Case No. 05-10567-B-7, DC No. BL-6.United States Bankruptcy Court, E.D. California, Fresno Division.
August 15, 2006
MEMORANDUM DECISION REGARDING APPLICATION FOR ALLOWANCE AND PAYMENT OF INTERIM FEES AND EXPENSES
RICHARD LEE, Bankruptcy Judge
Before the court is an application by the chapter 13 Debtor’s attorney for allowance and payment of interim fees and expenses (the “Application”). Bruce D. Leichty, Esq., appeared on behalf of himself (“Applicant”). The court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and 11 U.S.C. §§ 329, 330, and 331. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A). For the reasons set forth below, the Application will be granted in part and denied in part.
This bankruptcy was filed as a voluntary petition under chapter 13 on January 26, 2005. Debtor’s third amended chapter 13 plan was confirmed on June 15, 2005. Pursuant to the Eastern District’s Guidelines for Payment of Attorneys’ Fees in Chapter 13 Cases, effective July 1, 2003, applicable to cases filed between July 1, 2003, and October 16, 2005 (“Fee Guidelines”), Applicant waived the “no-look” fee for his services and elected to apply for approval of his fees pursuant to 11 U.S.C. §§ 329
and 330. Applicant requests compensation for 47.4 hours of time at the rate of $200 per hour for a total of $9,480. Applicant received a pre-petition retainer in the amount of $796. He now asks for an order approving those fees and directing that the difference, $8,684, be paid by the Debtor through the chapter 13 plan. Applicant also requested reimbursement for costs in the amount of $310.87, which will be approved. The Debtor, Nora Rivera,
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consented to approval of the Application, however, the court has an independent duty to review the reasonableness of fees requested by the Debtor’s attorney. See In re Montgomery Drilling Co., 121 B.R. 32, 35-36 (Bankr. E.D. Cal 1990).
The issue here relates to time Applicant spent opposing a motion for relief from the automatic stay filed by the Internal Revenue Service (the “IRS Motion”). The IRS sought relief to offset the Debtor’s 2004 tax refund against the Debtor’s tax liability for prior years. The Debtor’s chapter 13 plan provided that the IRS’ priority tax claim, in the amount of $3,747.99 would be paid in full through the plan and the Debtor vigorously opposed the Motion. The IRS Motion was argued on July 14, 2005. This court granted the Motion in a written decision filed on September 29, 2005 (the “IRS Ruling”). The IRS Ruling, which sets forth the court’s analysis of the Debtor’s opposition, is incorporated herein by reference.
The Applicant spent 7.0 hours on June 29 30, 2005, preparing an extensive opposition to the IRS Motion. In the IRS Ruling, the court noted, inter alia, that (1) denial of the IRS Motion would have no apparent overall benefit for either party, and (2) the Debtor’s opposition appeared to be focused more on punishing the IRS rather than achieving a beneficial result for the Debtor. Nothing in the present Application changes the court’s view of that activity. For the reasons set forth in the IRS Ruling, the court is not persuaded that 7.0 hours of Applicant’s time was necessary to the administration of the case, reasonably likely to benefit the estate, or beneficial to the Debtor. (11 U.S.C. § 330(a)(4)(B)).
Applicant argues that his fees should be allowed because it was reasonable to believe that denial of the IRS Motion would benefit the Debtor. § 330(a)(4)(A); see also Roberts, Sheridan Kotel, P.C. v. Bergen Brunswig Drug Co. (In re Mednet), 251 B.R. 103, 107-08 (9th Cir. BAP 2000). (Section 330 does not require that a professional’s services actually result in a material benefit, so long as it is shown that the services were reasonably likely to result in a benefit at the time they were rendered.) The court disagrees. One reason that the court granted the IRS Motion was its conclusion that the
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Debtor would benefit from the granting of relief, not the denial of relief. Once the IRS was allowed to offset the tax refund against its priority tax claim, the Debtor’s burden to pay the priority claim in full was substantially reduced, thereby increasing the likelihood that the Debtor could successfully complete the chapter 13 plan and receive a discharge of her debts. Indeed, the record shows that the IRS did subsequently amend and reduce its priority claim to $838. 71. Shortly after the court granted the IRS Motion, the Debtor stipulated with the chapter 13 trustee to reduce the plan payments by $100 per month.[1]
Paradoxically, Applicant also argues that his fees should be allowed because the Debtor benefitted from the granting of relief to the IRS and the subsequent reduction of chapter 13 plan payments. The logic of this argument escapes the court. The Debtor did not benefit because the Applicant spent 7.0 hours opposing the IRS Motion, the Debtor benefitted because the court rejected Applicant’s efforts to oppose the IRS Motion.
