Compensation Professional

COMPENSATION OF PROFESSIONALS

1. Bonuses

2. Chapter 7

3. Chapter 13

4. §329, Rule 2014, Rule 2016 and Disclosure

5. §326

6. §328

7. §330 and Lodestar Approach

8. §503(b)

9. Postpetition attorney fees– § § 502(b) and 506(b)

10. §506(c)

11. §726(b)(5)

12. Time Sheets

13. Attorney fees under state law or federal bankruptcy law

14. Retainers

15. Carve-outs

16. Misc

1. Bonuses

In re Meronk, 249 B.R. 208 (9th Cir. B.A.P. 2000), aff’d, 24 Fed.Appx. 737 (9th Cir. 2001)

Failure to make specific findings justifying bonus and failure to produce evidence that

standard hourly rate did not fully compensate law firm required reversal of bonus award. Because

firm declined a contingent fee arrangement that would have given them the amount they sought

with bonus, and assured everyone that the hourly rate arrangement would result in less fees, they

were judicially estopped from seeking more. The fact that the estate realized a surplus of

$400,000 was immaterial.

In re Cedic Development Company, 219 F.3d 1115 (9th Cir. 2000)

$10,000 enhancement of debtor’s attorney’s fee was appropriate, where the firm’s rates did

not take into account the results obtained or the risk of nonpayment.

In re Music Merchants, Inc., 208 B.R. 944 (9th Cir. B.A.P. 1997)

Creditors’ committee attorney has no right to receive enhanced compensation based on

delay in bankruptcy court’s approval of payment

.

In re Manoa Finance Company, Inc., 853 F.2d 687 (9th Cir. 1988)

Blum/Delaware standard does allow for bonuses.

2. Chapter 7

In re Jastrem, 253 F.3d 438 (9th Cir. 2001)

In a chapter 7 bankruptcy in which the debtor is paying the filing fee by installments, an

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obligation for pre-petition legal services is subject to automatic stay and discharge.

In re Hines, 147 F.3d 1185 (9th Cir. 1998)

In Chapter 7 bankruptcy proceedings, automatic stay does not apply to attorney’s efforts

to collect previously agreed upon fees for postpetition services on behalf of debtor.

3. Chapter 13

In re Eliapo, 468 F.3d 592 (9th Cir. 2006)

1) No-look presumptive fees do not violate 11 U.S.C. § 330; 2) the bankruptcy court’s

criteria for awarding additional fees beyond the no-look fee did not violate § 330; and 3) the

bankruptcy court did not abuse it’s discretion in ruling on fees without a hearing.

4. § 329, Rule 2014, Rule 2016 and Disclosure

In re Triple Star Welding, 324 B.R. 778 (9th Cir. BAP 2005)

Chapter 11 debtor’s attorney who failed to file a Rule 2014 statement of disinterestedness

was not entitled to any fees absent full disclosure. The court had no discretion to waive this

requirement. Furthermore, the court should have consider potential conflicts and receipt of a

possible preference, which did not need to be addressed through an adversary proceeding.

In re Basham, 208 B.R. 926 (9th Cir. B.A.P. 1997), aff’d by In re Byrne, 152 F.3d 924, (9th Cir.

1998)

No abuse of discretion in granting motion to disgorge attorneys fees where debtors’

counsel failed to timely comply with requirements regarding disclosure of attorney compensation.

In re Monument Auto Detail, Inc., 226 B.R. 219 (9th Cir. B.A.P. 1998)

Law firm cannot receive payment for services to Chapter 11 debtor when firm fails to

obtain bankruptcy court authorization for employment.

In re Lewis, 113 F.3d 1040 (9th Cir. 1997)

Fees of debtor’s attorney need not be excessive to support disgorgement order for

violation of disclosure and reporting requirements.

In re Park-Helena Corp., 63 F.3d 877 (9th Cir. 1995), cert. denied by Neber & Starrett, Inc. v.

