In re STN Enterprises, Inc.

• Decision Date: 03 March 1987
• Docket Number: Bankruptcy No. 84-98.
• Citation: 70 BR 823
• Court: U.S. Bankruptcy Court — District of Vermont
• Parties: In re S.T.N. ENTERPRISES, INC., d/b/a Atwater Arms, Debtor.

70 B.R. 823 (1987)

In re S.T.N. ENTERPRISES, INC., d/b/a Atwater Arms, Debtor.

Bankruptcy No. 84-98.

United States Bankruptcy Court, D. Vermont.

March 3, 1987.

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John R. Canney, III, Carroll, George & Pratt, Rutland, Vt., for debtor.

Steven M. Gates, Albany, N.Y., pro se.

Jerome I. Meyers, White River Junction, Vt., for unsecured creditors' committee.

FRANCIS G. CONRAD, Bankruptcy Judge.

The debtor filed for protection under Chapter 11 of the Bankruptcy Code on May 29, 1984. Steven M. Gates, debtor's co-counsel, has submitted a final application for legal fees. The attorney for the creditors' committee objects to this application because, in his view, the documentation is inadequate, the pre-petition services listed were not sufficiently connected to the filing of the petition, and the applicant duplicated the services of debtor's local counsel.

S.T.N. Enterprises first retained the applicant, a sole practitioner from New York State, on April 19, 1984, some six weeks before filing its petition. One week later Attorney Gates became its general counsel. He served as lead counsel to the debtor-in-possession until the summer of 1984, when he became co-counsel with the firm of Carroll, George & Pratt, debtor's local attorneys. After September 21, 1984, Carroll, George & Pratt took over as lead counsel in the case. Between February 13th and September 9th 1985, when he formally ceased representing the debtor, Attorney Gates's work was confined to a few particular matters. The applicant has submitted a final bill for 528 hours at $90.00 an hour for his legal services between April 19, 1984 and March 31, 1985, amounting to $47,520.00 in fees, and for an additional $4,077.92 in expenses.

On April 5, 1985, after a hearing two days earlier on his first interim application for attorney's fees, the Court issued an Order granting Attorney Gates an advance of $15,000.00. After continued hearings on a second interim application, we awarded him an additional advance of $5,000.00 on December 10, 1985. In the meantime, Attorney Gates has asked us to treat this second interim application, revised and supplemented, as the final application for his legal fees and expenses through March 31, 1985.¹ He has, however, filed another fee application covering the period April 1, 1985 through December 31, 1986, and also adding recently discovered services that should have been included in the interim applications.

In evaluating the requested fees, we have reviewed his applications for interim compensation, including some forty seven pages of narrative and nine attachments, a revised expense statement of ten pages with thirty pages of selected receipts, and an amended statement of eighty six pages of services rendered, including five appendices and a correspondence log of twenty pages. We have also examined the interim applications of Carroll, George & Pratt for their attorneys' fees, as well as the documents of record reflecting the tortuous history of this case and its many adversary proceedings. Finally, we have considered the arguments made at the hearings on this application and the memoranda submitted by the applicant and the unsecured creditors' committee. We make our findings and draw our conclusions in light of this material.

Attorneys' fees are naturally a matter of immediate concern to those who practice before the Bankruptcy Court. For the Court, their determination is "a difficult and unpleasant task," In re International Coins & Currency, Inc., 22 B.R. 127, 128, 7 C.B.C.2d 163 (Bkrtcy.D.Vt.1982) (I.C.C. I), that requires juggling countless specific compromises and striking a balance between the competing considerations for each potentially compensable service or expense. The best we can hope for is, in Albert Camus' phrase, "human justice, with its considerable imperfections." Expanding on earlier decisions of this Court, we use this occasion to set some guidelines for counsel applying to us for their fees and expenses. Our hope is that the guidelines will reduce the uncertainty surrounding fee applications in this District and that this will reduce the amount of Court time reviewing fee applications.

An attorney is entitled to reasonable compensation for actual, necessary services based on the nature, the extent, and the value of such services, the time spent on such services, and the cost of comparable services outside bankruptcy; and to reimbursement for actual, necessary expenses. 11 U.S.C. § 330(a). An attorney representing a debtor in Chapter 11 must obtain the prior approval of the Court under 11 U.S.C. §§ 327(a) and 1107(a) and Bankruptcy Rule 2014(a). See, e.g., Hunter Savings Association v. Baggott Law Offices Co., L.P.A., 34 B.R. 368, 373 (S.D. Ohio 1983), rev'd on other grounds sub nom. In re Georgetown of Kettering, Ltd., 750 F.2d 536 (6th Cir.1984). The Court will disallow any compensation to attorneys who provide services without the Court's approval. In the Matter of Arlan's Department Stores, Inc., 615 F.2d 925 (2d Cir.1979) (per se standard); In re Hydrocarbon Chemicals, Inc., 411 F.2d 203 (3d Cir.), cert. denied, 396 U.S. 823, 24 L.Ed.2d 74, 90 S.Ct. 66 (1969) (per se standard). In exceptional circumstances, however, the Court under its equitable powers may grant nunc pro tunc orders approving employment to alleviate the harsh results of the per se rule. Matter of Triangle Chemicals, Inc., 697 F.2d 1280 (5th Cir.1983); Matter of Laurent Watch Co., 539 F.2d 1231 (9th Cir.1976); Stolkin v. Nachman, 472 F.2d 222 (7th Cir.1973); In re Kroeger Properties & Development, Inc., 57 B.R. 821 (Bkrtcy. 9th Cir.1986); In re Amherst Mister Anthony's Ltd., 63 B.R. 292 (W.D.N.Y.1986).

