant one. The application recited that counsel agreed to charge the Trustee the following hourly rates for its services: "Partners — $150.00; Associates — $125.00; Paralegals — $65.00." On October 4, 2001, the court entered an order granting the application to employ.
In the present adversary proceeding, the Trustee sought recovery against the Defendant arising out of an Indemnification Agreement entered into between the Defendant and the Trustee's predecessor in interest. In a May 25, 2007 memorandum opinion and order, this court granted the Trustee summary judgment against the Defendant on her indemnity claim and concluded that she was entitled to recover reasonable attorney's fees and expenses based on a provision in the Indemnification Agreement that permits such recovery. Consistent with that ruling, the order provided that "[w]ithin ten days after entry of this Order, the [Trustee] is directed to file and serve upon the [D]efendant an affidavit concerning her attorney's fees and expenses incurred in connection with this action."
The relevant provision of the Indemnification Agreement states as follows:
If any action shall be commenced among the parties hereto pertaining to the interpretation of, or the obligation of, or the obligation of any party under the terms hereof, then party substantially prevailing in such action shall be entitled to recover its reasonable attorney's fee in an amount to be fixed by the person or entity which shall hear and decide such dispute.
On May 31, 2007, Mark Dessauer filed an affidavit seeking on behalf of the Trustee attorney's fees of $42,474.00, plus reimbursement of expenses of $4,634.40, for a total award of $47,108.40. The Trustee calculated the attorney's fees according to an hourly rate of $235.00 for partners, $150.00 for associates, and $75.00 for paralegals. The Defendant responded with an objection to the attorney's fee request, asserting that the hourly rate for services performed by the Trustee's counsel should be limited to $150.00, the amount set forth in the application and approved in the order employing counsel, thereby reducing the amount of the award by $14,101.50. The Defendant also objected to a $273.23 claimed expense by Mr. Dessauer for one-night's lodging at the Hermitage Hotel in Nashville, Tennessee, contending that acceptable accommodations were available for much less. In response to the Defendant's objection, the Trustee asserts that because the award of attorney's fees is based on the reasonable attorney's fee provision of the Indemnification Agreement, the terms under which special counsel was employed are not binding on the Trustee or the court, but are instead simply one factor the court can consider in determining reasonableness.
II.
When a trustee files an application under 11 U.S.C. § 327 to employ an attorney, § 328 permits the attorney to obtain prior approval of the terms of his or her compensation. Section 328(a) states as follows:
The trustee, or a committee appointed under section 1102 of this title, with the court's approval, may employ or authorize the employment of a professional person under section 327 or 1103 of this title, as the case may be, on any reasonable terms and conditions of employment, including on a retainer, on an hourly basis, or on a fixed or percentage fee basis, or on a contingent fee basis. Notwithstanding such terms and conditions, the court may allow compensation different from the compensation provided under such terms and conditions after the conclusion of such employment, if such terms and conditions prove to have been improvident in light of developments not capable of being anticipated at the time of the fixing of such terms and conditions.
Under the second sentence in this statutory provision, as interpreted by the Sixth Circuit Court of Appeals, once a bankruptcy court has approved a fee arrangement, "the court cannot on the submission of the final fee application instead approve a `reasonable' fee under § 330(a), unless the bankruptcy court finds that the original arrangement was improvident due to unanticipated circumstances as required by § 328(a)." In re Airspect Air, Inc., 385 F.3d 915, 920-21 (6th Cir. 2004) (quoting In re Tex. Sec., Inc., 218 F.3d 443, 445-46 (5th Cir. 200)); see also Unsecured Creditors Comm. v. Webb Daniel, 204 B.R. 830, 834 (M.D. Ga. 1997) ("Section 330's reasonableness standard does not supplant Section 328(a) and give the judge free reign to void a previously authorized employment agreement."). In other words, the court can alter a fee agreement only in light of a development "not capable of being anticipated," not simply a development that was not anticipated. See, e.g., In re Barron, 325 F.3d 690 (5th Cir. 2003) (holding that the court could not modify a contingent fee arrangement unless developments were "not capable of being anticipated"; mere fact that parties had not expected a settlement was not enough, because a settlement could have been anticipated); In re HNRC Dissolution Co., 340 B.R. 818, 826 (E.D. Ky. 2006) (finding that the discretion under § 328 is available "only when events have occurred that were not capable of being anticipated at the time the compensation terms were approved.").
