Opinion
5:20-03618-MJC
09-30-2022
In re: Michael Peter Badyrka, Debtor.
OPINION
Mark J. Conway, Bankruptcy Judge.
The matter before the Court is the Chapter 13 Debtor's Counsel's Interim Application for Compensation and Reimbursement of Expenses filed on June 15, 2021, Dkt. # 45 ("Fee Application"). In what can be considered a routine Chapter 13 case, Debtor's counsel, Mr. Carlo Sabatini, Esquire ("Mr. Sabatini") seeks approval of interim compensation of $10,452.50 and reimbursement of expenses in the sum of $438.07 for the period from October 23, 2020 through June 9, 2021. For the reasons stated below, the Fee Application will be reduced and interim compensation in the amount of $5,456.50 and reimbursement of expenses of $438.07 will be approved.
The Court understands that every bankruptcy case and bankruptcy client is different and hesitates to call any case routine, but based upon a thorough review of the docket, pleadings, and hearings held in this matter, there does not appear to be any factual or legal issues that are unique from other Chapter 13 cases.
I. JURISDICTION
This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§157 and 1334 and the Standing Order of Reference of the U.S. District Court for the Middle District of Pennsylvania dated March 11, 2016. These matters are core proceedings pursuant to 28 U.S.C. §157(b)(2)(A), (B), and (O). Venue is proper pursuant to 28 U.S.C. §1409(a).
II. PROCEDURAL HISTORY
The debtor Michael Peter Badyrka ("Debtor") filed the above-captioned Chapter 13 bankruptcy case on December 26, 2020. A Disclosure of Compensation of Attorney for Debtor filed along with the voluntary petition and schedules reflected that Mr. Sabatini received a retainer in the sum of $500.00 from Debtor prior to filing of the petition and that he would bill against the retainer at an hourly rate of $415.00. See Dkt. #1.
For all intents and purposes, the case proceeded in an ordinary manner and has not been particularly complex. The Debtor's initial Chapter 13 Plan, Dkt. # 6 ("Plan"), was opposed by the Trustee and a secured creditor, triggering the filing of a First Amended Plan on March 12, 2021, Dkt. # 31 ("First Amended Plan"), which the Trustee also opposed. As a result, a Second Amended Plan was filed on April 15, 2021, Dkt. # 35 ("Second Amended Plan"). No objections were filed, and the Court confirmed the Second Amended Plan on June 3, 2021. Dkt. # 42. There have been no adversary complaints or motions filed in the case and Mr. Sabatini never appeared in Court on any matter.
On June 15, 2021, Mr. Sabatini filed the interim Fee Application, Dkt. # 45, seeking compensation and reimbursement of expenses in the sums of $10,452.50 and $438.07, respectively, for the period of October 23, 2020 to June 9, 2021. At the time the Fee Application was filed, the case was assigned to Henry W.Van Eck, Chief Bankruptcy Judge; however, it was subsequently reassigned to the undersigned Judge on July 30, 2021, Dkt. # 47, upon appointment to the bench.
A day prior to the filing of the Fee Application, Mr. Sabatini filed an Amended Disclosure of Compensation of Attorney for Debtor, Dkt. # 44 ("Amended Disclosure") that reflected receipt of a retainer in the sum of $497.00, that counsel would bill against the retainer at an hourly rate of $415.00, and insertion of an additional paragraph, "The above stated fee is a minimum fee. All work is performed at hourly rates. The current hourly rates are $415-$310/hour for attorneys and $150/hour for paralegals. Rates may be changed at any time with written notice to client and generally are increased at the beginning of each calendar year."
Because the Fee Application appeared to be substantially higher than standard charges for similar cases in this District and more than twice the amount of the presumptively reasonable fee ("PRF") for Chapter 13 cases in this District (discussed below), on September 2, 2021 this Court, sua sponte, issued an Order to Show Cause, Dkt. # 49, upon Debtor's Counsel to show cause why the Fee Application should be granted based upon the standards as outlined by the Third Circuit in In re Busy Beaver Bldg. Ctrs., Inc., 19 F.3d 833 (3d Cir.1994). At the September 23, 2021 hearing, Mr. Sabatini and representatives of the Chapter 13 Trustee and the U.S. Trustee were present, a hearing was held, a record made, and the matter was continued. The Court conducted a continued evidentiary hearing on January 12, 2022, witness testimony was taken, Mr. Sabatini filed a post-hearing brief on February 28, 2022, Dkt. # 70, and the matter was taken under advisement. At the January 12, 2022 hearing, Mr. Sabatini called Mr. David Harris, Esq., a consumer bankruptcy practitioner who practices primarily in Luzerne County, Pennsylvania, as a supporting witness.
It is noted that at the January 12 hearing, Mr. Sabatini offered a 10% "blanket deduction" on the pending Fee Application to take into account any failure to delegate duties properly. See 1/12/2022 Transcript ("1/12/22 Tr.") at p. 4-5, Dkt. # 69.
III. THE DEBTOR'S BANKRUPTCY CASE
Given the substantial interim fee request of counsel, it is important to set forth the facts and proceedings of this routine Chapter 13 case in order to determine if there is any basis for the payment of these extraordinarily high fees.
