McBride v. Riley

THOMAS C. MCBRIDE v. SHARON B. RILEY, ET AL

CIV. ACTION NO. 1:17-01302

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF LOUISIANA ALEXANDRIA DIVISION

April 12, 2018

JUDGE JAMES T. TRIMBLE, JR.

MAG. JUDGE HORNSBY

OPINION

Before the court is an appeal from a final order of the bankruptcy court entered September 29, 2017.¹ Appellants are the attorneys for Sharon Boyd Riley, Thomas C. McBride, McBride Law Firm and Thomas C. McBride, LLC (collectively referred to as "McBride") and Joseph Moore and E. Orum Young Law, LLC (collectively "Young"). Appellees are Sharon Boyd Riley, and Trustees, Jon C. Thornburg and E. Eugene Hastings. The issues presented on appeal for review are as follows:

• Did the bankruptcy court err in holding that advances of filing fees, credit counseling fees, and credit report fees by debtor's counsel in Chapter 13 are not reimbursable under 22 U.S.C. § 503 (b)(1)(A)?

• Did the bankruptcy court err in holding that advances of filing fees, credit counseling fees, and credit report fees by debtor's counsel in Chapter 13 are not reimbursable under 11 U.S.C. § § 330(a) and 503(b)(2)?

• Did the bankruptcy court err in holding that the filing fee for a Chapter 13 case is not a post-petition expense?

• Did the bankruptcy court err in holding that the filing fee for a Chapter 13 case accrues pre-petition?

• Does the bankruptcy court abuse its discretion by denying reimbursement of court filing costs, credit counseling fees,and credit report fees advanced by debtor's counsel in the context of a "No-Look" fee in a Chapter 13 case?

STATEMENT OF THE CASE

McBride represents Appellee, Sharon Riley, as debtor's counsel in In re: Sharon Boyd Riley, Bankruptcy Case No. 17-80108 (the "Bankruptcy case"). McBride, Appellant, advanced certain expenses and fees on behalf of Riley in the amount of $367.00. The advance was to pay court costs of $310.00, credit counseling of $24, and a credit report of $33.

As part of the proposed Chapter 13 plan, McBride sought reimbursement of these advances in addition to his attorney fees under the Western District's "No-Look" fees. The Chapter 13 Trustee, Jon C. Thornburg, asserted the following in the "Trustee's Comment Regarding Confirmation of Chapter 13 Plan";

The Standing Order does not address reimbursement for expenses and costs. While the requested fees and costs are not opposed, the Trustee requests clarification from the Court as to whether Debtor's counsel may seek reimbursement of expenses and costs as an administrative expense over and above the "No-Look" fee.

WHEREFORE, the Chapter 13 Trustee requests the Court provide clarification from the Court regarding the request for costs and expenses in addition to no look attorney's fees.²

Subsequently, the Trustee objected to the confirmation of the plan simply stating that the "plan requests reimbursement of court costs, credit counseling fees, and credit report fee."³ Within that objection, the Trustee moved the Bankruptcy Court for an order denying confirmation of the plan, and granting a reasonable period of time to submit anamended/modified plan to cure the objections.⁴ The Bankruptcy Court held a hearing on the requested confirmation and took the matter under advisement.

On September 29, 2017, the Bankruptcy Court issued an Order with reasons and disallowed McBride's request for reimbursement of the $367.00 advance. The Order limited recovery under the Bankruptcy Court's January 24, 2017 Standing Order Regarding "No-Look" Fees in Chapter 13 Cases (effective for cases filed on or after February 1, 2017)⁵ as follows:

IT IS ORDERED that the request for reimbursement of the Advances is DENIED, and the administrative expense (attorney fee) claim of the Debtor's attorney in each of the above-captioned cases shall be limited to the applicable "no-look" fee allowed under the January 24, 2017 Standing Order Regarding "No-Look" Fees in Chapter 13 Cases (Effective for cases filed on or after February 1, 2017).

IT IS FURTHER ORDERED that, in all Chapter 13 cases in which the Court took under advisement or otherwise reserved its ruling on request for reimbursement of prepetition expenses in an amount above the compensation allowed under this District's Standing Order Regarding No-Look Fees in Chapter 13 Cases, the request for reimbursement of expenses is DISALLOWED, and the Chapter 13 Trustees in the Alexandria and Monroe Divisions are DIRECTED to submit, on or before October 29, 2017, Amended Orders of Confirmation in consonance with this ruling in all Chapter 13 cases containing the Court's reservation of this issue for final ruling.⁶

In his reasons for disallowing the request for reimbursement of advanced fees, Judge Kolwe ruled that such fees and costs were not allowed under the current StandingOrder, not allowed under the Bankruptcy Code, specifically, 11 U.S.C. § 330(a), 11 U.S.C. § 503(b)(a)(A) and 11 U.S.C, § 503(b)(2), and not allowed pursuant to jurisprudence.

