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 United

v. * States Bankruptcy Court

* for the District of

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

 

Before KOGER, WILLIAM A. HILL and DREHER, Bankruptcy

Judges

KOGER, Chief Bankruptcy Judge
2

Eugene Chamberlain (“Chamberlain”) appeals the

decision by the bankruptcy court in which Chamberlain was

ordered to disgorge a portion of the interim fees he had

received as the “liquidating agent” under a confirmed

Chapter 11 liquidating plan. Although the order finally

allowed Chamberlain $46,450.11 in fees and expenses,

Chamberlain appeals the order because, not only was it

less than he had requested, it was $26,646.87 less than

had already been paid on an interim basis. Appellee,

Community First State Bank, f/k/a/ Guardian State Bank

(“Community First State Bank”), is the debtor’s largest

unsecured creditor, holding a claim of just under

$500,000 which represents about 90% of the total

unsecured claims. The debtor, Edward James Kula

(“Kula”), filed a “letter brief” but did not address the

issue of Chamberlain’s fees.

We have jurisdiction to hear this appeal pursuant to

28 U.S.C. § 158(b) and (c). 

FACTS

Kula filed his Chapter 11 petition in 1986. Prior to

the Chapter 11 plan being confirmed, Chamberlain had

acted as examiner in this case and was compensated for

his services 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, wherein Chamberlain was appointed as a liquidating

agent with “all of the rights and powers of an examiner

under Chapter 11 of the Bankruptcy Code, and all of the

rights and powers of a trustee under Title 11, United

States Code, pursuant to the authority of 11 U.S.C.

section 1106(b).” The plan provided for Chamberlain to

manage Kula’s
4

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 address

Chamberlain’s compensation for his role in liquidating

the estate.

For the first few months following Chamberlain’s

appointment under the plan, Kula and Community First

State Bank were negotiating a possible restructuring on

loans which would have allowed Kula to dismiss the

bankruptcy, so Chamberlain did not conduct an inventory

or begin his liquidation at that time. In June of 1987,

however, Kula was voluntarily admitted to a hospital for

treatment of a mental problem. At that time, Chamberlain

assumed control of Kula’s farming and ranching

operations, and, although Kula was released from the

hospital in late August, 1987, Chamberlain remained in

control of the management of the farming and ranching

operations throughout the rest of the bankruptcy case.

In addition, while Kula was in the hospital, Chamberlain

began to undertake the liquidation of Kula’s assets.

Although he had not yet taken an inventory of the

contents of Kula’s two residences, Chamberlain authorized

two or three of Kula’s “friends” to enter Kula’s

residences for the purpose of removing all of Kula’s

personal property worth $200.00 or less per item. These

items were to be kept for Kula and his children as

“exemptions.” Anything thought to be worth more than
5

$200.00 was to be stored until it could be sold at

auction. Beginning in September, 1987, when the first

auction of Kula’s personal property was conducted, and

throughout the ensuing liquidation process, Kula alleged

that Chamberlain was improperly administering and

liquidating 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 on

Chamberlain’s part, including that Chamberlain had not

accounted for some of the property of the estate, that

some of his property had been unlawfully taken, that

Chamberlain had failed to pursue claims of the estate,

and that redundant payments were made to certain

creditors. Chamberlain continued to deny all of Kula’s

allegations, and pursuant to court order, filed an

Amended Final Report which was again objected to by Kula.

The bankruptcy court tried three times to schedule a

trial on the Amended Final Report and Kula’s objections,

but ultimately concluded that Kula was not competent to

try the case. As a result, the bankruptcy court decided

it was in the best interest of the bankruptcy estate to

appoint an independent third party to investigate Kula’s

allegations and to report his findings to the court. 

Thus, on July 29, 1994, pursuant to § 105, the

bankruptcy court appointed an independent examiner,

Michael Snyder, to investigate Chamberlain’s

administration and liquidation of the estate. Among

other things, Snyder was particularly directed to

investigate the existence and whereabouts of certain

substantial items of personal property which Kula had

maintained were “stolen” from him while he was in the

hospital in the Summer of 1987. Specifically, Kula

alleged certain people had taken, among other things, a
7

saddle and spur collection, a china and porcelain

collection, pianos, an antique pipe organ, a diamond

ring, vehicles, horses, cattle, farm equipment, and cash

which he had hidden in his residences.

