Opinion
CASE NO. 02-41399-H3-13
April 10, 2003
MEMORANDUM OPINION
The court has considered the "Motion for Reconsideration or, Alternatively, for Findings of Fact and Conclusions of Law, of David L. Venable's Chapter 13 Fee Application Filed January 29, 2003" (Docket No. 19). The following are the Findings of Fact and Conclusions of Law of the court. A separate Judgment will be entered granting the fees requested. To the extent any of the Findings of Fact are considered Conclusions of Law, they are adopted as such. To the extent any of the Conclusions of Law are considered Findings of Fact, they are adopted as such.
Findings of Fact
Robert Lee Wilson and Hazel Louise Wilson ("Debtors") filed a voluntary petition under Chapter 13 of the Bankruptcy Code on October 1, 2002. David L. Venable is Debtors' counsel of record.
The court takes judicial notice of the docket sheet in the instant case. The court also takes judicial notice of the opinions in In re Wilkins, Case No. 93-45078-H5-13 (Slip Op., June 14, 1994); In re Carriere, Case No. 95-44185-H3-13 (Slip Op., July 21, 1997), and In re Robinson. Case No. 98-41812 (Slip Op., September 4, 2002), and the evidence adduced with respect to those opinions.
The issues in the instant case were relatively routine: Debtors, with assistance and consultation of Venable, filed the petition and schedules, attended a meeting of creditors, obtained the withdrawal of a confirmation objection by the Internal Revenue Service, obtained withdrawal of a motion to dismiss filed by the Chapter 13 Trustee, and obtained confirmation of their Chapter 13 plan.
Venable filed a fee application (Docket No. 10), in the form set forth in Robinson. In the application, Venable stated approximate time of 6.6 hours, at an hourly rate of $220 per hour. Multiplying the hourly rate by the hours stated in the application yields a product of $1,452.00. Notwithstanding that product, Venable sought allowance of attorney fees of $1,500.00. The fee application, on its face, states no rationale for the allowance of $1,500.00.
This court allowed a fee of $1,452.00. (Docket No. 16). In the instant motion, Venable seeks reconsideration of his request for $1,500.00. In the instant motion, Venable asserts, and the court treats such assertion as uncontested, that Debtors and Venable entered into a legal fee agreement whereby Debtors were to pay Venable $1,500.00 as a flat fee to perform a list of routine services. He asserts that the purpose for agreeing to the flat fee is to provide both Debtors and Venable a predictable fee for the performance of certain tasks. He further asserts that certain post-confirmation services are included in the fee, including routine communications with Debtors, creditors, and the Chapter 13 Trustee during the term of the plan.
Conclusions of Law
Prior to the adoption of Wilkins, the Bankruptcy Court for the Southern District of Texas lacked consensus as to how to calculate attorney fees in Chapter 13 cases. Wilkins, (Slip Op., June 14, 1994, at p. 4).
Section 330 of the Bankruptcy Code, as it then existed, provided for allowance of "reasonable compensation for actual, necessary services . . . based on the nature, the 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 Title 11, and "reimbursement of actual, necessary expenses." 11 U.S.C. § 330(a) (1978) (amended 1994).
In Wilkins, the court noted the absence of statutory guidance other than the language of Section 330. The court first considered the lodestar method of calculation, based on the Fifth Circuit's opinion inLawler v. Teofan (In re Lawler), 807 F.2d 1207 (5th Cir. 1987). The lodestar, as defined in Transamerican Natural Gas Corp. v. Zapata Partnership. Ltd. (In re Fender), 12 F.3d 480 (5th Cir. 1994) cert den., 511 U.S. 43 (1994), is:
computed by multiplying the number of hours reasonably expended by the prevailing hourly rate in the community for similar work. The court then adjusts the lodestar upward or downward depending upon the respective weights of the twelve factors set forth in Johnson v. Georgia Highway Express, Inc., 488 F.2d 714, 717-19 (5th Cir. 1994).
Wilkins, (Slip Op., June 14, 1994, at p. 4).
