In re Cripps

• Decision Date: 13 May 2016
• Docket Number: Case No. GL 11–11505–jtg,Case No. GL 10–07809–jtg
• Citation: 549 B.R. 836
• Parties: In re: Lon W. Cripps and Deborah E. Cripps, Debtors. In re: Duane A. Mears and Sharon L. Mears, Debtors.
• Court: U.S. Bankruptcy Court — Western District of Michigan

549 B.R. 836

In re: Lon W. Cripps and Deborah E. Cripps, Debtors. In re: Duane A. Mears and Sharon L. Mears, Debtors.

Case No. GL 10–07809–jtg

Case No. GL 11–11505–jtg

United States Bankruptcy Court, W.D. Michigan.

Signed May 13, 2016

Michael Brown, Esq., Dietrich Law Firm, Lansing, Michigan.

Barbara P. Foley, Esq., Chapter 13 Trustee, Kalamazoo, Michigan.

MEMORANDUM DECISION REGARDING FEE APPLICATIONS

John T. Gregg, United States Bankruptcy Judge

These matters come before the court in connection with final applications for compensation filed by the Dietrich Law Firm (the "Applicant"), counsel for the debtors in the above-captioned Chapter 13 cases (collectively, the "Debtors"). In the applications, the Applicant requests that the court award it compensation for the services provided to Lon and Deborah Cripps (the "Cripps") and Duane and Sharon Mears (the "Mears") in their respective cases. The Applicant also requests that any compensation awarded to it be paid as administrative expenses. In the event that the compensation awarded cannot be satisfied as administrative expenses through the Debtors' plans, the Applicant requests, at least in one of the cases, that the compensation be paid directly after entry of the discharge.

Barbara P. Foley, the Chapter 13 trustee (the "Trustee") in both cases, filed objections in which she contends that certain fees of the Applicant are unreasonable. The Trustee further asserts that because the Applicant filed its applications after the Debtors completed payments under their plans, the Applicant's requests for awards of compensation to be paid as administrative expenses are untimely. Finally, the Trustee argues that in the event the Debtors are required to satisfy the compensation awarded of the Applicant after entry of the discharge, the Debtors' fresh start will be impaired.

The court is called upon to consider the following issues:

(i) whether the Applicant timely requested, and is entitled to, an award of compensation under section 330(a) for the services it provided to the Cripps and/or the Mears;

(ii) whether the Applicant timely requested, or should be permitted to tardily request, "for cause," an administrative expense under section 503 for any compensation awarded to it in the Cripps' case and/or Mears' case; and

(iii) whether the Cripps and/or the Mears are obligated to satisfy the compensation awarded to the Applicant after entry of the discharge.¹

In deciding these issues, the court must strike a delicate balance between a debtor's fresh start and an attorney's right to reasonable compensation for necessary and beneficial services rendered at the end of a case.

In the Cripps' case, the court shall award the Applicant compensation for the majority of its fees and expenses, deny the Applicant's request for an administrative expense as untimely, and deem the compensation awarded subject to the discharge.² In the Mears' case, the court shall award the Applicant compensation to be paid as an administrative expense, and deny without prejudice the Applicant's request to be paid directly by the Mears after entry of the discharge.³

JURISDICTION

The court has jurisdiction pursuant to 28 U.S.C. § 1334(b). This is a core proceeding under 28 U.S.C. § 157(b)(2)(A)-(B).

BACKGROUND

The facts are not in dispute in either case. However, subtle factual distinctions in the two cases dictate different outcomes.

A. Cripps

In June 2010 and with the assistance of the Applicant, the Cripps jointly filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code. Later that year, the court confirmed the Cripps' plan of reorganization, as amended [Dkt. Nos. 18, 32, 36]. The Cripps' plan provided for the payment in full of general unsecured creditors over a period of sixty months. Upon confirmation, the Applicant was awarded compensation to be paid as an administrative expense through the plan.⁴ The plan similarly stated that any additional compensation awarded to the Applicant was to be paid in full through the plan as an administrative expense, subject to allowance by the court.

Despite their best intentions, the Cripps encountered some difficulty post-confirmation, thereby requiring further services from the Applicant, including responses to two motions to dismiss filed by the Trustee [Dkt. Nos. 109, 152], prosecution and ultimately resolution of an objection to the claim of the holder of the first priority mortgage on the Cripps' residence [Dkt. No. 46], and assistance with the purchase of a replacement vehicle after the Cripps were involved in an automobile accident [Dkt. No. 94]. As a result of these services, the Applicant sought, and the court awarded, significant post-confirmation compensation over a roughly four-year period.

