In re Barron

• Decision Date: 04 April 2003
• Docket Number: No. 02-60070.,02-60070.
• Citation: 325 F.3d 690
• Parties: In the Matter of: Rebecca Mitchell BARRON, Debtor. Cynthia Daniels, Appellant, v. Rebecca Mitchell Barron; John A. Barron; Charles Easley, Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 690

325 F.3d 690

In the Matter of: Rebecca Mitchell BARRON, Debtor.

Cynthia Daniels, Appellant, v. Rebecca Mitchell Barron; John A. Barron; Charles Easley, Appellees.

No. 02-60070.

United States Court of Appeals, Fifth Circuit.

April 4, 2003.

Rehearing Denied May 15, 2003.

Cynthia Etheridge Daniels, Columbus, MS, pro se.

Allison Pritchard Kizer, Columbus, MS, for Rebecca Mitchell Barron.

Appeal from the United States District Court for the Northern District of Mississippi.

Before REAVLEY, JOLLY and JONES, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

Cynthia Daniels appeals the award of attorneys' fees by the bankruptcy judge for her representation of a bankrupt's estate. Though we have previously addressed the issue in this case, it appears that, although the bankruptcy judge approved a one-third contingency fee for Daniels' agreeing to pursue a disputed claim for the bankrupt's estate, and she was 100% successful in obtaining and collecting the judgment, the bankruptcy judge reduced her fee. The bankruptcy court relied on an exception to Section 328, which permits a bankruptcy court to deviate from a previously-approved compensation plan if the "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." 11 U.S.C. § 328(a). The district court affirmed the bankruptcy court and Daniels appealed to this court. We reversed and remanded, finding the bankruptcy court applied the wrong standard to determine whether circumstances satisfied the exception to Section 328. See In re Barron, 225 F.3d 583 (5th Cir.2000). On remand, the bankruptcy court clarified its earlier opinion, indicated that it had originally applied the correct legal standard, and reaffirmed its previous award. See In re Barron, No. 95-10538, slip op. at 3 (Bankr.N.D.Miss. May 22, 2001). Daniels appealed to the district court, which affirmed. See In re Barron, No. 1:99CV21-S (N.D.Miss., Jan. 2, 2002). Daniels again appeals to this court and, because we find that the bankruptcy court has abused its discretion, we reverse and remand for entry of judgment.

I

The factual background of this case is stated succinctly in this Court's previous opinion in this case, In re Barron, 225 F.3d 583, 584-585 (5th Cir.2000). In pertinent part, Attorney Cynthia Daniels sought approval of a fee arrangement from the bankruptcy court to pursue an action on behalf of the bankruptcy estate, which arose from a divorce and remarriage of the debtor and her husband. Daniels' application stated she was willing to work on a one-third (1/3) contingency basis of the amount recovered in the filing of any preferential and/or fraudulent complaints, if warranted. Various parties objected to her appointment, arguing that such representation and the fee arrangement were premature because of the potential ease of collection of the debt owed to Mrs. Barron's estate by Mr. Barron. The bankruptcy court found that there was a high likelihood of litigation in the matter and, over objections, approved of the arrangement with recovery of Daniels' contingency predicated on "an actual suit being filed against Mr. Barron following the filing of a demand letter." In re Barron, 225 F.3d at 584. Daniels agreed to take no fee if a demand letter proved effective in collecting the obligation.

After the arrangement was approved, Daniels sent the contemplated demand letter to Mr. Barron, and received no response. At this point, Daniels filed a complaint against Mr. Barron. After unsuccessful attempts by Mr. Barron to settle for less than the amount owed, Daniels moved for summary judgment after conducting three depositions. After a hearing, the court granted judgment against Mr. Barron for the full balance of $160,000 in August 1997. In re Barron, 225 F.3d at 584-85. Mr. Barron immediately tendered full payment to the court.

Daniels then filed an application seeking $53,333.33, one-third of the recovered judgment, in attorneys' fees. The Barrons objected to the application, as did a creditor who objected to her payment in priority to his claim. After a hearing, the bankruptcy court acknowledged it had approved Daniels' employment and contingency arrangement, but then noted the sizeable loss to Mrs. Barron if Daniels was awarded her requested compensation. The court noted that the legal issue in the underlying dispute had been straightforward and thus resolution was "relatively" easy. Understandably, the court stated that it would try to do what was fair to all sides, and eventually awarded Daniels compensation of $24,341.25 with an additional expense allowance of $2,500.00. Daniels appealed to the district court which affirmed the award. On appeal, after careful consideration, this court reversed, finding that the bankruptcy court had abused its discretion, misinterpreting the applicable exception to 11 U.S.C. § 328 by failing to find that the circumstances relied on were incapable of being anticipated at the time the plan was approved.