Pursuant to § 328, "an intervening circumstance, in order to render improvident a court's decision to grant a fee application, must be one that would have affected the court's decision in the first place. It must have been relevant to that decision in some way, rendering it untenable or unwise in hindsight." In re Airspect Air, Inc., 288 B.R. 464, 471 (B.A.P. 6th Cir. 2003). "Even where such unforeseeable circumstances are present, the Bankruptcy Court in any event is not required to deviate. Section 328 uses the word `may' to express that deviation in the face of circumstances not capable of anticipation is permissive but not mandatory in any case." In re HNRC Dissolution Co., 340 B.R. at 326.
Although neither party in this adversary proceeding has addressed § 328(a), application of its provisions to the current matter would appear to preclude as a general rule any award to counsel greater than previously authorized. The court approved the Trustee's application to employ counsel pursuant to § 327(e), which application set forth the terms and conditions governing Mr. Dessauer's employment, including the hourly rates he had agreed to charge. Under § 382(a), the rates approved in the application must remain in effect unless unanticipated developments make them improvident. Although considerable time has passed since the application to employ was approved — the court's earlier ruling was appealed to the district court and remanded — and presumably the hourly rate of Mr. Dessauer has increased in the interim, the mere passage of time and/or the length of the litigation are not developments that were not capable of being anticipated at the time the application was filed. Consequently, the Defendant's objection should be sustained on the basis of § 328(a).
Moreover, even if the court's consideration of the Trustee's fee request were limited to strictly a consideration of reasonableness as she contends, the rate her counsel agreed to charge her in this action is entitled to great weight. In Tennessee, the American Rule prohibiting an award of attorney's fees as part of the costs of litigation except where the award is provided by statute or contract is firmly established. See, e.g., Tennessee v. Brown Williamson Tobacco Corp., 18 S.W.3d 186 (Tenn. 2000); Hogan v. Coyne Int'l Enters. Corp., 996 S.W.2d 195 (Tenn.Ct.App. 1998). "The reasonableness of an attorney's fee will depend upon the circumstances of the particular case in light of the relevant factors." Chaffin v. Ellis, 211 S.W.3d 264, 291 (Tenn.Ct.App. 2006) (citing White v. McBride, 937 S.W.2d 796, 800 (Tenn. 1996)). "A fee is clearly excessive if `after review of the facts, a lawyer of ordinary prudence would be left with a definite and firm conviction that the fee is in excess of a reasonable fee.'" Fell v. Rambo, 36 S.W.3d 837, 852 (Tenn.Ct.App. 2000) (quoting Tennessee Supreme Court Rule 8, DR 2-106(B)).
In Connors v. Connors, 594 S.W.2d 672 (Tenn. 1980), the Supreme Court of Tennessee summarized the factors which are relevant to determining whether attorney's fees are reasonable. These factors include the time devoted to performing the legal service; the time limitations imposed by the circumstances; the novelty and difficulty of the questions involved and the skill requisite to perform the legal service properly; the fee customarily charged in the locality for similar services; the amount involved and the results obtained; and the experience, ability, and reputation of the lawyer performing the services. Id. at 676. Tennessee Supreme Court Disciplinary Rule 2-106(B) contained the following similar criteria:
(1) The time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;
(2) The likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
(3) The fee customarily charged in the locality for similar legal services;
(4) The amount involved and the results obtained;
(5) The time limitations imposed by the client or by the circumstances;
(6) The nature and length of the professional relationship with the client;
(7) The experience, reputation, and ability of the lawyer or lawyers performing the services; and
(8) Whether the fee is fixed or contingent.
This rule from the former Code of Professional Responsibility was in effect at the commencement of the case at hand, but subsequently, the Rules of Professional Conduct became effective on March 1, 2003. Rule 1.5 of the Rules of Professional Conduct closely mirrors Disciplinary Rule 2-106 but includes two additional factors for determining the reasonableness of a fee: "(9) Prior advertisements or statements by the lawyer with respect to the fees the lawyer charges; and (10) Whether the fee agreement is in writing."
