In Re Amanda E. Wesseldine F/k/a Amanda E. Clark F/k/a Amanda E. Gacek

• Decision Date: 08 March 2010
• Docket Number: No. 09-62553.,09-62553.
• Citation: 63 Collier Bankr.Cas.2d 1649,434 B.R. 31
• Parties: In re Amanda E. WESSELDINE f/k/a Amanda E. Clark f/k/a Amanda E. Gacek and Douglas L. Wesseldine, Debtors.
• Court: U.S. Bankruptcy Court — Northern District of New York

434 B.R. 31

63 Collier Bankr.Cas.2d 1649

In re Amanda E. WESSELDINE f/k/a Amanda E. Clark f/k/a Amanda E. Gacek and Douglas L. Wesseldine, Debtors.

No. 09-62553.

United States Bankruptcy Court,

N.D. New York.

March 8, 2010.

Jessica G. Grady, Esq., Laura Harris Courage, Esq., Harris Courage & Grady, PLLC, Liverpool, NY, Attorneys for Debtors.

Mark W. Swimelar, Esq., Syracuse, NY, Chapter 13 Trustee.

MEMORANDUM-DECISION AND ORDER

DIANE DAVIS, Bankruptcy Judge.

Jessica G. Grady, Esq. (“Attorney Grady”), of the firm Harris Courage & Grady, PLLC (“Harris Law”), seeks a fee of $3,500.00 for representing Amanda and Douglas Wesseldine (“Debtors”), who filed a joint petition for Chapter 13 relief under Case No. 09-62553 on September 14, 2009. This fee is for services rendered by Harris Law from the initial consultation through confirmation of Debtors' Chapter 13 Plan (“Plan”). This Court established a presumptive or flat fee pursuant to Administrative Order 09-07 (“AO 09-07”), effective for all Chapter 13 cases filed in the Utica Division of the United States Bankruptcy Court for the Northern District of New York on or after September 1, 2009. Because Debtor's counsel carves certain services out of the flat fee, the Chapter 13 Trustee has objected.¹ The Court heard the Trustee's objection and took the matter under advisement for a written decision on January 28, 2010. Following consideration of the arguments advanced by Laura Harris Courage, Esq. (“Attorney Harris Courage”) and the record in this case, the Court now renders the following findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.

JURISDICTION

This contested matter is a core proceeding that the Court may hear and determine under 28 U.S.C. § 157(b)(2)(A) and (O). The Court has subject matter jurisdiction over the same pursuant to 28 U.S.C. §§ 1334(a) and 157(a) and (b)(1).

FACTS

Debtors are above-median income and have an applicable commitment period of five years. At the time Debtors filed their Chapter 13 petition, they were current on their mortgage obligations. Debtors value their principal residence on Schedule A, entitled “Real Property,” at $92,000.00. With respect to Debtors' home, Debtors list on Schedule D, entitled “Creditors Holding Secured Claims,” a first mortgage held by Wells Fargo Home Fargo in the principal amount of $83,719.00, a second mortgage held by Wells Fargo in the principal amount of $10,922.00, and a third mortgage held by HSBC/RS in the principal amount of $35,289.00. In addition to the mortgage debt, Debtors list on Schedule D an auto loan held by Citizens Bank for a 2007 Toyota Camry in the principal amount of $15,616.00 and a motorcycle loan held by Harley-Davidson Financial for a 1997 Harley-Davidson Motorcycle in the principal amount of $1,560.00. Debtors list on Schedule E, entitled “Creditors Holding Unsecured Priority Claims,” 2008 tax debt owed to the IRS in the amount of $880.00 and 2007 and 2008 tax debt owed to New York State in the total amount of $1,800.00. Finally, Debtors list on Schedule F, entitled “Creditors Holding Unsecured Nonpriority Claims,” general unsecured debt in the total amount of $109,752.00.

Debtors' Plan, filed together with their petition on September 14, 2009, includes the following provisions: (1) sixty monthly payments in the amount of $370.00; (2) payment in full of all priority tax debt; (3) payment inside the Plan of attorneys' fees to Harris Law in the amount of $2,306.00; (4) payment in full of the debt owed to Harley-Davidson Financial; (5) a 6% distribution to general unsecured creditors; (6) payment of regular post-petition monthly payments outside the Plan to Wells Fargo Home Fargo, Wells Fargo, and Citizens Bank; and (7) commencement of an adversary proceeding to avoid the third mortgage on Debtors' residence held by HSBC/RS.

