In re Stanton
In re Stanton
Opinion of the Court
MEMORANDUM OPINION ON FEE APPLICATION
In Baker Botts v. ASABCO, the United States Supreme Court held that Bankrupt-cy Code § 330(a) does not authorize attor-ney’s fees for work performed defending a fee application because that work is not performed for the estate.
Background
The Chapter 7 Trustee employed Herb Donica (of the Donica Law Firm) as his attorney
In his first interim fee application, Doni-ca sought $748,875 in fees.
Donica’s fee application contained all the information required for a chapter 7 fee application under Local Rule 2016-1. The fee application included the name of the individuals who performed the work,
The U.S. Trustee objected to Donica’s first interim fee application.
In response to the U.S. Trustee’s objection, Donica opted to supplement his initial fee application.
At a hearing on Donica’s fee application, the U.S. Trustee conceded the fee supple-ments largely resolved the “informational” objections (i.e., failure to provide a break-down, description of division of labor, and meaningful narrative), although there ap-parently was still some dispute over the possible duplication of services. So the Court approved an interim distribution on the application, but ordered that $75,000 be held back pending further ruling on the duplication issue.
When Donica filed a second interim fee application seeking $33,840 for time spent on his initial fee application (among other fees),
Conclusions of Law
In Baker Botts, the Supreme Court considered whether time spent defending a fee application was recoverable under Bankruptcy Code § 330(a).
The Court concluded that § 330’s text “neither specifically or explicitly authorizes courts to shift the costs of adversarial litigation from one side to the other.”
In rejecting the Government’s argument that time spent defending a fee application must be compensable because the time spent preparing one is, Justice Thomas explained that a professional’s preparation of a fee application is, in fact, a service to the estate.
To illustrate the difference between preparing a fee application and defending one, Justice Thomas offers an analogy:
By way of analogy, it would be natural to describe a car mechanic’s preparation of an itemized bill as part of his “ser-vices” to the customer because it allows a customer to understand—and, if nec-essary, dispute—his expenses. But it would be less natural to describe a sub-sequent court battle over the bill as part*785 of the “services rendered” to the cus-tomer.34
The touchstone, then, for determining whether fees are recoverable under Baker Botts is not when the fees were incurred (i.e., before or after an objection) but rather whether they were incurred in service to the estate.
Here, the record reflects that the $27,520 in fees Donica incurred after the U.S. Trustee objected to his first fee appli-cation were for work supplementing his initial fee application. In particular, Donica filed an 18-page supplement to his fee application
Had the U.S. Trustee simply objected to Doniea’s fees because they were unneces-sarily duplicative, the outcome might be different. A fight over whether fees were unnecessarily duplicative is more akin to time spent on a subsequent court battle over the mechanic’s bill, which would not properly be understood as part of his ser-vices. Here, the parties were not fighting over the amount of the bill but whether it was detailed enough.
Although Donica’s fees were incurred after this case was converted to chapter 7, the U.S. Trustee was asking for the type of detail required in a chapter 11 case. Under Local Rule 2016-1, fee applications filed by chapter 7 professionals need only contain the name of the person doing the work, the amount of time expended for each item of work, the requested hourly rate, the date of employment, a discussion of the criteria relevant for determining compensation, a detail of reimbursable costs, and a verification that the fees and costs are reasonable and that the application is true and accurate.
But the proper way to insist on that level of detail would have been for the U.S. Trustee to ask that the order approving Donica’s retention require him to comply with Local Rule 2016-1’s requirements for fee applications in chapter 11 cases or to move to compel Donica to do so, either of which the Court would have readily grant-ed. Had the U.S. Trustee done so, and had Donica provided the level of detail in his initial fee application that he did in his supplement, there is no question he would have been compensated for it. The only
The additional disclosure Donica provid-ed benefited the administration of the es-tate. Among other things, it allowed the Chapter 7 Trustee, U.S. Trustee, and other parties in interest to understand the work Donica performed and, if necessary, the ability to dispute his fees. Under Baker Botts, it is the nature of the work—not when it was performed—that determines whether it is compensable. Because Doni-ca’s $27,520 in fees was for work in service of the estate, they are recoverable as rea-sonable compensation for services under § 330(a).
The U.S. Trustee worries this ruling will lead to a de facto two-step fee application process. According to the U.S. Trustee, § 327 professionals will be encouraged to file “bare-bones” fee applications. Only when their fee applications are challenged will professionals supplement their applica-tions to provide the required level of de-tail. The U.S. Trustee says there is no disincentive to discourage professionals from filing bare-bones applications since, under this Court’s ruling, they will be com-pensated for supplementing them. While understandable, the U.S. Trustee’s con-cerns are misplaced.
