Bird et al
Filing
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MEMORANDUM DECISION AND ORDER Affirming the Bankruptcy Court's Order in its Entirety. Signed by Judge Dale A. Kimball on 9/24/2019. (eat)
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH
In re:
RONALD JAY REYNOLDS AND
CHAROLETT KAY REYNOLDS,
MEMORANDUM DECISION
AND ORDER
Debtors,
Case No. 2:18CV398 DAK
J. KEVIN BIRD, Trustee,
Appellant,
PRINCE YEATES AND GELDZAHLER,
Appellant.
This matter is before the court on appeal from an order of the United States Bankruptcy
Court for the District of Utah (Abankruptcy court@) denying the full compensation requested by
Prince Yeates and Geldzahler (AAppellant@), special counsel to the Chapter 7 Trustee, J. Kevin
Bird (ATrustee@), in its First and Final Application for Allowance of Attorney Fees and Costs as
supplemented (AFee Application@). The Trustee joined Appellant in filing this appeal. Appellant=s
appeal is unopposed, and the court concludes that a hearing would not significantly aid in its
determination of the issues presented. The court has carefully considered the materials submitted
by Appellant and the law and facts relevant to this appeal. Now being fully advised, the court
issues the following Memorandum Decision and Order.
I. STATEMENT OF THE CASE
This appeal is taken from the bankruptcy court’s Memorandum Decision and Order
(AOrder Denying Compensation@), entered on May 10, 2018, denying Appellant the full
compensation requested in its Fee Application. Appellant requested $22,221.50 in fees and
$853.44 in costs. The bankruptcy court denied all but $2,896.00 of the requested fees, and
approved Appellant’s request for costs as prayed.
II. ISSUES ON APPEAL
Appellant has outlined three issues on appeal. However, the court believes that the first
and second issues deal with essentially the same question, which is whether the bankruptcy court
erred by misapplying, omitting, or using factors other than those set forth in 11 U.S.C. '
330(a)(3) and Johnson v. Georgia Highway Express, Inc. 488 F.2d 714 (5th Cir. 1974), in
determining the reasonableness of the attorney=s fees requested in Appellant=s Fee Application.
The final issue on appeal is whether the bankruptcy court abused its discretion because its
findings were without factual support in the record or the product of an error of law.
III. STANDARD OF REVIEW
Whether a bankruptcy court has erred in applying the 11 U.S.C. ' 330(a)(3) and Johnson
factors to the denial of a professional=s fee application is subject to de novo review; its factual
findings are reviewed under the clearly erroneous standard. In re Commercial Fin. Servs., 427
F.3d 804, 810 (10th Cir. 2005). AA finding of fact is clearly erroneous if it is without factual
support in the record or if, after reviewing all of the evidence, we are left with the definite and
firm conviction that a mistake has been made.@ Id. AReview of the bankruptcy court’s factual
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determinations in connection with a fee award is highly deferential, and the factual
determinations are reviewed for clear error.” In re Market Center East Retail Property, Inc. 730
F.3d 1239, 1244-1245 (10th Cir. 2013). A bankruptcy court’s discretion is reviewed under the
abuse of discretion standard. “Under the abuse of discretion standard[,] ‘a trial court’s decision
will not be disturbed unless the appellate court has a definite and firm conviction that the lower
court made a clear error of judgment or exceeded the bounds of permissible choice in the
circumstances.’” Moothart v. Bell, 21 F.3d 1499, 1504 (10th Cir. 1994) (quoting McEwan v. City
of Norman,926 F.2d 1539, 1553-54 (10th Cir. 1991)).
IV. FACTUAL BACKGROUND
A. Filing of the Bankruptcy Petition
Ronald J. Reynolds and Charolett Kay Reynolds (ADebtors@) filed a joint voluntary
petition for relief under Chapter 7 of the Bankruptcy Code on March 16, 2016 (APetition Date@).