As stated above, the Debtor filed the above-captioned Chapter 13 bankruptcy case on December 26, 2020. The Debtor's Schedule I, Dkt. # 1, indicates that he is employed as a truck driver, earning $6,403.08 gross pay per month. Schedules I and J indicate a monthly net income of $250.00 after the deduction of expenses. The Debtor indicated he has a live-in girlfriend that had been receiving $200.00 per week in unemployment compensation benefits "for most of the relevant 6-month period" but no longer receives the benefits as of the petition date. Dkt. #1 at 55, 58. He owns a house valued at $68,500.00 and a 2008 Jeep Wrangler valued at $11,980.00. See Sch. A/B. Both the house and car have secured loans attached. See Sch. D. He lists $37,840.74 in unsecured debts. The bar date for the case was March 6, 2021 and the amount of unsecured proofs of claim filed was $36,917.93.
Schedule I indicates a payment for a domestic support obligation (child support) of $573.08 per month which may end in June 2021 if Debtor's daughter does not go to college. The daughter apparently did not go to college which prompted the Amended Plan and higher plan payments.
There is nothing in the record as to whether Debtor's girlfriend has resumed employment since the petition date and her income has never been included in connection with this case in any filed Plan.
Also on December 26, 2020, the Debtor filed his initial Chapter 13 Plan. The Plan, which is based upon this District's Model Plan, provided for payments of $250.00 per month for sixty (60) months for a total of $15,000.00. The Plan further provided for Debtor's Counsel to be paid $415.00 per hour based upon a lodestar method of compensation pursuant to Local Bankruptcy Rule 2016-2(b).
The Debtor did not retain Counsel based upon this District's "Presumptively Reasonable Fee" currently set at $4,500.00 as specified in L.B.R. 2016-2(c).
After the Chapter 13 Trustee and Lakeview Loan Servicing, LLC objected to the Plan, the Debtor filed the First Amended Plan, adjusting the amount of plan payments to $100.00 for the months January to June 2021 and then increasing the payments for the months of July 2021 through December 2025 to $675.25, for a total base amount of $37,063.50. The Trustee objected to the First Amended Plan on April 15, 2021, Dkt. # 34, disputing the child support termination contingency. In response, the Debtor filed the Second Amended Plan, changing the monthly payments back to $250.00 for the first six months and providing for a step-up for the balance of the 60-month term to $825.25, for total plan payments of $46,063.50. The Court confirmed the Second Amended Plan on June 3, 2021, Dkt. # 42.
There is no explanation why the Debtor would have reduced the initial Plan payments to $100 in the First Amended Plan since his Schedules showed $250.00 per month available as set forth in the original Plan.
The Court notes that the total payments due from the Debtor are now almost $10,000.00 more than the total amount of unsecured claims filed in this case.
As stated previously, there has been no litigation in this case in the form of adversary proceedings or contested matters, requiring Mr. Sabatini to appear in Court. The amendment to the Second Amended Plan was simply revising the plan payment to accurately reflect the Debtor's disposable income. Based upon the Court's review of the docket, pleadings and after holding two (2) hearings relating to the attorney fee issue, this Chapter 13 Case appears to be a routine Chapter 13 bankruptcy case.
Although being a relatively new Judge, this Court also comes to this conclusion based upon the practical perspective of being a bankruptcy practitioner for over 30 years.
IV. FEE APPLICATION
The Fee Application seeks approval of fees of $10,452.50 and reimbursement of expenses of $438.07 for the interim period October 23, 2020 through June 9, 2021. The Fee Application was submitted based upon the lodestar billing method.
The invoice attached to the Fee Application ("Invoice") also indicates fees that were written off totaling $2,274.50. These "discounts" seem to relate to simple phone calls or emails most of which indicate 0.10 (6 minutes) in time charges or research regarding possible consumer claims against creditors. The Invoice lists about 165 time entries at 0.10.
The lodestar approach is a form of billing where a "reasonable" hourly rate is multiplied by the time spent on the matter (typically in 6-minute increments). In re Smith, 331 B.R. 622, 628 (Bankr. M.D. Pa. 2005) (citing Hensley v. Eckerhart, 461 U.S. 424, 433 (1983)). "[T]he lodestar is nothing more than an attempt to assign a market rate." Id.
The Fee Application indicates that Mr. Sabatini has been a lawyer since 1999, graduating from Widener University School of Law - Harrisburg. He maintains a private practice in Dunmore, Pennsylvania. He is board-certified in consumer bankruptcy law by the American Board of Certification. The Court does not have any issue with Mr. Sabatini's competence in Chapter 13 cases as it finds that he adequately represents his clients in bankruptcy cases. However, his billing in this "routine" case appears to be grossly excessive compared to other practitioners in this District, as set forth more fully below. Although the Court is not obligated to conduct a line-by-line review of the invoice, see Busy Beaver, 19 F.3d at 844 - 45, there are several issues that stand out:
1. Hourly rate and delegation of duties. Mr. Sabatini's hourly rate of $415.00 would be considered one of the highest rates for consumer bankruptcy practitioners in this District, including attorneys with substantially more experience. As such, one would expect to see many of the basic administrative charges to be considered either non-billable administrative tasks or paralegal or secretarial duties billed at a much lower rate. The Court questions whether the high hourly rate is considered reasonable but that really is not the focus of this Opinion. However, as set forth below, this premium hourly rate clearly does not support the "nuts and bolts" tasks of putting together a routine Chapter 13 filing which should be done by a paralegal or secretary at a much lower rate. By analogy, in most businesses the owner or supervisor billing at a much higher rate would supervise lower rate employees on basic or overhead tasks. Here, Mr. Sabatini appears to be in the ditch moving dirt instead of supervising his staff. His high hourly rate should be reduced to reflect such work that a non-lawyer can perform.