LAW AND ANALYSIS

As noted by Appellants, this case involves whether or not debtor's counsel in Chapter 13 bankruptcy proceedings in the Western District will be reimbursed money advanced to their debtor clients for filing their bankruptcy petitions, taking required credit counseling course prior to filing bankruptcy, and for credit reports obtained by counsel prior to the petition being filed. Potentially, a debtor can file an application with the Bankruptcy Clerk of Court and pay the $310 filing fee in three installments. As for the credit report, the cost suggested by the parties in these proceedings is $33 and will be borne by the debtor prior to filing bankruptcy. The credit report is not mandatory, but assists the debtor and his/her counsel file the debtor's financial statement of affairs.⁷ Another cost potentially borne by the debtor is $24 for credit counseling which is not only required, but jurisdictional.⁸

The majority of the bankruptcy petitions are known as "no-money-down" bankruptcy cases, meaning that the debtor's attorney agrees to advance the funds to pay the aforementioned fees with the understanding that the attorney will be reimbursed through the debtor's confirmed plan. Indeed, most bankruptcy attorneys advertise as such.

Bankruptcy proceedings are a high volume practice; consequently many districts have instituted local rules which establish No-Look fees. Generally, the rules provide that "if the attorney charges no more than a given amount, the fee sought will be deemed presumptively reasonable under § 330 with no need to provide time records."⁹ No-Look fees, which permit "a presumptively reasonable" attorney fee that Chapter 13 debtor's counsel could choose to accept in lieu of filing a formal fee application, were established in the Western District in 2010.¹⁰ The No-Look fees provide that the attorney's fees payable under the order includes any prepetition expenses advanced by the debtor's attorney. Consequently, a No-Look fee would prohibit an attorney from requesting reimbursement of advanced pre-petition expenses in addition to the fixed No-Look fee.

If this court were to determine that these advanced pre-petition fees are inclusive of the No-Look fee, the advanced fee total is inclusive of the No-Look fee which is paid out over a period of time after the Bankruptcy Court confirms the debtor's plan; this has been the long-standing policy of the Western District regarding advanced costs and expenses.¹¹ If we determine that the advanced fees are reimbursable, the advanced pre-petition expenses would be an addition to the No-Look fee provided in the Standing Order, and paid out over a period of time after the Bankruptcy Court confirms the debtor's plan.

Alternatively, Bankruptcy attorneys can opt out of the No-Look fee and file a Fee Application under § 503 or require the debtor to pay these expenses in advance of filing their bankruptcy petition.The Western District's "No-Look" Fee rules

11 U.S.C. A. § 503(b) provides in pertinent part:

After notice and a hearing, there shall be allowed administrative expenses, other than claims allowed under section 502(f) of this title including,

(1)(A) the actual, necessary costs and expenses of preserving the estate including—

* * *

(2) compensation and reimbursement awarded under section 330(a) of this title; . . .

As previously noted, effective April 1, 2010, the Bankruptcy Judges in this district adopted a district-wide standing order on No-Look fees. This Standing Order did not prohibit an attorney from advancing the filing fees and other pre-petition costs on behalf of a Chapter 13 client; it expressly stated that "any advances made by the debtor's counsel for filing fees or expenses pre-confirmation will be considered included in the no-look fee."¹² A September 13, 2013 amendment to the Standing Order did not change the No-Look fee provision.¹³ The Standing Order as to No-Look fees was revoked effective February 1, 2017.¹⁴ Specifically, the maximum No-Look fixed fee was $3,000.00 with an additional $600 to be paid during the last six plan payments of the Chapter 13 plan if certain requirements were met.¹⁵ This was an increase in total fees from $2,800 to a potential $3,600.

The 2017 Standing Order also reduced the No-look fee when the debtor's monthly plan payments were less than $300.¹⁶ The new Standing Order details services the debtor's counsel must provide in return for the fee and also allows the attorney to submit a traditional fee application. Of significance to this opinion is the fact that the new Standing Order is silent as to pre-petition advances for costs and expenses. So, the question for this court to determine is if the pre-petition advances costs are still inclusive of the No-Look fees as provided in the 2017 Standing Order, or should the silence as to the advanced pre-petition costs be interpreted to mean that debtors' counsel can be reimbursed for these advanced costs and expenses through the debtor's Chapter 13 plan in addition to the No-Look fees?

§ 503(b)(1)(A)

Administrative expenses...