In Re: Wayne Puffer

Filing 25

Judge Richard G. Stearns: ORDER entered. Order affirming in part and reversing in part the Bankruptcy Court's Order Regarding Fees and Expenses.(RGS, law2)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
CIVIL ACTION NO. 12-30190-RGS
IN RE WAYNE PUFFER
L. JED BERLINER
v.
DENISE PAPPALARDO,
CHAPTER 13 TRUSTEE
MEMORANDUM AND ORDER
ON APPEAL FROM THE BANKRUPTCY COURT’S ORDER
REGARDING FEES AND EXPENSES
May 6, 2013
STEARNS, D.J.
In this bankruptcy appeal, appellant Attorney L. Jed Berliner seeks to reverse
a ruling of the Bankruptcy Court disallowing his claim for attorney’s fees and
expenses (other than the debtor’s filing fee) in connection with his representation of
debtor Wayne Eric Puffer.

The court heard oral argument in Springfield,

Massachusetts, on March 27, 2013.
FACTS AND TRAVEL OF THE CASE1

The court assumes familiarity with the distinctions between Chapter 7 and
Chapter 13 bankruptcy filings and the concept of fee-only Chapter 13 plans, which
are described in detail in the prior decisions issued in this case. See 674 F.3d 78 (1st
Cir. 2012); 453 B.R. 14 (D. Mass. 2011); 478 B.R. 101 (Bankr. D. Mass. 2012).
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Sometime in 2006, Puffer found himself in financial straits. After a barrage of
telephone calls and letters from creditors dunning him for payment of approximately
$15,000 of unsecured debt, Puffer decided to seek advice on declaring bankruptcy.
With this goal in mind, he met with Attorney Berliner in January of 2007.
At the initial consultation, Berliner recommended that Puffer file under Chapter
7 of the Bankruptcy Code and quoted his fees and the filing costs. Although
according to Berliner, his fees were among the lowest offered by bankruptcy
attorneys in the Springfield area, Puffer deemed the advance payment of $2,250
requested by Berliner to be more than he could then afford. Puffer did not ask if
Berliner would represent him at a reduced fee, if Berliner knew of any other attorneys
in the area who might offer a Chapter 7 filing at lower cost, or if there were any legal
services agencies that might provide assistance – nor did Berliner suggest any such
alternatives. Puffer looked for another attorney, but could find no one who was
willing to take the work for the little money he had available. When asked by the
Bankruptcy Court whether he had considered filing pro se, Puffer said that he “didn’t
know much about [bankruptcy] personally” and had “heard from the past that a
couple people have pretty much filed for themselves and it did not go very well.” Tr.
at 26.2
Transcript references are to the evidentiary hearing on Berliner’s fee
application held by the Bankruptcy Court on June 28, 2012.
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When shortly after the January consultation Puffer’s truck was repossessed, he
again contacted Berliner. During a second meeting in March or early April of 2007,
Berliner presented Puffer with the option of filing under Chapter 13 rather than
Chapter 7. The Chapter 13 filing required only a $500 up-front retainer with monthly
payments of as little as $100 per month over the thirty-six months of the plan.
Viewing this alternative as not only financially feasible, but also as an option that
would allow him to do things “the right way” by repaying his creditors at least
something, Tr. at 19, Puffer retained Berliner on April 13, 2007. He paid Berliner’s
$500 retainer primarily with borrowed funds.
Following a ten-month delay, which Puffer attributed to difficulty obtaining
missing documents from his by-then ex-girlfriend, Puffer filed a Chapter 13 petition
on February 29, 2008. His filing listed a total of $14,836.20 in unsecured debt; a
gross monthly income of $2,083.88, which included a proration of expected tax
refunds; and total monthly expenses of $1,983.88, which did not include medical or
dental costs or insurance. Puffer’s assets totaled $4,449.49, and included a 1985
BMW sedan valued at $1,000, and tools and a toolbox valued at $1,200. The 36month plan proposed monthly installments of $100, which would over time pay the
$2,949 balance of Berliner’s fee, provide a total of $300 for the unsecured creditors
(or 2% of the unsecured claims), and pay the commission of the Chapter 13 Trustee.
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A hearing to confirm the Chapter 13 plan was held before Bankruptcy Judge
Henry J. Boroff on July 23, 2009. Together with a brief in support of confirmation,
Berliner filed an affidavit in which Puffer declared his monthly net income to then be
$1,299.99. Puffer did not, however, file amended schedules to explain the nearly
$800 reduction in his monthly income from the time of his initial filing. Berliner later
testified that he had not corrected the schedules because “Puffer’s income and
employment vary. And one could not know if he was going to get another job the
week after.” Tr. at 49. When asked by the Bankruptcy Judge how he had intended
to fund the payment plan given the decline in his income, Puffer replied that he
simply planned to “ma[k]e do” and “cut more expenses out of [his] life.” Tr. at 33.3
On July 9, 2010, the Bankruptcy Court rejected Puffer’s Chapter 13 plan on
grounds that neither the petition nor the plan was submitted in good faith. In so
concluding, the Bankruptcy Judge cited In re Buck, 432 B.R. 13, 21-22 (Bankr. D.
Mass. 2010), which held that so-called fee-only Chapter 13 plans, which pay the fees
of the debtor’s lawyer and the trustee, but provide only minimal relief to unsecured
creditors, constitute a per se violation of the Chapter 13 good faith filing requirement.
See 11 U.S.C. § 1325(a)(3), (a)(7). After rejecting the proposed plan, the Court

