In re Powerine Oil Co.

• Decision Date: 12 December 1986
• Docket Number: Bankruptcy No. LA 84-07086-RM.,BAP No. CC-85-1581-VMoMe
• Citation: 71 BR 767
• Parties: In re POWERINE OIL COMPANY, a California corporation, Debtor. FIRST NATIONAL BANK OF CHICAGO; First Interstate Bank of California; Crocker National Bank; Security Pacific National Bank; Interfirst Bank of Dallas; Banque Paribas; and Republic Bank Dallas, Appellants, v. COMMITTEE OF CREDITORS HOLDING UNSECURED CLAIMS, Appellees.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

71 B.R. 767 (1986)

In re POWERINE OIL COMPANY, a California corporation, Debtor FIRST NATIONAL BANK OF CHICAGO; First Interstate Bank of California; Crocker National Bank; Security Pacific National Bank; Interfirst Bank of Dallas; Banque Paribas; and Republic Bank Dallas, Appellants, v. COMMITTEE OF CREDITORS HOLDING UNSECURED CLAIMS, Appellees.

BAP No. CC-85-1581-VMoMe, Bankruptcy No. LA 84-07086-RM.

United States Bankruptcy Appellate Panels of the Ninth Circuit.

Argued and Submitted April 16, 1986.

Resubmitted^* October 15, 1986.

Decided December 12, 1986.

Richard W. Havel, Sidley & Austin, Los Angeles, Cal., for appellants.

Richard K. Diamond, Danning, Gill, Gould, Joseph & Diamond, Los Angeles, Cal., for appellees.

Before VOLINN, MOOREMAN and MEYERS, Bankruptcy Judges.

OPINION

VOLINN, Bankruptcy Judge:

This appeal is concerned with the fixing of attorney fees, a most sensitive and difficult area of effort frequently involving bankruptcy judges.¹

The "Bank Group," secured creditors, appeals from the bankruptcy court's order awarding fees of $64,298.25 pursuant to 11 U.S.C. § 330 to the attorneys for the Committee of Creditors Holding Unsecured Claims (Creditors' Committee). The Bank Group contends that the law firm's hourly rates were excessive, and that the bankruptcy court abused its discretion by awarding the law firm an amount that was 50 percent over its normal hourly rates. We hold that the bankruptcy court did not abuse its discretion and affirm.

I.

The debtor, Powerine Oil Company, filed a Chapter 11 petition on March 26, 1984. The debtor had been in the business of operating a crude oil refinery, pipelines, terminals, and an oil production operation.

When the case was filed, all of the assets of the estate were subject to the secured claims of the Bank Group and another group referred to as the "Insurance Companies." The secured debt owing to these two groups totaled $285 million. The total value of the collateral at that time was said to be "only a fraction" of the amount of secured debt.

On commencement of the case, the U.S. Trustee designated a Creditors' Committee. It was unable to find counsel willing to represent it for approximately 90 days. One law firm resigned after the bankruptcy court denied a motion for payment pursuant to 11 U.S.C. § 506(c). The bankruptcy court denied this motion because it was not possible to determine whether services of counsel would benefit holders of collateral. There is little doubt that law firms declined representation because compensation would be contingent on availability of funds derived from secured creditors or voidable transfers. At the outset of the case, such availability was not readily apparent.

Almost three months after bankruptcy was filed, on application of the Creditors' Committee to employ Danning, Gill, Gould, Joseph & Diamond (Danning, Gill) as counsel, an order of appointment was entered on June 11, 1984. Danning, Gill thereafter represented the Creditors' Committee throughout the rest of the case.

Approximately one year later, on June 13, 1985, Danning, Gill filed the present application for compensation. The application showed that seven attorneys had worked a total of 199.8 hours, which, at their normal hourly billing rates, amounted to a fee of $42,865.50. David Gould, a senior partner, was accountable for 166.2 hours, or 83 percent of the total time. His charge was $225 to $250 per hour.

The application stated, among other things, that Danning, Gill had reviewed the conduct of the debtor and secured creditors and had arrived at certain conclusions; i.e., that the Bank Group and Insurance Companies did not want to be put to the possible expense and risk of litigating an issue of equitable subordination, and that they were reluctant, in the event of foreclosure, to acquire assets of a potentially problematical nature. According to the application, Danning, Gill's "greatest contribution to the case came in convincing the Bank Group and the Insurance Companies of the necessity to resolve this matter by way of a plan of reorganization." The application continued:

At the time Applicant was retained, there were no unrestricted funds available to pay Applicant\'s fees and there was little, if any, prospect of general unsecured creditors receiving any distribution whatsoever. Solely as a result of Applicant\'s efforts, general unsecured creditors will receive pro rata distribution from a cash fund of not less than $2,000,000, the accrued interest thereon, plus 50% of the net preference recoveries up to $5,000,000 and 25% in excess of $5,000,000.