The Trustee was appointed thereafter. In their bankruptcy filings, the Debtors disclosed two
parcels of real property located in Mt. Pleasant, Utah. Debtors stated that, on the Petition Date,
they owned a parcel of real property described as APine Creek Acres #11@ (ALot 11"), valued at
$25,000.00, and secured by a trust deed in the amount of $35,550.00. Debtors also disclosed they
had owned another parcel of real property located in Mt. Pleasant, Utah, described as APine
Creek Acres, Lot #9" (ALot 9"), which they sold pre-petition to Gary Black (ABlack@) for $1000
in cash.
B. Appointment of Special Counsel for the Chapter 7 Trustee
On May 26, 2016, the Trustee filed a motion to employ Appellant to represent him as
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special counsel, citing that Appellant would A[a]ssist the Trustee in investigating and recovering
any interest the bankruptcy estate may have in property located in Sanpete County which were
transferred from the Debtors to Gary Black for less than a reasonably equivalent value.@ The
Trustee believed there was sufficient cause to investigate the Debtors= sale of real property to
Black as an avoidable transfer and that there may have been cause to object to the Debtors=
discharge if the Debtors had undervalued and sold Lot 9 with fraudulent intent. The bankruptcy
court granted the Motion to Employ Special Counsel.
C. Motion to Extend Time to Oppose Discharge and Order Discharging Debtors
On June 9, 2016, Appellant filed a Motion to Extend the Time to Oppose the Debtors=
Discharge. The bankruptcy court held a hearing on the motion on July 12, 2016 and granted the
motion on July 29, 2016. The bankruptcy court extended the deadline to oppose discharge to
September 17, 2016, and in the absence of opposition to discharge, the bankruptcy court entered
its Order Discharging Debtors on September 21, 2016.
D. Valuation and Sale of Lots 9 and 11
Appellant attempted to determine the value of Lots 9 and 11 from July through
September of 2016. In the year prior to their bankruptcy filing, the Debtors listed those lots for
sale for a combined sale price of $80,000.00. Based on this information, Appellant and the
Trustee assumed that the lots were comparable in value and worth approximately $40,000.00
apiece.
The Trustee also believed that the Debtors sold Lot 9 for a price significantly below its
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fair market value. However, the Debtors provided documentation to the Trustee early in the case
disputing these assumptions. The Debtors supplied copies of the 2015 property tax assessments
valuing Lot 9 at $660 and Lot 11 at $25,000. The Debtors also provided a plat map to the Trustee
showing that certain geographical features of Lot 9 limited access and potential construction,
thus making the value of Lot 9 significantly less than that of Lot 11. Additionally, the Trustee
was aware that the Debtors had unsuccessfully attempted to sell the lots pre-petition for a
combined sale price of $74,900. Despite this information, Appellant and the Trustee spent almost
a year working toward the recovery of Lot 9 from Black.
The parties reached a settlement with Black in June of 2017. The settlement provided that
Black would transfer Lot 9 to the Trustee in exchange for a refund of the $1000 purchase price
he had paid the Debtors. In August 2017, the Trustee sold Lots 9 and 11 together for $60,500.
From these sale proceeds, the Trustee paid closing costs, taxes, HOA fees, the realtor=s
commission, the loan secured by the trust deed on Lot 11, and the $1000 reimbursement to
Black, resulting in net proceeds to the Chapter 7 estate of $15,846.34. The Trustee also
recovered a tax refund in the amount of $2,394.35, netting a final total of $18,019.72 for the
estate.
E. Special Counsel’s Fee Application
Appellant filed its First and Final Application for Allowance of Attorney Fees and Costs
requesting $22,221.50 in fees and $853.44 in costs. Appellant filed two supplements to the
Application, the second of which voluntarily reduced its requested fees to $12,646.56. The
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bankruptcy court held a hearing on the application and issued a Memorandum Decision making
findings of fact and conclusions of law denying all but $2,896.00 of Appellant’s requested fees
and approving the $853.44 in costs. The bankruptcy court also allowed the Trustee’s requested
commission of $4,484.72 and costs of $35.00. This appeal followed.