For starters, the Court’s ruling is not likely to encourage bare-bones fee applica-tions. As a practical matter, the level of detail required in chapter 7 cases is not particularly onerous, and most chapter 7 fee applications are for relatively modest sums of money. To be sure, this Court’s ruling applies to chapter 11 fee applica-tions—and Local Rule 2016-1 does impose more onerous requirements in chapter 11 cases. But the U.S. Trustee overlooks an important fact: professionals are compen-sated for their time preparing fee applica-tions. Because they are compensated for their time, there is no reason to believe professionals will file bare-bones fee appli-cations as a matter of course.
Moreover, while the Court certainly is not encouraging a two-step fee application process, the ultimate harm is minimal. As-sume it, should take a professional .ten hours to properly prepare a fee application. Under § 330(a), the professional is entitled to be compensated for all ten hours. What if the professional only spends two hours on the fee application initially, but then spends an additional- eight hours supplementing it after an objection by the U.S. Trustee? Under this Court’s ruling, the professional would be compensated for a total of ten hours—the same as if the professional had properly prepared the fee application in the first place. So even if the ■Court’s ruling results in the occasional two-step fee application process, which the Court certainly does not encourage, the debtor and the estate are no worse off.
Finally, the U.S. Trustee’s proposed bright-line rule—i.e., any fees incurred supplementing á fee application after it has been objected to are unrecoverable—would cause more problems than the minor ones
Conclusion
The takeaway from the Supreme Court’s decision in Baker Botts is clear: it is the nature of the work—not when it is per-formed'—that determines whether it is compensable. Only work done in service of the estate administrator is compensable. Because supplementing the detail provided in his initial fee application benefitted the estate and was necessary for the adminis-tration of the case, Donica is entitled to recover $27,520 in fees incurred perform-ing that work. The Court will approve Donica’s second interim fee application in its entirety, including the $27,520 in fees supplementing his initial fee application, by separate order.
. — U.S. —, 135 S.Ct. 2158, 2163, 192 L.Ed.2d 208 (2015).
. Doc. Nos. 68 & 70.
. Doc. Nos. 208 & 231.
. Hyman v. Stanton, et al., Adv. No. 8:13-ap-00577-MGW.
.Doc. No. 554.
. Doc. Nos. 564. Glenn Rasmussen also filed a fee application. Doc. No. 565. That fee ap-plication will be dealt with by a separate order.
. Doc. No. 564.
. Id. at 3.
. Id.
. Id. at Ex. B. Donica’s fee application at-tached 158 pages of billing statements detail-ing the work performed on the case. Id.
. Id. at 3-4.
. Id. at 2-3.
. Id. at 5-9.
. Id. at Ex. C.
. Id.
. Doc. No. 588.
. Doc. No. 588 at 1-2.
. Local Rule 2016-1. Local Rule 2016-1 re-quires chapter 11 professionals to, among other things, itemize their time by project categories and provide a narrative of the types of services performed, the necessity for performing the services, the results obtained, and the benefit to the estate.
. Doc. Nos. 593.
. Id.
. Mat3-18.
. Doc. No. 609 at ¶¶ 1 & 2.
. Doc. No. 624.
. Doc. No. 685.
. Doc. No. 706. The Department of Justice, on the Internal Revenue Service’s behalf, joined in the U.S. Trustee's objection. Doc. No. 721.
. Doc. No. 706. The IRS contends it is difficult if not impossible' to separate time spent defending a fee application from time spent supplementing one. Doc. No. 721.
. 135 S.Ct. at 2162-63.
. Id. at 2164.
. 11 U.S.C. § 330(a).
. Baker Botts, 135 S.Ct. at 2165.
. Id. (quoting Webster's New International Dictionary 2288 (def. 4) (2d ed. 1934)). Al-though not specifically discussed by the Court, only "services” that are reasonably likely to benefit the debtor’s estate or that are necessary to the administration of the case are compensable. 11 U.S.C. § 330(a)(4).
. Baker Botts, 135 S.Ct. at 2165.
. Id. at. 2167.
. Id.
. Doc. No. 593.
. Doc. No. 621.
. Local Rule 2016-1.
. Id.
. 11 U.S.C. § 330(a)(6).
Reference
- Full Case Name
- IN RE: John Dargon STANTON, III, Debtor
- Cited By
- 7 cases
- Status
- Published