Court Opinion

ID: 173218
Source: CourtListenerOpinion
Date Created: 2010-08-14 19:16:55+00
Date Added: 2024-06-11T17:25:23.705397
License: Public Domain

FILED
                                                           United States Court of Appeals
                                                                   Tenth Circuit

                                                                February 11, 2010
                         UNITED STATES COURT OF APPEALS
                                                      Elisabeth A. Shumaker
                                                                   Clerk of Court
                                 FOR THE TENTH CIRCUIT

    In re: WILLIS RAY MATNEY;
    PAMELA KAY MATNEY,

                   Debtors.
                                                        No. 09-1170
    ----------------------------------------------    (No. CO-08-058)
                                                           (BAP)
    JOHN E. FITZGIBBONS,

                   Appellant,

    v.

    SALLY J. ZEMAN, Trustee,

                   Appellee.

                                  ORDER AND JUDGMENT *

Before GORSUCH and ANDERSON, Circuit Judges, and BRORBY, Senior
Circuit Judge.

*
       After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination of
this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is
therefore ordered submitted without oral argument. This order and judgment is
not binding precedent, except under the doctrines of law of the case, res judicata,
and collateral estoppel. It may be cited, however, for its persuasive value
consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
      Appellant John E. Fitzgibbons served as legal counsel for debtors in the

underlying bankruptcy proceeding. After the bankruptcy court confirmed debtors’

Chapter 13 Plan, Mr. Fitzgibbons submitted an application seeking $13,750 in

legal fees, though he claimed to have earned over $19,000. The Standing Chapter

13 Trustee objected to the application on numerous grounds. Following a

hearing, the bankruptcy court determined that Mr. Fitzgibbons’ fee should be

limited to the $4,750 he had already received for his legal services from debtors.

The Tenth Circuit Bankruptcy Appellate Panel (BAP) affirmed in an unpublished

decision, and later denied Mr. Fitzgibbons’ motion for rehearing. Mr. Fitzgibbons

now appeals from the BAP’s initial merits decision. 1 We exercise jurisdiction

under 28 U.S.C. § 158(d) and affirm.

                                Standard of Review

      Although the case reaches us by way of the BAP, we independently review

the bankruptcy court’s decision. Daimler Chrysler Fin. Servs. Ams. L.L.C. v.

Ballard (In re Ballard), 526 F.3d 634, 636 (10th Cir. 2008). Absent an abuse of

discretion, we will not disturb its decision to award a reduced fee. See Rubner &

Kunter P.C. v. U.S. Trustee (In re Lederman Enters., Inc.), 997 F.2d 1321, 1322

1
      Mr. Fitzgibbons filed his notice of appeal from the BAP’s initial decision
while his motion for rehearing was pending. That notice became effective for
purposes of appealing the initial decision upon the denial of rehearing. See
Fed. R. App. P. 6(b)(2)(A)(i). Mr. Fitzgibbons did not, however, amend the
notice after the denial of rehearing to include that later order in this appeal. See
Fed. R. App. P. 6(b)(2)(A)(ii).

                                         -2-
(10th Cir. 1993). Of course, such an award may turn on specific legal premises or

factual findings, and in that event “we review de novo any statutory interpretation

or other legal analysis underlying the [fee] decision and review for clear error any

supporting findings of fact.” Specialty Beverages, L.L.C. v. Pabst Brewing Co.,

537 F.3d 1165, 1183 (10th Cir. 2008) (quotation omitted). See In re Ballard,

526 F.3d at 636 (noting usual de novo and clear error standards apply to circuit

review of bankruptcy court decisions). Mr. Fitzgibbons also challenges an

evidentiary ruling at the fee hearing, involving the admission of expert opinion

testimony from a witness not previously disclosed as an expert. We review that

particular objection also for an abuse of discretion. See United States v. Charley,

189 F.3d 1251, 1261-62 (10th Cir. 1999).

                             Summary of Proceedings

      The decisions issued by the bankruptcy court and the BAP discussed the

factual and procedural background at length, and that discussion need not be

repeated in full here. But we do set out those matters relevant to our disposition

of the issues raised in this appeal.

