United States Bankruptcy Appellate Panel

FOR THE EIGHTH CIRCUIT

No. 97-6014NE

In re: * * Edward James Kula, * * Debtor *

--------------------------------------------------- Eugene Chamberlain, * * Trustee - Appellant, * Appeal from the Unit ed v. * States Bankruptcy Cour t * for the District o f Nebraska Edward James Kula, * * Debtor - Appellee, * * Community First State Bank, * f/k/a The Abbott Banks, * * Creditor - Appellee *

Submitted: September 18, 1997

Filed: October 31, 1997

Befo re KOGER, WILLIAM A. HILL and DREHER, Bankruptc y Judges KOGER, Chief Bankruptcy Judge2

Eu gene Chamberlain (“Chamberlain”) appeals th e decision by the bankruptcy court in which Cha mberlain was ordered to disgorge a portion of the interim fees he had
rece ived as the “liquidating agent” under a confirme d Chapter 11 liquidating plan. Although the order finally allo wed Chamberlain $46,450.11 in fees and expenses , Cham berlain appeals the order because, not only was i t less th an he had requested, it was $26,646.87 less tha n ha d already been paid on an interim basis. Appellee , Comm unityFirst State Bank, f/k/a/ Guardian State Ban k (“Co mmunityFirst State Bank”), is the debtor’s larges t
unse cured creditor, holding a claim of just unde r $500 ,000 which represents about 90% of the tota l
unse cured claims. The debtor, Edward James Kul a (“Kula”), filed a “letter brief” but did not address the issue of Chamberlain’s fees.
We have jurisdictionto hear this appeal pursuant to 28 U.S.C. § 158(b) and (c).

FACTS

Kula filed his Chapter 11 petition in 1986. Prior t o the Chapter 11 plan being confirmed, Chamberlain ha d acted as examiner in this case and was compensated fo r his servic es in that regard. That compensation is not a subject in this appeal. The Chapter 11 plan, a creditor’s liquidating plan, was confirmed in February,3

1987, wher ein Chamberlain was appointed as a liquidating agent with “all of the rights and powers of an examine r under Chapter 11 of the Bankruptcy Code, and all of th e right s and powers of a trustee under Title 11, Unite d State s Code, pursuant to the authority of 11 U.S.C

. section 1106(b).” The plan provided for Chamberlain t o manage Kula’s4

farm and ranch on an interim basis during the liquidation and to sell Kula’s assets as necessary to pay the allowed claims

. The plan of liquidation did not addres s Chamberlain’s compensation for his role in liquidatin g the estate.

For the first few months following Chamberlain’ s appo intment under the plan, Kula and Community Firs t Stat e Bank were negotiating a possible restructuring o n loans which would have allowed Kula to dismiss th e bank ruptcy, so Chamberlain did not conduct an inventor y or begin h is liquidation at that time. In June of 1987, however, K ula was voluntarily admitted to a hospital for treatment of a mental problem. At that time, Chamberlain
assu med control of Kula’s farming and ranchin g oper ations, and, although Kula was released from th e hosp ital in late August, 1987, Chamberlain remained i n control of the management of the farming and ranchin g oper ations throughout the rest of the bankruptcy case

. In additio n, while Kula was in the hospital, Chamberlain bega n to undertake the liquidation of Kula’s assets

. Although he had not yet taken an inventory of th e contents of Kula’s two residences, Chamberlai n authorized two or three of Kula’s “friends” to enter Kula’ s
re sidences for the purpose of removing all of Kula’ s personal p roperty worth $200.00 or less per item. These items were to be kept for Kula and his children a s “exemp tions.” Anything thought to be worth more tha n5

$200.00 was to be stored until it could be sold a t auct ion. Beginning in September, 1987, when the firs t auct ion of Kula’s personal property was conducted, an d throughout the ensuing liquidation process, Kula alleged that Chamberlain was improperly administering an d liquidatin g the estate in several respects. Chamberlain responded to the allegations with general denials.6

After Chamberlain filed his Final Report on August 3 , 1990, Kula objected, again alleging wrongdoing o n Chamberlain’s part, including that Chamberlain had no t
accoun ted for some of the property of the estate, tha t
so me of his property had been unlawfully taken, tha t Cham berlain had failed to pursue claims of the estate , and that redundant payments were made to certai n creditors. Chamberlain continued to deny all of Kula’ s alle gations, and pursuant to court order, filed a n Amended Final Report which was again objectedto by Kula. Th e bankruptcy court tried three times to schedule a trial on t he Amended Final Report and Kula’s objections, but ultimately concluded that Kula was not competent t o try the ca se. As a result, the bankruptcy court decided it wa s in the best interest of the bankruptcy estate t o appoint anindependent third party to investigate Kula’s allegations and to report his findings to the court.

Thus, on July 29, 1994, pursuant to § 105, th e bankruptcycourt appointed an independent examiner , Michael Sn yder, to investigate Chamberlain’ s admi nistration and liquidation of the estate. Amon g other things, Snyder was particularly directed t o inve stigate the existence and whereabouts of certai n subs tantial items of personal property which Kula ha d maint ained were “stolen” from him while he was in th e hospi tal in the Summer of 1987. Specifically, Kul a alleged certain people had taken, among other things, a7

sadd le and spur collection, a china and porcelai n coll ection, pianos, an antique pipe organ, a diamon d ring, vehi cles, horses, cattle, farm equipment, and cash which he had hidden in his residences.