Because the Fee Application has been reduced based upon other grounds, the Court makes no determination on the reasonableness of the rate other than to note it is one of the highest rates charged in this District, including in comparison to much more experienced practitioners.
"[W]hen an experienced attorney does clerk's work, he or she should be paid clerk's wages." Busy Beaver, 19 F.3d at 855 (quoting In re Vogue, 92 B.R. 717, 718 (Bankr. E.D. Mich. 1988)).
2. Excessive time billed to tasks. Although Chapter 13 cases can be complex and require a competent attorney's expertise, Chapter 13 cases are almost exclusively filed using standardized forms that are a part of a bankruptcy software program. These forms include the petition, schedules, statement of financial affairs ("SOFA") and means test. The Chapter 13 Plan is a five (5) page standardized "Model Plan" approved to be used in this District. The financial calculations required in a Chapter 13 case such as the means test (Forms 122C-1 and 2) and the Chapter 13 plan are largely done automatically through the software program. In a broad scope of review by the Court, the billings show that Mr. Sabatini is requesting fees of $4,698 for pre-petition services. In this routine case, it appears as though Mr. Sabatini is billing excessively and duplicatively for simple tasks in gathering the Debtor's financial information and preparing the initial filing papers. Thousands of dollars of time are spent working on the Debtor's budget, requesting documentation, and inputting information in a spreadsheet, where most of this work should not be billed at $415.00 per hour, should be non-billable time and/or should not require the hours allegedly spent (or billed) here. For example, after already incurring approximately $2,000.00 in fees in preparation for filing this standard Chapter 13 case, Mr. Sabatini billed, at $415.00 per hour, an additional:
Mr. Sabatini appears to utilize bankruptcy software from CINcompass, which appears to be an all-encompassing bankruptcy software package for filings under the Bankruptcy Code. Such programs are meant to automate completion of the standardized forms and many of the calculations required whereby the attorney and his staff merely input the relevant data of the debtor. Although much of this process is automated, the Court recognizes that a competent practitioner is still necessary to make sure the bankruptcy forms and legal strategies are properly implemented for the client.
1.2hours on December 17, 2020 for "work on means test" - $498.00;
1.1 hours on December 18, 2020 for "call with client. Work on means test and plan" -$456.50;
2.3hours on December 24, 2020 for "complete due diligence checklist. Finalize plan" -$954.50;
1.7 hours on December 26, 2020 for "Meeting with client to go over the schedules and file online" - $705.50; and
0.60 hours on December 26, 2020 for "Complete filing additional documents and finish post-filing checklist" - $249.00.
It is difficult for this Court to understand how these unreasonably large fees can be incurred at this stage of the case and how the bankrupt Debtor, if he was paying these fees, could afford such fees. However, as discussed below, in a Chapter 13 case these fees are paid from the plan payments that the Debtor is obligated to make so that the Debtor has no real incentive to question the attorney fees since he or she is not directly paying the fees. In most Chapter 13 cases, the attorney fees are being deducted from any payment that would have been paid to the Estate's creditors.
Here, however, it appears as though the Debtor is actually paying most of the attorney fees given the fact that the Second Amended Plan contemplates approximately $10,000.00 in payments above the amount of the filed claims.
3. Duplicative and Overhead charges. Mr. Sabatini's invoice is replete with billing entries at $415.00 per hour for almost every conceivable communication, no matter how minor, relating to a Chapter 13 proceeding. For example,
Mr. Sabatini's billing practices are reminiscent of the Court's observations in In re Szymczak, 246 B.R. 774, 783 (Bankr. D.N.J. 2000):
In reviewing Applicant's time records, it appears the Debtors were billed every time Applicant picked up the telephone, uttered the Debtors' name, or looked at the Debtors' case; even where nothing meaningful occurred. More importantly, time was billed at full attorney rates where the work could, and should have been performed by a secretary or a paralegal. This court is highly skeptical of this practice, and especially discourages it in chapter 13 cases.There, the Court "seriously question[ed] whether Applicant provided the most cost efficient service to Debtors." Id. at 793 n.9.
.1 - 1-5-21 - "receive and review email from Kreider confirming receipt of DSO certification";
.1 - 1-6-21 - "receive and review email from Rodichok at Trustee's confirming receipt of appraisal".
.1 - 1-6-21 - "receive and review email from Rodichok at Trustee's confirming receipt of tax returns".
