Nucorp Energy, Inc., In re
| Decision Date | 25 June 1985 |
| Docket Number | No. 84-5804,84-5804 |
| Citation | 764 F.2d 655,13 B.C.D. 435 |
| Parties | , 12 Collier Bankr.Cas.2d 1463, 13 Bankr.Ct.Dec. 435, Bankr. L. Rep. P 70,609 In re NUCORP ENERGY, INC., an Ohio corporation, and its affiliates, Debtors. Luce, Forward, Hamilton & Scripps, Appellant. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Michael T. Andrew, Luce, Forward, Hamilton & Scripps, San Diego, Cal., for appellant.
Appeal from the United States District Court for the Southern District of California.
Before GOODWIN, WALLACE and REINHARDT, Circuit Judges.
Pursuant to section 330 of the Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, 92 Stat. 2549 (), appellant Luce, Forward, Hamilton & Scripps ("Luce, Forward") petitioned the bankruptcy court for the recovery of legal fees incurred in the handling of the Chapter 11 reorganization of Nucorp Energy, Inc. The bankruptcy court awarded recovery of the entire amount requested with the sole exception of compensation for time devoted to the preparation and presentation of the attorneys' fee applications. The district court affirmed the bankruptcy court's decision to disallow compensation for services related to fee application preparation. On appeal, Luce, Forward contends that the denial of compensation for the reasonable value of services rendered in the preparation and presentation of attorneys' fee applications contravenes both the letter and spirit of the Bankruptcy Reform Act of 1978. We agree.
On July 27, 1982, Nucorp Energy, Inc. ("Nucorp") and 27 of its affiliates commenced separate Chapter 11 cases in the bankruptcy court for the Southern District of California. At the time the cases were commenced, the affiliated debtors comprised a business enterprise with locations throughout the United States and with approximately 2,000 employees. The debtors had assets and liabilities totalling hundreds of millions of dollars and several outstanding issuances of public debt and securities. They continued to operate as debtors in possession upon the filing of the Chapter 11 petitions.
The bankruptcy court authorized the employment of Luce, Forward as General Corporate Counsel and Co-Bankruptcy Counsel to each of the debtors in possession. From commencement of the reorganization until February 11, 1983, when a Chapter 11 trustee was appointed, Luce, Forward rendered some 6,500 hours of professional services to Nucorp and its various affiliates. Luce, Forward submitted to the bankruptcy court bi-monthly applications for compensation for services rendered and costs incurred. Interim fee allowances were made by the bankruptcy court granting to Luce, Forward the full amount requested in each of the fee applications. In its final fee application, Luce, Forward requested $248,403 as compensation for professional services rendered, $18,596 as reimbursement for incurred costs, and $18,750 as compensation for time spent preparing and presenting the fee applications.
The bankruptcy court awarded Luce, Forward compensation for services rendered and reimbursement for incurred costs in the full amounts requested, but denied the law firm compensation for preparation and presentation of the fee applications. The bankruptcy court also denied Luce, Forward's motion for reconsideration. The sole basis for the bankruptcy court's decision to deny the requested compensation was that, "as a matter of appropriate professional and public policy," services related to fee application preparation ought not be compensable. In the course of the hearing on the motion for reconsideration, the bankruptcy judge remarked that time devoted to fee application preparation should not be compensable because such efforts benefit only the law firm and not the estate. The judgment of the bankruptcy court was summarily affirmed without explanation by the district court. No opposition was offered to Luce, Forward's request for compensation either below or on appeal. 1
A bankruptcy court's award of attorneys' fees will not be disturbed on appeal absent an abuse of discretion or an erroneous application of the law. See Southwestern Media, Inc. v. Rau, 708 F.2d 419, 422 (9th Cir.1983); In re York International Building, Inc., 527 F.2d 1061, 1068 (9th Cir.1975). Luce, Forward contends that the bankruptcy court's decision to disallow compensation for services related to the preparation and presentation of attorneys' fee applications was based on an erroneous construction of 11 U.S.C. Sec. 330, the statutory provision governing reimbursement to counsel in bankruptcy proceedings. We review de novo such questions of law.
