FILED MAY 07 2012 1 SUSAN M SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 2 UNITED STATES BANKRUPTCY APPELLATE PANEL 3 OF THE NINTH CIRCUIT 4 5 In re: ) BAP No. AZ-11-1434-MkPaD ) 6 ANGELO ANTHONY ROMANO and ) Bk. No. 09-23446 SHARON MARIE ROMANO, ) 7 ) Debtors. ) 8 ______________________________) ) 9 RICHARDSON & RICHARDSON, P.C.,) ) 10 Appellant, ) ) 11 v. ) MEMORANDUM* ) 12 ANGELO ANTHONY ROMANO; ) SHARON MARIE ROMANO, ) 13 ) Appellees. ) 14 ) 15 Submitted Without Oral Argument On May 2, 2012** 16 Filed - May 7, 2012 17 Appeal From The United States Bankruptcy Court 18 for the District of Arizona 19 Honorable Charles G. Case, II, Bankruptcy Judge, Presiding 20 Appearances: William Richardson of Richardson & Richardson, 21 P.C. on brief for Appellant; Appellees Angelo Romano and Sharon Romano, pro se, on brief. 22 23 * This disposition is not appropriate for publication. 24 Although it may be cited for whatever persuasive value it may 25 have (see Fed. R. App. P. 32.1), it has no precedential value. See 9th Cir. BAP Rule 8013-1. 26 ** On March 6, 2012, the Panel unanimously determined that 27 oral argument was unnecessary and ordered that this appeal would be taken under submission on the briefs and on the record on 28 appeal. 1 Before: MARKELL, PAPPAS and DUNN, Bankruptcy Judges. 2 3 INTRODUCTION 4 Richardson & Richardson, P.C. (“Richardson”)1 appeals both 5 the bankruptcy court’s order on Richardson’s second and final fee 6 application and the bankruptcy court’s order denying Richardson’s 7 motion under Rule 90232 made with respect to the court’s order on 8 fees. 9 We AFFIRM. 10 FACTS 11 Angelo and Sharon Romano (“Romanos”) owned and operated a 12 trucking business. The Romanos borrowed money from a hard money 13 lender, West Fourth Avenue, LLC (“Fourth Avenue”), and in 14 exchange gave Fourth Avenue a deed of trust on the real property 15 they used in operating their trucking business. The trucking 16 business began experiencing financial difficulties, and the 17 Romanos advised Fourth Avenue that they would not be able to 18 repay the loan on its due date. The Romanos and Fourth Avenue 19 engaged in loan modification negotiations, but those negotiations 20 21 1 While the law firm is the nominal appellant herein, William 22 Richardson acted on behalf of the Richardson law firm in all matters relevant to this appeal. Accordingly, all references in 23 this memorandum to Richardson apply both to the law firm and to William Richardson. For ease of reference, this Panel will refer 24 to Richardson herein as “he” or “him” and in the possessive as “his”. 25 2 26 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and 27 all Rule references are to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. All Civil Rule references are to the 28 Federal Rules of Civil Procedure.
2 1 broke down, and Fourth Avenue commenced foreclosure proceedings. 2 The Romanos thereafter filed their chapter 11 bankruptcy case on 3 September 22, 2009. 4 The Romanos hired Richardson to file their bankruptcy case, 5 to represent them in that case, and to sue Fourth Avenue for 6 lender liability. The bankruptcy court entered an order 7 approving Richardson's employment on October 2, 2009.3 8 Richardson filed his first fee application in February 2011. 9 The first fee application sought roughly $44,000 in fees and 10 $1,000 in costs. Richardson also filed a certificate of no 11 objection, and by order entered March 15, 2011, the court granted 12 the fees on an interim basis. Soon thereafter, Richardson filed 13 3 As part of his employment application, Richardson included 14 as an exhibit a copy of a fee agreement between himself and the 15 Romanos, which the parties all signed in September 2009. Among other terms, the fee agreement required the Romanos to pay $5,000 16 as an earned upon receipt flat fee retainer, which would cover Richardson's preparation of the petition, schedules, statement of 17 financial affairs, and his initial meetings with the United States Trustee and the first meeting of creditors. But in 18 addition to the initial $5,000 payment, the fee agreement 19 required payment of "an additional $30,000 in unencumbered funds as a condition of our representation." Nothing in the record 20 indicates that the Romanos ever paid this $30,000; indeed, Ms. Romano testified that she thought that the $30,000 amount, when 21 combined with the $5,000 actually paid, was Richardson's estimate of total fees. 22 While this fee agreement term does not directly affect our 23 analysis or the resolution of this appeal, we nonetheless note that the term did not specify and left completely open when and 24 from what source the Romanos were expected to pay the additional $30,000 – a significant issue considering that the Romanos were 25 about to become Chapter 11 debtors and that all of their property 26 and future income would become property of the estate. § 1115. This confusion causes us to question the wisdom and propriety of 27 such payment terms. As shown by these facts, they have the potential to engender confusion, disputes and adverse interests, 28 especially when the timing and source of payment is unspecified.
3 1 a motion to withdraw as counsel for the Romanos, and the 2 bankruptcy court granted the withdrawal motion on April 7, 2011. 3 The Romanos did not file an objection to either the first fee 4 application or to the withdrawal motion. 5 In April 2011, Richardson filed his second and final fee 6 application seeking roughly $8,000 more in fees and $250 more in 7 costs. By this time, the Romanos already had paid Richardson 8 $21,339. That amount consisted of $6,339 paid prepetition and 9 $15,000 paid postpetition.4 10 The Romanos filed an objection to Richardson's second and 11 final fee application. In addition to their complaints about 12 specific categories of services, discussed below, the Romanos 13 generally complained that Richardson did not adequately 14 communicate with them regarding the services for which he was 15 billing them. As the Romanos put it on the first page of their 16 objection: 17 Initially, [Richardson] sent his first bill seven months after the appointment of counsel. In the 18 18 months with Richardson . . . 3 bills were received. The first bill, May 2010, I had objections to some 19 fees, which were discussed with [Richardson], [but] we never received a revised statement in which 20 [Richardson] said he removed my disputed fees. The second and third billing billed, February and March 21 2011, there was a disagreement with some fees[;] these have not been [previously] noted because we have parted 22 ways, and haven't had the opportunity to address them without objecting to his fees through the courts. I 23 had requested bills and updates numerous times. We have paid in payments over the 18 months, $15,500, 24 without knowing what we were paying for. We paid because [Richardson] always threatened us with his 25 withdrawal unless he received payment. 26 4 27 The Romanos assert that they paid $15,500 postpetition, but the $500 discrepancy is not material to our analysis and 28 resolution of this appeal.
