Opinion
Case No. 00-58434.
December 8, 2006
OPINION REGARDING PENDING FEE APPLICATIONS AND PREVIOUSLY APPROVED INTERIM FEE APPLICATIONS
This case came before the Court for a hearing on December 6, 2006. The Court set the hearing in its Order filed November 26, 2006 (Docket #123). That Order and the December 6, 2006 hearing concerned the following pending fee applications:
1. A fee application by the accountant for the Chapter 7 Trustee, filed on November 24, 2004, and entitled "Second and Final Application of John Bohl Associates, L.L.C. For Compensation And Costs For Services Rendered As Accountants For Chapter 7 Trustee" (Docket # 97), seeking fees in the amount of $6,378.00 and expenses in the amount of $232.08;
2. The second and final fee application of the attorney for the Chapter 7 Trustee, filed on September 14, 2006, entitled "Second And Final Fee Application Of Attorney For Trustee For Services Rendered Between September 1, 2003 Through September 14, 2006" (Docket # 120), seeking fees in the amount of $5,632.25 and expenses in the amount of $261.07; and
3. The final fee application of the Chapter 7 Trustee, filed on October 5, 2006 in the document entitled "Trustee's Final Report, Trustee's Application For Final Compensation And Reimbursement Of Expenses, Report of Receipts, Disbursements And Notice Of Abandonment And Proposed COD" (Docket # 121), seeking fees in the amount of $13,180.47 and expenses in the amount of $507.86.
Also before the Court for hearing on December 6, 2006, for final review and approval, were all the previous interim fee applications of all professionals in this Chapter 7 case, which the Court previously approved on an interim basis. These are:
1. The first interim fee application of the attorney for the Chapter 7 Trustee, filed on September 25, 2003, entitled "First Interim Fee Application Of Attorney For Trustee For Serviced Rendered Between November 14, 2002 Through August 31, 2003" (Docket # 70), seeking fees in the amount of $5,297.50 and expenses in the amount of $465.86;
2. The first interim fee application of the Chapter 7 Trustee, filed on July 17, 2003, entitled "Trustee's First Application For Allowance Of Interim Compensation" (Docket # 61), seeking fees in the amount of $6,288.98 and 0.00 in expenses;
3. The first interim fee application of special counsel for the Chapter 7 Trustee, filed on December 31, 2002, entitled "Howard Howard Attorneys, P.C.'s First Application For Award Of Fees And Expenses As Counsel For Trustee Michael A. Stevenson" (Docket # 45), seeking fees in the amount of $113,990.00 and expenses in the amount of $1,781.06;
4. The second fee application of special counsel for the Chapter 7 Trustee, filed on April 28, 2006, entitled "Howard Howard Attorneys, P.C.'s Second Application For Award Of Fees And Expenses As Counsel For Trustee Michael A. Stevenson" (Docket # 86), which originally sought fees in the amount of $105,974.50 and expenses in the amount of $1,524.41; and
The fees and expenses requested in this fee application were voluntarily reduced and the Court approved a total of $59,000 for both fees and expenses on an interim basis. ( See Docket # 96).
5. The first interim fee application for the accountant of the Chapter 7 Trustee, filed on April 30, 2003, entitled "First Interim Application of John Bohl, Associates, L.L.C. For Compensation And Costs For Services Rendered As Accountants For Chapter 7 Trustee" (Docket # 51), seeking fees in the amount of $75,538.50 and expenses in the amount of $737.08.
As the Court noted in its November 26, 2006 Order, collectively the applicants seek fees totaling $285,214.98, plus reimbursement of expenses. By comparison, it appears that the applicants' efforts benefitted the estate, at most, in the amount of $324,388.96 (the total receipts listed on the Trustee's Final Report). Thus, the fees requested, if approved, would amount to approximately 88% of the amount collected with the assistance of applicants' services.
As indicated in the November 26, 2006 Order, the purpose of the December 6, 2006 hearing was to determine whether the requested fee amounts should be reduced, given the amount of the benefit to the estate in this case. See, e.g., 11 U.S.C. §§ 330(a)(2), (a)(3)(C), (a)(3)(E), (a)(4)(A)(ii); In re Allied Computer Repair, Inc., 202 B.R. 877, 887-89 (Bankr. W.D. Ky. 1996).
Each of the fee applicants was represented at the December 6 hearing. Appearing were the Chapter 7 Trustee (Michael Stevenson); counsel for Howard Howard, the Trustee's special counsel; counsel for Stevenson Bullock, the Trustee's general counsel; and John Bohl, the Trustee's accountant. During the hearing the Trustee and Mr. Bohl confirmed that Mr. Bohl was withdrawing his pending ("Second and Final") fee application filed November 24, 2004 (Item #1 under the pending-fee application list above; Docket #97). Otherwise, the parties all urged the Court to allow on a final basis all of the pending fee applications and the fees previously allowed on an interim basis. The Court took the matter under advisement.