Chartwell Financial Corporation, 516 U.S. 1049 (1996)

Failure to provide details of retainer provided by debtor’s president results in denying fee

request – 2016(b)

Ivan W. Halperin v. Occidental Fin. Group, Inc. (In re Occidental Fin. Group, Inc.), 40 F.3d 1059

(9th Cir. 1994).

An attorney’s undisclosed representation of the principals of a bankruptcy debtor

corporation created a conflict of interest that warranted the disgorgement of a prepetition

attorney’s fee when there was no valid explanation for failure to obtain the court’s approval in

advance. The attorney’s conflict of interest was plain and substantial and his failure to disclose

this dual representation deprived him of any equitable claim to a retention of the fees for pre86

petition services.

In re Glad, 98 B.R. 976 (9th Cir. B.A.P. 1989)

§ 329 required return of funds from nonlawyer where services were worthless.

5. §326

In re Jenkins, 130 F.3d 1335 (9th Cir. 1997)

§ 326(a) limits both trustee’s and his paralegal’s compensation

In re Financial Corporation of America, 114 B.R. 221 (9th Cir. B.A.P. 1990), aff’d and remanded,

946 F.2d 689 (9th Cir. 1991).

In a case that is converted from Chapter 11 to Chapter 7, the fees to be awarded to the two

trustees are independent and the funds turned over to the Chapter 7 trustee are included in

calculating the § 326(a) maximum on the Chapter 11 trustee’s compensation. Failure to include

such funds would undermine the independence of the two fees and blur the differences in the

functions performed by the two trustees. However, the trial court still retains discretion to set the

Chapter 11 or Chapter 7 trustee’s fee, subject to the statutory maximum amount. Where, as in

this case, the same individual is both the Chapter 7 trustee and the Chapter 11 trustee, the court

may exercise discretion to award less than the statutory minimum set forth in Code § 326(a).

6. §328

In re Circle K Corp., 279 F.3d 669 (9th Cir. 2002), cert. denied, 536 U.S. 959(2002)

“…[U]nless a professional’s retention application unambiguously specifies that it seeks

approval under § 328, it is subject to review under § 330.”

In re Reimers, 972 F.2d 1127 (9th Cir. 1992)

Standard for altering court approved contingent fee is where original terms appear “to

have been improvident in light of developments not capable of being anticipated at the time of the

fixing of such terms and conditions.”

In re Knudsen Corporation, 84 B.R. 668 (9th Cir. B.A.P. 1998)

Order permitting payment of professionals each month without prior court approval of

billing statements was permissible.

7. §330

In re Garcia, 335 B.R. 717 (9th Cir. BAP 2005)

Fees of counsel for trustee for getting appointed and assisting in sale of real estate were

properly denied, since they involved tasks the trustee was charged with performing. Disallowance

of all fees for preparation of a stipulation and mutual release and for preparing a fee application

was an abuse of discretion.

In re Strand, 375 F.3d 854 (9th Cir. 2004)

1. Interim fee awards are always subject to modification; 2. Fees of $19, 065 for counsel

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for the chapter 7 trustee properly were cut in half, where the estate would have received a

maximum of $9000 to be divided between two creditors whose claims were nondischargeable.

In re Eliapo, 298 B.R. 392 (9th Cir. B.A.P. 2003)

The two-step process for awarding fees, whereby the judge first determined whether the

services rendered were beyond what was customary in a chapter 13 case under the Northern

District of California guidelines, and then determined what was appropriate under the lodestar

approach, was in keeping with § 330.

In re Smith, 305 F.3d 1078 (9th Cir. 2002), cert. denied, 538 U.S. 1032 (2003)

Test under § 330(a)(1) is whether services were reasonably likely to provide identifiable,

tangible and material benefit to the estate, even if such benefits were not actually realized.

In re B.U.M. Intl., Inc. 229 F.3d 824 (9th Cir. 2000)

Financial consultant whose retention was only conditionally approved, subject to court

approval of fees and costs, was not subject to § 328. Court’s denial of all fees under § 330 was

justified, where the consultant was found to be working on behalf of a principal, rather than the

debtor.