.1 - 1-11-21 - "receive and review certificate of financial management".
.1 - 1-15-21 - "Email to client regarding new payment address".
.1 - 1-22-21 - "Receive, review, and respond to email from client regarding mortgage payments" [Entered in duplicate on invoice].
.1 - 2-15-21 - "Email to client with notice of new payment address for shed lease".
.1 - 2-24-21 - "Email to Loan Care with signed third-party authorization form".
.1 - 3-12-21 - "Email to client with new payment address for mortgage".
.1 - 3-15-21 - "Email to client regarding new confirmation hearing".
.1 - 5-10-21 - "Email to client regarding withdrawal of objection filed in his case".
The above represents a small sample of billing entries that should have been non-billable overhead or billed at paralegal or secretarial rates. Each of these entries, and many more, represent a charge of $41.50 that is being paid either by the Estate's creditors through a reduction of the creditors' distribution or by an unreasonable increase in the costs to the Debtor.
V. PRESUMPTIVE "NO LOOK" FEES
In this District (and across the country), most attorneys in Chapter 13 cases utilize the presumptively reasonable fee method for billing. In In re Long, 553 B.R. 266, 269 (Bankr. M.D. Pa. 2016), Judge Mary France, now retired from this Court, provided an excellent history and reasoning for instituting a Local Rule in this District for a "presumptively reasonable fee ("PRF"), which is actually a range of fees, [that] was adopted as an alternative to the traditional lodestar approach." Id. at 270. Judge France indicated that the PRF and Local Rule 2016-2 were developed through a fee committee designated by the Court and after "spending approximately one year evaluating the local rules and standing orders of other bankruptcy courts and analyzing current local practices, the committee proposed a new rule specifically addressing the compensation of debtors' attorneys in Chapter 13 cases, which, with some amendments, was adopted in the Rule." Id. at 269. At the time of implementation of the PRF, the amount of $4,000.00 was the PRF for a typical consumer case. This PRF is consistent with other bankruptcy courts that have implemented PRFs. The PRF is not "rigid" in that it allows additional fees for additional services in a case. Id. at 270. "Finally, use of the PRF is not required. An attorney is free to agree with his client that he will be compensated on the basis of time spent times an hourly rate." Id. at 271. If the attorney chooses to forego the PRF arrangement and file a fee application, the Court should review those fee requests under 11 U.S.C. § 330 and 11 U.S.C. § 1325.
The current PRF is $4,500.00 in this District.
In this Circuit, the other Bankruptcy Courts' PRFs are as follows:
E.D of PA - $4,725.00 for below-median income debtors; $5,875.00 for above-median income debtors;
W.D. of PA - $4,000.00;
NJ - $4,750.00;
DE - $4,000.00.
Most Bankruptcy Courts have implemented a PRF procedure similar to this District. It recognizes that many of the services rendered are "standard" in most Chapter 13 cases and streamlines the Chapter 13 process by not requiring formal fee applications and hearings to be conducted. The Court presumes that upon the attorney's affirmation of the work done, fees that are less than or equal to the PRF are deemed to be reasonable. Attorneys may choose to forego this arrangement and file a fee application for any amount of fees which the Court will review under 11 U.S.C. § 330 and 11 U.S.C. § 1325 at the time of confirmation. This procedure properly vests the duty to review attorney's fees with the Court. This District requires the attorney to file a full fee application, including detailed time records, and conduct a full analysis of the fee application. See L.B.R. 2016-2.
Although this is not a PRF case and Mr. Sabatini and his client have agreed to utilize the lodestar method, this Court considers the PRF as a guide or "starting point" to what should be considered a "reasonable" fee in a routine Chapter 13 case in this District. See In re Schuman, 2013 WL 1195279, at *6 (Bankr. N.D.N.Y. Mar. 22, 2013) (describing presumptive fee as "pre-calculated lodestar" and utilizing it as a starting point for review of lodestar fee applications). It is noted that Mr. Sabatini's fee request is more than double the PRF in this District and, is only an interim fee request, meaning that he will presumably bill additional fees. It is with this background that the Court now will look at the legal standards in reviewing fee applications.
VI. DISCUSSION
"Disagreeable as the chore may be, the bankruptcy court must protect the estate, lest overreaching attorneys or other professionals drain it of wealth which by right should inure to the benefit of unsecured creditors." Busy Beaver, 19 F.3d at 844 (citing Cohen & Thiros, P.C. v. Keen Enterprises, Inc., 44 B.R. 570, 573 (N.D. Ind. 1984)). The Third Circuit in Busy Beaver set forth the Court's obligation with respect to reviewing fee applications. In this case, the amount of fees requested by counsel in this routine Chapter 13 case, for the reasons set forth below, are not "reasonable compensation" under the Bankruptcy Code. 11 U.S.C. § 330(a).
Generally, the Court may award "reasonable compensation for actual, necessary services rendered" by debtor's counsel provided that the nature, extent, value, and time spent on the services are necessary, reasonable and required for administration of the estate, see 11 U.S.C. §330(a); however, the onus is on the applicant to prove that, see Zolfo, Cooper & Co. v. Sunbeam-Oster Co., 50 F.3d 253, 261 (3d Cir. 1995).
