Manoa Finance Co., Inc., In re

• Decision Date: 02 August 1988
• Docket Number: No. 86-2298,86-2298
• Citation: 18 B.C.D. 295,853 F.2d 687
• Parties: 19 Collier Bankr.Cas.2d 574, 18 Bankr.Ct.Dec. 295, Bankr. L. Rep. P 72,405 In re MANOA FINANCE COMPANY, INC., a Hawaii corporation, Debtor. H. William BURGESS, Appellant, v. Charles R. KLENSKE, Trustee, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 687

853 F.2d 687

19 Collier Bankr.Cas.2d 574, 18 Bankr.Ct.Dec. 295,

Bankr. L. Rep. P 72,405

In re MANOA FINANCE COMPANY, INC., a Hawaii corporation, Debtor H. William BURGESS, Appellant, v. Charles R. KLENSKE, Trustee, Appellee.

No. 86-2298.

United States Court of Appeals Ninth Circuit.

Argued and Submitted April 8, 1987.

Decided Aug. 2, 1988.

H. William Burgess, Honolulu, Hawaii, for appellant.

James J. Feder, Wyman, Bautzer, Christensen, Kuchel & Silbert, Los Angeles, Cal., for appellee.

Appeal from the United States Bankruptcy Court for the District of Hawaii.

Before POOLE, NORRIS and BRUNETTI, Circuit Judges.

POOLE, Circuit Judge:

This appeal presents the issue whether under Sec. 330 of the Bankruptcy Reform Act of 1978, 11 U.S.C. Sec. 330 (hereafter Sec. 330), a fee award based on an attorney's standard hourly billing rate and the actual number of hours worked may be enhanced on the basis of the factors set forth in Kerr v. Screen Extras Guild, 526 F.2d 67 (9th Cir.1975), cert. denied, 425 U.S. 951, 96 S.Ct. 1726, 48 L.Ed.2d 195 (1976). In keeping with the general standards applicable to federal fee-shifting statutes, we hold that compensation awards under Sec. 330 may be enhanced only in exceptional circumstances where the applicant produces specific evidence that an award based on his standard hourly rate and actual hours worked does not fairly compensate for the work done, as is the purpose of the Kerr factors.

BACKGROUND

Appellant represented the Creditors' Committee in Manoa Finance Company's reorganization under Chapter 11 of the Bankruptcy Reform Act of 1978, 11 U.S.C. Sec. 1101 et seq. He eventually filed an application for final compensation under 11 U.S.C. Sec. 330 based on his standard billing rate for actual hours spent performing necessary legal services, plus general excise taxes and reimbursement of costs, for a total of $140,908.65. The bankruptcy court approved this request, with one exception not pertinent here. Appellant additionally requested "such amount of bonus compensation as the Court deems reasonable for exceptional results achieved," suggesting that $100,000 would be appropriate. The bankruptcy court disallowed the bonus, holding that "no award of a bonus will be made to any professional person employed in the case and that the fees of attorneys will be allowed only on the basis of their regular, usual and customary hourly rates for the time invested." The bankruptcy court believed that the principles set forth in In re THC Financial Corp., 659 F.2d 951 (9th Cir.1981), cert. denied, 456 U.S. 977, 102 S.Ct. 2244, 72 L.Ed.2d 852 (1982), continued to apply under the Bankruptcy Reform Act of 1978 and precluded the award of bonuses. Appellant appeals denial of the requested bonus, arguing that THC Financial is inapplicable to compensation granted under Sec. 330. He maintains that in determining whether to award the requested bonus the bankruptcy court should have considered and applied the factors set forth in Kerr. ¹

DISCUSSION

Evolution of Compensation in Bankruptcy Cases

Under the Bankruptcy Act of 1898 compensation awards were authorized by Sec. 241 (formerly codified at 11 U.S.C. Sec. 641) which provided in relevant part:

The judge may allow ... reasonable compensation for services rendered and reimbursement for proper costs and expenses incurred in a proceeding under this chapter--

....

(5) by the attorney for the petitioning creditors.

Compensation awards under Sec. 241 were governed by policies of economy of administration and conservation of estate. In re Beverly Crest Convalescent Hosp., Inc., 548 F.2d 817, 820-21 (9th Cir.1976, as amended 1977); In re York Int'l Bldg., Inc., 527 F.2d 1061, 1072 (9th Cir.1975); Jacobowitz v. Double Seven Corp., 378 F.2d 405, 408 (9th Cir.1967). Trustees and attorneys were considered public officers and as such were not entitled to the same compensation for their services as they might have received in private employment. York, 527 F.2d at 1069. Bonuses, in the nature of a reward for good services, were not allowed. Rather, excellent work was viewed as a predicate for an award close to private rates. THC Financial, 659 F.2d at 954.