In re Mednet, 251 B.R. 103 (9th Cir. B.A.P. 2000)

Test under § 330(a) is whether services rendered were reasonably likely to benefit the

estate, not, as the Fifth Circuit has held, whether the services materially benefitted the estate.

In re Auto Parts Club, Inc., 211 B.R. 29 (9th Cir. B.A.P. 1997)

Law firm representing committee of creditors in bankruptcy case performed unnecessary

services when it failed to scale back its efforts after decision to sell was made.

“Lobel failed to scale back its services once it became reasonably obvious that unsecured

creditors would not receive a distribution. However, the court did not make sufficient findings

regarding why Lobel should receive no compensation for work performed after the decision to

sell was made, or why Lobel’s fees should be reduced for services performed prior to the decision

to sell. We vacate and remand in order the for the court to make appropriate findings regarding

the amount of the fee award.

In re Roderick Timber Co., 185 B.R. 601 (9th Cir. B.A.P. 1995)

Trustee time must be kept separately from attorney time where trustee serves as both

(court says time sheets required from trustee in all cases).

In re Specialty Plywood, Inc., 166 B.R. 153 (9th Cir. B.A.P. 1994)

1. Advertising expenses for other clients in auction discounted.

2. Auctioneer only entitled to compensation pro rata with other administrative claimants.

3. Litigated issues as to fees were federal bankruptcy issues not subject to a contractual

fee provision.

4. Legal fees for pursuing application were not expenses under § 330(a). Auctioneer who

was hired to sell Chapter 11 debtor’s assets was not entitled to reimbursement, as "actual,

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necessary expense," of the legal fees that it incurred in defending its fee before bankruptcy court;

such legal fees were not required to accomplish the task for which auctioneer was hired, and

amount of legal fees sought was based upon estimation and was not tied to auctioneer’s actual

expenses.

In re Dutta, 175 B.R. 41 (9th Cir. B.A.P. 1994)

Lumping and hourly rate discussed.

While a trial court need not necessarily explain its analysis in terms of elaborate

mathematical calculations, for example, it must provide sufficient insight into its exercise of

discretion to allow an appellate court to exercise its reviewing function. In the absence of such a

sufficient explanation, the fee award must be remanded to provide such an explanation.

D’Emanuele, 904 F.2d, 1379, 1385 (citing Cunningham v. County of Los Angeles, 879 F. 2d 481

(9th Cir. 1988), cert. denied, 493 U.S. 1035 (1990)).

In re Kitchen Factors, Inc., 143 B.R. 560 (9th B.A.P. 1992)

Where attorney spent 12000 to receive 12000, it was not error for the bankruptcy court to

vary from the lodestar and award a percentage of the recovery

Lodestar the primary but not exclusive method for determining fees. Attorney must seek

effort to reasonably expected recovery, not the potential recovery.

Unsecured Creditors’ Committee v. Puget Sound Plywood, Inc., 924 F.2d 955 (9th Cir. 1991)

Attorney must consider maximum probable recovery in a given situation and must balance

probable benefits with probable costs.

8. §503(b)

In re Wind N’ Wave, 509 F.3d 938 (9th Cir. 2007)

“. . .[C]reditors who receive compensation under 503(b)(4) should also be compensated

for costs incurred in litigating a fee award, so long as the services meet the § 503(b)(4)

requirements and the case “exemplifies a ‘set of circumstances’ where litigation was ‘necessary’”.

. . .”

In re Sedona Institute, 220 B.R. 74 (9th Cir. B.A.P. 1998)

Creditors need not show independent allowable expenses under § 503(b)(3) to recover

attorney’s fees and costs for motion to appoint trustee or examiner with expanded powers under §

503(b)(4)

9. Postpetition attorney fees– § § 502(b) and 506(b)

In re Hoopai, 581 F.3d 1090, 1098- (9th Cir. 2009)

1. § 506(b) “entitles oversecured creditors to enforce contractual attorneys’ fees

provisions and preempts state law on attorneys’ fees.”

2. “. . .§ 506(b) governs fees only “until the confirmation or effective date of the plan.”

The lender was not entitled to fees post-confirmation, because it was not the “prevailing party” as

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to the principal issue in dispute.