Snyder conducted a thorough investigation and

submitted his conclusions (a report and supplemental

report which were filed with the court in November and
 The reports filed by Snyder indicated that Kula himself may have been

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 irregularities in

regard to Kula’s property. Although Snyder was able to

uncover little hard evidence as to exactly what property

was taken and by whom, he was convinced that many of

Kula’s allegations were well-founded and that property of

substantial value had been taken prior to Chamberlain’s

inventory of the personal property. For example, Snyder

was convinced that prior to Kula’s June, 1987

hospitalization, he had a china collection valued at

$100,000 to $200,000. By the time Chamberlain conducted

his inventory of the personal property, which was after

he authorized its removal, the entire collection was

missing. As a result, and because Kula did not list any

valuable property in his schedules nor did he mention it

at the § 341 meeting, Chamberlain did not even know these

items had existed.1

Snyder noted concern that Chamberlain waited some

five months after he was appointed in February of 1987

before he actually took possession of the assets in June

of 1987 and emphasized the fact that Chamberlain had not

inventoried the contents of Kula’s residences prior to

authorizing the removal of personal property items. The

examiner further commented that the events alleged by
9

Kula, in large part, took place between February, 1987

and August, 1987, the period of time between

Chamberlain’s appointment and the inventory of the

assets. 

Based on Snyder’s conclusions, the court ordered Kula

to file a list of all the property he believed

constituted property of the estate as of the date the

plan was
10

confirmed. Chamberlain was then to declare his intention

as to each of those items. Although Kula failed to file

such a list, Chamberlain responded to the court’s order

by filing a motion to abandon all of the property that

had not been administered (which would include the

allegedly missing property). Because there were no

objections to Chamberlain’s motion to abandon the

property, the court granted the motion. Chamberlain made

no effort to recover the missing property or to identify

who had taken it; rather, he simply abandoned it because

he thought that any effort to recover the missing

property would not be cost-efficient or would be entirely

futile. Meanwhile, Chamberlain tried three times to

close the case, but because of the irregularities, the

case could not be closed.

 Chamberlain eventually filed an Application for Final

Compensation, requesting fees in the total amount of

$89,673.75, of which he had already received interim

compensation in the amount of $73,096.98. The 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 basis for some

of Kula’s allegations, and that due to Chamberlain’s

inability or failure to respond to Kula’s allegations,

some of the fees were excessive. Therefore, the court

disallowed some of the requested fees and ordered

Chamberlain to disgorge the excess interim fees paid.
11

In calculating the appropriate compensation in its

January 31, 1997 order, the court distinguished between

services provided before and after the filing of

Chamberlain’s First Final Report on August 8, 1990,

because by that date, the assets of the bankruptcy estate

had already been fully administered by Chamberlain. The

court noted that Chamberlain claimed he had worked some

498 hours between plan
12

confirmation and the final report and he had worked

386.28 hours after he filed his final report.

As to the charges billed for the period before the

final report, Chamberlain’s billings included commissions

of $28,523.71 and fees and expenses of $33,471.73, for a

total of $61,995.45. The bankruptcy court concluded that

this figure was unreasonable because it involved

duplicative charges in that it was not appropriate for

Chamberlain to be paid both a commission and an hourly

rate for services performed. A trustee, the court noted,

would not have been entitled to an hourly rate in

addition to the percentage fee, so the court disallowed

the commissions as duplicative. Without taking account

of the number of hours or the rate charged, the court

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,

Chamberlain sought $27,678.30 in fees, expenses, and

commissions, of which $11,101.53 had already been paid.

After again disallowing the commissions (in the amount of

$586.92) as duplicative, the court noted that most of the

services provided by Chamberlain after August 8, 1990

were related to the allegations made by Kula. Thus, the

court found they were of almost no measurable benefit to

the bankruptcy estate because they did not in any way

enhance the property of the bankruptcy estate and the
13

services did not lead to an orderly and timely closing of

the bankruptcy case. The court noted that the problems

in this regard could have been disposed of very easily

had Chamberlain taken an inventory of the estate assets

upon confirmation of the plan. The court referred to

Chamberlain’s failure to conduct the initial inventory as

“a significant omission” and noted that
14

because he failed to take the inventory, it was

difficult, if not impossible, for Chamberlain to meet

Kula’s allegations with any evidence. The court also

noted that because of this failure, it was necessary to

hire the third party examiner, Snyder, which cost the

estate some $17,000. Again, without making a lodestar

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 net result was that Chamberlain was allowed a

total of $46,450.11 in fees and expenses. Since he had

already been paid $ 73,096.98, he was required to

disgorge $26,646.87. Chamberlain appeals that order.

ARGUMENTS

Chamberlain raises five points on appeal which may

all be disposed in a discussion of his two primary

arguments, namely, (1) the court did not apply the proper

standard in determining the appropriate award of

compensation; and (2) Chamberlain was entitled to a

hearing so as to present live testimony on the disputed

factual issues. With one exception, we find no error in

the bankruptcy court’s factual findings or conclusions of

law; however, for the reasons that follow, we conclude

that the case must be reversed and remanded for either a
15

lodestar calculation or a finding that the lodestar

method is not appropriate under the circumstances.
16

STANDARD OF REVIEW

An appellate court reviews the bankruptcy court’s

findings of 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

review the bankruptcy court’s decisions regarding an

award of fees under an abuse of discretion standard.

