In re Taiwo

In re: Kehinde A. Taiwo, Debtor.

Case No. 20-00157-ELG

UNITED STATES BANKRUPTCY COURT DISTRICT OF COLUMBIA

Filed: March 5, 2021

March 4, 2021

Chapter 13

MEMORANDUM DECISION AND ORDER APPROVING IN PART AND DENYING IN PART COUNSEL'S APPLICATION FOR COMPENSATION

The Court has before it the Application for Allowance of Compensation (the "Application") filed by counsel ("Counsel") for the debtor (the "Debtor") in the above-captioned bankruptcy case. ECF No. 48. In the Application, Counsel seeks approval of compensation in the amount of $4,500.00, of which $1,500.00 was paid prior to the filing of the petition and is represented to remain in Counsel's escrow account pending an order approving compensation. For the reasons set forth below, the Court will approve the Application in part, granting Counsel an allowed administrative expense in the amount of $2,500.00, authorizing the chapter 13 trustee to disburse the unpaid $1,000.00 to Counsel, and disallowing the remaining $2,000.00, but providing Counsel fourteen (14) days from entry of this Order to file a supplemental application with an invoice reflecting contemporaneous time entries in support of the disallowed amount.

I. Facts

The Debtor commenced this case on March 16, 2020 under Chapter 13 of Title 11 of the United States Code, 11 U.S.C. §§ 101-1532 (as hereafter amended, the "Bankruptcy Code"). In the Disclosure of Compensation of Attorney for Debtor (the "Disclosure"), ECF No. 1, at 44, filed by Counsel contemporaneously with the Debtor's petition, a flat fee agreement for representation in this chapter 13 case was disclosed in an amount of $4,500.00, of which $1,500.00 had been received pre-petition, with a remaining balance due of $3,000.00. Id. Counsel additionally disclosed that his representation of the Debtor included "Negotiations with secured creditors to reduce to market value; exemption planning; preparation and filing of reaffirmation agreements and applications as needed; preparation and filing of motions pursuant to 11 [U.S.C. §] 522(f)(2)(A) for avoidance of liens on household goods." Id. Counsel's flat fee did not include "Representation of the debtors [sic] in any dischargeability actions, judicial lien avoidances, relief from stay actions[,] or any other adversary proceeding." Id.

In order to evaluate Counsel's request for fees in this case, a brief review of the history of the case is required. On the petition date, in addition to the Debtor's Petition, Counsel filed a proposed Chapter 13 Plan (the "First Plan") (ECF No. 2) and a Motion to Extend Automatic Stay or in the Alternative, Impose the Automatic Stay (the "Motion to Extend Stay") (ECF No. 10), as the instant case was the second filing by the Debtor within a twelve-month period. The Court entered an order granting the Motion to Extend Stay on April 7, 2020. ECF No. 16. The First Plan was first set for a confirmation hearing on May 15, 2020 that was continued by agreement several times until October 16, 2020.¹

On August 7, 2020, HSBC Bank USA, N.A., as Trustee for the Registered Holders of Nomura Home Equity Home Loan, Inc. Asset-Backed Certificates, Series 2007-2 ("HSBC") filed for relief from both the automatic stay and the co-debtor stay (the "Motion for Relief"). ECF No. 24. On August 27, 2020, Counsel filed a standard form Opposition (the "Opposition") (ECF No. 30). Following the filing of the Opposition, the parties negotiated and submitted what the Court will describe as a basic Agreed Order and Stipulation Modifying Automatic Stay (ECF No. 32), which the Court entered on September 11, 2020. ECF No. 34. As a result of the resolution, neither Counsel nor counsel for HSBC appeared for the September 3, 2020 hearing on the Motion for Relief.

On October 16, 2020, the Court held a confirmation hearing on the Debtor's First Plan. At the conclusion of the hearing, and by order entered that same day, the Court denied confirmation of the First Plan pursuant to the chapter 13 trustee's recommendation and gave the Debtor twenty-one (21) days to file an amended chapter 13 plan or the case would be dismissed. ECF No. 37. However, despite the terms of the Order, the Court neglected to dismiss the Debtor's case after the expiration of the 21-days when the Debtor failed to timely file an amended plan. Instead, the case remained open and the Debtor ultimately filed an untimely amended plan (the "Second Plan") on December 16, 2020, forty-one (41) days after entry of the previous Order. A confirmation hearing on the Second Plan was scheduled for January 22, 2021.