Travelers Cas. & Sur. Co. of Am. v. Pacific Gas & Electric Co., 549 U.S. 443 , 127 S.Ct. 1199,

167 L.Ed.2d 178 (2007)

Disallowance of postpetition attorney fees on the grounds that the issues were not related

to the bankruptcy was error. Court declines to consider whether § 506(b) would require a

different result based on the creditor’s unsecured status.

In re SNTL Corp., 380 B.R. 204 (9th Cir. BAP 2007)

Attorneys fees arising out of a prepetition contract but incurred postpetition are allowable

under the broad definition of claim.

In re Karmai, 316 B.R. 544 (9th Cir. B.A.P. 2004)

Mortgage lienholder entitled to attorney fees under § 506(b), regardless of § 506(c). Issue

of whether the right to attorney fees was provided for in the loan agreements was waived by the

debtor, since it wasn’t raised in the bankruptcy court.

In re Atwood, 293 B.R. 227 (9th Cir. B.A.P. 2003)

Attorney fees under § 506(b) may be sought by way of a proof of claim, as opposed to an

application under Bankruptcy Rule 2016, but the proof of claim must establish the reasonableness

of the fees.

In re Connolly, 238 B.R. 475 (9th Cir. B.A.P. 1999)

Attorney’s fee provision in security agreement did not serve as ground for awarding fees

and costs to over secured creditor following its successful defense of adversary preference

proceeding. §506(b).

In re Kord Enterprises II, 139 F.3d 684 (9th Cir. 1998) – § 506(b)

Under Bankruptcy Code, award of attorney fees to over secured creditor is not prohibited

for issues peculiar to bankruptcy.

In re Alpine Group, Inc., 151 B.R. 931 (9th Cir. B.A.P. 1993)

1. In Salazar, this Panel articulated four elements in order to recover attorney’s fees under

§ 506(b): (1) there is an allowed secured claim, (2) the creditor is over secured, (3) the fees are

reasonable under the circumstances, and (4) the fees are provided for under the agreement

2. Secured creditor’s status not determined for all purposes as of time of filing. Here,

question of whether it was over secured should have been determined as of sale.

In re Southeast Company, 868 F.2d 335 (9th Cir. 1989)

§ 506(b) fees need not be paid out immediately, but may be added to principal.

10. §506(c)

In re Debbie Reynolds Hotel and Casino, Inc., 255 F.3d 1061 (9th Cir. 2001)

1. Postpetition lender had no standing to object to $50,000 payment to debtor-in90

possession’s counsel out of proceeds of sale agreed to by another secured creditor;

2. Under 506(c), the party that has rendered a benefit to the secured creditor is properly

reimbursed for that benefit out of secured collateral.

11. §726(b)(5)

In re Riverside-Linden Investment Co., 945 F.2d 320 (9th Cir. 1991)

Counsel for trustee not entitled to attorneys’ fees charged in connection with trustee’

excessive investigation of creditor

Denial of attorneys’ fees in opposing objections to final fee application for winding up

estate property disallowed; interest accrues from date of allowance

1. No cost benefit to investigating unsecured claim where estate was solvent and partners

didn’t object

2. Investigation into partners’ assets unnecessary, since the partnership was solvent

12. Time Sheets

In re Mortgage & Realty Trust, 123 B.R. 626 (Bankr. C.D. Cal. 1991)

Investment bankers not entitled to indemnification or bonuses; must keep time sheets.

13. Attorney fees under state law or federal bankruptcy law

In re Deroche, 434 F.3d 1188 (9th Cir. 2006)

Debtor’s counsel not entitled to attorney’s fees in opposing Arizona Industrial

Commission’s priority claim, since only substantive bankruptcy law was involved in the action.

In re Hassan Imports Partnership, 256 B.R. 916 (9th Cir. B.A.P. 2000)

Debtor was not entitled to attorney fees under CCP § 1717, since the dispute in question

was not an action on a promissory note, but an action on confirmation of a plan, which is

governed by federal bankruptcy law.

