Demery v. Sikes

Filing 9

MEMORANDUM RULING re 1 Bankruptcy Appeal, filed by Simmion Bashon Demery. Signed by Judge S Maurice Hicks on 03/02/2017. (crt,McDonnell, D)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF LOUISIANA
SHREVEPORT DIVISION
SIMMION BASHON DEMERY

CIVIL ACTION NO. 15-2268

VERSUS

JUDGE S. MAURICE HICKS, JR.

TODD S. JOHNS1

MAGISTRATE JUDGE HAYES
MEMORANDUM RULING

Before the Court is an appeal of the Bankruptcy Court’s denial of requested
attorney’s fees by appellant Simmion Bashon Demery (“Demery”). See Record Document
4. For the reasons contained in the instant Memorandum Ruling, the Bankruptcy Court’s
ruling denying Demery’s Application for Compensation by Attorney for Debtor and Motion
to Reconsider is REVERSED AND REMANDED.
FACTUAL AND PROCEDURAL BACKGROUND
On April 3, 2013, Demery filed a voluntary Chapter 13 bankruptcy petition in the
Bankruptcy Court in Shreveport, Louisiana. See Record Document 1-3 (Bankruptcy Court
docket sheet). The original plan called for payments of $420.00 per month for a term of
60 months. See Record Document 4 at 6. However, because all of the parties apparently
believed that Demery owed money to at least two state or local taxing entities, the
Bankruptcy Court rejected the original plan and confirmed an amended plan calling for
$560.00 monthly payments. See id.; see Record Document 1-3.
On April 14, 2015, Demery met with his counsel, David Welch (“Welch”), to discuss
his financial situation. See Record Document 4 at 6-7. Demery informed Welch that his

1

Todd S. Johns recently replaced Lucy G. Sikes as the standing Trustee for Chapter 13
bankruptcy cases in the Shreveport Division of the Western District of Louisiana. As such,
Todd S. Johns has replaced Lucy G. Sikes as the appellee in the instant action.
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financial situation had worsened due to rising expenses, forcing him to borrow against his
401(k) plan to cover his monthly expenses. See id. Demery also informed Welch that he
expected furloughs in the near future from his employer Schlumberger as a result of the
decline in oil prices. See id. Welch discovered that none of the taxing entities to whom
Demery ostensibly owed money had ever filed a proof of claim with the Bankruptcy Court.
See id. Welch advised Demery that he could file a modified plan on his behalf that would
reduce Demery’s required payments and remove future payments to be made to these
taxing entities, though those taxing entities could object to the plan and assert their claims
against Demery. See id. Welch also advised Demery that even if these entities were to
object to the plan, it was possible that Demery’s payments could be suppressed
temporarily until his income stabilized. See id. at 8. Demery requested that Welch file a
modified plan with the Bankruptcy Court, and Welch filed the modified plan and
accompanying materials on April 24, 2015. See id.; see Record Document 1-3.
On May 27, 2015, without consulting Welch first, Demery left his job with
Schlumberger, paid off his 401(k) loans, cashed out the remaining balance of his 401(k),
and began searching for a new job. See Record Document 4 at 8. On June 3, 2015, the
Chapter 13 Trustee filed an objection to confirmation of Demery’s modified plan. See id.
On June 4, 2015, Welch reviewed the Trustee’s objection, took notes regarding the
objection, and discussed the matter with a partner in the firm. See id. Welch later began
drafting the response to the objection. See id. Welch met with Demery on June 24, 2015
to discuss the objection. See id. At this meeting, Demery informed Welch for the first time
of the fact that he had left his job and cashed out his 401(k). See id. Welch informed
Demery that he had converted an exempt asset to a non-exempt asset, a fact that would
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have to be disclosed to the Bankruptcy Court and that would likely prompt the Chapter 13
Trustee to assert an interest in the 401(k) proceeds. See id. at 8-9.
In response to this new situation, Welch informed Demery that he essentially had
two options: (1) disclose the liquidation of the 401(k) and deposit the bulk of the remaining
proceeds into a tax deferred retirement account within 60 days of the withdrawal,
reserving only enough to cover Demery’s reasonable and necessary expenses and fund
his plan payments while searching for a job; or (2) retain the proceeds, voluntarily dismiss
his case, and request that the dismissal of the case be without prejudice to his ability to
re-file a subsequent bankruptcy petition. See id. at 9. On July 10, 2015, Demery requested
that his case be dismissed. See id. On July 15, 2015, Welch filed an Ex Parte Motion to
Voluntarily Dismiss Demery’s case, a Motion that the Bankruptcy Court granted later the
same day. See id.
After the voluntary dismissal of the case, one of Welch’s paralegals sent an email
to the Chapter 13 Trustee and two paralegals working for the Trustee requesting that
funds be retained in the Trustee’s possession for payment of Welch’s fee. See id. at 910. Welch obtained Demery’s consent to a fee application requesting a fee of $350.00,
and Welch filed the Application for Administrative Compensation/Expenses (the “fee
application”) on July 28, 2015. See id. at 10. On July 29, 2015, the Bankruptcy Court
denied the fee application without explanation. See id. Welch’s paralegal again contacted
the Chapter 13 Trustee and the Trustee’s two paralegals requesting that the $350.00 be
retained in the Trustee’s account until the Bankruptcy Court could decide a Motion to
Reconsider its denial of the fee application. See id. Despite this request, the Trustee
mistakenly disbursed the funds to Demery’s creditors in early August 2015. See id. On
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August 7, 2015, Welch filed a Motion to Reconsider the denial of the fee application and
requested a hearing. See id. The Bankruptcy Court denied the Motion without a hearing,
holding that the matter was moot. See id.; see Record Document 1-2.
Demery filed the instant appeal of the denial of the fee application and the Motion
to Reconsider on August 24, 2015. See Record Document 1. On March 3, 2016, Demery
filed a “Notice of Statement Regarding Change in Facts” and a Chapter 13 Trustee Report
in which he confirmed that the amount of funds necessary to pay the requested fees that
are the subject of the instant appeal had been refunded to the Chapter 13 Trustee. See
Record Document 6. The Chapter 13 Trustee never filed a brief with the Court.
LAW AND ANALYSIS
A.

