Grant v. George Schumann Tire & Battery Co.

• Decision Date: 10 August 1990
• Docket Number: No. 89-3615,89-3615
• Citation: 908 F.2d 874
• Parties: 23 Collier Bankr.Cas.2d 708, Bankr. L. Rep. P 73,577 Charles W. GRANT, Ronald Bergwerk, Plaintiffs-Appellants, v. GEORGE SCHUMANN TIRE & BATTERY COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 874

908 F.2d 874

23 Collier Bankr.Cas.2d 708, Bankr. L. Rep. P 73,577

Charles W. GRANT, Ronald Bergwerk, Plaintiffs-Appellants, v. GEORGE SCHUMANN TIRE & BATTERY COMPANY, Defendant-Appellee.

No. 89-3615.

United States Court of Appeals, Eleventh Circuit.

Aug. 10, 1990.

Ronald Bergwerk, Jacksonville, Fla., for plaintiffs-appellants.

Albert Mickler, Jacksonville, Fla., for defendant-appellee.

Appeal from the United States District Court for the Middle District of Florida.

Before JOHNSON, Circuit Judge, and HILL ^* and HENLEY ^**, Senior Circuit Judges.

JOHNSON, Circuit Judge:

Charles W. Grant, the appointed trustee in this seven-year-old involuntary bankruptcy proceeding, and Ronald Bergwerk, his attorney, appeal from the district court's affirmance of the bankruptcy court's award of $35,725.88 in attorney's fees to Bergwerk. They also appeal the district court's affirmance of the bankruptcy court's award to the debtor, George Schumann Tire & Battery Co., of interest on $275,088 required to be refunded to the debtor by the trustee.

I. STATEMENT OF THE CASE

Schumann Tire & Battery Co. is a retail tire business; H. Harold Hart is an officer and principal stockholder in the business. ¹ The business had accumulated several judgments from personal injuries and unpaid debts. When creditors attempted to obtain payment of these debts, Hart told them that Schumann Tire had ceased to exist as of June 1982 and that there was no money available. According to Grant, this was because Hart transferred Schumann Tire to Bostick Oil Company in order to become judgment-proof. ² On March 1, 1983, some of the creditors filed involuntary bankruptcy petitions under chapter 7 of the bankruptcy code. The bankruptcy court ("Bankruptcy I") ordered relief effective May 2, 1983, and set January 20, 1984 as the last date for creditors to file proof of claims. The creditors filed twenty claims totalling approximately $840,000.

Rather than contesting the involuntary petitions, the debtor filed schedules claiming that it had no assets. Foreseeing the need for legal action, Grant (himself an attorney) hired an attorney, Ronald Bergwerk, on May 20, 1983. ³ Bergwerk began to investigate the debtor's claim that it had no funds, and concluded that the debtor fraudulently transferred its assets to Hart Enterprises and Bostick Oil. ⁴ Grant thus brought a five-count claim against the debtor before Bankruptcy I. Bankruptcy I held a two-day trial. Grant prevailed on one count, and Hart and Hart Enterprises were ordered to pay a $346,000 judgment in favor of the trustee. Bergwerk and Grant further funded the bankruptcy estate by means of an interpleader action with Bostick Oil, discussed infra, and garnishment of Hart's Merrill Lynch assets.

Rather than paying the $346,000 amount into the bankruptcy estate, Hart eventually paid all but three of the creditors directly. The three remaining claims totalled $644,080.86. One of the three claims was filed by Hart himself for $633,000, based on a judgment against the debtor. On November 27, 1985, however, the bankruptcy court allowed only $93,000 of this claim, at which point the estate became solvent. The trustee paid $11,080 to the remaining two creditors and concluded administration of the estate. Because Grant and Bergwerk had brought over $400,000 into the estate a large amount of money remained undistributed at the estate's conclusion. On August 4, 1986, the bankruptcy court ordered a refund to the debtor of $275,088.96, the amount remaining in the estate after the creditors and administrative expenses were paid. For two years Grant failed to transfer this amount to the debtor. On September 22, 1988, after a second court order, Grant attempted to refund $299,749.22 to the debtor, but the debtor refused the offer.

Besides the fraudulent transfer action, Bergwerk represented Grant in two other proceedings. Grant brought one suit to recover possession of nine vehicles, some of which were titled in the debtor; this proceeding took approximately one hour to resolve, and the bankruptcy court granted relief. The second action was the Bostick Oil interpleader. Bostick entered into the allegedly fraudulent purchase and sale agreement with Hart and Hart Enterprises on March 31, 1983, and made a large down payment at that time. When the creditors filed under chapter 7, twenty monthly payments of $7,987.78 each remained due on the two promissory notes owed by Bostick to Hart. Because of the fraud claim, there was some dispute between Grant and Hart regarding whether the money remaining on the notes was subject to bankruptcy proceedings. Bostick interpleaded the funds into the court registry on October 13, 1983, asking the court to resolve the ownership issue. On April 24, 1984, pursuant to a stipulation reached by Hart, Grant, and Bostick Oil, Grant transferred the funds to an interest-bearing account, and Bostick made all payments to Grant for placement in the account until resolution of the action. On September 19, 1985, Bankruptcy I granted summary judgment in favor of Grant and ordered Bostick to pay the balance of the notes to Grant.