In re Rothery, 200 B.R. 644 (9th Cir. B.A.P. 1996)

Action to avoid fraudulent transfer was not contract action and attorney’s fee was

therefore not warranted under state statute

In re Job, 198 B.R. 763 (9th Cir. B.A.P. 1996), rev’d in part; vacated in part by In re Job, 117

F.3d 1425 (9th Cir. 1997).

Pursuant to the California Supreme Court’s recent decision in Trope v. Trope, we reverse

the bankruptcy court’s order awarding defendant Albertini attorney’s fees for representation of

himself. We affirm the bankruptcy court’s order as to costs.

3250 Wilshire Boulevard Building v. W.R. Grace & Co., 990 F.2d 487 (9th Cir. 1993)

Where attorney’s fees are not recoverable for a non-contract action under Cal. Civ. Code §

1717, they may nonetheless be recoverable under Cal. Code of Civ. P. § 1021, which permits

attorney’s fees agreements, but contains no restriction as to the nature of the lawsuits for which

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such fees may be recovered. “We conclude, therefore, that California law permits recovery of

attorney’s fees by agreement, for tort as well as contract actions.”

California Civil Code § 1717, however, is not the only statute governing the recoverability

of attorney’s fees by agreement. Indeed, the district court specifically relied on California Code

of Civil Procedure § 1021 when it awarded attorney’s fees to MetLife. The section provides:

Except as attorney’s fees are specifically provided for by statute, the measure and mode

of compensation of attorneys and counselors at law is left to the agreement, express or implied,

of the parties; but parties to actions or proceedings are entitled to their costs, as hereinafter

provided.

Cal. Civ. Pro. Code § 1021 (West Supp. 1993). This statute permits attorney’s fees agreements,

but contains no restriction as to the nature of the lawsuits for which such fees may be recovered.

Several recent California cases have underscored this view, holding that where attorney’s fees are

not recoverable for a non-contract action under section 1717, they may nonetheless be

recoverable under section 1021. Lerner v. Ward, 16 Cal. Rptr. 2d 486, 489 (Ct. App. 1993);

Xuereb v. Marcus & Millichap, Inc., 5 Cal. Rptr. 2d 154, 157 (Ct. App. 1992), rev. denied, 1992

Cal. LEXIS 2447 (Cal. 1992). We conclude, therefore, that California law permits recovery of

attorney’s fees by agreement, for tort as well as contract actions.

14. Retainers

In re Dick Cepek, Inc., 339 B.R. 730 (9th Cir. BAP 2006)

A bankruptcy court cannot force chapter 11 debtor’s counsel to disgorge fees drawn from

a prepetition retainer in which it holds a security interest to equalize the distribution of all chapter

11 administrative claimants under § 726(b). The case was remanded, however, to determine

whether counsel in fact had a security interest in the retainer.

15. Carve-outs

In re Cooper Commons LLC, 512 F.3d 533 (9th Cir. 2008)

Counsel for former debtor-in-possession was not entitled to compensation from a carveout

negotiated by chapter 11 trustee for himself and his professionals, where the carve

-

out did not

include debtor-in-possession counsel, and debtor-in-possession counsel had previously waived

any entitlement to a carve-out.

16. Misc.

In re Tredinnick, 264 B.R. 573 (9th Cir. B.A.P. 2001)

Debt arising from postpetition legal services by paralegal based on a prepetition contract

with the debtor are not discharged

.

In re Sanchez

,

241 F.3d 1148 (9th Cir. 2001)

Debtor’s attorney’s collection of fee for postpetition services did not violate automatic stay

where attorney had no reason to know bankruptcy court would determine fee was excessive.

Renfrow v. Draper, 232 F.3d 688 (9th Cir. 2000)

“…[I]f a divorce decree provides for the payment of attorney’s fees, and state law issues

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are litigated in the bankruptcy proceedings, attorney’s fees are available, but only to the extent

that they were incurred litigating the state law issues….Ms. Renfrow is entitled to recover the

attorney’s fees she has incurred in litigating the validity and the amount of Mr. Draper’s debts in

the bankruptcy proceeding.” She’s also entitled to the attorney’s fees she incurred in the state

court proceedings before the bankruptcy was filed, and to reasonable costs in both the bankruptcy

and state court action.