V. DISCUSSION
A bankruptcy court’s review of an attorney’s request for compensation is governed by 11
U.S.C. § 330. The statute states in pertinent part that a bankruptcy court “may award…to a
professional person employed under section 327 …(A) reasonable compensation for actual,
necessary services rendered by the … attorney or paraprofessional person employed by any such
person; and (B) reimbursement for actual, necessary expenses.” 11 U.S.C. § 330(a)(1). When
determining reasonable compensation, the statute requires a court to consider “the nature, the
extent, and the value of such services, taking into account all relevant factors, including – (A) the
time spent on such services; (B) the rates charged for such services; (C) whether the services
were necessary to the administration of, or beneficial at the time at which the service was
rendered toward the completion of, a case under this title; (D) whether the services were
performed within a reasonable amount of time commensurate with the complexity, importance,
and nature of the problem, issue, or task addressed; (E) with respect to a professional person,
whether the person is board certified or otherwise has demonstrated skill and experience in the
bankruptcy field; and (F) whether the compensation is reasonable based on the customary
compensation charged by comparably skilled practitioners in cases other than cases under this
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title.” Id. § 330(a)(3).
In this circuit reasonable compensation is calculated using the adjusted lodestar approach,
which “takes into account each of the factors specifically mentioned in § 330(a)(3) plus
additional relevant factors.” In re Commercial Fin Servs., 427 F.3d 804, 811 (10th Cir. 2005).
The Tenth Circuit interprets the additional relevant factors to mean exclusively the twelve
Johnson factors, which are: (1) the time and labor required; (2) the novelty and difficulty of the
questions; (3) the skill requisite to perform the legal service properly; (4) the preclusion of other
employment by the attorney due to acceptance of the case; (5) the customary fee; (6) whether the
fee is fixed or contingent; (7) time limitations imposed by the client or the circumstances; (8) the
amount involved and the results obtained; (9) the experience, reputation, and ability of the
attorneys; (10) the “undesirability” of the case; (11) the nature and length of the professional
relationship with the client; and (12) awards in similar cases. Johnson v. Georgia Highway
Express, Inc. 488 F.2d 714, 717-719 (5th Cir. 1974). The Tenth Circuit requires courts to
consider all of the § 330(a)(3) factors and any relevant Johnson factors in determining the
amount of reasonable compensation. In re Market Center East Retail Property Inc. 730 F. 3d
1239, 1250 (10th Cir. 2013) (“A bankruptcy court has discretion in determining the
reasonableness of a fee, but this discretion does not extend to disregarding factors prescribed by
statute. Section 330 and our case law instruct bankruptcy courts to consider the § 330(a)(3)
factors as well as relevant Johnson factors.”) (emphasis added). Notwithstanding the foregoing,
§ 330(a)(4) prohibits courts from allowing fees for unnecessary duplication of services, for
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services that were not reasonably likely to benefit the debtor’s estate, or for services that were
unnecessary to the administration of the case. Id. § 330(a)(4)(A).
The principle issue on appeal is whether the bankruptcy court erred by misapplying,
omitting, or using factors other than those set forth in § 330(a)(3) and Johnson. After reviewing
the law de novo and scouring the record for clear error, this court finds that the bankruptcy court
did not fail to apply the factors it is required to consider, nor did it impermissibly rely on factors
outside of the § 330/Johnson factors. The § 330/Johnson factors are only relevant to a court’s
analysis of whether fees are reasonable. These factors are not relevant when a court disallows
fees pursuant to § 330(a)(4)(A). Appellant mischaracterizes the standard for reviewing fee
applications as limited to the adjusted lodestar method. As outlined above, the Tenth Circuit has
adopted the adjusted lodestar method in determining the amount of reasonable compensation
under § 330, but reasonableness is not the only factor a court must consider when reviewing fee
applications under the statute. A court must also determine whether the services performed were
actual and necessary. 11 U.S.C. § 330(a)(1)(A). Further, the statute prohibits courts from
allowing compensation for services that are unnecessarily duplicative, not reasonably likely to
benefit the estate, or unnecessary to the administration of the case. Id. § 330(a)(4)(A). If a court
finds that services are not compensable under § 330(a)(4)(A), it is unnecessary for the court to
also address whether the fees are reasonable. In re Bird, 577 B.R. 365, 374-375 (BAP 10th Cir.