The Trustee’s payment receipts show that despite an occasional late payment,
Puffer did in fact manage to make the required payments from March of 2008 through
April of 2010.
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ordered Puffer either to file an amended Chapter 13 plan, convert his case to Chapter
7, or withdraw the petition entirely. Puffer elected the second option and converted
his case to Chapter 7 on August 8, 2010. He received a discharge of his scheduled
debts in March of 2011.
In the interim, Berliner filed an application for $2,872 in fees and expenses
stemming from his representation of Puffer in the Chapter 13 proceedings. The
Bankruptcy Court allowed the fee application, but only in the amount of $299 – the
cost of filing the Chapter 7 petition. Because Berliner had already received a $500
retainer, the court’s order in effect required him to disgorge $201. The Bankruptcy
Court based its order on the proposition that an attorney is not entitled to recover
professional fees for time spent preparing a Chapter 13 plan that he knows or has
reason to know is being submitted in bad faith. On a first-level appeal, the district
court affirmed the fee decision. In re Puffer, 453 B.R. 14, 22 (D. Mass. 2011).
The First Circuit reversed.

Although the Court of Appeals shared the

Bankruptcy Court’s concerns that fee-only Chapter 13 plans “leave the vast majority
of debts unsatisfied” and “may be vulnerable to abuse by attorneys seeking to
advance their own interests without due regard for the interests of debtors,” the Court
declined “to read per se limitations into section 1325’s good faith analysis.” In re
Puffer, 674 F.3d 78, 82-83 (1st Cir. 2012). The Court held that “[w]hile fee-only
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plans should not be used as a matter of course, there may be special circumstances,
albeit relatively rare, in which this type of odd arrangement is justified.” Id. at 83.
The Court remanded the case for further proceedings in the Bankruptcy Court to
determine whether special circumstances justified the filing under Chapter 13 and
Berliner’s fee. Id. at 84.
Following an evidentiary hearing and further briefing, the Bankruptcy Court
determined that no special circumstances existed. Based on this conclusion, the Court
again allowed the fee application only in the amount of $299 and ordered Berliner to
remit the balance of his $500 retainer to the Chapter 13 Trustee. This timely appeal
followed.
DISCUSSION
Berliner challenges the denial of his fee application on two grounds. He argues
that the Bankruptcy Court erred in concluding that no special circumstances justified
the filing of a fee-only Chapter 13 petition in Puffer’s case. The Bankruptcy Court
then compounded this error by denying the motion for attorney’s fees and costs. The
court will address these contentions in turn. In doing so, the court reviews the
Bankruptcy Court’s legal conclusions de novo, its factual findings for clear error, and
its calculation of the appropriate attorney’s fee for abuse of discretion. In re Puffer,
674 F.3d at 81.
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Special Circumstances
Berliner initially asserts that the facts of Puffer’s situation “combine in toto to
the required special circumstance[s].” Appellant Br. at 7. Among those facts, he lists
the harassing telephone calls and letters Puffer endured from creditors; Puffer’s
inability to pay the up-front costs of a Chapter 7 filing; the absence of any proof of
a lower-cost alternative; the mutual interests of the Bankruptcy Court and debtors in
avoiding the pitfalls of pro se filings; and Puffer’s stated satisfaction with Berliner’s
legal services. Id. at 7-8.
The First Circuit did not define any of the “special circumstances” that might
justify a fee-only Chapter 13 plan. Instead, it emphasized that the presence or
absence of good faith must be determined based on a case-by-case consideration of
the totality of the circumstances. See In re Puffer, 674 F.3d at 82. But while it
rejected the Bankruptcy Court’s view that fee-only Chapter 13 plans amount to per
se bad faith submissions, the Court took pains to note that its decision “should by no
means be read as a paean to [such] plans.” Id. at 83. Such plans, in the Court’s
estimation, would satisfy the good faith requirement only in “relatively rare”
instances. Id. The Court cautioned that “[t]he dangers of [fee-only] plans are
manifest, and a debtor who submits such a plan carries a heavy burden of
demonstrating special circumstances that justify its submission.” Id.
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This court agrees with the Bankruptcy Court that Puffer has failed to shoulder
the exceptional burden identified by the Court of Appeals.