A. Fee Hearing

      At the fee hearing, Mr. Fitzgibbons testified in favor of his application and

the Trustee testified against it. As the bankruptcy court noted, the fee sought was

well in excess of the presumptive fee of $1,800 for Chapter 13 proceedings

(increased to $3000 for more recent applications). The bulk of the excess was

                                         -3-
attributed to an adversary proceeding Mr. Fitzgibbons had pursued alongside the

usual plan confirmation process. His justification for doing so was that it was

essential to establish how much of his clients’ large tax debt (nearly $350,000)

was secured by an existing lien and how the remainder would be treated as to

dischargeability. He insisted that the Bankruptcy Abuse Prevention and

Consumer Protection Act of 2005 (BAPCPA), Pub.L. No. 109-8, 119 Stat. 23,

interjected substantial uncertainty into dischargeability issues.

      The adversary proceeding was resolved by a stipulation providing in

pertinent part that (1) the Internal Revenue Service (IRS) had properly perfected

its lien, which secured $14,594 of the tax debt in the bankruptcy; (2) the IRS was

also secured, outside of bankruptcy, in debtors’ retirement plans, valued (at about

$59,000) as of the date of the petition; (3) the latter amount could be accounted

for either as a secured claim in debtors’ Chapter 13 Plan or by retaining the IRS

lien on the retirement plans; and (4) debtors’ tax debt would be discharged upon

completion of Chapter 13 Plan payments. Aplt. App. at 180-82. Mr. Fitzgibbons

repeatedly stressed the value of this stipulation, which gave his clients the

assurance that if they complied with the stipulation and their associated Chapter

13 Plan, their tax liabilities would be put behind them. He concluded his case at

the hearing by saying “I think that certainty is worth the [additional $9000] that

I’m asking for.” Id. at 316.

                                          -4-
      The Trustee expressed a very different view of the adversary proceeding,

seeing it as unnecessary. Most practitioners, she said, would just work through

such issues with the IRS, far more efficiently, in the ordinary course of the

confirmation process. And, as for the confirmation process here, she pointed out

numerous instances in which inaction or delay by Mr. Fitzgibbons had unduly

prolonged the proceedings and required multiple amendments to the Chapter 13

Plan. She also indicated that his fee application included time for researching

areas that a bankruptcy practitioner should have known or learned as a matter of

professional responsibility. But she did not in her direct testimony give an expert

opinion regarding fees. When counsel for the Trustee began to ask for her

opinion, Mr. Fitzgibbons objected on the basis that she had not been disclosed as

an expert witness, and the bankruptcy court promptly sustained the objection.

      During cross-examination, however, Mr. Fitzgibbons repeatedly asked the

Trustee to opine on matters relating to the substance of his legal representation

and the reasonableness of his fee request. After eliciting a particular unfavorable

opinion, he began inquiring into the Trustee’s professional qualifications for

expressing the opinion, to which counsel for the Trustee objected. At that point,

the bankruptcy court held that Mr. Fitzgibbons had already opened the door to

expert opinion testimony from the Trustee, so either side could pursue relevant

inquiries in that regard. On redirect, counsel for the Trustee obtained expert

opinions on the following material points: (1) filing five Chapter 13 Plans before

                                         -5-
getting one confirmed in this case was unreasonable; with adequate factual

research and effective communication by Mr. Fitzgibbons, no more than two

should have been necessary; (2) it was unreasonable to pursue the adversary

proceeding in addition to the confirmation process; and (3) taking into account

the Johnson factors governing fee awards, 2 a fee in the neighborhood of $4,600

would be reasonable.

B. Bankruptcy Court’s Fee Order

      The bankruptcy court issued a thorough decision. First, it examined all of

the governing factors in light of the record. While the testimony of the Trustee

was important, the court did not simply adopt her conclusions. Rather, the court

considered her testimony along with the rest of the record, noting where and why

it agreed with particular points she had made. See Bankruptcy Court Order 3 at

4-8. Indeed, the court concluded its analysis of the fee factors by stating that

“[b]ased on the Court’s experience in reviewing fee applications, this case falls

much closer to the lower [i.e., $1,800] range of fees it has awarded.” Id. at 8

(emphasis added).

2
      The factors set out in the seminal case of Johnson v. Georgia Highway
Express, Inc., 488 F.2d 714, 717-19 (5th Cir. 1974), are applicable to attorney fee
determinations in bankruptcy cases under 11 U.S.C. § 330. See Houlihan Lokey
Howard & Zukin Capital v. Unsecured Creditors’ Liquidating Trust (In re
Commercial Fin. Servs., Inc.), 427 F.3d 804, 811 (10th Cir. 2005).
3
      The bankruptcy court’s unpublished fee order is included as Attachment 1
to Appellant’s Opening Brief.