Grunewaldt v. Mutual Life Ins. Co. (In re Coones Ranch,

Inc.), 7 F.3d 740, 744 (8th Cir. 1993). An abuse of

discretion occurs in this context “if the bankruptcy

judge fails to apply the proper legal standard or to

follow proper procedures in making the determination, or

bases an award upon findings of fact that are clearly

erroneous.” Agate Holdings, Inc. v. Ceresota Mill L.P.

(In re Ceresota Mill L.P.), 215 B.R. 315 (8th Cir. BAP,

August 15, 1997). To be clearly erroneous, after

reviewing the record, we must be left with the definite

and firm impression that a mistake has been committed.

In re Waugh, 95 F.3d 706, 711 (8th Cir. 1996). “Whether

the compensation sought is reasonable, given the time,

nature, extent of the services and the value of the

services is always a question of fact for the court.” In

re Jelinek, 153 B.R. 279, 284 (Bankr. D. N.D. 1993).

Furthermore, review is limited in deference to the

bankruptcy judge’s familiarity with the work performed by
 Although the parties appear to distinguish the clearly erroneous standard and 2

the abuse of discretion standard, the Supreme Court has held that they are

indistinguishable. See Cooter & Gell v. Hartmarx Corp., 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).2
 Hereafter, 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 total 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 not acting in the formal capacity as bankruptcy

trustee or examiner appointed under § 1104 of the

Bankruptcy Code, he and his attorney were professional

3

persons within the meaning of § 327 and their

compensation was to be determined under § 330 and Fed. R.

Bankr. P. 2016(a). The parties do not dispute this, and 4

although § 327(f) would now make questionable

Chamberlain’s appointment as liquidating agent after he

had already served as examiner in the case, we agree that

Chamberlain’s compensation, as well as that of his

attorney, is determinable under § 330 and Rule 2016(a).

Furthermore, although § 330 was modified in the 1994

Amendments to the Code, the bankruptcy court correctly

applied the previous version because the Amendments are

applicable only to those cases commenced on or after

October 22, 1994.

Section 330(a), as applicable to this case, allows

the court to award to a professional person:
19

(1) reasonable compensation for actual,

necessary services rendered . . . based on the

nature, extent, and the value of such services,

the time spent on such services, and the cost of

comparable services other than in a case under

this title; and 

(2) reimbursement for actual, necessary

expenses.
20

11 U.S.C. § 330(a). Section 330 applies to all

bankruptcy cases, including Chapter 11 cases. See In re

Reed, 890 F.2d 104, 105 (8th Cir. 1989) (finding no merit

to suggestion that a distinction be drawn between fee

applications in Chapter 7 and Chapter 11 cases); In re

Malewicki, 142 B.R. 353, 356 (Bankr. D. Neb. 1992).

Chamberlain bore the burden of proving he is entitled to

compensation. See In re Land, 138 B.R. 66, 70 (D. Neb.

1992). 

In calculating the appropriate compensation, the

Eighth Circuit announced in In re Apex Oil that “the

lodestar approach, including the possibility of

adjustments in rare and exceptional circumstances, is an

appropriate method to use in calculating reasonable

compensation under § 330.” P.A. Novelly v. Palans (In re

Apex Oil Co.), 960 F.2d 728, 731 (8th Cir. 1992). The

lodestar method is calculated as the number of hours

reasonably expended multiplied by a reasonable hourly

rate. Id. at 731.

As discussed more fully below, the bankruptcy court

in the case at bar referred to the lodestar method for

calculating professional fee awards, but it did not

expressly make a lodestar calculation in arriving at its

award. Although the language used by the Eighth Circuit

Court of Appeals in In re Apex Oil does not appear to

require an express lodestar calculation, it clearly
21

indicates that the lodestar method is the preferred

method for calculating fees. As a result, we conclude

that in making professional fee awards, bankruptcy courts

must either make an express lodestar calculation or make

a finding that the lodestar method is inappropriate under

the circumstances. 

The Supreme Court has made it clear that the lodestar

method of fee calculation is the preferred method by

which federal courts should determine reasonable

attorney’s
22

fees under federal statutes which provide for such fees.

See In re Boddy, 950 F.2d 334, 337 (6th Cir. 1991)

(citing Pennsylvania 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

calculate fees under Clear Air Act); Hensley v.

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

40, 76 L.Ed.2d 40 (1983) (lodestar method used to

calculate fees in civil rights action under 42 U.S.C. §

1988)). See also Pennsylvania v. Delaware Valley

Citizens’ Council for Clean Air, 478 U.S. 546, 106 S. Ct.