In reaching this

conclusion, the court does not lack sympathy for the dilemma faced by a struggling
debtor who cannot muster the payment of a Chapter 7 attorney’s fee.4 While it is
always possible for the debtor to undertake self-representation, a debtor’s aversion
to navigating the complexities of the bankruptcy process on his own can hardly be
gainsaid. This is especially so given the stringent Chapter 7 eligibility requirements
imposed by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
(BAPCPA), which “subjected all filers to increased paperwork, stricter deadlines,
new prerequisites such as credit counseling, and mandatory dismissals for myriad
procedural mistakes.” Angela Littwin, The Affordability Paradox: How Consumer
Bankruptcy’s Greatest Weakness May Account for Its Surprising Success, 52 WM. &
MARY L. REV. 1933, 1936 (2011) (The Affordability Paradox) (footnotes omitted);
see also id. at 1938 (noting that the results of an empirical study evidencing a “high
pro se failure rate since 2005 suggest[] that it is reasonable to equate the inability to
afford a lawyer with having less than full access to the bankruptcy system”). The
Although he asserted in an earlier affidavit that he could have saved the funds
necessary to hire Berliner for Chapter 7 representation if he had waited three months,
Puffer testified at the hearing on remand that on further reflection this would have
been impossible. Tr. at 20. That Puffer had to borrow the funds to pay Berliner’s
$500 retainer and was able to make monthly payments of only $100 under the
Chapter 13 plan suggest that his earlier representation was indeed unrealistic.
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BAPCPA, on the one hand, made informed legal advice all the more critical, while
on the other, making it more costly to obtain. See In re Puffer, 674 F.3d at 84 (Lipez,
J., concurring), citing In re Beck, No. 06-40774 (Bankr. D. Kan. Feb. 21, 2007), ECF
No. 35, at *5 (referring to the “significantly increased burdens” placed on debtors’
attorneys after BAPCPA); The Affordability Paradox, 52 WM . & MARY L. REV. at
1935-1937 (noting that the BAPCPA “made consumer bankruptcy more expensive
for all debtors” and that “one of BAPCPA’s major effects was a rise in the cost of
representation”). Meanwhile, “[e]very month a debtor spends saving up for an
increasingly expensive bankruptcy is a month in which she has lost substantive
bankruptcy rights for procedural reasons.” The Affordability Paradox, 52 WM. &
MARY L. REV. at 1938.
Nevertheless, this court does not write on a blank slate, and if exceptions for
special circumstances are to be “relatively rare,” one here is not merited. Puffer has
not demonstrated a compelling need for the immediate filing of a bankruptcy petition,
such as the imminence of wage garnishment, repossession of an essential means of
transportation, foreclosure of a home, or loss of access to basic care. Cf. In re
Crager, 691 F.3d 671, 675-676 (5th Cir. 2012) (affirming the confirmation of a feeonly Chapter 13 plan as “a responsible decision given [the debtor’s] particular
circumstances” where saving for a Chapter 7 filing would have taken more than a
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year and the debtor “had a legitimate fear that a future medical problem might leave
her in a situation in which she had to take on more debt and might need to file another
Chapter 13 petition”); In re Molina, 420 B.R. 825, 833 (Bankr. D.N.M. 2009)
(confirming a fee-only Chapter 13 plan where the filing enabled the debtor, who was
ineligible for Chapter 7 because of a previous filing, to save her home and end the
garnishment of wages needed to care for herself and her grandson); see generally Br.
for Nat’l Ass’n of Consumer Bankr. Attorneys as Amicus Curiae in Support of
Appellant, In re Puffer, 674 F.3d 78 (1st Cir. 2012) (No. 11-1831), 2011 WL
6961709, at *12 (noting that where the immediate filing of a bankruptcy petition is
necessary to preserve vital assets, debtors “will rarely, if ever, have the ability to save
up for the attorney’s fees necessary to file [C]hapter 7 without suffering adverse
consequences”).