The Cripps' dedication to their plan and the Chapter 13 process eventually paid off. On November 6, 2015, the Trustee sent a letter to the Cripps [Dkt. No. 154] advising them that, according to the Trustee's records, they had successfully completed all of their obligations under the plan, subject to certain intervening events, including any request by the Applicant for additional fees and expenses.⁵ A copy of the letter was also filed on the court's docket and sent to the Applicant. On the same day that the Trustee sent her letter to the Cripps, she also filed a notice of final cure of mortgage payments [Dkt. No. 155] and motions to terminate the payroll orders that the court had entered at the beginning of the case [Dkt. Nos. 156, 157].⁶

On December 7, 2015 and thirty-one days after sending her letter to the Cripps, the Trustee filed a report of plan completion in the form of a text entry on the court's docket. The report of plan completion certified to the Clerk of the Court that the Cripps had completed all payments under their plan, and requested that the court enter the discharge under section 1328(a). On the same day as the Trustee filed her report of plan completion, the Applicant filed, on behalf of the Cripps, a certificate stating that the Cripps were not required to make any payments on account of domestic support obligations [Dkt. No. 160].

Two days after the report of plan completion was issued, the Applicant filed and served on the Cripps and the Trustee its final fee application [Dkt. No. 162]. The application requests two forms of relief. First, it requests that the court award the Applicant compensation in the amount of $686.60 for the period beginning April 11, 2015 and ending December 4, 2015. Second, the application requests that any compensation awarded be paid as an administrative expense. The application did not, however, request that the compensation awarded survive discharge.

The application consists of only two paragraphs. The first paragraph provides summaries of the amount of fees and expenses previously awarded, the amount previously paid to the Applicant, and the amount of fees and expenses requested in the application. The second paragraph states only that unless the plan provides for payment to general unsecured creditors in full (which it did), the fees and expenses approved by the court could reduce the distribution to general unsecured creditors. In other words, the application provides minimal information. With that said, the Applicant did attach an itemized statement as an exhibit to the application.

The Trustee filed her objection [Dkt. No. 169] on December 16, 2015, after which the Applicant filed a short reply brief [Dkt. No. 173]. The court held an initial hearing on January 12, 2016.⁷ One day later, the court entered the discharge.

In her objection and a supplemental brief [Dkt. No. 180], the Trustee contends that the court should not award the Applicant compensation to be paid as an administrative expense because the application was untimely in light of the letter to the Cripps, the report of plan completion, and the imminent entry of the discharge. The Trustee asserts that the Applicant's delay in filing the application will prejudice the Cripps by either impairing their fresh start and/or precluding the entry of their discharge. The Trustee also asserts that because the time the Applicant spent on certain tasks was excessive and/or unnecessary, the compensation should be reduced accordingly.⁸

In its reply brief [Dkt. No. 173] and a supplemental brief [Dkt. No. 179], the Applicant notes that any delay with respect to the filing of its application was attributable to the inexperience of a billing clerk who had only recently been hired by the Applicant. Moreover, the Applicant argues that no deadline exists under the Bankruptcy Code or applicable rules for the filing of a fee application that requests an award of compensation to be paid as an administrative expense. According to the Applicant, even if such a deadline is imposed, the court should recognize a distinction between the allowance of administrative expenses, and the payment of administrative expenses. To that end, the Applicant contends, the court may award it compensation to be paid as an administrative expense, even though the Cripps and the Trustee have made the final payment and the final distribution, respectively, under the plan. Finally, in its reply brief and a post-hearing brief [Dkt. No. 188], the Applicant urges the court to hold, for purposes of these cases and others, that compensation awarded is not subject to the discharge in a Chapter 13 case.⁹

After the parties filed their stipulation of facts, the court held a final hearing on February 2, 2016 and took the matter under advisement.¹⁰ Upon consideration of the legal arguments and limited evidence presented, the court shall award the Applicant compensation, deny the Applicant's request for an administrative expense, and deem the compensation awarded to the Applicant discharged.

B. Mears

Like the Cripps, the Mears jointly filed for relief under Chapter 13 with the assistance of the Applicant. In April 2012, the court confirmed the Mears' plan of reorganization, as amended [Dkt. Nos. 21, 30]. The Mears'...