In re Charleston

640 B.R. 131

IN RE: Daniel M. CHARLESTON, and Tyiesha I. Charleston, Debtors.

Case No. 17-57711

United States Bankruptcy Court, E.D. Michigan, Southern Division.

Signed May 17, 2022

Wendy Turner Lewis, Detroit, Michigan, Chapter 7 Trustee.

Robert A. Peurach, Alpharetta, Georgia, Attorney for Chapter 7 Trustee, Dakmak Peurach P.C., and Bernardi, Ronayne & Glusac, P.C.

Rodney M. Glusac, Plymouth, Michigan, Attorney for Chapter 7 Trustee, and Bernardi, Ronayne & Glusac, P.C.

OPINION AND ORDER REGARDING FEE APPLICATIONS

Thomas J. Tucker, United States Bankruptcy Judge

I. Introduction

This case is before the Court on the following fee applications:

1. The fee application of Dakmak Peurach, P.C., former attorneys for the Chapter 7 Trustee, filed on January 27, 2022, entitled "First and Final Fee Application for Allowance of Compensation for Attorneys for the Trustee for the Period of Time from March 5, 2018 Through July 17, 2019," (Docket # 90), seeking fees in the voluntarily-reduced amount of $19,350.00 and expenses in the amount of $72.77;

2. The fee application of the successor attorneys for the Chapter 7 Trustee, filed on January 27, 2022, entitled "Final Application of Bernardi, Ronayne & Glusac, P.C., For Award of Fees and Reimbursement of Expenses As Attorneys for Trustee" (Docket # 91), seeking fees in the voluntarily-reduced amount of $3,450.00, and expenses in the amount of $16.83; and

3. The fee application of the Chapter 7 Trustee, filed on January 30, 2022, in the document entitled "Trustee Application for Final Compensation and Reimbursement of Expenses" (Docket # 92), seeking fees in the amount of $4,763.43 and expenses in the amount of $75.00.

(The fee applicants listed above are referred to below as the "Applicants.")

No timely objections to the fee applications were filed. But the Court concluded that a hearing was necessary. The Court stated the following in the Order setting the hearing:

The Court notes that the two requested attorney fees plus the Trustee fee requested total $27,563.43, plus reimbursement of expenses. By comparison, it appears from the Trustee's final report and the Trustee's fee application that the Applicants’ efforts benefitted the estate, at most, in the amount of $40,134.33 (the total receipts listed on the Trustee's final report, and the "net estate" amount stated in ¶ 4 of the Trustee's fee application). Based on these numbers, the fees requested by the Applicants, if approved, would amount to 68.7% of the amount collected with the assistance of Applicants’ services.

The Court notes that the proposed distribution in the Trustee's final report, and paragraph 4 of the Trustee's fee application (Docket # 92), do not appear to include all of the estate assets or all of the attorney fees in this case. They do not include all of the gross settlement amount from the products liability claim that was approved by the Court's Order filed August 23, 2021 (Docket # 82), which was a total of $98,807.55. That total amount, minus the Debtor Tyiesha Charleston's allowed and paid exemption of $15,000.00, equals $83,807.55. That appears to be the correct amount of the realized assets of the estate in this bankruptcy case. The proposed distribution in the Trustee's final report also does not list the attorney fees approved and paid to the special counsel who represented the Trustee in the products liability case that was settled. The fee application filed by Bernardi, Ronayne & Glusac, P.C. (Docket # 91) states, in paragraph 4(c), that those special counsel fees were "[a]pproximately $50,500.00." Actually, the fees allowed and paid to special counsel total $34,582.64, according to the numbers in Exhibit C to the settlement motion filed at Docket # 80 (at pdf page 26 of 26) (public access restricted). Adding the special counsel fees already paid ($34,582.64) to the total of the fees now requested by the Applicants ($27,562.43) would equal total fees of $62,145.07. That total fee amount would equal 74.2% of the total estate assets of $83,807.55.

The purpose of the hearing is 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.,In re Randle , [637 B.R. 7 (Bankr. E.D. Mich. 2022) ]; In re Meda , 634 B.R. 946 (Bankr. E.D. Mich. 2021) ; In re The Village Apothecary, Inc. , 626 B.R. 893 (Bankr. E.D. Mich. 2021), aff'd ., 2:21-cv-10892, 2021 WL 2102598 (E.D. Mich. May 25, 2021) ; In re Allied Computer Repair, Inc ., 202 B.R. 877, 887-89 (Bankr. W.D. Ky. 1996) ; 11 U.S.C. §§ 330(a)(2), 330(a)(3)(C), 330(a)(3)(D), 330(a)(3)(F), 330(a)(4)(A)(ii).¹

The Court held the hearing, by telephone, on April 20, 2022. The lead attorney for the Chapter 7 Trustee appeared at the hearing, representing all of the Applicants.