4 1 Fee Objection (April 20, 2011) at p. 1 (emphasis added). The 2 Romanos also generally questioned the effectiveness of 3 Richardson's representation. Even though they had filed a 4 chapter 11 bankruptcy case, they pointed out that their 5 bankruptcy case had functioned more like a chapter 7 case, in 6 that they had lost by repossession or foreclosure a number of 7 items of personal and real property as a result of following 8 Richardson's advice and utilizing his services.5 9 The Romanos filed an amended objection in May 2011. In the 10 amended objection, the Romanos emphasized that they did not file 11 an objection to Richardson's first fee application because 12 Richardson did not make clear to them that such an objection was 13 necessary to contest his fees. 14 Richardson filed a reply in response to the Romanos' 15 objection. Richardson asserted that he had explained to the 16 17 5 The Romanos listed the following items of property as lost to foreclosure or repossession during their bankruptcy case: 18 19 Building on one acre of land[;] Residential Rental Property on half an acre[;] 20 One acre of vacant land[;] Boat[;] 21 Jet skies [sic][;] Ford Truck[;] 22 Still pending the possible loss [of] our home[.] 23 Fee Objection (April 20, 2011) at p. 5 (emphasis in original). 24 On this record, it is impossible for this Panel to tell with certainty whether Richardson's advice and services limited or 25 delayed the loss of the Romanos’ personal and business property, 26 or whether the Romanos would have lost the subject property regardless of Richardson's advice and services. The bankruptcy 27 court did not make any findings on these issues. In any event, our analysis and resolution of this appeal does not turn on these 28 issues.
5 1 Romanos how the fee application process worked, so the Romanos 2 should not be allowed to attack fees requested and approved as 3 part of his first interim fee application by way of their 4 objection to his second and final fee application.6 Richardson 5 further claimed: (1) that many of the Romanos' objections were 6 not specific enough to be sustained, and (2) his fees should not 7 be disallowed solely because the Romanos had sustained some 8 losses in their bankruptcy case. 9 The Romanos’ objection also disputed specific categories of 10 services. The categories challenged and the amounts Richardson 11 sought for each challenged category were as follows: 12 Conversions $ 300.00 Equilease $ 360.00 13 American General (jet ski) $ 590.00 Citizens (Ford F-150) $ 277.50 14 Litton Loan (primary home) $ 4,520.00 West 4th Ave., LLC (business property) $18,055.00 15 US Trustee meeting $ 1,890.00 Burglary $ 90.00 16 Total $24,052.50 17 18 Order Re Attorneys Fees (July 28, 2011) p. 2. As to each 19 disputed category, the parties stated their respective 20 positions.7 21 6 22 Richardson has not pressed this argument on appeal, so it has been waived. In any event, fees approved as part of an 23 interim fee award are subject to the bankruptcy court’s further consideration when it reviews the applicant’s final fee 24 application. See Leichty v. Neary (In re Strand), 375 F.3d 854, 858 (9th Cir. 2004). 25 7 26 Except for the ruling on Richardson’s services relating to the “Litton Loan,” Richardson has not challenged on appeal the 27 bankruptcy court’s findings on specific billing categories. Nonetheless, we recount the parties’ respective positions 28 (continued...)
6 1 Conversions (missed deadlines). 2 The United States Trustee twice sought to convert the 3 Romanos' bankruptcy case from chapter 11 to chapter 7, once on 4 January 26, 2010 and again on February 16, 2010. According to 5 the Romanos, the United States Trustee advocated for conversion 6 because Richardson missed deadlines for filing a proposed 7 chapter 11 plan on behalf of the Romanos. Thus the Romanos 8 asserted that Richardson should not receive compensation for 9 responding to the United States Trustee's conversion efforts. In 10 response, Richardson contended: (1) the United States Trustee 11 over-reacted to the missed filing deadlines, and (2) the Romanos 12 caused him to miss the filing deadlines because they did not 13 provide him with sufficient information to file a plan. 14 Equilease, American General and Citizens Bank. 15 Each of the above-referenced asset-based lenders 16 successfully obtained relief from stay and repossessed personal 17 property belonging to the Romanos or their trucking company. The 18 Romanos claimed that Richardson gave them bad advice regarding 19 the asset-based lenders. According to the Romanos, Richardson 20 advised them that these lenders would not likely repossess the 21 various items of personal property so long as the Romanos kept 22 current on their payments. As it turned out, the lenders did 23 repossess the personal property. Richardson contended that he 24 was not at fault for the lenders' actions. Further, he suggested 25 7 26 (...continued) regarding each disputed category because it sheds light on the 27 attorney-client relationship, the circumstances surrounding Richardson’s representation of the Romanos and the extent and 28 nature of communications between Richardson and his clients.
