In re Steen

631 B.R. 704

IN RE: Shayne Allan STEEN and Tracie Melissa Cole, Debtors.

Case No. 20-50042-rlj13

United States Bankruptcy Court, N.D. Texas, Lubbock Division.

Signed July 7, 2021

Filed July 8, 2021

Sam C. Gregory, Lubbock, TX, Hutchison & Foreman, PLLC, S. Rafe Foreman, for Debtors.

MEMORANDUM OPINION

Robert L. Jones, United States Bankruptcy Judge Shayne Steen (Shayne) and Tracie Cole (collectively, debtors) filed a voluntary chapter 13 petition. Their petition included a disclosure of compensation of their attorney, Sam Gregory. Several months later, Shayne's ex-wife filed an adversary proceeding against him claiming that debt owed to her by Shayne was non-dischargeable under 11 U.S.C. § 523(a)(4). The adversary was dismissed on Shayne's motion to dismiss under Rule 12(b)(6). Given dismissal of the adversary, Gregory now applies for compensation for his services rendered in his representation of Shayne in the adversary. Robert Wilson, the standing chapter 13 trustee (Trustee), objects to the application, claiming that the bankruptcy estate—the creditors—should not have to pay Gregory's fees.

The Court has jurisdiction of this contested matter under 28 U.S.C. § 1334(b) ; this dispute is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (b)(2)(B).

I. Background

Gregory seeks compensation for 15.65 hours of time at the rate of $400.00 per hour for a total of $6,260 for his representation of Shayne in the adversary proceeding.¹ Under the debtors’ chapter 13 plan, confirmed before the adversary was filed, Gregory is (and will be) paid $3,700 for his services.² The Court assumes this amount represents the "no look" fee allowed to chapter 13 debtors’ attorneys for their work on chapter 13 cases.³ By his application here, Gregory seeks allowance of additional compensation for representing Shayne in the adversary action. Gregory's application is a standard fee application; it provides the dates, the nature and type of services rendered, the hours expended, and the total amount of each service provided in the adversary proceeding.

The Trustee objects, not to the amount or reasonableness of the fees but to payment of the fees from his disbursements. The Trustee says that unsecured creditors should not, in effect, have to bear the burden of the work done on Shayne's behalf. He also notes that Shayne did not seek to charge his ex-wife, the plaintiff, for the fees and did not oppose the allegations raised in the adversary. "To some extent, Debtor Steen brought these costs upon himself. As the Court has noted, the Debtor's actions, if true, were reprehensible. Thus, ... the unsecured creditors should not be taxed with defending those actions." ECF No. 72 at 2. The Trustee argues that the American Rule—which provides that parties involved in civil litigation are generally responsible for paying their own attorney's fees, absent some statutory provision providing for fee-shifting—prevents Gregory's fees from being paid out of the chapter 13 estate. Trustee contends that the services rendered by Gregory did not benefit the estate and thus the estate should not bear the burden of paying for his services.

Gregory responds to these arguments by noting that the language of § 330(a)(4)(B) allows attorney's fees when services rendered provide a benefit and are necessary to the debtor ; there is no requirement in a chapter 13 case that counsel's services benefit the estate.⁴ Gregory argues that dismissal of the suit benefitted the estate by providing the debtors with additional motivation to complete their chapter 13 plan. Gregory denies the Trustee's assertion that Shayne admitted the allegations of the adversary complaint; he never had to file a formal answer in response to the allegations of the complaint. The Court assumed the facts alleged in the complaint were true, as is required when ruling on a motion to dismiss. And the Court's opinion dismissing the adversary did not make any findings of fact regarding the allegations. Unproven allegations have no bearing on whether or not the Court should allow or disallow the requested fees, Shayne contends.

II. Discussion

A.

Section 330 of the Bankruptcy Code provides for the compensation of officers. This includes professional persons, such as the debtors’ attorney. A professional requesting approval of fees and expenses "bears the burden of proof in a fee application case." Continental Ill. Nat'l Bank & Trust v. Charles N. Wooten, Ltd. (In re Evangeline Refin. Co.) , 890 F.2d 1312, 1326 (5th Cir. 1989) ; see also In re King , 546 B.R. 682, 711 (Bankr. S.D. Tex. 2016) ("[F]or any fees requested under § 330(a), ‘[t]he applicant bears the burden of proof in a fee application case.’ "). "This burden is not to be taken lightly, especially given that every dollar expended on legal fees results in a dollar less that is available for distribution to the creditors or use by [the] debtor." In re Pettibone Corp. , 74 B.R. 293, 299 (Bankr. N.D. Ill. 1987) (citation omitted).