Snyder conducted a thorough investigation an d subm itted his conclusions (a report and supplementa l report which were filed with the court in November andThe reports filed by Snyder indicated that Kula himself may have bee n 1 involved in

the disappearance of some of the property. Although Chamberlain points this out on several occasions, as discussed below, the issues regarding what happened to the missing property are not relevant in this appeal.
8 December, 1994) which mentioned several irreg ularities in regard to Kula’s property. Although Snyder was able t o uncover li ttle hard evidence as to exactly what property
was taken and by whom, he was convinced that many o f Kula’s allegations were well-founded and that property of subs tantial value had been taken prior to Chamberlain’ s inventory of the personal property. For example, Snyder
was convinced that prior to Kula’s June, 198 7 hosp italization, he had a china collection valued a t $100,000 t o $200,000. By the time Chamberlain conducted his inventory of the personal property, which was afte r he a uthorized its removal, the entire collection wa s missing. As a result, and because Kula did not list any valuable p roperty in his schedules nor did he mention it at the § 341 meeting, Chamberlain did not eve n know these items had existed. 1

Snyder noted concern that Chamberlain waited som e five m onths after he was appointed in February of 198 7 before he actually took possession of the assets in June of 1987 an d emphasized the fact that Chamberlain had not inve ntoried the contents of Kula’s residences prior t o authorizin g the removal of personal property items. The
exam iner further commented that the events alleged b y9

Kula , in large part, took place between February, 198 7 and August, 1987, the period of time betwee n Ch amberlain’s appointment and the inventory of th e assets.

Based on Snyder’s conclusions, the court ordered Kul a to file a list of all the property he believe d const ituted property of the estate as of the date th e plan was10

confirmed. Chamberlain was then to declare h is intention as to eachof those items. Although Kula failed to file such a list, Chamberlain responded to the court’s orde r byfiling a motion to abandon all of the property tha t had not been administered (which would include th e alle gedlymissing property). Because there were n o objections to Chamberlain’s motion to abandon th e property, the court granted the motion. Chamberlain made no effort to recover the missing property or to identify who had ta ken it; rather, he simply abandoned it because he thought that any effort to recover the missin g property would not be cost-efficient or wouldbe entirely futi le. Meanwhile, Chamberlain tried three times t o clos e the case, but because of the irregularities, th e case could not be closed.

Chamberlaineventually filed an Application for Fina l Comp ensation, requesting fees in the total amount o f $89, 673.75, of which he had already received interi m compensation in the amount of $73,096.98. Th e bankruptcy court issued an order dated January 31, 1997, in which it concluded that some of the fees requested by Chamberlain were duplicative, that there was a factual ba sis for some of K ula’s allegations, and that due to Chamberlain’ s inab ilityor failure to respond to Kula’s allegations , some o f the fees were excessive. Therefore, the cour t disa llowed some of the requested fees and ordere d Chamberlain to disgorge the excess interim fees paid.11

In calculating the appropriate compensation in it s Janu ary31, 1997 order, the court distinguished betwee n
serv ices provided before and after the filing o f Cham berlain’s First Final Report on August 8, 1990 , because by that date, the assets of the bankr uptcy estate had alread y been fully administered by Chamberlain. The court noted that Chamberlain claimed he had worked som e 498 hours between plan12

confi rmation and the final report and he had worke d 386.28 hours after he filed his final report.

As to the charges billed for the period before th e final report, Chamberlain’s billings includedcommissions of $28,523 .71 and fees and expenses of $33,471.73, for a total of $61,995.45. The bankruptcy court co ncluded that this figure was unreasonable because it involve d dupl icative charges in that it was not appropriate fo r Chambe rlain to be paid both a commission and an hourl y rate for services performed. A trustee, the court noted, would not have been entitled to an hourly rate i n addition to the percentage fee, so the court disallowe d the commissions as duplicative. Without taking accoun t of th e number of hours or the rate charged, the cour t then found that balance, $33,471.73, was appropriate and customary compensation for a similarly complex case.

As to the charges incurred after the final report , Cham berlain sought $27,678.30 in fees, expenses, an d
comm issions, of which $11,101.53 had already been paid

. After again disallowing the commissions (in t he amount of $586.92) as duplicative, the court noted that most of the
serv ices provided by Chamberlain after August 8, 199 0 were relat ed to the allegations made by Kula. Thus, the court foun d they were of almost no measurable benefit to the b ankruptcy estate because they did not in any wa y enhance the property of the bankruptcy estate and th e13

services did not lead to an orderly and timel y closing of the ban kruptcy case. The court noted that the problem s in thi s regard could have been disposed of very easil y had Chamberlain taken an inventory of the estate asset s upon confirmation of the plan. The court referred t o Chamberlain’s failure to conduct the initial inventory as “a significant omission” and noted that14

because he failed to take the inventory, it wa s diff icult, if not impossible, for Chamberlain to mee t Kula’s allegations with any evidence. The court als o noted t hat because of this failure, it was necessary t o hire th e third party examiner, Snyder, which cost th e esta te some $17,000. Again, without making a lodesta r calculation, the court concluded that Chamberlain’ s reasonable compensation for this time period was $10,000 for services and $2,978.38 for expenses.

The n et result was that Chamberlain was allowed a total of $46,450.11 in fees and expenses. Since he ha d alr eadybeen paid $ 73,096.98, he was required t o disgorge $26,646.87. Chamberlain appeals that order.

