In re Metro Transp. Co.

• Decision Date: 02 November 1989
• Docket Number: Civ. A. No. 87-7049,Bankruptcy No. 86-05614S.
• Citation: 107 BR 50
• Parties: In re METRO TRANSPORTATION CO., t/a Yellow Cab Company.
• Court: U.S. District Court — Eastern District of Pennsylvania

107 B.R. 50 (1989)

In re METRO TRANSPORTATION CO., t/a Yellow Cab Company.

Civ. A. No. 87-7049, Bankruptcy No. 86-05614S.

United States District Court, E.D. Pennsylvania.

November 2, 1989.

Susan L. Parsons, Philadelphia, Pa., for Creditors' Committee.

Kevin Walsh, Philadelphia, Pa., for debtor.

MEMORANDUM AND ORDER

HUTTON, District Judge.

Before this Court is an appeal filed by counsel for the Official Creditor's Committee from the Order of the Bankruptcy Court dated September 29, 1987. The Order denied counsel's motion for reconsideration of the Bankruptcy Court's Order dated July 27, 1987. The Bankruptcy Court's Order of July 27, 1987 awarded $43,061.75 in compensation for legal services, and $475 for expenses of the $54,083.50 for services and $1,596.02 for expenses requested in the second interim fee application submitted by the Committee's counsel.

This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 158(a). The facts are as follows.

Metro Transportation Co., trading as Yellow Cab Company (hereinafter the "debtor"), commenced this bankruptcy proceeding on July 29, 1986, by the filing of a voluntary petition under Chapter 11 of the Bankruptcy Code. By Order of the Bankruptcy Court dated August 14, 1986, the Official Creditor's Committee (hereinafter the "Committee") was authorized to employ the appellant, Clark, Ladner, Fortenbaugh & Young (hereinafter "Clark Ladner") as its counsel.

On May 5, 1987, Clark Ladner filed its second application for allowance of interim compensation ("the application"). Although objections to the application were initially filed by the Debtor and by First Fidelity Bank (a creditor), those objections were withdrawn on July 13, 1987. The application sought $54,083.50 in compensation for legal services in addition to $1,596.02 reimbursement for expenses incurred on behalf of the Committee from the period December 1, 1986 through March 31, 1987. The Bankruptcy Court held a hearing on July 15, 1987 in which Clark Ladner offered to provide the Court with a more detailed description of the expenses incurred on behalf of the Committee. A supplement was filed on July 22, 1987. On July 27, 1987, the Bankruptcy Court entered an Order awarding $43,061.75 as compensation for services and $475 as reimbursement for expenses to Clark Ladner. The Order was filed without memorandum. A motion for reconsideration of this Order was filed by Clark Ladner on August 6, 1987. On September 16, 1987, the Bankruptcy Court held a hearing on the motion. Clark Ladner presented the testimony of Mary F. Walrath, a partner at Clark Ladner, regarding services rendered, the firm's billing practices, and an explanation of the expenses. By Memorandum and Order dated September 29, 1987, the Bankruptcy Court denied Clark Ladner's motion for reconsideration. In re Metro Transportation Co., 78 B.R. 416 (Bankr.E.D.Pa.1987). Clark Ladner appeals from that Bankruptcy Court's Order stating that the Bankruptcy Judge abused his discretion and made several errors in the law.

Section 330(a) of the Bankruptcy Code provides that a bankruptcy court may award 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; and

2) reimbursement for actual, necessary expenses. 11 U.S.C. § 330(a).

In its brief, Clark Ladner argues that the Bankruptcy Court committed error of law in disallowing its request for compensation. Clark Ladner argues that its requested compensation should have been granted in full since there were no objections from the Committee, its client, or any other party to the bankruptcy action. Additionally, Clark Ladner contends that the Bankruptcy Court erred as a matter of law and abused its discretion in disallowing compensation for services rendered in intra-office conferences, in failing to provide the rationale for disallowance of portions of the fee application, and in failing to specify which portions of the application were disallowed.

In reviewing a Bankruptcy Court decision, the district court acts as an appellate court. Bankr. Rule 8013 (1984). Findings of fact shall not be set aside unless clearly erroneous. U.S. and I.R.S. v. Owens, 84 B.R. 361 (E.D.Pa.1988). A district court will reverse a Bankruptcy Court's fee only if there has been an abuse of discretion by failing to apply proper procedures or legal standards or by basing an award upon findings of fact that are clearly erroneous. See, e.g., In re Ferkauf, Inc., 56 B.R. 774 (S.D.N.Y.1985); In re Humbert, 39 B.R. 643 (D.C. Ohio 1984). Deciding the amount of attorney fees to award is a function of the bankruptcy judge. Although matters of law are to be given plenary and de novo review, factual determinations are to be judged by the "clearly erroneous" standard. In re Meade Land & Development Co., Inc., 527 F.2d 280 (3rd Cir.1975).