3088, 92 L.Ed.2d 439 (1986) (Delaware Valley I) (the

Supreme Court announcing that the lodestar method, with

the possibility of adjustments for factors not already

factored into the lodestar amount, is appropriate); City

of Burlington v. Dague, 505 U.S. 557, 112 S.Ct. 2638, 120

L.Ed.2d 449 (1992) (lodestar method appropriate under

Solid Waste Disposal Act). 

Similarly, the Eighth Circuit has held in other nonbankruptcy cases that where a statute provides for

“reasonable” attorney fees, as does this statute, the

lodestar method is the preferred method by which to

calculate the reasonable fees. See e.g., Pinkham v.

Camex, Inc., 84 F.3d 292, 294 (8th Cir. 1996) (holding

that the lodestar method is the appropriate method for

calculating “reasonable” attorney fees allowed under the

copyright statute); Newhouse v. McCormick & Co., 110 F.3d
23

635, 644 (8th Cir. 1997) (applying lodestar method under

the Age Discrimination in Employment Act fee shifting

statute); Kientzy v. McDonnell Douglas Corp., 990 F.2d

1051, 1063 (8th Cir. 1993) (applying lodestar method in

sex discrimination case).

Likewise, we believe that a lodestar calculation is

a necessary starting point for determining fee awards

under § 330. If there is no explanation as to how the

court
 Because the majority of work in most Chapter 13 cases is normal and

5

customary, and because of the sheer volume of such cases in most districts, the lodestar

calculation may not necessarily be 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 Paper 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 (Bankr. 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 applied 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 and

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 lodestar factors,

the award of the bankruptcy court becomes arbitrary and

unreviewable. See In re Boddy, 950 F.2d at 338 (citing In

re Evangeline Refining Co., 890 F.2d 1312, 1328 (5th Cir.

1989)). Thus, we find that unless such a calculation is

inappropriate under the circumstances, a bankruptcy court

must, at a minimum, specifically calculate the lodestar

amount when it determines the appropriate fee to be

awarded to a professional person under § 330. Accord In

re Boddy, 950 F.2d at 337-38 (the Sixth Circuit holding

that the bankruptcy court must expressly calculate the

lodestar amount when determining reasonable attorney

fees); In re Malewicki, 142 B.R. at 356. We would

comment, however, that some cases, particularly Chapter

13 cases, are not prone to a lodestar calculation. In

5
customary” debt-based formula, is more appropriate for determining the fee award.

In addition, many districts have local rules which provide that if the applicant’s

fee is under a certain amount, usually about $1,000, no itemized statement is necessary.

See e.g., Local Rule of Practice for the United States Bankruptcy Court for the Western

District of Missouri 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 sufficient and it is unnecessary to file

any itemized application).

25

such cases, a lodestar calculation is not required;

however, the
26

court should make a finding that such a calculation is

inappropriate under the circumstances.

As a result, unless such a calculation would be

inappropriate under the circumstances, the bankruptcy

court must make a finding as to whether the number of

hours billed were reasonable in light of the complexity

of the case, and then multiply that by a reasonable

hourly rate for those services. The party seeking an

award of fees should submit evidence supporting 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 40

(1983) (holding that the starting point in determining

the amount of reasonable fees under civil rights statutes

was a lodestar calculation which provides an objective

basis on which to make an initial estimate of the value

of a lawyer’s services). If the hours or the rate

requested by the professional is not reasonable under the

circumstances for the work performed, the bankruptcy

court should make such a finding.

Once the lodestar amount has been calculated, that

amount is presumed to be reasonable compensation under §

330. See In re Manoa Fin. Co., 853 F.2d 687, 691 (9th

Cir. 1988). However, using the lodestar amount as a

start, the Eighth Circuit has held that adjustments may

be made to that amount under certain circumstances.

Because the lodestar amount presumably reflects (1) the
27

novelty and complexity of the issues, (2) the special

skill and experience of counsel; (3) the quality of

representation, and (4) the results obtained, these

factors normally cannot serve as independent bases for

increasing the fee award above the lodestar amount. See

In re Apex Oil, 960 F.2d
28

at 731-32. Nevertheless, adjustments to the lodestar

amount may be made in rare and exceptional circumstances

based on the quality of the representation or the results

obtained. Id. at 732 (citing Pennsylvania v. Delaware

Valley Citizens’ Council for Clean Air, 478 U.S. 546,

565, 106 S.Ct. 3088, 3098, 92 L.Ed.2d 439 (1986)

(Delaware Valley I)). Such a finding by the bankruptcy

court must be supported by both specific evidence on the

record and detailed findings by the bankruptcy court.

Id. As the Eighth Circuit elaborated:

Because the lodestar amount may already

compensate the applicant for exceptionally good

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 the

results obtained were superior to what one

reasonably should expect in light of the hourly

rates charged and the number of hours expended.