ARGUMENTS

Chamberlain raises five points on appeal which ma y al l be disposed in a discussion of his two primar y arguments, namely, (1) the court did not appl y the proper standard in determining the appropriate award o f comp ensation; and (2) Chamberlain was entitled to a hearing so as to present live testimony on the dispute d factual is sues. With one exception, we find no error in the bankruptcy court’s factual findings or co nclusions of law; however, for the reasons that follow, we conclud e that the c ase must be reversed and remanded for either a15

lode star calculation or a finding that the lodesta r method is not appropriate under the circumstances.16 STANDARD OF REVIEW An appellate court reviews the bankruptcy court’ s findings o f fact, whether based upon oral or documentary evidence, for clear error, and reviews legal conclusions de novo

. Fed. R. Bankr. P. 8013; First National Bank of Olathe v. Pontow , 111 F.3d 604, 609 (8th Cir. 1997). We revi ew the bankruptcy court’s decisions regarding a n
aw ard of fees under an abuse of discretion standard

. Grunewa ldt v. Mutual Life Ins. Co. (In re Coones Ranch , Inc.) , 7 F.3d 740, 744 (8th Cir. 1993). An abuse o f disc retion occurs in this context “if the bankruptc y judg e fails to apply the proper legal standard or t o follow pro per procedures in making the determination, or bases an award upon findings of fact that are clearl y erroneous.” Agate Holdings, Inc. v. Ceresota Mill L.P

. (In r e Ceresota Mill L.P.) , 215 B.R. 315 (8th Cir. BAP , Aug ust 15, 1997). To be clearly erroneous, afte r reviewi ng the record, we must be left with the definit e and firm impression that a mistake has been committed

. In re Waug h , 95 F.3d 706, 711 (8th Cir. 1996). “Whether the compensation sought is reasonable, given the time , nat ure, extent of the services and the value of th e services is always a question of fact for the court.” In
re Je linek , 153 B.R. 279, 284 (Bankr. D. N.D. 1993)

. Furt hermore, review is limited in deference to th e bankruptcy judge’s familiarity with the work performed byAlthough the parties appear to distinguish the clearly erroneous standard and 2 the abuse of discretion standard, the Supreme Court has held that they ar e indistinguishable. See Cooter & Gell v. Hartmarx Cor p. , 496 U.S. 384, 401, 110 S.Ct. 2447, 2458, 110 L.Ed.2d 359 (1990).
17 the professional. In re Grady , 618 F.2d 19, 20 (8th Cir. 1980). 2Hereafter, all statutory references are to the United States Bankruptcy Code, 3 11 U.S.C. §§ 101 through 1330. Chamberlain’s attorney was also allowed fees and expenses in the to tal amount 4 of $64,961.68. That award is not challenged in this appeal.
18 DISCUSSION I. The Appropriate Method for Calculation of Fees The bankruptcy court found that although Chamberlain
was n ot acting in the formal capacity as bankruptc y tru stee or examiner appointed under § 1104 of th e Bankr uptcyCode, he and his attorney were professiona l 3 persons within the meaning of § 327 and thei r compensation was to be determined under § 330 and Fed. R. Bankr. P. 2016(a). The part ies do not dispute this, and 4 alt hough § 327(f) would now make questionabl e Chamberlain’s appointment as liquidating agent after h e had already served as examiner in the case, w e agree that Cham berlain’s compensation, as well as that of hi s attorney, is determinable under § 330 and Rule 2016(a)

. Fu rthermore, although § 330 was modified in the 199 4 Amen dments to the Code, the bankruptcy court correctl y appl ied the previous version because the Amendments ar e ap plicable only to those cases commenced on or afte r October 22, 1994.

Section 330(a), as applicable to this case, allow s the court to award to a professional person:19

(1) reasonable compensation for actual , necessaryservices rendered . . . based on th e nature, extent, and the value of such services, the time spent on such service s, and the cost of compa rable services other than in a case unde r this title; and (2) reimbursement for actual, necessar y expenses.20

11 U.S.C . § 330(a). Section 330 applies to al l bankruptcy

cases, including Chapter 11 cases. See In re Reed , 890 F.2d 104, 105 (8th Cir. 1989) (find ing no merit to sugg estion that a distinction be drawn between fe e applic ations in Chapter 7 and Chapter 11 cases); In r e Malew icki , 142 B.R. 353, 356 (Bankr. D. Neb. 1992)

. Chamberlai n bore the burden of proving he is entitled to
com pensation. See In re Land , 138 B.R. 66, 70 (D. Neb

. 1992).

In calculating the appropriate compensation, th e Eigh th Circuit announced in In re Apex Oil that “th e lodestar approach, including the possibility o f adjustment s in rare and exceptional circumstances, is an app ropriate method to use in calculating reasonabl e compensation under § 330.” P.A. Novelly v. P alans (In re Apex Oil Co.) , 960 F.2d 728, 731 (8th Cir. 1992). Th e lo destar method is calculated as the number of hour s
reaso nablyexpended multiplied by a reasonable hourl y rate. Id . at 731.

As discussed more fully below, the bankruptcy cour t in the case at bar referred to the lodestar method fo r calc ulating professional fee awards, but it did no t expressly make a lodestar calculation in arriving at its award. Al though the language used by the Eighth Circuit Court o f Appeals in In re Apex Oil does not appear t o req uire an express lodestar calculation, it clearl y21

indi cates that the lodestar method is the preferre d method for calculating fees. As a result, we conclud e that in making professional fee awards, bankr uptcy courts must eithe rmake an express lodestar calculation or make a finding that the lodestar method is inappro priate under the circumstances.

The Supreme Court has made it clear that the lodesta r
me thod of fee calculation is the preferred method b y which federal courts should determine reasonabl e attorney’s22

fees under federal statutes which provide for such fees. See In re Boddy , 950 F.2d 334, 337 (6th Cir. 1991 ) ( citing Pe nnsylvania v. Delaware Valley Citizens Council for Clean Air , 483 U.S. 711, 107 S. Ct. 3078, 97 L.Ed.2d 585 (1987) (Delaware Valley II) (lodestar method used to calc ulate fees under Clear Air Act); Hensley v