7 1 that he might have advised the Romanos differently if he had 2 known certain additional facts concerning the collateral, which 3 the Romanos did not disclose. For instance, according to 4 Richardson, the collateral securing Equilease’s loan (a “wheel 5 loader”) actually was not owned by the Romanos but rather was 6 owned by their trucking business (which did not file bankruptcy). 7 Consequently, the automatic stay did not apply to enjoin 8 Equilease from repossessing the wheel loader. Richardson claimed 9 that the Romanos never told him that the wheel loader was 10 property of the trucking business but rather led Richardson to 11 believe that they personally owned the wheel loader. 12 Litton Loan. 13 Litton serviced the loan secured by a deed of trust on the 14 Romanos’ home. The Romanos complained that Richardson 15 incorrectly advised them before they filed bankruptcy that they 16 would be able to continue working with Litton on a loan 17 modification after they filed bankruptcy, but that was not the 18 case. After the Romanos filed bankruptcy, Litton canceled the 19 loan modification, and the Romanos ended up having to make 20 adequate protection payments of over $6,000 per month in the 21 hopes that a new loan modification could be negotiated. 22 According to the Romanos, Richardson thereafter failed to follow 23 through on loan modification negotiations he commenced with 24 Litton, and ultimately the Romanos needed to pursue the loan 25 modification negotiations themselves. 26 The Romanos further complained that Richardson advised them 27 that the Litton Loan could be crammed down in bankruptcy, which 28 ultimately turned out to be wrong. Richardson countered that it
8 1 was not his fault the court rejected his cramdown theory. 2 Further, Richardson insisted that he did what he could to 3 negotiate a loan modification but that ultimately the parties 4 mutually agreed that the Romanos should directly handle the 5 negotiations. 6 Burglary. 7 The Romanos’ trucking business was burglarized during the 8 bankruptcy case. The Romanos claimed that the burglary had no 9 relevance to their bankruptcy case, so Richardson should not have 10 charged them for any services in relation thereto. However, 11 Richardson countered that the burglary had the potential to 12 impact the Romanos' income and therefore their ability to propose 13 a confirmable plan. Accordingly, Richardson asserted that he was 14 entitled to be compensated for the time he spent considering the 15 potential impact of the burglary on the Romanos’ bankruptcy case. 16 Reporting requirements. 17 The bankruptcy court ordered Richardson to meet with the 18 United States Trustee to discuss whether the Romanos’ operating 19 reports complied with United States Trustee guidelines. The 20 Romanos claimed that the fees associated with this meeting 21 charged by Richardson should not be compensated because: 22 (1) Richardson gave the Romanos the wrong forms to fill out; and 23 (2) Richardson initially agreed that the Romanos could meet with 24 the United States Trustee by themselves, without Richardson 25 attending, because the Romanos had been filling out the reports 26 without Richardson's involvement or assistance, but that 27 Richardson ended up attending notwithstanding his prior agreement 28 that he would not attend. On the other hand, Richardson
9 1 contended that he felt compelled to attend the meeting because 2 the court had specifically directed him to attend. 3 Dispute with Fourth Avenue. 4 By far the largest and most important category of services 5 challenged (over $18,000 of services) related to the dispute 6 between the Romanos and Fourth Avenue. Indeed, the dispute with 7 Fourth Avenue was both the impetus for and focal point of the 8 Romanos' bankruptcy case. The Romanos claimed that Richardson's 9 negotiations with Fourth Avenue were ineffective. According to 10 the Romanos, Richardson negotiated for a loan modification that 11 the Romanos could not afford to pay, even though they had told 12 Richardson that they could not afford to pay it. The Romanos 13 further claimed that Richardson pressed them to settle with 14 Fourth Avenue even though they wanted to litigate their claims 15 against Fourth Avenue. On the other hand, Richardson asserted 16 that the negotiations with Fourth Avenue failed because the 17 Romanos made inconsistent and unreasonable demands. According to 18 Richardson, at times the Romanos indicated that the most 19 important aspect of their dispute with Fourth Avenue was to 20 ensure that they could retain the real property on which they 21 operated their trucking business. Fourth Avenue’s loan was 22 secured by a deed of trust on that property. At other times, the 23 Romanos indicated that their priority was to vindicate their 24 rights as against the alleged misconduct of Fourth Avenue and its 25 principal. 26 The bankruptcy court’s rulings. 27 After holding an evidentiary hearing at which both 28 Richardson and Ms. Romano testified, the bankruptcy court issued
10 1 its order on Richardson's second and final fee application. The 2 bankruptcy court generally agreed with Richardson regarding the 3 reasonableness of his fees concerning the Fourth Avenue dispute, 4 the burglary and the asset-based lenders. However, as to the 5 other disputed categories of services, the bankruptcy court found 6 some or all of Richardson's fees to be unreasonable. In 7 particular, with respect to the Litton Loan, the bankruptcy court 8 noted that Richardson's cramdown theory was both wrong and 9 ineffectively presented. According to the bankruptcy court, even 10 if Richardson had properly presented his cramdown theory (which 11 he did not), it was settled law in the Ninth Circuit that home 12 loans cannot be modified in chapter 11, citing First Fed. Bank of 13 Cal. v. Weinstein (In re Weinstein), 227 B.R. 284, 290 n.4 (9th 14 Cir. BAP 1998). 15 Citing its independent duty to investigate the 16 reasonableness of the compensation requested, the bankruptcy 17 court voiced its own concerns with Richardson's fee applications. 18 The bankruptcy court expressed two independent concerns. The 19 court questioned both Richardson's billing practices and his 20 candor with the court. Concerning billing practices, the 21 bankruptcy court criticized Richardson for not sending the 22 Romanos monthly billing statements, and concluded that the 23 Romanos could not have meaningfully authorized Richardson's 24 services without such bills being sent: 25 Mr. Richardson testified that, as a sole practitioner, it is his standard operating procedure not to send 26 monthly bills, but when requested to give clients a running billing total verbally. The Court concludes 27 that this is a bad operating procedure. If the client doesn't know how much they are being billed and for 28 what services, how can they approve the fees? Beyond
11 1 the lack of approval, Mr. Richardson's policy is indicative of his unreasonable billing judgment which 2 led directly to many of the problems here. If the Debtors had an ongoing knowledge of the time and 3 expense of handling their case, perhaps they would have seen a need to settle or understood the added expense 4 of pursuing the West 4th Avenue matter. Instead, they were left blind as to how much time and money the 5 matter was truly costing them. Based on his lack of communication, the Court concludes that much of 6 Mr. Richardson's services were not authorized by his client and Mr. Richardson exercised unreasonable 7 billing judgment, thus justifying a . . . reduction in fees. 8 9 Order Re Attorneys Fees (July 28, 2011) p. 9. 10 As for Richardson's lack of candor, the bankruptcy court 11 found that Richardson had misled the court. According to the 12 court, Richardson made deceptive statements regarding the 13 Romanos' opportunity to object to his fee applications and 14 regarding billing statements being sent to the Romanos for review 15 and approval before Richardson filed his fee applications. In 16 essence, the bankruptcy court determined that Richardson had 17 misled the court into wrongly believing that Richardson had given 18 the Romanos a meaningful opportunity to review and question 19 Richardson's billings before he filed his fee applications. 20 Based on the Romanos' objections, the absence of meaningful 21 authorization of Richardson’s services, Richardson's unreasonable 22 billing practices, and his lack of candor, the bankruptcy court 23 limited Richardson's fee award to the amount the Romanos already 24 had paid -- $21,339 -- thereby disallowing $31,352 of the total 25 $52,991 Richardson had requested in fees and costs.8 26 8 27 Of the amount disallowed, less than $6,000 can be attributed directly to the Romanos' objections to specific 28 (continued...)
