In re Mondie Forge Co., Bankruptcy No. B92-11729.

• Decision Date: 12 May 1993
• Docket Number: Bankruptcy No. B92-11729.
• Citation: 154 BR 232
• Parties: In re MONDIE FORGE CO., Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Ohio

154 B.R. 232 (1993)

In re MONDIE FORGE CO., Debtor.

Bankruptcy No. B92-11729.

United States Bankruptcy Court, N.D. Ohio, E.D.

May 12, 1993.

COPYRIGHT MATERIAL OMITTED

Daniel D. Wilt, Cleveland, Ohio, for debtor.

David Simon, Cleveland, Ohio, trustee.

Steven S. Davis, Cleveland, Ohio, for trustee.

MEMORANDUM OF OPINION AND ORDER

RANDOLPH BAXTER, Bankruptcy Judge.

I.

On September 15, 1992 the Trustee filed a Motion for Review of Attorney's Fees and Order of Turnover pursuant to 11 U.S.C. § 329. The Court's December 4, 1992 Memorandum of Opinion and Order reserved ruling on said motion until a fee application was before the Court. On December 11, 1992 the Trustee filed a Motion to Require a Fee Application be Filed. The Court granted said Motion on December 14, 1992 and ordered that a fee application be filed by January 7, 1993. The fee application and accompanying brief in support were timely filed. The U.S. Trustee filed comments and a hearing was held March 18, 1993.

II.

Attorney Daniel Wilt was paid a prepetition retainer by the Chapter 7 Debtor for legal services. The Compensation Statement of Attorney for the Debtors, required under Rule 2016(b), asserts the retainer was in the amount of $10,000.00. The Statement of Financial Affairs lists the retainer at $12,500.00. Subsequently, an application for employment was filed wherein the Applicant asserted he was to provide professional services to the Debtor. The fee application requests compensation for 81.9 hours and total fees of $12,349.41, reflecting an hourly rate of $150.79. The fee application also requests expense reimbursement of $150.59. No written retainer agreement exists. In view of the fact that no retainer agreement exists, coupled with the inconsistent amount of the retainer alleged, the $12,500.00 figure will be utilized for the purpose of this examination.

The Applicant's fee application and brief reflect that he performed prepetition services in the nature of an attempted workout. He ultimately filed a Chapter 7 petition on the morning of a secured creditor's auction of the Debtor's assets. The Applicant continued to counsel the Debtor postpetition and contends that he has yet to perform certain services to be compensated by the retainer, i.e., dissolution of the debtor corporation under state law after the bankruptcy closes.

III.

Section 329 of the Bankruptcy Code 11 U.S.C. 329 provides:

(a) Any attorney representing a debtor in a case under this title, or in connection with such a case, whether or not such attorney applies for compensation under this title, shall file with the court a statement of the compensation paid or agreed to be paid, if such payment or agreement was made after one year before the date of the filing of the petition, for services rendered or to be rendered in contemplation of or in connection with the case by such attorney, and the source of such compensation.

(b) If such compensation exceeds the reasonable value of any such services, the court may cancel any such agreement, or order the return of any such payment, to the extent excessive, to—

(1) the estate, if the property transferred—

(A) would have been property of the estate; or

(B) was to be paid by or on behalf of the debtor under a plan under chapter 11, 12, 13 of this title; or

(2) the entity that made such payment.

Section 330 of the Bankruptcy Code 11 U.S.C. 330 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 a trustee, to an examiner, to a professional person employed under section 327 or 1103 of this title, or to the debtor\'s attorney—

(1) reasonable compensation for actual, necessary services rendered by such trustee, examiner, professional person, or attorney, as the case may be, and by any paraprofessional persons employed by such trustee, professional person, or attorney, as the case may be, 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.

Rule 2016, Bankr.R. provides:

(a) Application for Compensation or Reimbursement. An entity seeking interim or final compensation for services, or reimbursement of necessary expenses, from the estate shall file an application setting forth a detailed statement of (1) the services rendered, time expended and expenses incurred, and (2) the amounts requested. An application for compensation shall include a statement as to what payments have theretofore been made or promised to the applicant for services rendered or to be rendered in any capacity whatsoever in connection with the case, the source of the compensation so paid or promised, whether any compensation previously received has been shared and whether an agreement or understanding exists between the applicant and any other entity for the sharing of compensation received or to be received for services rendered in or in connection with the case, and the particulars of any sharing of compensation or agreement or understanding therefor, except that details of any agreement by the applicant for the sharing of compensation as a member or regular associate of a firm of lawyers or accountants shall not be required. The requirements of this subdivision shall apply to an application for compensation for services rendered by an attorney or accountant even though the application is filed by a creditor or other entity. Unless the case is a chapter 9 municipality case, the applicant shall transmit to the United States trustee a copy of the application.

