Matter of Liberal Market, Inc.
| Decision Date | 18 October 1982 |
| Docket Number | Bankruptcy No. 3-81-00305. |
| Citation | 24 BR 653 |
| Parties | In the Matter of The LIBERAL MARKET INC., Debtor. |
| Court | U.S. Bankruptcy Court — Southern District of Ohio |
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Peter J. Donahue, Dayton, Ohio, Taft, Stettinius & Hollister, Cincinnati, Ohio, Ted B. Clevenger, Bell & Clevenger Co., Columbus, Ohio, Stokes, Lazarus & Watson, Atlanta, Ga., for debtor.
Ira Rubin, Thomas R. Noland, Dayton, Ohio, Leon C. Marcus, New York City, Jay A. Rosenberg, Cincinnati, Ohio, for Official Creditors Committee.
DECISION AND ORDER
This matter is before the Court for consideration of nine fee applications filed by professional persons employed under 11 U.S.C. §§ 327 or 1103, and a fee application by the Examiner appointed pursuant to 11 U.S.C. § 1104(b). The applications were consolidated for evidentiary hearing, which the Court held on 3 August 1982. Note 11 U.S.C. §§ 330(a) and 503(b)(2). The following Decision and Order constitutes the Court's findings required by 11 U.S.C. § 330, and determination of allowability under 11 U.S.C. § 503(b)(2). The Court notes that it is undisputed that all applicants sub judice were duly appointed and exercised proper authority to act in their alleged capacities. The Court further notes that attorneys for Debtor expressed concern that the total amounts requested might be beyond the ability of Debtor to pay in light of current economic stresses.
Attorneys' fee applications are now controlled by Section 330 of the Code, with false parsimony negated. The precedents of pre-Code criteria, however, are yet applicable and the problems of excessive legal fees still endemic. A good advocate must apply his talents in representing himself. The profession does not, and a court cannot, obviate the purpose and intent of professional standards such as the American Bar Association guidelines promulgated in the Code of Professional Responsibility's Disciplinary Rule 2-106.*
The Court is under a duty to determine independently the reasonableness of fees charged by professionals against a debtor's estate, even if there are no objections by parties in interest. 11 U.S.C. §§ 329, 330 and 503(b); In re Johnson, 21 B.R. 217 (Bkrtcy.D.D.C.1982); In re Erewhon, Inc., 21 B.R. 79 (Bkrtcy.D.Mass.1982); and In re Crutcher Transfer Line, Inc., 20 B.R. 705 (Bkrtcy.W.D.Ky.1982). In fact, the requirement of court inquiry is codified for the very reason that fees often are asserted against a bankruptcy estate without any adverse interests appearing at the hearing. Judicial scrutiny is, of necessity, based upon hindsight, tempered with the court's subjective factual determinations of reasonableness based upon its own general experience, observations, and expertise in the area. In re Erewhon, Inc., supra. As previously indicated by this Court, the Court will decide such matters as hourly rates, the difficulty and complexity of legal issues, the quality of legal services, and the amount of time billed for various legal tasks, without the necessity of expert testimony unless a particular element or elements have been placed in issue. See this Court's opinion in Matter of Swartout, 20 B.R. 102, 9 B.C.D. 313 (Bkrtcy.S.D.Ohio 1982), and citation therein.
The burden of proof in all fee matters is on the applicant. Matter of Swartout, supra; In re Underground Utilities Construction Co., Inc., 13 B.R. 735 (Bkrtcy.S.D.Fla.1981); Matter of Olen, 15 B.R. 750, 8 B.C.D. 555, 5 C.B.C.2d 944 (Bkrtcy.E.D.Mich.1981). As professionals, all fee applicants are held to a high standard in the discharge of their duties. Matter of Grant, 14 B.R. 567, 3 C.B.C.2d 811 (Bkrtcy.S.D.N.Y.1981). The Bankruptcy Code, however, permits compensation competitive with other fields in order to attract bankruptcy specialists of high quality, thereby avoiding the "bankruptcy haircut" resulting from the previous "economy of administration" standard utilized under the Bankruptcy Act. 11 U.S.C. §§ 330(a)(1) and 503(b)(4); In re Penn-Dixie Industries, Inc., 18 B.R. 834, 838-839, 8 B.C.D. 1134 (Bkrtcy.S.D.N.Y.1982); In re Perros, 14 B.R. 515, 517 (Bkrtcy.E.D.N.Y.1981), and citation therein. In this regard, this Court disagrees with the opinion of Matter of R.C. Sanders Technology Systems, Inc., 21 B.R. 40 (Bkrtcy.D.N.H.1982) to the extent that it allows fees only "at the lower end of the spectrum of reasonableness," as such reading is not required by the language of the statute nor consistent with the Code's objective of allowing high enough professional fees to compete with non-bankruptcy fields for highly qualified professionals. See H.R. Rep. No. 595, 95th Cong., 1st Sess. 330 (1977), reprinted in 1978 U.S.Code Cong. & Ad.News 5963, 6286; and S.Rep. No. 989, 95th Cong., 2d Sess. 41 (1978), reprinted in 1978 U.S.Code Cong. & Ad.News 5787, 5827; both cited in In re Klemen, 21 B.R. 77, 78 (Bkrtcy.N.D.Ill.1982). The Court notes, however, that fees should nevertheless be closely scrutinized with a view toward eliminating excessive charges or wasteful services and expenditures of professional time. The Court also notes that, in order to conserve the estate, the use of paralegals is specifically encouraged by the Code. 11 U.S.C. § 330(a)(1); and see In re Klemen, supra, 77, and citation therein; and In re Erewhon, Inc., supra.