. Eckerha rt , 461 U.S. 424, 433-34, 103 S. Ct. 1933, 1939

- 40, 76 L.Ed.2d 40 (1983) (lodestar method used t o calcula te fees in civil rights action under 42 U.S.C. § 1988 )). See also Pennsylvania v. Delaware Valle y Citizens’ Council for Clean Air , 478 U.S. 546 , 106 S. Ct. 30 88, 92 L.Ed.2d 439 (1986) (Delaware Valley I) (th e Supr eme Court announcing that the lodestar method, wit h the possibility of adjustments for factors not alread y factored i nto the lodestar amount, is appropriate); City of Burlington v. Dague , 505 U.S. 557, 112 S.C t. 2638, 120 L.Ed. 2d 449 (1992) (lodestar method appropriate unde r Solid Waste Disposal Act).
Similarly, the Eight h Circuit has held in other nonbank ruptcycases that where a statute provides fo r “rea sonable” attorney fees, as does this statute, th e lodes tar method is the preferred method by which t o
ca lculate the reasonable fees. See e.g. , Pinkham v

. Camex, Inc. , 84 F.3d 292, 294 (8th Cir. 1996) (holdin g that the lodestar method is the appropriate method fo r calculatin g “reasonable” attorney fees allowed under the copyright statute); Newhouse v. McCormick & C o. , 110 F.3d23

635, 644 ( 8th Cir. 1997) (applying lodestar method under the Age Discrimination in Employment Act fee shiftin g stat ute); Kientzy v. McDonnell Douglas Corp. , 990 F.2 d 1051, 1063 (8th Cir. 1993) (applying lodestar method i n sex discrimination case).

Likewise, we believe that a lodestar calculation i s
a ne cessary starting point for determining fee award s under § 330. If there is no explanation as to how th e courtBecause the majority of work in most Chapter 13 cases is normal an d 5 customary, and because of the sheer volume of such cases in most dis tricts, the lodestar calculation may not necessarily b e the best method for determining appropriate fees in those cases. Accord In re Watkins , 189 B.R. 823, 828-29 (Bankr. N.D. Ala. 1995) ; In re Dubin Pa

per Co. , 169 B.R. 115, 121 (Bankr. E.D. Pa. 1994); In re Busy Beaver Bldg. Ctrs. , 19 F.3d 833, 856 (3rd Cir. 1994) (section 330 does not ossify the lodestar method as the point of departure in fee determinations); In re Atwell , 148 B.R. 483 , 487-88 (Bank

r. W.D. Ky. 1993) (announcing that in Chapter 13 cases after Boddy , if counsel chose to receive a flat fee of $875.00 or less, the lodestar method would not be ap plied and counsel would not be required to submit detailed bulling application ; however, if the attorney chose to represent the client on an hourly basis, the lodestar method would

be applied). In such cases, a court would merely be required to make a finding that a method other than the lodestar method, such as the “normal an d
24 calculated the amount of the award, a reviewing court is unable to assess the propriety of a fee award on appeal. Without at least some discussion of the lodes tar factors, the award of the bankruptcy court becomes arbitrary an d unreviewable. See In re Boddy , 950 F.2d at 33 8 ( citing In re Evangeline Refining Co. , 890 F.2d 1312, 13 28 (5th Cir. 1989)). Thus, we find that unless such a calculation i s inappropriate under the circumstances, a bank ruptcy court must , at a minimum, specifically calculate the lodesta r
amoun t when it determines the appropriate fee to b e awarded to a professional person under § 330. Accord In
re Bodd y , 950 F.2d at 337-38 (the Sixth Circuit holdin g that the bankruptcy court must expressly calculate th e lodestar amount when determining reasonable attorne y fees); In re Malewicki , 142 B.R. at 356. We woul d comment, however, that some cases, particularly Chapte r 13 cases, are not prone to a lodestar calculation. I n 5customary” debt-based formula, is more appropriate for determining the fee award.

In addition, many dist

ricts have local rules which provide that if the applicant’s fee is under a certain amount, usually about $1,000, no itemized st atement is necessary. See e.g. , Local Rule of Practice for the United States Bankruptcy Court for the Western District of Miss ouri 2016-1.B (providing that if counsel’s total fee in a case is $1,000 or less, the disclosure of the fee in initial filings is suffic ient and it is unnecessary to file any itemized application).
25 such cases, a lodestar calculation is not required ; however, the26

court should make a finding that such a calculation i s inappropriate under the circumstances.

As a result, unless such a calculation would b e inappropriate under the circumstances, the bankruptc y court must make a finding as to whether the number o f hours billed were reasonable in light of the complexit y of the case, and then multiply that by a reasonabl e hourl yrate for those services. The party seeking a n award of fees should submit evidence supporti ng the hours worked and the rates claimed. See Hensley v. Eckerhart , 461 U.S. 424, 433, 103 S. Ct. 1933, 1939, 76 L.Ed.2d 4 0 (198 3) (holding that the starting point in determinin g the amount of reasonable fees under civil rig hts statutes
was a lodestar calculation which provides an objectiv e basis on which to make an initial estimate of the valu e of a lawyer’s services). If the hours or the rat e requested by the professional is not reasonab le under the circ umstances for the work performed, the bankruptc y court should make such a finding.

Once the lodestar amount has been calculated, tha t amount is presumed to be reasonable compensation under § 330. See In re Manoa Fin. Co. , 853 F.2d 687, 691 (9t h Cir. 1988). However, using the lodestar amount as a start, the Eighth Circuit has held that adjustments ma y be m ade to that amount under certain circumstances

. Beca use the lodestar amount presumably reflects (1) th e27

novelty and complexity of the issues, (2) the specia l skill and experience of counsel; (3) the quality o f rep resentation, and (4) the results obtained, thes e fact ors normally cannot serve as independent bases fo r increasing the fee award above the lodestar amount. See In re Apex Oil , 960 F.2d28

at 7 31-32. Nevertheless, adjustments to the lodesta r amount may

be made in rare and exceptional circumstances based on the quality of the representation or the results obta ined. Id . at 732 ( citing Pennsylvania v. Delawar e Valley Citizens’ Council for Clean Air , 478 U.S. 546 , 565, 1 06 S.Ct. 3088, 3098, 92 L.Ed.2d 439 (1986 ) ( Delawa re Valley I )). Such a finding by the bankruptc y court must be supported by both specific evidence on the
reco rd and detailed findings by the bankruptcy court

