In re Pochron

In re: ROBERT SCOTT POCHRON VERONICA ANNE POCHRON, Debtors.

No. 21-31410

United States Bankruptcy Court, S.D. Ohio, Western Division

April 8, 2022

Chapter 13

MaryAnne Wilsbacher (Assistant United States Trustee), 170 North High Street, Suite 200, Columbus, Ohio 43215-2417

Jeremy Shane Flannery (Counsel for the United States Trustee), 170 North High Street, Suite 200, Columbus, Ohio 43215-2417

ORDER ON DEBTOR COUNSEL'S APPLICATION FOR COMPENSATION (DOC. 30)

Guy R Humphrey United State Bankruptcy Judge

This matter is before the court on the Application for Compensation (doc. 30) (the "Application") filed by G. Timothy Dearfield, counsel for the Debtors, which seeks an award of attorney fees in the amount of $15, 593.50 for services rendered by Mr. Dearfield and his law firm ("Dearfield") pre-petition and pre-confirmation and the response filed by the Chapter 13 Trustee (doc. 36) (collectively, the "Contested Matter").^[1]

The court conducted a hearing on February 17, 2022 on the Contested Matter, participated in by Mr. Dearfield, Scott G. Stout, counsel for the Chapter 13 Trustee, and John G. Jansing, the Chapter 13 Trustee. Mr. Dearfield testified. In addition, Dearfield filed a Memorandum in Opposition to Trustee's Response to the Application (doc. 43), a Memorandum in Support of the Application (doc. 48), and a Notice of Case Citations in Support of Application for Attorney Fees (doc. 49).

This court recently issued a decision discussing attorney fees for pre-confirmation services provided in a Chapter 13 case. In re Spear, No. 21-30649, 2022 Bankr. LEXIS 65, 2022 WL 117556 (Bankr. S.D. Ohio Jan. 10, 2022). The court will use the applicable tenets from the Spear decision as the starting point and framework for analyzing the Application.

I. Debtors' Counsel's Position

In response to the court's and Trustee's concerns, Dearfield asserted that they incurred significant time in determining what bankruptcy relief the debtors should pursue, including examining whether to file a Subchapter V Small Business Reorganization Act ("SBRA") Chapter 11 proceeding, which was enacted shortly before the debtors first met with counsel; a Chapter 7 proceeding; or a joint Chapter 13 proceeding.^[2] Both at the hearing and in court filings, counsel expressed concerns about filing a Chapter 7 liquidation case for the debtors because of uncertainty regarding how the United States Trustee would view the filing of a Chapter 7 case and whether the United States Trustee would seek dismissal under 11 U.S.C. § 707(b)(2) or (b)(3). See Doc. 48 at ¶¶ 4, 5, 9, and 10.

Counsel also indicated that they spent significant time on this Chapter 13 case due to the intertwining of Mr. Pochron's business and personal affairs. Thus, they incurred time determining how to value Mr. Pochron's business, identifying an appropriate level of compensation for Mr. Pochron from his limited liability company, and understanding the appropriate tax elections to make. See Id. at ¶¶ 10, 11, and 12.

The court also reviewed a post-hearing list of cases filed by Dearfield. The cases were intended to support the position that this court should be "liberally construing" the term "in connection with" the case. Doc. 49 at 1. See 11 U.S.C. §§ 329(a) and 330(a)(4)(B) (both using the term "in connection with"). In addition, Dearfield cited cases which he asserted "distinguish the law regarding fees for attorney services that must reasonably likely benefit the estate under 11 U.S.C. § 330(a)(4)(A) with the law regarding fees for attorney services that are allowed to specifically benefit the Debtor, and not necessarily the estate, in a chapter 13 case under 11 U.S.C. § 330(a)(4)(B)." Doc. 49 at 1.

II. Legal Analysis

A. Independent Review of Attorney Fee Applications in Chapter 13 Cases

As this court made clear in Spear, bankruptcy courts guard the public interest and the integrity of the bankruptcy system when carrying out the independent duty to review and determine the reasonableness of attorney fees in Chapter 13 cases. Spear, 2022 Bankr. LEXIS 65, at *6-8, 2022 WL 117556, at *2-4. This duty exists even in the absence of an objection from the trustee or another party or when the debtor appears to support the fee application. Id.; see also Dery v. Cumberland Cas. & Sur. Co. (In re 5900 Assocs.), 468 F.3d 326, 329-30 (6th Cir. 2006) (discussing the importance of judicial fee review in bankruptcy cases).