Because of the considerable absence of a "bargaining process" in the calculation of professional fees charged against a debtor's estate, the basic purpose of Court inquiry into professional fees is to inject quantum meruit concerns in order that the basic elements of the contractual bargaining process will be applicable to assist in regulating excessive claims. 11 U.S.C. §§ 328, 329 and 330. In a manner of speaking, it is the duty of the Court to insure that the debtor receives what was "bargained for." Given the practical difficulties in verifying the bookkeeping of fee applicants, who in this setting have little disincentive not to "pad" their applications, the Court is not bound by allegations of services provided, even if uncontested, if the record indicates that the quantum meruit value of the services performed is less than the amount requested. Of particular concern, the Court should attempt to avoid double compensation for duplication of services. Cle-Ware Industries, Inc. v. Sokolsky, 493 F.2d 863 (6th Cir.1974); In re Crutcher Transfer Line, Inc., supra, at 710; In re Erewhon, Inc., supra, at 85. In addition, the fee requested should be justified by more than merely the number of hours spent in order to avoid overcompensating the dilatory, inefficient attorney. In re Crutcher Transfer Line, Inc., supra; In re Erewhon, Inc., supra; In re Hotel Associates, Inc., 15 B.R. 487, 5 C.B.C.2d 669 (Bkrtcy.E.D.Pa.1981). A fee applicant, therefore, should document all services by itemized records which indicate the substance of tasks performed, In re Doyle-Lunstra Sales Corporation, 19 B.R. 1003 (D.S.D.1982), though the Court may take judicial notice of the Court record and infer reasonableness therefrom. In re Underground Utilities Construction Co., Inc., supra.
The threshold question in determining the allowability of fees should be whether the alleged services were actually provided and necessary. 11 U.S.C. §§ 330 and 503(b)(2); Matter of Swartout, supra; Matter of Olen, supra. Once documented, "actual and necessary expenses" are automatically reimbursable. 11 U.S.C. § 330(a)(2). Fees charged for services are further scrutinized, however, to ascertain their reasonableness "based on the time, the nature, the extent, and the value of such services, and the cost of comparable services other than in a case under this title." 11 U.S.C. § 330(a)(1). The Court may also consider the difficulty of the legal issues involved, the applicant's expertise, and the ultimate failure or success in accomplishing desired results on the Debtor's behalf. See this Court's opinion in Matter of Swartout, supra, at 105, and citation therein. It is significant to note that the Court is not bound by the employment arrangements agreed to by a creditors' committee, trustee, or debtor in possession in the exercise of employment powers under 11 U.S.C. §§ 1103, 327, or 1107, respectively. Instead, the Court may retrospectively "rewrite" the terms of compensation if deemed "improvident" as originally contracted. 11 U.S.C. § 328(a). The compensation requested by an attorney for the debtor (in a proceeding involving a Chapter 11 debtor in possession, the attorney who renders prepetition services for debtor qua debtor) is further subject to Court inquiry into the connection of such services with the bankruptcy proceeding, exempting such services to the extent properly chargeable under 11 U.S.C. §§ 329 and 330 from the trustee's avoidance powers. Matter of Swartout, supra.
One issue which is, by definition, endemic to all fee applications is the proper hourly rate chargeable by professionals. This question has been the subject of considerable litigation. See discussions in In re Erewhon, Inc., supra; Matter of R.C. Sanders Technology Systems, Inc., supra; and In re G.W.C. Financial & Insurance Services, Inc., 8 B.R. 122, 7 B.C.D. 109 (Bkrtcy.C.D.Cal. 1981). Although the Court will consider the instant requests individually, some general background comments, particularly regarding the hourly rates charged for legal services, are appropriate.
Section 330(a)(1) only anticipates compensation for an attorney's "actual and necessary" professional legal services. There is no entitlement as legal services for nonlegal services related to the operation of a business which should be performed by a debtor in possession or trustee. See 11 U.S.C. § 328(b); Cle-Ware Industries, Inc. v. Sokolsky, supra, at 874; and Matter of Braswell Motor Freight Lines, Inc., 630 F.2d 348, 350 (5th Cir.1980).
The basic litmus test for professional fees is the average rate charged by "local" professionals for...
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