. Id . As the Eighth Circuit elaborated:

Because the lodestar amount may alread y compensate the applicant for exceptionally goo d service and results, however, the fee applicant must do more than establish outstanding service and results. The applicant also must establish that the quality of service rendered and th e results obtained were superior to what on e reasonablyshould expect in light of the hourly rates charged and the number of hours expended. See [ B lum v. Stenson , 465 U.S. 886, 899, 10 4 S.Ct. 1541, 1549 (1984)]; Copeland v. Marshall , 641 F .2d 880, 893-94 (D.C. Cir. 1980) (“ A qualityadjustment is appropriate only when the representation is unusually good or bad, taking into account the level of skill normall y exp ected of an attorney commanding the hourl y rate used to compute the ‘lodestar.’” (emphasis in original).

Id

.
Beyond this, it is not clear as to what types o f factors th e bankruptcy court can consider in determining29

whet her an adjustment to the lodestar amount i s appropriat e. The Eighth Circuit in fact stated in In re Apex O il that it was not attempting to give a comprehensive answer to the question as to what a n appl icant must show to establish that rare an d exceptional circumstances exist to justify a fe e enha ncement; rather, it merely answered the question a s to whether and when the quality of representation or30

the r esults obtained can constitute a basis for fe e enhancemen t. Id . Many courts, including the bankruptcy court in t his case, have applied the standards set forth in John son v. Georgia Highway Exp., Inc. , 488 F.2d 714 , 717- 19 (5th Cir. 1974), to determine what constitute s reasonable compensation under the circumstances. See In re Malewic ki , 142 B.R. at 355 ( citing In re McCombs , 751 F.2d 286 (8th Cir. 1984), and Bess v. Bess , 929 F.2 d 1332, 1335 n.6 (8th Cir. 1991)). The Johnson factor s include: (1) the time and labor required; (2) the novelty and diffic ulty of the questions; (3) the skill requisite to perform the legal service properly; (4) th e preclusion of other employment by the attorney due to th e acceptance of th e case; (5) the customary fee; (6) whether the fe e is fixed or contingent; (7) time limitations imposed b y the client or the circumstances; (8) the amount involved and results obtained; (9) the experience, rep utation, and ability of the attorney; (10) the undesirability of th e
ca se; (11) the nature and length of the professiona l relationsh ip with the client; and (12) awards in similar
cases. Id

.

Of co urse, as the Eighth Circuit said, several o f these fact ors have already been taken into account under the lod estar calculation, so they should not form th e basi s for an adjustment to that amount, unless it i s shown by specific evidence that they are not full y reflect ed in the lodestar. See also Delaware Valley I ,31

478 U.S. at 564-65, 106 S.Ct. at 3098 (repeating it s conclus ion that the Johnson factors are, for the mos t part, alre ady reflected in the lodestar amount, but that adjustments may be made in rare and exceptional cases) ; In re Manoa Fin. Co. , 853 F.2d at 687.

Inany event, we find that the Johnsonfactors may b e considered in adjustments to the lodestar amount to th e exten t that they are not already factored into tha t amount.Al though not normally relevant in bankruptcy cases in terms of payment o f 6 professionals, it should be noted that the Supreme Court has further elaborated on its li ne of decisions as described in the Delaware Valley cases to the effect that contingency , or “risk of loss” should not form the basis for an enhancement to th e lodestar calculation

. City of Burlington v. Dague , 505 U.S. 557, 112 S.Ct. 2638, 120 L.Ed.2d 449 (1992). Th e Eighth Circuit has recognized this: in Kientzy v. McDonnell Douglas Corp. , 990 F.2d 1051 (8th Cir. 1993), the Eighth Circuit reversed the lower court’s contingency enhancement and remanded the case for a determination as t o wheth er the lodestar amount adequately reflected the difficulty of establishing th e merits of the case. S ee also Newhouse v. McCormick & Co. , 110 F.3d 635, 644 (8th Cir. 1997) (holding Dague applies with full

force to the ADEA fee shifting statute thus prohibitin ga fee enhancement beyond the lodestar amount on the basis of a contingency arrangement).
32 It s hould be remembered, however, that the lodesta r amount is presumed to be reasonable, and that adjustments should be made only in rare and exceptional c ircumstances
as de fined by the Eighth Circuit in In re Apex Oil

. Accord Delaware Valley I , 408 U.S. 546, 106 S.Ct. 3088 , 92 L.Ed.2d 439. 6
Finally, it has also been said that bankruptcy court s should award fees commensurate with fees allo wed in other
ar eas of practice, thus providing counsel economi c incentive to provide services in bankruptcy c ases. In re McCombs , 751 F.2d 286, 288 (8th Cir. 1984); In r e Malew icki , 142 B.R. at 357. On the other hand, th e Eighth Circuit has further held that a bankruptcy cour t need n ot find that an enhancement is necessary to mak e the award commensurate with compensation for comparable, non-bankruptcy services before it can enhance th e33

applicant’s fee. In re Apex Oil , 960 F.2d at 732

. Rather than requiring such a finding, § 330 p rovides that “the cost of comparable services” in non-bank ruptcy cases is one of a number of factors to consider in calculating “reasonable compensation.” Id . at 732-33.34

In sum, we hold that in calculating an applicant’ s “reasonable fee” under § 330, unless the bank ruptcy court makes a sp ecific finding that the lodestar method is not appr opriate under the circumstances, the bankruptc y
cour t must start with the lodestar calculation a s de scribed above. The bankruptcy court may then mak e adju stments to the lodestar amount, in rare an d exceptional circumstances, to reflect that th e quality of
serv ice rendered and the results obtained were superio r or inferior to what one reasonably should exp ect in light of the hourly rates charged and the number of hour s expende d. Certain other factors, such as the Johnso n facto rs and the cost of comparable services in non

bank ruptcycases, may also be considered to the exten t they are not already factored into the lodesta r calc ulation. The bankruptcy court’s decisions must b e supp orted by evidence and the bankruptcy court shoul d issu e findings and conclusions which will allow a revi ewing court to determine whether the amount awarde d was reasonable under the guidelines.
Applying these principles to the case at bar, w e conclude, for the reasons that follow, that t he case must be remanded to the bankruptcy court for furth er findings.

