In re Narragansett Clothing Co.
| Decision Date | 20 June 1997 |
| Docket Number | BAP No. RI 96-088. |
| Parties | In re NARRAGANSETT CLOTHING COMPANY. Joseph B. GARB, Trustee, Appellant, v. J. Christopher MARSHALL, United States Trustee, and The Official Committee of Unsecured Creditors, Appellees. |
| Court | Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, First Circuit |
Whitton E. Norris, on brief, for appellant.
Eric K. Bradford, Office of U.S. Trustee, Boston, MA, on brief, for appellee J. Christopher Marshall.
Joseph M. DiOrio, Toms River, NJ, and Michelle Ruberto Fonseca, Providence, RI, on brief, for appellee, Official Committee of Unsecured Creditors.
Before GOODMAN, LAMOUTTE and FEENEY, Bankruptcy Judges.
Appellant Joseph B. Garb appeals from the judgment entered on October 7, 1996 pursuant to the bankruptcy court's October 3, 1996 Order Setting Compensation and Compelling Disgorgement (the "Final Fee Order"). The appeal came before the panel for oral argument on May 20, 1997. For the reasons stated below, we affirm the bankruptcy court's Final Fee Order.
Appellate courts "independently review the bankruptcy court's decision, applying the `clearly erroneous' standard to findings of fact and de novo review to conclusions of law." Grella v. Salem Five Cent Savings Bank, 42 F.3d 26, 30 (1st Cir.1994) (citation omitted). Bankruptcy courts are accorded wide latitude in determining the reasonableness of professional fees awarded. Calhoun v. Acme Cleveland Corp., 801 F.2d 558, 559 (1st Cir.1986). See also In re Martin, 817 F.2d 175, 182 (1st Cir.1987) (). Therefore, unless the appellant demonstrates that the bankruptcy court abused its discretion in determining his compensation, we are bound to defer to the bankruptcy judge's discretion. Grendel's Den, Inc. v. Larkin, 749 F.2d 945, 950 (1st Cir.1984); In re Casco Bay Lines, Inc., 25 B.R. 747, 753 (1st Cir.BAP 1982).
Narragansett Clothing Company (the "Debtor"), a retail clothing store chain based in Rhode Island, filed a voluntary Chapter 11 petition on February 5, 1990. Joseph B. Garb ("the Trustee") was appointed Chapter 11 Trustee of the Debtor on April 5, 1990. Prior to his appointment in this case, the Trustee had been a certified public accountant for over twenty five years and served for four years as a Chief Financial Officer of a retail store chain. He operates as a solo practitioner and employs no paraprofessionals or assistants. According to the Trustee, his usual, nonbankruptcy billing rate at all times relevant to this case was $250.00 per hour.
The Trustee operated the Debtor's business for several months with the intention of selling it as a going concern. Through two transactions that occurred in November of 1990 and January of 1991, he sold the assets to J.L. Sanford, Ltd. ("J.L.Sanford") for $3,100,000 in cash and two promissory notes. Sanford Zimmerman ("Zimmerman"), J.L. Sanford's principal stockholder, personally guaranteed one of the promissory notes in the amount of $700,000. In May of 1991, only five months after the sale occurred, J.L. Sanford filed its own voluntary Chapter 11 bankruptcy petition. The Trustee, as an unsecured creditor of J.L. Sanford, received no dividend. He settled his claim against Zimmerman for $50,000 and released Zimmerman from liability as a guarantor of one of the notes.
In January of 1991, the Trustee filed a third amended disclosure statement and a liquidating plan. On January 24, 1991, prior to J.L. Sanford's bankruptcy filing, the Trustee filed an interim fee application through which he sought net compensation totaling $361,963,1 which amount included a 20% premium for "superior results obtained for the benefit of the unsecured creditors." The court made several interim awards but did not approve the Trustee's request for a premium. Prior to November 4, 1993, the Trustee had received compensation in the amount of $400,000 for fees and $5,711 for expenses. All interim fee awards were made on account and, thus, were subject to final review at the conclusion of the case.
On November 4, 1993, the bankruptcy court issued a Decision and Order in which it stated that, in accordance with its holding in In re Swansea Consolidated Resources, Inc., 155 B.R. 28 (Bankr.D.R.I.1993), $200 per hour was the highest hourly rate that it would approve for the Trustee. However, the court stated that many of the services rendered by the Trustee should have been delegated to paraprofessionals and other assistants. Accordingly, the court further reduced the hourly rate that would be allowed to the Trustee to a blended hourly rate of $160.00. As the Trustee was a solo practitioner and had no support staff, the court held that he should have charged a lower rate for performing ministerial tasks such as issuing checks and maintaining cash accounts. The court awarded no additional compensation, leaving the matter of the Trustee's compensation until the conclusion of the case. See In re Narragansett Clothing Company, 160 B.R. 477, 483-484 (Bankr. D.R.I.1993).
