In re Smith
| Decision Date | 24 September 2002 |
| Docket Number | No. 00-17274.,No. 00-17260.,No. 01-16531.,00-17260.,00-17274.,01-16531. |
| Citation | 317 F.3d 918 |
| Parties | In re Darrel D. SMITH, Debtor. Darrel D. Smith, Appellant, v. Edwards & Hale, Ltd., Appellee. Darrel D. Smith, Appellant, v. John Peter Lee, Ltd., Appellee. Darrel D. Smith, Appellant, v. Tom Grimmett, John Peter Lee, Ltd., Nancy L. Allf, Edwards & Hale, Ltd., Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Darrel D. Smith, Pro Se, Las Vegas, NV; David Mincin, Law Offices of Richard McKnight, P.C., Las Vegas, NV, for the debtor-appellant.
Denise H. Abramow, Shea & Carlyon, Ltd., Las Vegas, NV, for creditor-appellee Edwards & Hale, Ltd.
Paul C. Ray, John Peter Lee, Ltd., Las Vegas, NV, for creditor-appellee John Peter Lee, Ltd.
Appeal from the United States District Court for the District of Nevada; Howard D. McKibben, District Judge, Presiding, Johnnie B. Rawlinson, District Judge, Presiding. D.C. Nos. CV-S-99-1761-HDM, CV-98-01616-HDM/LRL, CV-S-99-01114-KJD.
Before: HUG, CUDAHY,* and TASHIMA, Circuit Judges.
Darrel D. Smith, a Chapter 7 debtor, is appealing the decisions of the district courts affirming: (1) the bankruptcy court's award of attorneys' fees to the law firm of Edwards & Hale, Ltd. (E & H), debtor's special counsel in a 1992 state court action; (2) the bankruptcy court's award of certain administrative fees and costs to Smith's chapter 11 counsel, John Peter Lee, Ltd., (JPL); and (3) the bankruptcy judge's refusal to recuse himself. Under the somewhat convoluted facts of this case, we affirm the various awards of attorneys' fees. We also affirm the denial of the recusal motion. Although these lawsuits present some valid issues, much of the fee litigation was occasioned by a stubborn refusal of the debtor to recognize valid claims by attorneys; his continuing battles with his lawyers have been extraordinarily wasteful of the resources available in bankruptcy.
Smith filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code on March 21, 1991. He retained JPL as Debtor's counsel. On January 11, 1994, the bankruptcy court approved Smith's Third Plan of Reorganization. The Plan provided for three avenues for the payment of claims. First, funds could be paid out of the proceeds of Smith's state law claims against a group of defendants arising out of his community property claims against his former wife's property. E & H was retained for this litigation. Second, funds could be paid out of proceeds from the sale of reproductions and prints of Smith's Maxfield Parrish painting, Daybreak. Third, if sufficient funds were not raised from either of these two sources within a specified time, the Plan provided that Smith would sell Daybreak. As things turned out, Smith could not raise sufficient funds employing the first two methods. The state law litigation produced only $80,000 instead of the $9 million estimated by Smith. Smith also gave up selling the prints of Daybreak because the sales of the prints would not return a net profit after expenses. At the same time, Smith became unwilling to sell the painting itself.
Smith's Plan specifically authorized the bankruptcy court to convert his case to Chapter 7 if he defaulted under the terms of the Plan. When Smith defaulted by not selling Daybreak, his case was therefore converted to a Chapter 7 proceeding and a trustee was appointed. On February 16, 1996, the bankruptcy court ordered the sale of Daybreak at public auction. This order was carried out and the painting sold at auction for $3.9 million, net of buyer's premium and applicable state and local taxes. Under the order of the court, Smith is to receive any funds in excess of bankruptcy claims and administrative fees and costs. Smith has also received authorization from the bankruptcy court to use the excess funds to purchase another Maxfield Parrish painting and to fund certain litigation, including his challenges to the fee awards granted to E & H and JPL. Smith had appealed the conversion of his case to Chapter 7, as well as the bankruptcy court's approval of the sale of Daybreak, but these appeals have been unsuccessful.
