In re Holden

• Decision Date: 01 March 1989
• Docket Number: Bankruptcy No. L87-01020C.
• Parties: In re Myron Carl HOLDEN, Janice Kay Holden, Debtors.
• Court: United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — Northern District of Iowa

101 B.R. 573 (1989)

In re Myron Carl HOLDEN, Janice Kay Holden, Debtors.

Bankruptcy No. L87-01020C.

United States Bankruptcy Court, N.D. Iowa.

March 1, 1989.

Joseph Peiffer, Cedar Rapids, Iowa, for debtors.

Michael Irvine, Cedar Rapids, Iowa, trustee.

Todd Elverson, Des Moines, Iowa, for Arlyn & Barton Holden.

MEMORANDUM AND ORDER

Re: Attorney Fees

MICHAEL J. MELLOY, Chief Judge.

The matter before the Court is an Application for Attorney Fees filed by counsel for Debtors, Joseph A. Peiffer. The following constitutes the Findings of Fact, Conclusions of Law and Order, pursuant to Fed.R.Bankr.R. 7052.

BACKGROUND

On April 28, 1987, Myron Carl Holden and Janice Kay Holden, ("Debtors") filed a Chapter 7 bankruptcy petition. The Debtors are represented by attorney Joseph A. Peiffer ("Debtors' Counsel"), who is presently seeking payment of attorney fees and expenses in the amount of $4,020.80. Fees and expenses of $1,392.75 have previously been paid from the retainer Debtors provided to Debtors' Counsel. Debtors' Counsel contends that he is entitled to compensation from the estate because "the Bankruptcy Court has a duty to approve payment of attorney fees pursuant to 11 U.S.C. § 330(a)." Brief re: Payment of Debtors' Attorney Fees, p. 3 (emphasis added).

The representation provided by Debtors' Counsel on behalf of the Debtors included assistance in preparation of the bankruptcy schedules and statement of affairs. In addition, Debtors' Counsel seeks payment from the estate for other services performed, including attendance at two Bankruptcy Rule 2004 examinations; resisting various parties-in-interest's objections to exemptions (including a trial); resisting an adversary proceeding brought by the FDIC in which the FDIC objected to exemptions, contested the dischargeability of certain debts and sought to have Debtors' discharge denied; and settling those various matters. The major portion of the fees for which Debtors' Counsel seeks payment from the estate were incurred as a result of services performed relating to the objection to exemption filed by the Trustee on July 1, 1987. On or shortly before April 27, 1987, the Debtors purchased approximately $38,000 worth of life insurance. The money to make these purchases came from IRA's, insurance proceeds from the theft of personal property, rent payments and payments from the Commodity Credit Corporation. All of this property was non-exempt. The Debtors filed Bankruptcy on April 28, 1987, within one or a few days of these conversions.

The Trustee claimed that the conversion of approximately $38,000 worth of non-exempt property into potentially exempt life insurance policies should not be allowed as exempt because those conversions constituted fraudulent transfers pursuant to 11 U.S.C. § 548. The Trustee and the Debtors filed a settlement of that dispute on August 1, 1988. The settlement required the Debtors to pay to the Trustee the sum of $10,000 in exchange for the dismissal of the Trustee's objection to exemption of the life insurance policy. As a result of the settlement, the Debtors were left with at least $28,000 in exempt insurance policies. Additionally, on October 19, 1987, this Court granted the Debtors' Motion To Avoid Liens in machinery which the Debtors valued at $19,550. Hence, the Debtors were allowed exemptions in the amount of at least $47,550.

The fee application in dispute was filed by Debtors' Counsel on June 14, 1988, and amended on October 5, 1988. Shortly thereafter, an objection to the application for allowance of attorney fees and expenses was filed by Arlyn G. Holden, a creditor of the estate. The Trustee did not object to the amended application. The Court held a hearing on December 20, 1988, on Debtors' Counsel's fee application. At the hearing, the applicant presented testimony and evidence with respect to the reasonableness of the fees sought by the applicant, and the benefit rendered to the estate.

As of December 20, 1988, the bankruptcy estate contained approximately $15,000. Debtors' Counsel contends that "there clearly are sufficient assets in this estate to pay the tax claims of approximately $5,000, the Trustee's claimed attorney fees of $1,600, and the Debtors' attorney of $4,021. After payment of those requested fees, there will be approximately $5,400 to distribute to creditors." Brief re: Payment of Debtors' Attorney's Fees, pp. 5-6, as amended.

DISCUSSION

Debtors' Counsel seeks allowance of fees and costs as an administrative claim of the Debtors' bankruptcy estate. Specifically, Debtors' Counsel states that "the Bankruptcy Court has a duty to approve payment of attorney fees pursuant to 11 U.S.C. § 330(a)." Brief re: Payment of Debtors' Attorney Fees, p. 3 (emphasis added) citing In re Westside Creek Ltd. Partnership, 93 B.R. 177 (Bankr.E.D.Ark. 1988).