On June 20, 1996, the Trustee filed a "Post-Confirmation Trustee's Final Report and Account Before Distribution, Request for Compensation and Report on Claims/Proposed Distribution" (the "Final Fee Application") and an "Affidavit of Joseph B. Garb in Support of the Final Application for Compensation and Reimbursement of Expenses as Chapter 11 Trustee and Post-Confirmation Trustee" (the "Affidavit"), through which he sought total compensation of $555,175. The Trustee noted in his Affidavit that, "pursuant to 11 U.S.C. Section 326, my compensation (exclusive of expenses) is limited to not more than $557,062."2 The United States Trustee and the Official Committee of Unsecured Creditors (the "Committee") objected to the Trustee's Final Fee Application.
Through its Final Fee Order, the bankruptcy court noted that the Trustee calculated his fee by multiplying the number of hours he billed, 2,220.7, by his $250.00 hourly rate. The court reduced the Trustee's billable hours by 45.4 hours as no time entries were provided for those hours and, therefore, multiplied 2,174.6 hours by the $160.00 hourly rate that it had previously set. Thus, the court awarded the Trustee total compensation in the sum of $347,936, and ordered him to disgorge the overpayment of $52,064 "to himself as Trustee, for distribution to creditors."3 In re Narragansett Clothing Company, 201 B.R. 30, 32 (Bankr.D.R.I.1996).
The Trustee appeals the Final Fee Order on grounds that the bankruptcy court abused its discretion by improperly applying a local rate cap. Alternatively, the Trustee argues that, even if a local rate cap were applicable, the court erroneously relied on factual findings made in the Swansea case and incorrectly determined that $200 is the maximum hourly rate charged in the local market. Moreover, the Trustee contends that the court, having already applied a local rate cap, erred in reducing the lodestar because the Trustee failed to delegate ministerial tasks. Finally, the Trustee contends that the court accorded disproportionate weight to the bankruptcy of J.L. Sanford and the end result obtained in this case.
The United States Trustee and the Committee maintain that the bankruptcy court properly adjusted the lodestar to $200 per hour in view of Rhode Island market rates for trustee services. They also contend that the court's calculation of the Trustee's blended hourly rate as $160 was not clearly erroneous because the Trustee performed clerical tasks that should have been delegated to paraprofessionals or assistants. The Committee argues that, by failing to challenge the blended hourly rate until three years after it was set, the Trustee waived his right to dispute the rate.
According to the United States Trustee, the following factors warranted a reduction in either the Trustee's lodestar or hourly rate: (1) unsecured creditors received a 32% dividend, which was significantly lower dividend than the 62% dividend that the Trustee initially projected; (2) the Trustee failed to perform adequate due diligence prior to closing the second of the two-stage sale of the Debtor's assets to J.L. Sanford; and (3) the nonexistence of exceptional services or results in this case, cf., e.g., In re Public Service Company of New Hampshire, 160 B.R. 404 (Bankr.D.N.H.1993). Noting that the end result is one factor that courts consider in determining fee applications of professionals, the Committee contends that the lower court justifiably reduced the Trustee's compensation in light of the reduction of the dividend paid to the Debtor's unsecured creditors resulting from the failure of J.L. Sanford.
For the following reasons, we conclude that the bankruptcy court did not abuse its discretion in reducing the Trustee's requested compensation from $250 per hour to $160 per hour.
Section 330(a)4 authorizes the bankruptcy courts to award reasonable compensation for fees and expenses to professionals. However, the court's allowance of reasonable compensation pursuant to § 330 is subject to the maximum commission calculated according to the formula set forth in § 326.5 In In re Stoecker, 118 B.R. 596, 601 (Bankr.N.D.Ill.1990), the court noted that "section 326(a) sets a ceiling on a trustee's fees, and does not create an entitlement to a commission in that amount" (citation omitted). The maximum compensation allowable under § 326(a) is awarded to a Chapter 11 trustee only in cases in which the result obtained and the benefit realized by the estate are exemplary. Id. at 598.
The lodestar approach is the standard applied by courts in the First Circuit when reviewing applications for compensation. Boston & Maine Corp. v. Moore, 776 F.2d 2, 6-7 (1st Cir.1985); Furtado v. Bishop, 635 F.2d 915, 920 (1st Cir.1980); In re Bank of New England Corp., 142 B.R. 584, 586 ...
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