At the end of the hearing, the Court took the fee applications under advisement.

The Court has reviewed and considered all of the fee applications, the supplemental statement filed by the Applicants on April 14, 2022 in support of the fee applications,² and the oral argument made on behalf of the Applicants during the hearing. The Court now will rule on the fee applications.

II. Discussion

The Court has discussed the law governing fee applications in Chapter 7 cases in detail, in an opinion published last year. See In re Village Apothecary, Inc. , 626 B.R. 893 (Bankr. E.D. Mich. 2021), aff'd. , No. 2:21-cv-10892, 2021 WL 2102598 (E.D. Mich. May 25, 2021). Rather than repeat that lengthy discussion, the Court incorporates it by reference here.

Applying the framework used in Village Apothecary , the Court finds and concludes the following.

First, the Court calculates the "lodestar amount" with respect to the two attorney fee applications, which were filed by the Trustee's former attorneys, Dakmak Peurach, P.C., and by the Trustee's successor attorneys, Bernardi, Ronayne & Glusac, P.C. The Court finds that the lodestar amount is the amount requested in the applications, namely $19,350.00 for Dakmak Peurach, P.C., and $3,450.00 for Bernardi, Ronayne & Glusac, P.C., for a total lodestar amount of $22,800.00. This is the product of the total time spent by the Chapter 7 Trustee's counsel times the hourly rates charged by counsel, all as reflected in the itemization of fees that was filed with the applications,³ reduced to the extent of the substantial voluntary reductions reflected in the fee applications.

Second, there is no comparable "lodestar amount" calculation to make with respect to the Trustee Fee Application, because the fee requested by the Trustee is calculated as a commission, applying the percentage maximums contained in 11 U.S.C. § 326(a) to the disbursements by the Trustee to parties in interest in this case other than the Debtor. See 11 U.S.C. §§ 330(a)(7), 326(a). The fee amount calculated under the § 326(a) formula is the maximum amount that can be awarded under §§ 326(a) and 330(a)(7). But under § 326(a), the Trustee's fee under these sections still must be "reasonable compensation under section 330" of the Code.

In this case the Trustee requests a fee of $4,763.43, based on applying the § 326(a) formula to a "net estate" amount stated in the application of $40,134.33.⁴ As stated in the Court's Order setting the hearing on the fee applications, quoted above, the $40,134.33 "net estate" amount stated in the Trustee's fee application appears to be understated; the correct amount appears to be $83,807.55. Based on that amount, the Trustee's fee application seeks a fee that is substantially lower than what the § 326(a) formula would yield.

Third, with respect to the fee applications of both the Trustee and the Trustee's counsel, and under 11 U.S.C. § 330, the Court must determine what is a "reasonable" fee amount, after considering all of the relevant factors set forth in §§ 330(a)(3) and 330(a)(4), and the Court may, in its discretion, consider the other factors identified by the United States Court of Appeals for the Sixth Circuit in In re Boddy , 950 F.2d 334, 338 (6th Cir. 1991). In addition to the lodestar amount, the Court may, in its discretion, consider the following factors, among others: "the novelty and difficulty of the issues, the special skills of counsel, the results obtained , and whether the fee awarded is commensurate with fees for similar professional services in nonbankruptcy cases in the local area." Boddy , 950 F.2d at 338 (citation omitted) (emphasis added).

Fourth, the Court has considered all of the factors in §§ 330(a)(3) and 330(a)(4), and all of the factors identified in Boddy , and has carefully considered all of the written and oral arguments made by the Applicants in support of their fee applications. The Court appreciates that the Applicants’ fee applications all reflect substantial voluntary reductions in the amount of fees requested. But the fees requested still are too high. The Court has determined that the total fees requested by the Trustee and his counsel are higher than what is reasonable, and should be reduced to the extent described below. In making this determination, the Court is exercising its discretion to make downward adjustments to the fees requested, including the lodestar fee amount of the Trustee's counsel. Under Boddy , the Court has discretion to do so based on a consideration of "the results obtained" in this case by the Trustee and his counsel. See, e.g., Village Apothecary , 626 B.R. at 898-99, 904-05 (discussing the Boddy case).

In considering "the results obtained" in this case, the Court has considered both "the amount in controversy and the results obtained." See id. at 904, 909-15. The Court has done this even though, in the Court's view, it is not necessary to consider the "amount in controversy" when considering the "results obtained." For the reasons suggested by this Court in Village Apothecary , under Boddy , it is permissible for the Court to consider the "results obtained" without considering the "amount in controversy." See Village Apothecary , 626...