Like the Bankruptcy Court, this court acknowledges that

“[h]arassing phone calls and letters from creditors are undoubtedly frightening and
stressful and the loss of a cherished or necessary asset by a person of limited means
is obviously quite painful . . . .” In re Puffer, 478 B.R. 101, 107 (Bankr. D. Mass.
2012). As the Bankruptcy Court aptly observed, however,
unfortunately, these circumstances are quite common among those who
require bankruptcy relief. And while the effect of that stress may have
been significant, as it is for almost all debtors, it was apparently not so
overwhelming for this debtor as to cause him to expedite his efforts to
get the Chapter 13 case filed. The Debtor tolerated a 10-month delay in
seeking the respite which is now claimed to have been so desperately
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required.
Id. at 107-108. On these facts, the Bankruptcy Court’s finding of no special
circumstances was not in error.
Fee Application
In the alternative, Berliner argues that even if the Bankruptcy Court correctly
determined that special circumstances were absent, it nonetheless abused its
discretion in disallowing the application for fees and costs. Berliner complains that
the Bankruptcy Court engaged in “no analysis whatsoever” of his fee application and
instead “sidestepped the application of the lodestar method in favor of punishing the
appellant” for having brought the Chapter 13 petition. Appellant Br. at 9, 11. In this
regard, Berliner places staunch reliance on cases (albeit few in number) in which
other courts have approved fee-only Chapter 13 plans, arguing that he cannot be
faulted for seeking to introduce a practice in this jurisdiction that has been accepted
elsewhere.
Section 330 of the Bankruptcy Code authorizes the Bankruptcy Court to “allow
reasonable compensation to the debtor’s attorney for representing the interests of the
debtor in connection with the bankruptcy case based on a consideration of the benefit
and necessity of such services to the debtor.” 11 U.S.C. § 330(a)(4)(B). When
deciding the reasonableness of a fee application, courts in this Circuit are to employ
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the lodestar method. The lodestar method requires the multiplication of the hours
productively spent by the attorney in preparing the case by a reasonable hourly rate.
In re Lopez, 405 B.R. 24, 30 (B.A.P. 1st Cir. 2009).