Rule of Professional Conduct 1.0 does not provide any additional guidance and merely defines reasonableness as follows: "(j) `Reasonable,' `Reasonably,' or `Reasonableness' when used in relation to conduct by a lawyer denotes the conduct of a reasonably prudent and competent lawyer."
The Trustee asserts that the factors set forth in Rule of Professional Conduct 1.5 govern her request and establish that the requested fee is reasonable. She notes, as set forth in Mr. Dessauer's affidavit, that the hourly rate of $235 represents a blended rate over the time period in question and that such rate is representative of the hourly rates charged by bankruptcy attorneys in the Eastern District of Tennessee with the same or similar experience. The Trustee observes that the Defendant has offered no evidence contradicting this assertion, and points out that the monies sought to be recovered will not be charged against the bankruptcy estate, thereby reducing any distribution to creditors, as contemplated by the application to employ special counsel.
While this court is sympathetic to the Trustee's argument, the court finds it unpersuasive. Counsel agreed to represent the Trustee in this action at the flat hourly rate for partners of $150. Absent some basis for setting that agreement aside, it would appear inequitable for the Trustee to be able to obtain a higher rate from the Defendant, merely because the Indemnification Agreement permits recovery of a reasonable fee and counsel could have charged a higher rate.
In Local Union No. 1992 of the International Brotherhood of Electrical Workers v. Okonite Co., 34 F. Supp. 2d 230 (D.N.J. 1998), the court considered facts analogous to those in the case at hand, albeit in a different context. The prevailing attorney in Okonite contracted with his client for an hourly rate of $160, yet sought an attorney fee award calculated based on an hourly rate of $250. Id. at 235. The prevailing party argued that the contracted rates were lower than the rates common to the locality and were not binding as a ceiling to the attorney's fees it could recover. Id. The court, however, focused on the fact that the prevailing party did not argue that its contracted rates were unreasonable, but only argued, essentially, that it would have been capable of charging a higher hourly rate in the market place. Id. As a result, the Okonite court refused to increase a contracted hourly rate that was not unreasonable. Id. at 236.
"The presence of a pre-existing fee arrangement may aid in determining reasonableness." Blanchard v. Bergeron, 489 U.S. 87, 93, 109 S. Ct. 939, 944 (1989). "`The fee quoted to the client or the percentage of the recovery agreed to is helpful in demonstrating attorney's fee expectations when he accepted the case.'" Pennsylvania v. Del. Valley Citizens' Council for Clean Air, 483 U.S. 711, 723, 107 S. Ct. 3078, 3085 (1987). "[D]eviation from the original fee agreement [is contemplated] only if the original fee agreement provides a less than reasonable fee. Such deviation has been found appropriate primarily in the context of contingent fee agreements . . . and matters involving representation by a public interest law firm." Okonite Co., 34 F. Supp. 2d at 235 (citations omitted).
There has been no assertion by the Trustee herein that the original hourly rate of $150 was unreasonable. Similar to the prevailing party in Okonite, counsel for the Trustee appears to assert simply that it now could charge a higher rate in the locality for similar services. The increase from $150 to $235 represents a nearly 64% increase. To permit recovery at this increased rate would be inconsistent with the policy of preventing attorneys from seeking a "windfall" in a request for fees. Therefore, the court will limit reasonable attorney's fees to the rates set forth in the application for employment.
The Defendant also objected to a $273.23 claimed expense for one-night's lodging at the Hermitage Hotel in Nashville. While counsel is entitled to some leeway in his choice of lodging, there is no indication that he could not have secured acceptable lodging for a more reasonable price. Based on the court's passing familiarity with prevailing rates, the court will permit a charge of $150, thus sustaining the Defendant's objection in part.
The Trustee's counsel's billing report in this case, attached as Exhibit A to the affidavit of Mr. Dessauer filed on May 31, 2007, contains the following entry: "12/20/06 The Hermitage Hotel, Nashville, T[N]: Stay for hearing on Lemke subpoena $273.23."
III.
Based on the foregoing, the Defendant's objection must be sustained. An order will be entered in accordance with this memorandum opinion awarding the Trustee attorney's fees in the amount of $28,372.50, plus expenses in the amount of $4,511.17, for a total award of $32,883.67.