In re Abernathy

In re: ROBERT JAMES ABERNATHY and TINA LOUISE ABERNATHY, Debtor.

Case No. 20-11600-ta13

UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW MEXICO

March 19, 2021

OPINION

Before the Court is the fee application of Debtors' chapter 13 counsel, New Mexico Financial and Family Law, P.C. ("Counsel"). In the application, Counsel seeks allowance of $10,170 in professional fees, plus costs and New Mexico gross receipts tax. Because the amount sought is significantly higher than the average fee application for a chapter 13 case in this district, the Court set the matter for hearing. The Court now concludes that it will allow Counsel's professional fees in the amount of $7,500.

1. Facts.

The Court finds:¹

On or about May 4, 2020, Debtors retained Counsel to file this case. The billing rates for the professionals who worked on the case were $250/hour for Don Harris and Dennis Banning and $150/hour for Jill Stevenson. Debtors gave Counsel a $3,000 retainer.

Counsel filed the case on August 11, 2020. The initial filings included the petition, means test, schedules, statement of financial affairs, plan, credit counseling certificate, and attorney fee disclosure. The attorney disclosure stated that Counsel had received a $3,000 retainer and hadagreed to represent Debtors for $250/hr. In Debtors' proposed plan, Counsel estimated its total fees, costs, and taxes would be about $7,500. Given the $3,000 retainer, Counsel estimated that $4,500 would be paid through the plan.

Debtors' schedules reflect total assets of $747,719.87, total debts of $467,119.10, and net monthly income available for plan payments of $1,142.09.

Debtors' plan is relatively simple. Debtors proposed to make monthly payments of $1,000 for 60 months,² which would pay Counsel's fees, trustee fees, a federal tax debt, and a portion of general unsecured claims, pro rata. The plan proposed to pay Debtors' home mortgage and car loan "outside the plan." There were no pre-petition arrearages on either loan, which made plan drafting easier. Finally, the plan proposed to surrender Debtors' RV to the purchase money lender. After the lender sold the RV it would have an unsecured claim for the deficiency. The deficiency claim would be paid pro rata with other general unsecured creditors.

Debtors attended their § 341³ meeting on September 16, 2020. At the meeting Ms. Abernathy apparently told the chapter 13 trustee about a new job.

The plan drew two objections, from New Mexico Taxation and Revenue Department and the chapter 13 trustee.

The claims bar date was October 20, 2020. Ten claims were filed, totaling $465,111.15. Of this amount, $361,626.45 is secured, $6,702.21 is priority (IRS), and $96,782.49 is nonpriority unsecured.

The Court held a preliminary hearing on plan confirmation on October 6, 2020. It set a final hearing for November 10, 2020.

On November 5, 2020, the Court entered a stipulated order granting stay relief to the RV lender so it could repossess and sell the RV.

Debtors' plan was confirmed November 16, 2020, by entry of a stipulated order agreed to by Debtors, the chapter 13 trustee, and counsel for the New Mexico Taxation and Revenue Department. In the confirmation order Debtors agreed to increase their plan payments from $1,000 to $1,350 a month. The increase was needed to satisfy the "projected disposable income" test of § 1325(b)(1)(B), i.e., that plan payments are equal to Debtors' projected monthly disposable income for 5 years.⁴ Debtors also agreed to amend their schedules I and J to reflect Ms. Abernathy's change in employment. They did so.

Surrendering the RV was not as simple as it could have been because the RV had been damaged. Debtors and Counsel decided that it would be better to repair the damage before surrendering the RV, to minimize the deficiency claim.

Counsel billed Debtors 37.2 hours of attorney time and 5.8 hours of paralegal time to get the case through confirmation. The time spent and fees billed can be categorized as follows:

  Category  Attorney time  Paralegal time  Combined fees  Preliminaries; draftingschedules, SOFAs, andplan; documentgathering  7.7  5.3  $2,720  Plan objections andconfirmation  9.3  .3  $2,370  Claims review  4.5   $1,125  Creditors' meeting  1.8  .1  $465  Mortgage review  1.4   $350  Fee application  1.1   $275  Vehicle surrender  6.6   $1,650  State taxes  2.5   $625  Other  2.3  .1  $590  Total 37.2 hours 5.8 hours $10,170 

2. General Requirements for Debtor Attorney Fee Allowance in Chapter 13.

Compensation of counsel for chapter 13 debtors is governed by § 330(a)(4)(B), which provides:

In a ... chapter 13 case ... 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.

This subsection was added to the bankruptcy code by the Bankruptcy Reform Act of 1994.⁵

"[A] chapter 13 debtor has the right to employ counsel so long as the following two requirements are met: 1) the need to disclose compensation paid or agreed to be paid pursuant to section 329 and 2) the need for approval of post-petition payments from property of the estate pursuant to section 330(a)(4)(B)." In re Rosales, 621 B.R. 903, 922 (Bankr. D. Kan. 2021), quoting In re Cahill, 478 B.R. 173, 176 (Bankr. S.D.N.Y. 2012).