Jurisdiction
The United States Bankruptcy Court has the authority to issue final orders

pursuant to 28 U.S.C. § 157(b). This United States District Court for the Western
District of Louisiana, Shreveport Division has subject matter jurisdiction, pursuant to 28
U.S.C. § 158(a)(1) and 28 U.S.C. § 1334(b), to hear appeals from a final order of the
Bankruptcy Court. “Final orders” of a Bankruptcy Court under 28 U.S.C. § 158 include
both (1) “a final determination of the rights of the parties to secure the relief they seek”
and (2) “a final disposition of a discrete dispute within the larger bankruptcy case.” Bartee
v. Tara Colony Homeowners Ass'n (In re Bartee), 212 F.3d 277, 282 (5th Cir. 2000). This
is an appeal of the final order entered from the United States Bankruptcy Court for the
Western District of Louisiana, Shreveport Division on July 29, 2015, denying Demery’s
fee application, a “discrete dispute within the larger bankruptcy case.” Id.; see Record
Document 1-1.
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B.

Standard of Review
A District Court reviews a Bankruptcy Court’s decision on a fee application by a

debtor’s attorney under an abuse of discretion standard of review. See Cahill v. Walker &
Patterson, P.C., 428 F.3d 536, 539 (5th Cir. 2005). “An abuse of discretion occurs where
the bankruptcy court (1) applies an improper legal standard or follows improper
procedures in calculating the fee award, or (2) rests its decision on findings of fact that
are clearly erroneous.” Id.
C.

Analysis
Under 11 U.S.C. § 330(a)(1), a Bankruptcy Court has discretion to award a

bankruptcy debtor’s attorney “reasonable compensation for actual necessary services
rendered by the . . . attorney.” The questions Demery raises in this appeal are (1) whether
the fee application is moot; (2) whether the Bankruptcy Court erred by failing to hold a
hearing or make findings of fact and conclusions of law on the fee application; (3) whether
the alleged practice of the Bankruptcy Court in the Shreveport Division of denying all
attorney’s fees requests for unsuccessful post-confirmation modified plans filed on behalf
of Chapter 13 debtors is erroneous under binding Fifth Circuit precedent; and (4) whether
the $350.00 fee requested for post-confirmation services performed by Welch in the
instant action was reasonable.
i.

Whether the Fee Application Is Moot.

