Court Opinion

ID: 2757143
Source: CourtListenerOpinion
Date Created: 2014-12-03 19:08:35.111702+00
Date Added: 2024-06-11T11:24:58.526100
License: Public Domain

FILED
                                                          MAR 05 2012
 1
                                                       SUSAN M SPRAUL, CLERK
                                                         U.S. BKCY. APP. PANEL
 2                                                       OF THE NINTH CIRCUIT

 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5   In re:                        )      BAP No.    AZ-11-1401-PaDJu
                                   )
 6   IMG TRANSPORT, L.L.C.,        )      Bk. No.    09-28626
                                   )
 7                  Debtor.        )
     ______________________________)
 8                                 )
     IMG TRANSPORT, L.L.C.,        )
 9                                 )
                    Appellant,     )
10                                 )
     v.                            )      M E M O R A N D U M1
11                                 )
     LAWRENCE J. WARFIELD, Chapter )
12   7 Trustee,                    )
                                   )
13                  Appellee.      )
     ______________________________)
14
                Argued and Submitted on February 24, 2012
15                          at Phoenix, Arizona
16                           Filed - March 5, 2012
17            Appeal from the United States Bankruptcy Court
                        for the District of Arizona
18
       Honorable James M. Marlar, Chief Bankruptcy Judge, Presiding
19
20   Appearances:     Scott D. Gibson appeared for appellant IMG
                      Transport, L.L.C.; Terry A. Dake appeared for
21                    appellee Lawrence J. Warfield, Chapter 7 Trustee.
22
     Before: PAPPAS, DUNN and JURY, Bankruptcy Judges.
23
24
25
26        1
            This disposition is not appropriate for publication.
27   Although it may be cited for whatever persuasive value it may
     have (see Fed. R. App. P. 32.1), it has no precedential value.
28   See 9th Cir. BAP Rule 8013-1.
 1        Gibson, Nakamura & Green (“GNG”), the law firm that
 2   represents chapter 72 debtor IMG Transport, L.L.C. (“Debtor”),
 3   appeals the bankruptcy court’s order requiring it to disgorge
 4   $8,794.62 in fees it received to appellee Lawrence Warfield, the
 5   trustee in Debtor’s bankruptcy case (“Trustee”).   We AFFIRM.
 6                                  I.   FACTS
 7        Debtor was a Yuma trucking company.    GNG, a Tucson law firm,
 8   was retained by Debtor on November 5, 2009, to represent the
 9   company in a case under chapter 7 of the Bankruptcy Code.     For
10   its services, Debtor agreed to pay GNG a flat fee of $12,000,
11   plus expenses.   Acting through GNG partner Scott D. Gibson
12   (“Gibson”), Debtor’s petition was filed on November 6, 2009.       On
13   November 23, 2009, GNG filed a Rule 2016(b) Disclosure of
14   Compensation of Attorney for Debtor, stating that it had received
15   $12,000 from Debtor prior to the filing of the bankruptcy case to
16   represent Debtor.
17        Trustee was appointed to serve as chapter 7 trustee.     On
18   December 4, 2009, Debtor’s schedules and Statement of Financial
19   Affairs (“SOFA”) were filed.    The schedules disclose that Debtor
20   owned only four assets and that it had no secured creditors and
21   seven unsecured creditors, only one of which was listed as
22   disputed.   Debtor’s responses to the relevant questions on the
23   SOFA were brief and unremarkable.
24        The § 341 meeting of creditors took place in Yuma on
25   December 16, 2009.   Gibson appeared representing Debtor at the
26
          2
27          Unless otherwise indicated, all chapter, section and rule
     references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
28   to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.

                                         -2-
 1   meeting.
 2           The bankruptcy case was otherwise uneventful until May 31,
 3   2011, when Trustee filed a Motion to Compel Turnover (the
 4   “Turnover Motion”).    In it, Trustee requested that the bankruptcy
 5   court review the $12,000 fee paid by Debtor to GNG under
 6   § 329(b).    Trustee argued that, under the circumstances, the
 7   $12,000 flat fee paid to GNG was “patently unreasonable,” and
 8   that a fee of $3,000 was reasonable for an experienced bankruptcy
 9   lawyer to represent a chapter 7 corporate debtor in an
10   uncomplicated case with few assets and creditors.    To support his
11   view that the amount paid to GNG was excessive, Trustee cited
12   nine corporate chapter 7 cases filed in the Yuma division of the
13   Arizona bankruptcy court in the same year as the IMG case, in
14   which the attorney’s fees ranged from $1,500 to $4,000.    Trustee
15   therefore sought an order requiring that $9,000 of GNG’s $12,000
16   fee be disgorged and paid over to Trustee.
17           GNG filed a response to the Turnover Motion on June 16,
18   2011.    In it, GNG noted that Debtor had retained GNG pursuant to
19   a nonrefundable flat fee agreement.     In setting the amount of the
20   fee in this case, GNG had been particularly concerned about the
21   risks associated with representing a client that had just lost in
22   “extremely extensive litigation for a personal injury matter”;
23   that the client’s principal did not speak English; that there
24   would be significant costs for GNG lawyers to travel between
25   Tucson and Yuma; and that there was the potential for other
26   proceedings that might arise in the case.    GNG argued that
27   Arizona state case law supported the reasonableness of a flat fee
28   arrangement even where, after the fact, the payment to counsel