2017) (citing In re Lederman Enters., Inc., 997 F.2d 1321, 1323 (10th Cir. 1993). See also In re
Universal Factoring Co., Inc., 329 B.R. 62, 78-79 (Bankr. N.D. Okla. 2005) (explaining that §
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330(a)(4) was added to the statute subsequent to the Tenth Circuit’s Lederman decision, but that
“[u]nless the court determines that a service was reasonably likely to confer a benefit upon the
estate, the inquiry goes no further, and the fees are not compensable.”)).
A. DISALLOWED FEES UNDER 11 U.S.C. § 330(a)(4)(A)
The bankruptcy court denied the bulk of Appellant’s requested fees as unnecessarily
duplicative, unnecessary to the administration of the estate, or not reasonably likely to benefit the
Debtors’ estate under § 330(a)(4)(A). Specifically, the bankruptcy court denied $8,493.50 of fees
related to the sale of the Lots, and described in Appellant’s Fee Application as “Sale of
Property,” because these services should have been performed by the Trustee and did not warrant
the use of Appellant’s time or expertise. Seventy-five percent of these fees were billed by a
paralegal and involved communications with the Trustee, the real estate agent, the title company,
and potential buyers. The bankruptcy court held that none of these services involved contested or
complex legal issues requiring the assistance of legal counsel and so it disallowed all fees in this
category as unnecessary to the administration of the estate under § 330(a)(4)(ii)(II). Under the
clearly erroneous standard, this court can find no fault with the bankruptcy court’s findings
related to the sale of property.
The bankruptcy court also denied $400 in fees related to Appellant’s review of motions
for relief from stay. The bankruptcy court found that Appellant’s review of the motions was
unnecessary to the administration of the estate under § 330(a)(4)(A)(ii)(II) because this service
fell within the scope of duties belonging to the Trustee. Had legal representation been required
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after the Trustee reviewed the motions himself, then it may have been reasonable to employ
Appellant’s services. However, no action was required on the motions and no action was taken.
This court cannot find that the bankruptcy court clearly erred by finding that Appellant’s review
of the motions for relief from stay was unnecessary to the administration of the case.
Appellant argues that the aforementioned rulings improperly interfered with Appellant’s
and Trustee’s business judgment and violated controlling Tenth Circuit law by considering the
administrative insolvency of the estate and the Trustee’s duties, as outlined in the Department of
Justice’s Handbook for Chapter 7 Trustees (“Trustee Handbook”), as factors in its analysis. This
court disagrees and finds that the bankruptcy court’s ruling is not inconsistent with controlling
law, nor does it improperly interfere with Appellant’s and the Trustee’s business judgment. The
bankruptcy court did not use the administrative insolvency of the estate or the Trustee Handbook
as impermissible factors in determining whether Appellant’s fees were reasonable under §
330(a)(3), but rather as references for determining whether Appellant’s services were
unnecessarily duplicative, not reasonable likely to benefit the estate, or unnecessary to the
administration of the estate under § 330(a)(4)(A). While the bankruptcy court is limited to using
§ 330(a)(3) and relevant Johnson factors in determining the reasonableness of attorney’s fees, the
case law does not prohibit bankruptcy courts from using other resources for guidance in
determining whether services are compensable under § 330(a)(4)(A). The bankruptcy court used
the Trustee’s Handbook to determine which tasks were exclusively in the purview of the Trustee
and, consequently, unnecessary to the administration of the estate or unnecessarily duplicative
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under § 330(a)(4)(A)(i) and (ii)(II) when performed by Appellant. The bankruptcy court
explicitly stated in its Order Denying Compensation that “[u]nnecessary services include tasks
that belong to the trustee.” The bankruptcy court likewise considered the administrative
insolvency of the estate when ruling that Appellant’s services were not reasonably likely to
benefit the Debtors’ estate under § 330(a)(4)(A)(ii)(I). The bankruptcy court made these rulings
under § 330(a)(4)(A), not § 330(a)(3), and so the holding of In re Market Center is inapplicable.
