Opinion ID: 480745
Heading Depth: 1
Heading Rank: 3

Heading: Application of the Johnson Factors to the Lodestar

Text: 24 The bankruptcy court applied the twelve Johnson factors to the circumstances of this case. In re Lawler, 47 B.R. at 680-82. Lawler raises several objections to the court's analysis of the Johnson factors and its subsequent enhancement of the lodestar. Only one of these claims, arising under the sixth factor, fee contingency, is worthy of detailed consideration. The court determined that [t]he fee for the applicants in this case was substantially contingent and used this finding to increase the lodestar by a 2.3 factor. 47 B.R. at 679. Lawler contends that the bankruptcy court abused its discretion by finding that the case was substantially contingent when, in fact, a risk of nonpayment existed only for a limited period of time. The record shows that there is validity to this contention. 25 Horton and Teofan strongly urge the correctness of the bankruptcy court's finding as to the contingent nature of their representation. Horton testified at the fee hearing that he would not have taken the original case on any other basis. There is, however, no written agreement between Horton and Teofan and any of the other parties which could function as a contractual contingency fee arrangement. In fact, when Horton and Teofan were representing the Bank and the other petitioning creditors at the outset of this case, they had an agreement with the Bank that it would pay for all their fees and expenses and that it would seek repayment only in the event Horton and Teofan were compensated by the estate. 26 There is no doubt that Horton and Teofan's representation of the receiver and the trustee began as truly contingent. The risk of nonpayment disappeared, however, after the alter ego issue was decided in June of 1979. Their efforts transformed the estate from one with virtually no assets to one with 29 million dollars in assets. But as a result of this admittedly outstanding victory their work was no longer contingent. 27 The time records submitted by Horton and Teofan reveal that the hours spent working on a contingency basis before the contingency ended accounted for only forty-three percent of the total time expended on the Lawler bankruptcy. 4 There is no question that the attorneys are entitled to a strong application of the contingency factor for their outstanding work in resolving the contingency. But once it was resolved, its further use as a factor in the fee was not justified. Thus, the contingency factor should not be applied to the entire period of representation by counsel when a substantial portion of the legal services were provided on a noncontingent basis. Cf. Flowers v. Wiley, 675 F.2d 704, 707 (5th Cir.1982) (an award of attorneys' fees will not be enhanced by a contingency factor for that portion of the award which relates to hours spent determining attorneys' fees); Tasby v. Wright, 550 F.Supp. 262, 272 (N.D.Tex.1982). The bankruptcy court, therefore, abused its discretion by concluding that the entire fee was substantially contingent and by applying the contingency factor to all of the work of the attorneys. In the light of this error, this Court is obligated to reduce the attorneys' fees awarded to Horton and Teofan to an amount that corrects the excessive application of the Johnson contingency factor. 28 At the hearing on Horton's and Teofan's application for the final award of attorneys' fees, three witnesses testified as to the reasonableness of the proposed award. David Kline, a former bankruptcy judge in Oklahoma City and past president of the National Conference of Bankruptcy Judges, testified that the requested fee of $4 million was reasonable and sustainable. 47 B.R. at 676. Kline also stated, however, that he personally would probably not award a fee in that amount. The court's own expert witnesses, John Blinn, a former bankruptcy judge in the Northern District of Texas, and Rufus Garrett, a bankruptcy practioner with over thirty years of experience in Fort Worth, independently arrived at the figure of 1.4 million dollars as an appropriate total fee for Horton and Teofan. 29 All of the experts agreed that this was an unusual case, with novel legal questions presented and with exceptional results obtained for creditors. Id. We acknowledge the accuracy of this statement, and Horton and Teofan are properly commended for outstanding professional accomplishment in this case. They are well entitled under the application of the Johnson factors to an award significantly above the lodestar. Upon consideration of the expert testimony given at the fee application hearing and our own evaluation of the extent of applicable contingency, we determine that 1.4 million dollars is the reasonable and appropriate amount of attorneys' fees to which Horton and Teofan are entitled. With the exception of the contingency factor, we otherwise agree with the bankruptcy court's evaluation of the Johnson factors and do not consider them in detail. 30 A total award of 1.4 million dollars increases the lodestar by a factor of approximately 1.7. An increase over the lodestar in this amount acknowledges the exceptional work done by Horton and Teofan, including additional compensation for the period of contingency, while still remaining within the lower spectrum of reasonableness as required by the Bankruptcy Act of 1898. We conclude that the cross-appeal of Horton and Teofan must be denied, since the bankruptcy court did not abuse its discretion by awarding a fee that was inadequate.