In reviewing a fee application, the Bankruptcy Court must determine "reasonable compensation for actual, necessary services" and "reimbursement for actual, necessary expenses" pursuant to 11 U.S.C. § 330(a). The legislative history of Section 330 reflects the intent of Congress to compensate bankruptcy attorneys similarly to attorneys in other fields. The House Report states in pertinent part, ". . . the effect of section 330(a) is to overrule . . . cases that require fees to be determined on notions of conservation of the estates and economy of administration." H.R. No. 95-595, 95th Cong., 1st Sess. 330 (1977), U.S. Code Cong. & Admin. News 1978, pp. 5787, 6286.

The reasoning of the legislature in overruling the "strict rule of economy" doctrine was adopted by the United States Bankruptcy Appellate Panels of the Ninth Circuit in the matter of In re: Powerline Oil Company, 71 B.R. 767 (9th Cir. BAP 1986). The panel found:

The purpose of Code Section 330 was to overrule this (strict rule of economy) doctrine and to ensure adequate compensation for bankruptcy attorneys so that qualified specialists would not be forced to abandon the practice of bankruptcy law in favor of more remunerative kinds of work. Id. at 779.

The required procedure in awarding attorney's fees is established in Lindy Bros. Builders, Inc. of Philadelphia v. American Radiator & Standard Sanitary Corp., 487 F.2d 161, 166 (3d Cir.1973) (Lindy I) and Lindy Bros. Builders, Inc. of Philadelphia v. American Radiator & Standard Sanitary Corp., 540 F.2d 102, 114 (3d Cir.1976) (Lindy II), and was more recently endorsed by the Third Circuit Task Force in "Court Awarded Attorney Fees, Report of the Third Circuit Task Force," 108 F.R.D. 237 (1985). The Lindy I and II analysis requires the Court to establish lodestars for attorney's fees by multiplying a reasonable hourly rate by the number of hours reasonably and necessarily spent performing services.¹

In determining a reasonable hourly rate, the court must consider a number of factors, "including the difficulty of the task, the prevailing market rate for counsel of petitioner's experience, counsel's normal billing rate, and the rates awarded by other courts under similar circumstances." Jungkurth, 87 B.R. at 337 (citing Swicker v. William Armstrong & Sons, Inc., 484 F.Supp. 762, 767 (E.D.Pa.1980). A major factor in this determination is the quality of the attorney's work in the particular case. Lindy II, 540 F.2d at 114; Baughman v. Wilson Freight Forwarding Co., 583 F.2d 1208, 1216-17 (3d Cir.1978).

Additionally, the United States Supreme Court in Hensley v. Eckerhart, 461 U.S. 424, 103 S.Ct. 1933, 76 L.Ed.2d 40 (1983), a nonbankruptcy matter, stated that attorneys applying to a court for statutory fees should make a good faith effort to exclude from a fee request hours that are excessive, redundant or otherwise unnecessary. "In the private sector, `billing judgment' is an important component in fee setting. It is no less important here." Hensley, 461 U.S. at 434, 103 S.Ct. at 1940 quoting Copeland v. Marshall, 205 U.S. App.D.C. 390, 401, 641 F.2d 880, 891 (1980) (en banc). The standard of Bankruptcy Code § 330 that compensation be made for actual and necessary service, makes the exercise of such "billing judgment" a mandatory requirement in bankruptcy fee matters. This represents no more than the billing judgment attorneys regularly impose upon themselves at the "edit" stage of the billing process before submission of a bill to a private client. In re Temple Retirement Community, Inc., 97 B.R. 333 (1989). When attorneys fail to exercise this sort of billing judgment in advance, the Bankruptcy Court is within its discretion to act as "client," "objecting" to excessive fees which it deems overstep the "actual and necessary" standard imposed by Section 330(a)(1). Id.

In the case at bar, Clark Ladner contends that the Bankruptcy Court abused its discretion in disallowing compensation for intra-office conferences. The Bankruptcy Court noted that "most of the matters arising in this case in this period were not complex and none required an extensive hearing or a difficult legal issue."² Disallowing compensation for conferences for the reasons stated are well within the discretion of the Bankruptcy Court. However, the court goes on to state that "we generally allowed half-time for each of the conference participants in this Application, per our guidelines established in the foregoing cases." The practice of disallowance by one-half is in conflict with the applicable standards of Section 330(a). By reducing all intra-office conferences by half, the Bankruptcy Court did not weigh the reasonableness of the time or of the specific task. The automatic halving of intra-office conference time is not the proper application of the reasonable and necessary standard and thus constitutes an abuse of discretion.

Clark Ladner argues that the Bankruptcy Court erred in...