In re Mahaffey, 95-41876-7.

Decision Date25 April 2000
Docket NumberNo. 95-41876-7.,95-41876-7.
Citation247 BR 823
PartiesIn re Boyd C. MAHAFFEY, Debtor.
CourtU.S. Bankruptcy Court — District of Montana

R. Clifton Caughron, Caughron & Associates, Helena, MT, for debtor/applicant.

Daniel P. McKay, Senior Attorney-Advisor, Office of U.S. Trustee, Great Falls, MT, for Office of U.S. Trustee.

ORDER

JOHN L. PETERSON, Bankruptcy Judge.

In this Chapter 7 bankruptcy case R. Clifton Caughron ("Caughron" or "Applicant"), former attorney for the Debtor1, filed a "Final Application for Professional Fees and Costs" on November 10, 1999, requesting fees in the sum of $9,110.30 and costs in the sum of $602.24. Objection thereto was filed by the Office of U.S. Trustee on March 9, 2000, and hearing was held on Caughron's application on March 14, 2000. Caughron and counsel Daniel P. McKay on behalf of the U.S. Trustee's Office appeared at the hearing. Thereafter, Caughron filed a brief in support of his application. There is no Final Report yet filed by the Chapter 7 Trustee as the case is still under administration.

The basis of the U.S. Trustee's objection is that Caughron's legal services, "for the most part", were performed after conversion of this case to Chapter 7, and did not benefit the estate. In response, Caughron argues that valuable legal services to the estate were performed since Caughron served as a "buffer between the Debtor and the Trustee, and by making every effort to impart the voice of reason to the Debtor, who was very frequently unreasonable." The Debtor died in January of 1999. No evidence was solicited by Caughron from the Chapter 7 Trustee as to the value of legal services Caughron performed for the benefit of the Chapter 7 estate. It is admitted that the Chapter 7 Trustee never sought to have Caughron appointed as the attorney for the Trustee under §§ 327(a) or (e).

Caughron's brief cites at length from In re Century Cleaning Services, Inc., 195 F.3d 1053 (9th Cir.1999) (Thomas, J., dissenting) that a debtor's Chapter 7 attorney in the Ninth Circuit can receive compensation under section 330 of the Bankruptcy Code for Chapter 7 post-petition services, despite the deletion from that section by the Bankruptcy Reform Act of 19942 of the phrase "or to the debtor's attorney".

Accepting as we must the Century Cleaning Services holding allowing Chapter 7 debtor's counsel to be eligible for an award of fees for post-petition services as an administrative expense, the inquiry does not end there. Indeed, § 330 specifically requires that reasonable compensation rendered to such attorney must be based "on the nature, the extent, and the value of such services, the time spent on such services, and the costs of compensable services other than in a case under this title". As one bankruptcy court has noted, despite the controversy over the deletion of the words "or to the debtor's attorney", Century Cleaning Services, 195 F.3d at 1056, the legal services for which compensation is sought must benefit the Chapter 7 estate. In re Redding, 242 B.R. 468, 475 (Bankr.W.D.Mo.1999). See, also In re Met-L-Wood Corp., 103 B.R. 972, 976 (Bankr.N.D.Ill.1989), aff'd. 115 B.R. 133 (N.D.Ill.1990): "It is well-settled that a debtor's attorney is not entitled to compensation from the estate unless his services benefitted the estate. In re Ryan, 82 B.R. 929 (N.D.Ill.1987)."

The Court is now charged with the task of independently reviewing the fee request to evaluate the propriety of the compensation requested. In re Busy Beaver Bldg. Centers, Inc., 19 F.3d 833, 841 (3rd Cir.1994); In re Wildman, 72 B.R. 700, 701 (Bankr.N.D.Ill.1987). In Busy Beaver, the court explained:

The integrity of the bankruptcy system . . . is at stake in the issue of a bankruptcy judge\'s performance of the duty to review fee applications sua sponte. The public expects, and has a right to expect, that an order of a court is a judge\'s certification that the result is proper and justified under the law. . . . Nothing better serves to allay public perceptions that high professional fees unduly drive up bankruptcy costs than the recognition that a bankruptcy judge, before a fee application is approved, is obliged to review it carefully and find it personally acceptable, irrespective of the (always welcomed) observation of the United States trustee or other interested parties.

Id. (quoting In re Evans, 153 B.R. 960, 968 (Bankr.E.D.Pa.1993)).