See [Blum v. Stenson, 465 U.S. 886, 899, 104

S.Ct. 1541, 1549 (1984)]; Copeland v. Marshall,

641 F.2d 880, 893-94 (D.C. Cir. 1980) (“A

quality adjustment is appropriate only when the

representation is unusually good or bad, taking

into account the level of skill normally

expected of an attorney commanding the hourly

rate used to compute the ‘lodestar.’” (emphasis

in original). 

Id.

Beyond this, it is not clear as to what types of

factors the bankruptcy court can consider in determining
29

whether an adjustment to the lodestar amount is

appropriate. The Eighth Circuit in fact stated in In re

Apex Oil that it was not attempting to give a

comprehensive answer to the question as to what an

applicant must show to establish that rare and

exceptional circumstances exist to justify a fee

enhancement; rather, it merely answered the question as

to whether and when the quality of representation or
30

the results obtained can constitute a basis for fee

enhancement. Id. Many courts, including the bankruptcy

court in this case, have applied the standards set forth

in Johnson v. Georgia Highway Exp., Inc., 488 F.2d 714,

717-19 (5th Cir. 1974), to determine what constitutes

reasonable compensation under the circumstances. See In

re Malewicki, 142 B.R. at 355 (citing In re McCombs, 751

F.2d 286 (8th Cir. 1984), and Bess v. Bess, 929 F.2d

1332, 1335 n.6 (8th Cir. 1991)). The Johnson factors

include: (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 the 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 results obtained; (9) the experience, reputation, and

ability of the attorney; (10) the undesirability of the

case; (11) the nature and length of the professional

relationship with the client; and (12) awards in similar

cases. Id. 

Of course, as the Eighth Circuit said, several of

these factors have already been taken into account under

the lodestar calculation, so they should not form the

basis for an adjustment to that amount, unless it is

shown by specific evidence that they are not fully

reflected in the lodestar. See also Delaware Valley I,
31

478 U.S. at 564-65, 106 S.Ct. at 3098 (repeating its

conclusion that the Johnson factors are, for the most

part, already 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. 

In any event, we find that the Johnson factors may be

considered in adjustments to the lodestar amount to the

extent that they are not already factored into that

amount. 
 Although not normally relevant in bankruptcy cases in terms of payment of

6

professionals, it should be noted that the Supreme Court has further elaborated on its

line 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 the

lodestar calculation. City of Burlington v. Dague, 505 U.S. 557, 112 S.Ct. 2638, 120

L.Ed.2d 449 (1992). The 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 to

whether the lodestar amount adequately reflected the difficulty of establishing the

merits of the case. See 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

prohibiting a fee enhancement beyond the lodestar amount on the basis of a

contingency arrangement). 

32

It should be remembered, however, that the lodestar

amount is presumed to be reasonable, and that adjustments

should be made only in rare and exceptional circumstances

as defined 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 courts

should award fees commensurate with fees allowed in other

areas of practice, thus providing counsel economic

incentive to provide services in bankruptcy cases. In re

McCombs, 751 F.2d 286, 288 (8th Cir. 1984); In re

Malewicki, 142 B.R. at 357. On the other hand, the

Eighth Circuit has further held that a bankruptcy court

need not find that an enhancement is necessary to make

the award commensurate with compensation for comparable,

non-bankruptcy services before it can enhance the
33

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

Rather than requiring such a finding, § 330 provides that

“the cost of comparable services” in non-bankruptcy 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 bankruptcy court

makes a specific finding that the lodestar method is not

appropriate under the circumstances, the bankruptcy

court must start with the lodestar calculation as

described above. The bankruptcy court may then make

adjustments to the lodestar amount, in rare and

exceptional circumstances, to reflect that the quality of

service rendered and the results obtained were superior

or inferior to what one reasonably should expect in light

of the hourly rates charged and the number of hours

expended. Certain other factors, such as the Johnson

factors and the cost of comparable services in nonbankruptcy cases, may also be considered to the extent

they are not already factored into the lodestar

calculation. The bankruptcy court’s decisions must be

supported by evidence and the bankruptcy court should

issue findings and conclusions which will allow a

reviewing court to determine whether the amount awarded

was reasonable under the guidelines.

Applying these principles to the case at bar, we

conclude, for the reasons that follow, that the case must

be remanded to the bankruptcy court for further findings.

A. Calculation of Fees for the Period Before August 8,

1990
35

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

commissions of $28,523.72 and fees and expenses of

$33,471.73, was unreasonable compensation -- not because

the hours worked were misstated or the hourly rate was

too high -- but because it involved duplicative charges

to the bankruptcy estate.” Noting that if Chamberlain

had been appointed as trustee under § 1104, he would have
36

been entitled to a percentage fee and no hourly fees, the

court then disallowed the commissions as duplicative and

found that the remaining amount (representing fees and

expenses), or $33,471.73, was “within the range of

customary fees for a case of this size and complexity.”