In Wilkins, however, the court distinguished the Chapter 13 practice from the commercial litigation and business bankruptcy practice analyzed in Johnson, Fender, and Lawler. The court stated:
In a consumer bankruptcy setting, however, the practice of law responds to a different market and a different economic reality than that found in commercial litigation or business bankruptcy. Typically, an economically successful consumer bankruptcy practice is based upon the efficient, mechanized handling of a high volume of cases. This "mechanization" involves increased use of paralegals and minimal expenditure of lawyer time.
Wilkins. (Slip Op., June 14, 1994, at p. 5). The court further noted that:
By and large, chapter 13 debtors in simple cases are buying a product — a consumer product. A simple case involves routine pleadings, routine hearings, and routine results. Although the lawyers who render these services effectively have made these services routine through years of training and experience, (and sometimes the fortuitous presence of uniform rulings and/or predictable judges and trustees), the end result of this routineness is nevertheless a "product" or commodity. As such, it must have a price. Only when the product has to be "customized" because of something out of the ordinary, such as a client's particular needs or the exigencies created or demanded by creditors, do the fees have to be approached from a more traditional hour-by-hour basis.
Wilkins, (Slip Op., June 14, 1994, at p. 8).
The court in Wilkins did not eliminate consideration of the lodestar method when calculating attorney fees in Chapter 13 cases when fees are contested. However, the court set up a group of presumptively necessary pre-confirmation services, and established a threshold fee of $1,500.00, below which the fee would not be challenged in the absence of an objection. Those services included initial consultation; preparation of the petition, schedules, statement of financial affairs, and plan; appearance by counsel at the Section 341 meeting of creditors; appearance by counsel at the confirmation hearing and any hearings on motions to dismiss; representation with respect to any pre-confirmation motions for relief from stay; and representation with respect to any claim objections or motions for valuation necessary to obtain confirmation.
Under the Wilkins approach, with respect to Chapter 13 cases in which attorney fees sought exceeded $1,500.00, or in which lesser amounts of fees were objected to by the Chapter 13 trustee or other interested parties, proof of time, services, and reasonableness was necessary.
Shortly after the court adopted Wilkins, Congress amended Section 330 of the Bankruptcy Code, to provide additional guidance on the question of the amount of reasonable compensation to be awarded. Section 330(a)(3) now provides:
(3) In determining the amount of reasonable compensation to be awarded, 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; and
(E) whether the compensation is reasonable based on the customary compensation charged by comparably skilled practitioners in cases other than cases under this title.
11 U.S.C. § 330(a)(3) (1994).
Three years later, the Bankruptcy Court for the Southern District of Texas revisited the Wilkins approach in Carriere. InCarriere, the court, after hearing testimony from all of the standing Chapter 13 trustees and from practicing attorneys who filed a request to appear and be heard, concluded that the "presumptively reasonable `threshold' attorneys' fee of $1,500.00 for standard Chapter 13 cases" would not be changed. Carriere. (Slip Op., July 21, 1997, at p. 5).
In 1998, the court promulgated a standing order governing fee applications for Debtors' counsel in Chapter 13 cases. The standing order (General Order 1998-4) set forth a set of procedural requirements for attorney fee applications, including the filing of a "Chapter 13 Fee Notice" stating whether the fees anticipated to be sought were expected to be under $1,500.00 in fees and $75.00 in expenses; a standard form of fee application; and the timing of any hearings or distribution on fee applications.
In In re Robinson, Case No. 98-41812 (Slip Op., September 4, 2002), the court revisited the underlying rationale of Wilkins. The court noted that the Wilkins approach, which was extended by Carriere:
has as its unintended consequence the effect of disguising as efficient and productive, debtor representation which is in fact poor or simply unresponsive to the needs of the client and the creditors. Moreover, testimony at the en banc hearing made plain that reasonable minds differ over what services should be included in a "standard" chapter 13 case entitling counsel to the "benchmark" fee.
Robinson. (Slip Op., September 4, 2002, at p. 1-2).
The court further noted that:
Some attorneys deal with the benchmark by avoiding client phone calls, avoiding preparing written responses to motions or objectionable claims, or by screening out potential clients who have problems that cannot be resolved for $1,500.