Under the Bankruptcy Code, Section 330(a) provides:
(1) After notice to the parties in interest and the United States Trustee and a hearing, and subject to sections 326, 328, and 329, the court may award to a trustee, a consumer privacy ombudsman appointed under section 332, an examiner, an ombudsman appointed under section 333, or a professional person employed under section 327 or 1103 -
(A) reasonable compensation for actual, necessary services rendered by the trustee, examiner, ombudsman, professional person, or attorney and by any paraprofessional person employed by any such person; and
(B) reimbursement for actual, necessary expenses.
(2) The court may, on its own motion or on motion of the United States Trustee, the United States Trustee for the District or Region, the trustee for the estate, or any other party in interest, award compensation that is less than the amount of compensation that is requested.
(3) In determining the amount of reasonable compensation to be awarded to an examiner, trustee under chapter 11, or professional person, the court shall consider the nature, the extent, and the value of such services, taking into account all relevant factors, including -
(A) the time spent on such services;
(B) the rates charged for such services;
(C) whether the services were necessary to the administration of, or beneficial at the time at which the service was rendered toward the completion of, a case under this title;
(D) whether the services were performed within a reasonable amount of time commensurate with the complexity, importance, and nature of the problem, issue, or task addressed;
(E) with respect to a professional person, whether the person is board certified or otherwise has demonstrated skill and experience in the bankruptcy field; and
(F) whether the compensation is reasonable based on the customary compensation charged by comparably skilled practitioners in cases other than cases under this title.
(4) (A)Except as provided in subparagraph (B), the court shall not allow compensation for --
(i) unnecessary duplication of services; or
(ii) services that were not -
(I) reasonably likely to benefit the debtor's estate; or
(II) necessary to the administration of the case.
(B) In a chapter 12 or chapter 13 case in which the debtor is an individual, the court may allow reasonable compensation to the debtor's attorney for representing the interests of the debtor in connection with the bankruptcy case based on a consideration of the
benefit and necessity of such services to the debtor and the other factors set forth in this section.
(5) The court shall reduce the amount of compensation awarded under this section by the amount of any interim compensation awarded under section 331, and, if the amount of such interim compensation exceeds the amount of compensation awarded under this section, may order the return of the excess to the estate.
(6) Any compensation awarded for the preparation of a fee application shall be based on the level and skill reasonably required to prepare the application.
(7) In determining the amount of reasonable compensation to be awarded to a trustee, the court shall treat such compensation as a commission, based on section 326.11 U.S.C. § 330(a).
The Pennsylvania Rules of Professional Conduct, which govern attorneys practicing in Pennsylvania, provide similar guidelines for legal fees. Rule 1.5 provides:
Rule 1.5 - Fees
(a) A lawyer shall not enter into an agreement for, charge, or collect an illegal or clearly excessive fee. The factors to be considered in determining the propriety of a fee include the following:
(1) whether the fee is fixed or contingent;
(2) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;
(3) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
(4) the fee customarily charged in the locality for similar legal services;
(5) the amount involved and the results obtained;
(6) the time limitations imposed by the client or by the circumstances;
(7) the nature and length of the professional relationship with the client; and
(8) the experience, reputation, and ability of the lawyer or lawyers performing the services.
Accordingly, under § 330(a), the court may award "reasonable compensation for actual, necessary services rendered" by the attorney and by other professionals "based on (i) the nature of the services, (ii) the extent of the services, (iii) the value of the services, (iv) the time spent on the services, and (v) the costs of comparable services in non-bankruptcy cases." Busy Beaver, 19 F.3d at 840; 11 U.S.C. § 330(a)(4)(A). A bankruptcy court has "broad discretion" to determine reasonable attorneys' fees, as the "bankruptcy court is more familiar with the actual services performed and has a far better means of knowing what is just and reasonable than an appellate court can have." In re ASARCO, L.L.C., 751 F.3d 291, 294 (5th Cir. 2014) (citing In re Lawler, 807 F.2d 1207, 1211 (5th Cir.1987) (internal quotation marks and citation omitted)); In re Smith, 331 B.R. 622, 628 (Bankr. M.D. Pa. 2005). The applicant bears the burden of proving that the fees and expenses sought are reasonable and necessary. Zolfo, 50 F.3d at 261.
B. Third Circuit's Busy Beaver Analysis
The most often cited case in this Circuit relating to fee applications is Busy Beaver. Even though it is almost 30 years old, the analysis and findings of Busy Beaver remain binding precedent and as such, this Court shall rely upon them throughout this Opinion.
In Busy Beaver, the Chapter 11 debtor's counsel submitted an interim fee application for fees and costs incurred in representing the debtor. The bankruptcy court, sua sponte, disallowed certain items of compensation finding that those charges constituted "purely clerical functions." Id. at 837. On appeal, the District Court affirmed, and debtor's counsel appealed to the Third Circuit. The Third Circuit framed the issues before it as:
First, does a bankruptcy court have the power and obligation to review fee applications which have not been the subject of an objection by a party in interest or the United States trustee? We conclude that it does. Second, what standard should a court employ
to determine whether specific paralegal services are compensable? After a thorough examination of the issue, we opt for an objective standard which incorporates the practices in the non-bankruptcy legal market.Id.