The bankruptcy court did not interfere with Appellant’s and the Trustee’s business
judgment at any point throughout the course of this case as Appellant alleges. The bankruptcy
court approved the employment of Appellant at the outset. It granted Appellant’s motion to
extend the time to object to the Debtors’ discharge. And It granted the motion to sell property of
the estate free and clear of liens without hearing. The bankruptcy court did not micromanage or
over adjudicate any of the Trustee’s or Appellant’s day-to-day activities. Appellant takes issue
with the bankruptcy court’s review of its fee application by finding that many of its services were
unnecessary, not beneficial to the estate, or unreasonable. But the bankruptcy court’s review of
Appellant’s fee request does not infringe upon the Trustee’s independent duty to administer the
estate. It is the bankruptcy court’s duty under § 330 of the Bankruptcy Code to review all fee
requests of professionals employed under § 327. If it were improper for the bankruptcy court to
scrutinize Appellant’s time entries related to the administration of the estate, then the purpose of
§ 330 would be completely subverted.
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B. REDUCED OR DISALLOWED FEES UNDER 11 U.S.C. § 330(a)(3)
The bankruptcy court allowed some reduced compensation for Appellant’s services related to
the recovery and sale of the Lots, the investigation of the estate assets, and for the extension of
time to object to the Debtors’ discharge. The bankruptcy court has the authority to award
compensation less than the amount of compensation requested under § 330(a)(2). The
bankruptcy court reduced Appellant’s compensation for these services as unreasonable under §
330(a)(3).
As discussed herein, In re Market Center requires courts to use all of the factors listed in §
330(a)(3) and any relevant Johnson factors when analyzing whether fees are reasonable. In re
Market Center East Retail Property, Inc. 730 F. 3d 1239, 1250 (10th Cir. 2013). “A bankruptcy
court has discretion in determining how much weight to assign each factor and in determining
the reasonableness of a fee, but this discretion does not extend to disregarding factors prescribed
by statute. Section 330 and our case law instruct bankruptcy courts to consider the § 330(a)(3)
factors as well as relevant Johnson factors” Id.
In this case, the bankruptcy court did not ignore any of the factors prescribed by § 330(a)(3),
and it considered the relevant Johnson factors in its reasonableness evaluation as required by In
re Market Center. The bankruptcy court listed each of the § 330/Johnson factors in its analysis. It
did not take issue with Appellant’s ability or customary fee thus dispensing with the specific
factors contained in § 330(a)(3)(B), (E), and (F). As previously stated, it is within the bankruptcy
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court’s discretion to determine how much weight to assign each factor so long as it does not
ignore any of the factors specifically enumerated in the statute. Specifically, with respect to
Appellant’s services to recover Lot 9, the bankruptcy court reduced its fees by half as
unreasonable under § 330(a)(3)(A), (C), and (D), and Johnson factors one and eight, because the
time Appellant spent on the services was excessive and the sale of the Lots did not result in a
benefit to unsecured creditors. With respect to the investigation of assets, the bankruptcy court
reduced Appellant’s fees as unreasonable under § 330(a)(3)(A), (C), and (D), and Johnson
factors one and eight, by finding that the time spent on these services was excessive considering
the lack of information gained and the results obtained. With respect to the extension of time to
object to discharge, the bankruptcy court reduced Appellant’s fees as unreasonable under §
330(a)(3)(A), (C), and (D), and Johnson factors one and eight, because Appellant spent an
excessive amount of time preparing for a hearing that was only scheduled to take five minutes on
the bankruptcy court’s regular law and motion calendar.