On remand, the judge essentially reiterated his earlier holding, writing: "With all due respect, [the standard mandated by the Fifth Circuit] is the standard that was applied by this court when rendering its decision." In re Barron, No. 95-10538, slip op. at 3 (Bankr.N.D.Miss., May 22, 2001). The court added the additional observation that Daniels had had a relatively easy time collecting the judgment from Mr. Barron and thus the reduction in her fee award was reasonable. The district court affirmed the compensation award, and Daniels timely appeals to this court.

II

This court reviews a bankruptcy court's determination of attorneys' fees for abuse of discretion. In re Fender, 12 F.3d 480, 487 (5th Cir.1994). This "abuse of discretion standard includes review to determine that the discretion was not guided by erroneous legal conclusions." In re Coastal Plains, Inc., 179 F.3d 197, 205 (5th Cir.1999) (quoting Koon v. United States, 518 U.S. 81, 100, 116 S.Ct. 2035, 135 L.Ed.2d 392 (1996)). Consistent with this review, this court reviews a bankruptcy court's conclusions of law de novo. In re Texas Securities, Inc., 218 F.3d 443, 445 (5th Cir.2000). Specific findings of fact are reviewed for clear error. Fender, 12 F.3d at 487.

Sections 328 and 330 of the Bankruptcy Code govern attorneys' fees in representing bankruptcy estates. Under 11 U.S.C. § 330, attorneys' fees are reviewed for their reasonableness after representation has concluded. In contrast, Section 328 of the Bankruptcy Code allows an attorney seeking to represent a bankruptcy estate to obtain prior court approval of her compensation plan. As this Court has noted, "able professionals were often unwilling to work for bankruptcy estates where their compensation would be subject to the uncertainties of what a judge thought the work was worth after it had been done. That uncertainty continues under the present § 330...." In re National Gypsum Co., 123 F.3d 861, 862 (5th Cir.1997). Under Section 328, an attorney or other professional may avoid that uncertainty by obtaining court approval of her representation and fee arrangement prior to performing the contemplated services. Section 328 provides that once a compensation plan has been approved by the bankruptcy court, "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." 11 U.S.C. § 328(a).

The case law of this circuit, as reflected in National Gypsum and In re Texas Securities, 218 F.3d at 445-46, has not always clearly delineated Section 328(a)'s requirement that the intervening circumstances must have been incapable of anticipation, not merely unanticipated. This distinction is not insignificant. As the court in Barron noted, previous Fifth Circuit cases addressed the question whether Sections 330 or 328 applied; Barron was the first case in this circuit to specifically address Section 328(a) in relevant part. In that decision, this Court expressly noted the limitations on bankruptcy courts' ability to revise approved fee plans. We held that the bankruptcy court applied the incorrect legal standard by finding that the circumstances were merely unforeseen; instead, the bankruptcy court should have determined whether developments, which made the approved fee plan improvident, had been incapable of anticipation at the time the award was approved. In re Barron, 225 F.3d at 586.

On remand, the bankruptcy court relied on three factors to find the previously approved compensation improvident. First, that it "did not anticipate the substantial amount of the subsequent recovery;" second, that the adversary proceedings became a "slam dunk;" and third, that the judgment was collected from Mr. Barron with "relative ease." The bankruptcy court stated that it did not actually anticipate these developments at the time, but, apparently because of the lack of clarity in our previous opinion, it failed to explain why these developments were incapable of being anticipated at the time the award was approved. We hold, as a matter of law, that none of these facts or developments was "not capable of being anticipated" within the meaning of Section 328(a).

As its first factor, the bankruptcy court candidly admits that it "did not anticipate the substantial amount of the subsequent recovery...." However, the bankruptcy court does not explain why this factor was incapable of being foreseen. On remand, the bankruptcy judge addresses this "development" by stating that "[t]his court could have and perhaps should have quoted the language of Section 328(a), adding after the word ...