The corresponding compensation provision in the Bankruptcy Reform Act of 1978 is Sec. 330, which similarly authorizes reasonable compensation for certain services and costs. 11 U.S.C. Sec. 330. Section 330 provides:

(a) After notice to any parties in interest and to the United States trustee and a hearing ... the court may award to a trustee, to an examiner, to a professional person employed under section 327 or 1103 of this title, or to the debtor's attorney--

(1) reasonable compensation for actual, necessary services rendered ... 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; and

(2) reimbursement for actual, necessary expenses.

11 U.S.C. Sec. 330.

The legislative history provides considerable insight into Congress's intent in adopting Sec. 330:

The compensation is to be reasonable, for actual necessary services rendered, based on the time, the nature, the extent, and the value of the services rendered, and on the cost of comparable services other than in a case under the bankruptcy code. The effect of the last provision is to overrule In re Beverly Crest Convalescent Hospital, Inc., which set an arbitrary limit on fees payable, based on the amount of a district judge's salary, and other, similar cases that require fees to be determined based on notions of conservation of the estate and economy of administration. If that case were allowed to stand, attorneys that could earn much higher incomes in other fields would leave the bankruptcy arena. Bankruptcy specialists, who enable the system to operate smoothly, efficiently, and expeditiously, would be driven elsewhere, and the bankruptcy field would be occupied by those who could not find other work and those who practice bankruptcy law only occasionally almost as a public service. Bankruptcy fees that are lower than fees in other areas of the legal profession may operate properly when the attorneys appearing in bankruptcy cases do so intermittently, because a low fee in a small segment of a practice can be absorbed by other work. Bankruptcy specialists, however, if required to accept fees in all of their cases that are consistently lower than fees they could receive elsewhere, will not remain in the bankruptcy field.

H.R.Rep. No. 595, 95th Cong., 2d Sess. 329-30, reprinted in 1978 U.S.Code Cong. & Admin.News 5963, 6286.

Upon introducing an amendment to the bill containing the version of Sec. 330 which was adopted, Senator DeConcini commented:

Attorneys' fees in bankruptcy cases can be quite large and should be closely examined by the court. However bankruptcy legal services are entitled to command the same competency of counsel as other cases. In that light, the policy of this section is to compensate attorneys and other professionals serving in a case under title 11 at the same rate as the attorney or other professional would be compensated for performing comparable services other than in a case under title 11.... Notions of economy of the estate in fixing fees are outdated and have no place in a bankruptcy code.

124 Cong.Rec. 33,994 (1978), reprinted in 1978 U.S.Code Cong. & Admin.News 6505, 6511.

The above comments are neither exhaustive nor dispositive, but it is clear that in adopting Sec. 330 Congress intended a retreat from doctrines which strictly limited fee awards under Sec. 241 to less than attorneys might have received for services of the same professional quality in non-bankruptcy cases. See In re Nucorp Energy, Inc., 764 F.2d 655, 659 (9th Cir.1985). Hence, to the extent that THC Financial prohibited bonuses necessary to make compensation awards competitive with fees for comparable non-bankruptcy services, it does not apply to awards made under Sec. 330. However, we think that in enacting that section Congress did not intend to authorize higher compensation than attorneys would receive for comparable non-bankruptcy services.

The bankruptcy court erred in concluding that compensation awards under Sec. 330 can never include an element denominated a "bonus." The remaining question is what circumstances justify a bonus when the baseline compensation is calculated by multiplying the attorney's standard billing rate by the actual number of hours reasonably expended on the matter. For guidance we look to the attorney's fees awarded under the federal fee-shifting statutes.

Federal Fee-Shifting Statutes

In determining a reasonable attorney's fee under Sec. 330, many courts have adopted the formulae used to calculate fees under various federal fee-shifting statutes. E.g., In re Consolidated Bancshares, Inc., 785 F.2d 1249, 1257 (5th Cir.1986) (12-factor analysis); Harman v. Levin (In re Robertson), 772 F.2d 1150, 1151-53 (4th Cir.1985) (12-factor analysis); In re Powerine Oil Co., 71 B.R. 767, 771 n. 3 (9th Cir. BAP 1986) (limitations on availability of adjustments to the lodestar); In re Schaeffer, 71 B.R. 559, 562-63 (Bankr.S.D.Ohio 1987) (principles established in Supreme Court decisions construing fee-shifting statutes); In re Sly, 77 B.R. 115, 117-18 (Bankr.N.D.Ohio 1986) (calculation begins with lodestar then proceeds to 12-factor analysis); In re Elmendorf Bd. Corp., 57 B.R. 580, 584-87 (Bankr.D.N.H.1986) (limitations on availability of adjustments to the lodestar); In re Pacific Express, Inc., 56 B.R. 859, 862 (Bankr.E.D.Cal.1985) (12-factor analysis). Our circuit has suggested, without elaboration, that the factors applied in feeshifting cases are relevant in determining a reasonable fee under Sec. 330. In re Yermakov, 718 F.2d 1465, 1471 (9th Cir.1983) (citing Johnson v. Georgia Highway Express, Inc., 488 F.2d 714, 717-19 (5th Cir.1974), and the 12-factor analysis first developed therein.)

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