In conjunction with filing the Second Plan, Counsel filed objections to two proofs of claim (together, the "Objections") held by the mortgage holders in this case, HSBC and U.S. Bank, N.A. ECF Nos. 40 and 43. The hearing on such objections was noticed by Counsel for February 4, 2021, after the confirmation hearing on the Second Plan. The Court held the second confirmation hearingon January 22, 2021, and notwithstanding the pending Objections, the Court denied confirmation of the Second Plan without leave to amend and found that cause existed to dismiss the instant case under § 1307 of the Bankruptcy Code, including but not limited to § 1307(c)(5). ECF No. 52. However, in order to provide Counsel an opportunity to file this Application prior to dismissal, the Court gave the Debtor fourteen days to convert the case to one under another chapter or to voluntarily dismiss the case. Id. Due to the pending dismissal, the Court continued the hearings on the Objections to February 19, 2021, ECF No. 51, and later cancelled the hearings indefinitely pending entry of this Order and dismissal of the Debtor's case. The Debtor withdrew the Objections on February 25, 2021. ECF No. 56.

II. Discussion

The Court has before it an application for compensation filed by Counsel in a chapter 13 case in which a plan was never confirmed and that the Court has determined there is cause to dismiss. In its review of Counsel's request, the Court not only considers the Application, but also takes judicial notice of the totality of the docket and pleadings in this case, and reviews the relief requested therein in conjunction with the content, quality, presentation, and timeliness of all pleadings in the docket for this matter.

In the Application, Counsel indicates that the services rendered to the Debtor for which he seeks compensation were "(a) Examining and analyzing the debtor's financial situation[;] and (b) Preparing and filing the Debtor(s) Objection to two (2) Proofs of Claim and other necessary documents and pleadings in the case for the debtor's Chapter 13 Plan." Application at 1-2. The Court is mindful of the prevalence of form pleadings used by practitioners, but at the same time is troubled that Counsel only minimally modified his Application from a standard applicationreflecting a case that resulted in a confirmed plan. The Court recognizes and seeks to balance the practical reality that while all chapter 13 cases should be projected to succeed at the time of filing, many will ultimately fail, and at the same time, counsel deserve to be compensated for services in cases to be dismissed before confirmation, as in this case. However, the Court is simultaneously cognizant that the services rendered in such cases can be substantially less than those rendered throughout the entirety of a successful chapter 13 case, and the fees the Court awards must be reasonable and proportional thereto consistent with the requirements of 11 U.S.C. § 330. See fuller discussion infra.

The Court appreciates (i) the amount of work provided by counsel to chapter 13 debtors prior to confirmation of a plan, (ii) that many times counsel receive only a small (or no) pre-petition deposit, and (iii) that counsel may only receive compensation from or through the chapter 13 trustee. In a pre-confirmation case to be dismissed, the chapter 13 trustee generally holds undisbursed funds paid under a proposed plan. See 11 U.S.C. § 1326(a)(1) (requiring a debtor to begin payments to the chapter 13 trustee not later than 30 days after the date of filing of the petition). Pursuant to § 1326(a)(2) of the Bankruptcy Code, if a chapter 13 plan is "not confirmed," the chapter 13 trustee must return to the debtor any funds held less the amount of any unpaid claim allowed under § 503(b) of the Bankruptcy Code. 11 U.S.C. § 1326(a)(2).² This Court joins the majority of Courts and finds that § 1326(a)(2) authorizes the chapter 13 trustee to pay allowed administrative claims prior to returning any remaining funds to the debtor when a chapter 13 case is dismissed pre-confirmation. See In re Ward, 523 B.R. 142, 147-48 (E.D. Wis. 2014) (analyzingcases and finding that "11 U.S.C. § 1326(a)(2) applies . . . much more closely to [post-petition plan payments] than 11 U.S.C. § 349(b)(3), which would apply only to the pre-petition estate"); In re Elms, 603 B.R. 11, 15 n.10 (Bankr. S.D. Ohio 2019) (noting that § 1326(a)(2) allows payment of administrative expenses only in a case dismissed pre-confirmation, in the course of directing the chapter 13 trustee to return all funds held to the Debtor in a case dismissed post-confirmation); In re Jankauskas, 593 B.R. 1, 5 (Bankr. N.D. Ga. 2018) (noting that § 1326(a)(2) provides for returning payments made by a debtor and held by the chapter 13 trustee back to the debtor less allowed administrative expenses after pre-confirmation dismissal, in the course of holding that § 1326(a)(2) does not apply to funds held by the chapter 13 trustee paid by other sources) (citing In re Hamilton, 493 B.R. 31, 34-37 (Bankr. M.D. Tenn. 2013) (comparing cases disposing of plan payments held by the chapter 13 trustee pre- and post-confirmation at 34 nn.4-5, in the course of determining disposition of funds held by the chapter 13 trustee upon post-confirmation dismissal)); In re Gonzales, 578 B.R. 627, 628 (Bankr. W.D. Mich. 2017) (noting that the Code requires the trustee to return funds to...