A. C alculation of Fees for the Period Before August 8 , 199035

As to the reduction for the fees billed prior to the August 8, 1990 report, the bankruptcy court simply found that the total of “$61,995.45, including as it does both
comm issions of $28,523.72 and fees and expenses o f $33,471.73 , was unreasonable compensation -- not because the ho urs worked were misstated or the hourly rate wa s too high -- but because it involved duplicative charge s to t he bankruptcy estate.” Noting that if Chamberlai n had been appointed as trustee under § 1104, h e would have36

been entitled to a percentage fee and no hour ly fees, the court thendisallowed the commissions as duplicative and foun d that the remaining amount (representing fees an d expe nses), or $33,471.73, was “within the range o f customary fees for a case of this size and complexity.”

In arriving at its conclusion, the bankruptcy cour t did not make a lodestar calculation and the Order i s sile nt as to how the bankruptcy court arrived at th e
con clusion that $33,471.73 was within the customar y range . “If we conclude that the bankruptcy court’ s fin dings are silent or ambiguous as to an outcom e determinative factual question, we may not make our ow n findings but must remand the case to the bank ruptcy court for the necessary factual determination.” Inre Apex Oil Co. 96 0 F.2d at 731 ( quoting Wegner v. Grunewaldt , 82 1 F.2d 1317, 1320 (8th Cir. 1987)). Thus, because th e Order is ambiguous as to how the bankruptcy c ourt arrived at the conclusion that $33,471.73 was reasonabl e compensation, and particularly because the bankruptc y court d id not perform a lodestar calculation, we mus t remand this case for those factual findings.

Moreover, Chamberlain also asserts the separat e char ges are not in fact duplicative because th e
comm issions represent his work in selling the property , wher eas the hourly rate (fees) and expenses represen t
mana gement and administration of assets. He maintain s37

the hourly fees do not include any hours for sellin g property, and thus, they are separate. He furthe r asserts he routinely charges a different rate for hi s recoveries and sales than he does for his management and admi nistration of assets, and that he produced evidenc e that the Nebraska courts routinely grant him both type s of comp ensation because they are separate and are no t duplicative.38

We have reviewed the detailed billing statement s supporting the hourly fee request which were included in the r ecord and we would comment that we found severa l entries which appear to be related to the sale o f property. Thus, at first blush, it does not appear that the bankruptcy court was clearly erroneous inits factual find ing that the charges were duplicative. However , because the bankruptcy court did not do a lodesta r calculation, it did not make a finding as to th e appropriate number of hours which would norma lly be spent
on the various services performed by Chamberlain in a case similar to this one. Consequently, uponremand, the bankruptcy

court is directed to make a finding, based on evidenc e, as to the appropriate number of hours and th e
re asonable hourly fee for the services Chamberlai n perf ormed prior to August 8, 1990. We would furthe r
comm ent that under a lodestar approach, unless th e bankruptcycourt made a determination that commission s would be particularly appropriate under th e circ umstances, such a form of separate compensation fo r sales woul d not be appropriate. Instead, an hourly rate should be assigned to those services. Whethe r the hourly rate for those services should be the same as fo r
mana gerial and administrative services is a question o f fact for the bankruptcy court and the applicant shoul d present evidence on those factual issues.39

In an y event, the case must be remanded so that th e bankruptcy

court can do a specific lodestar calculation, dete rmining what would be a reasonable number of hour s spent performing all the work done by Chamberlain prio r to August 8, 1990, and multiplying that by th e reasonable or customary fee for such services.40

B. Calculation of Fees for the Period After August 8 , 1990 In its calculation for the services provided afte r August 8, 1990, the bankruptcy court focused primarily on the fact that because Chamberlain failed to promptl y inven torythe assets, many of the hours spent afte r August 8, 1990, were unnecessary and did not benefit the esta te and that that factor “weigh[ed] heavily agains t the allowance of the very substantial fees an d reimbursement of expenses requested by the applicants. ” By submit ting the First Final Report on August 8, 1990, Cham berlain was claiming the estate had basically bee n full yadministered at that time. The bankruptcy cour t thus noted that a significant amount of the post-Augus t 8, 1 990 billings were attributable to responding t o Kula’ s allegations. Essentially, the court conclude d tha t much of this effort would have been avoided i f Chamberlain had properly inventoried the estate asset s when the plan was confirmed rather than waiting severa l months to do so. Additionally, Chamberlain himself ha d auth orized people to remove many items during tha t interim pe riod before the inventory had been taken, thus leaving room for the allegations to be brought.

The bankruptcy court, noting repeatedly Chamberlain’ s failure to inventory the assets at the beginning of th e
case , found that this was a “significant omission” an d that it was “clear that the problems in this case, an d41

the problems of proof and accountability for the property of the est ate could have been disposed of in a much more orderly fashion had Chamberlain taken an inve ntory of the assets of the bankruptcy estate upon confirmation of the plan.” The court also noted that because of thi s omission, Chamberlain had no evidence and that such lack of evidence made it “difficult, or almost imp ossible, for Chamberlain to meet the allegations of Kula.”42

The court said that the debtor tried on sever al occasions to g et Chamberlain to respond to allegations, but tha t Cham berlain either would not or could not respond

. Addi tionally, the court found that because of thi s omissio n and the fact that Chamberlain could not mee t Kula’ s allegations, and because Chamberlain failed t o look into the matters with any detail, the court wa s compelled to hire an independent third party to find out what had h appened, and that this cost the estate $17,000 to pay the investigator. The court thus concluded tha t
man yof the hours billed by Chamberlain for thos e
se rvices were of no benefit to the estate and wer e therefore excessive.