Demery argues that the Bankruptcy Court erred in denying his Motion for
Reconsideration of the fee application on the basis that the fee application is moot.2 See
Though a Bankruptcy Court’s decision on a Motion to Reconsider may not generally be
a final order from which an appeal from the Bankruptcy Court may be taken under 28
U.S.C.§§ 157(b) and 158(a)(1), the Bankruptcy Court's order on the Motion to Reconsider
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2

Record Document 4 at 23. Demery argues that the fee application is not moot because
“approval of a fee by the Court is entirely independent of Counsel’s ability to actually
collect that fee, whether it be from the Chapter 13 Trustee or elsewhere,” such as directly
from the debtor or through voluntary payments by the debtor’s friends or family members.
Id. Additionally, after filing the instant appeal and his appellate brief, Demery filed a
“Notice of Statement Regarding Change in Facts” and a Chapter 13 Trustee Report in
which he confirmed that the amount of funds necessary to pay the requested fees that
are the subject of the instant appeal had been refunded to the Chapter 13 Trustee. See
Record Document 6.
In Denying Demery’s Motion to Reconsider, the Bankruptcy Court held that the fee
application is moot because “the Chapter 13 Trustee balance on hand is zero.” Record
Documents 1-3. Demery argues that the case was never moot even when the balance in
the account was $0 because whether a fee should be granted and whether the attorney
can actually collect the fee are two separate questions. However, the Court need not
address this argument. A case is moot when the question the litigants place before the
court can no longer affect the rights of the litigants in the case. See DeFunis v. Odegaard,
416 U.S. 312, 316 (1974). The balance in the Chapter 13 Trustee’s account for Demery’s
bankruptcy estate is now $350.00 as a result of the refund to the Trustee. Thus, even if

in the instant action held that the entire matter is moot. See Record Document 1-2.
Mootness is a question of subject matter jurisdiction, as federal courts only have subject
matter jurisdiction to decide live “cases” and “controversies” within the meaning of Article
III, Section 2 of the United States Constitution. See DeFunis v. Odegaard, 416 U.S. 312,
316 (1974). Thus, though a Bankruptcy Court’s order on a Motion to Reconsider may not
generally be appealable, because the Motion to Reconsider in the instant action called
into question the courts’ subject matter jurisdiction over the entire fee dispute, the Court
must address that order and whether the fee dispute is moot.
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the case was moot when the balance was $0, the case is certainly no longer moot, as the
Trustee currently has the funds available to pay the requested fee.
ii.

Whether the Bankruptcy Court Must Hold a Hearing and Make
Findings of Fact and Conclusions of Law Regarding the Fee
Application.

The Bankruptcy Court denied Demery’s fee application in the instant action without
holding a hearing or explaining in its order why the application was denied, with the order
simply stating that “the relief sought in this order is denied.” Record Document 1-2. As
explained in Section C, i, supra, the Bankruptcy Court then held that the fee application
was moot in denying Demery’s Motion to Reconsider the fee application. See Record
Document 1-3. Thus, the Bankruptcy Court never provided any reasons for the denial of
the fee application. Citing Fifth Circuit precedent, Demery argues that the Court’s failure
to (1) hold a hearing on the fee application or (2) provide reasons for the denial of the fee
application constituted an abuse of discretion. See Record Document 4 at 22-23.
The Court finds that though the Bankruptcy Court’s failure to hold a hearing on the
fee application was not an abuse of discretion, the failure to provide reasons for the denial
of the fee application was an abuse of discretion. It appears from Fifth Circuit precedent
that the Bankruptcy Court must at least “explain why compensation was awarded at the
level it was given” or why compensation is denied, particularly considering the “harsh
result that obtains when fees are denied in their entirety.” In re Evangeline Refining Co.,
890 F.2d 1312, 1328 (5th Cir. 1989). In the absence of such an explanation, “it is difficult,
if not impossible, for an appellate court to engage in meaningful review of a fee award.”
Id. at 1327; see also McCoy v. Hardeman (In re Tahah), 330 B.R. 777, 781 (B.A.P. 10th
Cir. 2005) (while a Bankruptcy Court is not required to conduct “a detailed review and
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discussion of the line by line entries” in a fee application, it must at least provide some
basis upon which an appellate court could determine whether the Bankruptcy Court’s
decision was an abuse of discretion). Thus, the Bankruptcy Court’s failure to explain the
reasons for the denial of the fee application, such as by making even cursory findings of
fact and conclusions of law, was an abuse of discretion by following “improper procedures
in calculating the fee award.” Cahill, 428 F.3d 539.
However, Demery points to no authority indicating that a hearing on the fee
application is required. While holding a hearing on the fee application may be the best
way to decide the merits of the application, this Court leaves that decision to the
Bankruptcy Court on remand. Thus, though the Bankruptcy Court is not required to hold
a hearing on the matter, on remand the Bankruptcy Court nonetheless must explain why
compensation was granted or denied and why “compensation [if any] was awarded at the
level it was given.” In re Evangeline Refining Co., 890 F.2d at 1328.
iii.