In arriving at its conclusion, the bankruptcy court

did not make a lodestar calculation and the Order is

silent as to how the bankruptcy court arrived at the

conclusion that $33,471.73 was within the customary

range. “If we conclude that the bankruptcy court’s

findings are silent or ambiguous as to an outcome

determinative factual question, we may not make our own

findings but must remand the case to the bankruptcy court

for the necessary factual determination.” In re Apex Oil

Co. 960 F.2d at 731 (quoting Wegner v. Grunewaldt, 821

F.2d 1317, 1320 (8th Cir. 1987)). Thus, because the

Order is ambiguous as to how the bankruptcy court arrived

at the conclusion that $33,471.73 was reasonable

compensation, and particularly because the bankruptcy

court did not perform a lodestar calculation, we must

remand this case for those factual findings. 

Moreover, Chamberlain also asserts the separate

charges are not in fact duplicative because the

commissions represent his work in selling the property,

whereas the hourly rate (fees) and expenses represent

management and administration of assets. He maintains
37

the hourly fees do not include any hours for selling

property, and thus, they are separate. He further

asserts he routinely charges a different rate for his

recoveries and sales than he does for his management and

administration of assets, and that he produced evidence

that the Nebraska courts routinely grant him both types

of compensation because they are separate and are not

duplicative. 
38

We have reviewed the detailed billing statements

supporting the hourly fee request which were included in

the record and we would comment that we found several

entries which appear to be related to the sale of

property. Thus, at first blush, it does not appear that

the bankruptcy court was clearly erroneous in its factual

finding that the charges were duplicative. However,

because the bankruptcy court did not do a lodestar

calculation, it did not make a finding as to the

appropriate number of hours which would normally be spent

on the various services performed by Chamberlain in a

case similar to this one. Consequently, upon remand, the

bankruptcy court is directed to make a finding, based on

evidence, as to the appropriate number of hours and the

reasonable hourly fee for the services Chamberlain

performed prior to August 8, 1990. We would further

comment that under a lodestar approach, unless the

bankruptcy court made a determination that commissions

would be particularly appropriate under the

circumstances, such a form of separate compensation for

sales would not be appropriate. Instead, an hourly rate

should be assigned to those services. Whether the hourly

rate for those services should be the same as for

managerial and administrative services is a question of

fact for the bankruptcy court and the applicant should

present evidence on those factual issues. 
39

In any event, the case must be remanded so that the

bankruptcy court can do a specific lodestar calculation,

determining what would be a reasonable number of hours

spent performing all the work done by Chamberlain prior

to August 8, 1990, and multiplying that by the 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 after

August 8, 1990, the bankruptcy court focused primarily on

the fact that because Chamberlain failed to promptly

inventory the assets, many of the hours spent after

August 8, 1990, were unnecessary and did not benefit the

estate and that that factor “weigh[ed] heavily against

the allowance of the very substantial fees and

reimbursement of expenses requested by the applicants.”

 By submitting the First Final Report on August 8, 1990,

Chamberlain was claiming the estate had basically been

fully administered at that time. The bankruptcy court

thus noted that a significant amount of the post-August

8, 1990 billings were attributable to responding to

Kula’s allegations. Essentially, the court concluded

that much of this effort would have been avoided if

Chamberlain had properly inventoried the estate assets

when the plan was confirmed rather than waiting several

months to do so. Additionally, Chamberlain himself had

authorized people to remove many items during that

interim period 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 the

case, found that this was a “significant omission” and

that it was “clear that the problems in this case, and
41

the problems of proof and accountability for the property

of the estate could have been disposed of in a much more

orderly fashion had Chamberlain taken an inventory of the

assets of the bankruptcy estate upon confirmation of the

plan.” The court also noted that because of this

omission, Chamberlain had no evidence and that such lack

of evidence made it “difficult, or almost impossible, for

Chamberlain to meet the allegations of Kula.” 
42

The court said that the debtor tried on several occasions

to get Chamberlain to respond to allegations, but that

Chamberlain either would not or could not respond.

Additionally, the court found that because of this

omission and the fact that Chamberlain could not meet

Kula’s allegations, and because Chamberlain failed to

look into the matters with any detail, the court was

compelled to hire an independent third party to find out

what had happened, and that this cost the estate $17,000

to pay the investigator. The court thus concluded that

many of the hours billed by Chamberlain for those

services were of no benefit to the estate and were

therefore excessive.

Chamberlain claims that in arriving at its

conclusion, the bankruptcy court improperly applied the

lodestar method and the Johnson factors, particularly

asserting that the bankruptcy court placed too much

emphasis on the “benefit to the estate.” Chamberlain

asserts, “Nowhere in Johnson or its progeny is it stated

that ‘benefit of the estate’ is to be the sole measuring

stick for professional fees. Yet, this appears to be the

only factor the bankruptcy court used in this case to

approve fees.” 