Allowance under § 330(a)(4)(B) can include reimbursement of expenses advanced, e.g., filing fees, witness fees, and deposition costs. See, e.g., In re Riley, 923 F.3d 433, 443 (5th Cir. 2019); In re Frazier, 569 B.R. 361, 369 (Bankr. S.D. Ga. 2017); In re Genatossio, 538 B.R. 615, 617 (Bankr. D. Mass. 2015) (§ 330(a)(4)(B) permits an award of fees and expenses); In re Pastran, 462 B.R. 201, 213 (Bankr. N.D. Tex. 2011) (same); In re Marvin, 2010 WL 2176084 (Bankr. N.D. Iowa 2010) (allowing reimbursement of expenses); In re Williams, 384 B.R. 191, 194 (Bankr. N.D. Ohio 2007) (court may award fees and expenses); cf. In re Marotta, 479 B.R. 681, 689 (Bankr. M.D.N.C. 2012) (advance for the filing fee is not recoverable under § 330(a)(4)(B)).

"The attorney seeking compensation bears the burden of proving entitlement to all fees and expenses requested." In re Dille, 2021 WL 864201, at *2 (Bankr. W.D. Mo.), citing In re Kula, 213 B.R. 729, 736 (8th Cir. BAP 1997); In re Cooke, 2020 WL 6821730, at *3 (Bankr. D. Ariz.), citing In re Roderick Timber Co., 185 B.R. 601, 606 (9th Cir. BAP 1995) "This burden is not to be taken lightly given that every dollar expended on legal fees results is a dollar less that is available for distribution to the creditors." Dille, 2021 WL 864201, at *2, citing In re Ulrich, 517 B.R. 77, 80 (Bankr. E.D. Mich. 2014).

In determining the reasonableness of compensation under § 330(a)(4)(B), the Court considers the factors set out in § 330(a)(3). In re Rosales, 621 B.R. at 927; In re Hunt, 588 B.R. 496, 499 (Bankr. W.D. Mich. 2018).

3. Determining How Much Compensation Should be Allowed.

"To be compensable, the fees must be for services that were 'actual' and 'necessary.' § 330(a)(1)(A). If the applicant clears these hurdles, then the fees must be 'reasonable.'" In re Railyard Company, LLC, 2017 WL 3017092, at *3 (Bankr. D.N.M.); see also In re Lederman Enterprises, Inc., 997 F.2d 1321, 1323 (10th Cir. 1993) (same); In re Commercial Financial Services, Inc., 427 F.3d 804, 810 (10th Cir. 2005) (same).

a. Actual Services. Compensation can only be allowed for "actual" services performed. See, e.g., In re Orthopaedic Technology, Inc., 97 B.R. 596, 601 (Bankr. D. Colo. 1989) ("The Code requires that the services actually be performed before the compensation is awarded. Therefore, work to be performed does not qualify for actual services rendered"). This is not an issue here.

b. Necessary Services. Necessity is a question of "whether the services were necessary to the administration of, or beneficial toward the completion of a case." In re SchupbachInvestments, LLC, 521 B.R. 449, at *8 (10th Cir. BAP 2012) (unpublished); In re Hungry Horse, LLC, 2017 WL 3638182, at *3 (Bankr. D.N.M.) (same). In chapter 13 cases, the benefit can be to the debtor rather than the estate. In re Guajardo, 2020 WL 4919794, at *3 (Bankr. D.N.M.); In re Williams, 378 B.R. 811, 823 (Bankr. E.D. Mich. 2007) (§ 330(a)(4)(B) is an exception to the general rule that professionals' services must benefit the estate to be compensable); In re Argento, 282 B.R. 108, 116 (Bankr. D. Mass. 2002) (same).

Reviewing the docket in this case and Counsel's fee bills, the Court concludes that work was necessary in each category outlined in the table above.

c. Reasonable Compensation. In the Tenth Circuit, bankruptcy courts ruling on the reasonableness of professional fees must weigh the factors in § 330(a)(3) and those discussed in Johnson v. Georgia Highway Exp., Inc., 488 F.2d 714, 717-719 (5th Cir. 1974). See In re Market Center East Retail Property, Inc., 730 F.3d 1239, 1246-47 (10th Cir. 2013). Under § 330(a)(3) the Court must consider:

(1) the time spent on such services;

(2) the rates charged for such services;

(3) 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;

(4) 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;

(5) with respect to a professional person, whether the person is board certified or otherwise has demonstrated skill and experience in the bankruptcy field; and

(6) whether the compensation is reasonable based on the customary compensation charged by comparably skilled practitioners in cases other than cases under this title.

The Johnson factors are:

(1) The time and labor required;

(2) The novelty and difficulty of the questions;

(3) The skill requisite to perform the legal service

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