                                         -6-
      The bankruptcy court then considered several of the broader objections the

Trustee had raised in opposition to the fee application. The court agreed with

several criticisms of the timeliness and competence of counsel’s prosecution of

the bankruptcy case. Id. The court also found that “the detail and description of

the legal services set forth [in the fee application] to be woefully inadequate . . .

to determine whether the amount of time for such legal services was reasonable,”

noting that “[t]he lack of information provides additional support for not allowing

all requested fees.” Id. at 9. Finally, and “most troubling to the Court,” id., was

Mr. Fitzgibbons’ noncompliance with fee disclosure requirements. The court’s

explanation of why–consistent with a list of cited cases–this omission is in itself

“more than sufficient to deny some or all of his requested fees in this case,” id. at

10, is worth quoting:

      [T]he Court understands Mr. Fitzgibbons to have received $2,250 at
      or around the time the Debtors’ case was filed. This information was
      not provided until approximately fourteen months after the case was
      filed. However, at some other time during the case, unbeknownst to
      the Trustee, creditors, or the Court, the Debtors must have paid
      Fitzgibbons an additional $2,500, based on his Fee Application,
      which states Fitzgibbons has been paid $4,750 to date. This presents
      a host of questions, not the least of which is the question of how the
      Debtors obtained additional funds to pay Fitzgibbons while they were
      presumably committing all of their disposable income to their
      Chapter 13 plan. This illustrates the reason for the fee disclosure
      requirement under [11 U.S.C.] § 329 and Fed. R. Bankr. P. 2016(b),
      to ensure the Court can carry out its obligation to scrutinize
      compensation of debtor’s attorneys and thereby protect creditors.

Id.

                                           -7-
      Having concluded, “[b]ased on its review of the Johnson factors and the

Trustee’s Objection to the Fee Application,” that “the requested legal fees are not

reasonable under the circumstances of this case,” id., the bankruptcy court came

to the ultimate question of what fee, if any, to allow. At this point, the court

recited that “the Trustee was endorsed as an expert witness in Chapter 13 fee

matters and indicated she believed a reasonable fee in this case would be

approximately $4,600.” Id. The court essentially adopted that figure, though it

concluded that ordering disgorgement of the additional $150 that debtors had

already paid Mr. Fitzgibbons was not appropriate. Id. It therefore awarded

Mr. Fitzgibbons the $4,750 for his legal services in the case. Id.

C. Appeal to the BAP

      Mr. Fitzgibbons raised two issues in his appeal to the BAP:

      1. Whether the [bankruptcy] court erred in allowing expert
      testimony which had not been disclosed as required by
      Fed. R. Civ. P. 26(a)(2).

      2. Whether in the wake of the “new super light (chapter 13)
      discharge” enacted by [BAPCPA] the [bankruptcy] court erred in
      refusing to award attorney fees in conjunction with Adversary
      Proceeding 09-01906 MER in which [the IRS] stipulated the bulk of
      debtors’ $354, 004.49 in federal taxes would be discharged upon
      payment of $14,594.00 through the Chapter 13 Plan.

Aplt. App. at 5.

      The BAP held that the bankruptcy court had not abused its discretion in

allowing the Trustee’s expert testimony, for several reasons. The substance of

                                          -8-
her testimony clearly fell within the parameters of her pretrial disclosure as a lay

witness (concerning Mr. Fitzgibbons’ legal representation, the reasonableness of

his requested fee, and representation by other attorneys in similar cases), and the

bankruptcy court did not err in finding that Mr. Fitzgibbons had waived his right

to object to her use as an expert on such matters by his own questioning on

cross-examination. BAP Opinion 4 at 11-12. The BAP also noted that the

bankruptcy court did not rely solely on the Trustee’s testimony in resolving the

fee application; indeed, that much of what the Trustee had touched on was also

within the expertise of the bankruptcy court itself. Id. at 12.

      The BAP addressed the second issue raised by Mr. Fitzgibbons, regarding

the disallowance of fees for the adversary proceeding, somewhat less directly, as

encompassed within the overall determination of reasonableness. As to that

determination, the BAP recounted the bankruptcy court’s analysis of the Johnson

factors and the Trustees objections and concluded that the bankruptcy court

“1) used the appropriate factors to examine and evaluate the Fee Application;

2) conducted a thorough analysis of all of the bases for Trustee’s objection; 3) did

not make any findings of fact that the record on appeal demonstrates were clearly

erroneous; and 4) issued a well-supported and well-reasoned decision.” Id. at 17.

