Source: https://law.justia.com/cases/federal/appellate-courts/F2/718/1465/417210/
Timestamp: 2019-08-22 11:50:19
Document Index: 30708184

Matched Legal Cases: ['§ 330', '§ 330', '§ 1293', '§ 331', '§ 1293', '§ 330', '§ 503', '§ 502', '§ 502', '§ 330', '§ 329', '§ 330', '§ 329']

9 Collier Bankr.cas.2d 699, Bankr. L. Rep. P 69,435in Re Alexis M. Yermakov, Dba, Westerly Stud Farms, Debtor.alexis M. Yermakov, Dba, Westerly Stud Farms, Appellant, v. Edward R. Fitzsimmons and Richard P. Weldon, Appellees, 718 F.2d 1465 (9th Cir. 1983) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Ninth Circuit › 1983 › 9 Collier Bankr.cas.2d 699, Bankr. L. Rep. P 69,435in Re Alexis M. Yermakov, Dba, Westerly Stud Farm...
9 Collier Bankr.cas.2d 699, Bankr. L. Rep. P 69,435in Re Alexis M. Yermakov, Dba, Westerly Stud Farms, Debtor.alexis M. Yermakov, Dba, Westerly Stud Farms, Appellant, v. Edward R. Fitzsimmons and Richard P. Weldon, Appellees, 718 F.2d 1465 (9th Cir. 1983)
U.S. Court of Appeals for the Ninth Circuit - 718 F.2d 1465 (9th Cir. 1983)
Argued and Submitted Nov. 2, 1982. Withdrawn from SubmissionJune 21, 1983. Resubmitted Oct. 25, 1983. Decided Oct. 25, 1983.
This is an appeal from a decision of the Bankruptcy Appellate Panel that reversed the bankruptcy court's interpretation of the proper basis for computing the compensation to be awarded under 11 U.S.C. § 330 to a debtor's attorney. The Panel ruled that Fitzsimmons, formerly attorney for the Yermakovs, who are debtors in a bankruptcy proceeding, could recover under section 330 the fee provided in a contingency fee contract entered with the Yermakovs three years prior to commencement of the bankruptcy proceeding. We withdrew the case from submission to allow additional briefing concerning the question whether we might lack jurisdiction over the appeal because the bankruptcy court's order was interlocutory.
After the Yermakovs and their creditors reached the settlement, Fitzsimmons on behalf of himself and his partner Weldon applied to the bankruptcy court for compensation pursuant to 11 U.S.C. § 330(a) (1). Fitzsimmons contended that he and his partner are entitled to receive 35% of the "enhancement" in the Yermakovs' financial position over their position on September 26, 1978. The position presently adopted by Fitzsimmons is that he is entitled to receive, at a minimum, record title to 35% of the 210 acre parcel and $647,600 in cash.3 The bankruptcy court, however, ruled that Fitzsimmons and Weldon may not enforce the contingency fee agreement in an application for a fee under section 330(a) (1), which authorizes only "reasonable compensation for actual, necessary services rendered" by a debtor's attorney. The court further found as a fact that the successful settlement primarily resulted from the efforts of the trustee in Yermakov's bankruptcy, as well as the trustee's attorney, and not from those of Fitzsimmons. The court stated that of the 1,877 hours of time billed by Fitzsimmons and Weldon, some were excessive and not required. Without stating any basis for computing an appropriate fee based on a reasonable hourly rate, the court awarded Fitzsimmons and Weldon total compensation, in addition to reimbursement for expenses, of $110,000.4 The bankruptcy court did not and has not entered a final order terminating the bankruptcy proceeding. Instead, the case has been held in abeyance, apparently awaiting the disposition of the present appeal.
We must determine at the outset whether we have jurisdiction to entertain the appeal from the Bankruptcy Appellate Panel's decision. In re Rubin, 693 F.2d 73, 76 (9th Cir. 1982), held that while an interlocutory order of a bankruptcy court may, by leave of the panel, be appealed to the Bankruptcy Appellate Panel, the BAP decision remains interlocutory and cannot be the subject of a direct appeal to this court. In re Rubin does not question that a "final" order of the bankruptcy court may be appealed to the Bankruptcy Appellate Panel, and then to this court pursuant to 28 U.S.C. § 1293(b). Id. at 75. Our jurisdiction in this case thus depends on whether the bankruptcy court order appealed is final or interlocutory.
