Court Opinion

ID: 3019411
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:20:57.413193+00
Date Added: 2024-06-11T11:47:16.078075
License: Public Domain

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
    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,

                                      2
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

                            3
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

                                       4
$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.

                             5
      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

                                       6
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

                               7
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

      1
          The reports filed by Snyder indicated that Kula himself may have been
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
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

                                   9
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.

                                     10
    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

                                 11
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

                                  12
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

                           13
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

                                     14
lodestar   calculation   or   a        finding   that   the   lodestar
method is not appropriate under the circumstances.

                                  15
                          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

                                   16
the professional.           In re Grady, 618 F.2d 19, 20 (8th Cir.
1980).2

      2
         Although the parties appear to distinguish the clearly erroneous standard and
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
                                  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,3 he and his attorney were professional
persons       within       the     meaning         of   §    327     and     their
compensation was to be determined under § 330 and Fed. R.
Bankr. P. 2016(a).4           The parties do not dispute this, and
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:

      3
       Hereafter, all statutory references are to the United States Bankruptcy Code,
11 U.S.C. §§ 101 through 1330.
      4
        Chamberlain’s attorney was also allowed fees and expenses in the total amount
of $64,961.68. That award is not challenged in this appeal.
                                         18
(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.

                       19
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

                                  20
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

                                21
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 non-
bankruptcy    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
22
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

                            23
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.5                                 In

      5
          Because the majority of work in most Chapter 13 cases is normal and
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
such      cases,       a    lodestar        calculation           is     not     required;
however, the

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
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

                                 26
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
27
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

                                 28
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

                                       29
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,

                                 30
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.

                           31
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

      6
          Although not normally relevant in bankruptcy cases in terms of payment of
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
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.

                             33
       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 non-
bankruptcy 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

                                   34
    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

                                 35
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

                                      36
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.

                                 37
       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.

                                           38
    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.

                           39
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

                                   40
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.”

                              41
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

                                     42
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

                                43
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

                              44
       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.

                                   45
    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

                            46
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).

                                        47
[I]f the court does disallow fees of a “good-
faith applicant,” the Code, see §§       329(b),
330(a); see also Rule 2017(b) -- and 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 good-
faith applicant we mean

                       48
       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

                                  49
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

                                   50
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

                                       51
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

                                  52
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

                                  53
necessary to support the findings, the bankruptcy court
should   allow   Chamberlain   the   opportunity   to   present
appropriate evidence as to those issues.

                               54
                          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

                                55