In re Gilead Baptist Church of Taylor

• Decision Date: 20 December 1991
• Docket Number: Bankruptcy No. 88-05919-R.
• Parties: In re GILEAD BAPTIST CHURCH OF TAYLOR, Debtor.
• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Eastern District of Michigan

135 B.R. 38 (1991)

In re GILEAD BAPTIST CHURCH OF TAYLOR, Debtor.

Bankruptcy No. 88-05919-R.

United States Bankruptcy Court, E.D. Michigan.

December 20, 1991.

David Miller, Southfield, Mich., for Debtor.

Daniel Katlein, Detroit, Mich., for Unsecured Creditors Committee.

MEMORANDUM OPINION AND ORDER DENYING FEE APPLICATIONS

STEVEN W. RHODES, Bankruptcy Judge.

This matter is before the Court following remand from the District Court with instructions to reconsider this Court's previous denial of the sixth fee application filed by the debtor's attorney and the fifth fee application filed by the attorney for the unsecured creditors' committee. The District Court ordered that these applications should be reconsidered using the lodestar approach.

I.

A.

In reviewing compensation applications, many courts use the approach set forth in Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir.1974). In that case, the court identified twelve factors to be considered in awarding fees:

1. The time and labor required;

2. The novelty and difficulty of the question;

3. The skill required to perform the legal services properly;

4. The preclusion of other employment by the attorney due to the acceptance of the case;

5. The customary fee;

6. Whether the fee is fixed or contingent;

7. Time limitations imposed by the client or other circumstances;

8. The amount involved and the result obtained;

9. The experience, reputation, and ability of the attorneys;

10. The undesirability of the case;

11. The nature and length of the professional relationship with the client; and

12. The awards in similar cases.

Id. at 717-719.

B.

The fee application in this case is to be reviewed under the lodestar analysis.¹ The starting point of lodestar analysis is multiplying the number of hours reasonably expended on the case by a reasonable hourly rate. This computation can then be adjusted after considering factors that are not taken into account in determining the hours reasonably expended and the reasonable hourly rate.²

1. Hours Reasonably Expended

The purpose of a fee award is to compensate for legal services.³ Therefore, the Court must determine the number of hours reasonably expended. In order for a court to make such a determination, the application must document the amount of work performed.⁴

However, the amount of time actually expended may not be equivalent to the amount of time reasonably expended.⁵ The Court must apply some of the subjective Johnson factors to determine the number of hours reasonably expended. In re Casco Bay Lines, Inc., 25 B.R. 747, 755 (1st Cir. BAP 1982). The Court should consider the time and labor required, the novelty and difficulty of the questions presented, the opposition encountered and the amount involved. Id. Finally, in Pilkington v. Bevilacqua, 632 F.2d 922, 925 (1st Cir.1980), the court held that it should review the work done by the attorney "to see whether counsel substantially exceeded the bounds of reasonable effort."

2. Reasonable Hourly Rate

The reasonable hourly rate is that prevailing in the community for similar work. Copeland v. Marshall, 641 F.2d 880, 892 (D.C.Cir.1980); Johnson v. Georgia Highway Express, Inc., 488 F.2d 714, 718 (5th Cir.1974). There may be more than one reasonable hourly rate for each of the attorneys, and for each of the kinds of work involved in the litigation. 641 F.2d at 892.

Determining the reasonable hourly fee in a bankruptcy case also requires consideration of some of the Johnson criteria. In re Casco Bay Lines, Inc., 25 B.R. 747, 755 (1st Cir. BAP 1982). The Casco court stated that the following Johnson criteria require consideration in determining a reasonable hourly fee:

1. The customary hourly fee 2. The level of skill necessary to perform the services;

3. Whether the fee is fixed or contingent;

4. Time limitations;

5. The amount to be obtained;

6. The reputation of the attorneys; and

7. The undesirability of the case.

Id.

C.

After the "lodestar" is determined, it may be increased or reduced by reference to factors "which have not already been taken into account in computing the lodestar and which are shown to warrant the adjustment by the party proposing it." In re Bolton Hall Nursing Home, 40 B.R. 657, 661 (Bankr.D.Mass. 1984), quoting Miles v. Sampson, 675 F.2d 5, 8 (1st Cir.1982) (emphasis added). The lodestar can also be adjusted to reflect the "quality of the representation." 40 B.R. at 661. When examining this issue, a bankruptcy court should consider the results of the attorney's participation in the bankruptcy proceeding and the benefit to the estate to see if the circumstances warrant adjustment of the lodestar. 40 B.R. at 661, citing In re Casco Bay Lines, Inc., 25 B.R. 747, 756 (1st Cir. BAP 1982) (emphasis added). In Bolton, the court stated that adjustments to the lodestar are the exception and not the rule. 40 B.R. at 662, citing Miles v. Sampson, 675 F.2d at 8.