The Tenth Circuit has ruled that an interim allowance of attorneys fees awarded pursuant to 11 U.S.C. § 331 is interlocutory in nature and cannot be appealed directly to the circuit court. In re Callister, 673 F.2d 305, 307 (10th Cir. 1982). We are inclined to agree with the reasoning of that decision. All parties to this case have argued, however, that the order awarding compensation to appellees was not an interim allowance, but rather a final determination of the payment to be distributed to them from the estate. The parties take the position that the bankruptcy court order is therefore final as to Fitzsimmons and Weldon, and may be appealed to this court.
Portions of the bankruptcy court's comments upon entering the order suggested that the award given might be supplemented by subsequent orders. The court stated that " [t]he allowances made now include work performed and time spent up to the time of the hearing on the applications. Any time spent and work performed after that will be the subject of separate applications." If the bankruptcy court meant that Fitzsimmons could apply for more compensation at a later time, the fee award could only be viewed as an interim order entered pursuant to section 331, and would not be appealable to this court. The parties, however, assure us that Fitzsimmons and Weldon were discharged from further representation of the Yermakovs prior to entry of the bankruptcy court's fee order. They maintain that the appellees will not be permitted to file any further fee applications.
Our review of the record satisfies us that the parties are correct, and that the bankruptcy court's comments quoted above did not leave open any possibility that Fitzsimmons and Weldon could be granted additional fee requests.5 See In re Pacific Far East Line, Inc., 654 F.2d 664, 666 n. 2 (9th Cir. 1981). Thus, the bankruptcy court order conclusively determined the entire section 330 compensation to be paid the appellees. From this premise it follows that the court's order, entered in the peculiar context of a bankruptcy proceeding, conclusively determined a separable dispute in the case, and constitutes a "final judgment, order, or decree" appealable under 28 U.S.C. § 1293(b). See In re Saco Local Development Corp., 711 F.2d 441, 445-46 (1st Cir. 1983).
To recover under the contingency fee contract, the appellees filed for compensation under 11 U.S.C. § 330(a) (1), which permits a fee award only for "reasonable compensation for actual, necessary services rendered by" an attorney.6 The appellees ignore the purpose and effect of that provision. Section 3307 is designed to secure for the estate the services of competent professional persons, including a trustee, an attorney for the trustee, accountants, appraisers, and others who may be needed in order best to operate, reorganize, or liquidate the estate. See S.Rep. No. 989, 95th Cong., 2d Sess. 40-41 (1978), reprinted in 1978 U.S. Code Cong. & Ad.News 5787, 5826-27; H.Rep. No. 595, 95th Cong., 2d Sess. 329-30 (1978), reprinted in 1978 U.S.Code Cong. & Ad.News 5963, 6286-87. The debtor's attorney is included among the professionals compensated under section 330 on the theory that his services, while not performed for the direct benefit of the estate, may be helpful to the bankruptcy process because they facilitate orderly administration of the estate. 2 Collier on Bankruptcy p 330.04 (1983 ed.). Because "economy in administration is the basic objective," S.Rep. 989, 95th Cong., 2d Sess. 40 (1978), reprinted in 1978 U.S.Code Cong. & Ad.News 5787, 5826, Section 330 limits the compensation payable to the debtor's attorney as well as other professionals to a reasonable amount for "actual" services that are "necessary" in connection with the bankruptcy process.
The contingent nature of the appellees' claim itself belies any contention that the amount appellees seek is reasonable compensation for actual or necessary services. Appellees in effect argue that no matter what the nature or extent of the services they performed, they are entitled to receive the share of the "enhancement" of the debtor's position that the Yermakovs agreed to in 1978. By accepting appellees' position, we would accord an administrative expense priority to an obligation incurred by the debtor long before the filing of bankruptcy. See 11 U.S.C. §§ 503(b) (2), 507(a) (1) (Supp. V 1981). Such a result would flatly contradict the policy reason for granting administrative expense priorities, which is that the estate as a whole is benefitted if general creditors subordinate their pre-bankruptcy claims in order to secure goods and services necessary to an orderly and economical administration of the estate after the petition is filed. See In re Cochise College Park, 703 F.2d 1339, 1355-56 (9th Cir. 1983). We cannot sanction the decision of the Bankruptcy Appellate Panel that would have produced this anomalous effect.
We agree with the Bankruptcy Appellate Panel that nothing inherent in a contingency fee agreement between a debtor and his attorney prevents it from being enforceable in bankruptcy.8 Because a pre-bankruptcy contractual obligation of a debtor to an attorney is like any other contract claim against the estate, the attorney can assert the claim in bankruptcy. See 11 U.S.C. § 502(a) (Supp. V 1981). The claim must be disallowed, however, to the extent that it exceeds the reasonable value of services rendered by the attorney. 11 U.S.C. § 502(b) (5) (Supp. V 1981).
