In re Smith
| Decision Date | 18 February 1999 |
| Docket Number | Bankruptcy No. 98-00287-TLH4. |
| Citation | 230 BR 437 |
| Parties | In re Bobby James SMITH and Gloria Gean Smith, Debtors. |
| Court | U.S. Bankruptcy Court — Northern District of Florida |
ORDER ON DEBTOR'S OBJECTION TO AMENDED CLAIM OF CREDITOR, NORWEST MORTGAGE, INC.
THIS MATTER came on for hearing on February 2, 1999 on the Debtor's Objection to Amended Proof of Claim Filed by Creditor, Norwest Mortgage, Inc. The issues before the Court are whether a flat rate attorney's fee of $800 is excessive and disallowable as part of Creditor's arrearage claim and whether such a claim, if excessive and frivolous, is subject to Bankruptcy Rule 9011 sanctions. For the reasons set forth below, I sustain Debtor's objection to Creditor's Amended Proof of Claim, reducing the allowable attorney's fees to $305 as part of Creditor's arrearage claim and disallowing the $20 in inspection fees. Further, I deny Debtor's motion for Rule 9011 sanctions.
On May 5, 1998, Bobby and Gloria Smith, the debtors, filed a chapter 13 petition. Subsequently, on June 17, 1998, Norwest Mortgage, Inc. ("Norwest") filed a proof of claim including a pre-petition arrearage owed by the debtors on their homestead mortgage: Norwest claims $1,061.18 for two months arrearage, including late fees and an inspection fee. On October 2, 1998, Norwest's attorney filed a Notice of Appearance. That same day at the same time, Norwest's attorney filed an amended proof of claim adding an additional $800 in attorney's fees to the original claim. On November 2, 1998, the debtors objected to Norwest's claim of $800 in "bankruptcy attorney's fees and costs" and $20 in inspection fees. In the same objection, the debtors also sought imposition of sanctions in the form of attorney's fees against Norwest for filing "a false and frivolous claim."
Section 506(b) provides that "to the extent that an allowed secured claim is secured by property the value of which, ..., is greater than the amount of such claim, there shall be allowed to the holder of such claim, interest on such claim, and any reasonable fees, costs, or charges provided for under the agreement under which such claim arose." (emphasis added). Congress, therefore, chose to allow collection of attorney's fees by oversecured creditors provided the requirements of § 506(b) were followed. Section 506(b) has three requirements: (1) that the creditor is oversecured in excess of the fees requested; (2) that the agreement giving rise to the claim provides for attorney fees; and (3) that the fees are reasonable. United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989); see also In re Schriock Construction, Inc., 104 F.3d 200, 201 (8th Cir.1997); In re Kord Enterprises II, 139 F.3d 684, 687 (9th Cir.1998). Courts generally use the lodestar method in determining the reasonableness of attorney's fees. See e.g., Grant v. George Schumann Tire & Battery Co., 908 F.2d 874, 877 (11th Cir.1990). The lodestar approach involves multiplying the attorney's reasonable hourly rate by the number of hours expended. Id. (citing Hensley v. Eckerhart, 461 U.S. 424, 433, 103 S.Ct. 1933, 76 L.Ed.2d 40 (1983)). Previously, I listed several factors for determining the reasonableness of a fee as part of a secured claim. In re Bader, 118 B.R. 817 (Bankr.N.D.Fla.1990). These factors include the following:
the time and labor involved, whether a non-attorney could perform some of the tasks, whether there were any novel or difficult questions involved, what amount of skill was necessary to perform the services, whether acceptance of the case precluded other employment on the part of the attorney, the amount customarily charged in the community, whether the rate was a flat fee or based on expected hourly work, whether extraordinary results were obtained, whether the relationship between the attorney and the client is ongoing or limited, whether the case is undesirable, and the amount awarded in similar cases in the division.
The parties do not dispute that Norwest is an oversecured creditor. The debtors' estimate the market value of their homestead at $60,000; Norwest has filed a secured claim in the amount of $53,725. Thus, Norwest is oversecured. Paragraph six of the mortgage agreement under which this claim arose states "the debtors will pay all and singular the costs, charges, and expenses including reasonable lawyers' fees, ..., incurred or paid at any time by Norwest because of failure on the part of the debtors promptly and fully to perform the agreements and covenants of said promissory note and this mortgage, and said costs, charges, and expenses shall be immediately due and payable and shall be secured by the lien of this mortgage." (emphasis added). Thus, Norwest is entitled to claim reasonable attorney's fees arising in pursuing the two-month mortgage arrearage. I must, therefore, decide whether Norwest's claim for $800 in attorney's fees is reasonable.
Norwest's Response to Debtor's Objection to Claim includes the following services in its claim for flat rate attorney's fees:
reviewing the court papers in the case; reviewing proof of claim filed by Secured Creditor and, if necessary, preparing, filing and serving an amended proof of claim; reviewing and analyzing the Debtor\'s proposed Chapter 13 Plan and filing an Objection to Plan, if necessary; monitoring plan payments and filing a motion for stay relief or for adequate protection, if necessary; and, as needed, addressing any objection to claim which might be interposed.
Many of these services are future services which may or may not be performed. Norwest even concedes that the flat rate fee claim includes "fees for anticipated services which may not become necessary." (Norwest Mortgage, Inc.'s Resp. to Debtors' Objection to Claim ¶ 13.) While a flat rate fee for representation may be customary in the residential mortgage industry, it is not customary in bankruptcy. Norwest's attorney may be retained on a flat fee basis, but the debtor should not have to bear the burden of paying a fee for services that have not been performed. Otherwise, Norwest's attorneys would be getting a windfall at the expense of debtors. In this case, the only actions taken by Norwest's attorney (except for this claim litigation) consist of the filing of a Notice of Appearance and the Amended Proof of Claim.
The hourly rate of $150/hour for attorney's services is reasonable for this community; however, the rate of $75/hour for paralegal services claimed by Norwest's attorney exceeds the norm. Paralegal services in the Northern District of Florida generally bill out at $50/hour. Reviewing the time records submitted by Norwest's attorney reveals a questionable allocation of time. The attorney claims one hour spent in supervising the preparation of the Notice of Appearance and the Amended Proof of Claim. The paralegal also claims one hour in the preparation of these same documents. It is beyond credulity that supervising the preparation of a standard form takes the same amount of time that preparation does. Therefore, I am...
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