Chamberlain claims that in arriving at it s conclusion , the bankruptcy court improperly applied the lodes tar method and the Johnson factors, particularl y
asse rting that the bankruptcy court placed too muc h emphasi s on the “benefit to the estate.” Chamberlai n asserts, “ Nowhere in Johnson or its progeny is it stated that ‘bene fit of the estate’ is to be the sole measuring stick for professional fees. Yet, this appea rs to be the only factor the bankruptcy court used in this case t o approve fees.” Chamberlain’s argument is flawed in two respects

. First , while it is true that “benefit to the estate” i s not to be the sole measuring stick for profes sional fees, the Eig hth Circuit has held, even after its decision i n43

Apex Oil , that “an attorney fee application i n bankruptcy will be denied to the extent the services rendered wer e for t he benefit of the debtor and did not benefit th e estate.” Keate v. Miller (In re Kohl) , 95 F.3d 713, 714 (8th Cir. 1996) ( quoting In re Reed , 890 F.2d 104, 10 6 (8th Cir. 1989) (adopting the “better rule” whic h requires a benefit to the estate)). “This rule is based upon the legislative history of Bankruptcy Code sectio n 330(a ) and the unfairness of allowing the debtor t o deple te the estate by pursuing its interests to th e detriment of creditors.” Id . ( quoting In re Hanson , 172 B.R. 67, 74 (9th Cir. BAP 1994)). In fact, “result s obtaine d” (which is akin to “benefit to the estate”) i s
a fa ctor considered under both the lodestar calculatio n and in considering an adjustment to the lodestar amoun t where the lodestar amount does not accurately reflect the results obtained. In re Apex Oil , 960 F.2d at 731-32

. Thus, whil e Chamberlain is correct that it should not be the sole f actor considered, results obtained or “benefit to the estate” is a factor which may be consi dered by the bankruptcycourt in calculating the appropriat e compensation to be awarded.

Se cond, while Chamberlain correctly asserts that a trus tee should be compensated for activities which ar e necessary but do not necessarily “benefit” the estate in terms of recovery or administration, he is in correct that the bankruptcy court failed to award him fees fo r44

services which were necessary but not “beneficial.” I n fact , the court specifically said that Chamberlain wa s entitled to compensation for a significant po rtion of the work performed after August 8, 1990, when th e admi nistration was complete, even though there was n o “benefit” to the estate in terms of recovery. The court said, referring to the period after August 8, 1990:

A g reat deal of Chamberlain’s services durin g this period of time were not of benefit to th e bankr uptcyestate. However, he did, in fact , perform some services during t his period of time which were reasonable and necessary and o f benef it to the bankruptcy estate . . . . Th e results obtained by Chamberlai n by virtue of his servi ces were of no particular benefit to th e estate. However, as I stated, it was necessary for him to engage in some of these activitie s even though no benefit was expected to b e obtained. This case really did not present any difficult questions over the period of tim e after the filing of the First Final Report. If Cham berlain had made an inventory of th e property in Kula’s residence45

prio r to disposing of it, the fees fo r litigating matters concerning the First Fina l Repor t would be much, much, lower than i s requested in the case. (Emphasis added.)

As th is passage indicates, the bankruptcy cour t clearly recognized that Chamberlain should be compensated for services he performed which were necessary but wer e not “beneficial” to the estate. It simply co ncluded that the hours billed by Chamberlain were excessive in ligh t of the services performed. We find no clear error in the bankruptcycourt’s conclusion that “reasonabl e compensation” for the services performed by Chamberlai n after August 8, 1990, should not include all the hour s expe nded in responding to Kula’s allegations. Further , we s ee no abuse of discretion in the conclusion tha t those exce ss hours were due to Chamberlain’s own failure to promptly inventory the assets. A court sh ould exclude from the initial lodestar calculation hours t hat were not “reasonably expended” in the representation. See Hensley

v. Eckerhart , 461 U.S. at 433, 103 S.Ct. at 1939

. Finally, we reject Chamberlain’s assertion that becaus e he was required by the court to respond to Kula’ s allegations, he should be compensated for all of the time it took for him to respond. He was required to respon d because he made the “omission” in the first place.46

On the other hand, in arriving at its award o f “reasonable compensation” for this period, th e bankruptcy court simply reduced the fees for the period after August 8, 19 90, to $10,000, which the court determined to be a reasonable figure. However, the court did not expressly calculate the number of hours or the reasonable rate for the services he found were necessary. As such, th e figure of $10,000 appears arbitrary and is unreviewable. In accorda nce with the above discussion, therefore, upon remand, the bankruptcy court is directed to perform a specific lodestar calculation for the services47

it deems necessary for the period after August 8, 1990. As describ ed above, the “benefit to the estate” analysis pe rformed by the bankruptcy court in arriving at th e $10, 000 figure can be factored into the lodesta r calculation.

II. Due Process - Entitlement to an Evidentiary Trial

Chamberlain’s second point is that the bankruptc y court d enied him procedural due process by failing t o allo w live testimony during hearings on his fe e appl ication. Citing general due process authority, th e
crux of Chamberlain’s argument is that the debtor ha d accused him of certain omissions or mishandlings in hi s duties as liquidator, that the court based its fe e reduction on those allegations, and that he should hav e had a more adequate opportunity to rebut thos e allegations.