                                       -3-
 1   exceeded usual billing rates.   Attached to GNG’s response was a
 2   copy of the retainer letter and a statement detailing the time
 3   and services provided by GNG to Debtor.
 4        Trustee filed a reply on June 21, 2011, contending that
 5   while Debtor had the right to engage its choice of attorney, it
 6   could not do so at unreasonable cost to the bankruptcy estate.
 7   Trustee challenged several of the entries in the GNG fee
 8   statement.   For example, Trustee pointed out that GNG’s statement
 9   allocated 10.5 hours at Gibson’s $395 partner billing rate for
10   his preparation and travel to attend the fifteen-minute § 341
11   meeting in Yuma.   Trustee questioned why a local attorney could
12   not have been engaged to appear at the meeting for considerably
13   less than $4,147.50.   Trustee’s other criticisms of GNG’s billing
14   statement included its twice billing for paralegal time to make
15   photocopies and billing 2.5 hours of Gibson’s time for preparing
16   a simple, three-page bankruptcy petition.
17        The bankruptcy court held a hearing on Trustee’s motion on
18   June 24, 2011.   After the parties made substantially the same
19   arguments as those in the motion, response and reply, the court
20   took the issues under advisement to, in its words, review the
21   pleadings and the fee statement with a “fine tooth comb.”
22        The bankruptcy court entered an order disposing of the
23   Turnover Motion on July 19, 2011 (the “Disgorgement Order”).     In
24   the Disgorgement Order, the court found that: (1) Debtor’s
25   schedules listed only five non-insider creditors, very little
26   tangible personal property, and no real property; (2) Debtor was
27   required to respond to few of the twenty-five questions in the
28   form Statement of Financial Affairs; (3) other than the pleadings

                                     -4-
 1   regarding the Turnover Motion, the petition, and some minor
 2   matters, “little else of substance performed by the Debtor’s
 3   attorneys appears in the file.”     The bankruptcy court determined
 4   that $3,000 was a reasonable fee for the work done by GNG.      After
 5   also allowing GNG’s costs, the balance of the $12,000 retainer,
 6   $8,794.62, was ordered disgorged by GNG to Trustee.
 7        Debtor filed a timely appeal on July 20, 2011.
 8                               JURISDICTION
 9        The bankruptcy court had jurisdiction under 28 U.S.C.
10   § 1334(b) and § 157(b)(2)(A). We have jurisdiction under 28
11   U.S.C. § 158.
12                                   ISSUE
13        Whether the bankruptcy court abused its discretion in
14   ordering GNG to disgorge $8,794.00 to Trustee.
15                              STANDARD OF REVIEW
16        An order reviewing fees and directing a debtor’s attorney to
17   disgorge excessive amounts paid prior to the bankruptcy filing
18   under § 329(b) is reviewed for abuse of discretion.    Hale v.
19   United States Tr., 509 F.3d 1139, 1147 (9th Cir. 2007).
20        In applying an abuse of discretion test, we first "determine
21   de novo whether the [bankruptcy] court identified the correct
22   legal rule to apply to the relief requested."    United States v.
23   Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc).     If the
24   bankruptcy court identified the correct legal rule, we then
25   determine whether its "application of the correct legal standard
26   [to the facts] was (1) illogical, (2)implausible, or (3) without
27   support in inferences that may be drawn from the facts in the
28   record."   Id.   If the bankruptcy court did not identify the