Whether the Bankruptcy Court’s Alleged Per Se Denial of All
Attorney’s Fees Requests for Unsuccessful Post-Confirmation
Modified Plans Filed on Behalf of Chapter 13 Debtors Is Erroneous.

Demery argues that the denial of fees in the instant action is not unique. See
Record Document 4 at 21-22. He argues that the standard practice of the Bankruptcy
Court in the Shreveport Division is to deny all fee requests for services rendered toward
filing post-confirmation modified plans on behalf of Chapter 13 debtors when those
modified plans are ultimately not confirmed. See id. According to Demery, this practice
violates the Fifth Circuit’s holding in Barron & Newburger, P.C. v. Tex. Skyline, Ltd. (In re
Woerner), 783 F.3d 266 (5th Cir. 2015) (en banc).

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Demery’s argument correctly describes the holding in In re Woerner. There, the
Fifth Circuit expressly overturned its old standard for determining attorney’s fees in
bankruptcy cases and replaced it with a new standard. See id. at 268. Before In re
Woerner, only attorneys’ services that resulted in an “identifiable, tangible, and material
benefit to the bankruptcy estate” were compensable services. Id. at 270. In In re Woerner,
the Fifth Circuit rejected this standard as being incompatible with the text and intent of
Congress in drafting 11 U.S.C. § 330, the statute that provides for compensation to
attorneys and others who perform services benefiting a bankruptcy estate. See id. at 271277. The Fifth Circuit replaced the old standard with a prospective standard that “looks to
the necessity or reasonableness of legal services at the time they were rendered.” Id. at
276. Thus, the ultimate success or failure of legal services to secure an “identifiable,
tangible, and material benefit to the bankruptcy estate,” though “relevant to” deciding
whether to award compensation to an attorney, is “not dispositive of attorney
compensation.” Id. at 270, 276.
Though Demery correctly states the standard for awarding attorney’s fees in
bankruptcy cases, there is no evidence that the Bankruptcy Court applied the incorrect,
pre-In re Woerner standard in this case. As explained in Section C, ii, supra, the
Bankruptcy Court never explained why it denied the fee application; rather, the
Bankruptcy Court simply denied the application without explanation. Thus, though the
Court holds that the Bankruptcy Court followed an incorrect procedure in handling the fee
application, it cannot hold that the Bankruptcy Court applied an incorrect substantive
standard in reviewing the fee application.

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iv.

Whether the Fees Requested in the Instant Action Are Reasonable.

Finally, Demery argues that the $350.00 in attorney’s fees requested in the instant
action are reasonable under the In re Woerner standard, the lodestar method for
calculating attorney’s fees, and the standard practice in the Bankruptcy Courts of the
Western District of Louisiana. See Record Document 4 at 17-22. He argues that Welch
performed 2.9 hours of work in drafting the necessary documents for his plan modification
and performing other services related to the plan modification. See id. at 19. Under the
standard practice in the Western District of Louisiana, the Bankruptcy Courts award a
standard $500.00 attorney’s fee for a confirmed post-confirmation modified plan; under
the lodestar method at $225.00 per hour, the fee for Welch’s services would be $790.00.
See id. at 18-20. Thus, Demery argues that the requested fee of $350.00 is reasonable
considering the services performed, the benefits those services would have obtained for
Demery if successful, and the fact that the services were ultimately unsuccessful. See id.
at 17-22.
As the Bankruptcy Court did not explain why it denied the fee application, the
question of the reasonableness of the fees requested is not properly before the Court in
the instant appeal. The decision regarding whether the requested fees are reasonable
belongs to the Bankruptcy Court, with all of its expertise in bankruptcy matters, in the first
instance on remand.
CONCLUSION
For the reasons set forth above, the rulings issued on Demery’s fee application
and Motion to Reconsider by the Bankruptcy Court are REVERSED AND REMANDED
to the Bankruptcy Court for a determination on the merits of the fee application and an
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explanation as to why the application was granted or denied; if fees are awarded, the
Bankruptcy Court shall determine whether $350.00 is a reasonable fee.
A Judgment consistent with the terms of the instant Memorandum Ruling shall
issue herewith.
THUS DONE AND SIGNED at Shreveport, Louisiana, on this the 2nd day of
March, 2017.

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