Upon consideration, the Court concludes that the aggregate amount of fees requested by the Trustee and the other professionals in this case is excessive and unreasonable. Disregarding the fee application filed by accountant John Bohl on November 24, 2004, which was withdrawn at the December 6, 2006 hearing, the total of the fees (1) allowed and previously paid on an interim basis; plus (2) now requested by the Trustee and counsel for the Trustee, is $277,403.29. That is approximately 86% of the amount collected with the assistance of the applicant's services in this case. As the Trustee's final report indicates, this would leave only $46,366.93 for distribution to general unsecured creditors, for a dividend of 1.48%. The Court has carefully considered the record of this case and the facts and arguments presented by the professionals at the December 6, 2006 hearing, and concludes that the aggregate fees of the Trustee and all professionals should not exceed 70% of the total amount recovered for the estate, which means a total-fee cap of $227,072.27. This maximum amount arguably still too high, but the Court will use this maximum rather than a lower number, given all of the circumstances described by the professionals at the hearing.
This total assumes that the $59,000.00 reduced-amount allowed and paid to Howard Howard on their second fee application (Item #4 listed on p. 2 above) was $57,475.59 ($59,000.00 minus the expenses requested in that fee application of $1,524.41).
See Proposed Certificate of Distribution, attached to Trustee's Final Report, filed October 5, 2006 (Docket #121). As the Trustee's Final Report indicates, there are no secured or priority creditors to be paid ahead of the general unsecured creditors at this point in the case, other than the professionals whose fee applications are subject to this Opinion.
See, e.g., In re Allied Computer Repair, Inc., 202 B.R. at 888 (holding that "a reasonable award of attorney fees and expenses attributable to an attorney's representation in a particular adversary proceeding should be limited to certainly no more than 50% of the amount recovered through the adversary proceeding by the Applicant. In fact, efforts should be made by the attorney to hold fees substantially below that percentage of recovery.")
The professionals may wish to agree to a particular allocation among themselves of the maximum fees allowable of $227,072.27. If they do, they may file a stipulation and submit a proposed order reflecting that agreed allocation. In the absence of such an agreement among the Trustee and all of the professionals, approved by the Court, the allocation of fees must be a pro-rata allocation based on the following analysis.
The Court's pro-rata allocation of fees payable takes into consideration the fact that two of the professionals, Howard Howard and John Bohl, have previously foregone fees for time spent and work done in this case, by agreement with Trustee. This was done in an effort to address the problem that total fees were too high in relation to the amounts recovered in this case. Howard Howard voluntarily reduced their requested fees in connection with their second fee application by $48,498.91. And John Bohl, as noted above, withdrew his second fee application, in the amount of $6,378.00. It is fair and appropriate, notwithstanding these previous, voluntary reductions agreed to by these two professionals, to take into account the total amount of fees incurred by these professionals in this case in arriving at a pro-rata distribution. The following table is the Court's analysis of the numbers: allowed fees previously paid now requested foregone: Total: at 68.34% pro rated: $19,469.45 $10,929.75 $171,465.59 $219,964.50 $81,916.50 $332,280.20 $227,072.27
This Opinion limits fees, but not expenses. All expenses sought by Trustee and the other professionals in this case are allowed at 100%.
See discussion at p. 2, 2n. 1, and 3 n. 2 of this Opinion.
This pro-rata allocation will require disgorgement of some of the fees previously paid to Howard Howard and to John Bohl. The following table shows the amounts still to be paid (the positive numbers, to be paid to the Trustee and Steven Bullock) and the amounts to be disgorged (the negative numbers, to be disgorged by Howard Howard and John Bohl) in order to achieve the pro-rata allocation: pay to/disgorge:
Trustee $7,015.97 S B $2,171.63 H H -$21,147.16 Bohl -$19,558.74 Net: -$31,518.30 In this table, the "Net" of -$31,518.30 is the amount, stated as a positive number, which will be added to the funds to be distributed to the general unsecured creditors, so that the new total amount to be distributed to those general unsecured creditors will be approximately $77,885.23. This is a substantial increase in dollar amount, and will increase the dividend to general unsecured creditors to approximately 2.48%.The Court takes no pleasure in reducing the fees of the Trustee and the other professionals, all of whom are highly competent and made significant efforts to recover as much as possible for the estate. However, the Court has "the authority to reduce the requested attorney fees when disproportionate to the benefit produced thereby," and a duty to ensure that professional fees are not "out of balance for the benefit to the estate produced by the [applicants'] services." See In re Allied Computer Repair, Inc., 202 B.R. at 887, 888.
For these reasons, the Court will allow, on a final basis, total fees in the following amounts for this case:
Trustee $13,304.95 S B $7,469.13 H H $150,318.43 Bohl $55,979.76 Total: $227,072.27 To the extent a professional has been paid more than the above allowed fee amounts, they must promptly disgorge the excess to the Trustee. And, as noted above, if and to the extent the Trustee and the other professionals in this case all agree to a different allocation of fees, they may file a stipulation and submit a proposed order reflecting that agreed alternative allocation, so long as the total fees do not exceed $227,072.27.The Court will enter a separate Order.