                                       -5-
 1   correct legal rule, or its application of the correct legal
 2   standard to the facts was illogical, implausible, or without
 3   support in inferences that may be drawn from the facts in the
 4   record, then the bankruptcy court has abused its discretion.      Id.
 5                               DISCUSSION
 6        Section 329(a) requires an attorney representing a debtor to
 7   disclose the amount of all compensation "paid or agreed to be
 8   paid, if such payment or agreement was made after one year before
 9   the date of the filing of the petition, for services rendered or
10   to be rendered in contemplation of or in connection with the case
11   . . . ."   Section 329(b), in turn, provides that “[i]f such
12   compensation exceeds the reasonable value of any such services,
13   the [bankruptcy] court may cancel any such agreement, or order
14   the return of any such payment[.]”     It is undisputed in this
15   appeal that, prior to the filing of its petition, Debtor paid
16   $12,000 to GNG to represent the company in its bankruptcy case.
17        The burden is upon the applicant to demonstrate that the
18   fees requested are reasonable.   Law Offices of David A. Boone v.
19   Derham-Burk (In re Eliapo), 298 B.R. 392, 402 (9th Cir. BAP
20   2003), aff'd in part, rev'd in part on other grounds, 468 F.3d
21   592 (9th Cir. 2006); see also Hensley v. Eckerhart, 461 U.S. 424,
22   437 (1983) ("Fee applicant bears the burden of establishing
23   entitlement to an award and documenting the appropriate hours
24   expended and hourly rates.").    The standard applied under §
25   329(b) to determine the reasonable value of the debtor’s
26   attorney’s fees is the same as that set forth in § 330(a) for
27   determining the amount of reasonable compensation for a
28   bankruptcy estate’s professionals.     Am. Law Ctr. PC v. Stanley

                                      -6-
 1   (In re Jastrem), 253 F.3d 438, 443 (9th Cir. 2001) (citing Hale
 2   v. United States Tr. (In re Basham), 208 B.R. 926 (9th Cir. BAP
 3   1997), aff’d 152 F.3d 924 (9th Cir. 1998)).   Under § 330(a)(3),
 4   to determine a reasonable fee, the bankruptcy court should
 5   consider “the nature, the extent, and the value of such services,
 6   taking into account all relevant factors . . . .”     Included among
 7   those factors are:
 8        (A)   the time spent on such services;
 9        (B)   the rates charged for such services;
10        (C)   whether the services were necessary to the
11              administration of, or beneficial at the time at
12              which the service was rendered toward the
13              completion of, a case under this title;
14        (D)   whether the services were performed within a
15              reasonable amount of time commensurate with the
16              complexity, importance, and nature of the problem,
17              issue, or task addressed;
18        (E)   with respect to a professional person, whether the
19              person is board certified or otherwise has
20              demonstrated skill and experience in the
21              bankruptcy field; and
22        (F)   whether the compensation is reasonable based on
23              the customary compensation charged by comparably
24              skilled practitioners in cases other than cases
25              under this title.
26   § 330(a)(3) (emphasis added); In re Basham, 208 B.R. at 931.
27        This Panel has analyzed §330(a) on numerous occasions and
28   has also identified factors for the bankruptcy court to consider

                                        7
 1   when determining reasonableness, including:
 2        (a) Were the services authorized?
          (b) Were the services necessary or beneficial to the
 3        administration of the estate at the time they were
          rendered?
 4        (c) Are the services adequately documented?
          (d) Are the fees required reasonable, taking into
 5        consideration the factors set forth in section
          330(a)(3)?
 6        (e) In making the determination, the court must
          consider whether the professional exercised reasonable
 7        billing judgment.
 8   Roberts, Sheridan & Kotel, P.C. v. Bergen Brunswig Drug Co.
 9   (In re Mednet), 251 B.R. 103, 108 (9th Cir. BAP 2000).    In
10   Leichty v. Neary (In re Strand), 375 F.3d 854, 880 (9th Cir.
11   2004), the Ninth Circuit confirmed that the In re Mednet factors
12   provided the “correct standard” for an appellate court to
13   evaluate a reasonableness determination regarding attorney’s fees
14   in a bankruptcy case.
15        In addition, the Ninth Circuit recently ruled that a trial
16   court may rely on its own knowledge of reasonable and proper fees
17   in determining the reasonableness of attorney’s fees.
18        This court has never addressed whether it is proper for
          a [trial] court to rely on its own familiarity with the
19        legal market. Other circuit courts have held that
          judges are justified in relying on their own knowledge
20        of customary rates and their experience concerning
          reasonable and proper fees. See, e.g., Norman v. Hous.
21        Auth. of City of Montgomery, 836 F.2d 1292, 1303 (11th
          Cir. 1988) (courts are experts as to the reasonableness
22        of attorney fees and award may be based on court's own
          experience); In re U.S. Golf Corp., 639 F.2d 1197, 1207
23        (5th Cir. 1981) (same). We agree.
24   Ingram v. Oroudjian, 647 F.3d 925, 928 (9th Cir. 2011).
25        At the hearing on June 24, 2011, GNG argued that the
26   bankruptcy court should not order disgorgement because flat fee
27   arrangements were reasonable under Arizona law.   The bankruptcy
28   court disagreed, pointing out that prebankruptcy transfers from a