Here, similar to Busy Beaver, even though no objections were filed to the Application, this Court has an independent obligation to review fee applications presented for approval. Id. at 841 ("… we think the bankruptcy court has a duty to review fee applications, notwithstanding the absence of objections by the United States trustee ("UST"), creditors, or any other interested party, a duty which the Code does not expressly lay out but which we believe derives from the court's inherent obligation to monitor the debtor's estate and to serve the public interest"); see also Fed.R.Bankr.P. 2017.
Attorney fees are also subject to Court review for reasonableness irrespective of whether the debtor/client is in agreement with the fee amount. §329(b); In re Parilla, 530 B.R. 1, 10 (Bankr. D.P.R. 2015) (in District where PRF is $3,000.00, compensation in amount of $4,792.50 requested by debtors' attorneys for representing debtors in what was typical Chapter 13 case in which majority of work performed by attorneys involved compilation of information and preparation of documents was found to be excessive).
The Busy Beaver Court then reviewed the statutory and textual history of § 330(a) and found that the focus of review should be on "who" performed the service and whether it was reasonable, actual, and necessary. Id. at 848-851. This focus will be evident in this Court's review of the Fee Application in that thousands of dollars of fees would appear to be clerical in nature but billed at one of the highest attorney rates in this District or at similarly high paralegal rates. As the Busy Beaver Court stated, "[w]hen an experienced attorney does clerk's work, he or she should be paid clerk's wages." Id. at 855 (quoting In re Vogue, 92 B.R. 717, 718 (Bankr. E.D. Mich. 1988) (collecting cases at fn. 34).
The court must "always look[] to reasonableness and operate[] by the guidelines that normal secretarial, paralegal, or junior attorney services should be compensated accordingly - for example, simple correspondence, including filing letters, scheduling of meetings, etc., preparation of basic documents such as notice of motion, subpoenas, etc., and routine document review - should be compensated at a lower hourly rate, if compensated at all." In re McDermott, 2009 WL 2905375, at *7 (Bankr. D.N.J. Aug. 24, 2009).
The Busy Beaver Court also correctly noted that objections to fee applications are "relatively uncommon." Id. at 842. However, this observation makes a bankruptcy court's review even more important. The Court identified many reasons for the lack of objections by debtors and creditors:
The debtor will often not object to its attorney's fee application because the fees will frequently be derived from its creditors' award rather than its own assets, see In re Temple Retirement Community, 97 B.R. at 337, or in any case it may be "in no position to make an objective judgment as to the value of the legal services involved, [and it may lack the] inclination to object to whatever fee is requested by the attorney who has made it possible for [it] to continue business," In re Hamilton Hardware Co., 11 B.R. 326, 329-30 (Bankr. E.D. Mich. 1981).
Attorneys for the creditors may also be reluctant to oppose fee requests, whether because of perceived professional courtesy, see In re Hamilton Hardware Co., 11 B.R. at 330 n. 1 (observing that continuing associations in the relatively closed Bankruptcy Bar "foster[] a club atmosphere which militates against effective client representation in matters relating to compensation"); fear of retaliation, see In re Jensen-Farley Pictures, Inc., 47 B.R. 557, 585 n. 39 (Bankr. D. Utah 1985) ("Objections to fee requests often invite retaliation...."); ABI National Report, supra, § 5.2, at 40; cf. In re Consolidated Bancshares, Inc., 785 F.2d 1249, 1255 (5th Cir. 1986) (referring to "a conspiracy of silence" with regard to contesting fee applications); the expectation that the expense of challenging fee applications is not cost-justified because of a creditor's modest interest in each dollar the estate saves, Rheam III, 133 B.R. at 331-32; and/or the fact that, should it lose, the creditor's reward for fighting that battle may be a smaller distribution due to its indirect obligation to pay a proportionate share of the fee applicant's fees ascribable to the defense of his or her fee request, see infra at 847 & n. 17 (discussing split of authority
regarding whether time spent pursuing fees is compensable). See In re Ginji Corp., 117 B.R. 983, 989 (Bankr. D. Nev. 1990). Consequently, the task of reviewing fee applications falls by default onto the bankruptcy courts.Id. at 843. These same reasons remain relevant 30 years later.
As stated in Busy Beaver, in a Chapter 13 such as this case, (i) the debtor has no real incentive to object to his counsel's fees since he or she is obligated to pay a fixed monthly payment based upon a determination of his or her disposable income; and (ii) creditors have no incentive since the cost-benefit of contesting the fees would not warrant a small pro-rata increase in plan distribution amount.