The provision relevant in this case is 11 U.S.C. § 330. That section provides in pertinent part:

(a) After notice to any parties in interest and to the United States trustee and a hearing, and subject to sections 326, 328, and 329 of this title, the court may award . . . to the debtor\'s attorney —

(1) reasonable compensation for actual, necessary services rendered by such . . . attorney . . . based on the nature, the extent, and the value of such services, the time spent on such services, and the cost of comparable services other than in a case under this title. . . .

Debtors' Counsel misconstrues both § 330(a) and Westside Creek. The court in Westside Creek says that a "court has an independent duty to examine attorney's fee applications." Westside Creek, 93 B.R. at 179 (emphasis added). Section 330(a) states that the court "may award . . . to the Debtor's attorney . . . reasonable compensation." (Emphasis added). Thus, Section 330(a) provides this Court with authority to independently examine Debtors' Counsel's fee application and in the Court's discretion, the Court may award or decline to award attorney fees.

Read literally, § 330 could support an argument that Debtors' Counsel may be entitled to reasonable fees if his services were actual and necessary. Courts do not read this section literally, however. See, e.g., Matter of Ryan, 82 B.R. 929, 931-32 (N.D.Ill.1987). In Ryan, an attorney for a Chapter 7 debtor sought payment of fees for time spent defending the debtor from dischargeability complaints. The court concluded that the services performed by the attorney benefited the debtor personally and not the estate. In its discussion, the Ryan court stated:

So far as we are aware, no court has chosen to read 11 U.S.C. § 330 literally since its enactment in the 1978 Bankruptcy Reform Act ("Bankruptcy Code"). Instead, all the decisions interpreting § 330 of the Bankruptcy Code carry over the near-unanimous view of prior Bankruptcy Act cases that, as a matter of law, attorneys may recover fees from the estate only if their labors actually benefited the estate.

Ryan, 82 B.R. at 931 (citations omitted).

Many courts have ruled that attorney's fees incurred while defending actions that do not benefit the estate are not payable from the estate. For example, the United States Supreme Court stated:

We are not prepared to go further than to allow compensation for services which were beneficial to the estate. Beyond that point we must throw the risk of his conduct on the assignee, as he was chargeable with knowledge of what might happen.

Randolph v. Scruggs, 190 U.S. 533, 539, 23 S.Ct. 710, 713, 47 L.Ed. 1165 (1903). The Court subsequently rejected the possibility that representation in resistance to an involuntary petition may be beneficial to the estate: "No ground appears for allowing the item for services in resisting an adjudication of bankruptcy." Id. Most other courts also follow this approach. See, e.g., Matter of Jones, 665 F.2d 60 (5th Cir.1982) (Attorney for the debtor is not entitled to compensation out of the bankrupt estate for services rendered in defeating opposition to discharge filed by creditors); In re Walter, 83 B.R. 14, 19 (9th Cir. BAP 1988) (Bankruptcy court has authority to preclude use of estate property for payment of attorneys where services benefit only the debtor, and not the estate); Stewart v. Law Offices of Dennis Olson, 93 B.R. 91 (N.D. Tex.1988) (Appeal of state court judgment and dischargeability litigation benefit debtors personally and not the estate); Matter of Crisp, 92 B.R. 885 (Bankr.W.D.Mo.1988) (Debtor's attorney would not be compensated from estate for services rendered that did not benefit the estate); In re Liberty Trust Co., 92 B.R. 706 (Bankr.W.D.Tex. 1988) (Same); In re De La Rosa, 91 B.R. 920 (Bankr.S.D.Cal.1988) (Same); In re Kendavis Indus. Intern., Inc., 91 B.R. 742 (Bankr.N.D.Tex.1988) (Law firm's unsuccessful efforts on behalf of estate warranted reduction of fees on ground that services did not benefit the estate); In re Texaco Inc., 91 B.R. 222 (Bankr.S.D.N.Y.1988) (Law firm performed services solely for unsecured creditors' committee and did not make "substantial contribution" warranting award for legal services from property of estate); In re Leff, 88 B.R. 105 (Bankr. N.D.Tex.1988) (Counsel for Chapter 7 debtor entitled to compensation from debtor's estate only for services that benefit estate); In re McLean Indus. Inc., 88 B.R. 36 (Bankr.S.D.N.Y.1988) (Attorney fees compensated by estate limited to services that benefit the estate); In re Prairie Cent. Ry. Co., 87 B.R. 952 (Bankr.N.D.Ill.1988) (Same); In re Fruits Intern., Inc., 87 B.R. 769 (Bankr.D. Puerto Rico 1988) (Same).

Clearly, the view of a large number of courts is that an attorney may not be compensated from the funds of the bankruptcy estate unless the attorney's work benefits the estate. However, a splinter of authority does lean the other way. This minority view concludes that debtor's counsel may be compensated from the estate for certain services that benefit the debtor personally, including the defense of a dischargeability complaint....