                                     8
 1   debtor to its counsel, even if proper under state law, were
 2   unquestionably subject to review by the bankruptcy court under
 3   §§ 329 and 330.    To further explain its views, the court referred
 4   the parties to its recent decision regarding the methodology and
 5   analysis employed by the court in determining the reasonableness
 6   of fees.    In re AVC Villa Del Lago, 2010 WL 119830 (Bankr. D.
 7   Ariz. 2010).    The bankruptcy court summarized the decision in
 8   these words:
 9           [This] is not an easy job for a judge to do. I have to
             sit there and take apart [counsel’s] fee app piece by
10           piece. I then look at what happened in the file. I
             then have to make an internal judgment as to each entry
11           as to whether or not I think the debtor’s lawyer,
             whoever it is being challenged, spent too much time or
12           not. I adjust it. That’s the process.
13
     Hr’g Tr. 10:22-28, June 24, 2011.
14
             In the Disgorgement Order, the bankruptcy court noted that
15
     Debtor’s schedules listed only a few creditors and assets and
16
     that little information was required to respond to the questions
17
     in the SOFA.    It also noted that “[o]ther than these pleadings,
18
     the petition, a motion and order to extend time to file
19
     schedules, etc., little else of substance performed by the
20
     debtor’s attorneys, appears in the file.”    Id.   In addition, the
21
     bankruptcy court was cognizant of Trustee’s contention that it
22
     was unreasonable in this case for GNG to charge Debtor over
23
     $4,000 for Gibson’s travel to attend a brief § 341 meeting in
24
     Yuma.
25
             GNG had the burden of showing that its fees were reasonable.
26
     In re Eliapo, 298 B.R. at 402.     Because GNG submitted a copy of
27
     both the retainer agreement with Debtor, and a detailed list of
28
     the services it rendered in this case, we may assume that the

                                        9
 1   bankruptcy court considered the nature and extent of GNG’s
 2   services provided to Debtor.   It appears that the bankruptcy
 3   court applied the correct legal rules in evaluating the
 4   reasonableness of GNG’s fees, as discussed in its thoughtful
 5   prior decision in In re AVC Villa Del Lago.   Based upon the
 6   record before it, as informed by the experience of the seasoned
 7   bankruptcy judge, the bankruptcy court determined that $3,000 was
 8   a reasonable fee for GNG’s services under the facts of this case.
 9        GNG disagrees with the bankruptcy court’s decision.     In the
10   bankruptcy court, and again in its opening brief on appeal, GNG
11   argued that the bankruptcy court erred because, under Arizona
12   law, a nonrefundable flat fee “is a reasonable fee arrangement
13   which should not be subject to critical review by the courts[.]”
14   GNG points out that “such flat fee arrangements are part of the
15   negotiation of arrangements between client and attorney, which
16   should be allowed to stand, even if ultimately the amount of the
17   services rendered is less than the hourly rate of fees.”   GNG Op.
18   Br. at 9.   GNG cites In re Connolly, 55 P.3d 756 (Ariz. 2002),
19   for support.
20        Of course, on its surface, GNG’s assertion that the
21   bankruptcy court may not examine the reasonableness of fee
22   agreements sanctioned under state law as “reasonable” would seem
23   to conflict directly with § 329(b), which expressly authorizes a
24   bankruptcy court to review a debtor’s fee arrangement with its
25   counsel, to “cancel such agreement,” and to order an attorney to
26   disgorge any payments received from a debtor “[i]f such
27   compensation exceeds the reasonable value of any such services
28   . . . .”    In the face of such conflict, state law must yield.