In determining the

reasonableness of the number of hours spent, courts are directed to eliminate time
“unreasonably, unnecessarily, or inefficiently devoted to the case.” Id. (internal
quotation marks and citation omitted).
The Bankruptcy Court concluded that because no special circumstances
justified the filing in Puffer’s case of a Chapter 13 fee-only plan, it “similarly [could
not] find the requested fees associated with such a case are justified in any amount.”
In re Puffer, 478 B.R. at 109. Moreover, the Bankruptcy Court observed that had
Puffer filed under Chapter 7, he would likely have received a discharge of his debts
some two and a half years earlier than he did. It further reasoned that Puffer’s
Chapter 13 plan, which overstated his monthly income and failed to account fully for
his expenses, was “doomed from the outset.” Id. In sum, the Court concluded that
Puffer’s Chapter 13 plan “was not so much a remedy for the Debtor as it was a fee
enhancement and collection device for Attorney Berliner.” Id. In reaching this
conclusion, the Court rejected Berliner’s claim of good faith reliance on Chapter 13
fee-only approvals in other jurisdictions:
[t]o this [claim], the Court responds that it should have been apparent,
as a matter of common sense, that in the absence of at least exigent
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circumstances, a court of equity would likely not permit an attorney to
take advantage of a debtor by putting him or her into a bankruptcy case
both inappropriate from a strategic perspective (inter alia, in light of the
discharge delay) and in which the debtor could not possibly succeed.
No announcement of such a standard by this Court, by the District Court
or by the First Circuit should have been necessary.
Id. at 110.
I respectfully disagree with the categorical reasoning of the Bankruptcy Court
in this regard. In the first instance, it is not so clear that Puffer’s Chapter 13 plan was
“doomed from the outset” – in fact, Puffer faithfully made the $100 payments for
some twenty-five months. Nor is it out of the question that Puffer (who had prior to
being laid off earned a healthy income) might not have been able to return to work
and “do the right thing” by his creditors, as he professed was his desire in paying at
least something over the plan’s thirty-six month duration. Notwithstanding, it was
apparent that given Puffer’s parlous financial condition, bankruptcy offered his only
realistic hope of escaping the clutches of his creditors. While Chapter 13 (as the
Bankruptcy Court concluded) may not have been the best choice, under the
circumstances it “cannot be presumed that the [Chapter 13] bankruptcy [was]
somehow not for the debtor’s benefit.” In re Beck, No. 06-40774, ECF No. 35, at
*14.
Of more immediate importance is the fact that Berliner’s experiment with a feefirst plan was not indefensible. As of the date of Puffer’s initial bankruptcy filing in
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February of 2008, only a few published cases had addressed the propriety of fee-only
Chapter 13 plans, while anecdotal evidence suggested that the practice had been
accepted in at least some jurisdictions. See Tr. at 45; see also Br. for Nat’l Ass’n of
Consumer Bankr. Attorneys, 2011 WL 6961709, at *15 n.1 (asserting that the
Association’s members “have routinely had fee-only plans confirmed in other
jurisdictions”). Even today, no clear consensus on the issue has emerged. See In re
Puffer, 674 F.3d at 79 (noting that the issue “has divided the bankruptcy courts”).
While some courts have approved fee-only plans under what the First Circuit might
deem “special circumstances,” others have required no such showing. Compare In
re Crager, 691 F.3d at 675-676; In re Molina, 420 B.R. at 833, with In re Williams,
No. 07-00396 (E.D.N.C. Oct. 25, 2007), ECF No. 29, at *10; In re Beck, No. 0640774, ECF No. 35, at *12-14. Nor was Puffer’s filing marred by the “plus” factors
that have led courts to find a fee-only plan to have been filed in bad faith. Cf. In re
Lavilla, 425 B.R. 572, 577 (Bankr. E.D. Cal. 2010) (noting that the court had
previously found an absence of good faith where the debtor was ineligible for relief
under either Chapter 7 or Chapter 13 because of a previous filing and “was simply
stalling his creditors until he would be eligible for a [C]hapter 13 discharge in a new
case”); In re Sanchez, 2009 WL 2913224, at *1, *3 (Bankr. D.N.M. May 19, 2009)
(finding a lack of good faith where debtors had a history of incurring “debts they are
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unable to repay and then seek[ing] bankruptcy protection every few years in order to
alleviate their debt burden”); In re Lehnert, 2009 WL 1163401, at *3-4 (Bankr. E.D.
Mich. Jan.14, 2009) (sustaining an objection to a fee-only plan where debtors
understated income and failed to turn tax returns over to the Trustee); In re Paley, 390
B.R. 53, 59-60 (Bankr. N.D.N.Y. 2008) (finding that a plan whose duration failed to
comply with the applicable commitment period and “[was] tied only to the payment
of attorney’s fees simply [was] an abuse of the provisions, purpose, and spirit of the
Bankruptcy Code”); In re Dicey, 312 B.R. 456, 459-460 (Bankr. D.N.H. 2004)
(sustaining an objection to a plan in part because the debtors only sought bankruptcy
protection following the entry of a $40,000 judgment against the co-debtor for an
intentional tort and no other creditors were pursuing the debtors at the time).
The First Circuit has now spoken, and the bankruptcy bar would be well
advised to file future fee-only plans in only the most extraordinary and compelling
of cases. Berliner’s conduct, however, should not be viewed through the prism of
hindsight nor should he be sanctioned for doing something that fell comfortably
within the range of what many bankruptcy lawyers (and judges) at the time would
have thought reasonable. Cf. Burns v. George Basilikas Trust, 599 F.3d 673, 677-678
(D.C. Cir. 2010) (holding that the bankruptcy court abused its discretion in imposing
sanctions on debtor’s counsel where counsel’s argument was not precluded by
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binding authority but in fact was supported by an unreported district court decision).
In other words, in this case (if not in future cases), Berliner should have his fee.56
ORDER
For the foregoing reasons, the Bankruptcy Court’s finding of no special
circumstances in AFFIRMED.

The fee order is VACATED and the case is

REMANDED for further proceedings consistent with this opinion.
SO ORDERED.
/s/ Richard G. Stearns
_______________________________
UNITED STATES DISTRICT JUDGE

What under the lodestar method constitutes reasonable attorney compensation
in this case is for the Bankruptcy Court to determine.
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