12 1 Richardson thereafter filed under Rule 90239 a motion for 2 rehearing or, alternately, to alter or amend the judgment or for 3 new trial (“Rule 9023 Motion”). According to Richardson, the 4 bankruptcy court's decision based on its independent concerns 5 denied him due process. Richardson claimed that, because the 6 court's independent concerns were raised for the first time at 7 the June 8, 2011 evidentiary hearing, the bankruptcy court should 8 have given him an opportunity to present additional argument and 9 evidence, this time specifically addressing the court's concerns 10 regarding authorization of services, billing judgment and candor. 11 In addition, Richardson disagreed with the bankruptcy 12 court's finding that the Romanos did not authorize his services. 13 As Richardson put it, Ms. Romano never explicitly testified that 14 his services were unauthorized. According to Richardson, he 15 could present substantial additional evidence regarding his 16 routine written and oral communications with the Romanos that 17 would demonstrate that they were fully aware of his activities on 18 their behalf and therefore that they had implicitly authorized 19 his services. 20 Richardson also challenged the bankruptcy court’s 21 determination that he should have prepared and delivered to the 22 8 23 (...continued) categories of services. The Romanos objected to categories in 24 which Richardson was seeking in aggregate $24,000 in fees. However, the court overruled the Romanos' objections in 25 categories totaling over $18,000 in fees. Put another way, the 26 court disallowed over $25,000 in fees based on its own independent concerns. 27 9 Rule 9023 incorporates by reference Civil Rule 59 and makes 28 it applicable in bankruptcy cases.
13 1 Romanos regular billing statements. Richardson asserted that 2 billing statements are necessarily historical and therefore had 3 no perceptible bearing on authorization of his future services. 4 Richardson also disagreed with the bankruptcy court's 5 conclusion that he did not exercise reasonable billing judgment. 6 Richardson contended that no statute, rule or guideline 7 specifically requires regular billing statements, and that the 8 frequency of billing statements is beyond the scope of the 9 billing judgment inquiry. As Richardson explained, the inquiry 10 into the fee applicant's billing judgment usually centers on 11 whether and how the applicant exercises his or her discretion to 12 charge for services that are excessive, redundant, unnecessary or 13 otherwise of questionable benefit to the estate.10 14 Richardson also disputed the bankruptcy court's finding that 15 he had misled the court. In essence, Richardson contended that, 16 when considered within the context of all the relevant facts, the 17 following statement made in his first fee application was not 18 misleading: “Applicant has forwarded copies of the attached 19 billing statement to the debtors for their consideration and 20 approval. The debtors have not objected to the fee requested.” 21 According to Richardson, the three days between the date he sent 22 his February 2011 billing statement to the Romanos and the date 23 he filed his fee application should have been sufficient for the 24 Romanos to let him know if they had any sort of problem with his 25 fees. Richardson based this belief on one prior experience he 26 10 27 Richardson also claimed that, whenever the Romanos inquired, he would orally advise them of the then-current amount 28 of total fees incurred.
14 1 had with the Romanos. According to Richardson, the one prior 2 time he sent the Romanos a billing statement, in May 2010, the 3 Romanos responded with their questions and concerns within hours. 4 Accordingly, Richardson explained, it was reasonable for him to 5 expect that the Romanos would do so again in response to his 6 February 2011 billing statement.11 7 Richardson similarly claimed that there was nothing 8 misleading about his statement in his second fee application: 9 “Applicant has forwarded copies of the attached billing statement 10 to the debtors for their consideration and approval.” The 11 bankruptcy court concluded that this statement also was deceptive 12 because, once again, the Romanos had no real opportunity to 13 consider or approve Richardson's requested fees before he filed 14 his second fee application. 15 Richardson admitted in his Rule 9023 Motion that, in light 16 of the deterioration of his relationship with the Romanos and his 17 subsequent withdrawal as counsel, he had expected the Romanos to 18 19 11 Richardson also pointed out that he was required to file a 20 separate “notice of no objection” in support of each of his fee applications. Richardson claims that this notice necessarily 21 prevented him from taking unfair advantage of the short time between his sending the February 2011 billing statement to the 22 Romanos and his filing of his first fee application. This Panel 23 disagrees with the underlying assumption implicit in this argument: that the United States Trustee guideline requiring the 24 application to include a statement regarding whether the client has reviewed and approved the applicant's fees is redundant of 25 the separate notice of no objection requirement. The two 26 requirements serve different purposes. The former focuses on whether the client has had a meaningful opportunity to review and 27 approve the fees billed, whereas the latter focuses on whether any party in interest has submitted an objection to the fee 28 application.