In re Elias, 188 F.3d 1160 (9th Cir. 1999)

The court of appeals affirmed a decision of the Bankruptcy Appeals Board. The court held

that a bankruptcy court does not abuse its discretion in declining to decide a post-dismissal

motion to enforce a fee agreement between a debtor and her attorney.

In re LCO Enterprises, Inc., 105 F.3d 665 (9th Cir. 1997)

Attorney’s fees properly denied to prevailing litigant defending against trustee’s

designation of pre-petition lease payments as preferential transfers

In re Biggar, 110 F.3d 685 (9th Cir. 1997), as amended 5/6/97

Installment contract for legal services that calls for post-petition payments is

dischargeable in bankruptcy

In re Lazar, 83 F.3d 306 (9th Cir. 1996)

Court abuses its discretion by subordinating fees of bankruptcy debtors’ counsel to claims

of examiner and examiner’s accountants.

S.E.C. v. Interlink Data Network of Los Angeles, Inc., 77 F.3d 1201 (9th Cir. 1996)

Advance deposit for future work was not earned on receipt, but was in the nature of a

security retainer.

In re CIC Investment Corp., 192 B.R. 549 (9th Cir. B.A.P. 1996)

Panel holds that the bankruptcy court may, in its discretion, award compensation for

services rendered up to the date the employment order was reversed. However, the court must

determine whether counsel’s lack of disinterest impaired its representation of the estate such that

compensation should be reduced or denied.

In re Sandoval, 186 B.R. 490 (9th Cir. B.A.P. 1995)

Individual attorney who did not directly receive the fee may be ordered to disgorge for

incompetence.

First Interstate Bank of Nevada v. CIC Inv. Corp. (In re CIC Inv. Corp.), 175 B.R. 52 (9th Cir.

B.A.P. 1994)

Where a law firm had a secured claim against the chapter 11 debtor in possession, it was

not disinterested and, therefore, was not qualified to serve as general counsel for the debtor in

possession. Bankruptcy courts cannot use equitable principles to disregard unambiguous

statutory language.

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In re Travel Headquarters, Inc., 140 B.R. 260 (9th B.A.P. 1992)

Bankruptcy court acted within discretion in awarding all fees to successor trustee because

of administrative difficulties left by first trustee even though first trustee collected a lot of the

money

In re Bybee, 945 F.2d 309 (9th Cir. 1991)

Attorney fees awarded to prevailing party where state law allowed them (fraudulent

conveyance counts).

In re Milton Poulos, Inc., 947 F.2d 1351 (9th Cir. 1991)

Attorneys who generate PACA trust funds are entitled to attorney fees out of the

“common fund.”

In re Marquam Investment Corp., 942 F.2d 1462 (9th Cir. 1991)

Insider to corporation that had been dodging judgment for 11 years donated its legal

services, where no time-sheets, bills, etc. sent to debtor

In re Shirley, 134 B.R. 940 (9th Cir. B.A.P. 1992)

Attorney who was never appointed to represent debtor in possession and whose fees were

denied cannot sue debtor in state court.

In re Riverside-Linden Inv. Co., 945 F.2d 320 (9th Cir. 1991)

Denial of attorney’s fees incurred in opposing objections to final fee application for winding up

estate properly disallowed; interest accrues from date of allowance; counsel for trustee not

entitled to attorney’s fees charged in connection with trustee’s excessive investigation of creditor.

In re Alcala, 918 F.2d 99 (9th Cir. 1990)

Attorney not employed by bankruptcy trustee could not recover fee for alleged postpetition

services concerning a legal claim that was property of the bankruptcy estate; debtor

attorney may be compensated only if services are rendered to estate; no attorney lien under

California state law.

In re Johnson, 756 F.2d 738, 741 (9th Cir. 1985), cert. denied, 474 U.S. 828 (1985)

Attorney fees normally not recoverable in absence of statute.

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