For its work on the state litigation, the bankruptcy court granted four separate fee applications by E & H, totaling approximately $175,000. After the bankruptcy case was converted to Chapter 7, E & H hired Shea & Carlyon, Ltd. to recover its fees as administrative expenses. Although Smith appealed every order relating to fees and expenses awarded to E & H, Shea & Carlyon was successful in defending E & H's fee awards against all challenges. E & H recovered approximately $175,000, but it also sought reimbursement for the fees and costs it incurred in defending its fee awards against Smith's challenges. In this connection, the bankruptcy court awarded E & H additional fees of $43,587 and costs of $3,777 by order entered November 23, 1999. The bankruptcy court also found that the proceedings involving fees had reached the stage of frivolousness. The court noted that its award of fees to Smith's current counsel (Law Offices of Richard McKnight, P.C.) was contingent upon the award of fees to the other professionals in the case, which included E & H and JPL. Thus, the bankruptcy court found itself awarding fees based on applicable bankruptcy law, contract law and Nevada state law. By order dated October 10, 2000, the district court affirmed the awards of fees based on bankruptcy law and on contract law and Smith now appeals. He does not challenge the reasonableness of the amount of the fee awards, but rather the legal basis for the awards.
JPL was awarded more than $700,000 for services performed while counsel to Smith. JPL sought additional fees for services allegedly rendered after it withdrew as debtor's counsel. In this connection, JPL filed four fee petitions, all of which were opposed by Smith, but the bankruptcy court granted all of JPL's fee applications, at least in part. Smith appealed the partial grant of the first fee application to the district court. The district court reversed and remanded the case to the bankruptcy court to make more detailed findings to support the fee award. On remand and after an evidentiary hearing, the bankruptcy court reaffirmed all its earlier fee awards and awarded new fees to JPL for the additional fee litigation, resulting in a total award of $343, 801.40. Smith filed a second appeal to the district court, and that court affirmed the bankruptcy court's fee rulings. Smith now appeals to this court, and similarly to his appeal of the fees awarded to E & H, Smith does not challenge the reasonableness of the amount of the fee awards but does question the legal basis for the awards.
In 1992, Smith filed a motion, in the bankruptcy court, to enforce a written settlement agreement, which resolved his claims against his former wife's (Mitzi Briggs's) property. On July 16, 1992, following oral arguments, Judge Jones enforced the agreement with some modifications. Smith appealed with respect to those modifications. On February 10, 1994, the district court vacated the bankruptcy court's order and remanded with instruction to hold an evidentiary hearing. After the evidentiary hearing, Bankruptcy Judge Jones reaffirmed his ruling, and Smith did not appeal.
In 1999, Smith, who had been represented during this litigation by JPL, filed malpractice claims against that law firm. During the hearings on the malpractice claims in February and April 1999, Smith alleged that Judge Jones then for the first time indicated that he had formed a fixed predisposition during the 1992 hearing with respect to the settlement (then the subject of litigation); this mindset was still in effect during the 1994 evidentiary hearing. Smith filed a motion to disqualify Judge Jones on June 1, 1999, but the bankruptcy court denied Smith's motion for recusal. On August 30, 2000, the district court affirmed. Smith now appeals again.
This court has jurisdiction under 28 U.S.C. § 158(d) and 28 U.S.C. § 1291 since this is an appeal from the final judgments of two district courts. We review de novo the district court's decision on appeal from a bankruptcy court. See Gruntz v. County of Los Angeles (In re Gruntz), 202 F.3d 1074, 1084 (9th Cir.2000) (en banc). We apply the same standards of review that govern the district court's review, Ting v. Chang (In re Chang), 163 F.3d 1138, 1140 (9th Cir.1998), giving no deference to the district court's decision, Harmon v. Kobrin (In re Harmon), 250 F.3d 1240, 1245 (9th Cir.2001). A bankruptcy court's award of attorneys' fees will not be disturbed on appeal absent an abuse of discretion or an erroneous application of law. In re Nucorp Energy, Inc., 764 F.2d 655, 657 (9th Cir.1985). A bankruptcy court's denial of a recusal motion is also reviewed for abuse of discretion. United States v. $292,888.04 U.S. Currency, 54 F.3d 564, 566(9th Cir.1995). Questions of law are reviewed de novo. Nucorp, 764 F.2d at 657.
Smith opposes the fees awarded to E & H and JPL on both general and specific grounds. Smith's general objections to the fee awards require an analysis of how the Bankruptcy Code provides compensation for attorneys working on a case.
Smith argues that 11 U.S.C. § 330(a) does not permit the award of fees to Chapter 7 or Chapter 11 debtor's attorneys. Thus, he argues, the bankruptcy court was not authorized to award fees to either E & H or JPL who served in that capacity. Even if section 330(a) does allow such an award of fees, Smith argues that the fee awards cannot be supported under the benefit analysis approach employed in Pfeiffer v. Couch (In re Xebec), 147 B.R. 518 (9th Cir.BAP 1992). We address these contentions...
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