                                     10
 1   Motor Vehicle Cas. Co. v. Thorpe Insulation Co. (In re Thorpe
 2   Insulation Co.), ___ F.3d. ____, 2012 WL 178998 *13 (9th Cir.
 3   2012) (“It is a familiar and well-established principle that the
 4   Supremacy Clause . . . invalidates state laws that ‘interfere
 5   with, or are contrary to,’ federal law.) (quoting Hillsborough
 6   Cnty. v. Automated Med. Laboratories, Inc., 471 U.S. 707, 712
 7   (1985).
 8        However, as Trustee points out, even if state law should
 9   influence the bankruptcy court’s determination of the
10   reasonableness of GNG’s fees in this case, In re Connolly does
11   not support GNG’s position.   More precisely, the Connolly court
12   ruled that:
13        We have also explained that "regardless of how [a] fee
          is characterized . . . each [fee agreement] must be
14        carefully examined on its own facts for
          reasonableness." Id. Finally, like other fee
15        arrangements, non-refundable flat fees are subject to
          retrospective analysis. See In the Matter of Swartz,
16        141 Ariz. 266, 273, 686 P.2d 1236, 1243 (1984) ("We
          hold . . . that if at the conclusion of a lawyer's
17        services it appears that a fee, which seemed reasonable
          when agreed upon, has become excessive, the attorney
18        may not stand upon the contract; he must reduce the
          fee.").
19
20   In re Connolly, 55 P.3d at 762.   In other words, the Arizona case
21   law on flat fee agreements appears consistent with § 329(b) in
22   that such an arrangement “must be carefully examined on its own
23   facts for reasonableness” and excessive fees reduced.   Id.
24        GNG abandoned this argument in its reply brief:    “Appellant
25   agrees that the Court has the ability to review fees of Debtor’s
26   counsel for reasonableness even under a ‘flat fee’ arrangement
27   such as here.”   GNG Reply Br. at 5.   Instead, GNG repeated its
28   earlier argument that “the determination of the facts still
     requires some modicum of evidence and an opportunity to provide
                                     11
 1   competing evidence. . . . [T]hat opportunity was never provided
 2   in this case.”      GNG Reply Br. at 5.   GNG also argues it should
 3   have had an opportunity to present evidence on the reasonableness
 4   of its fees. Id.
 5          GNG’s suggestion that it was not given a fair opportunity to
 6   prove up the value of its fees in this case is not supported by
 7   the record.      Indeed, GNG explicitly waived the bankruptcy court’s
 8   offer of a continuance to allow it to supplement the pleadings:
 9          THE COURT: Are you seeking a continuance to buff up the
            file?
10
            GIBSON: No, Your Honor.     I’m asking you to rule —
11
            THE COURT: Okay.
12
            GIBSON: — based upon the record before you.
13
14   Hr’g Tr. 8:21-25, June 24, 2011.3
15          Even if GNG had not waived the bankruptcy court’s offer of a
16   continuance, as noted above, in applying § 330(a)(3) to the facts
17   of a case, the Ninth Circuit has ruled that a court may rely on
18   its own knowledge of reasonable and proper fees in determining
19   the reasonableness of attorney’s fees.      Oroudjian, 647 F.3d at
20   928.       In other words, a bankruptcy court does not necessarily
21   need expert testimony to properly evaluate the reasonableness of
22   professional fees for the services rendered by the debtor’s
23
24          3
            At oral argument before the Panel, Gibson insisted that
25   this colloquy occurred early in the hearing before the bankruptcy
     court, and that he later repeated his request for an evidentiary
26   hearing. This is incorrect. We have carefully examined the
27   transcript of the June 24, 2011 hearing. Gibson made no further
     request for an opportunity to submit evidence after the colloquy
28   quoted above.
                                     12
 1   attorney in a bankruptcy case.    Boleman Law Firm, P.C. v. United
 2   States, 355 B.R. 548, 552 (E.D. Va. 2006) (sitting as a
 3   bankruptcy appeals court, ruling that expert testimony is not
 4   necessary to establish the value of an attorney's services since
 5   a bankruptcy judge is presumed knowledgeable as to fees charged
 6   by attorneys in general and as to the quality of legal work
 7   presented to him by particular attorneys); In re Monahan Ford
 8   Corp. of Flushing, 390 B.R. 493, 504 (Bankr. E.D.N.Y. 2008)
 9   (expert testimony relating to a fee application excluded because
10   the court was itself an expert and the expert testimony would not
11   assist the trier of fact);   In re Terex Corp., 70 B.R. 996, 1001
12   (Bankr. N.D. Ohio 1987)(expert testimony as to the reasonableness
13   of fees excluded).
14        In sum, we conclude that the bankruptcy court, in
15   determining that $12,000 was excessive and that a reasonable fee
16   for GNG's services in this case was $3,000, applied the correct
17   law, §§ 329(b) and 330(a), and that its findings were not
18   illogical, implausible, or without support in inferences that may
19   be drawn from the facts in the record.    As a result, the
20   bankruptcy court did not abuse its discretion in ordering GNG to
21   disgorge to Trustee the amount it received from Debtor for fees
22   in excess of $3,000 plus costs.
23                                CONCLUSION
24         The bankruptcy court’s Disgorgement Order is AFFIRMED.
25
26
27
28
                                       13