4
     The BAP’s unpublished opinion is included as Attachment 3 to Appellant’s
Opening Brief.

                                          -9-
                           Issues Raised on this Appeal

      Mr. Fitzgibbons has framed his issues on this appeal in terms that differ

considerably from those used in his appeal to the BAP. Indeed, his challenge to

the Trustee’s expert testimony for lack of pretrial disclosure is not even alluded to

in his formal Statement of Issues, see Aplt. Opening Br. at 2, and there are only

passing references to the bankruptcy court’s finding of waiver on that point in the

argument section where a very different challenge to her testimony is pursued, see

id. at 25, 26. It appears the non-disclosure objection, as a distinct challenge to

the admission of the Trustee’s expert testimony, has been abandoned. In any

event, for the reasons explained by the bankruptcy court and the BAP, we would

not find any abuse of discretion by the bankruptcy court in this regard.

      The two issues Mr. Fitzgibbons has designated for our review are:

      Whether the bankruptcy court and BAP opinions should be reversed
      and reviewed de novo because the “legal underpinnings” show these
      courts relied on the Trustee’s opinion that filing an adversary
      proceeding was unnecessary because the “cram down” provisions of
      11 USCA 1325(a)(5) and 506 should be utilized and that an
      installment agreement was cancelled even though the Trustee stated
      she had not studied Chapter 13 tax dischargeability issues of
      BAPCPA.

      Whether the bankruptcy court and BAP should be reversed for abuse
      of discretion in failing to act as the Daubert gatekeeper and in failing
      to consider National Association of Bankruptcy Judges, American
      Bankruptcy Law scholarly articles and cases concerning the new
      “superlight” Ch 13 bankruptcy discharge[.]

                                         -10-
Aplt. Opening Br. at 2. Most aspects of these arguments can be traced to points

at least arguably preserved in Mr. Fitzgibbons’ appeal to the BAP, but we stress

that assignments of error are not subject to substantive alteration from one

appellate level to the next. Wholesale reformulations of the sort evident here risk

adverse procedural consequences for the appellant who may omit preserved issues

and substitute unpreserved issues in the process.

      Most of Mr. Fitzgibbons’ briefing challenges, on various legal bases, the

bankruptcy court’s conclusion that the adversary proceeding was unnecessary in

light of what could be done in connection with the Plan confirmation process.

The first of these assertedly erroneous “legal underpinnings” of the court’s

conclusion relates to debtors’ retirement plans. Mr. Fitzgibbons argues that these

plans fell outside the bankruptcy estate under Patterson v. Shumate, 504 U.S. 753

(1992), and hence the rights of the IRS in these significant assets would not be

resolved by the Chapter 13 Plan. But he does not explain how an adversary

proceeding in the bankruptcy case would have resolved the parties’ interests in

this non-bankruptcy property. In any event, this whole line of argument misses

the basic point here. The thrust of the Trustee’s testimony and the bankruptcy

court’s conclusion about the adversary proceeding being ill-advised was that an

experienced Chapter 13 practitioner would have communicated effectively and

efficiently with the IRS to work out an agreement about this sort of complication

during the Plan confirmation process, making ancillary adversarial proceedings

                                        -11-
unnecessary. The fact that the Plan itself would not directly address the matter

does not nullify this point. Mr. Fitzgibbons has not demonstrated why it was

necessary to bring an adversary proceeding in order to reach a satisfactory

agreement with the IRS regarding debtors’ retirement plans.

      Mr. Fitzgibbons also notes that debtors had entered into an agreement with

the IRS to make monthly installment payments of $1,000 on their tax liability,

and he insists that the need for clarification of the consequences, particularly

under BAPCPA, of their default on this agreement prior to filing for bankruptcy

warranted pursuit of the adversary proceeding. He cites legislative statements

that, he says, show BAPCPA added provisions to 11 U.S.C § 523 to preclude

discharge of tax-settlement installment obligations due within one year before the

bankruptcy filing. Actually, the legislative history he quotes from in his brief and

provides in his appendix, Aplt. App. at 75-79, is not for BAPCPA. It comes from

the House and Senate Reports for the Bankruptcy Reform Act of 1978. 5 And aside

from this patently inapposite legislative history (Congress has amended § 523 at

least ten times since 1978), Mr. Fitzgibbons offers no argument based on current

statutory language to explain his concern about the potential nondischargeability

of debtors’ obligations under the tax settlement agreement. In any event, we

come back to the same point made above in connection with debtors’ retirement

5
      See H.R. Rep. 95-595, 1978 U.S.C.C.A.N. 5963, 6320-21, 6499-6500;
S. Rep. 95-989, 1978 U.S.C.C.A.N. 5787, 5863-66.

