In re Banks

170 B.R. 942, 1994 Bankr. LEXIS 1244, 25 Bankr. Ct. Dec. (CRR) 1555, 1994 WL 448987
CourtUnited States Bankruptcy Court, E.D. Tennessee
DecidedJuly 29, 1994
DocketBankruptcy No. 93-14593
StatusPublished

This text of 170 B.R. 942 (In re Banks) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, E.D. Tennessee primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Banks, 170 B.R. 942, 1994 Bankr. LEXIS 1244, 25 Bankr. Ct. Dec. (CRR) 1555, 1994 WL 448987 (Tenn. 1994).

Opinion

MEMORANDUM

JOHN C. COOK, Bankruptcy Judge.

This Chapter 11 case is before the court for a determination of whether certain unpaid attorney fees previously awarded to the debtor-in-possession for his legal representation of Chapter 13 debtors are the property of his bankruptcy estate or whether they are excepted from that category by 11 U.S.C. § 541(a)(6) as “earnings from services performed by an individual debtor after the commencement of the case.” Having considered the evidence presented at the hearing of this matter, the arguments of counsel, and the briefs of the parties, the court is of the opinion that the unpaid attorney fees in question were fully earned when they were awarded, that they do not fall within the “earnings exception” described in § 541(a)(6), and that therefore they are property of the bankruptcy estate in this case.

I.

On December 10, 1993, Richard L. Banks, doing business as Banks & Associates, filed a petition for relief under Chapter 11 of the Bankruptcy Code. Mr. Banks is an attorney who specializes in representing debtors in consumer bankruptcy cases and who was, at the time of his filing, the attorney of record in approximately 2,400 Chapter 13 cases pending in the Eastern District of Tennessee.

The nearly universal practice for awarding attorney fees to the debtor’s counsel in Chapter 13 cases, and the practice in this district, entails the setting of an appropriate fee by the court at an early juncture in the case, [943]*943often at confirmation of the debtor’s plan. Once the fee is set, the Chapter 13 trustee begins making monthly payments to the debtor’s attorney from moneys paid into the plan by the debtor or his employer. Because Chapter 13 plans often last 50 or 60 months, an attorney’s fee of $700, for example, might be paid by an initial distribution of $200 to the attorney shortly after confirmation of the plan, followed by monthly payments of $15 for several years until the balance of the fee is paid.

The undisputed evidence in this case shows that Mr. Banks had been awarded a total of over $1,500,000 in attorney fees for the Chapter 13 cases that were pending on the date of his voluntary petition. As of that date, Mr. Banks had received only about eighty percent of those fees, and over $270,000 remained awarded but unpaid. This unpaid balance of the awarded attorney fees is the subject of this litigation. Two creditors, the United States Internal Revenue Service and the American National Bank & Trust Company of Chattanooga, contend that those unpaid fees were earned as of the date of the petition in this case, that they are ordinary accounts receivable, and that therefore they are property of the bankruptcy estate under the general provisions of 11 U.S.C. § 541. Mr. Banks, on the other hand, takes the position that the unpaid fees were unearned as of the date of his petition and that they are not property of his estate because they are specifically excepted from it by the “earnings exception” of 11 U.S.C. § 541(a)(6).

II.

The Bankruptcy Code defines property of the estate to include, among other things,

(6) Proceeds, product, offspring, rents, or profits of or from property of the estate, except such as are earnings from services performed by an individual debtor after the commencement of the case.

11 U.S.C. § 541(a)(6). Ordinarily, it is easy to determine whether earnings by a debtor are for services he has performed before or after the commencement of his case because compensation is usually considered to be earned as the work it is exchanged for is being done. If the work is done before commencement of the debtor’s case, the earnings are accounts receivable and are property of the estate. If the work is done after commencement of the case, the earnings are excepted from the estate by the operation of § 541(a)(6).

This case is unusual, however, because there is a dispute over whether the earnings in question are for services Mr. Banks rendered to his Chapter 13 clients before or after the commencement of his case. The dispute arises in part from testimony in the ease that as much as seventy percent of the work in a typical Chapter 13 case is done after confirmation, much of it by paralegals and secretaries. Mr. Eron Epstein, a local attorney testifying as an expert in Chapter 13 practice, stated that about sixty percent of the work in the average Chapter 13 is posteonfirmation work and that approximately seventy-five percent of that posteonfirmation work was routinely done by nonlawyers.1 Mr. Banks went even further and testified that seventy percent of the work in a Chapter 13 was posteonfirmation work. Thus, because a substantial portion of the work done in Chapter 13 cases is done after confirmation, Mr. Banks argues that the attorney fee awarded him at the confirmation of a given debtor’s plan must be regarded as compensation both for the work he has done prior to confirmation and for the sixty or seventy percent of the work remaining after confirmation.

An award of attorney fees to the attorney for the debtor in any bankruptcy case is governed by 11 U.S.C. § 330(a)(1), which provides that

[944]*944the court may award ... to the debtor’s attorney reasonable compensation for actual, necessary services rendered ... based on the nature, the extent, and the value of such services, the time spent on such services, and the cost of comparable services other than in a case under this title....

Because this section allows an award of attorney fees only for “actual” services rendered, bankruptcy courts appear to be limited to paying attorney fees for services that have already been performed and that can be documented according to the method established by Fed.R.Bankr.P. 2016. Rule 2016 requires the submission of “a detailed statement of (1) the services rendered, time expended and expenses incurred, and (2) the amounts requested.” Id. Notably, there is no provision in either § 330 or Rule 2016 for estimating and awarding attorney fees for services to be rendered in the future, and the use of the past tense in both the code section and the rule — “services rendered” — conveys the idea that compensation may be paid only for work already performed. Thus, Mr. Banks’ argument that fees paid in Chapter 13 cases after confirmation are really for services rendered after confirmation finds no support in either the Bankruptcy Code or Rules, according to which a bankruptcy court could not properly award a fee for unspecified, speculative services that might never be rendered in the particular case it had under consideration.

The case law in this circuit is to the same effect. In Boddy v. United States Bankruptcy Court (In re Boddy),

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Bluebook (online)
170 B.R. 942, 1994 Bankr. LEXIS 1244, 25 Bankr. Ct. Dec. (CRR) 1555, 1994 WL 448987, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-banks-tneb-1994.