The provision for the cash fund of not less than $2 million resulted from the agreement of the banks to pay Chapter 11 expenses of administration, including fees of appellee. Danning, Gill requested a fee award of $200,000, or 10 percent of the $2 million fund, or close to five times its hourly rate. The secured lenders objected to this request and a hearing was held before the bankruptcy court on July 1, 1985. The court took the matter under advisement and later entered the order from which this appeal is taken. Among the bankruptcy court's findings and conclusions were the following:

— At the time when Danning, Gill was retained, "It was entirely possible that Applicant would put in hundreds of hours of service in connection with the case and expend many thousands of dollars of out-of-pocket disbursements and receive no payment whatsoever therefor."

— As a result of the negotiations concerning the terms of the plan of reorganization in which Danning, Gill participated, the plan, which was filed by the Debtor with the support of the Bank Group and Insurance Companies and the Committee, provided for the payment of all administrative and priority claims and the sum of $2 million in cash for the benefit of general unsecured creditors.

— The "practical effect" of the confirmed plan was that "the secured lenders made available approximately $9.1 million for the benefit of parties other than themselves being approximately $7.1 million for administrative and priority claims and $2 million for general unsecured creditors."

— In addition, the plan provided for the $2 million to be paid to general unsecured creditors to be net. As such, the fees to be paid to Danning, Gill were in addition to the $2 million. This element was a negotiated term in the plan of reorganization which benefited unsecured creditors.

— Danning, Gill had received no interim compensation. Its entitlement to compensation was to a large extent contingent upon the results obtained, which were "exemplary, the Committee\'s counsel having achieved precisely the goals for which it was retained."

The factors considered by the bankruptcy court in making the award were summarized as follows:

Taking into account all relevant factors normally considered in determining fees, including results obtained, hours required to obtain the results, difficulty and novelty of the issues, expertise required, amounts in controversy, contingencies as to payment, time limitation imposed by the circumstances of the proceedings, the impact of the employment as precluding other employment, and reasonable fees charged by other firms in the Los Angeles area with similar standing and experience, a fair, just, and reasonable compensation for the services rendered by Applicant described in the application is the sum of $64,298.25.

II.

The Bank Group does not object to the number of hours expended by Danning, Gill, nor to the quality of services rendered. In fact, the Bank Group refers to Danning, Gill as "an outstanding bankruptcy firm."

Instead, the Bank Group makes two arguments. First, it computes Danning, Gill's "blended" hourly rate to be $215 per hour ($42,865.50 divided by 199.8 hours), and contends that such a rate is excessive in light of the nature of legal services performed and the "undue reliance" placed on more expensive senior counsel. Second, the Bank Group contends that the bankruptcy court abused its discretion, under the facts and circumstances of this case, by awarding the equivalent of a 50 percent "bonus" on top of its regular hourly rates, because Danning, Gill did not obtain exceptional results and because any risk of nonpayment did not justify enhancing their compensation.

Danning, Gill contends that the high risk of nonpayment in this case was a factor properly considered by the bankruptcy court which, in conjunction with the extraordinary results obtained, amply justified the fees awarded.

III.

A bankruptcy court's award of attorneys' fees will not be disturbed on appeal absent an abuse of discretion or an erroneous application of the law. In re Nucorp Energy, Inc., 764 F.2d 655, 657 (9th Cir. 1985).

The fees in this case were awarded pursuant to 11 U.S.C. § 330(a)(1), which provides that the bankruptcy court may award "reasonable compensation for actual, necessary services rendered" by an 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."

Prior to the enactment of the present Bankruptcy Code, the Ninth Circuit followed the judicially fashioned "strict rule of economy". See In re THC Financial Corp., 659 F.2d 951, 955 n. 2 (9th Cir.1981), cert. denied, 456 U.S. 977, 102 S.Ct. 2244, 72 L.Ed.2d 852.² The purpose of Code Section 330 was to overrule this 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. In re Nucorp Energy, Inc., supra, at 658, citing H.R. Rep. No. 595, 95th Cong. 1st Sess. 330, reprinted in 1978 U.S. Code Cong. & Ad. News 5787, 5963, 6286. Accordingly, pursuant to the statutory directive contained in Section 330, this Court will depart from the "strict rule of economy" approach as set forth in Southwestern Media, Inc....