15 1 object to the fees requested in his second and final fee 2 application. Yet his Rule 9023 Motion made no attempt to explain 3 or justify why his second fee application spoke in terms of 4 sending the application to the Romanos for consideration and 5 approval, instead of simply stating the fact that the applicant 6 did not expect the debtors to approve the fees in light of the 7 deterioration of the attorney-client relationship. 8 Finally, Richardson challenged the bankruptcy court's 9 disallowance of his fees relating to the Litton Loan. Richardson 10 argued that the fees related to his cramdown theory only 11 consisted of one billing entry, so if the court was dissatisfied 12 with his cramdown theory, it simply should have disallowed that 13 single entry. 14 The bankruptcy court entered an order on September 14, 2011, 15 denying Richardson's Rule 9023 Motion. The bankruptcy court 16 rejected the argument that Richardson was denied due process. In 17 essence, the court determined that its dispositive concerns were 18 fundamental to and subsumed within the basic review a bankruptcy 19 court must undertake with respect to any fee application filed. 20 As a consequence, Richardson’s claim that he was caught by 21 surprise was unfounded. 22 The court also rejected Richardson's contentions regarding 23 his candor. According to the court, it had reviewed the record 24 and had found no manifest error justifying relief under Civil 25 Rule 59. 26 Finally, the bankruptcy court clarified that it had based 27 its fee application ruling on alternate grounds. On the one 28 hand, it had disallowed Richardson’s fees under the standard
16 1 criteria for reviewing the reasonableness and allowability of 2 fees under § 330(a)(3). On the other hand, as an alternate 3 ground, the court had disallowed the fees “as a sanction for the 4 conduct described.” 5 Richardson timely appealed the bankruptcy court's order on 6 his second and final fee application and its denial of his 7 Rule 9023 Motion. 8 JURISDICTION 9 The bankruptcy court had jurisdiction pursuant to 28 U.S.C. 10 §§ 1334 and 157(b)(2)(A). We have jurisdiction under 28 U.S.C. 11 § 158. 12 ISSUES 13 1. Did the bankruptcy court abuse its discretion when it 14 disallowed $31,352 of the $52,991 Richardson requested in fees 15 and costs? 16 2. Did the bankruptcy court deprive Richardson of due 17 process by not holding a second evidentiary hearing on 18 Richardson’s second and final fee application? 19 3. Did the bankruptcy court abuse its discretion by 20 disallowing Richardson’s fees as a sanction? 21 4. Did the bankruptcy court err when it ruled on the 22 reasonableness of Richardson’s fees specifically related to the 23 Litton Loan? 24 5. Did the bankruptcy court abuse its discretion when it 25 denied Richardson’s Rule 9023 Motion? 26 STANDARDS OF REVIEW 27 “We will not disturb a bankruptcy court's award of 28 attorneys' fees unless the bankruptcy court abused its discretion
17 1 or erroneously applied the law.” In re Strand, 375 F.3d at 857 2 (citations and internal quotation marks omitted). Under the 3 abuse of discretion standard of review, we first “determine de 4 novo whether the [bankruptcy] court identified the correct legal 5 rule to apply to the relief requested.” United States v. 6 Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc). And if 7 the bankruptcy court identified the correct legal rule, we then 8 determine under the clearly erroneous standard whether its 9 factual findings and its application of the facts to the relevant 10 law were: “(1) illogical, (2) implausible, or (3) without support 11 in inferences that may be drawn from the facts in the record.” 12 Id. (internal quotation marks omitted). 13 Orders denying motions to alter or amend a judgment and 14 motions for new trial also are reviewed for abuse of discretion. 15 First Ave. W. Bldg., LLC v. James (In re OneCast Media, Inc.), 16 439 F.3d 558, 561 (9th Cir. 2006); Far Out Productions, Inc. v. 17 Oskar, 247 F.3d 986, 992 (9th Cir. 2001); Clinton v. Deutsche 18 Bank Nat'l Trust Co. (In re Clinton), 449 B.R. 79, 82 (9th Cir. 19 BAP 2011). 20 Whether notice given in any particular instance was 21 sufficient to satisfy due process concerns is a mixed question of 22 fact and law that this Panel reviews de novo. See Berry v. U.S. 23 Trustee (In re Sustaita), 438 B.R. 198, 207 (9th Cir. BAP 2010) 24 (citing Demos v. Brown (In re Graves), 279 B.R. 266, 270 (9th 25 Cir. BAP 2002)). 26 DISCUSSION 27 Disallowance of fees. 28 Richardson has not challenged on appeal the bankruptcy
18 1 court’s statement of the applicable legal standard governing fee 2 applications. Moreover, we agree with the bankruptcy court’s 3 statement of the relevant law. Citing Garcia v. U.S. Trustee 4 (In re Garcia), 335 B.R. 717, 724 (9th Cir. BAP 2005), the 5 bankruptcy court identified the following factors it needed to 6 consider when determining the reasonableness of the fees 7 Richardson requested: 8 (a) Were the services authorized? (b) Were the services necessary or beneficial to the 9 administration of the estate at the time they were rendered? 10 (c) Are the services adequately documented? (d) Are the fees [requested] reasonable, taking into 11 consideration the factors set forth in section 330(a)(3)? 12 (e) In making the determination, the court must consider whether the professional exercised reasonable 13 billing judgment. 14 Id. (citing Roberts, Sheridan & Kotel, P.C. v. Bergen Brunswig 15 Drug Co. (In re Mednet), 251 B.R. 103, 108 (9th Cir. BAP 2000), 16 and In re Strand, 375 F.3d at 860). 17 Because the bankruptcy court identified the correct law to 18 apply, we next consider whether the bankruptcy court’s findings 19 of fact, and its application of those findings to the relevant 20 law, were clearly erroneous. See Hinkson, 585 F.3d at 1262. 21 Richardson, as the applicant, had the burden of proof to 22 establish that his fees were reasonable. See Law Offices of 23 David A. Boone v. Derham–Burk (In re Eliapo), 298 B.R. 392, 402 24 (9th Cir. BAP 2003), rev'd in part on other grounds, 468 F.3d 592 25 (9th Cir. 2006); see also Hensley v. Eckerhart, 461 U.S. 424, 437 26 (1983) (“Fee applicant bears the burden of establishing 27 entitlement to an award and documenting the appropriate hours 28 expended and hourly rates.”).
19 1 Richardson contends on appeal that the bankruptcy court 2 improperly imposed a requirement of regular billing statements, 3 which are not required by statute, case law or United States 4 Trustee guideline. According to Richardson, the bankruptcy 5 court’s imposition of this improper requirement directly led to 6 its findings that the Romanos did not authorize his services and 7 that Richardson’s billing practices (and hence his billing 8 judgement) were unreasonable. 9 This Panel agrees with Richardson that the bankruptcy court 10 focused on his failure to prepare and deliver to the Romanos 11 regular billing statements. But we disagree with Richardson’s 12 characterization of the court’s ruling as imposing an absolute 13 requirement on bankruptcy counsel to present debtors with regular 14 billing statements if they want to receive compensation for their 15 services. Based on our review of the record, this would not be a 16 fair reading of the bankruptcy court’s ruling. Indeed, if the 17 bankruptcy court had imposed such a requirement, this Panel would 18 have expected the bankruptcy court to deny all of Richardson’s 19 fees. But that was not what the bankruptcy court did. 20 Rather, the court was concerned about the extent and quality 21 of Richardson’s communication with the Romanos and whether the 22 Romanos had adequate information on an ongoing basis regarding 23 the cost of services Richardson already had performed to enable 24 them to give informed consent to Richardson’s further services. 25 By not providing the Romanos with regular billing statements, 26 Richardson assumed the risk that he would fail to prove by other 27 means that the Romanos gave informed consent for him to render 28 further services.