In Matter of Broady, 92 B.R. 389, 392 (Bankr.W.D.Mo.1988), quoting from 2 Collier on Bankruptcy ¶ 330.05, pp. 330-38, 330-39, 330-40 (15th ed.1988), the court stated that "where the quality of the services rendered is poor or the size of the estate is insufficient to satisfy the claims of creditors, allowances of compensation should be accordingly reduced." (emphasis added). The court also stated that "the tangible benefit conferred on the estate and its creditors is clearly a proper measure of the appropriate compensation." Id.

In Securities Investor Protection Corp. v. Charisma Sec. Corp., 371 F.Supp. 894 (S.D.N.Y.1974), the court held that a "fee allowance . . . must bear a sensible and practical relation to the size of the estate, the number of claims involved and the actual services reasonably and necessarily required." Id. at 896.

In Unsecured Creditors' Comm. v. Puget Sound Plywood, Inc., 924 F.2d 955, 959 (9th Cir.1991), the court stated that counsel was obligated to consider whether the burden of probable cost of legal services is disproportionately large in relation to the size of the estate and the maximum probable recovery.

The basis for considering the size of the estate in determining the reasonable professional fees lies in the very structure and premise of bankruptcy. It is fundamental that the bankruptcy process is for the benefit of the debtor and the creditors, not the professionals. If the fees are not reasonably proportionate to the size of the estate, the benefit shifts, as a practical matter, from the parties to the professionals.

For example, in a Chapter 7 case, if the assets are liquidated and the trustee holds $10,000 in assets, but the professional fees, otherwise reasonable under the lodestar analysis, amount to $20,000, it is clear that awarding such fees would result in nothing for the creditors under 11 U.S.C. § 507(a). It would also be plain that such an estate was administered for the benefit of the professionals, and not for the benefit of the creditors. Similar scenarios can be imagined in Chapter 11. In either event, the Court must examine the reasonableness of fees requested in light of the size of the estate.

D.

This formulation of the lodestar approach to determine fees was recently approved by the United States Court of Appeals for the Sixth Circuit in the case of In re Boddy, 950 F.2d 334 (6th Cir.1991). In this decision, the Court reversed a fee award in a Chapter 13 case that was based solely on the "normal and customary" services rendered in such a case.⁶ However, the Court went on to state:

Nevertheless, we do not hold that the bankruptcy court can never consider the "normal and customary" services rendered in a Chapter 13 bankruptcy. The court can legitimately take into account the typical compensation that is adequate for attorney\'s fees in Chapter 13 cases, as long as it expressly discusses these factors in light of the reasonable hours actually worked and a reasonable hourly rate. The bankruptcy court also may exercise its discretion to consider other factors such as the novelty and difficulty of the issues, the special skills of counsel, the results obtained, and whether the fee awarded is commensurate with fees for similar professional services in nonbankruptcy cases in the local area. In many cases, these factors will be duplicative if the court first determines the lodestar amount because the lodestar presumably subsumes all of these factors in its analysis of the reasonable hourly rate and the reasonable hours worked. At a minimum, however, the bankruptcy courts must expressly calculate the lodestar amount when determining reasonable attorney\'s fees.

Id. at 338 (citations omitted) (emphasis added).

II.

A.

The hourly rates charged by the attorneys for the debtor are $185 for Earle Erman and $140 for David Miller. The hourly rates charged by the attorneys for the Unsecured Creditors Committee are $155 to $160 for Daniel Katlein.

No one has objected to these hourly rates and they are entirely consistent with rates charged by other Chapter 11 attorneys with similar experience. Accordingly, the Court finds that these hourly rates are reasonable.

B.

In the current fee applications, the attorney for the debtor seeks compensation for 107.4 hours, and the attorney for the Unsecured Creditors Committee seeks compensation for 41.7 hours.

These fee applications also seek awards for fees previously requested but not awarded. In connection with the fifth fee application of the debtor's attorney, the Court awarded $15,241.75 of the $30,252.50 requested for 214.70 hours of service. In connection with the fourth fee application of the attorney for the Unsecured Creditors Committee, the Court awarded $12,299.75 of the $24,599.50 requested for 159.8 hours.⁷

No substantial objection is asserted to any of the time records submitted in support of the fee requests, and the Court has reviewed the time records on its own. These records are sufficiently specific and detailed in their descriptions of services. As...