Extensive case law has developed regarding the amount and type information that applicants must include in their application. The case of In re WRB-West Associates, 9 Mont.B.R. 17, 18-20, 1990 WL 517058 (Bankr.Mont.1990) summarizes thus:

Pursuant to 11 U.S.C. §§ 327-330 and Bankruptcy Rules 2016 and 2017, this Court has an independent judicial responsibility to evaluate fees requested from the estate. In re S.T.N. Enterprises, Inc., 70 B.R. 823, 831 (Bankr.Vt. 1987); In re Seneca Oil Co., 65 B.R. 902 (Bankr.W.D.Okla.1986); In re Frontier Airlines, Inc., 74 B.R. 973 (Bankr.Colo. 1987). The burden of proof to show entitlement to all fees requested from the estate is on the applicant. In re Lindberg Products, Inc., 50 B.R. 220, 221 (Bankr.N.D.Ill.1985). This burden is not to be taken lightly, especially given the fact that every dollar expended on fees results in a dollar less for distribution to creditors of the estate. In re Yankton College, 101 B.R. 151, 158 (Bankr.S.D.1989); In re Pettibone Corp., 74 B.R. 293, 305 (Bankr.N.D.Ill.1987). All expenses and fees must be shown as both actual and necessary under § 330(a)(3) of the Code. S.T.N., 70 B.R. at 834; Yankton College, 101 B.R. at 158; Seneca Oil, 65 B.R. at 912. Moreover, In re Convent Guardian Corp., 103 B.R. 937, 939-940 (Bankr. N.D.Ill.1989) holds:
Bankruptcy Rule 2016 provides that "an entity seeking interim or final compensation for services, or reimbursement of necessary expenses, from the estate shall file with the court an application setting forth a detailed statement of (1) the services rendered, time expended and expenses incurred, and (2) the amounts requested." (emphasis added) The Application should contain a detailed list of expenses including the date, the type and the amount. Expenses must be actual not estimates. In re Wildman, 72 B.R. 700-731 (Bankr.N.D.Ill. 1987); In re Marsh, 14 B.R. 615, 617 (Bankr.E.D.Va.1981). An expense is necessary if it is incurred because it was reasonably needed to accomplish the proper representation of the client. Wildman, 72 B.R. at 731.

The above excerpt demonstrates that this Court is obligated to review each request for fees and costs to insure that applicants provide:

1. a description of the services provided, setting forth, at a minimum, the parties involved and the nature and purpose of each task;
2. the date each service was provided;
3. the amount of time spent performing each task; and
4. the amount of fees requested for performing each task.

As explained by the Ninth Circuit Court of Appeals: "The detailed fee applications enable the bankruptcy court to fulfill its obligation to examine carefully the requested compensation in order to ensure that the claimed expenses are justified." In re Nucorp Energy, Inc., 764 F.2d 655, 658 (9th Cir.1985).

The application shows the Debtor's counsel received $1,500.00 at the commencement of the case and no fees were awarded to counsel in the Chapter 11 or Chapter 13 case prior to conversion to Chapter 7 on July 22, 1996. An examination of the application for legal services run from July 29, 1996 to July 23, 1999, total 71.67 hours, billed at $100.00 to $110.00 per hour.

The services detailed show many are for services directly related to the Debtor's interests, such as discussion on appeal of the conversion to Chapter 7; 6.46 hours about "events of weekend, when his property was entered and some documents removed without his permission, and call from Debtor's daughter, with work on reconsideration"; 2.93 hours on final revisions of reconsideration; client in office for meeting (1.71 hr.); letters to other parties; calling client "regarding what our strategy would be in the Chapter 7" and agreed to appeal; discussing order denying extension of time to appeal; discussing Debtor's medical condition and possibility of running a viable business if appeal is successful, call from client that "he is going through the `dying process' and that the client has been contacting other attorneys to pursue his claim against Pat" (2.18 hrs.); "Call from client" (1.78 hrs.); call from client's daughter and client regarding 341 meeting (2.12 hrs.); call re: continuance of 341 meeting; call from client to call Sen. Baucus "to advise them of what Dr. Margaris had said to me"; call from client regarding notices from IRS and client in to sign tax returns to comply with IRS (1.38 hrs.); call from client saying he wants me to surrender all of his assets and attempt to secure his full homestead exemption of $40,000, plus to leave the area (.83 hrs.); call from client (1.2 hrs.); call to IRS re: filing of 1990 tax returns; calls to Dan McKay; attempts to call client with no success (.34 hrs.).

The above billing statement is merely representative of the many entries which are calls to client and attention to the client's welfare and interests, not interests which benefit the estate. About the only entries which may possibly be argued to allow a fee as an administrative expense in the Chapter 7 proceeding are the two entries on 10/17/96 for travel to and attendance at the § 341 first meeting of creditors.

Yet it is clear the Applicant was not employed by the Chapter 7 Trustee for any legal services, and thus is not a professional employed by the estate under section 327 of the Code. The Debtor's and his counsel's attendance at the § 341 meeting is mandated by that section of the Code and F.R.B.P.2003(b)(1). Moreover, the Debtor has the duty under section 521(3) to cooperate with the Trustee to enable the Trustee to perform his duties. The Applicant's services...

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