When Nucorp filed its petition, section 330(a)(1) of the Bankruptcy Reform Act authorized the court to award "reasonable compensation for actual, necessary services" rendered to a bankruptcy estate by an attorney and other officers of the estate. The amount of compensation was to be "based on the time, the nature, the extent, and the value of the services and the cost of comparable services" in non-bankruptcy cases. 11 U.S.C. Sec. 330(a)(1). 2
In promulgating the Bankruptcy Reform Act, Congress made clear its intent to ensure competent representation of debtors by requiring compensation of "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" in non-bankruptcy cases. 124 Cong.Rec. H32,394 (1978) (statement of Rep. Edwards); 124 Cong.Rec. S33,994 (1978) (statement of Sen. DeConcini). In particular, Congress sought to repudiate a series of judicial decisions which had held that the compensation of attorneys in bankruptcy proceedings was subject to the overriding concern, unique to bankruptcy cases, of preserving the estate. Section 330 of the Bankruptcy Reform Act was intended to overrule the judicially fashioned doctrine of "economy of the estate" and to ensure adequate compensation for bankruptcy attorneys so that highly qualified specialists would not be forced to abandon the practice of bankruptcy law in favor of more remunerative kinds of legal work:
The effect of the last provision [section 330's requirement that compensation be commensurate with that awarded in non-bankruptcy cases] is to overrule In re Beverly Crest Convalescent Hospital, Inc., 548 F.2d 817 (9th Cir.1976, as amended 1977), which set an arbitrary limit on fees payable, ... 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.
H.R.Rep. No. 595, 95th Cong., 1st Sess. 330, reprinted in 1978 U.S.Code Cong. & Ad.News 5787, 5963, 6286 [hereinafter cited as House Report].
The Bankruptcy Reform Act thus directs courts to compensate attorneys for "actual, necessary" services that are normally compensable in other types of cases. Therefore, in reviewing the propriety of the bankruptcy court's decision to disallow compensation for services related to fee application preparation, it is necessary to determine whether such services are "actual and necessary" and whether they are compensable in non-bankruptcy cases.
Attorneys are statutorily obligated to submit to the bankruptcy court a detailed accounting of all services rendered to the bankruptcy estate. See 11 U.S.C. Sec. 329(a); Fed.R.Bankr. 2016. Our decisions have consistently recognized that debtors' counsel are required to maintain and present to the bankruptcy court meticulously accurate time records of all services rendered to the estate as a necessary prerequisite to the recovery of attorneys' fees under the Bankruptcy Act. See, e.g., Southwestern Media, 708 F.2d at 428 n. 16; In re Beverly Crest Convalescent Hospital, 548 F.2d 817, 820 (9th Cir.1976); York International Building, 527 F.2d at 1069. The detailed fee applications enable the bankruptcy court to fulfill its obligation to examine carefully the requested compensation in order to ensure that the claimed expenses are justified.
We agree with Luce, Forward's claim that it is both inconsistent with the express policy of the Bankruptcy Reform Act and fundamentally inequitable to impose substantial requirements on bankruptcy counsel as prerequisites to their obtaining compensation while simultaneously denying compensation for the efforts necessary to comply with those requirements. The preparation and presentation of the detailed fee applications required by the bankruptcy court necessarily involve substantial investments of time and effort from both counsel and their staffs. 3 To require counsel to devote considerable time to the preparation of fee applications, but to demand that they absorb the substantial cost associated therewith, would be to ignore the direct mandate of section 330(a) that reasonable compensation be provided for all "actual, necessary" services rendered by bankruptcy counsel. Our view is consistent with that recently expressed by the Fifth Circuit: Rose Pass Mines, Inc. v. Howard, 615 F.2d 1088, 1093 (5th Cir.1980) (per curiam) (emphasis in original) (...
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