Section330(a) provides that the court may award fee s to a professional “after notice . . . and a hearing. ” Sect ion 102(1) provides that this phrase means “suc h opportunityfor a hearing as is appropriate in th e particular circumstances.” As Chamberlain asserts, “i f the bankruptcy court plans to disallow certain items o f compensation, § 330(a) on its face first cont emplates the applicant’s right to a hearing.” In re Busy Beaver Bldg. Centers, Inc. , 19 F.3d 833, 845 (3rd Cir. 1994).48

[I] f the court does disallow fees of a “good

faith applicant,” the Code, see §§ 329(b) , 330(a ); see also Rule 2017(b) -- and perhap s even the dictates of due process, see U.S

. CONST., amend V -- mandates th at the court allow the f ee applicant an opportunity, should it b e requested, to present evidence or argument that the fee application meets the prerequisites for com pensation; canons of fairness militat e against forfeiture of the requested fees simply be cause the court’s audit of the applicatio n uncovers some ambiguity or objection. By goodfaith applicant we mean49

to refer to a fee applicant who reasonably an d in go od faith attempts to comply with th e applicable rules governing the format an d substance of fee applications.
Id . at 846. The court in Busy Beaver cited s everal cases which have held that an evidentiary hearing must be held if there are disputed issues of fact. Id . at 846, n. 16. Thus, ther e is no question that Chamberlain was entitled to an evidentiary hearing on his fee application. Th e quest ion is, to what type of hearing was he entitled ? The Busy Beaver court said: At the hearing, held after not ice of the court’s concerns and/or objections, the court shoul d allow the applicant a reasonable opportunity to present legal arguments and/or evidence, as the case may be, to clarify or supplement th e petition and accompanying affi davit. Of course, the anatomy of the hearing lie s within the sound dis cretion of the bankruptcy judge, and woul d not necessarily require the pr esentation of oral testi mony. For example, the type of hearin g which “is appropriate in the particula r circ umstances” might simply be an oral hearin g (whet her in court or more informally, as b y teleconference) at which the applicant submit s argum ent based upon the papers. The essentia l poi nt is that the court should give counsel a meaningful opportunity to be heard.

Id . (emphasis added). If after allowing the applicant to respond , the court adheres to its views and disallow s
some of the requested compensation, it should ente r50

sufficient findings of fact and conclusions o f law in the record to facilitate appellate review. Id . at 847.

The First Circuit ha s also addressed this issue. In In re Spillane , 884 F.2d 642 (1st Cir. 1989), th e appl icant asserted that her right to cross examine th e trustee’s attorney was absolute and its denial was a per
se abuse of discretion. The First Circuit51

disagreed. It said that while § 330(a) clearly requires
a heari ng, the statute says little about the content o f that hearing. Citing § 102(1)(A), the Court conclude d th at the hearing provided in that case was adequate , despit e the fact that the applicant was not allowed t o
cross e xamine the other side. Id . at 646. The Cour t noted that the appellant did not offer to prove anything not apparent from the existing evidence and that cros s examinatio n was unlikely to add to an informed decision. Id . at 646 -47. Further, the Court found that even if it were error, the error was harmless. Id . at 647.

In the case at bar, Chamberlain’s request for a n opportunity to present live testimonial evide nce is based primari lyon his assertion that he should be allowed t o pres ent evidence regarding the missing property and hi s decision not to pursue that property after th at issue was rais ed. We find that Chamberlain’s argument fails , primarily because Chamberlain is mistaken in the premise that the bankruptcy court reduced the fees because th e prop ertywas missing or because it disagreed wit h Chamber lain’s decision not to pursue it. Rather, th e bankr uptcycourt reduced the fees because Chamberlai n wasted so much time trying to determine wheth er there was any t ruth to the allegations that it was missing. Thi s was caused by the simple failure to promptly conduct the inve ntory. In other words, the bankruptcy cour t concluded that if Chamberlain had conducted t he inventory52

in t he first place, he could have either verified o r refuted Ku la’s allegations from the first time they were raise d and then most of the efforts required to make u p for that omission would not have been necessary

. Li kewise, Chamberlain’s decision not to pursue th e missing property was irrelevant as to the fee award. The
cour t did not reduce Chamberlain’s fees because i t thought he should have pursued the property rather tha n abandoning it. Again, the point was that53

Cham berlain could not respond to the allegations, no t that there was any provable merit to them or tha t Cham berlain could recover the property to benefit th e estate.
Consequently, because the issues regarding th e where abouts, value, and recoverability of the missin g prop ertywere irrelevant to the issue of Chamberlain’ s fees, it c ertainly was not error to deny the opportunity to present live testimony on those issues. Instead, the issues relevant to Chamberlain’s reasonable fees were : (1) wh ether it was customary or appropriate for him t o
wa it to conduct the inventory until some five month s afte r he was appointed; (2) whether it was appropriat e for him to allow the property to be removed by thir d pers ons before he had conducted an inventory and whil e Kula was in the hospital; (3) whether the failure t o prom ptlyinventory resulted in excessive fees; and (4 ) the reasonable number of hours and the reasonable rat e that shoul d have been charged in a similar case. If the fail ure to inventory caused excessive hours to b e expende d, they should not be included in the lodesta r calculations.
In light of the fore going discussion, on remand, the bank ruptcycourt is directed to make a lodesta r calculation as described above and to issue findings t o supp ort that calculation. If further evidence i s54

nece ssaryto support the findings, the bankruptcy cour t sho uld allow Chamberlain the opportunity to presen t appropriate evidence as to those issues.55 CONCLUSION
Accordingly, we REVE RSE and REMAND to the bankruptcy
cour t which shall make a lodestar calculation i n accordance with this opinion. In all other r espects, the decision of the bankruptcy court is affirmed.

A true copy.

Attest:

CLERK, U.S. BANKRUPTCY APPELLATE PANEL FO R THE EIGHTH CIRCUIT