UNITED STATES BANRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
MARTIN L. VAUGHAN
DEBTORS CASE NO. 94-10441
This matter is before the Court on the Application for Compensation ("the Application") filed herein by debtors' counsel on April 25, 1995, and the objections thereto. The Chapter 11 trustee and the Hugo Carter group ("Carter") filed their Objections on May 15, 1995; the Florida Department of Insurance ("FDI") and the U.S. Trustee filed their Objections on May 17, 1995. The debtors filed a Response to these Objections on June 1, 1995. A hearing on the Application was conducted on June 6, 1995, and the Application and objections were taken under submission. An Order of Submission was entered on June 8, 1995.
The debtors' counsel, the law firm of McDonald, Roark, Walther & Gay, LLP, requests $56,426.75 in fees and $2,651.11 in expenses for services rendered from December 23, 1994, to March 16, 1995. The Application states that the debtors paid a retainer in the amount of $4,200.00, of which $1,196.00 was applied on December 23, 1994, to pay for legal services necessary to prepare and file the debtors' Chapter 11 petition. The remaining $3,004.00 is being held in an escrow account, and the Application asks that it be applied to a portion of any outstanding balance owed. The Application further states that counsel will not seek compensation in the amount of $2,575.00 related to work on the debtors' claim of a Florida homestead exemption.
The objections raise some common issues, including whether time spent on certain aspects of the case were excessive and unreasonable, especially in light of the results obtained. However, one concern raised in this regard is not applicable. Both the FDI and Carter raise objections to the amount of time spent on the debtors' Chapter 11 Plan and Disclosure Statement after the Chapter 11 Trustee was appointed. However, the Chapter 11 Trustee was appointed on March 16, 1995, which is also the last date included in the Application. Other specific concerns raised are duplication of time and effort and billing for items for which counsel had stated there would be no charge.
The compensation of professionals is governed by 11 U.S.C.'330, which provides for "reasonable compensation for actual, necessary services." The burden is on the fee applicant to prove entitlement to fees. In re Wildman, 72 B.R. 700, 708 (Bkrtcy.N.D.Ill. 1987). The starting point for determining an award of attorney fees is the application of the "Lodestar" method, whereby "the attorney's reasonable hourly rate [is multiplied] by the number of hours reasonably expended." In re Boddy, 950 F.2d 334, at 337 (6th Cir. 1991). It is the Court's task to determine what is "reasonable".
Courts often apply a 12-factor formula set out in Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir. 1974), in making determinations about "reasonableness". These factors are: 1) the time and labor required; 2) the novelty and difficulty of the question involved; 3) the skill requisite to perform the legal service properly; 4) the preclusion of other employment by the attorney due to 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 the 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., at pages 717-719.
In addition, as Judge Schmetterer points out in In re Wire Cloth Products, Inc., 130 B.R. 798 (Bkrtcy.N.D.Ill. 1991):
The Court not only scrutinizes the form and content of the fee application, but also considers the billing judgment of professional (sic) seeking compensation. The United States Supreme Court in Hensley v. Eckerhart, 461 U.S. 424, 103 S.Ct. 1933, 76 L.Ed.2d 40 (1983), a nonbankruptcy matter, stated that attorneys applying for statutory attorney's fees
'should make a good faith effort to exclude from a fee request hours that are excessive, redundant or otherwise unnecessary; just as a lawyer in private practice ethically is obligated to exclude such hours from his fee submission. ....'
Hensley, 461 U.S. at 434, 103 S.Ct. at 1939-40; ....The requirement of Section 330 that compensation be for 'actual' and 'necessary' services makes the exercise of 'billing judgment' a mandatory requirement in bankruptcy fee matters.
At page 806.
The Court will first address the specific issue of the reasonableness of the time expended by counsel for the debtors. Specific concerns have been raised about the time spent on the proposed sale of the debtors' property in Apopka, Florida. The itemzation submitted by counsel shows some 30 hours related to the effort to sell the property. The Chapter 11 trustee maintains that this expenditure of time was not reasonable because the prospective buyers never appeared capable of making a good faith deposit. The property has never been sold.
Counsel for the debtor in any case is expected to perform adequate and reasonable due diligence before expending significant amounts of time and effort. The due diligence issue was discussed in depth by the court in In re Narragansett Clothing Co., 160 B.R. 477 (Bkrtcy.D.R.I. 1993), in regard to a fee request by the attorney for the trustee. An offer to purchase the debtor had been negotiated and accepted. Shortly thereafter, the purchaser filed for bankruptcy and the purchase price could not be collected. The court stated:
It is now clear, in hindsight, that the Applicant failed to perform adequate or reasonable due diligence during at least two critical periods in its representation of this estate, to the extent that a downward adjustment is required in the lodestar. It has become quite apparent that the pre-confirmation service devoted to investigating the substance of the J.L. Sanford offer was not time well spent, and that the demise of J.L. Sanford within five months of its celebrated sale indicated major shortcomings in the due diligence area, for which the creditors are now faced with some very heavy legal/Trustee charges.
At page 480. In a related footnote, the court referred to counsel's "duty to investigate, ...". (fn. 3). If counsel for these debtors did not sufficiently analyze the probability of the sale being accomplished, they should have.
The Court's own review of the Application reveals another area where time spent does not appear to be reasonable. The itemization indicates that more than fourteen hours were spent on research in regard to the FDI's Motion for Clarification, and fourteen hours on research in regard to automatic stay issues. Counsel for the debtors represented itself to the debtors and to the Court as experienced in bankruptcy matters. It does not appear that experienced attorneys should need to expend such large amounts of time on basic research. See In re Automobile Warranty Corp., 138 B.R. 72 (Bkrtcy.D.Colo. 1991), at page 81.
The Chapter 11 Trustee has raised the question of duplication of effort, especially as regards intra-office conferences between attorneys and travel to and from, and attendance at, hearings by more than one attorney. In In re Leonard Jed Co., 118 B.R. 339 (Bkrtcy.D.Md. 1990), the court stated at page 347, "...excessive use of office conferences and unnecessary duplication of effort will result in the reduction of fees when they are unreasonable in the sound discretion of the Court."
Attendance at a hearing by more than one professional, without explanation of the need for his/her attendance, is not compensable. See In re Wire Cloth Products, Inc., 130 B.R. 798, supra, at page 810, wherein Judge Schmetterer disallowed fees where "...entries fail to explain why more than one professional was needed to attend a certain meeting or court hearing, and fail to describe the participation of each individual professional."
Further, this Court has previously ruled in In re East Kentucky Lumber Company, Inc., Case No. 93-60392, that an attorney may not bill for travel at his or her full hourly rate. In that case, the attorney's billings for travel were reduced by half. The attorneys herein have billed at their full hourly rate for to travel to and from hearings on at least six different occasions. On several of those occasions, two attorneys billed at their full hourly rate for travel.
There are two final points to be considered. At least three hours are noted on the itemization, two on January 7, 1995, and one on January 11, 1995, for which there was to be no charge. According to the itemization, however, these hours were billed. In addition, the Court's own review of the itemization leads to the conclusion that between 40 and 50 percent of the time billed by the firm's paralegal was for tasks that could have been performed by secretarial staff.
In consideration of all of the foregoing, it is the opinion of this Court that the Application for Compensation of counsel for the debtors should be reduced by 25%, and that their request for reimbursement of expenses should be allowed in full. An order in conformity with this opinion will be entered separately.
By the Court -
Jonathan L. Gay, Esq.
Schuyler J. Olt, Esq.
Lisa Koch Bryant, Esq.
Thomas E. Bulleit, Jr., Esq., Chapter 11 Trustee