Appellant argues that the bankruptcy court misinterpreted and misapplied the § 330(a)(3)(C)
factors and the results obtained Johnson factor in its analysis. Section 330 (a)(3)(C) deals with
whether a professional’s services were necessary to the administration of, or beneficial at the
time the services were rendered toward the completion of the case. And Johnson factor eight
deals with the amount involved and the results obtained. This court finds that the bankruptcy
court did not misapply these factors in its analysis. The bankruptcy court carefully considered
Appellant’s services at the time they were performed.
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In its Order Denying Compensation, the bankruptcy court states that “[i]n reviewing fees, the
court should objectively assess the benefit to the estate based on the facts known, or that should
have been known, to the applicant at the time of the services.“ In re McLean Wine Co., Inc., 463
B.R. 838, 848 (Bankr. E.D. Mich. 2011)(the court should focus on facts known or that should
have been known at critical points during the administration of the case). Appellant asserts that
the bankruptcy court improperly focused on the benefit to unsecured creditors rather than the
estate more broadly. According to Appellant, the estate is benefitted by any time spent on the
recovery and sale of the Lots because the proceeds of the sale will go to pay Appellant’s and the
Trustee’s administrative claims. Appellant cites In re Furr’s Supermarkets, Inc., 373 B.R. 691,
699 (10th Cir. BAP 2007), which held that the phrase “benefit of the estate” in 11 U.S.C. § 550
is to be interpreted more broadly than the equivalent of “payment to the general unsecured
creditors.” (11 U.S.C. § 550 permits a trustee to recover property that is the subject of a transfer
avoided under § 547.) This holding does not deal with the bankruptcy court’s review of
compensation under § 330; however, this court agrees that the beneficial nature of the services in
§ 330(a)(3)(C) does not exclusively mean a benefit to the unsecured creditors. The benefit must
be examined in the context of the estate as a whole at the time the services were rendered.
In this case, the bankruptcy court outlined, in exacting detail, that much of Appellant’s
services were unnecessary and heavy-handed at the time they were performed. The case was
straight-forward and did not involve litigation or the administration of complex assets. The
Trustee could have achieved a significant return to unsecured creditors were it not for
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Appellant’s over-lawyering. Thus, in the present instance, the unsecured creditors are of concern
and this court does not find error with the bankruptcy court’s application of § 330(a)(3)(C) and
the results-obtained Johnson factor. The bankruptcy court also did not abuse Appellant’s or the
Trustee’s discretion by using the results obtained Johnson factor in its analysis. Although a
trustee’s business judgment is given great deference, “the court must always scrutinize whether
the trustee has fulfilled his duty to ‘maximize the value obtained from a sale, particularly in
liquidation cases.’” In re Psychometric Systems, Inc.,367 B.R. 670, 674 (Bankr. D. Colo. 2007)
(citing In re Bakalis,220 B.R. 525, 532 (Bankr. E.D.N.Y. 1998)). And, as more thoroughly
explained above with respect to Appellant’s business judgment, the bankruptcy court’s review of
Appellant’s fee request does not infringe upon the Trustee’s independent duty to administer the
estate.