20 1 Richardson also contends that the Romanos implicitly 2 authorized his services by not questioning the services at the 3 time he performed them. Richardson points out that, because he 4 regularly communicated with them regarding their case, the 5 Romanos generally were aware of his services but that they 6 generally did not question the services as he performed them. 7 But in so arguing, Richardson demonstrates that he has 8 missed the key point of the bankruptcy court’s authorization 9 finding: that any such authorization (implicit or otherwise) was 10 meaningless unless it was based on adequate information. 11 The bankruptcy court found on the evidence presented that 12 the Romanos did not have adequate information regarding the cost 13 of services previously rendered to authorize further services. 14 Based on the same reasoning, the bankruptcy court also found that 15 both Richardson’s billing practices and his billing judgment were 16 unreasonable, because under the circumstances of this case, 17 Richardson’s billing practices did not provide the Romanos with 18 adequate information regarding the cost of services he was 19 performing on an ongoing basis. 20 While Richardson disagrees with these findings, the record 21 contains sufficient evidence to support them. It is undisputed 22 that, during the eighteen months he represented the Romanos, 23 Richardson only prepared and delivered three billing statements, 24 the first in May 2010, the second just before he filed his first 25 fee application in February 2011, and the third just before he 26 filed his second and final fee application in April 2011. In 27 addition, the Romanos’ objection and Ms. Romano’s testimony 28 reflected that the Romanos (who were relatively unsophisticated
21 1 consumers of legal services) had requested additional billing 2 statements from Richardson and had complained to him that they 3 did not know what services they were paying for. On these facts, 4 this Panel cannot say that the bankruptcy court’s authorization 5 finding and billing judgment finding were clearly erroneous. In 6 other words, in the parlance of Hinkson, we cannot say that the 7 bankruptcy court’s findings were “(1) illogical, (2) implausible, 8 or (3) without support in inferences that may be drawn from the 9 facts in the record.” Hinkson, 585 F.3d at 1262. 10 In disallowing a portion of Richardson’s fees, the 11 bankruptcy court also took into account the misleading nature of 12 some of Richardson’s statements in his first and second fee 13 application. The misleading statement from the first fee 14 application was: 15 Applicant has forwarded copies of the attached billing statement to the debtors for their consideration and 16 approval. The debtors have not objected to the fee requested. 17 18 And the misleading statement from the second fee application was: 19 Applicant has forwarded copies of the attached billing statement to the debtors for their consideration and 20 approval. 21 Richardson has admitted that he made these two statements on 22 account of the provision in the United States Trustee Guidelines 23 (“Guidelines”) directing fee applicants to include a statement in 24 the fee application regarding “Whether the person on whose behalf 25 the applicant is employed has been given the opportunity to 26 review the application and whether that person has approved the 27 requested amount.” 28 C.F.R. pt. 58, app. A, at ¶(b)(1)(v) 28 (emphasis added).
22 1 In addition, Richardson has not challenged on appeal the 2 court’s findings regarding the time elapsed between his sending 3 to the Romanos his billing statements and the filing of his fee 4 applications. As the court found, Richardson sent the Romanos 5 his February 2011 billing statement on February 14, 2011, and 6 filed his first fee application three days later, on February 17, 7 2011. The court further found that Richardson sent his April 8 2011 billing statement to the Romanos on April 4, 2011, and filed 9 his second and final fee application on that same day, less than 10 40 minutes later. 11 Richardson has offered various arguments on appeal why the 12 bankruptcy court should not have construed his Guideline-related 13 statements as misleading. With respect to the first fee 14 application, he claimed that Ms. Romano responded almost 15 immediately to his May 2010 billing statement, so it was 16 reasonable for him to conclude that three days was enough time 17 for the Romanos to let him know whether they objected to his 18 February 2011 billing statement. In addition, he represented 19 that he orally told Ms. Romano that he needed a prompt response 20 from her on the February 2011 billing statement, as he intended 21 to file a fee application in the near future. 22 As for the second fee application, he claims that he 23 expected the Romanos to object because of the deterioration of 24 his professional relationship with the Romanos. Accordingly, he 25 asserted, it was unnecessary or futile for him to wait for a 26 response from them. 27 As to both fee applications, Richardson claims he altered 28 the Guideline’s standard language so as to avoid stating an
23 1 outright falsehood to the court. 2 But Richardson’s arguments largely miss the point. The 3 focus of the Guideline (on which Richardson based his statements) 4 is the client’s opportunity to review and approve the fees 5 requested. When it read Richardson’s statements, the bankruptcy 6 court construed them to mean that Richardson, in both instances, 7 had given the Romanos a meaningful opportunity to review both 8 billing statements before he filed his fee applications. The 9 court’s construction of the statements was reasonable in light of 10 the focus of the Guideline. However, the court later learned 11 that Richardson gave the Romanos roughly two days to review the 12 February 2011 billing statement – covering roughly seventeen 13 months of services – and virtually no time at all to review the 14 second billing statement. 15 We perceive no error in the bankruptcy court’s construction 16 of Richardson’s statements or its determination, under the facts 17 presented, that Richardson did not give the Romanos a meaningful 18 opportunity to review his billing statements before he filed his 19 fee applications. Indeed, if Richardson had been striving for 20 candor with the bankruptcy court regarding the Romanos’ 21 opportunity to review his billing statements, he easily could 22 have stated precisely how much time he gave the Romanos to 23 respond. Furthermore, a completely candid statement from 24 Richardson likely would have advised the court, especially with 25 respect to the second fee application, that he expected the 26 Romanos to object to the fees requested (as Richardson later 27 admitted) in light of the breakdown of the attorney-client 28 relationship. Instead, he offered statements that attempted to