Chamberlain’s argument is flawed in two respects.

First, while it is true that “benefit to the estate” is

not to be the sole measuring stick for professional fees,

the Eighth Circuit has held, even after its decision in
43

Apex Oil, that “an attorney fee application in bankruptcy

will be denied to the extent the services rendered were

for the benefit of the debtor and did not benefit the

estate.” Keate v. Miller (In re Kohl), 95 F.3d 713, 714

(8th Cir. 1996) (quoting In re Reed, 890 F.2d 104, 106

(8th Cir. 1989) (adopting the “better rule” which

requires a benefit to the estate)). “This rule is based

upon the legislative history of Bankruptcy Code section

330(a) and the unfairness of allowing the debtor to

deplete the estate by pursuing its interests to the

detriment of creditors.” Id. (quoting In re Hanson, 172

B.R. 67, 74 (9th Cir. BAP 1994)). In fact, “results

obtained” (which is akin to “benefit to the estate”) is

a factor considered under both the lodestar calculation

and in considering an adjustment to the lodestar amount

where the lodestar amount does not accurately reflect the

results obtained. In re Apex Oil, 960 F.2d at 731-32.

Thus, while Chamberlain is correct that it should not be

the sole factor considered, results obtained or “benefit

to the estate” is a factor which may be considered by the

bankruptcy court in calculating the appropriate

compensation to be awarded.

Second, while Chamberlain correctly asserts that a

trustee should be compensated for activities which are

necessary but do not necessarily “benefit” the estate in

terms of recovery or administration, he is incorrect that

the bankruptcy court failed to award him fees for
44

services which were necessary but not “beneficial.” In

fact, the court specifically said that Chamberlain was

entitled to compensation for a significant portion of the

work performed after August 8, 1990, when the

administration was complete, even though there was no

“benefit” to the estate in terms of recovery. The court

said, referring to the period after August 8, 1990:

A great deal of Chamberlain’s services during

this period of time were not of benefit to the

bankruptcy estate. However, he did, in fact,

perform some services during this period of time

which were reasonable and necessary and of

benefit to the bankruptcy estate . . . . The

results obtained by Chamberlain by virtue of his

services were of no particular benefit to the

estate. However, as I stated, it was necessary

for him to engage in some of these activities

even though no benefit was expected to be

obtained. This case really did not present any

difficult questions over the period of time

after the filing of the First Final Report. If

Chamberlain had made an inventory of the

property in Kula’s residence
45

 prior to disposing of it, the fees for

litigating matters concerning the First Final

Report would be much, much, lower than is

requested in the case.

(Emphasis added.) 

As this passage indicates, the bankruptcy court

clearly recognized that Chamberlain should be compensated

for services he performed which were necessary but were

not “beneficial” to the estate. It simply concluded that

the hours billed by Chamberlain were excessive in light

of the services performed. We find no clear error in the

bankruptcy court’s conclusion that “reasonable

compensation” for the services performed by Chamberlain

after August 8, 1990, should not include all the hours

expended in responding to Kula’s allegations. Further,

we see no abuse of discretion in the conclusion that

those excess hours were due to Chamberlain’s own failure

to promptly inventory the assets. A court should exclude

from the initial lodestar calculation hours that 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 because

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 respond

because he made the “omission” in the first place.
46

On the other hand, in arriving at its award of

“reasonable compensation” for this period, the bankruptcy

court simply reduced the fees for the period after August

8, 1990, 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, the

figure of $10,000 appears arbitrary and is unreviewable.

In accordance with the above discussion, therefore, upon

remand, the bankruptcy court is directed to perform a

specific lodestar calculation for the services
47

 it deems necessary for the period after August 8, 1990.

As described above, the “benefit to the estate” analysis

performed by the bankruptcy court in arriving at the

$10,000 figure can be factored into the lodestar

calculation.

II. Due Process - Entitlement to an Evidentiary Trial

Chamberlain’s second point is that the bankruptcy

court denied him procedural due process by failing to

allow live testimony during hearings on his fee

application. Citing general due process authority, the

crux of Chamberlain’s argument is that the debtor had

accused him of certain omissions or mishandlings in his

duties as liquidator, that the court based its fee

reduction on those allegations, and that he should have

had a more adequate opportunity to rebut those

allegations.

Section 330(a) provides that the court may award fees

to a professional “after notice . . . and a hearing.”

Section 102(1) provides that this phrase means “such

opportunity for a hearing as is appropriate in the

particular circumstances.” As Chamberlain asserts, “if

the bankruptcy court plans to disallow certain items of

compensation, § 330(a) on its face first contemplates 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 “goodfaith applicant,” the Code, see §§ 329(b),

330(a); see also Rule 2017(b) -- and perhaps

even the dictates of due process, see U.S.