C. ADDITIONAL CONSIDERATIONS
Appellant alleges that the bankruptcy court erred by insisting on a meaningful
distribution to unsecured creditors inconsistent with the distribution priorities set forth in 11
U.S.C. § 507(a)(1)(C). But Appellant’s assertion is contrary to law. A court’s award of
professional fees under § 330 precedes the priority payment of those fees. Pursuant to §
503(b)(2), compensation that is awarded to a professional under § 330 shall be an allowed
administrative expense and entitled to priority under § 507(a)(1)(C). The language of §
507(a)(1)(C) reemphasizes this by stating that the allowed administrative expenses of the trustee
under paragraph 503(b)(2) shall be paid before payment of other claims under § 507. Thus, only
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allowed expenses are entitled to priority under the code, and a bankruptcy court must first
determine whether a professional’s fees are allowable under § 330 before those fees shall be
payable in the order of priority set forth in § 507(a)(1)(C). Appellant could not have a priority
claim until such time as it had an allowed claim, and the bankruptcy court could not disrupt the
priority order of Appellant’s claim before it was allowed. Appellant’s argument otherwise is
illogical.
Appellant further asserts that the bankruptcy court’s insistence on a meaningful
distribution to the unsecured class is inconsistent with its contract of employment with the
Trustee. The contract of employment between Appellant and the Trustee is irrelevant to the
bankruptcy court’s obligation to review compensation under § 330. It is not the bankruptcy
court’s role to ensure that Appellant is compensated pursuant to the terms of its contract with the
Trustee. Under § 330, the bankruptcy court has an independent duty to review counsel’s fee
requests and, after notice and a hearing, the bankruptcy court has the authority to disallow,
reduce, or award compensation in a manner fitting with controlling law and the facts of the
matter at hand. This determination has no relationship to the parties’ contract of employment. In
re Market Center East Retail Property, Inc. 730 F. 3d 1239, 1251 (10th Cir. 2013) (“The
bankruptcy court is correct in concluding that it is not bound by the parties’ compensation
agreement in calculating reasonable compensation under § 330. As the Ninth Circuit explained,
enforcement of prebankruptcy fee agreements would “contradict the policy reason for granting
administrative expense priorities, which is that the estate as a whole is benefitted if general
16
creditors subordinate their pre-bankruptcy claims in order to secure goods and services necessary
to an orderly and economical administration of the estate after the petition is filed.” In re
Yermakov, 718 F.2d 1465, 1470 (9th Cir. 1983)(holding that reasonable compensation under §
330 should not be determined upon a pre-bankruptcy contingency fee agreement); see also In re
Citation Corp., 493 F.3d 1313, 1319 (11th Cir. 2007) (holding that it was error to emphasize the
parties’ pre-bankruptcy contract in determining reasonable fees under § 330)).
Appellant argues that the bankruptcy court erred by requiring fee applicants to exercise
billing judgment. In its Order Denying Compensation, the bankruptcy court stated that,
The symbiosis between some trustees and their regular counsel is too obvious to miss by
any standard except willful blindness. The same trustees routinely hire the same one or
two attorneys at all times, regardless of the issue. The trustees become all too willing to
pay any rate for any service that the court approves. The attorney will provide fantastic
personal service and free the trustee’s time for other paying endeavors while the trustee’s
commission is calculated at a fixed expense…The disconnect is that the American legal
system is an adversarial system, and this piece of the bankruptcy system has no
adversary. Moreover, the client (the trustee) is not dealing with his or her own money.
The front line responsibility for controlling the cost of legal services has been shifted
from the trustee to the court. This is not how the system was designed to operate.1
The bankruptcy court is simply asking that professionals scrutinize their own fee requests by
eliminating duplicative and unnecessary charges, as they would when billing a regular client. In a
like manner, the bankruptcy court also asks trustees to monitor professional’s services as a
private client would do, calling into question unnecessary services and reining in costs when fees
grow disproportionate to the available proceeds. This court finds this requirement reasonable and
1 In re Kieffer, 306 B.R. 197, 211 (Bankr. N.D. Ohio 2004)
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not beyond the bankruptcy’s court’s discretion. A normal client would not agree to pay for
services it found to be unnecessary, duplicative, unreasonable, or without benefit.