Bergwerk requested $103,200 in attorney's fees plus expenses on August 5, 1985, and amended his application to request $138,400 plus expenses on December 22, 1985. A hearing was held before Bankruptcy I on July 31, 1986. The main issue at this hearing was the fee to be paid to Bergwerk. Expert witnesses recommended fees ranging up to $160,000. The debtor suggested a fee of $43,200 to $57,600. Bankruptcy I awarded $35,725.88. This amount represented five percent of the total estate plus a $15,000 bonus. The court used this percentage basis rather than a lodestar rate because it concluded that Bergwerk had spent more hours on the case than were necessary. The debtor appealed the award; ⁵ Bergwerk filed a cross-appeal. On December 7, 1987, the district court vacated the fee award and remanded for a de novo determination of attorney's fees and an explanation of those fees. Bankruptcy I set a date for a new fee hearing and a hearing on the debtor's motion for payment of its refund, which Grant had not yet tendered. The first bankruptcy judge recused himself, however, ⁶ and a second fee hearing was scheduled for July 25, 1988. Expert witnesses at the second hearing recommended fees ranging from $17,000 to $171,000. The second bankruptcy court ("Bankruptcy II") again awarded a fee of $35,725.88, 89 B.R. 223. Bankruptcy II also directed Grant to pay the debtor its refund.

The debtor filed a motion for rehearing, demanding interest on the amount of the delayed refund. Bankruptcy II awarded $65,116.76 in interest on September 8, 1988, ordering Grant to pay a total refund of $340,205.92. Bergwerk appealed the fee award and Grant appealed the award of interest. The district court conducted a de novo review of the record and affirmed the attorney's fee award. It did not discuss the interest issue. Grant and Bergwerk appeal from the district court's ruling. ⁷

We must determine whether Bankruptcy II abused its discretion in determining the appropriate initial fee award for Bergwerk, whether the district court erred in failing to direct the award of attorney's fees to Bergwerk for his defense of the debtor's appeal of the original fee award, and whether the bankruptcy court erred in charging Grant interest on the delayed refund.

II. ANALYSIS

A. The Initial Fee Award

In determining attorney's fees, a judge must 1) determine the nature and extent of the services rendered; 2) determine the value of those services; and 3) consider the factors laid out in Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir.1974) ⁸ and explain how they affect the award. ⁹ Matter of First Colonial Corp. of America, 544 F.2d 1291, 1299-1300 (5th Cir.), cert. denied sub nom., Baddock v. American Benefit Life Ins. Co., 431 U.S. 904, 97 S.Ct. 1696, 52 L.Ed.2d 388 (1977). In the bankruptcy context, the judge must also consider whether the bankruptcy assets were administered as economically as possible and whether any of the services rendered were duplicative or non-legal. Matter of U.S. Golf Corp., 639 F.2d 1197, 1201 (5th Cir.1981). Bankruptcy judges and district courts have broad discretion in determining attorney's fees for bankruptcy proceedings; the exercise of that discretion will not be disturbed absent abuse of discretion. Matter of First Colonial, 544 F.2d at 1298. Bankruptcy and district court judges may abuse their discretion by failing to apply proper legal standards, by failing to follow proper procedures, or by basing the award on findings of fact that are clearly erroneous. Id.

Bergwerk's main argument is that Bankruptcy II miscalculated his fee award, denying him fees to which he was entitled. ¹⁰ He argues that Bankruptcy II used an incorrect lodestar base rate and erroneously failed to use an enhancement multiplier when calculating the award.

(1) Lodestar

Section 330(a)(1) of the Bankruptcy Code authorizes the bankruptcy court to award "reasonable compensation for actual, necessary services rendered by ... any paraprofessional persons employed by [the] trustee ... based on the nature, the extent, and the value of such services, the time spent on such services and the cost of comparable services other than in a case under this title...." (emphasis added). Thus, Congress expressed its intent that there should be no distinction between fees set in bankruptcy cases and those set in non-bankruptcy cases. Matter of Bar-B-Que Management Associates, Inc., 82 B.R 152, 154 (Bkr.M.D.Fla.1988). Attorney's fees in bankruptcy cases should be no less, and no more, than fees received for comparable non-bankruptcy work. In re Manoa Finance Co., 853 F.2d 687, 690 (9th Cir.1988).

In an ordinary attorney's fee case, the court arrives at a fee by multiplying the attorney's reasonable hourly rate by the number of hours reasonably expended. Hensley v. Eckerhart, 461 U.S. 424, 433, 103...