Bankruptcy Code § 330 addresses the compensation of attorneys and states in relevant part:

(a)(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 professional person employed under section 327 or 1103 -

(A) reasonable compensation for actual, necessary services rendered by the . . . 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 the 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.

11 U.S.C. § 330(a). The applicant seeking the attorney fees always carries the burden of proof to establish that the fees are warranted and should be approved. Hutter Constr. Co., 126 B.R. 1005, 1011-12 (Bankr. E.D. Wis. 1991); In re Dekeyzer, Case No. 20-11271-ta13, 2021 Bankr. LEXIS 956, at *6, 2021 WL 1344715, at *3 (Bankr. D.N.M. Apr. 9, 2021). "This burden is not to be taken lightly given that every dollar expended on legal fees results i[n] a dollar less that is available for distribution to the creditors." In re Dille, No. 18-42994, 2021 Bankr. LEXIS 538, at *6, 2021 WL 864201, at *2 (Bankr. W.D. Mo. Mar. 8, 2021) (citing In re Ulrich, 517 B.R. 77, 80 (Bankr. E.D. Mich. 2014)).

In Chapter 13 cases, courts determine the reasonableness of attorney fees under § 330 by calculating an initial estimate using the lodestar method, multiplying the number of hours reasonably expended on the matter by a reasonable hourly rate, taking into account the attorney's experience level and comparable rates in the local market. Spear, 2022 Bankr. LEXIS 65, at *6-8, 2022 WL 117556, at *5 (citing In re Boddy, 950 F.2d 334, 337 (6th Cir. 1991)); see also In re Atwell, 148 B.R. 483, 488-89 (Bankr. W.D. Ky. 1993) ("A major factor in determining what is a reasonable hourly rate for purposes of Lodestar is whether the rate charged is comparable to rates charged by comparable attorneys in the area.") (internal citations omitted). After the lodestar analysis, courts consider other factors that "may warrant an increase or decrease in the fees awarded." Spear, 2022 Bankr. LEXIS 65, at *9, 2022 WL 117556, at *3 (citing Hensley v. Eckerhart, 461 U.S. 424, 433 (1983)). These factors include:

1) the novelty and difficulty of the issues; 2) the skill required to perform the services properly; 3) the preclusion of other employment resulting from counsel's acceptance of the matter; 4) the customary fee for such matters; 5) whether the fee is fixed or contingent; 6) time limitations imposed by the client or otherwise dictated by the circumstances; 7) the amount at issue and the results obtained; 8) the experience, reputation, and ability of the attorneys; 9) the undesirability of the case; 10) the nature and length of the professional relationship between counsel and the client; and 11) awards in similar cases or under similar circumstances.

Spear, 2022 Bankr. LEXIS 65, at *10, 2022 WL 117556, at *3 (collecting cases and discussing incorporation of these factors into 11 U.S.C. § 330(a)(3)). In addition, except as otherwise allowed, "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." 11 U.S.C. § 330(a)(4)(A).

This case also raises an additional element not addressed in Spear. To what extent may counsel be compensated through the bankruptcy estate, as an administrative expense, for services that do not directly benefit the bankruptcy estate but were performed for the benefit of the debtor pre-petition? In part, the question arises here because of the lengthy period of time between the debtors' initial engagement with counsel and the bankruptcy petition date. Thus, the court will review the law applicable to such services before discussing the particular circumstances presented by the case at bar.

B. Code § 330(a)(4)(B): Services Provided to the Debtor in Connection with a Bankruptcy Case

In general, only legal services that benefit the bankruptcy estate are compensable in a bankruptcy case. See In re James Contracting Group, Inc., 120 B.R. 868, 872 (Bankr.N.D.Ohio 1990) ("It is a well-settled legal maxim that in order for legal fees to be compensable, the legal services rendered must have benefitted the estate."). However, § 330 contains an "explicit exception" to this rule for chapter 12 and chapter 13 cases and permits attorneys to receive compensation for work that benefits the debtor alone in some circumstances. In re Beutel, No. 19-12690-13, 2021 Bankr. LEXIS 628, at *6-7, 2021 WL 1093969, at *2 (Bankr. W.D. Wis. Mar. 17, 2021). Buetel explained the rationale behind this exception to the requirement that such services directly benefit the bankruptcy estate:

It recognizes that the earning ability of a chapter 12 or 13 debtor is typically the primary asset of the estate. "Plans in such cases are typically funded by the debtor's income, which is property of the estate; the individual debtor is the going concern. Thus, services that benefit the

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