Adhering to the benchmark causes burnout, a frantic pace and mistakes, and pressures counsel to complete each case within a certain amount of time at a certain cost regardless of whether a particular client wants more responsiveness and is willing to pay more for it.
Robinson, (Slip Op., September 4, 2002, at p. 1-2).
In light of the court's findings, the court in Robinson adopted a "market approach" to chapter 13 attorney fees and set aside the benchmark adopted in Wilkins and extended inCarriere. The court's order, which superseded Wilkins, Carriere. and General Order 1998-4, provided for the filing of a fee application no later than five days prior to confirmation, with a courtesy copy delivered to chambers. The order in Robinson adopted a truncated format for fee applications, and stated that fee applications would be approved at the confirmation hearing or set for hearing at that time.
Since the entry of the opinion in Robinson, this court's experience with the truncated format for fee applications and the other provisions of Robinson has proved unworkable.
The truncated form of fee application has resulted in counsels' using estimates for time spent in particular matters, with no basis in reality, and applying such estimates to each matter in which the attorney appeared. As an illustrative example, one attorney listed 12 hours of attorney time to attend eight Section 341 creditors' meetings on the same date.
See In re Bacha, Case No. 02-80554-G3-13 (Docket No. 11); In re Gosell, Case No. 02-80558-G3-13 (Docket No. 9);In re Fortney, Case No. 02-80559-G3-13 (Docket No. 10); In re Yarbrough, Case No. 02-80560-G3-13 (Docket No. 9); In re Whittington, Case No. 02-80562-G3-13 (Docket No. 13);In re Spruill, Case No. 02-80564-G3-13 (Docket No. 10); In re Rankin, Case No. 02-80577-G3-13 (Docket No. 9); and In re Ardion, Case No. 02-80580-G3-13 (Docket No. 9).
The truncated forms of fee application are often filed later than five days prior to confirmation. The practice of delivery of courtesy copies to chambers has been an inefficient use of the resources of chambers staff. The truncated forms have often been delivered incomplete.
The truncated form of fee application does not provide information sufficient to evaluate whether 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, as required under Section 330(a)(3)(D).
As a result, it has become impossible for this judge to evaluate whether the hourly rates of counsel reflect the efficiencies of experience gained, or merely the sense of self-worth of each particular attorney. Higher hourly rates may be justified by the complexity of a particular case, and/or the experience and efficiency of the attorney. Use of experienced attorney time may be justified by exigencies which require the immediate services of counsel, when if more time were available, paraprofessionals would suffice. These elements are not adequately reflected in the truncated form, resulting in the need to set hearings, which is time consuming for counsel and for the court.
Moreover, with respect to cases dismissed prior to confirmation, court scrutiny of requests for attorney fees is presently inefficient and ineffective. See, e.g., In re Phillips. Case No. 02-35075-H2-13 (Slip Op., March 5, 2003, at p. 2).
The net result of the individual evaluation of each Chapter 13 fee application under the Robinson practice is extremely time consuming and an inefficient use of court resources. See,Phillips, Case No. 02-35075-H2-13 (Slip Op., March 5, 2003, at p. 1).
Accordingly, as to cases assigned to this judge, Robinson is superseded. Instead:
1) Immediately upon the filing of a Chapter 13 case which is assigned to this judge, counsel shall provide to the Debtors a copy of the form titled "Rights of Chapter 13 Debtors Regarding Fees of Debtors' Attorney." A copy of the form is attached to this opinion as "Exhibit A".
2) Debtors' Counsel in Chapter 13 cases shall file a fee application with respect to services rendered prior to confirmation no later than 20 days after the date of entry of an order confirming the plan. Any fee applications filed later than 20 days after the date of entry of an order confirming the plan, with respect to services rendered prior to confirmation, may be denied with prejudice. Failure to file a fee application should be expected to result in the allowance of no fees.
3) As to fee applications filed in the truncated format set forth in Robinson, the court will enter an order directing counsel to file a fee application setting forth the information required pursuant to this order within 20 days. If such a fee application is not filed within 20 days of the date of entry of the order, the fees may be denied with prejudice.
4) Counsel shall serve the fee application on Debtors, Trustee, the United States Trustee, all secured and priority creditors, and the holders of the five largest unsecured claims.