In this case, it is questionable whether the claim asserted by the appellees represents the reasonable value of the services they rendered. From our review of the record, it appears likely that the Yermakovs' return to financial health was occasioned primarily by a sharp increase in the value of property they owned, and only tangentially by the efforts of Fitzsimmons and Weldon. As the bankruptcy court noted, an earlier filing for bankruptcy by Yermakov would probably have achieved a better result sooner at less cost. We do not decide whether a contingency fee contract can be or is in this case a measure of the "reasonable value" of the services of the debtor's attorney under section 502(b) (5). No aspect of either decision below addresses that issue; the issue is not before us. The record does not show that Fitzsimmons and Weldon ever filed a proof of claim covering the contingency fee contract. Unless properly proved, the claim may not be allowed. Perry v. Certificate Holders of Thrift Savings, 320 F.2d 584, 589 (9th Cir. 1963). Should the appellees submit a proof of claim, the bankruptcy court in the first instance will determine whether and to what extent it can be allowed.
The bankruptcy court, although it discussed the question of enforceability of the fee contract at length, made only a brief statement concerning the fee actually awarded. It commented that " [t]he time summary contained in the Supplement to Application for Fee as Attorneys for Debtor is of little help. The times are stated as approximations. Some are excessive or not required. The total is approximately 1,877 hours." Without further elaboration, the court awarded an overall fee of $110,000.
The primary method used to determine a reasonable attorney fee in a bankruptcy case is to multiply the number of hours expended by an hourly rate. Southwestern Media, Inc. v. Rau, 708 F.2d 419, 427 (9th Cir. 1983). Under the present Bankruptcy Code, the hourly rate must be based on the rate that would be charged for comparable services in a non-bankruptcy case. 11 U.S.C. § 330(a) (1); see H.R.Rep. No. 595, 95th Cong., 1st Sess. 330-31 (1977), reprinted in 1978 U.S.Code Cong. & Ad.News 5963, 6286. Factors appropriate to the determination of a comparable rate in this case would include (1) the rate normally charged by Fitzsimmons and Weldon in comparable non-bankruptcy cases where an hourly fee basis is used; (2) the prevailing rate for such work in the area during the period in question; and (3) the number of hours of work claimed, if any, that were actually performed by persons whose services are generally billed at a lower rate. Southwestern Media, 708 F.2d at 428; see Johnson v. Georgia Highway Express, Inc., 488 F.2d 714, 717-19 (5th Cir. 1974) (listing numerous factors to be considered in awarding attorneys' fees).
We also remand for another reason. The bankruptcy court, in making its fee determination, may not have been aware that the appellees are not entitled to compensation under section 330 for all services they may have rendered the Yermakovs in the past. A proper construction of the bankruptcy fee statute allows compensation under the administrative expense provision of section 330 for only those "actual, necessary services" rendered by the debtor's attorney "in contemplation of and in connection with" the bankruptcy case. See 11 U.S.C. §§ 329(a), 330(a) (1). Reasonable fees charged for services rendered for other purposes may also be compensated, but only as general claims against the estate, and not as compensation under section 330. The bankruptcy court should take further testimony, if necessary, and determine the number of hours spent by the appellees that can properly be compensated pursuant to section 330. It should then multiply those hours by an hourly rate calculated in accordance with the principles set forth in this opinion to arrive at the amount to be awarded Fitzsimmons and Weldon as "reasonable compensation for actual, necessary services rendered" by them as the debtor's attorneys in the bankruptcy proceeding.
However, the property description in this second deed of trust omitted a 210 acre parcel on which the debtor's residence, a breeding facility, and other improvements were located. 21 B.R. 6, 7 (Bkrtcy.App. 9th Cir. 1982)
11 U.S.C. § 330 (Supp. V 1981) provides that:
Section 329 of the Bankruptcy Code does, however, require the bankruptcy court to scrutinize any contract made between the debtor and his attorney within one year of the date of bankruptcy filing. If the compensation exceeds the reasonable value of services rendered or to be rendered by the attorney in contemplation of a connection with the bankruptcy case, the court may cancel the agreement. 11 U.S.C. § 329 (Supp. V 1981). This provision is intended to protect against both attempts to withhold assets from the estate and the "serious potential for overreaching by the debtor's attorney." S.Rep. No. 989, 95th Cong., 2d Sess. 39, reprinted in 1978 U.S.Code Cong. & Ad.News 5787, 5825