In reviewing fee applications, the court must "conduct an objective inquiry based upon what services a reasonable lawyer or legal firm would have performed in the same circumstance." In re Fleming Companies, Inc., 304 B.R. 85, 89 (Bankr. D. Del. 2003) (quoting In re Cenargo Int'l, PLC, 294 B.R. 571, 595 (Bankr. S.D.N.Y. 2003)) (internal quotations omitted). A "judge's experience with fee petitions and his or her expert judgment pertaining to appropriate billing practices, founded on an understanding of the legal profession, will be the starting point for any analysis." Id. (citing Busy Beaver, 19 F.3d at 854). The court should then consider any evidence submitted with the application or at a hearing. Id. When making its consideration, the court is not required to make a line-by-line analysis of the fee application, and a sampling will suffice. In re Maruko Inc., 160 B.R. 633, 642, 645 (Bankr. S.D. Cal. 1993). "Because its time is precious the reviewing court need only correct reasonably discernible abuses, not pin down to the nearest dollar the precise fee to which the professional is ideally entitled." Busy Beaver, 19 F.3d at 845.
Additionally, a fee applicant's failure to exercise billing judgment will result in reduction of fees where, in the sound discretion of the bankruptcy court, such fees are unreasonable. In re Maxine's, Inc., 304 B.R. 245 (Bankr. D. Md. 2003). "The exercise of billing judgment is the voluntary reduction of a fee by counsel to a private client for services that either conferred a negligible benefit or were excessive." Id. at 249 (citing In re Leonard Jed, 103 B.R. 706, 713 (Bankr. D. Md. 1989)). Such billing judgment is an "absolute requirement" of fee applications in bankruptcy. Maxine's, 304 B.R. at 249.
Judge France, in evaluating a fee application, stated "[a] bankruptcy court must balance adequately compensating attorneys in order to encourage competent counsel to represent bankruptcy debtors with insuring that the costs of administration do not consume assets that otherwise would be available to creditors. In making a fee determination, the court must take into consideration whether the professional exercised "reasonable billing judgment." In re Fontaine, 2015 WL 5162557, at *3 (Bankr. M.D. Pa. 2015). "The court's responsibility to protect the estate is especially important in chapter 13 cases where there is little motivation for a debtor, or creditors, to object to a particular fee allowance." Id. (quoting Symaczak, 246 B.R. at 778).
Based upon these standards, the billing in this case by Mr. Sabatini can only be considered as excessive. To incur over $10,000.00 in attorney's fees in a routine Chapter 13 case, on an interim basis, more closely compares to billings in complex Chapter 11 cases in this District rather than a routine Chapter 13 case. The Court therefore finds that the fees billed in this case are not reasonable under 11 U.S.C. § 330.
C. Reduction of Fees is Warranted
A professional requesting approval of fees and expenses bears the burden to prove that the fees and expenses requested are reasonable. Continental Ill. Nat'l Bank & Trust v. Charles N. Wooten, Ltd. (In re Evangeline Refin. Co.), 890 F.2d 1312, 1326 (5th Cir. 1989); see also In re King, 546 B.R. 682, 711 (Bankr.S.D.Tex. 2016) ("[F]or any fees requested under § 330(a), [t]he applicant bears the burden of proof in a fee application case."). "This burden is not to be taken lightly, especially given that every dollar expended on legal fees results in a dollar less that is available for distribution to the creditors or use by [the] debtor." In re Pettibone Corp., 74 B.R. 293, 299 (Bankr. N.D.Ill. 1987) (citing In re Hotel Associates, Inc., 15 B.R. 487, 488 (Bankr. E.D. Pa. 1981)).
At the September 23, 2021 hearing, Mr. Sabatini identified an Excel workbook that his firm used to prepare his bankruptcy cases. 9/23/21 Tr. at 41-42, Dkt. # 57. He testified that he spent approximately 3,000 to 4,000 hours to prepare the "template" to assist in preparing a client's Chapter 13 case. This amount of time, which would be approximately 1-2 full years of billing time for a professional, seems incredibly and unreasonably excessive to this Court, especially when the Chapter 13 software accomplishes most of these tasks. Although budgeting and comparisons of income and expenses is a vital component of preparing a Chapter 13 case, most attorneys use a commercial software program that includes a worksheet for these types of entries. While it does not appear that Mr. Sabatini has billed for this heightened client preparation worksheet, it does appear indicative of the excessive billing on routine tasks listed throughout the subject Fee Application. Further, assuming this workbook is a benefit in preparing the bankruptcy forms efficiently, one should conclude that the billable time to a case would be substantially less, not substantially more.
Also concerning was Mr. Sabatini's admission that he appears to use his bankruptcy cases as a "loss leader" and covers any lost fees not collected in his Chapter 13 cases by prosecuting Federal Debt Collection and Practice Act claims and Telephone Consumer Protection Act claims. Id. at 73.
MR. SABATINI: For a long time I viewed bankruptcy as a loss leader business. You're familiar with the concept of a loss leader, right, so -
THE COURT: I know exactly what you're saying, yes.
MR. SABATINI: Right. I would use bankruptcy to get them in because of my, you know, the work that we put in the case so that I can, you know, feel like I'm doing what I need to do with my due diligence. This -- I'm not making money on this case. The way I make money is by all of the affirmative claims that I bring for them. I would file Federal Debt Collection and Practice Act claims, Telephone Consumer Protection Act claims, right, and I'd make the money on those claims. So, my partner, Brett Freeman, that's what he does. I get them in the door with the bankruptcy, we find the claims and he makes the money that keeps the lights on, the claims. Bankruptcy is not keeping it on.