Pursuant to 11 U.S.C. § 329(a) and Federal Rule of Bankruptcy Procedure 2016(b), Harris Law filed its required disclosure statement (“2016(b) Statement”) indicating that counsel had agreed to accept $3,500.00 for services rendered or to be rendered on behalf of Debtors through the date of confirmation of Debtors' Plan. The relevant portions of the 2016(b) Statement read:

5. In return for the above-disclosed fee, I have agreed to render legal service[s] for all aspects of the bankruptcy case, including:

a. Analysis of the debtor[s'] financial situation, and rendering advice to the debtor[s] in determining whether to file a petition in bankruptcy;

b. Preparation and filing of any petition, schedules, statement of affairs and plan which may be required;

c. Representation of the debtor[s] at the meeting of creditors and confirmation hearing, and any adjourned hearings thereof;

d. Representation of the debtor in adversary proceedings and other contested bankruptcy matters; [and]

e. [Other provisions as needed][.]

6. By agreement with the debtor(s), the above disclosed fee does not include the following services:

All matters specifically not stated above. Does not include any motions or adversaries, including, but not limited to Motions to Modify, Motions to Avoid, Adversaries (filing or answering), Answering Motions for Relief, Answering Motions to Dismiss, Applications or Motions to Incur Non-emergency Debt, Motions to Sell, Motions to Convert, Motions to Sever, [and] Motions to Redeem[.]

( See Docket No. 1 (emphasis in original).) On October 8, 2009, as required by AO 09-07, Harris Law filed a fully executed document entitled Rights and Responsibilities of Chapter 13 Debtors and their Attorneys in Debtors' case. (“Rights and Responsibilities Agreement,” Docket No. 11.) The Rights and Responsibilities Agreement states in relevant part: “Approval for legal fees in the total sum of $3500.00 will be requested by the attorney.... Legal fees to be paid to the attorney shall be a ‘flat fee’ for all services to be rendered in this case. Additional fees may be awarded and paid to the attorney if an extraordinary level of service is provided.” ( Id. (emphasis in original).)

Debtors' confirmation hearing was initially scheduled for November 19, 2009. The Chapter 13 Trustee, who is the sole objector to confirmation of Debtors' Plan, filed his objection which is limited to the issue of attorneys' fees on November 12, 2009. (Docket No. 13.) By mutual agreement of the parties, the confirmation hearing was adjourned to December 17, 2009. Debtors filed their response to the Trustee's objection on December 16, 2009. (Docket No. 15.) The confirmation hearing was again adjourned to January 28, 2010. On that date, the Court heard oral argument and thereafter considered the matter as having been fully submitted and ripe for adjudication.

ARGUMENTS

The Trustee takes issue with Harris Law's stated intent to commence an adversary proceeding, which it explicitly excludes from the flat fee charged, to avoid the third mortgage on Debtors' residence held by HSBC/RS. The Trustee asserts that this relief can and should be obtained by motion practice rather than an adversary proceeding, and thus should be included in the flat fee.

In response to the Trustee's objection, Attorney Harris Courage makes several arguments both in support of Harris Law's fee agreement with Debtors and in support of Harris Law's position regarding Chapter 13 fee agreements generally. While she does not explicitly ask that this case be considered outside the purview of AO 09- 07, she points out that Debtors and Harris Law “entered into an agreement prior to the Court's new position regarding fees.” ² Although Harris Law elected to treat this case at the time of filing as a flat fee rather than hourly fee case, Attorney Harris Courage argues that the firm's time records show more than twenty-six hours of services rendered at an actual cost of $6,105.00, based on the lodestar method at hourly rates of $350.00 for attorneys and $150.00 for paraprofessionals. In order to further justify the amount of the fee charged in this specific case, Attorney Harris Courage emphasizes the controversial position, namely whether the third mortgage can be avoided by commencement of an adversary proceeding or whether it can be done on motion.

As to the firm's expertise, Attorney Harris Courage states that she has more than twenty-five years of experience in bankruptcy matters and that she is the only bankruptcy attorney practicing in the Utica and Syracuse Divisions of the United States Bankruptcy Court for the Northern District of New York who is certified by the American Board of Certification. Further, she advises the Court that Harris Law is a high-volume debtor attorney law practice with an alleged high rate of success in Central New York.

In her own words, speaking to the dynamics of the attorney-client relationship between counsel and the typical Chapter 13 debtor, Attorney Harris Courage states: “We feel it is important that the client have an economic impact in the adversary or additional work which is above and beyond the basic Chapter 13 so that they use our resources wisely....” She posits a similar economic rationale for the firm's desire to charge additional fees for having to respond to a creditor's motion for relief from the automatic stay under 11 U.S.C. § 362(d), stating: “[T]his is important to help Debtors realize they must stay current on secured debt or it will cost them additional fees to retain the secured property.”

Finally, taking aim at the flat fee approach generally, Attorney Harris Courage argues that “[b]ecause bankruptcy attorneys work primarily on a flat fee basis, they have a huge incentive to do as little as possible.” It is Attorney Harris Courage's position that the flat fee system is inherently flawed for the reason that it rewards attorneys who are mediocre and punishes those who provide exceptional service to help debtors successfully navigate the bankruptcy system. In the same vein, she argues that it unfairly shifts the financial burden to debtors with relatively...