24 1 sound as much like the literal wording of the Guideline without 2 addressing the spirit of the Guideline – to advise the court 3 regarding the client’s opportunity to review and approve his 4 fees. 5 This Panel cannot conclude under these circumstances that 6 the bankruptcy court’s finding that Richardson made misleading 7 statements was clearly erroneous. Nor did the court err in 8 taking into account the misleading statements when it determined 9 the reasonableness of Richardson’s fees. In our view, the 10 statements and Richardson’s efforts to give his clients a 11 reasonable opportunity to review and approve the fees requested 12 go directly to the nature and extent of his billing judgment, one 13 of the factors this Panel identified in Garcia and Mednet as 14 pertinent to the determination of the reasonableness of fees 15 requested under § 330(a). 16 Due Process. 17 Richardson complains that he did not have advance notice of 18 the bankruptcy court’s concerns, so he could not adequately 19 address them at the June 8, 2011 evidentiary hearing. 20 Section 330(a)(1) authorizes the bankruptcy court after 21 notice and a hearing to grant compensation to estate 22 professionals. What constitutes adequate notice and opportunity 23 for hearing is a flexible concept that depends upon the 24 circumstances of the particular case. Tennant v. Rojas (In re 25 Tennant), 318 B.R. 860, 870-71 (9th Cir. BAP 2004). As the 26 Supreme Court has explained: 27 An elementary and fundamental requirement of due process in any proceeding which is to be accorded 28 finality is notice reasonably calculated, under all the
25 1 circumstances, to apprise interested parties of the pendency of the action and to afford them an 2 opportunity to present their objections. The notice must be of such nature as reasonably to convey the 3 required information and it must afford a reasonable time for those interested to make their appearance. 4 5 Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 314 6 (1950)(citations omitted); see also Mathews v. Eldridge, 424 U.S. 7 319, 333 (1976) (the “fundamental requirement of due process is 8 the opportunity to be heard at a meaningful time and in a 9 meaningful manner.”); Memphis Light, Gas & Water Div. v. Craft, 10 436 U.S. 1, 14 (1978) (“[t]he purpose of notice under the Due 11 Process Clause is to apprise the affected individual of, and 12 permit adequate preparation for, an impending hearing.”). 13 In this case, the court conducted a full evidentiary hearing 14 to decide whether and to what extent Richardson’s fee application 15 should be granted. As with hearings on most fee applications, 16 the ultimate question to be answered was the reasonableness of 17 the fees requested. Richardson has conceded that he had the 18 burden of proof to establish the reasonableness of his fees, and 19 that Garcia and Mednet set forth the relevant factors for the 20 court to consider. Yet citing In re Eliapo, 468 F.3d at 602-03, 21 he claims that due process required the court to give him advance 22 notice of the specific concerns it had regarding the 23 reasonableness of his fees. According to Richardson, the 24 bankruptcy court should have let him know in advance of the 25 June 8, 2011 evidentiary hearing that, in the court’s view, 26 Richardson had not adequately established through his papers and 27 testimony that the Romanos had authorized his services and that 28 he had exercised reasonable billing judgment.
26 1 But Richardson’s argument makes no sense. In essence, 2 Richardson contends that the bankruptcy court was required to let 3 him know in advance of the evidentiary hearing whether he had 4 presented sufficient evidence to prevail and, if not, on which 5 reasonableness factors his presentation was insufficient. Put 6 another way, Richardson claims that the bankruptcy court should 7 have given him advance notice of the reasoning behind its ruling 8 so that he could counter that reasoning with additional evidence. 9 We know of no authority construing the requirements of due 10 process so broadly, nor has Richardson pointed us to any. 11 Furthermore, Richardson cannot deny that, in advance of the 12 June 8, 2011 hearing, the Romanos had objected to his fee 13 application, in part, because they claimed he had not given them 14 adequate information regarding the costs of the services he was 15 rendering. As previously stated, the Romanos complained on the 16 first page of their opposition filed on April 20, 2011 that they 17 had paid over $15,000 to Richardson over the course of his 18 eighteen months representing them “without knowing what we were 19 paying for” even though they “had requested bills and updates 20 numerous times.” Fee Objection (April 20, 2011) at p. 1. 21 In short, the adequacy of the information Richardson gave 22 the Romanos regarding his fees – the precise question on which 23 the court ultimately focused in rendering its authorization 24 finding and its billing judgment finding – was raised by the 25 Romanos well before the June 8, 2011 evidentiary hearing. Thus, 26 in hindsight, Richardson’s failure to address that question more 27 thoroughly may have turned out to be a tactical error on his 28 part, but it was not the result of a failure of due process.