THE COURT: Right.
MR. SABATINI: So, I'm trying to make the bankruptcy a -- not a loss leader, right, but -
THE COURT: And, quite frankly, it shouldn't be.
MR. SABATINI: Right.Id. at p. 72-73. What is concerning is that it appears as though the statutory claims that Mr. Sabatini brings on behalf of his clients/debtors are limited to $1,000.00 per claim by statute and the attorney fees have no such limit. Therefore, the debtor may be tied-up in protracted litigation for several years for a $1,000.00 recovery while the case is being prosecuted to recover Mr. Sabatini's attorney fees lost in his "loss leader" cases.
Here, despite two (2) hearings and submission of briefs and supporting papers, Mr. Sabatini did not meet his burden in supporting why he should be allowed fees that are substantially higher than other practitioners in this District. The Court finds there is no justification for billing at one of the highest hourly rates in this District for clerical or paralegal tasks. In this case, the fact that (i) the client is not actually directly paying for the services, (ii) the client has not objected to the fees, (iii) and the amount of allowed fees is deducted from the creditors' distribution, does not provide a basis to gouge the bankruptcy estate.
At the January 12, 2022 hearing, Mr. Sabatini called Mr. Harris as an expert witness on consumer bankruptcy cases. Surprisingly, he never asked Mr. Harris about his billing practices in Chapter 13 cases. After questioning by counsel, the Court questioned Mr. Harris. Mr. Harris indicated that he reviewed Mr. Sabatini's practice procedures for less than one (1) hour, 1/12/22 Tr. at 25, and that he bills most of his Chapter 13 cases at the PRF or in a "very straightforward case" he will "charge something less", id. at 26.
As recognized by the Court in Busy Beaver and other courts since, the debtor/client does not have any real incentive to question the attorneys' bill in a Chapter 13 since he/she pays the same monthly payment to the trustee based upon disposable income.
Even though not required to conduct a line-by-line analysis, this Court has done so. See attached marked-up Invoice. As indicated on the Invoice, the Court has made determinations, based upon its experience not only as Judge in this District reviewing other attorney fee applications, but also based upon being a former Chapter 7 Trustee and practicing in this District for thirty (30) years. See Busy Beaver, 19 F.3d at 854 ("…a bankruptcy judge's experience with fee petitions and his or her expert judgment pertaining to appropriate billing practices, founded on an understanding of the legal profession, will be the starting point for any analysis." (emphasis in original)). It is important to note that most attorneys in this District select the Presumptively Reasonable Fee method in Chapter 13 cases. For those attorneys that do not employ the PRF, most of their billings do not deviate in a material way from the PRF amount of $4,500.00 and are routinely approved by this Court. To allow fee applications that are more than double the PRF in routine Chapter 13 cases where there are no extraordinary issues and not even one (1) court appearance would be an abuse.
Further, the Court notes again that the Fee Application is an interim billing and Mr. Sabatini indicated that additional billings would be submitted. Local Rule 2016-2(c) provided that the PRF is for services "through confirmation of the plan", however, the general practice was that the PRF is the fee for the duration of the case. In fact, L.B.R. 2016-2(c) was amended effective May 2, 2022, to make clear that the PRF "includes all legal services rendered by the attorney through the conclusion of the case."
Where it is clear that Mr. Sabatini's time entries could have been performed by a paralegal or secretary or should have been non-billable, the Invoice is designated with a "P", "S" or "N", respectively. As set forth on the marked-up Invoice, the total reductions are $4,996.00. Based on the above findings, the Court concludes that the amount approved to be paid to Mr. Sabatini under the Fee Application for interim compensation is $5,456.50 after excluding the reductions, and for reimbursement of expenses is $438.07 for the interim period from October 23, 2020 through June 9, 2021.
Although most attorneys do not bill for secretarial time and it is considered non-billable overhead, since this was not discussed at prior hearings, the Court has set secretarial time at $50.00 per hour. See In re Parilla, 530 B.R. 1, 7 (Bankr. D.P.R. 2015) (citing cases indicating secretarial time is a part of overhead).
V. CONCLUSION
For the reasons set forth above, and after considering the totality of the circumstances, the Court finds that Mr. Sabatini's Fee Application is excessive and hereby reduces compensation requested therein to the sum of $5,456.50 and reimbursement of expenses in the sum of $438.07 for the interim period from October 23, 2020 through June 9, 2021, subject to further reduction by the retainer and/or any funds previously paid by Debtor or on his behalf.
Pursuant to Fed.R.Bankr.P. 2017, Mr. Sabatini may request another hearing on this matter by filing an appropriate motion within 14 days of the date of the Order that accompanies this Opinion. See also Busy Beaver, 19 F.3d at 845-846.
The Advisory Committee Notes for this Rule, states that this Rule "is premised on the need for and appropriateness of judicial scrutiny of arrangements between a debtor and his attorney to protect the creditors of the estate and the debtor against overreaching by an officer of the court who is in a peculiarly advantageous position to impose on both the creditors and his client."
An appropriate order will be entered.