CONST., amend V -- mandates that the court allow

the fee applicant an opportunity, should it be

requested, to present evidence or argument that

the fee application meets the prerequisites for

compensation; canons of fairness militate

against forfeiture of the requested fees simply

because the court’s audit of the application

uncovers some ambiguity or objection. By goodfaith applicant we mean
49

to refer to a fee applicant who reasonably and

in good faith attempts to comply with the

applicable rules governing the format and

substance of fee applications.

Id. at 846. The court in Busy Beaver cited several cases

which have held that an evidentiary hearing must be held

if there are disputed issues of fact. Id. at 846, n. 16.

Thus, there is no question that Chamberlain was entitled

to an evidentiary hearing on his fee application. The

question is, to what type of hearing was he entitled?

The Busy Beaver court said:

At the hearing, held after notice of the court’s

concerns and/or objections, the court should

allow the applicant a reasonable opportunity to

present legal arguments and/or evidence, as the

case may be, to clarify or supplement the

petition and accompanying affidavit. Of course,

the anatomy of the hearing lies within the sound

discretion of the bankruptcy judge, and would

not necessarily require the presentation of oral

testimony. For example, the type of hearing

which “is appropriate in the particular

circumstances” might simply be an oral hearing

(whether in court or more informally, as by

teleconference) at which the applicant submits

argument based upon the papers. The essential

point 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 disallows

some of the requested compensation, it should enter
50

sufficient findings of fact and conclusions of law in the

record to facilitate appellate review. Id. at 847.

The First Circuit has also addressed this issue. In

In re Spillane, 884 F.2d 642 (1st Cir. 1989), the

applicant asserted that her right to cross examine the

trustee’s attorney was absolute and its denial was a per

se abuse of discretion. The First Circuit
51

disagreed. It said that while § 330(a) clearly requires

a hearing, the statute says little about the content of

that hearing. Citing § 102(1)(A), the Court concluded

that the hearing provided in that case was adequate,

despite the fact that the applicant was not allowed to

cross examine the other side. Id. at 646. The Court

noted that the appellant did not offer to prove anything

not apparent from the existing evidence and that cross

examination 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 an

opportunity to present live testimonial evidence is based

primarily on his assertion that he should be allowed to

present evidence regarding the missing property and his

decision not to pursue that property after that issue was

raised. We find that Chamberlain’s argument fails,

primarily because Chamberlain is mistaken in the premise

that the bankruptcy court reduced the fees because the

property was missing or because it disagreed with

Chamberlain’s decision not to pursue it. Rather, the

bankruptcy court reduced the fees because Chamberlain

wasted so much time trying to determine whether there was

any truth to the allegations that it was missing. This

was caused by the simple failure to promptly conduct the

inventory. In other words, the bankruptcy court

concluded that if Chamberlain had conducted the inventory
52

in the first place, he could have either verified or

refuted Kula’s allegations from the first time they were

raised and then most of the efforts required to make up

for that omission would not have been necessary.

Likewise, Chamberlain’s decision not to pursue the

missing property was irrelevant as to the fee award. The

court did not reduce Chamberlain’s fees because it

thought he should have pursued the property rather than

abandoning it. Again, the point was that
53

Chamberlain could not respond to the allegations, not

that there was any provable merit to them or that

Chamberlain could recover the property to benefit the

estate.

Consequently, because the issues regarding the

whereabouts, value, and recoverability of the missing

property were irrelevant to the issue of Chamberlain’s

fees, it certainly 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) whether it was customary or appropriate for him to

wait to conduct the inventory until some five months

after he was appointed; (2) whether it was appropriate

for him to allow the property to be removed by third

persons before he had conducted an inventory and while

Kula was in the hospital; (3) whether the failure to

promptly inventory resulted in excessive fees; and (4)

the reasonable number of hours and the reasonable rate

that should have been charged in a similar case. If the

failure to inventory caused excessive hours to be

expended, they should not be included in the lodestar

calculations.

In light of the foregoing discussion, on remand, the

bankruptcy court is directed to make a lodestar

calculation as described above and to issue findings to

support that calculation. If further evidence is
54

necessary to support the findings, the bankruptcy court

should allow Chamberlain the opportunity to present

appropriate evidence as to those issues. 
55

CONCLUSION

Accordingly, we REVERSE and REMAND to the bankruptcy

court which shall make a lodestar calculation in

accordance with this opinion. In all other respects, the

decision of the bankruptcy court is affirmed.

A true copy.

Attest:

CLERK, U.S. BANKRUPTCY APPELLATE PANEL FOR

THE EIGHTH CIRCUIT