(b) Disclosure of Compensation Paid or Promised to Attorney for Debtor. Every attorney for a debtor, whether or not the attorney applies for compensation, shall file and transmit to the United States trustee within 15 days after the order for relief, or at another time as the court may direct, the statement required by § 329 of the Code including whether the attorney has shared or agreed to share the compensation with any other entity. The statement shall include the particulars of any such sharing or agreement to share by the attorney, but the details of any agreement for the sharing of the compensation with a member or regular associate of the attorney\'s law firm shall not be required. A supplemental statement shall be filed and transmitted to the United States trustee within 15 days after any payment or agreement not previously disclosed.

11 U.S.C. § 541 provides in pertinent part:

(a) The commencement of a case under section 301, 302, or 303 of this title creates an estate. Such estate is comprised of all the following property, wherever located and by whomever held.

(1) Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of the commencement of the case.

....

(3) Any interest in property that the trustee recovers under section 329(b), 363(n), 543, 550, 553 or 723 of this title.

IV.

Under § 329, attorney fees are scrutinized on the basis of their reasonableness. See, In re Office Products of America, Inc., 136 B.R. 964 (Bankr.W.D.Tex.1992); Stewart v. Law Offices of Dennis Olson, 93 B.R. 91 (N.D.Tex.1988); 11 U.S.C. § 329(b). The legislative history of § 329 provides:

Payments to a debtor\'s attorney provide serious potential for evasion of creditor protection provisions of the bankruptcy laws, and serious potential for overreaching by the debtor\'s attorney, and should be subject to careful scrutiny.

H.R.Rep. No. 595, 95th Cong., 1st Sess. 329 (1977); S.Rep. No. 989, 95th Cong., 2d Sess. 39 (1978), U.S.Code Cong. & Admin.News 1978, pp. 5787, 5825, 6285.

The policy behind § 329 was further described by the United States Supreme Court in its decision in Conrad, Rubin & Lesser v. Pender, 289 U.S. 472, 476-477, 53 S.Ct. 703, 704-05, 77 L.Ed. 1327 (1933) when it discussed § 329's predecessor former Bankr.R. 220 which revised and superseded § 60(d) of the Bankruptcy Act:

The manifest purpose of the provision is to safeguard the assets of those who are acting in contemplation of bankruptcy, so that these assets may be brought quickly and without unnecessary expense into the hands of the trustee, and to provide a restraint upon opportunities to make an unreasonable disposition of property through arrangement for excessive payments for prospective legal services. citing In re Wood and Henderson, 210 U.S. 246, 28 S.Ct. 621, 52 L.Ed. 1046. We said in the case of Wood and Henderson that the statute recognizes the temptation of a failing debtor to deal too liberally with his property in enabling counsel to protect him in the view of financial reverses in probable failure. It recognizes the right of such a debtor to have the aid and advice of counsel, and, in contemplation of bankruptcy proceedings which will strip him of his property, to make provisions for reasonable compensation to his counsel.

Although fee applications are not the usual procedure for a § 329 review of fees, the court may order a fee application to sustain the reasonableness of the charges. In re McDonald Bros. Const. Inc., 114 B.R. 989, 996 (Bankr.N.D.Ill. 1990).

Under § 330, attorney fees are awarded only to the extent that the services are reasonable, actual, necessary and beneficial to the estate. See, Office Products, supra; Stewart v. Olson, supra; 11 U.S.C. § 330. Thus, § 330 applies a more stringent standard than § 329. The burden of proof is on the attorney to show the reasonableness of the fees charged. In re Rheuban, 121 B.R. 368, 385 (Bankr. C.D.Cal.1990), rev'd. on other grounds, 124 B.R. 301 (C.D.Cal.1990).

Section 330 applies to the review of a retainer, if the retainer is property of the estate. McDonald Bros., supra at 993. The fee requested must not only be reasonable, but also must be necessary and beneficial to the...