In re Hamming
| Decision Date | 03 October 2022 |
| Docket Number | 21-01475-swd |
| Parties | In re: MARK HAMMING and MARGARET HAMMING, Debtors. |
| Court | U.S. Bankruptcy Court — Western District of Michigan |
In his First Application for Allowance and Payment of Debtors' Attorneys' [sic] Fees and Expenses,[1] chapter 13 debtor's counsel Roger G. Cotner, Esq., asks the court to allow his administrative claim of $24,908.15 in fees and expenses in addition to the $1,400.00 the Debtors already paid him and the $3,500.00 he received as his "no look" fee upon confirmation.
Initially no one objected to the Application, but given the court's independent obligation to review fee petitions[2] and its familiarity with the case, the court conducted its own review and was troubled by what it found. In addition, after Mr Cotner filed the Application, the Sixth Circuit issued its opinion in In re Village Apothecary, Inc., 45 F.4th 940 (6th Cir. 2022), recognizing that bankruptcy courts may consider "results obtained" after employing the "lodestar" approach to determining whether fees are reasonable under 11 U.S.C. § 330(a).[3] The decision resonated here because the bulk of the fees at issue in the Application related to an adversary proceeding through which the only "results obtained" involved generating fees for Mr. Cotner and opposing counsel. On the other hand, the statute warns against Monday-morning-quarterbacking by directing the court to consider whether the representation was "beneficial at the time at which the service was rendered . . . ." 11 U.S.C. § 330(a)(3) (emphasis added).
Under the circumstances, the court set the Application for hearing and extended the objection deadline to encourage "a more robust and multilateral evaluation"[4] of counsel's fees.
In response, the United States Trustee ("UST"), who serves as the "bankruptcy watch dog,"[5] and the chapter 13 trustee, Brett N. Rodgers ("Trustee"), who vigilantly advocates for the estate (and derivatively, creditors), formally endorsed the Application, each indicating that Mr. Cotner has already discounted his fees substantially. They state that after careful review they do not regard the fees as excessive. Mark Hamming also filed a declaration supporting the Application and expressing gratitude to Mr. Cotner for the discount, and also for giving him and his wife the chance to challenge the claim of Avail Holding, LLC ("Avail").[6]
Unlike the UST, the Trustee, and the Debtors, however, Avail took advantage of the extended objection period and filed a full-throated objection to the Application.[7]
After reviewing the Application and the Objection, the court shares many of the concerns Avail has expressed. As is clear from the Memorandum of Decision and Order dated March 3, 2022, and entered in Adv. Pro. No. 21-80082 (ECF No. 31, the "MDO"), the court also held a low opinion of the claims the Debtors asserted against Avail in the adversary proceeding. Indeed, after the court rejected the Debtors' unsupported suspicions that Avail was not the holder of the note and second mortgage, the rest of their complaint fell "like a house of cards," suggesting the flimsy nature of the case and calling into question whether Mr. Cotner should have filed it in the first place.[8] Echoing these concerns, the thrust of the Objection is that the adversary proceeding had no merit from the start, and that it accomplished nothing. Avail similarly took aim at the charges for drafting the numerous iterations of the Debtors' chapter 13 plan, reflected throughout the itemization within the Application.
Avail also complained, cogently, that allowing the Application "will cause a delay in disbursements to Avail for the pre-petition arrears and the Post-Petition Fee Notices."[9] In response, at the hearing on the Application, Mr. Cotner suggested that the Debtors' chapter 13 plan, which if successful will fully pay all creditors (including Avail), limits Avail to receipt of only the ongoing monthly payments, but nothing on account of the prepetition arrears or post-petition fees (contemplated in Fed.R.Bankr.P. 3002.1) until the final payment. Avail and the Trustee do not share Mr. Cotner's view of the plan, and today's opinion does not aim to resolve that simmering dispute.
Despite the seeming rigidity of the lodestar analysis, reviewing fees is more of an art than a science, as the recent acknowledgement within Village Apothecary and the factors enumerated in § 330(a)(3) suggest. In general, even recognizing the import of § 329, the court hesitates to disturb the arrangements between debtors' attorneys and their clients, at least where the client is not complaining and will bear the burden of paying the attorney.[10] Here, the Debtors are not complaining-indeed Mr. Hamming ratified the Application in a sworn statement-and the statutory watch-dog and his appointed trustee, both of whom invariably keep the creditors' interests close, similarly support the Application. It also bears repeating that the Debtors' plan requires full payment to unsecured creditors, so the approval of the Application will affect the timing of their payment, probably not the ultimate payment itself. Although the court has independent duties in the fee approval process, it does not operate in a vacuum, and must consider the judgments of Mr. Cotner, the Debtors, their creditors, the UST, and the Trustee.
The only meaningful harm that Avail will suffer if the court approves the Application is the likely delay in receiving payment on its prepetition arrears and post-petition fees and expenses (assuming the plan provides for such payments). At the very least, the plan provides for full payment of Avail's second mortgage claim either through sale or refinancing by August 2024, and failing that, Avail will have prompt access to its collateral, under an order approving Avail's plan-related stipulations. In short, approving the Application may slightly increase Avail's risks from this proceeding.
Following the hearing on the Application held on September 20, 2022, in Grand Rapids, the court struggled with the conundrum resulting from its profound doubts about the reasonableness of the fees requested in the Application and its usual deference to the parties-in-interest. Recognizing that Avail's principal motivation in filing the Objection is to protect the timing of its payment, the court instinctively considered two possible statutory solutions, rejecting the first but settling on the second.
First, the court considered equitable subordination under § 510-a doctrine concerned with the timing of distributions and inequitable conduct. After consulting the case law, however, the court discarded that approach. In re AutoStyle Plastics, Inc., 269 F.3d 726, 744 (6th Cir. 2001) (citing In re Baker & Getty Fin. Servs., Inc., 974 F.2d 712, 717-18 (6th Cir.1992)). Although the court does not regard Mr. Cotner's pursuit of the adversary proceeding with favor, his pursuit of the case does not qualify as "gross misconduct tantamount to fraud, overreaching or spoliation . . . ." In re Baker & Getty Fin. Servs., Inc., 974 F.2d at 717-18. Perhaps, given the fiduciary nature of the attorney-client relationship, the court could justify treating Mr. Cotner as a non-statutory insider warranting greater scrutiny, id., but even so the doctrine of equitable subordination does not quite seem to fit here.
The second statutory basis involving the timing of distributions, specifically distributions of claims of professionals, is implicit in most fee awards which are generally interim, not final. In re Specker Motor Sales Co., 289 B.R. 870 (Bankr. W.D. Mich.), aff'd sub nom. Specker Motor Sales Co. v. Eisen, 300 B.R. 687 (W.D. Mich. 2003), aff'd, 393 F.3d 659 (6th Cir. 2004); 11 U.S.C. § 331. Recognizing the hardship that estate professionals (and debtors' attorneys) sometimes suffered under the Bankruptcy Act by having to wait for payment until the end of a case, Congress included within the Bankruptcy Code protections to mitigate this difficulty, in this way encouraging competent counsel to participate in bankruptcy cases. Specifically, § 331 provides as follows:
A trustee, an examiner, a debtor's attorney,...
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