                                         -12-
plans: Mr. Fitzgibbons has not shown that his pursuit of the adversary proceeding

was a necessary response to the potential issue he perceived; there is nothing to

suggest that the agreement reached with the IRS could not have been worked out

effectively and efficiently in the course of the confirmation process.

      Mr. Fitzgibbons also seems to contend that the BAPCPA amendment to

11 U.S.C. § 1325(a), adding the so-called “hanging paragraph” to exempt some

creditors from the “cram down” rule, 6 may have made some of debtors’ unpaid

installment obligations to the IRS non-dischargeable, justifying his resort to the

adversarial proceeding to resolve the issue. The relevant change here applies to

debts “incurred during the 1-year period preceding” bankruptcy. Id. But the

unpaid tax liability owed by debtors arose many years before bankruptcy; IRS

installment agreements are merely one authorized means of collecting an existing

tax debt. See 26 U.S.C. § 6159. And, in any event, as we have noted repeatedly

in other respects, Mr. Fitzgibbons has not established that resolution of the legal

issue he perceives here required resort to an adversary hearing.

      We note that in connection with his references to cram down and § 1325(a),

Mr. Fitzgibbons also advances an additional objection to the allowance of expert

testimony from the Trustee. He contends her responses to his questions about her

6
       Briefly put, the “cram down” rule, based on the operation of § 1325(a)(5)
and 11 U.S.C. § 506, bifurcates a secured claim into a secured component limited
to the current value of the collateral and an unsecured claim for the remainder.
See In re Ballard, 526 F.3d at 637-38 (discussing cram down and BAPCPA’s
amendment adding “hanging” paragraph at end of § 1325(a)).

                                         -13-
study of BAPCPA with regard to dischargeability and cram down demonstrated

that she was not qualified to opine on the matter. Mr. Fitzgibbons never raised

this (or any other) substantive objection to the Trustee’s qualification to provide

expert testimony, and we would not disturb the decision under review on the basis

of this untimely objection. But we do not wish to suggest there was a problem

with the Trustee’s expert testimony. She was qualified as an expert through

questioning by Trustee’s counsel, and the testimony Mr. Fitzgibbons cites as

admitting some gap in her knowledge regarding dischargeability and cram down

after BAPCPA does not support his claim. In response to his inquiry regarding

the amount of time she had spent studying BAPCPA and dischargeability issues,

the Trustee said, “A lot of time. Not on the one issue of tax dischargeability, but

a lot of time on the new law.” Aplt. App. at 295. Mr. Fitzgibbons’ strained effort

to read this statement as disclaiming any study of BAPCPA’s effect on

dischargeability issues is utterly unpersuasive.

      Mr. Fitzgibbons also contends the bankruptcy court abused its discretion by

holding that some legal materials he had submitted discussing changes BAPCPA

made in the area of dischargeability did not “‘per se, support the filing of an

adversary proceeding under circumstances similar to this case.’” Aplt. Opening

Br. at 26 (quoting Bankruptcy Court Order at 6). But he offers no particularized

argument in this regard, such as specific legal points substantiated in the

materials that would per se support his filing of the adversary proceeding. Rather,

                                         -14-
he makes a legally inapposite objection under the rules governing admission and

exclusion of evidence on grounds of relevance and prejudice. The bankruptcy

court did not exclude the cited materials; it admitted them and merely found them

insufficiently persuasive to conclusively outweigh the other evidence the court

discussed at length in its decision.

      Finally, it is important to acknowledge the importance the bankruptcy court

rightly placed on Mr. Fitzgibbons’ noncompliance with fee disclosure obligations.

While it is not clear whether the court intended this misfeasance to serve–as it

may have–as a fully distinct alternative rationale for limiting Mr. Fitztgibbons’

fee to what he had already been paid, it certainly augments the other justifications

the court expressed for its fee reduction that we have considered above.

      The judgment of the BAP affirming the order of the Bankruptcy Court is

AFFIRMED.

                                                    Entered for the Court

                                                    Wade Brorby
                                                    Senior Circuit Judge

                                        -15-