Appellant also alleges that the bankruptcy court’s insistence on a formal cost benefit
analysis improperly infringes on the trustee’s discretion. This is not so. The bankruptcy court is
not requiring a formal cost-benefit analysis before trustees decide whether to abandon or sell
property of the estate. Rather, the bankruptcy court suggested that such an analysis might have
avoided an unnecessary accrual of fees. This suggestion is in keeping with the bankruptcy
court’s aim of having professional’s exercise billing judgment and is not unreasonable or beyond
its discretion. Therefore, this court finds that the bankruptcy court did not err by requiring
Appellant to exercise billing judgment in its fee application.
Next, Appellant argues that the bankruptcy court ruled contrary to law by requiring
trustees to include information about an estate’s administrative insolvency in motions to sell
under 11 U.S.C. § 363(b)(1). This court disagrees. The requirement is consistent with controlling
law and the purpose of § 363. Section 363(b)(1) provides that “[t]he trustee, after notice and a
hearing, may…sell…, other than in the ordinary course of business, property of the estate.” 11
U.S.C. § 363(b)(1). In most instances, if proper notice is given and no objections are filed, the
matter is not heard by the court and motions are routinely granted. In re Bakalis, 220 B.R. 525,
531 (Bankr. E.D.N.Y. 1998)(See In re Telesphere Communications, Inc., 179 B.R. 544, 552 & n.
8 (Bankr. N.D. Ill. 1994)). Such is the case in the matter presently before this court. Appellant
filed a motion to sell on behalf of the Trustee and, when no objections were filed, the bankruptcy
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court granted the motion without hearing. Appellant did not inform the court that the estate was
administratively insolvent at the time it filed the motion to sell property. The bankruptcy court
was concerned that interested parties may have objected had they known that all proceeds from
the sale were slated to be paid solely to Appellant and the Trustee. For an interested party to
object to a motion to sell, it must first have all relevant information before it. The bankruptcy
court was not being heavy-handed nor was it usurping the trustee’s authority to administer
property of the estate by requiring trustees to include information about the administrative
insolvency of the estate in motions to sell. The court was seeking to increase transparency so that
interested parties could make informed objections. The burden to respond remains with the
objecting party. If no objections are filed, there is no indication that the bankruptcy court would
not continue to grant motions to sell without hearing. “In fact, an order authorizing the sale is not
required if the trustee gave proper notice and no party filed a timely objection.” In re
Psychometric Systems, Inc., 367 B.R. 670, 674 (Bankr. D. Colo. 2007). The requirement gives
interested parties more information regarding the sales of property and the return to estate
claimants. For these reasons, this court finds that the bankruptcy court did not err and its ruling
that trustees must include information about the administrative insolvency of an estate in motions
to sell is affirmed.
The final issue on appeal is whether the bankruptcy court abused its discretion because its
findings were without factual support in the record or the product of an error of law. A
bankruptcy court’s discretion is reviewed under the abuse of discretion standard. “Under the
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abuse of discretion standard[,] ‘a trial court’s decision will not be disturbed unless the appellate
court has a definite and firm conviction that the lower court made a clear error of judgment or
exceeded the bounds of permissible choice in the circumstances.’” Moothart v. Bell, 21 F.3d
1499, 1504 (10th Cir. 1994) (quoting McEwan v. City of Norman,926 F.2d 1539, 1553-54 (10th
Cir. 1991)). Based on the facts and reasoning previously addressed herein, this court concludes
that the bankruptcy court did not abuse its discretion, it provided detailed findings and analysis,
its findings and conclusions are within the bounds of permissible choice, and there is no basis for
this court to reverse its rulings.
IV. CONCLUSION
For the foregoing reasons, IT IS HEREBY ORDERED that the bankruptcy court’s Order
Denying Full Compensation to Appellant, dated May 10, 2018, is AFFIRMED in its entirety.
DATED this 24th day of September, 2019.
BY THE COURT:
DALE A. KIMBALL
United States District Judge
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