In a bankruptcy case fees are not a matter for private agreement. There is inherent a public interest that must be considered in awarding fees. Senate Report No. 95-989, 95th Congress, 2d Session 40 (1978), U.S.Code Cong. & Admin.News 1978, p. 5787. Accordingly, the Code imposes on us a supervisory obligation not only to approve counsel's employment but also to ensure that counsel's bills are reasonable, the services and expenses actual and necessary. Under 11 U.S.C. §§ 327-330 and Bankruptcy Rules 2016 and 2017, the Court has an independent judicial responsibility to evaluate the attorneys' fees. In re International Coins & Currency, Inc., 26 B.R. 256, 260, 7 C.B.C.2d 780 (Bkrtcy.D.Vt.1982) (I.C.C. III). In order to prevent overreaching, In re N.S. Garrott & Sons, 54 B.R. 221, 222 (Bkrtcy.E.D.Ark. 1985), the Court may reject proposed legal fees despite the parties' stipulation, In re International Coins & Currency, Inc., 26 B.R. at 260; In re Gulf Hills Development Corp., 60 B.R. 366, 368 (S.D.Miss.1985), and without any objections from the parties, In re Cuisine Magazine, Inc., 61 B.R. 210, 219 (Bkrtcy.S.D.N.Y.1986); In re Wilson Foods Corp., 36 B.R. 317, 320, 11 B.C.D. 722 (Bkrtcy.W.D.Okla.1984); In the Matter of Hamilton Hardware Company, Inc., 11 B.R. 326, 329, 7 B.C.D. 963, 4 C.B.C.2d 699 (Bkrtcy.E.D.Mich.1981). Our judicial responsibility is especially acute when the attorney seeks compensation out of the bankruptcy estate. In re International Coins & Currency, Inc., 26 B.R. at 260.

The attorney applying for legal fees in bankruptcy bears the burden of proving the reasonableness of the fees. In the Matter of Chapman Farms, 58 B.R. 822, 824 (Bkrtcy.W.D.Wis.1986); In re Four Star Terminals, Inc., 42 B.R. 419, 429, 12 B.C.D. 197, 11 C.B.C.2d 47 (Bkrtcy. D.Ak.1984); In the Matter of Hamilton Hardware Company, Inc., 11 B.R. 326, 329 (Bkrtcy.E.D.Mich.1981). In order to sustain this burden, the applicant must present a carefully detailed application and supporting documentation. See In the Matter of Mead Land & Development Co., Inc., 577 F.2d 858, 860 (3d Cir.1978); In re Jansen, 47 B.R. 641, 643 (Bkrtcy.D.Ariz. 1985); In the Matter of Daylight Transport, Inc., 42 B.R. 20, 23 (Bkrtcy.N.D.Ala. 1984); In re Hotel Associates, Inc., 15 B.R. 487, 488 (Bkrtcy.E.D.Pa.1981). At the very least, every application for attorneys' fees must include a specific analysis of each task that compensation is sought for. When different services are lumped together, we cannot determine whether the time allotted for each is reasonable. See In re WHET, Inc., 58 B.R. 278, 281-82 (Bkrtcy. D.Mass.1986); In re Bible Deliverance Evangelistic Church, 39 B.R. 768, 777 (Bkrtcy.E.D.Pa.1984); In re Nation/Ruskin, Inc., 22 B.R. 207, 210 (Bkrtcy.E.D.Pa. 1982). This Court will summarily disallow time for discrete legal services merged together in the application for fees. Compare In re Seneca Oil Company, 65 B.R. 902, 909 (Bkrtcy.W.D.Okl.1986); In re Esar Ventures, 62 B.R. 204, 205 (Bkrtcy.D.Hawaii 1986); In re Four Star Terminals, Inc., 42 B.R. 419, 434, n. 11 (Bkrtcy.D.Ak. 1984); In re Horn & Hardart Baking Company, 30 B.R. 938, 944-45 (Bkrtcy.E. D.Pa.1983).

Before awarding fees out of the bankruptcy estate, we shall insist that counsel conscientiously set forth the hours expended on each task and the nature of the services rendered at a level of specificity that would allow us to evaluate the application. A fee application should be self-contained. Compare In the Matter of Borgenicht, 470 F.2d 283, 284 (2d Cir.1972); In the Matter of Affinito & Son, Inc., 63 B.R. 495, 498-99 (Bkrtcy.W.D.Pa.1986); In re Neibart Associates Press, Inc., 58 B.R. 212, 214 (Bkrtcy.E.D.N.Y.1985); In re Thacker, 48 B.R. 161, 163 (Bkrtcy.N.D.Ill. 1985). Under 11 U.S.C. § 330(a), the Court must establish, initially, whether the billed service is compensable; secondly, whether it was actual and necessary; and, finally, whether the amount charged is reasonable based on the nature, extent, and value of the services. Identification of the category of service provided enables us to determine whether it is inherently compensable;...