5) The fee application shall state the time period covered by the application, the information required by Bankruptcy Rule 2016, the fees sought, and the fees and expenses paid by the Debtors prior to the filing of the petition. The fee application shall contain the negative notice language of Local Bankruptcy Rule 9013, and shall set forth, by date, the hours spent, the hourly rate of the attorney providing the service, and the service provided.
6) If the time records with respect to the fee applications are less than ten pages, counsel shall file the time records as part of the fee application, rather than as an "attachment." If the time records are filed as an "attachment" and not scanned by the Clerk, counsel shall submit courtesy copies of the time records to the judge's case manager.
7) If a plan is confirmed, as to services rendered prior to confirmation, the court does not anticipate aggressively scrutinizing fee applications as to which no response is filed, and the amount of the fees sought does not exceed $1,750.00.
8) With respect to services rendered in defense of post-confirmation motions for relief from stay, the court does not anticipate aggressively scrutinizing fee applications as to which no response is filed, and the amount of the fees sought does not exceed $350.00.
9) With respect to services rendered in preparing and prosecuting a motion to modify the Chapter 13 plan, the court does not anticipate aggressively scrutinizing fee applications as to which no response is filed, and the amount of the fees sought does not exceed $350.00.
10) With respect to services not described in paragraphs 7), 8), and 9) above, the court may set an evidentiary hearing. These hearings will usually be set on a date when other matters in Chapter 13 cases are set.
11) With respect to services rendered in Chapter 13 cases dismissed prior to confirmation, Debtors' counsel shall file any fee application no later than 20 days after the date of entry of the order of dismissal. Any fee applications filed later than 20 days after the date of entry of an order of dismissal will be denied with prejudice. A separate motion seeking payment pursuant to Sections 503(b) and 1326(a)(2) is not necessary, and will ordinarily be denied.
12) With respect to fee applications set for an evidentiary hearing, counsel should be prepared to testify to justify the necessity or benefit of the services, the time spent, and the hourly rate.
Based on the foregoing, a separate Judgment will be entered granting the fees requested in the above captioned case.
JUDGMENT
Based on the separate Memorandum Opinion signed this same date, it is
ORDERED that the "Motion for Reconsideration or, Alternatively, for Findings of Fact and Conclusions of Law, of David L. Venable's Chapter 13 Fee Application Filed January 29, 2003" (Docket No. 19) is granted; the fees of David L. Venable are allowed, in the amount of $1,500.00. This judgment supersedes the order at Docket No. 16.
Rights of Chapter 13 Debtors Regarding Fees of Debtors' Attorney (for cases before the Honorable Letitia Z. Clark)
1) Attorneys who represent Debtors in cases before this court are required to send this notice to you. This notice outlines the procedure for contesting the fees sought by your attorney.
2) Your attorney is required to provide the following services to you, if necessary: initial consultation; assist in preparation of the petition, schedules, statement of financial affairs, and plan; appear at the Section 341 meeting of creditors; appear at the confirmation hearing and any hearings on motions to dismiss; represent you with respect to any pre-confirmation motions for relief from stay; and represent you with respect to any claim objections or motions for valuation necessary to obtain confirmation of the Chapter 13 plan.
3) Your attorney may apply to the court to allow attorney fees to be paid through the Chapter 13 plan. If your attorney does so, your attorney must send a copy of the fee application to you.
4) If your Chapter 13 plan is confirmed, your attorney must file a fee application within 20 days after the order confirming the plan is entered. If your case is dismissed, your attorney must file any fee application within 20 days after the date of dismissal.
5) Your attorney may seek additional fees for services rendered after the confirmation of a plan.
6) If you object to the fees charged by your attorney, you must file an objection within 20 days after your attorney files a fee application. If you file an objection, the court will set the fee application for a hearing. If you need instructions on how to file an objection, you may call the Judge's case manager, at (713) 250-5410.
7) Your attorney is your attorney of record in your case, unless your attorney is given permission by the court to withdraw or another attorney is given permission by the court to substitute as your attorney of record. Your attorney is required to appear on your behalf at any hearing in your case.