Section 330(a)(3) sets forth a non-exclusive list of factors to consider when determining the amount of reasonable compensation to be awarded. These factors include the time spent on such services; rates charged for such services; 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; whether the services were performed within a reasonable amount of time; whether the person is board certified or otherwise has demonstrated skill and experience in the bankruptcy field; and whether compensation is reasonable based on the customary compensation charged by comparably skilled practitioners in cases outside of bankruptcy. § 330(a)(3)(A)–(F) ; see also Sikes v. Crager (In re Crager) , 691 F.3d 671, 676 (5th Cir. 2012). Section 330(a)(4)(A) provides that the court shall not allow compensation for unnecessary duplication of services or services that were not reasonably likely to benefit the bankruptcy estate or that were not necessary to the administration of the case. In 1994, however, Congress amended this section of the Bankruptcy Code "to provide that even if services were not reasonably likely to benefit the debtor's estate, or were not necessary to the administration of the case, the Court may still award such fees in a Chapter 13 case if such services were shown to be beneficial or necessary to an individual debtor in such case." In re Williams , 378 B.R. 811, 823 (Bankr. E.D. Mich. 2007). Section 330(a)(4)(B) provides, in pertinent part, that 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." § 330(a)(4)(B).

Section 330(a)(4)(B) essentially creates an exception to the general rule that fees are compensable from the estate only if the services benefit the estate. See In re Williams , 378 B.R. at 823 ; In re Beutel , No. 19-12690, 2021 WL 1093969, at *2 (Bankr. W.D. Wis. Mar. 17, 2021) ; In re Sepulvida , No. 20-10063, 2021 WL 1961914, at *4 (Bankr. D.N.M. May 14, 2021). The Code creates an exception in § 330(a)(4)(B) for debtor-individuals under chapters 12 and 13 because a debtor's earning ability is typically the primary asset of the estate—the debtor's income funds the plan. See 3 Collier on Bankruptcy ¶ 330.03[1][b][v] (16th ed.). "[S]ervices that benefit the debtor in connection with the case are services that facilitate the successful completion of the debtor's plan. For example, ... the debtor's litigation of the dischargeability of a particular debt, or defense against a motion for relief from the stay may determine whether the debtor will continue with the chapter 13 case." Id.⁵ "Therefore a Chapter 13 debtor's counsel is entitled to an administrative expense for compensation for work that is beneficial and necessary to the debtor without proof of benefit or necessity to the Chapter 13 estate or the creditors." In re Argento , 282 B.R. 108, 116 (Bankr. D. Mass. 2002) (quotation marks and citation omitted).

"Of course, even those services that benefit only the individual debtor, and not the debtor's estate, are only compensable under § 330(a)(4)(B) to the extent that they are ‘reasonable’ after consideration of the benefit and necessity of those services to the debtor in light of the other factors set forth in § 330(a)(3)." In re Williams , 378 B.R. at 823 ; In re Gorski , 519 B.R. 67, 74 (Bankr. S.D.N.Y. 2014) ("An application under § 330(a)(4)(B) requires the court to evaluate the benefit and necessity of the services to the debtor. Upon the filing of the application, the court may review the fees for reasonableness, and there will be ‘no risk to the estate that the fee will be excessive.’ ") (citing In re Cahill , 478 B.R. 173, 177 (Bankr. S.D.N.Y. 2012) ); In re Davis , No. 07-51337, 2009 WL 4856199, at *2 (Bankr. S.D. Miss. Dec. 9, 2009) ("Compensation is based upon a consideration of the benefit and necessity of such services to the debtor.") (quotation marks and citation omitted). "The statute requires the court to consider (among other things) whether there was a benefit to the debtor and whether the attorney's services were necessary or beneficial toward the completion of the case." In re Phillips , 291 B.R. 72, 82 (Bankr. S.D. Tex. 2003). The Bankruptcy Code, though, is "generous in the criteria for allowing fees to attorneys for Chapter 13 debtors [ ] for representation of the debtor." In re Amos , No. 98-32761, 2000 WL 33672947, at *3 (Bankr. D. Utah Feb. 16, 2000).

The Court has discretion to allow or disallow compensation under § 330(a)(4)(B) and "discretion to determine what constitutes ‘reasonable compensation’ " in light of the benefit and necessity of the services provided. Matter of Riley , 923 F.3d 433, 442 (5th Cir. 2019) ; see also In re...