27 1 Eliapo does not help Richardson’s argument. In Eliapo, the 2 bankruptcy court denied some of the fees sought by chapter 13 3 debtor’s counsel even though no one objected to the fees and the 4 bankruptcy court held no hearing at all on the reasonableness of 5 the fees. In re Eliapo, 468 F.3d at 595. Eliapo held that the 6 bankruptcy court there should have given some advance notice and 7 some opportunity for hearing before it sua sponte disallowed some 8 of the fees requested by the debtor’s counsel. Id. at 602. At 9 the same time, Eliapo emphasized that the bankruptcy court had 10 broad discretion in deciding what amount of notice and what form 11 of hearing was sufficient under the particular circumstances 12 presented. 13 We emphasize that the notice-and-hearing definition in § 102(1) is flexible and sensitive to context. . . . So 14 long as fair notice and an opportunity to be heard are afforded, the bankruptcy court has considerable freedom 15 to fashion procedures for notice and a hearing that are “appropriate in the particular circumstances.” 16 17 Id. at 603 (quoting 11 U.S.C. § 102(1)(A)). 18 In this case, as set forth above, the Romanos raised in 19 their objection filed on April 20, 2011, the adequacy of the 20 information Richardson had given them regarding his fees – the 21 precise question on which the bankruptcy court focused when it 22 made its authorization finding and its billing judgment finding. 23 Under these circumstances, we simply cannot say that the 24 bankruptcy court violated Richardson’s due process rights by not 25 setting a second evidentiary hearing after holding a full 26 evidentiary hearing on June 8, 2011. 27 Richardson also claims that he should have been given a 28 second evidentiary hearing so that he could present evidence
28 1 showing that his statements to the court regarding the Romanos’ 2 opportunity to review and approve his fees were not misleading. 3 However, Richardson cannot establish a violation of his due 4 process rights without first establishing that he was prejudiced 5 by the alleged denial of due process. When an appellant offers 6 no evidence of prejudice, any deficiency in providing due process 7 to the appellant is harmless. Rosson v. Fitzgerald (In re 8 Rosson), 545 F.3d 764, 776 (9th Cir. 2008); City Equities 9 Anaheim, Ltd. v. Lincoln Plaza Dev. Corp. (In re City Equities 10 Anaheim, Ltd.), 22 F.3d 954, 959 (9th Cir. 1994). See also 11 People of State of Ill. ex rel. Hartigan v. Peters, 871 F.2d 12 1336, 1340 (7th Cir. 1989) (“As other courts have suggested, one 13 circumstance we may consider in evaluating the sufficiency of 14 notice is whether the alleged inadequacies in the notice 15 prejudiced the appellant.”); United Food & Commercial Workers 16 Union v. Alpha Beta Co., 736 F.2d 1371, 1382 (9th Cir. 1984) 17 (summons which specified incorrect amount of time for filing 18 answer did not require dismissal of lawsuit absent showing of 19 prejudice). 20 Here, Richardson claims that, if given the opportunity, he 21 could have shown that the statements he made in his fee 22 applications regarding the Romanos’ opportunity to review and 23 approve his fees were not actually misleading. But we already 24 have discussed above Richardson’s explanations and arguments, and 25 none of them would have altered the undisputed dispositive facts 26 that led the bankruptcy court to find Richardson’s statements 27 misleading. Consequently, because Richardson has not and cannot 28 establish any prejudice, his due process argument necessarily
29 1 fails.12 2 Fees related to the Litton Loan. 3 The bankruptcy court found that “much” of the fees 4 Richardson incurred with respect to the Litton Loan were 5 unnecessary and hence unreasonable. The court particularly noted 6 that Richardson had presented a cramdown theory that had been 7 discredited in the Ninth Circuit, and that he had presented this 8 theory in an ineffective manner. At the same time, the court 9 found that the fees Richardson incurred negotiating with Litton 10 were “not unnecessary.” 11 On appeal, Richardson has argued that because a tiny 12 fraction of the fees in this category actually were attributable 13 to his cramdown theory and most of the fees in this category 14 actually were attributable to his negotiations with Litton, “the 15 court abused its discretion in denying all fees associated with 16 the Litton matter.” Appellant’s Opening Brief (Dec. 6, 2011) at 17 pp. 21-22. 18 However, in making this argument, Richardson 19 mischaracterizes the bankruptcy court’s ruling. Contrary to 20 Richardson’s argument, the bankruptcy court never ruled that it 21 was disallowing a specific amount of fees attributable to the 22 Litton Loan. Rather, the bankruptcy court exercised its 23 discretion to determine, based on all of its findings, that it 24 12 As set forth above, the bankruptcy court alternately 25 disallowed Richardson’s fees as a sanction. In light of our 26 upholding the bankruptcy court’s disallowance of Richardson’s fees based on their unreasonableness and our rejection of 27 Richardson’s due process argument, we do not need to review the bankruptcy court’s alternate ground for disallowing Richardson’s 28 fees.
30 1 was appropriate to limit Richardson’s total fee award to the 2 amount the Romanos already had paid him. 3 Richardson points us to nothing in the record from which we 4 could conclude that the bankruptcy court only took into account 5 its finding regarding Richardson’s cramdown theory and ignored 6 its finding regarding Richardson’s negotiations with Litton. 7 Moreover, Richardson did not challenge either in the 8 bankruptcy court or on appeal the bankruptcy court’s calculation 9 of the dollar amount of his fee award, so he has waived that 10 issue. See Golden v. Chicago Title Ins. Co. (In re Choo), 11 273 B.R. 608, 613 (9th Cir. BAP 2002); Branam v. Crowder 12 (In re Branam), 226 B.R. 45, 55 (9th Cir. BAP 1998), aff'd, 13 205 F.3d 1350 (table) (9th Cir. 1999). 14 The Ninth Circuit Court of Appeals has held that trial 15 courts may rely upon their own expertise in determining the 16 reasonableness of fees and that trial courts are entitled to 17 deference in making an expert assessment of the necessity of 18 services provided. See Ingram v. Oroudjian, 647 F.3d 925, 927-28 19 (9th Cir. 2011). 20 Put another way, under the abuse of discretion standard, 21 unless an appellant demonstrates that the bankruptcy court’s 22 reasonableness determination was illogical, implausible or 23 without support in inferences that may be drawn from facts in the 24 record, we cannot and will not overturn the bankruptcy court’s 25 expert assessment of the necessity and reasonableness of the 26 appellant’s fees. Here, Richardson’s reference to the court’s 27 statement regarding his cramdown theory does not by itself 28 demonstrate any of the above-referenced criteria that would
31 1 permit us to overturn the court’s reasonableness finding. 2 Richardson has not pointed us to any other grounds for 3 overturning this finding, so we will not disturb it. 4 Rule 9023 Motion. 5 In order to obtain relief under Rule 9023, Richardson needed 6 to demonstrate: “(1) manifest error of fact; (2) manifest error 7 of law; or (3) newly discovered evidence.” Hansen v. Moore 8 (In re Hansen), 368 B.R. 868, 878 (9th Cir. BAP 2007). 9 Richardson’s Rule 9023 argument raises the same points he 10 already raised in support of his other arguments on appeal. In 11 particular, he has asserted in support of his Rule 9023 argument: 12 (1) that the Romanos had adequate information regarding the cost 13 of his services on an ongoing basis, and (2) that no statute, 14 rule, case law or Guideline required him to give the Romanos 15 regular billing statements as a prerequisite to his claiming 16 compensation under § 330(a). 17 This Panel has considered and rejected these same assertions 18 in addressing Richardson’s claim that the bankruptcy court 19 erroneously disallowed his fees on reasonableness grounds. For 20 the same reasons we rejected these assertions, they also are 21 insufficient to establish that the bankruptcy court abused its 22 discretion in denying Richardson’s Rule 9023 Motion. 23 CONCLUSION 24 For the reasons set forth above, we AFFIRM the bankruptcy 25 court’s order on Richardson’s second and final fee application 26 and its order denying Richardson’s Rule 9023 Motion. 27 28