Finally, Applicant argues that he opposed the IRS Motion at the Debtor’s request, that he felt obligated to represent his client, and that he personally should not be penalized for that effort by having his fees denied. Again, the court can find no merit to this argument. Applicant made a similar argument, under substantially similar circumstances, in a prior case where he represented a chapter 7 trustee, Leichty v. Neary (In re Strand), 375 F.3d 854 (9th Cir. 2004). In Strand,
Applicant filed, on behalf of the trustee, an adversary proceeding against the IRS after the IRS attempted to offset the debtor’s tax refund against the priority tax claim. The trial court granted relief for the IRS on the grounds, inter alia,
that the requested relief, reversal of the setoff, served no real purpose, and would not result in a material benefit of the estate.
Following that litigation, the United States Trustee objected to Applicant’s final fee application and specifically to the fees incurred for prosecuting the adversary proceeding against the IRS. The trial court reduced the disputed fees by one-half. On
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appeal, Applicant argued that he had prosecuted the IRS litigation at the request of his client, the chapter 7 trustee, and that he was being unfairly penalized for that effort, whereas his client, the trustee, was not. The Ninth Circuit rejected this argument completely:
Despite his perceived unfairness of the award, Leichty is ultimately responsible for his own actions. As the Ninth Circuit Bankruptcy Appellant Panel stated in Digesti Peck v. Kitchen Factors, Inc. (In re Kitchen Factors, Inc.), “[i]f the trustee . . . insists on pursuing collection efforts in a manner which is not cost-effective, then counsel should seek to withdraw or, at least, recommend that the client secure a second legal opinion.” 143 B.R. 560, 563 (B.A.P. 9th Cir. 1992) (citation omitted). Leichty, at the very least, acquiesced in the decision to pursue the IRS litigation. Although the record contains a declaration submitted by the Trustee in support of Leichty’s application for fees, the declaration contains no indication that Leichty ever discussed with the Trustee the potential costs and risks of undertaking the litigation. . . . Therefore, Leichty is responsible for his role in the litigation.
In re Strand, 375 F.3d at 859.
In this ruling, the court is not disallowing all of the fees requested by the Applicant in connection with the tax offset issue, only those fees incurred, as detailed above, in preparation of the Debtor’s opposition to the IRS Motion. The court appreciates that chapter 13 tax disputes generally do not get resolved without some time and effort; indeed, when the tax offset issue first arose, that is exactly what Applicant was obligated to do for his client.
However, in the court’s view, a beneficial resolution of the tax offset issue, as ultimately realized after the IRS Ruling, could have and should have been achieved through reasonable negotiation and stipulation. The IRS should not have been required to file the IRS Motion in the first place and the Debtor should not have opposed it once it was filed. In addition to the 7.0 hours disallowed herein, Applicant’s time records reveal that Applicant did spend time communicating with the IRS and working to resolve the IRS matter. Those time entries are listed as follows:
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Date Description of Services Time Requested
2/20/05 Review notices of levy, filing 0.3 and prepare letter to IRS. 3/04/05 Telephone call Connie at IRS. 0.1 3/08/05 Telephone conference with 0.1 N. Rivera and prior telephone call L. Rackley at IRS. 4/01/05 Telephone call L. Rackley at IRS. 0.1 5/04/05 Telephone call L. Rackley at 0.1 Internal Revenue Service. 5/10/05 Telephone call L. Rackley. 0.1 6/09/05 Review fax and telephone call 0.1 J. Whitten. 7/14/05 Travel to and from [court] (.6) 1.1 and appear at hearing on IRS motion and Rivera motion (.5). 10/03/05 Review Judge Lee’s Decision and 0.5 prepare letter to N. River re: same. 10/06/05 Telephone calls Enmark office/Peggy 0.6 (.2), prepare Stipulation (.3), prepare letter to N. Enmark (.1). ____ Total hours 3.1
In summary, it appears that Applicant spent approximately 3.1 hours communicating with the IRS, communicating with the Debtor regarding the IRS, and working out a beneficial resolution with the chapter 13 trustee. The court finds that these services were reasonable and necessary and those fees are included in the court’s award.
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Conclusion.
Based on the foregoing, the Application for Allowance and Payment of Interim Fees and Expenses will be approved in the amount of 40.4 hours for a total fee of $8,080 plus costs in the amount of $310.87. Applicant’s fees in the amount of $1,400 will be disallowed. The Applicant may apply his retainer in partial satisfaction of this award. The balance shall be paid through the chapter 13 trustee.
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